TRANSTECH INDUSTRIES, INC.
200 Centennial Avenue
Suite 202
Piscataway, New Jersey 08854
________________________________________________________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On February 29, 1996
________________________________________________________
To the Stockholders of Transtech Industries, Inc.:
You are cordially invited to attend a Special Meeting of Stockholders
(the "Special Meeting") of Transtech Industries, Inc. (the "Company") to be
held at the Somerset Marriott, 110 Davidson Avenue, Somerset, New Jersey
08873, on Thursday, February 29, 1996, at 3:00 p.m., Eastern Standard Time,
for the following purposes:
1. To consider and approve the transactions contemplated by the
proposed sale (the "Proposed Sale") by THV Acquisition Corp., a wholly-
owned subsidiary of the Company ("THV" or the "Seller"), of all the issued
and outstanding common stock of Hunt Valve Company, Inc. ("Hunt") owned by
the Seller to ValveCo Inc. (the "Purchaser"), a newly-formed corporation
organized by Three Cities Research, Inc. ("TCR"), a Delaware corporation
unaffiliated with the Company or any of its directors and officers, with
the participation of certain directors and executive officers of the
Company and Hunt who will have minority equity interests in the Purchaser.
It is expected that certain employees of TCR will be directors of the
Purchaser after consummation of the Proposed Sale. In addition, TCR is a
party to a management agreement with a general partner of each of two
partnerships which together will own approximately 70% of the voting stock
of the Purchaser on a fully diluted basis upon consummation of the Proposed
Sale.
2. To transact such other business as may properly come before the
meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on January 2,
1996 as the record date for the determination of stockholders entitled to
notice of and to vote at such Special Meeting or any adjournment(s)
thereof. Only stockholders of record at the close of business on the said
record date are entitled to notice of and to vote at such Special Meeting.
The stockholders of the Company will not be entitled to any appraisal or
dissenter's rights with respect to the Proposed Sale. In the event the
Proposed Sale is approved, such approval may be used as a defense by the
Company in any action by a shareholder of the Company against the Company
or any of its representitives challenging the legality of the Proposed
Sale, irrespective of whether such shareholder voted for or against, or
abstained from voting with respect to, the Proposed Sale.
Whether or not you plan to be present at the Special Meeting, please
complete, sign, date and mail the enclosed proxy, which is being solicited
on behalf of the Board of Directors, so that your shares may be represented<PAGE>
at the Special Meeting. Signed but unmarked proxies will be voted FOR the
Proposed Sale. The proxy is revocable and will not affect your right to
vote in person in the event you attend the Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Andrew J. Mayer, Jr.
February 9, 1996 Andrew J. Mayer, Jr., Vice-President -
Finance, Chief Financial Officer and
Secretary
TRANSTECH INDUSTRIES, INC.
200 Centennial Avenue
Suite 202
Piscataway, New Jersey 08854
PROXY STATEMENT
for SPECIAL MEETING of STOCKHOLDERS
February 29, 1996
This Proxy Statement is being furnished to holders of common
stock, par value $.50 per share ("Common Stock"), of Transtech
Industries, Inc., a Delaware corporation (the "Company"), in
connection with the solicitation, by and on behalf of the Board
of Directors of the Company, of proxies to be used at the Special
Meeting of Stockholders of the Company (the "Special Meeting") to
be held at the Somerset Marriott, 110 Davidson Avenue, Somerset,
New Jersey 08873, on Thursday, February 29, 1996 commencing at
3:00 p.m., Eastern Standard Time, or any adjournment thereof.
At the Special Meeting, stockholders will be asked to
consider and vote upon a proposal to approve the transactions
contemplated by the sale (the "Proposed Sale") by THV Acquisition
Corp., a Delaware corporation which is a wholly-owned subsidiary
of the Company ("THV" or the "Seller"), of all the issued and
outstanding common stock, par value $.01 per share, owned by the
Seller (the "Hunt Common Stock"), of Hunt Valve Company, Inc., a
Delaware corporation ("Hunt"), to ValveCo Inc. (the "Purchaser"),
a newly-formed Delaware corporation organized by Three Cities
Research, Inc. ("TCR"), a Delaware corporation unaffiliated with
the Company or any of its directors or officers, with the
participation of certain directors and executive officers who are
members of management of the Company and Hunt who will have
minority equity interests in the Purchaser, pursuant to a Stock
Purchase Agreement (the "Purchase Agreement"), dated as of
October 24, 1995, as amended on January 15 and February 5, 1996,
among the Seller, the Company, and the Purchaser. The Seller
owns 79.05% of the outstanding common stock of Hunt, whose assets
may be deemed to represent substantially all of the assets of the
Company.
The Proposed Sale contemplates that the Purchaser shall
purchase the Hunt Common Stock from the Seller and,
simultaneously therewith, the Purchaser shall provide Hunt with
sufficient funds to enable Hunt to redeem its issued and
outstanding 7% preferred stock, without par value (the "Hunt
Preferred Stock"), all of which is owned by the Seller, and pay
to the Seller all amounts due pursuant to the senior subordinated
note issued by Hunt to Seller in the original principal amount of
$500,000 (the "Senior Subordinated Note"). Hunt's present loan
agreements, which will be paid or refinanced at the closing of
the Proposed Sale, restrict Hunt's ability to redeem the Hunt
Preferred Stock or to make any payments to the Seller on account
of the Senior Subordinated Note. The Hunt Common Stock shall be
purchased for a purchase price (the "Purchase Price") of
$2,208,000 in cash, representing gross proceeds of $18,000,000,
reduced by the sum of (i) $12,721,000, representing the amount of
Hunt's indebtedness for borrowed money as of the closing of the
Proposed Sale ("Funded Debt"), including Hunt's revolving credit
facility (the "Revolver"), which has been fixed by the parties
solely for purposes of determination of the Purchase Price (the
"Funded Debt Amount"), (ii) the amount of $500,000, representing
the value of the shares (the "Lender Warrant Shares") acquired by
Terold N.V., a designee of the Purchaser ("Terold"), upon
exercise of the Lender Warrants (as hereinafter defined under
"The Proposed Sale - The Parties - THV, HVHC and Hunt") on
December 27, 1995, (iii) the amount required to be paid by Hunt
to the Seller upon the redemption by Hunt of the Hunt Preferred
Stock and (iv) the amount required to be paid by Hunt to the
Seller in repayment of the Senior Subordinated Note. At the
closing of the Proposed Sale, the Purchaser shall provide Hunt
with sufficient funds to pay and/or refinance the Funded Debt.
The Seller was previously paid $50,000 of the Purchase Price (the
"Supplemental Stock Payment") by Terold for the sale of 18
shares, or 2%, of the Hunt common stock held by the Seller (the
"Supplemental Stock") to Terold on December 27, 1995. Since the
outstanding balance of the Revolver fluctuates daily depending
upon the amount of cash received and disbursements paid on a
given day, the amount of Funded Debt outstanding as of the
closing of the Proposed Sale cannot be predicted. Accordingly,
the Seller and the Purchaser have agreed to the Funded Debt
estimate of $12,721,000 defined above as the "Funded Debt
Amount." Based on information presently available to the
Company, the Company anticipates that net cash proceeds of the
Proposed Sale (the "Net Cash Proceeds") will be approximately
$3,981,000, with such estimate due to possible variation in
anticipated transaction costs of the Company with respect to the
Proposed Sale, as set forth in the following table:
<TABLE>
<S> <C>
Gross Proceeds (Includes $18,000,000
$50,000 previously paid by
Terold to the Seller for the
Supplemental Stock)
Less:
Funded Debt Amount 12,721,000
Value of Lender Warrant 500,000
Shares __________
Cash Proceeds Before
Transaction Costs 4,779,000
Transaction Costs 798,000
Net Cash Proceeds $ 3,981,000
</TABLE>
The cash proceeds before transaction costs to be received by
the Company represents (i) the Purchase Price of $2,208,000, (ii)
$2,000,000 of proceeds from the redemption of the Hunt Preferred
Stock, to be redeemed upon consummation of the Proposed Sale, and
(iii) $571,000 of proceeds of the repayment of the Senior
Subordinated Note, to be repaid upon consummation of the Proposed
Sale. See "Allocation of Proceeds". In the event that, in the
judgment of the Independent Director and his advisors, the actual
Net Cash Proceeds to be received at the closing of the Proposed
Sale will be an amount that, in light of all circumstances, is
materially less than $3,981,000, the Company will resolicit
proxies with respect to the Proposed Sale. Of the Net Cash
Proceeds, $750,000 will be held in escrow to secure the Seller's
indemnification obligations to the Purchaser under the Purchase
Agreement. See "The Purchase Agreement - Conditions to Closing."
If the Seller consummates an acquisition or business combination
involving Hunt with a person or entity other than the Purchaser
or its affiliates on or before February 17, 1996, the Seller and
the Company shall pay, or cause Hunt to pay, to the Purchaser at
the closing of such transaction a fee of $450,000, and the
Company, the Seller or Hunt shall reimburse Robert V. Silva &
Company, Inc. ("Silva & Company"), an entity of which Robert V.
Silva, Chairman of the Board and Chief Executive Officer of the
Company, is a principal, and the Purchaser for up to $1,000,000
of expenses incurred in negotiating the Purchase Agreement and
the transactions contemplated thereby. See "The Purchase
Agreement - Negotiations with Others; Right of First Refusal."
It is expected that certain employees of TCR will be directors of
the Purchaser after consummation of the Proposed Sale. In
addition, TCR is a party to a management agreement with a general
partner of each of two partnerships represented by TCR (the "TCR
Investors") which together will own approximately 70% of the
voting stock of the Purchaser on a fully diluted basis upon
consummation of the Proposed Sale. See "The Proposed Sale - The
Parties - The Purchaser" and "The Purchase Agreement."
The sole independent member of the Board of Directors has
approved the Proposed Sale and recommends a vote FOR approval of
the Proposed Sale.
The sole independent member of the Board of Directors is
Arthur C. Holdsworth, III, who has served as a director since
1988. Since 1977, Mr. Holdsworth has been employed by Millington
Quarry, a company owned by members of the Mahan family. Mr.
Holdsworth's sister is the spouse of Roger Mahan, a member of the
Mahan family. Certain members of the Mahan family who
collectively own approximately 35% of the Common Stock (the
"Mahan Stockholders") have indicated that they are in favor of
the Proposed Sale and have granted to the Purchaser an
irrevocable proxy to vote their shares in favor of the Proposed
Sale. Robert V. Silva is the Chairman of the Board and Chief
Executive Officer of the Company. He initiated the Proposed Sale
and will have a minority equity interest in the Purchaser and
remain an officer and director of Hunt after the Proposed Sale.
(See "The Proposed Sale - Interests of Certain Persons in the
Proposed Sale".) The wife of Robert V. Silva is the sister-in-
law of a member of the Mahan family. However, Mr. Holdsworth is
not employed by the Company, owns no Common Stock, has no present
ownership interest in either TCR or the Purchaser, will have no
ownership interest in TCR or the Purchaser after the closing of
the Proposed Sale, and has not been, nor is he proposed to be,
engaged by TCR or the Purchaser as an advisor, consultant or
employee. The Mahan Stockholders have no ownership interest in
the Purchaser or in TCR. See "The Proposed Sale - Interests of
Certain Persons in the Proposed Sale." Both the Company and Mr.
Holdsworth believe that Mr. Holdsworth's relationship with the
Mahan family will not interfere with his exercise of independent
judgment in carrying out his responsibilities as a director of
the Company in connection with the Proposed Sale. Separate
counsel has been engaged to represent the Company and Mr.
Holdsworth, in his capacity as independent director, in
connection with the Proposed Sale. Brenner Securities
Corporation, an investment banking firm unaffiliated with the
Company, has rendered an opinion to Mr. Holdsworth, in his
capacity as a director of the Company, as to the fairness to the
Company of the Proposed Sale from a financial point of view. See
"The Proposed Sale - Opinion of Financial Advisor."
Signed but unmarked proxies will be voted FOR the Proposed
Sale. The stockholders of the Company will not be entitled to
any appraisal or dissenter's rights with respect to the Proposed
Sale. In the event the Proposed Sale is approved, such approval
may be used as a defense by the Company in any action by a
shareholder of the Company against the Company or any of its
representatives challenging the legality of the Proposed Sale,
irrespective of whether such shareholder voted for or against, or
abstained from voting with respect to, the Proposed Sale.
Hunt is the successor in interest to Hunt Valve Company,
Inc., an Ohio corporation, which is sometimes referred to herein
as "Old Hunt". As described below (see "The Proposed Sale -
Background and Reasons for the Proposed Sale - Term Debt and
Warrant Assignment"), as part of the Company's plan to protect
the market value of Old Hunt through the severance of Old Hunt
from the Company's consolidated federal income tax group in 1995,
and thereby relieve Old Hunt from joint and several liability for
the Company's taxes for 1996 and subsequent years, the Company
and the Seller caused Old Hunt to merge (the "Merger") with and
into its immediate parent company, HVHC, Inc., a Delaware
corporation ("HVHC") whose sole asset was the common stock of Old
Hunt. The Merger became effective on December 26, 1995 (the
"Merger Date"). Upon Merger effectiveness, HVHC changed its name
to "Hunt Valve Company, Inc." Thereafter, Terold acquired an
aggregate of 20.95% of the common stock of Hunt, the successor by
merger of Old Hunt, thereby effecting the deconsolidation of Hunt
from the Company's consolidated federal income tax group. See
"The Proposed Sale - Recommendation of the Board of Directors."
Accordingly, except as otherwise expressly provided herein, all
references to "Hunt" in this Proxy Statement and the description
of documents described herein with respect to matters or events
preceding the Merger Date are references to Old Hunt, and all
references to "Hunt" with respect to matters or events on or
after the Merger Date are references to Hunt, as successor by
merger to Old Hunt.
This Proxy Statement, the accompanying proxy, the Company's
Annual Report for 1994 and the Company's Form 10-QSB for the
fiscal quarter ended September 30, 1995, as amended, are being
mailed to stockholders of the Company on or about February 9,
1996.
No persons have been authorized to give any information or
make any representation other than those contained in this Proxy
Statement in connection with the solicitations of proxies made
hereby and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company
or any other person. All information pertaining to the Purchaser
contained in this Proxy Statement has been supplied by the
Purchaser.
TABLE OF CONTENTS PAGE
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . 16
Time, Date and Place . . . . . . . . . . . . . . . . . . 16
Matters to be Considered at the Special Meeting. . . . . 16
Voting and Record Date . . . . . . . . . . . . . . . . . 16
Proxies. . . . . . . . . . . . . . . . . . . . . . . . . 17
THE PROPOSED SALE . . . . . . . . . . . . . . . . . . . . . . . 18
The Parties. . . . . . . . . . . . . . . . . . . . . . . 18
Background and Reasons for the Proposed Sale . . . . . . 21
Recommendation of the Board of Directors . . . . . . . . 38
Opinion of Financial Advisor . . . . . . . . . . . . . . 41
Joint Marketing Agreement - Hydraulik-Ring . . . . . . . 46
Hunt Financing Memorandum. . . . . . . . . . . . . . . . 46
Interests of Certain Persons in the Proposed Sale. . . . 49
Regulatory Filings and Approvals . . . . . . . . . . . . 51
Allocation of Proceeds . . . . . . . . . . . . . . . . . 51
Plans for Operation of the Company After the
Proposed Sale. . . . . . . . . . . . . . . . . . . . 53
THE PURCHASE AGREEMENT. . . . . . . . . . . . . . . . . . . . . 57
The Proposed Sale. . . . . . . . . . . . . . . . . . . . 58
Purchase Price . . . . . . . . . . . . . . . . . . . . . 58
Closing Date . . . . . . . . . . . . . . . . . . . . . . 58
Conditions to Closing. . . . . . . . . . . . . . . . . . 58
Representations and Warranties . . . . . . . . . . . . . 61
Certain Covenants. . . . . . . . . . . . . . . . . . . . 61
Negotiations with Others; Right of First Refusal . . . . 63
Certain Post-Closing Covenants . . . . . . . . . . . . . 64
Survival; Indemnification. . . . . . . . . . . . . . . . 64
Termination. . . . . . . . . . . . . . . . . . . . . . . 65
REASONS FOR SEEKING STOCKHOLDER APPROVAL OF
PROPOSED SALE. . . . . . . . . . . . . . . . . . . . . . 66
FEDERAL INCOME TAX CONSEQUENCES; RIGHTS OF
DISSENTING SHAREHOLDERS; VOTE REQUIRED . . . . . . . . . 67
Federal Income Tax Consequences. . . . . . . . . . . . . 67
Rights of Dissenting Stockholders. . . . . . . . . . . . 68
Vote Required. . . . . . . . . . . . . . . . . . . . . . 68
MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . 68
SELECTED CONSOLIDATED FINANCIAL INFORMATION
OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 70
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . 93
POSSIBLE ADJOURNMENT. . . . . . . . . . . . . . . . . . . . . . 95
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 95
INCORPORATION OF DOCUMENTS BY REFERENCE . . . . . . . . . . . . 96
ANNEX A: PURCHASE AGREEMENT. . . . . . . . . . .
ANNEX B: FAIRNESS OPINION. . . . . . . . . . . .
ANNEX C: TERM DEBT AND WARRANT ASSIGNMENT. . . .
SUMMARY
The following is a brief summary of information contained
elsewhere in this Proxy Statement. This summary is not a
complete statement of all facts material to a stockholder's
decision with respect to the matters to be voted upon at the
Special Meeting. This summary should only be read in conjunction
with, and is qualified in its entirety by reference to, the more
detailed information contained in the remainder of this Proxy
Statement and the Annexes hereto. Unless otherwise defined,
capitalized terms used in this summary have the respective
meanings ascribed to them elsewhere in this Proxy Statement.
Stockholders are urged to review carefully this Proxy Statement
and the Annexes hereto in their entirety.
The Parties
The Company.............. The Company, directly and through
its subsidiaries, is engaged in
various lines of business,
including the manufacture and sale
of specialty directional and flow
control valves, fluid power
components, hydraulic and pneumatic
cylinders, and complete valve
systems for commercial and military
use through its Hunt Valve Company,
Inc. subsidiary. Hunt's sales
constituted 91%, 89% and 92% of the
Company's consolidated operating
revenue in 1992, 1993 and 1994,
respectively. The principal
executive offices of the Company
are located at 200 Centennial
Avenue, Suite 202, Piscataway, New
Jersey 08854 and the Company's
telephone number is (908) 981-0777.
See "The Proposed Sale - The
Parties."
The Purchaser............ ValveCo Inc. (the "Purchaser") is a
newly-formed Delaware corporation
organized by Three Cities Research,
Inc., a Delaware corporation
unaffiliated with the Company or
any of its directors and officers.
Certain directors and executive
officers who are members of
management of the Company and Hunt
will have a minority equity
interest in the Purchaser. See
"The Proposed Sale - The Parties"
and "The Proposed Sale - Interests
of Certain Persons in the Proposed
Sale."
TCR is a New York-based investment
advisor which organizes the
investment of private equity
capital in medium-sized businesses
in the United States. TCR has in
excess of $350 million of capital
under management. The principal
executive offices of the Purchaser
are located at c/o Three Cities
Research, Inc., 135 East 57th
Street, New York, New York 10022
and the Purchaser's telephone
number is (212) 838-9660.
The Special Meeting
Time, Date, Place........ The Special Meeting will be held at
the Somerset Marriott, 110 Davidson
Avenue, Somerset, New Jersey 08873,
on Thursday, February 29, 1996
commencing at 3:00 p.m., Eastern
Standard Time.
Matters to be Considered
at the Special Meeting... At the Special Meeting, the
stockholders of the Company will be
asked to consider and vote upon the
proposed sale to the Purchaser by
THV Acquisition Corp., a wholly-
owned subsidiary of the Company, of
all the issued and outstanding
common stock of Hunt owned by the
Seller for a Purchase Price of
$2,208,000 in cash, representing
gross proceeds of $18,000,000,
reduced by the sum of (i) the
Funded Debt Amount of $12,721,000
(which includes $10,600,000 of
principal indebtedness to Terold,
plus accrued and unpaid interest
thereon), (ii) the amount of
$500,0000, representing the value
of the Lender Warrant Shares, (iii)
the amount paid by Hunt to the
Seller upon redemption by Hunt of
the Hunt Preferred Stock owned by
the Seller and (iv) the amount paid
by Hunt to the Seller in repayment
of the Senior Subordinated Note.
The Seller previously received
$50,000 of the Purchase Price in
payment for the Supplemental Stock.
Net Cash Proceeds......... The Company expects the net cash
proceeds of the Proposed Sale,
consisting of the sum of (a) the
Purchase Price of $2,208,000, (b)
$2,000,000 of proceeds from the
redemption of the Hunt Preferred
Stock, to occur upon the closing of
the Proposed Sale, and (c) $571,000
of proceeds of the repayment of the
Senior Subordinated Note, to occur
upon the closing of the Proposed
Sale, less transaction costs
relating to the Proposed Sale of
$798,000 (the "Net Cash Proceeds"),
to be approximately $3,981,000,
with such estimate due to possible
variation in anticipated
transaction costs of the Company
with respect to the Proposed Sale.
Based on this estimate of Net Cash
Proceeds and estimates by current
management of Hunt's profitability
from now and until the closing, the
Company expects to report a loss of
approximately $842,000 from the
Proposed Sale for financial report-
ing purposes assuming a January 31,
1996 closing date. See "The
Proposed Sale - Allocation of
Proceeds."
Record Date; Shares Entitled
to Vote................. Holders of record of shares of
Common Stock at the close of
business on January 2, 1996 are
entitled to notice of and to vote
at the Special Meeting. At the
Record Date, there were 2,829,090
shares of Common Stock outstanding,
each of which will be entitled to
one vote on each matter to be acted
upon at the Special Meeting. The
presence, either in person or by
properly executed proxy, of the
holders of a majority of the
outstanding shares of Common Stock
entitled to vote at the Special
Meeting, or at least 1,414,546
shares, is necessary to constitute
a quorum at the Special Meeting.
See "The Special Meeting - Voting
and Record Date" and "Certain
Transactions; Effects of the Sale;
Vote Required - Vote Required."
Vote Required............ The approval of the Proposed Sale
will require the affirmative vote
of a majority of the outstanding
shares of capital stock of the
Company entitled to vote thereon.
Certain members of the Mahan
family, who owned 987,911 shares of
Common Stock, or approximately 35%
of the outstanding shares of Common
Stock entitled to vote at the
Special Meeting, as of the Record
Date, have indicated that they are
in favor of the Proposed Sale and
have granted to the Purchaser an
irrevocable proxy to vote their
shares in favor of the Proposed
Sale. See "The Special Meeting -
Voting and Record Date" and
"Certain Transactions; Effects of
the Sale; Vote Required - Vote
Required."
The Proposed Sale
Background and Reasons for
the Proposed Sale....... See "The Proposed Sale - Background
and Reasons for the Proposed Sale."
Recommendations of the
Board of Directors...... The Independent Director has
approved the Proposed Sale and
recommends to the Company's
stockholders that they vote FOR
approval of the Proposed Sale.
Opinion of Financial
Advisor................. Brenner Securities Corporation
("Brenner") has delivered its
written opinion, dated October 24,
1995, to the independent member of
the Company's Board of Directors
that, as of such date, the
consideration to be paid to the
Company by the Purchaser pursuant
to the Proposed Sale is fair, from
a financial point of view, to the
Company. A copy of the written
opinion of Brenner which sets forth
the assumptions made, matters
considered and limits of the review
undertaken by Brenner is attached
to this Proxy Statement as Annex B
and should be read in its entirety.
See "The Proposed Sale - Opinion of
Financial Advisor."
Interest of Certain Persons
in the Proposed Sale.... Certain investors represented by
TCR (the "TCR Investors") will
provide the Purchaser with
approximately $10.85 million of the
financing for the Proposed Sale,
with $7 million to consist of
promissory notes. Of the $4
million of the Purchaser's total
equity capital, $3 million of
preferred stock will be issued to
the TCR Investors. Of the
$1 million of common stock to be
issued by the Purchaser at closing,
85% will be issued to the TCR
Investors and 15% will be issued to
certain directors and executive
officers of the Company and Hunt,
consisting of Robert V. Silva,
Chairman of the Board and Chief
Executive Officer and a director of
each of the Company and Hunt, David
Huberfield, President and Chief
Operating Officer of Hunt, Andrew
J. Mayer, Jr. Vice President-
Finance, Chief Financial Officer,
Secretary and a director of each of
the Company and Hunt, and Gerald
Bogner, a director of Hunt (the
"Management Investors"). The
Management Investors will pay an
aggregate purchase price of
$150,000 for 15% of the common
stock of the Purchaser. The
Management Investors, together with
certain other members of senior
management of Hunt yet to be
determined, will also have the
opportunity to acquire from the TCR
Investors, for an aggregate cost of
$2.75 million, up to an additional
15% (an aggregate of 12.5% for the
Management Investors) of the common
stock of the Purchaser pursuant to
the exercise of performance- and
value-based options that will be
issued to them. In addition,
certain of the directors and
executive officers of the Company
and Hunt (Robert V. Silva, David
Huberfield, Andrew J. Mayer, Jr.
and Gerald Bogner) will be employed
as officers and/or directors of
Hunt after the Proposed Sale. See
"The Proposed Sale - Interests of
Certain Persons in the Proposed
Sale."
Plans for Operation of the
Company following the
Proposed Sale........... Upon consummation of the Proposed
Sale, the Company intends to use
the Net Cash Proceeds from the
Proposed Sale, together with
approximately $3 million in cash,
short-term investments and
marketable securities currently
held by the Company to fund (i) tax
obligations arising from the
litigation with the Internal
Revenue Service (the "Service")
over the Company's tax returns for
tax years 1980 through 1991, (ii)
the Company's projected tax
liability for 1996 and 1997 arising
from its investment in computer
equipment, (iii) the working
capital requirements of the
Company's remaining continuing
operations, consisting of two
operating companies engaged in the
generation and sale of electricity
from methane gas and the perform-
ance of environmental services, and
the overhead expenses of the
Company and its 23 non-operating
subsidiaries, and including
the costs of environmental and tax
litigation, (iv) expenses relating
to the divestiture of certain
assets, consisting primarily of
approximately 530 acres of real
property in New Jersey, and (v) if
any amounts remain, the expansion
of marketing efforts of the
Company's environmental services
business segment to entities
outside the Company's consolidated
group by means of, among other
things, a joint marketing agreement
with a national engineering firm
with respect to projects involving
the closure and remediation of
municipal waste sites in the
northeastern United States. The
foregoing uses of Net Cash Proceeds
have been presented in order of
decreasing magnitude, and do not
necessarily represent the order in
which such funds will be applied,
since the Company may be required
to assess and respond to funding
needs as they arise. Accordingly,
specific amounts projected to fund
each such use of proceeds, as well
as the timing of each such use
cannot presently be ascertained.
Although the Company is pursuing
the consummation of the Proposed
Sale and the sale of the other
assets described above, as well as
the collection of a portion of the
Kin-Buc remediation costs, no
assurance can be given that the
timing and amount of these
collections will be sufficient to
meet the capital requirements of
the Company. In the event that the
proceeds of the Proposed Sale and
the foregoing collections are
insufficient to meet the Company's
future capital requirements, then,
if other alternatives are unavail-
able at that time, the Company will
be forced to consider a plan of
liquidation of its remaining
assets, whether through bankruptcy
proceedings or otherwise.
The Company's directors, Robert V.
Silva, Andrew J. Mayer, Jr. and
Arthur C. Holdsworth, III, will
continue to serve in such
capacities after the Proposed Sale.
Messrs. Silva and Mayer will also
continue to serve in their present
capacities as Chairman of the
Board/Chief Executive Officer and
Chief Financial Officer,
respectively, after the Proposed
Sale. See "The Proposed Sale -
Plans for Operation of the Company
following the Proposed Sale."
Federal Income Tax
Consequences............ The Company presently anticipates
that the Proposed Sale and the
transactions contemplated by the
Term Debt and Warrant Assignment
(see "The Proposed Sale -
Background and Reasons for the
Proposed Sale - Term Debt and
Warrant Assignment") will result in
a nondeductible loss for federal
income tax purposes of approximate-
ly $2,660,000 ($36,000 of which is
attributable to the sale to Terold
of 2% of the common stock of Hunt
held by the Seller). Under federal
income tax regulations, the Company
will not be permitted to deduct
this loss on its federal income tax
returns. The Proposed Sale will
not result in any direct federal
income tax consequences to
stockholders of the Company. See
"Federal Income Tax Consequences;
Rights of Dissenting Stockholders;
Vote Required - Federal Income Tax
Consequences."
Absence of Appraisal Rights. The stockholders of the Company
will not be entitled to any
appraisal or dissenters' rights
with respect to the Proposed Sale.
In the event the Proposed Sale is
approved, such approval may be used
as a defense by the Company in any
action by a shareholder of the
Company against the Company or any
of its representatives challenging
the legality of the Proposed Sale,
irrespective of whether such
shareholder voted for or against,
or abstained from voting with
respect to, the Proposed Sale.
The Purchase Agreement... The Purchase Agreement sets forth
the principal terms under which the
Proposed Sale will be consummated.
The Purchase Agreement contains
representations, warranties and
agreements of the parties, and
provides specific conditions to the
consummation of the Proposed Sale
and terms under which the Proposed
Sale may be terminated or
abandoned. Under the terms of the
Purchase Agreement, the Seller has
agreed to indemnify the Purchaser
for losses resulting from breaches
of the Seller's representations and
warranties and to indemnify Hunt
with respect to taxes which may be
paid by Hunt after the closing date
on account of Hunt's liability for
taxes of the Company and its
consolidated subsidiaries and which
relate to the years 1991 through
1995, the years Hunt was a member
of such consolidated group.
Although the tax liability for
these years may increase depending
upon the results of the litigation
currently pending before the U.S.
Tax Court (see "Background and
Reasons for the Proposed Sale -
Income Taxes"), the extent of any
such increase cannot presently be
ascertained until the conclusion of
such litigation. The Company's
indemnification obligations will be
secured by $750,000 of the Purchase
Price to be held in escrow. The
Company's ability to satisfy any
such indemnification obligations in
excess of $750,000 cannot presently
be ascertained, and there can be no
assurance that the Company will be
able to satisfy these obligations.
See "The Purchase Agreement."
Summary Financial
Information............. See "Selected Consolidated
Financial Information of the
Company".
THE SPECIAL MEETING
Time, Date and Place
This Proxy Statement is being furnished to holders of Common
Stock in connection with the solicitation, by and on behalf of
the Board of Directors of the Company, of proxies for use at the
Special Meeting to be held at the Somerset Marriott, 110 Davidson
Avenue, Somerset, New Jersey 08873, telephone number
(908) 560-0500 on Thursday, February 29, 1996 commencing at 3:00
p.m., Eastern Standard Time, or any adjournment thereof.
Matters to be Considered at the Special Meeting
At the Special Meeting, the stockholders of the Company will
be asked to consider and vote upon the Proposed Sale.
The sole independent member of the Board of Directors has
approved the Proposed Sale and recommends a vote FOR approval of
the Proposed Sale.
Voting and Record Date
The Board of Directors has fixed January 2, 1996 as the
record date (the "Record Date") for determining stockholders of
record entitled to receive notice of and to vote at the Special
Meeting. As of the Record Date, there were 2,829,090 shares of
Common Stock outstanding (which figure excludes 1,885,750
treasury shares which are not outstanding and which are not
eligible to vote), which shares were held by approximately 291
holders of record.
Each holder of record of Common Stock on the Record Date is
entitled to cast one vote per share, exercisable in person or by
properly executed proxy, with respect to the approval of the
Proposed Sale and any other matter properly submitted for the
vote of the Company's stockholders at the Special Meeting. The
presence, either in person or by properly executed proxy, of the
holders of a majority of the then outstanding shares of Common
Stock entitled to vote at the Special Meeting, or at least
1,414,546 shares, is necessary to constitute a quorum at the
Special Meeting. Certain members of the Mahan family, who
collectively owned 987,911 shares of Common Stock, or 35% of the
shares outstanding as of the Record Date, have indicated that
they are in favor of the Proposed Sale and have granted to the
Purchaser an irrevocable proxy to vote their shares with respect
to the Proposed Sale. The Purchaser intends to vote such shares
in favor of the Proposed Sale. See "Security Ownership of
Certain Beneficial Owners and Management."
Under the Delaware General Corporation Law, the
authorization of the Proposed Sale requires the affirmative vote
of the holders of a majority of the outstanding shares of capital
stock of the Company entitled to vote on the Proposed Sale. The
accompanying proxy provides space for a stockholder to abstain
from voting on the Proposed Sale if the stockholder chooses to do
so. For purposes of determining the number of votes cast with
respect to any voting matter, only those cast "FOR" or "AGAINST"
the proposal are counted. Abstentions, broker non-votes and
instructions on the accompanying proxy to withhold authority to
vote are counted only for purposes of determining whether a
quorum is present at the Special Meeting.
Proxies
All shares of Common Stock which are represented at the
Special Meeting by properly executed proxies received prior to or
at the Special Meeting, and not duly and timely revoked, will be
voted at the Special Meeting in accordance with the choices
marked thereon by the stockholder. Signed but unmarked proxies
will be voted FOR the Proposed Sale.
At the time this Proxy Statement was filed with the
Securities and Exchange Commission (the "Commission"), the Board
of Directors was not aware of any other matters not referred to
herein that would be presented for action at the Special Meeting.
If any other matters properly come before the Special Meeting,
the persons designated in the proxy intend to vote the shares
represented thereby in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked
by the person giving it at any time before it is voted. Proxies
may be revoked by (i) filing with the Secretary of the Company,
at or before the taking of the vote at the Special Meeting, a
written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same
shares and delivering it to the Secretary of the Company before
the taking of the vote at the Special Meeting or (iii) 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). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to:
Transtech Industries, Inc., 200 Centennial Avenue, Suite 202,
Piscataway, New Jersey 08854, Attention: Secretary, or hand
delivered to the Secretary of the Company at or before the taking
of the vote at the Special Meeting.
All expenses of this solicitation, including the cost of
preparing and mailing this Proxy Statement, will be borne by the
Company. In addition to solicitation by mail, arrangements will
be made with brokers and other custodians, nominees and
fiduciaries to forward proxy solicitation materials to beneficial
owners of shares of Common Stock held of record by such brokers,
custodians, nominees and fiduciaries, and the Company may
reimburse such brokers, custodians, nominees and fiduciaries for
their reasonable expenses incurred in connection therewith. The
Company has retained Continental Stock Transfer & Trust Company
to aid in the distribution and tabulation of proxies, at a cost
which the Company anticipates will not exceed $4,500. The
Company has also retained Shareholder Communications Corporation
to serve as solicitation agent, at a cost which the Company
anticipates will not exceed $24,000, plus expenses.
THE PROPOSED SALE
The Parties
Transtech. Transtech Industries, Inc. ("Transtech" or the
"Company") was incorporated under the laws of the State of
Delaware in 1965. Transtech, directly and through its
subsidiaries, is primarily engaged in the following lines of
business:
- the manufacture and sale of specialty directional
and flow control valves, fluid power components,
hydraulic and pneumatic cylinders, and complete
valve systems for commercial and military use
through its Hunt Valve Company, Inc. subsidiary;
and
- investments in computer equipment, generation of
electricity from methane gas, supervision and
performance of landfill monitoring and closure
procedures and management of methane gas recovery
operations.
The Company and certain subsidiaries were previously active
in the resource recovery and waste management industries. These
activities included the operation of three landfills and a
solvents recovery facility. Although these sites are now closed,
the Company continues to own and/or remediate them and has both
incurred and accrued for the substantial costs associated
therewith. (See "Background and Reasons for the Proposed Sale -
Environmental Matters".)
The principal executive offices of the Company are located
at 200 Centennial Avenue, Suite 202, Piscataway, New Jersey 08854
and the Company's telephone number is (908) 981-0777.
THV, HVHC and Hunt. Hunt Valve Company, Inc. ("Hunt"), a
Delaware corporation and an indirect subsidiary of the Company,
located in Salem, Ohio, manufactures specialty directional and
flow control valves, fluid power components, hydraulic and
pneumatic cylinders and complete valve systems for commercial and
military use. Hunt conducts its operations through two
divisions, Hunt Valve and Waeco. Hunt's sales constituted 91%,
89% and 92% of the Company's consolidated operating revenue in
1992, 1993 and 1994, respectively.
Hunt is the successor in interest to Hunt Valve Company,
Inc., an Ohio corporation, which is sometimes referred to herein
as "Old Hunt". As described below (see "The Proposed Sale -
Background and Reasons for the Proposed Sale - Term Debt and
Warrant Assignment"), as part of the Company's plan to protect
the market value of Old Hunt through the severance of Old Hunt
from the Company's consolidated federal income tax group in 1995,
and thereby relieve Old Hunt from joint and several liability for
the Company's taxes for 1996 and subsequent years, the Company
and the Seller caused Old Hunt to merge (the "Merger") with and
into its immediate parent company, HVHC, Inc., a Delaware
corporation ("HVHC") whose sole asset was the common stock of Old
Hunt. The Merger became effective on December 26, 1995 (the
"Merger Date"). Upon Merger effectiveness, HVHC changed its name
to "Hunt Valve Company, Inc." Accordingly, except as otherwise
expressly provided herein, all references to "Hunt" in this Proxy
Statement and the description of documents described herein with
respect to matters or events preceding the Merger Date are
references to Old Hunt, and all references to "Hunt" with respect
to matters or events on or after the Merger Date are references
to Hunt, as successor by merger to Old Hunt.
The stock of Old Hunt was acquired by the Company from two
individuals, unaffiliated with the Company, on September 27,
1991, when THV Acquisition Corp. ("THV" or the "Seller"), a
wholly-owned subsidiary of the Company, acquired all of the stock
of Old Hunt's parent, HVHC, whose sole asset was Old Hunt.
Through THV and HVHC, the Company invested $2.5 million in common
stock of Old Hunt and an additional $2 million in 7% preferred
stock of Old Hunt. The total consideration paid to the two
individual sellers for the capital stock of HVHC consisted of
$9.7 million in cash, including $200,000 paid for non-competition
agreements from the sellers (the "Cash Payment"), plus $500,000
in the form of two junior subordinated five-year promissory notes
of Old Hunt. Funds for the $5.2 million balance of the Cash
Payment, together with the refinancing of approximately $7.8
million of existing debt of Old Hunt and HVHC and additional
funds for Old Hunt's working capital, were provided by a
revolving loan facility and an aggregate of $11.5 million in term
loans to Old Hunt. The loans are presently secured by
substantially all of the assets of Hunt. In connection with such
financing, Old Hunt issued ten-year warrants (the "Lender
Warrants") entitling the lenders of the term loans to acquire up
to an aggregate of 19.34% of the common stock of Old Hunt for a
nominal exercise price. The Lender Warrants (which have since
been exercised by Terold) provided that if Old Hunt did not
commence an initial public offering of its common stock by
September 30, 1996, the holders of the Lender Warrants could
require Old Hunt to purchase the Lender Warrants and underlying
shares of Old Hunt common stock (the "Put Right") for cash at a
purchase price per share equal to the quotient of (a) (i) 5.5
times Old Hunt's operating income, minus (ii) the sum of Old
Hunt's debt and preferred stock liquidation value, excluding the
Senior Subordinated Note, plus (iii) Old Hunt's cash, divided by
(b) the number of shares of Old Hunt common stock on a fully
diluted basis. The Put Right expired upon exercise of the Lender
Warrants. In addition, a rights agreement among Old Hunt, HVHC
and the original holders of the Lender Warrants (the "Rights
Agreement") provides that on and after September 30, 1993, on not
less than 120 days' notice, holders of a majority of the Lender
Warrants and underlying shares of Hunt common stock who also hold
the term loan notes that were issued contemporaneously with the
Lender Warrants shall have the right, unless waived, to require
Hunt to purchase (the "Special Right to Put") a percentage of
such holders' proportionate ownership of outstanding term loan
notes for cash at the current market price if (i) Hunt fails to
meet certain earnings targets and (ii) the holders of the
foregoing term loan notes do not have an unencumbered first lien
on certain assets of Hunt. If Hunt is unable to satisfy its
obligations under the Special Right to Put, such holders may
compel a sale of Hunt in order to satisfy this obligation.
The Purchaser. ValveCo Inc. (the "Purchaser"), a newly-
formed Delaware corporation organized by Three Cities Research,
Inc. ("TCR"), a Delaware corporation unaffiliated with the
Company or any of its directors and officers, will purchase 100%
of the Hunt Common Stock owned by THV - representing 79.05% of
the issued and outstanding Hunt common stock - pursuant to the
Proposed Sale (as further described below in "The Purchase
Agreement"). To finance the Proposed Sale, the Purchaser will
issue $7 million of promissory notes, $3 million of preferred
stock and $1 million of common stock. The preferred stock will
be issued to two partnerships represented by TCR (the "TCR
Investors") who are unaffiliated with the Company. Of the
$1 million of common stock to be issued by the Purchaser at
closing, 85% will be issued to the TCR Investors and 15% will be
issued to certain directors and executive officers who are
members of management of the Company and Hunt, consisting of
Robert V. Silva, David Huberfield, Andrew J. Mayer, Jr. and
Gerald Bogner (the "Management Investors"), for $150,000. Such
directors and executive officers, along with certain other
members of senior management of Hunt yet to be determined, also
will obtain the right to acquire, for an aggregate cost of $2.75
million, an additional 15% of the Purchaser's common stock from
the TCR Investors pursuant to the exercise of performance- and
value-based options. In addition, certain directors and
executive officers of the Company and Hunt will be employed by
the Purchaser after the Proposed Sale in various capacities. See
"Interests of Certain Persons in the Proposed Sale."
TCR is a New York-based investment advisor which organizes
the investment of private equity capital in medium-sized
businesses in the United States. TCR has in excess of $350
million of capital under management.
The principal executive offices of the Purchaser are located
at c/o Three Cities Research, Inc., 135 East 57th Street, New
York, New York 10022 and the Purchaser's telephone number is
(212) 838-9660.
Background and Reasons for the Proposed Sale
As previously reported in the Company's annual and quarterly
reports on Forms 10-KSB and 10-QSB, each as amended, the Company
faces significant near- and long-term cash requirements for (i)
federal and state income tax obligations that, for the most part,
will become due following litigation or settlement with the
Internal Revenue Service (the "Service") over the Company's tax
liability for the years 1980 through 1991, (ii) income taxes that
will be imposed in 1996 and 1997 on rental income from the
Company's investment in computer equipment as a result of the
exhaustion of tax depreciation that had previously sheltered the
rental income from tax, and (iii) expenses associated with
environmental remediation activity and related litigation. In
light of the need for liquidity to address these obligations, the
Company has been required to consider the sale of significant
assets.
Income Taxes. As discussed in greater detail below, the
Company is currently litigating with the Service in Tax Court
over its tax liability for taxable years 1980-88, including
certain issues from 1989-91 that are part of the Tax Court
litigation because losses from those years were carried back to
1988. After taking into account partial settlements that have
been reached with the Service regarding certain of the
adjustments asserted by the Service and a proposed partial
settlement of additional adjustments, and taking into account
available net operating losses and tax credits, the Company
estimates that approximately $8.1 million of federal and $211,000
of state income taxes and $7.7 million of federal and $284,000 of
state interest, calculated through September 30, 1995, would be
owed if the Company were unsuccessful in its defense of the
remaining unsettled issues. (All estimates of tax liabilities
presented in this Proxy Statement exclude penalties which may be
sought by the jurisdiction involved. The Service has conceded
penalties on all issues in the Tax Court case.)
In 1991, the Service asserted numerous adjustments to the
tax liability of the Company and its subsidiaries for tax years
1980 through 1988, along with interest and penalties thereon. In
1993, after the conclusion of administrative proceedings before
the Service, the Service issued a deficiency notice to the
Company, asserting adjustments to income of $33.3 million, and a
corresponding deficiency in federal income taxes of approximately
$13.5 million, as well as penalties of $2.5 million and interest
on the asserted deficiency and penalties. In addition, the
Service challenged the carryback of losses incurred by the
Company in taxable years 1989 through 1991, thereby bringing
those years, which had been the subject of an ongoing audit, into
the deficiency notice. The 1989-1991 tax audit is discussed
below. The Company filed a petition with the Tax Court
contesting many of the proposed adjustments asserted in the
deficiency notice. On June 5, 1995 and August 14, 1995,
respectively, the Company and the Service executed a stipulation
of partial settlement of issues in the Tax Court case and a
revised stipulation of partial settlement covering most of the
adjustments asserted in the deficiency notice.
In addition to the partial settlements that have been
concluded with the Service, on September 18, 1995, the Company's
Board of Directors approved a proposed partial settlement of
additional issues for which the Service had sought adjustments to
income totalling approximately $5.8 million. The Service has
agreed in principle to the Company's proposed partial settlement.
However, language reflecting the terms of the proposed partial
settlement has not yet been drafted and agreed to by the Service
and the Company. The Company anticipates that the proposed
partial settlement will be concluded by the end of February 1996.
Taking into account the proposed partial settlement and the
partial settlements that have already been concluded, the Company
has accepted approximately $5.2 million of the $33.3 million of
total proposed adjustments to income. Many of the adjustments
accepted by the Company relate to issues on which the Service
would likely have prevailed in court. If the Service accepts the
Company's proposed partial settlement, the Service will have
conceded adjustments totalling $27.4 million of taxable income
and penalties, leaving only one issue unresolved from the 1980-88
period. After conclusion of the proposed settlement, the Company
will either settle or litigate the remaining adjustments for the
1980-1988 period and the adjustments, discussed below, asserted
by the Service for the 1989-91 period. There is no assurance,
however, that the proposed partial settlement will be consummated
and the Company cannot predict the outcome of further settlement
negotiations or litigation with the Service over the remaining
issue from the 1980-88 period or the adjustments for the 1989-91
period.
The Company has incurred net operating loss and tax credit
carryforwards that will partly offset the settled adjustments to
taxable income. Taking into account such carryforwards, the
federal income tax and interest that would be due on account of
the settled adjustments (including the proposed partial
settlement) would be approximately $1,280,000 if payment were
made on September 30, 1995 ($94,000 of taxes and $1,186,000 of
interest). The settled adjustments (including the proposed
partial settlement) also will result in approximately $495,000 of
state tax liabilities ($211,000 of state income tax and $284,000
of interest as of September 30, 1995), not including penalties
and penalty interest that may be assessed by the states involved.
Payment of the federal tax liability resulting from both settled
adjustments and any issues litigated before the Tax Court will be
due after the conclusion of the Tax Court case. The date for
payment of the state tax liabilities varies by state. The first
of such payments, in the amount of approximately $284,000
including interest to September 30, 1995, will be paid in full by
the end of the first quarter of 1996, absent an agreement between
the Company and the state permitting payment in installments.
The use of the Company's net operating loss and tax credit
carryforwards to offset the settled adjustments will reduce the
net operating loss and tax credit carryforwards that otherwise
would have been available to partially offset the future tax
liabilities that will arise when the Company recognizes an
estimated $15.8 million of net taxable income from its investment
in computer equipment. For federal income tax purposes, the
Company has had the benefit of tax deductions for depreciation of
the equipment and for interest on the long-term non-recourse debt
that the Company incurred to finance the acquisition of the
computer equipment. In prior years, those deductions exceeded
the rental income that the Company earned from leasing out the
equipment. Those excess deductions offset the Company's income
from other sources. By a relatively small amount in 1994 and by
approximately $5.8 million in 1995, rental income from leasing
the computer equipment exceeded the related depreciation and
interest deductions. This excess income was largely offset by
the Company's deductions from other sources. Rental income will
continue to exceed depreciation and interest deductions in 1996
and 1997. The Company anticipates approximately $6.5 and $3.5
million of taxable income, net of depreciation and interest, for
1996 and the first seven months of 1997, respectively, on account
of the computer equipment investment. The Company does not
expect to have sufficient deductions from other sources to offset
this net income.
The Service has concluded an audit of the Company's federal
income tax returns for 1989 through 1991, and has questioned the
deductions claimed by the Company in connection with its
investment in the computer equipment discussed in the preceding
paragraph. If the Service prevails in disallowing the computer
equipment deductions, the Company's taxable income for 1989
through 1992 would be materially increased. However, in that
case, its anticipated taxable income from the computer equipment
for 1994 through 1997 would be reduced by a corresponding amount.
Specifically, if the proposed partial settlement is approved and
the Company prevails on the remaining issues from the 1980-88 and
1989-91 periods, the incremental federal income tax liability
attributable to the disallowance of the computer equipment
deductions will not exceed $5.9 million of tax and $2.4 million
of interest, calculated through September 30, 1995, thereby
increasing the Company's maximum aggregate liability for federal
taxes and interest attributable to the settled issues and the
computer lease issue to $6.0 million and $3.6 million,
respectively, calculated through September 30, 1995. (This
estimate is less than the aforementioned estimated federal income
tax liability of $8.1 million of tax and $7.7 million of interest
because those estimates assumed the loss of all remaining issues
for the 1980-88 and 1989-91 periods.) In that case, however, the
Company's deferred tax liability of $874,000 as of September 30,
1995 would be eliminated, as would most of the $6.5 million and
$3.5 million of taxable income that the Company projects it will
realize from the computer equipment in 1996 and 1997, respect-
ively, as discussed in the preceding paragraph. Disallowance of
the computer equipment deductions would not result in any state
tax liability. The Service also challenged certain real property
deductions and certain expenses that were deducted by the
Company, but that the Service believes should have been capital-
ized. The deductions challenged by the Service for 1989 through
1991 will be addressed in the pending Tax Court litigation
because those deductions were carried back and deducted in years
covered by the Tax Court litigation. Settlement discussions on
the 1989-1991 issues are in progress.
The incremental amount of federal taxes and interest that
the Company would owe if the Company is unsuccessful in its
defense of the remaining issue from the 1980-88 period and all of
the issues from the 1989-91 period, including the computer
equipment deductions, and provided the proposed partial
settlement is accepted by the Service, is approximately $8
million of federal income taxes and $6.5 million of interest,
calculated through September 30, 1995. (Such amounts are in
addition to the tax of $94,000 and interest of $1,186,000,
discussed above, that will be owed as a result of the partial
settlements and proposed partial settlement.) Little or no state
income tax and interest is anticipated as a result of the
disallowance of these issues.
As described below (see "The Proposed Sale - Background and
Reasons for the Proposed Sale - Term Debt and Warrant
Assignment"), as part of the Company's plan to protect the market
value of Hunt, the Company took actions to sever Hunt from the
Company's consolidated federal income tax group in December 1995,
and thereby relieve Hunt from joint and several liability for the
Company's taxes for 1996 and subsequent years. Hunt is not
liable for tax liabilities of the Company for periods prior to
1991, the year Hunt joined the Company's consolidated tax group,
but is liable for taxes of the consolidated group for 1991
through 1995, the years in which it was a member of the
consolidated group. Under the terms of the Purchase Agreement,
the Seller has agreed to indemnify Hunt with respect to taxes
which may be paid by Hunt after the closing date on account of
Hunt's liability for taxes of the Company and its consolidated
subsidiaries which relate to the years 1991-1995.
Environmental Matters. The Company and certain
subsidiaries were previously active in the resource recovery and
waste management industries. Their activities included the
operation of three landfills - the Kin-Buc landfill, Kinsley's
landfill and the Mac Sanitary landfill. Although the sites are
closed, the Company continues to own and/or remediate such sites.
Kin-Buc. The Kin-Buc landfill, located in Edison, New
Jersey, was operated by a wholly-owned subsidiary of the Company,
Kin-Buc, Inc. ("KB"), through August 1975. From September 1975
until the landfill ceased operations in November 1977, the
landfill was managed by Earthline Company ("Earthline"), a
partnership formed by Wastequid, Inc. ("Wastequid"), then a
wholly-owned subsidiary of the Company, and Chemical Waste
Management of New Jersey, Inc. ("CWMNJ"), a wholly-owned
subsidiary of SCA Services, Inc. ("SCA") and an affiliate of WMX
Technologies, Inc. (formerly known as Waste Management, Inc.)
("WMX"). The Company and others have been remediating the Kin-
Buc landfill and certain neighboring areas under orders (the
"Orders") issued by the United States Environmental Protection
Agency ("EPA") in September 1990 and November 1992 to 12
respondents: the Company, KB, Earthline, Wastequid, CWMNJ, SCA,
Chemical Waste Management, Inc. (an affiliate of WMX), Filcrest
Realty, Inc. (a wholly-owned subsidiary of the Company), Inmar
Associates, Inc. (a company owned and controlled by Marvin H.
Mahan, a former director, officer and principal shareholder of
the Company), Marvin H. Mahan, Robert Meagher (a former director
and officer of the Company and Inmar Associates, Inc.) and
Anthony Gaess (a former director and officer of SCA).
Contractors have completed the construction required by EPA, and
the Company is awaiting EPA review and acceptance of the work
performed. Maintenance of remedial systems installed at the site
and operation of a fluid treatment plant that was constructed to
treat fluids at the site are required for a 30 year period
beginning in 1995. The total cost of the construction,
operations and maintenance of remedial systems over this period
plus the cost of past remedial activities is estimated to be in
the range of $80 million to $100 million.
A study to determine the nature and extent of contamination,
and the sources thereof, on approximately one acre of land
adjacent to the Kin-Buc site has been substantially completed.
On the basis of such study, a design for a remedial program
involving the installation of a slurry cut-off wall around this
one acre parcel was presented to the EPA in late January 1996 for
its review and approval. The cost of such installation may range
from $1 million to $2 million. It is not possible to predict, at
this time, whether the EPA will require additional remedial
measures to be taken or will mandate long-term maintenance of the
slurry wall. Therefore, the total cost associated with such
remediation cannot now be predicted. In view of the $20 million
difference between the high and low estimates of the total cost
of the remediation of the Kin-Buc site, the addition of as much
as $2 million in costs for the installation of the slurry wall
around this one-acre parcel will not result in a significant
increase in the total costs of the remediation. Other areas
within the vicinity of the site also may become the subject of
future studies due to the historic use of the area for waste
disposal operations. The cost of studies and remediation of such
areas is not included in the present estimates of the total cost
of the remediation of the Kin-Buc Landfill since such work is
outside the scope of the Orders. An obligation to undertake
significant remediation of areas outside the scope of the Orders
would have a material adverse effect on the financial condition
of the Company.
The construction at the Kin-Buc site since July 1994 has
been financed in part with funds provided by SCA and in part with
funds provided from negotiated settlements with certain parties
to a suit that the Company initiated in June 1990 in the United
States District Court for the District of New Jersey against
approximately 450 generators and transporters of waste disposed
of at the site for the purpose of obtaining contribution toward
the cost of remediation (the "1990 Action"). The Company's cause
of action against these parties arises under certain provisions
of the Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), which imposes joint and
several liability for the remediation of certain sites upon
persons responsible for the generation, transportation and
disposal of wastes at such sites.
Outstanding issues relating to the Kin-Buc site impact the
liquidity of the Company in several ways. One category of
expense relates to the litigation costs of continuing the 1990
Action and the defense of derivative actions and countersuits
brought by defendants in the 1990 Action. These actions had been
stayed through most of 1994, with only minimal discovery
occurring during that time, pending the outcome of the appeals of
denials of actions to dismiss. The actions have now resumed
active status. As a result, the Company faces increasing costs
associated with discovery that relates to transactions that
occurred during the 1970's.
The Company is also incurring costs in contesting the
validity of a 1986 agreement among the Company, on the one hand,
and SCA and certain of its affiliates, on the other hand ("SCA
Group"). That agreement allocated to the Company 75% of the
costs incurred by the parties for the remediation of the Kin-Buc
site. In 1993, the Company filed a demand for arbitration (the
"Company Arbitration") seeking rescission or reformation of the
agreement with the SCA Group. In response thereto, SCA moved to
enjoin the Company Arbitration on the grounds that the Company's
demand was barred by the statute of limitations. In March 1995,
the SCA Group filed its own demand for arbitration (the "SCA
Arbitration") seeking reimbursement from the Company of 75% of
the remediation expenses purportedly funded by SCA. SCA alleges
that it is entitled to reimbursement of approximately $17 million
based upon its expenditures through March 31, 1995. Certain
issues raised by SCA's motion to enjoin the Company Arbitration
were referred to a referee. In October 1995, the referee decided
that, in 1986, the Company knew or should have known facts giving
rise to its legal right to challenge its agreement with SCA. In
November 1995, the Company moved to reject the referee's report.
The Company cannot predict when a ruling on this motion will be
issued. If the Company's motion is denied, and the referee's
report is accepted by the judge and affirmed on appeal, the
Company's challenge of the enforceability of the 1986 agreement
will have been barred by the statute of limitations, and,
accordingly, SCA's motion to permanently enjoin the Company
Arbitration will be granted. Pending resolution of these issues,
the SCA Arbitration is proceeding, discovery as to expenditures
made by the parties with respect to the remediation and related
matters is taking place and a hearing is tentatively set for
March 1996. The recovery by SCA of a judgment against the
Company in the SCA Arbitration would have a materially adverse
effect on the financial condition of the Company, depending upon
the structuring of payments pursuant to the judgment and the
ability of the Company to recover a portion of such costs from
insurance carriers and other parties liable for remediation of
the Kin-Buc site.
The Company believes that it has already contributed its
fair share of remediation costs for the Kin-Buc site, having
expended in excess of $12 million for direct remediation,
carrying costs and ancillary activities related to the site (in
historical dollars). The Company is advised, by consultants
experienced in CERCLA cost allocation methods, that the Company's
share of the cost of remediation of the site will be affected by
a variety of factors that are presently being assessed. Such
assessment is being developed as discovery of facts relevant
thereto is made. It is expected that proceedings for discovery
of relevant facts will continue in the present lawsuit for a
period of six months to a year. On the basis of this assessment,
the Company's share of remediation costs could range from $11
million to $37 million. Insurance proceeds and settlement
payments may be available to pay a portion of the Company's
share. The insurance companies from which the Company seeks
recovery are expected to contest the Company's claim. In
addition, the Company may be liable for the payment of some or
all of certain other potentially responsible parties' ("PRPs")
shares of remediation costs pursuant to disposal agreements with
such PRPs which provided for indemnification of those PRPs
against certain liabilities. However, the enforceability of such
indemnification provisions is being contested by the Company in
the pending 1990 Action. Indemnification provisions in such
agreements vary greatly in scope and import, and the Company has
contested them on various grounds. It is not possible to predict
at this point which, if any, of these provisions will be held
inapplicable or unenforceable; accordingly, the impact upon the
Company of the outcome of this issue is not determinable at this
time. Because the Company's share of remediation costs may
exceed the $12 million thus far expended by the Company (that is,
may be between $12 million (already spent) and the $37 million
estimate set forth above) and may not be covered by insurance and
settlement proceeds, and because of the Company's potential
obligation to indemnify other PRPs, the Company may be required
to contribute cash or other assets at the conclusion of the 1990
Action and the related derivative actions and countersuits. An
obligation to make such additional contributions, if significant,
would have a material adverse effect on the financial condition
of the Company.
Kinsley's. Kinsley's Landfill, Inc. ("Kinsley's"), a
wholly-owned subsidiary of the Company, ceased accepting solid
waste at its landfill in Deptford Township, New Jersey on
February 6, 1987 and commenced closure of that facility at that
time. Kinsley's has accrued $11.3 million for remaining costs of
closure and post-closure care of this facility, of which $9.2
million is being held in interest-bearing trust accounts. Such
funds are presently anticipated to be adequate to finance post-
closure care at the site through the year 2016 based on current
costs and absent any unforeseen changes in the condition of the
site.
Mac. Mac Sanitary Land Fill, Inc. ("Mac"), a wholly-owned
subsidiary of the Company, operated a landfill in Deptford
Township, New Jersey that ceased operations in 1977. The costs
of maintaining and monitoring at the facility are being funded by
the Company and were $39,723 and $25,316 for the nine month
period ended September 30, 1995 and twelve month period ended
December 31, 1994, respectively.
Carlstadt. In September 1995, the Court approved a
settlement of litigation regarding the allocation of the cost of
remediation of a site in Carlstadt, New Jersey, on which the
Company had operated a solvents recovery facility. The facility
was last operated by the Company in 1970. The settlement
agreement relieves the Company from future obligations to the
group of responsible parties which has been financing the
remediation of the site in exchange for a cash payment, proceeds
of the settlement of certain insurance claims and an assignment
of Carlstadt-related claims that had been filed against the
Company's excess insurance carriers. Notwithstanding such
settlement, the Company may have liability in connection with the
site to the United States Environmental Protection Agency (the
"EPA") and to parties who had not contributed to the cost of the
remediation at the time the settlement was approved, but who
later do so. The Company has received no indication that the EPA
intends to assert a claim against any responsible party for the
recovery of any costs the EPA may have incurred in overseeing
remediation of the Carlstadt site. Further, the Company believes
that the EPA may not have the legal right to assert such a claim.
It is not possible at this time to assess the impact that such a
claim, if made, would have on the Company's financial condition,
as the Company has no information as to the amount of any such
claim. Based on the comprehensive discovery performed during the
litigation, the Company believes that substantially all
responsible parties have been identified, and that the share of
remediation costs that is attributable to parties who had not
been contributing to those costs is de minimis. Therefore, the
Company's liability to those parties, which would arise only if
and when those parties actually paid their share, would not be
significant.
The impact of future events or changes in environmental laws
and regulations, which cannot be predicted at this time, could
result in material changes in remediation and closure costs
related to the Company's past waste handling activities, possibly
in excess of the Company's available financial resources.
Actions Taken to Address Liquidity Issues. The foregoing
liabilities of the Company have adversely affected and continue
to adversely affect the Company's financial condition and ability
to maintain its current operations. The Board of Directors of
the Company therefore retained third parties, as described below,
to develop valuations of certain of the Company's assets as part
of an evaluation of potential strategic alternatives to address
such liabilities, including asset sales.
As noted above under "The Proposed Sale - The Parties - THV,
HVHC and Hunt", except as otherwise expressly provided herein,
references to "Hunt" with respect to matters or events preceding
December 26, 1995 (the "Merger Date"), the date of the merger of
Old Hunt into HVHC (the "Merger"), are references to Old Hunt,
and all references to "Hunt" with respect to matters or events on
or after the Merger Date are references to Hunt, as successor to
Old Hunt pursuant to the Merger.
During February 1995, the Company retained a real estate
consulting firm to provide a valuation of approximately 424 acres
of real property located in southern New Jersey that is owned by
certain subsidiaries of the Company.
In February 1995, the Company retained Brenner Securities
Corporation ("Brenner") for a fee of $50,000 to value Hunt.
Based on the facts, assumptions and procedures used by Brenner,
Brenner concluded that the fair market value of Hunt was in the
range of $17 million to $20 million as of May 1, 1995, (i) less
interest-bearing debt obligations and (ii) adjusting for non-
operating cash balances that Brenner had assumed to be zero.
In May 1995, the Company entered into a brokerage agreement
with the real estate consulting firm referred to above pursuant
to which such firm was to provide a valuation of additional
property owned by two subsidiaries of the Company in southern New
Jersey totalling approximately 107 acres. Such firm also was
granted a nine-month exclusive right to market such property.
In June 1995, the Company retained a New Jersey-based law
firm to pursue claims previously filed by the Company against
certain of the Company's excess insurance carriers seeking
reimbursement of and indemnity against funds the Company has
spent or may spend in connection with the Kin-Buc remediation
effort. The insurance carriers have contested such claims.
To enhance liquidity, on July 7, 1995, the Company entered
into a letter of intent to dispose of, and on August 31, 1995,
consummated the disposition of, certain machinery, equipment and
contract rights, and thereby the ongoing operations, of Cal-Lime,
Inc. ("Cal-Lime"), a wholly-owned subsidiary of the Company which
marketed alkali products, to an unaffiliated third party. The
sale of Cal-Lime assets produced a gain for financial reporting
purposes in the third quarter of 1995 of $281,000, after
transaction costs and a provision for taxes of $165,000. The
sale produced gross proceeds to the Company of $600,000 in cash
plus future payments of up to $25,000 which are contingent upon
the availability to the purchaser of lime slurry from a specified
source. The decision to effect such sale and its timing were
influenced by the loss of two contracts which had represented
approximately 64% of Cal-Lime's revenues for the twelve months
ended June 30, 1995. This loss of revenues would likely have
necessitated a capital infusion to enable Cal-Lime to meet its
ongoing expenses. The Company is currently liquidating the
remaining assets of Cal-Lime and expects to realize additional
proceeds of approximately $600,000.
In late May, 1995, Mr. Silva, on behalf of a management
group including himself, David Huberfield, President and Chief
Operating Officer of Hunt, and certain other senior members of
Hunt, began to seek financing for a possible acquisition of Hunt
that would involve management participation. Based on their
collective experience in valuing and financing transactions of
this nature, and considering factors such as earnings history,
stability of earnings, financial projections, market position and
outlook, and the quality and experience of management, the
management group concluded that a purchase price of approximately
$18 million, less funded debt and transaction-related expenses,
was appropriate for a transaction of this nature. Brenner's May
1995 valuation of Hunt, discussed above, was not relied upon for
purposes of this valuation. Mr. Holdsworth was apprised of the
foregoing activities of the management group. He did not,
however, participate in formulating that group's proposed
purchase price, although he was familiar with Brenner's May, 1995
valuation of Hunt. From late May 1995 through July 1995,
Carleton, McCreary, Holmes & Co. ("CMHC"), on behalf of and as an
advisor to Silva & Company, presented the proposed transaction on
a confidential basis to approximately 50 sophisticated investor
groups. All of these investor groups, other than TCR, rejected
the proposal for one or more of the following reasons: (i) the
proposed purchase price was too high; (ii) the environmental
and/or tax issues facing the Company presented legal and economic
risks that were disproportionate to the perceived value of an
acquisition of Hunt at the proposed price; (iii) the investors
did not favor the industries served by Hunt, including the steel,
aluminum and defense industries; and (iv) a preference for other
investments.
After discussions with representatives of TCR, Mr. Silva, on
behalf of Silva & Company, an entity of which Mr. Silva is a
principal, negotiated the terms of a letter agreement with TCR
which contemplated the acquisition of HVHC, Hunt's immediate
parent company prior to the Merger, for $18 million, less funded
debt, subject to the terms of a letter of intent to be negotiated
with the Company. A letter agreement between TCR and Silva &
Company reflecting these terms was executed on August 3, 1995.
Shortly thereafter, in early August 1995, Mr. Silva advised
Arthur C. Holdsworth, III, a director of the Company, that Silva
& Company had executed a letter agreement with TCR regarding a
proposed acquisition of Hunt (the "Investor Group Proposal") and
that Silva & Company intended to present the Investor Group
Proposal to the Company on behalf of an investor group led by TCR
(the "Investor Group"). The Investor Group Proposal contemplated
that the Investor Group would acquire Hunt by acquiring the
capital stock of HVHC. Mr. Silva further advised Mr. Holdsworth
that the Investor Group would include, in addition to TCR,
minority participation by Mr. Silva and Andrew J. Mayer, Jr., who
are both officers and directors of the Company, David Huberfield,
who is the President and Chief Operating Officer of Hunt, and
Gerald Bogner, who is a director of Hunt. Separate counsel was
subsequently engaged to represent the Company and Mr. Holdsworth,
in his capacity as independent director, in connection with the
Investor Group Proposal.
On August 15, 1995, Mr. Silva presented Mr. Holdsworth and
his counsel with a draft letter of intent reflecting the Investor
Group Proposal. Discussions subsequently ensued among Messrs.
Holdsworth and Silva and their respective counsel as to the terms
of the Investor Group Proposal. Such discussions related to the
issues of (i) the purchase price; (ii) limitations on the scope
of the Seller's representations with respect to Hunt's
operations, consistent with a transaction in which members of
Hunt management would be participants; (iii) financing
contingencies under which the Investor Group could withdraw from
the transaction if satisfactory financing was not obtained
(rejected by Mr. Holdsworth); (iv) the terms of the "break-up"
fee to be paid by the Seller if Hunt were eventually acquired by
a third party (with such fee reduced in the course of
negotiations from 5% to 2.5% of the gross purchase price);
(v) the terms of a first refusal right of the Investor Group to
match competing bids; (vi) timing issues; and (vii) the terms and
conditions of prepayment of Hunt's indebtedness to its secured
term lenders and the repurchase or cancellation of the Lender
Warrants from such lenders.
On August 17, 1995, Mr. Holdsworth, on behalf of the
Company, executed a letter of intent (the "Letter of Intent") for
the purchase by the Investor Group of all of the outstanding
stock of HVHC and Hunt, free and clear of liens, in consideration
for an all-cash purchase price to the Company of $18,000,000,
less all funded debt of Hunt. The Letter of Intent contemplated
that the acquisition would be effected pursuant to a definitive
purchase agreement to be prepared by the Company. The
effectiveness of the Letter of Intent was made expressly
contingent, however, on the conclusion of negotiations between
Hunt and its secured term lenders (the "Term Lenders") with
respect to the terms and conditions of prepayment of Hunt's
indebtedness to such lenders (the "Term Debt") and the repurchase
or cancellation of the Lender Warrants from such lenders in a
manner satisfactory to the Company. The "break-up" fee agreed to
in the Letter of Intent provided that, in compensation for the
efforts of the Investor Group to undertake the time and expense
in connection with the transaction contemplated by the Letter of
Intent, the Company would, or would cause Hunt to, pay to the
Investor Group a fee of 2.5% of the gross purchase price and
reimburse Silva & Company for expenses incurred by it in
connection with the making of the Investor Group Proposal in the
event that a sale of Hunt was completed with anyone other than
the Investor Group within six months of the date of the Letter of
Intent. In further consideration of making such offer, the
Company granted the Investor Group a thirty day right of first
refusal to match a bona fide competing bid for Hunt within six
months of the date of the Letter of Intent.
The parties then began the drafting and negotiation of
definitive documentation. From August 17, 1995 through
October 24, 1995, the parties engaged in discussions regarding
the Proposed Sale and circulated drafts of definitive
documentation.
On October 2, 1995, a telephone conference call was held
among Arthur C. Holdsworth, III (the independent member of the
board of directors of the Company), representatives of Brenner,
the general counsel of the Company, Marilynn C. Freund, and
members of the law firm representing the Company and Mr.
Holdsworth in connection with the Proposed Sale. The purpose of
the call was to discuss the terms of Brenner's retention to
render an opinion to the independent director on the fairness to
the Company, from a financial point of view, of the Proposed
Sale. During the call, a representative of Brenner identified
the information on which Brenner intended to rely in providing a
fairness opinion, the scope of its opinion and for whose benefit
the opinion would be given.
On October 4, 1995, Mr. Holdsworth met with Andrew J. Mayer,
Jr., the Vice President-Finance and Chief Financial Officer of
the Company, and with Ms. Freund to review certain updated
calculations regarding the liquidity of the Company and its
projected cash needs. On the basis of that review and update,
Mr. Holdsworth determined that it was advisable to continue to
proceed with the transactions contemplated by the Proposed Sale.
On October 6, 1995, Mr. Holdsworth had a telephone
conference with the Company's tax counsel, its special tax
counsel, Mr. Mayer and Ms. Freund. Mr. Holdsworth and Ms. Freund
questioned the Company's tax counsel on the status of the
Company's partial settlement discussions and litigation with the
Service, the impact of the partial settlements reached to date on
the Company and the possible outcome of the litigation. Mr.
Holdsworth questioned the Company's general and special tax
counsel on the legal effect of Hunt's inclusion in the Company's
consolidated tax return, and the means by which deconsolidation
could be accomplished. Based on the foregoing, Mr. Holdsworth
reaffirmed his view that the Company's investment in Hunt would
be adversely affected by Hunt's continued membership in the
Company's consolidated tax group.
On October 12, 1995, a meeting was held at Brenner's offices
at Two World Trade Center in New York City. In attendance were
Mr. Holdsworth, representatives of Brenner, Ms. Freund, a member
of the firm of certified public accountants serving as the
Company's independent auditors and members of the law firm
representing the Company and Mr. Holdsworth in connection with
the Proposed Sale. The purpose of the meeting was to review the
detailed written report that Brenner had prepared for Mr.
Holdsworth and that would serve as the basis for the fairness
opinion Brenner would provide.
Copies of the report were distributed to those in
attendance. A representative of Brenner followed an outline of
the report in making a brief presentation of its contents.
Brenner representatives also answered questions about issues
addressed in the presentation. A representative of Brenner began
the presentation by describing the basic terms of the
transaction. He then identified the information that Brenner
relied upon in arriving at its opinion.
He discussed the three valuation techniques that Brenner
used to derive the range of prices that Brenner considered fair
under the circumstances of the transaction. The three valuation
techniques were (i) a discounted cash flow analysis, (ii) an
analysis of the operating performance and market values of
comparable public companies and (iii) an analysis of selected
merger and acquisition transactions. He then reviewed the high,
low and mean values for Hunt (without debt) that were derived
from each analysis, noting that the $18 million proposed price
for Hunt (without debt) was within the range of values derived
from each of the three analyses.
He explained the primary factors that were considered in
deriving the discount rates used in the discounted cash flow
analysis. In response to questions, he advised that the range of
discount rates selected was attributable, in part, to the
assumptions underlying the financial projections of Hunt.
Certain of these assumptions concerned the cyclical nature of
Hunt's primary commercial base, its continued reliance on
military sales and uncertainty regarding future labor costs. He
then explained the primary factors that differentiated Hunt from
the companies which were selected to be used in the comparable
public company analysis, stating the reasons those companies were
deemed to be similar or dissimilar to Hunt. He explained the
methodology used in the comparable merger and acquisition
transactions analysis which involved an analysis of the
relationship of the purchase prices of the comparable acquisition
targets to their respective annual sales. He concluded his
presentation by reviewing the form of the opinion Brenner would
render.
During the course of an extended discussion, Mr. Holdsworth
asked questions concerning the differences in the size of the
companies used in the comparable public company and comparable
merger and acquisition analyses, the makeup of their respective
businesses and the effect those differences had on the analyses
of value.
Term Debt and Warrant Assignment. In September and October
1995, representatives of the Company, Hunt, the Term Lenders and
the Purchaser conducted negotiations with respect to the
repurchase of the Lender Warrants and the Term Debt, and with
respect to the amount payable to the Term Lenders upon the
prepayment of the Term Debt prior to September 27, 2001 (the
"Prepayment Premium"). The Prepayment Premium was determined to
be approximately $1,800,000 as of December 31, 1995. After
efforts of the Company to negotiate a reduced Prepayment Premium
were unsuccessful, representatives of TCR joined the negotiations
and offered to purchase the Term Debt and Lender Warrants on the
condition that the Term Lenders reduce the Prepayment Premium.
On October 24, 1995 (the "Term Debt Assignment Date"), the Term
Lenders entered into an agreement to assign (the "Term Debt and
Warrant Assignment") their entire interests in the Term Debt and
the Lender Warrants, including the right to collect the
Prepayment Premium and the Put Right and Special Right to Put,
described above, associated with the Lender Warrants, the
conditions to exercise of which have not been satisfied (see "The
Proposed Sale - The Parties - THV, HVHC and Hunt"), to Terold
N.V. ("Terold"), a designee of the Purchaser, in consideration
for a total of $11,822,480 paid to the Term Lenders. Terold is a
wholly-owned subsidiary of Real Ltd. Real Ltd. is a party to an
advisory agreement with TC Holding, Inc., which, in turn, owns
100% of the capital stock of TCR. A copy of the Term Debt and
Warrant Assignment is annexed to this Proxy Statement as Annex C.
Of the total consideration of $11,822,480 paid by Terold,
(x) $10,822,480 represented Hunt's outstanding Term Debt
obligations through the Term Debt Assignment Date, consisting of
$10,733,334 of principal plus $89,146 of accrued and unpaid
interest on the Term Debt through the Term Debt Assignment Date,
(y) $500,000 represented payment for the Lender Warrants and (z)
$500,000 was a transaction fee payable to the Term Lenders in
lieu of the Prepayment Premium. Of such transaction fee,
$250,000 was paid by Terold and $250,000 was paid by the Seller
to induce Terold to enter into the Term Debt and Warrant
Assignment and to waive its right, as assignee of the Term Debt,
to collect the Prepayment Premium if the Proposed Sale is
consummated, as described below. As a result of the Term Debt
and Warrant Assignment, Terold has the right to minority
representation on Hunt's Board of Directors, although it has not
nominated any directors to date.
In connection with the Term Debt and Warrant Assignment, the
Company, the Seller, Terold and the Purchaser entered into an
agreement on the Term Debt Assignment Date (the "Recapitalization
Agreement"), pursuant to which the parties agreed as follows: On
or before the earlier of (i) the closing of the Proposed Sale and
(ii) December 26, 1995, the Company and the Seller would cause
Old Hunt to merge with and into HVHC, with HVHC (now known as
Hunt) being the surviving corporation in the merger (the
"Merger"). If the closing of the Proposed Sale did not occur by
December 27, 1995, Terold would exercise the Lender Warrants
(which had an exercise price of $.01 per share) to acquire 215.79
shares, representing 19.34% of the issued and outstanding shares,
of Hunt common stock. This is the same percentage as Terold
would have acquired of Old Hunt if Terold had exercised the
Lender Warrants prior to the Merger. Concurrently with such
exercise, Terold would purchase from the Seller 18 shares of
Hunt, representing 2% of the common stock of Hunt held by the
Seller (the "Supplemental Stock"), for an aggregate purchase
price of $50,000, or $2,777.78 per share. The Seller anticipates
recognizing a loss for tax reporting purposes of approximately
$36,000 on the sale of the Supplemental Stock. After giving
effect to the exercise by Terold of the Lender Warrants and the
purchase by Terold of the Supplemental Stock, the Company and its
subsidiaries would own less than 80% of the outstanding Hunt
voting stock. As a result, Hunt would at that time cease to be a
member of the Company's consolidated federal income tax return
filing group and therefore would not be liable for the Company's
1996 consolidated federal income taxes. If the Proposed Sale is
consummated, Hunt will pay or refinance the outstanding balance
of the Term Debt ($10,600,000 as of the date of this Proxy
Statement) plus any accrued and unpaid interest due thereon. In
addition, if the Proposed Sale is consummated, Terold will waive
its right to collect the Prepayment Premium. However, if the
Proposed Sale is not consummated and a person or entity other
than the Purchaser acquires the business of Hunt, or if Hunt
otherwise seeks to repay the Term Debt if the Proposed Sale is
not consummated, Terold is not bound to waive the Prepayment
Premium and may seek to collect the entire estimated amount
thereof. This Prepayment Premium is the right of a holder (the
"Noteholder") of Notes evidencing Term Debt (the "Notes") to a
premium if the Notes are prepaid prior to maturity in September
2001. The Prepayment Premium is determined by a formula which
calculates the amount a Noteholder must be paid upon prepayment
to earn an equivalent rate of interest on the Notes (in this case
13%) based on current rates of interest for notes of similar risk
and weighted average maturity as the Notes as if they were not
prepaid. The calculation of the Prepayment Premium of $1,800,000
as of December 1995 is an estimate as of said date. Such
calculation may vary depending upon interest rates in effect at
the time of Prepayment Premium calculation. In such event, if
Terold is paid a premium for the Term Debt and $500,000 for the
Lender Warrants or the underlying Hunt common stock, then the
Seller will be entitled to recover from Terold that portion of
the Prepayment Premium which exceeds $250,000, up to a maximum of
$250,000.
In accordance with the foregoing, on December 26, 1995, the
Merger was effected, and on December 27, 1995, Terold exercised
the Lender Warrants and purchased the Supplemental Stock.
On the Term Debt Assignment Date, the Company, the Seller
and Terold also entered into an agreement (the "Bring Along
Agreement") which provides that, in the event that the Seller
receives a bona fide third party offer to buy all of the issued
and outstanding shares of Hunt common stock during the period
commencing on the Term Debt Assignment Date and ending on the
earlier of (i) the termination of the Purchase Agreement and
(ii) February 17, 1996, the Seller shall have the right to
require Terold to accept that offer and sell the Hunt common
stock it then owns at the same per share price and subject to the
same terms as that offer, provided that (x) all of the
consideration to be received by Terold is in the form of cash,
(y) all payments for Hunt Common Stock are made on a pro rata
basis and (z) all payments due with respect to the Term Debt,
including payment of the Prepayment Premium, are paid at the
closing of such transaction.
Definitive documentation regarding the Proposed Sale was
finalized and executed on October 24, 1995 after Mr. Holdsworth,
upon consultation with his counsel and upon receipt of an opinion
from Brenner that the consideration to be received by the Company
in the Proposed Sale is fair, from a financial point of view, to
the Company, authorized the execution and delivery of the
definitive Purchase Agreement and related documentation and
directed that the Proposed Sale be submitted to a vote at a
meeting of shareholders of the Company. On January 15, 1996, the
Purchase Agreement and the Recapitalization Agreement were
amended to reflect the consummation of the Merger on December 26,
1995 and Terold's exercise of the Lender Warrants and acquisition
of the Supplemental Stock on December 27, 1995. On February 5,
1996, the Purchase Agreement was further amended to fix the
Funded Debt used in the determination of the Purchase Price at
$12,721,000, thereby fixing the cash proceeds of the Proposed
Sale, before transaction costs (estimated to be $798,000), at
$4,779,000. Since the outstanding balance of the Revolver
fluctuates daily depending upon the amount of cash received and
disbursements paid on a given day, the amount of Funded Debt
outstanding as of the closing of the Proposed Sale cannot be
predicted. Accordingly, the Seller and the Purchaser have agreed
to the Funded Debt estimate of $12,721,000 defined above as the
"Funded Debt Amount." No other offers were received or
considered by the Independent Director and no other bids for Hunt
were solicited by the Board of Directors. See "The Purchase
Agreement" for a description of the principal terms of the
Purchase Agreement.
Since October 24, 1995, the date of the Company's public
announcement of the execution of the Purchase Agreement, no
offers have been received by the Company concerning the sale of
Hunt.
Recommendation of the Board of Directors.
Mr. Arthur C. Holdsworth, III, in his capacity as the sole
independent member of the Company's Board of Directors in
connection with the Proposed Sale (the "Independent Director"),
reviewed and considered alternatives to the Proposed Sale,
including (i) the sale of assets other than Hunt, (ii) the
possibility of realizing additional cash flow from Hunt in lieu
of a sale of Hunt, (iii) the impact on Hunt of the Company's
projected consolidated federal income tax liability for 1996 and
subsequent years, (iv) the ability of a potential acquiror to
consummate an acquisition of Hunt in 1995 or, alternatively, to
structure an acquisition so that Hunt would not become liable for
the foregoing tax liability, (v) a sale of a minority
participation in Hunt and (vi) a public auction of Hunt not
involving management participation. Upon consideration of the
foregoing alternatives and a review of the factors and
considerations set forth below, Mr. Holdsworth believes that the
Proposed Sale is the most desirable means of maximizing the value
of Hunt to the Company and is fair to, and is in the best
interests of, the Company and its stockholders. Accordingly, the
Independent Director has approved the Proposed Sale and recom-
mends to stockholders of the Company that they vote FOR approval
of the Proposed Sale.
In reaching this conclusion, the Independent Director
considered the following material factors:
1. The Company's need to maximize liquidity in the near
term to address the Company's tax and environmental
liabilities.
2. The unavailability of other assets of the Company as
significant as, and as readily liquid as, Hunt under the
present circumstances.
3. The inability of the Company to realize significant
cash flow from Hunt's present operations due to provisions
of Hunt's loan agreements which bar the distribution of
cash to affiliates of Hunt other than as management fees
(of which $400,000 were paid in 1995), preferred stock
dividends (of which $280,000 may be payable for 1995,
provided sufficient retained earnings are available at Hunt
for such purpose) and tax sharing payments. In an effort to
increase the cash flow available to the Company from Hunt,
management of the Company sought permission from Hunt's
senior lenders for Hunt to repay its debt to the Seller.
This request was rejected. It was apparent to management of
the Company that any request to alter the loan restrictions
on cash payments from Hunt to the Seller or the Company
would be denied. Accordingly, the Company sought a
refinancing of Hunt's debt. Throughout 1994, management of
the Company and its advisors engaged in discussions with
Hunt's senior lenders in an effort to address the need to
defer scheduled mandatory prepayments of the Term Debt and,
during the second half of 1994, engaged in discussions with
Hunt's revolving credit lender regarding the need to replace
the expiring Revolver. These discussions resulted in the
deferral of the scheduled prepayments as Hunt pursued a
refinancing of its debt obligations. The attempt to
refinance Hunt's debt obligations was abandoned, however, in
early 1995 when it became apparent to management of the
Company that Hunt's joint and several liability for
projected consolidated tax obligations would adversely
impact Hunt's ability to refinance its debt due to the
adverse effect of such tax liability on a prospective
revolving credit lender's secured position.
4. The potential impact on Hunt of the Company's
consolidated federal income tax liabilities that will arise
in 1996 and subsequent years out of the Company's investment
in computer equipment if the Company is able to establish
its entitlement to the computer equipment deductions it
claimed in prior years. As a member of the Company's
consolidated group, Hunt would have been jointly and
severally liable for these tax liabilities if the sale of
Hunt were not effected by the end of 1995 or if Hunt were
not otherwise removed from the Company's consolidated group
by then. See "Background and Reasons for the Proposed Sale
- Income Taxes." Absent a sale of Hunt or its removal in
some other manner from the Company's consolidated group,
Hunt's potential tax liability would have adversely affected
its ability to obtain financing for ongoing operations.
Accordingly, if Hunt were not sold by December 31, 1995 or
other actions were not taken to relieve Hunt from such
liability, the Company would have lost the opportunity to
realize the maximum possible value for its interest in Hunt.
5. The Company considered the alternative of effecting
a sale of less than all of the stock of Hunt prior to
January 1, 1996. The sale of a sufficient minority interest
in Hunt before 1996 would have removed Hunt from the
Company's consolidated group and thereby relieved Hunt from
joint and several liability for the Company's taxes for 1996
and subsequent years. However, the Company concluded that
the sale of a minority stake in Hunt would have resulted in
a significant discount in the value of Hunt, would not have
addressed the Company's cash needs and would thereafter have
required the Company to address the concerns of the minority
shareholder with respect to subsequent actions involving
Hunt. In the opinion of the Company's management, a prior
sale of a minority stake in Hunt would have adversely
impacted the Company's ability to maximize the value of its
remaining investment in Hunt. Nor would the sale of a
minority interest in Hunt have altered the tax consequences
of the Proposed Sale. No tax loss could be recognized on a
sale of the Seller's entire interest in Hunt. Nor could a
tax loss be recognized on either a sale of a minority
interest in a consolidated subsidiary or a subsequent sale
of the remaining interest after the subsidiary was
deconsolidated. See "Federal Income Tax Consequences" as to
the tax consequences of the sale of a minority interest
resulting in deconsolidation, followed by a sale of the
Seller's remaining interest.
6. The fact that certain members of senior management
of Hunt, including Robert V. Silva, David Huberfield, Andrew
J. Mayer, Jr. and Gerald Bogner, through CMHC, their
financial advisor, approached approximately 50 sophisticated
investor groups on a confidential basis from late May
through July 1995 in connection with a possible acquisition
of Hunt. See "Background and Reasons for the Proposed Sale -
Actions Taken to Address Liquidity Issues." Although the
Company considered a public auction of Hunt without the
participation of management, this alternative was rejected
for the following reasons: (i) such an auction process would
have necessitated the expenditure of significant time and
effort to deal with multiple parties who would each have
extensive due diligence demands on account of the
significant tax and environmental contingencies of the
Company, with no assurance that a sale would be completed by
the end of 1995, and without management participation, any
such bidder would likely demand extensive representations,
indemnities and purchase price escrows; and (ii) such an
auction would have been disruptive to Hunt's business and be
of concern to Hunt's customers, including defense agencies,
and Hunt's employees, particularly if such a bidder had
plans to relocate or substantially restructure Hunt's
operations. Accordingly, no other bids for Hunt were
solicited by the Board of Directors. By contrast, the
Proposed Sale was structured to provide timely assurance
that, by December 31, 1995, Hunt would no longer be a member
of the Company's consolidated federal income tax group and
therefore would not become jointly and severally liable for
the Company's consolidated tax liability, noted above. This
was possible because of the Purchaser's (i) access to
financing, (ii) willingness to proceed notwithstanding
material tax and environmental contingencies and (iii)
familiarity with the operations and workforce of Hunt on
account of the involvement of certain members of Hunt
management in the Proposed Sale.
7. The ability to structure the Proposed Sale in such a
manner that the sale of Hunt could be concluded after
December 31, 1995 while severing Hunt from the Company's
consolidated federal income tax group in 1995. This
flexibility resulted from Terold's agreement to acquire and
to exercise the Lender Warrants and exercise an option to
purchase additional Hunt common stock by December 31, 1995,
thereby effecting a deconsolidation of HVHC and Hunt in
1996, relieving Hunt from joint and several liability for
the Company's taxes for 1996 and subsequent years.
8. The terms and structure of the Proposed Sale and the
terms and conditions of the Purchase Agreement, including
the structuring of the Proposed Sale in a manner favorable
to the Company - i.e., as a sale of stock, rather than
assets; with minimal representations by the Company, as
seller, as to the operations of Hunt; without a financing
contingency on the part of the Purchaser; and preserving the
ability of the Company, after execution of the Purchase
Agreement, to consider other proposals to acquire Hunt
consistent with the Board of Director's fiduciary duties,
subject to certain conditions and payment of certain fees as
described in the Purchase Agreement. See "The Purchase
Agreement - Conditions to Closing", - " Representations and
Warranties" and " - Negotiations with Others; Right of First
Refusal."
9. The opinion of Brenner, dated October 24, 1995,
that, as of such date, the consideration to be received by
the Company pursuant to the Proposed Sale is fair to the
Company from a financial point of view. See "Opinion of
Financial Advisor."
The fact that the Company would incur a material loss for
financial reporting and tax purposes was not a significant factor
in the Independent Director's determination as to the fairness of
the Purchase Price and the decision to approve the Proposed Sale.
The Company's and the Independent Director's overriding concerns,
in light of the circumstances described above, were enhancing the
Company's liquidity in the near term and relieving Hunt from
joint and several liability for the Company's taxes for 1996 and
subsequent years.
For information concerning certain interests of directors
and executive officers of the Company and Hunt in the Proposed
Sale, See "Interests of Certain Persons in the Proposed Sale".
Opinion of Financial Advisor.
Pursuant to an engagement letter dated September 19, 1995,
Brenner was engaged by the Independent Director to render an
opinion to him as to the fairness to the Company of the Proposed
Sale from a financial point of view. The selection of Brenner
was based on, among other things, Brenner's past association with
the Company in connection with its engagement in February 1995 to
perform a valuation of Hunt (see "The Proposed Sale - Background
and Reasons for the Proposed Sale - Actions Taken to Address
Liquidity Issues") and therefore its familiarity with the
Company's operations, as well as Brenner's expertise in valuing
businesses. Brenner has received from the Company a fee of
$75,000 for rendering the fairness opinion. Brenner's fee for
the fairness opinion was not contingent upon whether the opinion
rendered was favorable or unfavorable or upon approval of the
Proposed Sale.
Brenner is a nationally recognized investment banking firm
and is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, public
underwritings, distributions of listed and unlisted securities,
private placements and valuation of corporate and other entities.
Brenner has delivered a written opinion to the Independent
Director that, as of October 24, 1995, the proposed consideration
to be delivered in the Proposed Sale to the Company is fair, from
a financial point of view, to the Company.
The full text of Brenner's opinion, which sets forth the
assumptions made, matters considered and the limits of the review
undertaken, is attached as Annex B to this Proxy Statement. The
Company's stockholders are urged to read this opinion in its
entirety. Brenner's opinion is directed only to the
consideration to be paid in the Proposed Sale and does not
constitute a recommendation to any Company stockholder as to how
such stockholder should vote at the Special Meeting. The summary
of Brenner's opinion set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of the
opinion.
In arriving at its opinion, and as the basis therefor,
Brenner (i) reviewed the Purchase Agreement; (ii) met with or had
telephonic conversations with certain senior officers, directors
and other representatives and advisors of the Company and Hunt to
discuss the business, operations, prospects, financial condition,
assets and potential contingent tax and other liabilities of
Hunt; (iii) examined certain business, historical and forecast
financial information and other data relating to Hunt as
reflected in the Carleton, McCreary, Holmes & Co. Hunt Financing
Memorandum dated September, 1995 (the "Hunt Financing
Memorandum"); (iv) reviewed the audited financial statements of
Hunt for the fiscal years ended December 31, 1993 and 1994;
(v) reviewed unaudited interim financial statements of Hunt as
of, and for, the 7 months ended July 31, 1995; (vi) to the extent
publicly available, analyzed valuation multiples derived from
certain acquisition data for private and public companies deemed
reasonably similar to Hunt; (vii) analyzed valuation multiples
derived from historical market prices, trading activity and
results of operations of certain publicly traded companies which
Brenner deemed reasonably similar to Hunt; (viii) performed a
discounted cash flow analysis; and (ix) conducted such other
analyses and examinations and considered such other financial,
economic and market criteria as Brenner deemed necessary for
purposes of its opinion.
In rendering its opinion, Brenner assumed and relied,
without independent verification, upon the accuracy and
completeness of all financial and other information publicly
available or furnished to or otherwise discussed with Brenner by
the Company or Hunt or their respective agents. With respect to
financial forecasts and other information provided to or
otherwise discussed with Brenner, Brenner assumed that such
forecasts and other information were reasonably prepared or
provided on bases reflecting the best currently available
estimates and judgments of the managements of the Company and
Hunt as to, among other things, the expected future financial
condition and performance of Hunt. Brenner did not independently
verify such information or assumptions, including financial
forecasts. Brenner has not made or been provided with an
independent evaluation or appraisal of the assets, liabilities
(contingent or otherwise), or the stock of HVHC or Hunt.
Brenner's opinion is necessarily based upon financial, stock
market and other conditions and circumstances existing and
disclosed to it as of the date of its opinion. Brenner was not
asked to consider, and its opinion does not address, the relative
merits of the Proposed Sale as compared to any alternative
strategic, financial or business strategies that might exist for
the Company or the effect of any other transaction in which the
Company might engage. Brenner's opinion is based on the market,
economic, financial and other conditions as they existed and
could be evaluated as of the date of its opinion.
In preparing its opinion, Brenner performed certain
financial and comparative analyses, of which the material ones
are summarized below. The preparation of a fairness opinion is a
complex analytical process involving various determinations
regarding the most appropriate and relevant methods of financial
analyses and the application of those methods to the particular
circumstances. Therefore, such an opinion is not readily
susceptible to summary description. In arriving at its opinion,
Brenner did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis and factor.
Accordingly, Brenner believes that such analyses must be
considered as a whole and that selecting portions of its analyses
and factors, without considering all analyses and factors, could
create a misleading or incomplete view of the processes
underlying its opinion.
Discounted Cash Flow Analysis
A discounted cash flow analysis is a traditional valuation
methodology used to derive a valuation of a corporate entity by
calculating the estimated future free cash flows of such
corporate entity and its future resale value and discounting such
aggregated results back to the present. Brenner performed a
discounted cash-flow analysis of the financial performance of
Hunt based on the projections prepared by the management of Hunt
and the Company (the "Projections").
Relying on the information set forth in the Projections,
Brenner calculated the estimated "free cash flow" based on
projected tax-effected earnings before interest and taxes
("EBIT") for the years 1996 through 2000 adjusted for
(i) depreciation and amortization; (ii) capital investment
expenditures; and (iii) changes in working capital. Brenner
analyzed the Projections and discounted the stream of free cash
flows provided in such Projections back to December 31, 1995
using discount rates ranging from 16% to 18%. To estimate the
residual value of Hunt at the end of the Projections period,
Brenner applied terminal multiples of 4x to 6x to the projected
earnings before interest, taxes, depreciation and amortization
("EBITDA") in the year 2000 and discounted such value estimates
back to December 31, 1995 using discount rates ranging from 16%
to 18%. Brenner then added the present values of the free cash
flows and the present values of the residual value to derive a
range of implied enterprise values for Hunt of approximately
$15,622,000 to $22,481,000 (with a mean of $18,930,000). A 16%
to 18% discount rate range was selected based upon, among other
things, estimated weighted average cost of capital for The
Duriron Company, Inc., Keystone International, Inc. and Watts
Industries, Inc., three publicly traded companies deemed by
Brenner to be reasonably similar to Hunt, reflecting certain risk
assumptions (including the cyclical nature of Hunt's primary
commercial customer base and its reliance on military contracts,
the recent nature of managerial and operating changes which have
led to significant improvements in operating performance and
profitability of Hunt and the uncertainty of future operating
costs due to the pending negotiation of a new union labor
contract) applied by Brenner to the Projections. A 4x to 6x
terminal valuation multiple was selected based upon Brenner's
experience with the purchase and sale of companies similar in
nature and size to Hunt.
Analysis of Public Trading Valuation of Selected Comparable
Companies
Brenner performed an analysis of the public trading valua-
tions of selected publicly traded companies that Brenner deemed
reasonably comparable to Hunt. The companies that Brenner
compared were: The Duriron Company, Inc., Keystone
International, Inc. and Watts Industries, Inc. (the "Comparable
Public Companies"). Brenner analyzed historical market prices,
trading activity and enterprise value and multiples of enterprise
value based upon certain financial and operating statistics of
the Comparable Public Companies. Brenner compared the enterprise
value of the Comparable Public Companies to sales, EBITDA and
EBIT to obtain sales, EBITDA and EBIT multiples of enterprise
value. The average multiples of the group of Comparable Public
Companies to sales, EBITDA and EBIT were 1.39x, 9.54x and 13.45x,
respectively. Because of the inherent differences between the
operations of Hunt and the Comparable Public companies, including
(i) the fact that Hunt derives a significant portion of its sales
from military contracts, (ii) Hunt's smaller revenue and less
diversified product offerings and customer base and (iii) Hunt's
highly leveraged capital structure (the "Inherent Differences"),
Brenner believed that an appropriate use of comparable company
analysis in this instance would involve qualitative judgments
concerning differences between the financial and operating
characteristics of Hunt and the Comparable Public Companies which
would affect valuation results derived from this analysis. As a
result, Brenner then applied a 30% discount to the sales, EBITDA
and EBIT valuation multiples derived from this analysis to
reflect certain qualitative differences between Hunt and the
Comparable Public Companies, including nature of the customer
base, relative size and nature of the capital structure. The
choice of a 30% discount was a subjective judgment, based upon
Brenner's investment banking experience and its consideration of
the impact of the Inherent Differences, among other factors. The
average implied enterprise values for Hunt as a multiple of
sales, EBITDA and EBIT, as adjusted for the discount, were
$17,626,000, $24,544,000 and $22,496,000 respectively.
Selected Merger and Acquisition Transaction Analysis
Brenner analyzed valuation multiples derived from certain
acquisition data for private and public companies immediately
prior to being acquired in comparison to certain financial and
operating statistics of Hunt. Brenner reviewed publicly
available information on 13 acquisition transactions of companies
it deemed were reasonably similar to Hunt, of which four - the
acquisition of Kieky Mueller Control Valve (International Valve
Corp.) by Watts Industries, Inc., the acquisition of Seabee Corp.
by Kaydon Corp., the acquisition of Ruthman Pump & Engineering by
Bettis Corp. and the acquisition of Imo Industries by Mark
Controls (the "Selected Acquisitions") - were used by Brenner in
its analysis based upon the availability of publicly disclosed
financial information and comparable size to the Proposed Sale in
terms of the consideration paid in the acquisition transactions.
Due to the lack of publicly available financial profit
information for the Selected Acquisitions, Brenner analyzed
purchase prices of the Selected Acquisitions as multiples of
sales and derived an implied valuation of Hunt based upon its
sales. The average multiple of sales of the Selected
Acquisitions was 1.03x, and the implied average enterprise value
for Hunt as a multiple of sales was approximately $18,973,000.
No company, transaction or business used in the comparable
company and selected merger and acquisition transactions analyses
as a comparison is identical to Hunt or the Proposed Sale.
Accordingly, an analysis of the results of the foregoing is not
entirely mathematical; rather, it involves complex considerations
and judgments concerning differences in financial and operating
characteristics and other factors that could affect the
acquisition or public trading value of the comparable companies
to which Hunt is being compared.
Joint Marketing Agreement - Hydraulik-Ring
In June 1995, in an effort to expand Hunt's product lines
from water-based valve systems to oil-based valve systems - a
business segment which is more competitive than Hunt's water-
based valve systems segment - Hunt entered into a five year joint
marketing and distribution agreement (the "Hydraulik-Ring
Agreement") with Hydraulik-Ring Antriebs-und Steuerungstechnik
GMBH ("Hydraulik-Ring"), a manufacturer and distributor of
industrial hydraulic products, including pumps, valves, pressure
switches and power units, based in Stuttgart, Germany. Under the
Hydraulik-Ring Agreement, Hydraulik-Ring granted to Hunt
(i) exclusive marketing rights in the United States to certain
Hydraulik-Ring oil-based valve products ("Hydraulik-Ring
Products") and (ii) non-exclusive marketing rights to such
products outside the United States and Canada. In return, Hunt
granted to Hydraulik-Ring the right to sell Hunt's water-based
valve products in certain European countries. Each party agreed
to provide the other with technical and marketing support with
respect to its products to be marketed by the other party.
Neither party has any financial commitment to the other under the
agreement with respect to either minimum marketing investment or
minimum sales levels. Hunt's sales of Hydraulik-Ring Products,
which were less than $100,000 in 1995, are projected by Hunt
management, based on currently available information, to reach
approximately $2 million on an annual basis by 2000, although
there can be no assurance that sales will reach such levels and
neither the Company nor Hunt makes any representation or warranty
to any person with respect thereto. Management of Hunt believes
that the Hydraulik-Ring Agreement may, if successful, assist Hunt
in achieving product line growth and ameliorate the impact of
periodic downturns in Hunt's domestic commercial and military
valve markets. Such projections have been taken into account by
Hunt management in formulating the Hunt internal financial
projections set forth below under the section entitled "Hunt
Financing Memorandum."
Hunt Financing Memorandum
The Hunt Financing Memorandum reviewed by Brenner (see
"Opinion of Financial Advisor") was prepared by Carleton,
McCreary, Holmes & Co. ("CMHC") in September 1995 based on
financial information and other data provided to CMHC by Hunt
management. The Hunt Financing Memorandum was given to potential
senior and subordinated lenders in connection with the
transactions contemplated by the Proposed Sale. CMHC was not
requested to make, and did not make, findings or recommendations
in such Memorandum, which was a compilation of existing financial
information and other data provided by Hunt management.
The Hunt Financing Memorandum contained a compilation of the
following information: a description of the financing for the
Proposed Sale, including capital to be provided by TCR and debt
financing; historical financial performance of Hunt; internal
management projections of Hunt's forecasted financial performance
(the "Management Projections"), summarized below; investment con-
siderations; an overview of the commercial and military valve and
fluid power system industries; a description of Hunt's customer
base and products; a listing of Hunt's principal competitors; a
description of Hunt's management and employee workforce; a des-
cription of Hunt manufacturing operations and the role of TCR and
Robert V. Silva in forming the investor group for the proposed
acquisition of Hunt. As noted above, CMHC presented no indepen-
dent findings, conclusions, valuations or recommendations in the
Hunt Financing Memorandum.
Set forth below is a summary of the Management Projections
for 1995 (pro forma) through 2000. The Management Projections
were prepared for internal review purposes only, and neither
Hunt, CMHC nor the Company makes any representation or warranty
to any person with respect thereto. The Management Projections
were made based on data available to management of Hunt in
September 1995 and do not reflect any information available after
that date. Furthermore, the Management Projections are subject
to significant uncertainties and contingencies which cannot be
predicted, and actual performance could vary significantly from
the Management Projections. The Management Projections are based
in part on Management's assumption that sales to Hunt's military
markets will remain essentially flat through the year 2000 due to
governmental budgetary constraints. Management of Hunt
anticipates that growth in this segment will come from product
line acquisitions (with respect to which no specific transactions
are presently contemplated). In preparing the Management Pro-
jections, Hunt management further believes that a portion of
forecasted growth in Hunt's commercial segment will come from the
development of new and expanded product lines within Hunt's
primary metals markets. In addition, management of Hunt believes
that, since Hunt's domestic markets are mature, international
markets will offer opportunities for expansion by direct efforts
and through marketing arrangements such as those described below
under "Joint Marketing Agreement - Hydraulik-Ring."
HUNT VALVE COMPANY, INC.
<TABLE>
<CAPTION>
Projected Financial Performance (1)
(Dollars in thousands)
Fiscal Year Ending December 31,
Pro-forma
1995 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C>
Sales $18,380 $20,528 $22,403 $22,404 $24,699 $26,337
Gross profit
(2),(4) 8,060 9,100 10,279 10,321 11,473 12,327
Gross margin 43.9% 44.3% 45.9% 46.1% 46.5% 46.8%
EBITDA (3),(4) 3,832 4,165 4,624 4,638 5,386 5,928
EBITDA % 20.8% 20.3% 20.6% 20.7% 21.8% 22.5%
Depreciation 888 654 704 759 758 824
Capital
Expenditures 400 400 500 500 600 600
Cash Flow (6) 3,432 3,765 4,124 4,138 4,786 5,328
Current Assets 7,452 7,711 8,106 8,323 8,869 9,328
Current Liabilities
(4),(5) 1,939 2,087 2,246 2,260 2,490 2,641
Working Capital 5,513 5,624 5,860 6,063 6,379 6,687
Shareholders'
Equity(4),(7) 4,000 4,774 5,847 6,331 7,471 9,125
Funded debt (5) 15,400 13,968 12,412 11,357 9,861 7,775
<FN>
(1) Represent internally prepared pro forma projections of Hunt Valve
management prepared for the Hunt Financing Memorandum. They were
not prepared in accordance with generally accepted accounting
principles as noted in footnote (4) set forth below.
(2) Excluding depreciation.
(3) Earnings before interest, taxes, depreciation and amortization.
(4) Excludes non-cash expenses related to the recognition of SFAS 87
(Employers' Accounting for Pensions), SFAS 106 (Employers'
Accounting for Postretirement Benefits Other than Pensions) and
SFAS 109 (Accounting for Income Taxes).
(5) Reflects pro forma debt levels subsequent to the Proposed Sale.
(6) Cash flow equals EBIDTA less capital expenditures.
(7) Reflects pro forma capitalization subsequent to the Proposed Sale.
</FN>
</TABLE>
CMHC is an investment firm based in Cleveland, Ohio whose
senior partners have many years of experience in all aspects of
corporate finance, including mergers, acquisitions, divestitures
and equity and debt financings.
CMHC had previously performed investment banking work for
Hunt in late 1994 and early 1995 in connection with a search for
possible acquisition opportunities for Hunt. When it became
apparent that any acquisition program at Hunt could not be funded
by the Company, CMHC's acquisition activities were suspended. In
consideration for services provided to Hunt by CMHC during its
engagement from December, 1994 through February, 1995, Hunt paid
CMHC a retainer fee of $7,500 per month plus expenses.
The Hunt Financing Memorandum did not relate to the fairness
of the consideration to be paid by the Purchaser, and contained
no independent findings or recommendations by CMHC, who expressly
disclaimed having independently verified any information
contained therein and expressly stated that it did not make any
independent investigation of the financial statements or
projections contained therein.
Upon consummation of the Proposed Sale, in consideration of
financial advisory services provided by CMHC and services
relating to the placement of equity capital, senior debt and
subordinated debt in connection therewith, CMHC will earn a fee
of $600,000, to be paid by the Purchaser.
Interests of Certain Persons in the Proposed Sale
In considering the recommendation of the Independent
Director with respect to the Proposed Sale, shareholders should
be aware that certain directors and executive officers of the
Company and Hunt have interests in the Proposed Sale that are in
addition to or different from the interests of shareholders of
the Company generally. The TCR Investors intend to provide the
Purchaser with approximately $10,850,000 of financing to effect
the purchase of Hunt, of which $7,000,000 will be in the form of
promissory notes. Of the $4,000,000 of the Purchaser's total
equity capital, $3,000,000 of preferred stock will be issued to
the TCR Investors. Of the $1,000,000 of common stock to be
issued by the Purchaser, 85% will be issued in consideration for
$850,000 to the TCR Investors, who collectively will be entitled
to elect four of the Purchaser's seven directors. The remaining
15% of the Purchaser's common stock will be issued to Robert V.
Silva (8%), David Huberfield (4%), Andrew J. Mayer, Jr. (1.5%)
and Gerald Bogner (1.5%) (collectively, the "Management
Investors") for an aggregate purchase price of $150,000. The
Management Investors, together with certain other members of
senior management of Hunt who have yet to be determined, also
will have the opportunity to acquire from the TCR Investors, for
an aggregate cost to such members of management of $2.75 million,
up to an additional 15% of the Purchaser's common stock pursuant
to the exercise of performance - and value-based options. Of
such additional 15%, the Management Investors will have an
opportunity to acquire up to an aggregate of 12.5% - 7.5% for Mr.
Silva, 3% for Mr. Huberfield and 1% each for Messrs. Mayer and
Bogner. In consideration of the foregoing, Mr. Silva will agree
to cancel his existing warrant to purchase, for $165,279, 5% of
the outstanding common stock of Hunt (which warrant, prior to the
Merger, represented the right to purchase 6.2% of the outstanding
common stock of HVHC, thereby representing an indirect 5% common
stock interest in Hunt), and Mr. Huberfield will agree to cancel
his equity appreciation right for 2% of the value of the common
stock of Hunt. Neither Mr. Silva nor Mr. Huberfield will receive
consideration for the cancellation of such instruments. It is
presently anticipated that, on the closing of the Proposed Sale,
Mr. Silva, Chairman of the Board and Chief Executive Officer and
a director of each of the Company and Hunt, will serve as
Chairman of the Board and Chief Executive Officer of Hunt; Mr.
Huberfield, President and Chief Operating Officer of Hunt, will
serve in such capacity for Hunt; Mr. Mayer, Vice President-
Finance, Chief Financial Officer, Secretary and a director of the
Company and Hunt will serve as Chief Financial Officer of Hunt,
and Mr. Bogner, a director of Hunt, will serve as a director of
Hunt. No other current or former officer, director or principal
stockholder of the Company has, or presently proposes to have,
any record or beneficial interest in the Purchaser.
The Independent Director was aware of these interests and
considered them, among other matters, in approving the Purchase
Agreement and the Proposed Sale.
Messrs. Silva and Mayer will continue to serve in their
present capacities as executive officers and directors of the
Company after the consummation of the Proposed Sale. In the
event that Messrs. Silva and Mayer are faced with conflicts of
interest after the Proposed Sale on account of post-closing
claims by the parties to the Purchase Agreement or otherwise,
they will recuse themselves from participation in such matters on
behalf of either the Seller, on the one hand, or the Purchaser or
Hunt, on the other hand. Although the Company has not yet
adopted specific procedures to address such potential conflicts,
it will do so as any such situation warrants.
In addition, effective October 6, 1995, to induce Messrs.
Silva and Huberfield to continue their employment with Hunt
notwithstanding the Proposed Sale, Hunt executed severance
agreements with each of Messrs. Silva and Huberfield which
entitle them to a severance payment equal to two times their
annual base salary in effect immediately prior to a change of
control. Hunt also will pay all legal fees and expenses incurred
by such persons to enforce the Severance Agreements. A change of
control for purposes of the Severance Agreements will occur if
(i) any person, other than the Company, its subsidiaries or the
current directors or officers of Hunt (collectively, an
"Affiliated Person"), becomes the direct or indirect beneficial
owner of at least 25% of the combined voting power of the
outstanding securities of the Company or any of its subsidiaries,
or (ii) the stockholders of the Company or any of its
subsidiaries approve any merger, sale of all or substantially all
of such entity's assets or other business combination with any
party other than such a transaction involving only the Affiliated
Persons or persons affiliated with the Affiliated Persons. The
Severance Agreements provide that the Proposed Sale will not
constitute a change of control thereunder.
Other than as described above, the Company is not aware of
any potential conflicts of interest management may have in
relation to the Proposed Sale.
Regulatory Filings and Approvals
The Proposed Sale is not subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1979, as amended,
and the rules and regulations thereunder. Except for regulatory
requirements of the Commission with respect to the filing of this
Proxy Statement and advance notifications to defense agencies
with respect to a prospective change of control of Hunt, there
are no federal or state regulatory requirements that must be
complied with or with respect to which approvals must be obtained
in connection with the Proposed Sale.
Allocation of Proceeds
Based on information presently available, the Company
expects that the net cash proceeds of the Proposed Sale (the "Net
Cash Proceeds") will be approximately $3,981,000, with such
estimate due to possible variation in anticipated transaction
costs of the Company with respect to the Proposed Sale, after
(i) giving effect to the Funded Debt Amount, (ii) deduction of
$500,000, representing the value of the Lender Warrant Shares
acquired by Terold upon exercise of the Lender Warrants and
(iii) payment of all fees and expenses relating to the Proposed
Sale, as set forth in the following table:
<TABLE>
<S> <C>
Gross Proceeds (Includes $18,000,000
$50,000 previously paid by
Terold to the Seller for the
Supplemental Stock)
Less:
Funded Debt Amount 12,721,000
Value of Lender Warrant 500,000
Shares ___________
Cash Proceeds Before
Transaction Costs 4,779,000
Transaction Costs:
Hunt Secured Loan
Transaction Fee 250,000
Expenses of Sale 548,000
Net Cash Proceeds $3,981,000
</TABLE>
The cash proceeds before transaction costs received by the
Company represents the sum of (i) repayment (principal only) of
the senior subordinated note in the original principal amount of
$500,000 issued by Hunt to the Seller (the "Senior Subordinated
Note"), (ii) the redemption of Hunt's 7% Preferred Stock held of
record by THV, and (iii) the Purchase Price. The following table
sets forth the allocation of the anticipated cash proceeds before
transaction costs:
<TABLE>
<S> <C>
Cash Proceeds before Transaction Costs $4,779,000
Less: Repayment of Senior Subordinated Note 571,000
Redemption of Preferred Stock 2,000,000
Purchase Price $2,208,000
</TABLE>
In the event that, in the judgment of the Independent
Director and his advisors, the actual Net Cash Proceeds to be
received at the closing of the Proposed Sale will be an amount
that, in light of all circumstances, is materially less than
$3,981,000, the Company will resolicit proxies with respect to
the Proposed Sale.
After giving effect to the Proposed Sale, the Company's
gross cash flow from its investment in Hunt, consisting of the
foregoing cash proceeds before transaction costs, management
fees, preferred stock dividends and allocated salary expense,
will have aggregated $6,233,000 through February 29, 1996. The
Company's cash investment in Hunt (net of management costs which
are not readily quantifiable) was $5,000,000, which consisted of
$2,500,00 paid for Hunt's common stock, $2,000,000 paid for the
Hunt Preferred Stock and $500,000 loaned under the Senior
Subordinated Note. The principal of the Senior Subordinated Note
currently equals $571,000 due to the addition of accrued unpaid
interest.
Based on the above estimate of the Net Cash Proceeds and
management projections of Hunt's profitability from now through
the closing, the Company will report a loss on the Proposed Sale
of approximately $842,000 for financial reporting purposes
assuming a closing date of January 31, 1996. The projected loss
for financial reporting purposes on the Proposed Sale was
calculated as follows:
<TABLE>
<S> <C>
Net Cash Proceeds $ 3,981,000
Less: Basis in Hunt Common Stock (2,252,000)
Basis in Hunt Preferred Stock (2,000,000)
Basis in Senior Subordinated Note (571,000)
Net Loss: $ (842,000)
</TABLE>
Upon consummation of the Proposed Sale and the extinguish-
ment of Hunt's Funded Debt, the Company will recognize a charge
of approximately $642,000 after deduction of minority interest
and taxes of $594,000. This charge is related to the write-off
of unamortized debt issuance costs and debt discounts, and the
prepayment penalty on Hunt's Funded Debt in connection with the
Proposed Sale. The foregoing charge will be reported as an
extraordinary item.
Plans for Operation of the Company After the Proposed Sale
Upon consummation of the Proposed Sale, the Company intends
to use the Net Cash Proceeds, together with approximately
$3 million in cash, short-term investments and marketable
securities currently held by the Company and any management fees
and preferred stock dividends due and payable by Hunt to the
Company prior to the closing of the Proposed Sale, to fund
(i) tax obligations arising from the litigation with the Service
over the Company's tax returns for the years 1980 through 1991,
(ii) the Company's projected tax liability for 1996 and 1997
arising from its investment in computer equipment, (iii) the
Company's remaining continuing operations, including costs of
environmental and tax litigation, (iv) expenses relating to the
divestiture of certain assets, consisting primarily of
approximately 530 acres of real property in New Jersey, and
(v) if any amounts remain, expansion of marketing efforts of the
Company's environmental services business segment to entities
outside the Company's consolidated group by means of, among other
things, a joint marketing agreement entered into with a national
engineering firm with respect to projects involving the closure
and remediation of municipal waste sites in the northeastern
United States. As described below, specific amounts projected to
fund each use of proceeds cannot presently be ascertained.
Operations. Subsequent to the consummation of the Proposed
Sale, the Company's operations will consist of the parent company
and 25 subsidiaries, two of which conduct active operations - one
is engaged in the generation and sale of electricity from methane
gas and the other is engaged in performance of environmental
services. Historically, the consolidated revenues generated by
the remaining operating companies have not been adequate to fund
the expenses incurred by the remaining members of the
consolidated group (see "Selected Consolidated Financial
Information of the Company"). Exclusive of Hunt, the Company's
operations have operated at a net loss. There can be no
assurance that the Company will ultimately return to
profitability. Any return to profitability is primarily
dependent on the duration and outcome of its tax and
environmental litigation, and, to a lesser degree, on the success
of its efforts to maintain the capacity of its electricity
generating equipment, expand UES' customer base and divest its
portfolio of real property. The Company has not identified other
steps to achieve profitability other than as discussed herein.
Both operating companies are presently at or near break-even
performance as measured by cash flow. The other subsidiaries of
the Company hold assets consisting of cash and marketable
securities, real property, notes receivable and contract rights.
Funding requirements of the parent company and the non-operating
subsidiaries will be provided through the use of the Company's
existing cash reserves, the sale of marketable securities, the
collection of notes receivable, income earned pursuant to a user
rent-sharing agreement with respect to the Company's computer
equipment and proceeds from the asset sales discussed below.
Revenues from operations which generate electricity from
methane gas were $150,000 for the nine months ended September 30,
1995, a decrease of $99,000 or 40% compared to the same period of
the prior year. The decrease was due to a series of unrelated
equipment failures which subjected two for the four electric
generating units to significant down-time for repairs. Normal
capacity was restored during September 1995. The environmental
services subsidiary, United Environmental Services, Inc. ("UES"),
contributed $142,000 to revenues, after elimination of the
intercompany sales, compared to $200,000 for the same period of
the prior year due to the completion of the construction phase of
its work for a non-affiliated party. Approximately $238,000 or
63% of the environmental services subsidiary's revenues for the
period, compared to $193,000 or 49% for the same period of the
prior year, were either from other members of the consolidated
group or from third parties providing services to another member
of the consolidated group, and were therefore eliminated in
consolidation.
During the last two years, the Company has expanded the
customer base of UES to entities outside the consolidated group.
UES has provided, and continues to provide, quotes on
construction and maintenance projects involving the closure and
remediation of waste sites and contaminated properties, but has
yet to obtain work to replace revenues previously generated by
its work for the non-affiliated party. UES participates in a
competitive market and construction projects may have bonding
requirements which are beyond UES' ability to secure. In the
interim, UES will continue performing closure activities on sites
previously operated by other subsidiaries of the Company. UES
recently negotiated a joint marketing agreement with a national
engineering firm that committed each party to utilize the other's
services within a designated area in the northeastern United
States on projects involving the closure and remediation of
municipal waste sites. Pursuant to this agreement, for an
initial term of one year, UES and the engineering firm agreed to
use their respective best efforts to market post-closure services
involving their respective capabilities in a defined market area
exclusively for their mutual benefit. Submissions to prospective
clients, bids and estimates and advertising materials
representing the joint relationship must be approved by both
parties. The parties also agreed that each may separately pursue
opportunities in the market area where a potential client
requires only one or the other's individual capabilities.
Further, the parties agreed that if their joint marketing efforts
resulted in opportunities for the provision of joint services in
the market area, they would share profits derived from the
performance of such services equally under a joint venture
agreement to be executed by them. Each of UES and the
engineering firm agreed to be responsible for their own marketing
and related costs incurred in connection with the joint marketing
agreement. Either party may terminate the agreement for any
reason upon ten days' notice. The one year term of the joint
marketing agreement is automatically renewed at the end of each
year subject to the foregoing termination right. Investments
will be made in the sales and marketing efforts of UES and to
meet bonding requirements. Anticipated revenues to UES under the
joint marketing agreement and through its individual efforts
cannot presently be ascertained. Availability of funds for
environmental services marketing efforts will be subject to an
evaluation of the Company's competing funding needs and the
Company's limited sources of revenue in the near term.
The direct operating costs associated with the Company's two
operating subsidiaries for the nine months ended September 30,
1995 were $227,000, a decrease of 33%, or $113,000, when compared
to the same period of 1994, due primarily to the decrease in
sales volume and expenses incurred during 1994 for the overhaul
of certain electric generation equipment.
Consolidated selling, general and administrative expenses
for the nine months ended September 30, 1995 (excluding Hunt)
were $2,090,000, an increase of $482,000, or 30%, from the same
period of the prior year, due to a $453,000 increase in
professional fees incurred by the parent and Kin-Buc primarily
relating to the Company's ongoing environmental and tax
litigation, and a $50,000 charge to increase the bad debt reserve
on account of a note held by the Company. The Company presently
anticipates that such expenditures for professional fees will
remain at the level of present expenditures until resolution of
the Company's environmental and tax litigation. Administrative
costs of the parent are also anticipated to remain at present
levels subsequent to the Proposed Sale for as long as support of
litigation, marketing and asset divestiture efforts is required.
Future expenses of the Company's environmental and tax litigation
cannot be presently projected pending the timing and outcome of
such litigation. The operating costs of the other non-operating
subsidiaries, consisting primarily of insurance and franchise,
income and real estate taxes, aggregated approximately $95,000
for the nine months ended September 30, 1995 and approximately
$112,000 for the twelve months ended December 31, 1994. Such
expenses will decline as the Company consummates the planned
divestiture of real property discussed herein.
Other Sources and Uses of Funds. Remediation expenditures
during the past two years were, for the most part, limited to
obligations relating to the Mac Landfill site, amounting to
$37,000 and $25,000 for the years 1993 and 1994, respectively.
However, there can be no assurance that future expenditures with
respect to this site will reflect historical levels.
In the aggregate, approximately 692 acres of real property
are owned by subsidiaries of the Company other than Hunt.
Approximately 107 acres of the real property held by the non-
operating subsidiaries have been listed for sale for an aggregate
asking price of $1.3 million. It is anticipated that the Company
will incur engineering, legal and other professional fees to
prepare the unlisted property for sale over the next 18 to 24
months. The nature and amount of preparatory work that is
required varies by site. Management believes that such
preparation will enhance the market value of the property.
Future expenditures relating to asset divestitures will not be
determinable until finalization of divestiture and marketing
studies, which are still in preliminary stages of completion.
On August 31, 1995 the Company completed the sale of certain
assets of its subsidiary, Cal-Lime. See "The Proposed Sale -
Background and Reasons for the Proposed Sale - Actions Taken to
Address Liquidity Issues". The Company is currently liquidating
the remaining assets of that subsidiary and expects to realize
liquidation proceeds of approximately $600,000.
Another subsidiary of the Company had purchased a clay
deposit in 1988 that contained approximately 150,000 cubic yards
of clay. Approximately 8,000 cubic yards of clay were
subsequently utilized in the remediation of the Kin-Buc landfill.
The Company is preparing an administrative appeal of the denial
of a local permit that is required to mine the remaining clay.
No assurance can be made as to whether the Company will prevail
in such appeal. If the administrative appeal is unsuccessful,
the Company may institute judicial action to obtain a reversal of
the denial of the administrative appeal. The Company may also
seek a refund of the purchase price of the remaining clay from
Inmar Associates, Inc., a company owned and controlled by Marvin
H. Mahan, a former director, officer and principal shareholder of
the company ("Inmar"), from whom Kin-Buc, Inc. purchased the
clay. There is substantial uncertainty about Inmar's ability to
make such a refund since, to the best of the Company's
information and belief, Inmar's assets consist of approximately
60 acres of land in Edison, New Jersey designated as a Superfund
site under the EPA's orders concerning the Kin-Buc landfill and a
small house used as an office building in Scotch Plains, New
Jersey. In addition, the Company understands that Inmar is
legally restrained from liquidating its assets to satisfy its
debts.
Pending utilization of the net proceeds from the Proposed
Sale, the Company intends to invest such proceeds principally in
government securities, short-term investments such as money
market accounts and certificates of deposits issued by banks.
Although the Company is pursuing the consummation of the
Proposed Sale and the sale of the other assets described above,
as well as the collection of a portion of the Kin-Buc remediation
costs, no assurance can be given that the timing and amount of
these collections will be sufficient to meet the capital require-
ments of the Company, since such requirements can only be
ascertained as the Company resolves its tax and environmental
litigation. The Company cannot ascertain whether its remaining
operations and funding sources will be adequate to satisfy its
future capital requirements, including its anticipated tax and
environmental liabilities. In the event that the proceeds of the
Proposed Sale and the foregoing collections are insufficient to
meet the Company's future capital requirements, including its tax
and environmental liabilities, then, if other alternatives are
unavailable at that time, the Company will be forced to consider
a plan of liquidation of its remaining assets, whether through
bankruptcy proceedings or otherwise.
The Company's directors, Robert V. Silva, Andrew J. Mayer,
Jr. and Arthur C. Holdsworth, III, will continue to serve in such
capacities after the Proposed Sale, and Messrs. Silva and Mayer
will continue to serve the Company in their present capacities as
Chairman of the Board/Chief Executive Officer and Chief Financial
Officer, respectively, after the Proposed Sale.
THE PURCHASE AGREEMENT
The following is a summary of the material provisions of the
Purchase Agreement, and is qualified in its entirety by reference
to the complete text of the Purchase Agreement, as amended, which
is attached (including all exhibits thereto) as Annex A to the
Proxy Statement. Terms which are not otherwise defined in this
summary have the meanings set forth in the Purchase Agreement.
The Proposed Sale
Upon the terms and subject to the conditions of the Purchase
Agreement, effective on the Closing Date, the Seller will sell
and transfer, and the Purchaser will purchase and acquire, all of
the common stock of Hunt owned by the Seller, representing a
79.05% common equity interest in Hunt (the "Hunt Common Stock").
Purchase Price
The Purchase Agreement provides that the purchase price for
the Hunt Common Stock (the "Purchase Price") is $2,208,000 in
cash (includes $50,000 previously paid by Terold to the Seller
for the Supplemental Stock), representing gross proceeds of
$18,000,000, reduced by the sum of the following: (i) the Funded
Debt Amount, equal to $12,721,000; (ii) the amount of $500,000,
representing the value of the shares acquired by Terold upon
exercise of the Lender Warrants on December 27, 1995, (iii) the
amount of $2,000,000 required to redeem the Hunt Preferred Stock;
and (iv) the amount of $571,000 required to be paid by Hunt to
the Seller in repayment of the Senior Subordinated Note.
Closing Date
The Purchase Agreement provides that the closing of the
purchase of the Hunt Common Stock (the "Closing") will take place
February 16, 1996 or, if on such date any conditions to closing
shall not have been satisfied or waived, on the second day
immediately following the satisfaction or waiver of such
conditions of closing, or such other date as the parties shall
agree.
Conditions to Closing
The respective obligations of the Seller and the Purchaser
under the Purchase Agreement are subject to the satisfaction of
certain conditions, including, among other things: (i) the
absence of any injunction, order, decree or judgment restraining
or prohibiting the Closing; (ii) the absence of any action, suit,
claim or proceeding commenced or pending against the Company, the
Seller, Hunt, the Purchaser or any of their respective affiliates
seeking to change or delay the Proposed Sale or seeking material
damages in connection therewith; (iii) the payment in full of the
Funded Debt and the release of all liens relating thereto;
(iv)(a) the redemption by Hunt of the Hunt Preferred Stock at its
liquidation value of $2,000,000 plus all accrued and unpaid
dividends; (b) the payment of all accrued and unpaid fees under
(y) the Management Agreement between Transtech and Hunt and (z)
the Tax Sharing Agreement among Transtech and its subsidiaries;
(c) the payment to the Seller of the outstanding principal of and
all accrued and unpaid interest on the Senior Subordinated Note;
(d) the full satisfaction of any obligations between the Company
and the Seller, on the one hand, and Hunt on the other hand, and
(e) the termination of all inter-company obligations other than
as set forth in the Purchase Agreement, the Tax Sharing Agreement
and any other Transaction Document (defined in the Purchase
Agreement to include the Purchase Agreement, the Term Debt and
Warrant Assignment, the Recapitalization Agreement, the Escrow
Agreement (discussed below in this section) and the Bring Along
Agreement); (v) the assumption by the Purchaser of all qualified
or nonqualified deferred compensation plans and health benefit
plans or arrangements maintained by Hunt for its officers,
directors or employees; (vi) the cancellation, without cost to
Hunt, of the warrant for Hunt common stock held by Robert V.
Silva and the cancellation of the equity appreciation right
granted to David Huberfield for 2% of the appreciation in the
value of the common stock of Hunt; and (vii) the consummation of
the transactions contemplated by the Transaction Documents.
The obligations of the Company and the Seller to consummate
the Proposed Sale also are subject to the satisfaction of the
following conditions: (i) the performance by the Purchaser and,
where applicable, Terold of all covenants and agreements required
to be performed by them prior to the Closing Date; (ii) all
representations and warranties of the Purchaser and Terold in the
Transaction Documents to which they are parties and in any other
writing delivered pursuant thereto being accurate in all material
respects on and as of the Closing Date; (iii) payment of the
Purchase Price for the Hunt Common Stock; (iv) the receipt of all
consents and approvals required to be delivered by the Purchaser;
(v) delivery to the Seller of closing certificates and documents
customary for transactions similar to the Proposed Sale,
including the receipt of a legal opinion from the Purchaser's
counsel.
The obligation of the Purchaser to consummate the Proposed
Sale is also subject to the satisfaction of the following
conditions: (i) the performance by the Seller and the Company of
all covenants and agreements required to be performed by them
prior to the Closing Date; (ii) all representations and
warranties of the Seller and the Company in the Transaction
Documents and in any other writing delivered pursuant thereto
being accurate in all material respects on and as of the Closing
Date, except to the extent that such representations or
warranties speak as of an earlier time, and except for the
failure of the Seller to obtain any required consents which do
not materially adversely affect the business or assets of Hunt;
(iii) the absence of any material adverse change in (a) the
condition of the business of Hunt during the period from August
31, 1995 to the Closing Date and (b) the financial condition of
the Company from June 30, 1995 to the Closing Date; (iv) receipt
of all consents and approvals required to be delivered by the
Seller; (v) the resignations of each officer and director of
Hunt; and (vi) delivery to the Purchaser of closing certificates
and documents customary for transactions similar to the Proposed
Sale, including the receipt of a legal opinion from the Seller's
counsel.
The obligations of the parties to consummate the Proposed
Sale is also subject to satisfaction of the condition that
Brenner shall not have withdrawn or modified in any manner its
opinion to the effect that the consideration to be received by
the Company pursuant to the Proposed Sale is fair, from a
financial point of view, to the Company. The Company has
received from Brenner an opinion dated October 24, 1995, the full
text of which is attached to this Proxy Statement as Annex B.
See "Opinion of Financial Advisor."
The obligations of the parties to consummate the
transactions contemplated by the Purchase Agreement are also
subject to the execution and delivery at Closing of an escrow
agreement among the Seller, the Purchaser and Brown Brothers
Harriman & Co., as escrow agent (the "Escrow Agreement"),
pursuant to which $750,000 of the Sale Price (the "Escrowed
Portion") shall be held in escrow. Such escrowed portion of the
Sale Price and accrued interest thereon are intended to secure
the Seller's indemnification obligations to the Purchaser under
the Purchase Agreement, including indemnification for any
payments made by Hunt after the Closing Date (including
reasonable costs of defense) in respect of income taxes owed by
the Company during the period that Hunt was a member of the
Company's consolidated tax group. (See "The Purchase Agreement -
Indemnification"). The Escrow Agreement will terminate upon the
earlier to occur of (i) the release of all funds from escrow in
accordance with the terms thereof or (ii) the later to occur of
(x) the expiration of the applicable statute of limitations for
the assessment of federal income taxes for all taxable years with
respect to which Old Hunt (which merged into Hunt) or Hunt
(formerly known as HVHC) were members of the Company's
consolidated tax group (the "Transtech Group") or (y) the
satisfaction by the Company or the Seller of all assessments or
other claims by the Service for taxes of the Transtech Group
during such years. Although Hunt and Old Hunt are not liable for
the Company's taxes under the Tax Sharing Agreement among the
Company, Hunt and Old Hunt, they are jointly and severally liable
under federal income tax law for tax obligations of the Transtech
Group during the period that they were members of the Transtech
Group.
Representations and Warranties
The Purchase Agreement contains certain representations and
warranties of the Company and the Seller relating to, among other
things: (i) the capitalization of Hunt and title to the issued
and outstanding shares of Hunt; (ii) the organization and good
standing of Hunt; (iii) the execution, delivery and performance
of the Purchase Agreement and related agreements by Hunt, the
legality, validity and enforceability thereof against Hunt and
the non-contravention thereof with the certificate of
incorporation, by-laws, material contracts and agreements of Hunt
and with any applicable statutes, laws, rules, regulations,
orders, judgments, injunctions, awards, decrees, licenses or
permits relating to Hunt; (iv) the receipt of requisite consents
and approvals; (v) the accuracy of certain financial statements
of Hunt; (vi) the accuracy of a listing of the Funded Debt, all
intercompany obligations involving the Company, the Seller, Hunt
and Old Hunt and all liabilities of the Company in respect of
which Hunt is jointly and severally liable and (vii) the absence
of finders' and other fees in connection with the consummation of
the Proposed Sale.
The Purchase Agreement contains certain representations and
warranties of the Purchaser relating to, among other things: (i)
the organization and good standing of the Purchaser; (ii) the
execution, delivery and performance of the Purchase Agreement and
related agreements by the Purchaser, the legality, validity and
enforceability thereof against the Purchaser, and the non-
contravention thereof with the certificate of incorporation, by-
laws, material contracts and agreements of the Purchaser and with
any applicable statutes, laws, rules, regulations, orders,
judgments, injunctions, awards, decrees, licenses or permits
relating to the Purchaser; (iii) the Hunt Common Stock being
acquired for its own account and not with an intent to
distribution; (iv) the total assets or annual net sales of the
"ultimate parent entity" of the Purchaser (which is the Purchaser
itself) not being in excess of $100,000,000 for purposes of the
Hart-Scott-Rodino Antitrust Improvements Act of 1979, as amended;
(v) due diligence investigation of the Company and Hunt; (vi) the
receipt of equity and loan commitments for the purpose of
financing the Proposed Sale and the payment of all commitment
fees in connection therewith; and (vii) the absence of finders'
and other fees in connection with the consummation of the
Proposed Sale.
Certain Covenants
The Purchase Agreement contains covenants and agreements of
the Seller to (i) conduct the business of Hunt in substantially
the same manner as it was conducted immediately prior to
execution of the Purchase Agreement and not take certain actions
with respect to the operations of Hunt and (ii) preserve the
business relationships of Hunt with third parties doing business
with it. In furtherance of such covenants, the Seller agreed
that, until the Closing Date, Hunt will (i) continue carrying its
existing insurance; (ii) not cause its assets to be subject to
any liens other than in the ordinary course of business; (iii)
not discharge any liability or obligations other than in the
ordinary course of business; (iv) not enter into, modify or
terminate any existing material contract; (v) not amend its
certificate of incorporation or by-laws; (vi) not issue or sell,
or create any commitments to issue or sell, any shares of capital
stock or purchase or redeem any of its capital stock other than
the Hunt Preferred Stock and (vii) not declare or pay any
dividend or distribution with respect to its capital stock other
than management fees and preferred stock dividends. The Seller
further agreed that, until the Closing Date, Hunt shall not (i)
sell any capital assets having a fair market value individually
in excess of $25,000 or $50,000 in the aggregate; (ii) make any
capital expenditures for any single item costing in excess of
$25,000 or all items in the aggregate costing $50,000; (iii)
enter into a lease with capital or other equipment providing for
rentals aggregating in excess of $25,000 per year; (iv) dispose
of any of its assets or properties other than in the ordinary
course of business; (v) modify its practices with respect to the
collection of receivables or the discharge of payables; (vi)
write off as uncollectible any notes or other receivables or
write off or dispose of any inventory, in each case other than in
the ordinary course of business; (vii) cancel any debt, actions
or claims for less than the stated amount except in the ordinary
course of business; (viii) create or incur any indebtedness other
than pursuant to an existing credit line or guaranty or otherwise
become liable for any obligation of any third party; (ix) make
any loans to any person other than for credit extended to
customers in the ordinary course of business; (x) use its
tangible property other than in the usual and ordinary course;
(xi) institute or change any bonus, pension, severance or similar
arrangement or plan for employees; and (xii) increase any
employee's compensation except in accordance with past practices.
In addition, the Seller has also agreed to: (i) allow the
Purchaser and its representatives reasonable access to its books,
records, facilities, customers, suppliers and personnel and (ii)
furnish the Purchaser with unaudited financial statements of Hunt
for each month after June 1995. Both the Seller and the
Purchaser agreed that each party (i) will obtain the requisite
consents and approvals necessary to consummate the Proposed Sale;
(ii) will notify the other of (w) communications of any person
alleging that its consent is required in connection with the
Proposed Sale, (x) litigation commenced or threatened in
connection with the Proposed Sale, (y) governmental notices or
communications with respect to the Proposed Sale or (z) any event
in connection with the Proposed Sale which would constitute a
breach of any representation or warranty of, or a violation of
any covenant of, a party to the Purchase Agreement; (iii) will
consult with the other prior to issuing any press release or
public announcement; and (iv) will bear its own expenses in
connection with the Proposed Sale. The Purchaser agreed to
maintain all information concerning the Company, the Seller and
Hunt in confidence and to return all tangible evidence of such
information if the Proposed Sale is not consummated. The Seller
has agreed to maintain all confidential information concerning
Hunt in confidence if the Proposed Sale is consummated.
Negotiations with Others; Right of First Refusal
The Company and the Seller agreed that they would not,
directly or indirectly, encourage or solicit any inquiries, or
engage in any discussions with any person, concerning an
acquisition or other business combination involving Hunt, the
sale of the shares of Hunt, or the sale of any interest in the
business or assets of Hunt (an "Acquisition Proposal"), subject
to such actions, which, in the good faith judgment of the Board
of Directors of the Company or the Seller, based upon the advice
of counsel, are required under any applicable law to be taken in
the exercise of its fiduciary duties. The Seller must advise the
Purchaser of any written proposal or offer to enter into an
Acquisition Proposal.
If, between the date of execution of the Purchase Agreement
and February 17, 1996, the Proposed Sale has not been consummated
and the Company, the Seller or Hunt desires to enter into an
Acquisition Proposal with a person other than the Purchaser or
its affiliates, the Seller shall notify the Purchaser of the
terms of the proposed Acquisition Proposal and the Purchaser
shall have the right to match such Acquisition Proposal on
substantially the same terms and conditions as such proposal. In
the event that (i) the Purchaser does not exercise such right of
first refusal within thirty days after the notice of the
Acquisition Proposal is given; (ii) the Purchaser is willing and
able to consummate the Proposed Sale and the conditions to
consummation that are not within the control of the Seller have
been satisfied or waived; and (iii) the Seller consummates an
Acquisition Proposal with a person other than the Purchaser or
its affiliates on or before February 17, 1996, the Seller and the
Company shall jointly and severally pay, or cause Hunt to pay, to
the Purchaser at the closing of such transaction a fee of
$450,000. In addition, the Company, the Seller or Hunt shall
reimburse Silva & Company and the Purchaser for expenses of
negotiating the Purchase Agreement, provided that such
reimbursement shall not exceed $1 million in the aggregate.
The Independent Director may withdraw or modify its
recommendation with respect to the Proposed Sale, or recommend
any other offer or proposal, only if (i) he determines, in good
faith after consultation with Brenner, that such action is likely
to result in a superior financial transaction to the Company and
its stockholders and (ii) he obtains an opinion of outside
counsel to the Company to the effect that failure to take such
action would subject the Company's directors to a substantial
risk of liability for breach of their fiduciary duties or failure
to comply with applicable securities laws.
Certain Post-Closing Covenants
From the Closing Date until the second anniversary of the
Closing Date, each of the Company and the Seller will not,
directly or indirectly, own, manage, control, participate in,
perform services for, provide advice to or otherwise carry on a
business similar to or competitive with the business of Hunt in
such geographic areas where Hunt or any of its affiliates made
any significant sales in the preceding 12 months, except that
ownership of not more than 2% of the issued and outstanding
shares of securities regularly traded on a national securities
exchange or quoted in an automated inter-dealer quotation system
shall not be deemed ownership of the issuer of such shares. A
business is deemed similar to or competitive with the business of
Hunt if it involves the design, manufacture, sale or distribution
of any products that are similar to or compete with any product
category of Hunt if such product category accounted for sales by
Hunt or any of its affiliates of $1 million or more in the
preceding 12 months.
The Seller and the Purchaser agreed that following the
Closing, (i) they will make available to each other, at the
expense of the requesting party, all books and records relating
to HVHC and Hunt reasonably requested in connection with any
indemnification claim or any investigation by any governmental
body and (ii) they will retain, for as long as any taxable year
that ends on or prior to the Closing Date remains open for tax
assessment, any material records or information which may be
relevant to any such tax returns or audits or other examinations
relating to Hunt or Old Hunt, and will not dispose of any such
records or information during such period.
Survival; Indemnification
The representations, warranties and covenants of the Seller
and the Company shall survive the closing of the Proposed Sale
for a period of six months from the Closing Date, except that (a)
the representations with respect to required consents, material
agreements and absence of violations of law relating to Hunt
shall not survive the Closing, (b) the representations with
respect to (i) the shares of Hunt, (ii) title to such shares and
(iii) authority to enter into the Purchase Agreement and related
agreements shall survive for a period of six years from the
Closing and (c) the covenants and agreements of the Seller and
the Company relating to public announcements, confidentiality,
expenses, non-competition, books and records, intercompany
matters, employee benefit plans and Special Meeting matters shall
survive until such covenants and agreements are complied with in
accordance with their respective terms.
The Seller agreed (i) to indemnify the Purchaser and its
affiliates for any losses resulting from any breach of any
representations or warranties or the failure to fulfill any
agreement or covenant under the Purchase Agreement or from any
misrepresentation in any certificate or document furnished
pursuant thereto and for any losses in connection with a claim
asserted against Hunt after the Closing Date with respect to
liabilities of the Company other than taxes or those liabilities
of the Company to employees of Hunt who participate in the
Company's retirement savings and profit sharing plan, in respect
of which Hunt agreed to be jointly or independently liable and
(ii) except as otherwise provided in the Tax Sharing Agreement,
to indemnify Hunt with respect to any taxes that Hunt pays, after
the Closing Date, on account of its liability for taxes of the
Company and its consolidated subsidiaries (determined as if the
consolidated group consisted solely of the Company and its
subsidiaries other than Hunt and Old Hunt) under Section 1.1502-6
of the Treasury Regulations ("Tax Indemnity Obligations"). The
Purchaser has agreed to exhaust its remedies with respect to Tax
Indemnity Obligations against the Escrowed Portion prior to
asserting any claim against the Company or the Seller with
respect thereto.
The Purchaser agreed to indemnify the Company and the Seller
for any losses arising from (i) any breach of any representations
or warranties or the failure to fulfill any agreement or covenant
of the Purchaser under the Purchase Agreement or from any
misrepresentation in any certificate or document furnished
pursuant thereto, (ii) the breach of any representations or
covenants of Hunt contained in the Tax Sharing Agreement, (iii)
the conduct of the business of Hunt or the operations of Hunt or
the Purchaser after the Closing Date, and (iv) any liabilities
relating to Hunt employee benefit plans or employment matters
arising after the Closing Date.
Neither the Seller nor the Purchaser will have any
obligation to indemnify the other until the amount of losses
claimed exceeds $50,000 in the aggregate, at which time the party
entitled to indemnification will be indemnified for all its
losses. The indemnification obligations of the Seller shall not
exceed, in the aggregate, $4 million.
Termination
The Purchase Agreement may be terminated at any time prior
to the Closing Date (i) by mutual agreement of the Seller and the
Purchaser; (ii) by the Purchaser if there is a material misrepre-
sentation or breach by the Seller of its representations, warran-
ties and covenants thereunder, which misrepresentation or breach
is not cured within 30 days after notice by the Purchaser to the
Seller; (iii) by the Seller if there is any material misrepresen-
tation or breach by the Purchaser of its representations, warran-
ties and covenants thereunder, which misrepresentation or breach
is not cured within 30 days after notice by the Seller to the
Purchaser; (iv) by any party thereto, if there is any law that
would make the consummation of the transaction illegal or other-
wise prohibited or if any order enjoins either party from consum-
mating the transaction and such order is final and non-appeal-
able; (v) by the Purchaser, if the Closing shall not have
occurred by March 31, 1996 or if an Acquisition Proposal shall
have been accepted from a party other than the Purchaser or any
of its affiliates; or (vi) by the Seller if (1) a Closing shall
not have occurred on or before the later of (A) March 31, 1996 or
(B) the date that is 45 days after the date of mailing of this
Proxy Statement to the Company's stockholders, or (2) an
Acquisition Proposal has been accepted from a party other than
the Purchaser or any of its affiliates.
If the parties terminate the Purchase Agreement, all
obligations of the parties pursuant to the Purchase Agreement
shall terminate without any further liability except (i) to the
extent that a party has made a material misrepresentation or
committed a breach of a material covenant or agreement there-
under; (ii) to the extent that any condition to a party's
obligation becomes incapable of fulfillment because of a breach
by the other party of its obligation thereunder; and (iii) the
covenants in the Purchase Agreement relating to (a) the
Purchaser's right of first refusal and payment of a fee and
related expenses if an Acquisition Proposal is consummated with
another party, (b) public announcements with respect to the
Proposed Sale, (c) confidentiality of information and (d) the
expenses of the parties shall survive the termination of the
Purchase Agreement.
REASONS FOR SEEKING STOCKHOLDER APPROVAL OF PROPOSED SALE
The Company is a Delaware corporation and, under Delaware
law, a sale of all or substantially all of a corporation's assets
must be approved by a corporation's stockholders. The valve
segment to be sold pursuant to the Proposed Sale represents the
following portion of the Company's business as a whole:
<TABLE>
<S> <C>
Percentage of the Company's Assets 70%
as of June 30, 1995
Percentage of the Company's 87%
Property, Plant and Equipment
as of June 30, 1995
Percentage of the Company's 71%
Operating Assets (the sum of
current assets plus net
property, plant and equipment)
as of June 30, 1995
Percentage of the Company's 98%
Revenues for the Nine Months
Ended June 30, 1995
Percentage of the Company's 499%
Income from Operations for the
Six Months ended June 30, 1995
Percentage of the Company's 15%
Net Loss for the Six Months
Ended June 30, 1995
</TABLE>
Based on the foregoing, together with the fact that the
Proposed Sale is outside of the Company's regular course of
business, the Board of Directors of the Company has determined
that approval of the Purchase Agreement by the stockholders of
the Company is required under Delaware law, and has conditioned
the Proposed Sale on the receipt of such approval.
FEDERAL INCOME TAX CONSEQUENCES;
RIGHTS OF DISSENTING STOCKHOLDERS; VOTE REQUIRED
Federal Income Tax Consequences
General. The sale of the Hunt Common Stock will be a taxable
transaction to the Seller. However, in general, no loss is
allowed on a parent's sale of the stock of a consolidated
subsidiary. Therefore, although the Seller will realize a loss
of approximately $36,000 on its sale to Terold of the
Supplemental Stock for $50,000, no part of this loss will be
deductible. As a result of the deconsolidation of Hunt due to
the sale of the Supplemental Stock and the exercise of the Lender
Warrants, the Seller's basis in its retained Hunt Common Stock
and Hunt Preferred Stock will be reduced to their fair market
value based on the price at which the stock will be sold to the
Purchaser. As a result of this basis reduction, the loss of
approximately $2.6 million (if the Proposed Sale had occurred on
December 31, 1995) that existed in the stock prior to the basis
reduction will be eliminated and no loss will be realized or
recognized on the ultimate sale of the Seller's remaining Hunt
Common Stock and Hunt Preferred Stock to the Purchaser pursuant
to the Purchase Agreement.
The tax loss on the sale of the Hunt Common Stock is less
than the financial accounting loss due to differences both in the
way earnings are computed and the way the Proposed Sale is taken
into account for tax and financial accounting purposes. Because
Hunt's income and loss were different for tax and financial
accounting purposes, the Seller's tax basis in Hunt was different
than its financial accounting basis, resulting in different
amounts of tax and financial accounting loss on the disposition
of the Hunt Common Stock. In addition, unamortized discount and
issuance costs related to the Seller's acquisition of Hunt are
taken into account differently for tax and financial reporting
purposes. This also results in differences in the amount of loss
reported for tax and financial accounting purposes.
The sale of the Hunt Common Stock will have no federal
income tax consequences to stockholders of the Company.
Accounting Treatment of Transaction. The Proposed Sale will
be accounted for as a discontinued operation. Results of
operations of Hunt will be reported separately as income from the
operations of the discontinued business (net of applicable income
taxes) in the Company's Consolidated Statement of Operations for
1991 through 1995. The loss from the sale has been recognized on
the Company's quarterly report on Form 10-QSB for the quarter
ended September 30, 1995.
Rights of Dissenting Stockholders
Dissenters' rights of appraisal will not be available under
Delaware law with respect to approval of the Proposed Sale. In
the event the Proposed Sale is approved, such approval may be
used as a defense by the Company in any action by a shareholder
of the Company against the Company or any of its representatives
challenging the legality of the Proposed Sale, irrespective of
whether such shareholder voted for or against, or abstained from
voting with respect to, the Proposed Sale.
Vote Required
Approval of the Proposed Sale will require the affirmative
vote of holders of at least a majority of the outstanding shares
of the Company's Common Stock.
MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the over-the-counter
market and appears on the OTC Bulletin Board under the symbol
"TRTI". The following table sets forth the range of high and low
bid prices for the Common Stock during the period January 1, 1993
through December 31, 1995. The information for the period
subsequent to November 11, 1993, when the Common Stock ceased
trading on the NASDAQ Small-Cap Market System, was obtained from
market-makers in the Common Stock. Such bid prices are
interdealer quotations without retail markups, markdowns or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
1995 1994 1993
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
First Quarter 3/20 1/20 5/32 1/8 7/16 3/8
Second Quarter 3/25 1/20 1/10 1/16 7/16 1/8
Third Quarter 1/20 1/32 1/10 1/10 5/32 1/8
Fourth Quarter 1/32 1/32 1/10 1/10 5/32 1/8
</TABLE>
On January 2, 1996, there were 291 record holders of the
Company's Common Stock.
On October 23, 1995, the day immediately preceding the
announcement of the Proposed Sale, the high and low bid prices
for the Common Stock were 1/20 and 1/32 per share, respectively.
On February 6, 1996, the last full trading day for which informa-
tion was available prior to the printing and mailing of this
Proxy Statement, the sole bid price for the Common Stock was
1/32. Stockholders are urged to obtain current market quotations
for shares of the Common Stock.
Under an existing loan agreement, Hunt's payment of cash and
dividends to the Company is limited. However, the loans contain-
ing these restrictions will be repaid or refinanced upon the
consummation of the Proposed Sale. See "Allocation of Proceeds."
The Company has not paid any cash dividends for the past three
(3) years and does not expect to pay such dividends in the
foreseeable future.
<TABLE>
Transtech Industries, Inc.
Selected Financial Data (a)
(In 000's, except per share data)
<CAPTION>
Nine Months Ended
Sept.30, Year Ended December 31,
1995 1994 | 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Operating
revenues $ 292 $449 $ 579 $ 431 $ 275 $ 466 $ 377
Operating income
(loss) $(2,025)$(1,499)$(2,091)$(2,110) $(2,424) $(3,772)$(4,496)
Income from
(writedown of)
investment in
leveraged lease $ (279)$ (774)$(1,819)$(2,739) $(2,255) $ (402) $ 1,959
Cumulative effect
of accounting
change $ - $ - $ - $ (570) $ - $ - $ -
Net income (loss)
from continuing
operations $ (337)$(1,706)$(3,942)$(4,047) $(2,024) $(2,303)$(4,693)
Net income (loss)
per share from
continuing
operations $ (.12) $ (.60)$ (1.39)$ (1.43) $ (.71) $ (.81)$ (1.66)
Cash dividends
declared per
common share $ - $ - $ - $ - $ - $ - $ -
As of Sept. 30, As of December 31,
1995 1994 | 1994 1993 1992 1991 1990
Total assets $15,314 $37,349 $36,354 $39,196 $41,740 $47,982 $29,616
Long-term debt $ 360 $ 9,346 $ 9,327 $10,395(b) $14,277(b) $16,062 $ 1,712
Accrued remedia-
tion and landfill
closing costs $12,740 $14,397 $14,355 $14,419 $14,421 $13,525 $13,163
Working capital $ 6,053 $ 4,154 $ 3,155 $ 4,226(c) $ 8,455(c) $12,389 $12,809
Stockholders'
equity (deficit)$(2,389)$ 636 $(1,652)$ 649 $ 5,159 $ 7,766 $ 9,869
<FN>
(a) Statement of Operations data has been restated to reflect the
operations of the Company's valve manufacturing and alkali products
segments as a discontinued operation.
(b) Includes long-term debt classified as current due to non-compliance
with certain financial covenants.
(c) Calculated excluding long-term debt in default classified as current
referred to in footnote (b) above.
</FN>
See Accompanying Notes to the Consolidated Financial Statements.
</TABLE>
CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
(In $000's)
(Unaudited)
ASSETS
<CAPTION>
September 30, December 31,
1995 1994
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,233 $ 874
Marketable securities 2,347 2,465
Accounts and notes receivable
(net of allowance for doubtful
accounts of $11) 217 461
Deferred income taxes 730 587
Prepaid expenses and other 506 472
Net assets of discontinued operations:
Valve mfg. segment 4,749 5,506
Alkali products segment - 173
Total current assets 9,782 10,538
PROPERTY, PLANT AND EQUIPMENT
Land 799 799
Buildings and improvements 327 327
Machinery and equipment 2,966 2,931
4,092 4,057
Less: accumulated depreciation 3,164 3,144
Net property, plant and equipment 928 913
OTHER ASSETS
Notes receivable 797 968
Investment in leveraged lease 280 885
Assets held for sale 2,410 2,421
Clay deposits 1,077 1,077
Other 40 39
Total other assets 4,604 5,390
TOTAL ASSETS $15,314 $16,841
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS, Cont'd
(In $000's)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 65 $ 93
Accounts payable 516 291
Accrued salaries and wages 35 26
Accrued income taxes 2,914 2,318
Accrued miscellaneous expenses 199 225
Total current liabilities 3,729 2,953
OTHER LIABILITIES
Long-term debt 360 388
Accrued remediation and closure
costs 12,740 14,355
Deferred income taxes 874 665
Total other liabilities 13,974 15,408
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.50 par value,
10,000,000 shares authorized:
4,714,840 shares issued 2,357 2,357
Additional paid-in capital 1,516 1,516
Retained earnings 4,662 5,420
Net unrealized gains on marketable
securities 90 201
Subtotal 8,625 9,494
Treasury stock, at cost -
1,885,750 shares (11,014) (11,014)
Total stockholders' equity
(deficit) (2,389) (1,520)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $15,314 $16,841
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000's, except per share data)
(Unaudited)
<CAPTION>
For the Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
REVENUES $ 292 $ 449
COST OF OPERATIONS
Direct operating costs 227 340
Selling, general and
administrative expenses 2,090 1,608
Total cost of operations 2,317 1,948
INCOME (LOSS) FROM OPERATIONS (2,025) (1,499)
OTHER INCOME (EXPENSE)
Investment income (loss) 202 208
Interest expense (258) (117)
Gain (loss) of sale of securities 269 -
Income from (writedown of)
interest in leveraged lease (279) (774)
Remediation accrual reversal 1,451 -
Other income (expense) 227 67
Total other income (expense) 1,612 (616)
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
(CREDIT) (413) (2,115)
Income taxes (credit) (76) (409)
INCOME (LOSS) FROM CONTINUING
OPERATIONS (337) (1,706)
DISCONTINUED OPERATIONS (NOTE 2):
Valve Manufacturing Segment
Income from discontinued operation,
net of taxes of $104 and $298,
respectively 124 1,430
Loss on disposal of segment, net of
tax credits of $179 (842) -
Alkali Products Segment
Income (loss) from discontinued
operation, net of taxes (credits)
of $18 and $(9), respectively 35 (17)
Gain on disposal of segment, net of
taxes of $155 262 -
(421) 1,413
NET INCOME (LOSS) $ (758) $ (293)
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS, Cont'd
(In $000's, except per share data)
(Unaudited)
<CAPTION>
For the Nine Months Ended
September 30,
1995 1994
INCOME (LOSS) PER COMMON SHARE:
<S> <C> <C>
INCOME (LOSS) FROM CONTINUING
OPERATIONS $(.12) $(.60)
DISCONTINUED OPERATIONS:
Income (loss) from discontinued
operations, net of taxes (credits) .05 .50
Gain (loss) on disposal of
discontinued operations (.20) -
NET INCOME (LOSS) $(.27) $(.10)
NUMBER OF SHARES USED IN
CALCULATION 2,829,090 2,829,090
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS, Cont'd
(In $000's, except per share data)
(Unaudited)
<CAPTION>
For the Three Months Ended
September 30,
1995 1994
<S> <C> <C>
REVENUES $ 80 $ 134
COST OF OPERATIONS
Direct operating costs 79 96
Selling, general and
administrative expenses 803 513
Total cost of operations 882 609
INCOME (LOSS) FROM OPERATIONS (802) (475)
OTHER INCOME (EXPENSE)
Investment income (loss) 67 90
Interest expense (78) (38)
Gain (loss) of sale of securities - -
Income from (writedown of)
interest in leveraged lease (35) (166)
Remediation accrual reversal 1,451 -
Other income (expense) 126 26
Total other income (expense) 1,531 (88)
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
(CREDIT) 729 (563)
Income taxes (credit) (210) (22)
INCOME (LOSS) FROM CONTINUING
OPERATIONS 939 (541)
DISCONTINUED OPERATIONS (NOTE 2):
Valve Manufacturing Segment
Income from discontinued operation,
net of taxes of $24 and $65,
respectively 35 82
Loss on disposal of segment,
net of tax credits of $179 (842) -
Alkali Products Segment
Income (loss) from discontinued
operation, net of taxes
of $15 - 29
Gain on disposal of segment,
net of taxes of $155 262 -
(545) 111
NET INCOME (LOSS) $ 394 $ (430)
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS, Cont'd
(In $000's, except per share data)
(Unaudited)
<CAPTION>
For the Three Months Ended
September 30,
1995 1994
INCOME (LOSS) PER COMMON SHARE:
<S> <C> <C>
INCOME (LOSS) FROM CONTINUING
OPERATIONS $ .33 $(.19)
DISCONTINUED OPERATIONS:
Income (loss) from discontinued
operations net of taxes (credits) .01 .04
Gain (loss) on disposal of
discontinued operations (.20) -
NET INCOME (LOSS) $ .14 $(.15)
NUMBER OF SHARES USED IN
CALCULATION 2,829,090 2,829,090
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $000's)
(Unaudited)
<CAPTION>
For the Nine Months Ended
September 30,
1995 1994
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash received from customers $ 433 $13,494
Cash paid to suppliers and employees (2,150) (12,745)
Interest and dividends received 152 181
Interest paid (35) (1,326)
Other income received 112 58
Cash received from discontinued
operations 553 -
Net cash provided by (used in)
operating activities (935) (338)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity
of marketable securities 2,851 2,469
Purchase of marketable securities (2,604) (1,961)
Purchase of property, plant and
equipment (51) (210)
Proceeds from sale of property,
plant and equipment 8 33
Collections of notes receivable 352 192
Rent sharing payments from
computer leases 325 159
(Increase) decrease in other assets (2) 11
Cash proceeds from sale of
discontinued segment 600 -
Net cash provided by (used in)
investing activities 1,479 693
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (94) (871)
Proceeds from issuance of long-term debt 39 -
Payment of remediation and closure costs (130) (23)
Net cash provided by (used in)
financing activities (185) (894)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 359 (539)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 874 1,625
CASH AND CASH EQUIVALENTS AT END
OF THE QUARTER $ 1,233 $ 1,086
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS, Cont'd
(In $000's)
(Unaudited)
<CAPTION>
For the Nine Months Ended
September 30,
1995 1994
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
<S> <C> <C>
NET INCOME (LOSS) $ (758) $ (293)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Loss on disposal of discontinued
segments 603 -
Extraordinary gain on elimination
of debt - (95)
Depreciation and amortization 41 1,063
(Gain) loss on sale of marketable
securities (269) -
(Gain) loss on sale of property,
plant and equipment (114) (12)
Increase (decrease) in deferred
income taxes 122 (166)
Leveraged lease (revenue) charge 279 774
Increase (decrease) in minority
interest in consolidated subsidiary - 285
(Increase) decrease in assets:
Accounts and notes receivable,
trade-net 174 (423)
Inventories - (561)
Prepaid expenses and other (85) (93)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses 216 219
Accrued taxes 307 120
Accrued remediation costs (1,451) -
Accrued retiree health care
benefit liability - (1,156)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (935) $ (338)
</TABLE>
TRANSTECH INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements are presented in
accordance with the requirements of Form 10-QSB and consequently
do not include all of the disclosures normally required by
generally accepted accounting principles or those normally made
in the Company's annual Form 10-KSB filing. Accordingly, the
reader of these financial statements may wish to refer to the
Company's Form 10-KSB for the year ended December 31, 1994 for
further information.
The financial information has been prepared in accordance with
the Company's customary accounting practices except for certain
reclassifications to the 1994 financial statements in order to
conform to the presentation followed in preparing the 1995
financial statements. Quarterly financial information has not
been audited. In the opinion of management, the information
presented reflects all adjustments necessary for a fair statement
of interim results. All such adjustments are of a normal and
recurring nature except as disclosed herein.
NOTE 2 - DISCONTINUED OPERATIONS
The consolidated statements of operations have been restated
to report the net results of the Company's Alkali Products and
Valve Manufacturing Segments as discontinued operations. The net
assets of the discontinued segments have been classified as
current assets in the accompanying restated consolidated balance
sheets.
Alkali Products Segment
On August 31, 1995, the Company sold certain machinery,
equipment, contract rights and rights to the subsidiary's name,
and gave a non-compete covenant, thereby effectively selling the
on-going operations of its wholly-owned subsidiary, Cal-Lime,
Inc. for $600,000 in cash plus future payments of up to an
additional $25,000 which are contingent upon the availability of
lime slurry from a specified source to the purchaser. The sale
resulted in a gain of $262,000 after transaction costs and a
provision for taxes of $155,000.
The net assets of Cal-Lime sold have been classified as
current assets in the accompanying restated consolidated balance
sheet as of December 31, 1994. The Company intends to liquidate
the remaining assets of the subsidiary and has included the
property, buildings and equipment excluded from this transaction,
having an aggregate book value of $365,000 and $374,000, under
the caption of assets held for sale on the balance sheets as of
September 30, 1995 and December 31, 1994, respectively. Such
value approximates the estimated net realizable value of those
assets. The consolidated statements of operations report the net
results of Cal-Lime's operations as income (loss) from
discontinued operations.
Summarized results of Cal-Lime's operations for the periods
January 1 through September 30, 1995 and 1994 are as follows (in
$000's):
<TABLE>
<CAPTION>
1995 1994
Year-to-date Eight Months Nine Months
<S> <C> <C>
Revenues $582 $629
Income (loss) before income tax 23 (26)
Income (tax) credit (8) 9
Net income (loss) 15 (17)
Third Quarter Two Months Three Months
Revenues $ 94 $280
Income (loss) before income tax (30) 56
Income (tax) credit 10 (19)
Net income (loss) (20) 37
</TABLE>
Valve Manufacturing
On August 17, 1995, the Company executed a letter of intent
pursuant to which the Company's wholly-owned subsidiary, THV
Acquisition Corp. ("THV"), agreed to sell all of the issued and
outstanding stock of HVHC, Inc. ("HVHC"), the parent of Hunt
Valve Company, Inc. ("Hunt"), and on October 24, 1995 the Company
executed the definitive stock purchase agreement. The assets of
Hunt may be deemed to represent substantially all of the assets
of the Company; therefore, the sale is subject to approval by the
Company's shareholders.
The purchase agreement provides that at the closing the
purchaser shall purchase the HVHC common stock from THV for
$2,208,000 in cash, representing gross proceeds of $18.0 million,
reduced by the sum of (i) the amount of Hunt's indebtedness for
borrowed money as of the closing of the proposed sale which has
been fixed by the parties solely for purposes of determining the
purchase price, (ii) the amount required to redeem the minority
equity position held by Hunt's senior secured note holders, (iii)
the amount required to be paid by Hunt to THV upon the redemption
by Hunt of its issued and outstanding 7% preferred stock, without
par value, all of which is owned by THV and (iv) the amount
required to be paid by Hunt to THV in repayment of the senior
subordinated note issued by Hunt to THV in the original principal
amount of $500,000. A portion of the net proceeds ($750,000) is
to be placed in escrow to secure the Company's indemnification
obligations to the purchaser under the purchase agreement,
including indemnification for any payments made by Hunt after the
closing in respect of income taxes owed by the Company during the
period that Hunt was a member of the Company's consolidated tax
group. The escrow will terminate upon the earlier to occur of
(i) the release of all funds from escrow in accordance with the
terms thereof or (ii) the later to occur of (x) the expiration of
the applicable statute of limitations for the assessment of
federal income taxes for all taxable years with respect to which
Hunt or HVHC were members of the Company's consolidated tax group
and (y) the satisfaction by the Company of all assessments or
other claims by the Service for taxes of the consolidated tax
group during such years.
The Company expects the sale to be completed on or before
February 29, 1996 and anticipates net cash proceeds from the
proposed sale of approximately $3,981,000 based on a closing on
or about that date. The Company has estimated that it will incur
a loss on the proposed sale of approximately $842,000 for
financial reporting purposes. The loss has been reported as of
August 31, 1995, the measurement date, and includes (i) estimates
of costs to be incurred in connection with the sale, (ii)
operating losses from the measurement date through January 31,
1996, the approximate date of disposition, (iii) an adjustment to
the Company's deferred tax valuation allowance, (iv) a provision
for the loss on redemption of Hunt's minority interest, and (v)
$250,000 representing Hunt's share of a prepayment premium paid
to its former senior secured term loan lenders in connection with
the acquisition of such term loan by a designee of the entity
acquiring HVHC (discussed further below). Upon consummation of
the proposed sale, and the extinguishment of Hunt's funded debt,
the Company will recognize a charge of approximately $642,000
after deduction of minority interest and taxes of $594,000. This
charge is related to the write-off of unamortized debt issuance
costs and debt discounts, and the prepayment penalty on Hunt's
funded debt in connection with the sale. The foregoing charge
will be reported as an extraordinary item.
Combined results of HVHC's and Hunt's operations for the nine
month periods ended September 30, 1995 and 1994 are as follows
(in $000):
<TABLE>
<CAPTION>
Eight Nine Nine
Months Months Months
ended Month of ended ended
8/31/95 9/95 9/30/95 9/30/94
<S> <C> <C> <C> <C>
Revenues $12,021 $1,476 $13,497 $12,823
Direct operating costs 7,437 896 8,333 7,509
Selling, general and
administrative exp. 3,060 361 3,421 3,384
Income from operations 1,524 219 1,743 1,930
Other income (expense)
Interest expense (1,162) (143) (1,305) (1,242)
Other income (expense) (177) (1) (178) 1,230
Total Other (1,339) (144) (1,483) (12)
Income (loss) before taxes
and extraordinary item 185 75 260 1,918
Provision for taxes (104) (30) (134) (298)
Income (loss) before
extraordinary item 81 45 126 1,620
Extraordinary item - - - 95
Net loss 81 45 126 1,715
Minority interest 43 (1) 42 (285)
Net loss after minority
interest $ 124 $ 44 $ 168 $ 1,430
</TABLE>
The above amounts of net income or loss for the eight months
ended August 31, 1995 and nine months ended September 30, 1994
have been adjusted to provide for the minority interest and
exclude intercompany interest and management fees which have been
eliminated in consolidation. The resulting amounts of net loss
after minority interest have been reported as income from
discontinued operations on the accompanying consolidated
statement of operations of the Company for the nine months ended
September 30, 1995 and 1994, respectively. The above net income
for the month of September 30, 1995 has been included in the
amount reported as loss on disposal of segment.
Hunt experienced a $674,000, or 5.3% increase in revenues for
the nine months ended September 30, 1995 when compared to the
same period of 1994. Revenues from commercial valves and
hydraulic systems produced and serviced by the Hunt Valve
division increased by 31.5%, to $8,442,000. Revenues from
products with military-related applications manufactured by
Hunt's Waeco and Union Flonetics divisions decreased 21.4%, to
$5,018,000. Hunt's direct costs increased 11% when compared to
the same period last year, due in part to the increase in sales
volume, indirect labor costs and start-up costs attributable to
the introduction of new product lines. Hunt experienced a 1%
increase in selling, general and administrative expenses, due
primarily to an increase in salary expense. Miscellaneous income
for the 1994 period includes $1,300,000 of gain resulting from a
reduction in Hunt's long-term retiree health care benefit
liability. The amount of the liability is determined primarily
by discounting the projected future costs of health benefits
based on an estimate of health care cost trend rates.
Calculations performed by the Company's actuaries in 1994
projected a decline in the estimate of future costs to be
incurred by the Company due in part to a reduction in the number
of expected participants and, more significantly, a reduction in
the assumed rate of increase in the cost of health care. The
extraordinary gain on elimination of debt, net of income taxes,
reported for the nine months ended September 30, 1994, recognizes
the gain stemming from the restructuring of Hunt's junior
subordinated notes. The minority interest in earnings/losses
reflects the value of Hunt's losses attributable to the nominal
exercise price warrants for Hunt's common equity held by its
senior lenders. The warrants represent an aggregate 19.34% equity
interest in Hunt.
The net assets of Hunt as of September 30, 1995 and December
31, 1994 consisted of:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Current assets $7,409 $ 7,323
Current liabilities (2,991) (6,073)
Net fixed assets 6,168 6,504
Other non-current assets 11,002 11,327
Non-current liabilities (16,839) (13,575)
Net assets $ 4,749 $ 5,506
</TABLE>
Four individuals affiliated with the Company, namely the
Company's President and Chairman of the Board of Directors, the
Company's Vice President and Chief Financial Officer, who is also
a member of the board, a director of Hunt and Hunt's President
and Chief Operating Officer are to acquire 15% of the equity of
the purchaser for $150,000. These four individuals, together
with certain other members of senior management of Hunt, will
also have the opportunity to acquire up to an additional 15% of
the common stock of the purchaser pursuant to the exercise of
performance and value-based options at an aggregate cost to such
members of management of $2.75 million. In addition, the four
directors and executive officers of the Company and Hunt will be
employed as officers and/or directors of Hunt after the proposed
sale.
In September and October 1995, representatives of the Company,
Hunt, Hunt's senior term lenders (the "Term Lenders") and the
purchaser conducted negotiations with respect to the repurchase
of the warrants for Hunt's stock (the "Lender Warrants") and
Hunt's senior term debt (the "Term Debt"), and with respect to
the amount payable to the Term Lenders upon the prepayment of the
Term Debt prior to September 27, 2001 (the "Prepayment Premium").
The Prepayment Premium was determined by the Term Lenders to be
approximately $1,800,000 measured as of December 31, 1995. On
October 24, 1995 (the "Term Debt Assignment Date"), the Term
Lenders entered into an agreement to assign their entire
interests in the Term Debt and the Lender Warrants (the "Term
Debt and Warrant Assignment") to a designee of the purchaser (the
"Term Debt Purchaser"), in consideration for a total of
$11,822,480 paid to the Term Lenders. Of this amount, (x)
$10,822,480 represented principal plus accrued and unpaid
interest on the Term Debt through the Term Debt Assignment Date,
(y) $500,000 represented payment for the Lender Warrants and (z)
$500,000 was a transaction fee payable to the Term Lenders in
lieu of the Prepayment Premium. Such transaction fee is to be
shared equally by the Term Debt Purchaser and THV. In connection
with the Term Debt and Warrant Assignment, the Company, THV, the
Term Debt Purchaser and the purchaser entered into an agreement
on the Term Debt Assignment Date (the "Recapitalization
Agreement") pursuant to which the parties agreed as follows: On
or before the earlier of (i) the closing of the proposed sale and
(ii) December 26, 1995, the Company will cause Hunt to merge with
and into HVHC, with HVHC being the surviving corporation in the
merger (the "Merger"). If a closing of the proposed sale has not
occurred by December 27, 1995, the Term Debt Purchaser will
exercise the Lender Warrants to purchase such number of shares of
HVHC common stock as represents an equivalent percentage of HVHC
common stock as the Term Debt Purchaser would have acquired upon
exercise of the Lender Warrants to purchase shares of common
stock of Hunt. Concurrently with such exercise, the Term Debt
Purchaser shall purchase from the Seller a number of shares
representing 2% of the common stock of HVHC (the "Supplemental
Stock") at a price of $50,000. Accordingly, the amount of loss
reported on the proposed sale was calculated assuming a 20.95%
minority interest in the common stock of HVHC. After giving
effect to the exercise by the Term Debt Purchaser of the Lender
Warrants and the purchase by the Term Debt Purchaser of the
foregoing percentage of HVHC common stock, the Company will own
less than 80% of the outstanding HVHC common stock, thereby
relieving HVHC and Hunt from joint and several liability for the
Company's taxes for periods beyond 1995. Furthermore, if the
proposed sale is consummated, the Term Debt Purchaser will waive
its right to collect the Prepayment Premium. However, if the
proposed sale is not consummated and a person or entity other
than the purchaser acquires the business of Hunt, the Term Debt
Purchaser need not waive the Prepayment Premium. In such event,
if the Term Debt Purchaser is paid a premium for the Term Debt
and $500,000 for the Lender Warrants, then THV will be entitled
to recover from the Term Debt Purchaser that portion of the
Prepayment Premium which exceeds $250,000, up to a maximum of
$250,000.
In accordance with the foregoing, on December 26, 1995, the
Merger was effected, and on December 27, 1995, the Term Debt
Purchaser exercised the Lender Warrants and purchased the
Supplemental Stock.
NOTE 3 - MARKETABLE SECURITIES
Effective January 1, 1994, the Company adopted Financial
Accounting Standards Board Statement No. 115 ("Accounting for
Certain Investments in Debt and Equity Securities"). In
accordance with the statement, the Company classifies all debt
securities purchased with remaining maturities of less than one
year as securities held to maturity which are carried at
amortized cost. All other debt and equity securities are
classified as securities available for sale which are carried at
fair value as determined by quoted market prices. The aggregate
excess of fair value over cost of such securities as of September
30, 1995, of $138,000, net of deferred income taxes of $48,000,
is included as a separate component of stockholders' equity.
NOTE 4 - LONG-TERM DEBT
At September 30, 1995, long-term debt consisted of the
following (in $000's):
<TABLE>
<S> <C>
10.5% and 11% mortgages payable due in $390
monthly and semi-annual installments
through July 1996 and April 2000;
secured by land and buildings
Other 36
Total long-term debt 426
Less: current portion (66)
$360
</TABLE>
NOTE 5 - REMEDIATION AND CLOSURE COSTS
The Company and certain subsidiaries were previously active in
the resource recovery and waste management industries. These
activities included the operation of three landfills. Although
the sites are now closed, the Company continues to own and/or
remediate them and has both incurred and accrued for the
substantial costs associated therewith.
The Company's accruals for closure and remediation activities
equal the present value of its allocable share of the estimated
future costs related to a site less funds held in trust for such
purposes. Such estimates require a number of assumptions, and
therefore may differ from the ultimate outcome. The costs of
litigation associated with a site are expensed as incurred.
As of September 30, 1995, the Company has accrued $22.0
million for its estimated share of remediation and closure costs
in regard to the Company's former landfills, $9.2 million of
which is held in trusts and maintained by trustees for financing
of the $11.3 million closure plan related to the landfill owned
by the Company's subsidiary, Kinsley's Landfill, Inc.
The most significant portion of the balance of the accrual
relates to remediation efforts at the landfill owned by the
Company's subsidiary, Kin-Buc, Inc. ("Kin-Buc Landfill"). The
Company and other respondents have been remediating the Kin-Buc
Landfill under an Amended Unilateral Administrative Order issued
by the United States Environmental Protection Agency ("EPA") in
September 1990. In November 1992, EPA issued an Administrative
Order for the remediation of certain areas neighboring the Kin-
Buc Landfill. During May 1993, a $22 million contract was
awarded for the construction of a containment system and leachate
treatment plant at the Kin-Buc Landfill in accordance with the
engineered design and standards accepted by the EPA in
satisfaction of certain requirements of the 1990 Order. The
contract was to be financed with funds available in the trust
established in 1993 from proceeds provided from a negotiated
settlement with certain parties to a suit the Company initiated
in 1990 with the intent of obtaining contribution toward the cost
of remediation. During May 1994, the Company met with
representatives of EPA to discuss the impact delays in securing
settlement proceeds would have on the Company's ability to
finance the construction within the time frame required by EPA.
In July 1994, after meeting with EPA, SCA Services, Inc. ("SCA"),
an affiliate of WMX Technologies, Inc. ("WMX") and a respondent
to the Orders, entered into a contract with the contractor
installing the containment system and treatment plant, thereby
alleviating the potential for delays in this phase of the
construction due to financial limitations. WMX, formerly known
as Waste Management, Inc., had previously provided EPA with a
financial guaranty of SCA's and the Company's obligations under
the Orders. In August 1994, a contract was awarded by SCA for
certain activities mandated by the 1992 Order.
The execution of the contracts between SCA and the contractors
has not relieved the Company of liability for such costs since
the Company entered into an agreement with SCA and certain
affiliates ("SCA Group") in 1986 which allocated 75% of the costs
incurred by the parties for the remediation of the site to the
Company. The Company filed a demand for arbitration in 1993
seeking rescission or reformation of the agreement with the SCA
Group. During March 1995, the SCA Group filed a demand for
arbitration seeking reimbursement from the Company of $10.7
million, which equals 75% of the $14.3 million of remediation
expenses purportedly funded by WMX through December 31, 1994.
The status of such arbitration demands, as yet unresolved, is
described in Note 6 of this report.
The contractors have essentially completed the construction
required under the Orders, and the Company is awaiting EPA
review and acceptance of the work performed. Operation of the
treatment plant and maintenance of the facilities is being
conducted by an affiliate of SCA. The total cost of the
construction, operations and maintenance of remedial systems for
a 30 year period plus the cost of past remedial activities has
been estimated to be in the range of approximately $80 million to
$100 million.
A study to determine the nature and extent of contamination,
and sources thereof, on approximately one acre of land, adjacent
to the enclosed Kin-Buc site has been substantially completed.
On the basis of such study, a design for a remedial program
involving the installation of a slurry cut-off wall around this
one acre parcel was presented to the EPA in late January 1996 for
its review and approval. The cost of such installation may range
from $1 million to $2 million. It is not possible to predict, at
this point, whether EPA will require additional remedial measures
to be taken or will mandate long-term maintenance of the slurry
wall. Other areas within the vicinity of the site may become the
subject of future studies due to the historic use of the area for
disposal. The cost of studies and remediation of such areas is
not included in the present estimates of the total cost of the
remediation since such work is outside the scope of the Orders.
The Company believes that the cost of the work addressed by the
Orders will not result in a significant increase in such
estimates, and that the remainder of such work is outside the
scope of the Orders. An obligation to undertake significant
remediation of areas outside the scope of the Orders would have a
material adverse effect on the financial condition, results of
operations and net cash flows of the Company.
Additional material adjustments to the Company's current
accrual may also become necessary as the allocations to all
respondents and potentially responsible parties are determined.
As previously reported, the Company was named, along with a
group of waste generators, to an order issued by the EPA which
required remediation of a site in Carlstadt, New Jersey. In
September 1995, the Court approved a settlement agreement which
allocated remediation costs for the site among the Company and
substantially all of the waste generators who have been
remediating the site. This agreement substantially relieves the
Company from future obligations for the site in exchange for a
cash payment, proceeds from the settlement of certain insurance
claims and an assignment of Carlstadt-related claims filed
against the Company's excess insurance carriers. The Company has
reversed the balance of the accrual for future expenditures
related to this site, and recognized income of $1,451,000
associated with such adjustment in the period ended September 30,
1995. (See Note 7 for a further discussion of this matter).
The impact of future events or changes in environmental laws
and regulations, which cannot be predicted at this time, could
result in material increases in remediation and closure costs
related to the Company's past waste handling activities, possibly
in excess of the Company's available financial resources. A
significant increase in such costs could have a material adverse
effect on the Company's financial position, results of operations
and net cash flows.
Note 6 - TAXES
In 1991, the Internal Revenue Service (the "Service") asserted
numerous adjustments to the tax liability of the Company and its
subsidiaries for tax years 1980 through 1988, along with interest
and penalties thereon. In 1993, after the conclusion of
administrative proceedings before the Service, the Service issued
a deficiency notice to the Company, asserting adjustments to
income of $33.3 million, and a corresponding deficiency in
federal income taxes of approximately $13.5 million, as well as
penalties of $2.5 million and interest on the asserted deficiency
and penalties. In addition, the Service challenged the carryback
of losses incurred by the Company in taxable years 1989 through
1991, thereby bringing those years, which had been the subject of
an ongoing audit, into the deficiency notice. The 1989-1991 tax
audit is discussed below. The Company filed a petition with the
Tax Court contesting many of the proposed adjustments asserted in
the deficiency notice. On June 5, 1995 and August 14, 1995 the
Company and the Service executed a stipulation of partial
settlement of issues in the Tax Court case and a revised
stipulation of partial settlement, respectively, covering most of
the adjustments asserted in the deficiency notice.
In addition to the partial settlements that have been
concluded with the Service, on September 18, 1995, the Company's
Board of Directors approved a proposed partial settlement of
additional issues for which the Service had sought adjustments to
income totalling approximately $5.8 million. The Service has
agreed in principle to the Company's proposed partial settlement.
However, language reflecting the terms of the proposed partial
settlement has not yet been drafted and agreed to by the parties.
The Company anticipates that the proposed partial settlement will
be concluded by the end of February, 1996.
Taking into account the proposed partial settlement and the
partial settlements that have already been concluded, the Company
has accepted approximately $5.2 million of the $33.3 million of
total proposed adjustments to income. Many of the adjustments
accepted by the Company relate to issues on which the Service
would likely have prevailed in court. If the Service accepts the
Company's proposed partial settlement, the Service will have
conceded adjustments totalling $27.4 million of taxable income
and penalties. After conclusion of the proposed settlement, the
Company will either settle or litigate the remaining adjustments
for the 1980-1988 period and the adjustments, discussed below,
asserted by the Service for the 1989-91 period.
The Company has incurred net operating loss and tax credit
carryforwards that will partly offset the settled adjustments to
taxable income. Taking into account such carryforwards, the
federal income tax and interest that would be due on account of
the settled adjustments (including the proposed partial
settlement) would be approximately $1,280,000 if payment were
made on September 30, 1995 ($94,000 of taxes and $1,186,000 of
interest). The settled adjustments (including the proposed
partial settlement) will also result in approximately $495,000 of
state liabilities ($211,000 of state income tax and $284,000 of
interest calculated as of September 30, 1995), not including
penalties and penalty interest that may be assessed by the states
involved. Payment of the federal tax liability and interest
resulting from both settled adjustments and any issues litigated
before the Tax Court will be due after the conclusion of the Tax
Court case. The date for payment of the state tax liabilities
varies by state. The first of such payments, in the amount of
approximately $284,000 (including interest to September 30, 1995)
will be made in full by the end of the first quarter of 1996
absent an agreement permitting payment in installments. (All
estimates of tax liabilities presented herein exclude penalties
which may be sought by the jurisdictions involved. The Service
has conceded penalties on all issues in the Tax Court case.)
The use of the Company's net operating loss and tax credit
carryforwards to offset the settled adjustments will reduce the
net operating loss and tax credit carryforwards that would
otherwise have been available to partly offset the future tax
liabilities that will arise when the Company recognizes an
estimated $15.8 million of taxable income from its investment in
computer equipment. For federal income tax purposes, the Company
has had the benefit of tax deductions for depreciation of the
equipment and for interest on the long-term non-recourse debt
that the Company incurred to finance the acquisition of the
computer equipment. In prior years, those deductions exceeded
the rental income the Company earned from leasing the equipment
and offset the Company's income from other sources. During 1994
rental income began to exceed the deductions. Rental income will
continue to exceed depreciation and interest deductions in 1995,
1996 and 1997. Approximately $5.8, $6.5 and $3.5 million of
taxable income is anticipated for 1995, 1996 and the first seven
months of 1997, respectively, on account of the computer
equipment. The Company does not expect to have sufficient
deductions from other sources to offset this income.
The Company's accrual of $2,480,000 as of September 30, 1995
for taxes and interest relating to the Tax Court litigation
exceeds the amount of the liability associated with the settled
adjustments, including the pending partial settlement because
such settlement has not yet been formally accepted by the
Service.
The Service has concluded an audit of the Company's federal
income tax returns for 1989 through 1991, and has questioned
certain deductions claimed by the Company in connection with its
investment in the computer equipment discussed in the preceding
paragraph. If the Service prevails in disallowing the computer
equipment deductions, the Company's taxable income for 1989
through 1992 would be materially increased. However, in that
case, its anticipated taxable income from the computer equipment
for 1994 through 1997 would be reduced by a corresponding amount.
Specifically, if the proposed partial settlement is approved and
the Company prevails on the remaining issues from the 1980-88 and
1989-91 periods, the federal income tax liability resulting from
the disallowance of the computer equipment deductions will not
exceed $5.9 million of tax and $2.4 million of interest,
calculated through September 30, 1995. In that case, however,
the Company's deferred tax liability of $874,000 as of September
30, 1995 would be eliminated, as would most of the $6.5 million
and $3.5 million of taxable income that the Company projects it
will realize from the computer equipment in 1996 and 1997,
respectively, as discussed in the preceding paragraph.
Disallowance of the computer equipment deductions would not
result in any state tax liability. The Service also challenged
certain real property deductions and certain expenses that were
deducted by the Company, but that the Service believes should
have been capitalized. The deductions challenged by the Service
for 1989 through 1991 will be addressed in the pending Tax Court
litigation because those deductions resulted in net operating
losses that were carried back and deducted in years covered by
the Tax Court litigation. Settlement discussions on the
1989-1991 issues are in progress.
If the Company is unsuccessful in its defense of the remaining
issue from the 1980-1988 period and all issues from the 1989-1991
period, including the computer equipment deductions, and provided
the proposed partial settlement is accepted by the Service, the
Company will owe approximately $8 million of additional federal
income taxes and $6.5 million of additional interest, calculated
through September 30, 1995, in addition to the taxes and interest
owed as a result of the settled adjustments and proposed partial
settlement. Little or no state income tax and interest is
anticipated as a result of the disallowance of these deductions.
NOTE 7 - LEGAL PROCEEDINGS
The Company has previously reported in its Form 10-KSB for
the year ended December 31, 1994 about litigation brought by a
group of generators and transporters of waste handled at a site
in Carlstadt, New Jersey (the "Carlstadt Site") against the
Company, Inmar Associates, Inc. ("Inmar"), a company owned and
controlled by Marvin H. Mahan, a former officer, director and
principal shareholder of the Company, and Mr. Mahan, the purpose
of which was to allocate to the Company, Inmar and Mr. Mahan a
portion of the costs of remediating the Carlstadt Site under
orders of the EPA mandating such remediation. In September 1995,
the Court approved a settlement among Transtech, Inmar and Mr.
Mahan and these generators and transporters and other parties who
have contributed to the costs of the remediation pursuant to
which Transtech, Inmar and Mr. Mahan agreed to (i) pay $4.1
million of proceeds from settlements with primary insurers of a
coverage action brought by the Company and Inmar against their
primary and excess insurers, (ii) pay an additional $145,000,
$72,500 from Transtech and $72,500 from Inmar and Mr. Mahan, and
(iii) assign their Carlstadt Site-related insurance claims
against an excess insurer, in exchange for a complete release
from these parties of all liability arising from or on account of
environmental contamination at the Carlstadt Site and the
parties' remediation of the same. Notwithstanding such
settlement, the Company may have liability in connection with the
site to the EPA and to parties who had not contributed to the
remediation at the time the settlement was approved, but who may
later do so. The Company has received no indication that the EPA
intends to assert a claim against any responsible party for the
recovery of any costs the EPA may have incurred in overseeing
remediation of the Carlstadt Site. Further the Company believes
that the EPA may not have the legal right to assert such a claim.
In 1993, the Company's demand for arbitration concerning
(among other things) the enforceability of provisions of the 1986
agreement (the "1986 Agreement") among the Company, the SCA Group
and others allocating the costs of the remediation of the Kin-Buc
Landfill 75% to the Company (jointly and severally with others),
and 25% to the SCA Group was stayed pending a decision by the
Supreme Court of New York County (the "Court"), on motion of the
SCA Group, that the Company's demand for arbitration was barred
by the statute of limitations. In October 1995, a referee
appointed by the Court to determine when the Company knew or
should have known facts giving rise to its legal right to
challenge the 1986 Agreement (that is, what the cost to remediate
the Kin-Buc Landfill would be), found that the Company knew or
should have known such facts as early as 1986. In November 1995,
the Company moved to reject the referee's report. If the
Company's motion is denied, and the referee's report is accepted
by the judge and affirmed on appeal, the Company's challenge of
the enforceability of the 1986 Agreement will have been barred by
the statute of limitations, and, accordingly, SCA's motion to
permanently enjoin the Company Arbitration will be granted.
In March 1995, while the Court's referral on the Company's
arbitration was pending, the SCA Group filed its own demand for
arbitration (the "SCA Arbitration") demanding that an arbitrator
enforce the cost allocation provisions of the 1986 Agreement by
ordering the Company to reimburse it for approximately $17
million of remediation expenses purportedly funded by it through
March 31, 1995. On the Company's motion, the Court narrowed the
issues to be arbitrated to the amount of funds expended on the
remediation and the reasonableness of such expenditures. The
Court also made any findings on such issues subject to resolution
of the Company's arbitration as to the enforceability of the 1986
Agreement. The arbitrators have scheduled discovery, which is
ongoing, and a hearing is tentatively set for March 1996. The
recovery by SCA of a judgment against the Company in the SCA
Arbitration would have a materially adverse effect on the
financial condition, results of operations and net cash flows of
the Company, depending upon the structuring of payments pursuant
to the judgment and the ability of the Company to recover a
portion of such costs from insurance carriers and other parties
liable for remediation of the Kin-Buc site.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the close of business on the Record Date, the Company
has issued and outstanding 2,829,090 shares of Common Stock,
which figure excludes 1,885,750 shares owned by the Company which
are not outstanding and are not eligible to vote.
Set forth below is a table showing, as of the Record Date,
the number of shares of Common Stock owned beneficially by:
(1) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of
such Common Stock;
(2) each director of the Company;
(3) the chief executive officer of the Company (the
"Chief Executive Officer")
(4) the most highly compensated executive officers of
the Company (other than the Chief Executive Officer) whose total
annual salary and bonus exceeds $100,000 (the "Named Executive
Officer"); and
(5) all officers and directors of the Company as a
group.
Unless otherwise specified, the persons named in the table
below and footnotes thereto have the sole right to vote and
dispose of their respective shares.
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Class
Name and Address of
Beneficial Owner and Number of Shares Percentage
Identity of Group Owned of Class
Roger T. Mahan 325,435 (a),(d) 11.5%
47 McGregor Avenue
Mt. Arlington, NJ 07856
Nancy M. Ernst 321,775 (a),(b),(d) 11.3%
2229 Washington Valley Rd.
Martinsville, NJ 08836
Gary A. Mahan 310,601 (a),(c),(d) 11.0%
53 Cross Road
Basking Ridge, NJ 07920
Robert V. Silva 50,000 (e) 1.8%
200 Centennial Avenue
Piscataway, NJ 08854
Arthur C. Holdsworth, III 0 --
200 Centennial Avenue
Piscataway, NJ 08854
Andrew J. Mayer, Jr. 5,000 (f) .2%
200 Centennial Avenue
Piscataway, NJ 08854
All executive officers 55,000 (g) 1.9%
and directors as a group
(3 in group)
(a) Roger T. Mahan, Nancy M. Ernst and Gary A. Mahan are the
children of Marvin H. Mahan, a former officer, director and
principal shareholder of the Company, and his wife, Ingrid T.
Mahan. Marvin H. and Ingrid T. Mahan disclaim beneficial
ownership of the shares owned by their children.
(b) Includes 8,600 shares owned by Nancy M. Ernst's husband,
Kenneth A. Ernst, and 18,200 shares owned by their minor
children. Mr. Ernst was a director of the Company from June 1987
through April 29, 1994.
(c) Includes 8,600 shares owned by Gary A. Mahan's wife,
Elizabeth Mahan, and 8,600 shares owned by their minor child.
(d) Members of the Mahan family, consisting of Roger T.
Mahan, Nancy M. Ernst and Gary A. Mahan, their spouses and
children and their parents, Marvin H. Mahan and Ingrid T. Mahan,
own 987,911 shares of Common Stock, which represent approximately
35% of the shares outstanding. Such stockholders have granted a
proxy to the Purchaser to vote approximately 35% of the shares
outstanding for the Proposed Sale. See "The Special Meeting -
Voting and Record Date."
(e) Represents incentive options to purchase 50,000 shares
at $.75 per share, all of which are presently exercisable. Mr.
Silva also has a warrant to purchase, for $165,279, 5% of the
outstanding common stock of Hunt (which warrant, prior to the
Merger, represented the right to purchase 6.2% of the outstanding
common stock of HVHC, which then represented an indirect 5%
common stock interest in Hunt), given to Mr. Silva in
consideration for services rendered by him in identifying and
presenting to the Company the opportunity to acquire Hunt, the
closing of which occurred in September 1991. See "The Proposed
Sale - Interests of Certain Persons in the Proposed Sale."
(f) Represents incentive options to purchase 5,000 shares at
$0.438 per share, all of which are presently exercisable.
(g) Consists of incentive options to purchase 55,000 shares
held by two officers of the Company, all of which are presently
exercisable.
POSSIBLE ADJOURNMENT
In the event the requisite vote to carry the matters before
the Special Meeting cannot be obtained as of the date set for the
Special Meeting, it is the intention of the Board of Directors,
if it deems it advisable to do so at that time, to adjourn the
Special Meeting to permit the solicitation of additional proxies.
Accordingly, the enclosed form of proxy authorizes a vote in
favor of adjournment. However, proxies cast against the Proposed
Sale will not be voted to adjourn the Special Meeting.
OTHER MATTERS
Management knows of no other matters to be presented before
the Special Meeting other than those stated above. However, the
enclosed proxy gives discretionary authority to each proxyholder
named therein should any other matters be presented at the
Special Meeting to take such action in connection therewith as
shall be in accordance with his best judgment.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with
the Securities and Exchange Commission are hereby incorporated in
this Proxy Statement by reference thereto: (i) the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1994; (ii) the Company's Forms 10-KSB/A filed May 5, 1995 and
February 7, 1996; (iii) the Company's Form 10-QSB for the quarter
ended March 30, 1995; (iv) the Company's Form 10-QSB for the
quarter ended June 30, 1995; (v) the Company's Form 10-QSB for
the quarter ended September 30, 1995; (vi) the Company's Form 10-
QSB/A for the quarter ended September 30, 1995, filed February 7,
1996 and (vii) the Company's Form 8-K filed November 1, 1995.
Any statement contained in a document, all or a portion of which
is incorporated or deemed to be incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of this
Proxy Statement to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement.
The Company will provide without charge to each person to
whom a copy of this Proxy Statement is delivered, upon the
written or oral request of such person and by first class mail or
other equally prompt means after receipt of such request, a copy
of any or all of the documents referred to above which have been
incorporated by reference in this Proxy Statement, other than
exhibits to such documents unless such exhibits are specifically
incorporated by reference. Such written or oral request should
be directed to Transtech Industries, Inc., 200 Centennial Avenue,
Suite 202, Piscataway, New Jersey 08854, Attention: Secretary,
((908) 981-0777).
_____________________________________________________________
Annex A
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
Between
VALVECO INC.
As Buyer
and
THV ACQUISITION CORP.
As Seller
_____________________________________
Dated as of January 15, 1996
_____________________________________
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE; CLOSING 2
SECTION 1.1 Purchase and Sale of Shares 2
SECTION 1.2 Consideration 2
SECTION 1.3 Payment 3
SECTION 1.4 Closing 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER 3
SECTION 2.1 Status of the Purchased Shares 3
SECTION 2.2 Title to the Purchased Shares 3
SECTION 2.3 Binding Nature of Agreements 4
SECTION 2.4 No Conflicts; Consents 4
SECTION 2.5 Corporate Existence and Power;
Subsidiaries 4
SECTION 2.6 Charter Documents and Corporate Records 5
SECTION 2.7 Capitalization 5
SECTION 2.8 Financial Condition 5
SECTION 2.9 Finders; Fees 6
SECTION 2.10 Certain Approvals of the Contemplated
Transactions 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER 6
SECTION 3.1 Binding Nature of Agreements 6
SECTION 3.2 No Conflicts; Consents 7
SECTION 3.3 Corporate Existence and Power 7
SECTION 3.4 Acquisition for Investment 7
SECTION 3.5 Commitments 7
SECTION 3.6 HSR Matters 8
SECTION 3.7 Due Diligence Investigation 8
SECTION 3.8 Finders; Fees 8
ARTICLE IV COVENANTS AND AGREEMENTS 8
SECTION 4.1 Conduct of Business; Certain Restrictions 8
SECTION 4.2 Corporate Examinations and Investigations 10
SECTION 4.3 Additional Financial Statements 10
SECTION 4.4 Efforts to Consummate 10
SECTION 4.5 Negotiations with Others 11
SECTION 4.6 Notices of Certain Events 11
SECTION 4.7 Public Announcements 12
SECTION 4.8 Confidentiality 12
SECTION 4.9 Expenses 13
SECTION 4.10 Restrictive Covenants 13
SECTION 4.11 Books and Records 13
SECTION 4.12 Inter-Company Relationships; Certain
Obligations of Buyer 14
TABLE OF CONTENTS, CONT'D
SECTION 4.13 Employee Benefit Plans 16
SECTION 4.14 Actions Relating to Approval of
Contemplated Transactions 17
SECTION 4.15 Certain Ancillary Agreements 17
ARTICLE V CONDITIONS TO CLOSING 18
SECTION 5.1 Conditions to the Obligations of Seller
and Buyer 18
SECTION 5.2 Conditions to the Obligations of Seller 19
SECTION 5.3 Conditions to the Obligations of Buyer 21
ARTICLE VI INDEMNIFICATION 25
SECTION 6.1 Survival of Representations, Warranties
and Covenants 25
SECTION 6.2 Obligation of Seller to Indemnify 26
SECTION 6.3 Obligation of Buyer to Indemnify 26
SECTION 6.4 Notice and Opportunity to Defend Third
Party Claims 27
SECTION 6.5 Limits on Indemnification 27
SECTION 6.6 Adjustment 28
ARTICLE VII TERMINATION 28
SECTION 7.1 Termination 28
SECTION 7.2 Effect of Termination; Right to Proceed 29
ARTICLE VIII MISCELLANEOUS 29
SECTION 8.1 Notices 29
SECTION 8.2 Entire Agreement 30
SECTION 8.3 Waivers and Amendments;
Non Contractual Remedies; Preservation
of Remedies 31
SECTION 8.4 Governing Law 31
SECTION 8.5 Consent to Jurisdiction and Service of
Process 31
SECTION 8.6 Designated Buyer 31
SECTION 8.7 Binding Effect; No Assignment 31
SECTION 8.8 Exhibits 32
SECTION 8.9 Severability 32
SECTION 8.10 Counterparts 32
ARTICLE IX DEFINITIONS 32
SECTION 9.1 Definitions 32
SECTION 9.2 Interpretation 37
<PAGE>
TABLE OF CONTENTS, CONT'D
EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Fairness Opinion of Brenner Securities Corporation
Exhibit C Form of Irrevocable Proxy from Members of the
Mahan Family
Exhibit D Amended and Restated Recapitalization Agreement
Exhibit E Bring Along Agreement
SCHEDULES
Schedule A Description of Lender Warrants
Schedule 2.1A Restrictions on the Purchased Shares
Schedule 2.1B Restrictions on the Company Shares
Schedule 2.4 Seller Required Consents
Schedule 2.7 Description of Silva Warrant
Schedule 2.8A Interim Financial Statement GAAP Exceptions
Schedule 2.8B Listing of Funded Debt as of September 30,1995
Schedule 2.8C Listing of Intercompany Obligations as of
September 30, 1995
Schedule 2.8D Listing of Transtech Liabilities Assumed by the
Company
Schedule 3.2 Buyer Required Consents
Schedule 3.7 Listing of Transtech's SEC Filings since
January 1, 1991
Schedule 4.13 Other Employee Benefit Plans of the Company
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT dated as of
January 15, 1996 between VALVECO INC., a Delaware corporation
("Buyer"), and THV ACQUISITION CORP., a Delaware corporation
("Seller"):
Transtech Industries, Inc. ("Transtech"), a Delaware
corporation that files periodic reports and other information
pursuant to the 1934 Act, owns all the issued and outstanding
shares of capital stock of Seller.
Seller and Buyer entered into a Stock Purchase Agreement
(the "Original Purchase Agreement") dated as of October 24, 1995
providing (prior to the Merger described below) for the sale by
Seller to Buyer of all the issued and outstanding shares of
HVHC, Inc., a Delaware corporation ("Old HVHC"). As of the date
of the Original Purchase Agreement, Old HVHC, in turn, owned all
the issued and outstanding shares of common stock of Hunt Valve
Company, Inc., an Ohio corporation ("Old Hunt") and the Seller
owned all the issued and outstanding shares of preferred stock of
Old Hunt.
As contemplated by the provisions of Section 4.15 of the
Original Purchase Agreement, on October 27, 1995, pursuant to a
Note and Warrant Purchase Agreement ("Note and Warrant Purchase
Agreement") dated as of October 24, 1995 between Terold and the
original holders of the Company's 13% Senior Secured Notes in the
aggregate original principal amount of $11.5 million (the "Senior
Notes"), Terold acquired from such holders the Senior Notes and
certain warrants held by such lenders (the "Lender Warrants") to
acquire shares of common stock of Old Hunt, as more fully set
forth on Schedule A hereto.
As contemplated by section 3 of the Recapitalization
Agreement (the "Original Recapitalization Agreement") dated as of
October 24, 1995 among Terold NV ("Terold"), Old Hunt, Old HVHC,
Transtech, Seller and Buyer: (i) on December 26, 1995 Old Hunt
and Old HVHC merged (the "Merger") with Old HVHC continuing as
the surviving corporation under its new name of Hunt Valve
Company, Inc.; (ii) on December 27, 1995 Terold purchased 18
shares of common stock of the surviving corporation in the Merger
(the "Company") for a purchase price of $50,000; and (iii) on
December 27, 1995, the Company issued an additional 215.79 shares
of its common stock to Terold upon the exercise by Terold of the
Lender Warrants (the "Lender Warrant Shares").
As a result of the Merger and the other transactions
referred to in the preceding recital, as of the date hereof, the
outstanding capital stock of the Company is held as follows:
<TABLE>
<CAPTION>
Name of Shares of Shares of
Shareholder Common Stock Preferred Stock
<S> <C> <C>
Seller 882.00 200
Terold 233.79 --
Total: 1,115.79 200
</TABLE>
To give effect to: (i) the foregoing; (ii) certain changes
set forth in an Amended and Restated Recapitalization Agreement
being entered into concurrently herewith; and (iii) certain other
changes to which Seller and Buyer have agreed, the parties wish
to amend and restate the Original Purchase Agreement, upon the
terms and conditions set forth herein (certain terms used herein
having the respective meanings set forth in Article IX).
Now, therefore, in consideration of the premises and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
PURCHASE AND SALE; CLOSING
SECTION 1.1 Purchase and Sale of Shares. Subject to the
terms and conditions set forth herein, at the Closing, Seller
shall sell, transfer and deliver to Buyer, and Buyer shall
purchase and accept from Seller, all of the issued and
outstanding shares of common stock owned by Seller in the Company
(the "Purchased Shares").
SECTION 1.2 Consideration. (a) The purchase price (the
"Purchase Price") for the Purchased Shares shall be $18 million
reduced by the sum of the following: (i) the amount of Funded
Debt; (ii) the amount of $50,000 representing payment received by
Seller from the sale of 18 shares common stock of the Company to
Terold on December 27, 1995; (iii) the amount of $500,000
representing the agreed value of the Lender Warrant Shares
acquired by Terold on December 27, 1995 ; (iv) the amount
required to redeem the issued and outstanding shares of preferred
stock held by Seller in the Company (the "Preferred Shares") and
all accrued and unpaid dividends thereon; (v) the amount required
to be paid by the Company to the Seller in repayment of the
senior subordinated note issued by the Company to the Seller in
the original principal amount of $500,000 (the "Seller Senior
Subordinated Note"); and (vi) any other intercompany payments
required to be made by the Company on or before the Closing Date.
For purposes of this section, "Funded Debt" means (x) all amounts
outstanding under the revolving portion (the "Revolver") of the
Company's credit facility as reflected on the books of the
Company as of the close of business on the day immediately
preceding the Closing Date (the "Determination Date") (as such
amount may be adjusted pursuant to Section 1.2(b)) plus (y) the
outstanding principal of, plus accrued interest and penalties on
(including prepayment penalties, premiums or similar payments <PAGE>
payable to holders of Funded Debt), all other outstanding
indebtedness of the Company on the Closing Date.
(b) Post Closing Adjustment to Purchase Price. In the
event that it is determined after the Closing Date that the
amount of the Revolver reflected on the books of the Company as
of the Determination Date should have been an amount (the "Actual
Revolver Amount") other than the amount used in the calculation
of the Purchase Price (the "Revolver Payment Amount") pursuant to
clause (x) of Section 1.2 above, the following payments shall be
made in connection with the Purchase Price: (i) if the Actual
Revolver Amount exceeds the Revolver Payment Amount, then Seller
shall pay by wire transfer to an account specified by Buyer,
within two Business Days after the making of such determination,
an amount equal to the Actual Revolver Amount minus the Revolver
Payment Amount; and (ii) if the Actual Revolver Amount is less
than the Revolver Payment Amount, then Buyer shall pay by wire
transfer to an account specified by Seller, within two Business
Days after the making of such determination, an amount equal to
the Revolver Payment Amount minus the Actual Revolver Amount.
SECTION 1.3 Payment. At the Closing, $750,000 of the
Purchase Price (the "Escrowed Portion") shall be paid to and held
by the Escrow Agent subject to the terms and conditions of the
Escrow Agreement, to be dated the Closing Date, among Seller,
Transtech, Buyer and the Escrow Agent, substantially in the form
of Escrow Agreement annexed as Exhibit A hereto (the "Escrow
Agreement"). The balance of the Purchase Price will be payable
in cash by wire transfer of immediately available funds to one or
more accounts designated by Seller by written notice given to
Buyer at least two (2) Business Day prior to the Closing Date.
SECTION 1.4 Closing. The closing (the "Closing") of the
purchase and sale of the Purchased Shares hereunder shall take
place at the offices of Baer Marks & Upham LLP, 805 Third Avenue,
New York, New York at 10:00 a.m., local time, on
February 16, 1996 or, if on such date the conditions to closing
specified in Article V (other than conditions requiring the
delivery of certificates, opinions and other instruments and
documents) shall not have been satisfied or waived, on the second
day following such satisfaction or waiver, or on such other date
as Buyer and Seller shall agree. The time and date of the
Closing is hereinafter called the "Closing Date". All
transactions consummated at the Closing shall be deemed to have
taken place simultaneously.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Transtech and Seller, jointly and severally, represent and
warrant to Buyer that:
SECTION 2.1 Status of the Purchased Shares. The Purchased
Shares constitute 79.05% of the issued and outstanding common
<PAGE>
stock of the Company. Except as set forth on Schedule 2.1A, the
Purchased Shares are subject to no restrictions on
transferability other than restrictions imposed by (i) the 1933
Act and (ii) applicable state securities Laws.
SECTION 2.2 Title to the Purchased Shares. Seller owns and
holds title to the Purchased Shares and the Preferred Shares free
and clear of any Lien of any kind, other than a Lien that has
been granted to certain lenders of the Company. After payment of
the Funded Debt and the release of Liens held by the holders of
such debt, Seller will hold such shares free and clear of any
Lien of any kind other than Liens created by Buyer.
SECTION 2.3 Binding Nature of Agreements. (a) Each of
Seller and Transtech has full power, capacity and authority to
execute and deliver this Agreement and each other Transaction
Document to which it is a party and to consummate the
transactions contemplated hereby and thereby (the "Contemplated
Transactions"). The execution and delivery of this Agreement and
each other Transaction Document to which Seller or Transtech is a
party and the consummation of the Contemplated Transactions to
which Seller or Transtech is a party have been duly and validly
authorized by Seller and the Board of Directors of Transtech and,
except for obtaining the consent of holders of the stock of
Transtech, no other proceedings on the part of Seller or
Transtech (or any other person) are necessary to authorize the
execution and delivery by Seller or Transtech of this Agreement
or any other Transaction Document to which Seller or Transtech is
a party or the consummation of the Contemplated Transactions to
which Seller or Transtech is a party.
(b) This Agreement and the other Transaction Documents
to which Seller or Transtech is a party have been duly and
validly executed and delivered by Seller and Transtech, and
(assuming the valid execution and delivery thereof by the other
parties thereto) constitute the legal, valid and binding
agreements of Seller and Transtech enforceable against them in
accordance with their respective terms except as such obligations
and their enforceability may be limited by applicable bankruptcy
and other similar Laws affecting the enforcement of creditors'
rights generally and except that the availability of equitable
remedies is subject to the discretion of the court before which
any proceeding therefor may be brought (whether at law or in
equity).
SECTION 2.4 No Conflicts; Consents. The execution, delivery
and performance by Seller and Transtech of this Agreement and
each other Transaction Document to which Seller or Transtech is a
party, the consummation of the Contemplated Transactions to which
Seller or Transtech is a party and the contemplated change of
control of the stock ownership of the Company, will not (i)
violate any provision of the Certificate of Incorporation or
By-laws (or comparable instruments) of Seller, Transtech or the <PAGE>
Company; (ii) require Seller, Transtech or the Company to obtain
any consent, approval or action of or waiver from, or make any
filing with, or give any notice to, any Governmental Body or any
other person, except as set forth on Schedule 2.4 (the "Seller
Required Consents"); (iii) if the Seller Required Consents are
obtained prior to Closing, to Seller's knowledge, violate,
conflict with or result in a breach or default under (after the
giving of notice or the passage of time or both), or permit the
termination of, any Material Contract to which Seller, Transtech
or the Company is a party or by which any of them or any of their
assets may be bound or subject, or result in the creation of any
Lien upon the Purchased Shares or upon any of the assets of the
Company pursuant to the terms of any such Contract; or (iv) if
the Seller Required Consents are obtained prior to Closing, to
Seller's knowledge, violate any Law, Order or material Permit of
any Governmental Body against, or binding upon the Company or
upon its assets or the Business.
SECTION 2.5 Corporate Existence and Power; Subsidiaries.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware, and has all requisite powers, authorizations, consents
and approvals required to carry on its respective businesses.
(b) The Company does not have any Subsidiaries and
does not directly or indirectly own any interest or investment in
any other person.
SECTION 2.6 Charter Documents and Corporate Records. Seller
has heretofore delivered to Buyer true and complete copies of the
Certificate of Incorporation and By-laws, or comparable
instruments, of the Company as in effect on the date hereof. The
stock and transfer books of the Company have been made available
to Buyer for its inspection.
SECTION 2.7 Capitalization. The authorized capital stock of
the Company consists of (i) 12,000 shares of common stock, par
value $.01 per share, of which 1,115.79 shares are issued and
outstanding and (ii) 2,000 shares of preferred stock of which 200
shares have been designated as Series A, 7% cumulative Preferred
Stock, par value $.01 per share, which shares are issued and
outstanding. All of such shares are duly authorized, validly
issued, fully paid and nonassessable and were not issued in
violation of any preemptive or other rights of shareholders.
Except for (i) a warrant held by Robert V. Silva more
particularly described on Schedule 2.7 hereto (the "Silva
Warrant"); and (ii) certain equity appreciation rights in the
common stock of the Company held by David Huberfield (the
"Huberfield Rights"), there are no outstanding securities of the
Company convertible into or exchangeable for or evidencing the
right to purchase or subscribe for any shares of capital stock of
the Company. There are no voting trusts or other agreements or
understandings with respect to the voting of the Company capital
stock. Except for the Silva Warrant and the Huberfield Rights,
<PAGE>
there are no outstanding or authorized options, warrants, calls,
subscriptions, rights, commitments or any other agreements of any
character obligating the Company to issue any shares of its
capital stock or any securities convertible into or evidencing
the right to purchase or subscribe for any shares of such stock.
SECTION 2.8 Financial Condition. (a) Seller has previously
furnished to Buyer true and complete copies of (i) Old HVHC's
unaudited financial statements at and for the years ended
December 31, 1994, 1993 and 1992 and for the six months ended
June 30, 1995 and 1994, (ii) Old Hunt's (A) audited financial
statements (including the footnotes thereto) at and for the years
ended December 31, 1994, 1993 and 1992 and (B) unaudited
financial statements at and for the eleven months ended November
30, 1995 and 1994, and (iii) Transtech's (A) audited consolidated
financial statements (including the footnotes thereto) at and for
the years ended December 31, 1994, 1993 and 1992 and
(B) unaudited consolidated financial statements for the nine
months ended September 30, 1995 and 1994. Except as set forth in
Schedule 2.8A with respect to unaudited financial statements, the
foregoing financial statements (collectively, the "Financial
Statements") were prepared in accordance with GAAP and fairly
present the financial condition of the respective entities as of
the dates of the balance sheets included in such Financial
Statements and the results of operations and, where applicable,
changes in financial position of such respective entities for the
periods indicated.
(b) A listing of the Company's Funded Debt as of
September 30, 1995 is set forth on Schedule 2.8B hereto.
(c) Schedule 2.8C sets forth, as of September 30,
1995, a listing of all intercompany obligations involving
Transtech, Seller and the Company.
(d) Schedule 2.8D sets forth a listing of all
Liabilities of Transtech in respect of which the Company has
agreed to be jointly and severally or independently liable (the
"Transtech Assumed Liabilities").
SECTION 2.9 Finders; Fees. Except for Brenner Securities
Corporation ("Brenner"), which has been retained to render an
opinion as to the fairness of the Contemplated Transactions to
the stockholders of Transtech, and whose fees and expenses will
be borne by Transtech, there is no investment banker, broker,
finder or other intermediary which has been retained by or is
authorized to act on behalf of Transtech, Seller or the Company
who might be entitled to any fee or commission from the Company
upon consummation of the Contemplated Transactions.
SECTION 2.10 Certain Approvals of the Contemplated
Transactions. On or before the date hereof:
<PAGE>
(a) The independent director of Transtech (the
"Independent Transtech Director") has: (i) approved and adopted
this Agreement and the Contemplated Transactions; (ii) resolved,
subject to the exercise of his fiduciary duties, to recommend at
all times prior to and including the Stockholders' Meeting that
Transtech's stockholders approve the sale of the Company and
adopt this Agreement and the Contemplated Transactions and (iii)
determined that this Agreement and the Contemplated Transactions
are in the best interest of Transtech and its stockholders;
(b) Brenner has rendered to the Independent Transtech
Director its written opinion (a copy of which is annexed as
Exhibit B hereto) to the effect that the Purchase Price is fair
to Transtech from a financial point of view (the "Fairness
Opinion").
(c) The holders of not less than 33.8% of each of the
issued and outstanding common stock of Transtech (the "Mahan
Shares") have executed an irrevocable proxy in favor of Buyer
substantially in the form annexed as Exhibit C hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
SECTION 3.1 Binding Nature of Agreements. (a) Buyer has
full power and authority to execute and deliver this Agreement
and each other Transaction Document to which it is a party and to
consummate the Contemplated Transactions. The execution and
delivery of this Agreement and each other Transaction Document to
which it is a party and the consummation of the Contemplated
Transactions to which Buyer is a party have been duly and validly
authorized and approved by Buyer's board of directors and no
other corporate proceedings on the part of Buyer are necessary to
authorize the execution and delivery by Buyer of this Agreement
or any other Transaction Document to which Buyer is a party or
the consummation of the Contemplated Transactions to which Buyer
is a party.
(b) This Agreement and the other Transaction Documents
to which Buyer is a party have been duly and validly executed and
delivered by Buyer and (assuming the valid execution and delivery
thereof by the other parties hereto) constitute the legal, valid
and binding agreements of Buyer, enforceable against Buyer in
accordance with their respective terms, except as such
obligations and their enforceability may be limited by applicable
bankruptcy and other similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of
equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought (whether at
law or in equity).
SECTION 3.2 No Conflicts; Consents. The execution,
delivery and performance by Buyer of this Agreement and each
other Transaction Document to which it is a party, the
consummation of the Contemplated Transactions to which Buyer is a
party and the contemplated change of control of the stock
ownership of the Company will not (i) violate any provision of
the Certificate of Incorporation or By-laws of Buyer;
(ii) require Buyer to obtain any consent, approval or action of
or waiver from, or make any filing with, or give any notice to,
any Governmental Body or any other person, except as set forth in
Schedule 3.2 (the "Buyer Required Consents"); (iii) if the Buyer
Required Consents are obtained prior to the Closing, violate,
conflict with or result in the breach or default under (after the
giving of notice or the passage of time or both), or permit the
termination of, any Material Contract to which Buyer is a party
or by which it or its assets may be bound or subject, or (iv) if
the Buyer Required Consents are obtained prior to the Closing,
violate any Law, Order or material Permit of any Governmental
Body against, or binding upon, Buyer or upon its assets or
business.
SECTION 3.3 Corporate Existence and Power. Buyer is a
corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation and has all
requisite corporate powers, authorizations, consents and
approvals required to carry on its business.
SECTION 3.4 Acquisition for Investment. Buyer is acquiring
the Purchased Shares for its own account and not with a present
intention to make any sale, disposition, distribution or other
transfer of the Purchased Shares in a manner that will be in
violation of any applicable securities Laws and understands that
the Purchased Shares have not been registered under the 1933 Act
or under the securities Laws of any state.
SECTION 3.5 Commitments. Buyer has obtained loan and
equity commitments, copies of which have been provided to Seller,
for the purpose of financing this transaction in the amount of at
least $18 million and has paid or committed to pay all commitment
fees due and payable on or before the date hereof related to such
loan commitment.
SECTION 3.6 HSR Matters. The "ultimate parent entity" (as
such term is defined in HSR) of Buyer does not have total assets
or annual net sales in excess of $100,000,000 within the meaning
of HSR.
SECTION 3.7 Due Diligence Investigation. (a) Buyer
acknowledges having examined the registration statements, proxy
statements, reports and other information filed by or concerning
Transtech and its Subsidiaries with the Securities and Exchange
Commission ("SEC") since January 1, 1991 that are listed on
Schedule 3.7 hereto. Buyer further acknowledges that certain
members of its senior management have previously been associated
<PAGE>
with the Company for many years in senior positions and, as such,
Buyer is fully aware of the financial condition, operations,
properties, assets, liabilities and other matters relating to the
Company.
(b) Notwithstanding the provisions of Section 3.7(a),
Buyer shall be entitled to rely on the representations and
warranties made by Seller and Transtech in Article II hereof and
the indemnification rights of Buyer relating to such
representations and warranties shall not be adversely affected by
the provisions of Section 3.7(a).
SECTION 3.8 Finders; Fees. There is no investment banker,
broker, finder or other intermediary (including Silva and
Company) which has been retained by or is authorized to act on
behalf of Buyer who might be entitled to any fee or commission
from Transtech or the Seller upon consummation of the
Contemplated Transactions.
ARTICLE IV
COVENANTS AND AGREEMENTS
SECTION 4.1 Conduct of Business; Certain Restrictions. (a)
From and after the date hereof and until the Closing Date, Seller
hereby covenants and agrees with Buyer that, unless Buyer
otherwise agrees in writing:
(i) The Company will carry on its business and
activities diligently and in substantially the same manner as has
been previously carried out, and shall not make or institute any
unusual or novel methods of purchase, sale, lease, management,
accounting or operation that will vary materially from those
methods used by it as of the date of this Agreement, except as
may be required by the provisions of the Agreement.
(ii) The Company will use its reasonable efforts
to preserve its business organization intact, to keep available
its present officers and employees, and to preserve its present
relationships with suppliers, customers and others having
business relationships with it.
(b) In furtherance of, and not in limitation of the
provisions set forth in Section 4.1(a):
(i) The Company will continue to carry its
existing insurance, insuring its assets, business and properties,
subject to variations in amounts required by the ordinary
operations of its business.
(ii) The Company shall not cause, permit or suffer
any of their respective assets to become subject to any
additional Lien other than in the ordinary course of business.
<PAGE>
(iii) Except in the ordinary course of business
consistent with past practice, the Company shall not pay, prepay,
discharge or satisfy any Liability, Lien or obligation or
materially alter the aging of its payables.
(iv) The Company shall not in any one month (A)
sell or dispose of any capital assets having a fair market value
individually in excess of $25,000 or a fair market value in the
aggregate for all such capital assets in excess of $50,000, (B)
make any capital expenditures for any single item having a cost
in excess of $25,000 or all items in the aggregate having a cost
in excess of $50,000 or enter into a lease with capital or other
equipment providing for rentals aggregating more than $25,000 per
annum for all such leases or (C) otherwise transfer, sell,
distribute or otherwise dispose of any of its assets or
properties, other than in the ordinary course of business.
(v) The Company shall not enter into any Material
Contract or modify, amend, cancel or terminate any of its
existing Material Contracts.
(vi) The Company shall not modify its practices
with respect to the collection of receivables or the discharge of
payables or take any other action, out of the ordinary course,
that would affect its cash position or the amount of Funded Debt,
other than any action contemplated hereby;
(vii) Except in the ordinary course of business,
the Company shall not: (A) write off as uncollectible any notes,
trade accounts or other receivables or (B) write off or dispose
of any inventory.
(viii) The Company shall not cancel or compromise
any debt or Claim or settle or discharge any balance sheet
receivable for less than the stated amount, except in the
ordinary course of business, or otherwise cancel, compromise or
waive any Claims or rights of substantial value.
(ix) The Company shall not create or incur any
indebtedness for borrowed money other than pursuant to an
existing line of credit, or guaranty, indemnify or otherwise
become liable for any obligation of any third party.
(x) Except for credit extended to customers in
the ordinary course of business, and under normal credit terms,
the Company shall not make any loans, advances or extensions of
credit to any person.
(xi) All tangible property of the Company shall
be used, maintained and repaired in the usual and ordinary
course.
(xii) With respect to its employees, the Company
will not (A) make, institute, agree to or change any bonus,
<PAGE>
profit sharing, pension, retirement, severance, termination,
"parachute" or similar arrangement or plan for employees and (B)
except and in accordance with past practices and in similar
amounts, increase the compensation payable or to become payable
to any employee.
(xiii) Except for the redemption of the Preferred
Shares and the payments referred to in Section 4.12, the Company
will not (A) amend its certificate of incorporation or bylaws,
(B) issue or sell any shares of capital stock, (C) issue, sell or
create any warrants, obligations, subscriptions, options,
convertible securities or other agreements or commitments under
which any additional shares of capital stock of any class may be
directly or indirectly authorized, issued or sold, (D) declare,
set aside or pay any dividend or make any distribution, directly
or indirectly, in respect of its capital stock; (E) directly or
indirectly purchase, redeem or otherwise acquire any shares of
its capital stock other than the contemplated redemption of the
Preferred Shares or (F) enter into any Contract obligating it to
do any of the foregoing prohibited acts.
SECTION 4.2 Corporate Examinations and Investigations.
Prior to the Closing Date, Seller agrees that Buyer shall be
entitled, through the directors, officers, Affiliates, employees,
attorneys, accountants, representatives, lenders, consultants and
other agents (collectively, "Representatives") of Buyer to make
such investigation of the Assets, the Business and operations of
the Company, and such examination of the books, records and
financial condition of the Company, as Buyer reasonably deems
necessary. Any such investigation and examination shall be
conducted at reasonable times, under reasonable circumstances and
upon reasonable notice, and Seller shall, and shall cause the
Company to, cooperate fully therein. In that connection, Seller
shall make available and shall cause the Company to make
available to the Representatives of Buyer during such period,
without however causing any unreasonable interruption in the
operations of the Company, all such information and copies of
such documents and records concerning the affairs of the Company
as such Representatives may reasonably request, shall permit the
Representatives of Buyer access to the Assets of the Company and
all parts thereof and to its employees, customers, suppliers and
others, and shall cause the Company's Representatives to
cooperate fully in connection with such review and examination.
SECTION 4.3 Additional Financial Statements. Prior to the
Closing Date, as soon as available and in any event within thirty
(30) calendar days after the end of each monthly accounting
period of the Company ending after the date of the most recent
interim statement included in the Financial Statements, Seller
shall furnish Buyer with unaudited financial statements of the
Company for such month in the form routinely prepared by the
Company, consistent with prior practice, for the Company's board
of directors and lenders.
<PAGE>
SECTION 4.4 Efforts to Consummate. Subject to the terms
and conditions herein, each party hereto, without payment or
further consideration, shall use its reasonable, good faith
efforts to take or cause to be taken all action and to do or
cause to be done all things necessary, proper or advisable under
applicable Laws, Permits and Orders to consummate and make
effective, as soon as reasonably practicable, the Contemplated
Transactions, including, but not limited to, the obtaining of all
Seller Required Consents and Buyer Required Consents and Permits
or consents of any third party, whether private or governmental,
required in connection with such party's performance of such
transactions and each party hereto shall cooperate with the other
in all of the foregoing.
SECTION 4.5 Negotiations with Others. (a) From and after
the date hereof and until this Agreement shall have been
terminated in accordance with its terms, Transtech and Seller
agree that they will not, directly or indirectly, and will not
permit the Company, directly or indirectly, to, encourage or
solicit any inquiries or proposals by or engage in any
discussions or negotiations with, or enter into any other
Contract or understanding with, any person concerning an
Acquisition Proposal subject, however, to such actions which, in
the good faith judgment of the Board of Directors of Seller or
Transtech, based upon the advice of counsel, are required under
applicable Law to be taken by the Board of Directors of Seller or
Transtech in exercise of its fiduciary duties. Seller shall
advise Buyer of any written proposal or offer to enter into an
Acquisition Proposal.
(b) If, between the date hereof and February 17, 1996
(a Closing hereunder not having occurred), Transtech, Seller or
the Company should wish to enter into an Acquisition Proposal
with any person other than Buyer or any of its Affiliates, Seller
shall give written notice thereof (the "Sales Notice") to Buyer.
Such Sales Notice shall set forth or be accompanied by a full
statement of the terms of the proposed Acquisition Proposal
including the: (i) purchase price therefor; (ii) method of
payment; (iii) proposed date of closing; and (iv) name, address
and telephone number of the proposed transferee. Within thirty
days after the giving of the Sales Notice, Buyer shall have the
option, by giving written notice thereof to Seller, to match such
other Acquisition Proposal on substantially the same terms and
conditions set forth therein.
(c) If: (i) Buyer has not exercised its rights of
first refusal in accordance with Section 4.5(b); (ii) Buyer is
willing and able to consummate the Contemplated Transactions and
the conditions to such consummation, not within the control of
Seller, have been satisfied or waived, and (iii) Seller
consummates an Acquisition Proposal with any person other than
Buyer or any of its Affiliates on or before February 17, 1996,
<PAGE>
Seller and Transtech, jointly and severally, shall pay or cause
the Company to pay to Buyer at the closing of such transaction a
fee of $450,000 as compensation for its efforts hereunder. In
addition, Transtech, Seller or the Company shall reimburse Silva
and Company and Buyer for the expenses of negotiating the terms
of this Agreement including the reasonable fees and expenses due
to its investment bankers, investors, lawyers and advisors;
provided, that, such reimbursement shall not exceed $1,000,000,
in the aggregate.
SECTION 4.6 Notices of Certain Events. Prior to the
Closing Date, each of Seller and Buyer shall promptly notify the
other of:
(a) any notice or other communication from any person
alleging that the consent of such person is or may be required in
connection with the Contemplated Transactions;
(b) any notice or other communication from any
Governmental Body in connection with the Contemplated
Transactions;
(c) the commencement or written threat of any
litigation against Buyer or against Seller or the Company; and
(d) any event, condition or circumstance occurring
from the date hereof through the Closing Date that would
constitute a violation or breach of any representation or
warranty, whether made as of the date hereof or as of the Closing
Date, or that would constitute a violation or breach of any
covenant of any party contained in this Agreement.
SECTION 4.7 Public Announcements. Transtech and Seller, on
the one hand, and Buyer, on the other, will consult with each
other before issuing any press release or otherwise making any
public statement with respect to the Contemplated Transactions,
and will not issue any such press release or make any such public
statement without the prior approval of Buyer or Transtech, as
the case may be, except as may be required by applicable Law in
which event the other party shall have the right to review and
comment upon (but not approve) any such press release or public
statement prior to its issuance.
SECTION 4.8 Confidentiality. (a) Buyer shall hold in
strict confidence, and shall use its best efforts to cause all
its Representatives to hold in strict confidence, unless
compelled to disclose by judicial or administrative process, or
by other requirements of Law, all information concerning
Transtech, Seller and the Company which it has obtained from
Transtech, Seller, the Company or their respective
Representatives prior to, on or after the date hereof in
connection with the Contemplated Transactions, and Buyer shall
not use or disclose to others, or permit the use of or disclosure
of, any such information so obtained, and will not release or
<PAGE>
disclose such information to any other person, except its
Representatives who need to know such information in connection
with this Agreement and who shall be advised of the provisions of
this Section 4.8. The foregoing provision shall not apply to any
such information to the extent (i) made known to Buyer from a
third party not in breach of any confidentiality requirement or
(ii) made public through no fault of Buyer or any of its
Representatives. If the Contemplated Transactions are not
consummated and if requested by Seller, Buyer shall return to
Seller all tangible evidence of such information regarding
Transtech, Seller and the Company.
(b) If the Contemplated Transactions are consummated,
Seller shall hold in strict confidence, and shall use its best
efforts to cause all its Representatives to hold in strict
confidence, unless compelled to disclose by judicial or
administrative process, or by other requirements of Law, all
confidential information concerning the Company which it has in
its possession on or prior to the Closing Date, and Seller shall
not use or disclose to others, or permit the use of or disclosure
of, any such information and will not release or disclose such
information to any other person, except its Representatives who
need to know such information and who shall be advised of the
provisions of this Section 4.8. The foregoing provision shall
not apply to any such information to the extent made public
through no fault of Seller, Transtech or any of their respective
Representatives.
SECTION 4.9 Expenses. Except as otherwise specifically
provided in this Agreement, Buyer and Seller shall bear their
respective expenses incurred in connection with the preparation,
execution and performance of this Agreement and the Contemplated
Transactions, including, without limitation, all fees and
expenses of their respective Representatives.
SECTION 4.10 Restrictive Covenants. (a) In furtherance of
the sale of the Business and more effectively to protect the
value of the Business, each of Transtech and Seller agrees that
during the two (2) year period commencing on the Closing Date
(the "Restricted Period"), it will not, directly or indirectly,
own, manage, operate, control, participate in, interest itself
in, perform services for, provide advice to or otherwise carry on
a business, for itself or on behalf of any other person, similar
to or competitive with the Business in such additional
geographical areas where the Company or any of its Subsidiaries
or Affiliates, have made any significant sales in the preceding
12 months; provided that the ownership of not more than 2% of the
issued and outstanding shares of a class of securities regularly
traded on a national securities exchange or quoted in an
automated inter-dealer quotation system shall not be deemed to be
ownership of the issuer of such shares for purposes hereof.
<PAGE>
(b) For purposes of this Agreement, a business shall
be deemed to be similar to or competitive with the Business if it
involves the design, manufacture, sale or distribution of any
products or group of products that are similar to or compete with
any product category of the Company (a "Product Category") if
such Product Category accounted for sales by the Company of any
of its Subsidiaries or Affiliates of $1 million or more in the
preceding 12 months.
(c) Each of Transtech and Seller acknowledges and
agrees that the restrictive covenants set forth in this Section
4.10 (collectively, the "Restrictive Covenants") are reasonable
and valid in geographical and temporal scope and in all other
respects. If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be
affected and shall be given full force and effect, without regard
to the invalid or unenforceable parts.
(d) If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or
unenforceable for any reason, such court shall have the power to
modify such Restrictive Covenants, or any part thereof, and, in
its modified form, such Restrictive Covenant shall then be valid
and enforceable.
(e) In the event of a breach by Transtech or Seller of
any of the Restrictive Covenants, Buyer shall be entitled to a
temporary restraining order, preliminary injunction and/or a
permanent injunction restraining such person from continuing to
breach any of said covenants.
SECTION 4.11 Books and Records. From and after the
Closing, Buyer and Seller, at the expense of the requesting
party, shall make available to each other (including the right to
make copies) any and all books and records of or relating to the
Company reasonably requested in connection with (a) any matter
for which indemnification is claimed or (b) any inquiry or
investigation by any Governmental Body. Buyer and Seller shall
retain, or cause to be retained, for as long as any taxable year
in the Tax period (including partial periods) that ends on or
prior to the Closing Date, including but not limited to any short
taxable year required under Section 1.1502-76 of the Treasury
regulations, shall remain open for assessment of Taxes, any
material records or information which may be relevant to any such
Tax returns or audits or other examinations by any Tax Authority
relating to the Company, and shall not dispose of any such Tax
returns, books or records relating to the Company during such
period.
SECTION 4.12 Inter-Company Relationships; Certain
Obligations of Buyer. (a) On or prior to the Closing Date, the
Company shall pay to:
<PAGE>
(i) Transtech all accrued and unpaid fees owing
under the Management Agreement for services rendered through the
Closing Date;
(ii) Transtech all accrued and unpaid dividends on
the Preferred Shares; and
(iii) Transtech or Seller any and all obligations
that may then be due and owing by the Company under the Tax
Sharing Agreement;
(iv) Transtech or Seller any and all other
obligations that may then be owing by the Company under any other
agreement or instrument pursuant to which the Company, Seller or
Transtech are parties.
(b) On the Closing Date, the Company shall:
(i) Redeem the Preferred Shares at a redemption
price equal to $2 million; and
(ii) Pay to Seller the outstanding principal of
and all accrued and unpaid interest on the Seller Senior
Subordinated Note.
(c) On the Closing Date, Buyer shall provide the
Company with sufficient funds to enable it to make the payments
referred to in Sections 4.12(b) and shall also pay all Funded
Debt.
(d) On or prior to the Closing Date, Transtech shall:
(i) Pay to the Company any and all obligations
that may then be due and owing by Transtech to the Company under
the Tax Sharing Agreement; and
(ii) Pay to the Company any and all other
obligations that may then be owing by Transtech or Seller under
any other agreement or instrument pursuant to which the Company,
Seller or Transtech are parties.
(e) As of the close of business on the Closing Date,
Seller and Buyer agree that (except for their continuing
obligations under this Agreement, the Tax Sharing Agreement and
any Transaction Document) all agreements, instruments or
indebtedness between Transtech or Seller, on the one hand, and
the Company, on the other hand, or whereby Seller or Transtech
agreed to assume any responsibility or liability for the
obligations of the Company, or whereby the Company agreed to
assume any responsibility or liability of Seller or Transtech,
shall be terminated and be of no further force or effect and none
of such parties shall have any further liability or
responsibility to the others arising therefrom.
<PAGE>
(f) Notwithstanding the foregoing provisions of this
Section 4.12 or any provision of the Tax Sharing Agreement:
(i) Neither Transtech nor the Company shall be
required to make any payment to the other under the second, third
or fourth sentence of Section 3.2 of the Tax Sharing Agreement
for the taxable year of Transtech beginning January 1, 1995 (the
"Final Consolidated Year").
(ii) Transtech shall not be required to make any
payment to the Company under Section 3.3(a) of the Tax Sharing
Agreement for the Final Consolidated Year.
(iii) No later than 60 days prior to the due date
(including duly authorized extensions) for filing the
consolidated federal income tax return of Transtech for the Final
Consolidated Year and for filing the return for the Company for
any period beginning after the Final Consolidated Year and ending
on or before the Closing Date, Transtech shall submit such return
to Buyer together with relevant work papers. Buyer and Buyer's
attorneys and accountants shall have 20 days in which to review
such return, and during such period Transtech shall cooperate in
any manner reasonably requested by Buyer in providing such
information as may be reasonably required for Buyer to have a
complete understanding of the material items reflected in such
return. Buyer shall notify Transtech, in writing, on or before
such 30th day of any material item (or the omission of any
material item) with which it disagrees. The parties shall
endeavor in good faith to resolve their dispute. If the parties
have not resolved such dispute within 5 days, it shall be
resolved in accordance with the dispute resolution mechanism set
forth in Section 7.9 of the Escrow Agreement and Transtech shall
file such return reflecting such resolution. If Buyer fails to
notify Transtech of any such item on or before such 30th day,
then Transtech may file such return on such due date.
(iv) With respect to all taxable years of
Transtech for which the Company was included in its consolidated
federal income tax return ("Consolidated Years"), Transtech shall
not file any amended federal income tax return (or any
consolidated, combined or unitary return with respect to which
the Company has liability analogous to that provided for in
Treas. Reg. 1.1502-6) without the consent of Buyer, which consent
shall not be unreasonably withheld.
(v) With respect to all Consolidated Years, Buyer
shall be entitled to control, from the initial audit through the
final resolution of any contest, any audit of any consolidated
federal return (or any consolidated, combined or unitary state
return) filed for any such year to the extent that the relevant
issue pertains to the Company. In furtherance of the foregoing,
Transtech shall permit Buyer and Buyer's representative to
participate fully in all meetings, conferences and other
activities pertaining to such audit and in connection with such
<PAGE>
issues shall act in accordance with Buyer's reasonable
directions. In no event shall Transtech either settle or contest
any such issue without Buyer's express permission and Transtech
shall take all steps reasonably possible to duly authorize Buyer
to deal directly with the Internal Revenue Service (or other
relevant taxing authority) in respect of such issues.
Notwithstanding the foregoing, Buyer may not settle any such
issue (and Transtech may not be required to acquiesce in any such
settlement) if the result of such settlement would be that
Transtech would be obliged to make a refund payment to the
Company under the Tax Sharing Agreement, unless Transtech shall
have consented to such settlement, which consent shall not be
unreasonably withheld.
(vi) No election will be made under
Section 172(b)(3) of the Code with respect to the taxable year of
the Company which begins on January 1, 1996 and ends on or before
the Closing Date. Buyer and the Company agree to (A) do whatever
is necessary to close the taxable year of the Company on the
Closing Date, and (B) file any return, including any refund
application or any amended return necessary for any allowable
carryback of any loss or credit to any consolidated return year
of Transtech.
SECTION 4.13 Employee Benefit Plans. (a) Effective as of
the Closing, Buyer will assume sponsorship of: (i) the Company's
employee health care benefit plan for employees and eligible
retirees; (ii) the Hunt Valve Company, Inc. Hourly Employees'
Pension Plan; and (iii) the Company's other Employee Benefit
Plans listed on Schedule 4.13 hereto.
(b) On and after the date of this Agreement and prior
to the Closing Date, no Employee Benefit Plan for which Buyer
will have any responsibility after the Closing will be amended in
any manner which: (i) would directly or indirectly increase the
benefit accrued or which may be accrued by any participant
thereunder, except as may be required by law or (ii) materially
increase the cost to Buyer of maintaining such Plan, except as
may be required by law.
(c) Effective as of the Closing Date, Buyer shall
cause the Company to terminate its participation in the Transtech
Industries, Inc. Retirement Savings and Profit Sharing Plan and
Trust by delivering written notice of such termination of
participation to the Trustees of the Transtech Industries, Inc.
Retirement Savings and Profit Sharing Plan.
(d) On or before the Closing Date, Buyer shall
establish or designate one or more existing profit sharing plans
in which the employees of the Company shall participate effective
as of the Closing Date. The Buyer's profit sharing plan shall be
a tax-qualified plan under Section 401(a) of the Code (any
related trust shall be tax exempt under Section 501(a) of the
Code). Buyer shall provide Seller written evidence reasonably
<PAGE>
satisfactory to Seller of the tax-qualified status of the Buyer's
profit sharing plan and any related trust. As soon as
practicable after the Closing Date, Transtech will transfer the
assets of the Transtech Industries, Inc. Retirement Savings
Profit Sharing Plan and Trust attributable to the employees of
the Company to the profit sharing plan maintained by Buyer.
Subject to and from and after the completion of such asset
transfer, Buyer shall assume and be solely responsible for the
pension benefit obligations in respect of the employees of the
Company.
(e) Buyer and Seller agree to use their respective
diligent efforts to execute all necessary documents, file all
required forms with any governmental agencies and to undertake
all actions that may be necessary or desirable to implement
expeditiously the transfer of assets contemplated by this Section
4.13.
SECTION 4.14 Actions Relating to Approval of Contemplated
Transactions. (a) The Independent Transtech Director, acting on
behalf of Transtech, may withdraw, modify or change its
recommendation regarding this Agreement, or recommend any other
offer or proposal, only if (i) he determines, in good faith,
after consulting with his financial advisor, that such
withdrawal, modification, change or recommendation is likely to
result in a superior financial transaction to Transtech and its
stockholders and (ii) outside counsel for Transtech provides him
with a written opinion to the effect that the failure to take
such actions would subject Transtech's directors to a substantial
risk of liability for breach of their fiduciary duties or for
failure to conform to the requirements of the securities Laws.
(b) As promptly as practicable, Transtech shall use
reasonable efforts to have its proxy statement cleared by the
SEC, and disseminate a final proxy statement (the "Proxy
Statement") containing such recommendation as required by Rule
14a-3 promulgated under the 1934 Act. Transtech and Buyer agree
to correct promptly any information provided by either of them
for use in the Proxy Statement that shall have become false or
misleading.
(c) Transtech shall promptly take all action necessary
in accordance with Delaware law and its Certificate of
Incorporation and Bylaws to convene a meeting of its shareholders
(the "Stockholders' Meeting") to consider and vote upon the
approval and adoption of this Agreement and the sale of the
Purchased Shares. The Stockholders' Meeting shall be scheduled
for a date no later than February 15, 1996, which date may be
postponed so long as Transtech is in compliance with its
obligations in Section 4.14(a). Except in accordance with the
standards set forth in Section 4.14(a), Transtech shall use
reasonable efforts to (i) solicit from its stockholders proxies
<PAGE>
in favor of the sale of the Purchased Shares, and (ii) secure the
vote or consent of stockholders required by Delaware law to
effect the sale of the Purchased Shares.
(d) Buyer agrees to vote the Mahan Shares in favor of
any matters presented at the Stockholder's Meeting, except that
Buyer shall not be required to vote such shares in favor of any
transaction competing with the Contemplated Transactions.
SECTION 4.15 Certain Ancillary Agreements. (a) There is
being executed and delivered concurrently herewith an Amended and
Restated Recapitalization Agreement (the "Amended
Recapitalization Agreement"), in the form of Exhibit C hereto,
among Terold, the Company, Transtech, Seller and Buyer.
(b) The Bring Along Agreement dated as of October 24,
1995 (the "Bring Along Agreement"), in the form of Exhibit E
hereto, among Transtech, Seller and Terold hereby is confirmed
and ratified.
ARTICLE V
CONDITIONS TO CLOSING
SECTION 5.1 Conditions to the Obligations of Seller and
Buyer. The obligations of Buyer and Seller to consummate the
Contemplated Transactions are subject to the satisfaction of the
following conditions, which, in the case of Section 5.1(b), may
be waived by Buyer and Seller:
(a) No Injunction. No provision of any applicable Law
and no Order shall prohibit the consummation of the Contemplated
Transactions.
(b) No Proceeding or Litigation. No Claim instituted
by any person shall have been commenced or pending against
Transtech, Seller, the Company, Buyer or any of their respective
Affiliates, officers or directors which Claim seeks to restrain,
prevent, change or delay in any material respect the Contemplated
Transactions or seeks to challenge any of the material terms or
provisions of this Agreement or seeks material damages in
connection with any of such transactions.
(c) Payment in Full of the Funded Debt. The Company
or Buyer shall have paid, or caused to be paid or otherwise
satisfied, all Funded Debt as of the Closing Date: (i) upon
terms and conditions mutually satisfactory to Seller and Buyer
and (ii) in complete extinguishment such Funded Debt and all
Liens relating thereto shall have been released.
(d) Satisfaction of Inter-Company Obligations. All
obligations of the parties referred to in Sections 4.12 and 4.13
shall have been paid and satisfied in full or complied with, as
the case may be.
<PAGE>
(e) Escrow Agreement. There shall have been delivered
to Seller and Buyer fully executed counterparts of the Escrow
Agreement and the Escrowed Portion shall have been deposited with
the Escrow Agent.
(f) Silva Warrants and Huberfield Rights. The Silva
Warrants and the Huberfield Rights shall have been cancelled and
surrendered by the holders thereof without compensation or
liability to any other person.
(g) Amended Recapitalization Agreement. The
transactions contemplated by the Amended Recapitalization
Agreement shall have been consummated in accordance with its
terms on or before the dates set forth therein.
(h) Fairness Opinion. Brenner shall not have
withdrawn its Fairness Opinion or modified it in any manner.
SECTION 5.2 Conditions to the Obligations of Seller. All
obligations of Transtech and Seller hereunder are subject, at the
option of Seller, to the fulfillment prior to or at the Closing
of each of the following further conditions:
(a) Performance. Buyer and, where applicable, Terold
shall have performed and complied with all agreements,
obligations and covenants required by this Agreement and each
other Transaction Document to be performed or complied with by
them at or prior to the Closing Date.
(b) Representations and Warranties. The
representations and warranties of Buyer contained in this
Agreement and each other Transaction Document and in any
certificate or other writing delivered by Buyer or Terold, as
applicable, pursuant hereto shall be true in all material
respects at and as of the Closing Date as if made at and as of
such time, except to the extent such representations and
warranties speak as of an earlier time.
(c) Purchase Price. Buyer shall have delivered by
wire transfer of immediately available funds the Purchase Price
as provided in Section 1.3.
(d) Buyer Required Consents. All Buyer Required
Consents shall have been obtained.
(e) Opinion of Buyer's Counsel. Seller shall have
received a legal opinion, dated the Closing Date, of counsel for
Buyer to the effect that:
(i) Buyer is a corporation validly existing and
in good standing under the laws of its state of incorporation and
has all requisite corporate powers, authorizations, consents and
approvals required to carry on its business;
<PAGE>
(ii) Buyer has full power and authority to execute
and deliver this Agreement and each other Transaction Document to
which it is a party and to consummate the Contemplated
Transactions. The execution and delivery of this Agreement and
each other Transaction Document to which it is a party and the
consummation of the Contemplated Transactions to which Buyer is a
party have been duly and validly authorized and approved by
Buyer's board of directors and no other corporate proceedings on
the part of Buyer (or any other person) are necessary to
authorize the execution and delivery by Buyer of this Agreement
or any other Transaction Document to which Buyer is a party or
the consummation of the Contemplated Transactions to which Buyer
is a party.
(iii) This Agreement and the other Transaction
Documents to which Buyer is a party have been duly and validly
executed and delivered by Buyer and (assuming the valid execution
and delivery thereof by the other parties hereto) constitute the
legal, valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms, except
as such obligations and their enforceability may be limited by
applicable bankruptcy and other similar Laws affecting the
enforcement of creditors' rights generally and except that the
availability of equitable remedies is subject to the discretion
of the court before which any proceeding therefor may be brought
(whether at law or in equity).
(iv) The execution, delivery and performance by
Buyer of this Agreement and each other Transaction Document to
which it is a party, the consummation of the Contemplated
Transactions to which Buyer is a party and the contemplated
change of control of the stock ownership of the Company will not
(A) violate any provision of the Certificate of Incorporation or
By-laws of Buyer; (B) to such counsel's knowledge, require Buyer
to obtain any consent, approval or action of or waiver from, or
make any filing with, or give any notice to, any Governmental
Body or any other person, except for the Buyer Required Consents,
all of which have been obtained and are in full force and effect,
other than those which, if not obtained, would individually or in
the aggregate not be reasonably expected to have a materially
adverse effect on the business, assets, financial condition or
the results of operations of Buyer ("Condition of Buyer"); (C) to
such counsel's knowledge, violate, conflict with or result in
the breach or default under (after the giving of notice or the
passage of time or both), or permit the termination of, any
Material Contract to which Buyer is a party or by which it or its
assets may be bound or subject other than such violations,
conflicts, breaches or defaults that individually or in the
aggregate would not be reasonably expected to have a materially
adverse effect on the Condition of Buyer; (D) to such counsel's
knowledge, violate any Law binding upon Buyer or its assets or
business, other than such violations that individually or in the
aggregate would not be reasonably expected to have a materially
<PAGE>
adverse effect on the Condition of Buyer or (E) to such counsel's
knowledge, violate any Order or material Permit of any
Governmental Body against, or binding upon, Buyer or upon its
assets or business other than such violations that individually
or in the aggregate would not be reasonably expected to have a
materially adverse effect on the Condition of Buyer.
(v) The acquisition by Buyer of the Purchased
Shares and the acquisition by Terold of shares of common stock of
the Company are exempt from registration under the 1933 Act and
under applicable state securities Laws.
In rendering its opinion, counsel for Buyer may rely,
as to factual matters, on certificates of officers and directors
of Buyer.
(f) Documentation. There shall have been delivered to
Seller the following:
(i) A certificate, dated the Closing Date, of the
Chairman of the Board, the President or any Vice President of
each of Buyer and Terold confirming the matters set forth in
Sections 5.2(a) and (b) hereof.
(ii) A certificate, dated the Closing Date, of the
Secretary or Assistant Secretary of each of Buyer and Terold
certifying, among other things, that attached or appended to such
certificate (A) is a true and correct copy of its Certificate of
Incorporation and all amendments if any thereto as of the date
thereof; (B) is a true and correct copy of its By-laws as of the
date thereof; (C) is a true copy of all corporate actions taken
by it, including resolutions of its Board of Directors
authorizing the execution, delivery and performance of this
Agreement (in the case of Buyer), the Transaction Documents, and
each other Transaction Document to be delivered by Buyer or
Terold, as the case may be, pursuant hereto; and (D) are the
names and signatures of its duly elected or appointed officers
who are authorized to execute and deliver this Agreement (in the
case of Buyer), the Transaction Documents and any certificate,
document or other instrument in connection herewith.
(iii) a good standing certificate of Buyer and
Terold.
(iv) Copies of all Buyer Required Consents.
SECTION 5.3 Conditions to the Obligations of Buyer. All
obligations of Buyer hereunder are subject, at its option, to the
fulfillment prior to or at the Closing of each of the following
further conditions:
(a) Performance. Seller and Transtech shall have
performed and complied with all agreements, obligations and
covenants required by this Agreement and each other Transaction
<PAGE>
Document to be performed or complied with by them at or prior to
the Closing Date.
(b) Representations and Warranties. The
representations and warranties of Seller and Transtech contained
in this Agreement and each other Transaction Document and in any
certificate or other writing delivered by them pursuant hereto
shall be true in all material respects at and as of the Closing
Date as if made at and as of such time, except: (i) to the extent
such representations or warranties speak as of an earlier time
and (ii) for the failure to obtain any Seller Required Consents
if such failure will not have a materially adverse effect on the
business, assets, financial condition or the results of
operations of the Company (collectively, the "Condition of the
Business").
(c) No Material Adverse Change. During the period
from August 31, 1995 to the Closing Date there shall not have
been any material adverse change in the Condition of the
Business. During the period from June 30, 1995 to the Closing
Date, there shall not have been any material adverse change in
the financial condition of Transtech.
(d) Seller Required Consents. All material Seller
Required Consents shall have been obtained.
(e) Legal Opinion of Seller's New York Counsel. Buyer
shall have received an opinion, dated the Closing Date, from
Seller's New York counsel to the effect that:
(i) Each of Transtech and Seller is a corporation
validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all requisite powers,
authorizations, consents and approval required to carry on its
respective businesses.
(ii) Each of Seller and Transtech has full power,
capacity and authority to execute and deliver this Agreement and
each other Transaction Document to which it is a party and to
consummate the Contemplated Transactions or any other Transaction
Document to which Seller or Transtech is a party. The execution
and delivery of this Agreement, and the consummation of the
Contemplated Transactions to which Seller or Transtech is a party
have been duly and validly authorized by Seller and Transtech and
no other proceedings on the part of Seller or Transtech (or any
other person) are necessary to authorize the execution and
delivery by Seller or Transtech of this Agreement or any other
Transaction Document to which Seller or Transtech is a party or
the consummation of the Contemplated Transactions to which Seller
or Transtech is a party.
(iii) This Agreement and the other Transaction
Documents to which Seller or Transtech is a party have been duly
and validly executed and delivered by Seller or Transtech, as the
case may be, and (assuming the valid execution and delivery
<PAGE>
thereof by the other parties thereto) constitute the legal, valid
and binding obligations of Seller and Transtech enforceable
against them in accordance with their respective terms except as
such obligations and their enforceability may be limited by
applicable bankruptcy and other similar Laws affecting the
enforcement of creditors' rights generally and except that the
availability of equitable remedies is subject to the discretion
of the court before which any proceeding therefor may be brought
(whether at law or in equity).
(iv) The execution, delivery and performance by
Seller and Transtech of this Agreement and each other Transaction
Document to which either of them is a party, the consummation of
the Contemplated Transactions to which either of them is a party
and the contemplated change of control of the stock ownership of
the Company, will not (A) violate any provision of the
Certificate of Incorporation or By-laws (or comparable
instruments) of Seller, Transtech or the Company; (B) to such
counsel's knowledge, require Seller or Transtech to obtain any
consent, approval or action of or waiver from, or make any filing
with, or give any notice to, any Governmental Body or any other
person, except for the Seller Required Consents, all of which
have been obtained and are in full force and effect, other than
those which, if not obtained, would not be reasonably expected to
have a materially adverse effect on the Condition of the
Business; (C) to such counsel's knowledge, violate, conflict with
or result in a breach or default under (after the giving of
notice or the passage of time or both), or permit the termination
of, any Material Contract to which Seller or Transtech is a party
or by which any of them or any of their assets may be bound or
subject, or result in the creation of any Lien upon the Purchased
Shares or upon any of the assets of the Company pursuant to the
terms of any such Contract, other than such violations,
conflicts, breaches or defaults that individually or in the
aggregate would not be reasonably expected to have a materially
adverse effect on the Condition of the Business; or (D) violate
any Federal or New York Law binding upon the Company or its
assets, other than such violations that individually or in the
aggregate would not be reasonably expected to have a materially
adverse effect on the Condition of the Business.
(v) Based solely upon an examination of the stock
books of the Company, Seller owns and holds record title to the
Purchased Shares.
In rendering its opinion, counsel for Seller may rely, as to
factual matters, on the representations of Seller contained in
this Agreement and on certificates of officers and directors of
Seller and its subsidiaries. In addition, such counsel may
expressly exclude from the scope of its opinion any opinion
relating to the security clearances that may be required to be
obtained by the Company or its parent corporations from the
Defense Investigative Agency of the United States Government.
<PAGE>
(f) Opinion of Seller's Ohio Counsel. Buyer shall
have received an opinion, dated the Closing Date, of Ohio counsel
to Seller to the effect that:
(i) The Company is a corporation validly existing
and in good standing under the laws of its jurisdiction of
incorporation, and has all requisite powers, authorizations,
consents and approval required to carry on its business.
(ii) The Merger became effective in the states of
Delaware and Ohio on December 26, 1995.
(iii) The execution, delivery and performance by
Seller, Transtech or the Company of this Agreement and each other
Transaction Document to which either of them is a party, the
consummation of the Contemplated Transactions to which either of
them is a party and the contemplated change of control of the
stock ownership of the Company, will not (A) to such counsel's
knowledge, require the Company to obtain any consent, approval or
action of or waiver from, or make any filing with, or give any
notice to, any Governmental Body or any other person, except for
the Seller Required Consents, all of which have been obtained and
are in full force and effect, other than those which, if not
obtained, would not be reasonably expected to have a materially
adverse effect on the Condition of the Business; (B) to such
counsel's knowledge, violate, conflict with or result in a breach
or default under (after the giving of notice or the passage of
time or both), or permit the termination of, any Material
Contract to which the Company is a party or by which it or its
their assets may be bound or subject, or result in the creation
of any Lien upon any of the assets of the Company pursuant to the
terms of any such Contract, other than such violations,
conflicts, breaches or defaults that individually or in the
aggregate would not be reasonably expected to have a materially
adverse effect on the Condition of the Business; (C) violate any
Ohio Law binding upon the Company or upon its respective
businesses or assets, other than such violations that
individually or in the aggregate would not be reasonably expected
to have a materially adverse effect on the Condition of the
Business; or (D) to such counsel's knowledge, violate any Order
or material Permit of any Governmental Body against, or binding
upon, the Company or upon its assets or the Business, other than
such violations that individually or in the aggregate would not
be reasonably expected to have a materially adverse effect on the
Condition of the Business.
(iv) The authorized capital stock of the Company
consists of (A) 12,000 shares of common stock, par value $.01 per
share, of which, to such counsel's knowledge, after due inquiry,
1,115.79 shares are issued and outstanding and (B) 2,000 shares
of Preferred Stock of which 200 shares have been designated as
Series A, 7% cumulative Preferred Stock, par value $.01 per
share, which shares, to such counsel's knowledge, are intended to
be redeemed on the Closing Date. To such counsel's knowledge,
<PAGE>
all of the Company's shares of common stock are duly authorized,
validly issued, fully paid and nonassessable and were not issued
in violation of any preemptive or other rights of shareholders.
To such counsel's knowledge, there are no outstanding securities
of the Company convertible into or exchangeable for or evidencing
the right to purchase or subscribe for any shares of capital
stock of the Company. To such counsel's knowledge, there are no
voting or other agreements or understandings with respect to the
voting of the Company capital stock. To such counsel's
knowledge, there are no outstanding or authorized options,
warrants, calls, subscriptions, rights, commitments or any other
agreements of any character obligating the Company to issue any
shares of its capital stock or any securities convertible into or
evidencing the right to purchase or subscribe for any shares of
such stock.
In rendering its opinion, such counsel may rely, as to
factual matters, on the representations of Seller contained in
this Agreement and on certificates of officers and directors of
Seller and its subsidiaries. In addition such counsel may
expressly exclude from the scope of its opinion any opinion
relating to the security clearances that may be required to be
obtained by the Company or its parent corporations from the
Defense Investigative Agency of the United States Government.
(g) Documentation. There shall have been delivered to
Buyer the following:
(i) Stock certificates representing the Purchased
Shares, duly endorsed in blank or accompanied by stock powers
duly executed in blank, in proper form for transfer.
(ii) A certificate, dated the Closing Date, of the
Chairman of the Board, the President or any Vice President of
each of Seller and Transtech confirming the matters set forth in
Sections 5.3(a) and (b).
(iii) A certificate, dated the Closing Date, of
the Secretary or Assistant Secretary of Seller certifying, among
other things, that attached or appended to such certificate (A)
is a true and correct copy of the Certificate of Incorporation of
the Company, and all amendments, if any, thereto as of the date
thereof; (B) is a true and correct copy of its By-laws as of the
date thereof; (C) is a true copy of all corporate actions taken
by it, including resolutions of its Board of Directors,
authorizing the execution, delivery and performance of this
Agreement, and each other document to be delivered by Seller
pursuant hereto; and (D) are the names of the directors and
officers of the Company in office on the day before the Closing
Date; and (E) are the names and signatures of its duly elected or
appointed officers who are authorized to execute and deliver this
Agreement and any certificate, document or other instrument in
connection herewith.
<PAGE>
(iv) A certificate, dated the Closing Date, of the
Secretary or Assistant Secretary of Transtech certifying, among
other things, that attached or appended to such certificate (A)
is a true and correct copy of the Certificate of Incorporation of
Transtech, and all amendments, if any, thereto as of the date
thereof; (B) is a true and correct copy of its By-laws as of the
date thereof; (C) is a true copy of all corporate actions taken
by it or its shareholders, including resolutions of its Board of
Directors, authorizing the execution, delivery and performance of
this Agreement, and each other document to be delivered by
Transtech or Seller pursuant hereto; and (D) are the names and
signatures of its duly elected appointed officers who are
authorized to execute and deliver this Agreement and any
certificate, document or other instrument in connection herewith.
(v) A good standing certificate of each of
Transtech, Seller and the Company.
(vi) The resignations, dated on or before the
Closing Date, of each director and officer of the Company.
(vii) Copies of all Seller Required Consents
obtained by Seller.
(viii) Possession and control of the Assets of the
Company (including all corporate books, bank accounts, records
and documents).
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 Survival of Representations, Warranties and
Covenants. (a) The representations, warranties, covenants or
agreements of Transtech and Seller shall survive the Closing
hereunder for a period of six months from the Closing Date
except:
(i) for the representations and warranties
concerning the Company contained in Sections 2.4(ii), (iii) and
(iv) and 2.8(a)(i)(B) which shall not survive the Closing
hereunder;
(ii) for the representations and warranties
contained in Sections 2.1, 2.2 and 2.3 which shall survive for a
period of six years from the Closing Date; and
(iii) for the covenants and agreements contained
in Sections 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13 and 4.14 which
covenants and agreements shall survive until such covenants and
agreements have been complied with in accordance with their
respective terms. Notwithstanding the foregoing, the liability
of Transtech and Seller shall not terminate as to any specific
Claim or Claims of the type referred to in Section 6.2 hereof,
<PAGE>
whether or not fixed as to liability or liquidated as to amount,
to the extent Seller shall have been given specific notice,
describing any such Claim with particularity, on or prior to the
date on which such liabilities would otherwise terminate pursuant
to the terms of this Section 6.1(a).
(b) All representations, warranties, covenants and
agreements of Buyer shall survive for the greater of 24 months
after the Closing Date or such longer period as may specifically
apply to any such representation, warranty, covenant or
agreement. Notwithstanding the foregoing, the liability of Buyer
shall not terminate as to any specific Claim or Claims of the
type referred to in Section 6.3 hereof, whether or not fixed as
to liability or liquidated as to amount, to the extent that Buyer
has been given specific notice, describing any such Claim with
particularity, on or prior to the date on which such liabilities
would otherwise terminate pursuant to the terms of this Section
6.1(b).
SECTION 6.2 Obligation of Seller to Indemnify. (a) Seller
agrees to indemnify, defend and hold harmless Buyer (and its
directors, officers, employees, Affiliates, successors and
assigns) from and against all Claims, losses, liabilities,
damages, deficiencies, judgments, settlements, costs of
investigation or other expenses (including interest, penalties
and reasonable attorneys' fees and disbursements and expenses
incurred in enforcing this indemnification or in any litigation
between the parties or with third parties) (collectively, the
"Losses") suffered or incurred by Buyer or any of the foregoing
persons arising out of or in connection with:
(i) any breach of the representations,
warranties, covenants or agreements of Seller or Transtech
contained in this Agreement, any Transaction Document or the Tax
Sharing Agreement; and
(ii) any Claim asserted against the Company after
the Closing Date in respect of an obligation or liability of
Transtech other than in respect of Taxes or the Transtech Assumed
Liabilities.
(b) In addition, except as otherwise provided in the
Tax Sharing Agreement, Seller agrees to indemnify the Company
with respect to any Taxes that the Company, after the Closing
Date, pays resulting from any liability for Taxes of the
Transtech consolidated group (determined as if the Transtech
consolidated Federal income tax return consisted solely of
Transtech and its consolidated subsidiaries other than the
Company) under Section 1.1502-6 of the Treasury Regulations.
SECTION 6.3 Obligation of Buyer to Indemnify. Buyer agrees
to indemnify, defend and hold harmless Transtech and Seller (and
their respective directors, officers, employees, Affiliates,
successors and assigns) from and against any Losses suffered or
<PAGE>
incurred by Seller or any of the foregoing persons arising out of
or in connection with:
(a) Any breach of the representations, warranties,
covenants or agreements of (i) Buyer contained in this Agreement
or in any Transaction Document and (ii) the Company contained in
the Tax Sharing Agreement.
(b) The conduct of the Business or the operation of
the Company or Buyer after the Closing Date.
(c) Any Liability under the Code or ERISA with respect
to any Employee Benefit Plan maintained on or after the Closing
Date by Buyer or an ERISA Affiliate; or any Liabilities resulting
from the termination at any time on or after the Closing Date of
any Employee Benefit Plan or the termination of employment of any
employees which termination occurs at any time on or after the
Closing Date.
SECTION 6.4 Notice and Opportunity to Defend Third Party
Claims. (a) Promptly after receipt by any party hereto (the
"Indemnitee") of notice of any demand, Claim, circumstance or Tax
audit which would or might give rise to a Claim or the
commencement (or threatened commencement) of any action,
proceeding or investigation (an "Asserted Liability") that may
result in a Loss, the Indemnitee shall give prompt notice thereof
(the "Claims Notice") to the party or parties obligated to
provide indemnification pursuant to Section 6.2 or 6.3 (the
"Indemnifying Party"). The Claims Notice shall describe the
Asserted Liability in reasonable detail and shall indicate the
amount (estimated, if necessary, and to the extent feasible) of
the Loss that has been or may be suffered by the Indemnitee.
(b) The Indemnifying Party may elect to defend, at its
own expense and with its own counsel, any Asserted Liability
unless (i) the Asserted Liability seeks an Order, injunction or
other equitable or declaratory relief against the Indemnitee or
(ii) the Indemnitee shall have reasonably concluded that (x)
there is a substantial conflict of interest between the
Indemnitee and the Indemnifying Party in the conduct of such
defense or (y) the Indemnitee shall have one or more significant
defenses not available to the Indemnifying Party. If the
Indemnifying Party elects to defend such Asserted Liability, it
shall within thirty days (or sooner, if the nature of the
Asserted Liability so requires) notify the Indemnitee of its
intent to do so, and the Indemnitee shall cooperate, at the
expense of the Indemnifying Party, in the defense of such
Asserted Liability. If the Indemnifying Party elects not to
defend the Asserted Liability, fails to notify the Indemnitee of
its election as herein provided or contests its obligation to
indemnify under this Agreement with respect to such Asserted
Liability, the Indemnitee may pay, compromise or defend such
Asserted Liability at the sole cost and expense of the
Indemnifying Party. If the Indemnifying Party is not permitted
<PAGE>
to defend the Asserted Liability by reason of the first sentence
of this Section 6.4(b), the Indemnitee may pay, compromise or
defend such Asserted Liability at the sole cost and expense of
the Indemnifying Party provided, that, with respect to any
litigated issue the Indemnifying Party shall not be required to
pay the legal fees and costs of more than one law firm.
Notwithstanding the foregoing, neither the Indemnifying Party nor
the Indemnitee may settle or compromise any Claim over the
reasonable written objection of the other, provided that the
Indemnitee may settle or compromise any Claim as to which the
Indemnifying Party has failed to notify the Indemnitee of its
election as herein provided or is contesting its indemnification
obligations hereunder. In any event, the Indemnitee and the
Indemnifying Party may participate, at their own expense, in the
defense of such Asserted Liability. Any expenses of any
Indemnitee for which indemnification is available hereunder shall
be paid upon written demand therefor.
SECTION 6.5 Limits on Indemnification. Notwithstanding
anything contained in this Article VI or elsewhere in this
Agreement to the contrary:
(a) Seller shall not have any obligation to indemnify
Buyer pursuant to Section 6.2 hereof with respect to any Claim
unless and until Buyer shall have incurred Losses in an aggregate
amount in excess of $50,000 (the "Stipulated Amount") in which
event Buyer shall be entitled to be indemnified for all of its
Losses commencing at $1; provided that the foregoing limitation
shall not apply to the obligations of Seller or Transtech under
Section 4.9 and the Tax Sharing Agreement; provided, further,
that the liability of Seller hereunder shall in no event exceed
$4 million.
(b) Buyer shall have no obligation to indemnify Seller
or Transtech pursuant to Section 6.3 hereof with respect to any
Claim unless and until any such person shall have incurred Losses
in an aggregate amount in excess of the Stipulated Amount in
which event they shall be entitled to be indemnified for all of
their Losses commencing at $1; provided that the foregoing
limitation shall not apply to the obligations of: (i) Buyer under
Sections 1.3 and 4.9; and (ii) the Company under the Tax Sharing
Agreement.
(c) Prior to asserting any claim against Transtech or
Seller for any Loss contemplated by the provisions of Section
6.2(b), Buyer agrees first to exhaust all its remedies with
respect to such Loss against the Escrowed Portion in accordance
with the provisions of the Escrow Agreement.
SECTION 6.6 Adjustment. It is the intent of the parties
that any amounts paid under Sections 6.2 or 6.3 shall represent
an adjustment of the Purchase Price and the parties will report
such payments consistent with such intent. Nevertheless, if any
<PAGE>
payment pursuant to Section 6.2 or 6.3 hereof would be treated by
any Tax Authority as other than a Purchase Price adjustment and
would, on that basis, be includable in the gross income of the
Indemnitee that is reported to such Tax Authority, then such
payment shall be increased by the amount necessary so that the
Indemnitee is fully and completely indemnified on an after-tax
basis.
ARTICLE IV
TERMINATION
SECTION 7.1 Termination. This Agreement may be terminated
and the Contemplated Transactions may be abandoned at any time
prior to the Closing:
(a) By mutual written consent of Seller and Buyer;
(b) By Seller if (i) there has been a material
misrepresentation or breach of warranty on the part of Buyer in
the representations and warranties contained herein and such
material misrepresentation or breach of warranty, if curable, is
not cured within 30 days after written notice thereof from Seller
(ii) Buyer has committed a material breach of any covenant
imposed upon it hereunder and fails to cure such breach within 30
days after written notice thereof from Seller; or (iii) any
condition to Seller's obligations hereunder becomes incapable of
fulfillment through no fault of Seller and is not waived by
Seller;
(c) By Buyer if (i) there has been a material
misrepresentation or breach of warranty on the part of Seller in
the representations and warranties contained herein and such
material misrepresentation or breach of warranty, if curable, is
not cured within 30 days after written notice thereof from Buyer;
(ii) Seller has committed a material breach of any covenant
imposed upon it hereunder and fails to cure such breach within 30
days after written notice thereof from Buyer; or (iii) any
condition to Buyer's obligations hereunder becomes incapable of
fulfillment through no fault of Buyer and is not waived by Buyer;
(d) By Seller or by Buyer if there shall be any Law
that makes consummation of the Contemplated Transactions illegal
or otherwise prohibited, or if any Order enjoining Buyer or
Seller from consummating the Contemplated Transactions is entered
and such Order shall have become final and nonappealable;
(e) By Buyer if the Closing shall not have occurred on
or before March 31, 1996 or if an Acquisition Proposal shall have
been accepted from a party other than Buyer or any of its
Affiliates; and
(f) By Seller if (i) the Closing shall not have
occurred on or before the later of (A) March 31, 1996 or (B) the
date that is 45 days after the mailing of the Proxy Statement to
<PAGE>
Transtech's stockholders, or (ii) an Acquisition Proposal shall
have been accepted from a party other than Buyer or any of its
Affiliates.
SECTION 7.2 Effect of Termination; Right to Proceed. In
the event that this Agreement shall be terminated pursuant to
Section 7.1, all further obligations of the parties under the
Agreement shall terminate without further liability of any party
hereunder except (i) to the extent that a party has made a
material misrepresentation hereunder or committed a breach of the
material covenants and agreements imposed upon it hereunder; (ii)
to the extent that any condition to a party's obligations
hereunder became incapable of fulfillment because of the breach
by the other party of its obligations hereunder and (iii) that
the covenants and agreements contained in Sections 4.5, 4.7, 4.8
and 4.9 shall survive the termination hereof. In the event that
a condition precedent to its obligation is not met, nothing
contained herein shall be deemed to require any party to
terminate this Agreement, rather than to waive such condition
precedent and proceed with the Contemplated Transactions.
ARTICLE V
MISCELLANEOUS
SECTION 8.1 Notices. (a) Any notice or other
communication required or permitted hereunder shall be in writing
and shall be delivered personally by hand or by recognized
overnight courier, telecopied or mailed (by registered or
certified mail, postage prepaid) as follows:
(i) If to Buyer, one copy to:
ValveCo Inc.
c/o Three Cities Research, Inc.
24th Floor
135 East 57th Street
New York, New York 10022
Telecopier: (212) 980-1142
Attention: H. Whitney Wagner
with a simultaneous copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Telecopier: 212-373-2159
Attention: Robert M. Hirsh, Esq.
<PAGE>
(ii) If to Seller or Transtech, one copy to:
THV Acquisition Corp.
200 Centennial Avenue
Suite 202
Piscataway, New Jersey 08854
Telecopier: 908-981-1856
Attention: Arthur C. Holdsworth, III
with a simultaneous copy to:
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
Telecopier: 212-702-5941
Attention: Joel M. Handel, Esq.
(b) Each such notice or other communication shall be
effective (i) if given by telecopier, when such telecopy is
transmitted to the telecopier number specified in Section 8.1(a)
(with confirmation of transmission) or (ii) if given by any other
means, when delivered at the address specified in Section 8.1(a).
Any party by notice given in accordance with this Section 8.1 to
the other party may designate another address (or telecopier
number) or person for receipt of notices hereunder. Notices by a
party may be given by counsel to such party.
SECTION 8.2 Entire Agreement. This Agreement (including
the Schedules and Exhibits hereto) and any collateral agreements
executed in connection with the consummation of the Contemplated
Transactions contain the entire agreement between the parties
with respect to the subject matter hereof and related
transactions and supersede all prior agreements, written or oral,
with respect thereto.
SECTION 8.3 Waivers and Amendments; Non-Contractual
Remedies; Preservation of Remedies. This Agreement may be
amended, superseded, cancelled, renewed or extended only by a
written instrument signed by Seller and Buyer. The provisions
hereof may be waived in writing by Seller and Buyer. No delay on
the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver
on the part of any party of any such right, power or privilege,
nor any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise
of any other such right, power or privilege. Except as otherwise
provided herein, the rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that
any party may otherwise have at law or in equity.
SECTION 8.4 Governing Law. This Agreement shall be
governed and construed in accordance with the laws of the State
of New York applicable to agreements made and to be performed
<PAGE>
entirely within such State, without regard to the conflict of
laws rules thereof.
SECTION 8.5 Consent to Jurisdiction and Service of Process.
The parties hereto irrevocably: (a) agree that any suit, action
or other legal proceeding arising out of this Agreement may be
brought in the courts of the State of New York or the courts of
the United States located in New York County, New York, (b)
consent to the jurisdiction of each court in any such suit,
action or proceeding, (c) waive any objection which they, or any
of them, may have to the laying of venue of any such suit, action
or proceeding in any of such courts, and (d) waive the right to a
trial by jury in any such suit, action or other legal proceeding.
SECTION 8.6 Designated Buyer. It is understood and agreed
between the parties that Buyer may cause one or more Affiliates,
direct or indirect Subsidiaries or other entities designated by
it (the "Designated Buyer") to carry out all or part of the
Contemplated Transactions to be carried out by Buyer; provided,
however, that, in addition to such Designated Buyer, Buyer
nevertheless shall remain liable (as principal and not as
guarantor) for all of its obligations and those of any Designated
Buyer hereunder.
SECTION 8.7 Binding Effect; No Assignment. This Agreement
and all of its provisions, rights and obligations shall be
binding upon and shall inure to the benefit of the parties hereto
and their respective successors, heirs and legal representatives.
This Agreement may not be assigned (including by operation of
Law) by a party without the express written consent of (i) Buyer
(in the case of assignment by Seller) or, except as otherwise
provided in Section 8.6, (ii) Seller (in the case of assignment
by Buyer) and any purported assignment, unless so consented to,
shall be void and without effect. Nothing herein express or
implied is intended or shall be construed to confer upon or to
give anyone other than the parties hereto and their respective
heirs, legal representatives and successors any rights or
benefits under or by reason of this Agreement and no other party
shall have any right to enforce any of the provisions of this
Agreement.
SECTION 8.8 Exhibits. All Exhibits and Schedules attached
hereto are hereby incorporated by reference into, and made a part
of, this Agreement. The disclosure contained in any one Schedule
to this Agreement, if by its description in such Schedule is
clearly applicable to other Sections of this Agreement, will also
be deemed to have been made with respect to such other Sections
even if such disclosure is not repeated in any other Schedules.
SECTION 8.9 Severability. If any provision of this
Agreement for any reason shall be held to be illegal, invalid or
unenforceable, such illegality shall not affect any other
provision of this Agreement, but this Agreement shall be
<PAGE>
construed as if such illegal, invalid or unenforceable provision
had never been included herein.
SECTION 8.10 Counterparts. The Agreement may be executed
in any number of counterparts, each of which shall be deemed to
be an original as against any party whose signature appears
thereon, and all of which shall together constitute one and the
same instrument. This Agreement shall become binding when one or
more counterparts hereof, individually or taken together, shall
bear the signatures of all of the parties reflected hereon as the
signatories.
ARTICLE VI
DEFINITIONS
SECTION 9.1 Definitions. (a) The following terms, as used
herein, have the following meanings:
"Acquisition Proposal" shall mean any proposal for the
acquisition of, or merger or other business combination involving
the Company or the sale of the Purchased Shares or the sale of
any controlling equity interest in, or the Business or
substantially all the Assets of, the Company, other than the
transactions contemplated by this Agreement.
"Affiliate" of any person means any other person directly or
indirectly through one or more intermediary persons, controlling,
controlled by or under common control with such person.
"Agreement" or "this Agreement" shall mean, and the words
"herein", "hereof" and "hereunder" and words of similar import
shall refer to, this agreement as it from time to time may be
amended.
"Assets" shall mean properties, rights, interests and assets
of every kind, real, personal or mixed, tangible and intangible,
used or usable in the Business.
The term "audit" or "audited" when used in regard to
financial statements shall mean an examination of the financial
statements by a firm of independent certified public accountants
in accordance with generally accepted auditing standards for the
purpose of expressing an opinion thereon.
"Business" shall mean the ownership and operation of the
Assets comprising the business operations of the Company.
"Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking
institutions in the Borough of Manhattan, the City of New York,
are authorized or obligated by law or executive order to close.
"Certificate of Incorporation" shall mean, in the case of
any corporation, the certificate of incorporation, articles of
<PAGE>
incorporation or charter of a corporation, howsoever denominated
under the laws of the jurisdiction of its incorporation.
"Claims" shall mean any actions, suits, claims,
counterclaims or legal, administrative or arbitral proceedings or
investigations of any kind.
"Contract" shall mean any contract, agreement, indenture,
note, bond, lease, conditional sale contract, mortgage, license,
franchise, instrument, commitment or other binding arrangement,
whether written or oral.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
The term "control", with respect to any person, shall mean
the power to direct the management and policies of such person,
directly or indirectly, by or through stock ownership, agency or
otherwise, or pursuant to or in connection with an agreement,
arrangement or understanding (written or oral) with one or more
other persons by or through stock ownership, agency or otherwise;
and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing.
"Employee Benefit Plan" shall mean any qualified or
nonqualified deferred compensation plan or arrangement that the
Company maintains or to which the Company contributes or which
the Company has ever maintained or contributed for the benefit of
any director, officer or employee of the Company, including but
not limited to employee benefit plans (as defined in Section 3(3)
of ERISA).
"ERISA" shall mean the Employee Retirement Income Security
Act of 1976, as amended.
"ERISA Affiliate" shall mean any company or entity which
together with the Buyer constitutes a member of the Buyer's
controlled group within the meaning of Section 414 of the Code or
4001 of ERISA.
"Escrow Agent" shall mean Brown Brothers Harriman & Co. or
such other financial institution as may be mutually acceptable to
Seller and Buyer and any successor thereof.
"GAAP" shall mean generally accepted accounting principles
in effect on the date hereof as set forth in the opinions and
pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by
a significant segment of the accounting profession of the United
States.
<PAGE>
"Governmental Body" shall mean any government or political
subdivision thereof whether federal, state, local or foreign, or
any agency or instrumentality of any such government or political
subdivision or any court or arbitrator.
"HSR" shall mean the Hart-Scott-Rodino Antitrust Improvement
Act of 1976, as amended, and all rules and regulations
promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
The term "knowledge" with respect to (a) any individual
shall mean actual knowledge and (b) any corporation shall mean
the actual knowledge of the directors or the executive officers
of such corporation; and "knows" has a correlative meaning.
"Laws" shall mean any law, statute, code, ordinance, rule,
regulation or other requirement.
"Liability" shall mean any direct or indirect indebtedness,
liability, assessment, claim, loss, damage, deficiency,
obligation or responsibility, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured,
accrued, absolute, actual or potential, contingent or otherwise
(including any liability under any guaranties, letters of credit,
performance credits or with respect to insurance loss accruals).
"Lien" shall mean, with respect to any asset, any mortgage,
lien (including mechanics, warehousemen, laborers and landlords
liens), claim, pledge, charge, security interest, preemptive
right, right of first refusal, option, judgment, title defect, or
encumbrance of any kind in respect of or affecting such asset.
"Management Agreement" shall mean the Management Agreement
dated as of September 27, 1991 between Transtech and the Company
as amended.
"Material Contract" shall mean any Contract that: (i) may be
terminated only on more than 30 days notice and which termination
is reasonably likely to expose the Company to a potential
liability in excess of $50,000; and (ii) involves payments in the
aggregate during any one calendar year of more than $50,000.
"Order" shall mean any order, judgment, injunction, award,
citation, decree, consent or writ.
"1933 Act" shall mean the Securities Act of 1933, as
amended, and all rules and regulations promulgated thereunder.
"1934 Act" shall mean the Securities Exchange Act of 1934,
as amended, and all rules and regulations promulgated thereunder.
"Permit" shall mean any license, permit, certificate,
certificate of occupancy, order, authorization or approval.
<PAGE>
The term "person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated
organization or other entity, including a government or political
subdivision or an agency or instrumentality thereof.
"Subsidiary" of a person shall mean any entity of which
securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other
persons performing similar functions are owned directly or
indirectly through one or more intermediaries, or both, by such
person.
"Tax" (including, with correlative meaning, the terms
"Taxes" and "Taxable") shall mean (i) any net income, gross
income, gross receipts, sales, use, ad valorem, transfer,
transfer gains, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, rent, recording,
occupation, premium, real or personal property, intangibles,
environmental or windfall profits tax, alternative or add-on
minimum tax, customs duty or other tax, fee, duty, levy, impost,
assessment or charge of any kind whatsoever (including but not
limited to taxes assessed to real property and water and sewer
rents relating thereto), together with any interest and any
penalty, addition to tax or additional amount imposed by any
Governmental Body (domestic or foreign) (a "Tax Authority")
responsible for the imposition of any such tax, with respect to
the Company, the Business or the Assets (or the transfer thereof
or of the Purchased Shares); (ii) any liability for the payment
of any amount of the type described in the immediately preceding
clause (i) as a result of the Company being a member of an
affiliated or combined group with any other corporation at any
time on or prior to the Closing Date and (iii) any liability of
the Company for the payment of any amounts of the type described
in the immediately preceding clause (i) as a result of a
contractual obligation to indemnify any other person.
"Tax Return" shall mean any return or report (including
elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to any Tax
Authority.
"Tax Sharing Agreement" shall mean the Income Tax Sharing
Agreement dated as of September 27, 1991 among Transtech, Seller,
HVHC and Old Hunt.
"Transaction Documents" shall mean, collectively, this
Agreement, the Escrow Agreement, the Note and Warrant Purchase
Agreement, the Amended Recapitalization Agreement, the Bring
Along Agreement and each of the other agreements and instruments
executed and delivered by all or some of the parties hereto in
connection with the consummation of the Contemplated
Transactions.
<PAGE>
The term "voting power" when used with reference to the
capital stock of, or units of equity interests in, any person
shall mean the power under ordinary circumstances (and not merely
upon the happening of a contingency) to vote in the election of
directors of such person (if such person is a corporation) or to
participate in the management and control of such person (if such
person is not a corporation).
(b) The following terms are defined in the following
sections of this Agreement:
<PAGE>
Term Section
Actual Revolver Amount 1.2(b)
Amended Recapitalization Agreement 4.15(a)
Asserted Liability 6.4(a)
Brenner 2.9
Bring Along Agreement 4.15(b)
Buyer Recital
Buyer Required Consents 3.2
Claims Notice 6.4(a)
Closing 1.4
Closing Date 1.4
Company Recital
Condition of the Business 5.3(b)
Consolidated Years 4.12(f)(iv)
Contemplated Transactions 2.3
Designated Buyer 8.6
Determination Date 1.2(a)(x)
Escrow Agreement 1.3
Escrowed Portion 1.3
Fairness Opinion 2.10(b)
Final Consolidated Year 4.12(f)(i)
Financial Statements 2.8
Funded Debt 1.2
Huberfield Rights 2.7
Indemnifying Party 6.4(a)
Indemnitee 6.4(a)
Independent Transtech Director 2.10(a)
Lender Warrant Shares Recital
Losses 6.2
Mahan Shares 2.10(c)
Merger Recital
Note and Warrant Purchase Agreement Recital
Old HVHC Recital
Original Purchase Agreement Recital
Original Recapitalization Agreement Recital
Preferred Shares 1.2(a)
Proxy Statement 4.14(b)
Purchase Price 1.2
Purchased Shares Recital
Representatives 4.2
Restricted Period 4.10(a)
Restrictive Covenants 4.10(c)
Revolver 1.2(a)(x)
Revolver Payment Amount 1.2(b)
SEC 3.7
Sales Notice 4.5(b)
Seller Recital
Seller Required Consents 2.4
Seller Senior Subordinated Note 1.2(a)(iv)
Senior Notes Recital
Silva Warrant 2.7
Stipulated Amount 6.5(a)
Stockholders' Meeting 4.14(c)
<PAGE>
Terold 4.15(a)
Transtech Recital
Transtech Assumed Liabilities 2.8(e)
SECTION 9.2 Interpretation. Unless the context otherwise
requires, the terms defined in Section 9.1 shall have the
meanings herein specified for all purposes of this Agreement,
applicable to both the singular and plural forms of any of the
terms defined herein. All accounting terms defined in
Section 9.1, and those accounting terms used in this Agreement
not defined in Section 9.1, except as otherwise expressly
provided herein, shall have the meanings customarily given
thereto in accordance with GAAP. When a reference is made in
this Agreement to Sections, such reference shall be to a Section
of this Agreement unless otherwise indicated. The headings
contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation".
IN WITNESS WHEREOF, the undersigned have executed this
Amended and Restated Stock Purchase Agreement as of the date set
forth above.
VALVECO INC.
Buyer
By:/s/ H. Whitney Wagner
Name: H. Whitney Wagner
Title:Chief Executive Officer
THV ACQUISITION CORP.
Seller
By:/s/ Robert V. Silva
Robert V. Silva, President
The undersigned is signing this Agreement solely to agree to
the provisions of Article II and Sections 4.4, 4.5, 4.7, 4.8,
4.9, 4.10, 4.11, 4.12, 4.13 and 4.14 hereof. In addition, by
such signature, the undersigned hereby unconditionally and
irrevocably guarantees to Buyer the full and prompt performance
of all the obligations imposed on Seller under the within
Agreement and under any other Transaction Document.
<PAGE>
TRANSTECH INDUSTRIES INC.
By: /s/ Robert V. Silva
Robert V. Silva, President
The undersigned is signing this Agreement solely to agree to
the provisions of Section 4.15.
TEROLD N.V.
By: /s/ H. Whitney Wagner
Name: H. Whitney Wagner
Title: Attorney-in-Fact
_______________________________________________________________
EXHIBIT A
FORM OF
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated December
__, 1995, by and among THV Acquisition Corp. ("Seller"), a
Delaware corporation and a wholly-owned subsidiary of
Transtech Industries, Inc. ("Transtech"), ValveCo Inc., a
Delaware corporation ("Buyer"), and Brown Brothers Harriman
& Co., as Escrow Agent (the "Escrow Agent").
Buyer and Seller have entered into a Stock Purchase
Agreement (the "Purchase Agreement"), dated as of October
__, 1995, pursuant to which Buyer is purchasing from Seller
all of the issued and outstanding shares of capital stock of
HVHC, Inc. ("HVHC"), the parent corporation of Hunt Valve
Company, Inc., an Ohio corporation (the "Company").
Pursuant to the Purchase Agreement, the Seller has
agreed to indemnify the Buyer with respect to certain claims
and liabilities, including, without limitation, any Taxes
that HVHC or the Company may pay, after the Closing Date,
resulting from any liability for Taxes of the Transtech
Group under Section 1.1502-6 of the Treasury Regulations (as
such terms are defined in the Purchase Agreement).
The Purchase Agreement provides that, at the Closing,
$750,000 representing a portion of the Purchase Price shall
be paid to and held by the Escrow Agent subject to the terms
and conditions of this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. Unless otherwise defined herein,
all capitalized terms shall be used with the meaning or
meanings ascribed to them in the Purchase Agreement.
2. Establishment of Escrow Fund. The Buyer hereby
deposits with the Escrow Agent $750,000 (the "Funds"),
representing a portion of the Purchase Price; the Funds,
together with any interest accrued thereon, shall be
hereinafter referred to as the "Escrow Fund." The Escrow
Fund shall be held as security for all of the Seller's
obligations to indemnify the Buyer under Section 6.2 of the
Purchase Agreement, including, without limitation, the
Seller's indemnification obligations under Section 6.2(b) of
the Purchase Agreement with respect to any Taxes that HVHC
or the Company may pay after the Closing Date that result
from any liability for Taxes of the Transtech Group under
Section 1.1502-6 of the Treasury Regulations. The Escrow
Agent will hold, invest and dispose of the Escrow Fund in
accordance with the terms and conditions hereof.
3. Procedure as to Distributions.
(i) The Buyer may notify the Escrow Agent in
writing, with a copy to the Seller, at any time and from
time to time before the termination of this Escrow Agreement
in accordance with Section 4, of any and all claims ("Buyer
Claims") which, in the opinion of the Buyer, entitle the
Buyer under the Purchase Agreement to the payment of any
portion of the Escrow Fund. The Buyer shall notify the
Escrow Agent of a Buyer Claim if the provisions of Section
6.5(c) of the Purchase Agreement apply. When the Escrow
Agent receives notice of a Buyer Claim, it shall promptly
notify the Seller.
(ii) If the Escrow Agent is given any notice
of a Buyer Claim, it shall, to the extent there are
sufficient funds in the Escrow Fund, disburse the amount
requested (not in the aggregate in excess of the Escrow
Fund) to the Buyer on the date which is twenty days after
Seller receives notice of a Buyer Claim from the Escrow
Agent, unless prior to the date for disbursement the Escrow
Agent has received written notice from the Seller, with a
copy to the Buyer, that the Buyer is not entitled to the
disbursement and that the Escrow Agent is not to make the
disbursement, in which event the Escrow Agent shall be
entitled with respect to that portion of the Escrow Fund
represented by the Buyer Claim to take any action authorized
by Sections 6.4 and 6.6.
(iii) The Seller may notify the Escrow Agent in
writing, with a copy to the Buyer, of any offer (a
"Settlement Offer") by the Internal Revenue Service for the
satisfaction, by Transtech or the Seller, for all
Consolidated Years (defined in Section 4) of all outstanding
assessments and other claims for federal income taxes
("Claims") for which the Company would be severally liable.
The Seller shall certify to the Escrow Agent and the Buyer
in such notice the amount being sought by the Internal
Revenue Service for the full satisfaction of all Claims for
all Consolidated Years. When the Escrow Agent receives
notice of a Settlement Offer, it shall promptly notify the
Buyer.
(iv) If the Escrow Agent is given any notice of
a Settlement Offer, it shall, to the extent there are
sufficient funds in the Escrow Fund to satisfy in full all
Claims for all Consolidated Years, disburse the amount
required (not in the aggregate in excess of the amount
remaining in the Escrow Fund) to the Internal Revenue
Service on the date which is twenty days after the Buyer
receives notice of the Settlement Offer from the Escrow
Agent, unless prior to the date for disbursement the Escrow
Agent has received written notice from the Buyer, with a
copy to the Seller, that the Seller is not entitled to have
such funds disbursed and that the Escrow Agent is not to
make the disbursement, in which case the Escrow Agent shall
be entitled with respect to that portion of the Escrow Fund
represented by the Settlement Offer to take any action
authorized by Sections 6.4 and 6.6.
(v) The Escrow Agent shall, to the extent there
are sufficient funds in the Escrow Fund, disburse the amount
in the Escrow Fund (or portions thereof) from time to time
within ten days of receiving a joint written notice from the
Seller and the Buyer requesting such disbursement.
4. Termination of this Escrow Agreement. This
Agreement shall terminate upon the earlier to occur of (i)
the later to occur of (x) the expiration of the statute of
limitations for the assessment of federal income taxes of
the affiliated group of corporations for which Transtech
filed a consolidated federal income tax return (the
"Transtech Group") for all taxable years of the Transtech
Group with respect to which HVHC or the Company or both of
them were members of the Transtech Group (the "Consolidated
Years") and (y) the satisfaction by Transtech or the Seller
of all outstanding assessments or other claims for income
taxes of the Transtech Group by the Internal Revenue Service
for all Consolidated Years and (ii) the distribution and
transfer of the Escrow Fund as provided above, unless sooner
terminated by a written agreement of all the parties;
provided, however, that the events set forth in clauses (i)
and (ii) of this Section 4 shall not result in the
termination of this Agreement with respect to any Buyer
Claims that had previously been asserted by the Buyer with
respect to any provision under the Purchase Agreement other
than Section 6.2(b) thereof.
5. Investment of the Escrow Fund. All cash held in
the Escrow Fund shall be invested by the Escrow Agent in
United States government issued securities and in such other
investments as Seller may instruct the Escrow Agent in
writing.
6. Escrow Agent.
6.1 Duties. The duties and obligations of the
Escrow Agent shall be determined solely by the express
provisions of this Agreement and shall be limited to the
performance of such duties and obligations as are
specifically set forth in this Agreement.
6.2 Reliance. In the performance of its duties
hereunder, the Escrow Agent shall be entitled to rely upon
any document, instrument or signature reasonably believed by
it to be genuine and signed by Buyer or Seller, as the case
may be. The Escrow Agent may assume that any person
purporting to give any notice in accordance with the
provisions hereof has been duly authorized to do so.
6.3 Liability. The Escrow Agent shall not be
liable for any error of judgment, or any action taken or
omitted to be taken hereunder in good faith, except in the
case of its bad faith, gross negligence or willful
misconduct.
6.4 Resignation and Removal. The Escrow Agent
or any successor as escrow agent hereafter appointed may at
any time resign and be discharged of the duties imposed
hereunder by giving notice to Buyer and Seller, such
resignation to take effect upon the earlier of (i) the
appointment of a successor escrow agent by Buyer and Seller
or (ii) 90 days after the giving of such notice (provided
that prior to the expiration of such 90 day period the
Escrow Agent (or any successor) shall have deposited the
Escrow Fund with a court of competent jurisdiction to
determine the relative rights of Buyer and Seller to the
Escrow Fund). Buyer and Seller, acting jointly, may at any
time substitute a new Escrow Agent by giving ten days'
notice thereof to the current Escrow Agent then acting and
paying all fees and expenses of the current Escrow Agent.
6.5 Compensation. The Escrow Agent shall be
entitled to receive reasonable compensation, as agreed upon
between the Escrow Agent, Buyer and Seller, for the Escrow
Agent's services hereunder, and to be reimbursed for its
reasonable out-of-pocket expenses, including reasonable
counsel fees, disbursements and other charges, incurred in
the performance of its duties and the enforcement of its
rights hereunder. Such compensation and expenses shall not
be paid out of the Escrow Fund but shall be borne by the
Buyer and Seller equally and shall be paid by them promptly
following receipt of the Escrow Agent's invoices therefor.
6.6 Limited Actions. The Escrow Agent shall
not take any action by reason of any instructions given by
the Buyer or Seller (together, the "Parties") or by any
other person, firm or corporation, except only (i) such
instructions as are herein specifically provided for, (ii)
such instructions as are signed by both Parties, and (iii)
such instructions as are pursuant to orders or process of
any court entered or issued with competent jurisdiction. In
the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder, (a) it shall be entitled to
refrain from taking any action until it shall be directed
otherwise in writing by the Parties or by an order of a
court of competent jurisdiction, and (b) it shall have the
right (but not the obligation) to file a suit in
interpleader (with its expenses covered pursuant to Section
6.5) and obtain an order from a court of appropriate
jurisdiction requiring all persons involved to interplead
and litigate in such court their several claims and rights
among themselves and upon the conclusion thereof to instruct
the Escrow Agent as to how to proceed.
6.7 Indemnification. The Parties hereby
jointly and severally agree to hold harmless and indemnify
the Escrow Agent against any loss or claim, including
reasonable counsel fees, disbursements and other charges,
arising out of or in connection with the performance of the
Escrow Agent's obligations hereunder, including the costs
and expenses incurred in connection with the collection of
its fees and expenses and including the costs and expenses
of defending itself against any claim or liability arising
out of or in connection with the performance of its duties
hereunder, except for any loss or claim resulting from its
bad faith, gross negligence or willful misconduct. Any
claim by the Escrow Agent for indemnification or
reimbursement hereunder shall be evidenced by a notice to
the Parties describing the nature of the claim sought. The
foregoing indemnities in this paragraph shall survive the
resignation of the Escrow Agent or the termination of this
Agreement.
7. Miscellaneous.
7.1 Notices. All notices, notifications,
demands or other communications required or permitted by
this Agreement shall be in writing and shall be deemed given
when delivered personally, by facsimile transmission or
overnight express delivery, or three business days after
being sent by registered or certified mail, postage prepaid
(but notice shall be given in the same manner to every party
entitled to such notice hereunder):
(a) If to Buyer, addressed to:
ValveCo Inc.
c/o Three Cities Research, Inc.
24th Floor
135 East 57th Street
New York, New York 10022
Facsimile: (212) 980-1142
Attention: H. Whitney Wagner
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Facsimile: (212) 757-3990
Attention: Robert M. Hirsh, Esq.
(b) If to Seller, addressed to:
THV Acquisition Corp.
200 Centennial Avenue - Suite 202
Piscataway, New Jersey 08854
Facsimile: (908) 981-1856
Attention: Arthur C. Holdsmith, III
with a copy to:
Baer Marks & Upham
805 Third Avenue
New York, New York 10022
Facsimile: (212) 702-5941
Attention: Joel M. Handel, Esq.
(c) If to the Escrow Agent, addressed to:
Brown Brothers Harriman & Co.
[Address]
or to any other address or addresses which shall hereafter
have been designated from time to time by the respective
parties by notice to the others for such purpose. A copy of
any notice, notification, demand or other communication
given by any party to any other party hereto, with reference
to this Agreement, shall be given at the same time to the
other parties to this Agreement.
7.2 Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the
parties, their legal representatives, successors and
assigns.
7.3 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York applicable to agreements made and to be
performed entirely within such State.
7.4 Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be
deemed an original but all of which together shall
constitute one and the same agreement.
7.5 Headings. The section headings in this
Agreement are for convenience only and do not constitute
part of this Agreement.
7.6 Amendment. This Agreement can be amended
only by a writing signed by Buyer, Seller, and the Escrow
Agent.
7.7 Assignability. This Agreement is not
assignable except by operation of law, provided, that Seller
may freely assign its rights (but not its obligations)
hereunder.
7.8 Waiver of Compliance; Consents. Except as
otherwise provided in this Agreement, any failure of any of
the parties to comply with any obligation, covenant,
agreement or condition herein may be waived by the party
entitled to the benefits thereof only by a written
instrument signed by (i) the party granting such waiver and
(ii) the Escrow Agent, but such waiver or failure to insist
upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure.
7.9 Dispute Resolution. Either Buyer or
Seller may elect to resolve any disputes relating to the
distribution of funds held in the Escrow Fund through the
appointment of KPMG Peat Marwick LLP or another so-called
"Big Six" accounting firm acceptable to both Buyer and
Seller (the "Independent Accountant") for such purpose.
Such election shall be binding on the other parties hereto.
Upon retaining such Independent Accountant, Seller and Buyer
(i) shall each submit to the Independent Accountant in
writing, no later than ten days after the Independent
Accountant is retained, their respective positions with
respect to the disputed matter or matters, together with
such supporting documentation as they deem necessary or as
the Independent Accountant requests, and (ii) shall direct
the Independent Accountant to render its decision as to the
dispute within 30 days after receiving the positions of both
Seller and Buyer and all supplementary supporting
documentation requested by the Independent Accountant. The
decision of the Independent Accountant shall be final and
binding on, and nonappealable by, Seller and Buyer. The
fees of the Independent Accountant shall be borne equally by
Buyer and Seller.
IN WITNESS WHEREOF, the parties have executed this
Agreement on the date first above written.
VALVECO INC.
By___________________________
Name:
Title:
THV ACQUISITION CORP.
By___________________________
Name:
Title:
BROWN BROTHERS HARRIMAN & CO.,
As Escrow Agent
By________________________
Name:
Title:
____________________________________________________________________
Exhibit B
BRENNER SECURITIES
CORPORATION
Two World Trade Center, 38th Floor
New York, NY 10048
(212) 839-7300 Tel
(212) 839-7339 Fax
October 24, 1995
The Independent Member of the Board of Directors
Transtech Industries, Inc.
200 Centennial Avenue, Suite 202
Piscataway, NJ 08854
Sir:
You have requested our opinion, as investment bankers, as to the
fairness, from a financial point of view, of the Consideration (as
hereafter defined) to be received by Transtech Industries, Inc.,
(the "Company") from the proposed sale of the stock of HVHC, Inc.,
the parent company of Hunt Valve Company, Inc. ("Hunt Valve") to a
newly-formed corporation organized by Three Cities Research, Inc.
in conjunction with certain management of the Company and Hunt
Valve ("Purchaser") (the "Transaction"). Pursuant to the Stock
Purchase Agreement dated October 24, 1995, Purchaser will pay the
Company $18 million in cash for the stock of HVHC, Inc., less the
amount of Hunt Valve's funded debt at closing (the
"Consideration").
In arriving at our opinion, and as the basis therefor, we (i)
reviewed the Stock Purchase Agreement dated October 24, 1995; (ii)
met with or had telephonic conversations with certain senior
officers, directors and other representatives and advisors of the
Company and Hunt Valve to discuss the business, operations,
prospects, financial condition, assets and potential contingent tax
and other liabilities of Hunt Valve; (iii) examined certain
business, historical and forecast financial information and other
data relating to Hunt Valve reflected in the Carleton, McCreary,
Holmes & Co. "Hunt Valve Financing Memorandum" dated September,
1995; (iv) reviewed the audited financial statements of Hunt Valve
for the fiscal years ended December 31, 1993 and 1994; (v) reviewed
unaudited interim financial statements of Hunt Valve as of, and
for, the 7 months ended, July 31, 1995; (vi) to the extent publicly
available, analyzed valuation multiples derived from certain
acquisition data for private and public companies which we deemed
reasonably similar to Hunt Valve; (vii) analyzed valuation
multiples derived from historical market prices, trading activity
and results of operations of certain publicly traded companies
which we deemed reasonably similar to Hunt Valve; (viii) performed
a discounted cash flow analysis; and (ix) conducted such other
analyses and examinations and considered such other financial,
economic and market criteria as we deemed necessary for purposes of
the opinion expressed herein.
In rendering our opinion, we have assumed and relied, without
independent verification, upon the accuracy and completeness of all
financial and other information publicly available or furnished to
or otherwise discussed with us by the Company or Hunt Valve or
their respective agents. With respect to financial forecasts and
other information provided to or otherwise discussed with us, we
assumed that such forecasts and other information were reasonably
prepared or provided on bases reflecting the best currently
available estimates and judgments of the managements of the Company
and Hunt Valve as to, among other things, the expected future
financial condition and performance of Hunt Valve. We have not
independently verified such information or assumptions, including
financial forecasts. We have not made or been provided with an
independent evaluation or appraisal of the assets, liabilities
(contingent or otherwise), or the stock of HVHC, Inc. or Hunt
Valve.
Our opinion herein is necessarily based upon financial, economic,
stock market and other conditions and circumstances existing and
disclosed to us as of the date hereof. We disclaim any undertaking
or obligation to advise any person of any change in any fact or
matter affecting our opinion which may come or be brought to our
attention after the date of the opinion. We have not been requested
to solicit or entertain any other offers for the purchase of the
stock or assets of Hunt Valve or any other transaction involving
Hunt Valve. We have not been asked to consider, and our opinion
does not in any manner address, the relative merits of the
Transaction as compared to any alternative strategic, financial or
business strategies that might exist for the Company or the
decision of the Board of Directors of the Company to proceed with
the Transaction. This opinion does not constitute a recommendation
to any shareholder of the Company as to how such shareholder should
vote on the Transaction.
We have previously performed an analysis of the fair market value
of Hunt Valve for the Company for which we received customary
compensation. In addition, in the ordinary course of Brenner's
business, we may actively trade the equity securities of the
Company for our own account or for the account of our customers
and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion may not be reproduced, summarized, described, referred
to or given to any other person, nor shall any public reference to
our firm or any of its affiliated entities or persons be made,
without our prior written consent, except for: (i) inclusion of our
opinion in full in the proxy statement to be sent to the
Company's shareholders in connection with obtaining shareholder
approval of the Transaction, or (ii) any references to our firm or
any of its affiliated entities or persons may be made only
subsequent to our review and with our prior written approval.
Based upon and subject to the foregoing, we are the opinion, as
investment bankers, that, as of the date hereof, the Consideration
to be paid to the Company by Purchaser in the Transaction is fair,
from a financial point of view, to the Company.
Very truly yours,
BRENNER SECURITIES CORPORATION
______________________________________________________________
Exhibit C
IRREVOCABLE PROXY
The undersigned shareholder of Transtech Industries, Inc., a
Delaware corporation ("Transtech"), hereby grants to ValveCo
Inc., a Delaware corporation ("ValveCo"), an irrevocable proxy to
vote shares of common stock, par value $.50 per share, of
Transtech held by the undersigned at a Special Meeting of
Stockholders of Transtech in favor of the transaction involving
the sale by THV Acquisition Corp., a wholly owned subsidiary of
Transtech, of all of the issued and outstanding shares of common
stock of HVHC, Inc. and Hunt Valve Company, Inc. to ValveCo,
substantially as such transaction is described in the October ,
1995 draft of the Proxy Statement (the "Proxy Statement")
relating to such transaction. This proxy is irrevocable but
shall expire on March 31, 1996. The undersigned acknowledges
that he has been provided with and has reviewed a copy of the
Proxy Statement.
_________________________
Dated: , 1996
_____________________________________________________________
Exhibit D
AMENDED AND RESTATED
RECAPITALIZATION AGREEMENT
AMENDED AND RESTATED RECAPITALIZATION AGREEMENT (this
"Agreement"), dated as of January 15, 1996, among Terold N.V.
("Terold"), Hunt Valve Company, Inc., a Delaware corporation (the
"Company") previously known as HVHC, Inc. ("HVHC") prior to the
merger (the "Merger") on December 26, 1995 of Hunt Valve Company,
Inc., an Ohio corporation ("Old Hunt"), with and into HVHC,
Transtech Industries, Inc. ("Transtech"), THV Acquisition Corp.
("THV") and ValveCo Inc. ("ValveCo").
The parties previously entered into that certain
Recapitalization Agreement (the "Old Agreement") dated as of
October 24, 1995 (the "Commitment Date"), pursuant to which the
parties, among other things, (i) agreed to effect the Merger and
(ii) provided for the acquisition by Terold N.V. of shares of
common stock of the Company, including through Terold's exercise of
certain warrants (the "Warrants").
On the Commitment Date, ValveCo and THV entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement"), pursuant to
which ValveCo agreed to purchase from THV, and THV agreed to sell
to ValveCo, all of the issued and outstanding shares of common
stock of HVHC, the then direct parent corporation of Old Hunt. In
accordance with Section 3(iii) of the Old Agreement, the Stock
Purchase Agreement is being amended and restated on the date hereof
to reflect the Merger and the other matters described in such
section and to reflect certain other agreements between the parties
thereto, including the purchase by ValveCo from THV of
approximately 79.05%, rather than all, of the shares of the
Company's issued and outstanding common stock.
As contemplated by the Old Agreement, on October 27, 1995
Terold acquired certain notes of Old Hunt (the "Notes") and the
Warrants pursuant to the Purchase Agreement dated as of October 24,
1995 among Terold and the former holders of such instruments (the
"Textron Agreement").
As required by Section 3(ii) of the Old Agreement, on December
27, 1995 Terold (i) exercised the Warrants and thereby acquired
215.27 shares of common stock of the Company and (ii) acquired from
THV an additional 18 shares (the "Additional Shares") of common
stock of the Company.
The parties wish to amend the Old Agreement to, among other
things, reflect the Merger, the exercise of the Warrants, the
acquisition of the Additional Shares and certain amendments to the
Stock Purchase Agreement.
In consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree
as follows:
1. Payment to Terold.
In order to induce Terold to purchase the Notes and the
Warrants and to enter into the Textron Agreement and the Old
Agreement, THV paid to Terold on the date of the Closing (as
defined in the Textron Agreement) the sum of $250,000. In
consideration of such payment, Terold hereby agrees with THV that
in the event a premium is received in the future in connection with
the prepayment at par of the Notes, then THV shall be entitled to
receive from Terold concurrently with Terold's receipt of such
payment the portion of such premium that exceeds $250,000, but
excluding amounts in excess of $500,000, for a payment to THV of a
maximum amount of $250,000.
2. Representations and Warranties of Transtech,
THV and the Company.
Each of Transtech, THV and the Company hereby confirms, as of
the Commitment Date, the following representations and warranties
to Terold:
(i) Except as set forth on Schedule A hereto, the Company
has not obtained any waivers relating to any period following
the date of the Closing (as defined in the Textron Agreement)
with respect to any defaults under or provisions of the Note
Agreement (as defined in the Old Agreement); and
(ii) There are no agreements or other documents that
affect or relate to the rights or obligations of the Holders
(as defined in the Textron Agreement) or any other person with
respect to the Notes or the Warrants (and the agreements
relating thereto) that are not listed on Schedule A to the
Textron Agreement.
3. Merger: Exercise of Warrants.
Transtech, THV and the Company hereby represent to Terold and
ValveCo that (i) the Merger became effective in the states of
Delaware and Ohio on December 26, 1995 and (ii) immediately
following Terold's purchase of the Additional Shares and Terold's
exercise of the Warrants on December 27, 1995, each of Transtech
and THV owned, directly or indirectly, less than 80% of the
outstanding shares of common stock of the Company.
4. Redemption of Notes.
(i) Transtech, THV and the Company hereby agree that if
ValveCo's purchase of the shares of common stock of the
Company pursuant to the Stock Purchase Agreement, as amended
on the date hereof, is consummated, then the Company will
promptly redeem the Notes with no prepayment penalty.
(ii) In connection with the redemption of the Notes
described in paragraph 4(i) above, ValveCo hereby agrees to
pay to Terold the amount of $250,000 on the date of such
redemption.
5. Further Assurances.
Each of the parties shall execute such documents and other
papers and take such further action as may be reasonably required
or desirable to carry out the provisions hereof and the
transactions contemplated hereby.
6. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS TO BE MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE.
7. Consent to Jurisdiction and Service of Process.
The parties hereto irrevocably: (a) agree that any suit,
action or other legal proceeding arising out of this Agreement may
be brought in the courts of the State of New York or the courts of
the United States located in New York County, New York, (b) consent
to the jurisdiction of each court in any such suit, action or
proceeding,
(c) waive any objection which they, or any of them, may have to the
laying of venue of any such suit, action or proceeding in any of
such courts, and (d) waive the right to a trial by jury in any such
suit, action or other legal proceeding. Terold hereby irrevocably
appoints Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of
the Americas, New York, NY 10019, as its agent for the purpose of
accepting the service of any process within the State of New York.
8. Counterparts.
This Agreement may be executed by the parties hereto in
separate counterparts, each of which when executed and delivered
shall be an original, but all of such counterparts shall together
constitute one and the same instrument.
9. Headings.
The headings in this Agreement are for reference only, and
shall not affect the interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
TEROLD N.V.
By:/s/ H. Whitney Wagner
Name: H. Whitney Wagner
Title:Attorney-in-Fact
VALVECO INC.
By: /s/ H. Whitney Wagner
Name: H. Whitney Wagner
Title:CEO
TRANSTECH INDUSTRIES, INC.
By: /s/ Robert V. Silva
Name: Robert V. Silva
Title:Chairman
THV ACQUISITION CORP.
By: /s/ Robert V. Silva
Name: Robert V. Silva
Title: President
HUNT VALVE COMPANY, INC.
By: /s/ Robert V. Silva
Name: Robert V. Silva
Title:Chairman
__________________________________________________________________
Exhibit E
BRING ALONG AGREEMENT
among
TRANSTECH INDUSTRIES, INC.,
TEROLD N.V.
and
THV ACQUISITION CORP.
October 24, 1995
TABLE OF CONTENTS
Page
1. Third Party Offer for All Outstanding Shares 2
1.1 Sale of the Company 2
1.2 Conditions 2
1.3 Obligation to Sell 3
1.4 Prepayment of Notes 4
2. Specific Performance 4
3. Definitions 4
4. Miscellaneous 5
4.1 Notices 5
4.2 Severability 6
4.3 Entire Agreement; Amendment 6
4.4 Waiver 6
4.5 Term of Agreement 7
4.6 Variations in Pronouns 7
4.7 Consent to Jurisdiction and Service of Process 7
4.8 Governing Law 8
4.9 Further Assurances 8
4.10 Successors and Assigns 8
4.11 Counterparts 8
BRING ALONG AGREEMENT
BRING ALONG AGREEMENT, dated as of October 24, 1995,
among Transtech, Inc., a Delaware corporation ("Transtech"),
THV Acquisition Corp, a Delaware corporation (the "Seller"),
and Terold N.V. ("Terold").
WHEREAS, pursuant to a Stock Purchase Agreement dated
as of the date hereof between ValveCo Inc. ("ValveCo") and
THV Acquisition Corp. (the "Seller"), ValveCo has agreed to
purchase from the Seller, and the Seller has agreed to sell
to ValveCo, all of the issued and outstanding shares (the
"Shares") of common stock of HVHC, Inc. ("HVHC"), the parent
corporation of Hunt Valve Company, Inc. ("Hunt" or the
"Company").
WHEREAS, pursuant to an agreement dated the date
hereof, Terold has agreed to purchase from certain persons
the outstanding 13.00% Senior Secured Notes of the Company
(the "Notes") in an aggregate original principal amount of
$11,500,000 and warrants (the "Warrants") to purchase common
stock of the Company, which Notes and Warrants were issued
by the Company pursuant to the terms of a certain Note
Agreement, dated as of August 15, 1991, among Hunt and the
purchasers named therein (the "Note Agreement").
WHEREAS, the parties hereto wish to provide for take
along rights under certain circumstances.
Certain capitalized terms used herein are defined in
Section 3 hereof.
NOW, THEREFORE, in consideration of the mutual
promises and agreements set forth herein, the adequacy of
which is hereby acknowledged, the parties hereto agree as
follows:
1. Third Party Offer for All Outstanding Shares.
1.1 Sale of the Company. Subject to Sec tion
1.2, during the Effective Period, whenever the Seller has
received a bona fide third party offer to buy all the
outstanding Shares and the Warrants, if then outstanding
(including, without limitation, pursuant to a merger)(the
"Offer"), the Seller shall have the right (the "Take Along
Right") to cause Terold to accept the Offer and shall give
notice (the "Take Along Notice") to Terold stating that it
proposes to effect such transaction and containing the name
and address of the offeror and the purchase price under the
Offer (the "Third Party Price"), and attaching a copy of all
writings between the Seller and the other parties to such
transaction necessary to establish the terms of such
transaction.
1.2 Conditions. Subject to Section 1.4, the
Seller shall have the right to exercise the Take Along Right
pursuant to this Section 1 (i) if the Offer shall propose a
Third Party Price in which the consideration to be received
by Terold would be paid wholly in cash and (ii) provided
that all payments, whether designated for stock, covenants
not to compete or otherwise, shall be made on a pro rata
basis according to the number of Shares owned by each
stockholder of HVHC, and provided further that if any of the
Warrants are outstanding at such time, then for this purpose
Terold shall be deemed to own the number of Shares (in
addition to all outstanding Shares it owns) issuable upon
exercise of the Warrants pursuant to Section 3 of the
Recapitalization Agreement, dated as of the date hereof,
among Terold, Hunt, HVHC, the Seller, Transtech and ValveCo.
1.3 Obligation to Sell. Upon receipt of the
Take Along Notice, Terold agrees that it shall be obligated
to sell all Shares held by it (including the Warrants, if
applicable) upon the terms and conditions of such
transaction and in accordance with Section 1.3.1 (and
otherwise take all necessary action to cause the Seller or
Transtech to consummate the proposed transaction, including
voting such Shares in favor of such transaction), provided
that Terold shall only be obligated as provided above in
this Section 1.3 if (a) it receives per share consideration
of equivalent value as the per share consideration received
by the Seller or Transtech, as the case may be, and (b) all
of the consideration to be received by Terold is in the form
of cash.
1.3.1 Sale to Offeror. Terold shall sell
all of its Shares (including the Warrants) to the Offeror
upon the terms and conditions of the Offer (or otherwise
take all necessary action to cause the Seller or Transtech
to consummate the proposed transaction) at a closing to be
held at the principal office of the Seller on such date and
at such time and place as the parties to the transaction
shall agree.
1.4 Prepayment of Notes. Notwithstanding
anything to the contrary in this Section 1, the Seller shall
not have the right to exercise its Take Along Right unless
any principal of, accrued interest on and any fees payable
under or in connection with the Notes are paid no later than
concurrently with the closing of any sale pursuant to the
exercise of such right by the Seller.
2. Specific Performance. The parties hereto intend
that each of the parties have the right to seek damages
and/or specific performance in the event that any other
party hereto fails to perform such party's obligations
hereunder. Therefore, if any party shall institute any
action or proceeding to enforce the provisions hereof, any
party against whom such action or proceeding is brought
hereby waives any claim or defense therein that the
plaintiff party has an adequate remedy at law.
3. Definitions. The following terms shall have the
meanings set forth below:
"Effective Period" means the period beginning on
the date hereof and ending on the earlier of (i) the
termination of the Purchase Agreement and (ii) February 17,
1996.
"Person" means any individual, corporation,
partnership, firm, joint venture, association, joint stock
company, trust, unincorporated organization, governmental
body or other entity.
4. Miscellaneous.
4.1 Notices. All notices or other communi
cation required or permitted hereunder shall be in writing
and shall be delivered personally, telegraphed, telecopied
or sent by certified, registered or express mail, postage
prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telecopied or sent by
certified, registered or express mail or, if mailed, five
days after the date of deposit in the United States mail, as
follows:
(i) If to the Seller or Transtech, to it at:
THV Acquisition Corp. or Transtech Industries, Inc.
200 Centennial Avenue
Suite 202
Piscataway, New Jersey 08854
Facsimile: 908-981-1856
Attention: Arthur C. Holdsworth, III
with a copy to:
Baer Marks & Upham
805 Third Avenue
New York, New York 10022
Facsimile: 212-702-5941
Attention: Joel M. Handel, Esq.
(ii) If to Terold, in care of:
Three Cities Research, Inc.
135 East 57th Street
New York, New York 10022
Facsimile: (212) 980-1142
Attention: H. Whitney Wagner
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Facsimile: (212) 757-3990
Attention: Robert M. Hirsh, Esq.
Any party may by notice given in accordance with this
Section 4.1 designate another address or person for receipt
of notices hereunder.
4.2 Severability. In the event any provi sion
hereof is held void or unenforceable by any court, then such
provisions shall be severable and shall not effect the
remaining provisions hereof.
4.3 Entire Agreement; Amendment. This
Agreement is the entire agreement among the parties with
respect to the subject matter hereof, and supersedes all
prior agreements and communications, whether oral or
written, among the parties hereto with respect to such
subject matter. Any amendment or modification of this
Agreement must be in writing and duly signed by Transtech,
the Seller and Terold.
4.4 Waiver. Any failure by a party hereto to
comply with any obligation, agreement or condition herein
may be expressly waived in writing by each of the other
parties hereto, but such waiver or failure to insist upon
strict compliance with such obligation, agreement or
condition shall not operate as a waiver of, or estoppel with
respect to, any such subsequent or other failure.
4.5 Term of Agreement. This Agreement shall
become effective upon the execution hereof and shall
continue in effect until the earlier to occur of (i)
February 17, 1996, unless prior to such date the Seller has
given to the Buyer a Take Along Notice in connection with an
Offer received before such date, in which case this date
shall be extended through the earlier of the termination or
the closing of such transaction, but in no event later than
June 30, 1996, and (ii) the execution of a written agreement
by the parties hereto to terminate this Agreement.
4.6 Variations in Pronouns. All pronouns and
any variations thereof refer to the masculine, feminine or
neuter, singular or plural, as the context may require.
4.7 Consent to Jurisdiction and Service of
Process. The parties hereto irrevocably: (a) agree that
any suit, action or other legal proceeding arising out of
this Agreement may be brought in the courts of the State of
New York or the courts of the United States located in New
York County, New York, (b) consent to the jurisdiction of
each court in any such suit, action or proceeding, (c) waive
any objection which they, or any of them, may have to the
laying of venue of any such suit, action or proceeding in
any of such courts, and (d) waive the right to a trial by
jury in any such suit, action or other legal proceeding.
Terold hereby irrevocably appoints Paul, Weiss, Rifkind,
Wharton & Garrison, 1285 Avenue of the Americas, New York,
NY 10019, as its agent for the purpose of accepting the
service of any process within the State of New York.
4.8 Governing Law. This Agreement shall be
governed and construed in accordance with the laws of the
State of Delaware applicable to agreements made and to be
performed entirely within such State.
4.9 Further Assurances. Each of the parties
shall, and shall cause their respective Affiliates to,
execute such instruments and take such action as may be
reasonably required or desirable to carry out the provisions
hereof and the transactions contemplated hereby.
4.10 Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the
parties and their respective successors and legal
representatives.
4.11 Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed, or
have cause to be executed, this Agreement as of the date
first written above.
TRANSTECH INDUSTRIES, INC.
By: /s/ Robert V. Silva
Name: Robert V. Silva
Title:Chairman
THV ACQUISITION CORP.
By: /s/ Robert V. Silva
Name: Robert V. Silva
Title: President
TEROLD N.V.
By: /s/ H. Whitney Wagner
Name: H. Whitney Wagner
Title:Attorney-in-Fact
_________________________________________________________________
TRANSTECH INDUSTRIES, INC.
THV ACQUISITION CORP.
200 Centennial Avenue
Suite 202
Piscataway, New Jersey 08854
Telephone: (908) 981-0777
Telecopier: (908) 981-1856
February 5, 1996
ValveCo Inc.
c/o Three Cities Research, Inc., 20th Floor
135 East 57th Street
New York, New York 10022
Attention: Mr. H. Whitney Wagner
Re: Amended and Restated Stock Purchase Agreement (the
"Purchase Agreement") dated as of January 15, 1996
Between ValveCo Inc.(the "Buyer") and THV Acquisition
Corp. (the "Seller")
Dear Mr. Wagner:
Reference is made to the following:
(i) The preliminary proxy statement filed by Transtech
Industries, Inc. (Transtech") with the Securities and Exchange
Commission (the "SEC") on January 16, 1996;
(ii) The Purchase Agreement as defined above; and
(iii) The comments of the staff of the SEC dated,
respectively, January 26, 1996 and January 31, 1996, as well as the
oral comments transmitted by the Staff on February 1, 1996.
Terms used herein without definition shall have the respective
meanings set forth in the Purchase Agreement.
In compliance with the comments of the staff of the SEC
referred to in paragraph (iii) above, Transtech and the Buyer have
agreed to fix the computation of the Purchase Price by (i) agreeing
in advance on the amount of Funded Debt and (ii) eliminating any
deduction from the Purchase Price for intercompany payments
required by Section 4.12 of the Purchase Agreement.
To give effect to the foregoing, Section 1.2(a) and (b) of the
Purchase Agreement hereby is deleted in its entirety and in
substitution therefor the following is substituted:
"SECTION 1.2 Consideration. Seller and Buyer acknowledge that
the purchase price for (a) the Purchased Shares (as set forth
in the next sentence of this Section 1.2) and (b) the 18
shares of common stock of the Company previously sold by
Seller to Terold on December 27, 1995, aggregates $2,208,000.
The purchase price (the "Purchase Price") for the Purchased
Shares shall be $2,158,000 representing gross proceeds of $18
million reduced by the sum of the following: (i) the amount of
Funded Debt as of the Closing Date which, for purposes of this
determination only, the parties agree to fix at $12,721,000;
(ii) the amount of $50,000 representing payment received by
Seller from the sale of 18 shares of common stock of the
Company to Terold on December 27, 1995; (iii) the amount of
$500,000 representing the agreed value of the Lender Warrant
Shares acquired by Terold on December 27, 1995; (iv) the
amount of $2,000,000 required to redeem the issued and
outstanding shares of preferred stock held by Seller in the
Company (the "Preferred Shares") and (v) the amount of
$571,000 required to be paid by the Company to the Seller in
repayment of the senior subordinated note issued by the
Company to the Seller in the original principal amount of
$500,000 (the "Seller Senior Subordinated Note"). For
purposes of this Agreement, "Funded Debt" means the
outstanding principal of, plus accrued interest and penalties
on (including prepayment penalties, premiums or similar
payments payable to holders of Funded Debt), all outstanding
indebtedness of the Company on the Closing Date other than the
Seller Senior Subordinated Note."
This letter agreement supersedes the letter agreement
dated January 29, 1996. Accordingly, the January 29, 1996 letter
agreement shall be of no further force or effect.
Please reflect your agreement to the foregoing, by signing the
additional copy of this letter and returning it to us.
Very truly yours,
TRANSTECH INDUSTRIES, INC.
THV ACQUISITION CORP.
/s/ Robert V. Silva
Robert V. Silva
President
ACCEPTED AND AGREED TO:
VALVECO INC.
By: /s/ H. Whitney Wagner
Name: H. Whitney Wagner
Title: Chief Executive Officer
_____________________________________________________________________
ANNEX B
BRENNER SECURITIES
CORPORATION
Two World Trade Center, 38th Floor
New York, NY 10048
(212) 839-7300 Tel
(212) 839-7339 Fax
October 24, 1995
The Independent Member of the Board of Directors
Transtech Industries, Inc.
200 Centennial Avenue, Suite 202
Piscataway, NJ 08854
Sir:
You have requested our opinion, as investment bankers, as to the
fairness, from a financial point of view, of the Consideration (as
hereafter defined) to be received by Transtech Industries, Inc.,
(the "Company") from the proposed sale of the stock of HVHC, Inc.,
the parent company of Hunt Valve Company, Inc. ("Hunt Valve") to a
newly-formed corporation organized by Three Cities Research, Inc.
in conjunction with certain management of the Company and Hunt
Valve ("Purchaser") (the "Transaction"). Pursuant to the Stock
Purchase Agreement dated October 24, 1995, Purchaser will pay the
Company $18 million in cash for the stock of HVHC, Inc., less the
amount of Hunt Valve's funded debt at closing (the
"Consideration").
In arriving at our opinion, and as the basis therefor, we (i)
reviewed the Stock Purchase Agreement dated October 24, 1995; (ii)
met with or had telephonic conversations with certain senior
officers, directors and other representatives and advisors of the
Company and Hunt Valve to discuss the business, operations,
prospects, financial condition, assets and potential contingent tax
and other liabilities of Hunt Valve; (iii) examined certain
business, historical and forecast financial information and other
data relating to Hunt Valve reflected in the Carleton, McCreary,
Holmes & Co. "Hunt Valve Financing Memorandum" dated September,
1995; (iv) reviewed the audited financial statements of Hunt Valve
for the fiscal years ended December 31, 1993 and 1994; (v) reviewed
unaudited interim financial statements of Hunt Valve as of, and
for, the 7 months ended, July 31, 1995; (vi) to the extent publicly
available, analyzed valuation multiples derived from certain
acquisition data for private and public companies which we deemed
reasonably similar to Hunt Valve; (vii) analyzed valuation
multiples derived from historical market prices, trading activity
and results of operations of certain publicly traded companies
which we deemed reasonably similar to Hunt Valve; (viii) performed
a discounted cash flow analysis; and (ix) conducted such other
analyses and examinations and considered such other financial,
economic and market criteria as we deemed necessary for purposes of
the opinion expressed herein.
In rendering our opinion, we have assumed and relied, without
independent verification, upon the accuracy and completeness of all
financial and other information publicly available or furnished to
or otherwise discussed with us by the Company or Hunt Valve or
their respective agents. With respect to financial forecasts and
other information provided to or otherwise discussed with us, we
assumed that such forecasts and other information were reasonably
prepared or provided on bases reflecting the best currently
available estimates and judgments of the managements of the Company
and Hunt Valve as to, among other things, the expected future
financial condition and performance of Hunt Valve. We have not
independently verified such information or assumptions, including
financial forecasts. We have not made or been provided with an
independent evaluation or appraisal of the assets, liabilities
(contingent or otherwise), or the stock of HVHC, Inc. or Hunt
Valve.
Our opinion herein is necessarily based upon financial, economic,
stock market and other conditions and circumstances existing and
disclosed to us as of the date hereof. We disclaim any undertaking
or obligation to advise any person of any change in any fact or
matter affecting our opinion which may come or be brought to our
attention after the date of the opinion. We have not been requested
to solicit or entertain any other offers for the purchase of the
stock or assets of Hunt Valve or any other transaction involving
Hunt Valve. We have not been asked to consider, and our opinion
does not in any manner address, the relative merits of the
Transaction as compared to any alternative strategic, financial or
business strategies that might exist for the Company or the
decision of the Board of Directors of the Company to proceed with
the Transaction. This opinion does not constitute a recommendation
to any shareholder of the Company as to how such shareholder should
vote on the Transaction.
We have previously performed an analysis of the fair market value
of Hunt Valve for the Company for which we received customary
compensation. In addition, in the ordinary course of Brenner's
business, we may actively trade the equity securities of the
Company for our own account or for the account of our customers
and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion may not be reproduced, summarized, described, referred
to or given to any other person, nor shall any public reference to
our firm or any of its affiliated entities or persons be made,
without our prior written consent, except for: (i) inclusion of our
opinion in full in the proxy statement to be sent to the
Company's shareholders in connection with obtaining shareholder
approval of the Transaction, or (ii) any references to our firm or
any of its affiliated entities or persons may be made only
subsequent to our review and with our prior written approval.
Based upon and subject to the foregoing, we are the opinion, as
investment bankers, that, as of the date hereof, the Consideration
to be paid to the Company by Purchaser in the Transaction is fair,
from a financial point of view, to the Company.
Very truly yours,
BRENNER SECURITIES CORPORATION
______________________________________________________________
ANNEX C
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated as of
October 24, 1995, among Rhode Island Trust National Bank as
Trustee for the Textron Collective Investment Trust Fund B
("Textron"), Balboa Life Insurance Company ("BLIC") and
Balboa Insurance Company ("BIC") (each a "Holder" and
collectively, the "Holders"), and Terold N.V. ("Terold").
Textron is the holder of 13.00% Senior Secured Note
(a "Note") No. R-1 of Hunt Valve Company, Inc. ("Hunt" or
the "Company") in the original principal amount of
$11,000,000, BLIC is the holder of Note. No. R-2 in the
original principal amount of $250,000 and BIC is the holder
of Note No. R-3 in the original principal amount of $250,000
(collectively, the "Notes"), and Textron, BLIC and BIC are
holders of Warrant Nos. W-1, W-2 and W-3, respectively, to
purchase common stock of the Company (collectively, the
"Warrants"), all of which Notes and Warrants were issued by
Hunt pursuant to the Note Agreement (the "Note Agreement")
dated as of August 15, 1991 among Hunt and the Purchasers
named in Schedule I thereto.
Terold desires to purchase from the Holders, and the
Holders desire to sell to Terold, all of the Holders' right
and interest in the Notes and the Warrants upon the terms
and subject to the conditions set forth in this Agreement.
In consideration of the mutual covenants and
agreements set forth herein, and for other good and valuable
consideration, the receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. Purchase and Sale of Notes and Warrants.
Terold hereby agrees to purchase from the
Holders, and each Holder hereby agrees to sell to Terold,
all of such Holders' interests in the Notes and the
Warrants, together with all of such Holders' other rights
and interests arising under or in connection with the Note
Agreement and all other documents related thereto including,
without limitation, the rights of the Holders under the
security documents (including all Uniform Commercial Code
filings) entered into in connection with the Note Agreement
(all such rights and interests, the "Textron Interests").
2. Payment of Purchase Price.
The aggregate purchase price (the "Purchase
Price") for the Textron Interests shall be $11,822,480.28 in
cash, consisting of (i) $10,822,480.28 representing the
outstanding principal balance of the Notes on the date
hereof plus accrued and unpaid interest on the Notes through
such date, (ii) $500,000 in payment for the Warrants, and
(iii) a $500,000 transaction fee payable to the Holders, all
of which will be paid by Terold. Schedule A sets forth the
portion of the Purchase Price payable to each Holder.
3. Closing.
The closing of the sale and purchase of the
Notes and the Warrants hereunder (the "Closing") shall occur
on October 27, 1995 at such place and time in New York City
as shall be selected by the Holders upon two days' prior
written notice to Terold of the place and time of the
Closing. Delivery of the Notes and the Warrants shall be
against payment of the Purchase Price in Federal Funds or
other immediately available funds transmitted as follows or
to such other account(s) as the Holders may direct: (1) for
Textron, $11,307,437.83 to Bank of Boston, ABA #011-000-390,
Institutional Trust Services, Canton Office, Mail Stop
45-01-11, for credit to the account of Textron Collective
Investment Trust Fund B, Account No. 4-3510023; (2) for
BIC, $257,521.20 to Bank of America, Los Angeles, CA, ABA
#121-000-358, Advantage/South Coast, Account # 12574-03335,
Attn: Karen Stanfield, for credit to the account of Balboa
Insurance Co. - Casualty, Account No. QA-7-20045-0; and (3)
for BLIC, $257,521.25 to Bank of America, Los Angeles, CA,
ABA #121-000-358, Advantage/South Coast, Account
#12574-03335, Attn: Karen Stanfield, for credit to the
account of Balboa Life Insurance Co., Account No.
QA-7-20044-0.
4. Representations and Warranties of the Holders.
Each Holder hereby represents and warrants to
Terold as follows: (i) such Holder is the lawful owner of
the Note and the Warrant to be sold by such Holder pursuant
to this Agreement and has good and valid title to such Note
and Warrant, free and clear of any claim, lien, encumbrance,
security interest, restriction on transfer or other defect
in title; (ii) except for its interest in the Note and the
Warrant to be sold by such Holder, such Holder has no other
claim, interest or right in, against, or with respect to,
the Company; (iii) the Holders have delivered to Terold
copies of the Note Agreement, the Notes, the Warrants and
the security agreements relating to the Textron Interests
(including all amendments to any of such documents)
(collectively, the "Documents"); and (iv) all of the
Documents are listed on Schedule B hereto.
5. Further Assurances.
Each of the parties shall execute such documents
and other papers and take such further action as may be
reasonably required or desirable to carry out the provisions
hereof and the transactions contemplated hereby.
6. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO AGREEMENTS TO BE MADE AND PERFORMED
ENTIRELY WITHIN SUCH STATE.
7. Counterparts.
This Agreement may be executed by the parties
hereto in separate counterparts, each of which when executed
and delivered shall be an original, but all of such
counterparts shall together constitute one and the same
instrument.
8. Headings.
The headings in this Agreement are for reference
only, and shall not affect the interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed and delivered by their
respective officers thereunto duly authorized as of the date
first above written.
RHODE ISLAND TRUST NATIONAL BANK AS
TRUSTEE FOR THE TEXTRON COLLECTIVE
INVESTMENT TRUST FUND B
By: /s/ David E. Makin
Name: David E. Makin
Title:
BALBOA LIFE INSURANCE COMPANY
By: /s/ Lawrence G. Knowles, Jr.
Name: Lawrence G. Knowles, Jr.
Title:Second Vice President
BALBOA INSURANCE COMPANY
By: /s/ Lawrence G. Knowles, Jr.
Name: Lawrence G. Knowles, Jr.
Title:Second Vice President
TEROLD N.V.
By: /s/ H. Whitney Wagner
Name: H. Whitney Wagner
Title:Attorney-in-Fact
<TABLE>
Schedule A to
Purchase Agreement
<CAPTION>
Accrued Interest
Interest 10/20 Warrants
through through and
Holder Principal 10/19/95 10/23/95 Fee Total
<S> <C> <C> <C> <C> <C>
Textron $10,265,739.84 $70,434.38 $14,828.28 $ 956,435.33 $11,307,437.83
BLIC 233,797.84 1,604.11 337.68 21,782.33 257,521.20
BIC 233,797.08 1,604.11 337.72 21,782.34 257,521.25
Total $10,733,334.00 $73,642.60 $15,503.68 $1,000,000.00 $11,822,480.28
</TABLE>
Schedule B to
Purchase Agreement
1. Note Agreement dated as of August 15, 1991
among Hunt Valve Company, Inc. (the
"Company"), Rhode Island Hospital Trust
National Bank, as Trustee for the
Textron Collective Investment Trust Fund
B ("Textron"), Balboa Life Insurance
Company ("BLIC") and Balboa Insurance
Company ("BIC") (the "Note Agreement").
2. Open-End Mortgage and Security Agreement
dated as of August 15, 1991 from the
Company to Textron, BLIC and BIC.
3. Pledge and Security Agreement dated as of
August 15, 1991 between HVHC, Inc.
("HVHC") and Textron, BLIC and BIC.
4. Intercreditor Agreement dated as of
September 27, 1991 between StanChart
Business Credit, Inc. and Textron, BLIC
and BIC.
5. Management Subordination Agreement dated as
of August 15, 1991 among Textron, BLIC,
BIC, Transtech Industries, Inc. and the
Company.
6. Guaranty Agreements, each dated as of
August 15, 1991, by HVHC in favor of
each of (i) Textron; (ii) BIC; and (iii)
BLIC.
7. Rights Agreement dated as of September 27,
1991 among HVHC, the Company, Textron,
BLIC and BIC (the "Rights Agreement").
8. First Amendment - Note Agreement dated
March 31, 1993 among the parties to the
Note Agreement.
9. Amendment to Rights Agreement dated March
31, 1993 among the parties to the Rights
Agreement.
10. Amendment, dated March __, 1993, to Warrant
to Purchase Common Shares of the Company.
11. Warrant No. W-1 to purchase 1,834.894
Common Shares of Hunt Valve Company,
Inc., dated September 27, 1995, issued
by the Company to Textron.
12. Warrant No. W-2 to purchase 41.702 Common
Shares of Hunt Valve Company, Inc.,
dated September 27, 1991, issued by the
Company to BLIC.
13. Warrant No. W-3 to purchase 41.702 Common
Shares of Hunt Valve Company, Inc.,
dated September 27, 1991, issued by the
Company to BIC.
14. 13.00% Senior Secured Note No. R-1 of the
Company dated September 27, 1991 in
favor of Textron in the principal amount
of $11,000,000.
15. 13.00% Senior Secured Note No. R-2 of the
Company dated September 27, 1991 in
favor of BLIC in the principal amount of
$250,000.
16. 13.00% Senior Secured Note No. R-3 of the
Company dated September 27, 1991 in
favor of BIC in the principal amount of
$250,000.
17. Second Amendment - Note Agreement, dated as
of July 30, 1993 (effective September
30, 1992), among the Company, Textron,
BLIC and BIC.
18. Third Amendment Agreement, dated as of
August 15, 1991, among the Company,
Textron, BLIC and BIC amending the Note
Agreements.
19. Stock Certificate representing 8,000 shares
of common stock of the Company.
___________________________________________________________________
TRANSTECH INDUSTRIES, INC.
200 Centennial Avenue
Piscataway, New Jersey 08854
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Arthur C. Holdsworth, III and
Andrew J. Mayer, Jr., and each of them, as Proxies, each with the
power to appoint his substitute, and hereby authorizes each of them
to represent and vote as designated below, all the shares of Common
Stock of Transtech Industries, Inc. held of record by the
undersigned on January 2, 1996, at the special meeting to be held
on February 29, 1996, or any adjournments thereof.
1. PROPOSAL TO APPROVE THE PROPOSED SALE BY THV ACQUISITION CORP.
OF ALL THE ISSUED AND OUTSTANDING STOCK OF HUNT VALVE COMPANY
INC. PURSUANT TO THE STOCK PURCHASE AGREEMENT DATED AS OF
OCTOBER 24, 1995, AS AMENDED, BETWEEN THV ACQUISITION CORP.
AND VALVECO INC.
FOR AGAINST ABSTAIN
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2. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the meeting.
This proxy when properly executed will be voted in the same
manner directed herein by the undersigned stockholder. If no
direction is made, this proxy will be voted FOR Proposal 1.
Please sign exactly as name appears below. When shares are
held by joint tenants, both should sign. When signing as attorney,
as executor, administrator, trustee or guardian, please give full
title. If a corporation, please sign in full corporate name by the
President or other authorized officer. If a partnership, please
sign in partnership name by authorized partner.
Dated_____________________, 1996
________________________________
Signature
________________________________
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
