SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
(X) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
NDC AUTOMATION, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
( ) No fee required
(X) Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies: Common
Stock, par value $.01 per share.
2) Aggregate number of securities to which transaction applies: 3,453,451
shares of Common Stock Outstanding.
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $.75 per
share cash price plus $41,813, the aggregrate consideration to be paid
for stock options.
4) Proposed maximum aggregate value of transaction: $2,631,901 based on
the information contained in items 2 and 3 above.
5) Total fee paid: $527.00.
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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NDC AUTOMATION, INC.
3101 LATROBE DRIVE
CHARLOTTE, NC 28211
TELEPHONE: (704) 362-1115
OCTOBER __, 1999
Dear NDC Automation, Inc. Stockholder:
I cordially invite you to attend a special meeting of the Stockholders
to be held on November 24, 1999, at 10:00 a.m., Eastern time, at NDC Automation,
Inc. ("NDC") corporate offices, 3101 Latrobe Drive, Charlotte, North Carolina.
At this meeting, stockholders will vote upon a proposal to adopt an
Agreement and Plan of Merger, dated as of September 13, 1999, by and among NDC,
Portec, Inc. ("Portec") and Hornett Acquisition Corp., pursuant to which Hornett
Acquisition Corp. will be merged with and into NDC, with NDC continuing as the
surviving corporation and becoming a wholly owned subsidiary of Portec. Pursuant
to the merger agreement, each common share of NDC issued and outstanding at the
effective time of the merger (other than shares held by NDC Stockholders, if
any, who properly exercise their dissenters' rights under Delaware law) will be
converted into the right to receive $.75 per share in cash, without interest.
Consummation of the merger is subject to certain conditions, including adoption
of the merger agreement by the affirmative vote of the holders of a majority of
the outstanding common shares of NDC. The merger agreement and the merger are
more fully described in the accompanying proxy statement.
Your Board of Directors has diligently reviewed and considered the
terms and conditions of the merger agreement, has determined that the merger
agreement is in the best interest of NDC and its Stockholders, and has
unanimously approved the merger agreement. In addition, NDC's financial advisor,
Willamette Management Associates, has rendered its opinion stating that the $.75
per share price is fair to the NDC Stockholders from a financial point of view.
The NDC Board of Directors unanimously recommends that you
vote "FOR" adoption of the merger agreement.
Please read the enclosed information carefully before completing and
returning your proxy card. Returning your proxy card as soon as possible will
ensure your vote is counted at the meeting.
Sincerely.
Ralph G. Dollander
Chief Executive Officer and President
<PAGE>
(PRELIMINARY PROXY STATEMENT)
NDC AUTOMATION, INC.
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
AND
PROXY STATEMENT
MEETING DATE
NOVEMBER 24, 1999
---------------
YOUR VOTE IS IMPORTANT!
YOU ARE URGED TO SIGN, DATE, AND RETURN YOUR PROXY
IN THE MANNER DESCRIBED HEREIN.
<PAGE>
(PRELIMINARY)
NDC AUTOMATION, INC.
3101 LATROBE DRIVE
CHARLOTTE, NORTH CAROLINA 28211
(704) 362-1115
NOTICE OF SPECIAL MEETING OF THE STOCKHOLDERS
TO BE HELD ON NOVEMBER 24, 1999
To the Stockholders of NDC Automation, Inc.:
A Special Meeting (the "Special Meeting") of the Stockholders of NDC
Automation, Inc., a Delaware corporation (the "Company"), has been scheduled to
be held at the executive offices of the Company, 3101 Latrobe Drive, Charlotte,
North Carolina 28211, on Wednesday, November 24, 1999 at 10:00 a.m. local time,
for the following purpose, which is more fully described in the accompanying
Proxy Statement:
To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of September 13, 1999 (the "Merger Agreement") by and
among the Company, Portec, Inc., a Delaware corporation ("Parent"), and
Hornett Acquisition Corp., a Delaware corporation wholly owned by
Parent ("Purchaser"), and to transact such other business that may
properly come before the Special Meeting or any adjournment or
postponement thereof. The Merger Agreement provides, among other
things, for the merger of Purchaser with and into the Company (the
"Merger") pursuant to which each share of common stock, $.01 par value
per share, of the Company (the "Common Stock"), issued and outstanding
immediately prior to the effective time of the Merger (other than
shares of Common Stock held as treasury shares by the Company or shares
of Common Stock for which appraisal rights are perfected) shall, by
virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive $.75 in cash without
interest. As a result of the Merger, the Company will become a
wholly-owned subsidiary of Parent. A CONFORMED COPY OF THE MERGER
AGREEMENT IS ATTACHED AS APPENDIX C TO THE ACCOMPANYING PROXY
STATEMENT.
Adoption of the Merger Agreement requires the affirmative vote of a
majority of the outstanding shares of Common Stock held by Stockholders of
record on October 8, 1999 (the "Record Date").
Only holders of record of shares of Common Stock at the close of
business on the Record Date are entitled to notice of, and to vote at, the
Special Meeting. A complete list of Stockholders entitled to vote at the Special
Meeting will be available for examination for any purpose germane to the Special
Meeting during ordinary business hours at the Company's corporate offices, 3101
Latrobe Drive, Charlotte, North Carolina 28211, during the ten days prior to the
Special Meeting.
In connection with the proposed Merger, appraisal rights will be
available to those Stockholders of the Company who do not vote in favor of
adoption of the Merger Agreement and who otherwise meet and comply with the
requirements of Section 262 of the Delaware General Corporation Law (the
"DGCL"), a copy of which is included as Appendix E to the accompanying Proxy
Statement. Reference is made to the section entitled "Appraisal Rights" in the
accompanying Proxy Statement for a discussion of the procedures to be followed
in asserting appraisal rights under Section 262 of the DGCL in connection with
the proposed Merger.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF HOW MANY SHARES OF COMPANY
COMMON STOCK YOU OWN. REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL
MEETING, YOU ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE. BY RETURNING YOUR PROXY PROMPTLY, A
QUORUM WILL BE ASSURED AT THE SPECIAL MEETING, WHICH WILL PREVENT COSTLY
FOLLOW-UP DELAYS. IF YOUR SHARES ARE HELD IN STREET NAME BY A BROKER/DEALER,
YOUR BROKER/DEALER WILL SUPPLY YOU WITH A VOTING FORM TO BE RETURNED TO THE
BROKER/DEALER. IT IS IMPORTANT THAT YOU RETURN THE FORM TO THE BROKER/DEALER AS
QUICKLY AS POSSIBLE SO THAT THE BROKER/DEALER MAY VOTE YOUR SHARES. YOU MAY NOT
VOTE YOUR SHARES IN PERSON AT THE MEETING UNLESS YOU OBTAIN A POWER OF ATTORNEY
OR LEGAL PROXY FROM THE BROKER/DEALER AUTHORIZING YOU TO VOTE THE SHARES AND YOU
PRESENT THIS POWER OF ATTORNEY OR LEGAL PROXY AT THE SPECIAL MEETING. YOU MAY
REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE. IF YOU ARE PRESENT AT THE
SPECIAL MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, YOU MAY REVOKE
YOUR PROXY AND VOTE PERSONALLY ON THE MATTERS PROPERLY BROUGHT BEFORE THE
SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
<PAGE>
Ralph G. Dollander, Chief Executive Officer and President
Charlotte, North Carolina
October _____, 1999
- --------------------------------------------------------------------------------
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. STOCK CERTIFICATES SHOULD BE RETAINED UNTIL LETTERS OF
TRANSMITTAL ARE RECEIVED AFTER THE EFFECTIVE TIME OF THE MERGER. SEE "THE
MERGER--PROCEDURES FOR SURRENDER OF CERTIFICATES OF COMMON STOCK".
- --------------------------------------------------------------------------------
<PAGE>
(PRELIMINARY PROXY STATEMENT)
NDC AUTOMATION, INC.
3101 LATROBE DRIVE
CHARLOTTE, NORTH CAROLINA 28211
(704) 362-1115
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
NOVEMBER 24, 1999
GENERAL
THIS PROXY STATEMENT IS BEING FURNISHED TO THE HOLDERS (THE
"STOCKHOLDERS") OF THE COMMON STOCK, $.01 PAR VALUE PER SHARE (THE "COMMON
STOCK"), OF NDC AUTOMATION, INC., A DELAWARE CORPORATION (THE "COMPANY"), IN
CONNECTION WITH THE SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS OF THE
COMPANY TO BE USED AT A SPECIAL MEETING OF THE STOCKHOLDERS TO BE HELD AT THE
EXECUTIVE OFFICES OF THE COMPANY AT 3101 LATROBE DRIVE, CHARLOTTE, NORTH
CAROLINA, ON WEDNESDAY, NOVEMBER 24, 1999 AT 10 A.M. LOCAL TIME, AND ANY
ADJOURNMENT OR POSTPONEMENTS THEREOF (THE "SPECIAL MEETING").
At the Special Meeting, the Stockholders will be asked to
consider and vote upon a proposal to adopt the Agreement and Plan of Merger,
dated as of September 13, 1999 (the "Merger Agreement"), by and among Portec,
Inc., a Delaware corporation ("Parent"), Hornett Acquisition Corp., a Delaware
corporation wholly owned by Parent ("Purchaser"), and the Company and to
transact any other business that may properly come before the Special Meeting or
any adjournment or postponement thereof. The Merger Agreement provides for the
merger of Purchaser with and into the Company (the "Merger"). As a result of the
Merger, the Company will become a wholly-owned subsidiary of Parent.
Subject to the terms and conditions of the Merger Agreement,
in the Merger each share of Common Stock issued and outstanding immediately
prior to the Effective Time (as defined herein) (other than shares of Common
Stock held as treasury shares by the Company and Dissenting Shares (as defined
herein)) shall automatically be canceled and cease to exist and will be
converted into the right to receive a per share amount equal to $.75 in cash
without interest (the "Merger Consideration"). Upon the consummation of the
Merger, Stockholders of the Company will have no further interest in the
surviving corporation. See "THE MERGER AND THE MERGER AGREEMENT--Description of
the Merger" and "THE MERGER AND THE MERGER AGREEMENT--Payment of Merger
Consideration". A copy of the Merger Agreement is attached to this Proxy
Statement as Appendix C.
In connection with the proposed Merger, appraisal rights will
be available to those Stockholders of the Company who do not vote in favor of
adoption of the Merger Agreement and who otherwise meet and comply with the
requirements of Section 262 of the Delaware General Corporation Law (the
"DGCL"), a copy of which is included as Appendix E to this Proxy Statement.
Reference is made to the section entitled "APPRAISAL RIGHTS" in this Proxy
Statement for a discussion of the procedures to be followed in asserting
appraisal rights under Section 262 of the DGCL in connection with the proposed
Merger.
THE COMPANY'S BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION,
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, HAS DETERMINED THAT THE MERGER IS
ADVISABLE AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, AND
RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT AT
THE SPECIAL MEETING.
This Proxy Statement is dated October _____, 1999 and is first
being mailed to registered holders of Common Stock on or about October _____,
1999.
<PAGE>
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS.....................................................1
SUMMARY........................................................................2
The Parties.................................................................2
The Special Meeting.........................................................3
The Merger..................................................................4
The Merger Agreement........................................................6
THE COMPANY....................................................................7
SELECTED FINANCIAL DATA OF THE COMPANY.........................................8
PRICE OF COMPANY COMMON STOCK..................................................9
THE SPECIAL MEETING...........................................................10
Date, Time and Place.......................................................10
Purpose of the Special Meeting.............................................10
Voting Rights; Quorum......................................................10
Vote Required..............................................................11
Recommendation of the Board of Directors...................................11
Voting and Revocation of Proxies...........................................11
Appraisal Rights...........................................................11
Solicitation of Proxies....................................................12
THE MERGER....................................................................12
Background.................................................................15
Parent.....................................................................15
Purchaser..................................................................15
Description of the Merger..................................................15
Reasons for the Merger.....................................................16
Opinion of the Company's Financial Advisor.................................17
Federal Income Tax Consequences............................................21
Merger Consideration.......................................................22
Closing and Effective Time of the Merger...................................22
Procedures for Surrender of Certificates of Common Stock...................22
Interest of Certain Persons in the Merger..................................23
THE MERGER AGREEMENT..........................................................26
The Merger.................................................................26
Representations and Warranties.............................................26
Certain Pre-Closing Covenants..............................................26
Access to Information......................................................28
No Solicitation of Transactions............................................28
Treatment of Stock Option Plans............................................29
Cooperation and Reasonable Best Efforts....................................30
Indemnification and Insurance..............................................30
Conditions to the Consummation of the Merger...............................30
Termination................................................................32
Termination Payment Provisions.............................................33
Expenses; Contingent Reduction of Merger Consideration.....................34
Amendment and Waiver.......................................................34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................35
APPRAISAL RIGHTS..............................................................36
INDEPENDENT ACCOUNTANTS.......................................................38
STOCKHOLDER PROPOSALS.........................................................38
AVAILABLE INFORMATION.........................................................38
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................39
i
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FORWARD-LOOKING STATEMENTS
The statements contained in this Proxy Statement and in the
documents that have been incorporated herein by reference include
forward-looking statements about the Company that are subject to risks and
uncertainties. Forward-looking statements include information concerning future
results of operations of the Company and the combined company after the
Effective Time, set forth, among other places, under "SUMMARY", "THE
MERGER--Background", "THE MERGER--Reasons for the Merger". "THE
MERGER--Recommendation of the Board of Directors" and "THE MERGER--Opinion of
the Company's Financial Advisor" and those statements preceded by, followed by
or that otherwise include the words "believes", "expects", "anticipates",
"intends", "estimates" or similar expressions. For those statements, the Company
claims the protection of the safe harbor for forward-looking statements
contained in the Private Litigation Reform Act of 1995, as amended.
In addition to the other factors and matters discussed
elsewhere in this document and in the documents that have been incorporated
herein by reference, factors that, in the view of the Company, could cause
actual results to differ materially from those discussed in the forward-looking
statements including, among others, (i) changes in domestic and global economic
and financial conditions, particularly within the automatic guided vehicle
systems industry; (ii) changes in regulations affecting the Company's business;
(iii) loss of existing business; (iv) development of competing products; (v) a
failure of the Company to maintain existing bank relationships, which would
likely cause the Company to default on its current obligations; and (vi) an
inability of the Company to raise the additional working capital needed to
finance its current business strategy, which could have a serious impact on the
Company's ability to sell its current and future products, as well as satisfy
existing banking relationships.
1
<PAGE>
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement which highlights certain important information
concerning the Merger. This summary is subject to and qualified in its entirety
by reference to more detailed information contained elsewhere in this Proxy
Statement, including the appendices hereto. A copy of the Merger Agreement is
set forth as Appendix C to this Proxy Statement, and reference is made thereto
for a complete description of the Merger. Stockholders are urged to read
carefully the entire Proxy Statement, including the appendices. Capitalized
terms used in this Proxy Statement without definition are, unless otherwise
indicated, defined in the Merger Agreement and used in this Proxy Statement with
such meanings. As used is this Proxy Statement, the terms "Company", "Purchaser"
and "Parent" refer to such corporations, respectively, and where the context
requires, such corporations and their respective subsidiaries.
THE PARTIES
THE COMPANY
The Company is in the business of providing an integrated
package of hardware and software control technology and related products to be
incorporated into and used to control automated guided vehicles ("AGVs" or
"vehicles") and systems that incorporate one or more of such vehicles ("AGV
systems"). The Company's Annual Report to Stockholders for its fiscal year ended
November 30, 1998 and its Form 10-QSB quarterly report as filed with the
Securities and Exchange Commission for the quarterly period ended August 31,
1999 are attached as Appendices A and B, respectively, to this Proxy Statement.
The Company was organized in North Carolina in 1987 and reincorporated in
Delaware in 1989. Its predecessors had been in existence since 1982. The
executive offices of the Company are located at 3101 Latrobe Drive, Charlotte,
North Carolina 28211, and its telephone number is (704) 362-1115.
PARENT
The Parent was organized as a Delaware corporation in 1928 and
is a leading manufacturer of highly engineered materials handling subsystems in
the industrial automation market. Its products include specialty conveyor
systems such as power turns, spirals and chutes, electronic wire guidance
controllers for lift trucks, and conveyor systems used in material handling and
the sorting of recycled materials. Parent is a wholly-owned subsidiary of J
Richard Industries, L.P., an Ohio limited partnership ("J Richard"), which is a
Toledo, Ohio-based manufacturer and distributor of components used in the
materials handling, sports, fitness and automotive markets. Parent's executive
offices are located at 3934 Concord Street, Toledo Ohio, and its telephone
number is (419) 426-4911.
PURCHASER
Purchaser was recently incorporated under the laws of the
State of Delaware as a wholly-owned subsidiary of Parent solely for the purpose
of effecting the Merger Agreement. Purchaser has conducted no business and
substantially all of its assets consist of its rights and obligations under the
Merger Agreement. Purchaser's principal address is 3934 Concord Street, Toledo
Ohio, and its telephone number is (419) 476-4911.
2
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THE SPECIAL MEETING
DATE, TIME AND PLACE
The Special Meeting will be held on Wednesday, November 24,
1999 at the executive offices of the Company, 3101 Latrobe Drive, Charlotte,
North Carolina 28211, commencing at 10:00 a.m., local time.
PURPOSES OF THE MEETING
At the Special Meeting, the Company's Stockholders will
consider and vote upon a proposal to adopt the Merger Agreement and approve the
Merger. The Company's Stockholders will also consider and vote upon such other
matters as may properly come before the Special Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of shares of Common Stock of the Company at the
close of business on October 8, 1999 (the "Record Date"), are entitled to notice
of and to vote at the Special Meeting. On the Record Date, there were 3,453,451
shares of Common Stock issued and outstanding, each of which is entitled to one
vote on each matter to be acted upon at the Special Meeting.
QUORUM
Holders of a majority of shares of Common Stock of the Company
issued and outstanding and entitled to vote must be present at the Special
Meeting, either in person or by proxy, in order to constitute a quorum and
conduct any business.
VOTE REQUIRED
The adoption of the Merger Agreement will require the
affirmative vote of the holders of a majority of the shares of Common Stock
issued and outstanding as of the Record Date. See "SPECIAL MEETING--Vote
Required" and "THE MERGER--Interest of Certain Persons in the Merger".
Abstention and broker non-votes (as defined herein) will have the same effect as
a vote against the adoption of the Merger Agreement and against approval of the
Merger.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
APPRAISAL RIGHTS
Each Stockholder of the Company may demand appraisal of his or
her shares of Common Stock as provided in Section 262 of the DGCL. In order to
exercise appraisal rights, (i) the Stockholder must deliver to the Company,
prior to the vote being taken on the Merger at the Special Meeting, written
notice of his or her intent to demand appraisal of his or her shares of Common
Stock if the Merger is effected; and (ii) the Stockholder must not vote in favor
of adoption of the Merger Agreement. See "THE SPECIAL MEETING--Appraisal
Rights", "APPRAISAL RIGHTS" and Appendix E.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to a Voting Agreement dated September 13, 1999 (the
"Voting Agreement"), five Company Stockholders holding in excess of 39% of the
issued and outstanding shares of Company Common Stock have agreed to vote for
approval and adoption of the Merger Agreement. The Voting Agreement also
prohibits such Stockholders from engaging in certain communications with third
parties in situations involving a third party Acquisition Proposal (as defined
herein), however, the Voting Agreement does not limit any of the Stockholders
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<PAGE>
who are also directors of the Company from taking actions permitted by the
Merger Agreement in their capacity as directors. Two of the Stockholders who are
parties to the Voting Agreement are also directors of the Company. Other
directors and executive officers of the Company have beneficial ownership of
38,294 shares of Common Stock (approximately 1% of the issued and outstanding
shares). These other directors and officers have expressed an intention to vote
in favor of the Merger Agreement.
The Company Stockholders that are parties to the Voting
Agreement are as follows: Netzler & Dahlgren Co. AB ("Netzler & Dahlgren"),
Goran Netzler (a Company director), Jan Jutander (a Company director), Anders
Dahlgren (a former director and a consultant to the Company) and Arne Nilsson.
Netzler & Dahlgren is the licensor under the Company's current Master License
Agreement (as defined herein), as amended by the Second Restated Master License
Agreement (as defined herein) between the Company, Netzler & Dahlgren and
Parent. Each of the four individual Stockholders that are signatories to the
Voting Agreement is the owner of a 25% interest in the parent company of Netzler
& Dahlgren.
VOTING OF PROXIES
All shares of Common Stock represented by a properly executed
Proxy received in time for the Special Meeting will be voted in the manner
specified in the Proxy. Proxies that do not contain any instruction to vote for
or against or to abstain from voting on a particular matter will be voted in
accordance with the recommendation of the Board of Directors. See "SPECIAL
MEETING--VOTING AND REVOCATION OF PROXIES".
If shares of Common Stock are held in street name by a
broker/dealer, such broker/dealer will provide the Stockholder with a voting
form to be returned to the broker/dealer. A Stockholder holding shares of Common
Stock in street name may not vote those shares in person at the Special Meeting
unless the Stockholder obtains a power of attorney or legal proxy from the
broker/dealer authorizing the Stockholder to vote the shares and the Stockholder
presents this legal proxy or power of attorney at the Special Meeting.
It is not expected that any matter other than that referred to
herein will be brought before the Stockholders at the Special Meeting. If,
however, other matters are properly presented, persons named as proxies will
vote in accordance with their best judgment with respect to such matters.
ADJOURNMENTS; REVOCABILITY OF PROXIES
If the Special Meeting is adjourned for whatever reason, the
approval of the Merger proposal shall be considered and voted upon by the
Stockholders at the subsequent, reconvened meeting, if any. You may revoke your
proxy at any time prior to its exercise (i) by attending the Special Meeting and
voting in person (although attendance at the Special Meeting will not in and of
itself constitute a revocation of a proxy); (ii) by giving notice of revocation
of your proxy at the Special Meeting; or (iii) by delivering (a) a written
notice of revocation of your proxy; or (b) a duly executed proxy relating to the
matter to be considered at the Special Meeting, bearing a date later than the
proxy previously executed, to the Secretary of the Company, 3101 Latrobe Drive,
Charlotte, North Carolina 28211. Unless revoked in one of the manners set forth
above, proxies in the form enclosed will be voted at the Special Meeting in
accordance with your instructions.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company.
Arrangements will be made to furnish copies of proxy materials to fiduciaries,
custodians and brokerage houses for forwarding to beneficial owners of Common
Stock. Such persons will be paid reasonable out-of-pocket expenses. See "THE
SPECIAL MEETING--Solicitation of Proxies".
HOLDERS OF COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES
WITH THEIR PROXY CARDS. STOCK CERTIFICATES SHOULD BE RETAINED UNTIL LETTERS OF
TRANSMITTAL ARE RECEIVED AFTER THE EFFECTIVE TIME OF THE MERGER. SEE "THE
MERGER--PROCEDURES FOR SURRENDER OF CERTIFICATES OF COMMON STOCK".
THE MERGER
EFFECT OF THE MERGER
At the Effective Time (as defined herein) of the Merger, the
Purchaser will be merged with and into the Company and the Company will continue
as the surviving corporation in the Merger (the "Surviving Corporation").
Subject to the terms and conditions of the Merger Agreement, in the Merger, each
issued and outstanding share of Common Stock (other than shares of Common Stock
held as treasury shares by the Company and Dissenting Shares (as defined
herein)) will be automatically canceled and cease to exist and will be converted
into the right to receive the Merger Consideration of $.75 in cash without
interest. As a result of the Merger, the Company will become a wholly-owned
subsidiary of Parent.
4
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RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has unanimously approved the Merger
Agreement and the transactions contemplated thereby, determined that the Merger
is advisable and fair to, and in the best interests of, the Company and its
Stockholders, and recommends that the Stockholders of the Company vote "FOR" the
adoption of the Merger Agreement. For a discussion of the factors considered by
the Board of Directors in reaching its decision, see "THE MERGER--Background"
and "THE MERGER--Reasons for the Merger".
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
Willamette Management Associates ("Willamette"), the Company's
financial advisor, has delivered a written opinion dated September 13, 1999 to
the Company's Board of Directors to the effect that, as of the date of such
opinion and subject to certain matters stated therein, the Merger Consideration
was fair, from a financial point of view, to the holders of the Common Stock.
The full text of the written opinion of Willamette, which sets forth the
assumptions made, matters considered, and review undertaking, is attached as
Appendix D to this Proxy Statement and should be read carefully in its entirety.
See "THE MERGER--Opinion of the Company's Financial Advisor".
FEDERAL INCOME TAX CONSEQUENCES
The receipt of Merger Consideration by Company Stockholders
upon cancellation of their shares of Common Stock pursuant to the Merger will be
a taxable event for United States federal income tax purposes under the Internal
Revenue Code of 1986, as amended (the "Code"), and may also be a taxable event
under the applicable state, local, foreign or other tax laws.
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM RESULTING FROM THE MERGER. See
"THE MERGER--Federal Income Tax Consequences".
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Company may
have interests, described herein, that present them with potential conflicts of
interest in connection with the Merger. The Board of Directors is aware of the
conflicts described below and considered them, in addition to the other matters
described under "THE MERGER--Reasons for the Merger". Shares of Common Stock
held by officers and directors of the Company will be converted into the right
to receive the same Merger Consideration as shares of Common Stock held by other
Stockholders. Executive officers and directors of the Company as of the Record
Date are the beneficial owners as a group of approximately 13% of the
outstanding shares of Common Stock. See THE MERGER--Interests of Certain Persons
in the Merger" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT".
Stock options for shares of Common Stock (the "Stock Options")
held by the officers and directors of the Company will be treated in the same
manner as stock options held by other employees of the Company. Pursuant to the
Merger Agreement, all outstanding Stock Options will be canceled and each holder
of a Stock Option shall be entitled to receive from the Company in consideration
for the cancellation of such Stock Option an amount in cash (less applicable
withholding taxes) equal to the product of (i) the number of shares of Common
Stock previously subject to such Stock Option multiplied by; (ii) the excess, if
any, of the Merger Consideration over the exercise price per share of Common
Stock previously subject to such Stock Option. See "THE MERGER--Interests of
Certain Persons in the Merger" and "THE MERGER AGREEMENT--Treatment of Stock
Option Plans".
Pursuant to the terms of the Merger Agreement and prior to the
Closing, the Company shall procure a five year tail policy for its officers' and
directors' liability insurance covering certain present and former directors,
officers, employees and agents of the Company. In addition, under the terms of
the Merger Agreement, the Purchaser and the Surviving Corporation have jointly
and severally agreed that, for not less than six years after the Closing Date,
the provisions of the Certificate of Incorporation and By-Laws of the Surviving
Corporation shall provide indemnification to, among others, certain present and
former directors and officers of the Company on terms specified in the Merger
Agreement. See "THE MERGER AGREEMENT--Indemnification and Insurance".
As a condition to the willingness of Parent and Purchaser to
enter into the Merger Agreement, Parent and Purchaser required that Ralph G.
Dollander, the current President of the Company, enter into a new employment
agreement to replace his existing employment agreement with the Company.
Accordingly, Mr. Dollander has entered into an employment agreement dated
September 13, 1999 (the "Employment Agreement") with the Company, the terms of
which are contingent on the consummation of the Merger. Upon consummation of the
Merger, Mr. Dollander will serve as President of the Company as well as the
Pathfinder AGV Systems Division of Parent. For a further discussion of the terms
and conditions of the Employment Agreement, see "THE MERGER--Interests of
Certain Persons in the Merger".
The Company's AGV system products and services incorporate
technology licensed by, and products purchased from, Netzler & Dahlgren, as well
as technology that it has acquired or developed itself. The Stockholders who
are parties to the Voting Agreement including two directors of the Company, are
principals of Netzler & Dahlgren. In accordance with the Master License
Agreement dated December 1, 1987, as restated November 30, 1995 (the "MLA"), the
Company receives Netzler & Dahlgren's AGV technology, hardware, software,
know-how and consulting services. Netzler & Dahlgren entered into a Second
Restated Master License Agreement dated September 13, 1999 (the "Second MLA")
that, upon consummation of the Merger, will supersede the current MLA. See "THE
COMPANY" and "THE MERGER - Interests of Certain Persons in the Merger" for a
further discussion of the MLA and Second MLA.
Netzler & Dahlgren has in the past and continues to provide
certain financial support to the Company including letter of credit guarantees,
inventory buy-back guarantees and the financing of purchases of components and
services by the Company. In addition, as of August 31, 1999, the Company owes
Netzler & Dahlgren $ 194,398 under a promissory note made by the Company in
favor of Netzler & Dahlgren. The Company was informed by letter of August 11,
1999 that Netzler & Dahlgren intends to terminate its financial support of the
Company. See "THE MERGER - Interests of Certain Persons in the Merger" for a
further discussion of the relationship between the Company, Netzler & Dahlgren
and the parties to the Voting Agreement.
5
<PAGE>
THE MERGER AGREEMENT
CLOSING AND EFFECTIVE TIME
Subject to the conditions set forth in the Merger Agreement,
Purchaser will be merged with and into the Company effective as of the time that
a Certificate of Merger (the "Certificate of Merger") is filed with the
Secretary of State of the State of Delaware in accordance with the DGCL (the
"Effective Time"). The closing (the "Closing") will take place on the third
business day after the satisfaction or waiver of the conditions set forth in the
Merger Agreement, unless another date is agreed to in writing by the parties
(the "Closing Date"). See "THE MERGER AGREEMENT--Closing and Effective Time of
the Merger".
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and
warranties by each of the parties. See "THE MERGER AGREEMENT--Representations
and Warranties".
PRE-CLOSING COVENANTS
The Company has agreed that prior to Closing, it will carry on
its business in the usual, regular, ordinary course, in substantially the same
manner as previously conducted, and that it will limit the sale of certain
assets, continue current accounting and tax practices and refrain from entering
into certain specified transactions out of the ordinary course of business
without the consent of Parent. See "THE MERGER AGREEMENT--Certain Pre-Closing
Covenants".
CONDITIONS TO CLOSING
The obligations of the Company, Purchaser and Parent to
consummate the Merger are subject to various conditions, including, without
limitation, obtaining approval from the Stockholders of the Company, obtaining
required regulatory approvals and the absence of any injunction or other legal
restraint or prohibition preventing the consummation of the Merger. See "THE
MERGER AGREEMENT--Conditions to the Consummation of the Merger".
TERMINATION
The Merger Agreement may be terminated by the Company, Parent
and the Purchaser under certain circumstances, some of which require the Company
to pay to Parent a termination fee of $100,000 plus certain expenses of the
Parent and Purchaser in an amount up to $150,000. See "THE MERGER
AGREEMENT--Termination" and "THE MERGER AGREEMENT--Termination Payment
Provisions".
NO SOLICITATION
The Merger Agreement restricts the Company, its subsidiaries
and its representatives generally from initiating, soliciting, or encouraging
any other transaction that results in a merger or the purchase of 15% or more of
the outstanding shares of the Company's Common Stock or the capital stock of any
of the Company's subsidiaries or the sale of any significant portion of the
assets of the Company and its subsidiaries taken as a whole. See "THE MERGER
AGREEMENT--No Solicitation of Transactions".
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties by written
instrument at any time before or after Stockholder approval; provided, however,
that after Stockholder approval, no amendment shall be made which by law or the
rules of a relevant exchange requires further approval by the Stockholders
without such further approval. See "THE MERGER AGREEMENT--Amendment and Waiver".
6
<PAGE>
THE COMPANY
The Company's supplies controls hardware, software,
engineering services and other components that are incorporated into AGVs and
AGV systems. AGVs are driverless, computer-controlled vehicles that are
programmed to transport materials through designated pickup and delivery
routines within a particular facility (usually a manufacturing or distribution
facility) and to transmit information concerning system status, inventory
tracking and system controls to a system controller. In 1999, sales of AGV
related products and services accounted for almost all of the Company's net
revenues as it did in 1998 and 1997.
The Company's AGV system products and services have been used
in a variety of industries, including textiles, automotive, newspaper publishing
and electronics. These control products are designed to be of such general
applicability as to be incorporated into many kinds of material handling
vehicles. Consequently, they are used not only in custom-designed AGV vehicles
and systems, but also to automate conventional material handling equipment such
as forklifts and pallet jacks.
The Company markets a laser guidance AGV control system,
Lazerway (TM), which is viewed by management as superior to the traditional
"wire guidepath" technology for controlling the direction of an AGV. The laser
technology permits the end user to alter the guidepaths of AGVs without
extensive changes in the user's facility.
The Company's philosophy is to sell its AGV control hardware,
software and engineering services to OEMs customers, i.e. manufacturers of AGVs,
AGV systems and other vehicles that can be equipped for automation to fit the
end-users' needs. The Company will sell such services through regular
distribution or as a sub-contractor to such OEM customers. However, the Company
may supply, from time to time, an end user in circumstances where an OEM
customer or system supplier does not pursue or support such end user.
The Company's AGV system products and services incorporate
technology licensed by, and products purchased from, Netzler and Dahlgren, as
well as technology that it has acquired or developed itself. In accordance with
the Master License Agreement ("MLA") dated December 1, 1987, as restated
November 30, 1995, the Company receives Netzler & Dahlgren's AGV technology,
hardware, software, know-how and consulting services. The MLA provides that the
Company has the rights to commercially and technically utilize, apply and
sub-license Netzler & Dahlgren's AGV system control technology and to sell its
AGV system products in North America to OEMs who manufacture vehicles in North
America. The MLA, however, does not prohibit such OEMs from purchasing complete
AGVs equipped with Netzler & Dahlgren controls from a licensee of Netzler &
Dahlgren who manufactures vehicles outside of North America. Netzler & Dahlgren
products do not include standard or custom vehicle frames for AGVs. Ongoing use
by the Company of competing AGV technology unavailable from Netzler & Dahlgren,
however, would allow Netzler & Dahlgren to terminate the Company's rights under
the MLA.
Additional information relating to the Company can be found in
the Company's Annual Report to Stockholders for its fiscal year ended November
30, 1998 and its Form 10-QSB quarterly report as filed with the Securities and
Exchange Commission for the quarterly period ended August 31, 1999, which are
attached hereto as Appendices A and B, respectively. See also "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" for
additional information concerning the Company.
The Company was organized in North Carolina in 1987 and
reincorporated in Delaware in 1989, although its predecessors had been in
existence since 1982. Its principal office is located at 3101 Latrobe Drive,
Charlotte, North Carolina, 28211, and its telephone number is (704) 362-1115.
7
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
The following table will present selected financial data for
the Company. The nine months ended data was derived from the Company's unaudited
quarterly financial statements, which can be found in the Company's Quarterly
Report on Form 10-QSB for the nine months ended August 31, 1999, a copy of which
is attached as Appendix B. The data for the nine months ended August 31, 1999
and 1998 do not necessarily provide information concerning the results of
operations for the entire year. The Company derived the annual data from its
audited financial statements, which are included in the Company's Annual Report
to Stockholders for its fiscal year ended November 30, 1998, attached hereto as
Appendix A.
<TABLE>
<CAPTION>
<S> <C>
Unaudited 9 Months At or for Year Ended November 30
------------------ --------------------------------
Ended 8/31/99 Ended 8/31/99 1998 1997 1996
------------- ------------- ---- ---- ----
Statements of Operations Data:
Net Revenues $ 3,288,467 $ 2,726,895 $ 4,015,698 $ 4,076,897 $ 6,142,954
Cost of Goods Sold 1,952,155 1,575,878 2,387,342 2,695,289 3,864,393
----------- ----------- ----------- ----------- -----------
Gross Profit $ 1,336,312 $ 1,151,021 $ 1,628,356 $ 1,381,608 $ 2,278,561
Operating Expenses:
Selling $ 536,580 $ 506,555 $ 662,780 $ 693,106 $ 656,537
General and Administrative 871,206 758,904 996,994 1,552,900 1,422,586
Research and Development -- -- -- -- 3,942
----------- ----------- ----------- ----------- -----------
$ 1,407,786 $ 1,265,459 $ 1,659,774 $ 2,246,006 $ 2,083,065
Operating Income (Loss) ($ 71,474) ($ 114,438) ($ 31,418) ($ 864,398) $ 195,496
----------- ----------- ----------- ----------- -----------
Net Interest Income (Expense):
Interest Income $ -- $ -- $ -- $ -- $ 7,771
Interest Expense (191,529) (183,321) (244,865) (195,962) (186,665)
----------- ----------- ----------- ----------- -----------
($ 191,529) $ (183,321) ($ 244,865) ($ 195,962) ($ 178,894)
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes ($ 263,003) $ (297,759) ($ 276,283) ($1,060,360) $ 16,602
Federal and State Income Taxes (Benefit) -- -- -- -- (28,829)
----------- ----------- ----------- ----------- -----------
Net Income (Loss) ($ 263,003) $ (297,759) ($ 276,283) ($1,060,360) $ 45,431
Weighted Average Number of Common Shares
Outstanding (Primary and Fully Diluted) 3,453,451 3,453,451 3,453,451 3,453,451 3,453,451
=========== =========== =========== =========== ===========
Basic and Diluted Earnings (Loss) Per Shares ($ .08) $ (.09) ($ .08) ($ .31) $ .01
Cash Dividend Declared Per Common Share -- -- -- -- --
=========== =========== =========== =========== ===========
Balance Sheet Data:
Working Capital (Deficit) ($ 904,987) $ (550,662) ($ 563,725) $ 570,259 $ 1,416,912
Total Assets $ 2,460,050 $ 2,513,972 $ 2,706,650 $ 2,757,331 $ 4,556,794
Long-Term Debt, Less Current Maturities $ -- $ 165,279 $ 114,889 $ 1,042,055 $ 1,102,264
Total Liabilities $ 2,341,755 $ 2,154,150 $ 2,325,352 $ 2,099,750 $ 2,838,853
Stockholders' Equity $ 118,295 $ 359,822 $ 381,298 $ 657,581 $ 1,717,941
Stockholders' Equity Per Common Share $ 0.03 $ 0.10 $ 0.11 $ 0.19 $ 0.50
</TABLE>
8
<PAGE>
PRICE OF COMPANY COMMON STOCK
The Company's Common Stock previously traded on the National
Association of Securities Dealers, Inc. ("NASDAQ") National Market under the
symbol "AGVS". The Company's Common Stock began trading on the OTC Bulletin
Board in November, 1995. As of November 30, 1998, 3,453,451 of the Company's
11,000,000 authorized shares of Common Stock were issued and outstanding.
Trading in the Company's securities commenced on March 28, 1990. The table below
indicates quarterly high and low bid and asked information for the years ended
November 30, 1998 and 1997, respectively, and the ten month period ended
September 30, 1999 as provided to the Company by NASDAQ and OTC Bulletin Board.
The quotations reflect inter-dealer prices, without dealer mark-up, mark-down,
or commission, and may not represent actual transactions. The approximate number
of holders of record of Common Stock of the Company as of September 30, 1999 was
107. The Company believes that there are approximately 800 owners of beneficial
interest of the Company's Common Stock.
FISCAL 1997 HIGH LOW
----------- ---- ---
BID ASK BID ASK
--- --- --- ---
First Quarter (ended February 28, 1997) 11/16 13/16 9/32 11/32
Second Quarter (ended May 31, 1997) 13/32 17/32 9/32 3/8
Third Quarter (ended August 31, 1997) 31/82 1-1/32 5/16 3/8
Fourth Quarter (ended November 30, 1997) 13/16 15/16 1/4 3/8
FISCAL 1998 HIGH LOW
----------- ---- ---
BID ASK BID ASK
--- --- --- ---
First Quarter (ended February 28, 1998) 9/32 13/32 5/32 3/16
Second Quarter (ended May 31, 1998) 11/32 7/16 9/32 11/32
Third Quarter (ended August 31, 1998) .32 7/16 3/16 .24
Fourth Quarter (ended November 30, 1998) .22 .28 .125 .14
FISCAL 1999 HIGH LOW
----------- ---- ---
BID ASK BID ASK
--- --- --- ---
First Quarter (ended February 28, 1999) .40 .65 .15 .15
Second Quarter (ended May 31, 1999) .79 .90 .31 .53
Third Quarter (ended August 31, 1999) .72 .88 .22 .38
Fourth Quarter (through September 30, 1999) .69 .75 .41 .50
On September 10, 1999, the last trading day before public
announcement of the execution of the Merger Agreement, the last sale price of
Common Stock on the OTC Bulletin Board was $.53125 per share. On October _____,
1999, the most recent practicable date prior to the printing of this Proxy
Statement, the last sale price of Common Stock as reported on the OTC Bulletin
Board was $__________ per share. Stockholders of the Company should obtain
current market prices for shares of the Common Stock.
The Company has never paid any cash dividends and has no
present intention to declare or pay cash dividends. The Company intends to
retain any earnings that it may realize in the foreseeable future to finance the
development and expansion of its business.
9
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE
The Special Meeting of the Stockholders of the Company will be
held at the executive offices of the Company, 3101 Latrobe Drive, Charlotte,
North Carolina, on Wednesday, November 24, 1999 commencing at 10:00 a.m. local
time.
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and vote
upon a proposal to adopt the Merger Agreement entered into by and among the
Company, Purchaser and Parent pursuant to which, among other things, Purchaser
will be merged with and into the Company and the Company will become a
wholly-owned subsidiary of Parent. Subject to the terms of the Merger Agreement,
in the Merger, each issued and outstanding share of Common Stock (other than
shares of Common Stock held as treasury shares by the Company and Dissenting
Shares) will automatically be canceled and will be converted into the right to
receive the Merger Consideration. Stockholders of the Company will not become
stockholders of Parent following the Merger. See "THE MERGER" and "THE MERGER
AGREEMENT".
VOTING RIGHTS; QUORUM
The Board of Directors has fixed the close of business on
October 8, 1999 as the Record Date. Only holders of record of shares of Common
Stock at the close of business on the Record Date will be entitled to notice of
and to vote at the Special Meeting or any adjournment or postponement thereof.
As of the Record Date, the Company had 3,453,451 shares of
Common Stock issued and outstanding. Holders of shares of Common Stock are
entitled to one vote for each share of Common Stock held of record at the close
of business on the Record Date. See "SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS" for information regarding persons known to management
of the Company to be the beneficial owners of more than 5% of the issued and
outstanding shares of Company Common Stock. A complete list of the Stockholders
entitled to notice of, and to vote at, the Special Meeting will be available for
examination at the offices of the Company in Charlotte, North Carolina during
normal business hours by any of the Company's Stockholders, for any purpose
germane to the Special Meeting, for a period of ten days prior to the Special
Meeting.
The presence, in person or by properly executed proxy, of the
holders of a majority of the shares of Common Stock entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting. For
purposes of determining the presence of a quorum, abstentions and shares of
Common Stock represented by a proxy from a broker or nominee indicating that
such person has not received instructions from the beneficial owner or other
person entitled to vote shares ("broker non-votes") will be counted as shares
present. Neither abstentions nor broker non-votes will be counted as votes cast
for purposes of determining whether the Merger Agreement has received sufficient
votes for approval and, therefore, will have the effect of a vote against
adoption of the Merger Agreement.
Proxies in the form accompanying this Proxy Statement are
solicited by the Company's Board of Directors. Shares of Common Stock
represented by properly executed proxies, if such proxies are received in time
and are not revoked, will be voted in accordance with the instructions indicated
on the proxies. If no instructions are indicated, such proxies will be voted
"FOR" adoption of the Merger Agreement. If the Company does not receive, by the
time scheduled for the Special Meeting, a sufficient number of signed proxies to
enable adoption of the Merger Agreement, the Company may propose one or more
adjournments or postponements of the Special Meeting to permit continued
solicitation of proxies with respect to such adoption. Adjournment or
postponement of the Special Meeting will be proposed only if the Board of
Directors believes that additional time to solicit proxies might permit the
receipt of sufficient votes to adopt the Merger Agreement. It is anticipated
that any such adjournment or postponement would be for a relatively short period
of time, but in no event more than 90 days. Any Stockholder may revoke such
Stockholder's proxy during any period of adjournment or postponement in the
manner described below.
10
<PAGE>
VOTE REQUIRED
The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote thereon is required to adopt
the Merger Agreement. Pursuant to the Voting Agreement, five Company
Stockholders holding in excess of 39% of the issued and outstanding shares of
Company Common Stock have agreed to vote for approval and adoption of the Merger
Agreement. Two of the Stockholders who are parties to the Voting Agreement are
also directors of the Company. Other directors and executive officers of the
Company have beneficial ownership of 38,294 shares of Common Stock
(approximately 1% of the issued and outstanding shares). These other directors
and officers have expressed an intention to vote in favor of the Merger
Agreement. See "THE MERGER--Interests of Certain Persons in the Merger" for a
more complete description of the Voting Agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has approved the Merger
and the Merger Agreement and determined that the Merger is advisable and fair
to, and in the best interests of, the Company and its Stockholders. This
determination by the Board of Directors was based on a number of factors,
including most significantly an evaluation of the business and prospects of the
Company and the determination by the Board of Directors that the Merger was the
best of the alternatives available to realize Stockholder value. For a
description of the material factors considered by the Board of Directors of the
Company in connection with the Merger, See "THE MERGER--Reasons for the Merger".
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ADOPTION OF
THE MERGER AGREEMENT.
VOTING AND REVOCATION OF PROXIES
All shares of Common Stock represented by properly executed
proxies will be voted at the Special Meeting in accordance with the directions
indicated on the proxies unless the proxies have been previously revoked. Unless
contrary direction is given, all shares of Common Stock represented by such
proxies will be voted "FOR" adoption of the Merger Agreement and in the proxy
holder's discretion as to such other matters incident to the conduct of the
Special Meeting as may properly come before the Stockholders.
The Board of Directors is not aware of any other matters other
than those specifically stated in this Proxy Statement that are to be presented
for action at the Special Meeting. If any other matters are properly presented
at the Special Meeting for action, including a question of adjourning a Special
Meeting from time to time, the persons named in the proxies and acting
thereunder will have discretion to vote on those matters in accordance with
their best judgment. Any adjournment of the Special Meeting will require the
affirmative vote of the holders of at least a majority of the shares of Common
Stock represented at the Special Meeting (regardless of whether those shares of
Common Stock constitute a quorum).
A Stockholder of the Company executing and returning a proxy
has the power to revoke it at any time before it is voted. A Stockholder who
wishes to revoke a proxy, can do so by executing a later dated proxy relating to
the same shares of Common Stock and delivering it to the Secretary of the
Company prior to the vote at the Special Meeting, by written notice of
revocation or by appearing in person at the Special Meeting and by voting in
person the shares of Common Stock to which the proxy relates. Any written notice
of revocation should be sent to the Company at 3101 Latrobe Drive, Charlotte,
North Carolina 28211, Attention: Secretary, at or before the taking of the vote
at the Special Meeting.
APPRAISAL RIGHTS
Each holder of Common Stock of the Company has a right to
demand appraisal of his or her shares in connection with the Merger, and, if the
Merger is consummated, to receive "fair value" for his or her shares of Common
Stock in cash by complying with the provisions of the DGCL, including Section
262 of the DGCL. A Stockholder wishing to do so must not vote in favor of
adoption of the Merger Agreement and must deliver to the Company, prior to the
vote being taken on the Merger at the Special Meeting, written notice of his or
her intent to demand appraisal of his or her shares of Common Stock if the
Merger is effected. The full text of Section 262 of the DGCL is attached as
Appendix E hereto. See "APPRAISAL RIGHTS" for further discussion of such rights.
11
<PAGE>
SOLICITATION OF PROXIES
The Company will bear the cost of solicitation of proxies and
the cost of printing and mailing this Proxy Statement. Arrangements will also be
made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation material to the beneficial owners of shares of
the Company Common Stock held of record by such persons. The Company will
reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in connection therewith.
HOLDERS OF COMPANY COMMON STOCK SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXY CARDS. IF THE MERGER IS CONSUMMATED, THE PROCEDURE
FOR THE EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMMON STOCK WILL BE AS
SET FORTH IN THIS PROXY STATEMENT. See "THE MERGER--Procedures for Surrender of
Certificates of Common Stock".
THE MERGER
BACKGROUND
In the spring of 1998, a representative of the Company contacted the
Parent to discuss the possibility of an acquisition of the Pathfinder division
of Parent by the Company. The Company believed that an acquisition of the
Pathfinder division would greatly improve the Company's competitive position in
the marketplace and, if structured as a stock transaction, would be feasible
despite the Company's working capital deficiency at such time. Parent at that
time was publicly held but, as an example of the consolidation of the materials
handling industry, was engaged in negotiations with third parties concerning the
sale of Parent. The Company was advised in response that Parent was negotiating
for a sale of its entire business and that the Company should pursue its
interest with the purchasing party. Ralph Dollander, President of the Company,
then proceeded to contact the eventual purchasing party, J Richard Industries,
L.P. ("J Richard"). Parent was acquired by J Richard in June of 1998. In
December of 1998, Mr. Dollander met with Lawrence Weber, President of J Richard,
and other representatives of J Richard to review the possibility of the
Company's acquisition of the Pathfinder division. On December 9, 1998, the
Company and J Richard entered into a Confidentiality and Nondisclosure Agreement
for purposes of the exchange of information.
In February of 1999, Company representatives along with representatives
of Netzler & Dahlgren met with Mr. Weber and other J Richard representatives in
Chicago during the Promat trade show to further discuss the Company's potential
acquisition of the Pathfinder division, including the possible issuance of
Company common stock to Parent as payment for such acquisition.
On February 12, 1999, a regularly scheduled meeting of the Board of
Directors of the Company was held. At this meeting, the Board of Directors
discussed the possible acquisition of the Pathfinder division by the Company.
The Board also discussed the Company's continuing need for additional working
capital, whether through equity contributions or subordinated debt.
On February 25, 1999, the Company received a preliminary and
non-binding offer from J Richard with regard to an acquisition of the Company by
Parent in a cash-out merger transaction. This proposal effectively ended
discussions regarding the Company's acquisition of the Pathfinder division. J
Richard indicated at that time that an important condition to Parent's
entering into a merger transaction would be modifications to the current Master
Licensing Agreement ("MLA") between the Company and Netzler & Dahlgren and the
receipt of a consent to the merger by Netzler & Dahlgren as required under the
MLA. This communication initiated a dialogue between representatives of J
Richard, Netzler & Dahlgren and the Company concerning a possible acquisition of
the Company by Parent and the related amendment of the MLA. J Richard was
permitted at this time to commence an overall business and accounting due
diligence review of the Company. Representatives of Ernst & Young visited the
Company's offices for these purposes.
12
<PAGE>
On May 7, 1999, a regularly scheduled meeting of the Board of Directors
of the Company was held. The Board discussed various aspects of the preliminary
offer from J Richard, including the continuing working capital needs of the
Company, and authorized Mr. Dollander to continue his discussions with J
Richard.
On June 16, 1999, representatives of J Richard, Netzler & Dahlgren and
the Company agreed, by executing a memorandum setting forth a list of the
material changes, that the MLA would be amended as described in the memorandum,
subject to approval of the Company's Board of Directors and final agreement on
the terms and conditions of such amendment and the terms and conditions of the
acquisition agreement.
On June 28, 1999, the Company received a non-binding offer letter from
J Richard providing for the acquisition of the Company by J Richard at a price
of $.75 per share payable in cash subject to completion of a satisfactory due
diligence investigation by J Richard. J Richard also indicated that it was
unwilling to continue its due diligence review unless the Company agreed to
cover certain of its expenses and to negotiate exclusively with J Richard for a
limited period concerning a sale of the Company. The Company responded that it
was unwilling to cover J Richard's due diligence expenses or to agree at that
time to J Richard's exclusive dealing request. The Company decided, however, to
refrain from the solicitation of other offers at that time to avoid jeopardizing
its negotiations with J Richard. Notwithstanding the Company's response,
representatives of J Richard continued their due diligence investigation of the
Company, including visits to the Company's offices by J Richard's legal counsel.
By letter agreement dated July 23, 1999, as a result of continuing
requests from J Richard, the Company agreed with J Richard that it would not
engage in discussions with third parties regarding competing proposals until
August 23, 1999. Concurrent with such letter agreement, counsel for J Richard
submitted a draft Merger Agreement and form of Voting Agreement to the Company.
Shortly thereafter, counsel for J Richard submitted a proposed form of amended
MLA.
During late July and throughout August, negotiations between the
parties and their counsel took place. On July 28, 1999, the Company engaged
Willamette Management Associates to serve as the Company's financial advisor and
to review the terms of the proposed merger transaction for purposes of issuance
of an opinion on the fairness of the transaction to the Company's Stockholders
from a financial point of view.
On August 11, 1999, Netzler & Dahlgren notified the Company by letter
that Netzler & Dahlgren could not commit to future financial support to the
Company such as letter of credit guarantees, inventory buy-back guarantees and
financing of purchases of components and services by the Company. The letter
stated that the Netzler & Dahlgren Board had urged its management to liquidate
Netzler & Dahlgren's financial exposure to the Company as soon as possible.
On August 14, 1999, the Board of Directors of the Company held a
special meeting at which the Company's legal counsel and financial advisor
attended. At this meeting, the Board of Directors discussed the proposed merger
transaction and the Company's financial situation and
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prospects at great length. The Board (1) designated the two independent
directors, Raymond Gibson and Richard Schofield, as a special committee (the
"Special Committee") to review and evaluate the merger transaction, (2) reviewed
drafts of merger documents, (3) received a presentation from representatives of
Willamette Management Associates regarding its valuation methodology, the
preliminary results of its valuation analysis and a preliminary indication of
the fairness of the proposed merger consideration, and (4) discussed
alternatives to the proposed merger and other various matters. During this
meeting, the Company's legal counsel explained the terms and conditions of the
draft merger agreement including, in particular, the provisions relating to (1)
the ability of the Company's Board of Directors to consider other acquisition
proposals should they arise on an unsolicited basis after public announcement of
the transaction, and (2) the payment of a "break-up" fee and other expenses to J
Richard in certain circumstances. In addition, the general duties and
responsibilities of the Board of Directors in connection with the proposed
transaction were discussed. The Board did not arrive at a conclusion concerning
the proposed merger but instructed Management and counsel to proceed with
negotiations.
On August 18, 1999, J Richard provided the Company with evidence of its
source of financing for purposes of funding the merger transaction, including
the payment or refinancing of various obligations of the Company.
During late August and early September, representatives of J Richard,
the Company and Netzler & Dahlgren negotiated the terms of an amendment and
restatement of the MLA (the "Second MLA"), to be effective as of the date of
closing of the Merger. On August 23, 1999, at the insistence of J Richard, the
Company agreed to an extension of its exclusive negotiations agreement with J
Richard.
On September 10, 1999, a special telephonic meeting of the Board of
Directors was held. At this meeting, the Special Committee and the Board
received and considered presentations from Management concerning the financial
position and business of the Company and from counsel concerning an update on
the transaction documents and related negotiations. The Special Committee then
unanimously recommended that the full Board accept and approve the Merger
Agreement and Second MLA as negotiated, subject to receipt of the final fairness
opinion from the Company's financial advisor. The Board then unanimously
approved the Merger Agreement and the Second MLA and authorized Ralph Dollander
to execute such agreements on behalf of the Company and to proceed with
preparation of this Proxy Statement.
On September 13, 1999, Willamette Management Associates provided its
written opinion to the Company's Board of Directors that, as of such date, the
merger consideration was fair, from a financial point of view, to the
Stockholders of the Company. The Merger Agreement, Second MLA and Voting
Agreement were executed and delivered the same day, and the Company and J
Richard then jointly issued a press release announcing the Merger Agreement.
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PARENT
The Parent was organized as a Delaware corporation in 1928 and
is a leading manufacturer of highly engineered materials handling subsystems in
the industrial automation market. Its products include specialty conveyor
systems such as power turns, spirals and chutes, electronic wire guidance
controllers for lift trucks, and conveyor systems used in the material handling
and sorting of recycled materials. Parent is a wholly-owned subsidiary of J.
Richard Industries, L.P., an Ohio limited partnership ("J Richard"), which is a
Toledo, Ohio based manufacturer and distributor of components used in the
materials handling, sports, fitness and automotive markets. Parent's executive
offices are located at 3934 Concord Street, Todedo Ohio and its telephone number
is (419) 426-4911.
PURCHASER
Purchaser was recently incorporated under the laws of the
State of Delaware as a wholly-owned subsidiary of Parent solely for the purpose
of entering into the Merger Agreement. Substantially all of its assets consist
of its rights and obligations under the Merger Agreement. Purchaser's principal
address is 3934 Concord Street, Toledo Ohio and its telephone number is
419-426-4911.
DESCRIPTION OF THE MERGER
Pursuant to the Merger Agreement and on the terms subject to
the conditions set forth herein, Purchaser will be merged with and into the
Company. As a result of the Merger, the separate corporate existence of the
Purchaser will cease and the Company will continue as a wholly-owed subsidiary
of Parent. See "THE MERGER AGREEMENT".
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At the Effective Time, except with respect to shares of Common
Stock held as treasury shares by the Company and Dissenting Shares (See
"APPRAISAL RIGHTS"), each issued and outstanding share of Common Stock will be
automatically canceled and cease to exist and will be converted into the right
to receive the Merger Consideration of $.75 in cash without interest. As a
result of the Merger, the Company will be a wholly-owned subsidiary of Parent.
REASONS FOR THE MERGER
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE TERMS
OF THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
In reaching its decision to approve the Merger Agreement, the
Board of Directors of the Company consulted with its financial and legal
advisors, and considered a variety of factors, including the following:
o The Company's working capital deficiency at August 31, 1999 was
approximately $900,000. Despite extensive efforts since 1997, the Company has
been unable to obtain any additional equity or subordinated debt financing.
Without additional working capital, the Company's efforts to expand its markets
and increase its revenues would be severely hindered, and there is risk that the
Company may not be able to continue as a going concern.
o The Company had been informed by Netzler & Dahlgren by letter of
August 11, 1999 that Netzler & Dahlgren could not commit to future financial
support to the Company such as letter of credit guarantees, inventory buy back
guarantees and financing of purchases of components and services by the Company.
As of August 31, 1999, the financial support of the Company by Netzler &
Dahlgren included (i) a $450,000 irrevocable letter of credit that secures, in
part, the current debt owed by the Company under its Loan Agreement (as defined
herein) with National Bank of Canada and the National Canada Business Corp.,
(ii) an Inventory Repurchase Agreement (as defined herein) for the benefit of
such lenders, which guaranteed that Netzler & Dahlgren will repurchase certain
inventory of the Company, (iii) credit to the Company in the amount of $564,750,
approximately $300,000 of which was past due at that time, for purchases by the
Company of certain components and services, and (iv) $194,398 owed on a
promissory note made by the Company in favor of Netzler & Dahlgren. By its
letter of August 11, 1999, Netzler & Dahlgren notified the Company that the
Board of Directors of Netzler & Dahlgren had urged its management to liquidate
its financial exposure to the Company as soon as possible. For a further
discussion of the Company's relationship with Netzler & Dahlgren, see "THE
MERGER--Interests of Certain Persons in the Merger".
o A review of the possible alternatives to a sale of the Company,
including the prospects of continuing to operate the Company as an independent
company, the value to the Stockholders of such alternatives and the timing and
likelihood of achieving additional value from these alternatives, and the
possibility that the Company's future performance might not lead to a stock
price having a higher present value than the Merger Consideration.
o The current and prospective environment in which the Company
operates, including economic conditions and the competitive environment for the
industries in which the Company operates generally, which led the Board of
Directors of the Company to the view that the Company's relative small size
hinders its ability to compete.
o The unanimous recommendation of the Special Committee in favor of
the Merger Agreement.
o The opinion of Willamette, the Company's financial advisor, that the
Merger Consideration is fair, from a financial point of view, to the holders of
shares of Common Stock of the Company and the financial analysis conducted by
Willamette in reaching its opinion, as described under "THE MERGER--Opinion of
the Company's Financial Advisor".
o The Merger Consideration offered to Company Stockholders, which
represents a premium of 56%, 46%, 47% and 68%, over the average closing prices
for a share of Company Common Stock for the 30 day period, the 45 day period,
the 60 day period and the 90 day period, respectively, preceding September 10,
1999 (the last trading day preceding the announcement of the Merger), and a
premium approximately 111% over the average price at which the shares of Company
Common Stock have traded in the year preceding September 10, 1999.
o The view of the Company's Board of Directors that the terms of the
Merger Agreement, as reviewed by the Board of Directors with its legal and
financial advisors are fair to the Company and its Stockholders and give the
Board of Directors the flexibility to respond to unsolicited acquisition
proposals subject to payment of a termination fee. See "THE MERGER
AGREEMENT--Termination Payment Provisions".
o The Board of Directors' knowledge of the prospect business,
operations, properties, assets, financial conditions and operating results of
the Company.
The Company's Board of Directors also considered certain
countervailing factors in its deliberations concerning the Merger, including:
o The Boards perception of the ability of J. Richards is based on its
reputation, financial condition and financial backing to consummate the proposed
transaction.
o The potential disruption of the Company's business that might result
from the announcement of the Merger.
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o The possible difficulties of integrating the management teams of the
Company and Parent.
o The uncertainty of the perceptions of the Merger by the Company's
Stockholders, customers and employees.
o The possibility that the Merger may not be consummated.
o The requirement under the Merger Agreement that the Company
Stockholders have an opportunity to vote on the Merger Agreement at the Special
Meeting even if other proposals are received, and the required payment by the
Company in certain circumstances of a termination fee under the Merger
Agreement. See "THE MERGER AGREEMENT--Termination Payment Provisions".
The foregoing discussion of the information and factors
discussed and considered by the Board of Directors of the Company is not meant
to be exhaustive but is believed to include all material factors considered by
the Company's Board of Directors. The Company's Board of Directors did not
quantify or attach any particular weight to the various factors that it
considered in reaching its determination that the Merger Agreement and the
Merger are fair to and in the best interests of the Company and its
Stockholders. Rather, the Board of Directors viewed its position and
recommendation as being based on the totality of the information presented to
and considered by it. As a result of its consideration of the foregoing and
other relevant considerations, the Board of Directors unanimously determined
that the Merger Agreement and Merger are advisable and fair to, and in the best
interests of, the Company and its Stockholders and unanimously approved the
Merger Agreement. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT THE STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
WILLAMETTE OPINION
In a letter agreement dated July 28, 1999, the Company engaged
Willamette as its exclusive financial advisor in connection with the Merger.
Willamette was selected by the Company based on its qualifications, expertise
and reputation. On August 14, 1999, Willamette delivered to the Company's Board
of Directors an opinion as of such date, based on assumptions made, procedures
followed, matters considered and limits of review, as set forth in the written
confirmation of the opinion, that the consideration to be received by the
holders of shares of Company Common Stock pursuant to the Merger Agreement was
fair from a financial point of view to such Stockholders. This opinion was
subsequently confirmed in a written opinion dated September 13, 1999.
THE TEXT OF WILLAMETTE'S OPINION, DATED SEPTEMBER 13, 1999,
WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY WILLAMETTE IN
RENDERING ITS OPINION IS ATTACHED AS APPENDIX D TO THIS PROXY STATEMENT. THE
COMPANY'S STOCKHOLDERS ARE URGED TO, AND SHOULD, READ WILLAMETTE'S OPINION
CAREFULLY AND IN ITS ENTIRETY. WILLAMETTE'S OPINION IS DIRECTED TO THE BOARD OF
DIRECTORS OF THE COMPANY, ADDRESSES ONLY THE FAIRNESS OF THE CONSIDERATION TO BE
RECEIVED BY THE HOLDERS OF SHARES OF COMPANY COMMON STOCK PURSUANT TO THE MERGER
AGREEMENT FROM A FINANCIAL POINT OF VIEW TO SUCH STOCKHOLDERS AND DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER OR CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF SHARES OF COMPANY COMMON STOCK AS TO HOW TO VOTE AT THE SPECIAL
MEETING. THE FOLLOWING SUMMARY OF WILLAMETTE'S OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE TEXT OF THE OPINION, ATTACHED AS APPENDIX D TO THIS
PROXY STATEMENT.
In connection with rendering its opinion, Willamette, among
other things:
o Reviewed the Merger Agreement;
o Reviewed the Company's annual reports on Form 10-KSB for the fiscal
years ended November 30, 1994 through 1998, its quarterly reports on Form 10-QSB
for the periods ended February 27 and May 31, 1999, and its unaudited interim
financial statements for the period ended June 30, 1999;
o Reviewed certain operating and financial information provided by
management of the Company relating to the Company's business and prospects,
including its budgets for the years ending November 30, 1999, 2000 and 2001;
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o Discussed with the Company's senior management the operations,
historical financial statements and future prospects of the Company;
o Visited the Company's facilities in Charlotte, North Carolina;
o Reviewed the historical market prices and trading volume of the
Common Stock of the Company;
o Reviewed publicly available financial data and stock market
performance data of public companies deemed by Willamette to be generally
comparable to the Company;
o Reviewed the terms of recent acquisitions of companies that were
deemed by Willamette to be generally comparable to the Company; and
o Conducted such other studies, analysis, inquiries and investigations
that were deemed by Willamette to be appropriate for the purposes of its
opinion.
In rendering its opinion, Willamette relied upon and assumed,
without independent verification, the accuracy and completeness of all financial
and other information that was available to it from public sources and all the
financial and other information provided to it by the Company or its
representatives. Willamette further relied upon the assurances of the management
of the Company that they are unaware of any facts that would make the
information that the Company or its representatives provided to Willamette
incomplete or misleading.
With respect to projected financial results, Willamette
assumed that they had been reasonably prepared on the basis reflecting the best
currently available estimates and judgment of the management of the Company.
Willamette did not express an opinion or other form of assurance on the
reasonableness of the underlying assumptions. In arriving at its opinion,
Willamette did not perform or obtain any independent appraisal of the assets of
the Company. The opinion of Willamette is necessarily based on economic, market,
financial and other conditions as in effect on, and the information available to
Willamette as of, the date of their opinion. The following is a brief summary of
the material analyses performed by Willamette in preparation of its opinion.
INDUSTRY ANALYSIS
Willamette reviewed the material handling industry and
determined that it has shown substantial growth since 1996, however, the number
of booked orders is still below the higher levels attained in the industry in
the early 1990s. Willamette also reported that the material handling industry as
a whole is considered by many insiders to be a "mature" market. Willamette
determined that in order for the AGV market to continue its recent growth,
customers must be convinced to upgrade their current material handling systems
to more sophisticated AGV systems, and more specifically, laser guided AGV
systems. Willamette noted that the domestic market for AGV systems is small, due
in part to the reliance upon mass manufacturing in the United States and that
the AGV's strength lies in its flexibility in dealing with dynamic manufacturing
environments. Finally, Willamette reported that many analysts believe that the
domestic market for AGVs will show little growth over the next three to five
years.
ECONOMIC ANALYSIS
Willamette performed and relied upon a general economic
analysis of current domestic economic conditions in rendering its opinion. This
analysis included a review of the following items:
o Growth rate for gross domestic product;
o Productivity for domestic non-farm businesses;
o Output and capacity utilization at domestic factories, mines and
utilities;
o Growth rate of domestic business investment spending;
o The consensus forecast of 54 economists who participated in a recent
WALL STREET JOURNAL survey; and
o The recent increases in the federal funds rate by the Federal Reserve
Bank.
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ADJUSTED NET ASSET ANALYSIS
Willamette used an adjusted net asset value method to arrive
at one valuation of the Company. This method approximated the liquidation value
of the Company by taking the fair market value of assets of the Company and
subtracting the total liabilities of the Company to arrive at an adjusted net
asset value. In performing this analysis, the assets and liabilities of the
Company were adjusted to reflect their fair market value. Assuming no
liquidation costs, Willamette determined that the Company had an adjusted net
asset value per share of Common Stock of $.35. Assuming a 10% cost of asset
liquidation, Willamette determined that the Company would have a maximum
adjusted net asset value per share of Common Stock of $.32.
DISCOUNTED CASH FLOW ANALYSIS
Willamette analyzed certain financial projections prepared by
the management of the Company for the fiscal years 1998 through 2001 and
performed a discounted cash flow analysis of the Company based upon these
projections. The projections of the Company were based upon the Company's
ability to obtain additional financing.
The discounted cash flow method employed by Willamette
approximated a control share price by determining the present value of future
cash flows. Each projected cash flow was discounted back to the present, as
determined by the Company's weighted average cost of capital.
For this analysis, Willamette assumed two separate scenarios
for weighted average costs of capital for the Company. The first scenario
assumed that the Company will remain highly leveraged. The second scenario
assumed that the Company will achieve a conventional industry average capital
structure. To reflect the Company's earnings capacity after the projection
period, Willamette determined a normalized earnings level after the last
projection year and capitalized those earnings. This indicated the Company's
terminal value and accounts for the Company's future earnings into perpetuity.
The present value of both the discrete cash flows and the
terminal cash flow is added together to reflect the Company's market value of
invested capital. To arrive at the Company's fair market value of equity,
Willamette subtracted the market value of the Company's debt ($1,622,009 as of
June 30, 1999).
Under the discounted cash flow analysis, if the Company
remained heavily leveraged, Willamette determined that the indicated market
value of equity on a controlling interest basis would be $.63 per share of
Common Stock. If the Company assumed a conventional industry capital structure,
Willamette indicated that the market value of equity on a controlling interest
basis would be $.68 per share of Common Stock.
CAPITALIZATION OF EARNINGS ANALYSIS
Willamette performed a capitalization of earnings analysis on
the Company by employing a valuation method that arrives at a control share
price by capitalizing the Company's anticipated normalized cash flow. This
method is very similar to the discounted cash flow method performed by
Willamette, in that Willamette focused on the Company's earning capacity,
weighted average cost of capital and growth rates. This method was used in order
to illustrate how the Company might fair if there were no more available
financing. Willamette reported that discussions with management of the Company
indicated that it would be difficult for the Company to exceed $5.5 million in
annual revenue and $200,000 in gross profits in its current state.
In employing this method, Willamette assumed a constant 6%
growth rate in both revenue and profitability over the Company's life. This is a
rate slightly better than inflation. Willamette also assumed that the same
scenarios in developing the weighted average cost of capital that it had
employed in the discounted cash flow method would be applicable to this
analysis. The capitalization rate was determined by subtracting the growth rate
from the discount rate (the weighted average cost of capital in this case). The
Company's normalized cash flow was then divided by this capitalization rate to
arrive at an indicated market value of invested capital. The debt was then
subtracted to arrive at the value of the controlling equity.
Under the capitalization of earnings method, if the Company
were to remain highly leveraged, Willamette determined that the indicated market
value of equity on a controlling interest basis would be $.24 per share of
Common Stock. If the Company were to assume an industry average capital
structure, Willamette determined that the indicated market value of equity on a
controlling interest basis is $.27 per share of Common Stock.
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GUIDELINE COMPANY ANALYSIS
Willamette reviewed the current valuation of publicly traded
companies that are in a similar line of business of the Company. These companies
included Adept Technology, Inc. (NASDAQ:ADEK), Columbus McKinnon Corp.
(NASDAQ:CMCO), Control Chief Holdings, Inc. (NASDAQ:DIGM), FMC Corp. (NYSE:FMC),
Intersystems, Inc. (AMEX:II), Met-Coil Systems Corp. (OTC:METS), Quipp, Inc.
(NASDAQ:QUIP) and SI Handling Systems, Inc. (NASDAQ:SIHS). Willamette reviewed
certain measures of valuation of these companies including (i) market value of
invested capital, (ii) earnings before interest and taxes, (iii) earnings before
interest, taxes, depreciation and amortization, (iv) debt free net income, (v)
debt free cash flow, (vi) revenues, (vii) revenue performance ratios, (viii)
book value of invested capital, and (ix) performance ratios. In performing this
analysis, Willamette reviewed both the last 12 month period and the projected
1999 time period. Willamette calculated market multiples of the earnings
fundamentals relative to the market value of invested capital of the guideline
companies.
Willamette determined that this method of analysis yields a
minority interest conclusion because of the reference to minority interest in
the public companies which are traded daily. Thus, a control premium was
necessarily added to the valuation. Under this valuation method, Willamette
determined that the indicated value of equity on a controlling interest basis is
$.41 per share of Common Stock.
No company utilized in the publicly traded guideline company
analysis is identical to the Company. Willamette made judgments and assumptions
with regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
either the Company, Parent or Purchaser. Furthermore, mathematical analysis is
not by itself a meaningful method of using publicly traded guideline company
data.
MERGER AND ACQUISITION ANALYSIS
In performing a merger and acquisition analysis of the equity
value of the Company, Willamette employed a method involving the identification
and analysis of transactions of companies that are in a similar line of business
to the Company. In performing this analysis, Willamette compared the Merger
transaction to the acquisition of Parent by J. Richard in June of 1998 by using
the same earnings fundamentals employed under the guideline company analysis to
calculate and compare the transaction multiples of such earnings fundamentals.
Willamette indicated that this method of valuation yields a controlling interest
conclusion because mergers and acquisitions typically represent a complete
change of control. Under the merger and acquisition analysis, Willamette
determined that the indicated value of equity on a controlling interest basis is
$.72 per share of Common Stock.
PREPARATION AND USE OF FAIRNESS OPINION
In connection with the review of the Merger by the Board of
Directors of the Company, Willamette performed a variety of financial and
comparative analysis for purposes of the delivering its opinion. While the
foregoing summary describes the analysis and factors reviewed by Willamette in
connection with its opinion, it does not purport to be a complete description of
all of the analyses performed by Willamette in arriving at its opinion.
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial analysis or summary description. In
arriving at its opinion, Willamette considered the results of all of its
analyses as a whole and did not attribute particular weight to any analysis or
factor considered by it. Furthermore, Willamette believes that selecting any
portion of this analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Willamette
may have given various analyses and factors more or less weight than other
analyses or factors, and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Willamette's
view of the actual value of the Company. In rendering its opinion, Willamette
was not authorized to solicit, and did not solicit, interest from any party with
respect to the acquisition, business combination or other extraordinary
transaction involving the Company, nor did it negotiate with any parties. In
performing its analyses, Willamette made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company, Parent and
Purchaser. Any estimates contained herein are not necessarily indicative of
future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates. The analyses performed were
prepared solely as part of Willamette's analysis of the fairness of the
consideration to be received by the holders of shares of Company Common Stock
pursuant to the Merger Agreement from a financial point of view to such holders
and were conducted in connection with the delivery of Willamette's opinion. The
analyses do not purport to be appraisals or to reflect the prices at which the
Company might actually be sold. The opinion of Willamette does not constitute a
recommendation to the Company's Stockholders as to whether or not to vote their
shares in favor of the merger.
Willamette's opinion and presentation to the Board of
Directors of the Company was one of the many factors taken into consideration by
the Board of Directors in making its determination to recommend approval of the
Merger. The Willamette analyses described above consequently should not be
viewed as determinative of the
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opinion of the Board of Directors of the Company with respect to the
consideration paid in connection with the Merger or of whether the Board of
Directors of the Company would have been willing to agree to a different
consideration. The consideration to be paid by Purchaser pursuant to the Merger
Agreement was determined through arms length negotiation between the Company and
Parent and was approved by the Board of Directors of the Company. Willamette is
a financial services and advisory firm. Willamette is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distribution of listed and unlisted securities, private placements and
valuations for corporation and other purposes. Willamette has never performed
financial advisory and financing services for the Company prior to its entering
into an engagement letter with the Company.
Pursuant to the engagement letter between Willamette and the
Company, Willamette received a transaction fee for its services of $24,000, plus
expenses, which fee is not conditioned on the consummation of the Merger. In
addition, the Company has agreed to indemnify Willamette and its affiliates,
their respective directors, officers, agents and employees against certain
liabilities and expenses, including liabilities under Federal securities laws,
related to or arising out of Willamette's engagement.
FEDERAL INCOME TAX CONSEQUENCES
The receipt of the Merger Consideration by each holder of
shares of Common Stock upon the cancellation of Common Stock pursuant to the
Merger will be taxable transactions for U.S. federal income tax purposes under
the Code and may also be taxable transactions under applicable state, local,
foreign and other tax laws. Generally, a Stockholder of the Company receiving
cash in exchange for shares of Common Stock pursuant to the Merger will, for
U.S. federal income tax purposes, recognize gain or loss equal to the difference
between the amount of cash received and such Stockholder's adjusted tax basis in
the Common Stock exchanged therefor. If the Common Stock is held by a
Stockholder as a capital asset, gain or loss recognized by the Stockholder will
be a long term capital gain or loss if the Stockholder's holding period for the
Common Stock exceeds one year. In the case of a noncorporate taxpayer, the
current maximum U.S. federal income tax rate on net capital gains generally is
20%.
Payments of cash to a holder of shares of Common Stock will
generally be subject to information reporting requirements. "Backup" withholding
at a rate of 31% will apply to such payments, unless the holder furnishes a
taxpayer identification number in the manner prescribed in the applicable U.S.
Treasury regulations, certifies that such a number is correct, certifies as to
no loss of exemption from backup withholding and meets certain other conditions.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or credit against the Stockholder's U.S. federal income tax liability,
provided that required information is furnished to the Internal Revenue Service
(the "Service"). Such backup withholding can be avoided if a Stockholder
properly completes the Letter of Transmittal (as defined herein) that the Paying
Agent (as defined herein) in connection with the Merger will mail to each
Stockholder as soon as reasonably practicable after the Effective Time, and
includes in such Letter of Transmittal the Stockholder's correct taxpayer
identification number. See "THE MERGER--Procedures for Surrender of Certificates
of Common Stock".
The discussions set forth above as to the material federal
income tax consequences of the Merger is based upon the provisions of the Code,
applicable U.S. Treasury Regulations thereunder, judicial decisions and current
administrative rulings, all as in effect on the date hereof and all of which are
subject to change at any time with retroactive effect. Special tax consequences
not described herein may be applicable to particular classes of taxpayers such
as financial institutions, insurance companies, persons that hold Common Stock
as part of a straddle or conversion transaction, or persons who are not citizens
or residents of the United States. This discussion does not address any aspect
of state, local or foreign taxation. No rulings have been, or will be, requested
from the Service with respect to any of the matters discussed herein. There can
be no assurances that future legislation, regulations, administrative rulings or
court decisions will not alter the tax consequences as set forth above.
THE ABOVE DISCUSSION DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. THE
FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO CERTAIN SHARES OF
COMMON STOCK RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR
OTHERWISE AS COMPENSATION WITH RESPECT TO HOLDERS OF SHARES OF COMMON STOCK WHO
ARE SUBJECT TO SPECIAL TAX TREATMENT UNDER THE CODE, SUCH AS PERSONS WHO ARE NOT
CITIZENS OR RESIDENTS OF THE UNITED STATES, LIFE INSURANCE COMPANIES, TAX EXEMPT
ORGANIZATIONS AND FINANCIAL INSTITUTIONS AND MAY NOT APPLY TO A HOLDER OF SHARES
OF COMMON STOCK IN LIGHT OF INDIVIDUAL CIRCUMSTANCES. STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO
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THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME
AND OTHER TAX LAWS) OF THE MERGER.
MERGER CONSIDERATION
Subject to the terms and conditions of the Merger Agreement,
in the Merger each issued and outstanding share of Common Stock (other than
shares of Common Stock held as treasury shares by the Company and Dissenting
Shares) will automatically be canceled and cease to exist and will be converted
in the right to receive $.75 in cash without interest.
CLOSING AND EFFECTIVE TIME OF THE MERGER
The Merger will become effective, and Purchaser will be merged
with and into the Company, upon the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware or such later date as is specified
in such Certificate of Merger. The filing of the Certificate of Merger will be
made on the Closing Date, which will take place on the third business day after
the satisfaction or waiver of the conditions set forth in the Merger Agreement,
unless another date is agreed to in writing by the parties. Subject to certain
limitations, the Merger Agreement may be terminated by Parent and Purchaser or
the Company if, among other reasons, the Merger has not occurred on or before
January 31, 2000. See "THE MERGER AGREEMENT--Conditions to the Consummation of
the Merger" and "THE MERGER AGREEMENT--Termination".
PROCEDURES FOR SURRENDER OF CERTIFICATES OF COMMON STOCK
The conversion of Common Stock (other than shares of Common
Stock held as treasury shares by the Company and Dissenting Shares) into the
right to receive the Merger Consideration following the Merger will occur at the
Effective Time.
Immediately prior to the Effective Time, Purchaser will
deposit with a designated paying agent (the "Paying Agent"), in trust for the
Company Stockholders cash in an aggregate amount equal to the Merger
Consideration (such deposit with the Paying Agent is referred to as the "Payment
Fund"). As soon as reasonably practicable after the Effective Time, the
Surviving Corporation shall cause the Paying Agent to mail to each Company
Stockholder a letter of transmittal and instructions for use (the "Letter of
Transmittal") in effecting the surrender of certificates representing Common
Stock outstanding immediately prior to the Effective Time ("Certificates"). Upon
surrender of Certificates for cancellation to the Paying Agent, together with
such Letter of Transmittal, duly and properly executed, the holder of such
Certificates shall be entitled to receive in exchange therefore the portion of
Merger Consideration represented by the Certificates pursuant to the terms and
conditions of the Merger Agreement. STOCKHOLDERS SHOULD NOT SEND IN THEIR
CERTIFICATES AT THIS TIME.
In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, and if required by the
Surviving Corporation, upon the posting by such person of a bond in such amount
as the Surviving Corporation may reasonably direct as indemnity against any
claim that be made against it with respect to such Certificate, the Paying Agent
will issue in respect of such lost, stolen or destroyed Certificate, the Merger
Consideration with respect to the shares of Common Stock represented thereby.
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Any portion of the Payment Fund which remains unclaimed by the
Company Stockholders for three months after the Effective Time will be delivered
to the Surviving Corporation upon demand of the Surviving Corporation and the
holders of Common Stock shall thereafter look only to the Surviving Corporation
for payment of their claim for the Merger Consideration in respect of their
Common Stock.
The Surviving Corporation shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to the Merger
Agreement to any holder of a Certificate surrendered for the Merger
Consideration such amount as the Surviving Corporation or the Paying Agent is
required to deduct and withhold with respect to the making of such payment under
the Code or any provision of any state, local or foreign tax law.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the Merger, a Stockholder should be aware that
certain directors and executive officers of the Company may have interests,
described herein, that present them with potential conflicts of interest in
connection with the Merger. The Company's Board of Directors is aware of the
conflicts described below and considered them in addition to the other matters
described under "THE MERGER--Reasons for the Merger".
Shares of Common Stock held by officers and directors of the
Company will be converted into the right to receive the same Merger
Consideration as the shares of Common Stock held by other Stockholders. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT".
Stock Options held by the officers and directors of the
Company will be treated in the same manner as Stock Options held by other
employees of the Company. Pursuant to the Merger Agreement, all outstanding
Stock Options will be canceled and each holder of a Stock Option shall be
entitled to receive from the Company in consideration for the cancellation of
such Stock Option an amount in cash (less applicable withholding taxes) equal to
the product of (i) the number of shares of Common Stock previously subject to
such Stock Option multiplied by; (ii) the excess, if any, of the Merger
Consideration over the exercise price per share of Common Stock previously
subject to such Stock Option. Mr. Dollander has been granted 60,000 option
shares under the 1997 Plan that, upon the conummation of the Merger, and in
accordance with the calculation described in the foregoing sentence, will
entitle Mr. Dollander to receive $15,000 in cash (less applicable withholding
taxes.) Claude Imbleau, Chief Financial Officer of the Company, has been granted
30,000 options shares under the same plan and, as a result of the same plan and,
as a result of the merger, will be entitled to receive $7,500 in cash (less
applicable withholding taxes). See "THE MERGER AGREEMENT--Treatment of Stock
Option Plans".
As a condition to their willingness to enter into the Merger
Agreement Parent and Purchaser required that Mr. Dollander enter into a new
employment agreement to replace the existing agreement. Accordingly, Ralph
Dollander, President of the Company, has entered into an Employment Agreement
dated September 13, 1999 with the Company, the terms of which are contingent on
the consummation of the Merger. Upon consummation of the Merger, Mr. Dollander
will serve as President of the Company as well as the Pathfinder AGV Systems
Division of Parent. The term of the Employment Agreement is three years subject
to extension upon mutual agreement of the parties. Mr. Dollander will report to
the Chief Executive Officer of Parent. The Employment Agreement sets his annual
base salary at $132,000 and, subject to annual review by the Board of Directors
of Parent, with the potential of an annual bonus of up to fifty percent of such
base salary based upon achievement of budgeted earnings goals for the Company
and the Pathfinder division (before income tax, depreciation and amortization)
as determined in the sole discretion of the Board of Directors of Parent. Mr.
Dollander will also receive various other automobile, medical, pension,
vacation, education and relocation benefits under the Employment Agreement. The
agreement provides for a pension contribution of $1,000 per month and education
contributions up to a net of $15,000 annually for his family. The Employment
Agreement includes a non-compete covenant that would continue for the lesser of
one year after the termination of Mr. Dollander's employment with the Company
for any reason and the longest time permitted by applicable law. In the event
that Mr. Dollander's employment is terminated, under certain conditions, the
Company would be obligated to pay severance payments of up to twelve months
based on his then current salary.
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None of the directors or officers of the Company have any ownership
interest, directly or indirectly, in Parent. After closing of the Merger, none
of the current officers or directors of the Company will have any ownership
interest, directly or indirectly, in the Company or Parent except for equity
interests or options that may be granted as compensation for future services
under stock plans approved after the closing of the Merger.
Pursuant to the terms of the Merger Agreement and prior to the
Closing, the Company shall procure a five year tail policy for its officers' and
directors' liability insurance covering certain present and former directors,
officers, employees and agents of the Company. In addition, under the terms of
the Merger Agreement, the Purchaser and the Surviving Corporation have jointly
and severally agreed that, for not less than six years after the Closing Date,
the provisions of the Certificate of Incorporation and By-Laws of the Surviving
Corporation shall provide indemnification to, among others, certain present and
former directors and officers of the Company on terms specified in the Merger
Agreement. See "THE MERGER AGREEMENT--Indemnification and Insurance".
In connection with the proposed Merger, Parent, Purchaser and
five Stockholders of the Company owning more than 39% of the issued and
outstanding shares of Common Stock of the Company entered into a Voting
Agreement dated September 13, 1999. The Stockholders entering into the Agreement
consisted of Netzler & Dahlgren and four individuals. Pursuant to the Voting
Agreement, the Stockholders have agreed to vote for approval of the Merger
Agreement and the transactions contemplated therein at the Special Meeting. In
addition, each Stockholder agreed that, subject to the termination of the
Agreement, each Stockholder would not directly or indirectly sell or otherwise
transfer or dispose of his or its interest in any of the shares of Company
Common Stock. Each Stockholder also agreed not to engage in certain
communications relating to any Acquisition Proposal provided that if the Company
or the Company's Board of Directors took any action with respect to an
unsolicited Acquisition Proposal as permitted by the Merger Agreement, the
Stockholders would be permitted to discuss with the person or entity who made an
unsolicited Acquisition Proposal such Stockholder's willingness to consent to a
Superior Proposal under the Merger Agreement. In addition, no provisions in the
Voting Agreement are to be construed as limiting or otherwise affecting any
Stockholder who is a party to the Voting Agreement from taking any action as a
director of the Company under the terms of Section 4.7 or 4.8 of the Merger
Agreement in his capacity as a director. In the event that the Merger Agreement
is terminated in accordance with its terms, the Voting Agreement is
automatically terminated. See "THE MERGER AGREEMENT--No Solicitation of
Transactions" for definitions of an "Acquisition Proposal" and a "Superior
Proposal".
The four individual Stockholders executing the Voting
Agreement have the following relationship with the Company: Goran Netzler
current director of the Company, Chairman of the Board of Directors, 25% owner
of Apogeum AB, the parent company to Netzler & Dahlgren; Jan Jutander - current
director of the Company, and a 25% owner of Apogeum AB; Anders Dahlgren, former
director of the Company and a current consultant of the Company and a 25% owner
of Apogeum AB; and Arne Nilsson - 25% owner of Apogeum AB.
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The Company's AGV system products and services incorporate
technology licensed by, and products purchased from Netzler & Dahlgren, as well
as technology that it has aquired or developed itself. In accordance with the
Master License Agreement dated December 1, 1987, as restated November 30, 1995
(the "MLA"), the Company receives Netzler & Dahlgren's AGV technology, hardware,
software, know-how and consulting services. Netzler & Dahlgren has entered into
a Second Restated Master License Agreement dated September 13, 1999 with the
Company and Parent (the "Second MLA") that, upon consummation of the Merger,
will supersede the current MLA. The second MLA provides the Company, the
Parent, and the business organization resulting from any combination of the
Pathfinder Division of Parent and the Company with exclusive license rights to
utilize, apply and sublicense AGV system components equipment and control
know-how in the United States, Canada and Mexico as provided in the prior
agreement. In addition, in connection with the Second MLA, Netzler & Dahlgren
agreed to provided the Company with additional support with respect to Year 2000
compliance issues. The Second MLA extends the term of the exclusive license up
to December 31, 2002. After such date, the exclusive licensing rights would
continue for additional two year periods provided the Company met certain
performance targets as set forth in the Second MLA. Such performance targets are
to be reset by the parties to the Second MLA for each extension period after the
initial term. If the Company fails to meet such performance criteria, the
Company's licensing rights would no longer be exclusive, and Netzler & Dahlgren
could license its technology and related properties to third parties in the
licensed territory.
The Purchaser and Parent requested, as a condition to entering
into the Merger Agreement, that Netzler & Dahlgren agree to the terms and
conditions set forth in the Second Restated MLA. Netzler & Dahlgren indicated to
the Company that their willingness to enter into the Second Restated MLA was in
large part due to its belief that the Company's cash flow problems would be
substantially eliminated by means of the financing available to the Company from
Parent and Purchaser subsequent to the Merger.
The Company entered into an Inventory and Accounts Receivable
Loan and Security Agreement (the "Loan Agreement") on February 28, 1997 with the
National Bank of Canada and National Canada Business Corp. (herein collectively
called the "Lender"). The Loan Agreement was amended and restated on April 30,
1999 and allows the Company to borrow up to a maximum of U.S. $1,250,000. The
Loan Agreement allows the Company to borrow funds pursuant to a borrowing
formula which is secured by the Company's personal property as collateral. The
Loan Agreement is further secured by (i) an Inventory Repurchase Agreement; and
(ii) a U.S. $450,000 irrevocable Letter of Credit issued by a Swedish bank.
Netzler & Dahlgren is obligated to repay the letter of credit bank any of funds
it disburses under the Letter of Credit. The Company is ultimately responsible
to repay Netzler & Dahlgren for any amounts it pays in reimbursing the letter of
credit bank. The Inventory Repurchase Agreement guarantees that Netzler &
Dahlgren will repurchase from the Company on certain conditions up to $300,000
worth of inventory, thereby providing funds to pay the Lender should the Company
default on its loan obligations.
The maturity date of the Loan Agreement has been extended to
October 31, 1999, or upon demand by the Lender. The extension was conditional
upon Netzler & Dahlgren extending its $450,000 irrevocable Letter of Credit to
the Lender through November 1, 1999. To further secure Netzler & Dahlgren for
providing the Letter of Credit, the Company entered into a Reimbursement
Agreement under which the Company granted to Netzler & Dahlgren a security
interest in the Company's land and building; such collateral is a junior lien to
the primary mortgage lender's security interest. Pursuant to the terms and
conditions of the Merger Agreement, Parent will cause the amounts owed by the
Company to the Lender under the Loan Agreement and to its primary mortgage
lender to be refinanced.
A note payable to Netzler & Dahlgren with an original
principal balance of $402,182 is to be repaid in twenty-four (24) consecutive
monthly principal payments of 133,529 swedish Krona, or approximately US $16,757
per month depending on the exchange rate at time of payment plus interest. The
note is collaterized by a secondary position on the Company's land and building
with a carrying value of $947,949. During the third quarter of 1999, the Company
delayed payments of approximately $32,500 under the promissory note to Netzler &
Dahlgren so not to exceed current borrowing maximums under the Loan Agreement.
Such past due amounts are accruing interest at 16% per annum. Under the terms of
the Merger Agreement, Parent shall obtain financing sufficient to pay all
amounts outstanding under the note from the Company to Netzler & Dahlgren as of
August 31, 1999 (approximately U.S. $195,000). In addition, as of August 31,
1999, the Company had been delaying trade payable payments of approximately
$300,000 to Netzler & Dahlgren due to cash not being available under the current
line of credit. Netzler & Dahlgren anticipates that these trade payables will be
paid in the ordinary course of business after the closing of the Merger.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement, which appears as Appendix C to this Proxy Statement and is
incorporated herein by reference. Such summary does not purport to be complete
and is qualified in its entirety by reference to the Merger Agreement.
THE MERGER
On the terms and subject to the conditions of the Merger
Agreement, at the effective time, Purchaser will be merged with and into the
Company, and the Company will continue as the Surviving Corporation in the
Merger.
On the terms and subject to the conditions of the Merger
Agreement, the closing of the merger will take place on the third business day
after the first date on which each of the condition to closing have been
satisfied. On the closing date, the parties will file with the Secretary of
State of the State of Delaware a duly executed Certificate of Merger, and the
Merger will become effective upon the filing and acceptance thereof or at such
date thereafter as is provided in the Certificate of Merger.
At the effective time, each share of Common Stock issued and
outstanding at the Effective Time (other than shares of Common Stock held by the
Company as treasury shares and Dissenting Shares) will automatically be canceled
and will cease to exist and will be converted into the right to receive the
Merger Consideration. See "THE MERGER--Merger Consideration".
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and
warranties of the Company relating, with respect to the Company, to, among other
things, (a) organization and authority; (b) the Company's capital structure; (c)
the authorization, execution, delivery and performance and enforceability of the
Merger Agreement and related agreements; (d) documents filed by the Company with
the U.S. Securities and Exchange Commission (the "Commission") and the accuracy
of information contained therein; (e) the absence of undisclosed liabilities;
(f) compliance with laws and orders; (g) environmental matters; (h) employee
benefit plans and other matters relating to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") (i) the absence of certain changes or
events since November 30, 1998, including material adverse changes with respect
to the Company; (j) accuracy of financial statements; (k) year 2000
preparedness; (l) employment matters; (m) filing of tax returns and payment of
taxes; (n) insurance; (o) title to owned property, valid leasehold and
subleasehold interest in leased property, possession of required permits, and
other real estate matters; (p) contracts; (q) significant customers and
suppliers; (r) labor relations; (s) intellectual property; (t) the
recommendation of the Board of Directors with respect to the Merger Agreement
and the Merger and related transactions; (u) the Stockholder vote required to
approve the Merger; (v) brokers fees and expenses; (w) the opinion of the
Company's financial advisor; (x) certain legal payments; and (y) pending or
threatened litigation.
The Merger Agreement also contains customary representations
and warranties of Parent and Purchaser relating to, among other things, (a)
organization and authority; (b) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement; (c) required filings;
(d) true and correct copies of financial statements have been provided to the
Company and (e) financing of the Merger Consideration.
CERTAIN PRE-CLOSING COVENANTS
Pursuant to the terms and conditions of the Merger Agreement,
the Company has agreed that, except as consented to in writing by Purchaser,
during the period from the date of the Merger Agreement to the Effective Time,
the Company will carry on its business in the ordinary course consistent with
past practice and use its best efforts to preserve intact its business. The
Company will also keep available the services of its officers and employees and
preserve its relationships with those persons having business dealings with the
Company.
The Merger Agreement also provides that the Company will,
among other things and with some exceptions:
o not amend its Certificate of Incorporation, By-Laws or other
organizational documents;
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o not make any changes in its authorized capital stock; adjust, split,
combine or reclassify any capital stock; issue any shares of stock of any class
or issue or become a party to any subscription, warrant, rights, options,
convertible securities or other agreements or commitments of any character
relating to or measured by its issued or unissued capital stock, or other equity
securities, or grant any stock appreciation of similar rights;
o other than draws under its existing line of credit in the ordinary
course of business consistent with past practice, not (i) incur indebtedness for
borrowed money; (ii) assume, guarantee, endorse or otherwise as an accommodation
become responsible for the obligations of any other individual, corporation or
other entity; or (iii) encumber any assets;
o not sell, transfer, mortgage, encumber or otherwise dispose of any
its material properties or assets to any individual, corporation or other
entity, except pursuant to contracts or agreements in force as of the date of
the Merger Agreement;
o not make or enter into any commitment to make any material
investments, either by purchase of stock or securities, in contributions to
capital of, or other than in the ordinary course of business consistent with
past practice, make any loans to or purchases of any material property or assets
from, any other individual, corporation or other entity other than regular
advances to employees in the ordinary course of business;
o except for transactions in the ordinary course of business consistent
with past practice and those transactions contemplated by the provisions of the
Merger Agreement, not enter into or terminate any material contract or
agreement, or make any material change in any of the leases or contracts;
o not change its method of accounting in effect at November 30, 1998
except as may be required by changes in United States generally accepted
accounting principles ("GAAP") upon the advice of its independent accountants;
o not increase the compensation payable to any employee, or enter into
any new employment agreements with new or existing employees which create other
than an at will relationship without any severance obligation;
o not make, rescind or revoke any express or deemed tax election or
compromise any tax liability;
o not fail to maintain its books and records in accordance with good
accounting practices consistently applied and not change in any material manner
any of its methods, principles or practices of accounting in effect at November
30, 1998, except as may be required by the Commission, applicable law or GAAP;
o not fail to do and timely file all material tax returns and other
documents required to be filed with federal, state, local and other tax
authorities, subject to timely extensions permitted by law;
o not acquire, enter into any option to acquire, or exercise an option
or contract to acquire, additional, real or personal property, in excess of
$60,000 for personal property;
o not (i) authorize, declare, set aside or pay any dividend or make any
other distribution or payment with respect to any Common Stock; or (ii) directly
or indirectly redeem, purchase or otherwise acquire any shares of capital stock
or any option, warrant or right to acquire, or security convertible into, shares
of capital stock;
o not pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) which are
material to the Company, other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or notes
thereto), included in the Company's periodic reports filed with the Commission
prior to the date of the Merger Agreement or incurred in the ordinary course of
business consistent with past practice;
o not enter into any contractual arrangement with any officer, director
or affiliate, except for purchase orders or sales contracts with affiliates in
the ordinary course of business;
o not adopt any new employee benefit plan or amend or terminate or
increase the benefits under any existing plans or rights, not grant any
additional options, warrants, rights to acquire stock, stock appreciation
rights, phantom stock, dividend equivalents, performance units or performance
stock to any officer, employee or director, or accelerate vesting with respect
to any grant of Common Stock to employees which are subject to any risk of
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forfeiture, except for changes which are required by law and changes which are
not more favorable to participants than provisions presently in effect; or
o not agree, commit or arrange to take any actions prohibited above.
ACCESS TO INFORMATION
Subject to any restrictions under applicable law, the Company
has agreed in the Merger Agreement to continue to give Parent's and Purchaser's
respective officers, employees, agents, attorneys, consultants and accountants
reasonable access for reasonable purposes in light of the transactions
contemplated by the Merger Agreement during normal business hours to all the
properties, books, contracts, documents, present and expired insurance policies,
records and personnel of or with respect to the Company and has agreed to
furnish to Parent and Purchaser and such persons as Parent and Purchaser shall
designate to the Company such information as Parent and Purchaser or such
persons may at any time and from time to time reasonably request; (it being
understood that Parent and Purchaser may not have access to certain pricing and
other competitively sensitive information). In addition, pursuant to the terms
of the Merger Agreement, Parent and Purchaser have the right to conduct
non-intrusive environmental testing on the properties of the Company.
NO SOLICITATION OF TRANSACTIONS
Pursuant to the Merger Agreement, the Company has represented
that it is currently not engaged in any activities, discussions or negotiations
with respect to any proposal or offer, or expression of intent relating to the
Company's willingness or ability to receive or discuss a proposal or offer made
by a third party (other than Parent and Purchaser) to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger, proxy
solicitation, consolidation, business combination, recapitalization,
reorganization, liquidation, dissolution or similar transaction, 15% or more of
the combined voting power, shares or equity interest of the Company, in each
case then outstanding, or 15% or more of the assets of the Company (an
"Acquisition Proposal"). From and after the date of the Merger Agreement and
until and including the Effective Time (or earlier termination of the Merger
Agreement), the Company has agreed that it will not, nor will it authorize or
permit any of its officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative or agent of the
Company to, directly or indirectly, (i) solicit, initiate or encourage
(including by way of furnishing or otherwise providing access to nonpublic
information) any Acquisition Proposal; (ii) participate in any substantive
discussions or any negotiations relating to any Acquisition Proposal or inquiry
relating to an Acquisition Proposal) or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, an Acquisition Proposal; or (iii) enter into any letter
agreement, agreement in principal or definitive agreement with respect to any
Acquisition Proposal. The Board of Directors of the Company may, however, prior
to the Special Meeting, furnish nonpublic information to, or enter into
discussions or negotiations with any person or entity with respect to any
unsolicited Acquisition Proposal if: (a) the Board determines reasonably and in
good faith after consultation with outside counsel, that the failure to take
such action would be inconsistent with its fiduciary duties under applicable
law; and (b) the Company (x) provides two business days notice to Parent to the
effect that it is taking such action and (y) prior to any release of any
nonpublic information to such person, receives from such person or entity an
executed confidentiality agreement similar to the Confidentiality Letter dated
December 9, 1998 entered into between the Company and J. Richard, (the
"Confidentiality Agreement").
The Company undertook to promptly advise Parent orally and in
writing of the receipt by it after the date of the Merger Agreement of any
Acquisition Proposal or inquiry which could reasonably lead to an Acquisition
Proposal, the material terms and conditions of such Acquisition Proposal or
inquiry, and the identity of the person or entity making any such Acquisition
Proposal. Pursuant to the Merger Agreement, the Company has agreed that it will
fully enforce (including by way of obtaining an injunction), and not waive any
provision of, any Confidentiality Agreement to which it is a party.
Pursuant to the Merger Agreement, the Board of Directors of
the Company shall not (i) withdraw or modify its approval or recommendation of
the Merger Agreement, the Merger or any of the transactions contemplated
thereby; (ii) approve or recommend or publicly propose to approve or recommend
an Acquisition Proposal; (iii) cause the Company to enter into any letter
agreement, agreement in principal or definitive agreement providing for an
Acquisition Proposal; or (iv) resolve to do any of the foregoing, unless prior
to the Special Meeting, the Company receives an unsolicited Acquisition Proposal
permitted under the terms and conditions of the Merger Agreement and the Board
of Directors of the Company determines that in good faith, after due
investigation, that (a) such Acquisition Proposal is a bona fide proposal or
offer made by a third party to acquire the Company pursuant to any tender or
exchange offer or by any acquisition of all or substantially all of the assets
of the Company or to enter into a merger, consolidation or other business
combination with the Company, which a majority of the members of the Board
determines reasonably and in good faith is more favorable to the holders of
Common Stock than the Merger (a "Superior Proposal"); (b) the person making such
Superior Proposal is reasonably capable of consummating Superior Proposal in a
timely fashion; and (c) based upon the advice of outside counsel, the failure of
the Board of Directors of the Company to withdraw or modify its approval or
recommendation of the Merger Agreement or the Merger, or approve or recommend
such Superior Proposal, would be inconsistent with its fiduciary duties under
applicable law.
In such case, the Board of Directors of the Company may
withdraw or modify its recommendation, and approve and recommend such Superior
Proposal, provided that the Board (i) at least five
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business days prior to taking such action, provides to Parent and Purchaser
written notice of the Company's intention to accept the Superior Proposal; (ii)
during such period, gives Parent and Purchaser reasonable opportunity to propose
modifications to the Merger Consideration and negotiate such modifications in
good faith with the objective of allowing Parent and Purchaser to match the
Superior Proposal; and (iii) at the end of such period, (A) reasonably and in
good faith continues to believe that such Acquisition Proposal is a Superior
Proposal; (B) simultaneously terminates the Merger Agreement; (C) concurrently
causes the Company to enter into a definitive acquisition agreement with respect
to such Superior Proposal; and (D) concurrently pays to Parent and Purchaser a
termination payment and covered expenses pursuant to the terms and conditions of
the Merger Agreement. See also "THE MERGER AGREEMENT--Termination Payment
Provisions".
TREATMENT OF STOCK OPTION PLANS
STOCK OPTION PLANS
On October 10, 1990, the Compensation Committee of the Board
of Directors of the Company adopted the NDC Automation, Inc. 1990 Stock Option
Plan , the adoption of which was ratified by the Stockholders at the annual
meeting of Stockholders held on April 10, 1991. On October 23, 1993, the
Compensation Committee of the Board of Directors of the Company adopted the NDC
Automation, Inc. 1993 Stock Option Plan, the adoption of which was ratified by
the Stockholders at the annual meeting of Stockholders held on May 5, 1994. On
December 7, 1996, the Compensation Committee of the Board of Directors of the
Company adopted the NDC Automation, Inc. 1997 Stock Option Plan, the adoption of
which was ratified by the Stockholders at the annual meeting of Stockholders
held April 25, 1997 (collectively the 1990 Plan, 1993 and 1997 Plan are referred
to as the "Plans").
As of the date of this Proxy Statement an aggregate of 249,027
Stock Options were granted and are outstanding pursuant to the Plans and are
available for exercise upon achievement by the Company of certain financial
performance targets set by its Board of Directors on an annual basis.
CANCELLATION OF STOCK OPTIONS
Pursuant to the Merger Agreement, all outstanding Stock
Options will be canceled and each holder of a Stock Option shall be entitled to
receive from the Company in consideration for the cancellation of such Stock
Option an amount in cash (less applicable withholding taxes) equal to the
product of (i) the number of shares of Common Stock previously subject to such
Stock Option multiplied by; (ii) the excess, if any, of the Merger Consideration
over the exercise price per share of Common Stock previously subject to such
Stock Option. If the Merger Consideration is equal to or less than the exercise
price per share of Common Stock previously subject to such Stock Option, the
consideration for the cancellation of such Stock Option shall be nominal. At the
Effective Time of the Merger, all Stock Options will be canceled. The payments
of all amounts for canceled Stock Options shall be paid by the Surviving
Corporation as soon as reasonably practicable following the Effective Time of
the Merger. In addition, the Merger Agreement requires that the Company use
reasonable efforts to obtain in writing the consent of each holder of a Stock
Option to the cancellation of the Stock Option held in accordance with the terms
of the Merger Agreement in a form reasonably satisfactory to Parent.
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<PAGE>
COOPERATION AND REASONABLE BEST EFFORTS
Pursuant to the Merger Agreement and subject to certain terms
and conditions described therein, the parties have agreed to use best efforts to
take certain specified and other actions to consummate and make effective the
transactions contemplated by the Merger Agreement as expeditiously as reasonably
practical. In addition, at the request of Parent, the Company will, at the
Parent's expenses, reasonably cooperate with Parent and Purchaser in connection
with the proposed financing of the Merger by the Parent and Purchaser provided
that such requested actions do not unreasonably interfere with the ongoing
operations of the Company.
INDEMNIFICATION AND INSURANCE
Pursuant to the terms of the Merger Agreement and prior to the
Closing, the Company shall procure a five-year tail policy for its officers and
directors liability insurance covering each present and former director,
officer, employee and agent of the Company and each present and former director,
officer, employee, agent or trustee of any employee benefit plan for employees
of the Company (individually and "Indemnified Person" and collectively, the
"Indemnified Persons") who is currently covered by the Company's officers and
directors liability insurance or will be so covered on the Closing Date with
respect to actions and omissions occurring on or prior to the Closing Date
(including, without limitation, any that arise out of or relate to the
transactions contemplated by the Merger Agreement), which tail policy is no less
favorable in the aggregate as such insurance maintained in effect by the Company
on the date of the Merger Agreement in terms of coverage and amount.
In addition, under the Merger Agreement, the Purchaser and the
Surviving Corporation have jointly and severally agreed that, for not less than
six years after the Closing Date, the provisions of the Certificate of
Incorporation and By-Laws of the Surviving Corporation shall provide
indemnification to the Indemnified Persons on terms, in a manner, and with
respect to matters, that are no less favorable (in favor of Indemnified Persons)
than the Company's Certificate of Incorporation and By-Laws as in effect on the
date of Merger Agreement and have further agreed that such indemnification
provisions shall not be modified or amended except as required by law, unless
such modification or amendment expands the right of the Indemnified Persons to
indemnification.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligation of the Company, Purchaser and Parent to effect
the Merger is subject to the satisfaction or waiver on or prior to the Effective
Time of the following customary closing conditions:
o The Merger shall have been approved by the requisite vote of the
Stockholders of the Company;
o All consents, approvals and actions of, filings with and notices to
any governmental entity required of the Company, the Purchaser or the Parent to
consummate the Merger and the other transactions contemplated by the Merger
Agreement having been obtained and remaining in full force and effect; and
o No governmental entity or court of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any law, rule, regulation,
executive order, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
the Merger or any of the transactions contemplated thereby illegal.
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<PAGE>
In addition, the Company's obligation to effect the Merger is
subject to the fullfilment or waiver of the following conditions:
o Each and every representation and warranty made by Parent and
Purchaser in the Merger Agreement shall be true and correct as of the date of
the Merger Agreement and as if originally made at the closing;
o All obligations of Parent and Purchaser to be performed under the
Merger Agreement through the Closing Date (including, without limitation, all
obligations which Purchaser would be required to perform at the Closing if the
Merger was consummated) shall have been fully performed;
o No suit, proceeding or investigation shall have been commenced (to
Parent's or Purchaser's knowledge) by any governmental entity on any grounds to
restrain, enjoin or hinder, or seek material damages on account of, the
consummation of the Merger; and
o The Purchaser shall have delivered to Company the written opinion of
Altheimer & Gray, counsel for Purchaser, dated as of the Closing Date, in
substantially the form of Exhibit B to the Merger Agreement.
In addition, the obligation of Parent and Purchaser to effect
the Merger is subject to the satisfaction or waiver of the following conditions:
o The representations and warranties made by the Company in the Merger
Agreement shall be true and correct when made and as if originally made at the
closing;
o All obligations of the Company to be performed under the Merger
Agreement through the Closing Date (including, without limitation, all
obligations which the Company would be required to perform at the Closing if the
Merger was consummated) shall have been fully performed;
o No suit, proceeding or investigation shall have been commenced by any
governmental entity on any grounds to restrain, enjoin or hinder, or seek
material damages on account of, the consummation of the Merger;
o The Company shall have delivered to Purchaser the written opinion of
Shumaker, Loop & Kendrick, LLP, counsel to the Company;
o From the date of the Merger Agreement, there shall be no change,
either individually or in the aggregate, in the results of operations, condition
(financial or otherwise), properties, assets or business of the Company which
has or would be reasonably likely to have a material adverse effect on the
Company (such term for this purpose shall be deemed to have a $100,000
threshold);
o There shall not have been any action taken, or any statue, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, by any governmental entity which is applicable to the Merger and which
imposes any condition or restriction upon Purchaser or the Surviving Corporation
which would in Parent's reasonable judgment be commercially unreasonable from a
financial standpoint relative to the transactions contemplated by the Merger
Agreement;
o Purchaser shall have received the financing necessary to pay the
Merger Consideration and related fees and expenses and refinance the Company's
indebtedness;
o The second MLA amended license shall be in full force and effect;
o The Employment Agreement between the Company and Ralph Dollander
shall be in full force and effect;
o All consents listed on Schedule 4.6 to the Merger Agreement and all
Stock Option Consents shall have been obtained and not subsequently been revoked
as of the Closing Date; and
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o The total amount of all expenses incurred by the Company in
connection with the transactions contemplated by the Merger Agreement shall not
exceed $250,000.
TERMINATION
The Merger Agreement may be terminated at any time prior to
the Effective Time:
(a) by mutual consent of Parent and Purchaser and the Company
(with the approval of their respective Board of Directors);
(b) by Parent and Purchaser or the Company (with the approval
of their respective Board of Directors) if:
(i) the Effective Time shall not have occurred at or
before 11:59 p.m. on January 31, 2000 (the "Termination Date"); provided,
however, that the right to terminate the Merger Agreement pursuant to this
provision shall not be available to any party whose failure to fulfill any of
its obligations under the Merger Agreement in any manner has proximately
contributed to the failure or the Effective Time to have occurred as of such
time; or
(ii) upon a vote at the Special Meeting, the Merger
Agreement, the Merger and the transactions contemplated thereby shall fail to be
adopted and approved by the requisite vote of the Stockholders of the Company;
(c) by Parent and Purchaser, if:
(i) there has been a breach of any (A) representation
or warranty; or (B) covenant, obligation or agreement on the part of the Company
set forth in the Merger Agreement, in either case, such that certain conditions
set forth in the Merger Agreement are not satisfied or would be incapable of
being satisfied within 20 days after the giving of written notice to the Company
(or sooner, if the date the closing would otherwise occur);
(ii) the Board of Directors withdraws or modifies its
approval or recommendation of the Merger Agreement, the Merger or any of the
transactions contemplated thereby, or the Board of Directors of the Company
withdraws or modifies its recommendation, and approves or recommends a Superior
Proposal as permitted by the Merger Agreement;
(iii) a tender offer or exchange offer of 30% or more
of the issued and outstanding shares of Common Stock of the Company is
commenced, and the Board of Directors of the Company fails to recommend against
acceptance of such tender offer or exchange offer by its Stockholders within the
time period required by Section 14e-2 of Securities Exchange Act of 1934, as
amended (the "Exchange Act") (the taking of no position by the expiration of
such period with respect to the acceptance of such tender offer or exchange
offer by its Stockholders constituting such a failure);
(iv) the Company shall have breached in any material
respect certain of the covenants or agreements made by it under the Merger
Agreement relating to the Special Meeting and Acquisition Proposals;
(v) there shall be pending or threatened any
proceeding seeking material damages on account of the Merger, or any of the
transactions contemplated thereby which Parent determines in good faith, after
due investigation and consultation with counsel representing the Company in such
proceeding, could reasonably be expected to result in the Company incurring a
material amount of damages or expenses, after taking into account applicable
insurance coverage;
(vi) any Significant Stockholder (as defined in the
Merger Agreement) breaches in any material respect its obligations under the
Voting Agreement; or
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<PAGE>
(vii) Parent and Purchaser shall not have received
the proceeds of the Financing (as defined in the Merger Agreement) on the date
the closing would have otherwise occurred;
(d) by the Company (with the approval of its Board of
Directors), by giving written notice of such termination to Parent and
Purchaser, if:
(i) there has been a breach of any (A) representation
or warranty; or (B) covenant, obligation or agreement on the part of Parent or
Purchaser set forth in the Merger Agreement, in either case such that certain
conditions set forth in the Merger Agreement are not satisfied or would be
incapable of being satisfied within 20 days after the giving of written notice
to Parent or Purchaser (or, if sooner, the date the Closing would otherwise
occur); or
(ii) prior to Special Meeting, the Board of Directors
of the Company makes a determination to enter into and enters into a definitive
agreement providing for a Superior Proposal which was obtained consistent with
the applicable sections of the Merger Agreement; provided, however, that the
Company shall have no right to terminate the Merger Agreement for this reason
unless (A) the Company has provided Purchaser with written notice of the
material terms of the Superior Proposal at least two business days prior to such
termination; and (B) the Company simultaneously pays to Purchaser the
Termination Payment (as defined herein) and Covered Expenses (as defined herein)
as required by the Merger Agreement.
TERMINATION PAYMENT PROVISIONS
The Company will be required to immediately pay Parent a
termination payment of $100,000 in cash (the "Termination Payment"), plus
reimbursement of certain expenses up to a maximum of $150,000, constituting
reimbursement of out-of-pocket costs and expenses reasonably incurred and due to
third parties in connection with the Merger Agreement and the transactions
contemplated thereby (including fees and disbursements of counsel, accountants,
financial advisors and consultants, commitment fees, due diligence expenses,
travel costs, filing fees, and similar fees, all of which shall be conclusively
established by Parent's or Purchaser's good faith statement therefor)
(collectively, "Covered Expenses") if the Merger Agreement is terminated:
(i) by the Company in order to accept a superior proposal as
permitted under the Merger Agreement;
(ii) by Parent or Purchaser as a result of the Board of
Directors of the Company (a) withdrawing or modifying its approval or
recommendation of the Merger Agreement, the Merger or any of the transactions
contemplated thereby; or (b) withdrawing or modifying its approval of the Merger
Agreement and approving or recommending a Superior Proposal in accordance with
the Merger Agreement;
(iii) by Parent or Purchaser as a result of a tender offer or
exchange offer for 30% or more of the issued and outstanding shares of Common
Stock of the Company is commenced, and the Board of Directors of the Company
fails to recommend against acceptance of such tender offer or exchange offer by
its Stockholders within the time period required by Section 14e-2 of the
Exchange Act (the taking of no position by the expiration of such period with
respect to the acceptance of such tender offer or exchange offer by its
Stockholders constituting such a failure); or
(iv) the Company shall have breached in any material respect
certain of the covenants or agreements made by it under the Merger Agreement
relating to the Special Meeting and Acquisition Proposals.
If the Merger Agreement is terminated as a result of the
failure of the Merger Agreement to be adopted and approved by the requisite vote
of the Stockholders of the Company at the Special Meeting, then the Company
shall pay to Parent immediately upon such termination, Parent and Purchaser's
Covered Expenses up to $125,000. If the Merger Agreement is terminated as a
result of the material breach of the Voting Agreement by any Significant
Stockholder, then the Company shall pay to Parent immediately upon such
termination, Parent and Purchaser's Covered Expenses up to $150,000.
If the Merger Agreement is terminated as a result of (i) the
failure of the Merger Agreement to be adopted and approved by the requisite vote
of the Stockholders of the Company at the Special Meeting, or (ii) the breach of
any representation, warranty, covenant, obligation or agreement on the part of
the Company set forth in the Merger Agreement that would cause certain
conditions under the Merger Agreement not to be satisfied or incapable of being
satisfied within 20 days after the giving of written notice to the Company, and,
in either case, the
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<PAGE>
Company, within 12 months after such termination, enters into a written
agreement to effect an Acquisition Proposal with, or an Acquisition Proposal is
made by a party other than Parent, Purchaser or any of their subsidiaries, and
the Acquisition Proposal is thereafter consummated, the Company shall be
required to pay to Purchaser the Termination Payment in addition to any Covered
Expenses required to be paid by the Company in accordance with the terms of the
Merger Agreement.
If the Merger Agreement is terminated as a result of (i) the
failure of Parent or Purchaser to receive the required financing for the
transaction, or (ii) the failure to consummate the Merger on or prior to the
Termination Date and the Company is not in breach of any of its obligations
under the Merger Agreement and all other conditions to the obligations of Parent
and Purchaser under the Merger Agreement (other than the condition regarding the
financing of the transaction) would otherwise be satisfied if the Closing were
to occur on the date of termination, Parent is obligated to reimburse the
Company for its Covered Expenses up to a maximum of $150,000 in accordance with
the terms of the Merger Agreement.
EXPENSES; CONTINGENT REDUCTION OF MERGER CONSIDERATION
Pursuant to the terms of the Merger Agreement, the total
amount of all expenses incurred by the Company in connection with the
transactions contemplated by the Merger Agreement including (i) investment
banking; (ii) legal and accounting; (iii) advisory, consulting and severance;
(iv) printing and Commission filing; and (v) other fees and expenses incurred,
paid or accrued by the Company in connection with the Merger Agreement and the
transactions contemplated thereby shall not exceed $250,000. In the event that
the aggregate of such fees and expenses exceed $250,000, at the option of
Parent, the aggregate consideration payable to holders of Common Stock in the
Merger shall be reduced by the aggregate amount of such excess, and the Merger
Consideration per share shall be reduced accordingly.
Presently, the management and Board of Directors of the
Company anticipate that the Company fees and expenses associated with the Merger
will be approximately $200,000 in the aggregate.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto,
with the approval of their respective boards of directors, at any time prior to
the Effective Time, whether before or after approval thereof by the Stockholders
of the Company, but, after such approval by the Stockholders of the Company, no
amendment shall be made without the further approval of such Stockholders if
such amendment would violate Section 904 of the DGCL or Section 251 of the DGCL.
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of the each of the parties thereto.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1999,
certain information concerning the beneficial ownership of shares of Company
Common Stock by each director of the Company, each of the executive officers of
the Company, all directors and executive officers of the Company as a group, and
all persons known to the management of the Company to beneficially own more than
5% or more of the issued and outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
<S> <C>
AMOUNT AND NATURE OF BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP PERCENTAGE OF CLASS
------------------------ --------- -------------------
Apogeum AB (6)(9) 550,000 15.9%
Gunnar K. Lofgren (2)(4) 210,390 6.1%
Goran P. R. Netzler (6) 200,640 5.8%
Jan H. L. Jutander (6) 200,640 5.8%
Ralph G. Dollander (5) 30,000 *
Richard D. Schofield (7) -- --
Raymond O. Gibson (10) -- --
E. Thomas Watson (8) -- --
Claude Imbleau (3)(5) 19,544 *
Arne Nilsson (6) 200,640 5.8%
Anders Dalhgren (6) 200,640 5.8%
All Directors and Executive Officers as a 1,000,824 29.0%
Group (Seven Persons)
</TABLE>
*Less than one percent.
(1) Unless otherwise noted, each person has sole voting and investment power
over the shares listed opposite his name.
(2) Includes 100,000 shares that are beneficially owned by M-P limited
partnership of which Mr. Lofgren has full voting rights.
(3) Includes 11,250 shares that Mr. Imbleau has the right to acquire upon the
exercise of options and 5,294 shares he has placed in his children's
education IRA.
(4) The address of such person is as follows: 225 Beckham Court, Charlotte, NC
28211.
(5) The address of such person is as follows: 3101 Latrobe Drive, Charlotte,
North Carolina 28211.
(6) The address of such person is as follows: Munkekullen, SE-430 40, Saro,
Sweden.
(7) The address of such person is as follows: 1131 Asheford Green Ave.,
Concord, NC 28027.
(8) The address of such person is as follows: 2600 Charlotte Plaza, Charlotte,
NC 28244.
(9) Apogeum AB is controlled by Dr. Goran P. R. Netzler, Jan H. L. Jutander,
Arne Nilsson and Anders Dahlgren. Apogeum AB is the parent company of
Netzler & Dahlgren Co. AB, the record owner of the shares of Common Stock
beneficially owned by Apogeum AB.
(10) The address of such person is as follows: 1219 Harbor Town Circle,
Melbourne, FL 32940.
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<PAGE>
APPRAISAL RIGHTS
Record holders of shares of Common Stock who follow the
appropriate procedures are entitled to appraisal rights under Section 262 of the
DGCL in connection with the Merger. The following discussion is not a complete
statement of the law pertaining to appraisal rights under the DGCL and is
qualified in its entirety by the full text of Section 262 which is reprinted in
its entirety as Appendix E to this Proxy Statement. Except as set forth herein,
Stockholders of the Company will not be entitled to appraisal rights in
connection with the Merger.
Under the DGCL, record holders of shares of Common Stock who
follow the procedures set forth in Section 262 and who have not voted in favor
of adoption of the Merger Agreement will be entitled to have their shares of
Common Stock (such shares, "Dissenting Shares") appraised by the Delaware Court
of Chancery and to receive payment in cash of the "fair value" of such shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, as determined by such
court.
Under Section 262, where a merger agreement is to be submitted
for adoption at a meeting of Stockholders, as in the case of the Special
Meeting, not less than 20 days prior to the meeting, the Company must notify
each of the holders of shares of Common Stock at the close of business on the
Record Date that such appraisal rights are available and include in each such
notice a copy of Section 262. This Proxy Statement constitutes such notice. Any
Stockholder who wishes to exercise appraisal rights should review the following
discussion and Appendix E carefully because failure to timely and properly
comply with the procedures specified in Section 262 will result in the loss of
appraisal rights under the DGCL.
A holder of shares of Common Stock wishing to exercise
appraisal rights must (i) deliver to the Company, before the vote on the
adoption of the Merger Agreement at the Special Meeting, a written demand for
appraisal of such holder's shares of Common Stock and (ii) not vote in favor of
adoption of the Merger Agreement. In addition, a holder of shares of Common
Stock wishing to exercise appraisal rights must be the record holder of such
shares on the date the written demand for appraisal is made and must continue to
hold such shares of record through the Effective Time.
Only a holder of record of shares of Common Stock is entitled
to assert appraisal rights for the shares of Common Stock registered in that
holder's name. A demand for appraisal should be executed by or on behalf of the
holder of record fully and correctly, as the holder's name appears on the
Certificates.
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<PAGE>
If the shares of Common Stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the shares of Common Stock
are owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be executed by or on behalf of all joint owners. An
authorized agent, including one or more joint owners, may execute a demand for
appraisal on behalf of a holder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, the agent is agent for such owner or owners. A record holder such as a
broker who holds shares of Common Stock as nominee for several beneficial owners
may exercise appraisal rights with respect to the shares of Common Stock held
for one or more beneficial owners while not exercising such rights with respect
to the shares of Common Stock held for other beneficial owners; in such case,
the written demand should set forth the number of shares as to which appraisal
is sought and where no number of shares is expressly mentioned the demand will
be presumed to cover all shares of Common Stock held in the name of the record
owner. Holders of shares of Common Stock who hold their shares in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by such nominee. All written demands for
appraisal of shares of Common Stock should be mailed or delivered to the
Company, 3201 Latrobe Drive, Charlotte, NC 28211, Attention: Secretary, so as to
be received before the vote on the adoption of the Merger Agreement at the
Special Meeting.
Within 10 days after the Effective Time, the Company, as the
Surviving Corporation in the Merger, must send a notice of the Effective Time of
the Merger to each person who has duly demanded appraisal in accordance with the
provisions of Section 262. Within 120 days after the Effective Time, but not
thereafter, the Company, or any holder of shares of Common Stock entitled to
appraisal rights under Section 262 and who has complied with the foregoing
procedures, may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of such shares. The Company is not under any
obligation, and has no present intention, to file a petition with respect to the
appraisal of the fair value of the shares of Common Stock. Accordingly, it is
the obligation of the Stockholders to initiate all necessary action to perfect
their appraisal rights within the time prescribed in Section 262.
Within 120 days after the Effective Time, any record holder of
shares of Common Stock who has complied with the requirements for exercise of
appraisal rights will be entitled, upon written request, to receive from the
Company a statement setting forth the aggregate number of shares of Common Stock
with respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such statements must be mailed within 10 days
after a written request therefor has been received by the Company.
If a petition for an appraisal is timely filed, after a
hearing on such petition, the Delaware Court of Chancery will determine the
holders of shares of Common Stock entitled to appraisal rights and will appraise
the "fair value" of the shares of Common Stock, exclusive of any element of
value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. Holders considering seeking appraisal should be aware that
the fair value of their shares of Common Stock as determined under Section 262
could be more than, the same as or less than the value of the consideration that
they would otherwise receive in the Merger if they did not seek appraisal of
their shares of Common Stock. The Delaware Supreme Court has stated that "proof
of value by any techniques or methods which are generally considered acceptable
in the financial community and otherwise admissible in court" should be
considered in the appraisal proceedings. More specifically, the Delaware Supreme
Court has stated that: "Fair value, in an appraisal context, measures 'that
which has been taken from the shareholder, viz., his proportionate interest in a
going concern.' In the appraisal process the corporation is valued 'as an
entity,' not merely as a collection of assets or by the sum of the market price
of each share of its stock. Moreover, the corporation must be viewed as an
on-going
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<PAGE>
enterprise, occupying a particular market position in the light of future
prospects." In addition, Delaware courts have decided that the statutory
appraisal remedy, depending on factual circumstances, may or may not be a
shareholder's exclusive remedy. The Court will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Common Stock have been appraised. The costs of the action may be
determined by the Court and taxed upon the parties as the Court deems equitable.
The Court may also order that all or a portion of the expenses incurred by any
holder of shares of Common Stock in connection with an appraisal, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all of the shares of Common Stock entitled to appraisal.
Any holder of shares of Common Stock who has duly demanded an
appraisal in compliance with Section 262 will not, after the Effective Time, be
entitled to vote the shares of Common Stock subject to such demand for any
purpose or be entitled to the payment of dividends or other distributions on
those shares (except dividends or other distributions payable to holders of
record of shares of Common Stock as of a date prior to the Effective Time).
If any holder of shares of Common Stock who demands appraisal
of shares under Section 262 fails to perfect, or effectively withdraws or loses,
the right to appraisal, as provided in the DGCL, the shares of Common Stock of
such holder will be converted into the right to receive the Merger Consideration
in accordance with the Merger Agreement, as more fully described under "THE
MERGER--Merger Consideration". A holder of shares of Common Stock will fail to
perfect, or will effectively lose, the right to appraisal if no petition for
appraisal is filed within 120 days after the Effective Time. A holder may
withdraw a demand for appraisal by delivering to the Company a written
withdrawal of the demand for appraisal and acceptance of the Merger, except that
any such attempt to withdraw made more than 60 days after the Effective Time
will require the written approval of the Company and, once an appraisal
proceeding is commenced, such proceeding may not be dismissed as to any
shareholder without the approval of the Court.
Failure to follow the steps required by Section 262 of the
DGCL for perfecting appraisal rights may result in the loss of such rights.
The foregoing is a summary of certain of the provisions of
Section 262 of the DGCL and is qualified in its entirety by reference to the
full text of such Section, a copy of which is attached hereto as Appendix E.
INDEPENDENT ACCOUNTANTS
Representatives of McGladrey & Pullen, LLP, the Company's
independent auditors, are expected to be present at the Special Meeting. These
representatives will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
If the Merger is not consummated, the Company will hold a 2000
annual meeting of Stockholders. If this 2000 meeting is held, Stockholder
proposals that are intended to be considered in the Company's proxy materials
are required to be submitted on or before November 8, 1999, and any proposal not
received before this time will be considered untimely. In addition, under the
proxy rules of the Securities and Exchange Commission, if a Stockholder wishes
to make a proposal at the year 2000 Annual Meeting outside the proxy inclusion
process but does not provide written notice of the proposal to the Company on or
before February 2, 2000, any proxies received by the Board of Directors from
Stockholders in response to its proxy solicitation will be voted by the
Company's designated proxies in their discretion on such matter, regardless of
whether specific authority to vote on such matter has been received from the
Stockholders submitting such proxies.
AVAILABLE INFORMATION
The Company files annual, quarterly and special reports, proxy
statements and other information with the Commission. Stockholders may read and
copy any reports, statements or other information that the Company files at the
public reference facilities of the Commission at its executive offices at
Judiciary Plaza, 450 Fifth Street, Northwest, Room 1024, Washington, DC 20549,
and at its regional offices at CitiCorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and at 7 World Trade Center, Suite 1300, New
York, New York 10048. Stockholders may call the Commission at (800) SEC-0330 for
further information on the public
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<PAGE>
reference rooms. The Company's Commission filings are also available to the
public from commercial document retrieval services and at the Web Site
maintained by the Commission at http:\\www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows the Company to "incorporate by
reference" information into this Proxy Statement, which means that the Company
can disclose important information to Stockholders by referring them to another
document filed separately with the Commission. The information incorporated by
reference is deemed to be part of this Proxy Statement, except for any
information superseded by information in this Proxy Statement. These documents
contain important information about the Company and its finances. This Proxy
Statement incorporates by reference the documents set forth below that the
Company has previously filed with the Commission:
1. Form 10-KSB of the Company for its fiscal year ended
November 30, 1998.
2. The Company's Annual Report to Stockholders for its
fiscal year ended November 30, 1998, which is included
herewith as Appendix A.
3. Form 10-QSB of the Company for its quarterly period ended
February 28, 1999.
4. Form 8-K Current Report of the Company dated May 24,
1999, which reported on the receipt of certain
significant purchase orders by the Company.
5. Form 10-QSB of the Company for its quarterly period ended
May 31, 1999.
6. Form 8-K Current Report of the Company dated September
17, 1999, which reported on the execution of the Merger
Agreement with Purchaser and Parent and, among other
exhibits, included the Second Restated Master License
Agreement between the Company and Netzler & Dahlgren
dated September 13, 1999 and a copy of the Company's
employment agreement with Ralph Dollander, Chief
Executive Officer and President, to be effective after
the Merger.
7. Form 10-QSB of the Company for its quarterly period ended
August 31, 1999, which is included herewith as Appendix
B.
Parent and Purchaser have supplied all information contained
in this Proxy Statement relating to Purchaser and Parent, and the Company has
supplied or incorporated by reference all information relating to the Company.
The Company may have sent to Company Stockholders some of the
documents incorporated by reference, but Stockholders can obtain any of them
through the Company or the Commission. Documents incorporated by reference are
available from the Company without charge, excluding all exhibits, unless the
Company has specifically incorporated by reference an exhibit in this Proxy
Statement. Stockholders may obtain documents incorporated by reference in this
Proxy Statement by requesting them in writing at the following address: NDC
Automation, Inc., 3101 Latrobe Drive, Charlotte, North Carolina 28211,
Attention: Secretary or by contacting them by telephone at (704) 362-1115.
If you would like to request documents from the Company,
please do so by November 18, 1999 to receive them before the Special Meeting.
Stockholders should rely only on the information contained,
attached or incorporated by reference in this Proxy Statement to vote their
shares of Common Stock at the Special Meeting. The Company has not authorized
anyone to provide you with information that is different from what is contained
in this Proxy Statement. This Proxy Statement is dated October _____, 1999. The
Stockholders should not assume that the information contained in the Proxy
Statement is accurate as of the date other than such date, and the mailing of
this Proxy Statement to Stockholders will not create any implication to the
contrary.
BY ORDER OF THE BOARD OF DIRECTORS
Ralph G. Dollander, Chief Executive Officer and President
NDC Automation, Inc.
39
<PAGE>
NDC AUTOMATION, INC.
3101 LATROBE DRIVE
CHARLOTTE, NORTH CAROLINA 28211
PROXY FOR SPECIAL MEETING OF THE STOCKHOLDERS
NOVEMBER 24, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Ralph G. Dollander and Thomas
Watson, and either of them with authority to act without the other, as proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all shares of common stock, $.01 par
value per share, of NDC Automation, Inc., a Delaware corporation (the
"Company"), held of record by the undersigned on October 8, 1999, at the Special
Meeting of the Stockholders (the "Special Meeting") to be held at the executive
offices of the Company located at 3101 Latrobe Drive, Charlotte, North Carolina
28211 on Wednesday, November 24, 1999 at 10:00 a.m., local time, and at any
adjournment thereof, with all the powers the undersigned would possess if
personally present, such proxies being directed to vote as specified below and
in their discretion on any other business that may properly come before the
Special Meeting:
To approve the merger (the "Merger") of Hornett Acquisition
Corp. ("Purchaser"), a Delaware corporation and wholly-owned subsidiary of
Portec, Inc., a Delaware corporation ("Parent"), with and into the Company
pursuant to the terms and conditions of the Agreement and Plan of Merger dated
as of September 13, 1999 by and among the Company, Purchaser and Parent.
_____FOR _____AGAINST _____ABSTAIN
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMEND A
VOTE FOR APPROVAL OF THE MERGER. PLEASE MARK AN "X" IN ONE
OF THE SPACES PROVIDED.
THIS PROXY WILL BE VOTED: (1) AS DIRECTED ON THE MATTERS
LISTED ABOVE; (2) IN ACCORDANCE WITH THE DIRECTORS' RECOMMENDATION WHERE A
CHOICE IS NOT SPECIFIED; AND (3) IN ACCORDANCE WITH THE JUDGMENT OF THE PROXIES
ON ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF.
The undersigned reserves the right to revoke this proxy at any
time prior to the proxy being voted at the Special Meeting. The proxy may be
revoked by delivering a signed revocation to the Company at any time prior to
the Special Meeting, by submitting a later-dated proxy, or by attending the
Special Meting in person and casting a ballot. The undersigned hereby revokes
any proxy previously given to vote such shares of common stock at the Special
Meeting.
Please sign exactly as your name appears on your stock
certificate(s). When shares of common stock are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by its President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
<TABLE>
<CAPTION>
<S> <C>
Please check here if you plan to attend the Special Meeting _____. Dated:_______________________________
Please mark, sign date and return the proxy
If you plan to attend the Special Meeting, please provide your promptly using the enclosed envelope.
telephone number so that the Company can confirm your attendance
prior to the Special Meeting:_______________. _____________________________________
Signature
-------------------------------------
Print Name
-------------------------------------
Signature if held jointly
-------------------------------------
Print Name
</TABLE>
<PAGE>
APPENDIX A
ANNUAL REPORT 1998
COVER PAGE
<PAGE>
INSIDE COVER
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL SUMMARY
==============================================================================================================
<S> <C> <C> <C> <C> <C>
97 TO 98 96 TO 97
At or For Year Ended November 30 1998 1997 1996 % CHANGE % CHANGE
- --------------------------------------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------------------------------------
Net revenues $ 4,015,698 $ 4,076,897 $ 6,142,954 (1.5) (33.6)
Operating income (loss) $ (31,418) $ (864,398) $ 195,496 (96.4) *
Income (loss) before income taxes (benefit) $ (276,283) $(1,060,360) $ 16,602 (73.9) *
Net income (loss) $ (276,283) $(1,060,360) $ 45,431 (73.9) *
Weighted average common shares outstanding 3,453,451 3,453,451 3,453,451 -- --
- --------------------------------------------------------------------------------------------------------------
PER SHARE DATA^
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ (.08) $ (.31) $ .01 (74.2) *
Cash dividends $ -- $ -- $ -- NA NA
Stockholders' equity $ .11 $ .19 $ .50 (42.1) 4.2
- --------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
- --------------------------------------------------------------------------------------------------------------
Assets $ 2,706,650 $ 2,757,331 $ 4,556,794 (1.8) (39.5)
Working capital (deficit) $ (563,725) $ 570,259 $ 1,416,912 * (59.8)
Property and equipment $ 1,059,912 $ 1,129,377 $ 1,239,799 (6.2) (8.9)
Long-term debt, less current maturities $ 114,889 $ 1,042,055 $ 1,102,264 (89.0) (5.5)
Stockholders' equity $ 381,298 $ 657,581 $ 1,717,941 (42.0) (61.7)
- --------------------------------------------------------------------------------------------------------------
Number of employees 22 25 28
Number of stockholders approx. 800 approx. 1200 approx. 1200
- --------------------------------------------------------------------------------------------------------------
* Because the data changes from negative to positive, the percentage of change
is not meaningful.
^ Earnings (loss) per share, assuming full dilution, are
equivalent to earnings (loss) per common share.
==============================================================================================================
</TABLE>
INDEX
Financial Summary 1
Letter to Shareholders 2
Selected Financial Data 3
Management's Discussion and Analysis 4
Independent Auditor's Report 11
Balance Sheets 12
Statements of Operations 14
Statements of Stockholders' Equity 15
Statements of Cash Flows 16
Notes to the Financial Statements 18
Shareholder Information 32
Directors and Officers 32
1
<PAGE>
DEAR FELLOW SHAREHOLDER:
================================================================================
On October 7, 1998, "Elaborate Lives - The Legend of Aida" had its world
premiere at the Alliance Theatre in Atlanta. This new musical is the first stage
production by Disney that is not based on a Disney movie production. All of the
19 new songs were composed by Elton John with lyrics by Tim Rice ("Evita", "The
Lion King "). The musical is scheduled to open in Chicago in the summer of 1999
and later on Broadway.
What does this have to do with NDC Automation and AGV systems?
This year we provided the guidance system for the very sophisticated
mechanical pyramid, which played a vital role and formed an integral part of the
stage set in this musical. The elaborate moving pattern of the pyramid was
possible only due to the flexibility and free-ranging capability of our LazerWay
navigation technology. This application, together with other theme park projects
we are involved in, are good examples of our new direction and strategy, namely
to identify and pursue new markets and new customers for our technology.
Another example of this is the recently announced cooperation agreement with
Harcon Engineering in Michigan, a long time supplier of material handling
equipment to DaimlerChrysler and other automobile manufacturers. The cooperation
with Harcon has already resulted in an order for the design phase of a large AGV
system at a new DaimlerChrysler facility in Detroit. The automotive industry has
historically been a major market for AGV systems, and through the cooperation
with Harcon we have positioned the Company to become a significant supplier in
this market.
Our strategy of providing turnkey AGV systems solutions to system integrators
and end-users is slowly but surely starting to turn the company around in a
positive direction. Although we did not manage to return to profitability in
1998, the profitable third and fourth quarters helped us to improve the
financial results substantially over 1997.
All of us at NDC Automation are looking forward to the last year of this
millennium with optimism and confidence and I hope you will share that feeling
and join our journey towards a brighter future.
Sincerely,
Ralph Dollander
President and CEO
2
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
===========================================================================================================
At or For Year Ended November 30
-----------------------------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
Statements of Operations Data:
<S> <C> <C> <C> <C> <C>
Net revenues $ 4,015,698 $ 4,076,897 $ 6,142,954 $ 7,851,147 $ 9,472,585
Cost of goods sold 2,387,342 2,695,289 3,864,393 5,597,305 6,214,318
- -----------------------------------------------------------------------------------------------------------
Gross profit $ 1,628,356 $ 1,381,608 $ 2,278,561 $ 2,253,842 $ 3,258,267
- -----------------------------------------------------------------------------------------------------------
Net gain from restructuring of operations $ -- $ -- $ -- $ 366,764 $ --
- -----------------------------------------------------------------------------------------------------------
Operating expenses:
Selling $ 662,780 $ 693,106 $ 656,537 $ 776,907 $ 517,884
General and administrative 996,994 1,552,900 1,422,586 3,288,619 4,014,174
Research and development - - 3,942 141,220 113,356
- -----------------------------------------------------------------------------------------------------------
$ 1,659,774 $ 2,246,006 $ 2,083,065 $ 4,206,746 $ 4,645,414
- -----------------------------------------------------------------------------------------------------------
Operating income (loss) $ (31,418) $ (864,398) $ 195,496 $(1,586,140) $(1,387,147)
- -----------------------------------------------------------------------------------------------------------
Net interest income (expense):
Interest income $ -- $ -- $ 7,771 $ 9,025 $ 32,417
Interest expense (244,865) (195,962) (186,665) (669,157) (868,435)
- -----------------------------------------------------------------------------------------------------------
$ (244,865) $ (195,962) $ (178,894) $ (660,132) $ (836,018)
- -----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefit)$ (276,283) $(1,060,360) $ 16,602 $(2,246,272) $(2,223,165)
Federal and state income taxes (benefit) -- -- (28,829) 97,891 (598,971)
- -----------------------------------------------------------------------------------------------------------
Net income (loss) $ (276,283) $(1,060,360) $ 45,431 $(2,344,163) $(1,624,194)
===========================================================================================================
Weighted average number of
common shares outstanding
(primary and fully diluted) 3,453,451 3,453,451 3,453,451 2,904,322 2,829,691
===========================================================================================================
Basic and diluted earnings (loss) per share $ (.08) $ (.31) $ .01 $ (.81) $ (.57)
===========================================================================================================
Cash dividend declared per common share $ -- $ -- $ -- $ -- $ --
===========================================================================================================
Balance Sheets Data:
Working capital (deficit) $ (563,725) $ 570,259 $ 1,416,912 $1,227,144 $ 1,935,720
Total assets $ 2,706,650 $ 2,757,331 $ 4,556,794 $5,084,450 $13,188,231
Long-term debt, less current maturities $ 114,889 $ 1,042,055 $ 1,102,264 $1,170,311 $ 1,258,855
Total liabilities $ 2,325,352 $ 2,099,750 $ 2,838,853 $3,411,940 $ 9,711,853
Stockholders' equity $ 381,298 $ 657,581 $ 1,717,941 $1,672,510 $ 3,476,378
</TABLE>
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
The following discussion and analysis should be read in conjunction with the
financial statements (including the notes thereto) presented elsewhere herein.
OVERVIEW
The Company derives virtually all of its revenues from the sale of hardware,
software and engineering services in connection with projects incorporating its
Automated Guided Vehicle (AGV) control technology. In prior years the Company's
net revenues from AGV systems, vehicles and technology were derived primarily
from sales to customers serving two industries -- textiles and newspaper
publishing. Net revenues since 1995 however have been derived from other
industries, e.g. automotive, CD manufacturing, food, paper. The Company's
results of operations can be expected to continue to depend substantially upon
the capital expenditure levels in those industries and in other industries that
it may enter. During 1996 and for the first three quarters of 1997, the Company
refocused its sales efforts to existing original equipment manufacturers (OEMs)
and system integrators in the AGV systems industry. Such OEMs and system
integrators have historically sold products to end users to whom the Company
occasionally had direct sales. The Company reduced its sales effort to such end
users to avoid competing with its intended OEM customers. In September of 1997,
however, the Company began to again pursue AGV system sales directly to end
users in selected market niches to supplement revenues obtained from sales to
OEMs and system integrators.
Due to the long sales cycle involved, uncertainties in timing of projects,
and the large dollar amount a typical project usually bears to the Company's
historical and current quarterly and annual net revenues, the Company has
experienced, and may be expected to continue to experience, substantial
fluctuations in its quarterly and annual results of operations.
The Company sells its products and services primarily in two ways. Vehicles,
technology and other products and services may be sold in a "project" that
becomes an integrated AGV system. The primary business is to sell hardware,
software and services as standard items, with less involvement by the Company in
overall system design. The Company generally would recognize lower net revenue
but would realize a higher gross profit margin percentage in selling standard
items, in each case compared to the sale of a project, due to the inclusion in
project sales of other vendors' products and services with margins generally
lower than the Company's own products and services. Between any given accounting
periods, the levels of and mixture of standard item sales and project sales can
cause considerable variance in net revenues, gross profit, gross profit margin,
operating income and net income.
Revenues from standard item sales are recognized upon shipment, while
revenues from project sales are recognized under the "percentage of completion"
method. Under this method, with respect to any particular customer contract,
revenues are recognized as costs are incurred relative to each major component
of the project. Although the percentage of completion method will ordinarily
smooth out over time the net revenue and profitability effects of large
projects, such method nevertheless subjects the Company's results of operations
to substantial fluctuations dependent upon the progress of work on project
components. Such components can differ markedly from one another in amount and
in gross profit margin.
Project contracts are billed upon attainment of certain "milestones." The
Company grants payment terms of 30 to 90 days to its customers. It typically
receives a cash advance ranging from 10% to 20% of the total contract amount.
Bills are thereafter delivered as milestones are reached. Upon delivery of the
project, the customer typically reserves a "retainage" of 10% to 20% pending
system acceptance.
Notwithstanding the receipt by the Company of cash advances and periodic
payments upon reaching project milestones, the Company requires external
financing for its costs and estimated earnings in excess of billings on
uncompleted contracts, inventories, receivable and other assets.
The Company's backlog consists of all amounts contracted to be paid by
customers but not yet recognized as net revenues by the Company.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
STRATEGY DIVERSIFICATION: The Company will have to convert several OEM
customers away from their own in-house AGV technology to the Company's
technology to increase its present market share. Such technology conversions, if
they take place at all, can take one to several years to complete. Such
customers must also replace in volume and margin what the Company could
otherwise obtain systems selling direct to end-users or via system integrators
to end-users. The Company's OEM strategy contributed greatly to the losses
incurred by the Company during 1997. The Company changed its sales approach and
began soliciting its products directly to end-users during the fourth quarter of
1997 to ensure that its technology is available to such end-users. The Company
will not be selling directly to end users in situations in which a qualified OEM
or OEMs are specifying NDC controls in their system solution to the potential
end-users. There can be no assurances that such a strategy will be successful in
the short or long term.
DISTRIBUTION OF PRODUCTS AND TECHNOLOGY: The Company also intends to
pursue other related product lines that can be distributed to its targeted
customers to supplement its existing AGV business. This should allow the Company
to grow, while making the Company less dependent on its present product line.
There can be no assurance, however that this strategy will meet management's
objectives for growth. During 1997 and 1998 the Company realized minimal
revenues from such activities.
MUNCK AGREEMENT: On October 6, 1997, the Company executed a Strategic
Alliance Agreement with Munck Automation Technology. Inc. ("Munck") of Newport
News, Virginia. Munck is a major supplier of automated material handling systems
including AGVS vehicles and systems and automatic storage and retrieval systems
("AS/RS") to end users. The initial term of the agreement was three years,
subject to Munck reaching certain sale targets on an annual basis. The Agreement
was to extend, thereafter, in one year increments subject to the approval of
both companies.
Pursuant to the Agreement, Munck agreed to promote solely NDC AGVS
technology in its sales efforts of new AGV systems to end users. Munck also
committed to use its best efforts to meet a target which would provide purchase
orders to NDCA for a minimum of $9,400,000 for hardware, software and
engineering services over the initial three year term of the Agreement. During
1998 revenues from the agreement were well below the targets and there can be no
assurances that Munck will meet such targets. Under the Agreement, NDCA agreed
to promote Munck products to end users.
Munck was acquired by Swisslog Management Ltd ("Swisslog"), headquarters
in Aurau, Switzerland in August of 1998. Swisslog is a major international
supplier of material handling automation including various types of conveying
technology, Warehouse Management Systems, AS/RS, AGVS, and robotic handling
systems. The ramifications of the Swisslog acquisition of Munck are not yet
known. The strategic alliance agreement was terminated by the Company
December 16, 1998 in order to facilitate negotiations of a new agreement more
consistent with the future direction of both companies. There can be no
assurance that a new agreement will be reached between the companies.
HARCON AGREEMENT: On January 27, 1999 the Company signed an agreement with
Harcon Engineering, Inc. ("Harcon") of Roseville, Michigan with the objective of
jointly pursuing material handling systems projects, primarily in the automotive
industry. The Company received in January 1999 an order from Harcon for the
design phase of a major laser guided AGV system to be installed at a new Daimler
Chrysler facility in the Detroit area. The design phase order with anticipated
manufacturing orders related to the project could generate revenues for the
Company in excess of one million dollars.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
RISK ASSOCIATED WITH YEAR 2000: The Company, in its day to day operations
relies upon various computer software and hardware that may be adversely
affected by a change in the millennium, from 1999 to 2000. In general,
information systems experts have predicted that a wide variety of problems, from
system failures to data entry and transfer errors, will result from the turn of
the century. Repeated system failures, data entry and transfer errors and
similar computer problems would result in a material adverse effect on the
Company and its operations. However, the Company has examined most of its
computer hardware and software and, based on such examination, does not
reasonably anticipate any significant internal problems as a result of the
change in millennium. The Company may, however, be adversely affected by
external systems problems, problems which the Company has minimal control.
FORWARD-LOOKING STATEMENTS: This report (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operation, plans,
objectives, future performance and business of the Company.
These forward-looking statements involve certain risk and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities:
a) Revenues from end user systems sales and new OEMs may be lower than expected.
b) New product lines from Thrige and Netzler & Dahlgren (Teach-in) may not be
well received in the North American industrial truck market, thereby
restricting growth opportunities for the Company.
c) Manufacturing orders related to the Harcon project may not be received.
d) The Company's existing bank relationships may not be extended which would
cause the Company to default on its current obligations.
e) The Company might be unable to raise the additional working capital needed to
finance the current business strategy which may have a serious impact on the
Company's ability to sell its current and future products, as well as satisfy
existing banking relationships.
f) General economic or business conditions, either nationally or in the markets
in which the Company is doing business, may be less favorable than expected
resulting in, among other things, a deterioration of market share or reduced
demand for its products.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
RESULTS OF OPERATIONS
The table below shows the relationship of income and expense items relative
to net revenues for the fiscal years ended November 30, 1998, 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
Percentage of Change
Period to Period
Percentage of net Revenues Increase (Decrease)
- -------------------------------------------------------------------------------------
Year Ended Year Ended
For year Ended November 30, November 30,
1998 1997 1996 1997 to 1998 1996 to 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Revenues 100.0 % 100.0 % 100.0 % (1.5) % (33.6) %
Cost of goods sold 59.5 66.1 62.9 (11.4) (30.3)
- --------------------------------------------------------------------------------------
Gross profit 40.5 33.9 37.1 17.9 (39.4)
Operating expenses:
Selling 16.5 17.0 10.7 (4.4) 5.6
General and administrative 24.8 38.1 23.1 (35.8) 9.2
Research and development -- -- 0.1 -- (100.0)
- --------------------------------------------------------------------------------------
41.3 55.1 (26.1) 7.8 33.9
- --------------------------------------------------------------------------------------
Operating income (loss) (0.8) (21.2) 3.2 (96.4) *
Net interest expense 6.1 4.8 2.9 25.0 9.5
- --------------------------------------------------------------------------------------
Income (loss) before income
taxes (benefit) (6.9) (26.0) 0.3 (73.9) *
Income Tax (benefit) -- -- (0.4) -- (100.0)
- --------------------------------------------------------------------------------------
Net income (loss) (6.9)% (26.0) % 0.7 % (73.9) % * %
======================================================================================
</TABLE>
* Because the data changes from negative to positive, or from positive to
negative, the percentage of change is not meaningful.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
FISCAL YEAR ENDED NOVEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1997.
Net revenues in 1998 did not change significantly compared to the prior
year. Revenues decreased by $61,199 or 1.5%, from $4,076,897 for the fiscal year
ended November 30, 1997 to $4,015,698 for the fiscal year ended November 30,
1998. The Company's strategy to increase revenues by selectively selling turnkey
systems to end users and system integrators in September of 1997 did not
generate significant revenues in 1998, but resulted in an expansion of its
customer base and markets. Orders were received in 1998 from such industries as
entertainment, automotive, postal service and airport security. Some of these
industries are new to the Company and may offer good future opportunities. The
Company's strategy to align itself with Munck Automation, Inc. ("Munck") did not
generate the projected business volume from Munck. Munck was recently acquired
by Swisslog Management Ltd., headquartered in Aurau, Switzerland, a world leader
in material handling equipment and solutions. In December 1998 the Company
terminated its strategic alliance agreement with Munck in order to facilitate
negotiations of a new agreement more consistent with the future direction of
both companies. The Company also aggressively pursued distribution of new
products and technology in 1998 to the AGVS market to increase revenues. The
primary products were motors for industrial truck manufacturers, batteries and
chargers for the AGV market. Such new products did produce interest in the
marketplace but did not result in significant revenues for the Company in 1998.
The Company will continue to focus on increasing revenues in 1999 by providing
more turnkey systems when appropriate and expand its existing product line.
Cost of goods sold decreased from $2,695,289 to $2,387,342, or 11.4%, due
primarily to the lower engineering cost. As a percentage of net revenues, cost
of goods sold decreased to 59.5% compared to 66.1% the prior year. The primary
reason for the decrease is the Company experienced higher margins on revenues
related to its aftermarket and engineering revenues. Gross profit increased by
$246,748, or 17.9%, from $1,381,608 to $1,628,356 due to the same factors.
Selling expenses decreased from $693,106 to $662,780, or 4.4% due primarily
to lower advertising and marketing expenses. General and administrative expenses
decreased from $1,552,900 to $996,994, or 35.8% primarily due to lower cost
related to depreciation, amortization of intangibles in 1998 compared to 1997.
The Company also did not write down any intangibles in 1998 compared to a write
down of $52,394 in 1997. Lower equipment leases cost, and general cost reduction
relating to a cutback in personnel in May of 1998 contributed to lower general
and administrative expenses compared to the prior year.
Primarily as a result of the foregoing, the operating loss decreased by
$832,980 or 96.4%, from $864,398 to an operating loss of $31,418 for the current
year.
Net interest expense increased from $195,962 to $244,865, an increase of
25.0%. The increase is primarily due to increased borrowings relating to a new
two year term loan from Netzler and Dahlgren.
Primarily as a result of the foregoing, the net loss decreased by $784,077 or
73.9%, from $1,060,360 to a net loss of $276,283.
BACKLOG
Backlog consists of all amounts contracted to be paid by customers but not
yet recognized as net revenues by the Company. At November 30, 1998, the Company
had a backlog of approximately $780,000 compared to approximately $415,000 one
year earlier.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
FISCAL YEAR ENDED NOVEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1996.
Net revenues decreased by $2,066,057 or 33.6%, from $6,142,954 for the
fiscal year ended November 30, 1996 to $4,076,897 for the fiscal year ended
November 30, 1997. The primary reason for the decrease in 1997 compared to 1996
was a decline in project or turnkey system sales to end users and system
integrators. The Company chose to market and sell exclusively to major OEMs and
potential OEMs in an effort to increase sales revenues with the existing OEM
suppliers to the AGVS market. The Company believed that in 1997 it was
undesirable to compete with such potential customers if the Company was to
increase sales with these existing OEM customers. The strategy attracted a major
OEM supplier, Munck Automation Technologies( "Munck"), which signed a strategic
alliance with the Company in October 1997. Pursuant to the Agreement Munck
agreed to promote exclusively NDC AGVS technology in its sales efforts of new
AGV systems to end users. It is expected that other major OEMs will take longer
to convert to the Company's technology. Therefore, since the Company's
anticipated increased revenues from OEMs did not occur in 1997, the Company
began again selectively selling turnkey systems to end users in September of
1997. The Company is also aggressively pursuing distribution of new products and
technology to its market place to increase revenues.
Cost of goods sold decreased from $3,864,393 to $2,695,289, or 30.3%, due
primarily to the decreased level of net revenues. As a percentage of net
revenues, cost of goods sold increased to 66.1% compared to 62.9% the prior
year. The primary reason for the increase is the Company wrote-down
approximately $245,000 worth of inventory in 1997 compared to approximately
$110,000 in 1996. Gross profit decreased by $896,953, or 39.4%, from $2,278,561
to $1,381,608 due to the same factors.
Selling expenses increased from $656,537 to $693,106, or 5.6% due primarily
to higher advertising and marketing expenses. General and administrative
expenses increased from $1,422,586 to $1,552,900, or 9.2% primarily due to a
write down of approximately $63,000 of intangibles and software, increases in
lease and maintenance expenses relating to new computer equipment and an
increase in the provision for bad debt expense of $36,000 relating to a
receivable from the former subsidiary NDC Technologies Australia PTY LTD.
Primarily as a result of the foregoing, the operating income decreased by
$1,059,894 from an income of $195,496 to an operating loss of $864,398.
Net interest expense increased from $178,894 to $195,962, an increase of
9.5%. The increase is primarily due to increased bank fees in 1997 compared to
1996.
Income before income taxes decreased by $1,076,962, from an income of
$16,602, to a loss of $1,060,360 due primarily to the foregoing factors.
Primarily as a result of the foregoing, net loss increased by $1,105,791,
from a net income of $45,431 to a net loss of $1,060,360.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
LIQUIDITY AND CAPITAL RESOURCES
The Company experiences needs for external sources of financing to support its
working capital, capital expenditures and acquisition requirements when such
requirements exceed its cash generated from operations in any particular fiscal
period. The amount and timing of external financing requirements depend
significantly upon the nature, size, number and timing of projects and
contractual billing arrangements with customers relating to project milestones.
The Company has relied upon bank financing under a revolving working capital
facility, as well as long-term debt and capital leases and proceeds of its
public offerings, and private offerings, to satisfy its external financing
needs.
During the year ended November 30, 1998 net cash used in operating activities
was $171,744. The current loss of $276,283 was the primary reason for the use of
cash from operating activities. To offset such uses the Company obtained a two
year loan from Netzler & Dahlgren for approximately $400,000 as described below.
The Company entered into an Inventory and Accounts Receivable Loan and Security
Agreement ("Loan Agreement") February 28, 1997 with the National Bank of Canada
and National Canada Business Corp. (herein collectively called the "Lender").
The Loan Agreement allows the Company to borrow up to a maximum of $1,250,000.
Loans made under the new Loan Agreement are evidenced by a demand promissory
Note. The Loan Agreement allows the Company to borrow pursuant to a borrowing
formula which is secured by Company's personal property as collateral. The
Company's outstanding loan amount at any one time shall not exceed the lesser of
(a) U.S $1,250,000 or (b) 80% of qualified accounts receivable ( as defined in
the Loan Agreement) plus 50% of all eligible inventory ( as defined in the Loan
Agreement) with a $300,000 cap on loans based on eligible inventory. The
borrowed funds will bear interest at the Lender's prime rate plus 1.5% per annum
for the first $450,000 outstanding and prime plus 2.75% per annum for amounts
outstanding in excess of $450,000. The Loan Agreement is further secured by 1)
an Inventory Repurchase Agreement and 2) a $450,000 irrevocable Letter of Credit
issued by a Swedish bank. Netzler & Dahlgren Co. AB (NDCab) is obligated to
repay the letter of credit bank any funds it disburses under the Letter of
Credit. The Company is ultimately responsible to repay to NDCab for any amounts
it pays in reimbursing the letter of credit bank. The Repurchase Agreement
guarantees that NDCab will repurchase from the Company on certain conditions up
to $300,000 worth of inventory, thereby providing funds to pay the Lender should
the Company default on its loan obligations.
The lender, at its discretion, may demand payment upon written notice to the
Company. The maturity date of the Agreement was April 1, 1998 and has been
extended to April 30, 1999, or upon demand by the Bank. The extension was
conditional upon Netzler & Dahlgren extending its $450,000 irrevocable Letter of
Credit to the Bank through May 1, 1999. To further secure Netzler & Dahlgren for
providing the Letter of Credit the Company entered into a Reimbursement
Agreement under which the Company granted to Netzler and Dahlgren a security
interest in the Company's land and building; such collateral is a junior lien to
the primary mortgage lender, security interest.
During May 1997, the mortgage loan maturity date was extended from February 10,
1998 to May 16, 1999. The interest rate on the note was increased to 9.5% from
7.75% . The combined principle and interest monthly payment was changed to
$13,912 compared to $13,057 per the prior agreement.
During the second quarter of 1998 the Company had been delaying payments of
approximately $400,000 to its affiliate Netzler and Dahlgren so not to exceed
current borrowing maximums from the demand promissory note. On June 30, 1998 the
Company signed a promissory note to repay such debt over the next two years. The
note is to be repaid in 24 equal principal payments plus accrued interest at the
rate of 16% annually beginning July 31, 1998.
There are no assurances that the deficiency in the cash flow will not worsen if
the Company does not generate enough new business. The Company is exploring the
possibility of raising additional equity capital or subordinated debt in order
to improve its financial position. There can be no assurance that the Company
will be successful in raising the additional capital or subordinated debt to
improve its financial position. The Company's ability to continue as a going
concern would be adversely affected if such equity and/or debt financing is not
obtained in the near future or revenues did not increase to consistently provide
earnings for the Company.
10
<PAGE>
Independent Auditor's Report
To the Board of Directors
NDC Automation, Inc.
Charlotte, North Carolina
We have audited the accompanying balance sheets of NDC Automation, Inc. as of
November 30, 1998 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended November 30, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NDC Automation, Inc. as of
November 30, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended November 30, 1998 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
financial statements, the Company has suffered a significant losses from
operations in 1998 and 1997. This raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 15. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
McGLADREY & PULLEN, LLP
Charlotte, North Carolina
January 15, 1999, except for the last
sentence of the second paragraph of
Note 5, as to which the date is
February 24, 1999
11
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
================================================================================================
November 30,
1998 1997
- ------------------------------------------------------------------------------------------------
ASSETS (Note 5)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents (Note 13) $ 62,923 $ 72,368
Accounts receivable, net (Notes 2 and 6) 805,891 670,489
Inventories (Note 9) 593,794 813,865
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 3) 136,547 23,406
Prepaid expenses and other assets 47,583 47,826
- ------------------------------------------------------------------------------------------------
Total current assets $ 1,646,738 $ 1,627,954
- ------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land $ 300,000 $ 300,000
Building and improvements 1,126,623 1,126,623
Furniture, fixtures, and office equipment 138,746 152,016
Machinery and equipment 59,325 76,814
- ------------------------------------------------------------------------------------------------
$ 1,624,694 $ 1,655,453
Less accumulated depreciation 564,782 526,076
- ------------------------------------------------------------------------------------------------
$ 1,059,912 $ 1,129,377
- ------------------------------------------------------------------------------------------------
$ 2,706,650 $ 2,757,331
================================================================================================
</TABLE>
See Notes to Financial Statements
12
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
================================================================================================
November 30,
1998 1997
- ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Note payable, bank (Note 5) $ 346,657 $ 427,634
Current maturities of long- term debt (Note 5) 1,239,472 65,022
Accounts payable and accrued expenses;
including affiliates $169,837 at 1998
and $307,815 at 1997 (Note 9) 508,002 535,201
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note 3) 116,332 29,838
- ------------------------------------------------------------------------------------------------
Total current liabilities $ 2,210,463 $ 1,057,695
- ------------------------------------------------------------------------------------------------
LONG-TERM DEBT (Note 5) $ 114,889 $ 1,042,055
- ------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 10 )
STOCKHOLDERS' EQUITY (Note 11)
Preferred stock, par value $.01 per share
authorized 1,000,000 shares; no shares issued $ -- $ --
Common stock, par value $.01 per share;
11,000,000 shares authorized at 1998 and 1997;
3,453,451 shares were issued at 1998
and 1997 34,534 34,534
Additional paid-in capital 4,211,566 4,211,566
Accumulated deficit (3,864,802) (3,588,519)
- ------------------------------------------------------------------------------------------------
$ 381,298 $ 657,581
================================================================================================
$ 2,706,650 $ 2,757,331
================================================================================================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
=================================================================================================
Years ended November 30,
1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues (Notes 6 and 9) $ 4,015,698 $ 4,076,897 $ 6,142,954
Cost of goods sold (Note 9) 2,387,342 2,695,289 3,864,393
- -------------------------------------------------------------------------------------------------
Gross profit $ 1,628,356 $ 1,381,608 $ 2,278,561
- -------------------------------------------------------------------------------------------------
Operating expenses:
Selling $ 662,780 $ 693,106 $ 656,537
General and administrative (Notes 4, 10) 996,994 1,552,900 1,422,586
Research and development -- -- 3,942
- -------------------------------------------------------------------------------------------------
$ 1,659,774 $ 2,246,006 $ 2,083,065
- -------------------------------------------------------------------------------------------------
Operating income (loss) $ (31,418) $ (864,398) $ 195,496
- -------------------------------------------------------------------------------------------------
Net interest income (expense):
Interest income $ -- $ -- $ 7,771
Interest expense (Note 9) (244,865) (195,962) (186,665)
- -------------------------------------------------------------------------------------------------
$ (244,865) $ (195,962) $ (178,894)
- -------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ (276,283) $(1,060,360) $ 16,602
Federal and state income taxes (benefit) (Note 7) -- -- (28,829)
- -------------------------------------------------------------------------------------------------
Net income (loss) $ (276,283) $(1,060,360) $ 45,431
=================================================================================================
Basic and diluted earnings (loss) per share $ (.08) $ (.31) $ .01
=================================================================================================
Weighted average common shares outstanding 3,453,451 3,453,451 3,453,451
=================================================================================================
Dividends per common share $ -- $ -- $ --
=================================================================================================
</TABLE>
See Notes to Financial Statements
14
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
==================================================================================================================================
Years Ended November 30,
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
Amount Shares Amount Shares Amount Shares
------ ------ ------ ------ ------ ------
COMMON STOCK:
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning $ 34,534 3,453,451 $ 34,534 3,453,451 $ 34,534 3,453,451
Stock options exercised (Note 11) -- -- -- -- -- --
==================================================================================================================================
Balance, ending $ 34,534 3,453,451 $ 34,534 3,453,451 $ 34,534 3,453,451
==================================================================================================================================
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning $ 4,211,566 $ 4,211,566 $ 4,211,566
Stock options exercised (Note 11) -- -- --
==================================================================================================================================
Balance, ending $ 4,211,566 $ 4,211,566 $ 4,211,566
==================================================================================================================================
ACCUMULATED DEFICIT:
Beginning deficit $(3,588,519) $ (2,528,159) $(2,573,590)
Net income (loss) (276,283) (1,060,360) 45,431
==================================================================================================================================
Ending deficit $(3,864,802) $ (3,588,519) $(2,528,159)
==================================================================================================================================
==================================================================================================================================
Stockholders' Equity at November 30 $ 381,298 3,453,451 $ 657,581 3,453,451 $ 1,717,941 3,453,451
==================================================================================================================================
</TABLE>
See Notes to Financial Statements
15
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
=====================================================================================================
Years ended November 30,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ (276,283)$ (1,060,360) $ 45,431
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 82,825 114,564 149,107
Amortization -- 89,818 103,364
Increase (decrease) in provision for doubtful accounts (5,000) 26,281 (42,500)
(Gain) loss on sale of property and equipment (1,637) 26,027 20,630
Write-off of intangibles -- 52,394 --
Loss (gain) on foreign currency exchange rate (7,715) 3,652 (3,103)
Deferred income taxes -- -- (28,829)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (130,402) 829,620 (280,753)
Decrease in inventories 220,071 312,533 803,251
(Increase) decrease in costs and estimated earnings in
excess of billings on uncompleted contracts (113,141) 25,871 73,983
(Increase) decrease in prepaid expenses
and other assets 243 4,109 (20,602)
(Increase) decrease in other assets -- 21,281 (5,000)
Decrease in accounts payable
and accrued expenses (27,199) (167,104) (300,269)
Increase (decrease) in billings in excess of costs and
estimated earnings on uncompleted contracts 86,494 (88,819) (158,870)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (171,744)$ 189,867 $ 355,840
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of property and equipment $ 2,142 $ 6,535 $ 1,941
Purchase of property and equipment (13,865) (36,703) (41,045)
- -----------------------------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES $ (11,723)$ (30,168) $ (39,104)
- -----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
16
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
=====================================================================================================
Years ended November 30,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
<S> <C> <C> <C>
Net borrowings (payments) on revolving credit agreement $ (80,977) $ (419,583) $ 202,842
Proceeds from current and long-term borrowings 402,183 -- --
Principle payments on long-term borrowings (154,899) (63,597) (287,961)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES $ 166,307 $ (483,180) $ (85,119)
- -----------------------------------------------------------------------------------------------------
Effect of foreign currencies exchange rate changes
on cash and cash equivalents $ 7,715 $ (3,652) $ 3,103
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents $ (9,445) $ (327,133) $ 234,720
Cash and cash equivalents:
Beginning 72,368 399,501 164,781
- -----------------------------------------------------------------------------------------------------
Ending $ 62,923 $ 72,368 $ 399,501
=====================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for :
Interest $ 244,828 $ 204,684 $ 187,614
</TABLE>
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Company was formed to acquire, develop, market, and sell hardware, software
and engineering services that are incorporated into and used to control
automatic guided vehicle systems ("AGVS"). The Company markets its products and
services to designers of integrated automation systems, original equipment
manufacturers, and end users primarily within the North American continent.
A summary of the Company's significant accounting policies follows:
REVENUE RECOGNITION:
The Company recognizes revenue from the sales of commercial products as
shipments are made.
The Company recognizes revenues under long-term contracts on the percentage of
completion method, measured by the percentage of each component cost incurred to
date to estimated total component contract costs for each component in the
contract. Component costs include material, direct labor, subcontracts,
engineering overhead, and miscellaneous costs. Provisions for estimated losses
are made in the period in which they first become determinable.
"Costs and estimated earnings in excess of billings on uncompleted contracts"
represent revenue recognized in excess of amounts billed. "Billings in excess of
costs and estimated earnings on uncompleted contracts" represent billings in
excess of revenues recognized.
ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS:
For purposes of reporting the statements of cash flows, the Company considers
all cash accounts (see Note 13), and all highly liquid debt instruments
purchased with a maturity of three months or less, to be cash equivalents. The
Company maintains demand deposits with a financial institution which are in
excess of the federally insured amount.
INVENTORIES:
The inventories are priced at the lower of cost or market, with cost being
determined by the weighted average method. Inventories consist primarily of
parts for computerized material handling systems purchased from the affiliate
Netzler & Dahlgren and motor-in-wheel drive units purchased from Schabmuller
GMBH.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Depreciation and amortization are
primarily computed using the straight-line method over the following useful
lives:
Years
-----
Building and improvements 21-28
Furniture, fixtures and office equipment 4-7
Machinery and equipment 3-5
Vehicles 3-5
When certain property and equipment are fully depreciated, amortized or idle, it
is the Company's practice to write off the cost against accumulated
depreciation, or amortization, so that only costs not fully depreciated or idle,
are carried on the balance sheet. For the years ended November 30, 1998 and
1997, the Company has written off $0 and $102,650 of software, $21,886 and
$105,143 of machinery and equipment, and $22,739 and $82,862 of furniture and
office equipment, respectively.
FOREIGN CURRENCY TRANSLATION:
Payables to foreign companies that are denominated in foreign currencies are
translated at rates that approximate the year-end foreign exchange rates.
Resultant gains or losses are reflected in cost of goods sold. The costs of
items of foreign origin which are included in inventory have been translated at
historical exchange rates prevailing at the date of acquisition.
Forward exchange contracts are purchased to hedge general exposed foreign
currency net asset or liability positions. Gains and losses from forward
exchange contracts that are intended to hedge identifiable foreign currency
commitments are included in the measurement of the related foreign currency
transaction. Management may from time to time enter into speculative hedging
transactions depending on market conditions. Gains and losses from such hedges
are recognized in the determination of net income (loss) as exchange rates
fluctuate.
INCOME TAXES:
Provisions for income taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences, operating
losses, and tax credit carryforwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS:
The marketing and manufacturing rights are recorded at cost and are being
amortized by the straight-line method over ten years. NDC Laser rights and
product rights, patents and the Statec Technologies, S.A. ("Statec")
distribution agreement were also recorded at cost and were amortized by the
straight-line method over five, ten and ten years, respectively. The goodwill
recognized in the business acquisition of NDCTA represented the excess of the
cost of acquiring the company over the fair value of the net assets received at
the date of acquisition. Goodwill was amortized over a 20 year period using the
straight-line method.
The Company annually assesses the remaining unamortized amounts of such
intangible assets to determine if impairment has occurred. The intangibles
related to Statec were fully amortized during 1995 except for the patent,
marketing and manufacturing rights; however, such rights, were written-off
during 1996 as the Company and Statec entered into an agreement which reassigned
all the rights back to the manufacturer in March of 1996 ( see Note 12 ).
RESEARCH AND DEVELOPMENT COSTS:
Research and development costs are charged to expense when incurred and are
included in the statements of operations. However, certain qualifying expenses
after the research and development phase was completed were capitalized in
accordance with Financial Accounting Standard No. 86, "Computer Software to be
Sold, Leased or Otherwise Marketed".
EARNINGS (LOSSES) PER COMMON SHARE:
The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS
No. 128) Earnings Per Share, which supercedes APS Opinion No. 15. SFAS No. 128
requires the presentation of earnings per share by all entities that have common
stock or potential common stock, such as options, warrants, and convertible
securites, outstanding that trade in a public market. Basic per share amounts
are computed, generally, by dividing net income or loss by the weighted-average
number of common shares outstanding. Diluted per share amounts assume the
conversion, exercise, or issuance of all potential common stock instruments
unless the effect is antidilutive, thereby reducing a loss or increasing the
income per common share. The Company initially applied Statement No. 128 for the
year ended November 30, 1998, and as required by the statement, has restated the
per share information for the two prior years to conform to the statement. As
described in Note 11, at November 30, 1998, 1997, and 1996 the Company had
options outstanding to purchase a total of 86,777, 146,833 and 107,333 shares of
common stock, respectively, at a weighted-average exercise price of varying
amounts. The inclusion of those potential common shares in the calculation of
diluted loss per share would have an antidilutive effect. Therefore, basic
and diluted loss per share amounts are the same in 1998, 1997 and 1996.
ADVERTISING:
The Company follows the policy of charging production cost of advertising to
expense as incurred. Advertising expenses for the years ending November 30,
1998, 1997 and 1996 were $15,649, $91,340, and $4,562 respectively.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at November 30, 1998 and 1997,
respectively:
1998 1997
- --------------------------------------------------------------------------------
Trade and contract $ 850,336 $ 721,506
Less: Allowance for doubtful accounts (50,000) (55,000)
- --------------------------------------------------------------------------------
$ 800,336 $ 666,506
Other 1,847 --
Officers and employees 3,708 3,983
- --------------------------------------------------------------------------------
$ 805,891 $ 670,489
================================================================================
NOTE 3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts consist of the following
at November 30, 1998 and 1997, respectively:
1998 1997
- --------------------------------------------------------------------------------
Costs incurred on uncompleted contracts $ 591,370 $ 613,760
Estimated earnings 232,273 145,166
- --------------------------------------------------------------------------------
$ 823,643 $ 758,926
Less billings to date (803,428) (765,358)
================================================================================
$ 20,215 $ (6,432)
================================================================================
Included in the accompanying balance sheets under the following captions:
1998 1997
- --------------------------------------------------------------------------------
Costs and estimated earnings in excess of billings
on uncompleted contracts $ 136,547 $ 23,406
Billings in excess of costs and estimated earnings
on uncompleted contracts (116,332) (29,838)
- --------------------------------------------------------------------------------
$ 20,215 $ (6,432)
================================================================================
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 4. INTANGIBLE ASSETS
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. SFAS No. 121 is effective for fiscal years beginning
after December 15, 1995. The Company is required to review, certain identifiable
intangibles, and goodwill for possible impairment. Under the guidelines of the
standard, the Company is required to review long-lived assets and certain
identifiable intangibles to be held for impairment whenever events or changes in
circumstances, as outlined in Statement No. 121, indicate that the carrying
amount of an asset may not be recoverable. If these events or changes in
circumstances indicate that the carrying amount of an asset that an entity
expects to hold and use may not be recoverable, the Company shall estimate the
future cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows is less than the
carrying amount of the asset, the Company shall recognize an impairment loss in
accordance with the Statement.
Product rights were purchased from Netzler & Dahlgren Co AB in 1993 to
compliment the technology acquired by the Company from Autonavigator AB. During
1997, the Company determined that the prospective cash flows from these rights
became uncertain and wrote-off the remaining unamortized balance of $52,394.
Intangible assets at November 30, 1998 and 1997, respectively, consisted of the
following:
1998 1997
- --------------------------------------------------------------------------------
Netzler & Dahlgren navigator card $ -- $ 449,092
products rights
- --------------------------------------------------------------------------------
Less write-off -- 52,394
Less accumulated amortization -- 396,698
- --------------------------------------------------------------------------------
$ -- $ --
================================================================================
NOTE 5. PLEDGED ASSETS, NOTE PAYABLE, BANK AND LONG-TERM DEBT
1998 1997
- --------------------------------------------------------------------------------
Note Payable Agreement that allows the Company to borrow up
to $1,250,000 and bears interest at the lender's prime rate
plus 1.50% per annum for the first $450,000 outstanding and
prime plus 2.75% per annum for amounts in excess of
$450,000. The Company's loan outstanding shall not exceed
the lesser of (a) U.S. $1,250,000 or (b) 80% of qualified
accounts receivable plus 50% of all Eligible Inventory (as
defined in the loan agreement) with a $300,000 cap on loans
based on Eligible Inventory. The loan agreement is further
secured by 1) an Inventory Repurchase Agreement and 2) a
$450,000 irrevocable Letter of Credit issued by a Swedish
Bank. Netzler & Dahlgren Co. AB (NDCab) is obligated to
repay the letter of credit bank any funds it disburses under
the Letter of Credit. The Company is ultimately responsible
to repay to NDCab any amounts $ 346,657 $ 427,634 it pays in
reimbursing the Letter of Credit Bank . The Repurchase
Agreement guarantees that NDCab will repurchase on certain
conditions up to $300,000 worth of inventory, thereby
providing funds to pay lender should the Company be in
default on its loan obligations. The Loan Agreement
terminates upon demand by the Bank or April 30, 1999.(1)(2) $346,657 $427,634
================================================================================
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 5. PLEDGED ASSETS, NOTE PAYABLE, BANK AND LONG-TERM DEBT (CONTINUED)
Long-term debt consists of the following : 1998 1997
- --------------------------------------------------------------------------------
Mortgage note payable to a bank,
based on a 9.5% fixed rate. Original
principal balance to be repaid in twenty-three
(23) consecutive monthly principal and
interest payments of $13,912, with one
final payment of approximately $1,007,403
due on May 16, 1999. The note is
collaterized by the Company's land and
building with a carrying value of $978,932
The loan also contains certain financial
covenants to which the Company must adhere.
As of November 30, 1998, the Company obtained
waivers for certain financial covenants as
specified by the Mortgage note agreement.
$1,042,520 $1,107,077
Note payable to Netzler & Dahlgren Co AB,
based on a 16.0% fixed rate. Original
principal balance to be repaid in
twenty-four (24) consecutive monthly
principal payments of 133,529 Swedih
Krona, or approximately US$16,757 depending
on the exchange rate at time of payment,
plus interest. The note is collaterized
by the Company's land and building with a
carrying value of $978,932. $ 311,841 --
- --------------------------------------------------------------------------------
Less current maturities: 1,239,472 65,022
- --------------------------------------------------------------------------------
$ 114,889 $1,042,055
================================================================================
(1) The prime rate at November 30, 1998 was 7.75% and 8.50% at November 30,
1997.
(2) The line of credit is secured by a first priority security interest in
the Company's accounts receivable, inventory, software and intangibles.
Maturities of long-term debt at November 30, 1998 are as follows:
Year Ending
November 30
- --------------------------------------------------------------------------------
1999 $1,239,472
2000 114,889
================================================================================
$1,354,361
================================================================================
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 6. MAJOR CUSTOMERS
Net revenues and accounts receivable as of and for the years ended November 30,
1998, 1997, and 1996, respectively, include sales to the following major
customers (each of which accounted for 10% or more of the total net revenues of
the Company for those years):
Amount of Net Revenues
Year Ended November 30,
CUSTOMER 1998 1997 1996
- --------------------------------------------------------------------------------
A $ 488,603 $ * $ *
B 482,826 * *
C 457,365 * *
D * * 666,457
E * 612,226 *
F * 590,588 *
Accounts Receivable
November 30,
1998 1997 1996
- --------------------------------------------------------------------------------
A $ 51,711 $ * $ *
B 63,108 * *
C 162,899 * *
D * * 76,448
E * 61,075 *
F * 295,363 *
*Not a major customer.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 7. INCOME TAXES
Income taxes (benefit) consist of the following components for the years ended
November 30, 1998, 1997, and 1996, respectively:
1998 1997 1996
- --------------------------------------------------------------------------------
Current $ -- $ -- $ --
Deferred
-- -- (28,829)
- --------------------------------------------------------------------------------
$ -- $ -- $ (28,829)
================================================================================
Net deferred tax assets consist of the following components as of November 30,
1998 and 1997, respectively:
Deferred tax assets:
Allowance for doubtful accounts $ 19,558 $ 21,513
Inventory valuation reserves 15,646 46,938
Capitalized cost in ending inventory 8,757 10,428
Net operating loss carryforward 1,479,799 1,349,438
General business credit carryforwards 45,367 45,367
Depreciation 13,847 10,600
Other reserves 17,236 20,254
Unrealized losses or foreign currency exchange -- 403
- --------------------------------------------------------------------------------
$ 1,600,210 $1,504,941
Less valuation allowance 1,600,210 1,504,941
- --------------------------------------------------------------------------------
Net deferred taxes $ -- $ --
================================================================================
The changes in the valuation allowance for the years ended November 30, 1998,
1997 and 1996 were $95,299, $406,909 and $(49,886), respectively. The valuation
reserve is the result of management's determination that the Company may not be
able to generate sufficient future taxable income to realize the recorded
deferred tax assets.
A reconciliation of the statutory income tax to the income tax expense (benefit)
included in the Statements of Operations is as follows:
Years Ended November 30,
1998 1997 1996
- --------------------------------------------------------------------------------
% OF % of % of
DOLLAR PRE-TAX Dollar Pre-tax Dollar Pre-tax
AMOUNT INCOME Amount Income Amount Income
- --------------------------------------------------------------------------------
Statutory federal income
tax (benefit) $(93,936) (34.0) $(360,522) (34.0) $ 5,645 34.0
Increase (decrease) in
taxes resulting from:
State income taxes (13,814) (5.0) (53,018) (5.0) 1,873 11.3
Changes in valuation 95,299 34.0 406,909 38.0 (49,886) (300.5)
allowance
Other 12,451 5.0 6,631 1.0 13,539 81.6
================================================================================
$ -- -- $ -- -- $(28,829) (173.6)
================================================================================
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 8. 401(K) PROFIT SHARING PLAN
The Company has a profit sharing plan, the contributions to which are
discretionary.
The Company established a 401(k) profit sharing plan to which both the Company
and eligible employees may contribute. The Company may, at its discretion, match
the participant's contribution quarterly, up to a maximum of $700 per plan year.
The Company's contribution for the years ended November 30, 1998, 1997 and 1996
amounted to $13,587, $17,340, and $18550, respectively.
NOTE 9. RELATED PARTY TRANSACTIONS
The Company is related to NDC, Netzler & Dahlgren Co. AB (Netzler & Dahlgren)
through common ownership .
Netzler & Dahlgren is the Company's largest supplier of AGVS control technology.
Accordingly, the Company's success is dependent upon its ability to obtain such
products on a timely basis. Although the Company has entered into a written
agreement with Netzler & Dahlgren for the supply of such products, there can be
no assurance that this company will continue to fulfill its obligations under
the agreement.
On November 30, 1995, the Company signed a ten (10) year master license
agreement with Netzler & Dahlgren to purchase certain products at prices
stipulated. The master license agreement provides for certain royalty payments
based on 10% of revenues on license fee contracts entered into after November
30, 1995.
On November 30, 1995 the Company sold certain intangibles related to its laser
technology and its stock in NDC Laser to Netzler & Dahlgren for $1,000,000. As
part of the sales price the Company receives contingent laser fees from Netzler
& Dahlgren for the years ending 1996, 1997 and 1998. For the year ending
November 30, 1998, 1997 and 1996 the Company earned and netted against trade
payables $59,250, $109,750 and $174,750 respectively, in laser fees from Netzler
& Dahlgren.
The Company had the following transactions with Netzler & Dahlgren for the years
ended November 30, 1998, 1997, and 1996, respectively:
1998 1997 1996
- --------------------------------------------------------------------------------
Revenues $ 252,621 $ 153,176 $ 261,199
================================================================================
Purchases of hardware, software & $ 490,656 $ 689,059 $ 1,049,324
engineering services
================================================================================
Interest expense $ 76,499 $ 17,968 $ --
================================================================================
There was no royalty expense for the three years ended November 30, 1998.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 10. COMMITMENTS
At November 30, 1998, the Company had no outstanding forward exchange contracts.
These contracts are purchased as needed from time to time to hedge identifiable
foreign currency commitments.
The Company leases property and equipment under long-term operating leases
expiring on various dates through August, 2001. In addition, the Company has
rental expenses for facilities rented on a short term basis and on a
month-to-month basis, such expenses were $15,187, $16,103, and $38,514 for the
years ended November 30, 1998, 1997, and 1996, respectively.
Minimum rental commitments under long-term operating leases at November 30, 1998
were as follows:
1999 $ 50,948
2000 17,013
2001 6,613
============
$ 74,574
============
The Company has an employment contract with the President which provides for a
minimum annual base salary of $120,000 plus $12,000 being contributed to a
retirement plan. The base salary is subject to annual reviews. The contract
expires on March 1, 1999.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 11. STOCK OPTION PLANS
The Company has adopted Statement of Financial Accounting Standards (`SFAS') No.
123, Accounting for Stock-Based Compensation. FASB Statement No.123, requires
that the Company account for its stock based compensation plans using a fair
value based method which measures compensation cost at the grant date based upon
the value of the awards, which is then recognized over the vesting period. The
accounting requirements of the statement apply to awards to employees entered
into fiscal years that begin after December 15, 1995 and to transactions with
non-employees entered into after December 15, 1995. The Statement allows and the
Company has elected to continue to use APB Opinion No. 25 Accounting for Stock
Issued to Employees to measure compensation cost, but is required to disclose
the pro forma effect on net income and earnings per share to reflect the
difference between the compensation cost from applying APB Opinion No. 25 and
the related cost measured by the fair value method defined in the statement for
all awards granted in years beginning after December 15, 1994. The Statement did
not change the reporting required for the Plans discussed below. The FASB has
issued for public comment certain interpretations of APB 25, which could have a
significant effect on the Company's future financial statements.
1990 AND 1993 STOCK OPTION PLANS:
On October 10, 1990, the Compensation Committee of the Board of Directors
adopted the NDC Automation, Inc. 1990 Stock Option Plan ("the 90 Plan"), the
adoption of which was ratified by the shareholders at the annual meeting held on
April 10, 1991. In September 1992, the Company registered up to 178,613 shares
of common stock for issuance. On October 23, 1993, the Compensation Committee of
the Board of Directors adopted the NDC Automation, Inc. 1993 Stock Option Plan
("the 93 Plan"), the adoption of which was ratified by the shareholders at the
annual meeting held on May 5, 1994.
Options to purchase 174,375 shares of common stock were granted pursuant to the
90 Plan and are available for exercise upon achievement by the Company of
certain financial performance targets set by the Board of Directors on an annual
basis. The options will be exercisable for a term of ten years, commencing on
the date of the grant at an exercise price of $.7917 to $1.56 for new employees.
The 93 Plan authorized 100,000 options to purchase common stock, of which
100,000 were granted and are available for exercise upon achievement by the
Company of certain financial performance targets set by the Board of Directors
on an annual basis. On October 24, 1994, the 93 Plan options were repriced with
approval by the Compensation Committee at an exercise price of $1.56.
Of the 274,375 total shares of common stock granted, the Compensation Committee
granted to the Company's current and former executive officers options to
purchase 120,375 shares of common stock at an exercise price of $.7917 for the
90 Plan, and 18,000 shares of common stock for the 93 Plan at an exercise price
of $1.56. The exercise price of the options granted is based on the average fair
market value of the common stock for the five business days preceding the date
of the grant.
1997 STOCK OPTION PLAN:
On December 7, 1996 , the Compensation Committee of the Board of Directors
adopted The NDC Automation, Inc. 1997 Stock Option Plan ("the 97 Plan"), the
adoption of which was ratified by the shareholders at the annual meeting held
April 25, 1997. The 97 Plan authorized 225,000 options to all officers and
employees in the form of incentive stock options, of which 210,000 were granted
in January 1997 at an exercise price of $0.50 per share upon achievement by the
Company of certain financial performance targets set by the Board of Directors
on an annual basis. No pro forma compensation expense has been disclosed due to
financial performance targets not being obtained in 1998 or 1997 and due to
uncertainty of financial performance targets being obtained prospectively.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 11. STOCK OPTION PLANS ( CONTINUED)
Transactions involving these plans for the years ended November 30, 1998, 1997
and 1996 respectively, are summarized as follows:
<TABLE>
STOCK OPTIONS 1998* 1997* 1996*
- ---------------------------------------------------------------------------------------------------------------------------------
90 PLAN 93 PLAN 97 PLAN TOTAL 90 PLAN 93 PLAN 97 PLAN Total 90 PLAN 93 PLAN Total
----------------------------------- ------------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, 63,233 83,600 199,520 346,333 63,233 84,100 147,333 67,929 93,000 160,929
December 1
Granted -- -- -- -- -- -- 210,000 210,000 -- -- --
Canceled (33,556) (31,500) (32,250) (97,306) -- (500) (10,500) (11,000) (4,696) (8,900) (13,596)
Exercised -- -- -- -- -- -- -- -- -- -- --
- ----------------------------------------------------- ------------------------------------- ----------------------------------
Outstanding, 29,677 52,100 167,250 249,027 63,233 83,600 199,500 346,333 63,233 84,100 147,333
November 30
===================================================== ===================================== ==================================
Exercisable, 29,677 52,100 -- 81,777 63,233 83,600 -- 146,833 63,233 84,100 147,333
November 30
===================================================== ===================================== ==================================
* The weighted average exercise price per share of options outstanding, granted,
canceled, exercised, or exercisable for the 90 Plan is $0.7917, for the 93 Plan
is $1.56 and for the 97 Plan is $0.50.
</TABLE>
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 12. REASSIGN BACK STATEC EXCLUSIVE DISTRIBUTION AGREEMENT
On February 21, 1996 the Company and Statec entered into a letter of
understanding under which the Company reassigned to Statec the exclusive
distribution and manufacturing rights for North America effective March 1, 1996.
The assignment was contingent upon Statec making the following payments for a
total of $183,000, excluding inventory. The payments required were as follows:
o A down payment of $15,000 was due March 1, 1996
o Twenty-eight (28) monthly installments of $6,000 each, commenced March
1, 1996 for a total of $168,000.
o Statec was to repurchase all NDCA inventory related to Statec products
at the Company's net book value plus $15,000. All the inventory was
to be repurchased on or before November 30, 1996.
The transfer permitted the Company to reduce associated fixed overhead expenses
with the sale of such products and allowed the Company to focus solely on its
AGVS product line.
Statec was in default under the agreement by not paying or repurchasing the
inventory with a cost of $71,272 and had not paid the agreed installments of
$6,000 monthly since December 1996. There remained a total number of 19 unpaid
installment equaling $114,000. In February of 1997, the Company was notified
that Statec became subject to a court ordered liquidation proceeding under
French law. On March 27, 1997 the Company received $47,884 for the repurchase of
all NDCA inventory related to Statec products and $20,000 per the Supplemental
Agreement between the Company and Statec. The amounts paid were approved by the
French court and terminate all obligations from Statec to the Company per the
Supplemental Agreement.
NOTE 13. RESTRICTED CASH AND CREDIT RISK
Under the Company's line of credit agreement, the Company's cash disbursements
are controlled and approved by the bank. Cash received by the Company is
deposited into bank-monitored cash collateral accounts where cash funds are used
to pay down the bank line of credit. Daily cash operating requirements of the
Company are then funded through advances under the borrowing base formula of the
line of credit (see Note 5).
NOTE 14. FASB STATEMENTS AND PROPOSED REGULATIONS
The FASB has issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which the
Company has not been required to adopt as of November 30, 1998. The Statement,
which is effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. This statement requires that all items
that are recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 14. FASB STATEMENTS AND PROPOSED REGULATIONS (CONTINUED)
The FASB has issued SFAS No.131, Disclosures About Segments of an Enterprise and
Related Information, which the Company has not been required to adopt as of
November 30, 1998. This statement which is effective for Fiscal years beginning
after December 15, 1997 establishes standards for the manner in which a publicly
held enterprise reports certain information about operating segments of their
business. The information required to be disclosed for an entity's operating
segments not only consist of financial information, but also certain related
disclosures of the segment's products and services, geographic areas, and major
customers. The impact on disclosures is not anticipated to be significant.
NOTE 15. CONTINUED OPERATIONS
The Company has suffered a significant loss from operations in 1998 and 1997.
Should such losses continue its total liabilities will exceed its total assets.
This raises substantial doubt about the Company's ability to continue as a going
concern.
Management has made plans in regards to these matters to develop an operating
plan that will increase revenues and minimize losses. This plan includes a
reorganization of present resources to support the following :
o Establish and develop strategic alliances with selected customers
o Pursue AGV system business in selected market niches
o Grow the distribution business by adding new supplementary products
o Expand the aftermarket sales business
The Company is also pursuing raising additional equity to assist in reaching its
goals.
Although the Company believes that its strategic plans will permit it to meet
its 1999 working capital needs, there can be no assurance that the Company can
successfully meet the objectives of such plans.
31
<PAGE>
<TABLE>
SHAREHOLDER INFORMATION
====================================================================================================================================
<S> <C>
ANNUAL MEETING DIRECTORS
The annual meeting will be held at 10:00 am, Friday,
May 7, 1999, at NDC Automation's Corporate offices Goran P.R. Netzler
in Charlotte, North Carolina. Chairman of the Board of Directors, NDC
Automation, Inc.
President
Netzler and Dahlgren Co. AB
SHAREHOLDER RELATIONS
A COPY OF NDC'S ANNUAL REPORT Ralph Dollander
AND FORM 10-KSB, WHICH IS FILED WITH THE SECURITIES AND EXCHANGE President
COMMISSION, WILL BE SENT TO ANY SHAREHOLDER UPON WRITTEN REQUEST NDC Automation, Inc.
TO MANAGER-INVESTOR RELATIONS
NDC AUTOMATION, INC.,
3101 LATROBE DRIVE Jan H.L. Jutander
CHARLOTTE, NORTH CAROLINA 28211-4849 Vice President, Operation
Netzler and Dahlgren Co. AB
CORPORATE OFFICES
NDC Automation, Inc. Richard D. Schofield
3101 Latrobe Drive Director
Charlotte, North Carolina 28211-4849
Raymond O. Gibson
(704) 362-1115 Telephone VP Operations
(704) 364-4039 Facsimile Terion, Inc.
STOCK EXCHANGE LISTINGS OFFICERS
Over the Counter: OTC Bulletin Board
OTC Symbol: "AGVS" Ralph Dollander
President
TRANSFER AGENT Chief Executive Officer
First Citizens bank
Raleigh, North Carolina Claude Imbleau
Vice President, Finance and Administration
LEGAL COUNSEL Chief Financial Officer
Parker, Poe, Adams and Bernstein, LLP
Charlotte, North Carolina E. Thomas Watson
Secretary, NDC Automation, Inc.
Shumaker, Loop and Kendrick, LLP Partner
Charlotte, North Carolina Parker, Poe, Adams and Bernstein LLP
AUDITORS
McGladrey & Pullen, LLP
Charlotte, North Carolina
==========================================================================================================================
COMMON STOCK DATA
Market Price Per Share
----------------------------------------------------------------------------------
1998 - 1997
------------------------------------- ------------------------------------
Quarter Ended High Low High Low
Bid Ask Bid Ask Bid Ask Bid Ask
- -------------------------------------------------------------------------------------------------------------------------
February 28 9/32 13/32 5/32 3/16 11/16 13/16 9/32 11/32
May 31 11/32 7/16 9/32 11/32 13/32 17/32 9/32 3/8
August 31 .32 7/16 3/16 .24 31/32 1 1/32 5/16 3/8
November 30 .22 .28 .125 .14 13/16 15/16 1/4 3/8
=========================================================================================================================
</TABLE>
32
<PAGE>
APPENDIX B
- --------------------------------------------------------------------------------
NDC Automation, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 56-1460497
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3101 Latrobe Drive, Charlotte, North Carolina 28211-4849
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(704) 362-1115
- --------------------------------------------------------------------------------
(Issuer's telephone number)
N/A
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ]No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of September 30, 1999, there were 3,453,451 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes [ ]; No [X]
<PAGE>
I N D E X
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
August 31, 1999 (Unaudited) and November 30, 1998 3-4
Condensed Statements of Operations
Three and Nine months ended August 31, 1999 and August 31, 1998
(Unaudited) 5
Condensed Statements of Cash Flows
Nine months ended August 31, 1999 and August 31, 1998
(Unaudited) 6
Notes to Condensed Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and use of proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
(a) Exhibits -- Press Releases and other Exhibits 18
(b) Reports on Form 8-K 18
SIGNATURES 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NDC AUTOMATION, INC.
CONDENSED BALANCE SHEETS
AUGUST 31, November 30,
1999 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS (Note 4)
CURRENT ASSETS
Cash and cash equivalents $ 66,303 $ 62,923
Accounts receivables, net 825,181 805,891
Inventories 498,743 593,794
Costs and estimated earnings in excess of
billings on uncompleted contracts 13,330 136,547
Prepaid expenses and other assets 33,211 47,583
- --------------------------------------------------------------------------------
Total current assets $1,436,768 $1,646,738
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land $ 300,000 $ 300,000
Building and improvements 1,126,623 1,126,623
Furniture, fixtures and office equipment, 159,549 138,746
Machinery and equipment 62,886 59,325
- --------------------------------------------------------------------------------
$1,649,058 $1,624,694
Less accumulated depreciation 625,776 564,782
- --------------------------------------------------------------------------------
$1,023,282 $1,059,912
- --------------------------------------------------------------------------------
================================================================================
$2,460,050 $2,706,650
================================================================================
Note: The Condensed Balance sheet at November 30, 1998 has been taken from the
Audited Financial Statements at that date.
See Notes to Condensed Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
AUGUST 31, November 30,
1999 1998
(UNAUDITED)
- ---------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank (Note 4) $ 119,846 $ 346,657
Current maturities of long- term debt (Note 4) 1,190,235 1,239,472
Accounts payable and accrued expenses;
including affiliates $564,750 at 1999
and $169,837 at 1998 727,523 508,002
Billings in excess of costs and estimated
earnings on uncompleted contracts 304,151 116,332
- ---------------------------------------------------------------------------------------
Total current liabilities $ 2,341,755 $ 2,210,463
- ---------------------------------------------------------------------------------------
LONG-TERM DEBT (Note 4 ) $ -- $ 114,889
- ---------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share
authorized 1,000,000 shares; no shares issued $ -- $ --
Common stock, par value $.01 per share;
11,000,000 shares authorized
at 1999 and 1998; 3,453,451 shares
issued at 1999 and 1998 34,534 34,534
Additional paid-in capital 4,211,566 4,211,566
Accumulated deficit (4,127,805) (3,864,802)
- ---------------------------------------------------------------------------------------
$ 118,295 $ 381,298
=======================================================================================
$ 2,460,050 $ 2,706,650
=======================================================================================
</TABLE>
4
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
AUGUST 31, August 31, AUGUST 31, August 31,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Net revenues $ 1,130,574 $ 1,085,698 $ 3,288,467 $ 2,726,895
Cost of goods sold 720,617 603,289 1,952,155 1,575,874
- -----------------------------------------------------------------------------------------------------------------------
Gross profit $ 409,957 $ 482,409 # $ 1,336,312 $ 1,151,021
- -----------------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling $ 173,124 $ 149,702 $ 536,580 $ 506,555
General and administrative 297,395 194,969 871,206 758,904
- -----------------------------------------------------------------------------------------------------------------------
$ 470,519 $ 344,671 $ 1,407,786 $ 1,265,459
- -----------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ (60,562) $ 137,738 $ (71,474) $ (114,438)
Net interest expense (66,764) (38,617) (191,529) (183,321)
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ (127,326) $ 99,121 $ (263,003) $ (297,759)
Federal and state income taxes (Note 2) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ (127,326) $ 99,121 $ (263,003) $ (297,759)
=======================================================================================================================
Weighted average number of common
shares outstanding 3,453,451 3,453,451 3,453,451 3,453,451
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) per common share - basic (Note 3) $ (0.04) $ 0.03 $ (0.08) $ (0.09)
Income (loss) per common share - diluted (Note 3) $ (0.04) $ 0.03 $ (0.08) $ (0.09)
=======================================================================================================================
Dividends per common share $ -- $ -- $ -- $ --
=======================================================================================================================
</TABLE>
See Notes to the Condensed Financial Statements
5
<PAGE>
NDC AUTOMATION, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Nine Months Ended
AUGUST 31, August 31,
1999 1998
- --------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 428,966 $(362,982)
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment $ -- $ 1,500
Purchase of property and equipment (24,363) (8,585)
- --------------------------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES $ (24,363) $ (7,085)
- --------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving credit agreement $(226,811) $ 12,051
Principal payments on long-term borrowings (164,126) (81,156)
Proceeds from current and long-term borrowings -- 402,182
- --------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES $(390,937) $ 333,077
- --------------------------------------------------------------------------------------------------
Effect of foreign currency exchage rates changes
on cash and cash equivalents $ (10,286) $ 4,185
- --------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents $ 3,380 $ (32,805)
Cash and cash equivalents:
Beginning 62,923 72,368
- --------------------------------------------------------------------------------------------------
Ending $ 66,303 $ 39,563
==================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for :
Interest $ 174,531 $ 183,219
Income taxes $ -- $ --
==================================================================================================
</TABLE>
See Notes to the Condensed Financial Statements
6
<PAGE>
NDC AUTOMATION, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1.
The unaudited internal condensed financial statements and related notes have
been prepared by NDC Automation, Inc. (the "Company"), without audit pursuant to
the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at August 31, 1999, and for all periods presented,
have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed financial statements be
read in conjunction with the Company's audited financial statements and notes
thereto for the fiscal year ended November 30, 1998. The results of operations
for the nine months ended August 31, 1999 are not necessarily indicative of the
operating results for the full year.
NOTE 2. INCOME TAXES
The Company did not recognize any income tax benefits in 1998 and 1999 for its
current losses as utilization of operating loss carryforwards in the future are
not assured to be realized.
NOTE 3. EARNINGS (LOSS) PER COMMON SHARE:
The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS
No.128) Earnings Per Share, which supersedes APB Opinion No. 15. SFAS No. 128
requires the presentation of earnings per share by all entities that have common
stock or potential common stock, such as options, warrants, and convertible
securities, outstanding that trade in a public market. Basic per share amounts
are computed, generally, by dividing net income or loss by the weighted-average
number of common shares outstanding. Diluted per share amounts assume the
conversion, exercise, or issuance of all potential common stock instruments
unless the effect is antidilutive, thereby reducing a loss or increasing the
income per common share. The Company had excercisable options outstanding under
two separate plans to purchase a total of 81,777 and 146,833 shares of common
stock, respectively, at a weighted-average exercise price of varying amounts.
The inclusion of those potential common shares in the calculation of diluted
earning (loss) per share would have an antidilutive effect. Therefore, basic and
diluted earnings (loss) per share amounts are the same in 1999 and 1998.
7
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 4. PLEDGED ASSETS, NOTE PAYABLE, BANK AND LONG-TERM DEBT
The Company has the following note payable to a Bank at August 31, 1999:
Note Payable Agreement that allows the Company to borrow up to
$1,250,000 and bears interest at the lender's prime rate plus
2.75% per annum . The Company's loan outstanding shall not exceed
the lesser of (a) U.S. $1,250,000 or (b) 80% of i) Qualified
Accounts receivable (as defined in the Loan Agreement) that are
non-project Qualified Accounts and ii) Qualified Accounts that
are project Qualified Accounts (as defined in the Loan
Agreement) plus 50% of all eligible inventory, but in no event
shall (A) Inventory Value be in excess of $300,000 and (B)
Inventory Value and Qualified Accounts that are project Qualified
Accounts be in excess of $450,000. The loan agreement is further
secured by 1) an Inventory Repurchase Agreement and 2) a $450,000
irrevocable Letter of Credit issued by a Swedish Bank. Netzler &
Dahlgren Co. AB (NDCab) is obligated to repay the letter of
credit bank any funds it disburses under the Letter of Credit.
The Company is ultimately responsible to repay to NDCab any
amounts it pays in reimbursing the Letter of Credit Bank . The
Repurchase Agreement guarantees that NDCab will repurchase on
certain conditions up to $300,000 worth of inventory, thereby
providing funds to pay lender should the Company be in default on
its loan obligations. The Loan Agreement terminates upon demand
by the Bank or October 31, 1999. (1)(2) $ 127,846
================================================================================
Long-term debt consists of the following at August 31, 1999:
Mortgage note payable to a bank, based on a 9.5% fixed rate.
Original principal balance of $1,013,484 to be repaid in twelve
(12) consecutive monthly principal and interest payments of
$13,912, with one final payment of Approximately $939,666 due on
June 16, 2000 . The note is collaterized by the Company's land
and building with a carrying value of $947,949. The loan also
contains certain financial covenants to which the Company must
adhere. $ 995,878
Note payable to Netzler & Dahlgren Co AB, based on a 16.0% fixed
rate. Original principal balance of $402,182 to be repaid in
twenty-four (24) consecutive monthly principal payments of
133,529 Swedish Krona, or approximately US$16,757 per month
depending on the exchange rate at time of payment, plus interest.
As of August 31, 1999 the Company was delinquent on the last two
payments. The note is collaterized by a secondary position on the
Company's land and building with a carrying value of $947,949. 194,358
- --------------------------------------------------------------------------------
1,190,236
Less current maturities: 1,190,236
- --------------------------------------------------------------------------------
$ -
================================================================================
(1) The prime rate at August 31, 1999 was 8.25%
(2) The line of credit is secured by a first priority security interest in the
Company's accounts receivable, inventory, software and intangibles.
Maturities of long-term debt at August 31, 1999 are as follows:
Year Ending
August 31,
- --------------------------------------------------------------------------------
1999 $ 1,190,236
2000
- --------------------------------------------------------------------------------
$ 1,190,236
================================================================================
8
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 5. CONTINUED OPERATIONS
The Company has suffered significant losses from operations in 1998 and 1997.
This raised substantial doubt about the Company's ability to continue as a going
concern. However, during the second quarter of 1999 the Company received new
orders totaling in excess of $3,000,000 and the Company signed a Merger
Agreement as described in Note 6. The Company's ability to continue as a going
concern would be adversely affected if the proposed merger is not consummated
and the financial support from Netzler & Dahlgren is withdrawn. Should the
merger not occur the Company would still require equity and/or debt financing in
the near future, unless revenues that can be financed by the banking community
increase substantially to consistently provide earnings for the Company.
Management is continuing to explore various ways to increase revenues and
minimize losses. These approaches include the following :
o Establish and develop strategic alliances with selected customers
o Pursue AGV system business in selected market niches
o Grow the distribution business by adding new supplementary products
o Expand the aftermarket sales business
o Explore raising additional equity directly and/or possibly through a business
combination
There can be no assurance that these approaches will be successful.
NOTE 6. PROPOSED MERGER
On September 13, 1999 the Company entered into a definitive agreement to
merge with a subsidiary of Portec, Inc. Portec, Inc. is a subsidiary of J
Richard Industries (See Company's 8K filing dated September 17, 1999). The
transaction is structured as a merger in which the newly-formed subsidiary of
Portec will merge with and into the Company, with the Company surviving as a
wholly owned subsidiary of Portec. In the merger, stockholders of the Company
will receive $0.75 per share in cash for a total transaction value in excess of
$2.5 million. The transaction is subject to customary conditions including
approval by the Company's shareholders. The transaction is expected to close in
the fourth quarter of the Company's 1999 fiscal year.
The Company retained Willamette Management Associates as its financial
advisor. Willamette has rendered its opinion to the Board of Directors that the
consideration to be paid in the merger is fair to the stockholders from a
financial point of view.
J Richard Industries, L.P. is a Toledo, Ohio-based manufacturer and
distributor of components used in the materials handling, sports, fitness and
automotive markets. Portec is a leading manufacturer of highly engineered
materials handling subsystems in the industrial automation market. Its products
include specialty conveyor systems such as power turns, spirals and chutes,
electronic wire guidance controllers for lift trucks, and conveyor systems used
in the material handling and sorting of recycled materials.
The merger is expected to primarily provide the financial support required
by NDCA to pursue its strategic business plan and, by combining complimentary
products of the Pathfinder division of Portec with that of the Company, the
combined entity should be in a position to better serve its existing and
potential customers.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements (including the notes thereto) presented elsewhere
herein.
OVERVIEW
The Company derives virtually all of its revenues from the sale of
hardware, software and engineering services in connection with projects
incorporating its Automated Guided Vehicle (AGV) control technology. In prior
years the Company's net revenues from AGV systems, vehicles and technology were
derived primarily from sales to customers serving two industries -- textiles and
newspaper publishing. Net revenues since 1995 however have been derived from
other industries, e.g. automotive, CD manufacturing, food, paper. The Company's
results of operations can be expected to continue to depend substantially upon
the capital expenditure levels in those industries and in other industries that
it may enter. During 1996 and for the first three quarters of 1997, the Company
refocused its sales efforts to existing original equipment manufacturers (OEMs)
and system integrators in the AGV systems industry. Such OEMs and system
integrators have historically sold products to end users to whom the Company
occasionally had direct sales. The Company reduced its sales effort to such end
users to avoid competing with its intended OEM customers. In September of 1997,
however, the Company began to again pursue AGV system sales in selected market
niches to supplement revenues obtained from sales to OEMs and system
integrators.
Due to the long sales cycle involved, uncertainties in timing of projects,
and the large dollar amount a typical project usually bears to the Company's
historical and current quarterly and annual net revenues, the Company has
experienced, and may be expected to continue to experience, substantial
fluctuations in its quarterly and annual results of operations.
The Company sells its products and services primarily in two ways.
Vehicles, technology and other products and services may be sold in a "project"
that becomes an integrated AGV system. Another way is to sell hardware, software
and services as standard items, with less involvement by the Company in overall
system design. The Company generally would recognize lower net revenue but would
realize a higher gross profit margin percentage in selling standard items, in
each case compared to the sale of a project, due to the inclusion in project
sales of other vendors' products and services with margins generally lower than
the Company's own products and services. Between any given accounting periods,
the levels of and mixture of standard item sales and project sales can cause
considerable variance in net revenues, gross profit, gross profit margin,
operating income and net income.
Revenues from standard item sales are recognized upon shipment, while
revenues from project sales are recognized under the "percentage of completion"
method. Under this method, with respect to any particular customer contract,
revenues are recognized as costs are incurred relative to each major component
of the project. Although the percentage of completion method will ordinarily
smooth out over time the net revenue and profitability effects of large
projects, such method nevertheless subjects the Company's results of operations
to substantial fluctuations dependent upon the progress of work on project
components. Such components can differ markedly from one another in amount and
in gross profit margin.
Project contracts are billed upon attainment of certain "milestones." The
Company grants payment terms of 30 to 90 days to its customers. It typically
receives a cash advance ranging from 10% to 30% of the total contract amount.
Bills are thereafter delivered as milestones are reached. Upon delivery of the
project, the customer typically reserves a "retainage" of 10% to 20% pending
system acceptance.
Notwithstanding the receipt by the Company of cash advances and periodic
payments upon reaching project milestones, the Company requires external
financing for its costs and estimated earnings in excess of billings on
uncompleted contracts, inventories, receivable and other assets.
The Company's backlog consists of all amounts contracted to be paid by
customers but not yet recognized as net revenues by the Company.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
PROPOSED ACQUISITION OF NDCA BY PORTEC: On September 13, 1999 the Company
entered into a definitive agreement to merge with a subsidiary of Portec, Inc.
Portec, Inc. is a subsidiary of J Richard Industries (See Company's 8K filing
dated September 17, 1999). The transaction is structured as a merger in which
the newly-formed subsidiary of Portec will merge with and into the Company, with
the Company surviving as a wholly owned subsidiary of Portec. In the merger,
stockholders of the Company will receive $0.75 per share in cash for a total
stock transaction value in excess of $2.5 million. In addition, as part of the
merger closing, the Company's bank debt (line of credit and mortgage) will be
paid in full as well as the Netzler & Dahlgren note payable. It is presently
estimated that such debt will be in excess of $1.3 million at closing. The
transaction is subject to customary conditions including approval by the
Company's shareholders. The transaction is expected to close in the fourth
quarter of the Company's 1999 fiscal year.
The Company retained Willamette Management Associates as its financial
advisor. Willamette has rendered its opinion to the Board of Directors that the
consideration to be paid in the merger is fair to the stockholders from a
financial point of view.
J Richard Industries, L.P. is a Toledo, Ohio-based manufacturer and
distributor of components used in the materials handling, sports, fitness and
automotive markets. Portec is a leading manufacturer of highly engineered
materials handling subsystems in the industrial automation market. Its products
include specialty conveyor systems such as power turns, spirals and chutes,
electronic wire guidance controllers for lift trucks, and conveyor systems used
in the material handling and sorting of recycled materials.
The merger is expected to primarily provide the financial support required
by NDCA to pursue it strategic business plan and by combining complimentary
products of the Pathfinder division of Portec, the newly formed entity should be
in a position to better serve its existing and potential customers.
STRATEGY DIVERSIFICATION: The Company has decided to pursue a strategy
diversification that is explained in note 5 of the financial statement. Positive
results from this diversification in terms of new business and increased
bookings and backlog have been noted, and the Company intends to continue this
strategy actively. However, there can be no assurance that these approaches will
continue to be successful.
HARCON AGREEMENT AND NEW ORDERS: On January 27, 1999 the Company signed an
agreement with Harcon Engineering, Inc. ("Harcon") of Roseville, Michigan with
the objective of jointly pursuing material handling systems projects, primarily
in the automotive industry. The Company received in January 1999 an order from
Harcon for the design phase of a major laser guided AGV system to be installed
at a new DaimlerChrysler facility in the Detroit area. The design phase order
together with manufacturing orders received in May of 1999 related to the
project increased the Company's backlog at May 31, 1999 to a the highest level
since November 1995. The recent orders confirm management's efforts to increase
revenues.
ENTERTAINMENT INDUSTRY AND POWERWAY PRODUCTS: The Company received during
the second quarter an order of approximately $130,000 for its Powerway products
from a major entertainment customer. The order is extremely important to the
Company because it was the first significant order for the Powerway product
line. The Powerway line was introduced as part of the Company's strategy to
expand its distribution revenues and profitability. This same major
entertainment customer ordered a pilot project involving the Company's AGV
technology outside North America . The Company does not generate revenues from
projects outside its territory (such sales per the Master License Agreement are
handled by Netzler & Dahlgren or their licenses) but these projects may provide
significant opportunities for the Company should similar projects be pursued in
North America. In September, 1999, the Company received an order in excess of
$500,000 for Schabmuler drives and Powerway products from the above pilot
project.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
RISK ASSOCIATED WITH YEAR 2000: The Company, in its day to day operations,
relies upon various computer software and hardware that may be adversely
affected by a change in the millennium, from 1999 to 2000. In general,
information systems experts have predicted that a wide variety of problems, from
system failures to data entry and transfer errors, will result from the turn of
the century. Repeated system failures, data entry and transfer errors and
similar computer problems would result in a material adverse effect on the
Company and its operations. However, the Company has examined most of its
computer hardware and software and, based on such examination, does not
anticipate any significant internal problems as a result of the change in
millennium.
The Company has assessed its accounting, network, communication and
other material systems for Y2K compliance. The investigation has revealed that
these systems are not Y2K compliant, but such software or hardware can be
purchased or upgraded to comply. The accounting software system was upgraded and
testing was completed in mid September 1999. Hardware systems are to be upgraded
or purchased and tested also by the end of October 1999. Costs associated with
the Company's Y2K compliance are estimated to be approximately $20,000 for
software upgrades and approximately $70,000 for hardware. The Company expects to
lease such upgrades and purchases for approximately $3,000 a month, which is in
line with management's operating and maintenance budgets.
The Company may, however, be adversely affected by external systems
problems, problems over which the Company has minimal control. In order to
minimize its risks, the Company is assessing critical third parties that supply
material or services to the Company. Such investigations include direct contacts
with such vendors and reviewing information supplied by such vendors through
Internet sites or direct mailings. To date the critical vendors are addressing
their Y2K issues and are at different phases in their plans. To date none have
communicated that they will have significant problems due to the change in the
millennium. The Company expects such work related to Y2K to continue with its
critical vendors until such vendors issue statements of full Y2K compliance.
The Company has also sent by registered mail to most of its critical
customers information on the Company's products, describing Y2K issues and
testing procedures. The Company has requested replies to a questionnaire
included in the mailing, which targets the Customer's Y2K AGVsystem readiness
and overall Y2K readiness. Responses to the mailing will help the Company assess
risk, plan for Y2K issues and provide the customer service required should any
Y2K issues arise. Results of the mailing are not yet complete, but the Company
expects to continue this Y2K related work until the end of the year.
It is difficult to provide a description of a worst case Y2K scenario.
There are many things that are beyond the Company's control such as local and
foreign government operations, as well transportation and delivery services. The
Company has to assume that there will not be an extended total break down of
common business operations in the USA and Europe; if this would occur, the
Company would not be in a position to operate as a going concern. In analyzing
the Company's current operations, the worst case scenario would most likely be
that the equipment and software it plans to purchase fails to solve its Y2K
issues. In such a situation the Company would be forced to a manual system of
operation which could be implemented in a relatively short period due to the
present size of the Company.
The Company's present contingency plan should a worst case scenario
event occur includes but is not limited to:
(a) Employee awareness and training for modified operations;
(b) Hard copy print outs and software backups of all information;
(c) Continued relations with a qualified Y2K specialist;
(d) Increased inventory of certain critical components to meet potential
demands from our customer service department; and
(e) Active information to and support of the Company's existing customer base
with regard to Y2K issues.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
FORWARD-LOOKING STATEMENTS: This report (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operation, plans,
objectives, future performance and business of the Company.
These forward-looking statements involve certain risk and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities:
a) Revenues from end user systems sales, new OEMs and new niches may be lower
than expected or delayed.
b) New product lines from Thrige, Netzler & Dahlgren (Teach-in), Powerway may
not be well received in the North American industrial truck market or AGV
market, thereby restricting growth opportunities for the Company.
c) The Company's existing bank relationships may not be extended which would
cause the Company to default on its current obligations.
d) The Company might be unable to raise the additional working capital needed,
directly or through a business combination, to finance the current business
strategy which may have a serious impact on the Company's ability to sell
its current and future products, as well as satisfy existing banking
relationships.
e) General economic or business conditions, either nationally or in the
markets in which the Company is doing business, may be less favorable than
expected resulting in, among other things, a deterioration of market share
or reduced demand for its products.
f) Y2K related problems could be greater than anticipated.
g) Proposed merger with Portec may not materialize due to Portec's withdrawal
or various other reason(s), e.g. a non-vote by the Company's stockholders
or a superior bid .
13
<PAGE>
RESULTS OF OPERATIONS
The table below shows (a) the relationship of income and expense items
relative to net revenues, and (b) the change between the comparable prior period
and current period, for the three-month and nine-month periods ended August 31,
1999 and 1998, respectively. This table should be read in the context of the
Company's condensed statements of income presented elsewhere herein:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Percentage of Change
Period to Period
Percentage of Net Revenues Increase(Decrease)
- ---------------------------------- ------------------------------------------------------ ----------------------------
Three Nine Months
Months Ended
Three Months Nine Months Ended August 31,
Ended Ended August 31,
August 31, August 31, August 31, August 31, 1998 to 1999 1998 to 1999
1999 1998 1999 1998 % %
% % % %
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Net Revenues 100.0 100.0 100.0 100.0 4.1 20.6
Cost of Goods Sold 63.7 55.6 59.4 57.8 19.5 23.9
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Gross Profit 36.3 44.4 40.6 42.2 (15.0) 16.1
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Operating expenses:
Selling 15.3 13.8 16.3 18.6 15.7 5.9
General and administrative 26.3 18.0 26.5 27.8 52.5 14.8
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
41.6 31.8 42.8 46.4 36.5 11.3
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Operating income (loss) (5.3) 12.6 (2.2) (4.2) * (37.5)
Net interest expense: (5.9) (3.6) (5.8) (6.7) 72.9 4.5
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes
(11.2) 9.0 (8.0) (10.9) * (11.7)
Federal and state income taxes
(benefit) - - - - - -
================================== ============= ============= ============= ============= ============= =============
Net Income (loss) (11.2) 9.0 (8.0) (10.9) * (11.7)
================================== ============= ============= ============= ============= ============= =============
</TABLE>
* Because the data changes from negative to positive, or from positive to
negative, the percentage of change is not meaningful.
QUARTER ENDED AUGUST 31, 1999 COMPARED TO THE QUARTER ENDED AUGUST 31, 1998
Net revenues increased by $44,878 or 4.1% from $1,085,698 in the earlier period
to $1,130,574 in the latter period. Revenues for the current quarter were
approximately even between project and distribution revenue. The Company present
backlog includes a large project order for an automotive plant. The Company
expects that revenues on this project will be recognized over the next six
months.
Cost of goods sold increased from $603,289 to $720,617 or 19.5% due higher
engineering cost and distribution purchased components compared to the prior
year. As a percentage of net revenues, cost of goods sold increased compared to
1998 due to the Company realizing a lower margin on its engineering revenues
compared to the prior year. Gross profit decreased by $72,452 or 15.0% from
$482,409 to $409,957 while gross profit as a percentage of net revenues
decreased to 36.3% from 44.4% due to the same factor. Such variations in %
margin are considered normal due to the revenue mix between project and
distribution.
Selling expenses increased from $149,702 to $173,124 or 15.7 % primarily due to
increased travel and personnel expenses compared to the prior year. General and
administrative expenses increased from $194,969 to $297,395, or 52.5% due
primarily to expenses to date totaling approximately $44,000 associated to the
proposed Portec merger. Other increases in costs include 1) a $12,000 software
maintenance charge for Y2K upgrades, 2)increases in rental cost and 3) other
expenses relating to personnel compared to the prior year. As a percentage of
net revenues, general and administrative expenses increased from 18.0% to 26.3%.
14
<PAGE>
Primarily as a result of the foregoing, operating income decreased by $193,148
from an operating income of $137,738 in the earlier period to an operating loss
of $60,562 in the latter period.
Net interest expense increased from $38,617 to $65,163, an increase of $25,546,
the increase was primarily due from accruing interest on delayed payments to
Netzler & Dahlgren's trade payables compared to the prior year .
Primarily due to lower margins and increase expenses in 1999 compared to 1998 as
mentioned above the Company incurred a net loss of $127,326 in 1999 compared to
a net income of $99,121 in 1998.
BACKLOG. Backlog consists of all amounts contracted to be paid by customers but
not yet recognized as net revenues by the Company. At August 31, 1999, the
Company had a backlog of approximately $2,350,000 compared to approximately
$900,000 one year earlier. The primary reason for the significant increase is
the receipt of a major order from Harcon in May 1999 for a major installation at
a DaimlerChrysler facility in Detroit. The backlog as of August 31, 1999 is very
good compared to prior years and positions the Company to improve its results
for the fiscal year ending 1999 compared to 1998 should the Company have
adequate financing.
NINE MONTHS ENDED AUGUST 31, 1999 COMPARED TO NINE MONTHS ENDED AUGUST 31, 1998
Net revenues increased by $561,572, or 20.6%, from $2,726,895 in the earlier
period to $3,288,467 in the latter period. The increase is primarily due to the
increased distribution product sales which include approximately $130,000 of
Powerway products and the Company's refocus on providing system solutions
(project revenues) to its customers thereby increasing such revenues compared to
the prior year.
Cost of goods sold increased from $1,575,874 to $1,952,155, or 23.9%, due
primarily to the higher level of net revenues recognized in 1999. As a
percentage of net revenues, cost of goods sold increased from 57.8% to 59.4%.
Gross profit increased by $185,291, or 16.1%, from $1,151,021 to $1,336,312,
while gross profit as a percentage of net revenues decreased from 42.2% to
40.6%.
Selling expenses increased from $506,555 to $536,580, or 5.9% primarily due to
increases in personnel and show expenses. General and administrative expenses
increased from $758,904 to $871,206, or 14.8%, compared to the prior year. The
increase was primarily due to increased expenses associated to the proposed
Portec merger, Y2K, rent expense for a new test facility, recruiting and other
personnel cost compared to the prior year.
Primarily as a result of the foregoing, the operating loss for the period was
$71,474 compared to an operating loss of $114,438 the prior year.
Net interest expense increased from $183,321 to $191,529 an increase of 4.5 %.
The Company did not recognize any tax benefits in 1999 domestically for its
current loss as utilization of operating loss carryforwards in the future are
not assured.
Primarily due to higher revenues in 1999 as described above, the Company reduced
its net loss by $34,756 or by 11.7% from $297,759 in 1998 to $263,003 in 1999.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company experiences needs for external sources of financing to support its
working capital, capital expenditures and acquisition requirements when such
requirements exceed its cash generated from operations in any particular fiscal
period. The amount and timing of external financing requirements depend
significantly upon the nature, size, number and timing of projects and
contractual billing arrangements with customers relating to project milestones.
The Company has relied upon bank financing under a revolving working capital
facility, as well as long-term debt and capital leases and proceeds of its
public offerings, and private offerings, to satisfy its external financing
needs.
During the nine months ended August 31, 1999 net cash provided from operating
activities was $428,966. As of August 31, 1999 the Company had been delaying
payments of approximately $300,000 in trade payables to Netzler & Dahlgren due
to cash not being available under the current line of credit. Had the funds been
available and Netzler and Dahlgren been paid when due, the net cash provided
from operating activities would have been approximately $128,966 for the nine
month period.
During the third quarter the Company's working capital decreased by $1,070,046
to a deficit of $904,987 on August 31, 1999 compared to a working capital of
$165,059 on May 31,1999. The large decline in the Company's working capital was
the result of the Company's mortgage becoming a current liability in June of
1999 (see Note 4 of the Company's Financial Statements).
The Company entered into an Inventory and Accounts Receivable Loan and Security
Agreement ("Loan Agreement") on February 28, 1997 with the National Bank of
Canada and National Canada Business Corp. (herein collectively called the
"Lender"). The Loan Agreement was amended and restated on April 30, 1999 and
allows the Company to borrow up to a maximum of $1,250,000. Loans made under the
new Loan Agreement are evidenced by a demand promissory Note. The Loan Agreement
allows the Company to borrow pursuant to a borrowing formula which is secured by
Company's personal property as collateral. The Company's outstanding loan amount
at any one time shall not exceed the lesser of (a) U.S $1,250,000 or (b) 80% of
i) Qualified Accounts receivable (as defined in the Loan Agreement) that are
non-project Qualified Accounts and ii) Qualified Accounts that are project
Qualified Accounts plus 50% of all eligible inventory ( as defined in the Loan
Agreement) , but in no event shall (A) Inventory Value be in excess of $300,000
and (B) Inventory Value and Qualified Accounts that are project Qualified
Accounts be in excess of $450,000. The borrowed funds will bear interest at the
Lender's prime rate plus 2.75% per annum. The Loan Agreement is further secured
by 1) an Inventory Repurchase Agreement and 2) a $450,000 irrevocable Letter of
Credit issued by a Swedish bank. Netzler & Dahlgren Co. AB (NDCab) is obligated
to repay the letter of credit bank any funds it disburses under the Letter of
Credit. The Company is ultimately responsible to repay to NDCab for any amounts
it pays in reimbursing the letter of credit bank. The Repurchase Agreement
guarantees that NDCab will repurchase from the Company on certain conditions up
to $300,000 worth of inventory, thereby providing funds to pay the Lender should
the Company default on its loan obligations.
The lender, at its discretion, may demand payment upon written notice to the
Company. The maturity date has been extended to October 31, 1999, or upon demand
by the Bank. The extension was conditional upon Netzler & Dahlgren extending its
$450,000 irrevocable Letter of Credit to the Bank through November 1, 1999. To
further secure Netzler & Dahlgren for providing the Letter of Credit the Company
entered into a Reimbursement Agreement under which the Company granted to
Netzler and Dahlgren a security interest in the Company's land and building;
such collateral is a junior lien to the primary mortgage lender's security
interest.
The Company's strategy depends heavily on securing project business to grow.
Such business is traditionally not financed by the banking community due to
perceived risk associated with such jobs. In addition, the Company was informed
that unless the Company's assets or equity were significantly higher and the
Company could show consistent earnings that such project receivable financing
would not be readily available. Under the present banking relationship the
Company can realistically only borrow approximately $250,000 for such project
receivables when the availability needed for inventory is taken into account. At
the end of August 1999 the Company had approximately $670,000 of such project
receivables which could not be fully utilized by the present borrowing formulae.
By not being able to fully utilize its project assets for the line of credit,
the Company experiences negative cash flows until such cash is received from the
customer. Due to the above factors the Company delayed payments of approximately
$300,000 to its affiliate Netzler & Dahlgren so not to exceed current borrowing
maximums from the demand promissory note. Such past due payable are accruing
interest at 16% per annum.
16
<PAGE>
The Company also continues to have difficulty obtaining an adequate line of
credit to meet its operating needs due to the poor results of the last two years
and the Company's low equity position. Bank relations have improved especially
since the new bookings received during the second quarter, but the banks are
still very cautious. This is evidenced by short extensions of credits, increased
interest rates and the continued requirement to have guarantees from Netzler &
Dahlgren. NETZLER & DAHLGREN, HOWEVER, CAN NO LONGER ACCEPT DELAYED PAYMENTS
FROM THE COMPANY AND DO NOT HAVE THE FINANCIAL RESOURCES TO PROPERLY FINANCE THE
GROWTH OF THE COMPANY UNDER THE CURRENT STRATEGY. NETZLER & DAHLGREN HAS ALSO
INDICATED THAT IT WILL NOT GUARANTEE THE COMPANY'S LOANS PAST FEBRUARY 2000,
WHICH AT THAT TIME COULD TERMINATE THE EXISTING LINE OF CREDIT.
The Company has been exploring the possibility of raising additional equity
capital, or subordinated debt, either directly or possibly through a business
combination, in order to improve its financial position, its independence and
have the working capital to address potential growth opportunities. Management
currently believes that its present working capital needs are close to or
greater than $1.5 million dollars. On September 13, 1999 the Company signed a
merger agreement with Portec, as described previously in this report. The merger
is expected to close by the end of November 1999 subject to shareholder
approval. Under the merger agreement all long-term debt and lines of credit
would be paid in full at closing. There can be no assurance that the Company
will be successful in closing with Portec, as the merger agreement allows the
buyer to withdraw should the financial condition of the Company materially
change. The merger is also subject to Shareholder approval (see the Company's
Form 8K filing of September 17, 1999). The Company's ability to continue as a
going concern would be adversely affected if the proposed merger is not
consummated and the financial support from Netzler & Dahlgren is withdrawn.
Should the merger not occur the Company would still require equity and/or debt
financing in the near future, unless revenues that can be financed by the
banking community increase substantially to consistently provide earnings for
the Company.
During May 1999, the mortgage loan maturity date was extended for thirteen
months from May 16, 1999 to June 16, 2000. The interest rate on the note
remained at 9.5%, and the combined principal and interest monthly payment of
$13,912 was also unchanged. The Company has made all payments on a timely basis
on the mortgage.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
Press Releases:
1) Merger Agreement between NDC Automation, Inc. and Portec, Inc.
dated September 13, 1999
2) Receipt of Purchase order received for Powerway products dated
September 28, 1999.
(b) Reports on Form 8-K
Definitive Merger Agreement between NDC Automation, Inc. and
Portec ,Inc. filed September 17,1999 on Form 8K.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NDC AUTOMATION, INC.
(Registrant)
BY: /s/ Ralph Dollander
--------------------------
Ralph Dollander
President
BY: /s/ Claude Imbleau
--------------------------
Claude Imbleau
VP - Finance & Administration
(Chief Financial Officer)
Date: September 30,1999
19
<PAGE>
EXHIBIT INDEX
The following documents are included in this Form 10-QSB as an Exhibit:
<TABLE>
<CAPTION>
<S> <C>
Designation Number
Under Item 601 of
Exhibit Number Regulation S-K Page Number
Exhibit Description
- ------------------- --------------------- ------------------------------------------------------------ ------------
(A) Exhibits:
1. 10 Press release of agreement and Plan of merger agreement by 21-22
and among NDC Automation, Inc., Hornett Acquistion Corp.
and Portec, Inc. dated September 13, 1999. (incorporated by
reference to Exhibit 1 to the Company's September 17, 1999
Form 8K)
2. 10 Agreement and Plan of Merger dated September 13, 1999 by -
and among NDC Automation, inc., Hornett Acquisition Corp.
and Portec, Inc. (incorporated by reference to Exhibit 2 to
the Company's September 17, 1999 Form 8K)
3. 10 Second Restated Master License Agreement between NDC -
Automation, Inc. and Netzler et Dahlgren CO.AB dated
September 13, 1999. (incorporated by reference to Exhibit 3
to the Company's September 17, 1999 Form 8K)
4. 10 Press release announcing major order for Powerway products 23
dated September 28, 1999.
5. 27 Financial schedule 24
</TABLE>
20
<PAGE>
EXHIBIT 1.
FOR IMMEDIATE RELEASE
September 13, 1999
NDC AUTOMATION, INC.
ANNOUNCES MERGER AGREEMENT WITH PORTEC
CHARLOTTE, NC, SEPTEMBER 13, 1999, NDC AUTOMATION, INC. (OTC BULLETIN BOARD
SYMBOL "AGVS"), (the "Company") announced today that it has signed a definitive
agreement to merge with a subsidiary of Portec, Inc. Portec, Inc. is a
subsidiary of J Richard Industries. The transaction is structured as a merger in
which the newly-formed subsidiary of Portec will merge with and into the
Company, with the Company surviving as a wholly owned subsidiary of Portec. In
the merger, stockholders of the Company will receive $0.75 per share in cash for
a total transaction value in excess of $2.5 million.
The transaction is subject to customary conditions including approval
by the Company's shareholders. The transaction is expected to close in the
fourth quarter of the Company's 1999 fiscal year.
The Company retained Willamette Management Associates as its financial
advisor, who has rendered its opinion to the Board of Directors that the
consideration to be paid in the merger is fair to the stockholders from a
financial point of view. The Board of Directors unanimously recommends that the
stockholders approve the merger.
Ralph Dollander, President of the Company, said: "This merger forms a
perfect strategic combination between the two companies. We are enthusiastic
about joining forces with Portec and the advantages the merger offers our
customers."
Lawrence Weber, President of J Richard Industries, L.P. said: "The
combination with NDC represents an exciting step in broadening our range of
services to our customer base. We are impressed with NDC's management and
engineering team as well as NDC's laser navigation technology, which is the most
advanced system in the field. By combining NDC's team with our Pathfinder
division, the combined operations will be better able to serve our valued
customers."
J Richard Industries, L.P. is a Toledo, Ohio-based manufacturer and
distributor of components used in the materials handling, sports, fitness and
automotive markets. Portec is a leading manufacturer of highly engineered
materials handling subsystems in the industrial automation market. Its products
include specialty conveyor systems such as power turns, spirals and chutes,
electronic wire guidance controllers for lift trucks, and conveyor systems used
in the material handling and sorting of recycled materials.
21
<PAGE>
NDC Automation, Inc. provides an integrated package of hardware and
software control technology and related products to be incorporated into and
used to control Automatic Guided Vehicle Systems (AGVS). Such generic controls
are designed for their flexibility and are well suited for a broad range of
vehicle types. The Company's sales are targeted to OEMs and system integrators,
which buy products and engineering services from the Company and incorporate
them into their material handling systems for industries in which they
specialize, as well as to end-users who buy complete AGVS solutions for their
material handling needs.
NDC's control technology is operating in over 7,000 vehicles worldwide
of which well over 1,000 are laser guided.
THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES AND
EXCHANGE ACT OF 1934. ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS.
================================================================================
For further information contact:
Ralph Dollander or Claude Imbleau
President Chief Financial Officer
704/362-1115
22
<PAGE>
EXHIBIT 4.
FOR IMMEDIATE RELEASE
SEPTEMBER 28, 1999
NDC Automation, Inc. Announces Receipt of Purchase Order for PowerWay(TM) and
Other Products
CHARLOTTE, NC, SEPTEMBER 28, 1999, NDC AUTOMATION, INC. (OTC BULLETIN BOARD
"AGVS", www.ndca.com) announced receipt of a purchase order for various AGV
system components including PowerWay(TM) batteries and chargers as well as drive
motors. The purchase order exceeds $500,000.
"We are extremely pleased by the acceptance of our PowerWay(TM) line of AGV
batteries and smart chargers, which we added to the NDCA product line last year.
For many years now, we have also acted as the exclusive North American
distributor for Schabmuller, a company with a long-standing reputation for
quality drives and motors. We strive to provide not only the best in AGV system
technology, but high quality products that compliment our technology as well",
says Ralph Dollander , President of NDC Automation, Inc.
NDCA provides an integrated package of controls technology and related products
to be incorporated into and used to control Automatic Guided Vehicle Systems
(AGVS). The Company also provides turnkey AGVS systems to end-users and to
system integrators. NDCA's controls hardware and software are designed for
optimal flexibility and accuracy and are well suited for a broad range of
vehicle types.
##
FOR FURTHER INFORMATION CONTACT:
RALPH DOLLANDER CLAUDE IMBLEAU
PRESIDENT V.P. FINANCE & ADMINISTRATION
23
<PAGE>
ARTICLE 5
CIK 0000859621
NAME NDC AUTOMATION, INC.
MULTIPLIER 1,000
<TABLE>
<S> <C>
PERIOD-TYPE 9-MOS
FISCAL-YEAR-END NOV-30-1999
PERIOD-START DEC-01-1998
PERIOD-END AUG-31-1999
CASH 66,303
SECURITIES 0
RECEIVABLES 875,181
ALLOWANCES 50,000
INVENTORY 498,743
CURRENT-ASSETS 1,436,768
PP&E 1,649,058
DEPRECIATION 625,776
TOTAL-ASSETS 2,460,050
CURRENT-LIABILITIES 2,341,755
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 34,534
OTHER-SE 83,761
TOTAL-LIABILITY-AND-EQUITY 2,460,050
SALES 3,288,467
TOTAL-REVENUES 3,288,467
CGS 1,952,155
TOTAL-COSTS 1,952,155
OTHER-EXPENSES 1,407,786
LOSS-PROVISION 0
INTEREST-EXPENSE (191,529)
INCOME-PRETAX (263,003)
INCOME-TAX 0
INCOME-CONTINUING (263,003)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (263,003)
EPS-BASIC (0.08)
EPS-DILUTED (0.08)
</TABLE>
<PAGE>
APPENDIX C
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
DATED SEPTEMBER 13, 1999
BY AND AMONG
NDC AUTOMATION, INC.
HORNETT ACQUISITION CORP.
AND
PORTEC, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I
THE MERGER...............................................................................................1
1.1 The Merger...............................................................................1
1.2 Consummation of the Merger...............................................................1
1.3 Effects of the Merger....................................................................2
1.4 Certificate of Incorporation; Bylaws.....................................................2
1.5 Directors and Officers...................................................................2
1.6 Time and Place of Closing................................................................2
1.7 Further Assurances.......................................................................2
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES........................................................................2
2.1 Conversion of Shares.....................................................................2
2.2 Exchange Procedures......................................................................3
2.3 Adjustment of Merger Consideration.......................................................4
2.4 Options, Warrants and Restricted Shares..................................................4
2.5 Dissenting Shares........................................................................5
ARTICLE III
REPRESENTATIONS AND WARRANTIES...........................................................................5
3.1 General Statement........................................................................5
3.2 Representations and Warranties of the Company............................................5
3.2.1 Organization and Authority....................................................5
3.2.2 Authority Relative to this Agreement and Related Matters......................6
3.2.3 Required Filings..............................................................6
3.2.4 No Conflicts..................................................................6
3.2.5 Capitalization................................................................7
3.2.6 SEC Reports...................................................................7
3.2.7 Financial Statements..........................................................7
3.2.8 Liabilities...................................................................8
3.2.9 Absence of Changes or Events..................................................8
3.2.10 Ownership of Properties......................................................10
3.2.11 Insurance....................................................................10
3.2.12 Related Parties. ...........................................................10
3.2.13 Tax Matters Definitions......................................................10
3.2.14 Returns......................................................................11
3.2.15 Tax Liabilities..............................................................11
3.2.16 Issues with Taxing Authorities...............................................11
3.2.17 Miscellaneous Tax Matters....................................................11
3.2.18 Permits......................................................................12
3.2.19 Significant Customers and Suppliers..........................................12
3.2.20 Contracts....................................................................12
i
<PAGE>
3.2.21 ERISA Matters................................................................14
3.2.22 Labor Relations..............................................................15
3.2.23 Absence of Litigation........................................................15
3.2.24 Product/Service Warranties...................................................16
3.2.25 Injunctions; Judgments.......................................................16
3.2.26 Compliance with Law..........................................................16
3.2.27 Environmental Matters........................................................16
3.2.28 Owned Real Estate............................................................17
3.2.29 Leased Premises..............................................................17
3.2.30 Matters Regarding Real Estate and Leased Premises............................18
3.2.31 Intellectual Property........................................................18
3.2.32 Year 2000 Compliance.........................................................18
3.2.33 Brokers......................................................................19
3.2.34 Fairness Opinion.............................................................19
3.2.35 Voting Requirements..........................................................19
3.2.36 Proxy Statement..............................................................19
3.2.37 State Takeover Statutes; Absence of Stockholder Rights Plan..................20
3.2.38 Certain Illegal Payments.....................................................20
3.2.39 Full Disclosure..............................................................20
3.3 Representations and Warranties of Parent and Purchaser..................................20
3.3.1 Organization and Authority...................................................20
3.3.2 Authority Relative to this Agreement.........................................20
3.3.3 Required Filings.............................................................20
3.3.4 No Conflicts.................................................................21
3.3.5 Financing....................................................................21
3.3.6 Proxy Statement..............................................................21
3.3.7 Financial Statements.........................................................21
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER AND ADDITIONAL COVENANTS.........................................21
4.1 Obligations of Each of the Parties......................................................21
4.2 Access..................................................................................22
4.3 The Company's Obligations...............................................................22
4.4 Proxy Statement; Other Regulatory Matters...............................................25
4.5 Stockholders' Meeting...................................................................25
4.6 Filings; Other Action...................................................................26
4.7 Acquisition Proposals...................................................................26
4.8 Board Action............................................................................27
4.9 Indemnification and Insurance...........................................................28
4.10 Stockholder Claims......................................................................28
4.11 Cooperation with Proposed Financing.....................................................28
4.12 State Takeover Laws.....................................................................28
ii
<PAGE>
ARTICLE V
CONDITIONS TO CLOSING; CLOSING DELIVERIES...............................................................29
5.1 Conditions to Each Party's Obligations..................................................29
5.2 Conditions to the Company's Obligations.................................................29
5.3 Conditions to Obligations of Parent and Purchaser.......................................29
5.4 Closing Deliveries......................................................................31
ARTICLE VI
TERMINATION/EFFECT OF TERMINATION.......................................................................31
6.1 Right to Terminate......................................................................31
6.2 Certain Effects of Termination..........................................................33
6.3 Remedies................................................................................33
6.4 Right to Damages; Expense Reimbursement.................................................33
ARTICLE VII
MISCELLANEOUS...........................................................................................34
7.1 Survival of Representations, Warranties and Agreements..................................34
7.2 Amendment...............................................................................34
7.3 Public Announcements....................................................................35
7.4 Notices.................................................................................35
7.5 Expenses; Transfer Taxes................................................................36
7.6 Entire Agreement........................................................................36
7.7 Non-Waiver..............................................................................36
7.8 Counterparts............................................................................36
7.9 Severability............................................................................36
7.10 Applicable Law..........................................................................37
7.11 Binding Effect; Benefit.................................................................37
7.12 Assignability...........................................................................37
7.13 Governmental Reporting..................................................................37
7.14 Defined Terms...........................................................................37
7.15 Headings................................................................................39
7.16 Interpretation..........................................................................39
</TABLE>
iii
<PAGE>
TABLE OF EXHIBITS
Exhibit A - Voting Agreement
Exhibit B - Form of Legal Opinion of Purchaser's Counsel
Exhibit C - Form of Legal Opinion of the Company's Counsel
Exhibit D - Employment Agreement with Ralph Dollander
TABLE OF SCHEDULES
Company Disclosure Schedule
Schedule 4.6 - Consents
iv
<PAGE>
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as
of this 13th day of September, 1999, by and among Portec, Inc., a Delaware
corporation ("Parent"), Hornett Acquisition Corp., a Delaware corporation
("Purchaser"), and NDC Automation, Inc., a Delaware corporation (the "Company").
RECITALS:
A. The respective boards of directors of Purchaser and the Company have
approved the merger of Purchaser into the Company on the terms and subject to
the conditions set forth in this Agreement (the "Merger") and the Delaware
General Corporation Law (the "DGCL");
B. Parent, Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
C. As a condition to their willingness to enter into this Agreement,
Purchaser and Parent have requested, and each of Netzler & Dahlgren Co. AB, a
limited liability Swedish corporation ("Netzler & Dahlgren"), Goran P.R.
Netzler, Jan H.L. Jutander, Arne Nilsson and Anders Dahlgren (each a
"Significant Stockholder") has executed and delivered, a Voting Agreement of
even date herewith (the "Voting Agreement") in the form of Exhibit A hereto;
D. Simultaneously with the execution hereof (i) Parent, the Company and
Netzler & Dahlgren have entered into a Second Restated Master License Agreement
of even date herewith (the "Amended License") and (ii) the Company and Ralph
Dollander have entered into an Employment Agreement (in the form of Exhibit D
hereto) to be effective as of the Effective Time.
A G R E E M E N T S
Therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. On the terms and subject to the conditions set forth in
this Agreement, at the Effective Time (as defined herein, and a cross-reference
to defined terms is set forth at Section 7.14 to this Agreement), in accordance
with this Agreement and the DGCL, Purchaser shall merge with and into the
Company, the separate existence of Purchaser shall cease and the Company shall
continue as the surviving corporation. The Company, in its capacity as the
corporation surviving the Merger, is sometimes referred to herein as the
"Surviving Corporation," and Purchaser and the Company are sometimes referred to
collectively herein as the "Constituent Corporations."
1.2 Consummation of the Merger. In order to effectuate the Merger, on
the Closing Date (as herein defined), the parties hereto will cause a
certificate of merger (the "Certificate of Merger") to be filed with the
Secretary of State of the State of Delaware of the DGCL, in such form as
required by, and executed in accordance with the DGCL. The Merger shall be
effective as of the time of filing of the Certificate of Merger (the "Effective
Time") in accordance with the DGCL.
1
<PAGE>
1.3 Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects provided in this Agreement and as set forth in Section
251 of the DGCL.
1.4 Certificate of Incorporation; Bylaws. At and after the Effective
Time, the Certificate of Incorporation and By-Laws of the Company as in effect
immediately prior to the Effective Time, shall be adopted as the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and shall thereafter
continue in effect until amended as provided therein and in accordance with the
DGCL.
1.5 Directors and Officers. At and after the Effective Time, the
directors and officers of Purchaser holding office immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation,
until their respective successors shall have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and By-Laws.
1.6 Time and Place of Closing. Subject to the provisions of Article V
and Section 6.1, the transactions contemplated by this Agreement shall be
consummated (the "Closing") at 10:00 a.m., prevailing business time, at the
offices of Altheimer & Gray, 10 South Wacker Drive, Chicago, IL on the day which
is three (3) business days after the first date on which each of the conditions
to Closing set forth in Article V hereof shall have been satisfied or waived
(and continue to be satisfied or waived), or on such other date, or at such
other place, as shall be agreed upon by the parties hereto. The date on which
the Closing shall occur in accordance with the preceding sentence is referred to
in this Agreement as the "Closing Date."
1.7 Further Assurances. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title and interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Company or Purchaser, or (ii) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either the Company or Purchaser, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of such
corporations, all such other acts and things as may be necessary, desirable or
proper to vest, perfect or confirm the Surviving Corporation's right, title and
interest in, to and under any of the rights, privileges, powers, franchises,
properties or assets of such corporations and otherwise to carry out the
purposes of this Agreement.
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES
2.1 Conversion of Shares. At the Effective Time, by virtue of the
Merger, and without any action on the part of the holders thereof:
2.1.1 Each share of common stock, $.01 par value, of the
Company (the "Common Stock") issued and outstanding immediately prior to the
Effective Time (other than Common Shares held as treasury shares by the Company
and Dissenting Shares (as defined herein)) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive $ 0.75 per share in cash, without interest (the "Merger
Consideration"). Each such share of Common Stock outstanding immediately prior
to the Effective Time shall be deemed to be no longer outstanding and shall
represent solely
2
<PAGE>
the right to receive the Merger Consideration upon surrender of the certificate
formerly representing the Common Stock in accordance with the provisions of this
section.
2.1.2 Each share of Common Stock issued and outstanding
immediately prior to the Effective Time which is then held as a treasury share
by the Company immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the Company, be canceled and
retired and cease to exist, without any conversion thereof.
2.1.3 Each share of common stock, par value $.01 per
share of Purchaser outstanding immediately prior to the Effective Time shall be
converted into and exchanged into one validly issued, fully-paid and
non-assessable share, $.01 par value, of the Surviving Corporation.
2.2 Exchange Procedures.
2.2.1 Immediately prior to the Effective Time, Purchaser
shall deposit with a paying agent mutually acceptable to Parent and the Company
(the "Paying Agent"), in trust for the holders of record of Common Stock
immediately prior to the Effective Time (the "Company Stockholders") cash in an
aggregate amount equal to the Merger Consideration (such deposit with the Paying
Agent pursuant to this paragraph is referred to as the "Payment Fund"). The
Payment Fund shall not be used for any purpose except as provided in this
Agreement.
2.2.2 As soon as practicable after the Effective Time,
the Surviving Corporation shall cause the Paying Agent to mail to each Company
Stockholder a letter of transmittal and instructions for use (the "Letter of
Transmittal") in effecting the surrender of certificates representing Common
Stock outstanding immediately prior to the Effective Time ("Certificates"). The
Letter of Transmittal shall be in appropriate and customary form, include
provisions stating that delivery shall be effected, and risk of loss and title
to such Certificates shall pass, only upon delivery of the Certificates to the
Paying Agent, provide instructions for effecting the surrender of such
Certificates in exchange for the Merger Consideration and provide such other
provisions as Purchaser may reasonably specify (including those provisions
described in this Section 2.2). Upon surrender of a Certificate for cancellation
to the Paying Agent, together with such Letter of Transmittal, duly and properly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefore the portion of the Merger Consideration represented by the
Certificate pursuant to Section 2.1.1 of this Agreement. If the Merger
Consideration (or any portion thereof) is to be delivered to any person other
than the person in whose name the Certificate representing Common Stock
surrendered in exchange therefor is registered on the record books of the
Company, it shall be a condition to such exchange that the Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such exchange shall pay to the Paying
Agent any transfer or other taxes required by reason of the payment of such
consideration to a person other than the registered holder of the Certificate
surrendered, or shall establish to the satisfaction of the Paying Agent that
such tax has been paid or is not applicable. No interest will be paid or will
accrue on the cash payable upon surrender of any Certificate. Until surrendered
as contemplated by this Section 2.2, each Certificate shall, at and after the
Effective Time, be deemed to represent only the right to receive, upon surrender
of such Certificate, the Merger Consideration with respect to the shares of
Common Stock represented thereby.
2.2.3 At and after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the Common Stock of
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be canceled and exchanged as provided in this Section 2.2. In the event of
a transfer of ownership of shares of
3
<PAGE>
Common Stock which is not registered in the transfer records of the Company,
payment may be made with respect to such Common Stock to such a transferee only
if the Certificate representing such shares of Common Stock is presented to the
Paying Agent, accompanied by all documents required to evidence and effect such
transfer and evidence that any applicable stock transfer taxes have been paid.
2.2.4 In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, upon the posting by such person of a bond in such
amount as the Surviving Corporation may reasonably direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Paying Agent will issue in respect of such lost, stolen or destroyed
Certificate, the Merger Consideration with respect to the shares of Common Stock
represented thereby.
2.2.5 Any portion of the Payment Fund which remains
unclaimed by the Company Stockholders for three (3) months after the Effective
Time shall be delivered to the Surviving Corporation upon demand of the
Surviving Corporation, and the holders of Common Stock shall thereafter look
only to the Surviving Corporation for payment of their claim for the Merger
Consideration in respect of their Common Stock. Neither the Company, Purchaser
nor the Surviving Corporation shall be liable to any holder of Common Stock for
any Merger Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
2.2.6 The Surviving Corporation or the Paying Agent shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of a Certificate surrendered for the
Merger Consideration such amount as the Surviving Corporation or the Paying
Agent is required to deduct and withhold with respect to the making of such
payment under the Code (as defined herein), or any provision of any state, local
or foreign tax law. To the extent that amounts are so deducted and withheld,
such amounts shall be treated for all purposes of this Agreement as having been
paid to the holder of such Certificate.
2.3 Adjustment of Merger Consideration. In the event of any
reclassification, stock split, stock dividend or other general distribution of
securities, cash or other property with respect to Common Stock (or if a record
date with respect to any of the foregoing should occur) on or after the date of
this Agreement and on or prior to the date of the Effective Time, appropriate
and equitable adjustments, if any, shall be made to the calculation of the
Merger Consideration and all references herein shall be deemed to be to the
Merger Consideration as so adjusted.
2.4 Options, Warrants and Restricted Shares. Immediately prior to the
Effective Time, each outstanding option to purchase Common Stock (each, a "Stock
Option") granted under the Company's 1997 Stock Option Plan (the "1997 Plan"),
1993 Stock Option Plan (the "1993 Plan") and 1990 Stock Option Plan (the "1990
Plan" and collectively with the 1997 Plan and the 1993 Plan, the "Plans") or
pursuant to any other stock option plan or agreement entered into by the Company
with any employee or director of the Company, whether or not then vested or
exercisable, shall be canceled, and each holder of a Stock Option shall be
entitled to receive as soon as practicable thereafter from the Company in
consideration for the cancellation of such Stock Option an amount in cash (less
applicable withholding taxes) equal to the product of (i) the number of Common
Shares previously subject to such Stock Option multiplied by (ii) the excess, if
any, of the Merger Consideration over the exercise price per Common Share
previously subject to such Stock Option. If the Merger Consideration is equal to
or less than the exercise price per Common Share previously subject to such
Stock Option, the consideration for the cancellation of such Stock Option shall
be nominal. The Company shall use reasonable efforts to obtain in writing the
consent of each holder of a Stock Option to
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the cancellation of the Stock Option held in accordance with the terms of this
Section 2.4 in a form reasonably satisfactory to Parent (the "Stock Option
Consents").
2.5 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, the shares of Common Stock outstanding immediately prior to the
Effective Time held by a holder who has not voted in favor of the Merger or
consented thereto in writing and who has demanded properly in writing appraisal
for such shares of Common Stock in accordance with Section 262 of the DGCL and
who shall not have withdrawn such demand or otherwise have forfeited appraisal
rights shall not be converted into or represent the right to receive the Merger
Consideration ("Dissenting Shares"). Such stockholders shall be entitled to
receive payment of the appraised value of such Common Shares held by them in
accordance with the provisions of such Section 262, except that all Dissenting
Shares held by stockholders who shall have failed to perfect or who effectively
shall have withdrawn or lost their rights to appraisal of such shares of Common
Stock held by them under such Section 262 shall thereupon be deemed to have been
converted into and to have become exchangeable, as of the Effective Time, for
the right to receive, without any interest thereon, the Merger Consideration,
upon surrender, in the manner provided in this Article II, of the Certificate or
Certificates that formerly evidenced such shares of Common Stock. The Company
shall give Parent and Purchaser prompt notice of any demands for appraisal
received by the Company, withdrawals of such demands, and any other instruments
served pursuant to Delaware law and received by the Company, and Parent and
Purchaser shall have the right to participate in all negotiations and
proceedings with respect to such demands. Prior to the Effective Time, the
Company shall not, except with the prior written consent of Parent and
Purchaser, make any payment with respect to any demands for appraisal, or settle
or offer to settle, any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 General Statement. The parties make the representations and
warranties to each other which are set forth in this Article III. All
representations and warranties of the Company are made subject to the exceptions
noted in the schedule delivered by the Company to Parent and Purchaser
concurrently herewith and identified by the parties as the "Company Disclosure
Schedule".
3.2 Representations and Warranties of the Company. The Company
represents and warrants to Parent and Purchaser that, except as set forth in the
Company Disclosure Schedule:
3.2.1 Organization and Authority. The Company (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware (ii) has all necessary corporate power and authority to
conduct its business as now being conducted or as proposed to be conducted; and
(iii) is duly qualified as a foreign corporation and in good standing in each
jurisdiction in which the nature of its business or the nature or location of
its assets require such qualification. Since November 30, 1996, the Company has
not (a) owned, directly or indirectly, any of the capital stock or other equity
interests, of any corporation, partnership, joint venture, limited liability
company or other legal entity, (b) had an interest in the assets of any
corporation, partnership, joint venture, limited liability company or other
legal entity or (c) had any other investment, direct or indirect, in any Person.
True and complete copies of the Certificate of Incorporation and Bylaws of the
Company are set forth as exhibits to the SEC Reports (as herein defined).
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3.2.2 Authority Relative to this Agreement and Related
Matters. The Board of Directors of the Company (the "Board") at a meeting duly
called and held has (A) determined that the Merger is advisable and fair to, and
in the best interests of, the Company and its stockholders, (B) approved this
Agreement, the Amended License and the Merger, (C) resolved to recommend to the
stockholders of the Company that they approve the Merger and (D) authorized the
preparation and filing of the Proxy Statement (as defined herein). The Company
has full corporate power and authority to enter into and perform this Agreement,
the Amended License and the other agreements to be entered into in connection
with this Agreement to which it is a party. The execution and delivery of this
Agreement and the Amended License by the Company and the performance by the
Company of its respective obligations hereunder and thereunder have been duly
authorized and approved by all requisite corporate action other than the
approval of the holders of a majority of the outstanding shares of Common Stock
voting at the Stockholders' Meeting (as herein defined) with respect to the
Merger. This Agreement and the Amended License have been duly executed and
delivered by duly authorized officers of the Company and constitute, when so
executed and delivered, valid legal and binding obligations of the Company
enforceable against it in accordance with its terms.
3.2.3 Required Filings. No consent, approval or
authorization of, or filing, registration, qualification, declaration or
designation ("Authorization") with or by, any federal, state, local or foreign
court, administrative agency, commission or other governmental authority or
instrumentality ("Governmental Entity") is required for the execution and
delivery by the Company of this Agreement or the consummation by the Company of
any of the transactions contemplated hereby, except for (i) the filing and
recordation by the Company of the Merger Certificate as required by the DGCL and
(ii) the filing with the United States Securities and Exchange Commission (the
"SEC") of the Proxy Statement (as defined herein) with respect to the Merger
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
3.2.4 No Conflicts. Neither the execution and delivery of
this Agreement by the Company, nor the consummation by Company of any of the
transactions contemplated hereby, will (i) conflict with or result in a breach
of any of the terms, conditions or provisions of the certificate, articles or
other instrument of incorporation or limited partnership or by-laws or agreement
of limited partnership or other similar instrument, or of any statute or
administrative regulation, or of any order, writ, injunction, judgment or decree
of a Governmental Entity or of any arbitration award to which the Company is a
party or by which the Company is bound, or (ii) violate, conflict with, breach,
constitute a default (or give rise to an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in the creation of any
lien or other claims, equities, security interests, preemptive rights, judgments
and other encumbrances ("Encumbrances") upon any of the properties or assets of
the Company under, any written or oral note, bond, mortgage, indenture, deed of
trust, license, lease, contract, agreement or other instrument or written or
oral obligation to which Company is a party or to which any of its respective
properties or assets are subject (each being an "Obligation"), except for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens or other Encumbrances that do not and could not, individually
or in the aggregate, (x) have a Material Adverse Effect (as defined herein) on
the Company, or (y) materially impair the ability of the Company to perform its
obligations under the Agreement. Without limiting the generality of the
foregoing, the Company is not subject to any Obligation pursuant to which timely
performance of this Agreement or any of the transactions contemplated hereby may
be prohibited, prevented or materially delayed. As used in this Agreement with
respect to a Person, "Material Adverse Effect" means an effect which involves
$50,000 or more on the business, operations (or results of operations),
condition (financial or otherwise), properties, assets, liabilities, or
prospects of such Person or its subsidiaries, and "Person" means an individual,
partnership, corporation, limited liability company, business, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Entity or other entity of whatever nature or a group, including any
pension, profit sharing or other benefit plan or trust.
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3.2.5 Capitalization. The authorized capital stock of the
Company consists solely of 11,000,000 shares of Common Stock and 1,000,000
shares of preferred stock, par value $.01 per share ("Preferred Stock"). As of
August 12, 1999, (i) 3,453,451 shares of Common Stock were outstanding, (ii) no
shares of Common Stock were held in the treasury of the Company, (iii) options
with respect to 249,027 shares of Common Stock had been granted, and an
additional 15,000 shares of Common Stock were reserved for issuance, in the
aggregate, under the Plans and (iv) no shares of Preferred Stock were
outstanding. There are no other shares of capital stock of the Company
authorized, issued or outstanding. All of the outstanding shares of Common Stock
have been validly issued and are fully paid and nonassessable and not subject to
preemptive rights. Except as set forth in this Section 3.2.5, there are no
subscriptions, options, stock appreciation rights, warrants, rights (including
preemptive rights), calls, convertible securities or other agreements or
commitments of any character relating to the issued or unissued capital stock or
other securities of the Company obligating the Company to issue, or register the
sale of, any securities of any kind. There are no agreements or obligations of
any kind or character to which the Company is a party, or as to which the
Company has knowledge, with respect to the voting of Common Stock or the
election of Directors to its Board ("Directors").
3.2.6 SEC Reports. The Company has timely filed (and has
delivered to Purchaser a true and complete copy of) each report, schedule,
registration statement and definitive proxy statement required to be filed or
filed by the Company with the SEC (including, without limitation, reports
required to be filed pursuant to Section 13(d) or 13(g) of the Exchange Act)
since January 1, 1995 (the "SEC Reports"). As of their respective dates, the SEC
Reports comply in all material respects with the requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the Exchange Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder, and none
of the SEC Reports, as of their respective dates, contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company has
corrected and updated, prior to the date hereof, all statements in the SEC
Reports which have required correction or updating, as the case may be, and have
filed all necessary amendments to the Company SEC Reports as required by
applicable law. As used in this Agreement, "to the best of the Company's
knowledge" or similar words shall mean the actual knowledge of senior management
of the Company upon due inquiry.
3.2.7 Financial Statements.
(a) Each of the financial statements (including the notes
thereto) included in the SEC Reports (the "Financial Statements") complies, as
of their respective dates, with all applicable accounting requirements and rules
and regulations of the SEC with respect thereto, has been prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-QSB of the SEC) and presents fairly in all
material respects the consolidated financial position of the Company at the
dates thereof and the consolidated results of its operations, cash flows and
changes in financial position for the periods indicated therein (subject, in the
case of the unaudited statements, to normal year-end audit adjustments). The
books, accounts and records of the Company are, and have been, maintained in
such Company's usual, regular and ordinary manner, in accordance with generally
accepted accounting practices, and all transactions to which the Company is or
has been a party are properly reflected therein.
(b) To the best of the Company's knowledge, (i) all trade
receivables and notes receivables of the Company reflected on the Financial
Statements or which arose subsequent to the date of the Financial Statements,
arose out of bona fide, arms-length transactions for the sale of goods or
performance of
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services, and (ii) all such trade receivables and notes receivable are good and
collectible (or have been collected) in the ordinary course of business using
normal collection practices at the aggregate recorded amounts thereof, less the
amount of applicable reserves for doubtful accounts and for allowances and
discounts. Since November 30, 1998, there has not been a material change in the
aggregate amount of the Company's trade receivables or a material adverse change
in the aging thereof, except as otherwise set forth in the SEC Reports filed
prior to the date hereof.
(c) To the best of the Company's knowledge, all inventory
of the Company which is held for sale or resale, including raw materials, work
in process and finished goods (collectively, "Inventory"), consists of items of
a quantity and quality historically useable and/or saleable in the normal course
of business, except for items of obsolete and slow-moving material and materials
which are below standard quality, all of which have been written down to
estimated net realizable value in the most recent Financial Statements filed
prior to the date hereof. With the exception of items of below standard quality
which have been written down to their estimated net realizable value, the
Inventory is free from material defects in materials and/or workmanship. Since
November 30, 1998, there has not been a material change in the level of the
Inventory. All Inventory is located at the Real Estate (as herein defined) and
the Leased Premises (as herein defined) or at the site of a vendor or in
transit.
3.2.8 Liabilities. The Company has no obligation or
liability of any kind or nature whatsoever (direct or indirect, matured or
unmatured, absolute, accrued, contingent or otherwise), whether or not required
by GAAP to be provided or reserved against on a balance sheet (all the foregoing
herein collectively being referred to as the "Liabilities"), except for:
(a) Liabilities specifically provided for or reserved
against in the balance sheet contained in the Financial Statements or
the balance sheet contained in the most recent interim financial
statements in a Company SEC Document filed prior to the date of this
Agreement (the "Interim Balance Sheet");
(b) Liabilities which have been incurred since the date of
the Interim Balance Sheet in the ordinary course of the Company's
business and consistent with past practice which are not material; and
(c) Liabilities under the executory portion of Permits (as
herein defined), Environmental Permits (as herein defined), licenses,
governmental directives, agreements and contracts issued or entered
into in the ordinary course of business.
3.2.9 Absence of Changes or Events. Except as specifically
disclosed in the SEC Reports filed prior to the date of this Agreement and
furnished to Purchaser, since November 30, 1998: (x) the Company has not
suffered or been threatened with (and the Company has no knowledge of any facts
which are reasonably likely to cause or result in) any material adverse change
in its business, operations (or results of operations), assets, properties,
liabilities or condition (financial or otherwise); and (y) the Company has
operated only in the usual and ordinary course of business consistent with past
practice. Without limiting the generality of the foregoing, since such date, the
Company has not:
(a) sold, assigned, leased, exchanged, transferred or
otherwise disposed of any material portion of its assets or property,
except in the usual and ordinary course of business consistent with
past practice;
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(b) suffered any material casualty, damage or loss, or any
material interruption in use, of any material assets or property
(whether or not covered by insurance), on account of fire, flood, riot,
strike or other hazard or Act of God;
(c) written off any material asset as unusable or
obsolete or for any other reason;
(d) made or suffered any material change in the conduct or
nature of its business (whether or not in the ordinary course of
business and whether or not such change would result in a Material
Adverse Effect on the Company);
(e) waived any material right or canceled or compromised
any material debt, other than in the ordinary course of business;
(f) paid, declared or set aside any dividends or other
distributions on its securities of any class or purchased or redeemed
any of its securities of any class;
(g) made any change in accounting methods or principles;
(h) made or committed to make capital expenditures in
excess of $40,000 in the aggregate;
(i) discharged any liability except in the usual and
ordinary course of business in accordance with past practices, or
prepaid any liability;
(j) entered into any transaction with, or made any payment
to, or incurred any liability to, any Related Party (as herein
defined);
(k) increased the compensation payable to any director,
officer or employee except for raises to nonofficers in the ordinary
course of business consistent with past practice;
(l) made any payments or distributions to its employees,
officers or directors except such amounts as constitute currently
effective compensation for services rendered, or reimbursement for
reasonable ordinary and necessary out-of-pocket business expenses;
(m) paid or incurred any management or consulting fees, or
engaged any consultants;
(n) elected any director or hired any officer or senior
employee;
(o) borrowed any money or issued any bonds, notes,
debentures or other evidence of indebtedness;
(p) acquired by merger, consolidation or acquisition of
stock or assets any Person or business;
(q) adopted, amended or terminated any Employee Benefit
Plan (as defined herein); or
(r) agreed in writing or otherwise to take any of the
foregoing actions.
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3.2.10 Ownership of Properties. The Company has good and
marketable title to its respective properties and assets purported to be owned
by it (including, without limitation, all assets reflected on the Financial
Statements) free and clear of any Encumbrances, except: (i) statutory liens for
Taxes not yet due, (ii) statutory liens of carriers, warehousemen, mechanics and
materialmen incurred in the ordinary course of business for sums not yet due;
(iii) liens incurred or deposits made in the ordinary course of business, in
connection with workers' compensation and unemployment insurance; and (iv) minor
imperfections of title which do not in the aggregate materially detract from the
value or use of the asset in question. The tangible personal property (other
than inventory) owned or leased by the Company and used in its businesses
constitutes all tangible personal property necessary in order to conduct such
businesses as they have been conducted in the past.
3.2.11 Insurance. Section 3.2.11 of the Company Disclosure
Schedule contains a true and correct list and description (including coverages,
deductibles and expiration dates) of all insurance policies which are owned by
the Company or which name the Company as an insured (or loss payee), including
without limitation those which pertain to the Company's assets, employees or
operations. All such insurance policies are in full force and effect and the
Company has not received notice of cancellation of any such insurance policies.
3.2.12 Related Parties. Section 3.2.12 of the Company
Disclosure Schedule describes each: (i) existing business relationship
(excluding employee compensation and other ordinary incidents of employment)
between (x) the Company, and (y) any present or former officer, director, or
Affiliate of the Company, any present or former known spouse, ancestor or
descendant of any of the aforementioned persons or any trust or other similar
entity for the benefit of any of the foregoing persons (all such persons and
trusts encompassed by this clause (y) being sometimes collectively referred to
herein as the "Related Parties" and individually as a "Related Party"); (ii)
transaction occurring since November 30, 1997, between the Company and any
Related Party; and (iii) amount owing by or to any of the Related Parties,
respectively, to or from the Company as of the date of this Agreement. No
property or interest in any property (including, without limitation, designs and
drawings concerning machinery) which relates to and is or will be necessary or
useful in the present or currently contemplated future operation of the
Company's business, is presently owned by or leased or licensed by or to any
Related Party. To the knowledge of the Company, no Related Party has an
interest, directly or indirectly, in any business which is in competition with
the Company's business. As used herein, the term "Affiliate" shall have the same
meaning as such term is defined in Rule 405 promulgated under the Securities
Act.
3.2.13 Tax Matters Definitions. As used in this Agreement,
the following terms shall have the following meanings:
(a) the term "Taxes" means all federal, state, local,
foreign, estimated and other net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits,
customs, duties or other taxes, fees, assessments or charges of any
kind whatever, together with any interest and any penalties, additions
to tax or additional amounts with respect thereto, and the term "Tax"
means any one of the foregoing Taxes;
(b) the term "Returns" means all returns, declarations,
reports, statements and other documents required to be filed in respect
of Taxes, and the term "Return" means any one of the foregoing Returns;
and
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(c) the term "Code" means the Internal Revenue Code of
1986, as amended.
All citations to the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments or any substitute or successor
provisions thereto.
3.2.14 Returns. To the best of the Company's knowledge,
there have been properly completed and filed on a timely basis and in correct
form all Returns required to be filed by the Company. As of the time of filing,
the Returns correctly reflected the facts regarding the income, business,
assets, operations, activities, status or other matters of such Company or any
other information required to be shown thereon. Except as disclosed in Section
3.2.14 of the Company Disclosure Schedule, an extension of time within which to
file any Return which has not been filed has not been requested or granted.
3.2.15 Tax Liabilities. With respect to all amounts in
respect of Taxes imposed upon the Company, or for which the Company is or could
be liable, whether to taxing authorities (as, for example, under law) or to
other persons or entities (as, for example, under tax allocation agreements),
with respect to all taxable periods or portions of periods ending on or before
the Closing Date, all applicable tax laws and agreements have been complied with
in all material respects, and all amounts required to be paid by the Company, to
taxing authorities or others, on or before the date hereof have been paid. To
the best of the Company's knowledge, the unpaid Taxes of the Company do not
exceed the reserve for tax liability with respect to the Company (excluding any
reserve for deferred Taxes established to reflect timing differences between
book and tax income) set forth or included in the SEC Reports as adjusted for
the passage of time through the Closing Date, in accordance with the past
practices of the Company.
3.2.16 Issues with Taxing Authorities. No issues have been
raised (and are currently pending) by any taxing authority in connection with
any of the Returns filed by the Company. No waivers of statutes of limitation
with respect to such Returns have been given by or requested from the Company.
Section 3.2.16 of the Company Disclosure Schedule sets forth (i) the taxable
years of the Company as to which the respective statutes of limitations with
respect to Taxes have not expired, and (ii) with respect to such taxable years,
sets forth those years for which examinations have been completed, those years
for which examinations are presently being conducted, those years for which
examinations have not been initiated, and those years for which required Returns
have not yet been filed. All deficiencies asserted or assessments made as a
result of any examinations have been fully paid, are fully reflected as a
liability in the SEC Reports or are being contested in good faith and an
adequate reserve therefor has been established and is fully reflected in the SEC
Reports.
3.2.17 Miscellaneous Tax Matters. The Company is not a
party to or bound by any tax indemnity, tax sharing or tax allocation agreement.
The Company has not agreed to make, nor is the Company required to make, any
adjustment under section 481(a) of the Code by reason of a change in accounting
method or otherwise. The Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of section 280G of the Code. All material elections with respect to Taxes
affecting the Company as of the date hereof are set forth in Section 3.2.17 of
the Company Disclosure Schedule. After the date hereof, no election with respect
to Taxes will be made without the written consent of Buyer. The transaction
contemplated herein is not subject to the tax withholding provisions of Section
3406 of the Code, or of Subchapter A of Chapter 3 of the Code, or of any other
provision of law. The unpaid Taxes of the Company do not exceed the reserve for
tax liability (excluding any reserve for deferred Taxes established to reflect
timing differences between book and tax income) set forth or included in the
Company's most recent balance
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sheet, as adjusted for the passage of time through the Closing Date, in
accordance with the past custom and practice of the Company.
3.2.18 Permits. Section 3.2.18 of the Company Disclosure
Schedule contains a true and correct copy of every governmental license, permit,
registration, approval and consent applied for, pending by, issued or given to
the Company, and every agreement with governmental authorities (federal, state,
local or foreign) entered into by the Company, which is in effect or has been
applied for or is pending (the "Permits"). The Permits constitute all
governmental licenses, permits, registrations, approvals and agreements and
consents which are required in order for the Company to conduct its business as
presently conducted. None of the foregoing will cease to be in full force and
effect by virtue of the entry into this Agreement or the consummation of the
transactions contemplated hereby.
3.2.19 Significant Customers and Suppliers. The Company
has no knowledge of any intention or indication by a Significant Customer (as
herein defined) that such Significant Customer intends to terminate its business
relationship with the Company or to limit or alter its business relationship
with the Company in any material respect. The Company has no knowledge of any
intention or indication of intention by a Significant Supplier (as herein
defined) to terminate its business relationship with the Company or to limit or
alter its business relationship with the Company in any material respect. As
used herein, (x) "Significant Customer" means any of the five largest customers
of the Company, measured in terms of sales volume in dollars for the current
fiscal year and (y) "Significant Supplier" means any supplier of the Company
from whom the Company has purchased $50,000 or more of goods during for the
current fiscal year for use in the Company's business.
3.2.20 Contracts. Except as set forth in Section 3.2.20 of
the Company Disclosure Schedule or filed as an exhibit to the SEC Reports filed
prior to the date hereof, the Company is not a party to, or bound by, any
undischarged written or oral:
(a) employment or consulting agreement which is not
terminable by the Company at will without premium or penalty or other
payment;
(b) collective bargaining agreement;
(c) plan or contract or arrangement providing for bonuses,
options, stock appreciation rights, deferred compensation, retirement
payments, stock purchases, severance, split dollar insurance programs,
profit sharing, medical and dental benefits or the like covering
employees of the Company;
(d) agreement between the Company and any of its
Affiliates or other Related Parties;
(e) agreement of agency, representation, distribution, or
franchise which cannot be canceled by the Company without payment or
penalty upon notice of thirty (30) days or less;
(f) agreement for the advertisement, display, or promotion
of any of the Company's products or services which cannot be canceled
by the Company without payment or penalty upon notice of thirty (30)
days or less;
(g) service agreement affecting any of the Company's
assets where the annual service charge is in excess of $20,000 or has
an unexpired term as of the Closing Date in excess of thirty (30) days;
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(h) material agreement or order for the sale of goods or
the performance of services sold or performed by the Company which, if
performed in accordance with its terms, could only be performed with a
gross profit of 10% or less;
(i) contract with any railroad or other transportation
company;
(j) lease or sublease, either as lessee or sublessee,
lessor or sublessor, of real or personal property or intangibles, where
the lease or sublease provides for annual payments (whether to be made
or received) in excess of $20,000 and has an unexpired term as of the
date hereof in excess of one (1) year;
(k) guaranty performance, bid or completion bond, or
surety or indemnification agreement;
(l) loan or credit agreement, pledge agreement, note,
security agreement, mortgage, debenture, indenture, factoring
agreement, credit card agreement, letter of credit or banker's
acceptance;
(m) agreement for the purchase, sale or removal (as the
case may be) of electricity, gas, water, telephone, coal, sewage, or
other utility service;
(n) governmental order or directive;
(o) agreement for the treatment or disposal of hazardous
materials;
(p) partnership or joint venture agreement;
(q) lease which is required by GAAP to be classified as a
capital lease;
(r) reciprocal easement or operating agreement with
respect to any parcel of the Real Estate (as defined herein) or any of
the Leased Premises (as defined herein);
(s) secrecy or confidentiality agreement, other than those
agreements customarily included in sales or service contracts;
(t) agreement restricting in any manner the right of the
Company to compete with any other Person, to sell to or purchase from
any other Person or to employ any Person;
(u) rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index
swap, equity or equity index option, bond option, interest rate option,
foreign exchange transaction, cap transaction, floor transaction,
collar transaction, currency swap transaction, cross- currency rate
swap transaction, currency option or any other similar transaction
(including any option with respect to any of these transactions), or
any combination of these transactions;
(v) supply or requirements contract; or
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(w) agreement or arrangement not specifically enumerated
above concerning or which provides for the receipt or expenditure of
more than $25,000, except agreements for the sale of goods or rendering
of services entered into by the Company in the ordinary course of its
business.
Such agreements, leases, subleases and other instruments or arrangements
disclosed in response to this Section 3.2.20, the "Contracts," and each a
"Contract," are in full force and binding upon the Company and, to the Company's
knowledge, the other parties thereto. Neither the Company on the one hand, nor
any of the other parties thereto, on the other hand, are in monetary or material
nonmonetary default under any Contract. No event, occurrence or condition exists
which, with the lapse of time, the giving of notice, or both, or the happening
of any further event or condition, would become a default under any Contract by
the Company, on the one hand, or the other contracting party, on the other hand.
The Company has not released or waived any of its respective rights under any
Contract. The Company is not subject to any legal obligation to renegotiate, nor
does the Company have knowledge of a claim for a legal right to renegotiate, any
contract, loan, agreement, lease, sublease or instrument to which it is now or
has been a party.
3.2.21 ERISA Matters.
(a) Neither the Company nor any affiliate of the Company
within the meaning of Code Section 414(b), (c), (m) or (o) ("ERISA
Affiliate") maintains, administers or contributes to, or has any
liability with respect to, nor do the employees of the Company or any
ERISA Affiliate receive, or will be entitled to receive as a condition
of employment, benefits pursuant to any employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), whether or not excluded from coverage
under specific Titles or Subtitles of ERISA), including, without
limitation, any multiemployer plan (as defined in section 3(37) of
ERISA) ("Multiemployer Plan"), or bonus, deferred compensation, stock
purchase, stock option, stock appreciation, severance, salary
continuation, vacation, holiday, sick leave, fringe benefit,
reimbursement program employee discount, personnel policy, allowances,
incentives, insurance, welfare or similar plan, program, policy or
arrangement except as identified in Section 3.2.21 of the Company
Disclosure Schedule (the "Employee Benefit Plans").
(b) Neither the Company nor any ERISA Affiliate has
maintained, administered or contributed to any pension plan subject to
Title IV of ERISA or any Multiemployer Plan.
(c) Each Welfare Plan which is a group health plan (within
the meaning of section 5000(b)(1) of the Code) complies with and has
been maintained and operated in accordance with each of the
requirements of section 4980B of the Code, Part 6 of Subtitle B of
Title I of ERISA and applicable state law. The Disclosure Schedule sets
forth the individuals with rights to continuation coverage under
section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA
or state law, including those individuals within the applicable
election period. Except as required by Section 4980B of the Code,
neither the Company nor any ERISA Affiliate has promised any former
employee or other individual not employed by the Company or any ERISA
Affiliate medical or other benefit coverage and neither the Company nor
any ERISA Affiliate maintains or contributed to any plan, program,
policy or arrangement providing medical or life insurance benefits to
former employees, their spouses or dependents or any other individual
not employed by the Company or any ERISA Affiliate. No Employee Benefit
Plan has any provision which could increase or accelerate benefits or
increase the liability of the Company as a result of any transaction
contemplated by this Agreement.
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(d) To the best of the Company's knowledge, neither any
fiduciary of any Employee Benefit Plan nor any Employee Benefit Plan
(excluding each Multiemployer Plan and its fiduciaries) has engaged in
any transaction in violation of Section 406 of ERISA or any "prohibited
transaction" (as defined in Section 4975(c)(1) of the Code) unless
exempt under Section 408 of ERISA or section 4975 of the Code.
(e) Each Employee Benefit Plan complies in all material
respects with and is and has been operated in all material respects in
accordance with its terms and each applicable provision of ERISA, the
Code, other federal statutes, state law and the regulations and rules
thereunder. With respect to each Employee Benefit Plan intended to
qualify under Section 401(a) of the Code, a favorable determination as
to such qualification of such Employee Benefit Plan and each amendment
thereto has been made by the Internal Revenue Service, each such
Employee Benefit Plan remains qualified under the Code and no event has
occurred, either by reason of any action or failure to act, which would
cause the loss of any such qualification. Each trust funding any
Employee Benefit Plan is and has been tax-exempt. Neither the Company
nor any ERISA Affiliate has failed to make any contributions or pay any
amounts required on or before the Closing Date by the terms of any
Employee Benefit Plan, collective bargaining agreement, ERISA or any
other applicable law.
(f) True and complete copies of each Employee Benefit
Plan, related trust agreements, annuity contracts, determination
letters, the most recent determination letter request, summary plan
descriptions, annual reports on Form 5500, Form 990, actuarial reports
and Pension Benefit Guaranty Corporation Forms 1 for the most recent
three (3) plan years, and each plan, agreement, instrument and
commitment referred to herein has been previously furnished to
Purchaser. The annual reports on Form 5500 and Form 990 and actuarial
statements furnished to the Company fully and accurately set forth the
actuarial condition of the respective Employee Benefit Plan, as may be
applicable.
(g) There are no pending or, to the knowledge of the
Company, any threatened claims by or on behalf of any Employee Benefit
Plan by any employee or beneficiary covered under any Company Plans or
Company Benefit Plans or otherwise involving any Company Plan or
Company Benefit Plan (other than routine claims for benefits).
(h) With respect to employees of the Company, the Company
is and has been in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, including, without
limitation, any such laws respecting employment discrimination,
occupational safety and health, and unfair labor practices.
3.2.22 Labor Relations. The Company is not a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company, and there are no known organizational
campaigns, petitions or other unionization activities seeking recognition of a
collective bargaining unit. There are no strikes, slowdowns, work stoppages or
material labor relations controversies pending or, to the knowledge of the
Company, threatened between the Company and any of its employees, and the
Company has not experienced any such strike, slowdown, work stoppage or material
controversy within the past three years.
3.2.23 Absence of Litigation. Except as set forth in the
SEC Reports filed prior to the date hereof, there is no litigation or
proceeding, in law or in equity, and there are no proceedings or governmental
investigations before or by any Governmental Entity, pending or, to the
Company's knowledge,
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threatened against the Company or any of the officers, directors or employees of
the Company, which, if decided adversely to the Company, officer, director or
employee could have a Material Adverse Effect on the Company or would materially
impair the consummation of any of the transactions contemplated hereby. There
are no facts which, if known by a potential claimant or governmental authority,
would give rise to a claim or proceeding which, if asserted or conducted with
results unfavorable to the Company, would have a Material Adverse Effect on the
Company or would materially impair the consummation of any of the transactions
contemplated hereby.
3.2.24 Product/Service Warranties. The Company has not
made any oral or written warranties with respect to the quality or absence of
defects of its products or services which it has sold or performed which are in
force as of the date hereof, except for those warranties which are described in
Section 3.2.24 of the Company Disclosure Schedule. There are no material claims
pending, or to the best of the Company's knowledge, threatened against the
Company with respect to the quality of or absence of defects in such products or
services. The Company has no knowledge or reason to believe that the percentage
of products sold and services performed by the Company for which warranties are
presently in effect and for which warranty adjustments can be expected during
unexpired warranty periods which extend beyond the Closing Date will be higher
than the percentage of such products and services which the Company has sold and
performed for which warranty adjustments have been required in the past.
3.2.25 Injunctions; Judgments. The Company is not a party
to, or bound by, any judgment, writ, injunction, decree, order or arbitration
award (or agreement entered into with any Governmental Entity in connection with
any administrative, judicial or arbitration proceeding) with respect to or
affecting the properties, assets, personnel or business activities of the
Company, the enforcement or operation of which or compliance with which could
have a Material Adverse Effect on the Company, or would restrict the operations
of the Company or the ability of the Company to engage in any lines of business,
in either case, in a material manner.
3.2.26 Compliance with Law. The Company is not in
violation of, in noncompliance with, or delinquent with respect to, any
judgment, writ, injunction, decree, order or arbitration award or law, statute,
or regulation of or agreement with, or any permit from, any Governmental Entity
to which the property, assets, personnel or business activities of the Company
are subject, which violation, noncompliance or delinquency could have a Material
Adverse Effect on the Company.
3.2.27 Environmental Matters.
(a) The Company is and at all times has been, and all real
property currently or previously owned, leased, occupied, used by or
under the control of the Company, and all operations or activities of
the Company (including those conducted on or taking place at any of
such real property) are and at all times have been, in material
compliance with and not subject to any material liability or obligation
under any Environmental Law or Environmental Permit. As used in this
Agreement, "Environmental Laws" means all applicable federal, state or
local laws, rules, regulations or principles of common law relating to
protection of health and safety, pollution, and environmental matters
of any kind whatsoever, including with respect to the storage,
treatment, generation, transportation, spillage, discharge, leakage or
other release or threatened release of any material, substance or waste
of any kind whatsoever; and "Environmental Permits" means any permits,
licenses, registrations, notifications, consents, agreements or
approvals required under any Environmental Law. To the best of the
Company's knowledge, there is no condition or circumstance regarding
the Company or its business or any such real property or the operations
or activities thereon, which, with
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the passing of time or upon notice to any other party, is possible of
giving rise to a material violation of, or material liability or
obligation under, any Environmental Law or Environmental Permit. To the
best of the Company's knowledge, neither the Company nor any Person,
the acts or omissions of which may be attributable to, or the
responsibility of, or liability to, the Company has, or has arranged to
have, any material, substance or waste treated, stored or disposed of
at, or transported to, any facility or property the remediation or
cleanup of which, or the response costs related thereto, could be
attributed in any manner to, or otherwise become responsibilities of or
liabilities to, the Company. There are no allegations, claims, demands,
citations, notices of violation, or orders of noncompliance made
against, issued to or received by the Company within the past (5) years
relating or pursuant to any Environmental Law or Environmental Permit
except those which have been corrected or complied with, and no such
allegation, claim, demand, citation, notice of violation or order of
noncompliance is to the best knowledge of the Company threatened,
imminent or likely.
(b) To the best of the Company's knowledge, Section 3.2.27
of the Company Disclosure Schedule sets forth a complete list of any
storage, treatment, generation, transportation or release of any
hazardous materials with respect to the business by the Company or its
predecessors in interest, or by any other person or entity for which
the Company is or may be held responsible, at any Facility (as herein
defined) or any Offsite Facility (as herein defined) in violation of,
or which could give rise to any material obligation under,
Environmental Laws. "Facility" means any facility as defined in the
Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. 9601, ET SEQ., as amended and reauthorized ("CERCLA"), and
forming part of the Company. "Offsite Facility" means any Facility
which is not presently, and has not heretofore been, owned, leased or
occupied by Seller with respect to the Business.
(c) To the best of the Company's knowledge, Section 3.2.27
of the Company Disclosure Schedule sets forth a complete list of all
Containers (as herein defined) that are now present at, or have
heretofore been removed from, the Real Estate or Leased Premises. All
Containers which have been heretofore removed from the Real Estate or
Leased Premises have been removed in accordance with all applicable
Environmental Laws and environmental requirements. "Containers" means
above-ground and under-ground storage tanks, vessels and related
equipment and containers.
3.2.28 Owned Real Estate. The Company does not own any
real estate or any interest in real estate other than the premises identified
(including by street address) in Section 3.2.28 of the Company Disclosure
Schedule as being so owned (the "Real Estate"). The Company has good and
marketable fee simple title to its Real Estate, subject only to general real
estate taxes not delinquent and to Encumbrances, covenants, conditions,
restrictions and easements of record, none of which makes title to any of such
Real Estate unmarketable and none of which are violated by or interfere with the
Company's use or occupancy thereof. None of the Real Estate is subject to any
leases or tenancies. To the best of the Company's knowledge, none of the
improvements comprising the Real Estate or the businesses conducted by any of
the Company thereon, are in violation of any use or occupancy restriction,
limitation, condition or covenant of record or any zoning or building law, code
or ordinance or public utility easement. No material expenditures are required
to be made for the repair or maintenance of any improvements on any of the Real
Estate. Each facility located on the Real Estate currently is served by gas,
electricity, water, sewage and waste disposal and other utilities adequate to
operate such facility at its current rate of production.
3.2.29 Leased Premises. The Company does not lease (or
have any commitment to lease) any real estate other than the premises identified
in Section 3.2.29 of the Company Disclosure Schedule as being so leased (the
"Leased Premises"). The Leased Premises are leased to the Company pursuant to
written
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leases, true, correct and complete copies of which have been delivered to
Purchaser prior to the date hereof or are contained in the SEC Reports. To the
best of the Company's knowledge, the improvements comprising the Leased
Premises, and the businesses conducted by the Company thereon, are not in
violation of any use or occupancy restriction, limitation, condition or covenant
of record or any zoning or building law, code or ordinance or public utility or
other easements. No material expenditures are required to be made for the repair
or maintenance of any improvements on the Leased Premises. The Company is not in
default under any agreement relating to the Leased Premises nor, to the
Company's knowledge, is any other party thereto in default thereunder and no
event, occurrence or condition exists which, with the lapse of time, the giving
of notice, or both, or the happening of any further event or condition, would
become a default under any such instrument. All options in favor of, or which
obligate, the Company to purchase any of the Leased Premises or any other real
estate, if any, are described in Section 3.2.29 of the Company Disclosure
Schedule. All Persons (other than the Company or the owners of any of the Leased
Premises) having any interest (economic or otherwise) in any of the Leased
Premises are set forth in Section 3.2.29 of the Company Disclosure Schedule.
3.2.30 Matters Regarding Real Estate and Leased Premises.
There are no condemnation proceedings pending or, to the best of the Company's
knowledge, threatened with respect to any portion of the Real Estate or the
Leased Premises. The buildings and other facilities located on the Real Estate
and the Leased Premises are free of any patent structural or engineering defects
and, to the knowledge of the Company, are free of any latent structural or
engineering defects.
3.2.31 Intellectual Property. Section 3.2.31 of the
Company Disclosure Schedule sets forth all Intellectual Property (as defined
herein) material to the conduct of the business of the Company and the Person
which is the owner or licensee thereof. The Company is the owner of all right,
title and interest in such Intellectual Property or is duly licensed to use such
Intellectual Property. All Intellectual Property which is registrable has been
duly registered, or is in the process of being registered, and is valid and has
been maintained in good standing. To the best of the Company's knowledge, no
Intellectual Property has infringed, infringes or in any material way has
damaged or damages any of the rights, title or interests of any third party (nor
has any third party given the Company notice of any claimed infringement or
damage). To the best of the Company's knowledge, all copyrightable works of
employees, representatives or other persons paid or commissioned by the Company
which constitute a part of the Intellectual Property were original creations by
such persons. To the best of the Company's knowledge, no Intellectual Property
has been, is currently or is anticipated by the Company to be infringed upon or
in any way damaged by any third party. To the extent that any Intellectual
Property is licensed, such license is legal, valid, binding and fully
enforceable. "Intellectual Property" means all of the following, whether owned,
used or licensed: (i) all common law, federally registered, state registered and
foreign trademarks and service marks and all applications for federal, state or
foreign registration of trademarks or service marks, (ii) all slogans, trade
dress and trade names, (iii) all proprietary know-how and methods, (iv) all
trade secrets, (v) all federal and foreign patents and patent applications, (vi)
all copyright registrations and any unregistered copyright material and (vii)
all computer software.
3.2.32 Year 2000 Compliance. Except as set forth in
Section 3.2.32 of the Company Disclosure Schedule, all of the Company's
Information Technology (as defined below), and, to the best of the Company's
knowledge, all Information Technology of the EDI Parties (as defined below),
Significant Suppliers and Significant Customers, is and shall be Year 2000
Compliant (as defined below). Section 3.2.32 of the Company Disclosure Schedule
contains true and correct copies of all written (and descriptions of all verbal)
certifications, assurances, statements, representations, warranties and
covenants concerning Year 2000-related compliance matters which the Company has
given, has been asked to provide, has received or has requested.
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Section 3.2.32 of the Company Disclosure Schedule contains a list of all
suppliers, customers and other third parties with whom the Company exchanges (as
provider or recipient) information electronically ("EDI Parties"). The Company
has developed (i) a testing and compliance program, and (ii) a contingency plan,
in each case regarding Year 2000-related matters pertaining to the Company's
Information Technology and that of the EDI Parties. To the best of the Company's
knowledge, such program and plan, copies of which are attached to Section 3.2.32
of the Company Disclosure Schedule, are adequate to prevent a material adverse
effect upon the Company as a consequence of any Information Technology of the
Company and/or the EDI Parties not being Year 2000 Compliant from and after the
date hereof through March 31, 2001. "Year 2000 Compliant" means (i) with respect
to data that includes date or time information or that is otherwise derived from
or dependent upon date or time information ("Date Data"), that such data is in
proper format and accurate for all dates and times (A) from, into and between
the twentieth and twenty-first centuries, (B) from and into date values
representing September 9, 1999, and (C) for date values representing dates
during leap years, and (ii) with respect to all Information Technology of a
Person, that such Information Technology accurately processes (including,
without limitation, calculating, receiving, comparing, sequencing, storing,
transmitting or displaying) Date Data, including processing such data described
in clauses (A) through (C) of clause (i) hereof, without loss of any
functionality or performance, when used as a stand-alone system or in
combination with other software, hardware, system, component, equipment,
embedded chips or other information technology. "Information Technology" means,
with respect to a Person, all systems, software, hardware, information
technology, microcode, embedded chips, and all electronic or electronically
controlled systems, machinery or components reliant on or included within the
foregoing, which are owned, leased, licensed or used by such Person, including,
without limitation, items of the foregoing description related to the product,
facilities, equipment, manufacturing and order entry processes, quality control
activities, accounting and bookkeeping, records and record-keeping activities of
such Person.
3.2.33 Brokers. No broker, finder, investment banker or
other Person is entitled to a broker's commission, finder's fee, investment
banker's fee or similar payment from the Company in connection with the Merger
or any of the transactions contemplated hereby.
3.2.34 Fairness Opinion. The Company has received the
written opinion of Williamette Management Associates (the "Fairness Opinion") on
the date of this Agreement to the effect that, as of the date of this Agreement,
the Merger Consideration is fair to the Company Stockholders from a financial
point of view. The Company has provided a true and correct copy of the Fairness
Opinion to Purchaser. The Company is authorized by Williamette Management
Associates to include a copy of such opinion in the Proxy Statement.
3.2.35 Voting Requirements. The affirmative vote of the
holders of a majority of the outstanding shares of Common Stock entitled to vote
at the Stockholders' Meeting is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve the Merger and the
transactions contemplated hereby (the "Stockholder Approval").
3.2.36 Proxy Statement. None of the information (other
than information provided by Parent and Purchaser) included or incorporated by
reference in the proxy statement relating to the Merger and the transactions
contemplated hereby to be approved at the Stockholders' Meeting will (as amended
or supplemented, the "Proxy Statement"), at the time of the mailing thereof, at
the time of the Stockholders' Meeting and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act.
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3.2.37 State Takeover Statutes; Absence of Stockholder
Rights Plan. The Board of Directors of the Company has irrevocably adopted a
resolution providing that the restrictions on business combinations contained in
Section 203 of the DGCL do not and will not apply with respect to or as a result
of the Merger, this Agreement, the Voting Agreement or the transactions
contemplated hereby or thereby. To the best knowledge of the Company following
consultation with outside counsel, the [NC law] does not apply to the Agreement,
the Merger, the Voting Agreement or the transactions contemplated hereby or
thereby. The Company has not adopted or executed, and is not a party or subject
to, any "Shareholder Rights Plan" or similar instrument, plan or agreement.
3.2.38 Certain Illegal Payments. Neither the Company nor
any of its former or current officers, directors, employees, agents or
representatives has made, directly or indirectly, with respect to the Company or
its business activities, any bribes or kickbacks, illegal political
contributions, payments from corporate funds not recorded on the books and
records of the Company, payments from corporate funds to governmental officials,
in their individual capacities, for the purpose of affecting their action or the
action of the government they represent, to obtain favorable treatment in
securing business or licenses or to obtain special concessions, or illegal
payments from corporate funds to obtain or retain business. Without limiting the
generality of the foregoing, the Company has not directly or indirectly made or
agreed to make (whether or not said payment is lawful) any payment to obtain, or
with respect to, sales other than usual and regular compensation to its
employees and sales representatives with respect to such sales.
3.2.39 Full Disclosure. The representations, warranties
and statements of the Company in this Agreement or contained in any schedule,
list or document delivered pursuant to this Agreement do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein, in light of the circumstances under
which such representations, warranties and statements are made, not misleading.
The copies of all documents furnished by the Company pursuant to or in
connection with this Agreement are true, complete and correct. True, complete
and accurate copies of each document referred to in the Company Disclosure
Schedule are contained therein or have been furnished to Parent or Purchaser
prior to the date hereof.
3.3 Representations and Warranties of Parent and Purchaser. Parent and
Purchaser represent and warrant to the Company that:
3.3.1 Organization and Authority. Each of Parent and
Purchaser is a corporation organized, validly existing and in good standing
under the laws of the State of Delaware. Each of Parent and Purchaser has all
necessary corporate power and authority to conduct its business as now being
conducted.
3.3.2 Authority Relative to this Agreement. Each of Parent
and Purchaser has full corporate power and authority to enter into and perform
this Agreement, the Amended License and the other agreements to be entered into
in connection with this Agreement. The execution and delivery of this Agreement
and the Amended License by Purchaser and Parent and the performance by Purchaser
and Parent of their respective obligations hereunder or thereunder have been
duly authorized by all requisite corporate action. This Agreement and the
Amended License have been duly executed and delivered by duly authorized
officers of Purchaser and Parent and constitute valid and binding obligations of
Purchaser and Parent enforceable against them in accordance with their terms.
3.3.3 Required Filings. No Authorization is required by or
with respect to Purchaser in connection with the execution and delivery of this
Agreement, the Amended License or the consummation by Purchaser of the
transactions contemplated hereby.
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3.3.4 No Conflicts. Neither the execution and delivery of
this Agreement or the Amended License nor the consummation by Parent or
Purchaser of the transactions contemplated hereby, will (i) conflict with or
result in a breach of any of the terms or provisions of the Certificate of
Incorporation or By-Laws of Parent or Purchaser or of any statute or
administrative regulation, or of any order, writ, injunction, judgment or decree
of any court or governmental authority or of any arbitration award to which
Purchaser is a party or by which Parent or Purchaser is bound; or (ii) violate,
conflict with, breach, constitute a default (or give rise to an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in the creation of any lien or other Encumbrance upon any of the
properties or assets of Parent or Purchaser under, any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Parent or Purchaser is a party or to which Parent or
Purchaser or any of its properties or assets are subject (the "Purchaser
Obligations"), except for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens or other Encumbrances that do
not and will not, individually or in the aggregate, (x) have a Material Adverse
Effect on Parent or Purchaser or (y) materially impair Parent or Purchaser's
ability to perform its obligations under this Agreement. Without limiting the
generality of the foregoing, Purchaser is not subject to any Purchaser
Obligation pursuant to which timely performance of this Agreement or any of the
transactions contemplated hereby may be prohibited, prevented or materially
delayed.
3.3.5 Financing. Parent has delivered to the Company true
and correct copies of a commitment (the "Commitment") letter from PNC Bank,
National Association (the "Lender"), stating Lender's commitment to providing
the debt financing ("Financing") which, together with equity and funds on hand
or available under an existing credit facility to be obtained by Parent will be
in an amount sufficient to pay the Merger Consideration and consummate the
Merger, pay related transaction expenses, refinance the Company's indebtedness
to First Citizens Bank and the National Bank of Canada/National Business Corp.
(based on amounts outstanding as reflected in the SEC Reports filed prior to the
date hereof) and pay the outstanding balance on the Company's note to Netzler &
Dahlgren (approximately $198,000 as of September 9, 1999), subject to the
negotiation, preparation and execution of binding documents with respect to the
Financing, and to the fulfillment of the conditions precedent set forth therein.
3.3.6 Proxy Statement. None of the information included in
the Proxy Statement provided by the Parent and Purchaser in writing for use in
the Proxy Statement will, at the time of the mailing thereof, at the time of the
Stockholders' Meeting and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
3.3.7 Financial Statements. True and correct copies of the
balance sheets and statements of income of J. Richard Industries L.P. as of and
for the period ending December 31, 1998 have been provided to the Company.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER AND ADDITIONAL COVENANTS
4.1 Obligations of Each of the Parties. From and after the date hereof
and until and including the Effective Time, the following shall apply with equal
force to the Company, on the one hand, and Parent and Purchaser, on the other
hand:
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4.1.1 Each party shall promptly give the other party
written notice (i) if any representation or warranty made by it or them
contained in this Agreement becomes untrue or incorrect in any respect; (ii) of
the existence or occurrence of any event or condition which would make any
representation or warranty herein contained of either party untrue or which
might reasonably be expected to prevent the consummation of the transactions
contemplated hereby; and (iii) of the failure by it or them to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement. The Company agrees to promptly notify Parent and Purchaser
of any material adverse change in its condition (financial or otherwise),
business, properties, assets or liabilities, or of any material governmental
complaints, investigations or hearings adverse to it (or written threats
thereof) which could reasonably be expected to have a Material Adverse Effect;
4.1.2 No party shall intentionally perform any act which,
if performed, or omit to perform any act which, if omitted to be performed,
would prevent or excuse the performance of this Agreement by any party or which
would result in any representation or warranty herein of that party being untrue
in any material respect at any time after the date hereof through and including
the Closing Date as if then originally made.
4.1.3 Subject to the terms and conditions of this
Agreement, each of the parties agrees to use best efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as reasonably practicable;
provided, however, that nothing in this Section 4.1.3 shall in any event require
any party to (i) expend funds which are not commercially reasonable in relation
to the transactions contemplated hereby or (ii) take or cause to be taken, any
action which would have a Material Adverse Effect with respect to it.
4.2 Access. Subject to any restrictions under applicable law, the
Company shall continue to give to Parent's and Purchaser's respective officers,
employees, agents, attorneys, consultants and accountants reasonable access for
reasonable purposes in light of the transactions contemplated by this Agreement
during normal business hours to all of the properties, books, contracts,
documents, present and expired insurance policies, records and personnel of or
with respect to the Company and shall furnish to Parent and Purchaser and such
persons as Parent or Purchaser shall designate to the Company such information
as Parent and Purchaser or such persons may at any time and from time to time
reasonably request (it being understood that Parent and Purchaser may not have
access to certain pricing and other competitively sensitive information). Parent
and Purchaser shall have the right to conduct non-intrusive environmental
testing. It is expressly understood and agreed that all information obtained
pursuant to this Section 4.2 is subject to the terms and conditions of that
certain Confidentiality Letter dated December 9, 1998 (the "Confidentiality
Agreement") between J. Richard Industries L.P., the ultimate parent of Parent
and Purchaser, and the Company, and Parent and Purchaser expressly reaffirm
their obligations thereunder.
4.3 The Company's Obligations. From and after the date hereof and until
and including the Effective Time:
4.3.1 The Company shall (i) carry on its business in the
ordinary course consistent with past practice; (ii) use its best
efforts to preserve intact its business organization, goodwill and
existing and prospective relations with customers and suppliers and
(iii) keep available the services of its officers and employees.
Without the prior written consent (which consent will not be
unreasonably
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withheld or delayed except in the case of clauses (a), (b), (c), (e)
and (g)) of Purchaser and without limiting the generality of any other
provision of this Agreement, the Company shall:
(a) not amend its Certificate of Incorporation,
By-Laws or other organizational documents;
(b) not make any change in its authorized capital
stock; adjust, split, combine or reclassify any capital
stock; or issue any shares of stock of any class or issue
or become a party to any subscription, warrant, rights,
options, convertible securities or other agreements or
commitments of any character relating to or measured by
its issued or unissued capital stock, or other equity
securities, or grant any stock appreciation or similar
rights;
(c) other than draws under its existing line of
credit in the ordinary course of business consistent with
past practice, not (1) incur any indebtedness for borrowed
money; (2) assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of
any other individual, corporation or other entity or (3)
encumber any assets;
(d) not sell, transfer, mortgage, encumber or
otherwise dispose of any of its material properties or
assets to any individual, corporation or other entity,
except pursuant to contracts or agreements in force at the
date of this Agreement;
(e) not make or enter any commitment to make any
material (x) investments, either by purchase of stock or
securities, in (y) contributions to capital of, or (z)
other than in the ordinary course of business consistent
with past practice, make any loans to or purchases of any
material property or assets from, any other individual,
corporation or other entity other than regular advances to
employees in the ordinary course of business;
(f) except for transactions in the ordinary course
of business consistent with past practice and those
transactions contemplated by the provisions of this
Agreement, not enter into or terminate any material
contract or agreement, or make any material change in any
of its leases or contracts;
(g) not change its method of accounting in effect
at November 30, 1998, except as may be required by changes
in GAAP upon the advice of its independent accountants;
(h) not increase the compensation payable to any
employee, or enter into any new employment agreements with
new or existing employees which create other than an at
will relationship without any severance obligation;
(i) not make rescind or revoke any express or
deemed Tax election or settle or compromise any Tax
liability;
(j) not fail to maintain its books and records in
accordance with good accounting practices consistently
applied and not change in any material manner any of
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its methods, principles or practices of accounting in
effect at November 30, 1998, except as may be required by
the SEC, applicable law or GAAP;
(k) not fail to duly and timely file all material
Tax Returns and other documents required to be filed with
federal, state, local and other Tax Authorities, subject
to timely extensions permitted by law;
(l) not acquire, enter into any option to acquire,
or exercise an option or contract to acquire, additional
real or personal property, in excess of $60,000 for
personal property including expenditures under Section
3.2.9(h) hereof;
(m) not (i) authorize, declare, set aside or pay
any dividend or make any other distribution or payment
with respect to any Common Stock or (ii) directly or
indirectly redeem, purchase or otherwise acquire any
shares of capital stock or any option, warrant or right to
acquire, or security convertible into, shares of capital
stock;
(n) not pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise) which are material to
the Company, other than the payment, discharge or
satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial
statements (or the notes thereto) included in the SEC
Reports filed prior to the date hereof or incurred in the
ordinary course of business consistent with past practice;
(o) not enter into any contractual arrangement
with any officer, director or Affiliate, except for
purchase orders or sales contracts with Affiliates in the
ordinary course of business;
(p) not adopt any new employee benefit plan or
amend or terminate or increase the benefits under any
existing plans or rights, not grant any additional
options, warrants, rights to acquire stock, stock
appreciation rights, phantom stock, dividend equivalents,
performance units or performance stock to any officer,
employee or director, or accelerate vesting with respect
to any grant of Common Stock to employees which are
subject to any risk of forfeiture, except for changes
which are required by law and changes which are not more
favorable to participants than provisions presently in
effect; or
(q) not agree, commit or arrange to take any
actions prohibited under this Section 4.3.
4.3.2 The Company shall furnish to Purchaser the Company's
internal unaudited statement of condition and statement of income for each month
ending after the date of this Agreement. Such monthly statements shall be
prepared in accordance with existing practice and shall fairly present in all
material respects the consolidated financial position and results of operation
for the Company as of and for the periods indicated therein in accordance with
past practice. As reasonably requested by Parent or Purchaser, the Company shall
confer with representatives of Parent or Purchaser to report on material
operational matters.
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4.4 Proxy Statement; Other Regulatory Matters.
4.4.1 The Company will, as soon as practicable following
the date of this Agreement,
prepare in correct and appropriate form and file with the SEC a preliminary
Proxy Statement and will use its reasonable best efforts to respond to any
comments of the SEC or its staff and to cause the Proxy Statement to be cleared
by the SEC. The Company will notify Parent of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Proxy Statement or for additional information and will
supply Parent with copies of all correspondence between the Company or any of
its representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Proxy Statement or any of the transactions
contemplated hereby. The Company shall give Parent and its counsel (who shall
provide any comments thereon as soon as practicable) the opportunity to review
the Proxy Statement prior to its being filed with the SEC and shall give Parent
and its counsel (who shall provide any comments thereon as soon as practicable)
the opportunity to review all amendments and supplements to the Proxy Statement
and all responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC. The Company and Purchaser
will use its reasonable best efforts, after consultation with Parent and
Purchaser to respond promptly to all such comments of and requests by the SEC.
As promptly as practicable after the Proxy Statement has been cleared by the
SEC, the Company shall mail the Proxy Statement to the stockholders of the
Company.
4.4.2 Each party agrees to notify the other of, and to
correct, any information contained in the Proxy Statement furnished by such
party to the other for inclusion therein, which information shall be, at the
time of furnishing, or become, prior to the Stockholders' Meeting, false or
misleading in any material respect. If at any time prior to the Stockholders'
Meeting or any adjournment thereof there shall occur any event that should be
set forth in an amendment to the Proxy and Information Statement, the Company
will prepare and mail to its stockholders such an amendment or supplement.
4.4.3 The Company shall file all reports, schedules and
definitive proxy statements (including the Proxy Statement) (the "Company
Filings") required to be filed by the Company with the SEC (including, without
limitation, reports required by Section 13(d) or 13(g) of the Exchange Act) and
shall provide copies thereof to Parent promptly upon the filing thereof. As of
its respective date, the Company represents, warrants and covenants that each
Company Filing will comply in all material respects with the requirements of the
Exchange Act and the applicable rules and regulations of the SEC thereunder and
none of the Company Filings will contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they are
made, not misleading. Upon learning of any such false or misleading information,
the Company shall cause all required the Company Filings (including the Proxy
Statement) to be corrected, filed with the SEC and disseminated to holders of
the Common Stock, in each case as and to the extent required by applicable law.
4.5 Stockholders' Meeting.
4.5.1 The Company, through the Board, will, as soon as
practicable following the date of this Agreement, duly call, give notice of,
convene and hold a meeting of its stockholders, such meeting to be held no
sooner than 20 business days nor later than 45 days following the date the Proxy
Statement is mailed to the stockholders of the Company (the "Stockholders'
Meeting") for the purpose of obtaining the Stockholder Approval. The Company
shall be required to hold the Stockholders' Meeting, regardless of whether the
Board has withdrawn, amended or modified its recommendation that its
stockholders adopt this Agreement and approve the Merger and the transactions
contemplated hereby, unless this Agreement has been
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terminated pursuant to the provisions of Section 6.1. The Company will, through
its Board, recommend that its stockholders adopt this Agreement and approve the
transactions contemplated hereby, including the Merger; provided, that prior to
the Stockholders' Meeting, such recommendation may be withdrawn, modified or
amended only to the extent expressly permitted under Section 4.8.
4.5.2 If on the date for the Stockholders' Meeting
established pursuant to Section 4.5.1 of this Agreement, the Company has not
received duly executed proxies which, when added to the number of votes
represented in person at the meeting by Persons who intend to vote to adopt this
Agreement, will constitute a sufficient number of votes to adopt the Stockholder
Approval, then the Company shall recommend the adjournment of the Stockholders'
Meeting until a date 10 business days after the originally scheduled date of the
Stockholders' Meeting.
4.6 Filings; Other Action. Subject to the terms and conditions herein
provided, each of Parent, Purchaser and the Company shall: (a) to the extent
required to effect the transactions contemplated hereby, promptly make their
respective filings with respect to the Merger; (b) use all reasonable best
efforts to cooperate with one another in (i) determining which filings are
required to be made prior to the Effective Time with, and which consents,
approvals, permits or authorizations are required to be obtained prior to the
Effective Time from, Governmental Entities in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and (ii) timely making all such filings, declarations, registrations and
notifications and timely seeking all such consents, approvals, permits or
authorizations; and (c) use all reasonable efforts to take, or cause to be
taken, all other action and do, or cause to be done, all other things necessary,
proper or appropriate to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as practicable. The Company
shall use all reasonable efforts to obtain in writing any consents required from
third parties in form reasonably satisfactory to Parent necessary to (i)
effectuate the Merger and the other transactions contemplated hereby and (ii)
avoid defaults, acceleration of rights, and payment of consent or similar fees
to third parties under agreements with the Company as a result of the Merger or
the other transactions contemplated hereby, including the consents listed on
Schedule 4.6 hereto (collectively the "Consents"); provided, however, that
without the written consent of Parent, the Company shall not pay any cash or
other consideration, make any commitment or incur any liability in excess of the
amount set forth on Schedule 4.6 hereto in connection therewith. The Company
shall use reasonable efforts to obtain payoff letters and releases from holders
of its indebtedness to be paid off in connection with the Merger.
4.7 Acquisition Proposals.
4.7.1 The Company represents that it is not currently
engaged in any activities, discussions or negotiations with respect to an
Acquisition Proposal (as defined herein). From and after the date hereof and
until and including the Effective Time (or earlier termination of this
Agreement), the Company shall not, or authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor, attorney,
accountant or other representative or agent of the Company, to, directly or
indirectly, (i) solicit, initiate, or encourage (including by way of furnishing
or otherwise providing access to nonpublic information) any Acquisition
Proposal; (ii) participate in substantive discussions or any negotiations
relating to any Acquisition Proposal (or any inquiry relating to an Acquisition
Proposal) or take any other action to facilitate any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal; or (iii) enter into any letter of intent, agreement in
principle or definitive agreement with respect to any Acquisition Proposal;
provided, however, that, prior to the Stockholders' Meeting, nothing contained
in this Section 4.7 shall prohibit the Company or the Board from furnishing
nonpublic information to, or entering into discussions or negotiations with, any
person or entity with respect
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to any unsolicited Acquisition Proposal if (but only if): (a) the Board
determines reasonably and in good faith after consultation with outside counsel,
that the failure to take such action would be inconsistent with its fiduciary
duties under applicable law; and (b) the Company (x) provides at least two (2)
business days' notice to Parent to the effect that it is taking such action and
(y) prior to any release of any nonpublic information to such person, receives
from such person or entity an executed confidentiality agreement substantially
similar to the Confidentiality Agreement.
4.7.2 Notwithstanding anything in this Agreement to the
contrary, the Company shall promptly advise Parent orally and in writing of the
receipt by it (or by any of the other entities or persons referred to above)
after the date hereof of any Acquisition Proposal or any inquiry which could
reasonably lead to an Acquisition Proposal, the material terms and conditions of
such Acquisition Proposal or inquiry, and the identity of the person or entity
making any such Acquisition Proposal. The Company agrees that it will fully
enforce (including by way of obtaining an injunction), and not waive any
provision of, any confidentiality agreement to which it is a party.
4.7.3 For purposes of this Agreement, an "Acquisition
Proposal" means any proposal or offer, or expression of intent relating to the
Company's willingness or ability to receive or discuss a proposal or offer made
by a third party (other than Parent and Purchaser) to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger, proxy
solicitation, consolidation, business combination, recapitalization,
reorganization, liquidation, dissolution or similar transaction, 15% or more of
the combined voting power, shares or equity interests of the Company, in each
case then outstanding, or 15% or more of the assets of the Company; and a
"Superior Proposal" means a bona fide proposal or offer made by a third party
(A) to acquire the Company pursuant to any tender or exchange offer or any
acquisition of all or substantially all of the assets of the Company or (B) to
enter into a merger, consolidation or other business combination with the
Company, which a majority of the members of the Board determines reasonably and
in good faith is more favorable to the holders of Common Stock than the Merger.
4.8 Board Action. The Board shall not (i) withdraw or modify its
approval or recommendation of this Agreement, the Merger or any of the
transactions contemplated hereby, (ii) approve or recommend or publicly propose
to approve or recommend an Acquisition Proposal, (iii) cause the Company to
enter into any letter agreement, agreement in principle or definitive agreement
providing for an Acquisition Proposal, or (iv) resolve to do any of the
foregoing, unless prior to the Stockholders' Meeting, the Company receives an
unsolicited Acquisition Proposal in accordance with Section 4.7 and the Board
determines reasonably and in good faith, after due investigation, that (a) such
Acquisition Proposal is a Superior Proposal, (b) the Person making such Superior
Proposal is reasonably capable of consummating such Superior Proposal in a
timely fashion and (c) based upon the advice of outside counsel, the failure of
the Board to withdraw or modify its approval or recommendation of this Agreement
or the Merger, or approve or recommend such Superior Proposal would be
inconsistent with its fiduciary duties under applicable law. In such case, the
Board may withdraw or modify its recommendation, and approve and recommend such
Superior Proposal, provided the Board (i) at least five (5) business days prior
to taking such action, provides to Parent and Purchaser written notice of the
Company's intention to accept the Superior Proposal, (ii) during such period,
gives Parent and Purchaser a reasonable opportunity to propose modifications to
the Merger Consideration and negotiates such modifications in good faith with
the objective of allowing Parent and Purchaser to match the Superior Proposal
and (iii) at the end of such period, (A) reasonably and in good faith continues
to believe that such Acquisition Proposal is a Superior Proposal, (B)
simultaneously terminates this Agreement, (C) concurrently causes the Company to
enter into a definitive acquisition agreement with respect to such Superior
Proposal and (D) concurrently pays to Parent and Purchaser the Termination
Payment and Covered Expenses pursuant to Section 6.4.2. Nothing contained in
this Section 4.8 shall prohibit the Company from taking and disclosing to its
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stockholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act; provided that the Company does not withdraw or modify its position
with respect to the Merger or approve or recommend an Acquisition Proposal,
except under the circumstances described in the immediately preceding sentence
and on five (5) business days' notice to Parent to the effect that it is taking
such action.
4.9 Indemnification and Insurance.
4.9.1 Prior to the Closing, the Company shall procure a
five-year tail policy for its officers' and directors' liability insurance
covering each present and former director, officer, employee and agent of the
Company and each present and former director, officer, employee, agent or
trustee of any employee benefit plan for employees of the Company (individually,
an "Indemnified Person", and collectively, the "Indemnified Persons"), who is
currently covered by the Company's officers' and directors' liability insurance
or will be so covered on the Closing Date with respect to actions and omissions
occurring on or prior to the Closing Date (including, without limitation, any
which arise out of or relate to the transaction contemplated by this Agreement),
which tail policy is no less favorable in the aggregate than such insurance
maintained in effect by the Company on the date hereof in terms of coverage and
amount.
4.9.2 Purchaser and the Surviving Corporation hereby
jointly and severally agree that, for not less than six (6) years after the
Closing Date, the provisions of the Certificate of Incorporation and ByLaws of
the Surviving Corporation shall provide indemnification to the Indemnified
Persons on terms, in a manner, and with respect to matters, which are no less
favorable (in favor of persons indemnified) than the Company's Certificate of
Incorporation and By-Laws, as in effect on the date hereof, and further agree
that such indemnification provisions shall not be modified or amended except as
required by law, unless such modification or amendment expands the rights of the
Indemnified Persons to indemnification.
4.9.3 Nothing contained in this Section 4.9, or elsewhere
in this Agreement, shall limit an Indemnified Person's right (or impose any
obligation upon an Indemnified Person) to pursue (whether separately,
simultaneously or in seriatim) recovery of the obligations of indemnification
provided for in this Section 4.9, and the pursuit of one or more rights of
indemnification by an Indemnified Person shall not be deemed to be a waiver of
the right to pursue any other remedy. Nothing herein contained shall be deemed
or construed as allowing an Indemnified Person to recover an aggregate amount in
excess of the amount for which the Indemnified Person is entitled to
indemnification. Nothing contained in this Section 4.9 shall prevent the Company
from being dissolved prior to the time limits set forth in this Section 4.9.
4.10 Stockholder Claims. The Company shall not settle or compromise any
claim relating to the Merger brought by any current, former or purported holder
of any securities of the Company without the prior written consent of Parent.
4.11 Cooperation with Proposed Financing. At the request of Parent, the
Company will, at the Parent's expense, reasonably cooperate with Parent and
Purchaser in connection with the proposed financing of the Merger by the Parent
and Purchaser provided that such requested actions do not unreasonably interfere
with the ongoing operations of the Company.
4.12 State Takeover Laws. If any "fair price" or "control share
acquisition" statute or other similar statute or regulation ("State Takeover
Laws") shall become applicable to the transactions contemplated hereby, the
Company and the Board shall use their reasonable best efforts to grant such
approvals and to take such other actions as are necessary so that the
transactions contemplated hereby may be consummated as
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promptly as practicable on the terms contemplated hereby and shall otherwise use
their reasonable best efforts to eliminate the effects of any such State
Takeover Laws on the transactions contemplated hereby.
ARTICLE V
CONDITIONS TO CLOSING; CLOSING DELIVERIES
5.1 Conditions to Each Party's Obligations. The respective obligations
of each party to effect the transactions contemplated hereby shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
5.1.1 The Merger shall have been approved by the requisite
vote of the stockholders of
the Company.
5.1.2 This Agreement and the Merger shall have been
approved by each Governmental
Entity whose approval is required for the consummation of the Merger and such
approvals shall remain in full force and effect.
5.1.3 No Governmental Entity or court of competent
jurisdiction shall have enacted,
issued, promulgated, enforced or entered any law, rule, regulation, executive
order, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
the Merger or any of the transactions contemplated hereby illegal.
5.2 Conditions to the Company's Obligations. The obligation of the
Company to effect the Merger and to consummate the transactions contemplated
hereby is subject to the fulfillment (or waiver) of all of the following
conditions prior to the Effective Time, upon the non-fulfillment (and
non-waiver) of any of which this Agreement may, at the Company's option, be
terminated pursuant to and with the effect set forth in Article VI hereof:
5.2.1 Each and every representation and warranty made by
Parent and Purchaser shall be true and correct when made and as if originally
made on and as of the Closing Date.
5.2.2 All obligations of Parent and Purchaser to be
performed hereunder through, and including on, the Closing Date (including,
without limitation, all obligations which Purchaser would be required to perform
at the Closing if the transaction contemplated hereby was consummated) shall
have been fully performed.
5.2.3 No suit, proceeding or investigation shall have been
commenced (to Parent's or Purchaser's knowledge) by any Governmental Entity on
any grounds to restrain, enjoin or hinder, or seek material damages on account
of, the consummation of the transaction contemplated hereby.
5.2.4 Purchaser shall have delivered to the Company the
written opinion of Altheimer & Gray, counsel for Purchaser, dated as of the
Closing Date, in substantially the form of Exhibit B attached hereto.
5.3 Conditions to Obligations of Parent and Purchaser. The obligation
of Parent and Purchaser to effect the Merger and consummate the transactions
contemplated hereby is subject to the fulfillment (or
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waiver) of all of the following conditions on or prior to the Closing Date, upon
the non-fulfillment (and non-waiver) of any of which this Agreement may, at
Parent's and Purchaser's option, be terminated pursuant to and with the effect
set forth in Article VI:
5.3.1 The representations and warranties made by the
Company shall be true and correct when made and as if originally made on and as
of the Closing Date.
5.3.2 All obligations of the Company to be performed
hereunder through, and including on, the Closing Date (including, without
limitation, all obligations which the Company would be required to perform at
the Closing if the transaction contemplated hereby was consummated) shall have
been fully performed.
5.3.3 No suit, proceeding or investigation shall have been
commenced by any Governmental Entity on any grounds to restrain, enjoin or
hinder, or seek material damages on account of, the consummation of any of the
transaction contemplated hereby.
5.3.4 The Company shall have delivered to Purchaser the
written opinion of Shumaker, Loop & Kendrick, LLP, counsel to the Company, dated
as of the Closing Date, in substantially the form of Exhibit C attached hereto.
5.3.5 Since the date hereof, there shall have been no
change, either individually or in the aggregate, in the results of operations,
condition (financial or otherwise), properties, assets or business of the
Company which has had or would be reasonably likely to have a Material Adverse
Effect on the Company (such term for this purpose shall be deemed to have a
$100,000 threshold).
5.3.6 There shall not be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, by any Governmental Entity which is applicable to the Merger and which
imposes any condition or restriction upon Purchaser or the Surviving Corporation
which would in Parent's reasonable judgment be commercially unreasonable from a
financial standpoint relative to the transactions contemplated by this
Agreement.
5.3.7 Purchaser shall have received the proceeds of the
Financing.
5.3.8 The Amended License shall be in full force and
effect and constitute a valid and binding obligation of each of the Company and
Netzler & Dahlgren and enforceable against each of the Company and Netzler &
Dahlgren in accordance with its terms.
5.3.9 The Employment Agreement of even date herewith
between the Company and Ralph Dollander shall be in full force and effect and
constitute a valid and binding obligation of Ralph Dollander enforceable against
him in accordance with its terms.
5.3.10 All Consents listed on Schedule 4.6 hereto and all
Stock Option Consents shall have been obtained, and not subsequently been
revoked, as of the Closing Date.
5.3.11 The total amount of all expenses incurred by the
Company in connection with the transactions contemplated hereby including (i)
investment banking, (ii) legal and accounting, (iii) advisory, consulting and
severance, (iv) printing and SEC filing and (v) other fees and expenses
incurred,
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paid or accrued by the Company in connection with the transactions contemplated
hereby shall not exceed $250,000. In the event the aggregate of such fees and
expenses exceed $250,000, at the option of Parent, the aggregate consideration
payable to holders of Common Stock in the Merger shall be reduced by the
aggregate amount of such excess, and the Merger Consideration per share shall be
reduced accordingly.
5.4 Closing Deliveries.
5.4.1 At the Closing, the Company shall cause to be
delivered to Parent and Purchaser all of the following:
(a) a closing certificate dated the Closing Date and
executed on behalf of the Company by a duly authorized officer of the
Company to the effect set forth in Sections 5.3.1, 5.3.2 and 5.3.5; and
(b) certified copies of such corporate records of the
Company and copies of such other documents as Purchaser or its counsel
may reasonably have requested in connection with the consummation of
the transactions contemplated hereby.
5.4.2 At the Closing, Parent and Purchaser shall cause to
be delivered to the Company all of the following:
(a) a closing certificate dated the Closing Date and
executed on behalf of Parent and Purchaser by a duly authorized officer
of Parent and Purchaser to the effect set forth in Sections 5.2.1 and
5.2.2; and
(b) certified copies of such corporate records of Parent
and Purchaser and copies of such other documents as the Company or its
counsel may reasonably have requested in connection with the
consummation of the transactions contemplated hereby.
ARTICLE VI
TERMINATION/EFFECT OF TERMINATION
6.1 Right to Terminate. Anything to the contrary herein
notwithstanding, this Agreement and the transactions contemplated hereby may be
terminated at any time prior to the Effective Time by prompt notice given in
accordance with Section 7.4:
6.1.1 by the mutual written consent of Parent and
Purchaser and the Company (with the approval of their respective Boards
of Directors);
6.1.2 by Parent and Purchaser or the Company (with the
approval of the Board) if:
(a) the Effective Time shall not have occurred at
or before 11:59 p.m. on January 31, 2000 (the "Termination Date");
provided, however, that the right to terminate this Agreement under
this Section 6.1.2 shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement in any manner has
proximately contributed to the failure of the Effective Time to have
occurred as of such time; or
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(b) upon a vote at the Stockholders' Meeting this
Agreement, the Merger and the transactions contemplated hereby shall
fail to be adopted and approved by the requisite vote of the
stockholders of the Company.
6.1.3 by Parent and Purchaser, by giving written notice of
such termination to the Company, if:
(a) there has been a breach of any (i)
representation or warranty, or (ii) covenant, obligation or agreement
on the part of the Company set forth in this Agreement, in either case
such that the conditions set forth in Section 5.3.1 or Section 5.3.2,
as the case may be, are not satisfied or would be incapable of being
satisfied within 20 days after the giving of written notice to the
Company (or sooner, if the date the Closing would otherwise occur);
(b) the Board shall have breached any of its
obligations under the first sentence of Section 4.8 hereof, or the
Board shall withdraw or modify its recommendation, and approve and
recommend a Superior Proposal as permitted by the second sentence of
Section 4.8 hereof;
(c) a tender offer or exchange offer for 30% or
more of the shares of Common Stock of the Company is commenced, and the
Board fails to recommend against acceptance of such tender offer or
exchange offer by its stockholders within the time period required by
Section 14e-2 of the Exchange Act (the taking of no position by the
expiration of such period with respect to the acceptance of such tender
offer or exchange offer by its stockholders constituting such a
failure);
(d) the Company shall have breached any of its
covenants or agreements in Section 4.5 or 4.7 in any material respect;
or
(e) there shall be pending or threatened any
proceeding seeking material damages on account of the Merger, any of
the transactions contemplated hereby which Parent determines in good
faith, after due investigation and consultation with counsel
representing the Company in such proceeding, could reasonably be
expected to result in the Company incurring a material amount of
damages or expenses, after taking into account applicable insurance
coverage; or
(f) Any Significant Stockholder breaches in any
material respect its obligations under the Voting Agreement; or
(g) Parent and Purchaser shall not have received
the proceeds of the Financing on the date the Closing would have
otherwise occured.
6.1.4 by the Company (with the approval of the Board), by
giving written notice of such termination to Parent and Purchaser, if:
(a) there has been a breach of any (i)
representation or warranty, or (ii) covenant obligation or agreement on
the part of Parent or Purchaser set forth in this Agreement, in either
case such that the conditions set forth in Section 5.2.1 or Section
5.2.2, as the case may be, are not satisfied or would be incapable of
being satisfied within 20 days after the giving of written notice to
Parent or Purchaser (or, if sooner, the date the Closing would
otherwise occur);
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(b) if, prior to the Stockholders' Meeting, the
Board determines to enter into and enters into a definitive agreement
providing for a Superior Proposal which was obtained consistent with
Sections 4.7 and 4.8 hereof; provided, however, that the Company shall
have no right to terminate this Agreement under this Section 6.1.4(b)
unless (i) the Company has provided Purchaser with written notice of
the material terms of the Superior Proposal at least two (2) business
days prior to such termination, and (ii) the Company simultaneously
pays to Purchaser the Termination Payment and Covered Expenses required
under Section 6.4.2.
6.2 Certain Effects of Termination. In the event of the termination of
this Agreement as provided in Section 6.1, each party, if so requested by the
other party, will return promptly every document furnished to it by or on behalf
of the other party in connection with the transaction contemplated hereby,
whether so obtained before or after the execution of this Agreement, and any
copies thereof (except for copies of documents publicly available) which may
have been made, and will use reasonable efforts to cause its representatives and
any representatives of financial institutions and investors and others to whom
such documents were furnished promptly to return such documents and any copies
thereof any of them may have made. The obligation of Purchaser under the
Confidentiality Agreement shall continue notwithstanding any termination of this
Agreement. This Section 6.2 shall survive any termination of this Agreement.
6.3 Remedies. Notwithstanding any termination right granted in Section
6.1, in the event of the nonfulfillment of any condition to a party's closing
obligations, in the alternative, such party may elect to do one of the
following:
(a) proceed to close despite the nonfulfillment of any
closing condition;
(b) decline to close, terminate this Agreement as provided
in Section 6.1, and thereafter seek damages to the extent permitted in
Section 6.4; or
(c) seek specific performance of the obligations of the
other party. Each party hereby agrees that, in the event of any breach
of this Agreement by such party, the remedies available to the other
party at law would be inadequate and that such party's obligations
under this Agreement may be specifically enforced.
6.4 Right to Damages; Expense Reimbursement.
6.4.1 If this Agreement is terminated in accordance with
Section 6.1, neither party shall have any claim against the other, subject to
the following sentence and, if applicable, the remaining provisions of this
Section 6.4. A party terminating this Agreement in accordance with Section 6.1
shall retain any and all of such party's legal and equitable rights and remedies
if, but only if, the circumstances giving rise to such termination were (i)
caused by the other party's willful failure to comply with a material covenant
set forth herein or (ii) that a material representation or warranty of the other
party was materially false when made and that party knew or should have
reasonably known such representation or warranty was materially false when made.
In either of such events, termination shall not be deemed or construed as
limiting or denying any legal or equitable right or remedy of said party, and
said party shall also be entitled to recover its costs and expenses which are
incurred in pursuing its rights and remedies (including reasonable attorneys'
fees).
6.4.2 If (x) the Company terminates this Agreement
pursuant to Section 6.1.4(b) or Section 4.8 or (y) Purchaser and Parent
terminate this Agreement pursuant to 6.1.3(b), (c) or (d), the Company shall (a)
pay Parent $100,000 in cash immediately upon such termination, in same-day funds
(the "Termination
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Payment"), by wire transfer of same-day funds to an account designated by
Parent, and (b) reimburse Parent and Purchaser for their out-of-pocket costs and
expenses reasonably incurred and due to third parties in connection with this
Agreement and the transactions contemplated hereby (including fees and
disbursements of counsel, accountants, financial advisors and consultants,
commitment fees, due diligence expenses, travel costs, filing fees, and similar
fees, all of which shall be conclusively established by Parent's or Purchaser's
good faith statement therefor) (collectively, "Covered Expenses"), up to a
maximum of $150,000, by wire transfer of same-day funds to an account designated
by Parent, immediately following receipt of Parent's statement evidencing the
Covered Expenses.
6.4.3 If this Agreement is terminated pursuant to Section
6.1.2(b) or 6.1.3(f), the Company shall pay to Parent immediately upon such
termination, Parent and Purchaser's Covered Expenses up to $125,000 if
terminated pursuant to Section 6.1.2(b) or up to $150,000 if terminated pursuant
to Section 6.1.3(f) by wire transfer of same day funds to an account designated
by Parent immediately following receipt of Parent's statement evidencing the
Covered Expenses. If this Agreement is terminated pursuant to Section 6.1.2(b)
or 6.1.3(a), and the Company, within twelve (12) months after such termination,
enters into a written agreement to effect an Acquisition Proposal with, or an
Acquisition Proposal is made by, a party other than Parent, Purchaser or any of
their subsidiaries, and the Acquisition Proposal is thereafter consummated, the
Company shall pay to Purchaser the Termination Payment in addition to the
Covered Expenses paid under the immediately preceding sentence. The Termination
Payment contemplated by the prior sentence shall be paid in same-day funds by
wire transfer to an account designated by Parent on the earlier of the
consummation of such Acquisition Proposal and the first business day following
the meeting at which the stockholders of the Company approve such Acquisition
Proposal.
6.4.4 If any party to the Agreement fails to promptly pay
any amounts owing pursuant to this Section 6.4. when due, such party shall in
addition to paying such amounts pay all costs and expenses (including, fees and
disbursements of counsel) incurred in collecting such amounts, together with
interest on such amounts (or any unpaid portion thereof) from the date such
payment was required to be made until the date such payment is received at the
rate of 9% per annum as in effect from time to time during such period. This
Section 6.4 shall survive the termination of this Agreement.
6.4.5 If (x) Parent and Purchaser terminate the Agreement
pursuant to Section 6.1.3(g) or (y) either the Company or Parent or Purchaser
terminate this Agreement pursuant to Section 6.1.2(a) and (1) the Company is not
in breach of any of its obligations under this Agreement and (2) all of the
conditions under Section 5.3 (other than the condition specified in Section
5.3.7 hereof) would otherwise be satisfied if the Closing were to occur on the
date of termination, Parent will reimburse the Company for its Covered Expenses
up to a maximum of $150,000 by wire transfer of same day funds to an account
designated by the Company immediately following receipt of the Company's
statement evidencing its Covered Expenses.
ARTICLE VII
MISCELLANEOUS
7.1 Survival of Representations, Warranties and Agreements. None of the
representations, warranties, or agreements contained in this Agreement or in any
certificate or other document delivered pursuant to this Agreement shall survive
the Merger.
7.2 Amendment. This Agreement may be amended by the parties hereto,
with the approval of their respective Boards of Directors, at any time prior to
the Effective Time, whether before or after approval
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hereof by the stockholders of the Company, but, after such approval by the
stockholders of the Company, no amendment shall be made without the further
approval of such stockholders if such amendment would violate Section 904 of the
DGCL or Section 251 of the DGCL. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
7.3 Public Announcements. Parent, Purchaser and the Company will
consult with each other before issuing, and provide each other the opportunity
to review and comment upon, any press release or other written public statements
with respect to the transactions contemplated by this Agreement, and shall not
issue any such press release or make any such written public statement prior to
such consultation, except as may be required by applicable law, court process or
by obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued promptly
upon the signing hereof with respect to the transactions contemplated by this
Agreement will be in the form agreed to by the parties hereto prior to the
execution of this Agreement.
7.4 Notices. All notices required or permitted to be given hereunder
shall be in writing and may be delivered by hand, by facsimile or by nationally
recognized overnight courier. Notices delivered by hand, by facsimile or by
nationally recognized overnight courier shall be deemed given on the day of
receipt (if such day is a business day or, if such day is not a business day,
the next succeeding business day); provided, however, that a notice delivered by
facsimile shall only be effective if and when confirmation is received of
receipt of the facsimile at the number provided in this Section 7.4. All notices
shall be addressed as follows:
If to the Company:
NDC Automation, Inc.
3101 Latrobe Drive
Charlotte, North Carolina 28211
Attention: Ralph G. Dollander
Fax: (704) 364-4039
with a copy to:
Shumaker Loop, Loop & Kendrick, LLP
128 S. Tryon Street, Suite 1800
Charlotte, North Carolina 28202-5001
Attention: Philip S. Chubb
Fax: (704) 332-1197
If to Parent or Purchaser:
c/o Code Hennessy & Simmons
10 South Wacker Drive
Suite 3175
Chicago, Illinois 60606
Attention: Thomas J. Formolo
Fax: (312) 876-3854
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with a copy to:
Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attention: Mark T. Kindelin
Sonia Gupta Barros
Fax: (312) 715-4800
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 7.4.
7.5 Expenses; Transfer Taxes. Except as set forth in Section 6.4, each
party hereto shall bear all fees and expenses incurred by such party in
connection with, relating to or arising out of the negotiation, preparation,
execution, delivery and performance of this Agreement and the consummation of
the transaction contemplated hereby, including, without limitation, financial
advisors', attorneys', accountants' and other professional fees and expenses.
Purchaser shall pay the cost of all sales, use, stamp, documentary, excise and
transfer Taxes which may be payable in connection with the purchase of Common
Shares.
7.6 Entire Agreement. This Agreement, the Amended License, the
Confidentiality Agreement and the instruments to be delivered by the parties
pursuant to the provisions hereof constitute the entire agreement between the
parties and shall be binding upon and inure to the benefit of the parties hereto
and their respective legal representatives, successors and permitted assigns.
Each Exhibit and Schedule (including the Company Disclosure Schedule), shall be
considered incorporated into this Agreement.
7.7 Non-Waiver. The failure in any one or more instances of a party to
insist upon performance of any of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement conferred, or
the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent waiver of
any such terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party.
7.8 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
7.9 Severability. The invalidity of any provision of this Agreement or
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
7.10 Applicable Law. This Agreement shall be governed and controlled as
to validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of Delaware applicable to contracts
made in that State.
7.11 Binding Effect; Benefit. This Agreement shall inure to the benefit
of and be binding upon the parties hereto, and their successors and permitted
assigns. Except as expressly provided in Article II and Section 4.9 hereof,
nothing in this Agreement, express or implied, shall confer on any person other
than the
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parties hereto, and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, including, without limitation, third party beneficiary rights.
7.12 Assignability. This Agreement shall not be assignable by either
party without the prior written consent of the other party.
7.13 Governmental Reporting. Anything to the contrary in this Agreement
notwithstanding, nothing in this Agreement shall be construed to mean that a
party hereto or other person must make or file, or cooperate in the making or
filing of, any return or report to any Governmental Entity in any manner that
such person or such party reasonably believes or reasonably is advised is not in
accordance with law.
7.14 Defined Terms. The following terms are defined in the following
sections of this Agreement:
Defined Term Where Found
------------ -----------
1990 Plan 2.4
1993 Plan 2.4
1997 Plan 2.4
Acquisition Proposal 4.7.3
Affiliate 3.2.12
Agreement Preamble
Amended License Recital D
Authorization 3.2.3
Board 3.2.2
CERCLA 3.2.27(b)
Certificate of Merger 1.2
Certificates 2.2.2
Closing 1.6
Closing Date 1.6
Code 3.2.13(c)
Commitment 3.3.5
Common Stock 2.1.1
Company Preamble
Company Disclosure Schedule 3.1
Company Filings 4.4.3
Company Stockholders 2.2.1
Confidentiality Agreement 4.2
Consents 4.6
Constituent Corporations 1.1
Containers 3.2.27(c)
Contract 3.2.20
Contracts 3.2.20
Covered Expenses 6.4.2
Date Data 3.2.32
DGCL Recital A
Directors 3.2.5
EDI Parties 3.2.32
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Effective Time 1.2
Employee Benefit Plans 3.2.21(a)
Encumbrances 3.2.4
Environmental Laws 3.2.27(a)
Environmental Permits 3.2.27(a)
ERISA 3.2.21(a)
ERISA Affiliate 3.2.21(a)
Exchange Act 3.2.3
Facility 3.2.27(b)
Fairness Opinion 3.2.34
Financial Statements 3.2.7(a)
Financing 3.3.5
GAAP 3.2.7(a)
Governmental Entity 3.2.3
including 7.16
Indemnified Person 4.9.1
Indemnified Persons 4.9.1
Information Technology 3.2.32
Intellectual Property 3.2.31
Interim Balance Sheet 3.2.8(a)
Inventory 3.2.7(c)
Leased Premises 3.2.29
Lender 3.3.5
Letter of Transmittal 2.2.2
Liabilities 3.2.8
Material Adverse Effect 3.2.4
Merger Recital A
Merger Consideration 2.1.1
Multiemployer Plan 3.2.21(a)
Netzler & Dahlgren Recital C
Obligation 3.2.4
Offsite Facility 3.2.27(b)
Parent Preamble
Paying Agent 2.2.1
Payment Fund 2.2.1
Permits 3.2.18
Person 3.2.4
Plans 2.4
Preferred Stock 3.2.5
Proxy Statement 3.2.36
Purchaser Preamble
Purchaser Obligations 3.3.4
Real Estate 3.2.28
Related Parties 3.2.12
Related Party 3.2.12
Return 3.2.13(b)
Returns 3.2.13(b)
SEC 3.2.3
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SEC Reports 3.2.6
Securities Act 3.2.6
Significant Customer 3.2.19
Significant Supplier 3.2.19
Stock Option 2.4
Stockholder Approval 3.2.35
Stockholders' Meeting 4.5.1
Superior Proposal 4.7.3
Surviving Corporation 1.1
Tax 3.2.13(a)
Taxes 3.2.13(a)
Termination Date 6.1.2(a)
Termination Payment 6.4.2
Voting Agreement Recital C
Year 2000 Compliant 3.2.32
7.15 Headings. The headings contained in this Agreement and the
Agreement's Table of Contents are for convenience of reference only and shall
not affect the meaning or interpretation of this Agreement.
7.16 Interpretation. Whenever the term "including" is used in this
Agreement it shall mean "including, without limitation," (whether or not such
language is specifically set forth) and shall not be deemed to limit the range
of possibilities to those items specifically enumerated. All joint obligations
herein shall be deemed to be joint and several whether specifically so
specified.
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IN WITNESS WHEREOF, the parties have caused to be executed this
Agreement and Plan of Merger on the date first above written.
PARENT:
PORTEC, INC.
By: /S/Laurence J. Weber
---------------------------------
Name: Laurence J. Weber
Its: PRESIDENT
PURCHASER:
HORNETT ACQUISITION CORP.
By: /s/Marcus George
---------------------------------
Name: Marcus George
Its: VICE PRESIDENT
THE COMPANY:
NDC AUTOMATION, INC.
By: /s/Ralph Dollander
---------------------------------
Name: Ralph Dollander
Its: PRESIDENT & CEO
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EXHIBIT "A"
Execution Copy
VOTING AGREEMENT
This Voting Agreement ("Agreement") is entered into this September 13,
1999, by and among Portec, Inc., a Delaware corporation ("Parent"), Hornett
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Purchaser"), and the persons identified on the signature page hereto
(each individually a "Stockholder" and collectively the "Stockholders") in their
capacity as stockholders of NDC Automation, Inc., a Delaware corporation (the
"Company").
RECITALS
A. The Company, Parent and Purchaser are entering into an Agreement and
Plan of Merger, dated Setember 13, 1999 providing for the merger (the "Merger")
of Purchaser with and into the Company with the Company as the surviving entity
(the "Merger Agreement"). Capitalized terms used without definition herein
having the meanings ascribed thereto in the Merger Agreement;
B. In connection with the Merger Agreement, the Board of Directors of
the Company has approved and recommended adoption of the Merger Agreement to the
stockholders of the Company;
C. Each Stockholder is as of the date hereof the record and beneficial
owner of the number of shares of common stock, $.01 par value, of the Company
set forth below his name on the signature page hereto (collectively, the
"Shares");
D. Approval and adoption of the Merger Agreement by the Company's
stockholders is a condition to the consummation of the Merger; and
E. As a condition to their entering into the Merger Agreement, Parent
and Purchaser have required that each Stockholder agree, and each Stockholder
has agreed, to enter into this Agreement.
AGREEMENTS
Now, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. Agreement to Vote and Restrictions on Dispositions. Each Stockholder
hereby agrees as follows:
(a) Each Stockholder hereby agrees to attend any stockholders' meeting
of the Company, in person or by proxy, and to vote (or cause to be voted) all
Shares, and any other voting securities of the Company, whether issued
heretofore or hereafter, that each Stockholder owns or has the right
<PAGE>
to vote, for approval and adoption of the Merger Agreement and the transactions
contemplated thereby, such agreement to vote to apply also to any adjournment of
the stockholders' meeting of the Company. Each Stockholder agrees not to grant
any proxies or enter into any voting agreement or arrangement inconsistent with
this Agreement. Each Stockholder further agrees to waive any dissenters rights,
appraisal rights or similar rights in connection with the Merger.
(b) Each Stockholder hereby agrees that, without the prior written
consent of Parent and Purchaser, each Stockholder shall not, directly or
indirectly, sell, offer to sell, grant any option for the sale of or otherwise
transfer or dispose of, or enter into any agreement to sell, grant an option for
or otherwise transfer or dispose of any Shares and any other voting securities
of the Company that each Stockholder owns beneficially or otherwise. Each
Stockholder agrees that Parent or Purchaser may instruct the Company to enter
stop transfer orders with the transfer agent(s) and the registrar(s) of the
Shares against the transfer of Shares and any other voting securities of the
Company that each Stockholder owns beneficially or otherwise. If requested by
Parent or Purchaser, each Stockholder agrees to surrender or cause to be
surrendered to the transfer agent(s) and registrar(s) of the Shares certificates
representing Shares registered in the name of each Stockholder, in exchange for
certificates representing Shares containing a legend to the effect of the
following:
The shares represented by this certificate are subject to restrictions
on transfer and disposition as set forth in the Voting Agreement dated
September 13, 1999, by and among Parent, Purchaser and Stockholder. A
copy of such agreement may be obtained from the Secretary of the
Company.
Upon the termination of this Agreement pursuant to Section 5 hereof,
each Stockholder shall have the right to unilaterally instruct the transfer
agent(s) and registrar(s) of the Shares to deliver to each Stockholder
certificates representing Shares registered in the name of such Stockholder and
not bearing the foregoing legend in exchange for certificates representing
Shares registered in the name of such Stockholder and bearing such legend.
(c) Each Stockholder agrees to vote (or cause to be voted) all Shares,
and any other voting securities of the Company, owned by such Stockholder
whether issued heretofore or hereafter, that such person owns or has the right
to vote, against (i) any Acquisition Proposal (as defined in the Merger
Agreement) which is not endorsed in writing by Parent and Purchaser and (ii) any
other action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or which could result in any of the conditions to
Parent's or Purchaser's obligations under the Merger Agreement not being
fulfilled.
(d) Each Stockholder agrees not to and to cause any of its officers,
directors or employees or any investment banker, financial advisor, attorney,
accountant or other representative or agent of such Stockholder not to, directly
or indirectly, or through any person, (i) solicit, initiate, or encourage
(including by way of furnishing or otherwise providing access to nonpublic
information) any Acquisition Proposal or (ii) participate in any substantive
discussions or negotiations relating to any
2
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Acquisition Proposal (or any inquiry relating to an Acquisition Proposal) or
take any other action to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, an Acquisition
Proposal; provided, however, if the Company or the Board takes any action with
respect to an unsolicted Acquisition Proposal as permitted by Section 4.7(a) of
the Merger Agreement, nothing contained herein shall prohibit any Stockholder
from discussing with the person or entity who made such unsolicited Acquisition
Proposal the Stockholder's willingness to consent to a Superior Proposal under
that certain Amended and Restated Master License Agreement dated as of December
1, 1995 between the Company and Netzler et Dahlgren Co. AB, a limited liability
Swedish Corporation. Nothing contained herein shall be construed to limit or
otherwise affect any Affiliate or representative of any Stockholder who shall
serve as a director of the Company from taking any action permitted by Section
4.7 or Section 4.8 of the Merger Agreement in his or her capacity as such
director.
(e) Each Stockholder agrees to promptly notify Parent and Purchaser in
writing of the nature and amount of any acquisition by such Stockholder after
the date hereof of any voting securities of the Company.
2. Representations and Warranties of Each Stockholder. Each Stockholder
represents and warrants to Parent and Purchaser as follows:
(a) Each Stockholder has all necessary power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
(b) This Agreement has been duly executed and delivered by each
Stockholder, and assuming the due authorization, execution and delivery of this
Agreement by Parent and Purchaser, this Agreement constitutes the valid and
legally binding obligation of each Stockholder enforceable against each
Stockholder in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to
creditors' rights and general principles of equity.
(c) The Shares are the only voting securities of the Company owned
(beneficially or of record) by each Stockholder and are owned free and clear of
all liens, charges, encumbrances, restrictions and commitments of any kind other
than (i) shares pledged as margin stock and (ii) shares that were granted
pursuant to restricted share awards and have not yet vested. Each Stockholder
has not appointed or granted any irrevocable proxy, which appointment or grant
is still effective, with respect to the Shares.
(d) The execution and delivery of this Agreement by each Stockholder
does not (i) conflict with or violate any agreement, order, judgment or decision
or other instrument binding upon him, nor require any consent, notification,
regulatory filing or approval, (ii) to such Stockholder's knowledge, conflict
with or violate any law, rule or regulation or (ii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default)
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under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Shares owned by each Stockholder pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which such Stockholder is a party or by which such
Stockholder or the Shares owned by such Stockholder are bound or affected.
(f) Each Stockholder is not engaged in any activities, discussions or
negotiations with respect to any Acquisition Proposal.
3. Further Assurances. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of their obligations under this Agreement. Without limiting the generality of
the foregoing, neither of the parties hereto shall enter into any agreement or
arrangement (or alter, amend or terminate any existing agreement or arrangement)
if such action would materially impair the ability of either party to
effectuate, carry out or comply with all the terms of this Agreement.
4. Representations and Warranties of Parent and Purchaser. Each of
Parent and Purchaser represents and warrants to the Stockholders as follows:
(a) Each of this Agreement, the Merger Agreement, the Merger and the
other transactions contemplated by the Merger Agreement has been approved by the
Board of Directors of each of Parent and Purchaser.
(b) Each of this Agreement and the Merger Agreement has been duly
executed and delivered by a duly authorized officer of each of Parent and
Purchaser and, assuming the due authorization, execution and delivery of this
Agreement by each Stockholder and the Merger Agreement by the Company, each of
this Agreement and the Merger Agreement constitutes a valid and binding
agreement of each of Parent and Purchaser, enforceable against Parent and
Purchaser in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to
creditors' rights generally and general principles of equity.
5. Effectiveness and Termination. It is a condition precedent to the
effectiveness of this Agreement that the Merger Agreement shall have been
executed and delivered and be in full force and effect. This Agreement shall
automatically terminate and be of no further force or effect upon the
termination of the Merger Agreement in accordance with its terms. Upon any
termination of this Agreement, except for any rights either party may have in
respect of any knowing and material breach by either party of its obligations
hereunder hereto, neither party shall have any further obligation or liability
hereunder. The provisions of Section 1 of this Agreement shall terminate and be
of no further force or effect from and after the Effective Time of the Merger.
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6. Covenants of Stockholder Not to Enter Into Inconsistent Agreements.
Each Stockholder hereby agrees that, except as contemplated by this Agreement
and the Merger Agreement, each Stockholder shall not enter into any voting
agreement or grant an irrevocable proxy or power of attorney with respect to the
Shares which is inconsistent with this Agreement.
7. Miscellaneous.
a. Notices, Etc. All notices required or permitted to be given
hereunder shall be in writing and may be delivered by hand, by facsimile or by
nationally recognized overnight courier. Notices delivered by hand, by facsimile
or by nationally recognized overnight courier shall be deemed given on the day
of receipt (if such day is a business day or, if such day is not a business day,
the next succeeding business day); provided, however, that a notice delivered by
facsimile shall only be effective if and when confirmation is received of
receipt of the facsimile at the number provided in this Section 7(a). All
notices shall be addressed as follows:
If to any Stockholder:
Netzler & Dahlgren Co. AB
SE-430 40 Saro
Sweden
Attention: Dr. Goran Netzler
Fax: 011-46-31-93-81-00
If to Parent or Purchaser:
c/o Code Hennesy & Simmons
10 South Wacker Drive
Suite 3175
Chicago, Illinois 60606
Attention: Thomas J. Formolo
Fax: (312) 876-3854
with a copy to:
Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attention: Mark T. Kindelin
Fax: (312) 715-4800
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 7(a).
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b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by Parent, Purchaser and each Stockholder.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Shares, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Merger
Agreement) embodies the entire agreement and understanding among the parties
relating to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter. There are no representations,
warranties or covenants by the parties hereto relating to such subject matter
other than those expressly set forth in this Agreement and the Merger Agreement.
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages
would not be an adequate remedy for violations of this Agreement and that either
party may, in its sole discretion, apply to a court of competent jurisdiction
for specific performance or injunction or such other relief as such court may
deem just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
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i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
k. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
l. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
m. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
[Signatures Follow]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
/s/GORAN NETZLER /s/JAN JUTANDER
------------------------------------
Name NDC, NETZLER & DAHLGREN CO AB
Number of Shares: 550,000
/s/GORAN NETZLER
------------------------------------
Name GORAN NETZLER
Number of Shares: 200,640
/s/ANDERS DAHLGREN
------------------------------------
Name ANDERS DAHLGREN
Number of Shares: 200,640
/s/ARNE NILSSON
------------------------------------
Name ARNE NILSSON
Number of Shares: 200,640
/s/JAN JUTANDER
------------------------------------
Name JAN JUTANDER
Number of Shares: 200,640
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PARENT:
PORTEC, INC.
By: /s/Laurence J. Weber
--------------------------
Name: Laurence J. Weber
Its: PRESIDENT
PURCHASER:
HORNETT ACQUISITION CORP.
By: /s/Marcus George
--------------------------
Name: Marcus George
Its: VICE PRESIDENT
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EXHIBIT B
PURCHASER'S OPINION
1. Each of Parent and Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Each of Parent and Purchaser has all necessary corporate power and authority to
conduct its business as now being conducted.
2. Each of Parent and Purchaser has full corporate power and authority
to enter into and perform the Transaction Documents. The execution and delivery
of the Transaction Documents by Parent and Purchaser and the performance by
Parent and Purchaser of their obligations under the Transaction Documents have
been duly authorized by all requisite corporate action.
3. Each of the Transaction Documents has been duly executed and
delivered by duly authorized officers of Parent and Purchaser and constitutes a
valid and binding obligation of Parent and Purchaser, enforceable against them
in accordance with its terms.
4. Neither the execution and delivery of the Transaction Documents by
Parent or Purchaser, nor the consummation by Parent or Purchaser of the
transactions contemplated by the Transaction Documents, will (i) conflict with
or result in a breach of any of the terms or provisions of the Certificate of
Incorporation or By-Laws of Parent or Purchaser or of any statute or
administrative regulation, or, to our knowledge, of any order, writ, injunction,
judgment or decree of any court or governmental authority or of any arbitration
award to which Parent or Purchaser is a party or by which Purchaser or Parent is
bound or (ii) to our knowledge, violate, conflict with, breach, constitute a
default (or give rise to an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any lien or
other Encumbrance upon any of the properties or assets of Parent or Purchaser
under, any Purchaser Obligations, except for such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens or other
Encumbrances that do not and will not, individually or in the aggregate, (x)
have a Material Adverse Effect on Parent or Purchaser or (y) materially impair
Purchaser's or Parent's ability to perform their obligations under the
Transaction Documents.
5. Except as set forth in the Merger Agreement, no Authorization with
or by any Governmental Entity is required for the execution and delivery by
Purchaser or Parent of the Merger Agreement or the consummation by Purchaser or
Parent of any of the transactions contemplated thereby.
- 1 -
<PAGE>
EXHIBIT C
COMPANY'S OPINION
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company has
all necessary corporate power and authority to conduct its business as
now being conducted or as proposed to be conducted. The Company is duly
qualified as a foreign corporation and in good standing in each
jurisdiction in which the nature of its business or the nature or
location of its assets require such qualification, except for such
jurisdictions where the failure to so qualify would not have a Material
Adverse Effect on the Company.
2. The Company has full corporate power and authority to enter into and
perform the Merger Agreement, the Amended License and the other
agreements to be entered into in connection with the Merger Agreement
(the "Transaction Documents"). The execution and delivery of the
Transaction Documents by the Company and the performance by the Company
of its respective obligations thereunder have been duly authorized and
approved by all requisite corporate action. The Transaction Documents
have been duly executed and delivered by duly authorized officers of
the Company and constitute valid legal and binding obligations of the
Company enforceable against it in accordance with its terms.
3. The Merger has been duly approved by the Board of Directors and
stockholders of the Company in accordance with the Delaware General
Corporation Law.
4. Neither the execution and delivery of the Transaction Documents by the
Company, nor the consummation by Company of any of the transactions
contemplated thereby, will (i) conflict with or result in a breach of
any of the terms, conditions or provisions of the certificate, articles
or other instrument of incorporation or limited partnership or by-laws
or agreement of limited partnership or other similar instrument, or of
any statute or administrative regulation, or of any order, writ,
injunction, judgment or decree of a Governmental Entity or of any
arbitration award to which the Company is a party or by which the
Company is bound, or (ii) to our knowledge, violate, conflict with,
breach, constitute a default (or give rise to an event which, with
notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required
by, or result in the creation of any Encumbrances upon any of the
properties or assets of the Company under, any Obligation, except for
such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens or other Encumbrances that do not
and could not, individually or in the aggregate, (x) have a Material
Adverse Effect on the Company, or (y) materially impair the ability of
the Company to perform its obligations under the Merger Agreement.
5. Except as set forth in the Merger Agreement or the Company Disclosure
Schedule, no Authorization with or by any Governmental Entity is
required for the execution and delivery by the Company of the Merger
Agreement or the consummation by the Company of any of the transactions
contemplated thereby.
6. Neither the North Carolina Shareholder Protection Act (the "SPA"),
Section 55-9-01 et seq. of the North Carolina Business Corporation Act
(the "NCBCA"), nor the North Carolina Control Share Acquisition Act,
Section 55-9A-01 et seq. of the NCBCA, applies to the Merger Agreement,
the Merger, the Voting Agreement or the transactions contemplated
thereby.
<PAGE>
EXHIBIT D
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of this 13th day of September, 1999 by and between NDC Automation, Inc., a
Delaware corporation ("NDCA" or the "Company"), and Ralph G. Dollander, an
individual residing at 2601 Cloister Drive, Charlotte, North Carolina 28211(the
"Executive").
RECITALS:
A. Portec, Inc., a Delaware corporation ("Portec"), Hornett Acquisition
Corp., a Delaware corporation ("Purchaser") and NDCA have entered into an
Agreement and Plan of Merger ("Merger Agreement") dated September 13, 1999,
which provides that on the terms and subject to the conditions set forth
therein, Purchaser shall merge with and into NDCA, the separate existence of
Purchaser shall cease (the "Merger") and NDCA, as the surviving entity, shall
become a wholly owned subsidiary of Portec and be operated as the Pathfinder AGV
Systems Division of Portec (the "Division"). Purchaser is a wholly owned
subsidiary of Portec, which is a wholly owned subsidiary of J Richard
Industries, L. P., a Delaware limited partnership ("JRichard," and together with
Portec, NDCA and its and their subsidiaries, the "JRichard Group").
B. The Executive has been the President and CEO of NDCA since
September, 1995, and is a key member of the management of NDCA. Portec and
Purchaser would not have entered into the Merger Agreement without the benefit
of this Agreement.
C. Upon consummation of the Merger, the Company desires to continue to
employ the Executive as the President of the Company and the Division, and the
Executive desires to be so employed by the Company, on the terms and conditions
set forth in this Agreement, which shall, except as provided in Section 4.10, be
in lieu of and shall replace all existing employment agreements between NDCA and
the Executive as of the Effective Time (as defined in the Merger Agreement).
D. The Company desires to bind the Executive to certain restrictive
covenants, and the Executive agrees to be so bound, on the terms and conditions
set forth herein.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements set forth herein, the Company and the Executive,
intending to be legally bound, hereby agree as follows:
1. Employment. The Company hereby agrees to employ the
Executive as the President of the Company and the Division as of the Effective
Time, and the Executive hereby
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accepts such employment and agrees to perform services for the Company and the
Division as described in Section 3 hereof (collectively referred to as the
"Executive Employment Duties").
2. Term. The term of the Executive's employment hereunder
shall be for a period of three (3) years (the "Term"), commencing at the
Effective Time. Unless the parties agree in writing to continue the employment
of the Executive beyond the Term or unless the Executive's employment is earlier
terminated, the Executive's employment shall end at the conclusion of the Term.
3. Position and Duties.
3.1 Service with the Company. The Executive Employment Duties
shall include serving as the President of the Company and the Division and such
other duty as the Chief Executive Office of Portec (the "Portec CEO") shall
designate from time to time consistent with such position. The operations of the
Company and the Division shall be integrated, as directed by the Portec CEO,
within a period of six (6) months after the Effective Time. The Executive agrees
to perform such Executive Employment Duties as the Portec CEO shall assign to
him from time to time, subject always to the oversight and instruction by the
Portec CEO, and subject to any applicable limitations imposed by creditors of
the Company, for the period and upon terms and conditions set forth in this
Agreement.
3.2 Performance of Duties. The Executive agrees to serve the
Company faithfully and to the best of his ability and to devote his full
business time, attention and efforts to the business and affairs of the Company
and the Division during the Term. It is understood and agreed that the Executive
may pursue passive investments not requiring time commitments that conflict with
his obligations to the Company. During the term hereof, the Executive shall not
serve as an officer, director, employee, consultant or advisor to any other
Person (as defined herein) outside the JRichard Group without the prior written
consent of the Board of Directors of the Company (the "Board"). For purposes
hereof, the term "Person" shall mean an individual, partnership, limited
partnership, corporation, limited liability company, association, joint stock
company, trust, joint venture or unincorporated organization, union, or the
United States of America or any other nation, any state, province or other
political subdivision thereof, or any entity exercising executive, legislative,
judicial, regulatory or administrative functions of government.
4. Compensation. As compensation for the services to be
performed and the duties and responsibilities to be assumed by the Executive
during the Term, the Company shall pay to the Executive:
4.1 Base Salary. A salary ("Base Salary") for all services
rendered by the Executive under this Agreement of Eleven Thousand Dollars
($11,000.00) per month, subject to annual review by the Portec CEO. The review
date shall be in July every year (the first such review to take place in July
2000), and any revision of the Base Salary resulting from such reviews shall be
effective as of July 1 the same year. The Base Salary shall be payable in
accordance with Portec's
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and the Company's ordinary payment practices, but in no event less frequently
than monthly. In no event shall the Executive's salary be made less than the
current salary without the written consent of the Executive.
4.2 Bonus. An annual bonus ("Bonus") of up to Fifty Percent
(50%) of the Base Salary, based upon the achievement of budgeted EBITDA goals
for the Company and the Division as determined in the sole discretion of the
Board. During the first quarter of each calendar year during the Term commencing
in the year 2000, the Board, after discussion with the Executive, will set the
budgeted EBITDA goals for the Division for calendar year 2000, and each year
thereafter. The Bonus will be due and payable as soon as practicably possible,
but in no event later than March 31 of the year following the year to which such
Bonus applies. Portec shall provide the Executive with a memorandum stating the
basic structure of the Bonus calculation within thirty (30) after the execution
hereof.
4.3 Medical and Life Insurance. The Company shall purchase and
maintain in effect during the Term hereof, major medical, health and dental
insurance for the Executive and his immediate family, immediate family being
defined as spouse and dependent children under the age of 19 or until age 26 if
a full time student, and life and long-term disability insurance for the
Executive in such amounts as is available to all other senior executives of
JRichard and at least that which is customary for the same position in other
companies of similar size, locations and type of business. The death benefit of
any life insurance shall be no less than two times Base Salary and no more than
Two Hundred Fifty Thousand Dollars ($250,000.00).
4.4 Pension Plan. The Company shall pay One Thousand Dollars
($1,000.00) per month either to the Company's 401(k) pension plan or to
Employees on-going private pension fund, at the discretion of the Executive,
subject to certain high compensation employee restrictions under the Internal
Revenue Code of 1986, as amended.
4.5 Education of Children Reimbursement. A net amount of up to
Five Thousand Dollars ($5,000.00) per year and per any and all of the
Executive's three children, will be paid by the Company for verified education
expenses (tuition fees, lodging, text books) in the U.S.A., but in no event
beyond June 30, 2000.
4.6 Vacation and Holiday. The Executive shall be entitled to
four (4) weeks annual paid vacation during the term of this Agreement. The
Executive's vacation shall be planned and coordinated with the other executives
of the Company. In addition, the Executive shall be entitled to the same paid
holidays, sick and personal time as are available to all other employees of the
Company pursuant to its then current policies and procedures.
4.7 Equity Participation. The Executive shall be eligible to
participate in equity incentive plans offered by JRichard to similarly situated
executives based on the overall EBITDA growth performance of the JRichard Group.
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4.8 Expense Reimbursement. The Company shall reimburse the
Executive for all actual and reasonable business related expenses incurred in
the performance of his duties hereunder. Reimbursement shall be pursuant to the
Company's then current policies and procedures and shall require an accounting
by the Executive, including presentation of receipts and vouchers. If the
Company requires the Executive to attend functions at which a presence of a
spouse or guest is expected and appropriate, then the Company shall pay the
expenses of such accompanying person's actual and reasonable expenses.
4.9 Working Facilities. The Executive shall have an adequate
private office in the Company's headquarters building and other facilities and
services appropriate for his position and for the execution of his duties.
4.10 Bonus For 1999. The Company will pay to Executive a bonus
for 1999 in accordance with the terms of that certain letter from the
Compensation Committee to the Executive dated February 12, 1999 based on the
revenue and profitability of NDCA for its fiscal 1999 through the Effective Time
and for that portion of the Company which conducts the NDCA business through
November 30, 1999.
4.11 Automobile. During the Term, the Company shall provide
the Executive, for his use, with an automobile, not older than three years,
comparable in size and/or standard to that which the Company presently provides
the Executive (1998 Volvo 850 Turbo). The Company shall pay for all maintenance
and operating costs, including insurance, gasoline and oil. Upon the expiration
or earlier termination of the Term, the Executive shall surrender promptly such
vehicle to the Company.
4.12 Acknowledgment. The Executive acknowledges that upon the
occurrence of the Effective Time that certain Employment Agreement dated as of
March 1, 1996, as amended, shall terminate and Executive will have no rights to
any payments thereunder other than salary accrued and unpaid through the
Effective Time.
5. Compensation Upon Termination of the Executive's Employment
by the Company.
5.1 In the event that the employment of the Executive is (a)
terminated by the Company pursuant to Section 9.1, or (b) by the Executive, for
any reason whatsoever, then the Executive or the Executive's executor personal
representative, as the case may be, shall not be entitled to any compensation
other than (i) his then current Base Salary which has accrued through the date
of termination and any Bonus not yet paid for prior periods, and (ii) any
reimbursement owed to him by the Company in accordance with Section 4.8 of this
Agreement and incurred up to the date of termination.
5.2 In the event that the employment of the Executive is
terminated by the Company for any reason during the first twelve (12) months of
employment, other than pursuant to
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the reasons stated in Section 9.1, then the Executive shall not be entitled to
any compensation other than (i) his then current Base Salary which has accrued
through the date of termination and any Bonus not yet paid for prior periods,
(ii) his then current Base Salary for a further period of up to twelve (12)
months to be paid in equal monthly installments (in the event alternative
employment is obtained by the Executive prior to twelve (12) months after
termination, the Company shall not be required to continue severance payments
beyond the time alternative employment is obtained), and (iii) any reimbursement
owed to him by the Company in accordance with Section 4.8 of this Agreement
incurred up to the date of termination. The payment provided in this Section is
in lieu of reasonable notice, shall be subject to the usual deductions and
withholdings required by law, and includes or may be reduced by the amount of
all payments which may be required to be paid to the Executive pursuant to
applicable laws or statutes as a consequence of the termination of his
employment.
5.3 In the event that the employment of the Executive is
terminated by the Company for any reason after the first twelve (12) months of
employment or not renewed after the initial Term, other than pursuant to the
reasons stated in Section 9.1, then the Executive shall not be entitled to any
compensation other than (i) his then current Base Salary which has accrued
through the date of termination and any Bonus not yet paid for prior periods,
(ii) his then current Base Salary for a further period of up to six (6) months
to be paid in equal monthly installments (in the event alternative employment is
obtained by the Executive prior to six (6) months after termination, the Company
shall not be required to continue severance payments beyond the time alternative
employment is obtained), and (iii) any reimbursement owed to him by the Company
in accordance with Section 4.8 of this Agreement incurred up to the date of
termination. The payment provided in this Section is in lieu of reasonable
notice, shall be subject to the usual deductions and withholdings required by
law, and includes or may be reduced by the amount of all payments which may be
required to be paid to the Executive pursuant to applicable laws or statutes as
a consequence of the termination of his employment.
5.4 In the event that the employment of the Executive is
terminated by the Company, or not renewed after the initial Term, without Cause
(as defined in Section 9.1), the Company shall pay verified cost of
transportation of the Executive's personal belongings (40 ft. container maximum)
including economy class transportation of immediate family to Sweden or to
equivalent non-North American location, subject to a maximum limit of
$20,000.00.
5.5 All payments required to be made by the Company to the
Executive pursuant to this Section 5 shall be paid on a regular basis in
accordance with the Company's normal payroll procedures and policies.
6. Confidential Information.
6.1 Executive's Acknowledgments. The Executive recognizes and
acknowledges that: (a) in the course of the Executive's employment by the
Company it will be necessary for the Executive to acquire information concerning
the JRichard Group's and its members' confidential,
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proprietary and other sensitive information, including sales, sales volume,
sales methods, sales proposals, customers and prospective customers, services
and service providers, identity of customers and prospective customers, identity
of key personnel in the employ of customers and prospective customers, amount or
kind of customer's purchases from the JRichard Group, the JRichard Group's
sources of supply, technology, computer programs, system documentation, special
hardware, product hardware, related software development, manuals, formulae,
processes, methods, machines, compositions, ideas, improvements, inventions or
other confidential or proprietary information belonging to the JRichard Group or
relating to the JRichard Group's affairs (including the information described in
clause (b) below, collectively referred to herein as the "Confidential
Information"); (b) in the course of his employment with the Company, the
Executive has had access to and developed similar information concerning the
Company; (c) the Confidential Information is the property of the JRichard Group;
(d) the use, misappropriation or disclosure of the Confidential Information
would constitute a breach of trust and could cause irreparable injury to the
JRichard Group; and (e) it is essential to the protection of the Company's
goodwill and to the maintenance of the JRichard Group's competitive position
that the Confidential Information be kept secret and that the Executive not
disclose the Confidential Information to others or use the Confidential
Information to the Executive's own advantage or the advantage of others or in
any way to disadvantage the Company.
6.2 Non-Disclosure of Confidential Information. The Executive
agrees to hold and safeguard the Confidential Information in trust for the
Company, its successors and assigns and agrees that he shall not, without the
prior written consent of the Portec CEO, misappropriate or disclose or make
available to anyone for use outside the JRichard Group at any time, either
during his employment with the Company or subsequent to the termination of his
employment with the Company, for any reason, including, without limitation,
termination by the Company for cause or without cause, any of the Confidential
Information, whether or not developed by the Executive, except (a) as required
in the performance of the Executive Employment Duties to the Company and (b) to
the extent that such information (i) is or becomes generally available to the
public other than as a result of a disclosure by the Executive in violation of
this Agreement, or (ii) is required to be disclosed pursuant to a court order or
other legal process (provided the Executive gives the Company notice of such
obligation when the Executive receives notice of such obligation and prior to
any disclosure pursuant to such obligation affords the Company the opportunity
and cooperates with the Company in any efforts by the Company to limit the scope
of such obligation and/or to obtain confidential treatment of any material
disclosed pursuant to such obligation).
6.3 Disclosure of Works and Inventions/Assignment of Patents.
The Executive shall disclose promptly to the Company any and all works,
inventions, discoveries, ideas and improvements authored, invented, conceived or
made by the Executive during the period of employment, and related to the
business or activities of the Company, which are or may be patentable or subject
to copyright or trademark registration or protectable as a trade secret. The
Executive hereby assigns and agrees to assign all his rights, title and
interests therein to the Company for no consideration in addition to that set
forth herein. Whenever required to do so by the Portec CEO, the Executive shall
execute any and all applications, assignments or other
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instruments which the Company shall deem necessary to apply for and obtain
letters patent, trademark registrations or copyright registrations in the United
States, Canada, United Kingdom or any other foreign country or to otherwise
protect the Company's interest therein. Such obligations shall continue beyond
the termination of employment with respect to such works, inventions,
discoveries, ideas and improvements authored, invented, conceived or made by the
Executive during the period of employment, and shall be binding upon the
Executive's assigns, executors, administrators, heirs and other legal
representatives.
7. Covenant Not to Compete.
7.1 Non-Competition The Executive agrees that from the date
hereof and continuing for the lesser of (x) one (1) year after the termination
of the Executive's employment with the Company for any reason, except in the
event the Company terminates the Executive's employment without Cause within six
(6) months after the Effective Time, and (y) the longest time permitted by
applicable law, neither the Executive nor any of the Executive's Affiliates (as
defined herein) shall do any one or more of the following, directly or
indirectly:
i. engage or participate, directly or indirectly, anywhere in
North America as an owner, partner, member, shareholder,
director, employee, adviser, consultant, sales representative
or (without limitation by the specific enumeration of the
foregoing) otherwise, in any Competing Business (as defined
herein); or
ii. solicit, or attempt to supply any product or service (in
either case of a Competing Business) to, any customer of any
member of the JRichard Group including NDCA which has been a
customer of any member of the JRichard Group including NDCA
within the three (3) year period immediately preceding the
date hereof.
For the purposes of this Agreement, an "Executive's Affiliate" shall mean and
include any Person controlled directly or indirectly by the Executive and the
Executive's spouse. "Control" shall mean the direct or indirect power to direct
or cause the direction of the management and policies of a Person or entity
through voting securities, contract or otherwise.
7.2 Trademarks In addition to the foregoing, the Executive
agrees that from and after the date hereof and continuing for the longest time
permitted by applicable law, neither the Executive nor any of the Executive's
Affiliates shall, directly or indirectly, use or license, or permit any third
party to use or license, any name, slogan, logo or trademark which is similar to
or deceptively similar to any of the names, slogans, logos or trademarks used in
connection with the business or otherwise by the JRichard Group as of the date
hereof.
7.3 Competing Business For purposes of this Agreement, the
term "Competing Business" means each of any business engaged in supplying
controls hardware, software, engineering services, and other components for
Automated Guided Vehicles ("AGVs") or AGV
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Systems, and incorporating multiple AGVs, and any business that competes
directly or indirectly with any member of the JRichard Group, including any
business providing such products and/or services to North America regardless of
whether the business is located in North America or exports such products and/or
services to North America.
7.4 Extension of Covenant Period In the event of any breach of
Sections 7.1 or 7.2 above, the time period of the breached covenant shall be
extended for the period of such breach. The Executive and each Affiliate of the
Executive recognizes that the territorial, time and scope limitations set forth
in this Section are reasonable and are required for the protection of the
JRichard Group and in the event that any such territorial, time or scope
limitation is deemed to be unreasonable by a court of competent jurisdiction,
the Company and the Executive agree to the reduction of either or any of such
territorial, time or scope limitations to such an area, period or scope as such
court shall deem reasonable under the circumstances.
7.5 Hiring Away Employees For a period of five (5) years from
the date hereof, the Executive shall not take any action which is calculated or
intended to persuade any salaried, technical, professional or other employees,
representatives or agents of any member of the JRichard Group to terminate their
association with such member of the JRichard Group.
8. Ventures. If, during the term of this Agreement, the
Executive develops or is engaged in or associated with the planning or
implementing of any project, program or venture involving the Company or its
resources and a third party or parties, all rights in the project, program or
venture shall belong to the Company and shall constitute a corporate opportunity
belonging exclusively to the Company. Except as approved by the Portec CEO, the
Executive shall not be entitled to any interest in such project, program or
venture or to any commission, finder's fee or other compensation in connection
therewith other than the Salary to be paid to the Executive as provided in this
Agreement.
9. Termination.
9.1 Grounds for Termination. The employment of the Executive
shall terminate prior to the expiration of the Term set forth in Section 2 or
any extension thereof as contemplated by Section 2 in the event that at any time
during such Term or any extension thereof:
i. the Executive shall die, or
ii. the Board shall determine that any of the following events
or conditions has occurred or exists:
(1) The Executive suffers a Disability (as hereinafter
defined). For purposes of this Agreement, the Executive
will be deemed to have a "Disability" if: (x) (A) the
Executive is adjudged mentally incompetent by a court of
competent jurisdiction or (B) because of ill health,
physical or mental
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disability or for other causes beyond the control of the
Executive, (y) the Executive is continuously unable to
perform the Executive Employment Duties for one hundred
eighty (180) consecutive days, as determined by the Board
or, (z) if, during any twelve (12) month period, the
Executive was unable to perform the Executive Employment
Duties for a total of one hundred eighty (180) days,
regardless of whether such days are consecutive, as
determined by the Portec CEO, or
(2) Cause exists. "Cause" shall mean any of the
following, determined by the Board in its reasonable
judgment: (A) embezzlement, fraud, misappropriation or
dishonesty by the Executive against or with respect to the
Company or the commission of any felony or other offense
involving dishonesty, disloyalty, fraud or moral turpitude
(or a plea of nolo contendere with respect to any such
offense or felony); (B) the Executive's engaging in gross
negligence or willful misconduct in the performance of the
Executive Employment Duties; (C) the Executive's willful,
knowing or reckless unauthorized dissemination of
Confidential Information; (D) the breach by the Executive
of any provision of this Agreement in any material
respect, which breach or failure is not cured by the
Executive or is not capable of being cured (as determined
in the reasonable discretion of the Board) by the
Executive within fifteen (15) days after written notice of
such breach or failure is delivered to the Executive; or
(E) failure of the Executive to perform the Executive
Employment Duties (unless such failure is not material) or
failure of the Executive to follow any reasonable
direction of the Board;
Notwithstanding any termination of employment pursuant to
this Section 9.1, the Executive, in consideration of his
employment hereunder to the date of such termination,
shall remain bound following any such termination by the
provisions of this Agreement which specifically relate to
periods, activities or obligations upon or subsequent to
the termination of the Executive's employment.
9.2 Termination. It is understood and agreed that the Company
may also terminate this Agreement for any other reason or for no reason, subject
only to the obligation of the Company to make payments under Section 5.
9.3 Surrender of Records and Property. Upon termination of his
employment with the Company, the Executive shall deliver promptly to the Company
all records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, computer
records, computer disks and files which are the property of the Company and
which relate in any way to the business, products, practices or techniques of
the Company, and all other property, trade secrets and confidential information
which in whole or in part contain any Confidential Information of the Company,
and all other physical property of the Company such as
9
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portable computers (even if such property does not include or contain
confidential information), which in any of these cases are in his possession or
under his control.
10. Assignment. This Agreement shall be binding upon the
Company, its successors and assigns, but it may not be assigned by the Company
except as part of a general assignment or conveyance by the Company of
substantially all of its assets or business. The Agreement may not be assigned
by the Executive.
11. Injunctive Relief. The Executive agrees that it would be
difficult to calculate or compensate the Company fully for damages for any
violation of the provisions of this Agreement, including without limitation the
provisions of Sections 6, 7, 8 and 9.3. Accordingly, the Executive specifically
agrees that the Company shall be entitled to temporary and permanent injunctive
relief to enforce the provisions of this Agreement, without the posting of any
bond. This provision with respect to injunctive relief shall not, however,
diminish the right of the Company to claim and recover damages in addition to
injunctive relief.
12. Miscellaneous.
12.1 Governing Law. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of North
Carolina.
12.2 Prior Agreements. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements and understandings with respect to such subject matter, and
the parties hereto have made no agreement, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.
12.3 Withholding Taxes. The Company may withhold from any
benefits payable under this Agreement all federal, provincial, state, city or
other taxes as shall be required pursuant to any law or governmental regulation
or ruling.
12.4 Amendments. No amendment or modification of this
Agreement shall be deemed effective unless made in writing signed by the parties
hereto.
12.5 No Waiver. No term or condition of this Agreement shall
be deemed to have been waived nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
12.6 Severability. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect. The Executive
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acknowledges the uncertainty of the law in this respect and expressly stipulates
that this Agreement shall be given the construction which renders its provisions
valid and enforceable to the maximum extent (not exceeding its express terms)
possible under applicable law.
12.7 Arbitration. Any claim or controversy arising out of or
related to this Agreement, or its breach (except an action seeking a restraining
order or injunction pursuant to Section 11), shall be finally settled by binding
arbitration in the City of Charlotte, North Carolina, in accordance with the
then governing rules of the American Arbitration Association. Judgment upon the
award rendered may be entered and enforced in any court of competent
jurisdiction. If the Arbitration panel rules in favor of the Executive, all
costs for the arbitration shall be borne by the Company. If the Arbitration
panel rules in favor of the Company, the costs for the arbitration shall be
shared between the two parties on a 50/50 basis. Each side shall, in any event,
bear the cost of its own legal counsel.
12.8 Notice. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given if (a)
delivered personally or (b) sent by reputable next-day or overnight mail or
delivery or (c) sent by telecopy:
(i) if to the Executive,
Mr. Ralph G. Dollander
3101 Latrobe Drive,
Charlotte, NC 28211
with a copy to:
Thorelli & Associates
Three First National Plaza
70 W. Madison Street, Suite 5420
Chicago, IL 60602
Attention: Thomas H. Thorelli, Esq.
(ii) if to the Company,
NDC Automation, Inc.
c/o J Richard Industries
3934 Concord Street
Toledo, Ohio 43612
Attention:
Fax: (419) 476-2546
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with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attn: Mark T. Kindelin, Esq.
Sonia Gupta Barros, Esq.
Fax: (312) 715-4800
and/or, in each case, at such other address and/or to such other addressee as
may be specified in writing to the other parties hereto.
All such notices, requests, demands, waivers and other
communications shall be deemed to have been received (a) if by personal delivery
on the day after such delivery, or refusal of delivery, (b) if by next-day or
overnight mail or delivery, on the day delivered or day delivery was refused,
(c) if by telecopy, on the next day following the day on which such telecopy was
sent, provided that a copy is also sent by one of the other methods of delivery
set forth in the first paragraph of this Section 12.8 within two (2) business
days of the date such telecopy was sent.
12.9 Executive Acknowledgment. The Executive hereby
acknowledges that (a) the Company has advised him to consult with an attorney
prior to the execution of this Agreement and that he has done so, (b) he has
read this Agreement, (c) he fully understands the terms of this Agreement and
(d) he has executed this Agreement voluntarily and without coercion, whether
express or implied.
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IN WITNESS WHEREOF, the parties have executed and sealed this
Employment Agreement as of the day and year set forth above.
THE COMPANY
NDC AUTOMATION, INC.
By: /s/Ralph Dollander
---------------------------------
Name: Ralph Dollander
-------------------------------
Title: PRESIDENT & CEO
------------------------------
THE EXECUTIVE
/s/Ralph Dollander
---------------------------------------
Ralph G. Dollander
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SCHEDULE 4.6
Consents
Inventory and Accounts Receivable Loan and Security Agreement dated February 28,
1998 between the Company, National Bank of Canada and National Canada Business
Corp., as amended.
Distributorship Agreement dated April 23, 1998 between Schabmuller GmbH and the
Company.
Representation Agreement dated January 27, 1999 between Harcon Engineering Inc.
and the Company.
Letter Agreement between the Company, Apogeum AB and Netzler & Dahlgren Co AB
dated October 18, 1993.
All Stock Option Consents
Consent from Nations Bank, N.A. to terminate any interest it may have in NDC
Laser + Design (1,878,486) and NDC Capture (1,920,748) and assign all right,
title and interest to the Company.
<PAGE>
APPENDIX D
[GRAPHIC]
WILLAMETTE MANAGEMENT ASSOCIATES
1355 Peachtree Street, N.E., Suite 1470
Atlanta, Georgia 30309
404-870-0601 / (Fax) 404-870-0610
September 13, 1999
Board of Directors
NDC Automation, Inc.
3101 Latrobe Drive
Charlotte, North Carolina 28211
Dear Directors:
We understand that NDC Automation, Inc. ("NDC", the "Company") is considering
entering into an Agreement and Plan of Merger pursuant to which Hornett
Acquisition Corp. ("Purchaser") will commence a tender offer for all of NDC'S
outstanding common stock for $0.75 per share in cash, net to the seller, to be
followed as soon as practicable by a merger of NDC and Purchaser, pursuant to
which each share of NDC (other than shares held as treasury shares by the
Company and dissenting shares) will be converted into the right to receive the
cash consideration per share paid in the tender offer (collectively, the
"Transaction"). You have supplied us with a draft of the Agreement and Plan of
Merger by and among Portec, Inc. ("Parent"), Hornett Acquisition Corp. and NDC
Automation, Inc., dated as of September 13, 1999, in substantially the form to
be executed by the parties (the "Merger Agreement").
You have asked us to render our opinion as to whether the Transaction is fair,
from a financial point of view, to the public stockholders of NDC.
In the course of our analyses for rendering this option, we have:
1. reviewed the Merger Agreement;
2. reviewed NDC'S Annual Reports on Form 10-K for the fiscal years
ended November 30, 1994 through 1998, its Quarterly Reports on Form
10-Q for the periods ended February 27 and May 31, 1999, and its
unaudited interim financial statements for the period ended June
30, 1999;
3. reviewed certain operating and financial information provided to us
by manangement relating to NDC'S business and prospects, including
its budgets for the years ending November 30, 1999, 2000 and 2001;
4. met with NDC's senior management to discuss its operations,
historical financial statements, and future prospects;
5. visited NDC's facilities in Charlotte, North Carolina;
6. reviewed the historical market prices and trading volume of the
common stock of NDC;
<PAGE>
Board of Directors
NDC Automation, Inc.
September 13, 1999
Page 2
7. reviewed publicly available financial data and stock market
performance data of public companies that we deemed generally
comparable to NDC;
8. reviewed the terms of recent acquisitions of companies that we
deemed generally comparable to NDC; and
9. conducted such other studies, analyses, inquiries, and
investigations as we deemed appropriate for the purposes of this
opinion.
In rendering our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all financial and other
information that was available to us from public sources and all the financial
and other information provided to us by NDC or its representatives. We have
further relied upon the assurances of the management of NDC that they are
unaware of any facts that would make the information NDC or its representatives
provided to us incomplete or misleading.
With respect to the projected financial results, we have assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgment of the management of NDC. We do not express an opinion
or any other form of assurance on the reasonableness of the underlying
assumptions. In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets of NDC. Our opinion is necessarily based on
economic, market, financial, and other conditions as they exist on, and on the
information made available to us as of, the date of this letter.
Based on the foregoing, it is our opinion that the Transaction is fair, from a
financial point of view, to the public stockholders of NDC.
The opinion expressed herein is provided for the information and assistance of
the Board of Directors of NDC concerning its consideration of the Transaction.
Our opinion does not constitute a recommendation to the stockholders of NDC as
to whether or not to tender their shares in the tender offer or vote in favor of
the merger.
Very truly yours,
WILLAMETTE MANAGEMENT ASSOCIATES
/s/ WILLAMETTE MANAGEMENT ASSOCIATES
<PAGE>
APPENDIX E
NDC AUTOMATION, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
& PROXY STATEMENT
MEETING DATE
NOVEMBER 24, 1999
DELAWARE GENERAL CORPORATE LAW
SS. 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection (d)
of this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing pursuant to
ss.228 of this title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to ss. 251 (other than a merger effected
pursuant to ss. 251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss.
263 or ss. 264 of this title;
(1) provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc.; or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares
of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to ss.ss. 251, 252, 254, 257, 258, 263 and 264
of this title to accept for such stock anything except: (i) shares of
stock of the corporation surviving or resulting from such merger or
consolidation, or depository receipts in respect thereof; (ii) shares
of stock of any other corporation, or depository receipts in respect
thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange
or designated as a national market system
<PAGE>
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders; (iii) cash in lieu of fractional shares or fractional
depository receipts described in the foregoing clauses (i) and (ii); or
(iv) any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing clauses (i), (ii) and (iii) of this
subsection.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss. 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsection (b) or (c)
hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a
copy of this section. Each stockholder electing to demand the appraisal
of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal
of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A
proxy or vote against the merger or consolidation shall not constitute
such a demand. A stockholder electing to take such action must do so by
a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
ss. 228 or ss. 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten
days thereafter, shall notify each of the holders of any class or
series of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and
that appraisal rights are available for any or all shares of such class
or series of stock of such constituent corporation, and shall include
in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to
all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation
the appraisal of such holder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation,
either (i) each such constituent corporation shall send a second notice
before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective date
of the merger or consolidation
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or (ii) the surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than
20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall,
in the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or
after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the office of
the Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded payment
for their shares and with whom agreements as to the value of their shares have
not been reached by the surviving or resulting corporation. If the petition
shall be filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine
the stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their fair value
exclusive of any element of value arising from the accomplishment or expectation
of the merger or consolidation, together with a fair rate of interest, if any,
to be paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
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proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that he is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court
and taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
(8 Del. C. 1953, ss. 262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, ss. 24; 57
Del. Laws, c. 148, ss.ss. 27-29; 59 Del. Laws, c. 106, ss. 12; 60 Del. Laws, c.
371, ss.ss. 3-12; 63 Del. Laws, c. 25, ss. 14; 63 Del. Laws, c. 152, ss.ss. 1,
2; 64 Del. Laws, c. 112, ss.ss. 46-54; 66 Del. Laws, c. 136, ss.ss. 30-32; 66
Del. Laws, c. 352, ss. 9; 67 Del. Laws, c. 376, ss.ss. 19, 20; 68 Del. Laws, c.
337, ss.ss. 3, 4; 69 Del. Laws, c. 61, ss. 10; 69 Del. Laws, c. 262, ss.ss. 1-9;
70 Del. Laws, c. 79, ss. 16; 70 Del. Laws, c. 186, ss. 1; 70 Del. Laws, c. 299,
ss.ss. 2, 3; 70 Del. Laws, c. 349, ss. 22; 71 Del. Laws, c. 120, ss. 15.)
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