<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HANDEX CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CURTIS LEE SMITH, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $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.*
Not Applicable
(4) Proposed maximum aggregate value of transaction:
$30,511,000.00
(5) Total fee paid:
$6,103.00
[X] Fee paid previously with preliminary materials.
[ ] 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:
- ---------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
================================================================================
<PAGE> 2
[HANDEX LOGO]
HANDEX CORPORATION, 500 Campus Drive, Morganville, New Jersey 07751
DECEMBER 3, 1996
To Our Stockholders:
You are cordially invited to attend a special meeting of stockholders (the
"Special Meeting") of Handex Corporation ("Handex" or the "Company") to be held
at the Company's headquarters, 500 Campus Drive, Morganville, New Jersey 07751
at 4:00 p.m., local time on Friday, December 20, 1996.
At this important meeting, you will be asked to consider and vote upon the
approval of a Stock Purchase Agreement, dated November 4, 1996, by and between
Handex and ECB, Inc., a Florida corporation ("ECB") (the "Agreement") and
consummation of the transactions contemplated therein, pursuant to which Handex
will sell all of the issued and outstanding shares (the "Shares") of capital
stock of its wholly-owned subsidiary, Handex Environmental, Inc., a Delaware
corporation ("Handex Environmental") to ECB upon the terms and for the
consideration set forth in the Agreement. You also will be asked to consider and
act upon a related proposal to amend the Company's Certificate of Incorporation
to change the Company's name to "New Horizons Worldwide, Inc," subject to
consummation of the transactions contemplated by the Agreement.
The affirmative vote of the holders of a majority of the shares of Handex
Common Stock entitled to vote at the Special Meeting is required for approval of
the Agreement and the proposed amendment to the Company's Certificate of
Incorporation.
Enclosed are the (i) Notice of Special Meeting, (ii) Proxy Statement, and
(iii) Proxy for the Special Meeting. The Proxy Statement describes in more
detail the Agreement. Please give this information your careful attention.
The Board of Directors has unanimously approved and adopted (i) the
Agreement and consummation of the transactions contemplated therein, and (ii)
the amendment to the Company's Certificate of Incorporation, subject to the
consummation of the transactions contemplated by the Agreement, and unanimously
recommends that you vote FOR approval of the Agreement and FOR the amendment to
the Company's Certificate of Incorporation.
In view of the importance of the action to be taken, we urge you to
complete, sign, and date the enclosed Proxy and to return it promptly in the
enclosed envelope, whether or not you plan to attend the Special Meeting (if you
attend the Special Meeting, you may vote in person, even if you previously
returned your Proxy).
We look forward to seeing you at the Special Meeting.
Sincerely,
Curtis Lee Smith, Jr.
Chairman and Chief Executive Officer
<PAGE> 3
HANDEX CORPORATION
500 Campus Drive
Morganville, NJ 07751
------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AT 4:00 P.M. ON DECEMBER 20, 1996
------------------
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Special
Meeting") of Handex Corporation ("Handex" or the "Company") will be held at the
Company's headquarters, 500 Campus Drive, Morganville, New Jersey 07751, on
December 20, 1996, at 4:00 p.m., local time, for the following purposes:
1. To consider and act upon a proposal to authorize, approve and adopt
a Stock Purchase Agreement, dated November 4, 1996, by and between Handex
and ECB, Inc., a Florida corporation ("ECB" or "Buyer") (the "Agreement")
pursuant to which Handex will sell all of the issued and outstanding shares
of capital stock of Handex Environmental, Inc., a Delaware corporation
("Handex Environmental") to ECB upon the terms and for the consideration
set forth in the Agreement.
2. To consider and act upon a proposal to amend the provisions of
Article First of the Company's Certificate of Incorporation to change the
Company's corporate name from "Handex Corporation" to "New Horizons
Worldwide, Inc." (the "Amendment"), subject to consummation of the
transactions contemplated by the Agreement.
3. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements of the Special
Meeting.
Holders of Common Stock of record at the close of business on November 15,
1996 are entitled to receive notice of and to vote at the Special Meeting or any
adjournments or postponements thereof. Approval of each of the Agreement and the
Amendment requires the affirmative vote of the holders of a majority of the
outstanding shares of Handex Common Stock entitled to vote at the Special
Meeting.
THE BOARD OF DIRECTORS OF HANDEX UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR APPROVAL OF THE AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY AND FOR THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO CHANGE THE COMPANY'S NAME TO "NEW HORIZONS WORLDWIDE, INC."
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Stuart O. Smith
STUART O. SMITH
Secretary
Morganville, New Jersey
December 3, 1996
<PAGE> 4
TABLE OF CONTENTS
PAGE
INTRODUCTION............................................................... 1
AVAILABLE INFORMATION...................................................... 2
SUMMARY.................................................................... 3
The Special Meeting...................................................... 3
The Agreement and the Sale............................................... 3
Consideration to be Received by the Company; Use of Proceeds............. 3
Required Vote............................................................ 4
The Closing.............................................................. 4
Recommendation of the Board of Directors................................. 4
Opinion of Financial Advisor............................................. 4
Conditions to the Closing................................................ 4
Termination Fee and Expense Reimbursement Provisions..................... 5
Certain Federal Income Tax Consequences of the Transaction............... 5
Appraisal Rights......................................................... 5
SELECTED CONSOLIDATED FINANCIAL DATA....................................... 6
SELECTED PRO FORMA INCOME STATEMENT DATA................................... 7
THE SPECIAL MEETING........................................................ 8
Time, Date and Place..................................................... 8
Business to be Conducted................................................. 8
Proxies: Voting and Revocation........................................... 8
Vote Required and Record Date............................................ 8
Other Matters............................................................ 8
THE PROPOSED SALE OF HANDEX ENVIRONMENTAL.................................. 9
Background and Reasons for the Sale...................................... 9
Description of the Agreement and the Sale................................ 16
Description of the Securities to be Received by the Company.............. 19
Other Ancillary Agreements............................................... 22
Closing Date............................................................. 24
Expected Loss from Transaction; Certain Federal Income Tax Consequences.. 24
Use of Proceeds.......................................................... 24
Interests of Certain Persons in the Sale................................. 24
Regulatory Matters....................................................... 24
No Appraisal Rights...................................................... 24
Accounting Treatment..................................................... 24
Recommendation of the Handex Board of Directors.......................... 24
THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION....... 25
Proposal to Change the Company's Name.................................... 25
Recommendation of the Handex Board of Directors.......................... 25
DESCRIPTION OF THE COMPANY'S CONTINUING OPERATIONS......................... 25
DESCRIPTION OF THE ENVIRONMENTAL BUSINESS.................................. 28
COMMON STOCK MARKET PRICES................................................. 32
i
<PAGE> 5
PAGE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 33
General........................................................... 33
Results of Operations. First Nine Months of 1996 Versus
First Nine Months of 1995....................................... 34
Results of Operations. 1995 Versus 1994........................... 37
Results of Operations. 1994 Versus 1993........................... 39
Liquidity and Capital Resources................................... 41
CERTAIN INFORMATION CONCERNING ECB.................................. 42
General........................................................... 42
SouthTrust Loan Commitment to ECB................................. 42
STOCK OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT................. 43
OTHER MATTERS....................................................... 44
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.......................... F-1
Appendix A -- Stock Purchase Agreement
Appendix B -- Opinion of Raymond James & Associates, Inc.
ii
<PAGE> 6
HANDEX CORPORATION
------------------
PROXY STATEMENT
MAILED ON DECEMBER 3, 1996
------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 20, 1996
INTRODUCTION
This Proxy Statement is furnished to the holders of common stock, $0.01 par
value, (the "Common Stock") of Handex Corporation ("Handex" or the "Company") in
connection with the solicitation of proxies on behalf of the Board of Directors
of the Company to be voted at a Special Meeting of stockholders of the Company
to be held at the Company's headquarters, 500 Campus Drive, Morganville, New
Jersey 07751 at 4:00 p.m. on Friday, December 20, 1996.
All proxies delivered pursuant to this solicitation are revocable at any
time at the option of the persons executing them by giving written notice to the
Secretary of the Company, by delivering a later proxy, or by voting in person at
the Special Meeting.
The mailing address of the principal executive office of the Company is 500
Campus Drive, Morganville, New Jersey 07751, telephone (908) 536-8500. The
approximate date on which this Proxy Statement and form of proxy are first being
sent or given to stockholders is December 3, 1996.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Special Meeting in accordance with the
directions given. Regarding (i) the approval and adoption of the Stock Purchase
Agreement, dated November 4, 1996, by and between Handex and ECB, Inc., a
Florida corporation ("ECB") (the "Agreement") and (ii) the amendment of the
Company's Certificate of Incorporation to change the Company's name to "New
Horizons Worldwide, Inc." (the "Amendment"), stockholders may vote in favor of,
against or abstain from voting on these proposals. Stockholders should specify
their choice on the enclosed form of proxy.
If no specific instructions are given with respect to the matters to be
acted upon, the shares represented by a signed and dated proxy will be voted
"FOR" the approval and adoption of the Agreement and "FOR" the Amendment. The
approval and adoption of the Agreement and the Amendment will each require the
affirmative vote of at least a majority of the outstanding shares of the
Company's Common Stock as of the Special Meeting record date.
The cost of soliciting proxies will be borne by the Company. Brokers,
custodians and fiduciaries will be requested to forward proxy soliciting
materials to the owners of stock held in their name and the Company will
reimburse them for their out-of-pocket expenses in connection therewith.
Directors, officers and management employees of the Company may, without
additional compensation, solicit proxies by telephone, mail and personal
interview. In addition, the Company has retained Regan & Associates at a fee
estimated to be $5,000 plus reasonable expenses, to assist in the solicitation
of proxies.
Only holders of record of shares of Common Stock of the Company at the
close of business on November 15, 1996, are entitled to vote at the Special
Meeting or adjournments thereof. Each holder of record on the record date is
entitled to one vote for each share of Common Stock of the Company so held. On
November 15, 1996, there were 6,956,412 shares of Common Stock of the Company
issued and outstanding. A majority of the outstanding shares will constitute a
quorum at the Special Meeting. Under applicable Delaware law, if a broker
1
<PAGE> 7
returns a proxy and has not voted on a certain proposal, such broker non-votes
will count for purposes of determining whether a quorum is present. Under
Sections 271 and 242, respectively, of the Delaware General Corporation Law,
each of the Agreement and the Amendment requires the approval of the holders of
a majority of the outstanding shares of Common Stock entitled to vote thereon.
In voting on the Agreement and the Amendment, votes may be cast in favor,
against or abstained. Abstentions and broker non-votes will count as present for
purposes of the proposals and will have the effect of a vote against the
proposals.
As used in this Proxy Statement, the "Company" or "Handex" refers, unless
the context otherwise requires, to Handex Corporation and its consolidated
subsidiaries.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Such reports, proxy statements and other information can
be inspected and copied at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may be obtained at prescribed rates
by writing the SEC, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC maintains a Web site at http://www.sec.gov that
contains reports, proxy statements and other information regarding registrants
that file electronically with the SEC, including the Company.
2
<PAGE> 8
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. This summary is not intended to be complete and is
qualified in all respects by reference to the detailed information appearing
elsewhere in this Proxy Statement and the appendices hereto and the information
incorporated herein by reference.
THE SPECIAL MEETING
The Special Meeting will be held at 4:00 p.m. (EST) on Friday, December 20,
1996, at the Company's headquarters, 500 Campus Drive, Morganville, New Jersey
07751 to consider and vote upon a proposal (i) to authorize, approve and adopt
the Agreement, under the terms of which the Company will sell all of the issued
and outstanding shares of capital stock of Handex Environmental, Inc., a
wholly-owned subsidiary of the Company ("Handex Environmental") to ECB, Inc., a
Florida corporation ("ECB"); and (ii) to authorize, approve and adopt an
amendment to the Company's Certificate of Incorporation changing the Company's
name from "Handex Corporation" to "New Horizons Worldwide, Inc.", subject to
consummation of the transactions contemplated by the Agreement. Stockholders of
record on November 15, 1996 are entitled to receive notice of and to vote at the
Special Meeting.
THE AGREEMENT AND THE SALE
Pursuant to the terms of the Agreement and the ancillary agreements and
instruments relating thereto (the "Ancillary Agreements"), upon consummation of
the transactions contemplated thereby (collectively, the "Sale"), ECB will
purchase all of the outstanding shares of Handex Environmental which, together
with its subsidiaries, are sometimes hereafter collectively referred to as the
"Environmental Subsidiaries." After the Sale, the Company will remain a public
company and will continue to operate its educational business. See "Description
of the Company's Continuing Operation."
CONSIDERATION TO BE RECEIVED BY THE COMPANY; USE OF PROCEEDS
If the sale of Handex Environmental is consummated on the terms
contemplated by the Agreement, the Company will receive aggregate consideration
in the face amount of approximately $30,511,000. The consideration to be
received by the Company from ECB consists of: (i) $4,600,000 in cash; (ii) a
promissory note in the original principal amount of $3,700,000 (subject to
adjustment in certain events) due on April 30, 2002 and bearing interest at the
rate of 6% per annum (the "Promissory Note"); (iii) 2,000 shares of Series A
Preferred Stock, stated value $1,000 per share (the "Preferred Stock") of ECB;
(iv) a six-year warrant to acquire 300,000 common shares of ECB at a price of
$1.32 per share ("Warrant A"); (v) a six-year Warrant to acquire 85,000 common
shares of ECB at a price of $1.60 per share ("Warrant B") (Warrant A and Warrant
B are collectively referred to herein as the "Warrants"); and (vi) one-third of
the redemption value of a small interest in a joint venture, when paid or
available to be paid to ECB. In addition, the Agreement contemplates that,
immediately prior to the Closing, the Company will receive a dividend of cash,
accounts receivable and other assets owned by the Environmental Subsidiaries and
having a book value of approximately $20,211,000 at September 28, 1996.
The face amount of the non-cash consideration to be received by the Company
pursuant to the Agreement (excluding the Warrants) is $5.7 million. However,
because ECB is a newly organized entity with no history of prior operations, and
because of the significant amount of indebtedness that ECB will incur in
connection with the Sale, the Company has established a valuation reserve with
respect to the non-cash consideration in the amount of $4.6 million. See "The
Proposed Sale of Handex Environmental -- Description of the Securities to be
Received by the Company" and "-- Ancillary Agreements" for a more detailed
description of the terms of the various forms of non-cash consideration to be
received by the Company.
In furtherance of its mission of becoming the largest independent company
in the personal computer applications and technical training market, the Company
intends to use the cash proceeds from the Sale to provide working capital to
finance the development and continued expansion of its educational business
segment, fund potential acquisitions, if any, and for other general corporate
purposes.
3
<PAGE> 9
REQUIRED VOTE
The affirmative vote of the holders of a majority of the outstanding shares
of Handex Common Stock entitled to vote on the proposals is required by Delaware
law for the approval of the Agreement and the proposed amendment to the
Company's Certificate of Incorporation. The Directors and executive officers of
the Company, who beneficially own, in the aggregate, approximately 44.3% of the
outstanding shares of Common Stock (including shares which may be acquired upon
the exercise of vested stock options), have indicated their intention to vote
all of such shares in favor of the Agreement and the proposed Amendment. See
"The Special Meeting -- Vote Required."
THE CLOSING
If the Company's stockholders approve the Agreement, and subject to the
satisfaction of the other conditions contained in the Agreement, the closing
(the "Closing") of the Sale will take place on December 27, 1996, or at such
other time as the parties to the Agreement may agree.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has unanimously concluded that the
sale of Handex Environmental contemplated by the Agreement is in the best
interests of the Company's stockholders and recommends that the stockholders
approve the Agreement, as well as the proposed amendment to the Company's
Certificate of Incorporation. In reaching its decision, the Board of Directors
took into account, among other factors, its assessment of the opportunities for
growth at New Horizons Education Corporation and its subsidiaries ("New
Horizons"), the results of a review of strategic alternatives for the Company's
environmental business, the results of a solicitation process in which
approximately 20 potential strategic and financial buyers were contacted, the
Directors' knowledge of the Environmental Subsidiaries' financial condition,
results of operations, business strategy and prospects, current industry,
economic and market conditions, the Directors' assessment of the benefits and
risks associated with continuing to operate the environmental business, and the
terms and conditions of the Agreement, including the significant amount of cash
to be derived from the Sale. In addition, the Board of Directors took into
account the opinion of the Company's financial advisor, Raymond James &
Associates, Inc. ("Raymond James"), to the effect that the consideration to be
received by the Company under the terms of the Agreement was fair, from a
financial point of view, to the Company's stockholders. See "The Proposed Sale
of Handex Environmental -- Background and Reasons for the Transaction -- Opinion
of Financial Advisor."
OPINION OF FINANCIAL ADVISOR
The Company engaged the investment banking firm of Raymond James to assist
the Board of Directors of the Company in evaluating the fairness, from a
financial point of view, of the consideration to be received by the Company
pursuant to the Agreement. The Company's Board of Directors received the written
opinion of Raymond James that, as of the date of such opinion, and subject to
the assumptions, qualifications and limitations set forth therein and summarized
herein, the consideration to be received by the Company pursuant to the
Agreement is fair, from a financial point of view, to the Company. Handex
stockholders are urged to carefully read in its entirety the Raymond James
opinion, a copy of which is included as Appendix B to this Proxy Statement, for
a description of the procedures followed, the factors considered and the
assumptions made by Raymond James. For a description of the compensation and
other consideration received by Raymond James for its financial advisory
services, see "The Proposed Sale of Handex Environmental -- Background and
Reasons for the Sale -- Opinion of Financial Advisor."
CONDITIONS TO THE CLOSING
The Closing is conditioned upon, among other things, the receipt of the
requisite affirmative vote of the Company's stockholders to approve the
Agreement and the receipt of consents to the transfer of certain contracts from
the Company to Handex Environmental.
4
<PAGE> 10
TERMINATION FEE AND EXPENSE REIMBURSEMENT PROVISIONS
The Company must pay ECB and Southcoast Capital Corporation ("Southcoast")
termination fees of $600,000 in the aggregate if the Company terminates the
Agreement as a result of a determination that such action is necessary in order
for its Board of Directors to fulfill its fiduciary duties.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION
The Company expects to report a loss from the Sale of Handex Environmental
of approximately $7.3 million. There is no expected Federal income tax benefit
from this loss.
APPRAISAL RIGHTS
Under applicable Delaware law, no holder of Handex Common Stock will have
appraisal rights in connection with the Agreement and the consummation of the
transactions contemplated thereby.
5
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share)
The following table sets forth selected consolidated financial data of the
Company. The selected consolidated financial data of the Company at December 30,
1995, December 31, 1994, January 1, 1994, December 31, 1993 and December 31,
1992, and for each of the years in the period then ended has been derived from
the audited financial statements of the Company. The data should be read in
conjunction with Management's Discussion and Analysis of Results of Operation
and Financial Condition," the Company's Consolidated Financial Statements and
related Notes thereto and other financial information included elsewhere herein.
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31, JANUARY 1, DECEMBER 31, DECEMBER 31,
1995(2) 1994(2) 1994 1992 1991
------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED STATEMENTS
OF INCOME DATA:(1)
Total Operating Revenues............. $ 85,272 $ 64,773 $ 48,194 $ 52,098 $ 62,245
Subcontractor costs.................. 15,018 12,202 9,481 9,657 12,522
-------- -------- -------- -------- --------
Net operating revenues............. 70,254 52,571 38,713 42,441 49,723
Cost of net operating revenues....... 45,066 32,866 24,745 27,437 26,079
-------- -------- -------- -------- --------
Gross profit....................... 25,188 19,705 13,968 15,004 23,644
Selling, general and administrative
expenses........................... 24,008 16,182 12,197 12,263 11,778
Provision for loss in a joint
venture, asset write-off and
termination expenses............... 1,113 -- -- -- --
Other income (expense), net.......... (191) 343 424 417 134
-------- -------- -------- -------- --------
Income (loss) before income taxes.... (124) 3,866 2,195 3,158 12,000
Provision for income taxes........... 69 1,535 821 1,225 4,685
-------- -------- -------- -------- --------
Net income (loss).................. $ (193) $ 2,331 $ 1,374 $ 1,933 $ 7,315
-------- -------- -------- -------- --------
Net income (loss) per share of
Common Stock(3).................... $ (.03) $ .34 $ .20 $ .28 $ 1.06
-------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 28, DECEMBER 30, DECEMBER 31, JANUARY 1, -------------------
1996 1995 1994 1994 1992 1991
------------- ------------ ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED BALANCE
SHEET DATA:
Working Capital................ $21,244 $ 23,198 $ 24,666 $ 38,194 $36,129 $34,524
Total assets................... 54,507 67,089 61,920 52,393 50,629 50,839
Long-term obligations,
excluding current
installments................. 2,270 650 464 -- -- 17
Total stockholders' equity..... 42,662 49,428 49,637 47,060 46,253 45,040
<FN>
- ---------------
(1) Certain reclassifications were made in 1994, 1993, 1992 and 1991 to conform
with the presentation in 1995.
(2) The operating results of New Horizons are included in 1995 for the entire
year and for the period from August 15,1994 through December 31, 1994 for
1994.
(3) Net income per share of Common stock is computed based on the weighted
average number of common shares outstanding during the year as adjusted for
the five-for-four stock split in March 1991 and stock repurchase described
in Note 1 of Notes to Consolidated Financial Statements. Inclusion of the
incremental shares applicable to outstanding stock options in the
computation would have no material effect.
</TABLE>
6
<PAGE> 12
SELECTED PRO FORMA INCOME STATEMENT DATA
(in thousands, except per share amounts)
The following table sets forth (i) the Company's historical results of
operations for the year ended December 30, 1995 and for the nine months ended
September 28, 1996; and (ii) the Company's pro forma results of operations for
the year ended December 30, 1995, as if Handex Environmental had been classified
as a discontinued operation at the beginning of such period. The pro forma
results of operations set forth below do not necessarily reflect what the
Company's results of operations would have been had the sale of Handex
Environmental occurred at the beginning of such period. For additional
information concerning Handex Environmental's results of operations for the nine
months ended September 28, 1996, see Note 3 of Notes to the Company's Condensed
Consolidated Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NINE MONTHS ENDED DECEMBER 30, 1995
SEPTEMBER 28, -------------------------------------
1996 PRO FORMA
(ACTUAL) ACTUAL ADJUSTMENTS PRO FORMA
----------------- ------- ----------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................................ $29,578 $70,254 $ (46,521)(1) $23,733
Cost of Revenues.................................... 14,614 45,066 (31,902)(2) 13,164
Gross Profit........................................ 14,964 25,188 10,569
Selling, general and administrative expenses........ 13,732 25,007 (15,375)(3) 10,946
1,314
Provision for loss in a joint venture and asset
write-off......................................... -- 812 812
Operating Income (loss)............................. 1,232 (631) (1,189)
Interest income (expense) net....................... (103) 507 (607)(4) 88
188
Income (loss) from continuing operations before
income taxes...................................... 1,129 (124) (1,101)
Provision for income taxes (benefit)................ 507 69 (529)(5) (458)
2
Income (loss) from continuing operations............ 622 (193) (643)
Discontinued operations (Note 3)
Income (loss) from operations of the discontinued
environmental segment less applicable income
taxes............................................. (135) -- 450(6) 450
Loss on disposal of environmental segment........... (7,303) --
Income (loss) from discontinued operations.......... (7,438) 450
Net income (loss)................................... $(6,816) $ (193) $ (193)
Earnings (loss) per share from continuing
operations........................................ $ 0.09 $ (0.09)
Earnings (loss) per share from discontinued
operations........................................ $ (1.08) $ 0.06
Earnings (loss) per share........................... $ (0.99) $ (0.03)
<FN>
- ---------------
(1) Reflects the elimination of Handex Environmental's net operating revenues.
(2) Reflects the elimination of Handex Environmental's cost of net operating
revenues.
(3) Reflects the elimination of Handex Environmental's selling, general and
administrative expenses and the allocation of corporate selling, general and
administrative expenses to New Horizons' operations.
(4) Reflects the elimination of interest income earned by Handex Environmental
and reflects the interest expense incurred in connection with New Horizons'
operations, net of corporate interest income.
(5) Reflects the elimination of income taxes associated with Handex
Environmental's operations and the tax benefit associated with New Horizons'
loss from operations.
(6) Reflects the reclassification of Handex Environmental's operations as
discontinued operations.
</TABLE>
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THE SPECIAL MEETING
TIME, DATE AND PLACE
The Special Meeting will be held at 4:00 p.m., local time, on December 20,
1996 at the Company's headquarters, 500 Campus Drive, Morganville, New Jersey
07751.
BUSINESS TO BE CONDUCTED
Each copy of this Proxy Statement mailed to Handex stockholders is
accompanied by a form of proxy solicited by the Board of Directors of Handex for
use at the Special Meeting and at any adjournment thereof. At the Special
Meeting, the stockholders will act upon (i) a proposal to authorize, approve and
adopt the Agreement and (ii) a proposal to amend the Company's Certificate of
Incorporation to change the Company's name from "Handex Corporation" to "New
Horizons Worldwide, Inc.", subject to the consummation of the Sale.
PROXIES: VOTING AND REVOCATION
When a proxy is properly executed and returned, the shares of Handex Common
Stock it represents will be voted in accordance with the directions indicated on
the proxy, or if no directions are indicated, the shares will be voted FOR the
approval of the Agreement and FOR the Amendment. A Handex stockholder who has
given a proxy may revoke it at any time prior to its exercise at the Special
Meeting by (i) giving written notice of revocation to the Secretary of Handex,
(ii) properly submitting to Handex a duly executed proxy bearing a later date,
or (iii) voting in person at the Special Meeting. All written notices of
revocation and other communications with respect to revocation of proxies should
be addressed to Handex as follows: Handex Corporation, 500 Campus Drive,
Morganville, New Jersey 07751, Attention: John T. St. James, Vice President,
Treasurer and Chief Financial Officer.
HANDEX STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO HANDEX IN THE ENCLOSED POSTAGE-PAID
ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE SPECIAL MEETING.
VOTE REQUIRED AND RECORD DATE
Under the Delaware General Corporation Law (the "DGCL"), the holders of a
majority of the outstanding shares of Handex Common Stock must approve each of
(i) the Agreement and (ii) the Amendment. Abstentions will be counted as shares
that are present and entitled to vote for purposes of determining whether a
quorum is present. Shares held by nominees for beneficial owners will also be
counted for purposes of determining whether a quorum is present if the nominee
has the discretion to vote on at least one of the matters presented, even though
the nominee may not exercise discretionary voting power with respect to other
matters and even though voting instructions have not been received from the
beneficial owner (a "broker non-vote"). Because abstentions will be counted as
shares that are present at the meeting, abstentions will be the equivalent of
negative votes. Broker non-votes will be counted as votes against matters
presented for shareholder consideration.
Only holders of record of Handex Common Stock at the close of business on
November 15, 1996 (the "Record Date") are entitled to receive notice of, and to
vote at, the Special Meeting. As of the Record Date, Handex directors and
executive officers held approximately 44.3% of the outstanding shares of Common
Stock entitled to vote at the Special Meeting. Each director and executive
officer of the Company has expressed his intention to vote his shares of Common
Stock for the proposal to approve the Agreement and for the proposal to approve
the Amendment.
OTHER MATTERS
Handex is not currently aware of any other business to be brought before
the Special Meeting. If any matters come before the Special Meeting which are
not directly referred to in this Proxy Statement, including matters incident to
the conduct of the Special Meeting, the proxy holders will vote the shares
represented by the proxies in accordance with the recommendations of Handex
management.
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THE PROPOSED SALE OF HANDEX ENVIRONMENTAL
BACKGROUND AND REASONS FOR THE SALE
Background of the Sale. Through the Environmental Subsidiaries, the
Company has provided its customers with a comprehensive solution to hydrocarbon
contamination of groundwater and soil due to leaking underground storage tanks,
petroleum distribution systems and related contamination sources. These
environmental remediation services represent the Company's core business and,
until its August 1994 acquisition of New Horizons, were its only business.
During the 1980s and early 1990s, the environmental business experienced
significant annual growth in net operating revenues and earnings. This expansion
resulted from the rapid growth in the demand for environmental remediation
services, as well as the quality and comprehensive nature of the Company's
services.
During 1992, fundamental changes began to take place in the market for
environmental remediation services. As a result, in part, of the financial
constraints on its major customers, the Company began to experience a
significant increase in demand for competitive bidding and/or fixed or unit
price contracts. Although the Company had competed primarily on the basis of the
quality and timeliness of its services, its customers became increasingly cost
conscious. Over a very short period of time, price became the primary
competitive factor in the environmental remediation services market. Reflecting
this emphasis on price, the Company's customers began to use other contractors
to provide certain services, such as laboratory analysis, that were
traditionally provided by the Company. In addition, customers began to purchase,
rather than lease, remediation equipment provided by the Company for use in
their remediation projects. These changes had an adverse effect on the Company's
net operating revenues and profit margins.
Primarily as a result of these market conditions, the Board of Directors
began consideration of several alternatives to further growth in the
environmental business. During these deliberations, consideration was first
given to providing other types of environmental services. Initiatives were
launched to diversify into remediation of larger petroleum storage facilities,
industrial sites and landfills. To support this effort the Company added
marketing personnel, as well as personnel with experience in bidding on large
construction and environmental remediation projects. Concurrently with these
efforts, the Board gave consideration to growth through acquisitions in the
environmental remediation sector. It soon became apparent, however, that growth
opportunities in this business segment were limited due to generally adverse
conditions in the industry, and the Board determined that it was appropriate to
investigate acquisitions in other industries which appeared to provide superior
growth opportunities.
In keeping with that decision, in late 1993 the Company engaged The Nassau
Group, Inc. ("Nassau"), an investment banking firm, to assist it in identifying
potential acquisition candidates. That process culminated in August 1994 with
the acquisition of New Horizons Computer Learning Center, Inc. and New Horizons
Franchising, Inc., which owned and franchised computer training centers and
furnished systems of instruction, sales and management concepts concerning
computer training to franchisees.
As the Company gained experience in operating New Horizons' businesses, it
concluded that they offered the opportunity for significant growth in revenues
and earnings over the long-term. As time progressed, it also became clear to the
Company that the changes in the environmental marketplace that began in 1992
were likely to be permanent in nature, and that the long-term outlook for this
business was uncertain. These concerns were focused by changes in Florida's
Inland Protection Trust Fund (the "Fund") enacted in early 1995. The Fund
established a reimbursement plan to help fund certain environmental remediation
projects. During the years after 1992, the Company's environmental operations
were benefited considerably by this program. In 1995, however, changes in the
Fund adversely affected the Company's operations in Florida and its
environmental business as a whole. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
Prompted by these developments, in March 1995, the Board of Directors
determined that it was necessary to review the long-term prospects for the
environmental business and to examine various strategic alternatives for it. The
Company subsequently engaged Environmental Capital Associates, Inc. ("ECA") to
conduct an analysis of the environmental marketplace from the Company's
perspective. The Company also requested Nassau to prepare an analysis of
strategic alternatives for the environmental business.
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In May 1995, Nassau made a presentation to the Board concerning the
valuations of publicly traded enterprises in the environmental and educational
businesses comparable to those conducted by the Company. Nassau also addressed a
variety of strategic options including the possibility of growth through
acquisitions as well as exit options, such as a sale to domestic or foreign
acquirers. At the same time, management of the Company made a preliminary
recommendation to the Board that, in light of its assessment of the future
prospects of the Company's environmental business and the industry as a whole,
as well as the growth opportunities provided by the educational business, a sale
of the environmental business should be considered. After discussing this matter
the Board determined that before considering these alternatives, it was
appropriate to review ECA's assessment of the long-term prospects in the
environmental market. It also requested management to prepare an analysis of New
Horizons as an independent enterprise.
ECA's analysis was presented to the Company in June 1995. ECA concluded
that the long-term outlook for the underground storage tank ("UST") market was
negative, although increasing opportunities appeared to be available in the
short term for UST remediation projects at industrial and commercial sites and
independent service stations. In ECA's view, the Company's best opportunity to
expand its business was to target the broader environmental remediation market.
However, it would confront several challenges to success in this market,
including its lack of name recognition, its willingness to take on the risks of
large cleanup projects, and its ability to staff those projects. In addition, in
ECA's view, the broader environmental remediation market was at least as
competitive as the UST market, and significant investment would be required to
compete effectively in this market and to maintain the Environmental
Subsidiaries' position in the UST market. Management also provided the Board
with an analysis of the financial consequences of a sale of the environmental
business. That analysis raised questions concerning whether the educational
business, although continuing to experience rapid growth, had matured
sufficiently enough to operate as an independent enterprise.
As a result of the Board's concerns about the maturity of the educational
business, the Company did not pursue a sale of the environmental business at
this time. Instead, the Company continued its efforts to enhance the
profitability and growth prospects of that business. The Company also continued
its efforts to enhance New Horizons' operational results and improve its
management infrastructure. Despite continued efforts to expand its customer base
and range of services and the acquisition of certain pending remediation
contracts from another firm, the Company's environmental business continued to
perform below management's objectives through the end of the third quarter of
fiscal 1995. In response, the Company continued its cost cutting efforts,
including the elimination of 25 jobs in the environmental business in October
1995. While the Board continued to have concerns about the maturity of New
Horizons' business, it determined that the continuing difficulties experienced
by the Company in its efforts to achieve consistent growth in the environmental
business, coupled with continuing growth in the educational business, made it
appropriate to examine the viability of a sale of the environmental business.
Although the Board did not determine to sell the environmental business, it
authorized management to ask Nassau to explore the level of interest among
likely purchasers.
In December 1995, Nassau prepared a package of descriptive material on the
environmental business at the Company's request in order to be able to respond
to unsolicited inquiries concerning the acquisition of the business as well as
to solicit expressions of interest in acquiring the business from third parties.
Between mid-December 1995 and mid-February 1996, Nassau held discussions with
approximately 20 parties with a strategic and/or financial interest in the
environmental sector. At the meeting of the Board on February 12 and 13, 1996,
it was reported that fewer than five parties had expressed interest in pursuing
an acquisition of the environmental business at that time. After discussing the
general financial parameters under which the Company would be willing to
consider a sale of the environmental business, the Board instructed Nassau to
continue to work with management to advance discussions with potentially
interested acquirers and to identify other potential bidders.
During the course of these efforts, in February 1996, Mr. George Bannon,
President of Handex of Florida, Inc., one of the Environmental Subsidiaries,
expressed to the Chairman of the Company his interest in organizing an
investment group to purchase the environmental business. He was advised that the
Company was not opposed to exploring such a transaction, whereupon Mr. Bannon
engaged Brenner Securities Corporation to assist in developing a proposal.
Subsequently, Mr. Bannon, together with two other individuals, Mr. S.C.
Culbreth, Jr. and Mr. Roger Eatman, organized ECB. Although neither of these
individuals were affiliated with the Company, both
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<PAGE> 16
were familiar with the operations of the environmental business. Mr. Eatman had
previously provided certain consulting services to Handex of Florida, Inc., and
Mr. Culbreth operates an environmental laboratory.
On February 22, 1996, a confidentiality agreement between the parties was
executed and ECB began to conduct its due diligence investigation of the
environmental business. During the course of that process, the Company and its
representatives began preliminary discussions with ECB and its representatives
concerning the terms of ECB's acquisition proposal. Those discussions culminated
on May 23, 1996 with the execution of a letter of intent between the Company and
ECB setting forth certain preliminary terms of ECB's proposed acquisition of
Handex Environmental. The terms of ECB's non-binding proposal set forth in that
initial letter of intent contemplated a cash payment in the amount of $13.6
million, an unsecured promissory note in the principal amount of $1 million
bearing interest at the rate of 6% per annum, and $1 million in preferred stock
to be issued by ECB. In addition, the letter of intent contemplated that the
Company would retain certain identified assets, including at least $7 million in
trade receivables. Upon execution of the letter of intent, ECB paid to the
Company a non-refundable deposit of $50,000, and the Company agreed to certain
limited exclusivity arrangements.
ECB was subsequently unable to secure the financing necessary to enter into
a binding agreement with the Company on the terms set forth in the letter of
intent, and the letter of intent was terminated by the Company on September 11,
1996. Negotiations with ECB continued, however, and on September 19, 1996, the
terms of a revised acquisition proposal, including continued exclusivity, were
presented to the Board of Directors by Nassau. Those terms were substantially
similar to those set forth in the Agreement. At that meeting, the
representatives of ECB's senior lender, SouthTrust Bank of Alabama, N.A.
("SouthTrust") were present to discuss the terms under which it was willing to
provide ECB with working capital and equipment loan financing. After discussing
the proposal and making inquiries of SouthTrust's representatives concerning
various aspects of ECB's proposed financing arrangements, the Board determined
to authorize the Company to proceed with further negotiations concerning the
sale of the environmental business to ECB. The Board also determined to retain
Raymond James & Associates ("Raymond James") to provide an opinion as to the
fairness, from a financial point of view, of the consideration to be received by
the Company in connection with this transaction. On September 25, 1996, a
revised letter of intent incorporating proposed terms substantially similar to
those set forth in the Agreement was executed by the Company and ECB.
Negotiations continued between ECB and its representatives and the Company
and its representatives concerning the terms of the Agreement and the Ancillary
Agreements during the following month. Raymond James also conducted its review
of the terms of these agreements in connection with the preparation of its
fairness opinion. On October 25, 1996, the terms of these documents had been
substantially finalized and the Board of Directors met to review the terms of
the Agreement and the Ancillary Agreements. At that meeting, the Company's legal
counsel reviewed for the Board the material terms of the Agreement and the
Ancillary Agreements, including the Company's indemnity obligations, its
responsibility for pending litigation matters and the fact that the Agreement
contemplated the transfer of certain contracts to the Company prior to the
Closing. Representatives from Raymond James discussed with the Board that firm's
preliminary analysis of the consideration to be received in connection with the
transaction.
The Company had previously advised ECB that the Board would not act on
ECB's acquisition proposal until such time as ECB was in a position to present
the Company with a satisfactory commitment for the financing necessary to
complete the transaction. Consequently, another meeting of the Board was
scheduled for and held on Saturday, November 2, 1996. At this meeting, Raymond
James delivered its fairness opinion and commented on certain revisions to the
prior draft of its report which reflected an increased value of the
consideration to be received for the environmental business. See "- Opinion of
Financial Advisor." Legal counsel then reviewed final changes to the Agreement
and the Ancillary Agreements which had been made since the prior meeting.
Following this discussion, the Agreement and the Sale were unanimously approved
and recommended to stockholders for their approval, subject to the receipt of an
executed amendment to the commitment letter previously provided ECB by
SouthTrust. A proposal to amend the Company's Certificate of Incorporation to
change the name of the Company to "New Horizons Worldwide, Inc." contingent upon
and following the Closing was also approved and recommended to the stockholders.
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<PAGE> 17
On November 4, 1996, ECB provided the Company with an executed copy of its
amended commitment letter from SouthTrust, and the parties executed and
delivered the Agreement.
Reasons for the Sale. The Board of Directors of the Company has determined
that the Agreement and the Sale are in the best interest of, and fair to, the
stockholders of the Company. In reaching this determination, the Directors
consulted with legal counsel concerning the duties of the Board. The Directors
also consulted with Nassau, the Company's advisor with respect to the Sale and
negotiation of the financial terms of the Sale, Raymond James with respect to
the fairness of the transaction to the Company's stockholders, and with members
of senior management of the Company. The Board of Directors also considered a
number of factors, including the following:
(i) the Directors' assessment of opportunities for long-term revenue
and earnings growth at New Horizons and in the computer training business
generally, and their review of valuations of companies dedicated primarily
to providing computer and other training services;
(ii) the results of a process commenced in December 1995 in which
Nassau spoke with approximately 20 domestic and foreign entities, of which
a limited number expressed varying levels of interest in the environmental
business, and none of which submitted a formal proposal to the Board or, in
the opinion of the Board, appeared able to provide a credible proposal on
terms as attractive as those offered by ECB;
(iii) the opinion of Raymond James that the consideration to be
received for the environmental business is fair, from a financial point of
view, to the stockholders of the Company, along with the oral presentation
of Raymond James in connection with such opinion, supported by its written
report, as to the various financial and other considerations including (a)
an analysis of the consideration to be received from ECB; (b) an analysis
of the cash, accounts receivable and other assets retained by the Company;
(c) a review and analysis of the historical and current market prices of
the common stock of and financial data relating to other companies deemed
by Raymond James to be comparable to the Environmental Subsidiaries; (d) a
review and analysis of prices paid in other acquisition transactions deemed
to be relevant for purposes of Raymond James' analysis; and (e) a
discounted cash flow analysis of the Environmental Business;
(iv) the Directors' familiarity with the environmental business
including its financial condition, results of operations, business strategy
and prospects, current industry, economic and market conditions, the
Directors' assessments of the benefits and risks associated with such
environmental business and assessments with respect to such matters
provided by outside advisors; and
(v) the terms and conditions of the Agreement, including the
significant cash received from ECB, the cash and other assets retained by
the Company and the fact that under certain conditions (including payment
of $600,000 in termination fees), the Company has the right to terminate
such agreement to accept an offer more favorable to the Company's
stockholders.
Each of the foregoing factors was considered by the Board during the course
of its deliberations prior to entering into the Agreement in light of its
knowledge of the environmental business and each Director's business judgment.
In its deliberations, the Board did not quantify or otherwise attempt to assign
relative weights to the specific factors considered in determining to approve
(and to recommend that the stockholders approve) the Agreement and the Sale.
Positive and Negative Aspects of the Sale. The Sale provides benefits to
the Company by enabling it to sell its environmental business, which has not
been a source of growth in recent years and which the Company does not believe
offers opportunities for future growth commensurate with those presented by the
Company's educational business. In addition, the cash proceeds generated by the
Sale and by the related dividend of cash, accounts receivable and certain other
assets to the Company provide it with significant cash resources to use in its
efforts to expand its educational business without diluting the ownership
interest of current stockholders. The Sale also will permit the Company to focus
all of its management and financial resources on the growth opportunities
presented by its educational business.
There are also negative aspects to the Sale. While the Company's
educational business has experienced significant revenue growth in recent years,
it has yet to establish a predictable pattern of earnings, and there can
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<PAGE> 18
be no assurance that it will ever achieve sustained earnings growth. Subsequent
to the Sale, the Company's revenue base will be significantly smaller than in
the past, and it will be required to effectively absorb corporate overhead and
other fixed costs in order to succeed in the Company's efforts to expand its
educational business in a profitable manner. While the Company has made
significant investments in establishing a management infrastructure in the
educational business, it has not previously operated the educational business as
an independent enterprise. In that regard, one of the concerns the Board
expressed in assessing the advisability of a sale of the environmental business
was whether the educational business had matured sufficiently to operate as an
independent business. The significant revenue growth and improvement in the
overall operating results experienced by the educational business in recent
periods has reduced those concerns; nevertheless, the Board anticipates that the
operating results of the educational business may fluctuate significantly from
period to period and there can be no assurance as to the future prospects of the
educational business. In addition, while the Company believes the growth
prospects of the educational business are attractive, it has only operated that
business since August 1994, and the Company's current management has less
experience in operating that business than it had in operating the environmental
business.
While the Sale will provide the Company with significant additional cash
resources, applicable purchase price adjustment provisions may, under certain
circumstances, require the Company to return a portion of that cash to ECB
subsequent to the Closing. See "Description of the Agreement and the
Sale -- Purchase Price Adjustment." In addition, the Agreement contemplates that
a significant portion of the consideration to be received by the Company will be
in the form of illiquid securities issued by a highly leveraged, private company
with no prior operations. In recognition of that fact, the Company has
established significant valuation reserves with respect to such consideration.
In addition, the Agreement provides that the Company will have indemnity
obligations to ECB subsequent to the sale and be primarily responsible for
completion of certain contracts. See "Description of the Agreement and the
Sale -- Indemnification." Although the Company does not believe that these
obligations will have a material adverse effect on its future results of
operations, there can be no assurance as to that fact.
Opinion of Financial Advisor. In connection with the Sale, the Company
retained Raymond James to render an opinion as to the fairness, from a financial
point of view, of the consideration to be received by the Company in connection
with the sale of Handex Environmental. Raymond James is an independent
investment banking firm and is actively engaged in the investment banking and
brokerage business and regularly undertakes the valuation of investment
securities in connection with public offerings, private placements, business
combinations and similar transactions.
Raymond James has rendered its written opinion to the Board of Directors of
the Company that, as of the date of the opinion and subject to the assumptions,
qualifications and limitations set forth in the opinion letter and summarized
herein, the consideration to be received by the Company in the Sale is fair,
from a financial point of view, to the Company. Raymond James' opinion is
directed only to the fairness, from a financial point of view, of the Sale
consideration and does not constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote concerning the Sale.
No limitations were placed by the Board of Directors or management of
Handex with respect to the investigations made or the procedures followed by
Raymond James in preparing and rendering its opinion. A copy of the full text of
the opinion of Raymond James, which sets forth the assumptions made, a
description of the factors considered and the scope of the review undertaken, is
attached as Appendix B to this Proxy Statement. The summary of the opinion of
Raymond James is qualified in its entirety by reference to the full text of the
opinion. As set forth therein, Raymond James relied, without independent
verification, upon the accuracy and completeness of all information reviewed by
it for the purposes of such opinion. Raymond James did not conduct a physical
inspection of the properties and facilities of the Environmental Subsidiaries
nor did it make or obtain an independent appraisal of the assets of the
Environmental Subsidiaries. Raymond James assumed that the Company's, Handex
Environmental's and ECB's financial analyses were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
Company's, Handex Environmental's and ECB's management. The opinion was based
upon circumstances existing and disclosed to Raymond James as of November 2,
1996, and assumed that no material change had occurred, or would occur, to the
environmental business subsequent to such date.
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In connection with the review of the proposed Sale and the preparation of
its opinion, Raymond James examined (a) the financial terms as stated in the
Agreement; (b) unaudited financial statements of Handex Environmental for the
years ended December 31, 1993, 1994, 1995 and the eight months ended August 31,
1996, and forecasts for the nine months ended September 30, 1996 and the year
ended December 31, 1996; (c) certain financial analyses and forecasts for the
Environmental Subsidiaries prepared by the managements of the Company, Handex
Environmental and ECB; and (d) certain other publicly available financial
information. Additionally, Raymond James held discussions with members of the
senior management of the Company, Handex Environmental and ECB regarding past
and current operations, the financial condition and prospects of the
environmental business, and considered other matters which it deemed relevant to
its inquiry.
In delivering its opinion and making its presentation to the Company's
Board of Directors, Raymond James utilized financial and comparative analyses,
including (i) an analysis of certain publicly traded companies deemed comparable
to Handex Environmental, (ii) an analysis of financial information concerning
selected business combinations which Raymond James believed to be relevant, and
(iii) a discounted cash flow analysis.
The consideration received by the Company in connection with the Sale
consists of various components including cash, retained accounts receivable, the
Promissory Note, Preferred Stock and Warrants. Raymond James examined the nature
and composition of the consideration offered to the Company. In order to arrive
at a value as of the date of its opinion, Raymond James made certain assumptions
concerning the valuation of consideration components such as the future value of
certain components, the size and likelihood of future cash flows from such
components and the appropriate rates with which to discount such consideration.
In addition, Raymond James deemed it appropriate to make an adjustment to the
value of retained accounts receivable in order to account for the presence of
receivables for work done under pre-existing contracts which provide for
extended payment terms. Raymond James deemed such receivables not to be
consideration and accordingly reduced the "consideration value" of retained
accounts receivables by the total amount of such receivables with extended
payment terms. Raymond James estimated the $17.3 million of face value of
consideration received by Handex from ECB to have a value of between $11.5 and
$16.6 million.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Furthermore,
in arriving at its fairness opinion, Raymond James did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of any analysis and
factor. Accordingly, Raymond James believes that its analyses must be considered
as a whole and that selecting portions of such analyses and the factors
considered, without considering all factors and analyses, could create an
incomplete view of the analyses and the processes underlying Raymond James'
opinion.
During the November 2, 1996 meeting of the Board of Directors of the
Company, Raymond James delivered to the Board of Directors its written opinion
that, as of the date thereof, and subject to the assumptions, qualifications and
limitations set forth therein, that the consideration to be received by the
Company upon the Sale of Handex Environmental was fair, from a financial point
of view, to the Company.
The following is a brief summary of the analyses prepared and reviewed by
Raymond James in reaching its opinion.
Comparable Public Company Analysis. Using publicly available information,
Raymond James prepared and reviewed with the Board of Directors an analysis of
selected financial data for publicly held companies in businesses which Raymond
James believed to be comparable to the Company. Specifically, Raymond James
included in its review: Dames and Moore Group, EMCON, Fluor Daniel/GTI
Incorporated, Harding Lawson Associates, International Technology Corporation,
Jacobs Engineering Group, Michael Baker Corporation, OHM Corporation, Roy F.
Weston Incorporated, Sevenson Environmental Services Incorporated, URS
Corporation, and Versar Incorporated (collectively, the "Comparable Companies").
Financial data reviewed for these companies included, but was not limited to:
trailing twelve months ("TTM") revenues, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), earnings before interest and taxes
("EBIT"), net income and earnings per share; current price to earnings ratios
("P/E"); price to book value per share ratios; Total
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<PAGE> 20
Enterprise Value ("TEV") (defined as equity value plus funded debt less cash) to
revenue, EBITDA and EBIT ratios; and certain projected earnings per share and
price to earnings ratios. In certain cases, applicable multiples were calculated
with respect to composite stock analysts' estimates for earnings per share.
The TEV/TTM revenue multiples for the Comparable Companies ranged from 0.1x
to 0.8x, with an average of 0.4x. The average revenue multiple of 0.4x was
applied to Handex Environmental's TTM revenues to arrive at an implied equity
value of $17.8 million. The TEV/EBITDA multiples ranged from 2.1x to 9.6x with
an average of 6.0x. The average TEV/EBITDA multiple of 6.0x was applied to
Handex Environmental's TTM EBITDA, adjusted for the removal of a Handex
corporate SG&A allocation, to arrive at an implied equity value of $11.9
million. The TEV/EBIT multiples ranged from 4.8x to 86.2x, with an average of
17.2x. The average TEV/EBIT multiple of 17.2x was applied to Handex
Environmental's TTM EBIT, adjusted for the removal of a Handex corporate SG&A
allocation, to arrive at an implied equity value of $0.6 million. The price/book
value per share multiples for the Comparable Companies ranged from 0.4x to 2.1x,
with an average of 1.1x. The average price/book value per share multiple of 1.1x
was applied to the net book value of the assets included in the Sale to arrive
at an implied equity value of $11.5 million. The price/TTM earnings ratios for
the Comparable Companies ranged from 11.3x to 22.9x, with an average of 16.5x.
The average TTM P/E multiple of 16.5x was applied to Handex Environmental's TTM
earnings, adjusted for the removal of a Handex corporate SG&A allocation, to
arrive at an implied equity value of $0.4 million. The projected P/E ratios for
Comparable Companies using projected 1996 calendar year earnings ranged from
7.0x to 24.3x, with an average of 13.9x. The average projected 1996 P/E multiple
of 13.9x was applied to Handex Environmental's projected 1996 earnings, adjusted
for the removal of a Handex corporate SG&A allocation, to arrive at an implied
equity value of $8.3 million. The projected P/E ratios for Comparable Companies
using projected 1997 calendar year earnings ranged from 5.1x to 36.3x, with an
average of 13.8x. The average projected 1997 P/E multiple of 13.8x was applied
to Handex Environmental's projected 1997 earnings, adjusted for the removal of a
Handex corporate SG&A allocation, to arrive at an implied equity value of $6.8
million.
Precedent Transactions Analysis. Raymond James analyzed publicly available
information for selected acquisitions of companies believed by Raymond James to
be comparable to Handex Environmental. Specifically, Raymond James reviewed and
considered the following transactions: ATC Environmental/American Testing and
Engineering; Tyco International/Earth Technology; URS/Greiner Engineering; and
Fluor Daniel/Groundwater Technology (collectively, the "Precedent
Transactions").
Raymond James calculated multiples of the ratios of TEV to TTM revenue,
EBITDA and EBIT for each of the above transactions. Raymond James also
calculated multiples of equity purchase price to TTM earnings, total assets sold
and book value for the transactions above.
The TEV/TTM revenue multiples for the Precedent Transactions ranged from
0.3x to 0.9x, with an average of 0.5x. The average revenue multiple of 0.5x was
applied to Handex Environmental's TTM revenues to arrive at an implied equity
value of $23.0 million. The TEV/EBITDA multiples ranged from 4.7x to 10.7x, with
an average of 7.7x. The average TEV/EBITDA multiple of 7.7x was applied to
Handex Environmental's TTM EBITDA, adjusted for the removal of a Handex
corporate SG&A allocation to arrive at an implied equity value of $15.1 million.
The TEV/EBIT multiples ranged from 17.0x to 37.1x, with an average of 21.5x. The
average TEV/EBIT multiple of 21.5x was applied to Handex Environmental's TTM
EBIT, adjusted for the removal of a Handex corporate SG&A allocation, to arrive
at an implied equity value of $0.8 million. The price/book value per share
multiples for the Precedent Transactions ranged from 0.7x to 3.0x, with an
average of 1.7x. The average price/book value per share multiple of 1.7x was
applied to the net book value of the assets included in the Sale to arrive at an
implied equity value of $18.0 million. The equity purchase price/total assets
sold multiple for the Precedent Transactions ranged from 0.6x to 1.0x, with an
average of 0.7x. The average equity purchase price/total assets sold multiples
of 0.7x was applied to the value of Handex Environmental's assets to be sold to
arrive at an implied equity value of $12.0 million. The TTM equity purchase
price/TTM earnings ratios for the Precedent Transactions ranged from 27.1x to
69.2x, with an average of 54.2x. The average TTM P/E multiple of 54.2x was
applied to Handex Environmental's TTM earnings, adjusted for the removal of a
Handex corporate SG&A allocation, to arrive at an implied equity value of $1.2
million.
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Raymond James noted that for transactions where less than 100% of the
target company had been acquired, the multiples listed above were computed using
a pro forma purchase price assuming a 100% acquisition.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Raymond James estimated the present value of the future stream of unleveraged
free cash flows which Handex Environmental could produce through fiscal year
2002, based on projections provided by the Company's and the Environmental
Subsidiaries' managements. Key assumptions in the discounted cash flow analysis
included (i) a terminal value for Handex Environmental in 2002 to be a multiple
ranging from 4.0x to 6.0x projected EBITDA in 2002 and (ii) discount rates
ranging from 15.0% to 25.0%. Utilizing these projections and assumptions,
Raymond James arrived at estimated ranges of equity value for Handex
Environmental of approximately $3.5 million to $4.4 million, $3.0 million to
$3.7 million and $2.6 million to $3.2 million, utilizing discount rates of
15.0%, 20.0% and 25.0%, respectively.
Raymond James also conducted a discounted cash flow analysis based on
projections through the year 2001 prepared by ECB. Key assumptions in the
discounted cash flow analysis included (i) a terminal value for Handex
Environmental in 2001 to be a multiple ranging from 4.0x to 6.0x projected
EBITDA in 2001 and (ii) discount rates ranging from 20.0% to 30.0%. Utilizing
these projections and assumptions, Raymond James arrived at estimated ranges of
equity value for Handex Environmental of approximately $18.7 million to $23.8
million, $16.3 million to $20.6 million and $14.3 million to $18.0 million,
utilizing discount rates of 20.0%, 25.0% and 30.0%, respectively.
For its services in rendering its opinion, the Company paid Raymond James a
retainer fee of $50,000 and a further fee of $50,000 payable upon the delivery
of the opinion. Handex also agreed to reimburse Raymond James for its reasonable
out-of-pocket expenses and to indemnify Raymond James and its affiliates against
certain liabilities, including liabilities under federal securities laws,
relating to or arising out of Raymond James' engagement to render its opinion.
DESCRIPTION OF THE AGREEMENT AND THE SALE
Although the following summary includes a discussion of material provisions
of the Agreement and the Ancillary Agreements, such summary does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
the provisions of the Agreement, including the definition of certain terms
provided for in the Agreement or the Ancillary Agreements. A copy of the
Agreement is attached as Appendix A to this Proxy Statement.
Purchase Price. If the sale of Handex Environmental is consummated on the
terms contemplated by the Agreement, the Company will receive aggregate
consideration in the face amount of approximately $30,510,844 (the "Purchase
Price"). The consideration to be received by the Company from ECB consists of:
(i) $4,600,000 in cash; (ii) a promissory note in the original principal amount
of $3,700,000 (subject to adjustment in certain events) due on April 30, 2002
and bearing interest at the rate of 6% per annum (the "Promissory Note"); (iii)
2,000 shares of Series A Preferred Stock, stated value $1,000 per share (the
"Preferred Stock") of ECB; (iv) a six-year warrant to acquire 300,000 common
shares of ECB at a price of $1.32 per share ("Warrant A"); (v) a six-year
Warrant to acquire 85,000 common shares of ECB at a price of $1.60 per share
("Warrant B") (Warrant A and Warrant B are collectively referred to herein as
the "Warrants"); and (vi) one-third of the redemption value of a small interest
in a joint venture, when paid or available to be paid to ECB. In addition, the
Agreement contemplates that, immediately prior to the Closing, the Company will
receive a dividend of cash, accounts receivable and other assets owned by the
Environmental Subsidiaries and having a book value of approximately $20,211,000
at September 28, 1996.
The face amount of the non-cash consideration to be received by the Company
pursuant to the Agreement (excluding the Warrants) is $5.7 million. However,
because ECB is a newly organized entity with no history of prior operations, and
because of the significant amount of indebtedness that ECB will incur in
connection with the Sale, the Company has established a valuation reserve with
respect to the non-cash consideration in the amount of $4.6 million. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Certain Information Concerning ECB."
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<PAGE> 22
Purchase Price Adjustment. The Purchase Price is subject to adjustment
after the Closing. The amount of any such adjustment will equal the difference
between the "Net Acquired Balance Sheet Assets" of Handex Environmental
(defined, for purposes of the Agreement, to include a specified amount of
certain accounts receivable, inventories, prepaid expenses, other current assets
and certain miscellaneous assets, and net property, plant and equipment, less
accounts payable, payroll and sales taxes payable, payroll and other accrued
expenses) and $10,335,268 (the "Targeted Balance Sheet Assets"). The amount of
any Purchase Price adjustment will be determined within 60 days of the Closing.
Any amount by which the Net Acquired Balance Sheet Assets exceed the Targeted
Balance Sheet Assets will be added to the principal amount of the Promissory
Note. Any amount by which the Targeted Balance Sheet Assets exceed the Net
Acquired Balance Sheet Assets will be paid by the Company to ECB in cash or,
under certain circumstances, a combination of cash and/or an assignment of
certain accounts receivable.
Dividend of Receivables and Miscellaneous Assets. The Agreement requires
Handex Environmental to have, at the Closing, net current assets of at least
$5,098,268. Subject to that requirement, the Agreement permits the Environmental
Subsidiaries to transfer to the Company, at any time prior to the Closing, all
cash, trade accounts receivable and other receivables. In addition, the
Environmental Subsidiaries may transfer to the Company certain other assets,
including marketable securities, loans receivable from officers, the cash value
of life insurance, refundable taxes and prepaid directors' fees. The Company
intends to cause the Environmental Subsidiaries to declare a dividend of the
retained assets to the Company immediately prior to the Closing. As of September
28, 1996, the book value of the assets that could have been distributed to the
Company pursuant to the Agreement was $20,211,000.
Conditions to the Sale. The obligation of each of the parties to
consummate the Sale is subject to certain conditions, any or all of which may be
waived, in whole or in part, to the extent permitted by law, including the
condition that no proceeding will have been commenced or threatened involving
any challenge to, or that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with the Sale, and that the Sale will not
cause either ECB or the Company to materially violate or suffer any material
adverse consequence under any legal requirements or orders.
The obligation of the Company, on the one hand, and ECB on the other, to
effect the Sale is further subject to the conditions that (i) the
representations and warranties of the other party made in the Agreement are
accurate in all material respects as of the Closing, (ii) the other party must
have performed in all material respects the covenants and obligations required
to be performed or complied with by such party at or prior to the Closing, and
(iii) legal counsel for the other party shall have furnished opinions with
respect to certain specified matters.
In addition, (i) the obligation of ECB is subject to consents to the
transfer of certain contracts to which the Company is a party, including in
particular certain existing service agreements with four large customers, and
(ii) the obligation of the Company is subject to approval of the Agreement by
its stockholders.
Representations and Warranties. The Agreement contains certain customary
representations and warranties from each of the parties. The Company has made
representations regarding, among other things (i) the Company's authority to
enter into and perform its obligations under the Agreement; (ii) compliance of
the transactions contemplated by the Agreement with the Company's Certificate of
Incorporation, Bylaws, certain agreements and applicable laws; (iii) the
capitalization and ownership of each of the Environmental Subsidiaries; (iv) the
financial statements of the Environmental Subsidiaries; (v) the absence of a
material adverse change in the business, earnings, operations or financial
condition of the Environmental Subsidiaries since August 24, 1996; (vi)
environmental matters; (vii) litigation; (viii) income and other taxes; (ix)
employee benefit plans; (x) compliance with laws; and (xi) compliance with
contracts.
In addition to representations and warranties concerning the organization
and capitalization of ECB, its authority to enter into and perform its
obligations under the Agreement, the absence of conflicts with laws and
agreements and the enforceability of the Agreement and the Ancillary Agreements,
ECB has represented that it will be solvent following consummation of the Sale.
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<PAGE> 23
Conduct of Business. The Agreement provides that the Company will conduct
the environmental business prior to the Closing only in the regular and ordinary
course in substantially the same manner as theretofore conducted. In general,
the Company and the Environmental Subsidiaries may not, without the prior
written consent of ECB: (i) change any Environmental Subsidiary's authorized or
issued capital stock; grant any stock option or right to purchase shares of
capital stock of any Environmental Subsidiary, issue any security convertible
into such capital stock; grant any registration rights; purchase, redeem,
retire, or acquire by an Environmental Subsidiary any shares of any such capital
stock; or declare or pay any dividend or other distribution or payment, except
as contemplated by the Agreement, in respect of shares of capital stock; (ii)
amend the organizational documents of any Environmental Subsidiary; (iii)
increase any bonuses, salaries, or other compensation to any stockholder,
director, officer, or (except in the ordinary course of business) employee or
enter into any employment, severance, or similar contract with any director,
officer, or employee; (iv) adopt or increase the payments to or benefits under,
any profit sharing, bonus, deferred compensation savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of any
Environmental Subsidiary; (v) suffer any damage or destroy any asset or property
of any Environmental Subsidiary, whether or not covered by insurance, materially
and adversely affecting the properties, assets, business, financial condition,
or prospects of the Environmental Subsidiaries, taken as a whole; (vi) enter
into or terminate any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or any contract or transaction
involving a total remaining commitment by any Environmental Subsidiary of at
least $150,000; (vii) sell, lease or otherwise dispose of any asset or property
of any Environmental Subsidiary or impose any encumbrance on any material asset
or property of any Environmental Subsidiary, other than in the ordinary course
of business; (viii) cancel or waive any claims or rights with a value to any
Environmental Subsidiary in excess of $50,000; (ix) materially change the
accounting methods used by any Environmental Subsidiary; or (x) agree to do any
of the foregoing.
Further, the Company and the Environmental Subsidiaries must: (i) conduct
the business of each Environmental Subsidiary only in the ordinary course of
business; (ii) use its best efforts to preserve intact the current business
organization of such Environmental Subsidiary, keep available the services of
the current employees, and agents of such Environmental Subsidiary, and maintain
the relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with such
Environmental Subsidiary; (iii) confer with ECB concerning operational matters
of a material nature and obtain ECB's consent (which shall not be unreasonably
withheld) to any sale or other disposition of any tangible asset or property;
(iv) pay any undisputed debts or trade accounts payable that have been
outstanding more than 60 days; and (v) otherwise respond to ECB concerning the
status of the environmental business.
Indemnification. The Company will indemnify ECB, the Environmental
Subsidiaries and their respective representatives for losses they may incur by
reason of (i) the Company's breach of a representation, warranty, covenant or
obligation made in the Agreement or in any of the Ancillary Agreements, (ii) any
product shipped or manufactured by, or any services provided by, any
Environmental Subsidiary prior to the Closing, (iii) contested tax returns or
legal proceedings commenced by or against any of the Environmental Subsidiaries
as set forth in the disclosure schedules to the Agreement, and (iv) any claim
for brokerage or finder's fees or commissions in connection with the Sale. In
addition, the Company will indemnify ECB for losses it may incur by reason of
environmental conditions existing as of the Closing. The Company's
indemnification obligations are subject to certain limitations, including: (i)
time limits on certain of the representations and warranties made by the
Company; (ii) an exclusion from liability to the extent ECB had knowledge at the
time of Closing of a breach or violation by the Company, (iii) a $200,000
threshold on liability; and (iv) a maximum on liability of $7,000,000, of which
$1,300,000 is payable by the Company in cash, with the balance being collectable
only as an offset or recovery of principal amounts payable under the Promissory
Note or amounts payable upon redemption or liquidation of the Preferred Stock.
The threshold and maximum on the Company's indemnification obligations are not
applicable, however, to litigation pending by or against the Environmental
Subsidiaries, claims for brokers' or finders' fees and claims relating to
breaches of the representations and warranties concerning capitalization of the
Environmental Subsidiaries, taxes and employee benefit plans. Further, the
Company has agreed to cause the Environmental Subsidiaries to transfer to it
prior to the Closing primary responsibility for certain contracts which may not
be completed prior to such date. See "The Proposed Sale of Handex
Environmental -- Other Ancillary Agreements".
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ECB will indemnify the Company and its representatives for losses they may
incur by reason of (i) ECB's breach of a representation, warranty, covenant or
obligation made in the Agreement or in any of the Ancillary Agreements, (ii) any
product shipped or manufactured by, or any services provided by, any
Environmental Subsidiary after the Closing, (iii) the obligations of the Company
under certain leases, bonds and client contracts, and (iv) any claim for
brokerage or finder's fees or commissions in connection with the Sale. ECB's
obligation to indemnify the Company is triggered once the Company has incurred
losses exceeding $50,000.
Termination. The Agreement provides for termination of the Agreement (i)
by either the Company or ECB if (a) a material breach of any provision of the
Agreement has been committed by the other party and not waived or cured, (b) the
other party has not satisfied any of the conditions precedent to its obligation
to close or (c) if the Closing has not occurred on or before January 27, 1997
(or such later date as the parties may agree upon); (ii) by mutual consent of
ECB and the Company; or (iii) by the Company if deemed necessary in order for
the Directors of the Company to comply with their fiduciary duties. In the event
of any such termination, all further obligations of ECB and the Company will
terminate except (i) each party will be responsible for all of its expenses
incurred in connection with the preparation, execution and performance of the
Agreement and the transactions contemplated thereby; (ii) each party will remain
bound by the confidentiality letter agreement dated February 21, 1996; (iii)
each party will retain its right to pursue all legal remedies as a result of any
breach of the Agreement by the other party or the other party's failure to
perform one or more conditions to the terminating party's obligation to close;
and (iv) the Company will pay ECB and Southcoast aggregate termination fees of
$600,000 if the Company terminates the Agreement as a result of a determination
that such action is necessary in order for its Board of Directors to fulfill its
fiduciary duties.
Solicitation of Acquisition Proposals. The Agreement prohibits the Company
from directly or indirectly soliciting or initiating inquiries or proposals from
any person with respect to an acquisition of the Environmental Subsidiaries,
until such time, if any, that the Agreement is terminated.
Assignments and Successors. The Company may assign its rights under the
Agreement and, subject to the terms thereof and the Shareholders Agreement,
transfer the Promissory Note, Preferred Shares and Warrants to any person. ECB
may not assign any of its rights under the Agreement without the prior written
consent of the Company. The Agreement will apply to, be binding upon and inure
to the benefit of the successors and permitted assigns of ECB and the Company.
Amendment. The Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment. After approval of the
Agreement by the stockholders of the Company, no amendment, which under
applicable law may not be made without the approval of such stockholders, may be
made without such approval.
DESCRIPTION OF THE SECURITIES TO BE RECEIVED BY THE COMPANY
The Promissory Note. Pursuant to the terms of the Promissory Note, ECB
will pay the Company the principal amount of $3,700,000, together with accrued
interest at a rate per annum of 6%. Interest will be paid quarterly commencing
March 31, 1998. Interest through December 31, 1997 will be accrued and added to
principal. Unpaid principal or interest will accrue interest at the greater of
8% per annum or the prime rate as announced by SouthTrust. Principal is to be
paid in four annual installments commencing April 30, 1999 in an amount equal to
25% of ECB's free cash flow for its most recent fiscal year provided, however,
the annual principal payments must be at least $250,000 on April 30, 1999,
$500,000 on April 30, 2000, $750,000 on April 30, 2001 and $2,200,000 (plus
interest for the period ending December 31, 1997) on April 30, 2002. In the
event of a positive adjustment to the Purchase Price, the adjustment amount
provided for by the Agreement will be added to the April 30, 2002 payment
otherwise due.
ECB may prepay the Promissory Note at any time without penalty. Upon the
occurrence of a public offering of ECB's Common Stock in which ECB receives net
proceeds of at least $10,000,000, ECB is required to prepay the outstanding
principal amount and all accrued and unpaid interest. The Company's right to
payment of principal is subject to ECB's rights of set-off as provided in the
Agreement. The Promissory Note will be guaranteed and secured by the
Environmental Subsidiaries under the terms of the Corporate Guaranty and
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Pledge Agreement, and each of George Bannon, Roger Eatman and S.C. Culbreth, Jr.
as set forth in the Nonrecourse Individual Guaranty and Pledge Agreement. The
Promissory Note will also be secured by a pledge of the shares in Handex
Environmental pursuant to a Pledge Agreement executed by ECB. See "-- Other
Ancillary Documents."
ECB will make certain affirmative covenants in the Promissory Note,
including, (i) maintenance of its valid corporate existence and insurance on its
assets and business, (ii) timely payment of taxes, (iii) compliance with legal
requirements, (iv) delivery to the Company of annual and interim financial
statements, and (v) certain financial covenants. The Promissory Note will also
contain certain negative covenants restricting ECB's ability to (i) incur
certain additional indebtedness and security interests, (ii) declare dividends
and make distributions, (iii) increase executive salaries and (iv) make certain
loans, advances, capital expenditures or payments of subordinated debt.
Should any event of default under the Promissory Note occur, any unpaid
principal and all accrued interest will become immediately due and payable at
the option of the Company. Events of default include the failure on the part of
ECB or any Environmental Subsidiary to make any payment due under the Promissory
Note within ten days of its due date, the making of a materially false or
misleading representation or warranty, any default in the observance or
performance of any covenant, condition or agreement of ECB or any Environmental
Subsidiary which continues without waiver or cure for 30 days, any event of
default under any debt owed by ECB or any Environmental Subsidiary to senior
lenders or to any other party if in excess of $100,000, and any unsatisfied
final judgment for the payment of money in excess of $100,000 which is not
stayed pending appeal for a period of 30 days. Additional events of default may
result from a sale of substantially all of the assets of the Environmental
Subsidiaries, a merger or any event which results in Messrs. Bannon, Eatman and
Culbreth owning less than 51% of the voting power of ECB or less than 25% of its
common shares.
Payments due under the Promissory Note will be subordinated to indebtedness
incurred by ECB to financial institutions, including the indebtedness to be
incurred to SouthTrust pursuant to the terms of a Subordination Agreement to be
entered into among ECB, the Company and SouthTrust ("Subordination Agreement").
See "-- Other Ancillary Agreements."
Preferred Stock. Pursuant to the terms of the Preferred Stock, holders of
Preferred Stock will not be entitled to vote their shares, except that (i) so
long as 300 or more shares of Preferred Stock are outstanding, the holders of
Preferred Stock may elect one Director of ECB by majority vote, and (ii) so long
as any Preferred Stock is outstanding, ECB may not, without the approval of a
majority of the holders of Preferred Stock, increase or decrease the 3,000
shares of Preferred Stock currently authorized or issue any shares of capital
stock or securities convertible into any shares of capital stock ranking senior
to or on parity with the Preferred Stock.
Dividends will be payable in cash on the fifteenth day of January, April,
July and October of each year in an amount per share generally equal to 8% of
the stated value of each share divided by four. Upon the dissolution,
liquidation or winding up of the affairs of ECB, the holders of Preferred Stock
will have priority over the holders of ECB's common shares, and will be entitled
to receive from ECB's assets available for distribution $1,000 per share plus
all accrued dividends, before any payment or distribution may be made to the
holders of ECB's common shares or other shares junior to the Preferred Stock.
The Preferred Stock is not convertible into common shares of ECB.
On April 15, 2003, ECB will be required to redeem all of the then
outstanding shares of Preferred Stock at a redemption price per share of $1,000
plus accrued dividends through the date of such redemption. Prior to such date,
ECB will be required to redeem such shares upon the occurrence of any merger or
consolidation of ECB in which it is not the surviving entity, the sale or
disposition of substantially all of the assets of ECB and its consolidated
subsidiaries, an initial public offering of ECB's common shares resulting in net
proceeds to ECB equaling at least $10,000,000 or any event which results in
Messrs. Bannon, Eatman and Culbreth owning less than 51% of the total voting
power of ECB or less than 25% of its common shares. Additionally, ECB may at any
time redeem all or any portion of the outstanding Preferred Stock at a
redemption price per share of $1,000 plus accrued dividends.
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All payments under the Preferred Stock will be subject to SouthTrust's
prior rights to payment pursuant to the terms of the Subordination Agreement.
The Warrants. Pursuant to the terms of Warrant A, the Company will be
entitled to purchase from ECB all (or any portion representing at least ten
percent) of 300,000 common shares of ECB (the "Warrant A Shares") at a per share
purchase price of $1.32, subject to adjustment as hereinafter set forth.
Pursuant to the terms of Warrant B, the Company will be entitled to purchase
from ECB all (or any portion representing at least ten percent) of 85,000 common
shares of ECB (the "Warrant B Shares" and, together with the Warrant A Shares,
the "Warrant Shares") at a per share purchase price of $1.60. The Warrants will
be immediately exercisable upon their original issuance and may be exercised at
any time until the later of the sixth anniversary of the original issue date or
the first anniversary of payment in full of the indebtedness due under the
Promissory Note. ECB will be pay all expenses and any taxes in connection with
the issuance and delivery of any Warrant Shares. A holder of Warrant Shares is
entitled to all of the rights and subject to all of the obligations as set forth
in the Warrants, except if a transferee of Warrant Shares acquires them after a
public sale pursuant to a registration statement under the Securities Act of
1933 or sale pursuant to Rule 144 or Rule 144A promulgated thereunder. Subject
to the terms of the Shareholders Agreement, the Warrants are transferable.
The exercise price and the number of Warrant Shares are both subject to
appropriate adjustment in the event of any dividend or distribution on its
outstanding common shares payable in common shares or convertible securities,
any subdivision, reclassification or combination of any of its outstanding
common shares, or in the event of a reorganization, reclassification or
recapitalization of ECB. In the event that ECB effects an offering of common
shares pro rata among its stockholders, the Warrant holders will be entitled to
elect to participate as if the Warrants had been exercised and the holders were
the holders of such number of Warrant Shares.
A Warrant holder will have preemptive rights with respect to any issuance
or sale of additional common shares of ECB or convertible securities to purchase
additional shares on the same terms and conditions as is sufficient to maintain
the percentage of outstanding common shares to which such holder owns or is
entitled to purchase upon the exercise of the Warrants. Such preemptive rights
shall not extend to the issuance of Warrant Shares, the issuance of common
shares pursuant to a rights offering in which the Warrant holder elects to
participate, the issuance of common shares in connection with the acquisition by
ECB of a business which is unanimously approved by ECB's Board of Directors, or
the issuance by ECB (i) of up to a total of 290,000 common shares either
directly or pursuant to options granted to senior management employees of ECB
other than George Bannon and Roger Eatman, on or before March 31, 1998 and
having an exercise price of not less than $.88 per share and/or issued to such
employees after such date at a price per share of not less than $1.75 per share,
(ii) up to a total of 90,000 common shares issued by ECB either directly or
pursuant to options to middle management employees of ECB and having a price per
share of not less than $1.75, and (iii) of the common shares issued pursuant to
a warrant to acquire 46,200 common shares at $.88 per share issued to Southcoast
as partial compensation for its services to ECB in connection with the Sale.
Neither the Warrants nor the Warrant Shares are transferable other than pursuant
to the terms of the respective Warrants and the Shareholders Agreement, an
effective registration statement under the Securities Act or an exemption from
the registration provisions thereof.
Upon the first to occur of: (i) the sixth anniversary of the date of
issuance, (ii) any merger or consolidation of ECB with another entity pursuant
to which ECB is not the surviving entity, (iii) the sale or other disposition by
ECB or any of its subsidiaries of assets (including the stock of any subsidiary)
representing more than 60% of either (a) the aggregate fair market value of the
assets of ECB and its subsidiaries determined on a consolidated basis or (b) the
total revenues of ECB and its subsidiaries determined on a consolidated basis,
(iv) a change of control of ECB that results in Messrs. Bannon, Eatman and
Culbreth having the right to exercise less than 51% of the total voting power of
ECB in the election of directors or owning less than 25% of the common shares in
ECB, and (v) a public offering of ECB's common shares in which the net proceeds
are at least $10,000,000, ECB will be obligated to repurchase (x) all (or a
greater than ten percent portion) of the Warrants and Warrant Shares issued upon
exercise of the Warrant, for an amount determined by multiplying (i) the number
of Warrant Shares then purchasable upon exercise of the Warrant by (ii) the
difference between (a) the Fair Value per common share as of the date of such
notice and (b) the warrant price per share as of such date, and/or (y) the
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number of Warrant Shares held by such holder for an amount determined by
multiplying (a) the number of shares designated in such notice by (b) the Fair
Value per share as of the date of such notice. Fair Value means (i) if
determined in connection with a public offering of ECB common shares, the public
offering price of ECB common shares as of such date, or (ii) otherwise, the
higher of (a) 75% of the book value as of the last day of the fiscal quarter
last preceding the triggering date of the Fair Value determination and (b) an
amount equal to (x) 4.5 times the consolidated earnings of ECB and its
subsidiaries before amortization, depreciation, interest and taxes for the
preceding year, less outstanding indebtedness and the redemption price of any
shares of Preferred Stock outstanding, plus the average amount of cash and
marketable securities of ECB for the preceding 6 months, divided by (y) the
number of fully diluted outstanding common shares of ECB as of such date.
ECB will have the right to redeem from the holder of a Warrant or Warrant
Shares (x) all or such portion of the Warrant for an amount determined by
multiplying (i) the number of Warrant Shares then purchasable or so designated
by (ii) the difference between (a) the Fair Value per share as of the date of
such notice and (b) the current warrant price per share as of such date, and/or
(y) the number of Warrant Shares designated in such notice for an amount
determined by multiplying (i) the number of shares so designated by (ii) the
Fair Value per share as of such date. ECB may exercise this right at any time
(i) prior to April 15, 1998 if it has also redeemed the Preferred Stock and (ii)
after the sixth anniversary of the date of the Warrant. In the event this right
is exercised prior to April 15, 1998, the determination of Fair Value described
above will be based on a multiple of 4.0 times the consolidated net earnings of
ECB as opposed to 4.5 times.
All payments upon repurchase or redemption of the Warrants will be subject
to SouthTrust's prior rights to payment pursuant to the terms of the
Subordination Agreement.
The terms of Warrant A provide for demand registration rights in the event
that holders of an aggregate of 75% or more of the Warrant A Shares give written
request to ECB that it effect a registration with respect to all or a part of
the Warrant A Shares. Such rights are not applicable, however, (i) after ECB has
effected one such registration statement which has been declared effective, (ii)
prior to five years from the date of the Warrant's initial issuance, (iii) if
the request for registration is for less than 20% of the Warrant Shares, (iv) if
the request is made within sixty days prior to ECB's estimated date of filing
such a registration statement, or (v) unless ECB otherwise consents, if ECB has
not already effected a registration under the Securities Act at least 270 days
prior thereto. The exercise of registration rights by holders of Warrant A
Shares is subject to pro rata participation by holders of Warrant B Shares.
Warrant B does not provide for such demand registration rights. In the event
that ECB determines to register any of its securities other than (i) those
relating solely to employee benefit or stock option plans, (ii) securities to be
issued in connection with the acquisition of any entity or business, (iii) a
registration relating to a Rule 145 transaction, or (iv) a registration on any
form that does not permit secondary sales, then it must give written notice to
each holder and include such Warrant Shares in such registration as specified in
a written request from such holder.
OTHER ANCILLARY AGREEMENTS
Pledge Agreements. The Promissory Note to be delivered by ECB to the
Company will be secured by a Pledge Agreement between ECB and the Company,
pursuant to which ECB will grant a security interest in all of the outstanding
shares of common stock of Handex Environmental. The Promissory Note will also be
guaranteed and secured by a Corporate Guaranty and Pledge Agreement made by the
Environmental Subsidiaries in favor of the Company, pursuant to which the
Environmental Subsidiaries will jointly and severally guarantee the obligations
of ECB under the Promissory Note and a security interest in all of the shares of
Handex Environmental's subsidiaries will be granted. The Promissory Note will be
further secured by a Nonrecourse Individual Guaranty and Pledge Agreement made
by Messrs. Bannon, Eatman and Culbreth in favor of the Company, pursuant to
which they will jointly and severally guarantee the obligations of ECB and the
Environmental Subsidiaries under the Promissory Note and will grant to the
Company a security interest in the outstanding common shares of ECB owned by
them. The Company's recourse against Messrs. Bannon, Eatman and Culbreth under
the Agreement is limited to such pledged shares.
Subordination Agreement. SouthTrust will require that the Company and ECB
enter into a Subordination Agreement which will restrict the Company's right to
receive payments of (i) principal and interest under the
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Promissory Note, (ii) dividends on the Preferred Stock, (iii) redemption and
liquidation proceeds of the Preferred Stock, and (iv) redemption or repurchase
proceeds under the Warrants. Payments of interest under the Promissory Note and
dividends under the Preferred Stock will not be permitted until January 1, 1998.
Otherwise, payments can be made provided (i) no event of default exists under
ECB's credit agreements with SouthTrust or would result from such payment and
(ii) ECB and its subsidiaries comply with the financial covenants set forth in
their financing agreement with SouthTrust each time when compliance with such
financial covenants is measured for the period that includes the date on which
any such payment is made. The Company will be prohibited from receiving any
payments from ECB, or exercising any rights or remedies against ECB, for a
period of 180 days following the Company's receipt from SouthTrust of a notice
of default under the financing agreement among SouthTrust, ECB and its
subsidiaries. Following the expiration or termination of such period under the
terms of the Subordination Agreement, the Company may accelerate and proceed
with its other rights and remedies against ECB and exercise its rights under the
pledge agreements, subject, however, to SouthTrust's prior rights to payment.
The Company also will be permitted to receive payments under, and to otherwise
exercise its rights and remedies with respect to, the Promissory Note, Preferred
Stock or Warrants upon the occurrence of certain extraordinary events, including
any merger or consolidation of ECB in which it is not the surviving entity, a
sale of substantially all of the assets of ECB and its subsidiaries, a
transaction in which Messrs. Bannon, Eatman and Culbreth would own less than 51%
of the voting power or 25% of the common shares of ECB or a public offering in
which ECB receives net proceeds of at least $10,000,000, subject, however, to
SouthTrust's prior rights to payment.
Receivables Collection Agreement. Pursuant to the terms of a Receivables
Collection Agreement to be entered into between ECB and the Company, the Company
will guarantee that the accounts receivable of the Environmental Subsidiaries
will be collected within 120 days of the Closing.
Completion Assistance Agreement. The Agreement provides that the Company
will, prior to the Closing, cause the Environmental Subsidiaries to transfer to
the Company certain contracts relating to work-in-progress in order to cause the
Company to have primary responsibility for and control over such
work-in-progress. Pursuant to the terms of the Completion Assistance Agreement
to be entered into between the Company and ECB, ECB will agree to perform
certain of these transferred contracts as a subcontractor to the Company. ECB
will also agree that all currently unpaid amounts due under the transferred
contracts and all amounts due thereafter are the exclusive property of the
Company.
Shareholders Agreement. The Shareholders Agreement to be entered into
among ECB, George Bannon, Roger Eatman, S. C. Culbreth, Jr., the Company and
Southcoast will restrict the rights of Messrs. Bannon, Eatman and Culbreth to
vote their common shares of ECB to alter or otherwise modify ECB's Articles of
Incorporation and By-Laws or to elect a Board of Directors or officers of ECB
otherwise than as contemplated in the Shareholders Agreement, and restricts the
rights of ECB and such shareholders to cause the issuance of additional
securities of ECB which would result in the their having the right to exercise
less than 51% of the total voting power of ECB for the election of Directors.
The Shareholders Agreement also provides ECB and its shareholders with a right
of first refusal in connection with any offer to purchase any of ECB's
securities, including the Preferred Stock and Warrants (and common shares issued
upon exercise of the Warrants) issued to the Company. Messrs. Bannon, Eatman and
Culbreth are further provided certain rights to require the other holders of
common shares in ECB to participate in a sale of all of the outstanding common
shares of ECB to a third party. The Shareholders Agreement will terminate in the
event the Company elects to exercise its remedies under the Nonrecourse
Individual Guaranty and Pledge Agreement pursuant to which the Company holds the
common shares of ECB owned by Messrs. Bannon, Eatman and Culbreth as security
for payment of the Promissory Note.
Deposit Escrow Agreement. Simultaneous with the execution of the
Agreement, the Company, ECB and SouthTrust Asset Management Company of Florida,
Inc. entered into a Deposit Escrow Agreement pursuant to which ECB deposited
$303,260 into escrow. The Company shall be entitled to receive this entire
amount in the event the Agreement is terminated by the Company because of a
breach of the Agreement by ECB or because one or more of the conditions to the
Company's obligations under the Agreement is not satisfied as a result of ECB's
failure to comply with its obligations under the Agreement.
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CLOSING DATE
The Sale will be consummated on December 27, 1996, or such other date as
the parties to the Agreement may agree, provided that a majority of the
stockholders of the Company approve the Agreement at the Special Meeting.
EXPECTED LOSS FROM TRANSACTION; CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon completion of the transaction described above, the Company expects to
report a loss from the Sale of approximately $7.3 million. There is no expected
Federal income tax benefit from this loss.
USE OF PROCEEDS
After legal and accounting costs, financial advisory fees, printing and
other costs have been paid, the Company expects to retain about $3.6 million in
cash, exclusive of retained assets. In furtherance of its mission of becoming
the largest independent company in the personal computer applications and
technical training market, the Company intends to use the cash proceeds from the
Sale to provide working capital to finance the development and continued
expansion of its educational business, fund potential acquisitions, if any, and
for other general corporate purposes.
INTERESTS OF CERTAIN PERSONS IN THE SALE
John T. St. James, the Company's Vice President, Treasurer and Chief
Financial Officer, will receive a bonus in the amount of $25,000 upon completion
of the Sale. Certain other non-executive officer employees will also receive
bonuses upon completion of the Sale. With the exception of Mr. St. James, no
person who is or has been an executive officer or director of the Company at any
time since the beginning of the last fiscal year will receive any compensation
in connection with the Sale.
REGULATORY MATTERS
No Federal or State regulatory requirements must be complied with or
approval obtained in connection with the Sale.
NO APPRAISAL RIGHTS
Section 262 of the DGCL provides that no holder of shares of Handex Common
Stock shall have appraisal rights in connection with the Agreement and the Sale.
ACCOUNTING TREATMENT
The sale of Handex Environmental will be accounted for by the Company as a
sale of a business.
RECOMMENDATION OF THE HANDEX BOARD OF DIRECTORS
The Board of Directors of Handex believes that the Sale is in the best
interests of Handex and its stockholders and has unanimously approved the
Agreement and the Sale. The Handex Board of Directors unanimously recommends
that the stockholders vote FOR approval of the Agreement. The affirmative vote
of the holders of a majority of the outstanding shares of Common Stock of the
Company is required to approve the Agreement.
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THE PROPOSED AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
PROPOSAL TO CHANGE THE COMPANY'S NAME
The Board of Directors of the Company has also adopted a resolution setting
forth a proposed amendment to the Company's Certificate of Incorporation to
change the name of the Company to "New Horizons Worldwide, Inc.," subject to the
consummation of the Sale. The current name of the Company is "Handex
Corporation."
Upon consummation of the Sale, the Company's educational business -- New
Horizons Education Corporation and its subsidiaries -- will become the Company's
sole business, and the Company's environmental business theretofore conducted by
the Environmental Subsidiaries will no longer be owned by the Company. The Board
of Directors believes that the proposed change of the Company's name to "New
Horizons Worldwide, Inc." better reflects the nature of the Company's ongoing
operations and is therefore in the best interests of the Company and its
stockholders.
RECOMMENDATION OF THE HANDEX BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the proposal to change the
name of the Company. The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock is required to approve the Amendment.
DESCRIPTION OF THE COMPANY'S CONTINUING OPERATIONS
New Horizons operates computer training centers in the United States and
franchises computer training centers in the United States and abroad under the
name "New Horizons Computer Learning Centers." Through these centers, New
Horizons offers a wide variety of computer-related software, applications, and
technical training to users of personal computers or work stations. In addition
to its computer training business, New Horizons supplies independent franchisees
with a system of instruction, sales and management concepts concerning computer
training.
New Horizons' system-wide revenues (which include the results of both
franchised and company-owned locations) for the first nine months of 1996
increased 95.7% to $138,072,000 from $70,554,000 for the first nine months of
1995.
New Horizons' expansion strategy focuses on adding both franchised and
company-owned training centers. The Company believes that a mix of franchised
and company-owned centers will enable it to combine the accelerated expansion
opportunities provided by franchising while maintaining ownership of a
significant number of units. The terms of New Horizons' existing franchise
agreements generally provide franchisees with exclusive rights within a
designated territory, and the Company does not anticipate opening both
franchised and company-owned locations within a particular geographic market.
The Company anticipates adding new company-owned locations through internal
development efforts and through selective acquisitions of franchisees.
New Horizons Computer Training Centers. New Horizons operates computer
training facilities in Santa Ana and Los Angeles, California; Chicago, Illinois;
New York, New York; and Cleveland, Ohio. Prior to the acquisition of New
Horizons by the Company, New Horizons operated a single training center in Santa
Ana. Except for the center in Los Angeles, California which was opened in April
1996, the other centers were acquired from franchisees, subsequent to the
acquisition, as part of New Horizons' strategic plan to operate company-owned
training centers in selected major United States markets.
Through its computer training centers, New Horizons offers comprehensive
instruction in the use of personal computers and computer software, including
instructor-led courses in software applications, networking and work stations.
Each facility is equipped with computer hardware, software, and peripherals in
order to provide students with hands-on training. Students are provided with
internally developed courseware and other training materials purchased by New
Horizons from leading software manufacturers under license agreements. New
Horizons' courses are designed to be highly interactive, with most classroom
courses involving hands-on training on
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networked Pentium-based computers. Students spend a significant portion of the
course working on computer-based exercises. Revenues from the computer training
centers are derived from training fees paid by clients and proceeds from the
sale of training materials related to the computer courses.
Typical students in a New Horizons' classroom consist of individuals from
private employers or various government agencies, which contract with New
Horizons to provide training in personal computer and software applications to
their personnel. Most of the classes are held at New Horizons' facilities.
However, in response to the needs of its customers, New Horizons also provides
instruction at client offices. All training is instructor-led, with
approximately 70% being conducted at the training centers and 30% at client
locations.
Franchising Operations. New Horizons has adopted a strategy of both
franchising and owning computer training centers. New Horizons began offering
franchise territories in 1992, and as of September 28, 1996, there were 143
training centers world-wide including Company-owned locations in New York,
Chicago, Cleveland, Los Angeles and Santa Ana, California. Of these 143 training
centers, 38 were located outside the United States. Franchising allows New
Horizons to expand the number of centers and penetrate markets more quickly and
with less capital than developing company-owned stores.
Franchisees are selected on the basis of various factors, including
business background, experience and financial resources. A new franchise owner
undergoes an intensive training program, receiving in-depth instruction in
sales, marketing, computer training and the management of a computer training
facility. New Horizons also provides franchisees with sales, management,
advertising and technical support. In the United States, New Horizons sells only
one franchise within a defined geographic area. U.S. franchisees pay an initial
franchise fee and royalty and advertising fees based on both gross training
revenues and gross sales of courseware. Each U.S. franchise is awarded for an
initial term of 10 years, and is renewable for additional five year terms.
In its international franchising activities, the Company typically enters
into master franchise agreements providing franchisees with the right to award
sub-franchises to other parties within a particular country. Under the terms of
these master franchise agreements, the franchisee commits to open or cause to be
opened a specified number of locations with a specified timeframe. The Company
shares with the franchisee in the proceeds of subsequent sales of individual
franchises, and also receives a percentage of the royalties received by the
master franchisee. The Company has established master franchise relationships in
the countries of Brazil, Mexico, Japan, New Zealand, Malaysia, Saudi Arabia,
Spain and South Africa. The Company has also entered into individual franchise
agreements with foreign franchisees similar to those entered into in its
domestic franchising activities, and anticipates that these individual franchise
arrangements may become more prevalent in the future.
The offer and sale of franchises are subject to regulation by the United
States Federal Trade Commission and certain foreign countries. There also exist
numerous state laws that regulate the offer and sale of franchises and business
opportunities, as well as the ongoing relationship between franchisers and
franchisees, including the termination, transfer and renewal of franchise
rights. The failure to comply with these laws could adversely affect the
Company's operations.
Customers and Marketing. Although New Horizons' courses are open to any
person desiring to receive training in the use of computer related software and
applications, customers for the training provided at New Horizons' operated and
franchised computer training centers are predominantly employer-sponsored
individuals from a wide range of corporations, professional service
organizations, government agencies and municipalities. No single customer
accounted for more than 10% of New Horizons revenues during 1995. According to a
survey conducted by International Data Corporation, worldwide revenues for the
computer information training industry approached $15 billion in 1995 and are
expected to grow to almost $27 billion by 2000. Although very fragmented, the
industry is expected to produce annual growth rates of 13%. The majority of all
company-sponsored computer education and training is currently supplied through
the use of in-house training staffs.
The Company believes that there is a trend in the United States toward
out-sourcing non-core operations, such as computer training, as a means of
increasing corporate efficiency and competitiveness. The Company believes that
this trend has been accelerated in recent years by corporate downsizing, which
has resulted in increased training requirements for employees who must perform
an increasing variety of computer-based tasks
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requiring knowledge of multiple software applications and technologies. In
addition, customer demand for computer training services has increased as a
result of rapid technological change in the information technology industry.
Technological developments in recent years have resulted in significant
increases in the use of computer networks in business, a related shift away from
mainframe systems to personal computer based systems, the continuous
introduction of new hardware and software and the growth of the Internet.
New Horizons markets its services primarily through account executives who
utilize telemarketing to target and contact potential customers. New Horizons
has also recently established a major accounts program designed to market
computer training services to large companies which have facilities throughout
the United States. Although national marketing efforts are conducted, a training
center's success depends upon execution at the local level.
Competition. The computer information technology training and education
industry is highly fragmented. Computer education and training is supplied
primarily by in-house training departments, national personal computer training
companies such as ExecuTrain, Catapult, Learning Tree and Productivity Point
International, small local independents, computer dealers and superstores and
computer resellers. New Horizons believes that competition in the industry is
based on a number of factors, including price, the quality of the instructors
and the training program itself, as well as the program's flexibility and
convenience.
Training Authorization. New Horizons is authorized to provide certified
training by more than 30 software publishers, including Microsoft, Novell, Apple
and Sun Microsystems. The industry's major software vendors have decided they
should not be in the training business but should support their products by
having independent training companies train their customers using a system of
standards and performance criteria that ensures the highest quality. In support
of these vendors, New Horizons has built the largest network of authorized
Microsoft and Novell training centers in the world. The Company is an authorized
trainer for more software publishers than other training companies, with 68
Novell (NAEC), 59 Microsoft (ATEC), and 13 Lotus (LAEC) authorized centers
worldwide. Market leading companies such as Microsoft, Novell, Apple and Lotus
all recognize the quality, consistency and worldwide reach of new Horizons
training. Training center authorization is the industry's seal of approval. The
authorization agreements are typically annual in length and are renewable at the
option of the publishers. While New Horizons believes that its relationship with
software publishers are good, the loss of any one of these agreements could have
a material adverse impact on its business.
Employees. As of September 28, 1996, New Horizons employed 465
individuals, consisting of 178 computer instructors, 163 account executives and
124 in the administration and executive areas. None of these employees are
represented by a labor organization. New Horizons considers relations with its
employees to be satisfactory.
Properties. The Company's corporate headquarters are currently located in
a 36,600 square foot facility in Morganville, New Jersey pursuant to a lease
which expires in 2003. The lease gives the Company an option to extend its
tenancy for the entire facility for an additional five year period. If the Sale
of Handex Environmental is consummated, the Company will only occupy
approximately 1,500 square feet of this space pursuant to a sublease which will
run for six months with a right to renew for an additional six months. New
Horizons' headquarters and primary training centers are located in Santa Ana and
Irvine, California, pursuant to leases which expire in 1997 and 2001,
respectively. As of September 30, 1996, New Horizons conducted business at six
leased facilities located in California, Illinois, New York and Ohio. The
Company believes that its properties are well maintained and are adequate to
meet current requirements and that suitable additional or substitute space will
be available as needed to accommodate any expansion of operations and for
additional offices if necessary.
Litigation and Insurance. From time to time New Horizons is party to
certain legal proceedings arising in the ordinary course of its business. The
Company does not believe that the outcome of such litigation will have a
material adverse effect on its results of operations or financial condition.
Under the terms of the Agreement, the Company is required to indemnify ECB
against liabilities arising out of pending litigation. See "The Proposed Sale of
Handex Environmental -- Description of the Agreement and the
Sale -- Indemnification."
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The Company maintains liability insurance in amounts it believes to be
adequate based on the nature of its business. While the Company believes that
New Horizons operates its business safely and prudently, there can be no
assurance that liabilities incurred with respect to a particular claim will be
covered by insurance or, if covered, that the dollar amount of such liabilities
will not exceed coverage limits.
Trademarks. The Company has a registered trademark incorporating a
stylized version of the "New Horizons" name and has certain other registered
trademarks. The Company believes that the New Horizons name and trademark are
important to its business. The Company is not aware of any pending or threatened
claims of infringement or challenges to the Company's right to use its
trademarks or the New Horizons name in its business.
DESCRIPTION OF THE ENVIRONMENTAL BUSINESS
Handex Environmental is a wholly-owned subsidiary of the Company which,
through its subsidiaries -- Handex Environmental Management, Inc., Handex of New
Jersey, Inc., Handex of New England, Inc., Handex of Maryland, Inc., Handex of
the Carolinas, Inc., Handex of Florida, Inc., Handex of Ohio, Inc., Handex of
Illinois, Inc., Handex of Colorado, Inc., and Handex of Pennsylvania, LLC
(collectively "Handex Environmental") -- provides a comprehensive solution to
hydrocarbon contamination of groundwater and soil at CERCLA, RCRA and UST sites.
Handex Environmental's full service approach addresses the entire remediation
process, from detection and delineation to recovery and treatment. Specific
services include detailed site assessments, analysis of groundwater and soil
contamination, development and installation of on-site recovery systems,
permitting services, maintenance and monitoring of recovery systems and complete
documentation of all services and systems. Handex Environmental also provides
environmental dewatering services to petroleum producers and suppliers. In late
1988 Handex Environmental introduced environmental site assessment services at
industrial sites, primarily in the State of New Jersey, and subsequently
increased its capability to perform other types of remediation projects through
the acquisition of sludge dewatering equipment.
Handex Environmental's primary clients continue to be the major petroleum
companies which store petroleum products in underground storage tanks. While the
bulk of Handex Environmental's underground storage tank and related services
remained concentrated at retail gasoline stations during the fiscal year ended
December 30, 1995 ("1995"), Handex Environmental continued to pursue and
obtained additional work at bulk petroleum storage terminals, refineries and
industrial sites. During 1995, Handex Environmental won and executed a series of
significant contracts throughout the country. Most of the work on these projects
involved disciplines and services new to Handex Environmental. The projects
included two superfund sites -- one in Florida and one in North Carolina, a
series of landfill jobs in Texas, Maryland, Delaware and New Hampshire, and a
variety of jobs involving large scale industrial cleanups. These projects
generated over $10,000,000 in gross operating revenues in 1995.
Through 1991, Handex Environmental operated primarily through offices
located in New Jersey, Florida, Massachusetts and Maryland. Beginning in 1990
through 1996, Handex Environmental expanded its operations opening area offices
in Pennsylvania, New York, Illinois, North Carolina, Missouri, Ohio, Georgia,
Indiana and three additional area offices in Florida. Handex also acquired a
small groundwater remediation business in Palm Springs, Florida through merger,
and acquired certain assets of a local environmental concern in Tampa, Florida.
The area offices differ from Handex Environmental's other locations in that they
do not have their own remediation capability. When such services are needed,
they are provided by Handex Environmental's larger offices or by subcontractors.
In 1995, the environmental remediation market was characterized by intense
price-based competition. Handex Environmental believes this condition will
continue to be the single, dominant factor in the market in the future. In
recent years, Handex Environmental's business has been helped considerably by
the cost reimbursement program maintained by the State of Florida through the
Florida Inland Protection Trust Fund. Toward the end of the first quarter of
1995, significant regulatory changes in Handex Environmental's Florida market
adversely affected revenues from its Florida operations. These changes
effectively narrowed the number and types of environmental clean-up expenditures
which would be reimbursable from the Fund.
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Handex Environmental believes that the quality and comprehensive nature of
its services, its focus on well defined markets, both geographically and in
terms of services offered, and the response of governmental authorities to
public concern with groundwater contamination are material to the success of its
business. Handex Environmental currently conducts its groundwater remediation
business through nine wholly-owned subsidiaries, Handex of New Jersey, Inc.,
Handex of Maryland, Inc., Handex of Florida, Inc., Handex of New England, Inc.,
Handex of the Carolinas, Inc., Handex of Illinois, Inc., Handex of Ohio, Inc.,
Handex of Colorado, Inc. and Handex of Pennsylvania, LLC. In addition, Handex
Environmental performs other remediation services, such as sludge dewatering and
facility decontamination, through its wholly owned subsidiary, Handex
Environmental Management, Inc.
Services. Handex Environmental provides its clients with comprehensive
groundwater and soil assessment, and remediation services directed at
contamination resulting from leaking underground storage tanks, petroleum
distribution systems and related contamination sources. A Handex Environmental
project team includes hydrogeologists, engineers, and risk management
specialists working with its operations department, which includes environmental
technicians, data collection specialists and remedial system installers and
operators.
A Handex Environmental project begins with the investigation of a confirmed
or suspected petroleum release. The case hydrogeologist develops a data
collection and analysis program for the site. Handex Environmental professionals
collect and evaluate information pertaining to site geology, hydrogeology, the
nature and distribution of contaminants, potential exposure pathways and
receptors. This is accomplished by employing rapid assessment techniques such as
cone penetrometer surveys, on-site chemical screening and analysis of soil and
groundwater and traditional monitoring well installation. Through the analysis
of field data and the results of the analysis of soil and groundwater samples,
the hydrogeologist determines the extent of the contamination, soil
characteristic and contaminant migration pathways. This information forms the
basis for corrective action decisions.
Based on the information collected during the site characterization
process, Handex Environmental, in concert with its customer, determines the risk
posed by the site. If the risk exposure is unacceptable, Handex Environmental
may propose a soil and/or groundwater remediation program to reduce the level of
contamination to within acceptable guidelines, or, it may instead focus on its
modeling capability and regulatory knowledge to develop an argument that no
further action is required.
Handex Environmental has extensive experience designing and installing soil
and groundwater remediation systems. A typical Handex Environmental remediation
system can include groundwater extraction, soil vapor extraction, air sparging
or some combination of the three. Groundwater and air treatment systems are
designed to address site specific contaminant, concentrations and loading rates.
Remediation equipment is often modified by Handex Environmental to enhance its
performance and to provide an integrated system. The installation of the
remediation system is performed by Handex Environmental's trained installation
technicians. Handex Environmental's regulatory department specialists ensure
compliance with Federal, state and local laws pertaining to the installation and
operation of remediation systems.
Once a remediation system is installed, Handex Environmental technicians
monitor the performance of the system, collect water and soil samples and
perform routine inspection, adjustment and maintenance to ensure proper
operations. Handex Environmental monitors the progress of the remedial action
until the clean-up goals have been achieved. Handex has over 600 projects
currently being monitored. It provides groundwater data and analysis of such
data to its customers and in some cases to various regulatory bodies to comply
with certain individual state and local regulations.
Emergency Response Capabilities. As a result of Handex Environmental's
ability to provide comprehensive groundwater remediation services and the
equipment necessary to perform such services, Handex Environmental is often
called upon to respond to emergency spills or leaks by its customers or by state
or local governmental bodies or agencies. Emergency situations involve the
application of the various techniques used by Handex Environmental in providing
groundwater remediation services in non-emergency situations. However, due to
the need for prompt action as a result of the higher level of contamination
which may be present and
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publicity concerning the problem, Handex Environmental's emergency response
services typically involve a substantially greater initial commitment of
personnel and equipment than routine projects.
Environmental Dewatering Services. Handex Environmental provides
environmental dewatering services to petroleum producers and suppliers who
desire to replace underground storage tanks or petroleum distribution systems in
areas where groundwater is located near the surface. Dewatering consists of
pumping groundwater in order to reduce the water table elevation in a given area
to a level sufficient to permit installation of new underground storage tanks or
systems. Water generated during the dewatering process is generally contaminated
with soluble components of gasoline and is treated through the use of mobile
water treatment units employing separation and carbon adsorption prior to its
discharge back into the environment.
General Site Assessment and Remediation Services. Handex Environmental
provides environmental site assessment services to its customers. The areas of
environmental concern that need to be investigated in connection with a site
assessment include underground storage tanks, groundwater and soil quality,
areas of known hazardous spills, drum storage areas, lagoons and loading and
unloading areas. In addition, the interiors of buildings on the site must also
be examined. As areas of contamination are discovered, a cleanup plan is
designed, approved by the appropriate regulatory authorities and implemented.
Customers for environmental site assessment services have included
potential buyers, owners and operators of various industrial and commercial
facilities. In addition, banks and other financial institutions that provide
financing to such owners and operators, as well as potential acquirers of such
facilities, have requested environmental site assessments.
Customers and Marketing. Handex Environmental's principal customers are
major petroleum companies, which accounted for approximately 84.0%, 80.2% and
78.9% of Handex Environmental's net operating revenues in 1993, 1994 and 1995,
respectively. Handex Environmental's three largest petroleum company customers,
Amoco Oil Company, Exxon Company, U.S.A. and Shell Oil Company accounted for
15.9%, 12.5%, and 11.4%, respectively, of Handex Environmental's net operating
revenues in 1995. Handex Environmental's level of business with those customers
declined from its 1994 level, reflecting adverse economic conditions, regulatory
changes, the introduction of Risk Based Corrective Action ("RBCA") in certain
states and reduced funding for environmental services. The loss of business from
any of its major customers or adverse changes in current regulations could have
a material adverse effect on Handex Environmental.
Handex Environmental currently performs approximately 80% of its work for
petroleum companies at retail gasoline stations, although it does perform and
continues to pursue, work at bulk petroleum terminals, pipelines, refineries and
industrial sites from time to time. Handex Environmental's non-petroleum
customers are primarily industrial clients and/or state and local governmental
bodies or agencies which engage Handex Environmental to provide emergency
response services. Most of Handex Environmental's jobs for petroleum companies
are performed pursuant to purchase orders or non-exclusive contracts, neither of
which provide for any minimum purchase requirements. Most customers now require
Handex Environmental to bid on certain phases of recovery projects, and Handex
Environmental believes that this trend will continue in the future. In addition,
many customers of Handex Environmental now purchase certain services and
equipment historically provided by or through Handex Environmental as part of
its full service approach from other contractors. Handex Environmental believes
the unbundling of services, such as laboratory testing and analysis, is an
indication of the increasing focus by its customers on containing costs
associated with environmental remediation projects.
Handex Environmental historically charged its customers for the services of
its employees on an hourly basis with few budgetary limitations, as well as for
the cost of materials and equipment used in connection with its services.
Starting in 1993, a majority of Handex Environmental's work has been performed
under fixed price contracts and unit prices, and it is expected that this trend
will continue.
Handex Environmental historically marketed its services through its senior
professional staff and executives who have focused primarily on existing
customers. Since competition in the groundwater remediation services industry
has increased substantially the past few years and is likely to continue to
increase further, Handex Environmental has established a sales and marketing
function with experienced professionals in this field. Since 1993, Handex
Environmental has committed significant resources for sales and marketing
activities.
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Competition. While many companies are engaged in various aspects of the
soil and groundwater remediation services industry, only a few provide the full
service approach to groundwater remediation provided by Handex Environmental in
its principal geographic markets. There are, however, a large number of firms
which provide consulting and assessment services with respect to hydrocarbon
recovery and soil/groundwater remediation. In addition, a large number of firms
perform remediation services, but these firms concentrate their operations on
major spills, Superfund site cleanups, and the removal of substances such as
polychlorinated biphenyls ("PCBs") and asbestos. There are also numerous small
independent pump and tank contractors which remove contaminants and transport
them to hazardous waste sites or other storage facilities. These contractors
collectively have a significant share of the market for such services.
The increasing focus on lower remediation costs by major consumers of
environmental services has heightened competition in the soil/groundwater
remediation services industry and this trend will likely continue as the
industry matures, as other companies enter the market and expand the range of
services which they offer and as Handex Environmental and its competitors move
into new geographic markets. For example, major engineering and consulting
companies are becoming increasingly involved in the engineering related aspects
and subsequent remediation of hazardous waste sites. It is also likely that some
of the major consulting firms will expand their groundwater remediation services
and compete directly with Handex Environmental. Competition from these larger
companies could have a material adverse effect on Handex Environmental's
business. Further, competition from small firms which offer a more limited range
of services but which can compete effectively on price has and may continue to
adversely affect Handex Environmental's profitability by reducing its margins.
Handex Environmental historically responded to competition on the basis of
its ability to provide a comprehensive response to the problems of
soil/groundwater contamination and the quality of its services, rather than on
the price of its services. However, Handex Environmental believes that price has
now become of primary importance to its customers, and believes that it must
compete on this basis. Handex Environmental also believes that the quality of
its services continues to be an important competitive factor.
Environmental Legislation. The current demand for Handex Environmental's
soil/groundwater remediation services is a result of a number of overlapping
Federal, state and local laws concerned with the protection of human health and
the environment, as well as regulations promulgated by administrative agencies
thereunder. The principal Federal statutes affecting groundwater include the
Safe Drinking Water Act of 1974, the Resource Conservation and Recovery Act of
1976 ("RCRA") and the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"). One of the more important Federal regulatory
developments relating to Handex Environmental's business occurred in September
1988 when the EPA issued comprehensive regulations under RCRA governing
underground storage tanks containing hazardous substances or petroleum. Such
regulations require the owners of underground storage tanks to upgrade or close
existing tanks within 10 years, and to install release detection equipment on
existing tanks over a five-year period. Such regulations also require all new
tanks which are installed to have protection against spills, overflows and
corrosion. In addition, such regulations also prescribe the procedures by which
tank owners and operators should investigate and report confirmed or suspected
releases from tanks, and if applicable, proceed with corrective actions.
Many of the foregoing Federal statutes encourage significant state
involvement in their administration and enforcement, and various states have
been authorized by the Environmental Protection Agency to implement their own
underground storage tank programs. Various states have also enacted their own
statutes designed to protect and restore environmental quality and to deal
directly with the problem of soil and groundwater contamination. The state
statutes and regulations are in some cases, different or more stringent than
their Federal counterparts, and Handex Environmental believes that statutes and
regulations enacted at the state level have had a greater impact on the demand
for its services than those enacted at the Federal level. Some examples of such
state statutes include New Jersey's Spill Compensation and Control Act,
Environmental Clean Up Responsibility Act and its Underground Storage of
Hazardous Substances Act, Maryland's Hazardous Substance Spill Response Law,
Florida's Water Quality Assurance Act and the Florida Inland Protection Trust
Fund. The Florida Inland Protection Trust Fund, which had helped considerably
Handex Environmental's business in Florida up through 1994, was revised by the
Florida legislature in early 1995 and now requires site prioritization and
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prior approval of costs by the Florida Department of Environmental Protection
for reimbursement of cleanup expenditures.
Employees. As of September 28, 1996, the number of employees at Handex
Environmental, including the corporate staff at Handex Corporation, was 510
employees. Of these, 265 are skilled professionals (hydrogeologists, geologists,
environmental scientists and field technicians), 133 are non-professional
technical support personnel, and 112 are administrative and executive personnel.
Handex Environmental attempts to meet its need to attract and retain highly
skilled professionals both by training hydrogeologists and geologists in the
field of hydrocarbon recovery and groundwater cleanup and by recruiting
qualified candidates from other companies, governmental agencies and colleges
and universities.
None of Handex Environmental's employees are represented by a labor
organization. Handex Environmental considers relations with its employees to be
satisfactory.
COMMON STOCK MARKET PRICES
The Handex Common Stock is traded in the over-the-counter market under the
symbol "HAND". The following table sets for the high and low closing sales
prices per share of Handex Stock as reported on the NASDAQ National Market
System for the periods indicated. During such periods, Handex did not declare or
pay any cash dividends.
<TABLE>
<CAPTION>
1994 HIGH LOW
---------------------------------------------------------- ---- ---
<S> <C> <C>
First Quarter............................................. 8 1/2 6 1/4
Second Quarter............................................ 7 1/2 6
Third Quarter............................................. 9 3/8 7
Fourth Quarter............................................ 8 5/8 6 1/4
</TABLE>
<TABLE>
<CAPTION>
1995 HIGH LOW
---------------------------------------------------------- ---- ---
<S> <C> <C>
First Quarter............................................. 9 7
Second Quarter............................................ 8 1/4 4 1/2
Third Quarter............................................. 8 1/8 6 1/2
Fourth Quarter............................................ 7 3/8 4 5/8
</TABLE>
<TABLE>
<CAPTION>
1996 HIGH LOW
---------------------------------------------------------- ---- ---
<S> <C> <C>
First Quarter............................................. 5 3/4 4 7/8
Second Quarter............................................ 11 1/2 5 1/8
Third Quarter............................................. 11 3/8 6 3/4
Fourth Quarter (through November 26, 1996)................ 12 1/8 9 3/4
</TABLE>
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<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Since its August 1994 acquisition of New Horizons Learning Center, Inc. and
New Horizons Franchising, Inc., the Company has operated in two distinct lines
of business. Through the Environmental Subsidiaries, the Company has provided
its customers with a comprehensive solution to hydrocarbon contamination of
groundwater and soil due to leaking underground storage tanks, petroleum
distribution systems and related contamination sources. Through New Horizons,
the Company operates computer training centers in the United States and
franchises computer training centers in the United States and abroad.
On November 4, 1996, the Company signed the Agreement with ECB providing
for the sale of Handex Environmental to ECB. The sale is subject to stockholder
approval and is expected to be completed by the end of fiscal 1996. Upon
completion of the Sale, the Company will no longer operate in the environmental
business segment. The Company anticipates recognizing a loss on the disposal of
Handex Environmental in the approximate amount of $7.3 million. The components
of this loss, which was recognized during the third quarter of fiscal 1996,
include $4.6 million in valuation reserves on the Promissory Note and the
Preferred Stock, a $1.7 million write-off of goodwill associated with the
environmental business, and $966,000 in transaction costs.
As a result of the Company's decision to enter into the Agreement, the
operations of its environmental business segment have been classified as a
discontinued operation for financial reporting purposes for the three-and
nine-month periods ended September 28, 1996. More detailed information
concerning the operations of the environmental segment for such periods is set
forth in Note 3 of the Notes to the Company's Condensed Consolidated Financial
Statements set forth elsewhere in this proxy statement.
The discussion that follows highlights the business conditions and certain
financial information specific to each of the two business segments.
Environmental Business Segment. The Company conducts the environmental
segment of its business through Handex Environmental.
Net operating revenues include fees for services provided directly by
Handex Environmental, and fees for arranging for subcontractors' services, as
well as proceeds from the rental and sale of equipment. Handex Environmental, in
the course of providing its services, routinely subcontracts for outside
services such as soil cartage, laboratory testing and other specialized
services. These costs are generally passed through to clients and, in accordance
with industry practice, are included in total operating revenues. Because
subcontractor services can change significantly from project to project, changes
in total operating revenues may not be truly indicative of business trends.
Accordingly, Handex Environmental views net operating revenues, which is total
operating revenues less the cost of subcontractor services, as its primary
measure of revenue growth.
Cost of net operating revenues includes professional salaries, other direct
labor, material purchases and certain direct and indirect overhead costs.
Selling, general and administrative expenses include management salaries, sales
and marketing salaries and expenses, and clerical and administrative overhead.
During 1996, Handex Environmental's operation continued to be affected by
trends which have developed in recent years. Administrative costs have increased
as a result of the increasing desire of Handex Environmental's customers for
more detailed information concerning the status of their environmental projects.
Handex Environmental's marketing costs have increased due to the effects of
increased competition in the environmental industry and Handex Environmental's
strategy to diversify its client base.
Handex Environmental's customers have become increasingly cost conscious
during recent periods in part due to their own financial constraints. To date,
this cost consciousness on the part of customers has manifested itself primarily
in three areas: (i) the manner in which Handex Environmental obtains its
business and charges for its services; (ii) the use of other contractors to
provide certain services traditionally provided by Handex Environmental; and
(iii) an increasing preference to purchase, rather than lease, remediation
equipment.
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<PAGE> 39
Over the last four years, Handex Environmental has experienced a
significant increase in customer demand for competitive bidding and/or fixed
price contracts. During the first nine months of 1996, a majority of Handex
Environmental's work was performed under fixed price contracts and unit prices.
Price has become the primary factor in the environmental remediation services
market.
A majority of Handex Environmental's major customers now purchase from
other contractors equipment and certain services, such as laboratory analyses,
which were formerly provided by or through Handex Environmental as part of its
full service approach.
Handex Environmental's quarterly results may fluctuate from period to
period. Among the principal factors influencing quarterly variations are
weather, which may limit the amount of time Handex Environmental's professional
and technical personnel have in the field; the addition of new professionals who
require training and initially bill a lower percentage of their time; the timing
of receipt of discharge and other permits necessary to install dewatering and
recovery systems, and the opening of new offices, which initially have higher
expenses relative to revenues than established offices.
In recent years, Handex Environmental's business has been helped
considerably by the cost reimbursement program maintained by the State of
Florida through the Florida Inland Protection Trust Fund ("Fund"). During the
first quarter of 1995, the Fund was revised by the Florida legislature and now
requires site prioritization and prior approval of costs by the Florida
Department of Environmental Protection for reimbursement of cleanup
expenditures. These revisions, which were intended to assure its economic
integrity, have significantly limited the number and types of environmental
cleanup expenditures which would be reimbursable from the Fund and have
therefore adversely affected Handex Environmental's operating results in Florida
and its overall operating results in 1995 and the first nine months of 1996.
During 1995, Handex Environmental acquired certain assets of a local
environmental concern in Florida in a strategic move to partially offset the
revenue loss resulting from revisions to the Fund's reimbursement program.
Educational Business Segment. The Company operates the educational segment
of its business through New Horizons.
There are two distinct businesses in the educational segment; one operates
wholly-owned computer training centers, and the second, supplies systems of
instruction, sales and management concepts concerning computer training to
independent franchisees.
Revenues for the computer training centers operated by New Horizons consist
primarily of training fees and fees derived from sales of courseware materials.
Cost of sales consists primarily of instructors' salaries and benefits,
facilities costs such as rent, utilities and classroom equipment, courseware,
and computer hardware, software and peripherals. Selling, general and
administrative expenses consist primarily of costs associated with technical
support personnel, facilities support personnel, scheduling personnel, training
personnel, accounting and finance support and sales executives.
Revenues for the franchising operation consist primarily of initial
franchise fees associated with the sale of a franchise, royalty and advertising
fees based on a percentage of franchisee gross training revenues, and percentage
royalties received on the gross sales of courseware. Cost of sales consists
primarily of costs associated with franchise support personnel who provide
system guidelines and advice on daily operating issues including sales,
marketing, instructor training and general business problems. Selling, general
and administrative expenses consist primarily of technical support, courseware
development, accounting and finance support, national account sales support, and
advertising expenses.
RESULTS OF OPERATIONS. FIRST NINE MONTHS OF 1996 VERSUS FIRST NINE MONTHS OF
1995
The operating results for both segments of the business for the first nine
months of 1996 have been restated to reflect the educational segment's
(continuing) operating results, corporate expenses and interest income which
were previously reported in the environmental segment's (discontinued) results
prior to its being designated a discontinued operation.
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<PAGE> 40
Net Operating Revenues of Discontinued Operations. Handex Environmental's
net operating revenues decreased $846,000 or 7.2% for the third quarter of 1996
and declined $1,796,000 or 5.1% for the first nine months of 1996 compared with
the same periods for 1995. The decline in revenues in the quarter was due
principally to continued intense competition in the environmental services
market and the phase-in of the 1995 change in the reimbursement regulations in
Florida which effectively delayed work on eligible projects. In addition, severe
weather conditions during the first quarter cause work cancellations and
adversely affected net operating revenues for the first nine months of 1996. All
of the Environmental Subsidiaries experienced a decline in net operating
revenues ranging from 4.9% to 47.6% during the third quarter and the first nine
months of 1996, except for the Illinois and Colorado subsidiaries which reported
an increase in net operating revenues ranging from 22.9% to 70.8% and the
Maryland subsidiary which reported an increase in net operating revenues of 4.6%
for the first nine months of 1996.
Excluding offices which were opened in 1995 and 1996, Handex
Environmental's net operating revenues declined $1,193,000 or 10.5% for the
third quarter of 1996, and declined $3,193,000 or 9.3% for the first nine months
of 1996 compared with the same periods in 1995.
Cost of Net Operating Revenues of Discontinued Operations. Handex
Environmental's cost of net operating revenues decreased $492,000 or 6.2% for
the third quarter of 1996 and increased $649,000 or 2.8% for the first nine
months of 1996 compared with the same periods for 1996. As a percentage of net
operating revenues, cost of net operating revenues increased to 68.6% for the
third quarter of 1996 and increased to 72.4% for the first nine months of 1996
from 67.8% and 66.8% respectively, for the same periods in 1995. The decrease in
cost of net operating revenues for the third quarter of 1996 was due principally
to lower personnel costs associated with the staff reductions implemented in the
third quarter of 1995 and the first quarter of 1996, lower depreciation expenses
and lower expenses associated with lower net operating revenues. The increase in
cost of net operating revenues for the first nine months of 1996 was due
primarily to increased expenses in connection with large industrial projects
including equipment rental and temporary personnel. The increase in cost of net
operating revenues as a percentage of net operating revenues was due primarily
to lower than expected net operating revenues.
Gross Profit of Discontinued Operations. Handex Environmental's gross
profit decreased $354,000 or 9.4% for the third quarter of 1996 and decreased
$2,445,000 or 21.0% for the first nine months of 1996 compared with the same
period for 1995. As a percentage of net operating revenues, gross profit
declined to 31.4% for the third quarter of 1996 and to 27.6% for the first nine
months of 1996, from 32.2% and 33.2% respectively, for the same periods for
1995. The decrease in gross profit, both in absolute dollars and as a percentage
of net operating revenues, was due principally to the lower than expected net
operating revenues and lower margins associated with the large industrial
projects.
Selling, General and Administrative Expenses of Discontinued
Operations. Handex Environmental's selling, general and administrative expenses
decreased $726,000 or 19.4% for the third quarter of 1996 and decreased
$1,373,000 for the first nine months of 1996 compared with the same periods for
1995. As a percentage of net operating revenues, selling, general and
administrative expenses decreased to 27.7% for the third quarter of 1996 and to
28.1% for the first nine months of 1996, from 31.9% and 30.6% respectively, for
the same periods for 1995. The decrease in selling general and administrative
expenses, both in absolute dollars and as a percentage of net operating revenues
was due primarily to the staff reductions implemented in the third quarter of
1995 and the first quarter of 1996 and other cost containment measures. The 1996
quarter included an additional provision for bad debts in the amount of
$250,000. The 1995 quarter also included a provision for staff reduction in the
amount of $301,000.
Operating Income (Loss) of Discontinued Operations. Handex Environmental's
operating income increased $372,000 or 1,197.7% for the third quarter of 1996
compared with the same period for 1995. For the first nine months of 1996,
Handex Environmental's operations resulted in an operating loss of $152,000
compared with an operating income of $920,000 for the same period for 1995. As a
percentage of net operating revenues, operating income rose to 3.7% for the
third quarter of 1996 from 0.3% for the same period for 1995. The increase in
operating income both in absolute dollars and as a percentage of net operating
revenues for the third quarter of
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<PAGE> 41
1996 was the result of the cost containment measures, including staff reductions
mentioned earlier. For the first nine months of 1996, the decrease in operating
income was due principally to the lower than expected net operating revenues.
Revenues of Continuing Operations. Revenues increased $4,477,000 or 74.5%
for the third quarter of 1996 and $12,824,000 or 76.5% for the first nine months
of 1996 compared with the same periods of 1995. Revenues at company-owned
locations and from its franchising operations for the 1996 periods were
significantly higher compared with the same periods in 1995. System-wide
revenues for the third quarter rose to $51,817,000 from $27,610,000 for the same
period in 1995, and to $138,073,000 for the first nine months of 1996, from
$70,554,000 for the same period in 1995. System-wide revenues include revenues
from both franchised locations and company-owned training centers.
Revenues for both periods in 1996 included the results of the Cleveland
training center which the Company began consolidating effective the beginning of
fiscal 1996 when the company assumed full control of the operations.
Cost of Revenues of Continuing Operations. Cost of revenues increased
$1,873,000 or 55.8% for the third quarter of 1996 and increased $5,392,000 or
58.5% for the first nine months of 1996 compared to the same periods in 1995. As
a percentage of revenues, cost of revenues declined to 49.9% for the 1996
quarter and to 49.4% for the first nine months of 1996, from 55.9% and 55.0%
respectively, for the same periods in 1995. The increase in costs of revenues
was due primarily to higher training, courseware and depreciation expenses and
costs associated with the Cleveland operations. The decline in cost of revenues
as a percentage of revenues was due principally to the higher level of revenues.
Gross Profit of Continuing Operations. Gross profit increased $2,604,000
or 98.3% for the third quarter of 1996 and increased $7,433,000 or 98.7% for the
first nine months of 1996 compared with the same periods for 1995. As a
percentage of revenues, gross profit rose to 50.1% for the 1996 quarter and to
50.6% for the first nine months of 1996, from 44.1% and 45.0% respectively for
the same periods in 1995. The increase in gross profit both in absolute dollars
and as a percentage of revenues was due principally to the significant growth in
training and franchising revenues.
Selling, General and Administrative Expenses of Continuing
Operations. Selling, general and administrative expenses increased $1,020,000
or 27.2% for the third quarter of 1996 and increased $4,985,000 or 57.0% for the
first nine months of 1996, compared with the same periods for 1995. As a
percentage of revenues, selling, general and administrative expenses declined to
45.4% for the 1996 quarter and to 46.4% for the first nine months of 1996 from
62.3% and 52.2% respectively for the same periods for 1995. The increase in
selling, general and administrative expenses was due principally to increased
spending in the areas of sales and marketing, national advertising, the
implementation of a Major Accounts Program, franchise support for domestic and
international operations and expenses associated with the Cleveland operations.
In addition, selling, general and administrative expenses for the 1995 periods
included a provision for an investment loss and an asset write-off in the
aggregate of $812,000.
Selling, general and administrative expenses for both the 1996 and 1995
periods have been restated to include certain corporate expenses which were
previously reported in the discontinued environmental segment.
Interest Income/(Expense) of Continuing Operations. Interest income
represents amounts which were previously reported in the discontinued
environmental segment. Interest income decreased $4,000 or 8.3% for the 1996
quarter and $65,000 or 34.2% for the first nine months of 1996 compared with the
same periods of 1995. As a percentage of revenues, interest income declined to
0.4% for both the quarter and the first nine months of 1996, from 0.8% and 1.1%
respectively, for the same periods in 1995. The decline in interest income, both
in absolute dollars and as a percentage of revenues, was due mainly to the
utilization of the cash reserves to satisfy the working capital needs of the
discontinued environmental segment.
Interest expense increased $77,000 or 350.8% for the 1996 quarter and
increased $156,000 or 219.3% for the first nine months of 1996, compared with
the same periods in 1995. As a percentage of revenues, interest
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<PAGE> 42
expense rose to 0.9% for the 1996 quarter and to 0.8% for the first nine months
of 1996, from 0.4% for both periods in 1995. The rise in interest expense, both
in absolute dollars and as a percentage of revenues, was due mainly to purchases
of equipment under capital lease arrangements.
Income Taxes of Continuing Operations. The provision for income taxes as a
percentage of income before income taxes was 40.6% for the 1996 quarter compared
with a provision for income tax benefit of 36.9% for 1995. For the first nine
months of 1996, the provision for income taxes as a percentage of income before
income taxes was 44.9% compared with a provision for income tax benefit of
41.0%. The increase in the provision for income taxes (benefits) as a percentage
of income (loss) before income taxes was due principally to higher foreign
income taxes and lower tax-free interest income.
Net Income (Loss) of Continuing Operations. Net income for the 1996
quarter was $260,000 compared to a net loss of $672,000 for 1995. For the first
nine months of 1996, net income was $622,000 compared with a net loss of
$648,000 for 1995. Included in the 1995 results were both a provision for a loss
in an investment and an asset write-off in the aggregate of $812,000.
RESULTS OF OPERATIONS. 1995 VERSUS 1994
Net Operating Revenues. Consolidated net operating revenues increased
$17,683,0000 or 33.6% in 1995 compared to 1994. Consolidated net operating
revenues of $70,254,000 in 1995 consisted of Handex Environmental's net
operating revenues of $46,521,000 (66.2% of consolidated net operating revenues)
and New Horizons' net operating revenues of $23,733,000 (33.8% of the
consolidated net operating revenues).
Handex Environmental's net operating revenues decreased $61,000 or 0.1% in
1995 compared to 1994. Excluding operating locations which were opened in 1995
and 1994, Handex Environmental's net operating revenues declined $2,348,000 or
5.2% in 1995 compared to 1994. The decline in revenues came from Handex
Environmental's operating subsidiaries in New Jersey, Maryland, Illinois and
Florida, with the Florida subsidiary accounting for over 65% of the decline in
revenues. Handex Environmental's operating results in its Florida operations and
as a whole, were adversely impacted by the revisions in early 1995 to the
Florida Inland Protection Trust Fund which effectively limited the types of
environmental cleanup expenditures which would be reimbursable under the Fund.
Handex Environmental's net operating revenues from its New Jersey, Maryland and
Illinois markets were adversely impacted by intense price-competition. The
operations of Handex Environmental's subsidiaries in Massachusetts, Ohio and
Colorado registered revenue growth ranging from 13% in New England to 109% in
Colorado.
New Horizons' net operating revenues increased $17,744,000 or 296.3% in
1995 compared to 1994 (1994 net operating revenues were for the period August
15, 1994 through December 31, 1994). In February 1995, New Horizons bought back
and converted the New York franchise to a company-owned operation. The New York
operations contributed $2,238,000 in net operating revenues for the year.
Cost of Net Operating Revenues. Consolidated cost of net operating
revenues increased $12,200,000 or 37.1% in 1995 compared to 1994. As a
percentage of consolidated net operating revenues, the consolidated cost of net
operating revenues increased to 64.1% in 1995, from 62.5% in 1994. Consolidated
cost of net operating revenues of $45,066,000 in 1995 consisted of Handex
Environmental's $31,902,000 (70.8% of consolidated cost of net operating
revenues) and New Horizons' $13,164,000 (29.2% of consolidated net operating
revenues).
Handex Environmental's cost of net operating revenues increased $2,306,000
or 7.8% in 1995 compared to 1994. As a percentage of its net operating revenues,
Handex Environmental's cost of net operating revenues increased to 68.6% in 1995
from 63.5% in 1994. The increase in cost of net operating revenues, both in
terms of absolute dollars and as a percentage of net operating revenues, was due
primarily to a combination of lower than expected net operating revenues and
higher employee related expenses.
New Horizons' cost of net operating revenues increased $9,894,000 or 302.6%
in 1995 compared to 1994 which was for the period August 15, 1994 through
December 31, 1994. As a percentage of its net operating revenues, New Horizons'
cost of net operating revenues increased to 55.5% in 1995 from 54.6% in 1994.
The increase in cost of net operating revenue dollars was due primarily to the
1994 period consisting only of four and
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<PAGE> 43
one-half months compared to a full year for 1995. The increase in cost of net
operating revenues as a percentage of net operating revenues was due primarily
to higher personnel and facilities costs and higher operating costs relative to
revenues associated with New Horizons' start-up operations in Chicago and New
York.
Gross Profit. Consolidated gross profit increased $5,483,000 or 27.8% in
1995 compared to 1994. Consolidated gross profit of $25,188,000 consisted of
Handex Environmental's contribution of $14,619,000 (58.0% of consolidated gross
profit) and New Horizons' contribution of $10,569,000 (49.0% of consolidated
gross profit). As a percentage of consolidated net operating revenues,
consolidated gross profit declined to 35.9% in 1995 from 37.5% in 1994.
Handex Environmental's gross profit decreased $2,367,000 or 13.9% in 1995
compared to 1994. As a percentage of its net operating revenues, Handex
Environmental's gross profit declined to 31.4% in 1995, from 36.5% in 1994. The
decrease in gross profit, both in terms of absolute dollars and as a percentage
of net operating revenues, was due primarily to a combination of lower than
expected net operating revenues and higher employee related expenses and lower
margins on industrial jobs.
New Horizons' gross profit increased $7,850,000 or 288.6% in 1995 compared
to 1994 (four and one half month period). As a percentage of its net operating
revenues, New Horizons' gross profit declined to 44.5% in 1995 from 45.4% in
1994. The increase in gross profit dollars in 1995 compared to 1994 was due
principally to the 1994 period being significantly shorter than 1995. The
decline in gross profit as a percentage of net operating revenues was due
principally to higher facilities and employee related expenses and the expected
lower gross profit relative to revenues associated with New Horizons' start-up
operations in Chicago and New York.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses increased $7,825,000 or 48.4% in 1995
compared to 1994. Of the consolidated selling, general and administrative
expenses of $24,008,000, Handex Environmental incurred $14,751,000 (61.4% of
consolidated selling, general and administrative expenses) and New Horizons
incurred $9,257,000 (38.6% of consolidated selling, general and administrative
expenses).
Handex Environmental's selling, general and administrative expenses
increased $802,000 or 5.7% in 1995 compared to 1994. As a percentage of its net
operating revenues, Handex Environmental's selling, general and administrative
expenses increased to 31.7% in 1995 from 29.9% in 1994. The increase in selling,
general and administrative expenses both in terms of absolute dollars and as a
percentage of its net operating revenues was due primarily to lower than
expected net operating revenues combined with increased costs related to its
sales and marketing function and the new offices opened in 1995 and 1994.
New Horizons' selling, general and administrative expenses increased
$7,024,000 or 314.6% in 1995 compared to 1994 (four and one half month period).
As a percentage of its net operating revenues, New Horizons' selling, general
and administrative expenses increased to 39.0% in 1995, from 37.3% in 1994. The
increase in New Horizons' in selling, general and administrative expense dollars
was primarily due to the 1994 period being significantly shorter than 1995 and
increased sales and marketing expenses. As a percentage of its net operating
revenues, New Horizons' selling, general and administrative expenses increased
primarily due to the lower revenues associated with its start-up operations in
Chicago and New York.
Provision for Loss in a Joint Venture, Asset Write-Off and Termination
Expenses. In the third quarter of 1995, the Company recognized pre-tax charges
totaling $1,113,000 or 1.6% of consolidated net operating revenues. Of this
amount, $301,000 related to Handex Environmental and $812,000 pertained to New
Horizons.
In response to the softness in the environmental services market, Handex
Environmental undertook a reduction in its work force and accordingly recorded a
charge totaling $301,000, representing payments to employees who were released.
The Company, through one of its educational subsidiaries, has a minority
interest in a limited liability company that was formed to operate a New
Horizons' training center in Cleveland, Ohio. In accordance with the limited
liability company agreement, the Company, in addition to its asset and capital
contributions, is obligated to and provided financing for certain working
capital requirements of the limited liability company. During the
38
<PAGE> 44
third quarter of 1995, an affiliate of the majority member in the limited
liability company filed for bankruptcy. The Company recorded a charge in the
amount of $650,000, representing the funds it had loaned to the limited
liability company. The Company has been managing this operation pending the
resolution of the bankruptcy issues pertaining to the venture's majority member.
The Company also recorded a charge in the amount of $162,000, representing the
unamortized portion of the developmental costs incurred for a management
information system which was abandoned by New Horizons in the third quarter.
Other Income/Expense. Interest expense for 1995 increased to $101,000 from
$37,000 in 1994. The increase was primarily due to interest expense on New
Horizons capital lease obligations resulting from fixed asset additions. As a
percentage of consolidated net operating revenues, interest expense remained at
0.1% in 1995 and 1994. The Company has a credit facility with a commercial bank
which has not been used since June 1991.
Interest income decreased to $608,000 in 1995 from $789,000 in 1994. As a
percentage of consolidated net operating revenues, interest income decreased to
0.9% in 1995 from 1.5% in 1994. The Company's interest income generated by its
investment in tax-free notes and bonds declined significantly in 1995 compared
to 1994 primarily due to the use of investment funds in the acquisition of New
Horizons. The decline in interest income as a percentage of net operating
revenues in 1995 was due to a combination of higher net operating revenues and
lower interest income resulting from the reduced funds available for placement
in tax-free investments.
Other expenses in 1995 increased to $698,000 from $409,000 in 1994.
Included in other expenses was goodwill amortization expense from the
acquisition of New Horizons which amounted to $366,000 in 1995 and $132,000 in
1994 (a partial year). In addition, other expenses in 1995 included a higher
provision for litigation expenses compared to 1994.
Income Taxes. The provision for income taxes for 1995 was due primarily to
foreign taxes, state income and franchise taxes of certain operating
subsidiaries and certain non-deductible items for income tax purposes.
Net Income (Loss). Consolidated net loss for 1995 amounted to $193,000
compared to a consolidated net income of $2,331,000 for 1994. As a percentage of
consolidated net operating revenues, consolidated net loss was 0.3% compared to
a consolidated net income of 4.4%.
Handex Environmental's 1995 operations resulted in a net loss of $146,000
compared to a net income of $2,153,000 in 1994. This was due primarily to a
combination of lower than expected revenues and higher employee related
expenses.
New Horizons operations for 1995 resulted in a net loss of $47,000 compared
to a net income of $174,000 for the four and one half month period in 1994. This
was due primarily to the one time charges totaling $812,000, discussed earlier
and the less than anticipated results from the start-up operations in Chicago
and New York.
RESULTS OF OPERATIONS. 1994 VERSUS 1993
Net Operating Revenues. The Company's net operating revenues increased
$13,858,000 or 35.8% in 1994 compared to 1993. Net operating revenues of
$52,571,000 in 1994 included New Horizons net operating revenues of $5,989,000
for the period August 15, 1994 through December 31, 1994. These revenues
represented 11.4% of the Company's total net operating revenues for 1994. Handex
Environmental's net operating revenues of $46,582,000 reflect the improved
market for environmental services during 1994, the impact of Handex
Environmental's focused marketing initiatives, disciplined geographical
expansion program and comprehensive personnel training programs which enhanced
its competitiveness. Handex Environmental's net operating revenues increased
$7,869,000 or 20.3% in 1994 compared to 1993. Each of Handex Environmental's
subsidiaries which were in operation prior to 1993 reported revenue growth which
totaled 13.5% in 1994 compared to 1993.
New Horizons combined with Handex Environmental's subsidiaries which began
operations in 1994 and 1993, contributed over 17% of the Company's net operating
revenues for 1994.
39
<PAGE> 45
Cost of Net Operating Revenues. The Company's cost of net operating
revenues for 1994 increased $8,120,000 or 32.8% compared to 1993. As a
percentage of net operating revenues, the Company's cost of net operating
revenues declined to 62.5% in 1994, from 63.9% in 1993. Cost of net operating
revenues for New Horizons for 1994 amounted to $3,269,000 (54.6% of New
Horizons' revenues) and accounted for 13.2% of the increase over last year.
Handex Environmental's cost of net operating revenues, as a percentage of net
operating revenues decreased to 63.5% from 63.9% in 1993. The increase in Handex
Environmental's cost of net operating revenues in absolute dollars was primarily
due to the hiring of additional employees, increases in materials and supplies
purchased, other expenses related to the increase in the level of business and
new offices opened in 1993 and 1994. As a percentage of net operating revenues,
Handex Environmental's cost of net operating revenues declined mainly due to the
growth in net operating revenues and improved utilization of staff resulting
from its comprehensive training programs.
Gross Profit. The Company's gross profit for 1994 increased $5,738,000 or
41.1% compared to 1993. As a percentage of net operating revenues, the Company's
gross profit increased to 37.5% in 1994, from 36.1% in 1993. Gross profit from
New Horizons included in 1994 amounted to $2,720,000 (45.4% of New Horizons'
revenues) and accounted for 19.5% of the increase over last year. Handex
Environmental's gross profit, as a percentage of net operating revenues, grew to
36.5%, from 36.1% in 1993. The improvement in Handex Environmental's gross
profit, both in absolute dollars and as a percentage of its net operating
revenues was due mainly to the growth in net operating revenues.
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses for 1994 increased $3,986,000 or 32.7%
compared to the same period last year. As a percentage of net operating
revenues, the Company's selling, general and administrative expenses decreased
to 30.8% in 1994, from 31.5% in 1993. New Horizons' operations incurred
$2,233,000 in selling, general and administrative expenses (37.3% of New
Horizons' revenues) and accounted for 18.3% of the increase over the last year.
Handex Environmental's selling, general and administrative expenses, as a
percentage of environmental net operating revenues declined to 29.9% in 1994
from 31.5% in 1993. The increase in Handex Environmental's selling, general and
administrative expenses in absolute dollars was due mainly to the increase in
its marketing expenses, legal and professional fees, fees associated with the
hiring of professional staff and expenses related to new offices opened in 1993
and 1994. The decrease in Handex Environmental's selling, general and
administrative expenses as a percentage of net operating revenues was due
largely to the growth in net operating revenues.
Other Income/Expense. Interest expense for 1994 increased to $37,000 from
$9,000 in 1993. The increase was primarily due to interest expense on New
Horizons loan obligations. As a percentage of net operating revenues, interest
expense increased to 0.1% in 1994 from 0% in 1993 primarily due to New Horizons'
loan obligations. The Company did not use its credit facility with a commercial
bank.
Interest income of $789,000 in 1994 decreased slightly from $793,000 in
1993. As a percentage of net operating revenues, interest income decreased to
1.5% in 1994 from 2.0% in 1993. The Company's interest income generated by its
investment in tax-free notes and bonds declined significantly in 1994 compared
to 1993 primarily due to the use of investment funds in the acquisition of New
Horizons. This was offset largely by the increase in interest income generated
under a financing agreement between Handex Environmental and one of its
customers. The decline in interest income as a percentage of net operating
revenues in 1994 was due to a combination of higher net operating revenues and
lower interest income from the Company's tax-free investments.
Other expenses in 1994 increased to $409,000 from $360,000 in 1993.
Included in other expenses for 1994 was goodwill amortization expense of
$132,000 arising from the acquisition of New Horizons. Other expenses in 1994
also included a charge in the amount of $240,000 representing advances to a
bio-remediation contractor whose operations ceased during the year. This was
offset by the reversal to income of excess accrual for litigation expenses. As a
percentage of Handex Environmental's net operating revenues, Handex
Environmental's other expenses declined from 0.9% in 1993 to 0.6% in 1994,
mainly due to the higher level of net operating revenues and lower provision for
litigation expenses.
40
<PAGE> 46
Income Taxes. The provision for income taxes as a percentage of income
before income taxes increased to 39.7% in 1994 from 37.4% in the year ago
period. The increase in the provision for income taxes was due primarily to the
reduction in the Company's tax-free interest income.
Net Income. Net income for 1994 increased $957,000 or 69.6% from the same
period last year. Included in net income for 1994 was New Horizons' contribution
which amounted to $174,000 (2.9% of New Horizons' revenues) and which
represented 12.7% of the percentage increase over last year. Excluding the
revenue and net income contributions of New Horizons, net income for Handex
Environmental as a percentage of net operating revenues, increased to 4.6% in
1994 from 3.5% for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
As of September 28, 1996, the Company's working capital was $21,244,000,
and its cash, cash equivalents and short-term investments totaled $7,265,000.
Working capital as of September 28, 1996 reflected a decrease of $7,534,000 from
$28,778,000 as of December 30, 1995. The decrease was due principally to the
reserve for the loss on the disposal of the environmental segment.
The Company currently maintains an unsecured credit facility with a
commercial bank providing aggregate availability of $5.5 million. Amounts
outstanding under that facility bear interest at the bank's prime rate or LIBOR,
at the Company's election. The facility is scheduled to expire on June 30, 1998.
In light of the pending sale of the environmental business, the Company is
considering reducing the borrowing availability under or terminating this
facility. The Company is also exploring alternative credit arrangements to
support the operations of its educational business.
In connection with the sale of the environmental business, the Company will
receive cash proceeds of approximately $4.6 million. The Company presently
intends to use those proceeds to support the expansion of its educational
business.
The nature of the computer education and training industry requires
substantial cash commitments for the purchase of computer equipment, software
and training facilities. During the first nine months of 1996, New Horizons
spent approximately $3,600,000 on capital items and anticipates spending up to
$4,200,000 during 1996.
Management believes that its current working capital position, cash flows
from operations, the expected proceeds from the sale of its environmental
business, will be adequate to support its current and anticipated capital
expenditures and its strategies to grow its computer education and training
business.
Impacts of Accounting Pronouncements. The Company's management is not
aware of any current recommendations by regulatory authorities which, if they
were implemented, would have a material effect on the liquidity, capital
resources or operations of the Company. However, the potential impact of
Statement of Accounting Financial Standards ("SFAS 123") warrants further
discussion.
SFAS 123, which will be effective in 1996, provides elective accounting for
stock-based employee compensation arrangements using a fair value model.
Companies currently accounting for such arrangement under APB Opinion 25
"Accounting for Stock Issued to Employees," may continue to do so; however, SFAS
123 supersedes the disclosure requirements of Opinion 25. The Company does not
believe that adoption of SFAS 123 will have a significant impact on net income
but will increase disclosure requirements for stock-based compensation.
All other applicable Statements of Financial Accounting Standards that have
been issued and have effective dates impacting 1995 and prior years' financial
statements have been adopted by the Company. The Company believes there are no
Statements of Financial Accounting Standards which have been issued and have
implementation dates in the future which will materially impact the financial
statements of future years.
41
<PAGE> 47
CERTAIN INFORMATION CONCERNING ECB
General. ECB is a recently organized Florida corporation formed in
connection with the contemplated Sale. ECB's management team is headed by Roger
Eatman, who has over 25 years of management and industry experience holding
various senior positions including that of President and Chief Executive Officer
of Qualtec Environmental Services, a subsidiary of the FPL Group. George Bannon,
currently President of Handex of Florida, Inc., will also assume an executive
position with ECB. Mr. Eatman and Mr. Bannon have worked together for almost ten
years. The principal executive office of ECB will be located at 30941 Suneagle
Drive, Mount Dover, Florida 32757.
As of the date of this Proxy Statement, ECB has a total equity
capitalization of $500,000, with no other assets or business operations.
SouthTrust Loan Commitment to ECB. ECB's obligation to consummate the Sale
is not contingent on its receipt of financing. It has secured a commitment from
SouthTrust to provide ECB and the Environmental Subsidiaries, (the "Borrowers")
with (i) a revolving credit loan in the amount of $12,000,000, (ii) a term
equipment loan in the amount of $1,800,000 and (iii) a term real estate loan in
the amount of $1,200,000 (collectively, the "Loans"). The Loans will be secured
by a first lien on all of the Borrowers' assets.
SouthTrust's commitment to provide the Loans to ECB is subject to certain
contingencies, including the requirements that (i) the Borrowers provide all
opinions, certificates, consents, agreements and other instruments deemed
necessary by SouthTrust; (ii) the Sale be closed in accordance with the terms of
the Agreement; (iii) the assets of Borrowers must not have suffered any material
damage or destruction; (iv) Borrowers must have, at the closing date, an excess
unborrowed availability under the revolving loan of at least $1,000,000; (v)
SouthTrust must have received and approved various environmental, title and
other information regarding the real property of Borrowers; (vi) SouthTrust must
have reviewed and approved the schedules to the Agreement; (vii) SouthTrust must
have received and approved an opening balance sheet for Borrowers prepared by an
independent accountant in accordance with generally accepted accounting
principles; and (viii) Borrowers must have received and delivered to SouthTrust
the consents and approvals to the Sale and the Loans as SouthTrust deems
necessary, including consents to the collateral assignment of Borrowers'
contracts with customers. The commitment will expire on January 27, 1997 or if
the Borrowers default on any covenant, condition or agreement in the commitment
letter, breach any representation and warranty made to SouthTrust or if
SouthTrust determines, in its sole discretion, that a change affecting the
financial markets or affecting the Borrowers' financial condition, results of
operations or assets might have a material adverse effect on the Borrowers.
42
<PAGE> 48
STOCK OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT
The following table sets forth information with respect to Common Stock
owned on November 15, 1996 by each person known by the Company to own
beneficially more than 5% of the Company's outstanding Common Stock at such
date, the number of shares owned by each such person and the percentage of the
outstanding shares represented thereby. The table also lists beneficial
ownership of Common Stock by each of the Company's Directors, each executive
officer named in the summary compensation table set forth in this proxy
statement, and all Directors and executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OR SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- -------------------------------------------------------------------- ------------------ --------
<S> <C> <C>
Curtis Lee Smith, Jr................................................ 1,230,975 17.7%
500 Campus Drive
Morganville, NJ 07751
Stuart O. Smith..................................................... 1,609,250 23.2%
500 Campus Drive
Morganville, NJ 07751
Thomas J. Bresnan (1)............................................... 257,625 3.6%
David A. Goldfinger (2)(3).......................................... 62,845 *
John T. St. James (4)............................................... 42,750 *
Richard L. Osborne(2)(5)............................................ 2,250 *
William H. Heller (2)(6)............................................ 7,000 *
Scott R. Wilson (2)(6).............................................. 6,000 *
Dimensional/Fund Advisor, Inc.(7)................................... 371,150 5.3%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
All Directors and Executive Officers as a Group (11 persons)........ 3,225,695 44.3%
<FN>
- ---------------
* Less than 1%.
(1) Mr. Bresnan's ownership figure includes 250,000 shares which may be acquired
upon the exercise of immediately exercisable stock options.
(2) Excludes 10,000 options awarded on September 19, 1996 at an exercise price
of $8.70 per share which are subject to stockholder approval.
(3) Mr. Goldfinger's ownership figure includes 12,500 shares which may be
acquired upon the exercise of immediately exercisable options.
(4) Mr. St. James' ownership figure includes 39,750 shares which may be acquired
upon the exercise of immediately exercisable options.
(5) Shares which may be acquired upon the exercise of immediately exercisable
options.
(6) Messrs. Wilson's and Heller's ownership figures include 5,000 shares each
which may be acquired upon the exercise of immediately exercisable option.
(7) Based solely upon information in a Schedule 13G filed with the Securities
and Exchange Commission on February 7, 1996.
</TABLE>
43
<PAGE> 49
OTHER MATTERS
As of the date of this Proxy Statement, the Company's Board of Directors
knows of no matters that will be presented for consideration at the Special
Meeting other than as detailed in this Proxy Statement. However, if any other
matter shall come before the Special Meeting or any adjournments or
postponements thereof and shall be voted upon, the proposed proxy will be deemed
to confer authority to the individuals named as authorized therein to vote the
shares represented by such proxy as to any such matters that fall within the
purposes set forth in the Notice of Special Meeting as determined by a majority
of the Board of Directors. Representatives from KPMG Peat Marwick LLP, the
Company's independent accountants, are expected to be present at the meeting,
will have an opportunity to make a statement if they so desire and will be
available to respond to appropriate questions from stockholders.
44
<PAGE> 50
HANDEX CORPORATION INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----------
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors................................. F-2
Consolidated Balance Sheets at December 30, 1995
and December 31, 1994....................................... F-3
Consolidated Statements of Operations for the years
ended December 30, 1995, December 31, 1994 and
January 1, 1994............................................. F-4
Consolidated Statements of Stockholders' Equity for
the years ended December 30, 1995, December 31,
1994 and January 1, 1994.................................... F-5
Consolidated Statements of Cash Flows for the years
ended December 30, 1995, December 31, 1994 and
January 1, 1994............................................. F-6
Notes to Consolidated Financial Statements..................... F-7 - F-17
UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at
September 28, 1996 and December 30, 1995.................... F-18
Condensed Consolidated Statements of
Income for the three and nine months
ended September 28, 1996 and September 30, 1995............. F-20
Condensed Consolidated Statements of Cash
Flows for the three and nine months ended
September 28, 1996 and September 30, 1995................... F-21
Notes to Condensed Consolidated Financial Statements........... F-22
F-1
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Handex Environmental Recovery, Inc.:
We have audited the accompanying consolidated balance sheets of Handex
Environmental Recovery, Inc. and subsidiaries as of December 30, 1995 and
December 31, 1994 and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 30, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Handex Environmental
Recovery, Inc. and subsidiaries as of December 30, 1995 and December 31, 1994,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 30, 1995 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
February 16, 1996
F-2
<PAGE> 52
CONSOLIDATED BALANCE SHEETS
HANDEX CORPORATION AND SUBSIDIARIES
DECEMBER 30, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 3,821,474 $ 2,895,478
Marketable securities.................................................... 2,775,000 3,940,000
Accounts receivable, less allowance for doubtful accounts
of $981,745 in 1995 and $934,560 in 1994 (note 3)...................... 30,001,497 26,854,906
Inventories.............................................................. 539,491 298,326
Prepaid expenses......................................................... 606,005 214,198
Refundable income tax.................................................... 666,060 388,682
Deferred income tax assets (notes 1 and 4)............................... 705,453 609,668
Other current assets..................................................... 321,846 394,948
------------ ------------
Total current assets.............................................. 39,436,826 35,596,206
------------ ------------
Property, Plant and equipment, at cost: (note 2)
Land..................................................................... 517,053 518,478
Buildings and improvements............................................... 2,711,807 2,347 918
Machinery and equipment.................................................. 15,431,033 12,479 364
Furniture and fixtures................................................... 2,955,294 2,284,281
Motor vehicles........................................................... 5,249,370 5,087,435
------------ ------------
26,864,557 22,717,476
Less accumulated depreciation and amortization............................. (17,221,433) (13,980,868)
------------ ------------
Net property, plant and equipment........................................ 9,643,124 8,736,608
Excess of cost over net assets of acquired companies, net of accumulated
amortization of $842,095 in 1995 and $421,357 in 1994.................... 16,121,258 15,921,530
Cash surrender value of life insurance..................................... 909,839 1,054,426
Other assets (notes 5 and 13).............................................. 978,335 611,367
------------ ------------
$ 67,089,382 $ 61,920,137
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term obligations (note 2)................... $ 447,227 $ 579,991
Accounts payable......................................................... 7,896,838 4,523,848
Other liabilities (note 6)............................................... 7,894,616 5,826,066
------------ ------------
Total current liabilities......................................... 16,238,681 10,929,905
Long-term obligations, excluding current installments (note 2)............. 649,941 464,357
Deferred income tax liability (notes 1 and 4).............................. 772,466 888,516
Stockholders' equity:
Preferred stock without par value, 2,000,000 shares authorized, no shares
issued................................................................. -- --
Common stock, $.01 par value, 15,000,000 shares authorized;
issued, 7,050,212 shares in 1995 and 1994.............................. 70,502 70,502
Additional paid in capital............................................... 24,349,542 24,365,566
Retained Earnings........................................................ 26,306,375 26,499,416
Treasury stock at cost -- 185,000 shares in 1995 and 1994 (note 1)....... (1,298,125) (1,298,125)
------------ ------------
Total stockholders' equity............................................... 49,428,294 49,637,359
Commitments and contingencies (notes 9, 13 and 15)......................... -- --
------------ ------------
$ 67,089,382 $ 61,920,137
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 53
CONSOLIDATED STATEMENTS OF OPERATIONS
HANDEX CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Total operating revenues............................ $85,271,557 $64,772,555 $48,194,334
Subcontractor costs................................. 15,017,661 12,201,809 9,481,455
----------- ----------- -----------
Net operating revenues (note 3)................... 70,253,896 52,570,746 38,712,879
Cost of net operating revenues...................... 45,065,597 32,865,469 24,745,121
----------- ----------- -----------
Gross profit...................................... 25,188,299 19,705,277 13,967,758
Selling, general and administrative expenses........ 24,007,696 16,182,303 12,196,284
Provision for loss in a joint venture, asset
write-off and termination expenses (note 12)...... 1,113,167 -- --
Other income (expense):
Interest expense.................................. (100,891) (37,042) (8,601)
Interest income................................... 607,728 789,097 792,743
Other............................................. (697,805) (409,190) (360,260)
----------- ----------- -----------
(190,968) 342,865 423,882
----------- ----------- -----------
(Loss) income before income taxes................... (123,532) 3,865,839 2,195,356
Provision for income taxes (note 4)................. 69,509 1,534,797 821,144
----------- ----------- -----------
Net (loss) income................................. $ (193,041) $ 2,331,042 $ 1,374,212
=========== =========== ===========
Net (loss) income per share of Common stock......... $(0.03) $0.34 $0.20
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 54
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
HANDEX CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
--------- ------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992............. 6,940,212 $70,402 $24,119,669 $22,794,162 $ (731,250) $46,252,983
Repurchase of Treasury stock............. (85,000) -- -- -- (566,875) (566,875)
Net income, year ended January 1, 1994... -- -- -- 1,374,212 -- 1,374,212
--------- ------- ----------- ----------- ----------- -----------
BALANCE AT JANUARY 1, 1994............... 6,855,212 70,402 24,119,669 24,168,374 (1,298,125) 47,060,320
Issuance of Common Stock for stock
options................................ 10,000 100 64,900 -- -- 65,000
Income tax benefit from the exercise of
stock options.......................... -- -- 1,997 -- -- 1,997
Issuance of warrants on Common Stock..... -- -- 179,000 -- -- 179,000
Net income, year ended December 31,
1994................................... -- -- -- 2,331,042 -- 2,331,042
--------- ------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1994............. 6,865,212 70,502 24,365,566 26,499,416 (1,298,125) 49,637,359
Registration expense for warrants issued
in 1994................................ -- -- (16,024) -- -- (16,024)
Net loss, year ended December 30, 1995... -- -- -- (193,041) -- (193,041)
--------- ------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 30, 1995............. 6,865,212 $70,502 $24,349,542 $26,306,375 ($1,298,125) $49,428,294
========= ======= =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 55
CONSOLIDATED STATEMENTS OF CASH FLOWS
HANDEX CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................................................ $ (193,041) $ 2,331,042 $ 1,374,212
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Depreciation and amortization.................................... 3,951,496 2,664,871 2,685,448
Gain on disposal of equipment.................................... (6,284) (42,711) (33,325)
Deferred taxes................................................... (211,835) 29,706 (327,102)
Cash provided (used) from the change in:
Accounts receivable.............................................. (3,146,591) (8,646,814) (1,384,659)
Inventories...................................................... (241,165) (40,020) 41,143
Prepaid expenses................................................. (391,807) 211,879 (270,838)
Other current assets............................................. 73,102 368,872 (246,712)
Other assets and cash surrender value of life insurance.......... (216,213) (177,392) (714,131)
Accounts payable................................................. 3,372,990 2,511,641 417,745
Other liabilities and income taxes payable/refundable............ 1,791,172 1,187,471 1,047,595
----------- ------------ ------------
Net cash provided by operating activities........................ 4,781,784 398,545 2,589,376
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities................................ (5,775,000) (17,855,000) (40,570,000)
Redemption of marketable securities.............................. 6,940,000 37,010,000 39,865,000
Additions to property, plant and equipment....................... (4,189,036) (3,476,238) (541,096)
Cash paid for acquired companies, net of cash acquired........... (868,589) (14,531,722) --
----------- ------------ ------------
Net cash provided (used) in investing activities................. (3,892,625) 1,147,040 (1,246,096)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock........................... -- 65,000 --
Registration expenses on warrants issued......................... (16,024) -- --
Proceeds from debt obligations................................... 766,992 556,030 --
Repurchase of treasury stock..................................... -- -- (566,875)
Principal payments on debt obligations........................... (714,171) (153,960) --
----------- ------------ ------------
Net cash provided (used) in financing activities................. 36,797 467,070 (566,875)
----------- ------------ ------------
Net increase in cash and cash equivalents.......................... 925,996 2,012,655 776,405
Cash and cash equivalents at beginning of period................... 2,895,478 882,823 106,418
----------- ------------ ------------
Cash and cash equivalents at end of period......................... $ 3,821,474 $ 2,895,478 $ 882,823
=========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash was paid for:
Interest....................................................... $ 104,460 $ 37,042 $ 8,601
=========== ============ ============
Income taxes................................................... $ 568,650 $ 2,144,135 $ 872,390
=========== ============ ============
</TABLE>
Investing and financing activities
- ----------------------------------
In 1995, the Company acquired certain assets of new Horizons' New York franchise
and a Florida based environmental concern for an aggregate cash price and
related expenses of approximately $830,000. There were no liabilities assumed in
either acquisition.
In August 1994, the Company acquired certain assets and liabilities of a
computer training school and all the issued and outstanding shares of stock of a
computer training franchising company in August, 1994 at an aggregate cash price
of $14,000,000 and related cash expenses of approximately $600,000 and non-cash
expense of $179,000. The non-cash expense represents the excess of the fair
market value over the issue price on warrants of 40,000 shares of Handex's
Common stock. Liabilities assumed totaled $2,446,000.
See accompanying notes to consolidated financial statements
F-6
<PAGE> 56
HANDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations
The Company conducts two distinct lines of business; an Environmental
segment which provides environmental consulting and remediation services, and
has been the Company's core business since it was acquired in 1986, and an
Educational segment, which was acquired in 1994 and provides a variety of
computer training services to employer-sponsored enrollees.
(b) Basis of Accounting and Principles of Consolidation
The consolidated financial statements include the accounts of Handex
Corporation, and its subsidiaries, all of which are wholly owned. All
significant intercompany balances and transactions have been eliminated in
consolidation.
In August 1992, the Company's Board of Directors authorized the purchase of
up to 500,000 shares of Handex's Common stock in the open market or in private
transactions. The repurchase program lasted through June 30, 1993, and was
limited to an aggregate expenditure of $4,500,000. The Company had repurchased
185,000 shares of the Common stock under this program at an aggregate cost of
$1,298,125.
(c) Revenue Recognition
Revenue is recognized at the time work is performed and services are
rendered.
(d) Marketable Securities
Funds retained for future use in the business are temporarily invested in
tax-exempt bonds and municipal funds.
Effective January 2, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in debt and
Securities "SFAS 115"). SFAS 115 requires the accounting for certain investments
in debt and equity securities based on certain specific guidelines.
The Company's investments are presented at their aggregate face value.
Amounts paid over face value are amortized through maturity. Unamortized
premiums amounted to $3,775 and are included in other current assets. As of
December 30, 1995 and December 31, 1994, the Company's security portfolio had
aggregate fair market values of $2,775,000 and $3,945,350, respectively. There
were no unrealized gains or losses as of December 30, 1995. There were also no
gains or losses realized from the redemption of securities during the year.
(e) Inventories
Inventories are stated at the lower of cost or market. Inventory costs are
determined using the first-in, first-out (FIFO) method.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost.
F-7
<PAGE> 57
HANDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation is provided over the estimated useful lives of the respective
assets, using the straight line method as follows:
<TABLE>
<S> <C>
Buildings and 25 years or term of the lease whichever is shorter
improvement ............
Machinery and 3 to 5 years
equipment ..............
Furniture and fixtures.... 5 to 10 years
Motor vehicles............ 5 years
</TABLE>
(g) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years when those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(h) Excess of Cost Over Net Assets Acquired
The excess of cost over net assets acquired is being amortized on a
straight-line basis principally over 40 years.
(i) Asset Impairments
The Company periodically reviews the carrying value of certain of its
assets in relation to historical results, current business conditions and trends
to identify potential situations in which the carrying value of assets may not
be recoverable. Such assets would include, cost in excess of fair market value
of net assets of acquired businesses and other identifiable intangible assets.
If such reviews indicate that the carrying value of such assets may not be
recoverable, the Company would estimate the undiscounted sum of the expected
future cash flows to determine if they are less than the carrying value of such
assets to ascertain if a permanent impairment has occurred. The carrying value
of any impaired assets will be reduced to fair market value.
(j) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with purchased maturities of three months or less
to be cash equivalents.
(k) Net Income Per Share
The computation of net income per share of Common stock is based on the
average number of shares outstanding during each year. Inclusion of the
incremental shares applicable-to outstanding stock options in the computation
using the treasury stock method would have no material dilutive effect. Dilutive
options are not considered in the calculation of net loss per share.
The average number of shares outstanding used in determining net income per
share was 6,865,212 in 1995, 6,863,069 in 1994, and 6,881,267 in 1993.
(l) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
F-8
<PAGE> 58
HANDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(m) Reclassification
Certain items on the 1994 and 1993 consolidated statements of income have
been reclassified to conform to the 1995 presentation.
2. LONG-TERM OBLIGATIONS
The Company's debt and capital lease obligations represent indebtedness of
New Horizons as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Notes payable to bank with interest rates adjusted to prime (8.5% at
December 30, 1995), plus up to 2.5%, paid in full in February 1995,
secured by certain assets of New Horizons........................... $ -- $ 304,776
Note payable to bank at 9.99% interest rate, payable in monthly
installments
of $9,306, secured by certain assets of New Horizons................ 170,421 253,349
Note payable to a former franchisee, non-interest bearing, unsecured,
paid in full in January 1995........................................ -- 35,000
Amounts due under non-cancelable leases accounted for as capital
leases. These leases have effective interest rates ranging from 8.5%
to 12.3% per annum.................................................. 1,101,655 520,838
Amount of capital leases representing interest........................ (174,908) (69,615)
---------- ---------
Present value of minimum lease payments............................. 926,747 451,223
Less: current portion of notes payable and lease obligations.......... 447,227 579,991
---------- ---------
$ 649,941 $ 464,357
========== =========
</TABLE>
The following is a summary of future payments required under the above
obligations:
<TABLE>
<CAPTION>
DEBT LEASE
------- --------
<S> <C> <C>
1996..................................................... $99,889 $432,049
1997..................................................... 70,532 345,130
1998..................................................... -- 218,211
1999..................................................... -- 102,605
2000..................................................... -- 3,660
2001 and after........................................... -- --
</TABLE>
Included in the Company's plant, property and equipment is New Horizons'
equipment under capital leases amounting to $1,272,860, net of accumulated
amortization of $410,540.
The Company has received a firm commitment from a commercial bank for an
unsecured credit facility which provides a maximum credit of $5,500,000 through
June 30, 1998. This credit facility bears interest at the Company's preference
of either the prime rate or LIBOR. The Company is required to pay a fee of 1/4
of 1% of the unused balance of the facility.
3. BUSINESS AND CREDIT CONCENTRATION
Handex Environmental's primary customers are major petroleum companies who
store petroleum products in underground storage tanks. New Horizons' customers
are predominantly employer-sponsored individuals from corporations, professional
service organizations, government agencies and municipalities.
F-9
<PAGE> 59
HANDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Handex Environmental has certain customers which, in one or more of the
last three years, accounted for 10% or more of both its total and net operating
revenues. The approximate total and net operating revenues for these customers
are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Total operating revenues:
Customer 1................................ $ 9,267,000 $10,567,000 $ 9,049,000
Customer 2................................ 6,890,000 8,592,000 7,391,000
Customer 3................................ 6,283,000 7,306,000 7,241,000
Customer 4................................ 4,895,000 6,138,000 5,359,000
----------- ----------- -----------
Total.................................. $27,335,000 $32,603,000 $29,040,000
=========== =========== ===========
Net operating revenues:
Customer 1................................ $ 7,387,000 $ 8,544,000 $ 7,294,000
Customer 2................................ 5,833,000 7,542,000 6,489,000
Customer 3................................ 5,291,000 6,131,000 6,415,000
Customer 4................................ 3,890,000 4,812,000 4,244,000
----------- ----------- -----------
Total.................................. $22,401,000 $27,029,000 $24,442,000
=========== =========== ===========
</TABLE>
As of December 30, 1995 Handex Environmental's receivables from such
customers amounted to approximately $9,700,000.
New Horizons has no individual customer which accounts for 10% or more of
its operating revenues for 1995 and 1994.
4. INCOME TAXES
Income tax expense for the periods below differs from the amounts computed
by applying the U.S. federal income tax rate of 34 percent to the pretax income
as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)............... $ (42,001) $1,314,385 $ 746,421
Amortization of excess of cost over net assets
acquired.............................................. 31,600 22,450 16,950
State and local tax expense, net of Federal income tax
effect................................................ 62,300 287,200 232,100
Foreign income tax.................................... 36,740 6,351 --
Interest income from tax-free investments............. (64,200) (149,800) (205,200)
Meals and entertainment............................... 40,464 49,124 19,657
Other................................................. 4,606 5,087 11,216
---------- ---------- ----------
Income tax expense.................................... $ 69,509 $1,534,797 $ 821,144
========== ========== ==========
Effective rates....................................... N/A 39.7% 37.4%
========== ========== ==========
</TABLE>
Income tax expense consists of:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Federal
Current............................................ $ 150,285 $1,131,620 $ 760,000
Deferred........................................... (211,835) (2,281) (242,509)
State and local.................................... 94,319 399,107 303,653
Foreign............................................ 36,740 6,351 --
---------- ---------- ----------
$ 69,509 $1,534,797 $ 821,144
========== ========== ==========
</TABLE>
F-10
<PAGE> 60
HANDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 30, 1995 and
December 31, 1994, are presented below:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful
accounts........................................................ $ 392,698 $ 373,824
Reserve for uninsured losses and litigation........................ 232,064 188,250
Loss on joint venture......................................... 260,000 --
Other................................................................ 80,691 47,594
Total gross deferred tax assets.................................... 965,453 609,668
Less valuation allowance........................................... -- --
------------ ------------
Net deferred tax assets....................................... 965,453 609,668
------------ ------------
Deferred tax liability:
Property, plant and equipment, principally due to differences in
depreciation.................................................... (724,164) (805,920)
Excess of cost over net assets of acquired company................. (308,302) (82,596)
------------ ------------
Deferred tax liability............................................. (1,032,466) (888,516)
------------ ------------
Net deferred tax liability......................................... $ (67,013) $ (278,848)
=========== ===========
</TABLE>
There is no valuation allowance required at December 30, 1995 and December
31, 1994.
5. NOTES RECEIVABLE FROM OFFICERS
Included in other assets are notes receivable from certain officers of the
Company in the aggregate amount of $468,610. One of the notes is payable on or
before September 30, 1997 and is fully secured by a mortgage on real estate to
which the loan proceeds were applied; the others are demand notes secured by the
proceeds from certain life insurance policies.
6. OTHER LIABILITIES
Other liabilities consist of:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Sales taxes payable.................................. $ 620,347 $ 713,617
Salaries, wages and bonuses payable.................. 1,795,787 1,264,405
Amounts received on behalf of a customer............. 1,205,424 1,542,451
Deferred revenues.................................... 1,564,096 994,167
Allowance for uninsured claims....................... 250,161 270,624
Allowance for litigation expenses.................... 330,000 200,000
Other................................................ 2,128,801 840,802
---------- ----------
$7,894,616 $5,826,066
========== ==========
</TABLE>
7. EMPLOYEE SAVINGS PLAN
The Company has a 401(k) Profit Sharing Trust and Plan in which all
employees in its Environmental Business segment not currently covered by a
collective bargaining agreement are eligible to participate. None of the
Company's employees are covered by any collective bargaining agreement. The
Company, at its option, matches each participant's contribution to the Plan at
the rate of 50% of up to 6% of each participant's compensation, up to the
maximum allowable under the Internal Revenue Code. Employer contributions for
the
F-11
<PAGE> 61
HANDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
years ended December 30, 1995, December 31, 1994, and January 1, 1994 totaled
$360,551, $269,068 and $235,384 respectively. Employees vest in the Company
contributions at a rate of 20% per year based upon years of service. A similar,
but non-contributory plan is in place for New Horizons' employees.
8. STOCK OPTION PLAN
The Company maintains a key employee stock option plan which provides for
the issuance of non-qualified options, incentive stock options and stock
appreciation rights. The plan currently provides for the granting of options to
purchase up to 1,200,000 shares of common stock. Incentive stock options are
exercisable for up to ten years, at an option price of not less than the market
price on the date the option is granted or at a price of not less than 110% of
the market price in the case of an option granted to an individual who, at the
time of grant, owns more than 10% of the Company's Common stock. Non-qualified
stock options may be issued at such exercise price and on such other terms and
conditions as the Compensation Committee of the Board of Directors may
determine. Optionees may also be granted stock appreciation rights under which
they may, in lieu of exercising an option, elect to receive cash or Common
stock, or a combination thereof, equal to the excess of the market price of the
Common stock over the option price. All options were granted at fair market
value at dates of grant.
The stock option plan for directors who are not employees of the Company
provides for the issuance of up to 75,000 shares of Common stock and may be
issued at such price per share and on such other terms and conditions as the
Compensation Committee may determine. All options were granted at fair market
value at dates of grant.
The following table summarizes all transactions during 1995 and 1994 under
the Stock Option Plans.
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Options outstanding at beginning of year (number of
shares):
Key employees........................................... 723,900 506,500
Outside directors....................................... 24,750 24,750
Options granted (number of shares):
Key employees........................................... 30,739 253,000
Outside directors....................................... -- --
Average grant price:
Key employees........................................... $ 6.00 $ 7.96
Outside directors....................................... -- --
Options exercised (number of shares):
Key employees........................................... -- 10,000
Outside directors....................................... -- --
Average exercise price:
Key employees........................................... $ -- $ 6.50
Outside directors....................................... --
Options canceled (number of shares):
Key employees........................................... 40,900 25,600
Outside directors....................................... -- --
Options outstanding at end of year (number of shares):
Key employees........................................... 713,739 723,900
Outside directors....................................... 24,750 24,750
</TABLE>
F-12
<PAGE> 62
HANDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Option price range:
Key employees........................................... $5.80-$ 9.00 $5.80-$ 9.00
Outside directors....................................... $6.50-$11.20 $6.50-$11.20
Options exercisable (number of shares):
Key employees........................................... 399,500 279,700
Outside directors....................................... 24,750 24,750
Aggregate price of exercisable options
Key employees........................................... $ 2,891,810 $ 2,011,345
Outside directors....................................... 230,200 230,200
Options available for future grants (number of shares)
Key employees........................................ 270,761 260,600
Outside directors.................................... 46,250 46,250
</TABLE>
9. LEASES
The Company, is obligated under operating leases primarily for office space
and training facilities, with rental arrangements for various periods of time
ending through 2003. These leases provide for minimum fixed rents for the
following fiscal years as follows: 1996, $2,174,074; 1997, $1,854,220; 1998,
$1,501,317; 1999, $1,329,248; 2000, $1,166,686; and 2001 and after, $3,250,527
excluding the related-party lease described below. Rent expense was $2,302,068,
$1,370,365, and $1,287,231, during the years ended December 30, 1995, December
31, 1994, and January 1, 1994, respectively.
A subsidiary of the Company leased a building from a partnership comprised
of related parties. Rent under this lease, which commenced in June 1987 and was
scheduled to expire in June 1999, was $36,000 for each of the years ended
December 30, 1995, December 31, 1994, and January 1, 1994. On January 15, 1996,
the Company purchased this property.
10. SEGMENT INFORMATION AND REPORTING
In 1995, the Company acquired the assets of New Horizons' franchise in New
York and a Florida based environmental concern for an aggregate cash price and
related expenses of $830,000. These acquisitions have been accounted as
purchases, and accordingly the purchase prices have been allocated to assets
based upon the Company's estimate of their fair market values. The aggregate
purchase price and related expenses exceeded the fair values of the assets by
$597,000 and are included in Goodwill.
On August 15, 1994, the Company, through New Horizons, acquired
substantially all of the assets of New Horizons Computer Learning Center, Inc.
and all of the issued and outstanding shares of stock of New Horizons
Franchising, Inc. for an aggregate cash price of $14,000,000. During 1994, New
Horizons also acquired certain assets of franchises covering the Chicago and
Cleveland markets. In February 1995, New Horizons contributed the Cleveland
assets to a newly formed joint venture in exchange for a minority interest. The
joint venture operates the Cleveland franchise. Also in February 1995, New
Horizons acquired certain assets of the franchise covering the metropolitan New
York market. New Horizons specializes in providing instructor-led training in
the use of computers and computer software, offering courses in PC software
applications, networking, and work stations. Training is provided at New
Horizons' owned training centers located in Santa Ana, California, Chicago,
Illinois, and New York, New York. Franchising is engaged in the business of
offering systems of instructions, sales and management concepts for training in
the use of computers and computer system through the sale of franchises
throughout the United States and internationally.
These acquisitions have been accounted for as purchases, and accordingly
the purchase prices have been allocated to assets and liabilities based upon New
Horizon's estimate of their fair market values. The aggregate
F-13
<PAGE> 63
HANDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase price and related expenses exceeded the fair values of assets and
liabilities by $14,393,077 and are included in Goodwill.
Prior to August 15, 1994, the Company's business operations were
concentrated in the environmental services industry. With the acquisition of New
Horizons, the Company extended its operations into the computer training
industry.
Information about the Company's segment operating data for 1995 follows:
<TABLE>
<CAPTION>
ENVIRONMENTAL NEW HORIZONS CORPORATE CONSOLIDATED
------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net operating revenues.............. $46,520,688 $ 23,733,208 $ -- $ 70,253,896
Gross Profit........................ 14,619,091 10,569,208 -- 25,188,299
Identifiable assets (a)............. 34,455,894 23,613,435 9,020,053 67,089,382
Capital expenditures................ 1,302,116(b) 2,730,467(b) 156,453 4,189,036
Depreciation and amortization....... 2,056,811 1,724,073(c) 170,612 3,951,496
<FN>
- ---------------
(a) Identifiable assets are those used in the operation of each segment.
Corporate assets consist primarily of cash and short-term marketable
securities.
(b) Excludes assets of $232,675 from acquired companies.
(c) Includes write-off of the unamortized cost of management software in the
amount of $161,749.
</TABLE>
New Horizons has no assets outside the United States and derives revenues
from the sale of franchises and royalties based on certain revenues of licensed
franchises. During 1995 revenues derived from the sale of franchises and
royalties derived from franchised operations outside the United States amounted
to approximately $681,000.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1995 and 1994 are as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
NET INCOME (LOSS)
OPERATING GROSS BEFORE NET INCOME EARNINGS (LOSS)
YEAR QUARTER REVENUES PROFIT INCOME TAXES (LOSS) PER SHARE
- ---- ------- --------- ------ ------------- ---------- ---------------
<C> <S> <C> <C> <C> <C> <C>
1995 First $17,001 $6,221 $ 453 $ 274 $ .04
Second 17,074 6,520 612 335 .05
Third 17,757 6,428 (942) (608) (.09)
Fourth 18,422 6,019 (247) (194) (.03)
1994 First $ 9,806 $3,188 $ 74 $ 60 $ .01
Second 11,876 4,545 1,103 677 .10
Third 14,338 5,527 1,428 858 .12
Fourth 16,551 6,445 1,261 736 .11
</TABLE>
The fourth quarter of 1994 reflects adjustments aggregating to
approximately $200,000 for excess provision for vacation, holiday, major medical
and dental expenses. The quarter also reflects the write-off to expense of
advances to a bio-remediation contractor amounting to $240,000 which was
partially offset by the reversal to income of excess provision for litigation
expenses.
F-14
<PAGE> 64
HANDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PROVISION FOR LOSS IN A JOINT VENTURE, ASSET WRITE-OFF AND
TERMINATION EXPENSES
In February 1995, one of the Company's education subsidiaries acquired a
minority interest in a limited liability company by contributing the assets of
its Cleveland operations and cash. In the third quarter of 1995, an affiliate of
the venture's majority member filed for bankruptcy and the Company has assumed
the management of these operations pending settlement of the bankruptcy issues.
The Company estimates and has provided for the estimated loss on the joint
venture in the amount of $650,000.
In addition, one of the Company's education subsidiaries wrote-off the
unamortized developmental costs of a software program which had been in
development prior to its acquisition by the Company in August 1994. The
write-off amounted to $161,748.
In the environmental segment, the Company reduced its work force in
response to softness in its Environmental Business and recorded a charge in the
amount of $301,419 for related termination costs.
These charges combined, all of which were recorded in the third quarter of
1995, totaled $1,113,167 before tax and on an after-tax basis, had a $0.10
impact on net income per share.
13. CAPTIVE INSURANCE COMPANY
In February 1992, the Company purchased stock in a holding company which
owns a captive insurance company through which the Company obtains its general
liability insurance coverage. The stock purchase price of $476,250 was paid by
$158,750 in cash, which is reflected in other non-current assets in the
accompanying financial statements, and the balance is secured by an irrevocable
letter of credit. As of December 30, 1995, there has not been any draw against
the letter of credit. The Company has no obligations to the holding
company/captive insurance group other than the amount represented by the letter
of credit and as a shareholder and director of the holding company. The Company
owns 1 share (3.3%) of the 30 shares of common stock, and 466.25 shares (23.3%)
of 1,996.79 shares of Preferred stock, Series A, issued and outstanding as of
December 30, 1995.
14. FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable, and accrued liabilities is considered to approximate their
fair value due to the short maturity of these instruments. Marketable securities
are shown at fair value. Debt instruments are not significant.
15. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
16. CHANGE IN FISCAL YEAR
On December 18, 1992, the Board of Directors approved a change in the
Company's fiscal year from one ending on December 31st of each year to a 52-53
week fiscal year ending on the Saturday nearest the last day of December. Fiscal
1995 ended on December 30, 1995. Fiscal 1994 ended on December 31, 1994. Fiscal
1993, the first fiscal year under this change, ended on January 1, 1994. All
references to 1993 in the financial statements refer to the fiscal year ended
January 1, 1994. The Company filed a Form 8-K report on December 31, 1992.
F-15
<PAGE> 65
HANDEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1996 AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 30,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 6,965,354 $ 3,821,474
Marketable securities......................................... 300,000 2,775,000
Accounts receivable, net...................................... 18,390,130 15,208,497
Inventories................................................... 559,840 352,196
Refundable income tax......................................... -- 666,060
Deferred income tax assets.................................... 737,351 705,453
Prepaid expenses and other current assets..................... 707,155 541,084
Net Assets of discontinued operations (Note 3)................ 2,997,000 10,300,000
----------- -----------
Total current assets.................................. 30,656,830 34,369,764
Property, plant and equipment, net.............................. 6,122,050 3,744,971
Other non-current assets........................................ 1,903,453 1,575,999
Intangible assets............................................... 15,824,486 16,121,258
----------- -----------
$54,506,819 $55,811,992
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term obligations................. $ 1,325,285 $ 447,227
Accounts payable.............................................. 1,381,802 905,923
Accrued expenses.............................................. 6,467,511 4,238,206
Income taxes payable.......................................... 238,209 --
----------- -----------
Total current liabilities............................. 9,412,807 5,591,356
Long-term obligations, excluding current installments........... 2,270,466 649,941
Deferred income tax liability................................... 161,438 142,401
Stockholders' equity:
Preferred stock, without par value, 2,000,000 shares
authorized, no shares issued............................... -- --
Common stock, $.01 par value, 15,000,000 shares authorized;
issued 7,056,212 shares in 1996 and 7,050,212 shares in
1995....................................................... 70,562 70,502
Additional paid-in capital.................................... 24,399,562 24,349,542
Retained earnings............................................. 19,490,109 26,306,375
Treasury stock at cost -- 185,000 shares in 1996 and 1995..... (1,298,125) (1,298,125)
----------- -----------
Total stockholders' equity............................ 42,662,108 49,428,294
----------- -----------
$54,506,819 $55,811,992
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-16
<PAGE> 66
HANDEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE AND THREE MONTHS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues............................ $29,578,358 $16,753,893 $10,484,343 $ 6,007,362
Cost of revenues.................... 14,614,479 9,222,834 5,230,727 3,358,133
------------ ------------ ------------ ------------
Gross profit........................ 14,963,879 7,531,059 5,253,616 2,649,229
Selling, general and administrative
expenses.......................... 13,732,162 7,935,347 4,763,488 2,932,120
Provision for loss in a joint
venture and asset write-off....... -- 811,748 -- 811,748
------------ ------------ ------------ ------------
Operating income (loss)............. 1,231,717 (1,216,036) 490,128 (1,094,639)
Interest income (expense), net...... (102,806) 118,349 (52,467) 28,988
------------ ------------ ------------ ------------
Income (loss) from continuing
operations before income taxes.... 1,128,911 (1,097,687) 437,661 (1,065,651)
Provision for income taxes
(benefit)......................... 506,533 (450,093) 177,581 (393,226)
------------ ------------ ------------ ------------
Income (loss) from continuing
operations........................ 622,378 (647,594) 260,080 (672,425)
Discontinued operations (Note 3)
Income (loss) from operations of
the discontinued environmental
segment (less applicable income
taxes for nine months of $75,290
for 1996 and $547,420 for 1995;
$201,392 and $59,193) for the 1996
and 1995 quarters................. (135,641) 648,582 181,240 64,703
Loss on disposal of the
environmental segment............. (7,303,000) -- (7,303,000) --
------------ ------------ ------------ ------------
Income (loss) from discontinued
operations........................ (7,438,641) 648,582 (7,121,760) 64,703
------------ ------------ ------------ ------------
Net income (loss)................... $(6,816,263) 988 (6,861,680) (607,722)
------------ ------------ ------------ ------------
Earnings (loss) per share from
continuing operations............. $ 0.09 (0.09) 0.04 (0.10)
Earnings (loss) per share from
discontinued operations........... $ (1.08) 0.09 (1.04) 0.01
------------ ------------ ------------ ------------
Earnings (loss) per share........... $ (0.09) 0.00 (1.00) (0.09)
------------ ------------ ------------ ------------
Weighted average number of shares
outstanding....................... 6,867,858 6,865,212 6,871,212 6,865,212
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-17
<PAGE> 67
HANDEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................................... $(6,816,263) 988
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................................... 2,008,416 1,252,403
Loss on equipment/software write-off.................................. -- 161,748
Deferred income taxes................................................. (12,861) 88,040
Cash provided (used) from the change in:
Accounts receivable................................................ (2,999,139) (1,647,871)
Inventories........................................................ (190,250) 19,389
Prepaid expenses and other current assets.......................... (166,071) (46,266)
Other assets....................................................... (251,855) 93,025
Accounts payable................................................... 226,895 (226,272)
Accrued expenses................................................... 3,027,577 1,045,215
Income tax payable/refundable...................................... 904,269 (439,020)
Discontinued operations -- non cash charges and working capital
changes............................................................ 7,064,702 1,180,767
------------ -----------
Net cash provided by operating activities.......................... 2,795,420 1,482,146
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities..................................... -- (4,000,000)
Redemption of marketable securities................................... 2,475,000 5,190,000
Additions to property, plant and equipment:
Continuing operations.............................................. (3,599,056) (2,604,533)
Discontinued operations............................................ (736,906) (1,164,782)
Cash from acquired joint venture...................................... 57,615 --
Excess of cost over net assets of acquired company.................... (60,183) (266,358)
------------ -----------
Net cash used in investing activities:............................. (1,863,530) (2,845,673)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock................................ 53,680 --
Proceeds from debt obligations........................................ 2,818,172 585,659
Principal payments on debt obligations................................ (656,262) (594,663)
Other................................................................. (3,600) (14,289)
------------ -----------
Net cash (used in) by financing activities......................... 2,211,990 (23,293)
------------ -----------
Net increase (decrease) in cash and cash equivalents...................... 3,143,880 (1,386,820)
Cash and cash equivalents at beginning of period.......................... 3,821,474 2,895,478
------------ -----------
Cash and cash equivalents at end of period................................ $ 6,965,354 1,508,658
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash was paid for:
Interest........................................................... $ 22,708 71,415
------------ -----------
Income taxes....................................................... $ 51,697 548,461
------------ -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-18
<PAGE> 68
HANDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
(UNAUDITED)
Note 1 In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (all of which are normal and
recurring in nature) necessary to present fairly the financial position
of the Company at September 2, 1996 and a the results of operations for
the nine and three month periods ended September 28, 1996 and September
30, 1995. The statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual
report for the year ended December 30, 1995.
Note 2 The consolidated financial statements include the assets and liabilities
as of September 28, 1996, and the results of operations for the for the
nine and three month periods ended September 28, 1996, of New Horizons
Computer Learning Center of Cleveland, Ltd., L.L.C., a joint venture in
which the Company retained a minority interest through December 30,
1995. Following the bankruptcy of the majority member's parent
corporation the Company, assumed control of and provided the financing
and management of the day to day operations of the venture. As a result,
management believes that the consolidation of the assets, liabilities
and results of operations of the venture beginning in 1996, is
appropriate.
Note 3 On November 4, 1996, the Company signed a definitive agreement to sell
its Environmental Business to a corporation formed by a group which
includes current members of its Southeast Regional management team.
Under the agreement, the group will purchase the stock of Handex's
environmental subsidiaries with a net asset value of $10.3 million for
$4.6 million in cash other consideration, including a promissory note
and preferred stock in the amount of $3.7 million and $2.0 million,
respectively assets of the discontinued segment in excess of $10.3
million, consisting principally of accounts receivable, will be retained
by the Company. The Company's estimate of the loss on disposal of the
segment is $7.3 million and consists of valuation reserves on the
promissory note and preferred stock in the amount of $2,960,000 and
$1,600,000, respectively, goodwill write-off of $1,777,000 and
transaction costs of $966,000. There is no expected tax benefit from
this loss.
The discontinued operations had operating revenues of $33,382,000 and
$35,078,000, net loss of $135,000 and net income of $649,000 for the
nine months ended September 28, 1996 and September 30, 1995,
respectively. For fiscal 1995, the discontinued operations had net
operating revenues of $46,521,000 and net income of $450,000. The sale
is subject to stockholder approval and is expected to be completed by
the end of fiscal 1996.
The components of (i) net assets of discontinued operations included in
the accompanying balance sheets at September 28, 1996 and December 30,
1995 (1995 amounts are shown as they were historically classified) and
(ii) operating results of discontinued operations included in the
accompanying balance sheets and income statements for the three and nine
months ended September 28, 1996 and September 30, 1995 are as follows:
F-19
<PAGE> 69
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Current assets:
Accounts receivable................................................ $11,289,410 14,793,000
Inventories........................................................ 142,371 187,295
Prepaid expenses and other current assets............................ 263,491 386,767
Total current assets................................................. 11,695,272 15,367,062
Current liabilities
Accounts payable..................................................... 3,778,703 6,990,915
Accrued expenses..................................................... 2,734,840 3,656,410
Total current liabilities....................................... 6,513,543 10,647,325
5,181,729 4,719,737
Total...........................................................
Non-current assets:
Property, plant and equipment........................................ 5,253,373 5,898,153
Other assets......................................................... 492,112 312,175
Total non-current assets............................................. 5,745,485 6,210,328
Deferred income tax liability........................................ 627,214 630,065
Net assets of discontinued operations................................ $10,300,000 10,300,000
Reserve for loss on disposal......................................... 7,303,000
Net assets of discontinued operations................................ 2,997,000 10,300,000
</TABLE>
OPERATING RESULTS (IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
------------------ ------------------
9/28/96 9/30/95 9/28/96 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net operating revenues.................................. $33,282 $35,078 $10,903 $11,748
Cost of net operating revenues.......................... 24,089 23,440 7,479 7,971
Gross Profit............................................ 9,193 11,638 3,424 8,778
Selling, general and administrative
expenses before corporate SGA......................... 9,345 10,718 3,021 3,747
Operating income........................................ (152) 920 403 31
</TABLE>
Selling, general and administrative expenses have been restated to exclude
certain Corporate expenses which were previously reported as part of
environmental expenses, and are now reported as part of continuing operations
(educational).
Note 4 Certain items on the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
F-20
<PAGE> 70
APPENDIX A
STOCK PURCHASE AGREEMENT
DATED
NOVEMBER 4, 1996
BETWEEN
HANDEX CORPORATION
AND
ECB, INC.
<PAGE> 71
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS.................................................... A-1
2. SALE AND TRANSFER OF SHARES; CLOSING........................... A-7
2.1 SHARES................................................ A-7
2.2 CONSIDERATION......................................... A-7
2.3 CLOSING............................................... A-7
2.4 CLOSING OBLIGATIONS................................... A-8
2.5 ADJUSTMENT AMOUNT..................................... A-9
2.6 ADJUSTMENT PROCEDURE.................................. A-9
3. REPRESENTATIONS AND WARRANTIES OF SELLER....................... A-9
3.1 ORGANIZATION AND GOOD STANDING........................ A-9
3.2 AUTHORITY; NO CONFLICT................................ A-10
3.3 CAPITALIZATION........................................ A-10
3.4 FINANCIAL STATEMENTS.................................. A-11
3.5 BOOKS AND RECORDS..................................... A-11
3.6 TITLE TO PROPERTIES; ENCUMBRANCES..................... A-11
3.7 TAXES................................................. A-12
3.8 NO MATERIAL ADVERSE CHANGE............................ A-13
3.9 EMPLOYEE BENEFITS..................................... A-13
3.10 COMPLIANCE WITH LEGAL REQUIREMENTS;
GOVERNMENTAL AUTHORIZATIONS........................... A-16
3.11 LEGAL PROCEEDINGS; ORDERS............................. A-17
3.12 ABSENCE OF CERTAIN CHANGES AND EVENTS................. A-18
3.13 CONTRACTS; NO DEFAULTS................................ A-18
3.14 INSURANCE............................................. A-20
3.15 ENVIRONMENTAL MATTERS................................. A-21
3.16 LABOR RELATIONS; COMPLIANCE........................... A-22
3.17 INTELLECTUAL PROPERTY................................. A-22
3.18 DISCLOSURE............................................ A-24
3.19 RELATIONSHIPS WITH RELATED PERSONS.................... A-24
3.20 BROKERS OR FINDERS.................................... A-25
3.21 SUFFICIENCY OF ASSETS................................. A-25
3.22 CURRENT CLIENTS....................................... A-25
3.23 INVENTORY............................................. A-25
3.24 NO UNDISCLOSED LIABILITIES............................ A-25
3.25 EMPLOYEES............................................. A-25
3.26 INVESTMENT INTENT..................................... A-26
4. REPRESENTATIONS AND WARRANTIES OF BUYER........................ A-26
4.1 ORGANIZATION AND GOOD STANDING........................ A-26
4.2 AUTHORITY; NO CONFLICT................................ A-26
4.3 INVESTMENT INTENT..................................... A-26
4.4 CERTAIN PROCEEDINGS................................... A-27
4.5 BROKERS OR FINDERS.................................... A-27
4.6 UNDISCLOSED KNOWLEDGE................................. A-27
4.7 CAPITALIZATION; LIABILITIES; SOLVENCY................. A-27
-i-
<PAGE> 72
PAGE
----
5. COVENANTS OF SELLER PRIOR TO CLOSING DATE........................... A-28
5.1 ACCESS AND INVESTIGATION................................... A-28
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES...... A-28
5.3 NEGATIVE COVENANT.......................................... A-28
5.4 REQUIRED APPROVALS......................................... A-28
5.5 NOTIFICATION............................................... A-28
5.6 NO NEGOTIATION............................................. A-29
5.7 BEST EFFORTS............................................... A-29
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE............................ A-29
6.1 REQUIRED APPROVALS......................................... A-29
6.2 BEST EFFORTS............................................... A-29
6.3 NEGATIVE COVENANT.......................................... A-29
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE................. A-29
7.1 ACCURACY OF REPRESENTATIONS................................ A-29
7.2 SELLER'S PERFORMANCE....................................... A-30
7.3 CONSENTS................................................... A-30
7.4 ADDITIONAL DOCUMENTS....................................... A-30
7.5 NO PROCEEDINGS............................................. A-30
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS........ A-30
7.7 NO PROHIBITION............................................. A-30
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE................ A-30
8.1 ACCURACY OF REPRESENTATIONS................................ A-30
8.2 BUYER'S PERFORMANCE........................................ A-31
8.3 ADDITIONAL DOCUMENTS; CONSENTS............................. A-31
8.4 NO PROCEEDINGS OR PROHIBITION.............................. A-31
9. TERMINATION......................................................... A-31
9.1 TERMINATION EVENTS......................................... A-31
9.2 EFFECT OF TERMINATION...................................... A-32
10. INDEMNIFICATION; REMEDIES........................................... A-32
10.1 SURVIVAL................................................... A-32
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER........... A-32
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER--
ENVIRONMENTAL MATTERS................................. A-32
10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER............ A-33
10.5 TIME AND KNOWLEDGE LIMITATIONS............................. A-33
10.6 LIMITATIONS ON AMOUNT -- SELLER............................ A-34
10.7 LIMITATIONS ON AMOUNT -- BUYER............................. A-34
10.8 RIGHT OF SET-OFF........................................... A-34
10.9 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS........ A-35
10.10 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS.............. A-35
10.11 EXCLUSIVE REMEDY........................................... A-36
10.12 DISPUTE RESOLUTION......................................... A-36
-ii-
<PAGE> 73
PAGE
----
11. GENERAL PROVISIONS AND COVENANTS TO BE PERFORMED AFTER CLOSING........ A-36
11.1 EXPENSES..................................................... A-36
11.2 PUBLIC ANNOUNCEMENTS......................................... A-37
11.3 CONFIDENTIALITY.............................................. A-37
11.4 NOTICES...................................................... A-38
11.5 FURTHER ASSURANCES........................................... A-38
11.6 WAIVER....................................................... A-38
11.7 ENTIRE AGREEMENT AND MODIFICATION............................ A-39
11.8 DISCLOSURE SCHEDULE.......................................... A-39
11.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS........... A-39
11.10 SEVERABILITY................................................. A-39
11.11 SECTION HEADINGS; CONSTRUCTION............................... A-39
11.12 TIME OF ESSENCE.............................................. A-39
11.13 GOVERNING LAW................................................ A-39
11.14 COUNTERPARTS................................................. A-40
11.15 CORPORATE NAME; TRADEMARKS................................... A-40
11.16 TAX RETURNS, PAYMENTS AND ELECTIONS.......................... A-40
-iii-
<PAGE> 74
SELLER'S DISCLOSURE SCHEDULE
<TABLE>
<S> <C>
Schedule 3.1 Acquired Companies
Schedule 3.2 Conflicts/Violations Preventing Transfer
Schedule 3.3 Contracts to Acquire Interest in Other Entities
Schedule 3.4 Financial Statements Not Consistent With GAAP
Schedule 3.6 Real Estate, Real Property Leases and Equipment Leases
Schedule 3.7(a) Payment or Provision For Payment of Taxes
Schedule 3.7(b) Audits of Tax Returns Since 12/31/93
Schedule 3.7(c) Adequacy of Tax Reserves
Schedule 3.7(d) Completeness of Returns, Target Affiliates
Schedule 3.9(i) Company Plans and Company Other Benefits
Schedule 3.9(ii) ERISA Affiliate Plans
Schedule 3.9(iii) Post Retirement Benefit Obligations
Schedule 3.9(iv) Costs of Undisclosed Plans
Schedule 3.9(vi) Compliance Obligations
Schedule 3.10 Compliance: Legal Requirements and Governmental Obligations
Schedule 3.11(a) Legal Proceedings -- Against Seller, et al.
Schedule 3.11(b) Legal Proceedings -- By Seller, et al.
Schedule 3.11(c) Legal Proceedings -- Orders Seller Subject To
Schedule 3.11(d) Legal Proceedings -- Seller in Compliance with Orders
Schedule 3.12 Absence of Certain Changes and Events
Schedule 3.13(a) Applicable Contracts
Schedule 3.13(a)(v) Applicable Contracts -- Form of Employee Agreement
Schedule 3.13(b) Applicable Contracts -- No Rights Under Material Applicable Contracts
Schedule 3.13(c) Applicable Contract -- Material Applicable Contracts Validity
Schedule 3.13(d) Applicable Contracts -- Material Applicable Contracts Compliance
Schedule 3.13(e) Applicable Contracts -- No Renegotiation
Schedule 3.13(f) Applicable Contracts -- Consideration in Violation
Schedule 3.14(b) Insurance -- Status
Schedule 3.15 Environmental Matters
Schedule 3.16 Labor Matters
Schedule 3.17(b) Intellectual Property -- Relating to Applicable Contracts
Schedule 3.17(c) Intellectual Property -- Employees Restricted
Schedule 3.17(d) Intellectual Property -- Patents
Schedule 3.17(e) Intellectual Property -- Trademarks
Schedule 3.17(f) Intellectual Property -- Copyrights
Schedule 3.17(g) Intellectual Property -- Trade Secrets
Schedule 3.19 Relationships with Related Persons
Schedule 3.21 Sufficiency of Assets
Schedule 3.22 Current Clients -- Possible Terminations
Schedule 3.25 Employees
Schedule 10.4 Indemnification by Buyer
</TABLE>
BUYER'S SCHEDULES
<TABLE>
<S> <C>
Schedule 4.2 Authority; No Conflict
Schedule 4.7(b) Capitalization; Liabilities; Solvency
</TABLE>
-iv-
<PAGE> 75
EXHIBITS
<TABLE>
<S> <C>
2.2(b) -- Promissory Note
2.2(c) -- Terms of Preferred Shares
2.2(d) -- Warrant A
2.2(e) -- Warrant B
2.4(a)(ii) -- Receivables Collection Agreement
2.4(a)(v) -- Subordination Agreement
2.4(a)(vi) -- Completion Assistance Agreement
2.4(a)(vii) -- Shareholders Agreement
2.4(b)(v) -- Sublease
2.4(b)(viii) -- Corporate Guaranty and Pledge Agreement
2.4(b)(ix) -- Pledge Agreement
2.4(b)(x) -- Nonrecourse Individual Guaranty and Pledge Agreement
2.6(a) -- Financial Calculations
7.4(a) -- Form of Calfee, Halter & Griswold legal opinion
7.4(b) -- Form of Gary T. Gann legal opinion
8.3(a) -- Form of Cobb Cole & Bell legal opinion
10.8 -- Claims Escrow Agreement
</TABLE>
-v-
<PAGE> 76
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of November 4, 1996,
by ECB, INC., a Florida corporation ("Buyer"), and HANDEX CORPORATION, a
Delaware Corporation ("Seller").
RECITALS
Seller desires to sell, and Buyer desires to purchase, all of the issued
and outstanding shares (the "Shares") of capital stock of Handex Environmental,
Inc., a Delaware corporation (the "Company"), for the consideration and on the
terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Acquired Assets" -- all assets, properties and rights of the Acquired
Companies, whether tangible or intangible, real, personal or mixed, including
the Net Acquired Current Assets and Net P, P & E, but exclusive of the Retained
Contracts, Retained Miscellaneous Assets and Retained Trade Receivables.
"Acquired Companies" -- the Company and its Subsidiaries, collectively.
"Adjustment Amount" -- as defined in Section 2.5.
"Applicable Contract" -- any Contract other than a Retained Contract (a)
under which any Acquired Company has any rights, (b) under which any Acquired
Company has become subject to any obligation or liability, or (c) by which any
Acquired Company or any of the assets owned or used by it is bound.
"Balance Sheet" -- as defined in Section 3.4.
"Best Efforts" -- the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to cause such result to be achieved as
expeditiously as practicable; provided, however, that an obligation to use Best
Efforts under this Agreement does not require the Person subject to that
obligation to take actions that would result in a materially adverse change in
the benefits to such Person of this Agreement and the Contemplated Transactions.
"Breach" -- a "Breach" of a representation, warranty, covenant, obligation,
or other provision of this Agreement or any instrument delivered pursuant to
this Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"Buyer" -- as defined in the first paragraph of this Agreement.
"Buyer's Closing Documents" -- as defined in Section 4.2(a).
"Buyer's Shareholders" -- as defined in Section 4.7.
"Claims Escrow Agreement" -- as defined in Section 10.8.
"Closing" -- as defined in Section 2.3.
"Closing Date" -- the date and time as of which the Closing actually takes
place.
"Company" -- as defined in the Recitals of this Agreement.
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"Completion Assistance Agreement" -- as defined in Section 2.4(a)(vi).
"Consent" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" -- all of the transactions contemplated by this
Agreement, including:
(a) the sale of the Shares by Seller to Buyer;
(b) issuance of the Promissory Note, Preferred Shares and Warrants by
Buyer to Seller;
(c) the execution, delivery, and performance of the Deposit Escrow
Agreement, Completion Assistance Agreement, Receivables Collection
Agreement, Sublease, Shareholders Agreement, Subordination Agreement,
Pledge Agreement; Corporate Guaranty and Pledge Agreement; and the
Nonrecourse Individual Guaranty and Pledge Agreement; and
(d) the performance by Buyer and Seller of their respective covenants
and obligations under this Agreement.
"Contract" -- any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"Corporate Guaranty and Pledge Agreement" -- as defined in Section
2.4(b)(viii).
"Damages" -- as defined in Section 10.2.
"Deposit Escrow Agreement" -- the Deposit Escrow Agreement of even date
herewith between Seller, Buyer and SouthTrust Asset Management Company of
Florida, N.A.
"Disclosure Schedule" -- the Schedules delivered by Seller to Buyer
concurrently with the execution and delivery of this Agreement.
"Eligible Receivables" -- accounts receivable of the Acquired Companies
against which Buyer may borrow at least 75% of the face value on the Closing
Date.
"Encumbrance" -- any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"Environment" -- soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, air (including
indoor air), plant and animal life, and any other environmental medium or
natural resource.
"Environmental, Health, and Safety Liabilities" -- any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or
response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for
any natural resource damages; or
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(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health
Law.
The terms "removal," "remedial," and "response action," include the types
of activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. sec.9601 et seq., as amended
("CERCLA").
"Environmental Law" -- any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Facilities" -- any real property, leaseholds, or other interests currently
or formerly owned or operated by any Acquired Company and any buildings, plants,
structures, or equipment (including motor vehicles, tank cars, and rolling
stock) currently or formerly owned or operated by any Acquired Company.
"GAAP" -- generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4(a) were prepared.
"Governmental Authorization" -- any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" -- any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity
and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.
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"Hazardous Activity" -- the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment.
"Hazardous Materials" -- any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Intellectual Property Assets" -- as defined in Section 3.22.
"Interim Balance Sheet" -- as defined in Section 3.4.
"IRC" -- the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (a) such individual is actually aware of such
fact or other matter or (b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the course of
performing his duties.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, as of the date
of this Agreement, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
"Legal Requirement" -- any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty in effect on
the date of this Agreement or on the Closing Date.
"Material Applicable Contract" -- the Applicable Contracts listed or
required to be listed on Schedule 3.13(a) including such Applicable Contracts as
are disclosed on other Schedules.
"Minimum Net Acquired Current Assets" -- Five Million Ninety-Eight Thousand
Two Hundred Sixty-Eight Dollars ($5,098,268).
"Minimum Net P, P & E" -- Five Million Two Hundred Thirty-Seven Thousand
Dollars ($5,237,000) less Eighty Thousand Dollars ($80,000) per month (or a
prorated fraction thereof for a period less than a month) between December 31,
1996 and the Closing Date.
"Net Acquired Balance Sheet Assets" -- the Net Acquired Current Assets and
Net Acquired P, P & E.
"Net Acquired Current Assets" -- the following assets of the Acquired
Companies: Eligible Receivables aggregating Eight Million Six Hundred
Sixty-Seven Thousand Dollars ($8,667,000); inventories; prepaid expenses; other
current and miscellaneous assets (other than the Retained Contracts Retained
Miscellaneous Assets); less the following liabilities of the Acquired Companies:
accounts payable; payroll and sales taxes payable; payroll; and other accrued
liabilities, all as more fully described on Exhibit 2.6(a).
"Net Acquired P, P & E" -- the property, plant and equipment, net of
reserves for depreciation, of the Acquired Companies.
"Nonrecourse Individual Guaranty and Pledge Agreement -- as defined in
Section 2.4(b)(x).
"Occupational Safety and Health Law" -- any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety
and health hazards.
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"Order" -- any award, decision, injunction, judgment, order, ruling,
subpoena, consent decree, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if such action is
consistent with the past practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person.
"Organizational Documents" -- (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"Person" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Permitted Transfers" -- any transfer by any Acquired Company to Seller of
the Retained Contracts, Retained Miscellaneous Assets or Retained Trade
Receivables.
"Plan" -- as defined in Section 3.13.
"Pledge Agreement" -- as defined in Section 2.4(b)(ix).
"Preferred Shares" -- as defined in Section 2.2(c).
"Proceeding" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Promissory Note" -- as defined in Section 2.2(b).
"Receivables Collection Agreement" -- as defined in Section 2.4(a)(ii).
"Related Person" -- with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
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For purposes of this definition, (a) the "Family" of an individual includes
(i) the individual, (ii) the individual's spouse, (iii) any other natural person
who is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual, and
(b) "Material Interest" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting
securities or other voting interests representing at least 2% of the outstanding
voting power of a Person or equity securities or other equity interests
representing at least 2% of the outstanding equity securities or equity
interests in a Person.
"Release" -- any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Representative" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Retained Contracts" -- the contracts with customers identified in the
Completion Assistance Agreement, including all work-in-process related thereto.
"Retained Miscellaneous Assets" -- the following assets of the Acquired
Companies, which Buyer acknowledges may be transferred to Seller at any time on
or before the Closing Date: cash; marketable securities; loans receivable from
officers, cash value of life insurance; refundable taxes and prepaid directors
fees, all as more fully described on Exhibit 2.6(a).
"Retained Receivables" -- all of the trade accounts receivable and other
receivables of the Acquired Companies other than the Eligible Receivables
included in the Net Acquired Current Assets, as well as all claims relating to
the matters described in Schedule 3.11(b), which Buyer acknowledges may be
transferred to Seller at any time on or before the Closing Date.
"Securities Act" -- the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Seller" -- as defined in the first paragraph of this Agreement.
"Seller's Closing Documents" -- as defined in Section 3.2(a).
"Shareholders Agreement" -- as defined in Section 2.4(a)(vii).
"Shares" -- as defined in the Recitals of this Agreement.
"Solvent" -- as to any Person, means such Person (i) owns property, real,
personal and mixed, whose aggregate fair saleable value is greater than the
amount required to pay all of its liabilities, including contingent liabilities,
(ii) is able to pay all of its liabilities as such liabilities mature and (iii)
has sufficient capital to carry on its business and all business and
transactions in which it is about to engage.
"Southcoast" -- Southcoast Capital Corporation.
"Southcoast Warrant" -- as defined in the Warrants.
"SouthTrust" -- SouthTrust Bank of Alabama, N.A.
"Subordination Agreement" -- as defined in Section 2.4(a)(v).
"Subsidiary" -- with respect to any Person (the "Owner"), any corporation
or other Person of which securities or other interests having the power to elect
a majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries.
"Tax" -- any tax (including any income tax, capital gains tax, value-added
tax, sales tax, property tax), levy, assessment, tariff, duty (including any
customs duty), deficiency, or other fee, and any related charge or amount
(including any fine, penalty, interest, or addition to tax), imposed, assessed,
or collected by or under the
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authority of any Governmental Body or payable pursuant to any tax-sharing
agreement or any other Contract relating to the sharing or payment of any such
tax, levy, assessment, tariff, duty, deficiency, or fee.
"Tax Return" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threat of Release" -- a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Threatened" -- a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing) or if
any other event has occurred, that would lead a prudent Person to conclude that
such a claim, Proceeding, dispute, action, or other matter is likely to be
asserted, commenced, taken, or otherwise pursued in the future.
"Warrants" -- collectively Warrant A and Warrant B as described in Sections
2.2(d) and 2.2(e).
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing,
Seller will sell and transfer the Shares to Buyer, and Buyer will purchase the
Shares from Seller.
2.2 CONSIDERATION
As consideration for the Shares, Buyer will pay or deliver, or cause to be
paid or delivered, to Seller, the following:
(a) Four Million Six Hundred Thousand Dollars ($4,600,000);
(b) a promissory note payable to Seller in the original principal
amount of Three Million Seven Hundred Thousand Dollars ($3,700,000)
("Promissory Note") having the terms, including provision for addition of
the Adjustment Amount, as set forth in Exhibit 2.2(b);
(c) 2,000 shares of Series A Preferred Stock ("Preferred Shares") of
Buyer having the terms set forth in Exhibit 2.2(c);
(d) a Warrant to acquire 300,000 shares of Common Stock in Buyer at a
price of $1.32 per Share and having the terms set forth in Exhibit 2.2(d)
("Warrant A");
(e) a Warrant to acquire 85,000 shares of Common Stock in Buyer at a
price of $1.60 per share and having the terms set forth in Exhibit 2.2(e)
("Warrant B"); and
(f) one third ( 1/3) of the Redemption Value of Amoco Marketing
Environmental Services Company (as defined in the Amended and Restated
Articles of Incorporation of such company) when paid or available to be
paid to Buyer (or its successors or assigns).
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement will
take place at the offices of Seller at 500 Campus Drive, Morganville, New Jersey
07751, at 11:00 a.m. (local time) on December 27, 1996, or at such other time
and place as the parties may agree. Subject to the provisions of Section 9,
failure to consummate the purchase and sale provided for in this Agreement on
the date and time and at the place determined pursuant to this Section 2.3 will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.
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2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Seller will deliver to Buyer:
(i) a certificate representing the Shares, duly endorsed (or
accompanied by duly executed stock power), for transfer to Buyer;
(ii) the Receivables Collection Agreement in the form of Exhibit
2.4(a)(ii) executed by Seller;
(iii) a certificate executed by Seller representing and warranting
to Buyer that each of Seller's Closing Documents were duly executed and
delivered and that each of Seller's representations and warranties in
this Agreement is accurate in all respects as of the Closing Date as if
made on the Closing Date (giving full effect to any supplements to the
Disclosure Schedule that were delivered by Seller to Buyer prior to the
Closing Date in accordance with Section 5.5);
(iv) a Trademark Assignment of the two service marks for "Handex"
held by Seller in form satisfactory for filing with the United States
Patent and Trademark Office; and
(v) the Subordination Agreement with Buyer and SouthTrust in the
form of Exhibit 2.4(a)(v) executed by Seller;
(vi) the Completion Assistance Agreement in the form of Exhibit
2.4(a)(vi) executed by Seller; and
(vii) the Shareholders Agreement among Seller, Buyer and Buyer's
Shareholders in the form of Exhibit 2.4(a)(vii) executed by Seller.
(b) Buyer will deliver to Seller:
(i) Four Million Six Hundred Thousand Dollars ($4,600,000) by wire
transfer to an account specified by Seller;
(ii) the Promissory Note, Preferred Shares and Warrants;
(iii) the Completion Assistance Agreement;
(iv) a certificate executed by Buyer to the effect that each of
Buyer's Closing Documents was duly executed and delivered and that each
of Buyer's representations and warranties in this Agreement is accurate
in all respects as of the Closing Date as if made on the Closing Date;
(v) a Sublease for a portion of the premises located at 500 Campus
Drive, Morganville, New Jersey in the form of Exhibit 2.4(b)(v),
provided that the landlord consents to the sublease if such consent is
required;
(vi) the Receivables Collection Agreement executed by Buyer;
(vii) the Subordination Agreement executed by Buyer and SouthTrust;
(viii) the Corporate Guaranty and Pledge Agreement in the form of
Exhibit 2.4(b)(viii) executed by each of the Acquired Companies;
(ix) the Pledge Agreement in the form of Exhibit 2.4(b)(ix)
executed by Buyer;
(x) the Nonrecourse Individual Guaranty and Pledge Agreement from
Buyer's Shareholders in the form of Exhibit 2.4(b)(x); and
(xi) the Shareholders Agreement executed by Buyer, Buyer's
Shareholders and Southcoast.
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2.5 ADJUSTMENT AMOUNT
The Adjustment Amount (which may be a positive or negative number) will be
equal to (a) the Net Acquired Balance Sheet Assets of the Acquired Companies,
minus (b) Ten Million Three Hundred Thirty-Five Thousand Two Hundred Sixty-Eight
Dollars ($10,335,268).
2.6 ADJUSTMENT PROCEDURE
(a) Seller will prepare and will cause KPMG Peat Marwick, LLP, the
Company's certified public accountants, to audit a determination of the Net
Acquired Balance Sheet Assets of the Acquired Companies as of the Closing
Date ("Closing Financial Determination"). Such determination shall be made
in accordance with GAAP consistent with the accounting methods, principles,
and conventions historically applied by Seller and used in determining
Exhibit 2.6(a) hereto. Seller will deliver the Closing Financial
Determination to Buyer within sixty days after the Closing Date. If within
thirty days following delivery of the Closing Financial Determination,
Buyer has not given Seller notice of its objection to the Closing Financial
Determination (such notice must contain a statement of the basis of Buyer's
objection), then the Net Acquired Balance Sheet Assets reflected in the
Closing Financial Determination will be used in computing the Adjustment
Amount. If Buyer gives such notice of objection, then the issues in dispute
will be submitted to Price, Waterhouse LLP, certified public accountants
(the "Accountants"), for resolution. If issues in dispute are submitted to
the Accountants for resolution, (i) each party will furnish to the
Accountants such workpapers and other documents and information relating to
the disputed issues as the Accountants may request and are available to
that party or its Subsidiaries (or its independent public accountants), and
will be afforded the opportunity to present to the Accountants any material
relating to the determination and to discuss the determination with the
Accountants; (ii) the determination by the Accountants, as set forth in a
notice delivered to both parties by the Accountants, will be binding and
conclusive on the parties; and (iii) Buyer and Seller will each bear the
fees of the Accountants for such determination in inverse proportion to the
respective amounts of the Adjustment Amount which are resolved in its
favor.
(b) On the tenth business day following the final determination of the
Adjustment Amount, any positive Adjustment Amount shall be paid by Buyer to
Seller in the manner prescribed by the Promissory Note and any negative
Adjustment Amount shall be paid by Seller to Buyer by cash if the Net
Acquired P, P & E is less than the Minimum Net P, P & E and/or by cash
and/or assignment of Eligible Receivables if the Net Acquired Current
Assets is less than the Minimum Net Acquired Current Assets.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) Schedule 3.1 of the Disclosure Schedule contains a complete and
accurate list for each Acquired Company of its name, its jurisdiction of
organization, other jurisdictions in which it is authorized to do business,
and its capitalization (including the identity of each stockholder and the
number of shares held by each). Each Acquired Company is validly existing
and in good standing under the laws of its jurisdiction of organization,
with full corporate or limited liability company power and authority to
conduct its business as it is now being conducted, to own or use the
properties and assets that it purports to own or use, and to perform all
its obligations under Applicable Contracts. Each Acquired Company is duly
qualified to do business as a foreign corporation or limited liability
company and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned
or used by it, or the nature of the activities conducted by it, requires
such qualification.
(b) Seller has made available to Buyer copies of the Organizational
Documents of each Acquired Company as currently in effect.
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3.2 AUTHORITY; NO CONFLICT
(a) Subject to the Consent of the stockholders of Seller required by
applicable Legal Requirements, this Agreement constitutes the legal, valid,
and binding obligation of Seller, enforceable against Seller in accordance
with its terms. Upon the execution and delivery by Seller of the
Receivables Collection Agreement, Subordination Agreement, Completion
Assistance Agreement, Sublease and Shareholders Agreement (collectively,
the "Seller's Closing Documents"), the Seller's Closing Documents will
constitute the legal, valid, and binding obligations of Seller, enforceable
against Seller in accordance with their respective terms. Seller has the
corporate power and authority to execute and deliver this Agreement and the
Seller's Closing Documents and to perform its obligations under this
Agreement and the Seller's Closing Documents.
(b) Except as set forth in Schedule 3.2 of the Disclosure Schedule,
neither the execution and delivery of this Agreement by Seller nor the
consummation or performance of any of the Contemplated Transactions by
Seller will, directly or indirectly (with or without notice or lapse of
time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Acquired Companies, or
(B) any resolution adopted by the board of directors or the stockholders
of any Acquired Company;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of
the Contemplated Transactions or to exercise any remedy or obtain any
relief under, any Legal Requirement or any Order to which any Acquired
Company or Seller, or any of the assets owned or used by any Acquired
Company, is subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by any Acquired Company or that
otherwise relates to the business of, or any of the assets owned or used
by, any Acquired Company;
(iv) cause any Acquired Company to become subject to, or to become
liable for the payment of, any Tax;
(v) cause any of the assets owned by any Acquired Company to be
reassessed or revalued by any taxing authority or other Governmental
Body;
(vi) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Material
Applicable Contract; or
(vii) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by any Acquired
Company.
Except as set forth in Schedule 3.2 of the Disclosure Schedule, neither
Seller nor any Acquired Company is or will be required to give any notice to or
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of Three Thousand
(3,000) shares of common stock, par value $.01 per share, of which One Hundred
(100) shares are issued and outstanding and constitute the Shares. Seller is and
will be on the Closing Date the record and beneficial owner and holder of the
Shares, free and clear of all Encumbrances. With the exception of the Shares
(which are owned by Seller), all of the outstanding equity securities and other
securities of each Acquired Company are owned of record and beneficially by one
or more of the Acquired Companies, free and clear of all Encumbrances. No legend
or other reference to any purported Encumbrance appears upon any certificate
representing equity securities of any Acquired Company other than the standard
reference to the restrictions imposed by the Securities Act. All of the
outstanding equity securities of each Acquired Company have been duly authorized
and validly issued and are fully paid and
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nonassessable. There are no Contracts relating to the issuance, sale, or
transfer of any equity securities or other securities of any Acquired Company.
None of the outstanding equity securities or other securities of any Acquired
Company was issued in violation of the Securities Act or any other Legal
Requirement. Except as set forth in Schedule 3.3 of the Disclosure Schedule, no
Acquired Company owns, or has any Contract to acquire, any equity securities or
other securities of any Person (other than Acquired Companies) or any direct or
indirect equity or ownership interest in any other business.
3.4 FINANCIAL STATEMENTS
Seller has delivered to Buyer: (a) an audited consolidated balance sheet of
Seller as at January 1, 1994 (including the notes thereto), and the related
consolidated statement of income, changes in stockholders' equity, and cash flow
for the fiscal year then ended, together with the report thereon of KPMG Peat
Marwick, independent certified public accountants; (b) unaudited consolidated
balance sheets of the Acquired Companies as at December 31, 1994 and December
30, 1995 (the "Balance Sheet") and the related unaudited consolidated statements
of income for each of the fiscal years then ended; and (c) an unaudited
consolidated balance sheet of the Acquired Companies as at August 24, 1996 (the
"Interim Balance Sheet") and the related unaudited statement of income for the
thirty-four weeks then ended. Such financial statements fairly present the
financial condition and the results of operations, and, where provided, changes
in stockholders' equity and cash flow as at the respective dates of and for the
periods referred to in such financial statements, all in accordance with GAAP,
except as set forth in such statements or on Schedule 3.4 and subject, in the
case of interim financial statements, to normal recurring year-end adjustments
(the effect of which will not, individually or in the aggregate, be materially
adverse) and, in the case of all unaudited financial statements, to the absence
of notes; the financial statements referred to in this Section 3.4 reflect the
consistent application of such accounting principles throughout the periods
involved, except as disclosed in such financial statements, the notes to such
financial statements or Schedule 3.4. No financial statements of any Person
other than the Acquired Companies are required by GAAP to be included in the
consolidated financial statements of the Company.
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other records
of the Acquired Companies, all of which have been made available to Buyer, are
complete and correct in all material respects and have been maintained in
accordance with sound business practices and the requirements of Section
13(b)(2) of the Securities Exchange Act of 1934, as amended (regardless of
whether or not the Acquired Companies are subject to that Section), including
the maintenance of an adequate system of internal controls. The minute books of
the Acquired Companies contain accurate and complete records of all meetings
held of, and corporate actions taken by, the stockholders, the Boards of
Directors, and committees of the Boards of Directors of the Acquired Companies,
and no meeting of any such stockholders, Board of Directors, or committee has
been held for which minutes have not been prepared and are not contained in such
minute books. At the Closing, all of those books and records will be in the
possession of the Acquired Companies.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Schedule 3.6 of the Disclosure Schedule contains a complete and accurate
list of all real property, leaseholds, or other interests therein owned by any
Acquired Company (the "Property"). Seller has delivered or made available to
Buyer copies of the deeds and other instruments (as recorded) by which the
Acquired Companies acquired such Property, and copies of all title insurance
policies, opinions, abstracts, and surveys in the possession of Seller or the
Acquired Companies and relating to such Property ("Title Evidence"). The
Acquired Companies own (with good and marketable title in the case of real
property, subject only to the matters permitted by the following sentence) all
the properties and assets (whether real, personal, or mixed and whether tangible
or intangible) that they purport to own located in premises owned or operated by
the Acquired Companies or reflected as owned in the books and records of the
Acquired Companies, including all of the properties and assets reflected in the
Interim Balance Sheet (except for assets held under capitalized leases disclosed
or not required to be disclosed in Schedule 3.6 of the Disclosure Schedule and
property and assets sold since the date of the Interim Balance Sheet). All
material properties and assets reflected in the Interim Balance Sheet are free
and clear of all
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Encumbrances and are not, in the case of real property, subject to any rights of
way, building use restrictions, exceptions, variances, reservations, or
limitations of any nature, except (a) mortgages or security interests shown on
the Interim Balance Sheet as securing specified liabilities or obligations, with
respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after the date of
the Interim Balance Sheet (such mortgages and security interests being limited
to the property or assets so acquired), with respect to which no default (or
event that, with notice or lapse of time or both, would constitute a default)
exists, (c) liens for current taxes not yet due, and (d) with respect to real
property, (i) minor imperfections of title, if any, none of which is substantial
in amount, materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of any Acquired Company, (ii) zoning
laws and other land use restrictions that do not impair the present or
anticipated use of the property subject thereto and (iii) reservations,
restrictions, conditions, easements and other exceptions of record or described
or referenced in the Title Evidence. Except as provided in the Title Evidence,
all improvements owned by the Acquired Companies lie wholly within the
boundaries of the Property and do not encroach upon the property of, or
otherwise conflict with the property rights of, any other Person.
3.7 TAXES
(a) The Acquired Companies have filed or caused to be filed all Tax
Returns that are or were required to be filed by or with respect to any of
them, either separately or as a member of a group of corporations, pursuant
to applicable Legal Requirements, except for such Tax Returns for which a
timely request for an extension for filing has been made. Seller has made
available to Buyer copies of all such Tax Returns filed since December 31,
1993. Seller or the Acquired Companies have paid, or made provision (as
disclosed in Schedule 3.7 of the Disclosure Schedule) for the payment of,
all Taxes that have become due pursuant to those Tax Returns or otherwise,
or pursuant to any assessment received by Seller or any Acquired Company,
except such Taxes, if any, as are listed in Schedule 3.7 of the Disclosure
Schedule and are being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been provided in the
Interim Balance Sheet.
(b) Schedule 3.7 of the Disclosure Schedule contains a complete and
accurate list of all audits of all United States federal and state income
Tax Returns of each Acquired Company subject to such Taxes since December
31, 1993, including a reasonably detailed description of the nature and
outcome of each audit. All deficiencies proposed as a result of such audits
have been paid, reserved against, settled, or, as described in Schedule 3.7
of the Disclosure Schedule, are being contested in good faith by
appropriate proceedings. Schedule 3.7 of the Disclosure Schedule describes
all adjustments to the United States federal income Tax Returns filed by
any Acquired Company or any group of corporations including any Acquired
Company for all taxable years since December 31, 1993, and the resulting
deficiencies proposed by the IRS. Except as described in Schedule 3.7 of
the Disclosure Schedule, neither Seller nor any Acquired Company has given
or been requested to give waivers or extensions (or is or would be subject
to a waiver or extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of any Acquired Company or for
which any Acquired Company may be liable.
(c) Except as set forth on Schedule 3.7 the charges, accruals, and
reserves with respect to Taxes on the respective books of each Acquired
Company are adequate (determined in accordance with GAAP) and are at least
equal to that Acquired Company's liability for Taxes. There exists no
proposed tax assessment against any Acquired Company except as disclosed in
the Balance Sheet or in Schedule 3.7 of the Disclosure Schedule. No consent
to the application of Section 341(f)(2) of the IRC has been filed with
respect to any property or assets held, acquired, or to be acquired by any
Acquired Company. All Taxes that any Acquired Company is or was required by
Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis)
any Acquired Company are true, correct, and complete. There is no tax
sharing agreement that will require any payment by any Acquired Company
after the date of this Agreement. No Acquired Company is, or within the
five-year period preceding the Closing Date has been, an "S" corporation.
During the consistency period (as defined in Sec-
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tion 338(h)(4) of the IRC with respect to the sale of the Shares to Buyer),
no Acquired Company or target affiliate (as defined in Section 338(h)(6) of
the IRC with respect to the sale of the Shares to Buyer) has sold or will
sell any property or assets to Buyer or to any member of the affiliated
group (as defined in Section 338(h)(5) of the IRC) that includes Buyer.
Schedule 3.7 of the Disclosure Schedule lists all such target affiliates.
3.8 NO MATERIAL ADVERSE CHANGE
Since the date of the Interim Balance Sheet, there has not been any
material adverse change in the business, operations, properties, assets, or
condition of the Acquired Companies, taken as a whole, and, excluding changes in
general economic or industry conditions, no event has occurred or circumstance
arisen that will, or that could reasonably be expected to, result in such a
material adverse change.
3.9 EMPLOYEE BENEFITS
(a) As used in this Section 3.9, the following terms have the meanings
set forth below.
"Company Other Benefit Obligation" means an Other Benefit Obligation owed,
adopted, or followed by an Acquired Company or an ERISA Affiliate of an Acquired
Company.
"Company Plan" means all Plans of which an Acquired Company or an ERISA
Affiliate of an Acquired Company is or was a Plan Sponsor, or to which an
Acquired Company or an ERISA Affiliate of an Acquired Company otherwise
contributes or has contributed, or in which an Acquired Company or an ERISA
Affiliate of an Acquired Company otherwise participates or has participated. All
references to Plans are to Company Plans unless the context requires otherwise.
"ERISA Affiliate" means, with respect to an Acquired Company, any other
person that, together with the Company, would be treated as a single employer
under IRC section 414.
"Multi-Employer Plan" has the meaning given in ERISA section 3(37)(A).
"Other Benefit Obligations" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations, arrangements, and
practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies, and fringe
benefits within the meaning of IRC section 132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Pension Plan" has the meaning given in ERISA section 3(2)(A).
"Plan" has the meaning given in ERISA section 3(3).
"Plan Sponsor" has the meaning given in ERISA section 3(16)(B).
"Qualified Plan" means any Plan that meets or purports to meet the
requirements of IRC section 401(a).
"Title IV Plans" means all Pension Plans that are subject to Title IV of
ERISA, 29 U.S.C. section 1301 et seq., other than Multi-Employer Plans.
"VEBA" means a voluntary employees' beneficiary association under IRC
section 501(c)(9).
"Welfare Plan" has the meaning given in ERISA section 3(1).
(b) (i) Schedule 3.9(i) of the Disclosure Schedule contains a complete
and accurate list of all Company Plans and Company Other Benefit
Obligations, and identifies as such all Company Plans that are Qualified
Plans.
(ii) Schedule 3.9(ii) of the Disclosure Schedule contains a
complete and accurate list of (A) all ERISA Affiliates of each Acquired
Company, and (B) all Plans of which any such ERISA Affiliate is or
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was a Plan Sponsor, in which any such ERISA Affiliate participates or
has participated, or to which any such ERISA Affiliate contributes or
has contributed.
(iii) Schedule 3.9(iii) of the Disclosure Schedule sets forth a
calculation of the liability of the Acquired Companies for
post-retirement benefits other than pensions, made in accordance with
Financial Accounting Statement 106 of the Financial Accounting Standards
Board, regardless of whether any Acquired Company is required by this
Statement to disclose such information.
(iv) Schedule 3.9(iv) of the Disclosure Schedule sets forth the
financial cost of all obligations owed under any Company Plan or Company
Other Benefit Obligation that is not subject to the disclosure and
reporting requirements of ERISA.
(c) Seller has delivered or made available to Buyer, or will deliver
or make available to Buyer within ten days of the date of this Agreement:
(i) all documents that set forth the terms of each Company Plan and
Company Other Benefit Obligation and of any related trust, including but
not limited to (A) all Qualified Plan Documents and related trust
agreements together with any and all amendments thereto, (B) all plan
descriptions and summary plan descriptions of Company Plans for which
Seller or the Acquired Companies are required to prepare, file, and
distribute plan descriptions and summary plan descriptions, and (C) all
summaries and descriptions furnished to participants and beneficiaries
regarding Company Plans and Company Other Benefit Obligations for which
a plan description or summary plan description is not required;
(ii) all personnel, payroll, and employment manuals and policies,
and collective bargaining agreements;
(iii) a written description of any Company Plan or Company Other
Benefit Obligation that is not otherwise in writing;
(iv) all registration statements filed with the United States
Department of Labor or with any other governmental agency with respect
to any Company Plan;
(v) all insurance policies purchased by or to provide benefits
under any Company Plan;
(vi) all contracts with third party administrators, investment
managers, consultants, and other independent contractors that relate to
any Company Plan or Company Other Benefit Obligation;
(vii) all reports submitted within the four years preceding the
date of this Agreement by third party administrators, actuaries,
investment managers, consultants, or other independent contractors with
respect to any Company Plan or Company Other Benefit Obligation;
(viii) all notifications to employees or former employees of their
rights under ERISA sec.601 et seq. and IRC sec.4980B;
(ix) the Form 5500 filed in each of the most recent three plan
years [with respect to each Company Plan], including all schedules
thereto and the opinions of independent accountants;
(x) all material notices that were given by any Acquired Company or
any ERISA Affiliate of an Acquired Company or any Company Plan to the
IRS, the PBGC, pursuant to statute, within the four years preceding the
date of this Agreement, including notices that are expressly mentioned
elsewhere in this Section 3.9;
(xi) all notices that were given by the IRS, the PBGC, or the
Department of Labor to any Acquired Company, any ERISA Affiliate of an
Acquired Company, or any Company Plan within the four years preceding
the date of this Agreement; and
(xii) the most recent IRS determination letter for each Plan of the
Acquired Companies that is a Qualified Plan.
(d) Except as set forth in Schedule 3.9(vi) of the Disclosure
Schedule:
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(i) The Acquired Companies have performed all of their respective
obligations under all Company Plans and Company Other Benefit
Obligations. The Acquired Companies have made appropriate entries in
their financial records and statements for all obligations and
liabilities under such Plans and Other Benefit Obligations that have
accrued but are not due.
(ii) No statement, either written or oral, has been made by any
Acquired Company to any Person with regard to any Plan or Other Benefit
Obligation that was not in accordance with the Plan or Other Benefit
Obligation and that could have an adverse economic consequence to any
Acquired Company or to Buyer.
(iii) The Acquired Companies, with respect to all Company Plans and
Company Other Benefits Obligations are, and each Company Plan and
Company Other Benefit Obligation is, in compliance with ERISA, the IRC,
and other applicable Laws including the provisions of such Laws
expressly mentioned in this Section 3.9 and with any applicable
collective bargaining agreement.
(A) No transaction prohibited by ERISA section 406 and no
"prohibited transaction" under IRC section 4975(c) have occurred with
respect to any Company Plan.
(B) Neither Seller nor any Acquired Company has any liability to
the IRS with respect to any Plan, including any liability imposed by
Chapter 43 of the IRC.
(C) Neither Seller nor any Acquired Company has any liability to
the PBGC with respect to any Plan or has any liability under ERISA
section 502.
(D) All filings required by ERISA and the IRC as to each Plan
have been timely filed, and all notices and disclosures to
participants required by either ERISA or the IRC have been timely
provided.
(E) All contributions and payments made or accrued with respect
to all Company Plans and Company Other Benefit Obligations are
deductible under IRC section 162 or section 404. No amount of any
Company Plan's income, or any asset of any Company Plan, is subject
to tax as unrelated business taxable income.
(iv) Each Company Plan can be terminated within thirty days,
without payment of any additional contribution or amount and without the
vesting or acceleration of any benefits promised by such Plan other than
as required by ERISA or the IRC.
(v) Since January 1, 1994, there has been no establishment or
amendment of any Company Plan or Company Other Benefit Obligation.
(vi) To the Knowledge of Seller and the Acquired Companies, no
event has occurred that could result in a material increase in premium
costs of Company Plans and Company Other Benefit Obligations that are
insured, or a material increase in benefit costs of such Plans and
Obligations that are self-insured.
(vii) Other than claims for benefits submitted by participants or
beneficiaries, no claim against, or legal proceeding involving, any
Company Plan or Company Other Benefit Obligation is pending or, to the
Knowledge of Seller or the Acquired Companies, is Threatened.
(viii) No Company Plan is a stock bonus, pension, or profit-sharing
plan within the meaning of IRC section 401(a).
(ix) Each Qualified Plan of each Acquired Company is qualified in
form and operation under IRC section 401(a); each trust for each such
Plan is exempt from federal income tax under IRC section 501(a). No
event has occurred or circumstance exists that will or could give rise
to disqualification or loss of tax-exempt status of any such Plan or
trust.
(x) No Acquired Company or any ERISA Affiliate of an Acquired
Company has ever established, maintained, or contributed to, or
otherwise participated in, or had an obligation to maintain, contribute
to, or otherwise participate in, any Title IV Plan.
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(xi) No Acquired Company or any ERISA Affiliate of an Acquired
Company has ever established, maintained, or contributed to, or
otherwise participated in, or had an obligation to maintain, contribute
to, or otherwise participate in, any VEBA.
(xii) No Acquired Company or any ERISA Affiliate of an Acquired
Company has ever established, maintained, or contributed to or otherwise
participated in, or had an obligation to maintain, contribute to, or
otherwise participate in, any Pension Plan subject to the requirements
of ERISA section 302 and IRC section 412.
(xiii) No Acquired Company or any ERISA Affiliate of an Acquired
Company has ever established, maintained, or contributed to or otherwise
participated in, or had an obligation to maintain, contribute to, or
otherwise participate in, any Multi-Employer Plan.
(xiv) Except to the extent required under ERISA section 601 et seq.
and IRC section 4980B, no Acquired Company provides health or welfare
benefits for any retired or former employee or is obligated to provide
health or welfare benefits to any active employee following such
employee's retirement or other termination of service.
(xv) Each Acquired Company has the right to modify and terminate
benefits to retirees (other than pensions) with respect to both retired
and active employees.
(xvi) Seller and all Acquired Companies have complied with the
provisions of ERISA section 601 et seq. and IRC section 4980B.
(xvii) No payment that is owed or may become due to any director,
officer, employee, or agent of any Acquired Company will be
non-deductible to the Acquired Companies or subject to tax under IRC
section 280G or section 4999; nor will any Acquired Company be required
to "gross up" or otherwise compensate any such person because of the
imposition of any excise tax on a payment to such person.
(xviii) The consummation of the Contemplated Transactions will not
result in the payment, vesting, or acceleration of any benefit.
3.10 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Schedule 3.10 of the Disclosure Schedule:
(i) each Acquired Company is in compliance with the Legal
Requirements applicable to it or to the conduct or operation of its
business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) would, or could reasonably be
expected to, constitute or result in a violation by any Acquired Company
of, or a failure on the part of any Acquired Company to comply with, any
Legal Requirement, or (B) would, or could reasonably be expected to,
give rise to any obligation on the part of any Acquired Company to
undertake, or to bear all or any portion of the cost of, any remedial
action of any nature; and
(iii) no Acquired Company has received, at any time since January
1, 1995, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of, or failure to comply with,
any Legal Requirement, or (B) any actual, alleged, possible, or
potential obligation on the part of any Acquired Company to undertake,
or to bear all or any portion of the cost of, any remedial action of any
nature.
(b) Each Governmental Authorization held by any Acquired Company is
valid and in full force and effect. Except as set forth in Schedule 3.10 of
the Disclosure Schedule:
(i) each Acquired Company is in compliance with all of the terms
and requirements of each Governmental Authorization;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) would, or could reasonably be expected
to (A) constitute or result directly or indirectly in a violation of
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or a failure to comply with any term or requirement of any Governmental
Authorization or (B) result directly or indirectly in the revocation,
withdrawal, suspension, cancellation, or termination of, or any
modification to, any Governmental Authorization;
(iii) no Acquired Company has received, at any time since January
1, 1995, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of or failure to comply with
any term or requirement of any Governmental Authorization, or (B) any
actual, proposed, possible, or potential revocation, withdrawal,
suspension, cancellation, termination of, or modification to any
Governmental Authorization; and
(iv) all applications required to have been filed for the renewal
of the Governmental Authorizations have been duly filed on a timely
basis with the appropriate Governmental Bodies, and all other filings
required to have been made with respect to such Governmental
Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies.
The Governmental Authorizations held by the Acquired Companies collectively
constitute all of the Governmental Authorizations necessary to permit the
Acquired Companies to lawfully conduct and operate their businesses in the
manner they currently conduct and operate such businesses and to permit the
Acquired Companies to own and use their assets in the manner in which they
currently own and use such assets.
3.11 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Schedule 3.11(a) of the Disclosure
Schedule, there is no pending Proceeding:
(i) that has been commenced against any Acquired Company or to the
Knowledge of Seller and the Acquired Companies that otherwise could
reasonably be expected to materially adversely affect the business of
the Acquired Companies taken as a whole; or
(ii) that has been commenced against Seller or any Acquired Company
that challenges, or that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To the Knowledge of Seller and the Acquired Companies, no such Proceeding
has been Threatened. Seller has made available to Buyer copies of all pleadings,
audit letters and statements prepared by legal counsel to support public
disclosures required by Legal Requirements relating to each Proceeding listed in
Schedule 3.11(a) of the Disclosure Schedule.
(b) Except as set forth in Schedule 3.11(b) of the Disclosure
Schedule, there is no pending Proceeding commenced by any Acquired Company.
(c) Except as set forth in Schedule 3.11(c) of the Disclosure
Schedule:
(i) there is no Order to which any of the Acquired Companies, or
any of the assets owned or used by any Acquired Company, is subject;
(ii) Seller is not subject to any Order that relates to the
business of, or any of the assets owned or used by, any Acquired
Company; and
(iii) to the Knowledge of Seller and the Acquired Companies, no
employee of any Acquired Company is subject to any Order that prohibits
such employee from engaging in or performing his normal duties on behalf
of the business of any Acquired Company.
(d) Except as set forth in Schedule 3.11(d) of the Disclosure
Schedule:
(i) each Acquired Company is in compliance with all of the terms
and requirements of each Order to which it, or any of the assets owned
or used by it, is subject;
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(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any
Order to which any Acquired Company, or any of the assets owned or used
by any Acquired Company, is subject; and
(iii) no Acquired Company has received, at any time since January
1, 1995, any notice or other communication (whether written or oral)
from any Governmental Body or any other Person regarding any actual,
alleged, possible, or potential violation of, or failure to comply with,
any term or requirement of any Order to which any Acquired Company, or
any of the assets owned or used by any Acquired Company, is or has been
subject.
3.12 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except for the Permitted Transfers and as set forth in Schedule 3.12 of the
Disclosure Schedule, since the date of the Interim Balance Sheet, the Acquired
Companies have conducted their businesses only in the Ordinary Course of
Business and there has not been any:
(a) change in any Acquired Company's authorized or issued capital
stock; grant of any stock option or right to purchase shares of capital
stock of any Acquired Company; issuance of any security convertible into
such capital stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by any Acquired Company of any shares of
any such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired Company;
(c) payment or increase by any Acquired Company of any bonuses,
salaries, or other compensation to any stockholder, director, officer, or
(except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of any
Acquired Company;
(e) damage to or destruction or loss of any asset or property of any
Acquired Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial condition,
or prospects of the Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint
venture, credit, or similar agreement, or (ii) any Contract or transaction
involving a total remaining commitment by any Acquired Company of at least
$150,000.00;
(g) sale, lease or other disposition of any asset or property of any
Acquired Company or imposition of any Encumbrance on any material asset or
property of any Acquired Company, other than in the Ordinary Course of
Business;
(h) cancellation or waiver of any claims or rights with a value to any
Acquired Company in excess of $50,000.00;
(i) material change in the accounting methods used by any Acquired
Company; or
(j) agreement, whether oral or written, by any Acquired Company to do
any of the foregoing.
3.13 CONTRACTS; NO DEFAULTS
(a) Schedule 3.13(a) of the Disclosure Schedule contains a complete
and accurate list as of the date of this Agreement, and Seller has made
available to Buyer true and complete copies, of:
(i) each Applicable Contract that involves performance of services
or delivery of goods or materials by one or more Acquired Companies of a
remaining amount or value in excess of $150,000.00;
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(ii) each Applicable Contract that involves performance of services
or delivery of goods or materials to one or more Acquired Companies of a
remaining amount or value in excess of $50,000.00;
(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts
of one or more Acquired Companies in excess of $25,000.00;
(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Applicable
Contract affecting the ownership of, leasing of, title to, use of, or
any leasehold or other interest in, any real or personal property
(except personal property leases and installment and conditional sales
agreements having a value per item or aggregate payments of less than
$50,000.00 and with terms of less than one year);
(v) each licensing agreement or other Applicable Contract with
respect to patents, trademarks, copyrights, or other intellectual
property, other than agreements with current or former employees in a
form substantially similar to Exhibit 3.13(a)(v) of the Disclosure
Schedule, consultants, or contractors regarding the appropriation or the
non-disclosure of any of the Intellectual Property Assets;
(vi) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of
a group of employees;
(vii) each joint venture, partnership, and other Applicable
Contract (however named) involving a sharing of profits, losses, costs,
or liabilities by any Acquired Company with any other Person;
(viii) each Applicable Contract containing covenants that in any
way purport to restrict the business activity of any Acquired Company or
limit the freedom of any Acquired Company to engage in any line of
business or to compete with any Person;
(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments
for goods;
(x) each power of attorney that is currently effective and
outstanding;
(xi) each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides for an express
undertaking by any Acquired Company to be responsible for consequential
damages;
(xii) each Applicable Contract for capital expenditures in excess
of $50,000.00;
(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by any
Acquired Company other than in the Ordinary Course of Business; and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) Except as provided herein or as set forth in Schedule 3.13(b) of
the Disclosure Schedule:
(i) Seller (and no Related Person of Seller) does not have and will
not acquire any rights under, any Material Applicable Contract that
relates to the business of, or any of the assets owned or used by, any
Acquired Company; and
(ii) to the Knowledge of Seller and the Acquired Companies, no
agent or employee is bound by any Contract that purports to limit the
ability of such agent or employee to (A) engage in the business of any
Acquired Company, or (B) assign to any Acquired Company or to any other
Person any rights to any invention, improvement, or discovery.
(c) Except as set forth in Schedule 3.13(c) of the Disclosure
Schedule, each Material Applicable Contract is in full force and effect and
is valid and enforceable in accordance with its terms.
(d) Except as set forth in Schedule 3.13(d) of the Disclosure
Schedule:
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(i) each Acquired Company is in compliance with all applicable
terms and requirements of each Material Applicable Contract under which
such Acquired Company has or had any obligation or liability or by which
such Acquired Company or any of the assets owned or used by such
Acquired Company is or was bound.
(ii) each other Person that has or had any obligation or liability
under any Material Applicable Contract under which an Acquired Company
has any rights is in compliance with all applicable terms and
requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) would, or could reasonably be expected
to, give any other Person the right to exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or
modify, any Material Applicable Contract; and
(iv) no Acquired Company has given to or received from any other
Person, at any time since October 8, 1996, any notice or other
communication (whether written or oral) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any
Material Applicable Contract.
(e) Except as set forth on Schedule 3.13(e), there are no
renegotiations of, attempts to renegotiate, or outstanding rights to
renegotiate any material amounts paid or payable to any Acquired Company
under current or completed Applicable Contracts with any Person and, to the
Knowledge of Seller and the Acquired Companies, no such Person has made
written demand for such renegotiation.
(f) Except as set forth in Schedule 3.13(f), the Material Applicable
Contracts relating to the sale, design, manufacture, or provision of
products or services by the Acquired Companies have been entered into in
the Ordinary Course of Business and have been entered into without the
commission of any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or would be in
violation of any Legal Requirement.
3.14 INSURANCE
(a) Seller has made available to Buyer:
(i) true and complete copies of all policies of insurance to which
any Acquired Company is a party or under which any Acquired Company is
or has been covered at any time within the six (6) years preceding the
date of this Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance which would cover any Acquired Company; and
(iii) any statement by the auditor of Seller's financial statements
with regard to the adequacy of Seller's coverage or of the reserves for
claims.
(b) Except as set forth on Schedule 3.14(b) of the Disclosure
Schedule:
(i) All policies to which any Acquired Company is a party or that
provide coverage to any Acquired Company:
(A) are valid, outstanding, and enforceable;
(B) will be in full force and effect at the time of consummation
of the Contemplated Transactions; and
(C) except as disclosed on Schedule 3.14(b)(i)(C), do not
provide for any retrospective premium adjustment or other
experienced-based liability on the part of any Acquired Company.
(ii) Neither Seller nor any Acquired Company has received (A) any
refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
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(iii) Seller or the Acquired Companies have paid all premiums due,
and have otherwise performed all of their respective obligations, under
each policy to which any Acquired Company is a party or that provides
coverage to any Acquired Company.
(iv) Seller or the Acquired Companies have given notice to the
insurer of all claims relating to an Acquired Company that may be
insured thereby.
3.15 ENVIRONMENTAL MATTERS
Except as set forth in Schedule 3.15 of the Disclosure Schedule:
(a) Each Acquired Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable
under, any Environmental Law. Neither Seller nor any Acquired Company has
any basis to expect, nor has any of them or any other Person for whose
conduct they are responsible received, any actual or Threatened order,
notice, or other communication from (i) any Governmental Body or private
citizen acting in the public interest, or (ii) the current or prior owner
or operator of any Facilities, of any actual or potential violation or
failure to comply with any Environmental Law, or of any actual or
Threatened obligation to undertake or bear the cost of any Environmental,
Health, and Safety Liabilities with respect to any of the Facilities or any
other properties or assets (whether real, personal, or mixed) in which
Seller or any Acquired Company has had an interest, or with respect to any
property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by Seller,
any Acquired Company, or any other Person for whose conduct they are
responsible, or from which Hazardous Materials have been transported,
treated, stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of Seller and the
Acquired Companies, Threatened claims, Encumbrances, or other restrictions
of any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with
respect to or affecting any of the Facilities or any other properties and
assets (whether real, personal, or mixed) in which any Acquired Company has
or had an interest.
(c) Neither Seller nor any Acquired Company has Knowledge of any basis
to expect, nor has any of them or any Person for whose conduct they are
responsible, received, any citation, directive, inquiry, notice, Order,
summons, warning, or other communication that asserts actual, or potential
violation or failure to comply with any Environmental Law, or of any
alleged, actual, or potential obligation to undertake or bear the cost of
any Environmental, Health, and Safety Liabilities with respect to any of
the Facilities or any other properties or assets (whether real, personal,
or mixed) in which Seller or any Acquired Company had an interest, or with
respect to any property or Facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, transported or
processed by any Acquired Company, or any Person for whose conduct they are
responsible have been transported, treated, stored, handled, transferred,
disposed, recycled, or received or at any property geologically or
hydrologically adjoining the Facilities or any such other property or
assets.
(d) None of the Acquired Companies nor any Person for whose conduct
they are responsible, have any Environmental, Health, and Safety
Liabilities with respect to the Facilities or, to the Knowledge of Seller
and the Acquired Companies, with respect to any other properties and assets
(whether real, personal, or mixed) in which any Acquired Company (or any
predecessor), has or had an interest or at any property geologically or
hydrologically adjoining the Facilities or any such other property or
assets.
(e) Except in compliance with applicable Legal Requirements, there are
no Hazardous Materials present on or in the Environment at the Facilities
or, to the Knowledge of Seller and the Acquired Companies, at any
geologically or hydrologically adjoining property, including any Hazardous
Materials contained in barrels, above or underground storage tanks,
landfills, land deposits, dumps, equipment (whether moveable or fixed) or
other containers, either temporary or permanent, and deposited or located
in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon.
Neither Seller nor any Acquired Company nor any Person for whose conduct
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they are responsible has permitted or conducted, or is aware of, any
Hazardous Activity conducted with respect to the Facilities or any other
properties or assets (whether real, personal, or mixed) in which any
Acquired Company has or had an interest except in compliance with
applicable Legal Requirements.
(f) Except in compliance with applicable Legal Requirements, there has
been no Release or, to the Knowledge of Seller and the Acquired Companies,
any Threat of Release, of any Hazardous Materials at or from the Facilities
or at any other locations where any Hazardous Materials were generated,
manufactured, refined, transferred, produced, imported, used, or processed
from or by the Facilities, or from or by any other properties and assets
(whether real, personal, or mixed) in which any Acquired Company has or had
an interest or, to the Knowledge of Seller and the Acquired Companies, at
any geologically or hydrologically adjoining property.
(g) Seller has made available to Buyer true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed
or initiated by Seller or any Acquired Company pertaining to Hazardous
Materials or Hazardous Activities in, on, or under the Facilities, or
concerning compliance by or any Acquired Company with Environmental Laws.
3.16 LABOR RELATIONS; COMPLIANCE
Except as set forth in Schedule 3.16 of the Disclosure Schedule, since
January 1, 1994, no Acquired Company has been or is a party to any collective
bargaining or other labor Contract. Since January 1, 1994, there has not been,
there is not presently pending or existing, and to the Knowledge of Seller and
any Acquired Company there is not Threatened, (a) any strike, slowdown,
picketing, work stoppage, or employee grievance process, (b) any Proceeding
against or affecting any Acquired Company relating to the alleged violation of
any Legal Requirement pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union with the
National Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable Governmental Body, organizational activity, or other labor or
employment dispute against any of the Acquired Companies, or (c) any application
for certification of a collective bargaining agent. To Seller's Knowledge, no
event has occurred or circumstance exists that would, or could reasonably be
expected to, provide the basis for any work stoppage or other labor dispute.
There is no lockout of any employees by any Acquired Company, and no such action
is contemplated by any Acquired Company. Each Acquired Company has complied with
all Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. No Acquired Company is liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.17 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets -- The term "Intellectual Property
Assets" includes:
(i) the name "Handex," all fictional business names, trading names,
registered and unregistered trademarks, service marks, and applications
(collectively, "Marks");
(ii) all patents and patent applications (collectively, "Patents");
(iii) all copyrights in both published works and unpublished works
(collectively, "Copyrights");
(iv) all rights in mask works (collectively, "Rights in Mask
Works");
(v) all proprietary know-how, trade secrets, and other confidential
information (collectively, "Trade Secrets") owned, used, or licensed as
licensee by any Acquired Company.
(b) Agreements -- Schedule 3.17(b) of the Disclosure Schedule contains
a complete and accurate list and summary description, including any
royalties paid or received by the Acquired Companies, of all Applicable
Contracts relating to the Intellectual Property Assets to which any
Acquired Company is a party or by which any Acquired Company is bound,
except for any license implied by the sale of a product and perpetual,
paid-up licenses for commonly available software programs with a value of
less than $10,000.00
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under which an Acquired Company is the licensee. To Seller's Knowledge,
there are no outstanding or Threatened disputes or disagreements with
respect to any such agreement.
(c) Know-How Necessary for the Business
(i) The Intellectual Property Assets are all those necessary for
the operation of the Acquired Companies' businesses as they are
currently conducted by the Acquired Companies. One or more of the
Acquired Companies is the owner of all right, title, and interest in and
to each of the Intellectual Property Assets, free and clear of all
Encumbrances, and has the right to use without payment to a third party
all of the Intellectual Property Assets, except as set forth in Schedule
3.17(b) of the Disclosure Schedule.
(ii) Except as set forth in Schedule 3.17(c) of the Disclosure
Schedule, to the Knowledge of Seller and the Acquired Companies, no
employee of any Acquired Company has entered into any Contract,
including any confidentiality agreement, that restricts or limits in any
way the scope or type of work in which the employee may be engaged or
requires the employee to transfer, assign, or disclose information
concerning his work to anyone other than one or more of the Acquired
Companies.
(d)Patents
(i) Schedule 3.17(d) of the Disclosure Schedule contains a complete
and accurate list and summary description of all Patents. One or more of
the Acquired Companies is the owner of all right, title, and interest in
and to each of the Patents, free and clear of all Encumbrances.
(ii) All of the issued Patents are currently in compliance with
formal legal requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use) and are valid and
enforceable.
(iii) No Patent has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding. To Seller's Knowledge,
there is no potentially interfering patent or patent application of any
third party.
(iv) To Seller's knowledge, no Patent is infringed or has been
challenged or threatened in any way. To Seller's knowledge, none of the
products manufactured and sold, nor any process or know-how used, by any
Acquired Company infringes or is alleged to infringe any patent or other
proprietary right of any other Person.
(e) Trademarks
(i) Schedule 3.17(e) of Disclosure Schedule contains a complete and
accurate list and summary description of all Marks. Except for the logo
and stylized name "Handex" which is currently registered to Seller, one
or more of the Acquired Companies is the owner of all right, title, and
interest in and to each of the Marks, free and clear of all
Encumbrances.
(ii) All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all formal
legal requirements (including the timely post-registration filing of
affidavits of use and incontestability and renewal applications), are
valid and enforceable.
(iii) No Mark is now involved in any opposition, invalidation, or
cancellation and, to Seller's Knowledge, no such action is Threatened
with the respect to any of the Marks.
(iv) To Seller's Knowledge, there is no potentially interfering
trademark or trademark application of any third party.
(v) To Seller's Knowledge, no Mark is infringed or has been
challenged or threatened in any way. To Seller's Knowledge, none of the
Marks used by any Acquired Company infringes or is alleged to infringe
any trade name, trademark, or service mark of any third party.
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(f) Copyrights
(i) Schedule 3.17(f) of the Disclosure Schedule contains a complete
and accurate list and summary description of all Copyrights registered
with the United States copyright office. One or more of the Acquired
Companies is the owner of all right, title, and interest in and to each
of the Copyrights, free and clear of all Encumbrances.
(ii) All registered Copyrights are currently in compliance with
formal legal requirements and are valid and enforceable.
(iii) To Seller's knowledge, no Copyright is infringed or has been
challenged or threatened in any way. To Seller's knowledge, none of the
subject matter of any of the Copyrights infringes or is alleged to
infringe any copyright of any third party or is a derivative work based
on the work of a third party.
(g) Trade Secrets
(i) Except as set forth on Schedule 3.17(g), Seller and the
Acquired Companies have taken reasonable precautions to protect the
confidentiality of all Trade Secrets.
(ii) One or more of the Acquired Companies has good title and an
absolute (but not necessarily exclusive) right to use the Trade Secrets.
To Seller's knowledge, no Trade Secret is subject to any adverse claim
or has been challenged or threatened in any way.
3.18 DISCLOSURE
(a) No representation or warranty of Seller in this Agreement and no
statement in the Disclosure Schedule omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they
were made, not misleading.
(c) There is no fact of which Seller has Knowledge that has specific
application to Seller or any Acquired Company (other than general economic
or industry conditions) and that materially adversely affects or materially
threatens, the assets, business, financial condition, or results of
operations of the Acquired Companies (on a consolidated basis) that has not
been set forth in this Agreement or the Disclosure Schedule.
3.19 RELATIONSHIPS WITH RELATED PERSONS
Except as set forth on Schedule 3.19 of the Disclosure Schedule, no Seller
nor any Related Person of Seller or of any Acquired Company has, or since the
first day of the next to last completed fiscal year of the Acquired Companies
has had, any interest in any property (whether real, personal, or mixed and
whether tangible or intangible), used in or pertaining to the Acquired
Companies' businesses. Neither Seller nor any Related Person of Seller or of any
Acquired Company is, or since the first day of the next to last completed fiscal
year of the Acquired Companies has owned (of record or as a beneficial owner) an
equity interest or any other financial or profit interest in, a Person that has
(i) had business dealings or a material financial interest in any transaction
with any Acquired Company other than business dealings or transactions conducted
in the Ordinary Course of Business with the Acquired Companies at substantially
prevailing market prices and on substantially prevailing market terms, or (ii)
engaged in competition with any Acquired Company with respect to any line of the
products or services of such Acquired Company (a "Competing Business") in any
market presently served by such Acquired Company. Except as set forth in
Schedule 3.19 of the Disclosure Schedule, neither Seller nor any Related Person
of Seller or of any Acquired Company is a party to any Contract with, or has any
claim or right against, any Acquired Company.
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3.20 BROKERS OR FINDERS
Seller and its agents have incurred no obligation or liability, contingent
or otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement, except to The Nassau Group,
Inc.
3.21 SUFFICIENCY OF ASSETS
To the Knowledge of Seller and the Acquired Companies, the buildings,
plants, structures, and equipment of the Acquired Companies are in all material
respects structurally sound, in good operating condition and repair, and
adequate for the uses to which they are being put, and none of such buildings,
plants, structures, or equipment is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in nature or
cost. Except for (i) assets, properties and rights to be transferred by Seller
to the Acquired Companies after the Closing Date, (ii) matters disclosed on
Schedule 3.21 of the Disclosure Schedule, and (iii) working capital and the
financing to be provided by Buyer, the Acquired Assets are sufficient for the
continued conduct of the Acquired Companies' businesses after the Closing in
substantially the same manner as conducted prior to the Closing.
3.22 CURRENT CLIENTS
Except for the Contemplated Transactions, Seller has no Knowledge that any
event has occurred that could, or could reasonably be expected to, cause any
customer which has purchased in excess of One Million Dollars ($1,000,000) of
products or services from one or more of the Acquired Companies since January 1,
1994 to terminate its existing business relationship with such Acquired Company.
Buyer acknowledges that Seller makes no representation or warranty whatsoever
with respect to the revenues to be derived by the Acquired Companies for
services rendered to any customer after the Closing Date.
3.23 INVENTORY
All inventory of the Acquired Companies, whether or not reflected in the
Interim Balance Sheet, consists of a quality and quantity usable and salable in
the Ordinary Course of Business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Interim Balance Sheet or on the accounting records
of the Acquired Companies as of the Closing Date, as the case may be. All
inventories not written off have been priced at the lower of cost or market on a
first in, first out basis. The quantities of each item of inventory (whether raw
materials, work-in-process, or finished goods) are not excessive, but are
reasonable in the present circumstances of the Acquired Companies.
3.24 NO UNDISCLOSED LIABILITIES
To the Knowledge of Seller the Acquired Companies have no liabilities or
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent or otherwise) except for (i) liabilities or obligations
reflected or reserved against in the Balance Sheet or in the Interim Balance
Sheet and current liabilities incurred in the Ordinary Course of Business since
the respective dates thereof, (ii) liabilities or obligations contemplated by
this Agreement or referred to in the Disclosure Schedule, and (iii) liabilities
or obligations not required to be disclosed pursuant to Section 3 of this
Agreement or which otherwise do not constitute a breach of this Agreement.
3.25 EMPLOYEES
Schedule 3.25 of the Disclosure Schedule contains a complete and accurate
list of the following information for each employee of the Acquired Companies as
of October 18, 1996, including each employee on leave of absence or layoff
status: employer; name; job title and current compensation. The books and
records of the Acquired Companies, which have been provided to Buyer, reflect
the following information on each employee: any change in compensation since
commencement of employment; vacation accrued; and service credited for purposes
of vesting and eligibility to participate under any Acquired Company's pension,
retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus,
stock option, cash bonus, employee stock ownership (including
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investment credit or payroll stock ownership), severance pay, insurance,
medical, welfare, or vacation plan, other Employee Pension Benefit Plan or
Employee Welfare Benefit Plan, or any other employee benefit plan or any
Director Plan. Schedule 3.25 of the Disclosure Schedule also contains a complete
and accurate list of the following information for each retired employee or
director of the Acquired Companies, or their dependents, receiving benefits or
scheduled to receive benefits in the future: name, pension benefit, pension
option election, retiree medical insurance coverage, retiree life insurance
coverage, and other benefits.
3.26 INVESTMENT INTENT
Seller is acquiring the Promissory Note, Preferred Shares and Warrants for
its own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act. Seller is an "accredited investor" as such
term is defined in Rule 401(a) under the Securities Act.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Florida. Buyer is not required to be
qualified to do business as a foreign corporation in any other state. Buyer has
delivered to Seller true and complete copies of the Organizational Documents of
Buyer.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement and the Deposit Escrow Agreement constitute the
legal, valid, and binding obligations of Buyer, enforceable against Buyer
in accordance with their respective terms. Upon the execution and delivery
by Buyer and each of the Acquired Companies which is a party thereto of the
Promissory Note, Preferred Shares, Warrants, Completion Assistance
Agreement, Receivables Collection Agreement, Subordination Agreement,
Corporate Guaranty and Pledge Agreement, Pledge Agreement, Sublease and
Shareholders Agreement (collectively, the "Buyer's Closing Documents"), the
Buyer's Closing Documents will constitute the legal, valid, and binding
obligations of Buyer and each of the Acquired Companies which is a party
thereto, enforceable in accordance with their respective terms. Buyer has
the corporate power and authority to execute and deliver this Agreement and
the Buyer's Closing Documents to which it is a party and to perform its
obligations thereunder. Each of the Acquired Companies which is a party to
a Buyer's Closing Document has the corporate power and authority to execute
and deliver such document and to perform its obligations thereunder.
(b) Except as set forth in Schedule 4.2, neither the execution and
delivery of this Agreement by Buyer nor the consummation or performance of
any of the Contemplated Transactions will give any Person the right to
prevent, delay, or otherwise interfere with any of the Contemplated
Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject;
or
(iv) any Contract to which Buyer is a party or by which Buyer may
be bound.
Except as set forth in Schedule 4.2, Buyer is not and will not be required
to obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
4.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view to
their distribution within the meaning of Section 2(11) of the Securities Act.
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4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and
that challenges, or may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
4.5 BROKERS OR FINDERS
Buyer and its officers and agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement, except to Southcoast
and New Street Investments LP.
4.6 UNDISCLOSED KNOWLEDGE
Neither Buyer nor any of its Representatives has Knowledge of any Breach by
Seller of the representations, warranties, covenants and obligations of Seller
in this Agreement, the Disclosure Schedule or any supplement to the Disclosure
Schedule which Buyer has not disclosed to Seller in writing.
4.7 CAPITALIZATION; LIABILITIES; SOLVENCY
(a) The authorized equity securities of Buyer consist of (i) 1,540,000
shares of Common Stock, par value $.01 per share ("Common Shares") and (b)
3,000 shares of Series A Preferred Stock, par value $.01 per share and
stated value $1,000 per share. 819,000 Common Shares are currently issued
and outstanding ("Initial Shares") and owned of record and beneficially as
follows: Roger Eatman -- 314,666.66; George Bannon -- 314,666.66; and S.C.
Culbreath, Jr. -- 189,666.66 ("Buyer's Shareholders"). Buyer's
Shareholders' ownership of their respective Initial Shares is free and
clear of all Encumbrances except the Nonrecourse Individual Guaranty and
Pledge Agreement and Shareholders Agreement. The Initial Shares have been
duly authorized, validly issued and fully paid for in cash at a price per
share of not less than Eighty-Eight Cents ($0.88) and are nonassessable.
The common shareholders' equity of Buyer resulting from issuance of the
Initial Shares is at least Five Hundred Thousand Dollars ($500,000). Except
for the Warrants and the Excluded Shares (as defined in the Warrants),
there are no Contracts relating to the issuance of additional equity
securities of Buyer. The Common Shares of Buyer issuable upon exercise of
the Warrants have been validly reserved for issuance by Buyer and, upon
such issuance, will be duly authorized, validly issued, fully paid and
nonassessable Common Shares of Buyer. Upon issuance of the Preferred Shares
to Seller, such shares will be duly authorized, validly issued, fully paid
and nonassessable. Except for the Preferred Shares, the Warrants, the
Southcoast Warrant and the Shareholders Agreement, neither Buyer nor any of
Buyer's Shareholders is a party to any Contract pursuant to which it is or
may become obligated to purchase or redeem any shares of its capital stock
or which restricts the transfer or affects the voting rights of any shares
of its capital stock.
(b) Schedule 4.7(b) sets forth an unaudited pro forma balance sheet of
Buyer as of the Closing Date, which balance sheet gives effect to the
Contemplated Transactions and the financing to be provided by SouthTrust.
Such balance sheet is a fair and accurate presentation of Buyer's financial
condition as of the Closing Date. Except as set forth on such pro forma
balance sheet or elsewhere on Schedule 4.7(b), Buyer will have no
liabilities or obligations of any nature (whether known or unknown and
whether accrued, contingent or otherwise) as of the Closing Date. Schedule
4.7(b) also contains a true and complete copy of the commitment letter from
SouthTrust relating to the financing to be provided thereby in connection
with the Contemplated Transactions.
(c) Buyer is now, and after giving effect to the SouthTrust financing
and the Contemplated Transactions, will be, Solvent.
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5. COVENANTS OF SELLER PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Seller will, and
will cause each Acquired Company and its Representatives to furnish or make
available to Buyer and Buyer's Representatives such additional financial,
operating, and other data and information as Buyer may reasonably request in
light of the data and information previously furnished or made available to
Buyer.
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES
Between the date of this Agreement and the Closing Date, Seller will, and
will cause each Acquired Company to:
(a) conduct the business of such Acquired Company only in the Ordinary
Course of Business;
(b) use their Best Efforts to preserve intact the current business
organization of such Acquired Company, keep available the services of the
current employees, and agents of such Acquired Company, and maintain the
relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with such
Acquired Company;
(c) confer with Buyer concerning operational matters of a material
nature and obtain Buyer's Consent (which shall not be unreasonably
withheld) to any sale or other disposition of any asset or property
included in Net P, P & E.
(d) pay any undisputed debts or trade accounts payable that have been
outstanding more than sixty (60) days.
(e) otherwise respond to Buyer concerning the status of the business,
operations, and finances of such Acquired Company.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the date
of this Agreement and the Closing Date, Seller will not, and will cause each
Acquired Company not to, without the prior consent of Buyer, take any
affirmative action, or fail to take any reasonable action within their or its
control, as a result of which any of the changes or events listed in Section
3.12 is likely to occur.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Seller will,
and will cause each Acquired Company to, make all filings required by Legal
Requirements to be made by them in order to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, Seller
will, and will cause each Acquired Company to, (a) cooperate with Buyer with
respect to all filings that Buyer elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b)
cooperate with Buyer in obtaining all consents identified in Schedule 4.2.
5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, Seller will
promptly notify Buyer in writing if Seller becomes aware of any fact or
condition that causes or constitutes a Breach of any of Seller's representations
and warranties as of the date of this Agreement, or if Seller becomes aware of
the occurrence after the date of this Agreement of any fact or condition that
would (except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the
Disclosure Schedule if the Disclosure Schedule were dated the date of the
occurrence or discovery of any such fact or condition, Seller will promptly
deliver to Buyer a supplement to the Disclosure Schedule specifying such change.
During the same period, each Seller will promptly notify Buyer of the
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occurrence of any Breach of any covenant of Seller in this Section 5 or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 7 impossible or unlikely.
5.6 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Section 9, Seller will not, and will cause each Acquired Company and each of
their Representatives not to, directly or indirectly solicit proposals from, or
negotiate with, any Person (other than Buyer) relating to any transaction
involving the sale of the business conducted by the Acquired Companies.
5.7 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Seller will use
its Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Buyer will,
and will cause each of its Related Persons to, make all filings required by
Legal Requirements to be made by them to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, Buyer
will, and will cause each Related Person to, cooperate with Seller with respect
to all filings that Seller elects or to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (ii)
cooperate with Seller in obtaining all consents identified in Schedule 3.2 of
the Disclosure Schedule; provided that this Agreement will not require Buyer to
incur any burden to obtain a Governmental Authorization.
6.2 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, between the date of this
Agreement and the Closing Date, Buyer will use its Best Efforts to cause the
conditions in Sections 7 and 8 to be satisfied.
6.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the date
of this Agreement and the Closing Date, Buyer will not, without the prior
consent of Seller, amend any of Buyer's Organizational Documents.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
(a) All of Seller's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must be accurate in all material respects as of
the Closing Date as if made on the Closing Date, without giving effect to
any supplement to the Disclosure Schedule, except where such
representations and warranties are expressly made as of a particular date
and with respect to matters contemplated or permitted by this Agreement
(b) Each of Seller's representations and warranties in Sections 3.3,
3.4, 3.8, and 3.19 must be accurate in all respects as of the Closing Date
as if made on the Closing Date, without giving effect to any supplement to
the Disclosure Schedule, except where such representations and warranties
are expressly made as of a particular date and with respect to matters
contemplated or permitted by this Agreement.
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7.2 SELLER'S PERFORMANCE
(a) All of the covenants and obligations that Seller are required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
(b) Each document required to be delivered pursuant to Section 2.4
must have been delivered, and each of the other covenants and obligations
in Sections 5.4 and 5.7 must have been performed and complied with in all
respects.
7.3 CONSENTS
Each of the Consents identified in subparts 1 and 2 of Schedule 3.2 of the
Disclosure Schedule, and each Consent identified in Schedule 4.2, must have been
obtained and must be in full force and effect.
7.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) an opinion of Calfee, Halter & Griswold, dated the Closing Date,
in the form of Exhibit 7.4(a); and
(b) an opinion of Gary T. Gann, Esq., dated the Closing Date, in the
form of Exhibit 7.4(b).
7.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding involving any challenge to, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock of, or any
other voting, equity, or ownership interest in, any of the Acquired Companies,
or (b) is entitled to all or any portion of the consideration for the Shares.
7.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions by Buyer will, directly or indirectly (with or without notice or
lapse of time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer to suffer any material adverse consequence under
any Legal Requirement or Order that has been published, introduced, or otherwise
formally proposed by or before any Governmental Body after the date of this
Agreement.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Seller, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
Buyer's representations and warranties in the Deposit Escrow Agreement and
in Sections 4.1, 4.2(a) and 4.7(a) of this Agreement must be accurate in all
respects as of the date of this Agreement and as of the Closing Date as if made
on the Closing Date. All of Buyer's other representations and warranties in this
Agreement (considered collectively), and each of such other representations and
warranties (considered individually), must be accurate in all material respects
as of the Closing Date as if made on the Closing Date.
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8.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and
complied with in all material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.4, must have made the payments
required to be made by Buyer pursuant to Sections 2.4(b)(i) and the
covenants and obligations in Section 6.2 must have been satisfied in all
respects.
8.3 ADDITIONAL DOCUMENTS; CONSENTS
Buyer must have caused the following documents to be delivered to Seller:
(a) an opinion of Cobb Cole & Bell, dated the Closing Date, in the
form of Exhibit 8.4(a); and
(b) the Nonrecourse Individual Guaranty and Pledge Agreement executed
by each of Buyer's Shareholders.
Seller shall have obtained the Consent of its stockholders required by
applicable Legal Requirements.
8.4 NO PROCEEDINGS OR PROHIBITION
Since the date of this Agreement, there must not have been commenced or
Threatened against Seller, or against any Person affiliated with Seller, any
Proceeding (a) involving any challenge to, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. Neither the consummation nor the performance of any
of the Contemplated Transactions by Seller will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, any Legal Requirement or Order that is
published, introduced, or otherwise proposed by or before any Governmental Body
after the date of this Agreement.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either Buyer or Seller if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach has
not been waived or cured;
(b) (i) by Buyer if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply
with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or (ii) by Seller, if any of the
conditions in Section 8 has not been satisfied of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than
through the failure of Seller to comply with their obligations under this
Agreement) and Seller have not waived such condition on or before the
Closing Date;
(c) by mutual consent of Buyer and Seller;
(d) by either Buyer or Seller if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before
January 27, 1997, or such later date as the parties may agree upon; or
(e) by Seller if deemed necessary by Seller in order for its directors
to comply with their fiduciary duties under applicable Legal Requirements.
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9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate, except (i) the obligations in Sections 11.1 and
11.3 will survive; (ii) if this Agreement is terminated by a party because of
the Breach of the Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired; and (iii) if this
Agreement is terminated by Seller pursuant to Section 9.1(e) Seller shall pay
Southcoast and Buyer termination fees of Three Hundred Thousand Dollars
($300,000) and Three Hundred Thousand Dollars ($300,000), respectively.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL
All representations, warranties, covenants, and obligations in this
Agreement, the Disclosure Schedule, the supplements to the Disclosure Schedule,
the certificates delivered pursuant to Sections 2.4(a)(iii) and 2.4(b)(iv), and
any other certificate or document delivered pursuant to this Agreement will
survive the Closing.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER
Seller will indemnify and hold harmless Buyer, the Acquired Companies, and
their respective Representatives, stockholders, controlling persons, and
affiliates (collectively, the "Indemnified Persons") for, and will pay to the
Indemnified Persons the amount of, any loss, liability, claim, damage, expense
(including costs of investigation and defense and reasonable attorneys' fees),
whether or not involving a third-party claim (collectively, "Damages"),
resulting from:
(a) any Breach of any representation or warranty made by Seller in
this Agreement, the Disclosure Schedule or any of the other agreements and
instruments contemplated hereby as if such representation or warranty were
made on and as of the Closing Date without giving effect to any supplement
to the Disclosure Schedule, other than any such Breach that is disclosed in
a supplement to the Disclosure Schedule and is expressly identified in the
certificate delivered pursuant to Section 2.4(a)(iii) as having caused the
condition specified in Section 7.1 not to be satisfied;
(b) any Breach by Seller of any covenant or obligation of Seller in
this Agreement or in any of the other agreements or instruments
contemplated hereby;
(c) any product shipped or manufactured by, or any services provided
by, any Acquired Company prior to the Closing Date;
(d) the matters disclosed in Schedules 3.7(a), 3.11(a) and 3.11(b) of
the Disclosure Schedule; or
(e) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with either Seller or any
Acquired Company (or any Person acting on their behalf) in connection with
any of the Contemplated Transactions.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER -- ENVIRONMENTAL
MATTERS
In addition to the provisions of Section 10.2, Seller will indemnify and
hold harmless Buyer, the Acquired Companies, and the other Indemnified Persons
for, and will pay to Buyer, the Acquired Companies, and the other Indemnified
Persons the amount of, any Damages (including costs of Cleanup, containment, or
other remediation) resulting from:
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(a) any Environmental, Health, and Safety Liabilities arising out of
or relating to: (i) (A) the ownership, operation, or condition at any time
on or prior to the Closing Date of the Facilities or any other properties
and assets (whether real, personal, or mixed and whether tangible or
intangible) in which Seller or any Acquired Company has or had an interest,
or (B) any Hazardous Materials that were present on the Facilities or such
other properties and assets at any time on or prior to the Closing Date; or
(ii) (A) any Hazardous Materials, wherever located, that were, or were
allegedly, generated, transported, stored, treated, Released, or otherwise
handled by Seller or any Acquired Company, or by any Person for whose
conduct they are responsible at any time on or prior to the Closing Date,
(B) any Hazardous Activities that were, or were allegedly, conducted by
Seller or any Acquired Company or by any Person for whose conduct they are
responsible; or
(b) any bodily injury (including illness, disability, and death, and
regardless of when any such bodily injury occurred, was incurred, or
manifested itself), personal injury, property damage (including trespass,
nuisance, wrongful eviction, and deprivation of the use of real property),
or other damage of or to any Person, including any employee or former
employee of any Acquired Company or by any Person for whose conduct they
are responsible in any way arising from or allegedly arising from any
Hazardous Activity conducted or allegedly conducted with respect to the
Facilities or the operation of the Acquired Companies prior to the Closing
Date, or from Hazardous Material that was (i) present or suspected to be
present on or before the Closing Date on or at the Facilities (or present
on any other property, if such Hazardous Material emanated from any of the
Facilities and was present on any of the Facilities on or prior to the
Closing Date) or (ii) Released by Seller or allegedly Released by Seller or
any Acquired Company or by any Person for whose conduct they are or may be
held responsible, at any time on or prior to the Closing Date.
Seller will be entitled to control any Cleanup, any related Proceeding,
and, except as provided in the following sentence, any other Proceeding with
respect to which indemnity may be sought under this Section 10.3. The procedure
described in Section 10.9 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 10.3.
10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Seller and its Representatives and
will pay to Seller and such Representatives the amount of any Damages resulting
from: (a) any Breach of any representation or warranty made by Buyer in this
Agreement, Buyer's Schedules or any of the other agreements and instruments
contemplated hereby; (b) any Breach by Buyer of any covenant or obligation of
Buyer in this Agreement or in any of the other agreements and instruments
contemplated hereby; (c) any claim by any Person for brokerage or finder's fees
or commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions; (d) any product
shipped or manufactured by, or any services provided by Buyer or any Acquired
Company after the Closing Date; and (e) the obligations of the Acquired
Companies for which Seller is or may be responsible set forth on Schedule 10.4
of the Disclosure Schedule.
10.5 TIME AND KNOWLEDGE LIMITATIONS
(a) If the Closing occurs, Seller will have no liability (for
indemnification or otherwise) with respect to any representation or
warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, other than those in Sections 3.3, 3.7, 3.9, or 3.15
unless on or before December 31, 1998 Buyer notifies Seller of a claim
specifying the factual basis of that claim in reasonable detail to the
extent then known by Buyer; a claim with respect to Sections 3.7 and 11.16
must be made within sixty (60) days after expiration of the time period,
including any extensions thereof, within which any Tax may be assessed
against any Acquired Company; a claim with respect to Section 3.15 or
Section 10.3 must be made on or before December 31, 2003; and a claim with
respect to Section 3.3, or a claim for indemnification or reimbursement not
based upon any representation or warranty or any covenant or obligation to
be performed and complied with by Seller prior to the Closing Date, may be
made at any time. If the Closing occurs, Buyer will have no liability (for
indemnification or otherwise) with respect to any representation or
warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, other than in
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Sections 4.2(a) and 4.7(a), unless on or before December 31, 1998 Seller
notifies Buyer of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Seller; a claim with respect
to Section 4.2(a) or Section 4.7(a), or a claim for indemnification or
reimbursement not based upon any representation or warranty or any covenant
or obligation to be performed or complied with by Buyer prior to the
Closing Date, may be made at any time.
(b) If the Closing occurs, Seller will have no liability (for
indemnification or otherwise) with respect to any Breach of any
representation, warranty or covenant or obligation of Seller in this
Agreement or any instrument or other agreement delivered pursuant to this
Agreement if Buyer or its Representatives had Knowledge of such Breach on
or before the Closing Date.
10.6 LIMITATIONS ON AMOUNT -- SELLER
Seller will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a), (b) (to the extent relating to
any Breach prior to the Closing Date) or (c) of Section 10.2 until the total of
all Damages with respect to such matters exceeds Two Hundred Thousand Dollars
($200,000), and then only for the amount by which such Damages exceed Two
Hundred Thousand Dollars ($200,000), or (b) to the extent the total of all
Damages with respect to such matters exceeds the sum of (x) One Million Three
Hundred Thousand Dollars ($1,300,000), (y) the aggregate principal balance which
would be payable under the Promissory Note as of the date of Buyer's notice
asserting a claim for indemnification (regardless of whether a greater or lesser
amount is actually then payable) and (z) amounts payable to Seller upon
redemption or liquidation of the Preferred Shares (other than for accrued
dividends). However, this Section 10.6 will not apply to any claims with respect
to Sections 3.3, 3.7, 3.9 or 11.16.
10.7 LIMITATIONS ON AMOUNT -- BUYER
Buyer will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a), (b) (to the extent relating to
Breach prior to the Closing Date), (d) or (e) of Section 10.4 until the total of
all Damages with respect to such matters exceeds Fifty Thousand Dollars
($50,000), and then only for the amount by which such Damages exceed Fifty
Thousand Dollars ($50,000).
10.8 RIGHT OF SET-OFF
Buyer may set off any amount to which it may be entitled under this Section
10 against amounts of principal otherwise payable under the Promissory Note or
against amounts due Seller upon redemption or liquidation of the Preferred
Shares (other than for accrued dividends), provided it has given notice to
Seller of its claim for indemnification as provided for herein and its intent to
set-off amounts payable under the Promissory Note and/or Preferred Shares and
either (a) Seller has acknowledged Buyer's right of set-off and the amount
thereof or (b) Buyer's right to indemnification through such set-off and the
amount thereof has been otherwise determined in accordance with the terms of
this Agreement; otherwise, Buyer shall, at such time as the payment is due
Seller under the Promissory Note and/or Preferred Shares, (x) execute and
deliver to Seller the Claims Escrow Agreement set forth as Exhibit 10.8 after
being advised by Seller of the name and address (in Florida) of a national bank
or trust company having a place of business in Florida, and (y) pay the set-off
amount into the escrow established by the Claims Escrow Agreement to be held and
distributed in accordance therewith. The exercise of such right of set-off by
Buyer in good faith, whether or not ultimately determined to be justified, will
not constitute an event of default under the Promissory Note or failure to
comply with the terms of the Preferred Shares. Subject to the last sentence of
Section 10.6 and to Section 10.11, Buyer acknowledges that its exclusive
recourse against Seller (for indemnification or otherwise) with respect to the
matters described in clauses (a), (b) (to the extent relating to any Breach
prior to the Closing Date) or (c) of Section 10.2 after payment by Seller of One
Million Three Hundred Thousand Dollars ($1,300,000) with respect thereto shall
be such right of set-off, and that if Buyer is unable to pay the amounts due
under the Promissory Note and Preferred Shares neither Buyer nor its successors
or assigns shall have any recourse against Seller for claims in excess of such
cash payments by Seller. Notwithstanding the preceding sentence, if a claim for
which Buyer is entitled to indemnification shall arise after payments of
principal have been made under the Promissory Note or payments have been made
upon redemption or liquidation of the Preferred Shares and any such payments
remaining
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thereunder shall be insufficient to satisfy such claim, Buyer's recourse against
Seller shall, to the extent of all such prior payments, be reinstated.
10.9 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Section 10.2,
10.4, or (to the extent provided in the last sentence of Section 10.3)
Section 10.3 of notice of any Threatened or actual Proceeding against it,
such indemnified party will, if a claim is to be made against an
indemnifying party under such Section, give notice to the indemnifying
party of the commencement of such claim, but the failure to notify the
indemnifying party will not relieve the indemnifying party of any liability
that it may have to any indemnified party, except to the extent that the
indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnifying party's failure to give such notice.
(b) Except as provided in Sections 10.3, 10.10 and 11.16(g), if any
Proceeding referred to in Section 10.9(a) is Threatened or brought against
an indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless
(i) the indemnifying party is also a party to such Proceeding and the
indemnified party determines in good faith that joint representation would
be inappropriate, or (ii) the indemnifying party fails to provide
reasonable assurance to the indemnified party of its financial capacity to
defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel
reasonably satisfactory to the indemnified party and, after notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified party under
this Section 10 for any fees of other counsel or any other expenses with
respect to the defense of such Proceeding, in each case subsequently
incurred by the indemnified party in connection with the defense of such
Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims
made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be
effected by the indemnifying party without the indemnified party's consent
unless (A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person and no effect on
any other claims that may be made against the indemnified party, and (B)
the sole relief provided is monetary damages that are paid in full by the
indemnifying party; and (iii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected
without its consent. If notice is given to an indemnifying party of any
Threatened or actual Proceeding and the indemnifying party does not, within
twenty days after the indemnified party's notice is given, give notice to
the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the
indemnified party.
(c) Seller hereby consents to the non-exclusive jurisdiction of any
court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this
Agreement with respect to such Proceeding or the matters alleged therein,
and agrees that process may be served on Seller with respect to such a
claim anywhere in the world.
10.10 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom indemnification is
sought. Any such notice shall be given within a reasonable time after the party
has knowledge of the facts which give or may give rise to such claim; provided,
however, that failure to notify the indemnifying party will not relieve the
indemnified parties of any liability it may have to the indemnified party,
except to the extent that the indemnifying party demonstrates that the defense
of such action is prejudiced by the indemnifying party's failure to give such
notice. With respect to the matters described in Section 10.2(d), Seller shall
have exclusive control of the defense and settlement thereof, and Buyer shall,
and shall cause each of the Acquired Companies to, cooperate with Seller in any
manner reasonably necessary for Seller to resolve such matters, including but
not limited to, and at no charge to Seller, (i) making available then current
employees with
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knowledge of such matters to serve as witnesses and/or to discuss the matters
with Seller's designated counsel and other representatives, (ii) maintaining
records of the last known addresses of former employees who have knowledge of
such matters, (iii) making available any and all applicable documents relating
to any such matters and (iv) preserving any and all applicable documents unless
and until Seller notifies Buyer that such matters have been resolved by
settlement or otherwise.
10.11 EXCLUSIVE REMEDY
The indemnification provisions of this Section 10 set forth the sole and
exclusive remedy of Buyer against Seller with respect to any claim for Damages
based upon, arising out of, or otherwise in respect of this Agreement and the
Contemplated Transactions, except claims for fraud or willful misrepresentation.
10.12 DISPUTE RESOLUTION
(a) The parties shall attempt to resolve any dispute between them
arising out of or relating to this Section 10 in accordance with the
procedures specified in this Section 10.12.
(b) The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation
between executives who have authority to settle the controversy and who are
at a higher level of management than the persons with direct responsibility
for administration of this Agreement. Any party may give the other party
written notice of any dispute not resolved in the normal course of
business. Within 15 days after delivery of the notice, the receiving party
shall submit to the other a written response. The notice and the response
shall include (i) a statement of each party's position and a summary of
arguments supporting that position, and (ii) the name and title of the
executive who will represent that party and of any other person who will
accompany the executive. Within 30 days after delivery of the disputing
party's notice, the executives of both parties shall meet at a mutually
acceptable time and place, and thereafter as often as they reasonably deem
necessary, to attempt to resolve the dispute. All reasonable requests for
information made by one party to the other will be honored.
(c) If the matter has not been resolved within 60 days of the
disputing party's notice, or if the parties fail to meet within 30 days,
either party shall initiate mediation of the controversy or claim as
provided hereinafter.
(d) All negotiations pursuant to this clause are confidential and
shall be treated as compromise and settlement negotiations for purposes of
the Federal Rules of Evidence and state rules of evidence.
(e) If the dispute has not been resolved by negotiation as provided
herein, the parties shall endeavor to settle the dispute by mediation under
the Center for Public Resources ("CPR") Model Procedure for Mediation of
Business Disputes in effect on the date of this Agreement. The neutral
third party will be selected from the CPR Panels of Neutrals, with the
assistance of CPR, unless the parties agree otherwise.
11. GENERAL PROVISIONS AND COVENANTS TO BE PERFORMED AFTER CLOSING
11.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Buyer will pay all amounts payable to Southcoast
Securities Corporation and New Street Investments LP in connection with this
Agreement and the Contemplated Transactions. Buyer will also reimburse Seller
for the cost of the audit of the Closing Financial Determination to the extent
such cost exceeds that which would be incurred by Seller in auditing such items
in connection with its customary fiscal year end audit; provided, however, that
Buyer's reimbursement for such cost shall in no event exceed Twenty-Five
Thousand Dollars ($25,000). Seller will pay all amounts payable to The Nassau
Group, Inc. in connection with this Agreement and the Contemplated Transactions.
In the event of termination of this Agreement, the obligation of each party to
pay its own expenses will be subject to any rights of such party arising from a
breach of this Agreement by another party.
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<PAGE> 112
11.2 PUBLIC ANNOUNCEMENTS
Before the Closing Date neither Buyer nor Seller shall make any statement
to employees or the public regarding the matters contemplated herein without the
consent of the other, except that (a) Buyer and Seller may each continue such
communications with their respective employees, customers, suppliers,
franchisees, lenders, lessors, shareholders, and other particular groups as may
be necessary or legally required for the prompt consummation of the transactions
contemplated by this Agreement, and (b) Seller may make such public
announcements as it deems legally advisable, it being agreed, however, that
Seller shall use reasonable efforts to notify Buyer in advance of any such
announcements.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer shall, and
shall cause its Representatives, including George H. Bannon and Roger Eatman, to
be bound by the letter dated February 21, 1996 from Curtis Lee Smith, Jr. to
S.C. Culbreth, a copy of which is attached as Exhibit 11.3, with the following
amendments: (a) clauses (ii) and (iii) shall be deleted from paragraph 4 and (b)
paragraph 7 shall be supplemented with the following language at the end thereof
"or solicit or cause to be solicited any customer of Company which is currently
doing business with Company or which has done so within the last two (2) years."
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<PAGE> 113
11.4 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
regular mail, or (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each case to the
appropriate addresses and telecopier numbers set forth below (or to such other
addresses and telecopier numbers as a party may designate by notice to the other
parties):
Seller:
Handex Corporation
500 Campus Drive
Morganville, New Jersey 07751
Attention: President
Facsimile No.: 908-536-0289
with a copy to:
Scott R. Wilson, Esq.
Calfee, Halter & Griswold
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2688
Facsimile No.: (216) 241-0816
Buyer:
ECB, Inc.
30941 Suneagle Drive
Mt. Dora, Florida 32757
Attention: President
Facsimile No.: (352) 735-5990
with a copy to:
Jonathan D. Kaney, Jr., Esq.
Cobb Cole & Bell
150 Magnolia Avenue
Daytona Beach, Florida 32115
Facsimile No.: (904) 238-7003
11.5 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
11.6 WAIVER
Except as otherwise expressly provided herein, the rights and remedies of
the parties to this Agreement are cumulative and not alternative. Neither the
failure nor any delay by any party in exercising any right, power, or privilege
under this Agreement or the documents referred to in this Agreement will operate
as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement or the documents referred to
in this Agreement can be discharged by one party, in whole or in part, by a
waiver or
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<PAGE> 114
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the documents referred to in
this Agreement.
11.7 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and constitutes (along with the documents referred
to in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the party to be
charged with the amendment.
11.8 DISCLOSURE SCHEDULE
The disclosures made in any Disclosure Schedule, and those in any
supplement thereto, shall be deemed made with respect to any other Disclosure
Schedule to which they may relate notwithstanding the absence of a specific
cross-reference thereto.
11.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Seller may assign its rights under this Agreement and, subject to the terms
thereof, transfer the Promissory Note, Preferred Shares and Warrants to any
Person. Buyer may not assign any of its rights under this Agreement without the
prior consent of Seller. Subject to the preceding sentences, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and permitted assigns.
11.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
11.11 SECTION HEADINGS; CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
11.12 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
11.13 GOVERNING LAW
This Agreement will be governed by the laws of the State of Florida without
regard to conflicts of laws principles.
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<PAGE> 115
11.14 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
11.15 CORPORATE NAME; TRADEMARKS
If the Closing occurs, Selling will, within thirty days thereafter, change
its corporate name to one which does not include the word "Handex".
11.16 TAX RETURNS, PAYMENTS AND ELECTIONS
(a) Seller will take all steps necessary and cause the Acquired
Companies to take all steps necessary to terminate any Tax sharing Contract
between Seller and any of the Acquired Companies as of the Closing Date and
such Tax sharing Contracts will have no further effect for any taxable year
(whether current, future or past).
(b) Seller will include the income of the Acquired Companies
(including any deferred income triggered into income by IRC Reg. section
1.1502-13 and IRC Reg. section 1.1502-14 and any excess lose accounts taken
into income under IRC Reg. section 1.1502-19) on Seller's Tax Returns for
all periods through the Closing Date and pay any Taxes attributable to such
income. The income of the Acquired Companies will be apportioned to the
period up to and including the Closing Date and the period after the
Closing Date by closing the books of the Acquired Companies as of the end
of the Closing Date.
(c) For all periods ending on or before the Closing Date, Seller will
timely prepare and file all Tax Returns, after taking into account any
applicable filing extensions, that are or were required to be filed with
respect to the Acquired Companies pursuant to applicable Legal
Requirements.
(d) Buyer agrees to indemnify Seller for any additional tax owed by
Seller (including tax owed by Seller due to this indemnification payment)
resulting from any transaction not in the ordinary course of business of
the Acquired Companies occurring on the Closing Date after Buyer's purchase
of the Shares. Buyer and Seller agree to report all transactions not in the
ordinary course of business occurring on the Closing Date after Buyer's
purchase of the Shares on Buyer's federal income tax return to the extent
permitted by IRC Reg. section 1.1502-76(b)(1)(B).
(e) At Seller's request, Buyer will cause any of the Acquired
Companies to make or join with Seller in making any Tax election if the
making of such election does not have a material adverse impact on the
Buyer (or any of the Acquired Companies) for any Tax period after Buyer's
purchase of the Shares.
(f) Buyer will, and the Buyer will cause the Acquired Companies to,
maintain all books and records of the Acquired Companies relating to the
Taxes and Tax Returns of Seller and the Acquired Companies for so long as
Seller shall have any responsibility or liability therefor. Seller will
maintain all books and records in its possession which relate to the Taxes
and Tax Returns of the Acquired Companies for so long as the Buyer or the
Acquired Companies shall have any responsibility or liability therefor.
Further, Seller and Buyer hereby grant to the other and its
Representatives, and Buyer will cause each Acquired Company to grant Seller
and its Representatives, the right to inspect and make copies of all such
books and records to the extent reasonably necessary for Buyer or Seller to
accurately determine its liability for any Taxes and to prepare or amend
its Tax Returns. With respect to the fiscal period ending on the Closing
Date, Buyer also specifically agrees to cause the Acquired Companies to
furnish such information as shall be necessary for Seller to accurately
prepare and timely file the Tax Returns referenced in Section 11.16(b)
above.
(g) If any Proceeding referred to in Section 10.9(a) is Threatened or
brought against Buyer or any Acquired Company relating to Taxes for any
period through the Closing Date it shall give notice to Seller of the
commencement of such Proceeding, whereupon Seller shall be entitled, upon
notice to the Person from which notice was received, to assume exclusive
control of the defense and settlement of such Proceeding. In
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<PAGE> 116
the event Seller assumes defense of such Proceeding it will be conclusively
established for purposes of this Agreement that the claims made in that
Proceeding are within the scope of and subject to indemnification by Seller
and that neither Buyer nor any of the Acquired Companies will have any
liability with respect to any compromise, settlement or adjudication of
such claims. Notwithstanding anything to the contrary expressed herein,
Seller will not settle or otherwise resolve any issue which may affect the
liability for Taxes of the Buyer and the Acquired Companies for any period
subsequent to the Closing with respect to which the Buyer and the Acquired
Companies have any responsibility for payments thereof, without Buyer's
consent, which consent shall not be unreasonably withheld.
(h) If the parties hereto agree that it is in their mutual best
interest, Buyer and Seller will join in making an election under Section
338(h)(10) of the Code (and any corresponding elections under state, local,
or foreign tax law) (collectively a "338(h)(10) Election") with respect to
the purchase and sale of the Shares. If the 338 (h)(10) Election is made,
the parties agree that (i) the Consideration specified in Section 2.2 and
the liabilities of the Acquired Companies (plus other relevant items) will
be allocated to the assets of the Acquired Companies for Tax purposes as
shown on Schedule 11.17 attached hereto and (ii) Buyer, the Acquired
Companies and Seller will file all Tax Returns (including amended returns
and claims for refund) and information reports in a manner consistent with
such allocation.
(i) Except for Taxes, included as a liability in the Net Acquired
Current Assets, Seller will indemnify and hold the Buyer harmless against
(i) any and all liability assessed against the Buyer or any the Acquired
Companies for any Taxes for which Seller has responsibility under this
Section 11.16, (ii) any liability for Taxes assessed against the Buyer or
the Acquired Companies with respect to any period ending on or before the
Closing Date by reason of the Buyer or the Acquired Companies being
severally liable for Income Taxes pursuant to Treasury Reg. Section
1.1502-6 or any analogous State or local provisions, and (iii) any other
liability assessed against the Buyer or the Acquired Companies for Taxes of
the Seller for, or which relate to, periods ending on or before the Closing
Date.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
Buyer: ECB, INC. Seller: HANDEX CORPORATION
By: /s/ R. A. EATMAN By: /s/ THOMAS J. BRESNAN
-------------------------------- -------------------------------------
Title: President Title: President
----------------------------- ----------------------------------
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<PAGE> 117
APPENDIX B
RAYMOND JAMES
150 FEDERAL STREET
26TH FLOOR
BOSTON, MA 02110
PRIVATE AND CONFIDENTIAL
- ------------------------
November 2, 1996
The Board of Directors
Handex Corporation
500 Campus Drive
P. O. Box 451
Morganville, New Jersey 07751-0451
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to Handex Corporation, ("Handex" or the "Company") of the consideration
("Consideration") to be received in connection with the proposed sale of the
stock of the Company's Handex Environmental, Inc. subsidiary ("Handex
Environmental") to ECB, Inc. (the "Purchaser") pursuant and subject to the Stock
Purchase Agreement (the "Agreement"). The Agreement provides, among other
things, that at closing, the stock, the business and certain assets net of
certain liabilities of Handex Environmental will be sold to the Purchaser (the
"Sale") for approximately $17.3 million face value consisting of cash of $4.6
million, retained accounts receivable of $7.0 million, and the following
Purchaser securities: preferred shares of $2.0 million, notes of $3.7 million,
and warrants to purchase 25% of the fully diluted equity.
In connection with our review of the proposed Sale and the preparation of
our opinion herein, we have examined (a) the financial terms as stated in the
Agreement; (b) unaudited financial statements of Handex Environmental for the
years ended December 31, 1993, 1994, 1995 and the eight months ended August 31,
1996, and forecasts for the nine months ended September 30, 1996 and the year
ended December 31, 1996; (c) certain internal financial analyses and forecasts
for Handex Environmental prepared by the managements of the Company and ECB,
Inc. for Handex Environmental; and (d) certain other publicly available
financial information. Additionally, we held discussions with members of the
senior management of the Company and Handex Environmental and ECB, Inc.
regarding past and current operations, the financial condition and prospects of
Handex Environmental, and considered other matters which we have deemed relevant
to our inquiry.
We have assumed and relied upon the accuracy and completeness of all such
information and have not attempted to verify independently any of such
information, nor made or obtained an independent appraisal of the assets or
liabilities (contingent or otherwise) of Handex Environmental. With respect to
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of the Company and we have relied upon each party to advise us
promptly if any information previously provided became inaccurate or was
required to be updated during the period of our review. Our opinion herein is
based upon market, economic, financial and other circumstances existing and
disclosed to us as of November 2, 1996 and further assumes that no material
change has occurred, or will occur, to Handex Environmental subsequent to such
date. Our involvement in the Sale is limited to the work in preparation of this
opinion. We have not participated in the sale process of Handex Environmental
nor performed other advisory services for the Company in connection with the
Sale. We express no opinion as to the underlying
<PAGE> 118
business decision of the Company to effect the Sale, the availability or
advisability of any alternatives to the Sale, or the impact of the Sale on the
market price of the Company's common shares.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including (a) historical and projected revenues, operating eamings, net income,
growth rates and book values of Handex Environmental and certain other publicly
held companies in businesses we believe to be comparable to Handex
Environmental; (b) the current and projected financial position and results of
operations of Handex Environmental, and (c) financial information concerning
selected completed or announced business combinations which we deemed comparable
in whole or in part.
Raymond James & Associates, Inc. ("Raymond James") is actively engaged in
the investment banking business and regularly undertakes the valuation of
businesses in connection with sales, public offerings, private placements,
business combinations and similar transactions. For our services including the
rendering of this opinion, the Company has paid Raymond James a retainer and
will pay Raymond James a further fee upon delivery of this opinion, such
payments are not contingent upon the consummation of the Sale. In addition, the
Company has agreed to indemnify Raymond James against certain liabilities
arising out of the rendering of this opinion.
It is understood that this letter is for the information of the Board of
Directors of the Company only and is not intended to confer rights or remedies
upon the Purchaser or the shareholders of the Company or the Purchaser and is
not a recommendation to any shareholder of the Company concerning action such
shareholder might take in regard to the Sale. This opinion is not to be quoted
or published, in whole or in part, without our prior written consent, which will
not be unreasonably withheld,
Based upon and subject to the foregoing, it is our opinion that as of
November 2, 1996 and matters considered herein, the Consideration to be received
by the Company from the Purchaser pursuant to the Agreement for Handex
Environmental is fair, from a financial point of view, to the Company.
Very truly yours,
RAYMOND JAMES & ASSOCIATES, INC.
/s/ Raymond James & Associates, Inc.
<PAGE> 119
APPENDIX C
HANDEX CORPORATION
SPECIAL MEETING OF STOCKHOLDERS - DECEMBER 20, 1996
P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (i) appoints Curtis Lee Smith, Jr.,
R Stuart O. Smith and John T. St. James, and any of them as Proxy
holders and attorneys, with full power of substitution, to appear
and to vote all of the shares of Common Stock of Handex Corporation
O (the "Company") represented by this Proxy at the Special Meeting of
stockholders of the Company, to be held at the Corporate headquarters
of the Company at 500 Campus Drive, Morganville, New Jersey 07751 on
X Friday, December 20, 1996, at 4:00 P.M. (E.S.T.), and at any
adjournments thereof, hereby revoking any and all proxies heretofore
given, and (ii) authorizes and directs said Proxy holders to vote all
Y of the shares of Common Stock of the Company represented by this
Proxy as follows, WITH THE UNDERSTANDING THAT IF NO DIRECTIONS ARE
GIVEN BELOW, SAID SHARES WILL BE VOTED "FOR" EACH OF THE PROPOSALS
SET FORTH BELOW.
(change of address)
________________________________________
________________________________________
________________________________________
________________________________________
(If you have written in the above space,
please mark the corresponding box on the
reverse side of this card.)
IMPORTANT: WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING,
PLEASE FILL IN, SIGN AND DATE THIS PROXY AND PROMPTLY RETURN THE ORIGINAL,
SIGNED PROXY IN THE ENVELOPE PROVIDED.
-------------
| SEE REVERSE |
| SIDE |
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<PAGE> 120
<TABLE>
<C> <C> <C>
X PLEASE MARK YOUR SHARES IN YOUR NAME
VOTES AS IN THIS
EXAMPLE.
</TABLE>
<TABLE>
<CAPTION> FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. PROPOSAL to authorize, approve and adopt a Stock Purchase [ ] [ ] [ ]
Agreement, dated November 4, 1996, by and between the Company
and ECB, Inc., a Florida corporation, pursuant to
which the Company will sell all of the issued and out-
standing shares of capital stock of Handex Environmental,
Inc., a Delaware corporation, to ECB upon the terms and for
the consideration set forth in the Stock Purchase Agreement.
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. PROPOSAL to amend Article First of the Company's Certificate [ ] [ ] [ ]
of Incorporation to change the name of the Company to
"New New Horizons Worldwide, Inc.", subject to consummation of
the transactions contemplated by the Stock Purchase Agreement.
</TABLE>
3. In their discretion to act on any matter or matters which may
properly come before the Special meeting.
Change of Address [ ]
Attend Meeting [ ]
SIGNATURE(S)___________________________________ DATE ______________ , 1996
SIGNATURE(S)___________________________________ DATE ______________ , 1996
Your signature to this Proxy form should be exactly the same as the printed
name. Persons signing as executors, administrators, trustees or in similar
capacities should so indicate. For joint accounts, the name of each joint
owner must be signed.
