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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1995
Commission file number: 0-18198
DeVlieg-Bullard, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 62-1270573
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(State of incorporation) (I.R.S. employer
identification no.)
One Gorham Island, Westport, Connecticut 06880
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 203-221-8201
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part Ill of this Form 10-K or any amendment to
this Form 10-K. [ ]
At July 31, 1995, the aggregate market value of the voting stock held by
nonaffiliates was approximately $14,839,000. The market value calculation was
determined using the closing price of registrant's common stock on August 31,
1995, as reported on the NASDAQ National Market System, and assumes all shares
beneficially owned by executive officers and members of the Board of Directors
of the registrant are shares owned by "affiliates," a status which each of the
executive officers and directors individually disclaims.
DeVlieg-Bullard, Inc., had 12,250,000 shares of common stock outstanding at
August 31, 1995.
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DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Documents from which portions are
Part of Form 10-K incorporated by reference
- ----------------- ---------------------------------
<S> <C>
III Proxy Statement relating to the Company's Annual
Meeting of Stockholders on December 13, 1995
</TABLE>
2
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PART I
ITEM 1. BUSINESS
GENERAL
DeVlieg-Bullard, Inc., (the "Company") is a diversified industrial concern
specializing in servicing, upgrading, automating and remanufacturing precision
engineered machine tools. The Company also manufactures sophisticated original
and replacement tooling products used in industrial machine tools. In
addition, the Company produces high quality stationary power tools for use in
the woodworking and metalworking industries. Considered together, these
businesses provide a diversified line of original equipment and aftermarket
machine tool services and products ranging from highly automated remanufactured
machine tools to replacement parts. The Company also produces a variety of
power tools for niche industrial markets.
The Company, headquartered in Westport, Connecticut, conducts its business
through the Services Group, Tooling Systems Group and Industrial Group in
facilities located in California, Connecticut, Illinois, Michigan, Ohio,
Pennsylvania, Tennessee, the United Kingdom and Germany. The organizational
structure is illustrated in the following chart:
<TABLE>
<S> <C> <C>
DEVLIEG-BULLARD, INC.
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------------------------------------------------------------------------------------------
SERVICES GROUP TOOLING SYSTEMS GROUP INDUSTRIAL GROUP
-------------- --------------------- ----------------
</TABLE>
For financial information on the Company's business segments, see Note 19 of
Notes to the Company Financial Statements.
The Services Group provides repair and replacement parts, field service,
rebuild, retrofit and remanufacturing services predominantly for the DeVlieg,
Bullard, White-Sundstrand, New Britain Machine, Rockford, Futurmill, Brown &
Sharpe, and American Tool brand machine tools. The Services Group conducts its
operations at facilities located in Cypress, California; Cromwell, Connecticut;
Rockford, Illinois; Madison Heights, Michigan; Abbottstown, Pennsylvania; and
Twinsburg, Ohio.
The Tooling Systems Group ("Tooling Systems") manufactures precision tool
holding devices, boring tools and electronic tool management systems used in
manual and computer numerically controlled ("CNC") machine tools. These
products are marketed under the Universal Engineering, DeVlieg-Microbore and
Cushman Industries tradenames primarily to the automotive, aerospace, defense,
construction and farm equipment industries. Tooling Systems conducts its
operations at facilities in Frankenmuth and Gladwin, Michigan; Luttersworth,
England; and through a 50% owned joint venture in Bielefeld, Germany.
The Industrial Group, consisting of the Company's Powermatic Division
("Powermatic"), produces high quality, stationary power tools, including table
saws, shapers, bandsaws, drill presses, planers and jointers for use in the
woodworking and metalworking industries. In August 1992, Powermatic sold its
automated line of industrial routers. Powermatic conducts its operations in
two facilities located in
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McMinnville, Tennessee. In November 1992, the Company sold the assets of its
Penberthy, Inc. subsidiary, which had operated within the Industrial Group, to
Penberthy Products, Inc. See Note 4 of Notes to the Company Financial
Statements.
RECENT DEVELOPMENTS
On September 15, 1995, the Company announced that it had entered into a stock
purchase agreement with Acme-Cleveland Corporation to acquire all of the
outstanding stock of the National Acme Company, a subsidiary of Acme-Cleveland
Corporation. The Company expects to consummate the acquisition during the
first quarter of fiscal 1996. The Company will pay $9.6 million in cash and
assume all liabilities related to the business.
National Acme, located in Cleveland, Ohio, is the leading manufacturer of
Acme-Gridley(R) multiple spindle bar and chucking machines, as well as a
supplier of related after-market parts and service. National Acme's standard
product offerings include over twenty different machine models. In addition,
National Acme offers a broad array of after-market products and services,
including repair parts, replacement tooling, retrofit upgrade kits and training
and service contracts. National Acme's sales through three quarters of fiscal
1995 totaled $27.3 million and for fiscal 1994 were $30.7 million.
BUSINESS STRATEGY AND MARKET DEVELOPMENT
The Company's business strategy is to capitalize on the opportunities for
growth in its core businesses by increasing its penetration of existing markets
through acquisitions and expanding into new markets by introducing new products
and services.
SERVICES GROUP
As a primary provider of aftermarket services for a large installed base of
machine tools, the Company believes it has a strong competitive position in
providing replacement parts, field repair and remanufacturing services for the
DeVlieg, Bullard, White-Sundstrand, Brown & Sharpe, American Tool, Futurmill,
Rockford and New Britain Machine tradenames. However, the installed base of
these machine tools is expected to decrease gradually over time as older
machine tools historically serviced by the Company are retired from service.
The Services Group's business strategy includes expanding to other machine tool
brands, by acquiring other machine tool companies and by introducing engineered
productivity improvements which prolong the life of installed base equipment.
On November 30, 1994, the Company purchased H.B. Industries, Inc. which
conducts its business as Ed Smith Machinery Sales. The acquisition complements
the Company's existing line of Bullard products, parts and services and
strengthens the Services Group's position in the automotive market. See Note 3
of Notes to the Company Financial Statements.
On January 23, 1995, the Company acquired essentially all of the assets of
Mideastern, Inc. which has been an important provider of field and
remanufacturing services and aftermarket replacement parts for New Britain
Machine automatic screw machines since it was founded in 1986. The acquisition
of Mideastern, Inc., and the addition of its four former owners, strengthens
the Services Group's New Britain Machine parts remanufacturing capability and
adds field service expertise to the services provided to the New Britain
Machine customer base. See Note 3 of Notes to the Company Financial
Statements.
The Company acquired the assets of the grinding machine business of Brown &
Sharpe in March 1993. The acquisition included inventory, fixed assets and
intellectual property used to provide replacement parts, field service and
remanufacturing to the current installed base of Brown & Sharpe grinders and
machine centers. See Note 3 of Notes to the Company Financial Statements.
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The Company has historically maintained a large inventory of replacement parts
for the DeVlieg, Bullard, White-Sundstrand, American Tool, Futurmill, Rockford
and New Britain Machine tradenames. The Company currently maintains only those
replacement parts which are in high demand and manufactures to order all other
replacement parts. Management believes this strategy has increased operating
efficiencies while not materially affecting its competitive position with
respect to such tradenames. See "Business - Competition."
TOOLING SYSTEMS GROUP
The primary strategy for Tooling Systems is to gain market share in its product
lines through the continued emphasis on the acquisition of additional tooling
companies and providing superior customer service, including product quality,
delivery and application engineering. To further its ability to distribute
Microbore products, Tooling Systems opened a sales and warehousing facility in
the United Kingdom in fiscal 1991 and began distribution in Mexico during
fiscal 1993 and in Asian markets during fiscal 1995. New product introductions
have enhanced Tooling Systems' product offerings and are important to its
market development.
In September 1994 the Company acquired certain assets of Cushman Industries,
Inc., a manufacturer of work holding devices including manual chucks, power
chucks and special order work holding systems. This product line is expected
to become an important contributor to the Tooling Systems Group. See Note 3 of
Notes to the Company Financial Statements.
INDUSTRIAL GROUP
Powermatic enjoys strong name recognition and a reputation for quality among
its customers. Powermatic expects to capitalize on these strengths by
continuing to extend its line of woodworking machinery intended for the light
industrial market and the home hobbyist.
OPERATING GROUPS
SERVICES GROUP
The Services Group provides repair and replacement parts, field service,
rebuild, retrofit and remanufacturing services through its Parts Operation and
Rebuild Operation.
Parts Operation. The Parts Operation provides aftermarket services, consisting
of repair and replacement parts, predominantly for the DeVlieg, Bullard,
White-Sundstrand, New Britain Machine, Rockford, Futurmill, Brown & Sharpe, and
American Tool brand machine tools.
Parts are sold primarily through direct customer contact. The Parts Operation
employs a technically-oriented customer service group composed of thirteen
customer service representatives and seven technical support personnel.
Because of the age, variety and technical complexity of the machine tool
population, identification of replacement parts or repair solutions requires
technically qualified employees who are familiar with the products served.
Products are marketed to over 5,000 active customers, consisting primarily of
aerospace and defense contractors, automotive and transportation equipment
manufacturers, farm equipment builders, manufacturers of industrial equipment
and precision tool and die shops located throughout the United States and
overseas.
The Parts Operation's warranty policy covers all of its aftermarket products
and services and generally provides a 90- day warranty on defects in materials
and a 30-day warranty on defects in workmanship for replacement parts.
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Remanufacturing Operation. The Remanufacturing Operation provides field
service, rebuild, retrofit and remanufacturing services for numerous brands of
machine tools, including DeVlieg, Bullard, White-Sundstrand, New Britain
Machine, Rockford, Futurmill, Brown & Sharpe, and American Tool brands. The
remanufacture of a machine tool, typically consisting of replacing worn parts
and components, realigning the machine, and adding updated CNC capability and
electrical and mechanical enhancements, generally takes four to six months to
complete. Once completed, a remanufactured machine is a "like new"
state-of-the-art machine at approximately 50% of the cost of a replacement
machine.
The Remanufacturing Operation employs approximately 80 persons including more
than 30 field service engineers. The technical complexity and variety of
product enhancements that relate to rebuilding, retrofitting and
remanufacturing machine tools require highly skilled sales, engineering and
assembly personnel. The Remanufacturing Operation's services are sold through
direct sales personnel, numerous nonexclusive distributors located throughout
the United States and direct customer inquiries.
The Remanufacturing Operation's warranty policy covers all newly manufactured
and remanufactured products and generally provides a one-year parts and labor
warranty.
TOOLING SYSTEMS GROUP
Tooling Systems manufactures precision tool holders, boring tools, electronic
tool management systems and work holding chucks for use in tooling a wide range
of metal cutting machine tools and machining centers, including manual,
multiple spindle and general purpose machines along with CNC machining centers,
with and without automatic tool changers, and all types of lathes. Tooling
Systems includes the product offerings of Universal Engineering,
DeVlieg-Microbore and Cushman Industries. These product names have been
continuously present in their markets for over 50 years.
Tool Holders. The primary focus of Tooling Systems is on the design and
manufacture of precision engineered tool holders and accessories. The products
are used in metal cutting machine tools, including tooling for manual machines,
proprietary Kwik Switch tooling systems, tooling systems for high production
dial and transfer machines, and tooling for CNC machining centers. Tool
holders and accessories provide the link between the drive shaft and the
cutting surface of machine tools, and are required to hold tolerances of up to
.0001 of an inch. The selling prices for tool holders range from $50 to $800.
Boring Tools. Through its Microbore product line, Tooling Systems provides an
expanded line of standard and custom designed adjustable cartridge-type boring
tools used to cut, drill or bore metal and other parts. The Microbore product
line of boring tools provides rigidity and allows for rapid dimensional changes
while maintaining precise tolerance levels. The selling prices for boring
tools range from $125 to $10,000.
Electronic Tool Management Systems. Tooling Systems also supplies electronic
tool management systems, consisting of optical preset machines, which utilize
photosensitive reading heads to determine the length and diameter of the tool
boring set. Employing custom designed software packages, these machines preset
and provide inventory control and a range of data for tooling away from the
machining center, thereby assuring fast, accurate set-up and changeovers on CNC
machining centers. The selling prices for these products are from $15,000 and
up.
Work Holding Systems. Through its newly acquired Cushman product line, Tooling
Systems supplies Cushman chucks and work holding products to assist customers
with holding parts and tools. Chucks and work holding products range from
manual and power chucks, super spacers, jaws, as well as special designs and
rebuild services. The selling prices of chucks range from $500 to $50,000.
Products offered by Tooling Systems are sold to users of precision metal
cutting machine tools, including the automotive, aerospace, defense,
construction and equipment manufacturing industries. The
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automotive industry is Tooling Systems' largest customer source, representing
approximately 40% of Tooling Systems' net sales in fiscal year 1995. Tooling
Systems provides its customers with a range of catalog products as well as
special engineered products. In this regard, Tooling Systems employs six
engineers to work directly with customer design engineers and purchasing agents
to provide solutions for unique tooling applications.
Substantially all of Tooling Systems' product line is sold by approximately 350
nonexclusive distributors located throughout the United States. A direct sales
force assists the distributors and sells a portion of the product line directly
to original equipment manufacturers. Tooling Systems' direct sales force is
paid a salary plus commission.
Tooling Systems offers no express warranty with respect to its tool holders and
boring tools. With respect to its electronic tool management systems, Tooling
Systems' warranty policy provides a one-year warranty on parts and labor for
defects of workmanship or material.
The basic raw material employed in the manufacturing process used by Tooling
Systems is steel bar stock, which is available from a number of sources.
Tooling Systems is not dependent on any one supplier and has not experienced
difficulty in obtaining necessary raw materials.
INDUSTRIAL GROUP
POWERMATIC. Powermatic manufactures and markets a broad line of high quality,
stationary power tools, and related replacement parts and accessories, each
used primarily in the woodworking and metalworking industries. Powermatic
offers a line of stationary tools for both industrial use and for home
hobbyists (the "Artisan" line).
Industrial Product Line. The primary focus of Powermatic is on the design,
manufacture and distribution of high quality, manually operated stationary
woodworking power tools and repair parts, including table saws, shapers,
bandsaws, drill presses, planers and jointers. Powermatic's industrial product
line is marketed primarily to manufacturers of millwork items, cabinetry and
furniture as well as educational and institutional markets for use in
industrial arts and vocational training. Powermatic also produces a line of
manually operated stationary metalworking machines and related replacement
parts and accessories. These products are marketed primarily to machine,
maintenance and tool and die shops.
During fiscal 1995, approximately 75% of the products comprising the industrial
line were designed and manufactured by Powermatic. The remaining industrial
products are manufactured to Powermatic's specifications by firms located in
Taiwan, Italy and the United States. The Company believes there are
alternative sources of supply for its industrial line products. The selling
prices for Powermatic's industrial line products range from $500 to $20,000.
Artisan Product Line. The Artisan product line was introduced in February 1989
with five high quality, stationary woodworking power tools primarily for the
light industrial market and the home hobbyist. Today, the Artisan product line
consists of ten different woodworking products. These products are
manufactured by Taiwanese suppliers to Powermatic's specifications. The
Company believes there are alternative sources of supply for its Artisan
product line. The selling prices for Powermatic's Artisan line products range
from $100 to $1,200.
Powermatic's Industrial and Artisan product lines are sold through
approximately 600 distributors located throughout the United States.
Powermatic's district sales managers are paid a salary plus commission and its
manufacturing representatives are paid on a commission-only basis.
Powermatic's warranty policy covers all of its manufactured products and
generally provides a warranty on parts and labor of one year or 2,000 hours of
use, whichever occurs first.
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SEASONALITY
The Company's business is subject to certain seasonal fluctuations in sales,
with a pattern of net sales being lower in December due to plant closings
during the holidays and in the summer months due to customer shutdowns,
vacations and less activity from the home hobbyist.
COMPETITION
SERVICES GROUP
The market for aftermarket products and services for the machine tools serviced
by the Company is competitive, with competition from numerous independent
parts, service and rebuild suppliers with various sales and resource levels.
Management believes the Company has a competitive advantage with respect to the
DeVlieg, Bullard, White-Sundstrand, New Britain Machine, Rockford, Futurmill,
Brown & Sharpe and American Tool brand machine tools since the Company owns an
estimated 200,000 drawings and all other documents and customer lists related
to such machine tools, and employs skilled personnel who have been trained for
and have experience with these products. As a result, management believes the
Services Group has a dominant market share with respect to providing services
for these brands of machine tools.
Principal competitive factors for the Services Group's products and services
are customer service and technical support, delivery times, price and
proprietary technology.
TOOLING SYSTEMS GROUP
The market for Tooling Systems' product lines is highly competitive. There are
a number of companies which manufacture precision tool holding devices and
other products within Tooling Systems' product lines that have greater sales
and financial resources than the Company. However, management believes that
Tooling Systems is one of the largest domestic manufacturers whose primary
focus is on the design and manufacture of precision tool holding, boring,
electronic tool management system and work holding products. Principal
competitive factors for precision tooling products are product quality,
delivery, service and price.
INDUSTRIAL GROUP
The market for Powermatic products is also highly competitive, with substantial
competition from both domestic and foreign manufacturers, many of which have
significantly greater sales and financial resources than the Company.
Principal competitive factors for Powermatic's product lines include product
quality, delivery, service and price.
PATENTS AND TRADEMARKS
The Company possesses rights to over 200 domestic and foreign patents and
trademarks relating to its businesses. While the Company considers its patents
and trademarks important in the operation of its business, its business is not
dependent on any single patent or trademark or group of patents or trademarks.
However, the Company considers the following trademarks to be important to its
business: American Tool(R), Artisan(R), Belsaw(R), Brown & Sharpe(R),
Bullard(R), Cushman(R), DeVlieg(R), Futurmill(R), Microbore(R), New Britain
Machine(R), Powermatic(R), Universal Engineering(R) and White-Sundstrand(R).
The Company licenses the White-Sundstrand(R) trademark from Sundstrand
Corporation under an agreement which will expire in 2008. The Company
sublicenses the Belsaw(R) trademark from C.B. Tool & Supply, Inc. under an
agreement which will expire in 2001. The Company licenses the Brown &
Sharpe(R) trademark from Brown & Sharpe Manufacturing Company under an
agreement which expires in 1998.
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The DeVlieg(R) and Microbore(R) trademarks are licensed from D.V. Associates,
L.P. pursuant to a license agreement, and the Company's rights thereto are
subject to its payment of certain license fees. The Company holds an option to
purchase such trademarks from D.V. Associates, L.P.
EMPLOYEES
As of July 31, 1995, the Company had approximately 625 employees, of whom
approximately 370 were hourly employees and 255 were salaried employees.
Approximately 145 hourly employees at the Tooling Systems Group in Frankenmuth,
Michigan are covered by a collective bargaining agreement expiring in May 1997.
Approximately 135 hourly employees at the Powermatic Division in McMinnville,
Tennessee are covered by a collective bargaining agreement expiring July 1,
1998.
ENVIRONMENTAL MATTERS
The Company and the industry in which it competes are subject to environmental
laws and regulations concerning emissions to the air, discharges to waterways,
and the generation, handling, storage, transportation, treatment and disposal
of waste materials. These laws and regulations are constantly evolving and the
Company cannot predict accurately the effect they will have on the Company in
the future. It is the Company's policy to comply with all applicable
environmental, health and safety laws and regulations. In many instances, the
implementing regulations have not been finalized. Even where regulations have
been adopted, they are subject to varying and conflicting interpretations and
implementation. In some cases, compliance can only be achieved by capital
expenditures. The Company cannot accurately predict what capital expenditures,
if any, may be required.
Management believes that all operations conducted by the Company are in all
material respects in compliance with all applicable laws and regulations
relating to environmental matters.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company:
<TABLE>
<CAPTION>
Name Age Position with Company
---- ---- ---------------------
<S> <C> <C>
William O. Thomas 54 President and Chief Executive Officer and
Director
Lawrence M. Murray 53 Vice President and Chief Financial Officer
</TABLE>
Officers are elected by the Board of Directors and serve at the pleasure of the
Board of Directors. There are no family relationships among any officers.
The following is a brief summary of the business experience of the executive
officers of the Company:
William O. Thomas has been a Director of the Company since 1986 and served as
its Chairman from 1986 to December 1989 and served as its Vice Chairman from
December 1989 until March 2, 1992. Effective March 2, 1992, Mr. Thomas was
elected President and Chief Executive Officer of the Company. Mr. Thomas is
currently a Director of Sanitas, Inc. He received his B.S. degree from Purdue
University.
Lawrence M. Murray was elected as Vice President, Chief Financial Officer and
Secretary of the Company effective June 15, 1992, and has served in these
capacities since then, except that, effective December 15, 1993, he resigned as
Secretary and was elected Assistant Secretary. From 1985 until 1992, Mr.
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Murray served as Vice President and Chief Financial Officer of Sanitas, Inc.
He is currently a Director of Sanitas, Inc. Mr. Murray received his B.S. and
M.B.A. degrees from Indiana University.
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ITEM 2. PROPERTIES
The Company, headquartered in Westport, Connecticut, conducts its operations at
facilities located in California, Connecticut, Illinois, Michigan, Ohio,
Pennsylvania, Tennessee, the United Kingdom and Germany (50% owned joint
venture). The Company currently operates one shift a day, five days a week
with workforce and workweek adjustments as required. Management believes that
the Company's facilities are in good condition and provide adequate capacity to
meet the Company's needs for the foreseeable future. The following table sets
forth certain information relating to the Company's principal facilities:
<TABLE>
<CAPTION>
Approx. Owned/Leased
Floor Area (Expiration
Location in Sq. Ft. Principal Uses Date if Leased)
-------- ---------- -------------- ---------------
<S> <C> <C> <C>
DEVLIEG-BULLARD, INC.
Westport, CT 5,300 Corporate Headquarters Leased (2002)
SERVICES GROUP:
Parts Operation:
---------------
Rockford, IL 60,000 Administrative offices; Leased (1996)
warehousing of repair parts
Madison Heights, MI 10,000 Warehousing of repair parts Leased (1995)
Rebuild Operation:
-----------------
Twinsburg, OH 50,000 Remanufacturing Leased (2002)
Abbottstown, PA 13,000 Remanufacturing; field service Owned
support and sales; administrative
offices
Cromwell, CT 44,600 Administrative offices; Leased (1997)
remanufacturing
Cypress, CA 3,000 Field Service Support and Sales Leased (monthly)
TOOLING SYSTEMS GROUP:
Frankenmuth, MI 100,000 Administrative offices; design Leased (2006)
and manufacture of tooling
products
Gladwin, MI 40,000 Manufacturing, shipping and Owned
assembly
Luttersworth, UK 8,500 Sales offices, warehousing of Leased (1997)
repair parts
INDUSTRIAL GROUP:
Powermatic:
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McMinnville, TN 217,200 Administrative offices and Leased (2006)
manufacturing
McMinnville, TN 59,800 Foundry; administrative offices; Leased (2006)
and production
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
On August 4, 1993, the Company, certain of its present and former officers and
directors and several unrelated third parties were included as defendants in a
civil suit filed in the United States District Court for the Northern District
of Illinois, Western District. The suit was filed by a committee of unsecured
creditors of DeVlieg, Inc., a company in Chapter 11 proceedings in the
Bankruptcy Court for the Northern District of Illinois, and
debtor-in-possession, DeVlieg, Inc. The litigation sought in excess of $10
million in damages and alleged violations of state fraudulent conveyance
statutes in connection with the acquisition by the Company of certain assets of
DeVlieg, Inc. in September 1988 and March 1990. The Company settled this suit
in the second quarter for $1.5 million, which was paid during the fourth
quarter of fiscal 1995.
On March 2, 1992, a purported class action suit was filed in the United States
District Court for the District of Connecticut against the Company, Stanwich
Oil & Gas, Inc., the First Boston Corporation and certain of the Company's
officers and directors. The suit alleges violations of the federal securities
laws and state and federal common law in connection with alleged
misrepresentations and omissions made by the Company in connection with its
initial public offering in March 1990 and in certain reports later issued by
the Company. To date, the United States District Court for the District of
Connecticut has not certified the class of plaintiffs in the referenced action.
By ruling dated September 7, 1994, the court granted that portion of the
defendants' motion to dismiss certain parties to the suit based on a claim that
any of them were secondarily liable for having aided and abetted an alleged
securities fraud violation based on Rule 10b-5 and Section 10(b) of the
Securities Exchange Act of 1934. The court denied the remainder of the motion
to dismiss. While management believes the allegations are without merit and is
defending the litigation vigorously, management is unable at this time to
estimate the effect of any settlement or adverse judgment on the results of
operations and/or financial condition of the Company. The Company has,
therefore, made no accrual for any such settlement, adverse judgment or costs
of adjudication (other than accrual for certain pre-trial costs). Certain
costs estimated to be incurred in defending the suit have been accrued.
The Company is also involved in litigation and proceedings, including product
liability claims, in the ordinary course of its business. The Company does not
believe that the outcome of such litigation will have a material adverse effect
upon the Company, after taking into account any proceeds of available
insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the NASDAQ Stock Market under the symbol
"DVLG." The following table sets forth the high and low sales prices for the
shares of common stock as reported in the NASDAQ National Market System for
each quarterly period of the last two fiscal years.
<TABLE>
<CAPTION>
High Low
---- ---
For Fiscal Year 1995
--------------------
<S> <C> <C> <C>
Quarter ended: July 31 $2.125 $1.25
April 30 2.50 1.625
January 31 1.875 1.375
October 31 2.00 1.125
For Fiscal Year 1994
--------------------
Quarter ended: July 31 $2.25 $1.50
April 30 3.00 2.00
January 31 3.875 2.625
October 31 3.25 1.75
</TABLE>
The Company has not declared any cash dividends on the common stock since
inception. Declaration of dividends with respect to the common stock is at the
discretion of the Board of Directors. Any determination to pay dividends will
depend upon the financial condition, capital requirements, results of
operations and other factors deemed relevant by the Board of Directors. The
declaration of dividends is subject to certain restrictive covenants contained
in the Company's loan agreements. See Notes 9 and 10 of Notes to the Company
Financial Statements.
The Company had 149 holders of record (not including individual participants in
securities position listings) of its common stock as of July 31, 1995,
representing approximately 1,000 individual participants.
The transfer agent and registrar for the common stock is The First National
Bank of Boston.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected historical data presented for each of the five years in
the period ended July 31, 1995, and as of the end of each of the five years in
the period ended July 31, 1995, are derived from the Company Financial
Statements. The following data should be read in conjunction with "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8 - Financial Statements and Supplementary Data."
<TABLE>
<CAPTION>
DEVLIEG-BULLARD, INC. (b)
(in thousands, except per share data)
1995 (a) 1994 1993 (c) 1992 (d) 1991 (e)
-------- ---- -------- -------- --------
RESULTS OF OPERATIONS (B):
<S> <C> <C> <C> <C> <C>
Net sales $ 78,150 $ 63,619 $ 58,604 $ 64,268 $77,537
Gross profit 22,155 18,079 18,111 13,338 23,540
Operating profit (loss) 5,243 2,790 3,521 (5,925) 2,388
Nonrecurring expenses 1,500 - - 6,392 -
Income (loss) from continuing
operations 3,405 2,832 2,821 (12,372) 3,383
before interest and taxes
Income (loss) from 1,393 1,579 1,652 (13,583) 360
continuing operations
Net income (loss) 1,393 1,579 7,490 (10,838) 2,170
Income (loss) per common share:
Continuing operations $ 0.11 $ 0.13 $ 0.13 $ (1.16) $ 0.01
Net income (loss) 0.11 0.13 0.61 (0.94) 0.16
Average common shares and
equivalents outstanding 13,257 12,436 12,250 12,250 12,250
ASSETS AND CAPITAL:
Total current assets $36,321 $33,462 $30,030 $33,747 $44,181
Property, plant and equipment 6,876 6,340 6,637 7,899 8,200
Total assets 66,232 51,263 45,056 48,903 62,656
Revolving credit agreement 12,115 - 10,811 15,247 16,204
Total current liabilities 25,490 12,474 23,305 37,724 34,591
Long-term debt 13,639 14,577 2,949 1,003 7,978
Total liabilities 45,662 33,887 33,627 39,755 43,094
Stockholders' equity 20,570 17,376 11,429 9,148 19,562
</TABLE>
(a) On September 9, 1994, the Company acquired specified assets of Cushman
Industries, Inc. On November 30, 1994, the Company acquired H.B.
Industries, Inc. On January 23, 1995, the Company acquired substantially
all of the assets of Mideastern, Inc. These acquisitions were accounted for
as purchases. See Note 3 of Notes to the Company Financial Statements.
Fiscal 1995 also includes nonrecurring charges of $1,500 for a litigation
settlement (see "Item 3 - Legal Proceedings").
(b) On November 24, 1992, the Company sold the assets of its Penberthy, Inc.
subsidiary. Accordingly, Penberthy has been reflected as a discontinued
operation for periods presented and fiscal 1993, 1992 and 1991 results of
operations have been restated but assets and capital have not been
restated. See Note 4 of Notes to the Company Financial Statements.
(c) Effective August 1, 1992, the Company adopted Financial Accounting Standard
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." As a result, the Company recorded a one-time, non-cash charge
of $4,588 representing the cumulative effect of this accounting change and
increased expenses for postretirement benefits by $191 for the 1993 fiscal
year. Also, effective August 1, 1992, the Company adopted Financial
Accounting Standard No. 109, "Accounting for Income Taxes." See Note 2 of
Notes to the Company Financial Statements.
On March 23, 1993, the Company acquired the Brown & Sharpe grinding
machine business from Brown & Sharpe Manufacturing Company. The acquisition
was accounted for as a purchase. See Note 3 of Notes to the Company
Financial Statements.
(d) Fiscal 1992 includes nonrecurring charges of $6,392 related to certain
restructuring activities. Additionally, charges of $3,545 related to
inventory obsolescence were included in cost of sales.
(e) On September 21, 1990, the Company acquired New Britain Machine from Litton
Industrial Automation Systems, Inc. The acquisition was accounted for as a
purchase.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Summarized below is a discussion of the results of operations of the Company,
including its Services, Tooling Systems and Industrial operating groups.
Dollar amounts are expressed in thousands.
OVERVIEW OF RESULTS
Fiscal 1995 was a year of growth in sales and earnings for the Company. The
Company also continued to benefit from the cost reduction and process
improvement programs undertaken in fiscal years 1992-1995. In addition to
modest growth in the Company's operating groups, three important acquisitions
were added during the year which contributed $7,650 in sales to the overall
results.
ACQUISITIONS (See Note 3 of Notes to the Company Financial Statements)
On September 9, 1994, the Company acquired certain assets of Cushman
Industries, Inc. The acquisition is another step towards the Company's goal of
enhancing its position by seeking out technology that will strengthen the
Company's overall product offering and technical support. The Cushman product
line will be manufactured and marketed by the Tooling Systems Group.
On November 30, 1994, the Company purchased H. B. Industries, Inc. (Ed Smith).
The acquisition increased the Company's market share of replacement parts for
Bullard machines. The major increase in market penetration occurred in the
automotive sector with particular emphasis in the multiple spindle machines.
This acquisition will increase the Services Group's ability to provide a full
range of parts for the entire Bullard line.
On January 23, 1995, the Company acquired substantially all of the assets of
Mideastern, Inc. The acquisition increased parts sales for New Britain
Machines by approximately 35% and positioned the Services Group as the most
significant source of replacement parts for the New Britain product line. In
addition, the acquisition increased the Services Group's capacity to provide
experienced field service support to the Company's customers.
15
<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth selected items from the Statements of Operations
as a percentage of the Company's net sales for the periods indicated. The
discussion which follows should be read in conjunction with the Company's
Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
Fiscal year ended July 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 71.6 71.6 69.1
Gross profit 28.4 28.4 30.9
Operating expenses 21.6 24.0 24.9
Operating profit 6.7 4.4 6.0
Nonrecurring items 1.9 - -
Income from continuing operations 1.8 2.5 2.8
Income from discontinued operations - - 17.8
Cumulative effect of accounting changes (a) - - (7.8)
Net income 1.8 2.5 12.8
</TABLE>
(a) Fiscal 1993 includes a $4,588 charge representing the cumulative effect of
adoption of SFAS 106. See Note 2 of Notes to the Company Financial Statements.
FISCAL 1995 COMPARED TO FISCAL 1994.
SALES
Net sales for fiscal 1995 were $78,150 compared to $63,619 for fiscal 1994, an
increase of $14,531, or 22.8%, reflecting increases in all of the Company's
operating groups. The increase in net sales by operating group consists of
$6,653, or 23.7%, in the Services Group; $4,369, or 25.9%, in the Tooling
Systems Group; and $3,509, or 18.8%, in the Industrial Group. The Industrial
Group increase is especially noteworthy given that a three-week strike reduced
sales by an estimated $700 during the fourth quarter of fiscal 1995. The
Industrial Group entered into a new collective bargaining agreement with the
United Steelworkers of America, which expires on July 1, 1998. Fiscal 1995
results include additions from acquired businesses as follows: Cushman added
$3,494 to the Tooling Systems Group and Ed Smith and Mideastern added $1,161
and $2,995, respectively, to the Services Group. Excluding the sales added by
acquired business, the Services Group net sales increased $2,497, or 8.9%,
compared to the prior year, reflecting increases in its Parts and
Remanufacturing Operations. The Tooling Systems Group's net sales, excluding
the addition from Cushman, were $875, or 5.2%, higher than fiscal 1994.
GROSS PROFIT
Gross profit for fiscal 1995 was $22,155 compared to $18,079 in fiscal 1994, an
increase of $4,076, or 22.6%, reflecting increases in each operating group.
Gross profit as a percentage of net sales was 28.4% in fiscal 1995 and 1994,
respectively, with increases in the Services Group, offset by declines in the
Tooling Systems and Industrial Groups.
EXPENSES
Operating expenses in fiscal 1995 were $16,912, or 21.6% of net sales, compared
to $15,289, or 24.0% of net sales, in fiscal 1994. Operating expenses in
fiscal 1995 exceeded prior year levels due to the higher sales volume and costs
added by acquired businesses.
In the second quarter of fiscal 1995, the Company settled for $1,500, or $0.11
loss per share on a pre-tax basis, a civil suit filed by a committee of
unsecured creditors of DeVlieg, Inc. and debtor-in-possession, DeVlieg, Inc.
See "Item 3 - Legal Proceedings."
16
<PAGE> 17
Other expenses were $338 in fiscal 1995 compared with income of $42 last year.
The fiscal 1995 amount includes $372 in costs associated with an unsuccessful
acquisition and $300 in royalty fees, offset by a $305 gain on the sale of land
held for disposition.
Interest expense was $2,594 in fiscal 1995 compared to $1,345 in fiscal 1994,
an increase of $1,249. The increase in interest expense is due to higher
average outstanding debt balances, primarily due to acquisitions, and higher
effective interest rates, particularly on the Company's subordinated debentures
which were issued in May 1994.
INCOME TAXES
The fiscal 1995 income tax benefit was $582 compared to a $92 benefit in fiscal
1994. The fiscal 1995 income tax benefit is primarily due to the Company's
release in the second quarter of fiscal 1995 of $2,962 of its valuation
allowance previously recorded against deferred tax assets. This amount was
released based on expectations of continued profitability. Of the released
valuation allowance, $1,189 was included in the benefit for income taxes on the
statement of operations and $1,773 was credited to the balance sheet account
"Excess purchase price over net assets from the Services Group acquisition."
FISCAL 1994 COMPARED TO FISCAL 1993
SALES
Fiscal 1994 net sales of $63,619 were $5,015, or 8.6%, higher than fiscal 1993
net sales of $58,604. Fiscal 1994 net sales were $28,063 in the Services
Group, an increase of $3,751, or 15.4%, compared to fiscal 1993; $18,679 in the
Industrial Group, an increase of $1,474, or 8.6%; and $16,877 in the Tooling
Systems Group, a decrease of $210, or 1.2%. The increase in the Services Group
compared to the prior year is primarily attributable to greater demand for
rebuild services with Rebuild Operation fiscal 1994 net sales $2,990, or 31.4%,
higher than fiscal 1993 net sales. The Services Group Parts Operation net
sales also improved compared to fiscal 1993 by $761, or 5.1%. The increase in
the Industrial Group is attributable to the stronger housing industry, new
products and promotional programs introduced in fiscal 1994 and 1993. The
decline in net sales in the Tooling Systems Group is primarily attributable to
a two-week strike by its union members in June 1994. The Tooling Systems Group
entered into a new collective bargaining agreement with the United Automobile,
Aerospace and Agricultural Implement Workers of America, which expires in May
1997.
GROSS PROFIT
Gross profit was $18,079 in fiscal 1994 compared to $18,111 in fiscal 1993, a
decrease of $32. Gross profit as a percentage of net sales was 28.4% in fiscal
1994 compared to 30.9% in the prior year. Gross profit as a percentage of net
sales improved in the Industrial Group as a result of increased sales volume
and productivity improvements. Improvements in the Tooling Systems Group were
due to process improvements. The Services Group profit as a percentage of net
sales declined to 30.9% in fiscal 1994 compared to 36.3% in fiscal 1993 due to
the increased mix of the remanufacturing sales, which contribute a lower gross
profit than the Parts sales. In addition, the Company sold less fully-reserved
inventory in fiscal 1994 than in the prior year, which accounted for 2.0 points
of the 5.4 point decline in the Services Group's gross profit as a percentage
of net sales.
EXPENSES
Operating expenses were $15,289 in fiscal 1994 compared to $14,590 in fiscal
1993, an increase of $699. The increase is primarily due to higher sales
volume and costs associated with the Brown & Sharpe acquisition. As a
percentage of net sales, operating expenses were 24.0% and 24.9% in fiscal 1994
and 1993, respectively. A cost reduction program was introduced in April 1994
in the Services Group, and the full benefit of savings from this program is
expected in fiscal 1995.
17
<PAGE> 18
Other income, net of other expense, was $42 in fiscal 1994 compared to other
expense, net of other income, of $700 in the prior year. Fiscal 1993 included
charges of $534 for the write-down of the Company's investment in Gildemeister-
DeVlieg System Werkzeuge Gmbh due to losses and projected future losses of this
50% owned joint venture.
Interest expense was $1,345 and $1,124 in fiscal 1994 and 1993, respectively,
an increase of $221. The increase is attributable to higher average
outstanding debt balances in fiscal 1994.
INCOME TAXES
In fiscal 1994, the benefit for income taxes was $92 compared to income tax
expense of $45 on income from continuing operations in the prior year. The
current year effect is primarily attributable to the release of valuation
allowance previously recorded against the Company's deferred tax assets (see
Note 14 of Notes to the Company Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Historically, the Company's continuing operations have been financed by
internally generated funds. Acquisitions have been funded with increases in
indebtedness, while funds from divestitures have generally been used to reduce
indebtedness (see Notes 3 and 4 of Notes to the Company Financial Statements).
Net cash provided by operating activities was $1,363 in fiscal 1995 compared to
$734 in fiscal 1994, an increase of $629. Included in these results is $1,500,
which was paid as a result of a litigation settlement (see "Item 3 - Legal
Proceedings"). Net of these items, cash flow from operating activities would
have been $2,863.
Cash used for capital expenditures was $970, $1,020, and $1,090 in fiscal 1995,
1994, and 1993, respectively. The Company currently has no material
commitments for specific capital expenditures.
FINANCING AND INVESTING
The balance outstanding under the Company's revolving credit agreement was
$12,115 at July 31, 1995, compared to $0 at July 31, 1994. Long-term debt,
including current maturities, at July 31, 1995, was $15,788 compared to $16,405
July 31, 1994, a decrease of $617. The Company's total indebtedness was
$27,903 and $16,405 at July 31, 1995, and 1994, respectively, an increase of
$11,498. Cash and cash equivalents at July 31, 1995, was $415, a decrease of
$1,239 compared to July 31, 1994. Net cash provided by financing activities
was $10,004 in fiscal 1995 compared to net cash provided by financing
activities of $1,662 in the prior year. The increase in indebtedness is
primarily the result of several acquisitions made during fiscal 1995 (see Note
3 of Notes to the Company Financial Statements). As outlined in Notes 9 and 10
of Notes to the Company Financial Statements, the Company entered into new
$18,000 senior and $12,000 subordinated debt facilities in May 1994.
Borrowings under these facilities were used to repay existing indebtedness and
are available for working capital requirements and to fund acquisitions.
The senior credit facility aggregating $18,000 is comprised of a $3,000 term
loan and a revolving credit agreement which provides for borrowings up to
$15,000. The term loan requires monthly principal payments of approximately
$36 beginning June 1, 1994, through May 30, 2001, or the maturity of the
revolving credit agreement if earlier. Interest on the term loan is payable
monthly at 0.25% below the lender's base rate or, at the Company's option, at
alternative rates based on LIBOR or the lender's cost of funds. The effective
rate based on LIBOR was 8.54% at July 31, 1995. The Company's revolving credit
agreement, which matures on May 30, 1997, subject to renewal, permits
borrowings of up to $15,000
18
<PAGE> 19
subject to collateral maintenance agreements. Interest on outstanding
borrowing under the revolving credit agreement is payable monthly in arrears
and interest rates are determined at the time of borrowing based on the
lender's base rate, adjusted plus or minus 0.25% based on the amount
outstanding, or alternative rates based on LIBOR or the lender's cost of funds.
A commitment fee of 0.25% per annum is required on the unused portion of the
revolving credit agreement up to $5,000. The amount the Company may borrow
under the revolving credit agreement is based upon a formula related to
eligible accounts receivable and inventories, reduced by outstanding letters of
credit.
Pursuant to the subordinated debt facility, the Company issued subordinated
debentures in May 1994 in the principal amount of $12,000. The debentures
provide for the repayment of principal of $3,000 in fiscal 1999, $3,000 in
fiscal 2000 and $6,000 in fiscal 2001. Interest payments of 11.5% per annum
are payable quarterly in arrears commencing July 1, 1994. In connection with
the issuance of the debentures, the Company issued the holders warrants to
purchase one million shares of the Company's common stock at $0.01 per share,
which was valued at $1,750, and a presently indeterminable number of additional
shares at $0.01 per share, which may become available pursuant to a formula,
dependent upon the ultimate outcome of the legal proceedings described in "Item
3 - Legal Proceedings." See Note 12 of Notes to the Company Financial
Statements.
In connection with the proposed acquisition of National Acme Company (see "Item
1 - Business - Recent Developments"), the Company anticipates entering into a
new senior debt facility. The Company has received a commitment for a new
senior debt facility of up to $30,000. This commitment is contingent on, among
other things, the consent of the holders of the subordinated debentures. This
facility will be utilized to fund the acquisition of National Acme, as well as
to retire the existing senior debt facility.
OUTLOOK
The Company expects to provide liquidity and finance its ongoing operational
needs primarily through internally generated funds. Management does not
anticipate the need for additional borrowings to fund operations.
IMPACT OF INFLATION
Management does not believe that inflation has had a material impact on the
Company's net sales or net income during the last three fiscal years.
Borrowings under the senior credit facility bear interest at short-term rates.
Increases in the prevailing rate of inflation could be accompanied by increases
in short-term interest rates, which could have an adverse impact on the
Company's net income and cash flow.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
Balance Sheets
July 31, 1995, and 1994
Statements of Operations
Years ended July 31, 1995, 1994 and 1993
Statements of Cash Flows
Years ended July 31, 1995, 1994 and 1993
Statements of Changes in Stockholders' Equity
Years ended July 31, 1995, 1994 and 1993
Notes to the Company Financial Statements
20
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of DeVlieg-Bullard, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) on page 43 of this report present fairly, in all material
respects, the financial position of DeVlieg-Bullard, Inc., at July 31, 1995,
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended July 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its methods of accounting for income taxes and postretirement benefits
other than pensions during the year ended July 31, 1993.
/s/ PRICE WATERHOUSE LLP
Stamford, Connecticut
September 8, 1995
21
<PAGE> 22
DEVLIEG-BULLARD, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
July 31,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 415 $ 1,654
Accounts receivable 11,148 9,559
Inventories 22,421 19,269
Prepaid expenses and other current assets 2,337 2,980
--------- --------
Total current assets 36,321 33,462
Property, plant and equipment 6,876 6,340
Other assets 23,035 11,461
--------- --------
Total assets $ 66,232 $ 51,263
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,520 $ 5,772
Accrued expenses and other current liabilities 4,706 4,874
Revolving credit agreement 12,115 -
Current maturities of long-term debt 2,149 1,828
--------- --------
Total current liabilities 25,490 12,474
Long-term debt 13,639 14,577
Postretirement benefit obligation 5,022 4,755
Other noncurrent liabilities 1,511 2,081
--------- --------
Total liabilities 45,662 33,887
--------- --------
Stockholders' equity:
Common stock, $0.01 par value;
authorized 30,000,000 shares;
issued and outstanding 12,250,000 123 123
Additional paid-in capital 32,299 32,299
Excess purchase price over net assets from
the Services Group acquisition (16,358) (18,131)
Retained earnings 4,663 3,270
Cumulative translation adjustment (157) (185)
--------- ---------
Total stockholders' equity 20,570 17,376
Commitments and contingencies (Note 17)
--------- --------
Total liabilities and stockholders' equity $ 66,232 $ 51,263
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 23
DEVLIEG-BULLARD, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended July 31,
----------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 78,150 $ 63,619 $ 58,604
Cost of sales 55,995 45,540 40,493
-------- -------- ---------
Gross profit 22,155 18,079 18,111
-------- -------- ---------
Operating expenses:
Engineering 1,083 1,148 1,219
Selling 7,650 6,613 6,360
General and administrative 8,179 7,528 7,011
-------- -------- ---------
Total operating expenses 16,912 15,289 14,590
-------- -------- ---------
Operating profit 5,243 2,790 3,521
Nonrecurring items 1,500 - -
Other (income) expense, net 338 (42) 700
-------- -------- ---------
Income from continuing operations
before interest and taxes 3,405 2,832 2,821
Interest expense 2,594 1,345 1,124
-------- -------- ---------
Income from continuing operations
before income taxes 811 1,487 1,697
(Benefit) provision for income taxes (582) (92) 45
-------- -------- ---------
Income from continuing operations 1,393 1,579 1,652
Discontinued operations, net of tax - - 10,426
Cumulative effect of accounting changes,
net of tax - - (4,588)
-------- -------- ---------
Net income $ 1,393 $ 1,579 $ 7,490
======== ======== =========
Income (loss) per common share:
Continuing operations $ 0.11 $ 0.13 $ 0.13
Discontinued operations - - 0.85
Cumulative effect of accounting changes - - (0.37)
-------- -------- ---------
$ 0.11 $ 0.13 $ 0.61
======== ======== =========
Weighted average common shares and
equivalents outstanding 13,257 12,436 12,250
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
DEVLIEG-BULLARD, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended July 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,393 $ 1,579 $ 7,490
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,721 1,776 2,286
Deferred income taxes (2,181) (2,878) -
Provision for losses on accounts receivable 187 107 251
Gain on sale of discontinued operations - - (13,762)
Cumulative effect of accounting change - - 4,588
Undistributed loss of foreign joint venture - - 534
Gain on disposal of other assets (305) - -
Net change in assets and liabilities:
Accounts receivable (793) (887) 2,927
Inventories (1,546) (345) (2,669)
Prepaid expenses and other current assets 643 (948) (161)
Accounts payable 414 587 (2,114)
Accrued expenses and other current liabilities (623) (762) (1,412)
Other, net 1,453 2,505 2,790
-------- -------- --------
Net cash provided by operating activities 1,363 734 748
-------- -------- --------
Cash flows from investing activities:
Acquisitions, net (12,151) - (3,300)
Capital expenditures (970) (1,020) (1,090)
Proceeds from sale of other assets 487 -
Net proceeds from sale of discontinued operations - - 19,042
-------- -------- --------
Net cash (used for) provided by investing
activities (12,634) (1,020) 14,652
-------- -------- --------
Cash flows from financing activities:
Net borrowings (repayment) of revolving credit
agreement 12,115 (10,811) (4,436)
Payments of long-term debt (2,111) (1,492) (7,189)
Proceeds from issuance of long-term debt - 15,000 3,250
Debt issuance costs - (1,035) -
Redemption of preferred stock - - (6,500)
-------- -------- --------
Net cash provided by (used for) financing
activities 10,004 1,662 (14,875)
-------- -------- --------
Effect of exchange rate changes on cash 28 (17) (230)
-------- --------- --------
Net change in cash and cash equivalents (1,239) 1,359 295
Cash and cash equivalents at beginning of period 1,654 295 -
------- -------- --------
Cash and cash equivalents at end of period $ 415 $ 1,654 $ 295
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Year ended July 31,
--------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash paid during the period for:
Interest $ 2,397 $ 1,284 $ 1,145
Income taxes, net of refunds (445) (852) 2,202
</TABLE>
Supplemental schedule of non-cash investing and financing information:
During fiscal 1995, the Company issued $1,277 of debt and assumed liabilites in
the amount of $1,048 in connection with the acquisitions (see Note 3).
During fiscal 1994, the Company issued subordinated debentures with detachable
stock purchase warrants. The fair market value of the warrants aggregated
$1,750. Such amount was credited to Additional paid-in capital and charged as
a discount to subordinated debentures, reducing the carrying value of the
debentures (see Notes 10 and 12). The amortization of the debt discount was
$190 and $25 in fiscal 1995 and 1994, respectively.
The Company's tax benefit related to the excess purchase price from the
Services Group acquisition reduces the Company's income tax liability (see Note
1). Such amount included in fiscal 1995, 1994 and 1993 is $1,773, $2,635 and
$1,521, respectively.
During fiscal 1995, 1994 and 1993, the Company entered into capital leases for
equipment totaling $0, $253 and $198, respectively, which were financed by
capital lease obligations.
During fiscal 1993, the Company redeemed all of its Class F preferred stock for
$3,250 cash and a note for $3,250, and settled its obligation with the Kathryn
S. DeVlieg Revocable Living Trust for $162 cash and a note for $162 (see Notes
11 and 15).
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 26
DEVLIEG-BULLARD, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common
------
Shares Additional
------ ----------
Preferred Issued and Common Paid-in
--------- ---------- ------ -------
Year ended Stock Outstanding Stock Capital
---------- ----- ----------- ----- -------
July 31, 1995, 1994 & 1993
--------------------------
<S> <C> <C> <C> <C>
Balance, July 31, 1992 $5,956 12,250 $123 $30,549
Net income - - - -
Accretion of excess redemption value
on preferred stock 65 - - -
Redemption of preferred stock (6,021) - - -
Tax benefit realized related to excess
purchase price of Services Group - - - -
Foreign currency translation
adjustment - - - -
--------- ------ ---- -------
Balance, July 31, 1993 - 12,250 123 30,549
Net Income - - - -
Issuance of stock purchase warrants - - - 1,750
Tax benefit realized related to excess
purchase price of Services Group - - - -
Foreign currency translation
adjustment - - - -
--------- ------ ---- -------
Balance, July 31, 1994 - 12,250 123 32,299
Net Income - - - -
Tax benefit realized related to excess
purchase price of Services Group - - - -
Foreign currency translation
adjustment - - - -
--------- ------ ---- -------
Balance, July 31, 1995 $ - 12,250 $123 $32,299
========= ====== ==== =======
<CAPTION>
Retained
--------
Excess Earnings Cumulative
------ -------- ----------
Puchase (Accumulated Translation
------- ------------ -----------
Year ended Price Deficit) Adjustment Total
---------- ----- -------- ---------- -----
July 31, 1995, 1994 & 1993
--------------------------
<S> <C> <C> <C> <C>
Balance, July 31, 1992 $(22,287) $(5,255) $ 62 $ 9,148
Net income - 7,490 - 7,490
Accretion of excess redemption value
on preferred stock (65) - -
Redemption of preferred stock - (479) - (6,500)
Tax benefit realized related to excess
purchase price of Services Group 1,521 - - 1,521
Foreign currency translation
adjustment - - (230) (230)
-------- ------- ------ --------
Balance, July 31, 1993 (20,766) 1,691 (168) 11,429
Net Income - 1,579 - 1,579
Issuance of stock purchase warrants - - - 1,750
Tax benefit realized related to excess
purchase price of Services Group 2,635 - - 2,635
Foreign currency translation
adjustment - - (17) (17)
------- ------- ------ ---------
Balance, July 31, 1994 (18,131) 3,270 (185) 17,376
Net Income - 1,393 - 1,393
Tax benefit realized related to excess
purchase price of Services Group 1,773 - - 1,773
Foreign currency translation
adjustment - - 28 28
-------- ------- ------ --------
Balance, July 31, 1995 $(16,358) $ 4,663 $ (157) $ 20,570
========= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 27
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF OPERATIONS
DeVielg-Bullard, Inc., (the "Company") is a diversified industrial concern
specializing in servicing, upgrading, automating and remanufacturing precision
engineered machine tools. The Company also manufactures sophisticated original
and replacement tooling products used in industrial machine tools and a variety
of power tools for niche industrial markets. The Company conducts its business
through three operating groups: the Services Group, the Tooling Systems Group
and the Industrial Group.
BASIS OF PRESENTATION
The financial statements include all accounts of the Company after elimination
of all significant interdivision transactions and balances. Amounts, except
per share data, are expressed in thousands.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an initial maturity of
three months or less to be cash equivalents. The Company invests excess funds
in short-term, interest-bearing obligations. When a balance is outstanding on
the Company's revolving credit agreement, all available cash is used to
decrease such outstanding balance.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined on the first-in, first-out basis. Cost includes material, labor and
manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Cost represents estimated
fair market value at date of acquisition for acquired businesses, or the
predecessor entity's net book value if acquired by the Company from a related
party. Depreciation is computed over the estimated useful lives of the assets,
ranging from three to thirty-one years, by the straight-line method. Assets
recorded under capital leases and leasehold improvements are amortized over the
shorter of their useful lives or the term of the related leases by use of the
straight-line method. Depreciation for tax purposes is calculated in
accordance with applicable Internal Revenue Code provisions.
OTHER ASSETS
Intangible assets, consisting of engineering drawings and bills of material for
parts and machine assemblies, are amortized over their estimated useful lives,
ranging from ten to twenty years, using the straight-line method. Goodwill,
the excess of purchase price over net assets acquired, is amortized over the
estimated useful lives, ranging from fifteen to thirty years. Deferred
financing costs are amortized on a straight-line basis, which is not materially
different from the effective interest method, over the life of the related
indebtedness.
FOREIGN CURRENCY TRANSLATION
Foreign currency assets and liabilities are translated at exchange rates in
effect on reporting dates, and income and expenses are translated at rates in
effect on transaction dates. The resulting differences due to changing
exchange rates are charged or credited directly to the "Cumulative translation
adjustment" account included as part of stockholders' equity.
REVENUE RECOGNITION
Revenue recognized on long-term contracts is based on the
percentage-of-completion method. Deferred revenue from noncompetition
agreements is recognized over the contractual period of the agreement,
generally five years. All other revenue is recognized when earned.
INCOME TAXES
Effective August 1, 1992, the Company adopted Financial Accounting Standards
Board Statement No. 109 ("SFAS 109"), "Accounting for Income Taxes" (see Note
2). SFAS 109 requires that deferred taxes be established for all temporary
differences between the book and tax bases of assets and liabilities.
27
<PAGE> 28
A portion of the assets and liabilities acquired by the Company from a related
party was recorded at the predecessor entity's net book value for financial
reporting purposes. The difference between the fair value and the
predecessor's book value at the purchase date is reflected in the account
"Excess purchase price over net assets from the Services Group acquisition."
The tax benefit of the amortization of this difference is recorded upon
realization as an increase to stockholders' equity by reducing the account
"Excess purchase price over net assets from the Services Group acquisition."
INCOME (LOSS) PER SHARE
Income (loss) per share is computed by dividing net income (loss) available to
common stockholders by the weighted average number of common shares and
equivalents outstanding during the period. Outstanding stock options, which
are common stock equivalents, are included in the calculation if they are
dilutive. Stock purchase warrants, which are common stock equivalents, are
included in the calculation of income per share from the date of issuance (see
Note 12).
Preferred stock dividends earned and accretion of preferred stock reduce income
available to common stockholders. The Company redeemed all of its outstanding
Class F preferred stock in December 1992 (see Note 11).
NOTE 2 - ACCOUNTING CHANGES
ACCOUNTING FOR INCOME TAXES
Effective August 1, 1992, the Company adopted SFAS 109 (see Note 1) and the
cumulative effect of this change is reported in the fiscal 1993 statement of
operations. The impact of adoption was not material to the Company's results
of operations or financial position as cumulative deferred tax assets and net
operating loss carryforwards not previously recorded were fully offset by a
valuation allowance in accordance with the provisions of SFAS 109.
Prior to adoption of SFAS 109, the provision for income taxes was determined
pursuant to Accounting Principles Board Opinion No. 11 ("APB 11"). Differences
between taxes so computed and taxes payable under applicable statutes and
regulations were classified as deferred taxes arising from timing differences.
As a result of the Company's potential inability to recognize future tax
benefits and net operating loss carryforwards, these amounts were not recorded
in the financial statements as of July 31, 1992.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
During the fourth quarter of fiscal 1993, the Company adopted Financial
Accounting Standards Board Statement No. 106 ("SFAS 106"), "Employers'
Accounting for Postretirement Benefits Other Than Pensions," effective August
1, 1992. SFAS 106 requires the expected costs of postretirement benefits to be
recognized during the years that employees render service. Prior to adoption,
the cost of these benefits was charged to expense on a pay-as-you-go basis.
The Company elected to adopt this new accounting standard on the immediate
recognition basis. Accordingly, the Company recorded by a cumulative effect of
an accounting change, a one-time, non-cash charge of $4,588, or $0.37 per
share.
In addition, the Company's results of operations for the first three quarters
of fiscal 1993 were restated to give effect to the adoption of SFAS 106 as if
it had occurred August 1, 1992. The annual effect reduced fiscal 1993 income
from continuing operations by $191, or $0.02 per share, with the decrease
recognized ratably over the four quarters of that year.
POSTEMPLOYMENT BENEFITS
Effective August 1, 1994, the Company adopted Financial Accounting Standards
Board Statement No. 112 ("SFAS 112"), "Employers' Accounting for Postemployment
Benefits" under which employers must recognize the cost of benefits provided to
former or inactive, but not retired, employees. If the benefits accumulate or
vest, the cost must be recognized over the service life of the employee. The
impact of adoption was not material to the Company's results of operations or
financial position.
28
<PAGE> 29
NOTE 3 - ACQUISITIONS
CUSHMAN INDUSTRIES
On September 9, 1994, the Company acquired specified operating assets
of Cushman Industries, Inc. ("Cushman"), a company in Chapter 11 bankruptcy,
including accounts receivable, inventories, selected machinery and equipment,
trademarks and intellectual property from the Cushman Industries Liquidating
Trust which had been established for the benefit of Cushman creditors. The
purchase price was approximately $3,100 and another $2,800 was recorded for the
relocation and consolidation of the Cushman operation into the Company's
manufacturing facility in Frankenmuth, Michigan. The acquisition was accounted
for by the purchase method of accounting and, accordingly, the purchase price
has been allocated to the fair market value of net assets acquired. The excess
purchase price over net tangible assets acquired has been allocated in the
amounts of $2,800 to engineering drawings and $2,000 to goodwill and is being
amortized on a straight-line basis over 30 years. Cushman's results of
operations are included in the Company's financial statements from the date of
acquisition. Cushman manufactures a broad line of manual and power chucks for
machine tool work holding applications. The Company conducts this business as
part of its Tooling Systems Group.
H.B. INDUSTRIES, INC.
On November 30, 1994, the Company acquired all of the outstanding capital stock
of H.B. Industries, Inc. which conducts its business as Ed Smith Machinery
Sales ("Ed Smith"). Ed Smith sells replacement parts for the Bullard product
line of machine tools. The purchase price was approximately $3,000, of which
$275 was placed into escrow for a period of one year in order to assure the
sellers' indemnification obligations. The acquisition was accounted for by the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the fair market value of net assets acquired. The excess purchase
price over net assets acquired of approximately $2,300 was recorded as goodwill
and is being amortized on a straight-line basis over a 15-year period. Ed
Smith's results of operations are included in the Company's financial
statements from the date of acquisition. The business is operated by the
Company's Services Group.
MIDEASTERN
On January 23, 1995, the Company purchased substantially all of the assets and
assumed certain liabilities of Mideastern, Inc. ("Mideastern"). Mideastern
rebuilds and provides repair parts and service for a variety of machine tools
under the New Britain Machine brand name. The purchase price for this
acquisition was approximately $5,300, which consisted of $3,100 cash
consideration to the sellers, issuance of a $600 subordinated earnout note to
the sellers, stock options (see Note 12), Mideastern debt of $359 repaid by the
Company at closing, closing costs incurred, and liabilities assumed. The
acquisition was accounted for by the purchase method of accounting and,
accordingly, the purchase price has been allocated to assets acquired and
liabilities assumed based upon the fair market value at the date of
acquisition. The excess purchase price over net assets acquired of
approximately $2,900 was recorded as goodwill and is being amortized on a
straight-line basis over 15 years. The results of operations of Mideastern
since acquired have been included in the Company's financial statements with
the Services Group.
The Company borrowed funds from its revolving credit agreement to finance these
acquisitions.
The following unaudited pro forma financial information has been prepared
assuming the acquisitions of Cushman, Ed Smith and Mideastern had occurred as
of August 1, 1994 and 1993, respectively.
Pro forma results of operations:
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended July 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Net sales $81,346 $72,985
======= =======
Net income $ 1,848 $ 2,138
======= =======
Net income per common share $ 0.14 $ 0.17
======= =======
Average shares outstanding 13,264 12,475
======= =======
</TABLE>
29
<PAGE> 30
In preparing the unaudited pro forma summary of operations, adjustments were
made to the historical financial statements to reflect increases in the
revolving line of credit and interest expense; amortization of intangible
assets; repayment of existing debt of Mideastern; and other estimated purchase
accounting entries. The pro forma results are not necessarily indicative of
what would have been obtained if the operations had been combined during fiscal
1995 and 1994, nor are they necessarily indicative of the results that may
occur in the future.
BROWN & SHARPE
On March 24, 1993, the Company purchased certain assets relating to the
grinding machine business of Brown & Sharpe Manufacturing Company for a
purchase price of approximately $3,300. The acquisition was accounted for by
the purchase method of accounting and, accordingly, the purchase price has been
allocated to assets acquired based upon their fair market values at the date of
acquisition. The excess of purchase price over assets acquired of
approximately $2,300 has been recorded as intangible assets (primarily
engineering drawings) and is being amortized on a straight line basis over 15
years. The results of operations of Brown & Sharpe since acquired have been
included in the Company's financial statements as part of the Services Group.
NOTE 4 - DISCONTINUED OPERATIONS
On November 24, 1992, the Company sold substantially all of the assets and
disposed of certain liabilities of its wholly-owned subsidiary, Penberthy, Inc.
("Penberthy"), a division of its Industrial Group, for approximately $22,400
cash, including $2,500 cash in consideration for a noncompete agreement. The
proceeds were used to repay in full the outstanding principal and accrued and
unpaid interest on the Company's term loans and to liquidate the Company's
revolving line of credit and pay certain expenses in connection with the sale.
Deferred financing costs of $822 were written off in conjunction with the sale.
The sale resulted in an after-tax gain of $10,200, net of income taxes of
$3,562, or $0.83 per share. For the period prior to its sale, Penberthy
reported earnings of $226, net of income taxes of $77, or $0.02 per share.
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable consisted of:
<TABLE>
<CAPTION>
July 31,
---------------------
1995 1994
---- ----
<S> <C> <C>
Trade receivables $ 11,443 $ 9,102
Other 627 1,293
-------- -------
12,070 10,395
Less: allowance for doubtful accounts (922) (836)
-------- -------
$ 11,148 $ 9,559
======== =======
</TABLE>
The Company's trade receivables are concentrated in the machine tool and
related manufacturing industries.
NOTE 6 - INVENTORIES
Net inventories consisted of:
<TABLE>
<CAPTION>
July 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Raw materials $ 781 $ 573
Work-in-process 5,303 3,595
Finished goods 16,337 15,101
-------- --------
$ 22,421 $ 19,269
======== ========
</TABLE>
Valuation reserves for obsolete, excess and slow-moving inventory aggregated
$6,105 and $5,035 at July 31, 1995 and 1994, respectively.
30
<PAGE> 31
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
July 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
Real property $ 2,382 $ 1,877
Machinery and equipment 9,928 8,163
Capitalized leased assets 1,539 1,539
Furniture and fixtures 3,278 3,039
-------- --------
17,127 14,618
Less: accumulated depreciation and amortization (10,251) (8,278)
-------- --------
$ 6,876 $ 6,340
======== ========
</TABLE>
Depreciation expense, including amortization of leased assets, totaled $1,966,
$1,584 and $1,733 for fiscal years 1995, 1994 and 1993, respectively.
Capitalized leased assets are comprised of computer hardware, software and
related installation costs.
NOTE 8 - OTHER ASSETS
Other assets consisted of:
<TABLE>
<CAPTION>
July 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Intangible assets, primarily engineering drawings $ 12,021 $ 8,533
Goodwill 7,295 -
Deferred taxes, net of valuation allowance (Note 14) 5,059 2,878
Deferred financing costs 1,515 1,375
Investments carried at equity 137 137
Pension asset 432 418
Other 1,535 2,010
-------- ---------
27,994 15,351
Less: accumulated amortization (4,959) (3,890)
-------- ---------
$ 23,035 $ 11,461
======== =========
</TABLE>
Amortization of other assets totaled $1,065, $668 and $553 for the years ended
July 31, 1995, 1994 and 1993, respectively.
In fiscal 1993, as a result of losses and projected future losses due to the
weakened European economy, the Company wrote down its investment in
Gildemeister-DeVlieg System Werkzeuge Gmbh, a 50% owned joint venture. This
resulted in a charge of $534.
NOTE 9 - REVOLVING CREDIT AGREEMENT
In May 1994 the Company replaced its existing revolving credit agreement with
an $18,000 credit facility (the "Senior Credit Facility") comprised of a
$15,000 revolving credit agreement (the "Revolving Credit Agreement") and a
$3,000 term loan (the "Term Loan," see Note 10). The funding occurred on May
25, 1994, contemporaneously with the Company's completion of a $12,000
subordinated debt financing (the "Subordinated Debentures," see Note 10).
The Senior Credit Facility is secured by all of the Company's assets. Under
the terms of the Senior Credit Facility, the Company is required to comply with
various operational and financial covenants, as defined, including (i) minimum
tangible net worth, (ii) maximum debt to worth ratio, (iii) minimum debt
service and capital expenditure coverage and (iv) maximum total liabilities to
cash flow. In addition, the Senior Credit Facility places limitations on the
Company's ability to make capital expenditures and to pay dividends and
31
<PAGE> 32
requires the Company to obtain the lender's consent on certain acquisitions.
The Company is in compliance with these covenants at July 31, 1995.
The Revolving Credit Agreement, which matures May 30, 1997, subject to renewal
by agreement of the parties, provides for maximum borrowings of up to $15,000,
subject to certain collateral maintenance requirements. Amounts available
under the Revolving Credit Agreement are based upon a formula related to the
Company's eligible accounts receivable and inventories, reduced by outstanding
letters of credit. Unused borrowings available under the formula at July 31,
1995, are $1,181, as reduced by outstanding letters of credit of $1,320 as of
July 31, 1995. Interest on outstanding balances under the Revolving Credit
Agreement is payable monthly in arrears. Interest rates are determined at the
time of borrowing and are based on the lender's base rate, adjusted plus or
minus 0.25% based on the amount outstanding, or alternative rates based on
LIBOR or the lender's cost of funds. A commitment fee of 0.25% per annum
payable monthly in arrears is required on the unused portion of the Revolving
Credit Agreement up to $5,000. At July 31, 1995, borrowings outstanding under
the Revolving Credit Agreement were $12,115.
NOTE 10 - LONG-TERM DEBT
<TABLE>
<CAPTION>
July 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Term Loan $ 2,500 $ 2,929
11.5% Subordinated Debentures, net of discount 10,465 10,275
Note payable 1,083 2,167
Promissory note 427 -
Capital lease obligations 713 1,034
Other 600 -
-------- --------
15,788 16,405
Less: current maturities (2,149) (1,828)
-------- --------
$ 13,639 $ 14,577
======== ========
</TABLE>
The Term Loan (see Note 9) had an initial principal amount of $3,000 and
requires monthly principal payments of approximately $36 beginning June 1,
1994, through the earlier of May 30, 2001, or the maturity of the Revolving
Credit Agreement including extensions. Interest on the Term Loan is payable
monthly at 0.25% below the lender's base rate or, at the Company's discretion,
at alternative rates based on LIBOR or the lender's cost of funds. The rate in
effect at July 31, 1995, was 7.8125%.
On May 25, 1994, the Company entered into an investment agreement with a
syndicate of lenders pursuant to which, among other things, the Company issued
Subordinated Debentures in an aggregate principal amount of $12,000. Repayment
of principal is required as follows: $3,000 in fiscal 1999, $3,000 in fiscal
2000 and $6,000 in fiscal 2001. The Subordinated Debentures are secured by all
the assets of the Company. The lien priority and right of payment to holders
of the Subordinated Debentures are subordinate to senior bank or institutional
financing in the aggregate amount of no more than $20,000 and capitalized lease
obligations in face amounts totaling no more than $5,000. Interest payments of
11.5% per annum are payable quarterly in arrears commencing July 1, 1994.
Under the terms of the Subordinated Debentures, the Company is required to
comply with various operational and financial covenants which are the same
nature as those required under the terms of the Senior Credit Facility (see
Note 9) but at reduced levels. Refinancing costs of $1,035 were incurred as a
result of the issuance of the Subordinated Debentures and replacement of the
revolving credit agreement, which were deferred and are being amortized over
the life of the new debt agreements.
In conjunction with the issuance of the Subordinated Debentures, the Company
issued one million stock purchase warrants (see Note 12). The discount on the
Subordinated Debentures initially aggregating $1,750 represents the fair market
value of stock purchase warrants issued to the holders of the Subordinated
Debentures upon the issuance of the Subordinated Debentures. The discount was
$1,535 and $1,725 at July 31, 1995 and 1994, respectively, and is being
amortized over the life of the Subordinated Debentures using an effective
interest rate of approximately 15%.
32
<PAGE> 33
The note payable issued for $3,250 in December 1992 is due in three equal
annual installments beginning December 1993 and results from the Company's
redemption of its outstanding Class F, Series A Preferred Stock (see Note 11).
The note bears interest at 7% per annum, payable quarterly in arrears.
The promissory note of $427 was issued in connection with the Cushman
acquisition (see Note 3). It is payable in four equal installments of $107
with the first installment due in September 1995.
The earnout note of $600 was issued in connection with the Mideastern
acquisition (see Note 3). It is payable in equal annual installments of $200
beginning January 31, 1996, providing certain earnings levels are attained
related to the acquired operations. The note bears interest at a rate of 8%
and interest payments will be made through January 31, 1996, however, the
payment of interest thereafter is also contingent upon the attainment of
certain earnings levels as specified in the note.
Scheduled debt maturities for the next five fiscal years in the aggregate are
as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
1996 $2,149
1997 973
1998 881
1999 3,535
2000 3,429
</TABLE>
NOTE 11 - STOCKHOLDERS' EQUITY
In May 1994, the Company issued stock purchase awarrants with an aggregate fair
market value of $1,750 (see Notes 10 and 12). Such amount increased Additional
paid-in capital.
In December 1992, the Company redeemed all of its outstanding Class F, Series A
Preferred Stock for $3,250 cash and a note for $3,250 (see Note 10).
NOTE 12 - STOCK OPTIONS AND STOCK PURCHASE WARRANTS
STOCK OPTIONS
Pursuant to the Company's 1989 Employee Stock Plan, an incentive stock
compensation plan which permits the issuance of up to one million shares of
common stock, options have been granted to certain employees to purchase shares
of the Company's common stock at a price not less than the fair market value at
the date of grant. The options granted during fiscal 1995 and 1994 vest and
become exercisable in installments of 30% at the end of the first and second
years and 40% at the end of the third year, and they terminate ten years from
the date of grant. The options granted prior to fiscal 1994 are exercisable in
annual installments of up to 20% of the total shares represented by options,
commencing one year from the date of grant and terminating ten years
thereafter.
33
<PAGE> 34
Transactions under this plan are summarized as follows:
<TABLE>
<CAPTION>
Shares Price
Under Option Range
------------ -----
<S> <C> <C>
Outstanding at July 31, 1993 376 $2.00 - 2.50
Forfeited (8) 2.50
Granted August 1, 1993 370 1.8125
Granted February 23, 1994 20 2.625
Granted May 26, 1994 20 1.75
---
Outstanding at July 31, 1994 778 1.75 - 2.625
Forfeited (20) 1.8125
Granted December 14, 1994 170 1.625
Granted February 22, 1995 6 1.9375
---
Outstanding at July 31, 1995 934 1.625 - 2.625
===
Exercisable at July 31, 1995 362 1.75 - 2.625
===
</TABLE>
Effective June 15, 1992, all then outstanding options were surrendered and
reissued at an exercise price of $2.00 per share, the then fair market value of
the stock.
Effective January 10, 1991, the Company adopted a stock option plan for its
outside directors, and granted each outside director an option to purchase five
thousand shares of common stock (an aggregate of twenty-five thousand shares)
at $2.50 per share, the then fair market value of the shares. The Company has
reserved a total of fifty thousand shares for issuance under this stock option
plan. The options are exercisable in annual installments of up to 20% of the
total shares represented by the options commencing one year from the date of
grant and terminating ten years thereafter.
On January 27, 1995, in connection with the Mideastern acquisition (see Note
3), the Company issued options to the former Mideastern shareholders to
purchase up to 100 shares of common stock at a purchase price of $1.50 per
share. If, on January 27, 1998, the fair market value of the shares covered by
these options is not at least $3.50 per share (subject to adjustment), the
optionee may elect to redeem the options for $1.50 per share.
STOCK PURCHASE WARRANTS
In conjunction with the issuance of the Subordinated Debentures (see Note 10),
the Company issued Class A Stock Purchase Warrants (the "Class A Warrants")
which permit holders of the Subordinated Debentures to purchase one million
shares of the Company's common stock at an exercise price of $0.01 per share.
The Class A Warrants are exercisable from May 25, 1996 through May 25, 2004 or
three years after final payment of the Subordinated Debentures, if later. The
Company also issued Class B Stock Purchase Warrants (the "Class B Warrants"),
which may become available to holders of the Subordinated Debentures, pursuant
to a formula, dependent upon the ultimate outcome of certain litigation. The
Class A Warrants and the Class B Warrants are subject to anti-dilution
protection. The holders of the Class A Warrants and Class B Warrants are
entitled to certain registration rights.
NOTE 13 - EMPLOYEE BENEFIT PLANS
PENSION
The Company has noncontributory defined benefit pension plans covering
essentially all of its hourly and salaried employees, except employees of the
Services Group. The plans provide retirement, death and disability benefits to
eligible employees based upon age, salary and length of service. The Company's
funding policy for these plans is to satisfy the minimum funding requirements
of ERISA, which is tax deductible under the Internal Revenue Code.
Assets of the plans, comprised of temporary cash investments, convertible
debentures, preferred and common stocks, including 110 shares of the
Company's common stock, are invested in a master trust.
34
<PAGE> 35
Effective July 1, 1995, the benefits will begin accruing under Powermatic's
hourly plan. The increase in pension expense is not expected to have a
material impact on the Company. Effective August 1, 1992, hourly employees of
the Company's Powermatic Division, a division of its Industrial Group, and all
of the Company's salaried employees, ceased accruing benefits under their
respective plans. As a result, the Company recognized $306 of net curtailment
income in fiscal 1993.
Pension expense is as follows:
<TABLE>
<CAPTION>
Year ended July 31,
------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost $ 253 $ 73 $ 191
Interest on projected benefit obligation 925 874 855
Actual return on plan assets (812) (1,859) (1,670)
Net amortization and deferral (162) 982 920
------ -------- --------
$ 204 $ 70 $ 296
====== ======== ========
</TABLE>
The funded status of plans in which plan assets at fair market value exceed the
accumulated benefit obligation is presented below:
<TABLE>
<CAPTION>
July 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Plan assets at fair market value $ 5,572 $ 5,504
Projected benefit obligation 4,481 4,358
------- -------
Excess fair value of assets over projected
benefit obligation 1,091 1,146
Unrecognized net gain (822) (968)
------- -------
Accrued pension asset $ 269 $ 178
======= =======
</TABLE>
The projected benefit obligations at July 31, 1995, and 1994, respectively,
include accumulated benefit obligations of $4,481 and $4,358 and vested benefit
obligations of $4,386 and $4,256.
The funded status of plans in which the accumulated benefit obligation exceeds
plan assets at fair market value is presented below:
<TABLE>
<CAPTION>
July 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Plan assets at fair market value $ 6,264 $ 6,407
Projected benefit obligation 7,553 7,348
-------- -------
Excess projected benefit obligation over
fair value of assets (1,289) (941)
Unrecognized transition obligation 256 293
Unrecognized net gain (620) (796)
Unrecognized prior service cost and other 911 932
Contribution after measurement date 33 27
Additional liability required (547) (429)
--------- --------
Accrued pension liability $ (1,256) $ (914)
========= ========
</TABLE>
The projected benefit obligations at July 31, 1995, and 1994, respectively,
include accumulated benefit obligations of $7,553 and $7,348 and vested benefit
obligations of $7,315 and 7,104.
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 8.25% for fiscal 1995 and 1994. The expected
long-term rate of return on plan assets was 9% for both years.
OTHER EMPLOYEE BENEFITS
The Company also has a defined contribution pension plan pursuant to Section
401(k) of the Internal Revenue Code. Non- union employees and all salaried
employees of the Company are eligible for participation in the plan. Plan
participants may contribute up to 12% of gross compensation. The Company
matches 25% of participant contributions of up to 5% of each participant's
gross compensation. Contribution expense for the years ended July 31, 1995,
1994 and 1993 was $127, $93 and $97, respectively.
35
<PAGE> 36
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain employees with health and life insurance benefits
after retirement. Health insurance benefits require employee contributions in
certain cases. As described in Note 2, effective August 1, 1992, the Company
adopted SFAS 106 which requires the expected cost of postretirement health care
and life insurance benefits to be recognized during the years the employees
render service. Prior to adoption of SFAS 106, the cost of these benefits was
charged to expense on a pay-as-you-go basis.
Postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
Year ended July 31,
------------------------
1995 1994
---- ----
<S> <C> <C>
Service cost $ 71 $ 38
Interest cost 460 222
Amortization of actuarial losses 26 -
----- -----
Net periodic postretirement benefit cost $ 557 $ 260
===== =====
</TABLE>
The Company has not funded any portion of its postretirement benefit
obligations.
The following table sets forth the funded status of the plans and the amount
recognized in the accompanying balance sheets:
<TABLE>
<CAPTION>
July 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Retirees $ 3,613 $ 3,850
Active plan participants - fully eligible 587 667
Other active plan participants 1,440 1,278
------- -------
Accumulated postretirement benefit obligation 5,640 5,795
Unrecognized loss (618) (1,040)
------- -------
Accumulated postretirement benefit liability $ 5,022 $ 4,755
======= =======
</TABLE>
The assumed discount rate used to measure the accumulated postretirement
benefit obligation was 8.25% for fiscal 1995 and 1994. The medical cost trend
rate in fiscal 1995 and 1994 was 10%, declining on a linear basis to a terminal
rate of 5.5% by the year 2003. A one percentage point increase in the assumed
health care cost trend rates for each future year would have increased fiscal
1995 and 1994 costs by approximately $70 and $35, respectively, and the
accumulated postretirement benefit obligation as of July 31, 1995 and 1994 by
$603 and $628, respectively.
NOTE 14 - INCOME TAXES
Effective August 1, 1992, the Company adopted SFAS 109 (see Notes 1 and 2).
Pre-tax income from continuing operations was $811, $1,487 and $1,697 in fiscal
1995, 1994 and 1993, respectively.
The (benefit) provision for income taxes on income from continuing operations
is summarized below:
<TABLE>
<CAPTION>
Year ended July 31,
------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current tax expense
Federal $ 31 $ 151 $ -
State and local 120 - 45
------ ----- ----
Total current 151 151 45
------ ----- ----
Deferred tax expense (benefit)
Federal (623) (207) -
State and local (110) (36) -
------ ----- ----
Total deferred (733) (243) -
------ ----- ----
Total $ (582) $ (92) $ 45
====== ===== ====
</TABLE>
36
<PAGE> 37
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
July 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Intangible assets $ (1,678) $ (1,613)
Fixed assets (976) (1,066)
-------- --------
Gross deferred tax liabilities (2,654) (2,679)
Credit carryforwards 474 347
Noncompetition agreement 425 650
Inventory reserves 2,521 2,550
Intangible assets 3,647 4,430
Accounts receivable reserves 378 335
Accrued postretirement benefits 2,009 1,902
Accrued expenses and other 742 788
-------- --------
Gross deferred tax assets 10,196 11,002
Deferred tax assets valuation allowance (2,483) (5,445)
-------- --------
Net deferred taxes $ 5,059 $ 2,878
======== ========
</TABLE>
The benefit of the amortization of excess tax basis of certain intangible
assets, if realized, will reduce the account "Excess purchase price over net
assets from the Services Group acquisition" and increase stockholders' equity
(see Note 1).
During fiscal 1995 and 1994, the Company realized $0 and $1,423,
respectively, of deferred tax assets which were previously offset by a
valuation allowance. This resulted from income from continuing operations. In
addition, the Company released $2,962 and $2,878 of valuation allowance in
fiscal 1995 and 1994, respectively, because of profitable results in recent
history and expectations of income within the foreseeable future.
During fiscal 1993, the Company realized $5,198 of deferred tax assets which
were previously offset by a valuation allowance. This resulted from the gain
on the sale of Penberthy and income from continuing operations.
The differences between the U.S. federal statutory tax rate and the Company's
effective rate on income from continuing operations are as follows:
<TABLE>
<CAPTION>
Year ended July 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory rate 34.0% 35.0% 34.0%
Valuation allowance (146.6) (50.4) -
State income taxes, net of federal benefit 19.2 - 2.7
Utilization of net operating loss - - (34.0)
Liability of former group - 8.6 -
Permanent differences 6.3 1.3 -
Other 15.3 (0.7) -
------ ----- -----
(71.8)% (6.2)% 2.7%
======= ====== =====
</TABLE>
Income taxes attributable to discontinued operations in fiscal 1993 differ from
the statutory rate due to the offset of the release of the valuation reserves
which were established upon the adoption of SFAS 109.
The Company has investment tax credit carryforwards of $288 which expire at
various dates through the year 2000. The Company also has minimum tax credit
carryforwards of $187 which have no expiration.
NOTE 15 - RELATED PARTIES
DEVLIEG, INC. ("DEVLIEG")
DeVlieg was a related party to the Company during fiscal 1992. DeVlieg was
acquired in July 1987 by Stanwich Partners, Inc. and other investors. DeVlieg
filed for protection under Chapter 11 of the bankruptcy code in August 1991.
37
<PAGE> 38
Guaranty of Indebtedness
The Company had guaranteed certain indebtedness of DeVlieg to the Kathryn S.
DeVlieg Revocable Living Trust (the "Trust") limited to the greater of $300 and
$105, or the proceeds realized from any foreclosure on the Company's real
property located in Gladwin, Michigan or Cuyahoga Falls, Ohio, respectively.
The Company accrued $405 related to the guarantees in fiscal 1992. On May 25,
1993, the Company settled the guarantees with the Trust by paying $162 cash and
issuing a note for $162, bearing interest at 7%, due and paid in May 1994.
STANWICH PARTNERS, INC. ("SPI")
Two of the principals of SPI serve on the Company's Board of Directors. The
Company has a consulting agreement, as amended, with SPI through July 1998,
which provides for payments to SPI for consulting services of $261 per year for
each of the three fiscal years ending July 31, 1996, 1997 and 1998. Aggregate
SPI consulting fee expense under all agreements was $261 for each of the fiscal
years ended July 31, 1995, 1994 and 1993. At July 31, 1995, the Company had
prepaid consulting fees to SPI of $109. In fiscal 1995, the Company paid $180
for additional services in connection with the purchase of Cushman, Mideastern
and Ed Smith (see Note 3). In fiscal 1993, the Company paid SPI additional
fees of $164 for additional services in connection with the sale of Penberthy
and the Brown & Sharpe acquisition (see Notes 3 and 4).
In fiscal 1995, 1994 and 1993 the Company reimbursed SPI approximately $7, $7
and $15, respectively, for travel expenses incurred by SPI on behalf of the
Company.
D.V. ASSOCIATES, L.P.
Pursuant to a license agreement, the Company licenses certain trademarks from
D.V. Associates, L.P. and the Company's rights to these trademarks are subject
to the payment of certain license fees. The Company paid license fees to D.V.
Associates, L.P. of $300 in fiscal 1995, 1994 and 1993. The Company holds an
option to purchase the trademarks from D.V. Associates, L.P. for $3,000. Two
of the Company's directors have limited partnership interests in D.V.
Associates, L.P.
SOMERSWORTH, INC. ("SOMERSWORTH")
Through December 21, 1989, the Company was an 80%-owned subsidiary of a
wholly-owned subsidiary of Somersworth. The Company and Somersworth were
parties to a tax-sharing agreement. In fiscal 1994, the Company paid a $151
assessment to the Internal Revenue Service for the last period the Company was
included in Somersworth's consolidated tax return. Such amount is included in
fiscal 1994 income tax expense.
COMPANY POLICY
It is the policy of the Company that any transaction between the Company and
any of its officers, directors or 5% stockholders, or affiliates thereof, must
be on terms no less favorable than those which would be obtained from
unaffiliated parties. In addition, transactions which exceed $100 must be
approved by a majority of the disinterested members of the Company's Board of
Directors.
NOTE 16 - LEASE COMMITMENTS
The Company has various noncancelable operating leases relating principally to
machinery and equipment and real property, which expire at various dates
through 2006. Three of the Company's operating facilities were leased in April
1986 under an operating lease with an initial 20-year term. This lease
initially required monthly payments of $69 and contains an escalation
provision, effective commencing on the fifth anniversary of the lease and
thereafter at each five-year anniversary, based on increases in the consumer
price index. Monthly payments are $70, after assignment of the lease for the
Penberthy facility and after the escalation effective May 1991. The lease is
renewable for four additional five-year terms and carries an option for the
purchase of the property, on the tenth anniversary of the lease, for the higher
of its fair market value or an amount determined based on the provisions of the
lease. Upon completion of the initial 20-year term, the Company is required to
renew the lease for at least one five-year term or purchase the property.
Accordingly, the minimum rental commitments shown below reflect one additional
five-year renewal term.
38
<PAGE> 39
Rental expense relative to all operating leases for the years ended July 31,
1995, 1994 and 1993 was $2,156, $2,123 and $2,081, respectively. At July 31,
1995, future minimum rental commitments under noncancelable operating leases
with a term in excess of one year are as follows:
<TABLE>
<CAPTION>
Fiscal year
-----------
<S> <C>
1996 $ 1,746
1997 1,271
1998 1,124
1999 1,095
2000 1,059
Thereafter 8,959
--------
$ 15,254
========
</TABLE>
NOTE 17 - COMMITMENTS AND CONTINGENCIES
On August 4, 1993, the Company, certain of its present and former officers and
directors and several unrelated third parties were included as defendants in a
civil suit filed in the United States District Court for the Northern District
of Illinois, Western District. The suit was filed by a committee of unsecured
creditors of DeVlieg, Inc., a company in Chapter 11 proceedings in the
Bankruptcy Court for the Northern District of Illinois, and
debtor-in-possession, DeVlieg, Inc. The litigation sought in excess of $10
million in damages and alleged violations of state fraudulent conveyance
statutes in connection with the acquisition by the Company of certain assets of
DeVlieg, Inc. in September 1988 and March 1990. The Company settled this suit
for $1.5 million during the second quarter, which was paid during the fourth
quarter of fiscal 1995. This was recorded as a nonrecurring item in the
Statements of Operations. The settlement is effective as to the Company and
each of its present and former officers and directors party to the suit.
On March 2, 1992, a purported class action suit was filed in the United States
District Court for the District of Connecticut against the Company, Stanwich
Oil & Gas, Inc., the First Boston Corporation and certain of the Company's
officers and directors. The suit alleges violations of the federal securities
laws and state and federal common law in connection with alleged
misrepresentations and omissions made by the Company in connection with its
initial public offering in March 1990 and in certain reports later issued by
the Company. To date, the United States District Court for the District of
Connecticut has not certified the class of plaintiffs in the referenced action.
By ruling dated September 7, 1994, the court granted that portion of the
defendants' motion to dismiss certain parties to the suit based on a claim that
any of them were secondarily liable for having aided and abetted an alleged
securities fraud violation based on Rule 10b-5 and Section 10(b) of the
Securities Exchange Act of 1934. The court denied the remainder of the motion
to dismiss. While management believes the allegations are without merit and is
defending the litigation vigorously, management is unable at this time to
estimate the effect of any settlement or adverse judgment on the results of
operations and/or financial condition of the Company. The Company has,
therefore, made no accrual for any such settlement, adverse judgment or costs
of adjudication (other than accrual for certain pre-trial costs). At July 31,
1995, the accrued liability for legal fees for this case was $39.
The Company is also involved in litigation and proceedings, including product
liability claims, in the ordinary course of its business. The Company does not
believe that the outcome of such litigation will have a material adverse effect
upon the Company, after taking into account any proceeds of available
insurance.
39
<PAGE> 40
NOTE 18 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Year
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
1995
Net sales $18,530 $18,442 $20,959 $20,219 $78,150
Gross profit $ 5,020 $ 4,948 $ 6,214 $ 5,973 $22,155
Net income $ 335 $ 135 $ 579 $ 344 $ 1,393
Net income per common
share $ 0.03 $ 0.01 $ 0.04 $ 0.03 $ 0.11
1994
Net sales $15,369 $16,016 $16,488 $15,746 $63,619
Gross profit $ 4,426 $ 4,280 $ 5,008 $ 4,365 $18,079
Net income $ 277 $ 157 $ 849 $ 296 $ 1,579
Net income per common
share $ 0.02 $ 0.01 $ 0.07 $ 0.02 $ 0.13
</TABLE>
During the second quarter of fiscal 1995, the Company recorded $1,500 for the
settlement of a lawsuit (see Note 17).
NOTE 19 - BUSINESS SEGMENTS
The Company's business activities are conducted by three business segments: the
Services Group, the Tooling Systems Group and the Industrial Group. Financial
information for each of these segments is summarized below:
<TABLE>
<CAPTION>
Operating Depreciation
Net Profit Identifiable Capital and
Sales (Loss) Assets Expenditures (a) Amortization
----- ------ ------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1995:
Services Group $ 34,716 $ 4,790 $ 33,262 $ 417 $ 1,427
Tooling Systems Group 21,246 1,792 19,805 140 827
Industrial Group 22,188 701 6,222 360 536
Corporate - (2,040) 6,943 53 (69)
-------- -------- -------- ------- -------
Total $ 78,150 $ 5,243 $ 66,232 $ 970 $ 2,721
======== ======== ======== ======= =======
Year ended July 31, 1994:
Services Group $ 28,063 $ 2,494 $ 24,874 $ 576 $ 1,198
Tooling Systems Group 16,877 1,624 12,495 408 499
Industrial Group 18,679 536 6,922 213 422
Corporate - (1,864) 6,972 76 (343)
-------- -------- -------- ------- --------
Total $ 63,619 $ 2,790 $ 51,263 $ 1,273 $ 1,776
======== ======== ======== ======= =======
Year ended July 31, 1993:
Services Group $ 24,312 $ 3,016 $ 23,167 $ 364 $ 1,025
Tooling Systems Group 17,087 1,165 12,425 292 568
Industrial Group (b) 17,205 235 7,556 357 474
Corporate - (895) 1,908 101 89
-------- -------- -------- ------- -------
Total $ 58,604 $ 3,521 $ 45,056 $ 1,114 $ 2,156
======== ======== ======== ======= =======
</TABLE>
Notes
(a) Capital expenditures include $0, $253 and $198 of leased assets
financed by capital lease obligations in fiscal 1995, 1994 and 1993,
respectively.
(b) In November 1992 (fiscal 1993) the Company sold Penberthy (see Note 4).
The Company reflected Penberthy as a discontinued operation.
40
<PAGE> 41
NOTE 20 - SUBSEQUENT EVENTS (UNAUDITED)
On September 15, 1995, the Company announced that it had entered into a stock
purchase agreement with Acme-Cleveland Corporation to acquire all of the
outstanding stock of the National Acme Company, a subsidiary of Acme-Cleveland
Corporation. The Company expects to consummate the acquisition during the
first quarter of fiscal 1996. The Company will pay $9,600 in cash and assume
all liabilities related to the business.
National Acme, located in Cleveland, Ohio, is the leading manufacturer of
Acme-Gridley(R) multiple spindle bar and chucking machines, as well as a
supplier of related after-market parts and service. National Acme's standard
product offerings include over twenty different machine models. In addition,
National Acme offers a broad array of after-market products and services,
including repair parts, replacement tooling, retrofit upgrade kits and training
and service contracts. National Acme's net sales for the three quarters of
fiscal 1995 were $27,300 and for the fiscal 1994 year were $30,700.
41
<PAGE> 42
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Proxy Statement issued in connection with the Annual Meeting of
Stockholders to be held on December 13, 1995, contains, under the caption
"Election of Directors," information required by Item 10 of Form 10-K as to
directors of the Company and is incorporated herein by reference. Pursuant to
General Instruction G(3), certain information concerning executive officers of
the Company is included in Part I of this Form 10-K, under the caption
"Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The Proxy Statement issued in connection with the Annual Meeting of
Stockholders to be held on December 13, 1995, contains, under the caption
"Executive Compensation and Other Information," information required by Item 11
of Form 10-K and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Proxy Statement issued in connection with the Annual Meeting of
Stockholders to be held on December 13, 1995, contains, under the captions
"Security Ownership of Certain Beneficial Owners" and "Election of Directors,"
information required by Item 12 of Form 10-K and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Proxy Statement issued in connection with the Annual Meeting of
Stockholders to be held on December 13, 1995, contains, under the caption
"Certain Relationships and Related Transactions," information required by Item
13 of Form 10-K and is incorporated herein by reference.
42
<PAGE> 43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 10-K
(a) (1) The following financial statements of DeVlieg-Bullard, Inc., are
included herein under Item 8 of Part II; Pages 20 to 41.
Report of Independent Accountants
Balance Sheets
July 31, 1995 and 1994
Statements of Operations
Years ended July 31, 1995, 1994 and 1993
Statements of Cash Flows
Years ended July 31, 1995, 1994 and 1993
Statements of Changes in Stockholders' Equity
Years ended July 31, 1995, 1994 and 1993
Notes to the Company Financial Statements
(2) The following financial statement schedules of DeVlieg-Bullard, Inc.,
are included herein on pages S-1 to S-3:
Report of Independent Accountants on Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and
therefore have been omitted.
(b) DeVlieg-Bullard, Inc., did not file any reports on Form 8-K for the
quarter ended July 31, 1995.
(3) Management Contracts and Compensatory Plans and Arrangements
DeVlieg-Bullard, Inc., 1989 Employee Stock Plan (included as Exhibit
10.03).
DeVlieg-Bullard, Inc., 1991 Stock Option Plan for Outside Directors
(included as Exhibit 10.14).
Non-Interference and Non-Disclosure Agreement executed by William O.
Thomas dated May 25, 1994 (included as Exhibit 10.30).
Consulting Agreement dated as of August 1, 1995, between the Company
and Stanwich Partners, Inc. (included as Exhibit 10.35).
43
<PAGE> 44
(c) Exhibits:
Exhibit
Number Description
- ------- -----------
3.1 Restated Certificate of Incorporation of the Company.
(Incorporated by reference to the Company's Registration
Statement on Form S Registration No. 33-32725.)
3.2 Restated Bylaws of the Company. (Incorporated by reference
to the Company's Registration Statement on Form S-1,
Registration No. 33-32725.)
4.1 Specimen Common Stock Certificate. (Incorporated by
reference to the Company's Registration Statement on Form
S-1, Registration No. 33-32725.)
4.2 Article IV of the Restated Certificate of Incorporation of
the Company. (Included in Exhibit 3.1.)
10.01 Form of Registration Rights Agreement dated as of March 22,
1990, among the Company and certain stockholders identified
therein. (Incorporated by reference to the Company's
Registration Statement on Form S-1, Registration No.
33-32725.)
10.02 License Agreement dated as of March 22, 1990, between D.V.
Associates, L.P. and the Company. (Incorporated by
reference to the Company's Registration Statement on Form
S-1, Registration No. 33-32725.)
10.03 DeVlieg-Bullard, Inc., 1989 Employee Stock Plan.
(Incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 33-32725.)
10.04 Stanwich Industries, Inc. Savings Plan, as amended.
(Incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 33-32725.)
10.05 Powermatic Division of Stanwich Industries, Inc. Pension
Plan for Hourly Rated Employees pursuant to an Agreement
with the United Steelworkers of America, AFL-CIO-CLC, and
its Local Union No. 7431, as amended and restated.
(Incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 33-32725.)
10.06 Universal Division of Stanwich Industries, Inc. Pension Plan
for Hourly Rated Employees pursuant to an Agreement with
Local Union No. 1131-UAW, as amended and restated.
(Incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 33-32725.)
10.07 Shareholders' Agreement among DeVlieg Acquisition Company,
its shareholders and Stanwich Industries, Inc. dated July 2,
1987. (Incorporated by reference to the Company's
Registration Statement on Form S-1, Registration No.
33-32725.)
10.08 Amendment No. 1 to Shareholders' Agreement dated December
15, 1989. (Incorporated by reference to the Company's
Registration Statement on Form S-1, Registration No.
33-32725.)
10.14 DeVlieg-Bullard, Inc., 1991 Stock Option Plan for Outside
Directors. (Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended July 31,
1991.)
10.17 Asset Purchase Agreement dated September 21, 1992, by and
between Penberthy, Inc. and Penberthy Products, Inc. The
Company agrees to furnish supplementally a copy of
44
<PAGE> 45
any omitted schedules to the Commission upon request.
(Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended July 31, 1992.)
10.18 Redemption Agreement dated as of December 29, 1992, between
White Consolidated Industries, Inc. and DeVlieg-Bullard,
Inc. (Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1993.)
10.19 Amended and Restated Lease Agreement by and between
Corporate Property Associates 5 and DeVlieg-Bullard, Inc.,
dated as of April 3, 1986, and amended and restated as of
November 24, 1992. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended July
31, 1993.)
10.20 Asset Purchase Agreement dated as of March 23, 1993, by and
between Brown & Sharpe Manufacturing Company and
DeVlieg-Bullard, Inc. The Company agrees to furnish
supplementally a copy of any omitted schedules to the
Commission upon request. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended July
31, 1993.)
10.21 Trademark License Agreement dated as of March 23, 1993, by
and between Brown & Sharpe Manufacturing Company and
DeVlieg-Bullard, Inc. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended July
31, 1993.)
10.22 Commercial Revolving Loan and Term Loan Agreement between
DeVlieg-Bullard, Inc., and Shawmut Bank Connecticut, N.A.
dated as of May 23, 1994. (Incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1994.)
10.23 Commercial Revolving Promissory Note issued as of May 23,
1994, by the Company to Shawmut Bank Connecticut, N.A.
(Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended April 30, 1994.)
10.24 Term Promissory Note issued as of May 23, 1994, by the
Company to Shawmut Bank Connecticut, N.A. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended April 30, 1994.)
10.25 Investment Agreement dated May 25, 1994, among (i) the
Company and (ii) Allied Investment Corporation, Allied
Investment Corporation II and Allied Capital Corporation,
Banc One Capital Partners Corporation, and PNC Capital Corp.
The Company agrees to furnish supplementally a copy of any
omitted schedules to the Commission upon request.
(Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended April 30, 1994.)
10.26 Debenture in the original principal amount of $2,360,000
issued May 25, 1994, by the Company to Allied Investment
Corporation, the "Allied Investment Corporation Debenture."
In addition, the Company issued the following debentures
which are substantially identical to the Allied Investment
Corporation Debenture except as to Holder and amount:
<TABLE>
<CAPTION>
Holder Principal Amount
------ ----------------
<S> <C>
Allied Investment Corporation II $ 1,300,000
Allied Capital Corporation 340,000
Banc One Capital Partners Corporation 4,000,000
PNC Capital Corp. 4,000,000
</TABLE>
(Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended April 30, 1994.)
45
<PAGE> 46
10.27 Class A Stock Purchase Warrant issued by the Company May 25,
1994, to PNC Capital Corp., the "PNC Class A Warrant," for
the right to purchase 333,333 shares of the Company's common
stock. In addition, the Company issued the following
warrants which are substantially identical to the PNC Class
A Warrant except as to Holder and number of shares subject
to warrant:
<TABLE>
<CAPTION>
No. Shares Subject
Holder to Warrant
------ ----------
<S> <C>
Allied Investment Corporation 196,668
Allied Investment Corporation II 108,333
Allied Capital Corporation 28,333
Banc One Capital Partners Corporation 333,333
</TABLE>
(Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended April 30, 1994.)
10.28 Class B Stock Purchase Warrant issued to PNC Capital Corp.,
the "PNC Class B Warrant," by the Company May 25, 1994, for
the right to purchase one-third of the number of shares of
the Company's common stock available in the aggregate
pursuant to the terms of paragraph 2.02 of the Investment
Agreement (an unexecuted form of which constitutes Exhibit
2.01 to the Investment Agreement referred to above in
Exhibit 10.25 to this report). In addition, the Company
issued the following warrants which are substantially
identical to the PNC Class B Warrant except as to Holder and
number of shares subject to warrant:
<TABLE>
<CAPTION>
Pro Rata Share of No. Shares Subject
Holder to Warrant
------ ----------
<S> <C>
Allied Investment Corporation 19.7%
Allied Investment Corporation II 10.8%
Allied Capital Corporation 2.8%
Banc One Capital Partners Corporation 33.3%
</TABLE>
(Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended April 30, 1994.)
10.29 Registration Agreement dated May 25, 1994, by and between
DeVlieg-Bullard, Inc., and Allied Investment Corporation,
Allied Investment Corporation II, Allied Capital
Corporation, Banc One Capital Partners Corporation and PNC
Capital Corp. (Incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1994.)
10.30 Non-Interference and Non-Disclosure Agreement executed by
William O. Thomas dated May 25, 1994. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended April 30, 1994.)
10.31 First Amendment to the DeVlieg-Bullard, Inc., 1989 Employee
Stock Plan approved by the Company's stockholders at the
annual meeting of stockholders held on December 15, 1993.
(Incorporated by reference to the Company's Proxy Statement
dated November 19, 1993.)
10.32 Retirement Plan for Salaried Employees of DeVlieg-Bullard,
Inc., and Affiliated Companies, as amended and restated on
June 3, 1994. (Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ending July 31,
1994.)
10.33 Collective Bargaining and Skilled Trades Training Agreements
between Tooling Systems Division of DeVlieg-Bullard, Inc.,
and United Automobile, Aerospace and Agricultural
46
<PAGE> 47
Implement Workers of America - UAW and its Local Union No.
1131, dated August 23, 1994. (Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
July 31, 1994.)
10.34 Collective Bargaining Agreement between Powermatic Division
of DeVlieg-Bullard, Inc., and United Steelworkers of
America, AFL-CIO-CLC, on behalf of Local Union No. 7431,
effective July 1, 1995.
10.35 Consulting Agreement dated as of August 1, 1995, between the
Company and Stanwich Partners, Inc.
10.36 Memorandum of Closing dated as of September 9, 1994, between
the Company and the Cushman Industries Liquidating Trust.
(Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended July 31, 1994.)
10.37 Product Supply Agreement dated as of September 9, 1994,
between the Company and the Cushman Industries Liquidating
Trust. (Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended July 31, 1994.)
10.38 Stock Purchase Agreement by and between the shareholders of
H.B. Industries, Inc. and DeVlieg-Bullard, Inc., dated
November 30, 1994. The Company agrees to furnish
supplementally any omitted schedules to the Commission upon
request. (Incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended October
31, 1994.)
10.39 Amendment Agreement made as of January 31, 1995, between
DeVlieg-Bullard, Inc., and Shawmut Bank Connecticut, N.A.
(Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended January 31, 1995.)
10.40 Asset Purchase Agreement dated January 23, 1995, by and
between DeVlieg-Bullard, Inc., Mideastern, Inc., and the
shareholders of Mideastern, Inc. (Pursuant to Item
601(b)(2) of Regulation S-K, the schedules to this agreement
are omitted but will be provided supplementally to the
Commission upon request.) (Incorporated by reference to the
Company's Current Report on Form 8-K dated February 3,
1995.)
10.41 Earnout Note dated January 23, 1995, in the principal amount
of $600,000 issued by DeVlieg-Bullard, Inc., to Mideastern,
Inc. (Incorporated by reference to the Company's Current
Report on Form 8-K dated February 3, 1995.)
10.44 Stock Purchase Agreement among Acme-Cleveland Corporation,
AC Intermediate Company and DeVlieg-Bullard, Inc., Dated
September 7, 1995. (Pursuant to Item 601(b)(2) of
Regulation S-K, the schedules to this agreement are omitted
but will be provided supplementally to the Commission upon
request.)
23 Consent of Price Waterhouse LLP
47
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on September 21, 1995.
DEVLIEG-BULLARD, INC.
By: /s/ William O. Thomas
------------------------------
William O. Thomas
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signatures and Title(s) Date
- ----------------------- ----
/s/ William O. Thomas September 21, 1995
- -----------------------
William O. Thomas
President and Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Lawrence M. Murray September 21, 1995
- -----------------------
Lawrence M. Murray
Vice President and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Charles E. Bradley September 21, 1995
- -----------------------
Charles E. Bradley, Director,
Chairman of the Board
/s/ Thomas L. Cassidy September 21, 1995
- ---------------------
Thomas L. Cassidy, Director
48
<PAGE> 49
Signatures and Title(s) Date
- ---------------------- ----
/s/ George A. Chandler September 21, 1995
- ----------------------
George A. Chandler, Director
/s/ John G. Poole September 21, 1995
- -----------------
John G. Poole, Director
/s/ Burton C. Borgelt September 21, 1995
- ---------------------
Burton C. Borgelt, Director
/s/ John R. Kennedy September 21, 1995
- -------------------
John R. Kennedy, Director
/s/ John E. McConnaughy, Jr. September 21, 1995
- -----------------------------
John E. McConnaughy, Jr., Director
49
<PAGE> 50
DeVlieg-Bullard, Inc.
Index To Financial Statement Schedules
Description
Report of Independent Accountants on Financial
Statement Schedules S-2
Schedule VIII - Valuation and Qualifying Accounts S-3
All other financial statement schedules are either not required or not
applicable to the Company.
S-1
<PAGE> 51
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of DeVlieg-Bullard, Inc.
Our audits of the financial statements referred to in our report dated
September 8, 1995 appearing on page 21 of this Form 10-K also included an audit
of the Financial Statement Schedule listed in the index appearing under Item
14(a)(2) of this Form 10-K on page 43. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the information
set forth therein when read in conjuction with the related financial
statements.
/s/ PRICE WATERHOUSE LLP
Stamford, Connecticut
September 8, 1995
S-2
<PAGE> 52
DeVlieg-Bullard, Inc.
Schedule VIII - Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Charged to Balance at
August 1, 1992 Expense Other Deductions July 31, 1993
-------------- ------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
Accounts Receivable $ 959 $ 251 $ (241) $ - $ 969
Inventories 11,602 (2,424) (4) - (2,488) (5) 6,690
Deferred Tax Assets - - 14,944 (1) (5,198) 9,746
</TABLE>
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Charged to Balance at
August 1, 1993 Expense Other Deductions July 31, 1994
-------------- ------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
Accounts Receivable $ 969 $ 107 $ 36 (2) $ (276) (3) $ 836
Inventories 6,690 (1,556) (4) - (99) (5) 5,035
Deferred Tax Assets 9,746 - - (4,301) 5,445
</TABLE>
<TABLE>
<CAPTION>
Additions Additions
Balance at Charged to Charged to Balance at
August 1, 1994 Expense Other Deductions July 31, 1995
-------------- ------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
Accounts Receivable $ 836 $ 187 $ 189 (6) $ (290) (3) $ 922
Inventories 5,035 (205) (4) 1,296 (6) (21) (5) 6,105
Deferred Tax Assets 5,445 - - (2,962) 2,483
</TABLE>
(1) Upon adoption of SFAS 109, the Company recorded a valuation allowance
of $13,109 against net deferred tax assets of $13,109. Upon adoption
of SFAS 106, additional valuation allowance of $1,835 was recorded.
(2) Recoveries of amounts previously written off.
(3) Write-off amounts deemed uncollectible.
(4) Provision for obsolescence, net of inventory sold.
(5) Scrapped inventory.
(6) Includes reserves of companies acquired (see Note 3 of Notes to the
Company Financial Statements).
S-3
<PAGE> 1
EXHIBIT 10.34
AGREEMENT
PREAMBLE
(1) This Agreement entered into on this 9th day of August, 1995,
(effective July 1, 1995) between POWERMATIC, A DIVISION OF DEVLIEG-BULLARD,
INC., McMinnville, Tennessee, hereinafter referred to as the "Company," and
the UNITED STEELWORKERS OF AMERICA, AFL-CIO-CLC, hereinafter referred to as
the "Union," on behalf of Local Union No. 7431.
(2) It is the intent and purpose of the parties hereto that this
Agreement shall promote and improve industrial and economic relations between
the Company, the Union, and employees; and to set forth herein the basic
agreements covering the rates of pay, hours of work, and conditions of
employment to be observed between the parties at the Main Plant and Foundry
located on Morrison Road, McMinnville, Tennessee.
ARTICLE I - RECOGNITION
AND REPRESENTATION
RECOGNITION OF BARGAINING UNIT
(3) The Company recognizes the Union as the sole collective
bargaining agent pursuant to the certification by the National Labor Relations
Board, United States of America, Case No. 10-RC7266, dated the 26th day
of December, 1967, for all production and maintenance employees of the
Employer's factory and foundry in McMinnville, Tennessee, including store
keepers, plant clerical employees, material handlers, tool room employees,
tool crib employees, and leadmen, but excluding all office clerical employees,
professional employees, guards, and supervisors as defined in the Act.
GRIEVANCE COMMITTEE
(4) The Union may designate a chief steward for each shift of ten
(10) or more employees at the main plant and the foundry.
The employees shall be represented by a grievance committee who shall
be designated in a manner determined by the Union, and who shall be employees
of the Company. The president of the Union shall be an ex officio member of
the grievance committee.
Upon proper notice to their respective foreman, members of the
grievance committee shall be permitted to visit departments other than their
own at reasonable times during their regular shift hours for the purpose of
transacting proper Union business under this agreement. The privilege of
conducting such business during their regular shift hours without loss of pay
is extended providing it is not abused.
The committeeman will be notified by the foreman of the time and
place of the meeting within thirty (30) minutes of the time of notice.
DEPARTMENTAL STEWARDS
(5) The employees shall be represented by seven (7) Stewards
and one (1) Chief Committeeman at the Main Plant. Employees at the Foundry
shall be represented by two (2) Stewards and one (1) Chief Committeeman.
Stewards shall be assigned and directed to areas exclusively by the
Local Union President.
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<PAGE> 2
In the event the work force increases to 160 hourly employees, the
Main Plant and the Foundry will increase one (1) each.
After properly reporting to their respective foreman, departmental
stewards will be permitted to handle promptly, proper matters under the
grievance procedure within the department or district which employees they
represent. However, permission from the foreman will not be unreasonably
withheld. The privilege of conducting proper Union business during their
regular shift hours without loss of pay is extended providing it is not
abused.
MEETINGS AND AGENDA
(6) Meetings shall be arranged between the Company
representatives and the Grievance Committee for the purpose of discussing
grievances and such matters as they may arise from this Agreement whenever
conditions and circumstances necessitate such meetings. When such occasions
arise, meetings shall be arranged by mutual agreement as to time and place.
Company and Union representatives shall exchange an agenda of the subjects or
grievances to be discussed at least twenty-four (24) hours prior to the
scheduled meeting unless this requirement is waived by mutual agreement at the
time the meeting is requested.
UNION ROSTER
(7) A written list of the Union officers, negotiating and
grievance committee members and departmental stewards shall be furnished to the
Company immediately after their designation, and the Union shall notify the
Company promptly in writing of any changes.
NON-DISCRIMINATION
(8)(a) There shall be no discrimination against any employee because
of his membership or non-membership in the Union or because of his acting as
an officer or in any other capacity on behalf of the Union. The parties to
this Agreement will not discriminate against any employee or applicant for
employment because of race, color, religion, sex, national origin or age above
the legal minimum. The parties will take affirmative action to insure that
applicants are employed and that employees are treated during employment
without regard of their race, color, religion, sex, national origin or age
above the legal minimum. Such action shall include, but not be limited to,
employment, upgrading, demotion or transfer, recruitment or recruitment
advertising, layoffs or terminations, rates of pay or other forms of
compensation and selection for training, including bulletin boards available
to employees and applicants for employment, for the posting of notices setting
forth the provisions of this non-discrimination clause. The parties further
affirm that they recognize and will comply with Executive Order 11246 and
with the Civil Rights Act of 1964, the Vietnam Era Veterans Act of 1974, and
the Rehabilitation Act of 1973 (as amended).
(b) Wherever in this Agreement a noun or pronoun is expressed
male or female gender, it is understood and agreed that such noun or pronoun
shall be interpreted interchangeably as male or female gender.
ARTICLE II - UNION SECURITY
AND RESPONSIBILITY
SOLICITING MEMBERSHIP
(9) The Union agrees that there shall be no solicitation for
Union Membership during working hours on Company time or at Company expense.
Page 2
<PAGE> 3
DUES DEDUCTION
(10) The Company will deduct from employee's wages and remit to
the proper officer of the Union all dues, initiation fees, and assessments
levied by the Local Union and International Union of such members of the Union
as individually and voluntarily certify in writing on check-off cards supplied
by the Union, that they authorize such deductions.
REMITTANCE TO UNION
(11)(a) An abstract of the above deductions, showing names and
amounts deducted from each individual will accompany the monthly remittance to
the Secretary-Treasurer of the United Steelworkers of America, AFL-CIO,
Pittsburgh, Pennsylvania, on or before the twenty-fifth (25th) of each month.
(b) The Company shall furnish the Financial Secretary and the
President of the Local Union a monthly written list of those Union employees
from whom deductions have been made and the amount of the deductions. The
written list shall include those Union employees from whom no deductions were
made and the general reason therefore.
EFFICIENT OPERATION
(12) The Union agrees that it will do everything within its power
to cause the employees covered by this Agreement individually and
collectively, to perform and render efficient work and service, and that it
and its members will wholeheartedly cooperate with the Company in the
introduction or operation of new equipment or changes in processes or
production methods to improve quality or to improve the Company's competitive
position.
FAIR DAY'S WORK
(13) The Union recognizes the responsibilities imposed upon it as
the exclusive bargaining agent of the employees covered by this Agreement; and
realizes that, in order to provide maximum opportunities for continuing
employment, good working conditions and fair and equitable wages, the Company
must be in a strong competitive position, must produce efficiently, must
maintain quality, and at a competitive cost consistent with fair labor
standards. The Union, through its bargaining agency, assumes responsibility
for cooperating with the Company in the attainment of these goals. The Union,
therefore, agrees that it will cooperate with the Company to assure a fair
day's work on the part of its members.
ARTICLE III - MANAGEMENT'S
RESPONSIBILITY
COMPANY RIGHTS
(14)(a) Any of the rights, powers or authority the Company had prior
to the signing of this Agreement are retained by the Company, except those
specifically abridged, delegated, granted or modified by this Agreement and
any supplemental agreements that may hereafter be made, provided the exercise
of these rights does not conflict with any provisions of this Agreement.
(b) The management of the Company and the direction of the
working forces, including the products to be manufactured, the location of the
plants, the schedules of production, the schedules of hours and shifts, the
methods, processes and means of manufacturing, the right to hire, promote,
demote, transfer, establish reasonable rules of plant conduct, discharge or
discipline for proper cause and to maintain discipline and efficiency of
employees, improve quality, reduce costs and
Page 3
<PAGE> 4
establish and attain reasonable work and production standards, are the sole
and exclusive rights and responsibilities of the Company, except as provided
in this Agreement and all supplemental agreements.
It is understood and agreed that this section will not be used for
the purpose of discriminating against Union members.
The foregoing enumeration of the Company's rights shall not be deemed
to exclude other inherent management rights.
ARTICLE IV - SENIORITY
DEFINITION AND APPLICATION
(15) For the purposes of this Agreement, an employee's seniority
shall be his length of continuous service with the Company from his last date
of hire. In effecting changes in employment status of employees, plant
seniority shall be applied as specified hereinafter in this Agreement.
PROBATIONARY EMPLOYEES
(16) All new employees shall be regarded as probationary employees
during the first thirty (30) working days of their employment with the
Company, exclusive of any absences. A probationary employee shall have no
seniority rights, his retention as an employee is entirely within the
discretion of the Company and the Company's decisions on handling of
probationary employees may not be the subject of a grievance either by the
employee or by the Union. After satisfactory completion of the probationary
period the employee will become a permanent employee, will become covered
under this Agreement, and his seniority reverts back to the original date of
hire.
UNION REPRESENTATIVES SENIORITY
(17)(a) For the purpose of lay-off, recall, and shift retention only,
the President and Vice President shall possess top plant-wide seniority during
their term of office providing there is work available which they are capable
of performing.
(b) Departmental Stewards and Chief Stewards, for the purpose of
lay-off, recall and shift retention only, shall head the seniority list of
their designated district and shift during their term of office provided there
is work available which they are capable of performing.
(c) In the application of paragraph (17), sub-paragraph (a) and
(b) above, the following procedure will be followed: the President, Vice
President, Chief Grievance Committeeman and Departmental Stewards shall
possess super seniority on their respective jobs and will not be laid off from
their respective jobs until all jobs in their respective classification are
curtailed.
(d) Departmental Stewards super seniority in their respective
departments will prevail over the President, Vice President, and Chief
Grievance Committeeman, unless and/or until the President, Vice President, and
Chief Committeeman have nowhere else to exercise their seniority, in which
case the President, Vice President, or Chief Committeeman could then bump the
Departmental Steward.
(e) Chief Committeemen and Departmental Stewards super seniority
is limited to their respective shifts and area, such as foundry or main plant.
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SENIORITY LIST
(18) Effective with this agreement, a complete list of seniority
dates of all employees within the bargaining unit shall be agreed upon by the
Company and the Union. The Company shall furnish the Departmental Stewards and
Chief Stewards with a current list of all employees in the bargaining unit
setting forth their seniority status once every six (6) months. A copy of the
current seniority list will be posted every thirty (30) days at a designated
location at the Main plant and Foundry. Should the list be found to be
incorrect or if changes occur in the list, a corrected copy will be furnished
to the Union and a copy posted within five (5) working days.
LOSS OF SENIORITY
(19) An employee shall lose his seniority for the following
reasons:
(a) he quits voluntarily;
(b) he is discharged for proper cause;
(c) he is absent from work for three (3)
consecutive work days without proper
notification to the Company unless he has
valid reason for not reporting;
(d) he fails to report for work within six (6)
working days after notice of recall by
certified mail to the last known address on
the employee's personnel record without valid
reason therefore, provided he notifies the
Company within three (3) days of his
intention to return to work;
(e) lay-off for twelve (12) continuous months or
period equal to his accumulated seniority up
to a maximum of five (5) years.
FORCE REDUCTION
(20)(a) When a reduction in force is required, the employee or
employees with the least plant seniority in the classification and shift
involved shall be laid off first. Such employees shall be entitled to exercise
their seniority in any classification in which they are qualified for, with
the result that the most junior employee in the classification on that shift
will then be laid off. If a non-cell employee elects to bump into a cell,
they can only displace the junior employee in the Cell "B" classification and
must be capable of performing 20% of any of the work required in the cell. In
the event there is no Cell operator "B" in that cell, but there are junior
employees to him classified as Cell Operator "A", then the employee would be
placed in the cell as a Cell Operator "B" provided he can perform 50% of any
of the work required with the result that the junior Cell Operator "A" would
then be laid off.
In the event a force reduction is required in a cell, an "A" Cell
operator or an employee who had previously held the cell Operator "A"
classification in that cell may displace a junior employee in either the "A"
or "B" cell classification provided they can perform the work required in that
cell as outlined in sub-paragraph (b) of this paragraph. A cell Operator "B"
can only displace a cell Operator "B" in another cell provided he is capable
of performing 20% of any of the work required, except that if there is no
junior Cell Operator "B" to displace but there is a junior Cell Operator "A",
then the employee would be placed in the cell as a Cell Operator "B" provided
he can perform 50% of any of the work required with the result that the junior
Cell Operator "A" would then be laid off. In no event shall 50% of the
employees in a given cell be displaced during a six (6)
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<PAGE> 6
month period of time from the date of the latest force reduction that
affected a particular cell.
(b) An employee may exercise his seniority provided that when, in
the opinion of the Company, he has the physical capacity and the
qualifications to perform the work required in such classification. In order
to so exercise seniority, the employee must be capable of performing the work
required without a special training period, except that an employee who has
held the classification previously, and changes have been made to the
classification since he last held the classification, such employee will be
allowed a familiarization period of up to five (5) working days. If the
employee is then not capable of performing the work required without training,
such employee will then be disqualified from the classification. Once an
employee has elected to exercise his seniority on a reduction in force, he
shall not be entitled to again exercise his seniority unless another reduction
in force occurs or he is disqualified.
(c) An employee who elects not to exercise their seniority in (b)
and there are bumping opportunities available will be classed as a voluntary
lay-off and will go out of the plant.
(d) An employee who has exhausted his seniority rights to bump
classifications for which he is qualified in (b) above may apply to the
Personnel Office for placement in a pool job defined as labor grades 8, 9 and
10. He will be placed in a job in the pool in accordance with his seniority and
physical capacity to perform the work available.
(e) When a reduction in force becomes necessary, the Company will
post a notice on the bulletin boards at least five (5) days in advance of the
lay-off identifying the department and/or classifications affected. The five
(5) days notice shall not be required if the layoff is due to conditions that
were beyond the control of the Company (such as an act of God, fire, flood,
storm, or power failure).
FORCE INCREASE
(21)(a) In restoring the workforce after a force reduction, the
employee or employees with the greatest plant seniority, either in the plant
or out of the plant, will be recalled first subject to their physical capacity
and qualifications to perform the work required, except that employees who are
laid off out of classification and are still in the plant will have recall
rights only to those jobs they have held since being laid off from their
regular job classification subject to their seniority.
Any employee who is on voluntary lay-off will not be recalled to any job until
a job in his regular classification on any shift is open. In the event the
employee's regular job classification is eliminated after a voluntary lay-off,
or if they have not been recalled after a twelve (12) month period, they will
no longer be considered a voluntary lay-off and will be subject to normal
recall procedure. Employees being recalled to jobs in labor grades 8, 9 and 10
will be recalled subject to their physical capacity and seniority only.
With respect to restoring the work force in a cell, the senior qualified
employee classified as a cell Operator "A" shall be eligible for recall to
either a cell Operator "B" or cell Operator "A" classification provided they
are qualified to do the work required in that cell. A senior qualified
employee classified as a cell Operator "B" shall only be eligible to be
recalled to a cell Operator "B" classification provided they can do 20% of the
work required, unless they had previously held the classification of cell
Operator "A" in that cell in which case they could be recalled to a cell
Operator "A" classification. A senior qualified non-cell operator can be
recalled to a cell
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<PAGE> 7
Operator "B" classification provided they can perform at least 20% of the work
required in the cell.
(b) All employees must return when recalled to their regular job
classification and shift or recalled to a classification which is equal to or
higher in labor grade then their regular classification on their regular
shift. If an employee refuses recall to his regular job classification on a
shift other than his regular shift, then the employee shall forfeit future
recall rights to his regular job classification on those shifts. If an
employee refuses recall to any other classification and/or pool job, he shall
forfeit future recall rights to such classification and/or pool job on that
shift.
JOB BIDDING PROCEDURE
(22)(a) When vacancies occur or new jobs are created, all such
openings shall be posted by the Company for three (3) working days; however,
before the job is posted, employees currently holding a job in the open
classification will be given the option of changing shifts in accordance with
their seniority for the open job. Employees on lay off status may bid for the
open job, however, it is understood and agreed to that the Company or the
Union will have absolutely no obligation to notify such employees of the job
opening. The Company will provide the Chief Steward at the Main Plant and
Foundry with a copy of all bids at the end of the bidding procedure along with
the name of the successful bidder.
(b) To be eligible for a job vacancy, an employee must have
completed the probationary period and be considered a permanent employee. The
successful bidder on a job shall not be entitled to bid on another opening for
a maximum period of ninety (90) calendar days unless the bid is for a higher
labor grade.
(c) Employees bidding on a job shall be selected from the bidders
on the basis of qualifications, physical capacity and seniority. When
qualifications and physical capacity are considered relatively equal, the most
senior employee will be given the job. However, jobs in labor grades 8, 9 and
10 will be filled by considering only seniority and physical capacity to
perform the job. If no person who is qualified bids on the job, the Company
may hire a new employee for the job. If the Company is unable to find a
qualified candidate on the outside within six (6) months, then the Company
will either cancel the bid or bid the job as a training classification and
select and train the most qualified senior employee, if one is available.
Once a job is posted and awarded, and the job again becomes vacant
within thirty (30) working days from the date of the award, the job will not
be re-posted but instead will be filled in accordance with this paragraph
based on the original posting.
(d) If a successful bidder is unable to perform the new
assignment after an appropriate trial period of up to thirty (30) working
days he shall be given the opportunity to return to his old classification.
(e) A successful bidder on a job posting shall be assigned to the
job within ten (10) working days of the end of the posting period unless
extenuating circumstances are involved. In any event, the successful bidder
shall receive the appropriate rate on his new classification not more then ten
(10) working days from the date the job is awarded. If the job is awarded to
an employee and accepted in writing by the employee and he subsequently
refuses to accept the job, he shall not be entitled to bid on another job for
ninety (90) days.
(f) Job vacancies which will extend for a period of thirty (30)
working days or more because the incumbent is on leave because of illness or
injury or has been discharged pending final disposition, shall be posted as a
temporary opening immediately upon positive determination that the vacancy
will continue for
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thirty (30) working days or more. In the event the incumbent loses his
seniority status, the successful bidder shall be considered to have been given
a permanent job award.
(g) Employees who are awarded a job of Cell Operator "B" will be
given training opportunities to learn all steps within the cell so that they
may be upgraded to Cell Operator "A" within a one (1) year Period. To be
eligible to be upgraded to Cell Operator "A", they must be qualified to
perform that work in each defined step of the cell. The Progression Committee
will review the progress on a quarterly basis. An employee who is not
qualified to be upgraded will be told what improvements would be required in
order for them to become upgraded. Employees who have not been qualified in
each step within the cell will not be upgraded until they have become
qualified in each step. The Company will not unreasonably withhold training
opportunities to cell employees.
(h) A committee will be established to review the JIT step
progression system which will meet on a quarterly basis. The committee will
consist of the Industrial Relations Manager, the Plant Superintendent and the
respective Supervisor for the Company and the Union President, Chief Steward
and the respective Steward for the Union.
(i) When a vacancy occurs in a given cell, the job vacancy will
be posted in accordance with sub-paragraph (a) of this paragraph. At the same
time, the Company may hire a new employee as a cell operator trainee without
having to post the trainee job. The cell trainee may be placed in various
cells as needed and for filling vacancies created by successful bidders
without being temporary transferred, until such time that a cell job is
posted with no successful bidders, or within six (6) months, whichever comes
first. At that time the cell operator trainee will be permanently assigned to
that cell as a cell operator trainee for that particular cell and any
movement, thereafter, out of the cell would require a temporary transfer
consistent with the labor agreement. Once assigned to a cell, the trainee
would progress to cell Operator "B" after he becomes, in the opinion of the
Company, qualified to perform twenty percent (20%) of the work required in
that cell or after six (6) months from the date he was employed, whichever
comes first. The experience a trainee gains while classified as a cell trainee
will not be considered in determining the qualifications of the successful
bidder for a job opening award.
TEMPORARY TRANSFER ASSIGNMENTS
(23)(a) When operating conditions necessitate the temporary transfer
of an employee from one classification to another classification to fill a
vacancy or opening for a temporary period, such employees shall be paid as
provided in Paragraph (41) "Temporary Transfer Rate."
(b) The Company will afford the opportunity for the transfer to
senior qualified employees, provided that they can be spared from their job,
that the remaining employees can perform the work satisfactorily and they are
qualified to perform the work required. In the event no one desires the
transfer, the junior qualified employee will be transferred. A senior employee
displaced from his original bid job shall have first opportunity to move back
to his job on temporary transfers provided the temporary opening exceeds eight
(8) hours.
(c) A temporary transfer shall not exceed fifteen (15) days
worked but may be extended by mutual agreement between the Company and the
Union.
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(d) A list of temporary transfers will be given to the
Departmental Steward weekly from his area for all transfers made during the
preceding week. In addition, a list of all temporary transfers will be given
to the Union President monthly for all transfers made during the preceding
month.
(e) When it becomes necessary for the Company to temporary
transfer Departmental Stewards from their designated districts, the Company
will so advise the Chief Committeeman if available.
(f) The experience an employee gains as a result of temporary
transfer shall not be considered in determining the qualifications of the
successful bidder for a job opening award.
(g) No employee will be temporarily transferred while another
employee temporarily works on his job unless the reasons are discussed with
the originally transferred employee.
PHYSICAL EXAMINATION
(24) Any employee who has been absent from work for any reason for
a period of more than thirty (30) calendar days shall be required to complete
a satisfactory physical examination at Company expense before being permitted
to return to work, unless waived by the Company. The Company will pay for any
time lost from work for the purpose of taking a physical examination.
However, the Company will not pay for any hours lost for the purpose of taking
the physical examination, if the examination is scheduled by the Company prior
to the date on which the employee is scheduled to return to work. This
paragraph excludes physical required under paragraph (29) "Disability Leaves."
SHIFT PREFERENCE
(25) Employees who have been in their classification for at least
six (6) months will be entitled to exercise their plant-wide seniority within
the same job classification to transfer to the shift of their preference, once
every six (6) months, provided they are qualified to perform the actual work
being done on the other shift.
MILITARY SERVICE
(26) An employee inducted into the Armed Forces of the United
States under the provisions of the Universal Military Training and Service Act
of 1951 (as amended) shall accumulate seniority during such period of service,
and upon the termination of such period shall have his employment status
restored upon his return and shall be re-employed, all in accordance with the
provisions of the Act.
VETERANS SCHOOLING LEAVE
(27) After date of this Agreement, any employee entitled to
reinstatement after military duty who applies for reemployment and who desires
to pursue a course of study, in accordance with the federal law granting him
such opportunity, before returning to his employment with the Company, shall
be granted a leave of absence for such purpose. Such leave of absence shall
not constitute a break in the record of continuous service of such employee
but shall be included therein, providing the employee reports promptly for
reemployment after the completion or termination of such course of study. Any
such employee must notify the Company and the Union in writing, at least once
each six (6) months of his continued interest to resume active employment with
the Company upon completing or terminating such course of study.
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PERSONAL LEAVES OF ABSENCE
(28) Employees requesting a leave of absence in writing may be
granted a leave of absence by the Company. No leave of absence shall be
granted for more than sixty (60) calendar days, but the Company may extend the
leave of absence for good cause. All requests for such leave of absence will
be made in writing to the Company stating the reason the leave is being
requested.
DISABILITY LEAVES
(29) The Company will grant employees, without loss of seniority,
leaves of absence for disability resulting from sickness or injury, when
proper proof is given to the Company. At the expiration of such leaves, the
employees will be returned to their former job or work which they can perform
in accordance with their plant-wide seniority as if they had not suffered such
disability, provided they have complied with all applicable provisions of this
Agreement.
UNION BUSINESS LEAVES
(30) An employee elected or appointed to an office in the
International Union shall be granted a leave of absence up to a maximum of a
one (1) year period. In addition, employees will be granted limited leaves of
absence to attend Union training conferences, be delegates to appropriate
Union conventions or to fulfill their responsibilities as local Union
officials and representatives.
NON-BARGAINING UNIT TRANSFERS
(31) Employees promoted or transferred to a non-bargaining unit
position shall relinquish all seniority and reinstatement rights on the date of
such transfer or promotion. Further, no employee who is an officer, grievance
committeeman or departmental steward shall be offered a non-bargaining unit
position during his term of office.
ARTICLE V - HOURS OF WORK
AND OVERTIME
INTENT
(32) This article is intended only to provide a basis for
calculating overtime and shall not be construed as a guarantee of hours of
work per day or per week.
NORMAL WORK DAY
(33) Eight (8) consecutive hours in a regular work shift,
exclusive of a lunch period, shall constitute a normal day's work. A day shall
be defined as a consecutive twenty-four (24) hour day, beginning with the
employee's regular work shift. Work performed on all shifts shall be
considered as work performed on the day on which the shift starts.
NORMAL WORK WEEK
(34) Five (5) days, Monday through Friday, shall constitute a
normal work week. The work week is a period of seven (7) consecutive
twenty-four (24) hour days beginning with the first regular work shift on
Monday of the work week.
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SHIFT HOURS
(35) The starting and quitting time for the operation of current
shifts shall continue in effect until further notice. The Company shall
provide prior written notice of shift changes to the local Union President and
the respective Chief Stewards and shall discuss with the Union the basis for
any changes prior to such changes becoming effective.
OVERTIME PREMIUM
(36) It is recognized by the Union that overtime work must be
scheduled from time to time due to emergencies and other conditions beyond the
control of the Company. Such overtime work shall be paid as follows:
(a) hours worked in excess of eight (8) hours per
day or forty (40) hours per week will be paid
at one and one-half times the regular hourly
rate;
(b) all hours worked on Saturday shifts shall be
paid at time and one-half times the regular
hourly rate;
(c) all hours worked on Sunday shifts will be
paid at two times the regular hourly rate.
Scheduled time off for vacations and holidays not worked shall be
considered in the accrual of the forty (40) hour per week for computation of
overtime premium payment.
HOLIDAYS WORKED
(37) For hours worked on paid holidays established by this
Agreement, employees will be paid at triple time their regular hourly rate.
OVERTIME DISTRIBUTION
(38)(a) When there is overtime work to be performed in a
classification within a department, it shall be distributed equally among
employees in their respective classification within the department and shift
as far as practicable. Such distribution shall be consistent with their
ability and experience to perform the work required in accordance with such
rotation procedure as may be agreed upon between the Company and the Union.
When differences in overtime exceed eight (8) hours, inequities will be
adjusted by assigning overtime work as available at the next opportunity. When
extra employees are needed to fill overtime requirements in a cell, the senior
qualified employees in other cells shall be offered the extra overtime work on
a rotation basis. Overtime schedules shall be reviewed and signed by the
appropriate Union representative. Any errors or omissions subsequently
determined shall be equalized by scheduling the employee for the next
available overtime.
(b) Employees shall not be required to work more than three (3)
consecutive Saturdays provided the Company can obtain sufficient qualified
volunteers to perform the work required. The Company will, to the best of
their ability, notify employees in advance if they will be working in a
classification other than their own.
ARTICLE VI - WAGES
WAGE SCHEDULE
(39) Hourly wage rates established by job evaluation for all job
classifications within a labor grade, effective for the term of this
Agreement, including the method and schedule of
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application of wage adjustments shall be shown in "Exhibit A--Wage Schedule,"
attached hereto and made part of this Agreement.
JOB EVALUATION PLAN
(40) The Company and the Union agree that the present schedule of
job classifications have been properly evaluated in accordance with the
NMTA-AAIM Job Evaluation Plan. It is further agreed that when new job
classifications are created or major changes occur in the job content of
present classifications of work justifying a change in labor grade, they
shall be evaluated by the Company in accordance with the provisions and
principles of the NMTA-AAIM Job Evaluation Plan. The Company, in order to
facilitate production, may establish a temporary classification and hourly
rate for such operations consistent with the established wage schedule, and
within thirty (30) days shall furnish the Union with an appropriate job
description and evaluation of the new or revised job classification. Any
question or dispute concerning the correctness of an evaluation may be
processed through the grievance procedure. If a higher rate than the initial
temporary rate is established, it shall be applied retroactively to the date
when the operation began.
TEMPORARY TRANSFER RATE
(41) When an employee is temporarily assigned to work in another
classification, he shall receive the top hourly rate for the new job, or his
regular hourly rate, whichever is higher.
SHIFT DIFFERENTIAL
(42) Employees regularly assigned to the second (afternoon) shift
shall be paid a premium of twenty-five (25) cents per hour for all hours
worked on their shift. Employees assigned to the third (midnight) shift shall
be paid a shift premium of thirty (30) cents per hour for all hours worked on
their shift. In the case of employees whose shift may overlap two (2) shifts,
the premium they shall be entitled to shall be based on the shift for which
the majority of hours are worked.
RESERVE DUTY PAY
(43) The Company will grant to its employees, other than
probationary employees, leaves of absence with pay equal to the difference
between their pay for forty (40) hours per week at straight time, exclusive of
premium pay, and the amount received from the Government for up to two (2)
weeks per year for reservists and members of the National Guard required to
participate in the annual active duty training sessions of the United states
Armed Forces.
REPORT-IN PAY
(44) Any employee permitted to report for work without having been
properly notified, shall be paid four (4) hours pay at his regular rate of
pay, except in the case of labor disputes or other conditions beyond the
control of the Company (such as an act of God, fire, flood, storm or power
failure). However, if offered four (4) hours employment, reasonably within his
capacity to perform, he shall perform such work or forfeit report-in pay.
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CALL-IN PAY
(45) An employee called back to work after leaving the plant at
the end of his work shift or called in to work on a non-scheduled work day
shall receive in such instances pay for the hours worked at the applicable
rate of pay, or as a minimum, four (4) hours pay at his straight time hourly
rate, whichever is the greater payment.
ARTICLE VII - OTHER
ECONOMIC BENEFITS
VACATION PLAN
(46) Vacation with pay shall be granted to all eligible employees
on a fiscal year basis beginning June 1 and ending May 31 in accordance with
the eligibility provisions of this section and the following schedule:
(A) VACATION PAY SCHEDULE
<TABLE>
<CAPTION>
Accumulated
Seniority Vacation Straight Time
As of May 31 Time Off Hours Paid
----------------- ---------- -------------
<S> <C> <C>
6 Mo. to 1 Yr. 2 1/2 Days 20 Hrs.
1 Yr. to 3 Yr. 1 Week 40 Hrs.
3 Yr. to 10 Yr. 2 Weeks 80 Hrs.
10 Yr. to 20 Yr. 3 Weeks 120 Hrs.
20 Yr. and Over 4 Weeks 160 Hrs.
</TABLE>
(B) COMPUTATION OF ALLOWANCE
Straight time hours paid shall be calculated at the employee's
regular straight time hourly rate in effect on the preceding May 1st or the
last day worked if separated earlier. Eligibility requirements: Requirements
to earn a full vacation will be minimum of 1,560 clock card hours worked for
employees over one year service on May 31 and 780 minimum hours for
individuals over six months but less than one year as of May 31. Pro rate
share will be paid to those individuals not meeting minimum requirements; for
example, if an individual only worked 1400 hours during the fiscal year, he
would receive 1400/1560 x eligibility hours x rate. Employees who are off work
because of a recognized injury covered by workmen's compensation and who are
drawing weekly benefits will be credited with forty (40) hours per week up to
a maximum of thirteen (13) weeks only during the year in which the accident
occurred.
(C) LOSS OF SENIORITY
An employee with six (6) months or more seniority whose services are
terminated (except for discharge for cause) or who voluntarily separates from
the Company and thereby loses his seniority shall be entitled to receive his
accrued vacation allowance as of the date of his loss of seniority.
(D) VACATION SELECTION
The vacation period shall be from June 1 to May 31. Employees may
select their time of vacation within the vacation period by job classification
within the department in order of plant seniority.
In order to maintain efficient operations, employees must submit
their vacation plans for approval to their respective supervisors. Once an
employee has made their choice, they will be given approval within a
reasonable time. After the Company has
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approved an employee's vacation, it cannot be revoked by the Company for
production requirements, unless the employee has changed classifications or
shifts since approval has been given.
(e) Upon at least sixty (60) days notice, the Company may
schedule a vacation plant shutdown for not more than one (1) week at any time
during the vacation period. Employees will be expected to take their vacations
during the shutdown; however, employees who do not elect to take their
vacation during the shutdown will be granted a personal leave of absence.
(f) If additional manpower is required beyond the departments
scheduled to work during the vacation shutdown, the additional employees will
be selected by seniority, qualifications and physical capacity to do the work
required. Additional manpower requirements in labor grades 8, 9, and 10 will
be selected by seniority and physical capacity only.
PAID HOLIDAYS
(47) It is the intention of the Company to avoid production work
on each named holiday. All employees on the active payroll not required to
work the full holiday shall be eligible for eight (8) hours holiday pay at
their regular hourly rate, exclusive of shift premium pay, for each of the
following holidays:
(a) New Year's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, Friday after Thanksgiving Day, Christmas Eve,
Christmas Day, New Year's Eve, and two (2) days during year-end shutdown.
(b) To determine an employee's eligibility for holiday pay, the
following provisions shall be applicable:
(i) The employee shall be on the active seniority list
except that probationary employees who have been on
the active payroll for thirty (30) days shall
qualify for holiday pay if otherwise eligible.
(ii) The employee who has worked the last scheduled full
work day prior to and the next scheduled full work
day after the holiday, unless he has been excused
for justifiable cause.
(iii) The employee has not refused to perform emergency
work on the holiday or has not failed to report when
scheduled to work on such holiday unless he has been
excused for justifiable cause.
(iv) An employee on vacation when the holiday falls shall
be entitled to holiday pay in addition to his
vacation pay and may be scheduled off the day
preceding or the day following his vacation period or
neither at the option of the employee.
(v) An employee who has been laid off in a reduction of
force or granted and approved disability leave or
leave of absence for military service during the
week prior to or during the week in which the
holiday falls shall receive pay for such holiday.
(vi) An employee returning from an authorized disability
leave during the week or the week following the week
in which the holiday falls shall receive pay for
such holiday.
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GROUP INSURANCE PLAN
(48)(a) The Company will provide group medical insurance benefits for
all active employees and their dependents as set forth in the plan booklet,
effective July 1, 1995, and shall continue in effect for the duration of this
agreement. All employees will contribute to the cost of the plan according to
the schedule shown in the plan booklet.
Employees who are drawing weekly sickness and accident disability checks will
be entitled to group hospitalization insurance provided they make the required
weekly contributions for their insurance. The company will retain the group
hospitalization insurance for the employee and their dependents for up to
thirteen (13) weeks. Employees who are on a recognized workmen's compensation
leave and who are drawing weekly benefits will be entitled to group
hospitalization insurance provided they make the required weekly contributions
for their insurance. The Company will retain this insurance for the employees
and their dependents for the duration of the time they are drawing weekly
benefits.
(b) The Company and the Union agree to the establishment of an
Insurance Committee consisting of one bargaining unit employee at each
location to be mutually agreed upon by the Company and the Union to serve in
an advisory capacity only. The committeeman will not conduct insurance
business during regular shift hours. The group insurance plan will be improved
as follows:
Life & AD&D Insurance -
Effective July 1, 1995 - Increase to $19,000
Effective July 1, 1996 - Increase to $20,000
Effective June 30, 1997 - Increase to $21,000
Sickness and Accident Insurance -
Effective July 1, 1996 - Increase to $175.00
Any employee having a dispute arising out of the insurance program
will first try to resolve the matter with the insurance department. If the
dispute is not resolved, the employee may request that his respective
insurance committeeman meet with a member of the insurance department
conferring if necessary with the Industrial Relations Manager and/or a
representative of the insurance carrier using their best efforts to resolve
the dispute.
PENSION PLAN
(49) The Pension Plan for hourly employees will be reinstated with
benefit accruals starting July 1, 1995. The pension factor will be increased
by $2.00 effective July 1, 1995, thus changing the pension formula from $12/5
to $12/7. The $2.00 factor increase will revert back to all service on or
after January 1, 1990, except for the period in which the plan was frozen and
will apply to those employees retiring on or after July 1, 1995. Employees
will receive a copy of the Pension Plan within three (3) months of the
contract effective date.
JURY DUTY
(50) An employee with at least thirty (30) days service who is
summoned and reports for jury duty or subpoenaed to serve as a witness in
court proceedings as prescribed by applicable law, shall be paid by the
Company the amount of wages (maximum of forty (40) hours straight time per
week, exclusive of premium pay) the employee would otherwise have earned by
working straight time hours for the Company on that day, and for each day on
which he reports for or performs jury duty and on which he otherwise would
have been scheduled to work for the Company. An employee released from jury
duty in time to work at least half a shift will do so.
The Company's obligation to pay an employee for jury duty is limited
to a maximum of sixty (60) days in any calendar year.
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In order to receive payment, an employee must give the Company prior
notice that he has been summoned for jury duty or as a witness and must
furnish satisfactory evidence that he reported for or performed jury duty on
the days for which he claims such payment. Payment will be made weekly upon
proper presentation of proof of jury service. The provisions of this paragraph
are not applicable to an employee who, without being summoned, volunteers for
jury duty.
BEREAVEMENT PAY
(51)(a) In case of death in an employee's immediate family; i.e.,
spouse, parent, parent of current spouse (current spouse includes a deceased
spouse where the employee has not remarried), child or stepchild, grandchild,
brother or sister, the employee on request will be excused for any of the
first three (3) normally scheduled work days (excluding Saturdays and
Sundays) immediately following the date of death. Adequate proof shall be
furnished the Company on request. An employee excused for such reason shall
receive the amount of wages he would otherwise have earned not to exceed eight
(8) hours per day at his current regular straight time hourly rate, exclusive
of any overtime or night shift premium.
(b) Day of funeral pay will be granted for grandmothers and
grandfathers.
ARTICLE VIII - GRIEVANCE PROCEDURE
PURPOSE
(52) The procedure under this article is available to the Union
for the presentation and settlement of grievances arising under the
interpretation or application of the terms of this agreement as they relate to
wages, hours of work and working conditions and all other conditions of
employment including discharge cases.
Any grievance not answered within the time limits as hereinafter
provided may be appealed to the next step without having been answered.
Exceptions to the time limits for a grievance may be made in writing by
agreement of both parties.
The Union processing the grievance into each appropriate step will
have the Company initial and date the grievance. The Union will also initial
and date the grievance.
FOREMAN AND SUPERINTENDENT'S STEP
(53)(a) An employee or group of employees, having a question,
complaint, dispute or alleged grievance arising under the terms of this
Agreement, shall present the matter verbally to his supervisor in person or in
company with his Departmental Steward. The supervisor and the steward shall
use their best efforts to resolve the matter.
(b) If deemed necessary by the supervisor or the departmental
steward, the departmental head and a grievance committeeman may be requested
to participate in reaching a satisfactory settlement.
(c) If the grievance cannot be settled satisfactorily within the
foregoing step within three (3) working days, it may be reduced to writing on
forms provided by the Company. The grievance shall be signed by the aggrieved
employee or employees, and the departmental steward. The departmental
supervisor shall have two (2) working days thereafter to submit his decision
in writing thereon. The grievance shall be considered abandoned or
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settled if it is not appealed to the next step within five (5) working days.
INDUSTRIAL RELATIONS MANAGER'S STEP
(54) If the disposition in the foregoing step has not satisfactorily settled
the grievance, it may be appealed to the Industrial Relations Manager's step
not later than five (5) working days from the time of receiving the foreman's
disposition. The Industrial Relations Manager shall review and investigate the
grievance within ten (10) working days of receipt of the grievance, conferring
with a member of the Grievance Committee and such other persons essential to
resolving the issue. The Company's disposition shall be considered abandoned or
settled if it is not appealed to the next step within ten (10) working days.
PRESIDENT'S STEP
(55)(a) If the Industrial Relations Manager's disposition has not
satisfactorily settled the employee grievance, it may then be appealed by the
Union Grievance Committee to the President (or his designated representative)
within ten (10) working days in a further effort to adjust the grievance. An
International Union staff representative shall participate in all President's
appeal step meetings; such meetings will be arranged each month on a regular
schedule. Any grievance not appealed within the time limit shall be
automatically closed on the basis of the previous decision and shall not be
subject to further appeal. The President shall issue the Company's final
disposition of the grievance within five (5) working days after the appeal
meeting is held. Any grievance not appealed in writing to arbitration as
hereinafter provided within twenty-one (21) working days after receipt of the
President's decision shall automatically be closed on the basis of such
decision and shall not be subject to further appeal.
(b) The grievant, the respective departmental steward and the Chief Stewards
for both the Main Plant and Foundry may also be in attendance. The privilege of
attending the grievance meeting during their regular shift hours will be
extended without loss of pay. In the case of a class grievance, the steward
will act as spokesman for the grievance.
ARBITRATION STEP
(56) If a grievance shall not be satisfactorily disposed of under the
preceding steps, it may be submitted to arbitration upon proper notification by
the Union. Notice of appeal of a grievance by the Union to arbitration shall be
given in writing to the Company not later than twenty-one (21) working days
following the date of receipt of the written decision of the president.
SELECTION AND POWERS OF ARBITRATOR
(57)(a) Within ten (10) working days after notification from the Union that
a grievance has been appealed to arbitration, the Company and the Union shall
jointly request from the Director of the Federal Mediation an Conciliation
Service, Washington, D.C., a panel of eligible arbitrators. An arbitrator shall
be selected from the panel by mutual consent of the Company and the Union by a
process of elimination within ten (10) working days of receipt of such panel.
(b) It is understood and agreed that the arbitrator shall have no power to
add to or subtract from or modify any of the terms of this Agreement. The
arbitrator shall be limited to the construction or interpretation of actual
contract language in this agreement and to the terms and conditions of the
Group Insurance Plan and the Pension Plan Agreement. The arbitrator shall be
authorized only to interpret the related provisions of this Agreement and apply
them to the specific facts of the
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case submitted for his decision. The decision of the arbitrator shall be final
and binding upon the Company, the Union and the employees. All expenses and
fees of the arbitrator are to be borne equally by the Company and the Union,
and all other expenses shall be borne by the party incurring them.
Disputes regarding the Group Insurance Plan and Pension Plan will not be
entered into the grievance procedure until all internal appeals as specified in
the plans have been exhausted.
STRIKES AND STOPPAGES
(58) The Union agrees that there shall be no strike, work stoppage, or
interruption or impeding of work in the plant, and the Company agrees that
there shall be no lockouts. The Company reserves the right to discipline any
employee taking part in any violation of this section of this Agreement.
DISCHARGE PROCEDURE
(59) The Company will provide the discharged employee a letter setting forth
the charges that have resulted in discharge. An employee who believes he has
been unjustifiably discharged may request a hearing and file a written
grievance which shall be heard in the Industrial Relations Manager's step and
appealed through the Grievance Procedure; providing that the right to grieve
shall be deemed to be waived if no written grievance has been presented within
five (5) working days after the discharge is effective. Discharged employees
may request the opportunity to see their Departmental Steward or Grievance
Committeeman before leaving the plant.
RETROACTIVE CLAIMS
(60) No claims, including claims for back wages, by any employee covered by
this Agreement, or by the Union, against the Company, shall be retroactive for
a period of more than three (3) working days Prior to the date on which the
grievance was first filed in writing, unless the circumstances of the case made
it impossible for the employee, or for the Union, as the case may be, to know
that he, or the Union had grounds for such claim prior to that date, in which
case the claim shall be limited retroactively for a period of forty (40) work
days prior to the date the claim was first in writing.
In the event an employee is discharged, no claim shall be retroactive for a
period of five (5) working days prior to the date on which the grievance is
first filed in writing.
ARTICLE IX - GENERAL PROVISIONS
SUPERVISOR'S WORKING
(61) Representatives of the Company such as superintendents, foremen,
assistant foremen, time study men, administrative and office employees shall
not perform the regular work of any employee that is covered by this Agreement
including picking up shop related parts and material from downtown, except for
purposes of instruction, testing materials and methods, and in the case of
emergencies.
UNION BULLETIN BOARD
(62) The Company will maintain three (3) bulletin boards in the main plant
and one (1) in the foundry which will be reserved for use by the Union in
posting notices of its meetings, recreational and social affairs, Union
elections, appointments and results of Union elections, and other matters
pertaining to
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official Union activities. Should the Union desire to post other material, the
consent of the Company must be obtained.
EMPLOYMENT TRANSFER OPPORTUNITY
(63) In the event the operations of the Powermatic Division plant are moved
to another location, all employees laid off as of a direct result of such plant
removal, including those on the active seniority list, will be offered the
opportunity to accept employment at the new location in accordance with their
seniority subject to the need for their skills and qualifications before any
other employees are hired in the classification of work required.
LEGAL LIMITATIONS
(64) If any provisions of the Agreement is or shall be in conflict with the
requirements of Federal or State legislation, orders, decrees, rules, or
regulations, the same shall be deemed amended so as to conform thereto.
WAIVER
(65) The parties acknowledge that during the negotiations which resulted in
this Agreement, each had the unlimited right and opportunity to make demands
and proposals with respect to any subject or matter not removed by law from the
area of collective bargaining, and that the understandings and agreements
arrived at by the parties after the exercise of that right and opportunity are
set forth in this Agreement. Therefore, the Company and the Union, for the life
of this Agreement, each voluntarily and unqualifiedly waives the right, and
each agrees that the other shall not be obligated, to bargain collectively with
respect to any subject or matter referred to or covered in this Agreement, or
with respect to any subject or matter not specifically referred to or covered
in this Agreement, even though such subject or matter may not have been within
the knowledge or contemplation of either or both of the parties at the time
that they negotiated or signed this Agreement.
SUB-CONTRACTING
(66) The Company will not sub-contract providing the necessary skills are
available in the bargaining unit and suitable equipment and machinery is
available and the task can be performed when required and at a competitive
cost. The Company will review monthly with the Union President the status of
work sub-contracted during that month.
INJURY PAY
(67) On the date an accident occurs, the employee will be paid through the
end of his shift provided he is unable to work. After the employee returns to
work, any time lost for subsequent medical treatment that cannot be scheduled
in off-hours will be paid by the Company.
PRIOR AGREEMENT
(68) This Agreement supersedes and cancels all other Agreements which are in
conflict with the intent and provisions of this Agreement.
PAF DEDUCTION AUTHORIZATION
(69) The Company agrees that it will check off and transmit to the Treasurer
of the United Steelworkers of America Political Action Fund (USWA PAF)
voluntary contributions to the USWA
Page 19
<PAGE> 20
PAF from the earnings of those employees who voluntarily authorize such
contributions on forms provided for the purpose of the USWA PAF. The amount
and timing of such check-off deductions and the transmittal of such voluntary
contributions shall be as specified in such forms and in conformance with any
applicable state or federal statute.
The signing of such USWA PAF check-off form and the making of such voluntary
annual contributions are not conditions of membership in the Union or of
employment with the Company.
The Union shall indemnify and save the Company harmless against any and all
claims, demands, suits or other forms of liability that shall arise out of or
by reason of action taken or not taken by the Company for the purpose of
complying with any of the provisions of this section.
The United Steelworkers of America Political Action Fund supports various
candidates for federal and other elective office, is connected with the United
Steelworkers of America, a labor organization, and solicits and accepts only
voluntary contributions, which are deposited in an account separate and
segregated from dues fund of the Union, in its own fund-raising efforts with
the AFL-CIO and its Committee on Political Education.
TRAINING
(70) The Company and the Union recognize and agree that employee training is
essential and desirable for the best interests of the Company to continue its
high quality of production and for the continued job opportunity and security
of its employees. Accordingly, an employee entering a course of study, which is
directly related to the work performed at the Company including remedial
education, sponsored by an accredited or recognized institution of learning,
shall, upon satisfactorily completing the course, be reimbursed for tuition
paid and the required textbooks purchased. Employees wishing to participate in
the training program shall make application to the Personnel Office prior to
entering the course.
ARTICLE X - SAFETY & HEALTH
(71) The Company and the Union, recognizing the importance of and desiring
to promote safety in the plant, agree to the establishment of a joint Safety
Committee to consider existing practices and rules relating to health and
safety, formulate suggested changes in existing practices and rules, and
further recommend the adoption of new rules and practices.
(a) The Safety Committee shall be composed of one or more employees from
each shift of ten (10) or more employees, one each from the Assembly Department
and Machine Shop in the main plant and one from the foundry, and an equal
number from the Company. The employees who shall be designated by the Union to
be representatives on such committee shall be employees who have knowledge of
the practices of the plant. Such committeemen shall be paid for all time lost
from their regular shift for attending committee meetings and when performing
other authorized duties.
(b) Advices of the Safety Committee together with supporting suggestions,
recommendations, and reasons shall be submitted to the Manager of Manufacturing
or the Foundry Manager (or their designated representative) for such action as
may be consistent with the Company's responsibility to provide for the safety
and health of its employees during the hours of their employment.
(c) The Safety Committee shall hold monthly meetings & plant tours (the
dates to be determined by the Committee). Minutes will
Page 20
<PAGE> 21
be kept and distributed to all committee members within three (3) working days
of the most recent meeting.
(d) The Union members of the Safety Committee will have access to all areas
of the plant where employees represented by the Union work upon obtaining
approval of their department supervisor and the supervisor of the department to
be visited for the purpose of investigating a safety matter.
(e) The Company shall notify the joint Safety Committee prior to the time
new machinery or new work processes are put into use to help protect the safety
and health of the employees.
(f) Compliance with this paragraph is to insure maximum cooperation in the
prevention of accidents. The objective is not to obtain approval of the Union
to put the changes into effect.
ARTICLE XI - DURATION
TERM OF AGREEMENT
(72) This Agreement shall continue in effect until June 29, 1998, and shall
continue from year to year after that date unless either party gives notice in
writing of its intention to terminate the Agreement or to enter negotiations
for the purpose of amending the Agreement at least sixty (60) days prior to any
such yearly date of termination.
NOTIFICATIONS
(73) Any notice to be given under the Agreement shall be given by certified
mail by either party to the other. If given by the Company, it shall be
addressed to the United Steelworkers of America, 501 Metroplex Dr. suite 205,
Nashville, Tennessee 37211, with a copy to the President of the Local; and if
given by the Union, it shall be addressed to the Company at Morrison Road,
McMinnville, Tennessee 37110. Either party may, by like written notice, change
the address to which the certified mail notice to it shall be sent in the
future.
Page 21
<PAGE> 22
SIGNATORIES
(74) IN WITNESS HEREOF, the parties hereto have caused their names to be
subscribed by their duly authorized officers and representatives the day and
year first written above.
POWERMATIC DIVISION OF UNITED STEELWORKERS OF AMERICA
DEVLIEG-BULLARD, INC. AFL-CIO-CLC
/s/ George Delaney
- -------------------------------- -----------------------------------
GEORGE DELANEY GEORGE BECKER
President International President
/s/ Ben Nixon
- -------------------------------- -----------------------------------
BEN NIXON LEO GERARD
Industrial Relations Mgr. International Secretary-Treasurer
/s/ Bobby Sparkman
- -------------------------------- -----------------------------------
BOBBY SPARKMAN RICHARD DAVIS
Factory Superintendent International V.P., Administration
/s/ George Paquette
- -------------------------------- -----------------------------------
GEORGE PAQUETTE LEON LYNCH
Foundry Manager International V.P., Human Affairs
-----------------------------------
JOE L. KIKER
District Director
/s/ James Buckley
-----------------------------------
JAMES BUCKLEY
Sub-District Director
/s/ Frank Driver
-----------------------------------
FRANK DRIVER
President, Local Union 7431
/s/ Boyd Trapp
-----------------------------------
BOYD TRAPP
Negotiating Committee
/s/ James Harris
-----------------------------------
JAMES HARRIS
Negotiating Committee
/s/ Sidney Hobbs
-----------------------------------
SIDNEY HOBBS
Negotiating Committee
/s/ H. J. Crosslin
-----------------------------------
H. J. CROSSLIN
Negotiating Committee
<PAGE> 23
POWERMATIC 607 Morrison Street
McMinnville, Tennessee 37110, Telephone (615) 473-5551
June 30, 1995
Mr. James P. Buckley
Sub-District Director
United Steelworkers of America
501 Metroplex Drive
Suite 205
Nashville, TN 37211
Dear Mr. Buckley:
It was agreed during the labor negotiations in June, 1995, that this confirming
letter would remain in effect during the life of the new agreement dated July
1, 1995.
Confirming the agreement reached during labor negotiations in August, 1983, it
was agreed that in the event the National Labor Relations Board's decision
regarding the application of Super Seniority for Officers of the Union is
reversed, Officers Super Seniority will be restored to Paragraph (17) "Union
Representatives Seniority" in accordance with the law.
Sincerely,
POWERMATIC
/s/ George W. Delaney
- ---------------------
George W. Delaney
President
GWD/ln
<PAGE> 24
POWERMATIC 607 Morrison Street
McMinnville, Tennessee 37110, Telephone (615) 473-5551
June 30, 1995
Mr. James P. Buckley
Sub-District Director
United Steelworkers of America
501 Metroplex Drive
Suite 205
Nashville, TN 37211
Dear Mr. Buckley:
Confirming the agreement reached during labor negotiations in June, 1995, it as
agreed with respect to Article VIII paragraph (46) "Vacation Plan" that
vacation pay would be paid as follows:
Employees will notify the Company by the close of the second full work week in
May which of the following options they wish to elect relative to receipt of
their vacation pay.
1) All vacation pay to be paid, as far as possible,
by the fifth (5th) working day in June.
2) The employee elects to receive _______ week(s) of
his vacation pay by he fifth (5th) working day in
June and ________ week(s) to be paid at a later
date, which would require five (5) working days
advance notice.
3) The employee elects to receive his vacation pay as
he takes his vacation, which would require five (5)
working days advance notice.
Employees receiving less than 40 hours in any one check will receive such pay
by the fifth (5th) working day in June as far as possible.
Any unused vacation pay would be paid to the employee at the end of the
vacation period.
Sincerely,
POWERMATIC
/s/ George W. Delaney
- ---------------------
George W. Delaney
President
GWD:lfg
<PAGE> 25
POWERMATIC 607 Morrison Street
McMinnville, Tennessee 37110, Telephone (615) 473-5551
June 30, 1995
Mr. James P. Buckley
Sub-District Director
United Steelworkers of America
501 Metroplex Drive
Suite 205
Nashville, TN 37211
Dear Mr. Buckley:
It was agreed during the labor negotiations in June, 1995, that this confirming
letter would remain in effect during the life of the new agreement dated July,
1995.
Confirming the agreement reached during labor negotiations in August 1983, it
was agreed that the following language would be applied to Paragraph (23)
"Temporary Transfer Assignments" of the labor agreement at the Foundry.
FOR PERIODS OF TIME NOT TO EXCEED TEN (10) DAYS, JUNIOR
QUALIFIED EMPLOYEES MAY BE TRANSFERRED FROM THEIR REGULAR
SHIFT TO ANOTHER SHIFT PROVIDED THE COMPANY IS UNABLE TO
OBTAIN SUFFICIENT VOLUNTEERS. THE ABOVE PROCEDURE WILL BE
APPLIED ONLY IN THE EVENT OF FURNACE BREAKDOWN OR REPAIR. NO
EMPLOYEE WILL BE REQUIRED TO TRANSFER MORE THAN THREE (3)
TIMES PER YEAR.
THIS LETTER DOES NOT RESTRICT THE COMPANY FROM ASKING
EMPLOYEES TO VOLUNTEER TO TEMPORARY TRANSFER TO OTHER SHIFTS.
Sincerely,
POWERMATIC
/s/ George W. Delaney
- ---------------------
George W. Delaney
President
GWD:lfg
<PAGE> 26
POWERMATIC 607 Morrison Street
McMinnville, Tennessee 37110, Telephone (615) 473-5551
June 30, 1995
Mr. James P. Buckley
Sub-District Director
United Steelworkers of America
501 Metroplex Drive
Suite 205
Nashville, TN 37211
Dear Mr. Buckley:
It was agreed during the labor negotiations in June 1995, that this confirming
letter would remain in effect during the life of the new agreement dated July,
1995.
During labor negotiations in August 1992, the Company agreed to submit to the
International Union on November 1, 1992, and each three (3) months thereafter,
for the term of this agreement, a Profit-loss Statement for the Union's
examination. The Company further agrees to provide to the International Union
any other documents concerning its profitability as the union may require to
determine its true financial condition.
Sincerely,
POWERMATIC
/s/ George W. Delaney
- ---------------------
George W. Delaney
President
GWD:ln
<PAGE> 27
POWERMATIC 607 Morrison Street
McMinnville, Tennessee 37110, Telephone (615) 473-5551
July 13, 1995
Mr. James P. Buckley
United Steelworkers of America
501 Metroplex Drive, Suite 205
Nashville, TN 37211
Dear Mr. Buckley:
The following letter of understanding is in effect provided the employees
report for work on Monday, July 17, 1995.
COBRA - The Company will charge those employees electing COBRA 100% rather than
102% of the premium.
The Company will provide continuous coverage for the Group Medical Insurance
with no break in coverage during the work stoppage.
The Company will deduct medical insurance premiums from all employees electing
coverage on a pre-tax basis no later than July 1, 1996, provided it is
possible.
All probationary employees on the active seniority roster as of June 30, 1995,
will be considered permanent employees effective July 17, 1995.
For the Company For the Union
/s/ George W. Delaney /s/ James P. Buckley
- --------------------- --------------------
George W. Delaney James P. Buckley
<PAGE> 28
POWERMATIC 607 Morrison Street
McMinnville, Tennessee 37110, Telephone (615) 473-5551
July 18, 1995
Mr. James P. Buckley
United Steelworkers of America
501 Metroplex Drive, Suite 205
Nashville, TN 37211
Dear Mr. Buckley:
Confirming the Agreement reached during labor negotiations in July, 1995, it is
the Company's intent to re-evaluate all jobs at the foundry and, where
feasible, consolidate or combine a number of existing job classifications.
Such jobs will be re-evaluated in accordance with the NMTA-AAIM job evaluation
plan as specified in Paragraph (40) of the current collective bargaining
agreement. This will be accomplished by August 1, 1996, unless the time is
extended by mutual agreement.
Sincerely,
POWERMATIC
/s/ George W. Delaney
- ---------------------
George W. Delaney
President
GWD:js
<PAGE> 29
POWERMATIC 607 Morrison Street
McMinnville, Tennessee 37110, Telephone (615) 473-5551
July 18, 1995
Mr. James P. Buckley
United Steelworkers of America
501 Metroplex Drive, Suite 205
Nashville, TN 37211
Dear Mr. Buckley:
Confirming the Agreement reached during labor negotiations in July, 1995, it is
the Company's intent to re-evaluate the following skill job classifications in
accordance with the NMTA-AAIM job evaluation plan as specified in Paragraph
(40) of the current collective bargaining agreement and to make the required
adjustments where justified by August 1, 1996.
Maintenance (main plant and foundry)
Tool Room
Tool and Cutter Grinder
Pattern Makers
Furnace Operators
Sincerely,
POWERMATIC
/s/ George W. Delaney
- ---------------------
George W. Delaney
President
GWD:js
<PAGE> 30
EXHIBIT "A"
WAGE SCHEDULE
EFFECTIVE 7/1/95
LG Start 6 Mo. 1 Yr
10 $8.58 $8.64 $8.70
9 $8.72 $8.79 $8.85
8 $8.86 $8.93 $9.00
7 $9.01 $9.08 $9.15
6 $9.16 $9.24 $9.31
5 $9.32 $9.41 $9.47
4 $9.48 $9.59 $9.70
3 $9.71 $9.84 $9.97
2 $9.97 $10.11 $10.23
1 $10.25 $10.37 $10.50
Effective 7/1/96
LG Start 6 Mo. 1 Yr
10 $8.84 $8.90 $8.96
9 $8.98 $9.05 $9.12
8 $9.13 $9.20 $9.27
7 $9.28 $9.35 $9.42
6 $9.43 $9.52 $9.59
5 $9.60 $9.69 $9.75
4 $9.76 $9.88 $9.99
3 $10.00 $10.14 $10.27
2 $10.27 $10.41 $10.54
1 $10.56 $10.68 $10.82
Effective 6/30/97
LG Start 6 Mo. 1 Yr
10 $9.02 $9.08 $9.14
9 $9.16 $9.23 $9.30
8 $9.31 $9.38 $9.46
7 $9.47 $9.54 $9.61
6 $9.62 $9.71 $9.78
5 $9.79 $9.88 $9.95
4 $9.96 $10.08 $10.19
3 $10.20 $10.34 $10.48
2 $10.48 $10.62 $10.75
1 $10.77 $10.89 $11.04
Leadmen shall be paid $.25 per hour above the highest paid employee in the
group that they are leading.
Instructors shall be paid $.25 per hour above the employee that they are
instructing, or above their hourly rate, whichever is higher.
All Cell jobs will be paid at the 1 yr rate.
<PAGE> 31
EXHIBIT "A"
PART II
HOURLY JOB CLASSIFICATIONS
<TABLE>
<CAPTION>
LG Class LG Class
<S> <C> <C> <C> <C> <C>
Electronic Technician A 1 901 Fabrication Cell Opr B 4 345
Pattern Maker A 1 902 72 Saw/Shaper Cell Opr B 4 305
Tool & Die Maker A 1 904 Planer Cell Opr B 4 335
Sheave/Shaft Cell Opr B 4 320
Millwright A 2 908 TA Saw Cell Opr B 4 300
Small Machine Cell Opr B 4 350
Grinder Cell Opr A 4 316
Electronic Technician B 3 941 Tool & Cutter Grinder B 4 949
Gear/Cutterhead Cell Opr A 3 326
Band Saw/Lathe Cell Opr A 3 341 Furnace Opr Helper & Repair 5 205
Drill Press Cell Opr A 3 331 Grinder Cell Opr B 5 315
Fabrication Cell Opr A 3 346 Maintenance Utility 5 933
72 Saw/Shaper Cell Opr A 3 306 Molder, Auto Machine 5 225
Planer Cell Opr A 3 336 Tool & Die Maker C 5 915
Sheave/Shaft Cell Opr A 3 321
TA Saw Cell Opr A 3 301 Casting Painter & Repair 6 250
Small Machine Cell Opr A 3 351 Material Cell Opr A 6 311
Tool & Die Maker B 3 906 Pattern Repair 6 917
Tool & Cutter Grinder A 3 943 Sand Mix Opr 6 207
No Bake Molder 3 256 Tool Setter Coordinator B 6 950
Pattern Maker B 3 907 Wheelebrator Opr 6 208
Bar & Sheet Stock Attendant 6 929
Lift Truck Opr 6 924
Coremaker 4 255
Electric Furnace Opr 4 202 Foundry Utility Man 7 211
Inspector A 4 953 Machine Molder 7 226
Millwright B 4 932 Material Cell Opr B 7 310
Tool Setter Coordinator A 4 951 Pour-off/Shakeout 7 209
Gear/Cutterhead Cell Opr B 4 325 Snag Grinder 7 210
Band Saw/Lathe Cell Opr B 4 340
Drill Press Cell Opr B 4 330 Maintenance Helper 8 935
</TABLE>
<PAGE> 32
PAID HOLIDAYS
Paragraph (47)
HOLIDAY SCHEDULE
<TABLE>
<CAPTION>
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NEW YEARS DAY 1/1 1/1 1/1
GOOD FRIDAY 4/5 3/28 4/10
MEMORIAL DAY 5/27 5/26 5/25
INDEPENDENCE DAY 7/4 7/4
LABOR DAY 9/4 9/2 9/1
THANKSGIVlNG DAY 11/23 11/28 11/27
FRIDAY AFTER THANKSGIVlNG 11/24 11/29 11/28
CHRISTMAS EVE 12/22 12/24 12/24
CHRISTMAS DAY 12/25 12/25 12/25
FLOATING HOLIDAY 12/26 12/26 12/26
FLOATING HOLIDAY 12/28 12/30 12/30
NEW YEARS EVE 12/29 12/31 12/31
</TABLE>
<PAGE> 1
EXHIBIT 10.35
CONSULTING AGREEMENT
AGREEMENT, dated as of August 1, 1995, between DEVLIEG-BULLARD, INC.,
a Delaware corporation (the "Company"), and STANWICH PARTNERS, INC., a Delaware
corporation (the "Consultant").
W I T N E S S E T H :
WHEREAS, the Consultant, by and through its officers and other
employees, has developed in connection with the conduct of its business and
affairs various areas of expertise in the fields of general corporate
management, corporate financing and business investment; and
WHEREAS, the Company desires to obtain the assistance of the
Consultant in those areas hereinabove enumerated and in which the Consultant is
acknowledged to have expertise, for a period of three (3) years from the date
of this Agreement; and
WHEREAS, the Company wishes to employ the Consultant and the
Consultant is desirous of being so employed;
NOW THEREFORE, in consideration of the foregoing and mutual covenants
herein contained, the parties agree as follows:
1. Engagement.
The Company hereby engages the Consultant and the Consultant hereby
accepts such engagement for the term set forth in Paragraph 3 below as a
consultant.
2. Duties and Responsibilities.
During the term hereof, the Consultant shall be a consultant to the
Company, and shall render to the Company, by and through its officers,
employees and agents as the Consultant, in its sole discretion, shall designate
from time to time, executive consulting services. Said consulting services
shall consist of general management, finance and business investment, and such
other financial, administrative and management consulting services as shall
from time to time be requested by the President of the Company and his
authorized designees, up to a maximum not to exceed twenty (20) hours in any
week during the term hereof unless the Consultant shall otherwise agree.
3. Term.
The term of the Consultant's engagement pursuant to this Agreement
shall commence on the date hereof and shall end on July 31, 1998.
<PAGE> 2
4. Compensation.
For services rendered under this Agreement during the term hereof, the
Company shall pay the Consultant compensation in the amount of $21,750 per
month.
5. Reimbursement of Expenses.
The Company agrees to reimburse the Consultant for all reasonable
business expenses incurred or expended by such corporation and its employees
incident to the performance of the Consultant's duties hereunder upon
submission by the Consultant to the Company of expense reports and reasonable
vouchers or other evidence supporting such expenses.
6. Restrictive Covenants and Confidentiality; Injunctive Relief.
(a) Recognizing that certain of the knowledge, information and
relationship with resources, suppliers and customers of the Company and their
subsidiaries, and the knowledge of the Company's and its subsidiaries'
financial condition, business methods, systems, trade secrets, know-how,
proprietary processes, plans and policies which the Consultant has and shall
hereafter establish, receive or obtain as an employee of the Company and its
subsidiaries, are valuable, special and unique assets of the business of the
Company and its subsidiaries, Consultant agrees that during and for a period of
six months after the term of this Agreement, Consultant shall not disclose,
without the prior written consent of the Board of Directors of the Company, any
confidential proprietary or non-public proprietary knowledge or information
pertaining to the Company and its subsidiaries, their management, financial
condition, customer lists, trade secrets, know-how, proprietary processes,
sources of supply, business, personnel, policies or prospects, to any person,
firm, corporation or other entity other than Consultant's agents and employees,
other than disclosure in the conduct of the business of the Company which the
Consultant determines in good faith to be in the interest of the Company,
provided that after the term hereof these restrictions shall not apply to such
secrets, know-how and proprietary processes which are then in the public domain
(provided that the Consultant was not directly responsible for such secrets,
know-how or processes entering the public domain without the Company's
consent).
(b) Consultant acknowledges and agrees that all memoranda, notes,
reports, records and other documents made or compiled by the Consultant, or
made available to the Consultant prior or during the term of this Agreement,
concerning the Company's and its subsidiaries' business, shall be the Company's
property and shall be delivered to the Company on the termination of this
Agreement or at any other time on request by the Board of Directors of the
Company.
(c) The provisions of this Paragraph 6 shall survive the
termination or expiration of this Agreement for a period of six months
irrespective of the reason therefor.
2
<PAGE> 3
7. Notices.
All notices, requests, demands and other communications provided for
by this Agreement shall be in writing and shall be personally delivered or
mailed (by registered or certified mail) to Stanwich Partners, Inc., One
Stamford Landing, 62 Southfield Avenue, Stamford, Connecticut 06902,
Attention: Charles E. Bradley, in the case of the Consultant, or to the
Company at One Gorham Island, Westport, Connecticut 06880, Attention: William
O. Thomas, or to such office or address as the Company shall notify Consultant.
Any such notices shall be effective upon receipt, if personally
delivered, or three business days after mailing, if mailed.
8. Assignability and Binding Effect.
This Agreement shall inure to the benefit of and shall be binding upon
the successors, assigns and legal representatives of the Consultant, and shall
inure to the benefit of and be binding upon the Company and its successors, but
the obligations of the Consultant and the Company may not be delegated without
the prior written consent of the other party.
9. Complete Understanding.
This Agreement constitutes the complete understanding between the
parties with respect to the engagement of the Consultant hereunder and no
statement, representation, warranty or covenant has been made by either party
with respect thereto except as expressly set forth herein. This Agreement
shall not be altered, modified, amended or terminated except by written
instrument signed by each of the parties hereto.
10. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
11. Severability.
In case any one or more of the provisions of this Agreement shall be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any
way be affected thereby.
12. Paragraph Headings.
The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
3
<PAGE> 4
13. Termination of Old Consulting Agreements.
This Agreement supersedes and replaces the Old Consulting Agreements
(as defined below) which have either terminated or are hereby terminated. As
used herein, the term "Old Consulting Agreements" means, collectively, the
Consulting Agreement dated as of April 3, 1986 between the Company and the
Consultant (as amended); the Consulting Agreement dated December 23, 1988
between the Consultant and Lyons Integrated Systems, Inc; and the Consulting
Agreement dated as of July 1, 1992 between the Company and the Consultant.
IN WITNESS WHEREOF, the parties hereto have caused this document to be
executed under seal as of the day and year first above written.
DEVLIEG-BULLARD, INC.
By: /s/ William O. Thomas
-----------------------
Name: William O. Thomas
Title: President
STANWICH PARTNERS, INC.
By: /s/ John G. Poole
-----------------------
Name: John G. Poole
Title: Vice President
4
<PAGE> 1
STOCK PURCHASE AGREEMENT
AMONG
ACME-CLEVELAND CORPORATION,
AC INTERMEDIATE COMPANY
AND
DEVLIEG-BULLARD, INC.
DATED SEPTEMBER 7, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I TERMS OF PURCHASE AND SALE 1
1.01. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Purchase and Sale of the Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03. Purchase Price Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04. Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.05. Deliveries by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.06. Deliveries by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II ADDITIONAL AGREEMENTS 6
2.01. Noncompetition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.02. Release of Seller's Claims against the
Company and the Company Subsidiary . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER 6
3.01. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.02. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.03. Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.04. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.05. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 8
3.06. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . 9
3.07. Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.08. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.09. Patents, Trademarks, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.10. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.11. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.12. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.13. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.14. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.15. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.16. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.17. Corporate Power and Authority; Effect of
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.18. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.19. Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.20. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.21. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.22. Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.23. Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.24. Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.25. Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.26. Absence of Questionable Payments . . . . . . . . . . . . . . . . . . . . . . . . 25
3.27. Product and Service Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.28. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER 26
4.01. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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4.02. Corporate Power and Authority; Effect of
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.03. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.04. Availability of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.05. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.06. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.07. Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE V COVENANTS OF SELLER 28
5.01. Cooperation by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.02. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.03. Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.04. No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.05. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VI COVENANTS OF BUYER 30
6.01. Cooperation by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.02. Books and Records; Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.03. Buyer's Knowledge of Business; Seller's
Representations Modified by Buyer's
Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.04. Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.05. Performance Bonds, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.06. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VII ADDITIONAL COVENANTS 34
7.01. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.02. Cash Management; Intercompany Accounts . . . . . . . . . . . . . . . . . . . . . 38
7.03. Sharing of Environmental Costs . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VIII CONDITIONS TO BUYER'S OBLIGATIONS 39
8.01. Representations, Warranties, and Covenants
of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.02. No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.03. Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.04. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.05. Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.06. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.07. Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE IX CONDITIONS TO SELLER'S OBLIGATIONS 40
9.01. Representations, Warranties, and Covenants
of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.02. No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.03. Performance Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.04. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.05. Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.06. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.07. Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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ARTICLE X EMPLOYMENT AND EMPLOYEE BENEFITS
ARRANGEMENTS 41
10.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.02. Pay Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.03. Pension and Other Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.04. Other Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.05. Long-Term Disability Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.06. Severance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE XI TERMINATION PRIOR TO CLOSING 47
11.01. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.02. Effect on Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE XII MISCELLANEOUS 48
12.01. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.02. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.03. Interpretive Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.04. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.05. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.06. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.07. Modification and Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.08. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.09. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.10. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.11. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.12. No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.13. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
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DEFINED TERMS
<TABLE>
<CAPTION>
Page
<S> <C>
Account Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ACIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Acme-Cleveland Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Advice Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Ancillary Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Benefit Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Buyer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Buyer's Deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Buyer's Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Buyer's Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Closing Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Company Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Environmental Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Environmental Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Form 5500s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Indemnitee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Indemnitor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Interim Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Liabilities Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Noncompetition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Patent and Trademark Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Pension Plan Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Pension Plan Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Pension Transfer Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Plan Actuary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Price Waterhouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Salaried Pension Benefits Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
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Salaried Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Savings Plan Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Seller's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Seller's Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Tax Matter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Taxing Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<PAGE> 7
STOCK PURCHASE AGREEMENT
This Agreement, made and entered into this 7th day of September,
1995, by and among ACME-CLEVELAND CORPORATION, an Ohio corporation ("Parent"),
AC INTERMEDIATE COMPANY, an Ohio corporation and a wholly-owned subsidiary of
Parent ("ACIC"; Parent and ACIC are hereinafter referred to, together, and, if
the context requires, individually, as "Seller"), and DEVLIEG-BULLARD, INC., a
Delaware corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, ACIC is the owner of all of the issued and outstanding
capital stock (the "Stock") of The National Acme Company, an Ohio corporation
(the "Company"); and
WHEREAS, ACIC desires to sell to Buyer, and Buyer desires to buy from
ACIC, all of the Stock;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, and agreements, and upon the terms and subject to the
conditions, hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
TERMS OF PURCHASE AND SALE
1.01. The Closing. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the Cleveland offices of Thompson,
Hine and Flory, commencing at 9:00 a.m. no later than the fifth business day
after termination or expiration of the applicable waiting period (and any
extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder (the "HSR Act"), or
at such other time and/or place and/or on such other date as the parties may
mutually agree (the "Closing Date"). The parties agree to use reasonable
efforts to have the closing occur on or before September 29, 1995. The
effective time of the transactions contemplated hereby shall be deemed to be
the opening of business on the Closing Date.
1.02. Purchase and Sale of the Stock. (a) On the Closing Date,
Buyer shall purchase from ACIC, and ACIC shall sell to Buyer, the Stock.
(b) At the Closing, Seller shall deliver to Buyer certificates
representing the Stock, duly endorsed in blank for transfer or accompanied by
duly executed stock powers
<PAGE> 8
assigning the Stock in blank. Buyer shall bear the cost of any documentary,
stamp, sales, excise, transfer, or other taxes payable (other than income taxes
payable by Seller) in respect of the sale of the Stock.
1.03. Purchase Price Determination.
(a) Definitions. The following terms when used in this Agreement
have the meanings set forth below:
(i) "GAAP" means generally accepted accounting
principles of the United States applied in a manner consistent with
those used in the preparation of the March 31, 1995 balance sheet of
the Company and the Financial Statements (as defined in Section 3.04).
(ii) "Net Worth," means the excess, as of the
Closing Date, of (A) the Company's assets determined in accordance
with the Principles and Procedures, over (B) the Company's liabilities
determined in accordance with the Principles and Procedures.
(iii) "Net Worth Adjustment" means the amount (which
may be positive or negative) equal to $6,394,000 as set forth in
Schedule 1.03(a)(iii), as "Shareholders Equity-Adj. w-S 3/31/95" minus
the Net Worth as determined in accordance with Section 1.03(c).
(iv) "Principles and Procedures" means the
principles and procedures set forth in Disclosure Schedule
1.03(a)(iv).
(b) Purchase Price. The consideration for the Stock shall be an
amount equal to $8,700,000 minus the Net Worth Adjustment and plus or minus any
other adjustment for which provision is specifically made herein (the "Purchase
Price"). Thus, a negative Net Worth Adjustment means an additional Purchase
Price payment by Buyer; and a positive Net Worth Adjustment means a refund by
Seller of a portion of the Purchase Price payment made at Closing.
(c) Determination of Net Worth Adjustment. The amount of the Net
Worth Adjustment shall be determined in the following manner:
(i) Closing Statements; Review. Promptly after the
Closing Date, Seller will prepare a balance sheet (the "Closing
Balance Sheet") of the Company as of the Closing Date in accordance
with this Agreement and the Principles and Procedures which shall set
forth the Net Worth and the Net Worth Adjustment. Ernst & Young, LLP
("Ernst & Young"), as independent
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<PAGE> 9
certified public accountants for Seller, at Seller's expense, will
examine and test the Closing Balance Sheet prepared by Seller in
accordance with GAAP and the Principles and Procedures and will issue
their report as to the results of such examination and testing (the
"Closing Report"). Within forty-five (45) days after the Closing Date
or as soon thereafter as reasonably practicable, Seller shall direct
Ernst & Young to deliver drafts of the Closing Balance Sheet and
Closing Report to Price Waterhouse, LLP ("Price Waterhouse"), as
independent certified public accountants for Buyer, for review and
analysis at least ten (10) business days prior to final issuance of
the Closing Balance Sheet and Closing Report. Buyer and/or Price
Waterhouse shall have the opportunity to be present at physical
inventories (if any), and to review and evaluate all working papers,
worksheets, and other documents utilized by Seller in the preparation
of the Closing Balance Sheet and by Ernst & Young in the examination
and testing of the Closing Balance Sheet.
(ii) Review by the Parties. Price Waterhouse and
Ernst & Young will attempt to resolve any disputed items prior to the
issuance of the Closing Balance Sheet and Closing Report. Failing
such resolution, Buyer and Seller will exchange within thirty (30)
days of issuance of the Closing Balance Sheet and Closing Report
detailed written explanations of those items in the Closing Balance
Sheet and Closing Report that remain in dispute. The amount of the
Net Worth Adjustment not affected by the disputed items will be deemed
to be as set forth in the Closing Balance Sheet and Closing Report.
Within a further period of thirty (30) days from the end of the
aforementioned review period, the parties will attempt to resolve in
good faith any disputed items.
(iii) Arbitration. Failing informal resolution
pursuant to subparagraph (ii) above, the unresolved disputed items
will be referred for final binding resolution to the Cleveland, Ohio
office of Deloitte & Touche LLP or to such other nationally-recognized
firm of certified public accountants as the parties may hereinafter
jointly select (the "Arbitrator"). If the Arbitrator determines that
the resolution of a given disputed item requires an interpretation of
law, then the Arbitrator may request a law firm of national standing
chosen by it to render a legal opinion as to such matter. The amount
of the Net Worth Adjustment affected by such unresolved disputed items
(if any) will be as determined by the Arbitrator. The fees, costs,
and expenses of the Arbitrator (A) shall be
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<PAGE> 10
borne by Buyer in the proportion that the aggregate dollar amount of
such disputed items so submitted that are unsuccessfully disputed by
Buyer (as finally determined by the Arbitrator) bears to the aggregate
dollar amount of such items so submitted and (B) shall be borne by
Seller in the proportion that the aggregate dollar amount of such
disputed items so submitted that are successfully disputed by Buyer
(as finally determined by the Arbitrator) bears to the aggregate
dollar amount of such items so submitted.
(d) Arbitrator. The Arbitrator shall be requested, with respect to
all matters referred to it, to render its decision within thirty (30) days of a
reference or as soon as practicable thereafter. The Arbitrator shall send
copies of its decision to each of Buyer and Seller.
(e) Access to Employees. Buyer hereby acknowledges and agrees that
access to employees of the Company and the Company Subsidiary (as defined in
Section 3.03) and to representatives of Buyer may be required in order that
Seller and its representatives may prepare the Closing Balance Sheet and
Closing Report. Buyer shall make these persons available to Seller and its
representatives and shall give Seller and its representatives all necessary
access to the Books and Records (as defined in Section 6.02), without charge to
Seller, as may reasonably be requested by Seller, in order to assist in the
preparation of the Closing Balance Sheet and Closing Report.
1.04. Payment of Purchase Price. Buyer will pay the Purchase Price
as follows:
(a) Closing Payment. At the Closing, Buyer shall
pay Seller an amount equal to $9,600,000 (as adjusted in accordance
with Section 6.05 hereof), of which $8,700,000 (subject to such
adjustment) represents the Purchase Price and $900,000 represents the
consideration for its Noncompetition Agreement to which reference is
made in Section 2.01 hereof.
(b) Net Worth Adjustment Payment. The amount of any
Net Worth Adjustment shall bear interest at an annual rate equal to
the six (6) month London Interbank Offered Rate (the "Interest Rate")
as in effect from and including the Closing Date to, but not
including, the date of payment. Any amount payable as a Net Worth
Adjustment (plus interest determined pursuant to the immediately
preceding sentence) shall be paid on the third business day following
(i) the final issuance of the Closing Balance Sheet and the Closing
Report in accordance with Section 1.03(c) hereof, if there shall have
been no dispute between
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the parties with respect thereto, or such earlier date as Buyer shall
advise Seller of the absence of any dispute, (ii) the date mutual
agreement is reached as to the amount of the Net Worth Adjustment, if
any, in the event of a dispute that is settled by the parties without
resort to the Arbitrator, or (iii) the receipt of the report of the
Arbitrator in the event of a dispute which is settled by the
Arbitrator, as applicable.
(c) Form of Payments. All payments hereunder shall
be made by delivery to the recipient by depositing, by bank wire
transfer, the required amount (in immediately available funds) in an
account of the recipient, which account shall be designated by the
recipient at least three (3) business days prior to the date of the
required payment.
1.05. Deliveries by Seller. At the Closing, Seller shall deliver the
following items to Buyer:
(a) Certificates representing the Stock, duly
endorsed or accompanied by stock powers duly executed in blank and
otherwise in form acceptable for transfer on the books of the Company;
(b) The stock books, stock ledgers, minute books,
and corporate seal of the Company and the Company Subsidiary;
(c) Certificates from their respective states of
incorporation and qualification, dated not more than fifteen (15) days
in advance of the date of the Closing, as to the good standing and/or
qualification to do business of the Company Subsidiary in each
jurisdiction where they are so qualified;
(d) The opinion of counsel to Seller referred to in
Section 8.06;
(e) The certificates referred to in Sections 3.15(i)
and 8.01;
(f) The Noncompetition Agreement referred to in
Section 2.01;
(g) The release by Seller referred to in Section
2.02;
(h) The resignation of each director and officer of
the Company and the Company Subsidiary so designated by Buyer at least
ten (10) business days prior to the Closing Date; and
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<PAGE> 12
(i) All other previously undelivered items required
to be delivered by Seller to Buyer at or prior to the Closing pursuant
to this Agreement or otherwise required in connection herewith unless
waived in writing by Buyer.
1.06. Deliveries by Buyer. At the Closing, Buyer shall deliver the
following items to Seller:
(a) The payment as required in Section 1.04(a);
(b) The opinion of counsel to Buyer referred to in
Section 9.06;
(c) The certificate referred to in Section 9.01; and
(d) All other previously undelivered items required
to be delivered by Buyer at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith unless waived
in writing by Seller.
ARTICLE II
ADDITIONAL AGREEMENTS
2.01. Noncompetition Agreement. In order to protect Buyer's
investment in the Stock, Seller shall execute and deliver to Buyer at the
Closing a noncompetition agreement, dated as of the Closing Date, in
substantially the form of Exhibit 2.01 (the "Noncompetition Agreement").
2.02. Release of Seller's Claims against the Company and the Company
Subsidiary. At the Closing, Seller shall execute and deliver to Buyer a
release of the Company and the Company Subsidiary in substantially the form of
Exhibit 2.02.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.01. Capitalization. The authorized capital stock of the Company
consists solely of 750 common shares, par value $1.00 per share, 100 of which
are issued and outstanding; all of such 100 shares of the Company are owned of
record and beneficially by ACIC. All of the shares comprising the Stock are
validly issued, fully paid,
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and non-assessable, and none of the shares comprising the Stock were issued in
violation of the preemptive rights of any present or former shareholder of the
Company. There are outstanding no securities convertible into, exchangeable
for, or carrying the right to acquire, equity securities of the Company, or
subscriptions, warrants, options, rights, or other arrangements or commitments
obligating the Company to issue or dispose of any of its equity securities or
any ownership interest therein. The sale and delivery of the Stock to Buyer
pursuant to Article I hereof will vest in Buyer legal and valid title to the
Stock, free and clear of all liens, security interests, pledges, equities,
proxies, claims, charges, rights of first refusal, restrictions, or other
encumbrances ("Encumbrances") (other than Encumbrances created or suffered by
Buyer).
3.02. Organization. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Ohio and
has all requisite corporate power and authority to carry on its business as it
is now being conducted. The Company is duly qualified to do business and is in
good standing as a foreign corporation in all jurisdictions where the nature of
the property owned or leased by it, or the nature of the business conducted by
it, makes such qualification necessary and the absence of such qualification
would have a material adverse effect on the business, assets, financial
condition, or results of the Company and the Company Subsidiary, taken as a
whole (a "Material Adverse Effect"). Within the past three (3) years, no other
jurisdiction has made a written demand or request that the Company become so
qualified.
3.03. Subsidiary. Schedule 3.03 sets forth the name and jurisdiction
of incorporation or organization of the sole subsidiary of the Company
(collectively, the "Company Subsidiary"). The Company Subsidiary is a
corporation duly organized, validly existing, and in good standing under the
laws of its respective jurisdiction of incorporation or organization and has
all requisite corporate power and authority to carry on its business as it is
now being conducted. The Company Subsidiary is duly qualified to do business
and is in good standing as a foreign corporation in all jurisdictions where the
nature of the property owned or leased by it, or the nature of the business
conducted by it, makes such qualification necessary and the absence of such
qualification would have a Material Adverse Effect. Within the past three (3)
years, no other jurisdiction has made a written demand or request that the
Company Subsidiary become so qualified. All outstanding shares of capital
stock of the Company Subsidiary are owned by the Company and are validly
issued, fully paid, and non-assessable, are not subject to preemptive rights,
and
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<PAGE> 14
are owned free and clear of all Encumbrances. There are outstanding no
securities convertible into, exchangeable for, or carrying the right to
acquire, equity securities of any Company Subsidiary, or subscriptions,
warrants, options, rights, or other arrangements or commitments obligating any
Company Subsidiary to issue or dispose of any of its equity securities or any
ownership interest therein.
3.04. Financial Statements. The audited balance sheet of the
Company as of July 31, 1995 and the related audited statements of consolidated
operations, consolidated shareholders' equity, and consolidated cash flows for
the period ended July 31, 1995 (the "Interim Financial Statements") present
fairly, in all material respects, the Company's financial position, results of
operations, and cash flows as of such date and for such period ended July 31,
1995 in conformity with GAAP. The unaudited balance sheet of the Company as of
March 31, 1995 and the related statements of consolidated operations,
consolidated shareholders' equity, and consolidated cash flows for the period
ended March 31, 1995 present fairly, in all material respects, the Company's
financial position, results of operations, and cash flows as of such date and
for such period ended March 31, 1995 in conformity with GAAP (except for the
exclusion of footnotes). The audited balance sheets of the Company as of
September 30, 1993 and September 30, 1994 and the audited related statements of
consolidated operations, consolidated shareholders' equity, and consolidated
cash flows for the fiscal years ended September 30, 1993 and September 30, 1994
(the "1993 and 1994 Financial Statements") present fairly, in all material
respects, the Company's financial position, results of operations, and cash
flows as of such dates and for such fiscal years in conformity with GAAP (the
Interim Financial Statements and the 1993 and 1994 Financial Statements are
sometimes hereinafter collectively referred to as the "Financial Statements").
3.05. Absence of Undisclosed Liabilities. Seller knows of no
liability or obligation (absolute, accrued, contingent, or otherwise) of either
the Company or the Company Subsidiary, including any guaranty with respect to
any obligation, except with respect to (a) such liabilities or obligations as
are required by GAAP to be reflected or reserved against and are fully
reflected or reserved against in the Interim Financial Statements; (b) such
liabilities or obligations which have been incurred in the ordinary course of
business since July 31, 1995; and (c) liabilities or obligations incurred in
the ordinary course of business that are not required by GAAP to be reflected
or reserved against in the Interim Financial Statements and which will not have
Material Adverse Effect either individually or in the aggregate.
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<PAGE> 15
3.06. Absence of Certain Changes or Events. Except as set forth in
Schedule 3.06 or permitted or contemplated by this Agreement, since July 31,
1995, neither the Company nor the Company Subsidiary has (a) suffered any
damage, destruction, or casualty loss to its physical properties in excess of
$50,000; (b) incurred any obligation or liability or entered into any other
transaction not in the ordinary course of business or which individually or in
the aggregate exceeds $100,000; (c) suffered any Material Adverse Effect; (d)
increased the rate or terms of compensation payable or to become payable by the
Company or any Company Subsidiary to their respective directors, officers, or
key employees or increased the rate or terms of any bonus, pension, or other
employee benefit plan covering any of their respective directors, officers, or
key employees, except in each case increases occurring in the ordinary course
of business in accordance with its customary practices (including normal
periodic performance reviews and related compensation and benefit increases) or
as required by any pre-existing Commitment (as defined in Section 3.10); (e)
made any capital expenditures or commitments for capital expenditures not in
the ordinary course of business or in excess of $100,000 in the aggregate; (f)
paid, discharged, or satisfied any claims, liabilities, or obligations
(absolute, accrued, contingent, or otherwise) which exceed $100,000 in the
aggregate; (g) made any change in any method of accounting or accounting
principle or practice (other than as set forth in Disclosure Schedule
1.03(a)(iv)); or (h) written up the value of any inventory other than normal
adjustments in reserves in accordance with GAAP or determined as collectible
any notes or accounts receivable that were previously considered to be
uncollectible.
3.07. Assets. The Company and the Company Subsidiary have good and
indefeasible (and, in the case of Real Property, fee simple) title to all of
their respective assets and properties which they purport to own (including
those reflected on the balance sheet of the Interim Financial Statements,
except for assets and properties sold, consumed, or otherwise disposed of in
the ordinary course of business since July 31, 1995), free and clear of all
Encumbrances, except (a) as set forth in Schedule 3.07, and (b) liens for taxes
not yet due and payable or due but not delinquent or being contested in good
faith by appropriate proceedings. The assets and properties of the Company and
the Company Subsidiary comprise all the properties and assets which are
necessary for the conduct of the Company's and the Company Subsidiary's
business as presently conducted and are in good operating condition (subject to
ordinary wear and tear). Schedule 3.07 sets forth a list of all owned and
leased equipment, machinery, installations, and other personal property of the
Company and each Company Subsidiary which is material to the
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<PAGE> 16
business of the Company or the Company Subsidiary (if any of the foregoing
property is leased, Schedule 3.07 shall indicate the lessor of such property).
3.08. Real Property.
(a) Schedule 3.08 contains a correct and complete list of all the
real property (including a general description of the improvements thereon)
owned by the Company or the Company Subsidiary or that the Company or the
Company Subsidiary has agreed (or has an option) to purchase, sell, or lease,
or may be obligated to purchase, sell, or lease to a third party in connection
with its business and any title insurance or guarantee policies with respect
thereto. Such real property is hereinafter referred to as the "Real Property,"
and the improvements and fixtures thereon are hereinafter referred to as the
"Improvements."
(b) Schedule 3.08 identifies all of the real property that the
Company or the Company Subsidiary leases, has agreed to lease from a third
party, or has an obligation to lease from a third party in connection with its
business (including a general description of the improvements thereon). Such
leased real property is hereinafter referred to as the "Leased Property," and
the improvements and fixtures thereon are hereinafter referred to as the
"Leased Improvements."
(c) Except as set forth on Schedule 3.08, the Company or the Company
Subsidiary is the sole legal and equitable owner of the Real Property, the
Improvements, and all interests therein and possesses good and marketable,
indefeasible fee simple title to the Real Property and the Improvements, good
of record and in fact, free and clear of all conditions, exceptions,
reservations, liens, restrictions, rights-of-way, easements, encumbrances, and
other matters affecting title.
(d) There are no adverse or other parties in possession of the Real
Property, the Improvements, the Leased Property, the Leased Improvements, or
any portion or portions thereof, and as of the Closing Date the Real Property,
the Improvements, and the leasehold interests in the Leased Property and the
Leased Improvements will be free and clear of any and all leases, licenses,
occupants, or tenants except as set forth on Schedule 3.08. There are no
pending or, to the knowledge of Seller, threatened condemnation, eminent
domain, or similar proceedings, or litigation or other proceedings affecting
the Real Property, the Improvements, the Leased Property, the Leased
Improvements, or any portion or portions thereof which would have a Material
Adverse Effect. There are no pending or, to the knowledge of Seller,
threatened requests,
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<PAGE> 17
applications, or proceedings to alter or restrict any zoning or other use
restrictions applicable to the Real Property, the Improvements, the Leased
Property, or the Leased Improvements that would interfere with the conduct of
the business of the Company or the Company Subsidiary or the use of the assets
consistent with past practice, which interference would have a Material Adverse
Effect. Except as set forth on Schedule 3.08, to the knowledge of Seller, all
water, sewer, gas, electric, telephone, drainage, and other utility equipment,
facilities, and services required by law or necessary for the operation of the
Improvements and the Leased Improvements as presently operated or contemplated
to be operated by Seller are installed and connected pursuant to valid permits,
and no notice has been received by Seller regarding the termination or material
impairment of any such service. All easements necessary for normal operations
on the Real Property and the Leased Property exist and are in full force and
effect. The Real Property and the Leased Property have access, in accordance
with past practice, to and from a public right of way or road dedicated for
public use, and no notice has been received by Seller relating to the
termination or impairment of such access (including applicable parking
requirements).
(e) Schedule 3.08 identifies all real property of the Company or the
Company Subsidiary sold or otherwise disposed of since October 1, 1991.
3.09. Patents, Trademarks, Etc. Schedule 3.09 sets forth a correct
and complete list, as of the date hereof, of all United States and/or foreign
patents, trademarks, service marks, royalty rights, trade secrets, confidential
information, logos, trade names, copyrights and applications therefor, and
regulations or licenses therein owned or used by the Company and the Company
Subsidiary in, or relating to, the conduct of their respective businesses (the
"Patent and Trademark Rights"); provided that all trade secrets, confidential
information, and unregistered copyrights may be too numerous to list thereon
and immaterial items may be deleted therefrom. Except as set forth in Schedule
3.09, (a) the Company or the Company Subsidiary owns or possesses adequate
licenses or other valid rights to use all Patent and Trademark Rights; and (b)
the conduct of the respective businesses of the Company and the Company
Subsidiary as now being conducted, including the use of the Patent and
Trademark Rights, does not conflict with any valid patents, trademarks, trade
names, or copyrights of others in any way which has a Material Adverse Effect.
Except as set forth in Schedule 3.09, the Patent and Trademark Rights are
assignable to the Buyer and the consummation of the transactions contemplated
hereby will not alter or impair any such rights. Except as set forth in
Schedule 3.09, no claims have been asserted by
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<PAGE> 18
any person to the use of any of the Patent and Trademark Rights, or challenging
or questioning the rights of the Company and the Company Subsidiary to such
use, and, to the knowledge of Seller, there is no basis for any such claim.
3.10. Commitments. Schedule 3.10 contains a complete list, as of the
date hereof, of each contract or agreement, whether written or oral (including
any and all amendments thereto), to which the Company or the Company Subsidiary
is a party or by which the Company or the Company Subsidiary is bound
(collectively, the "Commitments") and which either involve commitments in
excess of $100,000, have a term of one year or more, or that are not in the
ordinary course of business and are material. Schedule 3.10 also contains a
complete list of all individual employment, consulting, and severance
agreements to which either the Company or the Company Subsidiary is a party or
by which either of them is bound. Except as set forth on Schedule 3.10, (i) to
the knowledge of Seller, each of the Commitments is a valid and binding
obligation of the Company or the Company Subsidiary, and, to the knowledge of
Seller, each of the Commitments is enforceable in accordance with its terms
with respect to the other party or parties thereto, except in each case as
enforcement may be limited by bankruptcy, insolvency, reorganization, or
similar laws or equitable principles relating to creditors' rights generally,
and (ii) neither the Seller nor (to the knowledge of Seller) any other party
thereto has terminated, canceled, modified, or waived any material term or
condition of any Commitment. None of the Commitments contains any covenant or
other restriction preventing or limiting the consummation of the transactions
contemplated hereby. Neither the Company nor the Company Subsidiary has
outstanding powers of attorney except routine powers of attorney relating to
the representation of the Company or the Company Subsidiary before governmental
agencies or given in connection with qualification to conduct business or
customs matters. Except as set forth in either Schedule 3.09 or Schedule 3.10,
neither the Company nor the Company Subsidiary is a party to any written or
oral licensing agreement, either as a licensor or a licensee.
3.11. Litigation. Except as set forth in Schedule 3.11, there is no
action, suit, proceeding, or investigation in any court or before any
governmental authority ("Litigation") pending or, to the knowledge of Seller,
threatened against the Company or the Company Subsidiary. Also, there is no
Litigation pending or, to the knowledge of Seller, threatened against the
Company, the Company Subsidiary, or Seller that seeks to enjoin or obtain
damages in respect of the consummation of the transactions contemplated by this
Agreement. Except as set forth in Schedule 3.11, neither the Company nor the
Company
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<PAGE> 19
Subsidiary is subject to any outstanding orders, rulings, judgments,
arbitration awards, or decrees.
3.12. Compliance with Laws. Except as set forth in Schedule 3.12
and except for any and all Environmental Matters (as hereinafter defined), the
Company and the Company Subsidiary are currently and have been in compliance
with all applicable laws, rules, and regulations currently in effect, except
where the failure to comply therewith does not have a Material Adverse Effect.
The Company and the Company Subsidiary have all governmental permits, licenses,
and authorizations necessary for the conduct of their respective businesses as
presently conducted, except where the absence thereof does not have a Material
Adverse Effect. All material governmental permits, licenses, and
authorizations of the Company and the Company Subsidiary are listed in Schedule
3.12.
3.13. Environmental Matters.
(a) Defined Terms. In addition to terms elsewhere defined in this
Agreement, the following terms shall have the indicated meanings:
(i) "Business Facility" is the real property
including the land, the improvements thereon, and the ground water
and surface water thereof, that the Company or any Company
Subsidiary has at any time owned, operated, occupied, controlled or
leased.
(ii) "Disposal Site" is any facility or property
that receives or received solid or hazardous waste or Hazard
Materials for treatment, storage and/or disposal or the location or
former location of a disposal agent, waste hauler or recycler of
Hazardous Materials.
(iii) "Environmental Laws" are all laws, rules,
regulations, orders, treaties, statutes, and codes promulgated by
any Governmental Authority which prohibit, regulate, or control any
Hazardous Material or any Hazardous Material Activity, including,
without limitation the following: the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980; the Resource
Recovery and Conservation Act of 1976; the Federal Water Pollution
Control Act; the Clean Air Act; the Hazardous Materials
Transportation Act; the Clean Water Act; all comparable laws,
rules, regulations, orders, treaties, statutes, and codes of other
Governmental Authorities; all regulations promulgated pursuant to
any of the foregoing; and
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<PAGE> 20
all amendments and modifications of any of the foregoing now in
effect.
(iv) "Environmental Permit" is any approval, permit,
license, clearance, or consent required to be obtained from any
private person or any Governmental Authority with respect to a
Hazardous Material Activity which is or was conducted by the
Company or any Company Subsidiary.
(v) "Governmental Authority" is any local, state,
provincial, federal, or international governmental authority
(including, without limitation, courts) or agency which has had or
now has jurisdiction over any portion of the subject of this
Agreement or any Business Facility of the Company or the Company
Subsidiary.
(vi) "Hazardous Material" is any material or
substance that is prohibited or regulated by any Environmental Law
or that has been designated by any Governmental Authority to be
radioactive, toxic, hazardous, or otherwise a danger to health,
reproduction, or the environment.
(vii) "Hazardous Material Activity" is the
transportation, transfer, recycling, storage, use, disposal,
arrangement for disposal, treatment, manufacture, investigation,
removal, remediation, release, exposure of others to, sale, or
distribution of any Hazardous Material or any product containing a
Hazardous Material.
(b) Environmental Representations. Seller represents, warrants,
and agrees as follows:
(i) To the knowledge of Seller, except as set forth
on Schedule 3.13, there is no ambient air, surface water,
groundwater, or land contamination from Hazardous Materials within,
under, originating from, or relating to any Business Facility and
none of such properties has been used for Hazardous Material
Activity in violation of applicable Environmental Laws where such
activity could have a Material Adverse Effect.
(ii) To the knowledge of Seller, except as set forth
on Schedule 3.13, each of the Company and the Company Subsidiary
possesses and is in compliance in all material respects with all
Environmental Permits relating to the Environmental Laws necessary
to conduct its business or required by Environmental Laws.
Schedule 3.12 accurately describes all of the Environmental Permits
currently
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held by the Company or any Company Subsidiary and relating to the
Business.
(iii) Except as disclosed in Schedule 3.13, no
claims have been made against the Company, the Company Subsidiary,
or, to the knowledge of Seller, their predecessors in interest
during the past five (5) years (except claims which have been
resolved without material fines or penalties) and no presently
outstanding citations or notices have been issued against the
Company or the Company Subsidiary under the Environmental Laws,
where such could have a Material Adverse Effect. Neither the
Company nor the Company Subsidiary has been or is currently subject
to any civil, criminal, or administrative action, suit, claim,
hearing, notice of violation, investigation, inquiry, or proceeding
for failure to comply with, or received notice of any violation or
potential liability under the Environmental Laws with respect to
any Business Facility, Disposal Site, or otherwise, where such
could have a Material Adverse Effect, nor, to the knowledge of
Seller, are there any facts, whether or not confirmed or reported,
which would give rise to any such potential liability.
(iv) To the knowledge of Seller, except as set forth
on Schedule 3.13, there are no underground storage tanks at any
real property, site, or facility (as defined in CERCLA) of the
Company or the Company Subsidiary which contains or did contain
Hazardous Materials. The Company further warrants and represents
that any prior use and operation of underground storage tanks has
been in compliance with all Environmental Laws, except where such
could not have a Material Adverse Effect.
(v) The Company has delivered to Buyer true,
complete, and correct copies of results of any non-privileged
reports, studies, audits, assessments, analyses, tests, or
monitoring in the possession of or initiated by Seller, the Company
or the Company Subsidiary within the past five (5) years pertaining
to the existence of Hazardous Materials and any other environmental
concerns relating to any Business Facility, or concerning
compliance with or liability under the Environmental Laws. In
addition, Seller knows of no facts in any privileged reports,
studies, audits, assessments, analyses, tests, or monitoring
relating to the Company or the Company Subsidiary that is
inconsistent, in any material respect, with the facts described in
the materials to which reference is made in the preceding sentence.
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<PAGE> 22
(vi) Neither the Company nor the Company Subsidiary
has expressly assumed the liability of any other person or entity
pursuant to any of the Environmental Laws.
(vii) Buyer and Seller agree that the only
representations and warranties of Seller in this Agreement as to
any Environmental Matters are those contained in this Section 3.13.
As used herein, the term "Environmental Matters" means any matter
arising out of or relating to Hazardous Material Activity.
3.14. Employee Benefit Plans. (a) Schedule 3.14 lists all
Company Benefit Plans and Benefit Arrangements (as defined in Sections 10.01(c)
and (d), respectively). True and complete copies thereof, where in writing,
have previously been delivered or made available to Buyer.
(b) With respect to each of the Company Benefit Plans intended to
qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), except as set forth on Schedule 3.14, (i) a favorable
determination letter has been issued by the Internal Revenue Service (the
"IRS") and (ii) nothing has occurred to cause the IRS to revoke such
determination and the IRS has not indicated its intention to revoke such
determination.
(c) With respect to each of the Company Benefit Plans and Benefit
Arrangements, true and complete copies of (i) all plan documents (including all
amendments and modifications thereof), and related agreements including,
without limitation, the trust agreement and amendments thereto, insurance
contracts, and investment management agreements; (ii) the most recent annual
actuarial valuation reports; (iii) the last three filed Form 5500 series and
Schedules A, B, P, and/or SSA, as applicable, and Forms PBGC-1, if any
(collectively, the "Form 5500s"); (iv) summary plan descriptions; (v) summary
of material modifications, if any; (vi) the most recent auditor's report; (vii)
copies of any private letter rulings, requests and applications for
determination and determination letters issued with respect to the Company
Benefit Plans within the past five years; and (viii) the most recent annual and
periodic accounting of related Plan assets have been delivered to Buyer.
(d) Except as set forth in Schedule 3.14, the Company Benefit
Plans and the Benefit Arrangements have been maintained in accordance with
their terms and the provisions of applicable law, including, without
limitation, COBRA (defined herein to mean the requirements of Code Section
4980B, Proposed Treasury Regulation
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<PAGE> 23
Section 1.162-26 and Part 6 of Subtitle B of Title I of ERISA), except where
the failure to do so does not have a Material Adverse Effect, and all required
filings that are due prior to the date hereof including, without limitation,
the applicable Form 5500s, for all Company Benefit Plans and Benefit
Arrangements have been timely filed.
(e) Except as set forth in Schedule 3.14, neither the Company nor
the Company Subsidiary has ever participated in or withdrawn from a
multiemployer plan as defined in Section 4001(a)(3) of Title IV of ERISA, and
neither the Company nor the Company Subsidiary has incurred or owes any
liability as a result of any partial or complete withdrawal by any employer
from such a multiemployer plan as described under Sections 4201, 4203, or 4205
of ERISA;
(f) No accumulated funding deficiency, as defined by Section
301(a)(2) of ERISA, exists (whether or not waived) with respect to any of the
Company Benefit Plans and Benefit Arrangements, and neither the Company nor the
Company Subsidiary is delinquent with respect to any contribution which is
required to be made to any of the Company Benefit Plans and Benefit
Arrangements;
(g) No prohibited transactions (within the meaning of Section 406
of ERISA or Section 4975 of the Code) for which no exemption exists under
Section 408 of ERISA or Section 4975 of the Code have occurred with respect to
any of the Company Benefit Plans and Benefit Arrangements;
(h) Neither the Company nor the Company Subsidiary has engaged in
any transaction in connection with which the Company or the Company Subsidiary
could be subject to a criminal or civil penalty under ERISA which could have a
Material Adverse Effect;
(i) No condition exists which would constitute grounds of
involuntary termination for any of the Company Benefit Plans and Benefit
Arrangements maintained by the Company or the Company Subsidiary under Section
4042 of ERISA, and there have been no reportable events as defined in Section
4043(b) of ERISA (other than events for which the thirty-day notice period has
been waived by the Pension Benefit Guaranty Corporation (the "PBGC")) with
respect to any of the Company Benefit Plans and Benefit Arrangements;
(j) No proceeding or other action has been initiated by the PBGC
to terminate any of the Company Benefit Plans and Benefit Arrangements, and no
notice has been received of any intention to commence or seek commencement of
any such proceeding or action;
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(k) None of the Company Benefit Plans and Benefit Arrangements,
nor any trust which serves as a funding medium for any of such Company Benefit
Plans and Benefit Arrangements, nor any issue relating thereto, is currently
under examination by or pending before the IRS, the Department of Labor, the
PBGC, or any court, other than any applications for determinations pending
before the IRS;
(l) No claims are currently pending against any of the Company
Benefit Plans and Benefit Arrangements (except those submitted in the ordinary
course of administration of such Plan);
(m) At March 31, 1995, the present value (based on the actuarial
assumptions and methods set forth in Schedule 3.14) of the liability for post
employment obligations (other than pensions) for active eligible employees or
current retirees of the Company or the Company Subsidiary did not exceed
$19,316,000.
(n) With respect to each Company Benefit Plan which is intended to
satisfy the requirements of Section 401(k) of the Code, all excess
contributions, if any (together with any income allocable thereto), have been
distributed (or, if forfeitable, forfeited) before the close of the first two
and one half (2-1/2) months of the following plan year; and there is no
liability for excise tax under Section 4979 of the Code with respect to such
excess contributions, if any, for any such plan; and
(o) the unfunded liability of all Company Benefit Plans which are
"employee pension benefit plans" as defined in Section 3(2) of ERISA (other
than the Salaried Pension Plan, as defined in Section 10.03(b)(1) hereof) on an
ongoing basis, based on reasonable actuarial assumptions and methods, is as
listed below:
(i) Pension Plan for Hourly-Rated Employees of The
National Acme Company: $4,867,200 as of January 1, 1995 actuarial
valuation;
(ii) Pension Plan for Hourly-Rated Employees of The
National Acme Company, Plant Security and Certain Other Employees:
$126,000 as of January 1, 1995 actuarial valuation; and
(iii) Retirement Plan for Hourly Employees of The
National Acme Company, Distribution Center, Fremont, Ohio: $1,000
as of October 1, 1994 actuarial valuation.
(p) Except as set forth in Schedule 3.14, the consummation of the
transactions contemplated by this Agreement will not (i) result in the payment
or series of
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payments by the Company or the Company Subsidiary to any Employee (as defined
in Section 10.01(b)) or other person of an "excess parachute payment" within
the meaning of Section 280G of the Code, (ii) entitle any Employee to severance
pay or other compensation or benefit entitlements by reason of any Employee's
deemed termination of employment as a result of the transaction contemplated
hereby, or (iii) accelerate the time of payment for vesting of any stock
option, stock appreciation right, deferred compensation, or other employee
benefits under any of the Company Benefit Plans or Benefit Arrangements
(including vacation and sick pay) that would constitute an obligation of the
Company or the Company Subsidiary.
(q) Except as set forth in Schedule 3.10, Schedule 3.14, or
Schedule 3.21, to the knowledge of Seller, there are no obligations of the
Company, the Company Subsidiary, Seller, or its affiliates under any agreement
with any Employee that relates to employment or compensation or benefits that
will be binding on the Company or the Company Subsidiary after the Closing
Date.
(r) Except for the obligations set forth in Schedule 3.10,
Schedule 3.14, or Schedule 3.21, to the knowledge of Seller, neither the
Company nor the Company Subsidiary has any obligation to continue to employ any
Employee on or after the Closing Date at substantially the same salary or wages
(including bonus, commission, and sales incentive programs) and/or on
substantially the same terms and conditions as in effect immediately prior to
the Closing Date, nor is the Company or the Company Subsidiary obligated to
continue any Company Benefit Plan or Benefit Arrangement under substantially
the same terms and conditions in effect immediately prior to the Closing Date.
3.15. Taxes. (a) Except as set forth in Schedule 3.15, the
Company, the Company Subsidiary, and Seller with respect to the Tax Returns (as
defined in Section 3.15(c)) in which the Company and the Company Subsidiary are
included, have timely filed with the appropriate federal, state, local, and
foreign governmental entity or other authority (individually or collectively,
"Taxing Authority") all Tax Returns required to be filed and have timely paid
in full all Taxes (as defined in Section 3.15(b)), if any, shown to be due on
such Tax Returns, and such Tax Returns are correct and complete in all material
respects. No other Taxes for the periods (or portions thereof) ending prior to
or on July 31, 1995 are required to be paid that have not been accrued on the
Interim Financial Statements. There are no liens for Taxes upon the Company,
the Company Subsidiary, or their assets, except liens for current Taxes not yet
due. Except as set forth on Schedule 3.15, Seller, the Company, and the
Company Subsidiary have not granted any waiver of any
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statute of limitations with respect to, or any extension of a period for the
assessment of, any Taxes.
(b) As used in this Agreement, "Tax" means any of the Taxes and
"Taxes" means, with respect to Seller, the Company, and the Company Subsidiary,
(i) all income taxes (including any tax on or based upon net income, or gross
income, or income as specially defined, or earnings, or profits, or selected
items of income, earnings, or profits) and all gross receipts, estimated,
sales, use, ad valorem, transfer, franchise, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, or
windfall profit taxes, environment, alternative, or add-on minimum taxes,
custom duties or other taxes, fees, assessments, or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any Taxing Authority on Seller, the Company, or
the Company Subsidiary and (ii) any liability for the payment of any amount of
the Tax described in the immediately preceding clause (i) as a result of being
a "transferee" (within the meaning of Section 6901 of the Internal Revenue Code
of 1986 (as amended) ("Code") or any other applicable law) of another person or
successor, by contract, or otherwise, or a member of an affiliated,
consolidated, or combined group.
(c) As used in this Agreement, "Tax Return" is defined as any
return, report, information return, or other document (including any related or
supporting information) filed or required to be filed with any Taxing Authority
or other authority in connection with the determination, assessment, or
collection of any Tax paid or payable by Seller, the Company, or the Company
Subsidiary or the administration of any laws, regulations, or administrative
requirements relating to any such Tax.
(d) Schedule 3.15 lists each jurisdiction in which the Company and
the Company Subsidiary file Tax Returns for each period or portion thereof
ending on or before the Closing Date, and any action, suit, proceeding,
investigation, audit or claim now pending against the Company and the Company
Subsidiary in respect of any Tax, and any matter under discussion with any
Taxing Authority relating to any Tax, or any claim for additional Tax asserted
by any such authority against the Company and the Company Subsidiary. Except
as provided on Schedule 3.15, no claim is outstanding against the Company or
the Company Subsidiary by any Taxing Authority in a jurisdiction where the
Company or the Company Subsidiary do not file Tax Returns that they are or may
be subject to taxation by that jurisdiction.
(e) The Company and the Company Subsidiary have not now and have
never been a party to any agreement, contract,
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arrangement, or plan that would result, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Section 280G
of the Code.
(f) Except as set forth in Schedule 3.15, neither Seller, the
Company, the Company Subsidiary, nor any member of the affiliated group that
includes Seller (1) has filed a consent pursuant to Section 341(f) of the Code
nor agreed to have Section 341(f)(2) apply to any disposition of a subsection
(f) asset (as such term is defined in Section 34(f) of the Code) owned by the
Company or the Company Subsidiary, (2) has agreed, or is required, to make any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise that will affect the liability of the Company or the
Company Subsidiary for Taxes, (3) has made an election, or is required, to
treat any asset of the Company or the Company Subsidiary as owned by another
person pursuant to the provisions of former Section 168(f)(8) of the Code, or
(4) has made any of the foregoing elections or is required to apply any of the
foregoing rules under any comparable state or local tax provision.
(g) Any and all consolidated federal income tax (or similar)
agreements executed between the Company and the Company Subsidiary on the one
hand, and Seller or any other member of Seller's consolidated group on the
other hand, that relate to any payments or liability therefor by or to the
Company or the Company Subsidiary with respect to their federal income and
other Taxes and that are continuing in effect will terminate as of the Closing
Date, and the Company and the Company Subsidiary shall have no liability to, or
make any payments to Seller or any member of the consolidated group that
includes the Company and the Company Subsidiary with respect to such agreements
for any tax period.
(h) Except as set forth on Schedule 3.15, neither the Company nor
the Company Subsidiary nor any corporation to which the Company or the Company
Subsidiary is a successor, directly or indirectly, by merger or otherwise (i)
has been a member of an affiliated group of corporations (as defined in Section
1504(a) of the Code) other than the group in which Seller is the common parent
or (ii) has filed or been included in a combined, consolidated, or unitary
income tax return other than with Seller or a member of Seller's affiliated
group.
(i) Seller is not a "foreign person" within the meaning of Section
1445(b)(2) of the Code, and Seller will furnish Buyer at the Closing with a
certificate to that effect in form reasonably satisfactory to Buyer.
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<PAGE> 28
(j) There are no material outstanding balances of deferred gain or
loss accounts (as such term is defined in Treas. Reg. Section 1.1502-13 as in
effect before July 12, 1995) or of intercompany items (as such term is defined
in Treas. Reg. Section 1.1502-13 as in effect after July 11, 1995) between any
member of Seller's affiliated group and the Company or the Company Subsidiary.
(k) There exists no excess loss account (as such term is defined
in Treas. Reg. Section 1.1502-19) with respect to the stock of the Company or
the Company Subsidiary.
3.16. Consents. Except as set forth in Schedule 3.16 and the
expiration of the required waiting period under the HSR Act, no consent,
approval, or authorization of, or exemption by, or filing with, any
governmental authority is required to be obtained or made by Seller in
connection with the execution, delivery, and performance by Seller of this
Agreement or the taking by Seller of any other action contemplated hereby.
3.17. Corporate Power and Authority; Effect of Agreement. Seller
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Ohio and has all requisite corporate power and
authority to execute, deliver, and perform this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery, and performance by
Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Seller. This Agreement has been duly and validly executed and
delivered by Seller and constitutes the valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except to the extent
that such enforceability (i) may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to creditors' rights
generally, and (ii) is subject to general principles of equity. The execution,
delivery, and performance by Seller of this Agreement and the consummation by
Seller of the transactions contemplated hereby will not, with or without the
giving of notice or the lapse of time, or both, (x) violate any provision of
law, rule, or regulation to which Seller, the Company, or the Company
Subsidiary is subject (other than the HSR Act), (y) violate any order,
judgment, or decree applicable to Seller, the Company, or the Company
Subsidiary, or (z) violate any provision of the Charter or the By-Laws or
Regulations of Seller, the Company, or the Company Subsidiary; except, in each
case, for violations that in the aggregate would not materially hinder or
impair the consummation of the transactions contemplated hereby. To the
knowledge of Seller, the execution, delivery, and performance by Seller of this
Agreement and the
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consummation by Seller of the transactions contemplated hereby will not, with
or without the giving of notice or the lapse of time, or both, result in a
breach of, or constitute a default under (or with notice or lapse of time,
result in a breach of or constitute a default under) or otherwise give any
person the right to terminate any contract to which the Company or the Company
Subsidiary is a party.
3.18. Brokers. Other than Schroder Wertheim & Co. Incorporated,
whose fee will be paid by Seller, Seller does not know of any broker, finder,
or investment banking firm that is acting or has acted in connection with the
transactions contemplated by this Agreement, and it knows of no other
corporation, firm, or person entitled to receive any brokerage commission,
finder's fee, or other similar compensation in connection with these
transactions.
3.19. Disclaimer. EXCEPT AS SET FORTH IN THIS ARTICLE III, SELLER
MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED (INCLUDING THOSE
REFERRED TO IN SECTION 1302.25 OF THE OHIO UNIFORM COMMERCIAL CODE OR IN ANY
STATUTE APPLICABLE TO REAL PROPERTY), AND THE ASSETS AND BUSINESS OF THE
COMPANY AND THE COMPANY SUBSIDIARY BEING TRANSFERRED TO BUYER UPON THE
ACQUISITION BY BUYER OF THE STOCK AT THE CLOSING ARE TO BE CONVEYED HEREUNDER
"AS IS WHERE IS" ON THE CLOSING DATE, AND IN THEIR THEN PRESENT CONDITION, AND
BUYER SHALL RELY UPON ITS OWN EXAMINATION THEREOF. IN ANY EVENT, SELLER MAKES
NO WARRANTY OF MERCHANTABILITY, SUITABILITY, OR FITNESS FOR A PARTICULAR
PURPOSE, OR QUALITY, WITH RESPECT TO ANY OF THE TANGIBLE ASSETS BEING SO
TRANSFERRED, OR AS TO THE CONDITION OR WORKMANSHIP THEREOF OR THE ABSENCE OF
ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT.
3.20. Insurance. All insurance policies and fidelity bonds
currently in effect relating to the assets of the Company and the Company
Subsidiary, including summary descriptions and the termination dates thereof,
are set forth in Schedule 3.20. Of the policies set forth on Schedule 3.20,
only the two workers' compensation policies covering the two years from October
1, 1993 to September 30, 1995 for states other than California and Ohio provide
for retrospective premiums. The textual portion of Schedule 3.20 indicates the
estimated magnitude of the Company's exposure for such retrospective premiums.
Neither Company nor the Company Subsidiary has been refused any insurance with
respect to its business or any of its assets, nor has coverage been limited or
quoted at other than standard rates by any insurance carrier to which it has
applied for insurance or with which it has carried insurance, during the last
two (2) years. Seller has not identified any specific risks other than Ohio
Workers' Compensation which the Company or the Company Subsidiary
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designates as being self-insured, and neither the Company nor the Company
Subsidiary has set aside any reserves to cover specific risks, except as set
forth in the Financial Statements.
3.21. Labor Matters. Schedule 3.21 sets forth all current
collective bargaining agreements having provisions in effect between the
Company or the Company Subsidiary and any labor unions or organizations
representing any of their respective employees. Except as set forth in
Schedule 3.21, within the last five (5) years neither the Company nor the
Company Subsidiary has experienced any labor disputes or any work stoppage or
slowdowns due to labor disagreements. Except as set forth in Schedule 3.21,
(i) there is no unfair labor practice charge or complaint against the Company
or the Company Subsidiary, and, to the knowledge of Seller, none are threatened
before the National Labor Relations Board or any foreign authority; (ii) there
is no labor strike, dispute, request for representation, slowdown, or stoppage
actually pending or affecting or, to the knowledge of Seller, threatened
against the Company or the Company Subsidiary; (iii) to the knowledge of
Seller, no question concerning representation has been raised or threatened
respecting the employees of the Company or the Company Subsidiary; and (iv) no
grievance that might have a Material Adverse Effect, nor any arbitration
proceeding arising out of or under any collective bargaining agreement, is
pending and, to the knowledge of Seller, no claims therefor exist.
3.22. Employees. Schedule 3.22 sets forth a complete and accurate
list of all sales persons of the Company and the Company Subsidiary and all
other employees of the Company and the Company Subsidiary whose annual cash
compensation exceeds $50,000 showing for each: name, current job title or
description, 1994 W-2 wages paid, current salary level (including any bonus or
deferred compensation arrangements), and any bonus, commission, or other
remuneration paid during fiscal year 1994.
3.23. Suppliers. Schedule 3.23 sets forth a complete and accurate
list of (i) the twenty (20) largest suppliers (by dollar volume) of products
and services to the Company and the Company Subsidiary during the fiscal year
ended September 30, 1994 and the ten (10) month period ended July 31, 1995,
indicating the existing contractual arrangements with each such firm (a "Major
Supplier"), and (ii) the names of any sole-source suppliers (a "Sole-Source
Supplier") of significant materials or services to the Company and the Company
Subsidiary with respect to which practical alternative sources of supply are
not available on comparable terms and conditions, indicating the contractual
arrangements for continued supply from each such firm. Since September 30,
1994, no Major Supplier or
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Sole-Source Supplier has declined to continue to act as such, and no present
Major Supplier or Sole-Source Supplier has indicated any present or future
intention to cease to do so or to materially change the terms of such
arrangements.
3.24. Customers. Schedule 3.24 sets forth a complete list of the
twenty (20) largest customers (by dollar volume) of the Company and the Company
Subsidiary during the fiscal year ended September 30, 1994 and the ten (10)
month period ended July 31, 1995, indicating the existing contractual
arrangements, if any, with each such customer. Except as set forth in Schedule
3.24, there are no material outstanding disputes with any customer listed
thereon, and, since September 30, 1994, no customer listed thereon has refused
to continue to do business with the Company or the Company Subsidiary or has
stated its intention not to continue to do business with the Company or the
Company Subsidiary.
3.25. Certain Transactions. Except as set forth in Schedule 3.25,
none of the directors or officers of the Company or the Company Subsidiary is
currently a party to any transaction with the Company or the Company Subsidiary
(other than for services as employees, officers, and directors), including
without limitation any contact, agreement, or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from, any such
person, or to or from any corporation, partnership, trust, or other entity in
which such person owns in excess of five percent (5%) of the outstanding equity
interest. As of the Closing Date, neither the Company nor the Company
Subsidiary will be a party to any contract, agreement, or other arrangement
with Seller or any affiliate of Seller concerning management or consulting
services.
3.26. Absence of Questionable Payments. To the knowledge of
Seller, neither the Company, nor the Company Subsidiary, nor any director,
officer, agent, employee, or other person acting on behalf of the Company or
the Company Subsidiary has (i) used any corporate or other funds for unlawful
contributions, payments, gifts, or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others
or established or maintained any unlawful or unrecorded funds in violation of
Section 30A of the Securities Exchange Act of 1934, as amended, or any other
applicable foreign, federal, or state law, or (ii) accepted or received any
unlawful contributions, payments, expenditures, or gifts.
3.27. Product and Service Warranties. Schedule 3.27 contains
copies of the standard product and
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<PAGE> 32
service warranties currently used by the Company and the Company Subsidiary.
The Company's and the Company Subsidiary's practices and policies with respect
to the provision of warranties and the handling of warranty claims has remained
unchanged for at least three (3) years, and Seller believes that the future
warranty claims experience of the Company and the Company Subsidiary with
respect to products sold and services provided by them prior to the Closing
Date should be substantially similar to the claims experience during the past
three (3) years.
3.28. Disclosure. No representation or warranty by Seller to
Buyer contained in this Agreement, and no statement contained in any schedule
or certificate furnished to Buyer pursuant to the provisions hereof, contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make such statements herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
4.01. Organization. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
its incorporation, and has all requisite corporate power and authority to carry
on its business as it is now being conducted, and to execute, deliver, and
perform this Agreement and to consummate the transactions contemplated hereby.
4.02. Corporate Power and Authority; Effect of Agreement. The
execution, delivery, and performance by Buyer of this Agreement and the
consummation by Buyer of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly and validly executed and delivered by Buyer and
constitutes the valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms, except to the extent that such
enforceability (i) may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws relating to creditors' rights generally, and
(ii) is subject to general principles of equity. The execution, delivery, and
performance by Buyer of this Agreement and the consummation by Buyer of the
transactions contemplated hereby will not, with or without the giving of notice
or the lapse of time, or both, (i) violate any provision of law, rule, or
regulation to which Buyer is subject, (ii) violate any order, judgment, or
decree applicable to Buyer or (iii) violate any provision of the Certificate of
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Incorporation or the By-laws of Buyer; except, in each case, for violations
which in the aggregate would not materially hinder or impair the consummation
of the transactions contemplated hereby.
4.03. Consents. Except for the expiration of the waiting period
under the HSR Act, no consent, approval, or authorization of, or exemption by,
or filing with, any governmental authority is required to be obtained or made
by Buyer in connection with the execution, delivery, and performance by Buyer
of this Agreement, or the taking by Buyer of any other action contemplated
hereby.
4.04. Availability of Funds. Buyer will have available on the
Closing Date sufficient funds to enable it to consummate the transactions
contemplated by this Agreement.
4.05. Litigation. There is no Litigation pending or, to the
knowledge of Buyer, threatened (i) against Buyer or any of its affiliates with
respect to which there is a reasonable likelihood of a determination that would
have a material adverse effect on the ability of Buyer to perform its
obligations under this Agreement, or (ii) that seeks to enjoin or obtain
damages in respect of the consummation of the transactions contemplated hereby.
Neither Buyer nor any of its affiliates is subject to any outstanding orders,
rulings, judgments, or decrees that would have a material adverse effect on the
ability of Buyer to perform its obligations under this Agreement.
4.06. Brokers. Other than Stanwich Partners, Inc., whose fee will
be paid by Buyer, Buyer does not know of any broker, finder, or investment
banking firm that is acting or has acted in connection with the transactions
contemplated by this Agreement, and it knows of no other corporation, firm, or
person entitled to receive any brokerage commission, finder's fee, or other
similar compensation in connection with these transactions.
4.07. Purchase for Investment. Buyer is purchasing the Stock for
investment and not with a view to any public resale or other distribution
thereof, except in compliance with applicable securities laws. Buyer
acknowledges that it has received, or has had access to, all information that
it considers necessary or advisable to enable it to make a decision concerning
its purchase of the Stock.
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<PAGE> 34
ARTICLE V
COVENANTS OF SELLER
Seller hereby covenants and agrees with Buyer as follows:
5.01. Cooperation by Seller. From the date hereof and prior to
the Closing, Seller will use its reasonable efforts, and will cooperate with
Buyer, to secure all necessary consents, approvals, authorizations, exemptions,
and waivers from third parties (including pursuant to the HSR Act) as shall be
required in order to enable Seller to effect the transactions contemplated
hereby, and will otherwise use its reasonable efforts to cause the consummation
of such transactions in accordance with the terms and conditions hereof.
5.02. Conduct of Business. (a) Except as may be otherwise
contemplated by this Agreement or required by any of the documents listed in a
Schedule hereto or except as Buyer may otherwise consent to in writing (which
consent shall not be unreasonably withheld), from the date hereof and prior to
the Closing, Seller will cause the Company and the Company Subsidiary to (i) in
all material respects, operate their respective businesses only in the ordinary
course; (ii) use their reasonable efforts to preserve intact their respective
business organizations; (iii) maintain their respective properties, machinery,
and equipment in sufficient operating condition and repair to enable them to
operate their respective businesses in all material respects in the manner in
which the businesses are currently operated, except for maintenance required by
reason of fire, flood, earthquake, or other acts of God; (iv) use their
reasonable efforts to continue all existing insurance policies (or comparable
insurance) of or relating to the Company and the Company Subsidiary in full
force and effect; (v) use their reasonable efforts to keep available until the
Closing the services of their respective present officers, employees, and
agents (as a group); (vi) use their reasonable efforts to preserve their
relationship with their respective material lenders, suppliers, customers,
licensors, and licensees and others having material business dealings with the
Company or any Company Subsidiary such that their respective businesses will
not be materially impaired; (vii) not make any new commitments, whether written
or oral, for capital expenditures in excess of $100,000 in the aggregate;
(viii) not grant any increase in the wages or salary of any officer, employee,
or agent of the Company or the Company Subsidiary; (ix) not enter into any
employment agreement, sales agency or other contract or arrangement with
respect to the performance of personal services, which is not terminable by it
without liability on not more than thirty (30) days notice; (x) not
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<PAGE> 35
enter into or extend any labor contract with any hourly-paid employees or any
union or agree to take any such action; and (xi) not terminate or materially
modify any lease, license, permit, contract or, other agreement.
(b) Notwithstanding the provisions of Section 5.02(a), Seller
shall not be responsible for any breach or violation of Section 5.02(a) by
reason of any action taken or omitted to be taken by Seller, the Company, or
the Company Subsidiary after the date hereof unless the same was at the
direction or written concurrence of management of Seller located at Cleveland,
Ohio.
5.03. Access. From the date hereof and prior to the Closing,
Seller shall provide Buyer with such information as Buyer may from time to time
reasonably request with respect to the Company and the Company Subsidiary and
the transactions contemplated by this Agreement, and shall provide Buyer and
its representatives reasonable access during regular business hours and upon
reasonable notice to the properties, books, and records of the Company and the
Company Subsidiary as Buyer may from time to time reasonably request; provided,
however, that Seller shall not be obligated to provide Buyer or its
representatives with (i) any information relating to trade secrets or that
would violate any law, rule, or regulation or term of any Commitment, or if the
provision thereof would adversely affect the ability of Seller or any of its
affiliates (including the Company and each Company Subsidiary) to assert
attorney-client, attorney work product, or other similar privilege or (ii)
access to the properties of the Company or the Company Subsidiary for the
purpose of conducting any on-site environmental review, including, without
limitation, on-site environmental testing of such properties, which is beyond
the scope of Phase I assessment. Any disclosure whatsoever during such
investigation by Buyer shall not constitute an enlargement of or additional
representations or warranties of Seller beyond those specifically set forth in
this Agreement. All such information and access shall be subject to the terms
and conditions of the letter agreement dated April 24, 1995, and signed by
Stanwich Partners, Inc. on April 26, 1995 (the "Confidentiality Agreement").
5.04. No Solicitation. From the date hereof and prior to the
Closing, Seller shall not, and shall not permit any of its affiliates to,
solicit or encourage any inquiries or proposals for, or enter into any
discussions with respect to, the acquisition of any of the Stock or all, or any
material part, of the respective assets or the businesses of the Company or the
Company Subsidiary or the merger, consolidation, or other business combination
of the Company or the Company Subsidiary and any other person, or furnish or
cause to be furnished any non-public information
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concerning the Company or the Company Subsidiary to any person (other than
Buyer and its agents) in connection therewith.
5.05. Further Assurances. At any time or from time to time after
the Closing, Seller shall, at the request of Buyer and at Buyer's expense,
execute and deliver any further instruments or documents and take all such
further action as Buyer may reasonably request in order to evidence the
consummation of the transactions contemplated hereby.
ARTICLE VI
COVENANTS OF BUYER
Buyer hereby covenants and agrees with Seller as follows:
6.01. Cooperation by Buyer. From the date hereof and prior to the
Closing, Buyer will use its reasonable efforts, and will cooperate with Seller,
to secure all necessary consents, approvals, authorizations, exemptions, and
waivers from third parties (including pursuant to the HSR Act) as shall be
required in order to enable Buyer to effect the transactions contemplated
hereby, and will otherwise use its reasonable efforts to cause the consummation
of such transactions in accordance with the terms and conditions hereof.
6.02. Books and Records; Personnel. For a period of five (5)
years with respect to tax related books and records, and three (3) years with
respect to all other books and records, from and after the Closing Date:
(a) Buyer shall not, and shall cause the Company and
the Company Subsidiary not to, dispose of or destroy any of the
books and records of the Company or the Company Subsidiary relating
to periods prior to the Closing ("Books and Records") without first
offering to turn over possession thereof to Seller by written
notice to Seller at least thirty (30) days prior to the proposed
date of such disposition or destruction.
(b) Buyer shall, and shall cause the Company and the
Company Subsidiary to, upon reasonable notice and at reasonable
times allow Seller and its agents access to all Books and Records
during normal working hours at Buyer's principal place of business
or at any location where any Books and Records are stored, and
Seller shall have the right, at its own expense, to make copies of
any Books and Records; provided, however, that
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any such access or copying shall be had or done in such a manner so
as not to interfere with the normal conduct of Buyer's, the
Company's, or the Company Subsidiary's businesses.
(c) Buyer shall, and shall cause the Company and the
Company Subsidiary to, make available to Seller upon written
request (i) copies of any Books and Records, (ii) Buyer's, the
Company's, and the Company Subsidiary's personnel to assist Seller
in locating and obtaining any Books and Records, and (iii) any of
Buyer's, the Company's, and the Company Subsidiary's personnel
whose assistance or participation is reasonably required by Seller
or any of its affiliates in anticipation of, or preparation for,
existing or future Litigation, tax returns, or other matters in
which Seller or any of its affiliates is involved. Seller shall
reimburse Buyer, the Company, or the Company Subsidiary for the
reasonable out-of-pocket expenses incurred by any of them in
performing the covenants contained in this Section 6.02(c) .
(d) The foregoing provisions of this Section 6.02
shall be in addition to the obligations of Buyer under Sections
7.01(d) and 12.02(d)(ii).
6.03. Buyer's Knowledge of Business; Seller's Representations
Modified by Buyer's Knowledge. Buyer hereby agrees that to the extent any
representation or warranty of Seller made herein or in any such Ancillary
Document (as defined in Section 12.01) is, to the knowledge of any executive
officer or Director of Buyer acquired prior to the date hereof, untrue or
incorrect, (i) Buyer shall have no rights thereunder by reason of such untruth
or inaccuracy, and (ii) any such representation or warranty by Seller shall be
deemed to be amended to the extent necessary to render it consistent with such
knowledge of Buyer. In addition, between the date hereof and the Closing,
Buyer may acquire additional knowledge concerning the matters covered by
Seller's representations and warranties. Accordingly, Buyer agrees (without
prejudice to any rights that Buyer may have under Sections 8.01, 11.01, and
11.02) that, if the Closing occurs, then to the extent any representation or
warranty of Seller made herein or in any Ancillary Document entered into at or
prior to the Closing, to the knowledge of Buyer acquired from and after the
date hereof and prior to the Closing, is untrue or incorrect, (x) Buyer shall
have no rights thereunder by reason of such untruth or inaccuracy, and (y) any
such representation or warranty by Seller shall be deemed to be amended to the
extent necessary to render it consistent with such knowledge of Buyer.
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6.04. Liabilities. (a) Buyer understands and agrees that, from
and after the Closing, except as specifically provided in Section 7.01 and the
last sentence of Section 10.02 to the contrary, and except for (a) any
obligations expressly incurred by Seller in its capacity as seller of the Stock
hereunder (including without limitation, under Sections 12.02 and 12.08) and
(b) any liabilities or obligations to persons not party to this Agreement that
(i) arise out of acts or failures to act prior to the Closing Date by Seller,
the Company, or the Company Subsidiary that are criminal, grossly negligent,
reckless, and/or constitute willful misconduct, or (ii) are subject to coverage
under insurance policies in effect prior to the Closing, neither Seller nor any
of its affiliates shall have any liability or responsibility for any liability
or obligation (including those relating to Environmental Matters) of or arising
out of or relating to the Company or the Company Subsidiary or the operation or
ownership by Seller, the Company, or the Company Subsidiary (or any of their
predecessors) of the Company or the Company Subsidiary, of whatever kind or
nature, whether contingent or absolute, whether arising prior to, on, or after,
and whether determined or indeterminable on, the Closing Date, and whether or
not specifically referred to in this Agreement (the foregoing being
collectively referred to hereinafter as the "Liabilities"). Accordingly, Buyer
agrees that, effective upon the Closing, Buyer, the Company and the Company
Subsidiary shall jointly and severally be responsible for and indemnify Seller
and its affiliates and hold each of them harmless against any liability, loss,
damage, claim (including third party claims, whether or not meritorious), cost
or expense (including, without limitation, reasonable attorneys' fees and
disbursements) (collectively, "Losses") incurred or suffered by any of them
arising out of any of the Liabilities.
(b) Buyer acknowledges that Seller or an affiliate thereof may be
making payments after the Closing to Seller's insurers in respect of medical
and other claims and related administrative costs, including associated claims
handling charges, for which Seller or any of its affiliates is responsible vis
a vis Seller's Insurers and for which Buyer has assumed and the Company or any
Company Subsidiary has retained responsibility pursuant to paragraph (a) of
this Section 6.04 and Section 10.04 ("Claims"). Without in any way limiting
the generality of this Section 6.04 and Section 10.04, Buyer agrees to pay, or
cause the Company or a Company Subsidiary to pay, each Claim or reimburse
Seller therefor within five (5) days after Seller advises Buyer of the amount
thereof and provides Buyer with an invoice from Seller's insurers or other
documentation reasonably satisfactory to Buyer as to the Claim (the "Advice
Date"). If the Buyer fails to pay
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any Claim or reimburse Seller therefor within five (5) days of the Advice Date,
Buyer shall pay to Seller interest on the amount thereof at an annual rate
equal to the Interest Rate from and including the Advice Date to, but not
including, the date of payment.
6.05. Performance Bonds, etc. Schedule 6.05 sets forth a
description of each performance bond, payment bond, bid bond, letter of credit,
guarantee, and similar instrument of the Company and the Company Subsidiary.
At the Closing, Buyer, in its sole discretion, shall, or shall cause the
Company or the Company Subsidiary to, either assume or deliver to Seller
replacement performance bonds, payment bonds, bid bonds, letters of credit,
guaranties, and similar instruments, in an aggregate principal amount and with
terms and from banks or other financial institutions or surety companies in
each case satisfactory to Seller, to replace (or, to the extent required as
described above, to collateralize) any performance bonds, payment bonds, bid
bonds, letters of credit, guaranties, and similar instruments of the Company,
the Company Subsidiary, or of any affiliate thereof with respect to the Company
and the Company Subsidiary (in each case, or portions thereof) remaining
outstanding on the Closing Date with respect to which Seller or any affiliate
of Seller (other than the Company and the Company Subsidiary) will have any
liability after the Closing. In the event that, prior to the Closing Date,
Seller does not change the bonds currently deposited with the State of Ohio
relating to the Company's and the Company Subsidiary's self-insurance program
with the Ohio Bureau of Worker's Compensation, Buyer shall, or shall cause the
Company Subsidiary to, assign to Seller these bonds, and, to the extent that
these bonds are reflected on the Interim Financial Statements, there shall be a
deduction to the Purchase Price paid on the Closing Date. Seller shall
cooperate with, and provide reasonable assistance to, Buyer in its efforts to
establish a similar self-insurance program for the Company and the Company
Subsidiary following the Closing Date.
6.06. Further Assurances. At any time or from time to time after
the Closing, (a) Buyer shall, at the request of Seller and at Seller's expense,
execute and deliver any further instruments or documents and take all such
further action as Seller may reasonably request in order to (i) evidence the
consummation of the transactions contemplated hereby and (ii) evidence the
consummation of the transactions contemplated by the restructuring of Seller
and its affiliates in October, 1991; and (b) Seller shall, at the request of
Buyer, cooperate to the extent reasonably necessary for the presentation and
prosecution by Buyer of any claims against insurance policies in effect prior
to the Closing.
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ARTICLE VII
ADDITIONAL COVENANTS
7.01. Taxes.
(a) Returns and Payments. (i) Buyer shall cause the Company and
the Company Subsidiary to consent to join, for all taxable periods of the
Company and the Company Subsidiary ending on or before the Closing Date for
which the Company and the Company Subsidiary are eligible to do so, in any
consolidated, combined, or unitary federal, state, local, or foreign income and
franchise tax returns that Seller shall request it to join. Seller shall cause
to be prepared and filed all such consolidated, combined, or unitary returns
and pay the tax shown to be due thereon. Buyer agrees to cooperate with Seller
and its affiliates in the preparation of the portions of such returns
pertaining to the Company and the Company Subsidiary, and hereby agrees to take
no position inconsistent with the Company's and the Company Subsidiary's being
a member of the consolidated, combined, or unitary group of which Seller is a
member for such periods. For purposes of the federal consolidated income tax
return for the short period ending on the Closing Date, the Company and the
Company Subsidiary shall close their books and records (including work papers)
as of the opening of business on the Closing Date in accordance with Treasury
Regulations Section 1.1502-76(b)(1)(ii) and (2)(i) in order to report their
annual income as determined on the basis of income shown on their permanent
books and records including work papers. Seller shall cause to be prepared and
Buyer shall cause to be timely filed, or, at Seller's option, Buyer shall
timely cause the Company or the Company Subsidiary, as the case may be, to sign
and return to Seller such documents as are necessary to permit Seller to timely
file, all separate (unconsolidated) state and local income and franchise tax
returns with respect to the Company and the Company Subsidiary required to be
filed for any period ending on or before the Closing Date for which returns
have not been filed as of such date. Seller shall cause to be timely paid all
taxes to which such separate returns relate for all periods covered by such
returns, unless, for any period ending on the Closing Date, Seller has accrued
for such taxes on the Closing Balance Sheet in which case Buyer shall pay such
taxes.
(ii) Seller shall cause to be prepared, and Buyer shall cause to
be timely filed, all monthly or quarterly sales/use tax returns for the period
ending with the month of the Closing.
(iii) Buyer shall cause to be prepared and timely filed the 1996
Ohio Inter-County Personal Property Tax
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Return. Seller shall be afforded an opportunity to review such return prior to
its filing. Seller will have accrued on the Closing Balance Sheet an amount
for 1996 Ohio personal property taxes. To the extent such accrual is greater
than a pro rata amount of the 1996 personal property taxes based on the return
as filed, Buyer shall pay the excess to Seller, and if the accrual is less than
such pro rata amount, Seller shall pay the shortfall to Buyer. Payment is to
be made within five (5) days after the filing of the return. The pro rata
amount of 1996 Ohio personal property taxes shall be determined by multiplying
the amount of tax based on the return by a fraction, the numerator of which is
the number of days from January 1, 1995 up to the Closing Date, and the
denominator of which is 365.
(iv) Seller currently files income or franchise tax returns in the
states of Ohio, Michigan and Pennsylvania, and local income tax returns in
Cleveland and Fremont, Ohio. Seller shall cause to be timely prepared and
Buyer shall timely file all such state and local returns which are based upon
the year-end caused by the Closing. Seller will have made estimated payments
for, or accrued an amount on the Closing Balance Sheet for such state and local
taxes. To the extent the estimated payments and accrual are greater than the
amount of state and local tax shown on the return, the Buyer will pay such
excess to Seller, and if the estimated payments and accrual are less than the
amount of state or local tax shown on the return, Seller will pay the shortfall
to Buyer. Payment in each case is to be made within five (5) days of the time
the return is filed.
(v) Seller will have accrued an amount on the Closing Balance
Sheet for 1995 real estate taxes with respect to real property located in
Cleveland and Fremont, Ohio. To the extent such accrued amount is greater than
a pro rata amount of the real estate tax due for 1995, Buyer shall pay the
excess to Seller, and if such accrued amount is less than the pro rata amount
of the real estate tax due for 1995, Seller shall pay the shortfall to Buyer.
Payment is to be made on January 15, 1996. The amount of real estate tax due
for 1995 shall be based upon the tax bill rendered by the County Auditor for
the first half of 1995. The pro rata amount of real estate taxes shall be
determined in the same manner as the pro rata amount of the personal property
taxes in Section 7.01(a)(iii).
(vi) All payments made pursuant to Sections 7.01(a)(iii) through
(v) shall be treated as adjustments to the purchase price.
(vii) Buyer agrees that it and its affiliates shall make no
election under Section 338 of the Internal Revenue
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Code with respect to the purchase of stock contemplated by the Agreement, and
Buyer further agrees that it and its affiliates shall make such elections under
the Internal Revenue Code as are necessary to prevent the carryback of any net
operating loss to any year of the Company or the Company Subsidiary during
which either of them were members of Parent's consolidated group.
(b) Indemnification; Audits. (i) Seller shall indemnify and hold
harmless Buyer, the Company, and the Company Subsidiary against any and all
liability, (A) for all claims asserted for any Taxes of the Company and the
Company Subsidiary with respect and attributable to all taxable periods or
portions thereof ending on or prior to the Closing Date, except for 1996 Ohio
franchise and personal property taxes (other than the adjustments provided in
Sections 7.01(a)(iii) and (iv)), (B) for all claims incurred or suffered by
reason of the breach of any representation or warranty made by the Seller in
Section 3.15; and (C) any Taxes of any member of any affiliated group of which
Seller is a member assessed or otherwise asserted against the Company or the
Company Subsidiary for any taxable period ending prior to or including the
Closing Date, as well as any Taxes of any member of any affiliated group that
at any time included as a member any corporation as to which the Company or the
Company Subsidiary is a successor, directly or indirectly, by merger or
otherwise, by reason of the Company and the Company Subsidiary being severally
liable for the entire tax of such affiliated group pursuant to Treasury
Regulations Section 1.1502-6 or any analogous state or local tax provision.
(ii) Buyer shall promptly notify Seller in writing upon receipt by
Buyer or any affiliate of Buyer (including the Company and the Company
Subsidiary) of notice of any pending or threatened federal, state, local, or
foreign income or franchise tax audits or assessments that may affect the tax
liabilities of the Company or the Company Subsidiary and for which Seller would
be liable under Section 7.01(b)(i). Seller shall also promptly notify Buyer in
writing of notice of any pending or threatened federal, state, local, or
foreign income or franchise tax audits of or assessments for taxable periods
ended before or including the Closing Date with respect to the Company or the
Company Subsidiary. Seller shall have the sole right to represent the
Company's or the Company Subsidiary's interests in any federal, state, local,
or foreign income or franchise tax matter, including any audit or
administrative or judicial proceeding or the filing of any amended return, that
involves a tax liability or potential tax liability for which Seller would be
liable under Section 7.01(a)(i) (a "Tax Matter"), and to employ counsel of its
choice at its expense. Buyer and Seller
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agree that they will cooperate fully with each other and their counsel in the
defense or compromise of any claim in any said proceeding.
(c) Refunds. Any refunds or credits of federal, state, local, or
foreign income and franchise taxes (including any interest thereon) received by
or credited to the Company or the Company Subsidiary attributable to periods
ending on or prior to the Closing Date ("Seller's Refunds"), shall be for the
benefit of Seller, and Buyer shall use reasonable efforts to obtain any
Seller's Refunds and shall cause the Company and the Company Subsidiary to pay
over to Seller any Seller's Refunds within five (5) days after the receipt
thereof.
(d) Cooperation. After the Closing Date, Buyer and Seller shall
make available to the other, as reasonably requested, and to any Taxing
Authority all information, records or documents relating to Tax liabilities or
potential Tax liabilities of the Company and the Company Subsidiary for all
periods prior to or including the Closing Date and shall preserve all such
information, records, and documents for five years from the Closing Date unless
Seller reasonably requests in writing that Buyer preserve such records for a
longer period. Buyer shall prepare and provide to Seller such federal, state,
local, and foreign tax information packages as Seller shall reasonably request
for Seller's use in preparing any tax return that relates to the Company or the
Company Subsidiary. Such tax information packages shall be completed by Buyer
and provided to Seller within ninety (90) days after the close of the tax
period to which the information relates. Notwithstanding any other provisions
hereof, each party shall bear its own expenses in complying with the foregoing
provisions.
(e) Buyer's Taxes. Buyer shall pay, or cause to be paid, and
Buyer, the Company, and the Company Subsidiary shall jointly and severally
indemnify Seller and its affiliates against and hold them harmless from any
liability for Taxes payable by the Company or the Company Subsidiary
attributable to any period or portion thereof beginning after the Closing Date,
except for the adjustments provided in Sections 7.01(a)(iii) and (iv).
(f) Tax Sharing. As of the Closing Date, neither the Company nor
the Company Subsidiary shall have further rights or obligations under any
tax-sharing agreement among it and Seller and/or any of Seller's affiliates.
(g) No New Tax Elections. No new elections with respect to Taxes,
or any changes in current elections with respect to Taxes, affecting the
Company or the Company
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Subsidiary shall be made after the date hereof without the prior written
consent of Buyer.
7.02. Cash Management; Intercompany Accounts. (a) As part of the
cash management program of Seller, the Company maintains a separate
zero-balance account at Huntington National Bank for the collection of lockbox
receipts, electronic customer payments, and controlled disbursement check
disbursements (the "ZBA"). The daily zero ledger balance in the account is
maintained by either the transfer of positive balances to, or the covering of
negative balances from, a central concentration account maintained by Seller.
Effective on the Closing Date, Seller will relinquish all control (signature
and otherwise) over the ZBA, including its linkage with Seller's concentration
account. Buyer shall be responsible to fund the ZBA in amounts sufficient to
pay all checks and drafts that are written but not presented for payment prior
to the close of business on the day immediately preceding the Closing Date; the
total of these outstanding checks and drafts will be designated by the caption
"Payable to Banks" on the Company's financial statements. Seller shall be
entitled, prior to the Closing Date, to collect, concentrate, and retain the
proceeds of all items received in its lockbox collection account or otherwise
in respect of the Company; on and after the Closing Date, Buyer shall be
entitled to collect, concentrate, and retain these proceeds.
(b) Outside of Seller's cash management concentration system, the
Company Subsidiary maintains a demand deposit account at Huntington National
Bank into which lockbox receipts are deposited and on which checks are drawn.
Balances in this account sufficient to cover outstanding checks are maintained.
Effective at the opening of business on the Closing Date, Seller will
relinquish all control (signature and otherwise) over this account. Seller
shall cause the Company Subsidiary to remit to Seller on the day prior to the
Closing Date the book balance of this account, thereby retaining in the account
a sufficient balance to cover only those outstanding checks which will not be
included in the "Payables to Banks" caption on the Company's financial
statements as of the Closing Date.
(c) The intercompany account reflecting the collection of the
Company's cash receipts or funding of the ZBA shall be canceled as of the
opening of business on the Closing Date.
7.03. Sharing of Environmental Costs. In the event that the
Company or the Company Subsidiary should incur any loss, cost, or expense
("Environmental Cost") within the period of five (5) years from the Closing
Date due to any
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claim asserted by a Governmental Authority or a damage claim asserted by a
third party not related to Buyer, Seller, the Company, the Company Subsidiary,
or any affiliate thereof arising out of any condition or circumstance which
violates or is not in compliance with any Environmental Law, and the amount
thereof is not subject to the limitations on Buyer's right to indemnification
set forth in the second sentence of Section 12.02(a), Seller and Buyer (or the
Company or the Company Subsidiary in lieu of Buyer) shall each pay one-half of
such Environmental Costs, so long as (i) such Environmental Costs relate to
circumstances or conditions in existence on the Closing Date or relating to any
property owned or operated by the Company or the Company Subsidiary and (ii)
such claims are presented to Seller within two (2) years after the Closing
Date. Seller's liability hereunder shall be combined with any liability under
Section 12.02(a) and be subject to the $3,000,000 maximum cost to Seller
therein provided. In connection with the sharing of Environmental Costs
hereunder, Seller and Buyer shall cooperate with each other in a timely and
reasonable manner and shall endeavor to reach decisions that are fair to one
another, having due regard to Buyer's intentions to continue the operations of
the Company and the Company Subsidiary in an uninterrupted and profitable
manner and Seller's desire to avoid unreasonable costs and expenses. If Seller
and Buyer are unable to reach agreement or are in dispute as to a specific
matter or matters, their disagreement shall be submitted to a mutually
acceptable arbitrator, which arbitrator shall be instructed to act promptly and
to make a final and binding determination as to the matters in disagreement,
having due regard to the above-mentioned factors. The fees and expenses of the
arbitrator shall be shared equally by Seller and Buyer.
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligation of Buyer to purchase the Stock shall be subject to
the satisfaction (or waiver) on or prior to the Closing Date of all of the
following conditions:
8.01. Representations, Warranties, and Covenants of Seller.
Seller shall have complied in all material respects with its agreements and
covenants contained herein to be performed on or prior to the Closing Date, and
the representations and warranties of Seller contained herein shall be true in
all material respects on and as of the Closing Date with the same effect as
though made on and as of the Closing Date, except (a) as otherwise contemplated
hereby, and (b) to the extent that any such representations and warranties were
made as of a specified date and as to
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such representations and warranties the same shall continue on the Closing Date
to have been true in all material respects as of the specified date. Buyer
shall have received a certificate of Seller, dated as of the Closing Date and
signed by an officer of Seller, certifying as to the fulfillment of the
condition set forth in this Section 8.01 (the "Seller's Certificate").
8.02. No Prohibition. No statute, rule or regulation, or order of
any court or administrative agency shall be in effect that prohibits Buyer from
consummating the transactions contemplated hereby.
8.03. Third Party Consents. Buyer shall have received the
consents from third parties, in form reasonably acceptable to Buyer, set forth
on Exhibit 8.03.
8.04. Governmental Consents. The applicable waiting period under
the HSR Act shall have expired or been terminated and all other consents,
approvals, authorizations, exemptions, and waivers from governmental agencies
that shall be required in order to enable Buyer to purchase the Stock shall
have been obtained (except for such consents, approvals, authorizations,
exemptions, and waivers, the absence of which would not prohibit the purchase
or render the purchase illegal).
8.05. Proceedings. No action or proceeding shall be pending or
threatened to restrain or prevent the consummation of the transactions
contemplated hereby.
8.06. Opinion of Counsel. Buyer shall have received a written
opinion dated the Closing Date from Thompson, Hine and Flory, counsel to
Seller, substantially in the form attached as Exhibit 8.06.
8.07. Deliveries. Seller shall have delivered to Buyer the items
referred to in Section 1.05.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
The obligation of Seller to sell the Stock shall be subject to the
satisfaction (or waiver) on or prior to the Closing Date of all of the
following conditions:
9.01. Representations, Warranties, and Covenants of Buyer. Buyer
shall have complied in all material respects with its agreements and covenants
contained herein to be performed on or prior to the Closing Date, and the
representations and warranties of Buyer contained herein shall be true in all
material respects on and as of the
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Closing Date with the same effect as though made on and as of the Closing Date,
except (a) as otherwise contemplated hereby, and (b) to the extent that any
such representations and warranties were made as of a specified date and as to
such representations and warranties the same shall continue on the Closing Date
to have been true in all material respects as of the specified date. Seller
shall have received a certificate of Buyer, dated as of the Closing Date and
signed by an officer of Buyer, certifying as to the fulfillment of the
condition set forth in this Section 9.01 (the "Buyer's Certificate").
9.02. No Prohibition. No statute, rule or regulation, or order of
any court or administrative agency shall be in effect that prohibits Seller
from consummating the transactions contemplated hereby.
9.03. Performance Bonds. Buyer shall have either assumed the
performance bonds, letters of credit, and/or other instruments referred to in
Section 6.05 or delivered to Seller replacements thereof.
9.04. Governmental Consents. The applicable waiting period under
the HSR Act shall have expired or been terminated and all other consents,
approvals, authorizations, exemptions, and waivers from governmental agencies
that shall be required in order to enable Seller to sell the Stock to Buyer
shall have been obtained (except for such consents, approvals, authorizations,
exemptions, and waivers, the absence of which would not prohibit the sale or
render the sale illegal).
9.05. Proceedings. No action or proceeding shall be pending or
threatened to restrain or prevent the consummation of the transactions
contemplated hereby.
9.06. Opinion of Counsel. Seller shall have received a written
opinion dated the Closing Date from Bass, Berry & Sims, counsel to Buyer,
substantially in the form attached as Exhibit 9.06.
9.07. Deliveries. Buyer shall have delivered to Seller the items
referred to in Section 1.06.
ARTICLE X
EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS
10.01. Definitions. (a) The term "Business" shall mean
individually and collectively (i) the Company and the Company Subsidiary and
(ii) Seller and its affiliates and any predecessor to any of the foregoing, but
only with respect to the Company and the Company Subsidiary.
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(b) The term "Employees" shall mean all current employees
(including those on layoff, disability, or leave of absence, whether paid or
unpaid), former employees, and retired employees of the Business, and the term
"Employee" shall mean any of the Employees.
(c) The term "Company Benefit Plans" shall mean each and all
"employee benefit plans," as defined in Section 3(3) of ERISA, maintained or
contributed to by the Business or in which the Business participates or
participated and which provides benefits to Employees or their spouses or
covered dependents, including (i) any such plans that are "employee welfare
benefit plans" as defined in Section 3(1) of ERISA and (ii) any such plans that
are "employee pension benefit plans" as defined in Section 3(2) of ERISA.
(d) The term "Benefit Arrangements" shall mean each and all
pension, supplemental pension, basic and supplemental accidental death and
dismemberment, basic and supplemental life and health insurance and benefits
(including medical, dental, and hospitalization), savings, bonus, deferred
compensation, incentive compensation, business travel and accident, holiday,
vacation, severance pay, salary continuation, sick pay, sick leave, short and
long term disability, tuition refund, service award, company car, scholarship,
relocation, patent award, fringe benefit, and other employee benefit
arrangements, plans, contracts (other than individual employment, consulting,
or severance contracts), policies, or practices of the Business providing
employee or executive compensation or benefits to Employees, other than the
Company Benefit Plans.
10.02. Pay Obligations. Buyer shall assume, and shall cause the
Company and the Company Subsidiary to honor and continue to perform, all
obligations of Seller and its affiliates (including the Company and the Company
Subsidiary) under all agreements with any Employee that relate to employment or
compensation or benefits.
10.03. Pension and Other Plans. (a)(1) As of the Closing Date,
the Company and the Company Subsidiary shall cease to be a participating
employer under the Acme-Cleveland Corporation and Subsidiaries Retirement
Savings Plan (the "Acme-Cleveland Savings Plan"), and Seller shall take, or
cause to be taken, all such action as may be necessary to effect such cessation
of participation. As soon as practicable after the Closing Date, Buyer shall,
or shall cause the Company and the Company Subsidiary to, establish or
designate, and maintain, a defined contribution plan (the "Buyer's Savings
Plan") to provide benefits to the Employees who, on the Closing Date, are
participants in the Acme-Cleveland Savings Plan ("Savings
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Plan Participants"). The Buyer's Savings Plan shall be qualified under
Sections 401(a) and 401(k) of the Code and shall provide the Savings Plan
Participants credit for service with Seller and its affiliates (including the
Company and the Company Subsidiary) and their respective predecessors prior to
the Closing Date for all purposes for which service was recognized under the
Acme-Cleveland Savings Plan.
(2)(i) As soon as practicable after the receipt by Seller of the
opinion or determination letter described in subparagraph (ii) below, Seller
shall cause the trustee of the Acme-Cleveland Savings Plan to transfer to the
trust forming a part of the Buyer's Savings Plan cash in an amount equal to the
account balances of Savings Plan Participants as of the date of transfer, which
shall be a valuation date (the "Account Balances"), provided, however, that the
investment known as the "Executive Life Contract," and any attendant rights to
which the Buyer's Savings Plan is entitled in connection therewith, may be
transferred in lieu of cash (on a proportionate basis), so long as said
Contract provides for the payment of interest and, in the event of a
distribution upon termination of employment, principal.
(ii) Within 60 days after the Closing Date, Buyer shall either (A)
provide Seller with an opinion letter of counsel acceptable to Seller that the
Buyer's Savings Plan and related trust satisfy the requirements for
qualification under Section 401(a) and 401(k) of the Code as of the later of
its effective date or the Closing Date or (B) deliver to Seller a favorable
determination letter issued by the IRS that the Buyer's Savings Plan and
related trust satisfy the requirements for qualification under Section 401(a)
and 401(k) of the Code as of the later of its effective date or the Closing
Date. No transfer shall be made until Buyer provides Seller with the opinion
letter or determination letter referred to in this subparagraph (ii).
(3) In consideration for the provisions contained in this Section
10.03(a) for the transfer by the Acme-Cleveland Savings Plan of the Account
Balances to the trust forming a part of the Buyer's Savings Plan, Buyer shall,
effective as of the Closing Date, assume all of the liabilities and obligations
of Seller and its affiliates in respect of the Savings Plan Participants and
their beneficiaries under the Acme-Cleveland Savings Plan, and Seller and its
affiliates and the Acme-Cleveland Savings Plan shall be relieved of all
liabilities and obligations to the Savings Plan Participants and their
beneficiaries arising out of the Acme-Cleveland Savings Plan; provided,
however, that Buyer shall not assume, and Seller and its affiliates shall not
be relieved of, any liability
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resulting from a prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code), a breach of fiduciary duty or any other
violation of ERISA or the Code occurring prior to the Closing Date.
(b)(1) As of the Closing Date, the Company and the Company
Subsidiary shall cease to be a participating employer under the Salaried
Employees Pension Plan of Acme-Cleveland Corporation and Subsidiaries (the
"Salaried Pension Plan"), and Seller shall take, or cause to be taken, all such
action as may be necessary to effect such cessation of participation. As soon
as practicable after the Closing Date, Buyer shall, or shall cause the Company
and the Company Subsidiary to, establish or designate, and maintain, a defined
benefit pension plan (" Buyer's Pension Plan") to provide benefits to Employees
who, on the Closing Date, are participants in the Salaried Pension Plan
("Pension Plan Participants"). Buyer's Pension Plan shall be qualified under
Section 401(a) of the Code and shall provide the Pension Plan Participants with
credit for service with Seller and its affiliates (including the Company and
the Company Subsidiary) and their respective predecessors prior to the Closing
Date for all purposes for which such service was recognized under the Salaried
Pension Plan (other than benefit accrual), including, without limitation,
vesting, eligibility to participate, and eligibility for disability and early
retirement benefits (including subsidies relating to such benefits), and the
accrued benefit of each Employee under the Salaried Pension Plan as of the
Closing Date shall be provided by Buyer's Pension Plan as a result of the
transfer of assets described in Section 10.03(b)(3)(i).
(2) As soon as practicable after the Closing Date, Seller shall
cause the actuary for the Salaried Pension Plan (the "Plan Actuary") to
determine the aggregate present value as of the Closing Date of the accrued
benefits of the Pension Plan Participants under the Salaried Pension Plan on a
plan termination basis in accordance with Section 414(l) of the Code and the
regulations thereunder, using an interest rate of 7 3/4% and the other
actuarial assumptions used by the Plan Actuary in preparing the Salaried
Pension Plan's most recent actuarial report, disregarding those assumptions not
relevant to a termination basis calculation, such as projected salary
increases, and assuming no turnover (the "Salaried Pension Benefits Value").
Seller shall provide Buyer with the information for the determination of the
Salaried Pension Benefits Value.
(3)(i) As soon as practicable after the latest of (A) the date on
which the Salaried Pension Benefits Value is determined, (B) the expiration of
30 days following the filing of any required Form 5310 with the IRS in respect
of
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the Buyer's Pension Plan and the Salaried Pension Plan, and (C) the receipt by
Seller of the opinion or determination letter described in subparagraph (ii)
below, Seller shall cause the trustee of the Salaried Pension Plan to transfer
to the trust forming a part of the Buyer's Pension Plan an amount (the "Pension
Transfer Amount ") in cash having an aggregate value equal to the portion (not
to exceed 100 percent) of the Salaried Pension Benefits Value covered by
Salaried Pension Plan assets as of the Closing Date in accordance with the
rules of Section 4044 of ERISA (I) increased by interest during the period from
the Closing Date to the date of transfer (the "Interim Period") at an interest
rate equal to the interest rate credited from time to time during the Interim
Period on assets held in the Salaried Pension Plan trustee's short-term
investment fund (the "Pension Plan Interest Rate") and (II) reduced by (x) an
amount equal to the benefit payments made to the Pension Plan Participants or
their beneficiaries under the Salaried Pension Plan during the Interim Period
plus interest at the Pension Plan Interest Rate on such benefit payments for
the Interim Period and (y) an amount equal to the allocable share of fees and
expenses arising during the Interim Period plus interest at the Pension Plan
Interest Rate on such allocable share of fees and expenses for the Interim
Period.
(ii) As soon as reasonably practicable after the Closing Date,
Buyer shall either (A) provide Seller with an opinion letter of counsel
acceptable to Seller that the Buyer's Pension Plan and related trust satisfy
the requirements for qualification under Section 401(a) of the Code as of the
later of its effective date or the Closing Date or (B) deliver to Seller a
favorable determination letter issued by the IRS that the Buyer's Pension Plan
and related trust satisfy the requirements for qualification under Section
401(a) of the Code as of the later of its effective date or the Closing Date.
No transfer shall be made until Buyer provides Seller with the opinion letter
or determination letter referred to in this subparagraph (ii).
(4) In consideration for the provisions contained in this Section
10.03(b) for the transfer of the Pension Transfer Amount to the trust forming a
part of the Buyer's Pension Plan, including the agreement specified in Section
10.03(b)(5) hereof, Buyer shall, effective as of the Closing Date, assume all
of the liabilities and obligations of Seller and its affiliates in respect of
the Pension Plan Participants and their beneficiaries under the Salaried
Pension Plan, and Seller and its affiliates and the Salaried Pension Plan shall
be relieved of all liabilities and obligations arising out of or relating to
the Pension Plan Participants and their beneficiaries arising out of the
Salaried Pension Plan; provided, however, that Buyer shall not assume, and
Seller and its
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affiliates shall not be relieved of, any liability resulting from a prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975 of the
Code), a breach of fiduciary duty or any other violation of ERISA or the Code
occurring prior to the Closing Date.
(5) Within five (5) days after the date of the transfer by the
trustee from the Salaried Pension Plan of the Pension Transfer Amount, Seller
shall pay to Buyer in cash or cash equivalent funds an amount equal to the
excess of the Salaried Pension Benefits Value over the Pension Transfer Amount,
to the extent that such excess exceeds $150,000 as of the Closing Date, plus
interest during the period from the Closing Date to the date of payment at an
interest rate equal to the Pension Plan Interest Rate, as defined in Section
10.03(b)(3)(i).
10.04. Other Benefit Plans. For a period of two (2) years
following the Closing Date, Buyer agrees to provide Seller with prior written
notice in the event Buyer, the Company, or the Company Subsidiary ceases to
provide benefits that are substantially the same as the benefits provided to
Employees under the Company Benefit Plans and Benefit Arrangements. To the
extent any employee benefit plans provide medical or dental welfare benefits to
Employees after the Closing Date, the plans shall waive any pre-existing
conditions and actively-at-work exclusions and shall provide that any expenses
incurred on or before the Closing Date shall be taken into account under the
plans for purposes of satisfying applicable deductible, coinsurance, and
maximum out-of-pocket provisions. Without limiting the generality of Section
6.04, Buyer shall or shall cause the Company and the Company Subsidiary to,
assume all Employee-related liabilities and obligations of Seller and its
affiliates (including the Company and the Company Subsidiary) that have been
accrued on the Closing Balance Sheet, including all liabilities and obligations
under the Company Benefit Plans and Benefit Arrangements (other than those
Company Benefit Plans that are covered by Section 10.03, which shall be
governed by that Section) and workers' compensation arrangements with respect
to the Employees and their dependents and beneficiaries, including, but not
limited to, (i) liabilities and obligations for wages, benefits, compensation,
contributions, insurance, and health maintenance organization premiums,
reserves, and administrative expenses, to the extent that such liabilities and
obligations have been accrued in full on the Closing Balance Sheet, and whether
or not reported as of the Closing Date, (ii) liabilities and obligations
arising under COBRA (as defined in Section 3.14(d)) with respect to all
Employees (or any beneficiary or dependent of any Employee) who, as of the
Closing Date, have exercised or are eligible to exercise their right to such
continuation
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coverage (except for liability arising out of any violation of the COBRA notice
provisions by Seller, the Company, or the Company Subsidiary prior to the
Closing Date), and (iii) liabilities and obligations to provide post-retirement
health and life insurance benefits to Employees (whether or not currently
retired).
10.05. Long-Term Disability Plan. Notwithstanding anything to the
contrary contained in this Agreement, Seller shall retain liability to provide
long-term disability benefits after the Closing Date to the one salaried
Employee of the Company who is receiving benefits as of the Closing Date under
the Company's long-term disability plan. The parties agree that the provisions
of this Section 10.05 do not extend to any other liabilities or any other
employees of the Company.
10.06. Severance. Buyer agrees to provide, or cause the Company
and the Company Subsidiary to provide, severance pay and other benefit
entitlements that may be owing to any Employee whose employment is terminated
by Buyer, the Company or the Company Subsidiary on or after the Closing Date or
by reason of the transactions contemplated hereby in accordance with the normal
severance policies afforded to employees of the Buyer and its affiliates,
provided that, in the application of these policies to the Employees,
employment with Seller, the Company, and the Company Subsidiary prior to the
Closing Date shall be treated as employment with Buyer.
ARTICLE XI
TERMINATION PRIOR TO CLOSING
11.01. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) By the mutual written consent of Buyer and
Seller; or
(b) By either Seller or Buyer in writing, if the
Closing shall not have occurred on or before September 30, 1995; or
(c) By either Seller or Buyer in writing, if there
shall have been a material breach by the other party of any of its
representations, warranties, covenants, or agreements contained
herein and such breach results in a failure to satisfy a condition
to the terminating party's obligation to consummate the
transactions provided herein; or
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(d) By Seller if any of the conditions specified in
Article IX have not met or waived by Seller at such time as such
condition can no longer be satisfied; or
(e) By Buyer if any of the conditions specified in
Article VIII have not been met or waived by Buyer at such time as
such condition can no longer be satisfied.
11.02. Effect on Obligations. Termination of this Agreement
pursuant to this Article XI shall terminate all obligations of the parties
hereunder, except for the obligations under Sections 12.08, 12.11, and 12.12
and the last sentence of Section 5.03; provided, however, that termination
pursuant to clause (b) or (c) of Section 11.01 by reason of breaches of
covenants or agreements or by reason of a breach by Buyer of its
representations and warranties contained in Section 4.04 shall not relieve the
defaulting or breaching party (whether or not it is the terminating party) from
any liability to the other party hereto.
ARTICLE XII
MISCELLANEOUS
12.01. Survival. Except as otherwise set forth in this Section
12.01, the representations and warranties made in this Agreement or in any
agreement, certificate (including the Seller's Certificate and the Buyer's
Certificate), or other document executed at or prior to the Closing in
connection herewith (an "Ancillary Document") shall survive the Closing until
the eighteen (18) month anniversary thereof; provided, however, that (a) the
representations and warranties set forth in Section 3.01, the fourth sentence
of Section 3.03, the first sentence of Section 3.07, and Section 3.08(c) shall
survive the Closing and expire at the end of the relevant statute of
limitations, (b) the representations and warranties set forth in Section 3.15
shall survive the Closing and expire at the end of the relevant statute of
limitations and the expiration of all applicable periods of appeal, (c) the
representations and warranties set forth in Section 3.13 shall survive the
Closing until the second anniversary thereof, and (d) the representations and
warranties set forth in the Noncompetition Agreement shall survive the Closing
and expire in accordance with the terms set forth therein and shall thereupon
expire together with any right to indemnification for breach thereof (except to
the extent a written notice asserting a claim for breach of any of the
foregoing representations or warranties, describing the nature of the breach in
reasonable detail, shall have been
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given prior to such date to the party that made such representation or
warranty, in which case the representation and warranty shall survive, to the
extent of the alleged claim only, until the claim is resolved, whether or not
the amount of the damages or expenses resulting from the alleged breach has
been finally determined at the time the notice is given, if, but only if, (i)
in the case of a claim made by Buyer by reason of a third party claim, the
written notice is accompanied by a copy of the written notice of the third
party claimant or an affidavit by an officer of Buyer, the Company, or the
Company Subsidiary that a third party has made an assertion of fact and/or law
that, if true, would constitute a breach of a representation, warranty, or
covenant of Seller set forth in this Agreement or any Ancillary Document and
(ii) in the case of any claim made by Buyer other than by reason of a third
party claim, some damages or expense shall have been incurred in good faith at
or prior to the date of such notice; and provided that any notice asserting a
claim for breach of any of the representations and warranties contained in
Section 3.13 (or in the Seller's Certificate insofar as it pertains to Section
3.13) as to Environmental Matters (an "Environmental Breach") shall not be
effective notice unless accompanied by (x) written notice from the applicable
regulatory authority, or, if there has been a claim made against Buyer by a
third party, the written notice of the third party claimant, alleging the
existence of the conditions as to which an Environmental Breach is claimed or
(y) a written report from a environmental consulting firm reasonably acceptable
to Buyer and Seller, the fees and expenses of which firm shall be borne solely
by Buyer, confirming, in reasonable detail, the existence of the conditions as
to which an Environmental Breach is claimed). If Buyer, the Company, or the
Company Subsidiary has obtained title insurance with respect to any real
property owned by the Company or the Company Subsidiary, Buyer shall make no
claim for breach of representations or warranties contained in Sections 3.07
and 3.08(c) (and in Seller's Certificate insofar as it pertains to these
sections) to the extent that any damage or expense is covered by such title
insurance. The covenants and agreements contained herein to be performed or
complied with prior to the Closing (and the provisions of the Seller's
Certificate and the Buyer's Certificate pertaining thereto) shall expire at the
Closing. The covenants and agreements contained herein to be performed or
complied with at or after the Closing (other than the covenant and agreement to
indemnify against breaches of representations and warranties, which shall
expire as set forth in the first sentence of this Section 12.01, but including
the indemnification obligations contained in Section 6.04(a) and 7.01(b)) shall
survive the Closing until the expiration of the applicable statute of
limitations. Notwithstanding anything in this
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Section 12.01 to the contrary, in the event that any notice is given within the
time period of survival set forth in this Section 12.01 asserting a claim for
breach of any of Seller's representations or warranties in this Agreement or in
any Ancillary Document, the representations and warranties contained in the
first sentence of Section 6.03 shall survive until such claim is resolved.
12.02. Indemnification. (a) If the Closing shall occur, Seller
shall indemnify Buyer and its affiliates (including the Company and the Company
Subsidiary) and hold each of them harmless from and against all Losses that are
incurred or suffered by any of them (i) by reason of the breach of any of the
representations or warranties made by Seller herein or in any Ancillary
Document (other than any that do not survive the Closing), (ii) by reason of
the failure by Seller to perform or comply with any of the covenants or
agreements contained herein or in any Ancillary Document to be performed or
complied with by Seller at or after the Closing, or (iii) that are attributable
to any business formerly owned or operated by the Company, or the Company
Subsidiary that is not functionally related to the manufacture, design, sale,
or servicing of turning lathe machine tools or parts therefor. Any recovery by
Buyer and its affiliates for indemnification under this Section 12.02(a) and
for claims under Section 7.03 shall be limited as follows: (1) Buyer and its
affiliates shall not be entitled to any recovery unless a claim for
indemnification is made in accordance with Sections 12.01 and paragraph (d)(i)
of this Section 12.02 and within the time period of survival set forth in
Section 12.01; (2) Buyer and its affiliates shall not be entitled to any
recovery whatsoever with respect to individual indemnification claims that are
less than $10,000; (3) Buyer and its affiliates shall not be entitled to
recover any amount for indemnification claims unless and until the amount that
Buyer and its affiliates are entitled to recover in respect of such claims
exceeds, in the aggregate, $300,000 (the "Buyer's Deductible"), in which event
(subject to clause (4) below) the entire amount that Buyer and its affiliates
are entitled to recover in respect of such claims less the Buyer's Deductible
shall be payable; and (4) the maximum amount recoverable by Buyer and its
affiliates for indemnification claims shall in the aggregate be equal to
$3,000,000. Notwithstanding the immediately preceding sentence, any recovery
by Buyer and its affiliates for indemnification under (i) Section 3.15 claims
or Section 7.01(b) or (ii) the covenant contained in Section 10.03(b)(5),
respectively, shall not be limited by Section 12.02(a).
(b) If the Closing shall occur, Buyer, the Company, and the
Company Subsidiary shall jointly and severally indemnify Seller and its
affiliates and hold each of them
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harmless from and against all Losses that are incurred or suffered by any of
them (i) by reason of the breach by Buyer of any of the representations or
warranties made by Buyer herein or in any Ancillary Document or (ii) by reason
of the failure by Buyer (or, from and after the Closing, the Company or the
Company Subsidiary) to perform or comply with any of the covenants or
agreements contained herein or in any Ancillary Document to be performed or
complied with by any of them at or after the Closing. Any recovery by Seller
and its affiliates for indemnification under this Section 12.02(b) shall be
limited as follows: (1) Seller and its affiliates shall not be entitled to any
recovery unless a claim for indemnification is made in accordance with Section
12.01 and paragraph (d)(i) of this Section 12.02 and within the time period of
survival set forth in Section 12.01; (2) Seller and its affiliates shall not be
entitled to any recovery whatsoever with respect to individual indemnification
claims that are less than $10,000; (3) Seller and its affiliates shall not be
entitled to recover any amount for indemnification unless and until the amount
that Seller and its affiliates are entitled to recover in respect of such
claims exceeds, in the aggregate, $300,000 (the "Seller's Deductible"), in
which event (subject to clause (4) below) the entire amount that Seller and its
affiliates are entitled to recover in respect of such claims less the Seller's
Deductible shall be payable; and (4) the maximum amount recoverable by Seller
and its affiliates for indemnification claims under this Section 12.02(b) shall
in the aggregate be equal to $3,000,000.
(c) Notwithstanding anything herein to the contrary, Buyer, the
Company, and the Company Subsidiary shall have no right to any indemnification
under this Section 12.02 for any matter if (i) the Closing Balance Sheet was
reduced for such matter and either Buyer did not dispute the amount of the
reduction in the Closing Balance Sheet or the dispute as to the amount of such
reduction was resolved pursuant to Section 1.03(c) or (ii) the Closing Balance
Sheet was not reduced for such matter, Buyer disputed such nonreduction, and
the dispute was resolved pursuant to Section 1.03(c).
(d)(i) In the event that any party shall incur or suffer any
Losses in respect of which indemnification may be sought by such party pursuant
to the provisions of this Section 12.02, the party seeking to be indemnified
hereunder (the "Indemnitee") shall assert a claim for indemnification by
written notice (a "Notice") to the party from whom indemnification is sought
(the "Indemnitor") stating the nature and basis of the claim, and, if the claim
is with respect to a third party claim or an Environmental Breach, accompanied
by the documentation set forth in Section 12.01. In the case of Losses arising
by
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reason of any third party claim, the Notice shall be given within 30 days of
the filing or other written assertion of any such claim against the Indemnitee,
but the failure of the Indemnitee to give the Notice within such time period
shall not relieve the Indemnitor of any liability that the Indemnitor may have
to the Indemnitee except to the extent that the Indemnitor is prejudiced
thereby.
(ii) The Indemnitee shall provide to the Indemnitor on request all
information and documentation reasonably necessary to support and verify any
Losses that the Indemnitee believes give rise to a claim for indemnification
hereunder and shall give the Indemnitor reasonable access to all books,
records, and personnel in the possession or under the control of the Indemnitee
that would have bearing on such claim.
(iii) In the case of third party claims for which indemnification
is sought, the Indemnitor shall have the option, and with respect to such
claims that represent or are in respect of any of the Liabilities ("Liabilities
Claims") shall have the obligation, (x) to conduct any proceedings or
negotiations in connection therewith, (y) to take all other steps to settle or
defend any such claim (provided that the Indemnitor shall not settle any such
claim without the consent of the Indemnitee (which consent shall not be
reasonably withheld)), and (z) to employ counsel to contest any such claim or
liability in the name of the Indemnitee or otherwise. In any event, the
Indemnitee shall be entitled to participate at its own expense and by its own
counsel in any proceedings relating to any third party claim. The Indemnitor
shall, within 45 days of receipt of the Notice, notify the Indemnitee of (or,
in the case of a Liabilities Claim, confirm to the Indemnitee) its intention to
assume the defense of the claim. Until the Indemnitee has received notice of
the Indemnitor's election whether to (or, in the case of a Liabilities Claim,
the Indemnitor's confirmation of its intention to) defend any claim, the
Indemnitee shall take reasonable steps to defend (but may not settle) the
claim. Except for Liabilities Claims, as to which this sentence shall not be
applicable, if the Indemnitor shall decline to assume the defense of any such
claim, or shall fail to notify the Indemnitee within 45 days after receipt of
the Notice of the Indemnitor's election to defend the claim, the Indemnitee
shall defend against the claim (provided that the Indemnitee shall not settle
such claim without the consent of the Indemnitor, which consent shall not be
unreasonably withheld). The expenses of all proceedings, contests, or lawsuits
in respect of such claims (other than those incurred by the Indemnitee which
are referred to in the second sentence of this subparagraph (iii)) shall be
borne by the Indemnitor but only if the Indemnitor is responsible pursuant
hereto to indemnify the Indemnitee in
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respect of the third party claim and, if applicable, only to the extent
required by the second sentence of Section 12.02(a). Regardless of which party
shall assume the defense of the claim, the parties agree to cooperate fully
with one another in connection therewith. In the case of a claim for
indemnification made under Section 12.02(a)(i) or 12.02(b)(i), (a) if (and to
the extent) the Indemnitor is responsible pursuant hereto to indemnify the
Indemnitee in respect of the third party claim, then within ten days after the
occurrence of a final non-appealable determination with respect to such third
party claim, the Indemnitor shall pay the Indemnitee, in immediately available
funds, the amount of any Losses (or such portion thereof as the Indemnitor
shall be responsible pursuant to the provisions hereof, including, without
limitation, the second sentence of Section 12.02(a)), and (b) in the event that
any Losses incurred by the Indemnitee do not involve payment by the Indemnitee
of a third party claim, then, if (and to the extent) the Indemnitor is
responsible pursuant hereto to indemnify the Indemnitee against such Losses,
the Indemnitor shall within ten days after agreement on the amount of Losses or
the occurrence of a final non-appealable determination of such amount pay to
the Indemnitee, in immediately available funds, the amount of such Losses (or
such portion thereof as the Indemnitor shall be responsible pursuant to the
provisions hereof, including, without limitation, the second sentence of
Section 12.02(a)).
(e) The provisions of paragraph (d) of this Section 12.02 shall
apply to all claims for indemnification hereunder except indemnification claims
that involve Tax Matters, which claims shall be governed by Section 7.01(b) .
(f) The indemnification provided in this Section 12.02 shall be
the sole and exclusive remedy for any inaccuracy or breach of any
representation or warranty made by Seller in this Agreement or in any Ancillary
Document except as provided under Sections 7.01(b) and 7.03. All amounts
payable by one party in indemnification of the other shall be considered an
adjustment to the Purchase Price.
(g) In no event shall Seller be liable for loss of profits or
consequential damages by reason of a breach of any representation or warranty
made by Seller or any of its affiliates in this Agreement or any Ancillary
Document.
(h) Notwithstanding anything in this Agreement to the contrary,
Seller shall not be responsible for any liability or obligation as a result of
Buyer's, the Company's, or the Company Subsidiary's failure to comply with
applicable law after the Closing even if the Company
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and the Company Subsidiary are owned or operated after the Closing in the
manner owned or operated prior to Closing except to the extent that such
failure to comply with applicable law constitutes a breach of the
representations set forth in Section 3.12.
(i) Buyer understands and agrees that the rights accorded it by
Section 7.03 and Section 12.02(a) are its, the Company's, and the Company
Subsidiary's sole and exclusive remedy against Seller or any of its affiliates
with respect to any Environmental Matters whatsoever. Buyer, on its own behalf
and on behalf of its affiliates (including (effective upon the Closing),
without limitation, the Company and the Company Subsidiary) and the successors
and assigns of any of the foregoing, hereby waives any right (other than as
contemplated by Section 7.03 and Section 12.02(a)) to seek contribution or
other recovery from Seller or any of its affiliates that any of them may now or
in the future ever have under 42 U.S.C. Section Section 9607 and 9613(f) of
the Comprehensive Environmental Response, Compensation, and Liability Act (42
U.S.C. Section 9601 et seq.), as amended ("CERCLA"), the Hazardous Material
Transportation Act (49 U.S.C. Section 801 et seq.), the Clean Water Act (33
U.S.C. Section 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et
seq.), the Emergency Planning and Community Right-to-Know Act of 1986 (42
U.S.C. Section Section 11001 et seq.), the Safe Drinking Water Act (42 U.S.C.
Section Section 300f et. seq.), the Toxic Substances Control Act, as amended
(15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. Section 136 et seq.), the Occupational Safety and
Health Act (29 U.S.C. Section 651 et seq.), or any other federal, state,
local, or foreign law relating to Environmental Matters, the rules and
regulations promulgated under any thereof, and any provisions of common law
providing for any remedy or right of recovery with respect to Environmental
Matters, as these laws, rules, regulations, and provisions were in the past or
are currently in effect, or may in the future be enacted or be in effect
(collectively, "Environmental Laws"), with respect to the Liabilities. In
consideration of the foregoing indemnification, Buyer, on its own behalf and on
behalf of its affiliates (including (effective upon the Closing), without
limitation, the Company and the Company Subsidiary) and the successors and
assigns of any of the foregoing, hereby further unconditionally releases Seller
and its affiliates from any and all claims, demands, and causes of action that
any of them may now or in the future ever have against Seller or any of its
affiliates for recovery under CERCLA or under any other Environmental Laws with
respect to the Liabilities.
(j) Upon making any payment to an Indemnitee for any
indemnification claim pursuant to this Section 12.02,
-54-
<PAGE> 61
the Indemnitor shall be subrogated, to the extent of such payment, to any
rights that the Indemnitee may have against any other parties with respect to
the subject matter underlying such indemnification claim.
(k) Notwithstanding any other provision hereof, Buyer, the
Company, and the Company Subsidiary shall jointly and severally indemnify
Seller and its affiliates and hold each of them harmless from and against any
Losses that may be incurred or suffered by any of them (i) under the Worker
Adjustment and Retraining Notification Act arising out of, or relating to, any
actions taken by Buyer, the Company, or the Company Subsidiary on or after the
Closing Date; (ii) in connection with any claim made by any current Employee by
reason of the Company's or the Company Subsidiary's failure to continue to
employ such Employee on or after the Closing Date at substantially the same
salary or wages (including bonus, commission, and sales incentive programs)
and/or on substantially the same terms and conditions as in effect immediately
prior to the Closing Date (including any claim made by reason of the Employee's
not receiving benefits under any Company Benefit Plan or Benefit Arrangement or
receiving any particular benefit or level of benefit); (iii) in connection with
any claim made by any Employee for any severance pay or other compensation or
benefit entitlements by reason of any Employee's termination or deemed
termination of employment as a result of the transactions contemplated hereby;
or (iv) by reason of Buyer's, the Company's, or the Company Subsidiary's
failure to comply with any of the provisions of this Article XII.
12.03. Interpretive Provisions.
(a) Whenever used in this Agreement, "to Seller's knowledge" or
"to the knowledge of Seller" shall mean the actual knowledge of the corporate
officers of Seller and matters disclosed to Seller prior to the Closing, after
due inquiry by Seller by Joseph L. Menger, President of the Company, and, in
the case of matters referred to in Section 3.13, additionally by Richard
Kohagen, Director of Manufacturing of the Company, and Eugene Vasu, Plant
Engineer for the Company; and "to Buyer's knowledge" or "to the knowledge of
Buyer" shall mean the actual knowledge of the executive officers and Directors
of Buyer.
(b) The words "hereof," "herein," "hereby," and "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section, or other subdivision thereof.
(c) For purposes of this Agreement, the Company and the Company
Subsidiary shall be deemed to be an affiliate
-55-
<PAGE> 62
of Seller prior to the Closing and an affiliate of Buyer after the Closing.
12.04. Entire Agreement. This Agreement (including the Schedule
and Exhibits hereto) and the Confidentiality Agreement constitute the sole
understanding of the parties with respect to the subject matter hereof.
Matters disclosed by Seller to Buyer pursuant to any Section of this Agreement
shall be deemed to be disclosed with respect to all Sections of this Agreement.
12.05. Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto; provided however, that this
Agreement may not be assigned by Buyer without the prior written consent of
Seller, except that Buyer may, at its election, assign this Agreement to any
direct or indirect wholly owned subsidiary so long as (a) the representations
and warranties of Buyer made herein are equally true of such assignee and (b)
such assignment does not have any adverse consequences to Seller or any of its
affiliates (including, without limitation, any adverse tax consequences or any
adverse effect on the ability of Buyer to consummate (or timely consummate) the
transactions contemplated hereby), and (c) such assignee shall execute a
counterpart of this Agreement agreeing to be bound by the provisions hereof as
"Buyer," and agreeing to be jointly and severally liable with the assignor and
any other assignee for all of the obligations of the assignor hereunder, but no
such assignment of this Agreement or any of the rights or obligations hereunder
shall relieve Buyer of its obligations under this Agreement.
12.06. Headings. The headings of the Articles, Sections, and
paragraphs of this Agreement are inserted for convenience only and shall not be
deemed to constitute part of this Agreement or to affect the construction
hereof.
12.07. Modification and Waiver. No amendment, modification, or
alteration of the terms or provisions of this Agreement shall be binding unless
the same shall be in writing and duly executed by the parties hereto, except
that any of the terms or provisions of this Agreement may be waived in writing
at any time by the party which is entitled to the benefits of such waived terms
or provisions. No waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether
or not similar). No delay on the part of any party in exercising any right,
power, or privilege hereunder shall operate as a waiver thereof.
-56-
<PAGE> 63
12.08. Expenses. Except as otherwise provided herein, Seller and
Buyer shall each pay all costs and expenses incurred by it or on its behalf in
connection with this Agreement and the transactions contemplated hereby,
including, without limiting the generality of the foregoing, fees and expenses
of its own financial consultants, accountants, and counsel.
12.09. Notices. Any notice, request, instruction, or other
document to be given hereunder by any party hereto to any other party shall be
in writing and shall be given (and will be deemed to have been duly given upon
receipt) by delivery in person, by electronic facsimile transmission, cable,
telegram, telex, or other standard forms of written telecommunications, by
overnight courier or by registered or certified mail, postage prepaid,
if to Seller to:
30100 Chagrin Boulevard
Suite 100
Pepper Pike, Ohio 44124
Attention: President
Telecopy: (216) 595-9093
with a copy to:
Thompson, Hine and Flory
1100 National City Bank Building
629 Euclid Avenue
Cleveland, Ohio 44114-3070
(or if after October 6, 1995,
3900 Society Center
127 Public Square
Cleveland, Ohio 44114-1216)
Attention: Donald H. Messinger
Telecopy: (216)566-5583
if to Buyer to:
DeVlieg-Bullard, Inc.
One Gorham Island
Westport, Connecticut 06880
Attention: President William O. Thomas
Telecopy: (203) 221-0780
with a copy to:
Bass, Berry & Sims
First American Center
Nashville, Tennessee 37238
Attention: J. Page Davidson
Telecopy: (615) 742-6298
-57-
<PAGE> 64
or at such other address for a party as shall be specified by like notice.
12.10. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Ohio applicable to
agreements made and to be performed wholly within that jurisdiction. Each of
the parties hereto hereby irrevocably and unconditionally consents to submit to
the exclusive jurisdiction of the courts of the State of Ohio and of the United
States of America, in each case located in County of Cuyahoga, for any
Litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any Litigation relating thereto
except in such courts), and further agrees that service of any process,
summons, notice, or document by U.S. registered mail to its respective address
set forth in Section 12.09 shall be effective service of process for any
Litigation brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any Litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of Ohio or the United States of
America, in each case located in Cuyahoga County, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such Litigation brought in any such court has been brought
in an inconvenient forum.
12.11. Public Announcements. Neither Seller nor Buyer shall
make any public statements, including, without limitation, any press releases,
with respect to this Agreement and the transactions contemplated hereby without
the prior written consent of the other party (which consent shall not be
unreasonably withheld) except as may be required by law. If a public statement
is required to be made by law, the parties shall consult with each other in
advance as to the contents and timing thereof.
12.12. No Third Party Beneficiaries. This Agreement is
intended and agreed to be solely for the benefit of the parties hereto and no
other party shall accrue any benefit,claim or right of any kind whatsoever
pursuant to, under, by or through this Agreement.
12.13. Counterparts. This Agreement may be executed in one
of more counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument.
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<PAGE> 65
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
ACME-CLEVELAND CORPORATION
By: /s/ D. L. Swift
----------------------------
Name: D. L. Swift
Title: Chairman
AC INTERMEDIATE COMPANY
By: /s/ D. L. Swift
----------------------------
Name: D. L. Swift
Title: Chairman
DEVLIEG-BULLARD, INC.
By: /s/ William O. Thomas
----------------------------
Name: William O. Thomas
Title: President and Chief
Executive Officer
<PAGE> 66
The undersigned hereby agrees, effective upon the Closing, to be bound by the
provisions of the foregoing Agreement applicable to it, including, without
limitation, Section 12.02(i).
THE NATIONAL ACME COMPANY
By: /s/ D. L. Swift
----------------------------
Name: D. L. Swift
Title: Chairman
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
DeVlieg-Bullard, Inc.
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-54608 and 33-40874) of DeVlieg-Bullard,
Inc. of our report dated September 8, 1995 appearing on page 21 of this
Form 10-K.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
Stamford, Connecticut
October 9, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED JULY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 415
<SECURITIES> 0
<RECEIVABLES> 11,443
<ALLOWANCES> 922
<INVENTORY> 22,421
<CURRENT-ASSETS> 36,321
<PP&E> 17,127
<DEPRECIATION> 10,251
<TOTAL-ASSETS> 66,232
<CURRENT-LIABILITIES> 25,490
<BONDS> 15,788
<COMMON> 123
0
0
<OTHER-SE> 20,447
<TOTAL-LIABILITY-AND-EQUITY> 66,232
<SALES> 78,150
<TOTAL-REVENUES> 78,150
<CGS> 55,995
<TOTAL-COSTS> 55,995
<OTHER-EXPENSES> 18,750
<LOSS-PROVISION> 187
<INTEREST-EXPENSE> 2,594
<INCOME-PRETAX> 811
<INCOME-TAX> (582)
<INCOME-CONTINUING> 1,393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,393
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
