<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TYLAN GENERAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3559 04-2659273
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR CLASSIFICATION NUMBER)
ORGANIZATION) CODE NUMBER)
</TABLE>
------------------------
TYLAN GENERAL, INC.
15330 AVENUE OF SCIENCE
SAN DIEGO, CALIFORNIA 92128
TELEPHONE: (619) 618-1990
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID J. FERRAN
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
TYLAN GENERAL, INC.
15330 AVENUE OF SCIENCE
SAN DIEGO, CALIFORNIA 92128
TELEPHONE: (619) 618-1990
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
D. BRADLEY PECK, ESQ. RICHARD L. WAGGONER, ESQ.
COOLEY GODWARD CASTRO HUDDLESON & TATUM GARDERE & WYNNE, L.L.P.
4365 EXECUTIVE DRIVE, SUITE 1100 1601 ELM STREET, SUITE 3000
SAN DIEGO, CALIFORNIA 92121 DALLAS, TEXAS 75201
TELEPHONE: (619) 550-6000 TELEPHONE: (214) 999-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this Registration Statement becomes
effective and after the effective time of the proposed Merger described in this
Registration Statement.
------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value............ 1,470,000 $.92 $1,352,400 $467
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(f)(2) under the Securities Act of 1933, as amended, on the
basis of the book value per share of $5.09 of Span Instruments, Inc. Common
Stock (265,699 shares) on April 30, 1996, divided by an Exchange Ratio of
5.53258 to determine an equivalent share price.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TYLAN GENERAL, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 REGISTRATION STATEMENT ITEM AND
HEADING LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<C> <S> <C>
(INFORMATION ABOUT THE TRANSACTION)
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Table of Contents; Available Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Summary; Risk Factors; Selected Historical
Financial Data; Unaudited Pro Forma
Financial Data; Comparative Per Share
Data; The Merger and Related
Transactions; Unaudited Pro Forma
Combined Condensed Financial Statements
4. Terms of the Transaction................... Summary; The Merger and Related
Transactions; Comparison of Rights of Tylan
General Stockholders and Span
Shareholders
5. Pro Forma Financial Information............ Summary; Unaudited Pro Forma Combined
Condensed Financial Statements
6. Material Contacts with the Company Being
Acquired................................. Summary; The Merger and Related
Transactions
7. Additional Information Required For
Reoffering By Persons and Parties Deemed
to be Underwriters....................... *
8. Interests of Named Experts and Counsel..... Experts; Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
(INFORMATION ABOUT THE REGISTRANT)
10. Information with Respect to S-3
Registrants.............................. *
11. Incorporation of Certain Information by
Reference................................ *
12. Information with Respect to S-2 or S-3
Registrants.............................. *
13. Incorporation of Certain Information by
Reference................................ *
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4 REGISTRATION STATEMENT ITEM AND
HEADING LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<C> <S> <C>
14. Information with Respect to Registrants
Other Than S-2 or S-3 Registrants........ Available Information; Summary; Selected
Historical Financial Data; Selected Pro
Forma Combined Condensed Financial Data;
Comparative Per Share Data; Unaudited Pro
Forma Combined Condensed Financial
Information; Risk Factors; Tylan General
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Tylan General Business; Tylan
General Management; Tylan General
Principal Stockholders; Description of
Tylan General Common Stock
(INFORMATION ABOUT THE COMPANY BEING ACQUIRED)
15. Information with Respect to S-3
Companies................................ *
16. Information with Respect to S-2 or S-3
Companies................................ *
17. Information with Respect to Companies Other
Than S-2 or S-3 Companies................ Summary; Selected Historical Financial
Data; Selected Pro Forma Combined Condensed
Financial Data; Comparative Per Share
Data; Unaudited Pro Forma Combined
Condensed Financial Information; Risk
Factors; Span Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Span Business;
Span Financial Statements
(VOTING AND MANAGEMENT INFORMATION)
18. Information if Proxies, Consents or
Authorizations are to be Solicited....... Front Cover Page; Summary; The Tylan
General Meeting; The Span Meeting; Tylan
General Management; Span Management;
Tylan General Principal Stockholders;
Span Principal Shareholders; The Merger
and Related Transactions
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer..................... *
</TABLE>
- ---------------
* Not Applicable.
<PAGE> 4
TYLAN GENERAL, INC.
15330 Avenue of Science
San Diego, CA 92128
, 1996
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Tylan General, Inc., a Delaware corporation ("Tylan
General"), which will be held at 8:00 a.m., local time, on September 4, 1996 at
Tylan General's offices at 15330 Avenue of Science, San Diego, California.
At the Special Meeting, you will be asked to consider and vote upon a
proposal (the "Merger Proposal") to (i) approve and adopt the Agreement and Plan
of Reorganization (the "Plan of Reorganization"), dated as of February 20, 1996,
among Tylan General, Span Instruments, Inc., a Texas corporation ("Span"), Tylan
General Acquisition Subsidiary, Inc., a newly formed, wholly owned Delaware
subsidiary of Tylan General ("Tylan General Sub"), and all of the shareholders
of Span and (ii) approve the merger of Tylan General Sub with and into Span,
pursuant to which Tylan General Sub will cease to exist and Span will survive as
a wholly owned subsidiary of Tylan General (the "Merger"). An aggregate of
1,470,000 shares of Tylan General Common Stock will be issued to the
shareholders of Span in the Merger. On , 1996, the closing
sales price of a share of Tylan General Common Stock as reported on the Nasdaq
National Market was $ . If the requisite approvals of the stockholders
of Tylan General and the shareholders of Span are received and other conditions
to the Merger are satisfied or waived, the Merger is expected to be consummated
on or about September 5, 1996.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Prospectus/Joint Proxy Statement relating to the
actions to be taken by Tylan General stockholders at the Special Meeting and a
form of proxy. The Prospectus/Joint Proxy Statement more fully describes the
proposed Merger and the other proposals submitted hereby and includes
information about Tylan General and Span. I urge you to read the
Prospectus/Joint Proxy Statement carefully.
After careful consideration, your Board of Directors has unanimously
approved the Plan of Reorganization and the transactions provided for therein
and has concluded that these proposals are in the best interests of Tylan
General and its stockholders. Your Board of Directors has unanimously
recommended that the stockholders of Tylan General approve the Merger Proposal.
Whether or not you plan to attend the Special Meeting, please complete,
sign, date and return your proxy in the enclosed envelope. If you attend the
Special Meeting, you may vote in person if you wish, even though you have
previously returned your proxy. It is important that your shares be represented
and voted at the Special Meeting.
I URGE YOU TO VOTE FOR APPROVAL OF THE MERGER PROPOSAL. ON BEHALF OF YOUR
BOARD OF DIRECTORS, THANK YOU FOR YOUR SUPPORT.
Sincerely,
--------------------------------------
David J. Ferran
Chairman of the Board, President and
Chief Executive Officer
<PAGE> 5
TYLAN GENERAL, INC.
15330 Avenue of Science
San Diego, CA 92128
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 4, 1996
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Tylan General, Inc., a Delaware corporation ("Tylan General"), will
be held at 8:00 a.m., local time, on September 4, 1996, at Tylan General's
offices at 15330 Avenue of Science, San Diego, California for the following
purposes:
1. To consider and vote upon a proposal to (i) approve and adopt the
Agreement and Plan of Reorganization, dated as of February 20, 1996, among Tylan
General, Span Instruments, Inc., a Texas corporation ("Span"), Tylan General
Acquisition Subsidiary, Inc., a newly formed, wholly owned Delaware subsidiary
of Tylan General ("Tylan General Sub"), and the shareholders of Span and (ii)
approve the merger of Tylan General Sub with and into Span, pursuant to which,
among other things, Tylan General Sub will cease to exist and Span will survive
as a wholly owned subsidiary of Tylan General (the "Merger"). An aggregate of
1,470,000 shares of Tylan General Common Stock will be issued to the
shareholders of Span in the Merger (provided that there are no dissenting Span
shareholders).
2. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the
Prospectus/Joint Proxy Statement accompanying this Notice.
THE BOARD OF DIRECTORS OF TYLAN GENERAL UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR ALL OF THE PROPOSALS DESCRIBED ABOVE.
Only holders of record of Tylan General Common Stock at the close of
business on July 8, 1996 are entitled to notice of, and will be entitled to vote
at, the Special Meeting or any adjournment or postponement thereof.
BY ORDER OF THE BOARD OF DIRECTORS
--------------------------------------
David L. Stone
Secretary
San Diego, California
, 1996
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID
IF MAILED IN THE UNITED STATES) IS PROVIDED. EVEN IF YOU HAVE GIVEN YOUR PROXY,
YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER,
THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND
YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY
ISSUED IN YOUR NAME.
<PAGE> 6
SPAN INSTRUMENTS, INC.
2201 Avenue K
Plano, TX 75074
, 1996
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Span Instruments, Inc., a Texas corporation ("Span"),
which will be held at 8:00 a.m., local time, on September 4, 1996 at Span's
offices at 2201 Avenue K, Plano, Texas.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to (i) approve and adopt the Agreement and Plan of Reorganization,
dated as of February 20, 1996, among Span, Tylan General, Inc., a Delaware
corporation ("Tylan General"), Tylan General Acquisition Subsidiary, Inc., a
newly formed, wholly owned Delaware subsidiary of Tylan General ("Tylan General
Sub"), and the shareholders of Span and (ii) approve the merger of Tylan General
Sub with and into Span, pursuant to which, among other things, Tylan General Sub
will cease to exist and Span will survive as a wholly owned subsidiary of Tylan
General (the "Merger"). As a result of the Merger, the shares of Span Common
Stock outstanding immediately prior to the consummation of the Merger (provided
that there are no dissenting shares) will be converted into an aggregate of
1,470,000 shares of Tylan General Common Stock. On , 1996,
the closing sales price of a share of Tylan General Common Stock as reported on
the Nasdaq National Market was $ . If the requisite approvals of the
stockholders of Tylan General and the shareholders of Span are received and
other conditions to the Merger are satisfied or waived, the Merger is expected
to be consummated on or about September 5, 1996.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Prospectus/Joint Proxy Statement relating to the
actions to be taken by Span shareholders at the Special Meeting and a form of
proxy. The Prospectus/Joint Proxy Statement more fully describes the proposed
Merger and the other proposals submitted hereby and includes information about
Tylan General and Span. I urge you to read the Prospectus/Joint Proxy Statement
carefully.
After careful consideration, your Board of Directors has unanimously
approved the Plan of Reorganization and the transactions provided for therein
and has concluded that these proposals are in the best interests of Span and its
shareholders. Your Board of Directors has unanimously recommended that the
shareholders of Span approve the Merger Proposal.
Whether or not you plan to attend the Special Meeting, please complete,
sign, date and return your proxy in the enclosed envelope. If you attend the
Special Meeting, you may vote in person if you wish, even though you have
previously returned your proxy. It is important that your shares be represented
and voted at the Special Meeting.
I URGE YOU TO VOTE FOR APPROVAL OF THE MERGER PROPOSAL. ON BEHALF OF YOUR
BOARD OF DIRECTORS, THANK YOU FOR YOUR SUPPORT.
Sincerely,
--------------------------------------
Don E. Whitson
Chief Executive Officer
<PAGE> 7
SPAN INSTRUMENTS, INC.
2201 Avenue K
Plano, TX 75074
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 4, 1996
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Span Instruments, Inc., a Texas corporation ("Span"), will be held
at 8:00 a.m., local time, on September 4, 1996, at 2201 Avenue K, Plano, Texas
for the following purposes:
1. To consider and vote upon a proposal to (i) approve and adopt the
Agreement and Plan of Reorganization, dated as of February 20, 1996, among Span,
Tylan General, Inc. a Delaware corporation ("Tylan General"), Tylan General
Acquisition Subsidiary, Inc., a newly formed, wholly owned Delaware subsidiary
of Tylan General ("Tylan General Sub"), and the shareholders of Span and (ii)
approve the merger of Tylan General Sub with and into Span, pursuant to which,
among other things, Tylan General Sub will cease to exist and Span will survive
as a wholly owned subsidiary of Tylan General (the "Merger"). As a result of the
Merger, the shares of Span Common Stock outstanding immediately prior to the
consummation of the Merger (provided that there are no dissenting shares) will
be converted into an aggregate of 1,470,000 shares of Tylan General Common
Stock.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the
Prospectus/Joint Proxy Statement accompanying this Notice.
Holders of Span Common Stock who do not vote in favor of the Merger may, by
complying with Article 5.12 of the Texas Business Corporation Act, be entitled
to dissenters' rights as set forth therein, and the shares of Span Common Stock
held by such persons will be deemed to be dissenting shares.
THE BOARD OF DIRECTORS OF SPAN UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL
OF THE PROPOSALS DESCRIBED ABOVE.
Only holders of record of Span Common Stock at the close of business on
July 8, 1996 are entitled to notice of, and will be entitled to vote at, the
Special Meeting or any adjournment or postponement thereof.
BY ORDER OF THE BOARD OF DIRECTORS
--------------------------------------
Michele Barton
Secretary
Plano, Texas
, 1996
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID
IF MAILED IN THE UNITED STATES) IS PROVIDED. YOUR PROXY CAN BE WITHDRAWN BY YOU
AT ANY TIME BEFORE IT IS VOTED. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL
VOTE IN PERSON IF YOU ATTEND THE MEETING.
<PAGE> 8
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 18, 1996
TYLAN GENERAL, INC. SPAN INSTRUMENTS, INC.
PROSPECTUS/JOINT PROXY STATEMENT
This Prospectus/Joint Proxy Statement is being furnished to the
stockholders of Tylan General, Inc., a Delaware corporation ("Tylan General"),
in connection with the solicitation of proxies by the Tylan General Board of
Directors (the "Tylan General Board") for use at the Special Meeting of
Stockholders of Tylan General (the "Tylan General Meeting") to be held at 8:00
a.m., local time, on September 4, 1996, at Tylan General's offices at 15330
Avenue of Science, San Diego, California, and at any adjournments or
postponements thereof.
This Prospectus/Joint Proxy Statement is also being furnished to the
shareholders of Span Instruments, Inc., a Texas corporation (together with its
subsidiary and affiliates, "Span"), in connection with the solicitation of
proxies by the Span Board of Directors (the "Span Board") for use at the Special
Meeting of Shareholders of Span (the "Span Meeting") to be held at 8:00 a.m.,
local time, on September 4, 1996, at Span's offices at 2201 Avenue K, Plano,
Texas, and at any adjournments or postponements thereof.
This Prospectus/Joint Proxy Statement also constitutes the Prospectus of
Tylan General for use in connection with the offer and issuance of shares of
common stock of Tylan General, $.001 par value per share ("Tylan General Common
Stock"), as a result of the merger of Tylan General Acquisition Subsidiary,
Inc., a newly formed, wholly owned Delaware subsidiary of Tylan General ("Tylan
General Sub"), with and into Span (referred to herein as the "Merger"), pursuant
to an Agreement and Plan of Reorganization, dated as of February 20, 1996 (the
"Plan of Reorganization"), among Tylan General, Span, Tylan General Sub and the
shareholders of Span. Pursuant to the Merger, Tylan General Sub will cease to
exist and Span will survive as a wholly owned subsidiary of Tylan General. Upon
effectiveness of the Merger, each share of Span Common Stock, no par value (the
"Span Common Stock"), other than dissenting shares, will be converted into
5.53258 shares of Tylan General Common Stock (the "Exchange Ratio"). Provided
that there are no dissenting shares, an aggregate of 1,470,000 shares of Tylan
General Common Stock will be issued to the shareholders of Span in the Merger
(the "Merger Consideration"). On June 13, 1996, the closing sales price of a
share of Tylan General Common Stock as reported on the Nasdaq Stock Market's
National Market (the "Nasdaq National Market") was $10.125.
Holders of Span Common Stock may, by complying with Article 5.12 of the
Texas Business Corporation Act (the "Texas Law"), be entitled to dissenters'
rights as set forth therein with respect to the proposed Merger. Under the
Delaware General Corporation Law (the "Delaware Law"), Tylan General
stockholders are not entitled to dissenters' rights or appraisal rights with
respect to the proposed Merger. See "The Merger and Related
Transactions -- Dissenters' Rights" and Appendix C to this Prospectus/Joint
Proxy Statement which sets forth the Texas Law.
This Prospectus/Joint Proxy Statement and the accompanying form of proxy
are first being mailed to stockholders of Tylan General and shareholders of Span
on or about , 1996.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROSPECTUS/JOINT PROXY
STATEMENT. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS OF TYLAN
GENERAL AND SHAREHOLDERS OF SPAN ARE STRONGLY URGED TO READ AND CONSIDER
CAREFULLY THIS PROSPECTUS/JOINT PROXY STATEMENT IN ITS ENTIRETY, PARTICULARLY
THE MATTERS REFERRED TO UNDER "RISK FACTORS," BEGINNING ON PAGE 13.
------------------------
THE SHARES OF TYLAN GENERAL COMMON STOCK TO BE ISSUED IN THE MERGER HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS/JOINT PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus/Joint Proxy Statement is , 1996.
<PAGE> 9
NO PERSON HAS BEEN AUTHORIZED BY TYLAN GENERAL OR SPAN TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/JOINT
PROXY STATEMENT IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING
OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY TYLAN
GENERAL OR SPAN. THIS PROSPECTUS/JOINT PROXY STATEMENT DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY
THIS PROSPECTUS/JOINT PROXY STATEMENT OR A SOLICITATION OF A PROXY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS/JOINT PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS/JOINT PROXY STATEMENT
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Tylan General is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). These materials can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, New York, New York 10048. Copies of these materials can also be
obtained from the Commission at prescribed rates by writing to the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549.
Under the rules and regulations of the Commission, the solicitation of
proxies from shareholders of Span to approve the Merger Proposal constitutes an
offering of the Tylan General Common Stock to be issued in connection with the
Merger. Accordingly, Tylan General has filed with the Commission a Registration
Statement on Form S-4 under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to such offering (as amended from time to time,
the "Registration Statement"). This Prospectus/Joint Proxy Statement constitutes
the prospectus of Tylan General that is filed as part of the Registration
Statement. Other parts of the Registration Statement are omitted from this
Prospectus/Joint Proxy Statement in accordance with the rules and regulations of
the Commission. Copies of the Registration Statement, including the exhibits to
the Registration Statement and other material that is not included herein, may
be inspected, without charge, at the regional offices of the Commission referred
to above, or obtained at prescribed rates from the Public Reference Section of
the Commission at the address set forth above.
Statements made in this Prospectus/Joint Proxy Statement concerning the
contents of any contract or other document accurately describe the material
provisions of such contract or other document but are not necessarily complete.
With respect to each contract or other document filed as an exhibit to the
Registration Statement, reference is hereby made to that exhibit for a more
complete description of the matter involved, and each such statement is hereby
qualified in its entirety by such reference.
------------------------
TYLAN GENERAL(R) is a registered trademark and Intelligent Gas Panel is a
trademark of Tylan General. ThruTube(R) is a registered trademark of Span. This
Prospectus/Joint Proxy Statement may also include tradenames and trademarks of
companies other than Tylan General and Span.
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................................... 1
SELECTED HISTORICAL FINANCIAL DATA.................................................... 8
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA.................................. 11
COMPARATIVE PER SHARE DATA............................................................ 12
RISK FACTORS.......................................................................... 13
THE TYLAN GENERAL MEETING............................................................. 21
Date, Time and Place of Meeting..................................................... 21
Record Date and Outstanding Shares.................................................. 21
Voting of Proxies................................................................... 21
Revocability of Proxies............................................................. 21
Vote Required....................................................................... 21
Quorum; Abstentions; Broker Non-Votes............................................... 21
Solicitation of Proxies and Expenses................................................ 22
Board Recommendation................................................................ 22
THE SPAN MEETING...................................................................... 23
Date, Time and Place of Meeting..................................................... 23
Record Date and Outstanding Shares.................................................. 23
Voting of Proxies................................................................... 23
Revocability of Proxies............................................................. 23
Vote Required....................................................................... 23
Quorum; Abstentions................................................................. 23
Solicitation of Proxies and Expenses................................................ 24
Board Recommendation................................................................ 24
THE MERGER AND RELATED TRANSACTIONS................................................... 25
General............................................................................. 25
Effects of the Merger............................................................... 25
Background of the Merger............................................................ 26
Reasons for the Merger.............................................................. 27
Tylan General Board Recommendation.................................................. 29
Span Board Recommendation........................................................... 29
Opinion of Adams, Harkness & Hill, Inc.............................................. 29
Plan of Reorganization.............................................................. 33
Related Agreements; Interests of Certain Persons in the Merger...................... 36
Regulatory Matters.................................................................. 36
Certain Federal Income Tax Matters.................................................. 36
Accounting Treatment................................................................ 38
Dissenters' Rights.................................................................. 39
Merger Expenses and Fees and Other Costs............................................ 40
Affiliates' Restrictions on Sale of Tylan General Common Stock...................... 40
Surrender of Certificates........................................................... 41
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.......................... 42
TYLAN GENERAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................................................................... 47
TYLAN GENERAL BUSINESS................................................................ 53
TYLAN GENERAL MANAGEMENT.............................................................. 62
TYLAN GENERAL PRINCIPAL STOCKHOLDERS.................................................. 70
</TABLE>
i
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPAN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 72
SPAN BUSINESS......................................................................... 78
SPAN MANAGEMENT....................................................................... 81
SPAN PRINCIPAL SHAREHOLDERS........................................................... 82
DESCRIPTION OF TYLAN GENERAL COMMON STOCK............................................. 83
COMPARISON OF RIGHTS OF TYLAN GENERAL STOCKHOLDERS AND SPAN SHAREHOLDERS.............. 85
EXPERTS............................................................................... 91
LEGAL MATTERS......................................................................... 91
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>
THE FOLLOWING APPENDICES ALSO CONSTITUTE PART OF THIS PROSPECTUS/JOINT PROXY
STATEMENT:
<TABLE>
<S> <C> <C>
A -- Agreement and Plan of Reorganization
B -- Opinion of Adams, Harkness & Hill, Inc.
C -- Articles 5.11 through 5.13 of the Texas Business Corporation Act
</TABLE>
ii
<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus/Joint Proxy Statement. The summary does not contain a complete
description of the terms of the Merger and is qualified in its entirety by
reference to the full text of this Prospectus/Joint Proxy Statement and the
Appendices hereto. Stockholders of Tylan General and shareholders of Span are
urged to read this Prospectus/Joint Proxy Statement and the Appendices in their
entirety.
Except for the historical information contained herein, the discussion in
this Prospectus/Joint Proxy Statement contains forward-looking statements that
involve risks and uncertainties. Tylan General's, Span's and the combined
entity's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in the sections entitled "Risk Factors," "Tylan
General Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Tylan General Business," "Span Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Span Business,"
as well as those discussed elsewhere in this Prospectus/Joint Proxy Statement.
GENERAL
This Prospectus/Joint Proxy Statement is being provided to stockholders of
Tylan General and shareholders of Span in connection with the proposed Merger of
Tylan General Sub with and into Span, pursuant to which Tylan General Sub will
cease to exist and Span will survive the Merger as a wholly owned subsidiary of
Tylan General. The Merger will be effected pursuant to the Plan of
Reorganization, a copy of which is attached hereto as Appendix A.
THE PARTIES
Tylan General
Tylan General is a leading supplier of process management instrumentation
to semiconductor capital equipment suppliers and advanced integrated circuit
manufacturers. Tylan General was incorporated in Massachusetts in 1979 and
reincorporated in Delaware in 1995. Unless otherwise indicated, "Tylan General"
refers to Tylan General, Inc., a Delaware corporation, its subsidiaries and the
Delaware corporation's predecessor. Tylan General's executive offices are
located at 15330 Avenue of Science, San Diego, California 92128. Its telephone
number is (619) 618-1990.
See "Tylan General Business" for a more detailed description of Tylan
General's business and "Risk Factors" for a discussion of the risks associated
with the ownership of Tylan General Common Stock, including risks related to the
Merger.
Tylan General Sub
Tylan General Sub was incorporated in Delaware in February 1996 for the
purpose of effecting the acquisition of Span. It is a wholly owned subsidiary of
Tylan General and has no material assets or liabilities and has not engaged in
any activities except in connection with the proposed acquisition of Span. Tylan
General Sub's executive offices are located at 15330 Avenue of Science, San
Diego, California 92128. Its telephone number is (619) 618-1990.
Span
Span is a manufacturer of pressure instrumentation, monitoring and control
products. Span was incorporated in Texas in 1969. Unless otherwise indicated,
"Span" refers to Span Instruments, Inc. and its subsidiary. Span's executive
offices are located at 2201 Avenue K, Plano, Texas 75074. Its telephone number
is (214) 461-2222.
See "Span Business" for a more detailed description of Span's business.
1
<PAGE> 13
THE MERGER
General. As a result of the Merger, Tylan General Sub will cease to exist
and each then outstanding share of Span Common Stock (other than dissenting
shares) will automatically, without any action on the part of any holder of Span
Common Stock, be converted into 5.53258 shares of Tylan General Common Stock.
Cash will be paid in lieu of issuing fractional shares. Provided there are no
dissenting shares, an aggregate of 1,470,000 shares of Tylan General Common
Stock (the "Merger Consideration") will be issued in the Merger. The former
holders of Span Common Stock will own shares of Tylan General Common Stock
representing approximately % of the shares of Tylan General Common Stock to
be outstanding immediately after consummation of the Merger (calculated on the
basis of shares of Tylan General Common Stock outstanding as of July
8, 1996, plus the Merger Consideration of 1,470,000 shares to be issued in the
Merger). See "The Merger and Related Transactions -- Effects of the
Merger -- Conversion of Shares."
Other Effects of the Merger. The Merger will be consummated promptly after
approval by the Tylan General stockholders and the Span shareholders of the
Merger Proposal and the satisfaction or waiver of the other conditions to
consummation of the Merger (the "Closing Date"). The Merger will become
effective on the last to occur of (i) the date that the Texas Articles of Merger
are duly filed with the Texas Secretary of State, (ii) the date that the
Delaware Certificate of Merger is duly filed with the Delaware Secretary of
State or (iii) such later date as may be specified in the Texas Articles of
Merger and Delaware Certificate of Merger (the "Effective Date"). On the
Effective Date, Tylan General Sub will merge with and into Span, with the result
that Span will be the surviving corporation in the Merger and a wholly owned
subsidiary of Tylan General (the "Surviving Subsidiary"). The shareholders of
Span (other than dissenting shareholders) will become stockholders of Tylan
General (as described below), and their rights will be governed by Tylan
General's Certificate of Incorporation, as amended (the "Tylan General
Certificate"), the Bylaws of Tylan General (the "Tylan General Bylaws") and the
Delaware Law. See "Comparison of Rights of Stockholders of Tylan General and
Shareholders of Span."
There will be no change in the current Tylan General Board and the officers
of Tylan General as a result of the Merger, other than Don E. Whitson, currently
the Chief Executive Officer and a director of Span, becoming Vice Chairman,
Chief Administrative Officer and a director of Tylan General.
MEETINGS OF TYLAN GENERAL STOCKHOLDERS AND SPAN SHAREHOLDERS
Date, Time and Place
The Tylan General Meeting will be held on September 4, 1996 at 8:00 a.m.,
local time, at Tylan General's offices at 15330 Avenue of Science, San Diego,
California.
The Span Meeting will be held on September 4, 1996 at 8:00 a.m., local
time, at Span's offices at 2201 Avenue K, Plano, Texas.
Purposes of the Meetings
Tylan General Meeting. At the Tylan General Meeting, stockholders of Tylan
General will be asked to consider and vote upon proposals to (i) approve and
adopt the Plan of Reorganization, a copy of which is attached hereto as Appendix
A, and (ii) approve the Merger (referred to herein as the "Merger Proposal").
Span Meeting. At the Span Meeting, shareholders of Span will be asked to
consider and vote upon the Merger Proposal.
Record Date; Shares Entitled to Vote
Tylan General. Only holders of record of Tylan General Common Stock at the
close of business on July 8, 1996 (the "Record Date") are entitled to notice of
and to vote at the Tylan General Meeting. At the close of business on the Record
Date, there were outstanding and entitled to vote shares of Tylan
2
<PAGE> 14
General Common Stock, each of which will be entitled to one vote on each matter
to be acted upon at the Tylan General Meeting.
Span. Only holders of record of Span Common Stock at the close of business
on the Record Date are entitled to notice of and to vote at the Span Meeting. At
the close of business on the Record Date, there were outstanding and entitled to
vote shares of Span Common Stock, each of which will be entitled to
one vote on each matter to be acted upon at the Span Meeting.
Votes Required
Tylan General. Approval of the Merger Proposal requires the affirmative
vote of the holders of a majority of the shares present or represented by proxy
and entitled to vote at the Tylan General Meeting. As a group, all executive
officers and directors of Tylan General and their respective affiliates
beneficially owned shares, or approximately %, of the Tylan
General Common Stock outstanding as of the Record Date.
Span. Approval of the Merger Proposal requires the affirmative vote of the
holders of two-thirds of the shares of Span Common Stock outstanding on the
Record Date and entitled to vote on the Merger Proposal. As a group, all
executive officers and directors of Span and their respective affiliates
beneficially owned shares, or approximately %, of the Span Common
Stock outstanding as of the Record Date.
RECOMMENDATIONS OF BOARDS OF DIRECTORS
The Tylan General Board. The Tylan General Board has unanimously approved
the Plan of Reorganization and the Merger and has determined that the Merger is
in the best interests of Tylan General and its stockholders. The Tylan General
Board has unanimously recommended approval of the Merger Proposal by the Tylan
General stockholders. The primary factors considered and relied upon by the
Tylan General Board in reaching its recommendation are described below under
"The Merger and Related Transactions -- Reasons for the Merger -- Tylan General
Reasons for the Merger."
The Span Board. The Span Board has unanimously approved the Plan of
Reorganization and the Merger and has determined that the Merger is in the best
interests of Span and its shareholders. The Span Board has unanimously
recommended approval of the Merger Proposal by the Span shareholders. The
primary factors considered and relied upon by the Span Board in reaching its
recommendation are described below under "The Merger and Related
Transactions -- Reasons for the Merger -- Span Reasons for the Merger."
OPINION OF TYLAN GENERAL'S FINANCIAL ADVISOR
Adams, Harkness & Hill, Inc. ("Adams, Harkness"), Tylan General's financial
advisor, has delivered to Tylan General its written opinion dated June 12, 1996,
to the effect that, from a financial point of view, the consideration to be
received by the Span shareholders is fair to the stockholders of Tylan General.
The full text of the opinion of Adams, Harkness, which sets forth the
assumptions made, matters considered and limitations on the review undertaken by
Adams, Harkness, is attached as Appendix B to this Prospectus/Joint Proxy
Statement. Tylan General stockholders are urged to read the opinion in its
entirety. See "The Merger and Related Transactions -- Opinion of Adams, Harkness
& Hill, Inc."
PLAN OF REORGANIZATION
Representations and Covenants. Under the Plan of Reorganization, Tylan
General and Span have each made a number of representations regarding the
organization and capital structures of the respective companies and their
affiliates, their operations, financial condition and other matters, including
their authority to enter into the Plan of Reorganization and to consummate the
Merger. In addition, Tylan General and Span have each covenanted that, until the
consummation of the Merger or the termination of the Plan of Reorganization,
they will not take certain actions relating to the operation of their respective
businesses without the other's consent and will use all commercially reasonable
efforts to consummate the Merger in accordance with the Plan of Reorganization.
3
<PAGE> 15
Under the Plan of Reorganization, Span has also agreed that it will not
solicit, encourage, negotiate, provide information for, or otherwise cooperate
in any way with, assist or facilitate any proposal to merge, consolidate or
otherwise acquire Span (other than the Merger Proposal). Span has further
agreed, among other things, to (i) use reasonable best efforts to maintain its
business organization and business relationships, (ii) deliver certain financial
and operating data and any other documents to Tylan General that Tylan General
may reasonably request regarding the business of Span and (iii) obtain and
deliver to Tylan General the Related Agreements (as defined below) and certain
offer documents.
Under the Plan of Reorganization, Tylan General has also agreed, among
other things, to (i) use its best efforts to cause the Tylan General Common
Stock to be issued pursuant to the Merger to be listed on the Nasdaq National
Market and to be qualified under the securities or "blue sky" laws of certain
jurisdictions, (ii) enter into the Whitson Agreement and the Employment
Agreements (as defined below) and (iii) use its best efforts to substitute Tylan
General for Don E. Whitson as guarantor of Span's senior indebtedness and
certain leases of Span and, if unable to do so within 90 days after the Closing
Date, to repay such indebtedness in full.
Conditions to the Merger. In addition to the requirement that the Merger
Proposal be approved by the requisite votes of the Span shareholders and the
Tylan General stockholders, the obligations of Tylan General and Span to
consummate the Merger are subject to the satisfaction of a number of other
conditions that, if not satisfied or waived, may cause the Merger not to be
consummated and the Plan of Reorganization to be terminated. Each party's
obligations are conditioned on, among other things, (i) the effectiveness of,
and the absence of any stop orders with respect to, the Registration Statement,
(ii) the absence of any order by any court or governmental agency to enjoin or
otherwise prevent the consummation of the Plan of Reorganization or the Merger,
(iii) the accuracy, in all material respects, of the representations and
warranties made by the other party, (iv) the performance, in all material
respects, by the other party of its covenants, (v) the absence of any material
adverse change in the business, operations, condition (financial or otherwise),
assets or prospects of the other party and (vi) the receipt of certain legal
opinions.
Tylan General's obligations to consummate the Merger are further
conditioned upon, among other things, (i) the satisfactory completion of its
pre-acquisition review of Span's business, (ii) the receipt of a written opinion
from Adams, Harkness that the consideration to be received by the Span
shareholders is fair to the Tylan General stockholders from a financial point of
view, (iii) the receipt of a letter from Ernst & Young LLP ("Ernst & Young"),
Tylan General's and Span's independent auditors, relating to the availability of
pooling-of-interests accounting treatment, (iv) the receipt of an agreed upon
procedures letter from Ernst & Young in connection with the Registration
Statement, (v) the absence of litigation against Span or Ocala (as defined
below) that, if adversely determined, would have a material adverse effect on
the business, operations, condition (financial or otherwise), assets or
prospects of Span and Ocala, taken as a whole, (vi) no shareholders having
asserted dissenters' rights under the Texas Law, (vii) the receipt of all
approvals, consents, authorizations and modifications of governmental
authorities and third parties, (viii) the execution of noncompetition agreements
by the Span shareholders entering into the Whitson Agreement and the Employment
Agreements, (ix) the receipt of the resignation of each director of Span, (x) no
material deterioration in the aging of Span's accounts receivable from that of
November 30, 1995 and (xi) the execution and delivery to Tylan General of
certain other documents, including the Related Agreements. See "The Merger and
Related Transactions -- Related Agreements; Interests of Certain Persons in the
Merger."
Span's obligations to consummate the Merger are further conditioned upon,
among other things, (i) the execution and delivery to Span of the Whitson
Agreement and the Employment Agreements, (ii) the election of Don E. Whitson to
the Tylan General Board and (iii) the continuation of David J. Ferran as
Chairman of the Board and Chief Executive Officer of Tylan General on a
full-time basis. See "The Merger and Related Transactions -- Plan of
Reorganization" and "-- Related Agreements; Interests of Certain Persons in the
Merger."
At any time prior to the Effective Date, to the extent legally allowed,
Tylan General or Span, without approval of the stockholders of Tylan General or
the shareholders of Span, may waive compliance with any of the agreements or
conditions contained in the Plan of Reorganization for the benefit of that
company.
4
<PAGE> 16
Termination or Amendment. The Plan of Reorganization may be terminated at
any time prior to the Effective Date, whether before or after the approval of
the stockholders of Tylan General or the shareholders of Span, under certain
circumstances. See "The Merger and Related Transactions -- Plan of
Reorganization." If the Plan of Reorganization is terminated, the Plan of
Reorganization shall forthwith become void, and there shall be no liability on
the part of any party to the Plan of Reorganization to any other party, except
for, if appropriate, payment of certain legal fees and any damages for a
material breach of the Plan of Reorganization.
The Plan of Reorganization may be amended by Tylan General or Span at any
time before or after approval of the Tylan General stockholders and Span
shareholders, except that, after such approvals, no amendment may be made that
would change the principal terms of the Plan of Reorganization, unless further
approval of the Tylan General stockholders and the Span shareholders is
obtained.
RELATED AGREEMENTS
In connection with the Plan of Reorganization, certain shareholders and
employees of Span will enter into related agreements (the "Related Agreements"),
as described below:
Affiliate Agreements. To help ensure that the Merger will be accounted for
as a pooling-of-interests, Span affiliates (as defined for purposes of Rule 145
promulgated under the Securities Act ("Rule 145")) have agreed to enter into
agreements that prohibit such persons from disposing of their shares of Tylan
General Common Stock until Tylan General publicly releases its first report of
quarterly financial statements including the combined financial results of Span
and Tylan General for a period of at least 30 days of "combined operations," as
defined by the Commission. Such affiliates also have agreed not to sell, pledge
or otherwise transfer such shares, except in compliance with Rule 145 or under
certain other limited circumstances. See "The Merger and Related
Transactions -- Related Agreements; Interests of Certain Persons in the
Merger -- Affiliate Agreements."
Employment and Non-Competition Agreements. Don E. Whitson will enter into
an employment agreement with Tylan General (the "Whitson Agreement"), and
certain other executive officers of Span (the "Employees") will enter into
employment agreements with Span, to which Tylan General will also be a party
(the "Employment Agreements"), each of which will be effective upon consummation
of the Merger.
The Whitson Agreement and the Employment Agreements provide (i) for
compensation and specified benefits and (ii) that, if the Whitson Agreement or
an Employment Agreement, as the case may be, is terminated, the terminated
employee will receive certain severance payments. Under the Non-Competition
Agreements executed by each of Don E. Whitson and the Employees (the
"Non-Competition Agreements"), each executive also agrees that, until the third
anniversary of the Closing of the Merger, he will not compete with the Surviving
Subsidiary or Tylan General or any of their subsidiaries, in any geographic area
in which any of them was engaged in business during the term of the Whitson
Agreement or the Employment Agreement, as the case may be. See "The Merger and
Related Transactions -- Related Agreements; Interests of Certain Persons in
Merger -- Employment and Non-Competition Agreements."
OTHER MATTERS RELATED TO THE MERGER
Certain Federal Income Tax Consequences. The Merger is expected to be a
tax-free reorganization for federal income tax purposes, so that no gain or loss
will be recognized by the Span shareholders on the exchange of Span Common Stock
for Tylan General Common Stock, except to the extent that Span shareholders
receive cash in lieu of fractional shares. Span will not obtain a ruling from
the Internal Revenue Service as to the tax consequences of the Merger. As a
condition to each of Tylan General's and Span's obligations to consummate the
Merger, Tylan General and Span will receive an opinion at the Effective Date
from their respective legal counsel to the effect that the Merger will be
treated as a tax-free reorganization for federal income tax purposes. Span
shareholders are urged to consult their own tax advisors regarding the tax
consequences of the Merger. See "The Merger and Related Transactions -- Certain
Federal Income Tax Matters."
5
<PAGE> 17
Accounting Treatment. The Merger is intended to be treated as a
pooling-of-interests for accounting purposes. As a condition to Tylan General's
obligation to consummate the Merger, Tylan General will receive a letter to such
effect from Ernst & Young. See "The Merger and Related
Transactions -- Accounting Treatment."
Dissenters' Rights. If the Plan of Reorganization is approved by the
required vote of Span shareholders and is not abandoned or terminated, holders
of Span Common Stock who did not vote in favor of the Merger may, by complying
with Article 5.12 of the Texas Law, a copy of which is attached hereto as
Appendix C, assert dissenters' rights as described therein, and the shares of
Span Common Stock held by such persons will be deemed to be "Dissenting Shares."
However, it is a condition precedent to the obligations of Tylan General and
Tylan General Sub under the Plan of Reorganization that no holders of
outstanding Span Common Stock be, or have the right to become, entitled to
dissenters' rights pursuant to Article 5.11 of the Texas Law. Under the Delaware
Law, Tylan General stockholders are not entitled to dissenters' rights or
appraisal rights with respect to the Merger. See "The Merger and Related
Transactions -- Dissenters' Rights."
Merger Expenses and Fees and Other Costs. Whether or not the Merger is
consummated, each party will bear its own costs and expenses in connection with
the Merger and the transactions provided for therein; provided that, if the
Merger is consummated, the Span shareholders will indemnify Tylan General, Tylan
General Sub and Span from any costs and expenses of Span in connection with the
Merger in excess of $350,000. Tylan General has agreed to pay to Adams, Harkness
a fee of $100,000 in connection with rendering an opinion to the effect that,
from a financial point of view, the consideration to be paid to the shareholders
of Span is fair to the stockholders of Tylan General. Tylan General has also
agreed to pay Michael Khougaz, a director of Tylan General, a fee of $30,000 for
advisory services rendered to Tylan General in connection with the Merger. Span
has agreed to pay to Blum & Co., Inc. a fee of $150,000 for financial services
rendered to Span in connection with the Merger. See "The Merger and Related
Transactions -- Plan of Reorganization -- Merger Expenses and Fees and Other
Costs."
Tylan General and Span estimate that they will incur direct transaction
costs of approximately $1.0 million associated with the Merger. These
nonrecurring transaction costs will be charged to operations upon consummation
of the Merger, expected in the quarter ending October 27, 1996. See "Unaudited
Pro Forma Combined Condensed Financial Information" included elsewhere herein.
Surrender of Certificates. Tylan General and Span anticipate that all Span
Common Stock certificates will be exchanged for Tylan General Common Stock
certificates (and cash in lieu of any fractional shares) at the Closing.
MARKET PRICE DATA
The following table sets forth, for the fiscal quarters indicated, the
range of high and low sales prices per share of Tylan General Common Stock as
reported on the Nasdaq National Market under the symbol "TYGN."
<TABLE>
<CAPTION>
QUARTERLY PERIOD HIGH LOW
------------------------------------------------------------------- ------ ------
<S> <C> <C>
Fiscal year ended October 31, 1995
1st Quarter (from January 28, 1995).............................. $10.25 $ 6.50
2nd Quarter...................................................... 16.50 9.12
3rd Quarter...................................................... 21.50 14.25
4th Quarter...................................................... 17.25 11.50
Fiscal year ending October 31, 1996
1st Quarter...................................................... 17.00 11.25
2nd Quarter...................................................... 14.75 7.75
3rd Quarter (through June 13, 1996).............................. 13.25 9.50
</TABLE>
There is no public trading market for the Span Common Stock. The last price
at which shares of Span Common Stock were sold was $15.79 per share, as
established by the Span Board.
6
<PAGE> 18
As of the Record Date, there were approximately stockholders of record
of Tylan General Common Stock, as shown on the records of its transfer agent,
and shareholders of record of Span Common Stock, as shown on the stock records
of Span.
Neither Tylan General nor Span has ever paid any cash dividends on its
capital stock, and Tylan General anticipates that, for the foreseeable future,
it will continue to retain any earnings for use in the operation of its
business. Tylan General and Span are each parties to certain credit agreements
that prohibit payment of dividends or distribution of assets.
The following table sets forth the last reported sales prices of Tylan
General Common Stock on the Nasdaq National Market on February 16, 1996, the
last trading day prior to the joint public announcement by Tylan General and
Span of the signing of the Plan of Reorganization, and on June 13, 1996, the
most recent practicable trading day prior to the printing of this
Prospectus/Joint Proxy Statement, and equivalent per share prices for Span
Common Stock based on the Tylan General Common Stock prices:
<TABLE>
<CAPTION>
TYLAN
GENERAL SPAN
COMMON STOCK COMMON EQUIVALENT(1)
------------ --------------------
<S> <C> <C>
February 16, 1996.................................. $ 13.50 $74.69
June 13, 1996...................................... $ 10.125 $56.02
</TABLE>
- ---------------
(1) Represents the price of the equivalent of one share of Span Common Stock
calculated by multiplying the sales price of one share of Tylan General
Common Stock by the Exchange Ratio of 5.53258.
7
<PAGE> 19
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below with respect to
Tylan General's statements of income for each of the three years in the period
ended October 31, 1995, and with respect to Tylan General's balance sheets at
October 31, 1994 and 1995, are derived from the audited consolidated financial
statements of Tylan General included elsewhere in this Prospectus/Joint Proxy
Statement. The selected historical financial data set forth below with respect
to Tylan General's statements of income for each of the two years in the period
ended October 31, 1992 and with respect to Tylan General's balance sheets at
October 31, 1991, 1992 and 1993 are derived from the audited consolidated
financial statements of Tylan General not included in this Prospectus/Joint
Proxy Statement. The selected historical financial data set forth below with
respect to the statements of operations of Span, for each of the three years in
the period ended August 31, 1995 and with respect to Span's balance sheets at
August 31, 1994 and 1995, are derived from the audited consolidated financial
statements of Span included elsewhere in this Prospectus/Joint Proxy Statement
and are qualified by reference to such financial statements and the notes
related thereto. The selected historical financial data set forth below with
respect to the statements of operations of Span for each of the two years in the
period ended August 31, 1992 and with respect to Span's balance sheets at August
31, 1991, 1992 and 1993 are derived from the audited consolidated financial
statements of Span not included in this Prospectus/Joint Proxy Statement.
The selected historical financial data for Tylan General for the six months
ended April 30, 1995 and 1996 are derived from the unaudited consolidated
financial statements included elsewhere in this Prospectus/Joint Proxy
Statement. The selected historical financial data for Span for the six months
ended April 30, 1995 and 1996 and the two months ended October 31, 1995 are
derived from the unaudited consolidated financial statements included elsewhere
in this Prospectus/Joint Proxy Statement. In each case, the unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments and the adjustments related to Span distributor
inventory returns during the two months ended October 31, 1995 as described in
Note (1) to the Span Selected Historical Financial Data, that such company
considers necessary for a fair presentation of the financial position and
results of operations for these periods. Operating results for Tylan General for
the six months ended April 30, 1996 and for Span for the six months ended April
30, 1996 are not necessarily indicative of the results that may be expected for
the entire year.
The data set forth below are qualified by reference to, and should be read
in conjunction with, financial statements and the notes related thereto.
8
<PAGE> 20
TYLAN GENERAL SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL
FISCAL YEAR ENDED OCTOBER 31,(1) 30,(2)
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales................................. $29,756 $30,611 $33,465 $48,079 $75,825 $33,531 $52,720
Cost of sales............................. 15,435 17,395 18,919 28,908 42,814 19,065 30,350
------- ------- ------- ------- ------- ------- -------
Gross profit.............................. 14,321 13,216 14,546 19,171 33,011 14,466 22,370
Operating expenses:
Sales and marketing..................... 5,166 5,794 6,026 7,357 10,730 4,817 6,939
General and administrative.............. 4,893 4,626 3,873 4,677 7,080 3,364 4,443
Research and development................ 2,154 2,145 2,039 2,395 5,126 2,325 3,298
Amortization, primarily goodwill........ 482 514 354 399 489 239 184
------- ------- ------- ------- ------- ------- -------
Income from operations.................... 1,626 137 2,254 4,343 9,586 3,721 7,506
Other income (expenses)-net............... (896) 737 (650) (1,281) (879) (95) 394
------- ------- ------- ------- ------- ------- -------
Income before incomes taxes............... 730 874 1,604 3,062 8,707 3,626 7,900
Provision for income taxes................ 521 746 854 613 3,319 1,523 3,028
------- ------- ------- ------- ------- ------- -------
Income before extraordinary item and
cumulative effect of change in
accounting principle.................... 209 128 750 2,449 5,388 2,103 4,872
Extraordinary item, net of income tax
benefit................................. -- (51) (137) -- (695) (695) --
Cumulative effect of change in accounting
principle............................... -- -- 416 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income(3)............................. $ 209 $ 77 $ 1,029 $ 2,449 $ 4,693 $ 1,408 $ 4,872
======= ======= ======= ======= ======= ======= =======
Earnings per share data:(4)
Income before extraordinary item and
cumulative effect of change in
accounting principle.................. $.61 $1.04 $.45 $.72
Net income.............................. $.61 $.90 $.30 $.72
Weighted average common and common
equivalent shares outstanding......... 4,000 5,189 4,660 6,726
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, APRIL
----------------------------------------------- 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)................. $ (377) $ 1,872 $ 4,985 $ 8,034 $29,331 $30,072
Total assets.............................. 19,041 19,286 22,578 27,513 58,841 67,559
Long-term obligations, net of current
portion................................. 1,546 2,996 4,298 5,079 1,649 2,160
Stockholders' equity(5)................... 6,855 6,942 7,614 10,598 42,675 47,376
</TABLE>
- ------------------------
(1) Tylan General's fiscal year is comprised of either 52 or 53 weeks and ends
on the Sunday closest to October 31 each year. For convenience, Tylan
General's fiscal year end has been presented as October 31 throughout this
Prospectus/Joint Proxy Statement.
(2) Tylan General's first three fiscal quarters end on the Sunday closest to the
last day of January, April and July, respectively. For convenience, the end
of Tylan General's second fiscal quarter has been presented as the last day
of such month throughout this Prospectus/Joint Proxy Statement.
(3) Net income for the year ended October 31, 1993 includes $416,000 as a result
of the cumulative effect of a change in accounting principle adopted on
November 1, 1992, and net income for the year ended October 31, 1994
includes $591,000 as a result of the reduction in the valuation allowance
against deferred tax assets recorded in the second quarter. Net income for
the year ended October 31, 1995 includes an extraordinary charge of
$695,000, net of income tax benefit, as a result of the prepayment of
certain indebtedness.
(4) Earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding during each period using the
treasury stock method, and it assumes conversion of all outstanding
convertible preferred stock and the exercise of all outstanding warrants.
Stock options, convertible preferred stock and warrants are considered to be
common stock equivalents. All shares of common stock and common stock
equivalents issued within twelve months of an initial public offering at a
price per share less than the offering price ($7.00) are considered to be
outstanding for all periods presented, prior to the public offering, in the
same manner as a stock split. Accordingly, all shares of common stock and
common stock equivalents issued subsequent to January 1994 and prior to
January 1995 at a price per share below $7.00 are considered to be
outstanding for periods prior to January 1995.
(5) In February 1995, Tylan General completed its initial public offering
resulting in net proceeds to Tylan General of $7.4 million. In October 1995,
Tylan General completed a second public offering resulting in net proceeds
to Tylan General of $18.5 million. The net proceeds from these offerings
were used to repay outstanding indebtedness, to increase working capital and
for general corporate purposes.
9
<PAGE> 21
SPAN SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWO MONTHS
ENDED SIX MONTHS
FISCAL YEAR ENDED AUGUST 31, OCTOBER ENDED APRIL 30,
----------------------------------------------- 31, -----------------
1991 1992 1993 1994 1995 1995 1995 1996
------- ------- ------- ------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $17,443 $17,053 $23,362 $27,293 $42,443 $ 4,855(1) $20,786 $23,156
Cost of sales................ 10,838 10,465 14,073 17,041 26,676 2,862(1) 12,688 15,355
------- ------- ------- ------- ------- ------- ------- -------
Gross profit................. 6,605 6,588 9,289 10,252 15,767 1,993 8,098 7,801
Operating expenses:
Sales and marketing........ 1,717 1,538 2,218 2,467 3,990 997 1,983 4,100
General and
administrative........... 2,456 2,662 3,046 4,401 7,129 1,172 3,156 3,807
Research and development... 1,351 1,216 1,626 1,794 2,401 743 1,237 2,220
Other amortization(2)...... 439 122 32 28 33 4 12 16
------- ------- ------- ------- ------- ------- ------- -------
Total expenses...... 5,963 5,538 6,922 8,690 13,553 2,916 6,388 10,143
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................. 642 1,050 2,367 1,562 2,214 (923) 1,710 (2,342)
Interest expense............. 715 722 677 755 1,168 250 607 888
Minority interest............ -- -- -- -- 30 20 1 54
Other (income)
expense -- net............. 2 73 17 (4) 47 9 6 7
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision for (benefit
from) income taxes......... (75) 255 1,673 811 969 (1,202) 1,096 (3,291)
Provision for (benefit from)
income taxes............... (11) 112 625 310 430 (376) 486 (1,079)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ $ (64) $ 143 $ 1,048 $ 501 $ 539 $ (826) $ 610 $(2,212)
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share...................... $ (.25) $ .57 $ 4.19 $ 1.94 $ 2.06 $ (3.14) $ 2.40 $ (8.37)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------------------------- APRIL 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............. $ 2,508 $ 2,465 $ 2,968 $ 2,689 $ 6,546 $ 8,322
Total assets................. 10,023 11,623 13,384 17,009 27,860 34,615
Long-term obligations, net of
current portion............ 5,211 5,877 5,197 7,061 13,541 19,645
Shareholders' equity......... 2,377 2,413 3,424 3,915 4,372 1,353
</TABLE>
- ---------------
(1) In October 1995, Span notified its distributors of its decision to
discontinue selling semiconductor products through distributors and
permitted distributors to return unsold inventory. Approximately $2.5
million of such inventory, sold in September and October 1995 prior to the
notification, was returned, and sales of $2.5 million were reversed. See
"Span Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(2) Primarily amortization of goodwill, patents and trademarks and, for 1991 and
1992, covenants not to compete.
10
<PAGE> 22
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The selected pro forma combined financial data are derived from the
unaudited pro forma combined condensed financial statements, which give effect
to the Merger as a pooling-of-interests and should be read in conjunction with,
and are qualified by reference to, such pro forma statements and the notes
thereto included elsewhere in this Prospectus/Joint Proxy Statement. For
purposes of the unaudited pro forma operating data, Tylan General's consolidated
financial statements for the three fiscal years ended October 31, 1995 and for
the six months ended April 30, 1995 and 1996 have been combined with the
consolidated financial statements of Span for the three years ended August 31,
1995 and for the six months ended April 30, 1995 and 1996, respectively. No
dividends have been declared or paid on Tylan General Common Stock or Span
Common Stock.
The pro forma data is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have been achieved if the Merger had been consummated as of the beginning of the
periods indicated, nor is it necessarily indicative of future financial position
or results of operations.
For purposes of the unaudited pro forma combined balance sheet data, Tylan
General's financial data at October 31, 1993, 1994 and 1995 and April 30, 1995
and 1996 have been combined with Span's financial data at August 31, 1993, 1994
and 1995 and April 30, 1995 and 1996, respectively.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED OCTOBER 31, APRIL 30,(1)
-------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales...................................................... $56,827 $75,372 $118,268 $54,317 $75,421
Cost of sales.................................................. 32,992 45,949 69,490 31,753 45,250
------- ------- -------- ------- -------
Gross profit................................................... 23,835 29,423 48,778 22,564 30,171
Operating expenses:
Sales and marketing.......................................... 8,244 9,824 14,720 6,800 10,356
General and administrative................................... 6,919 9,078 14,209 6,520 8,850
Research and development..................................... 3,665 4,189 7,527 3,562 5,518
Amortization, primarily goodwill............................. 386 427 522 251 200
------- ------- -------- ------- -------
Income from operations......................................... 4,621 5,905 11,800 5,431 5,247
Other income (expenses) -- net................................. (1,344) (2,032) (2,124) (709) (755)
------- ------- -------- ------- -------
Income before income taxes..................................... 3,277 3,873 9,676 4,722 4,492
Provision for income taxes..................................... (1,479) (923) (3,749) (2,009) (1,949)
------- ------- -------- ------- -------
Income before extraordinary item and cumulative effect of
change in accounting principle............................... $ 1,798 $ 2,950 $ 5,927 $ 2,713 $ 2,543
======= ======= ======== ======= =======
Earnings per share data:
Income before extraordinary item and cumulative effect of
change in accounting principle............................. $.54 $.89 $.44 $.31
Weighted average common and common equivalent shares
outstanding................................................ 5,470 6,659 6,130 8,196
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
1996
---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................... $33,248
Total assets.................................................. 92,474
Long term obligations, net of current portion................. 16,805
Stockholders' equity.......................................... 46,070
</TABLE>
- ---------------
See "Unaudited Pro Forma Combined Condensed Financial Information" and
accompanying notes thereto.
(1) The two-month period ended October 31, 1995 relating to Span is not included
in the operating data as it will be presented as an adjustment to retained
earnings in the combined financial statements due to the differing year-ends
of Tylan General and Span.
11
<PAGE> 23
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Tylan
General and Span and combined per share data on an unaudited pro forma basis
after giving effect to the Merger on a pooling-of-interests basis of accounting.
This data should be read in conjunction with the selected financial data, the
unaudited pro forma combined condensed financial information and the separate
historical financial statements of Tylan General and Span and notes thereto,
included elsewhere in this Prospectus/Joint Proxy Statement. The pro forma
combined financial data is not necessarily indicative of the operating results
that would have been achieved had the Merger been consummated as of the
beginning of the periods indicated nor is such data necessarily indicative of
future financial condition or results of operations. For purposes of the
comparative per share data, Tylan General's financial data at October 31, 1993,
1994 and 1995 and April 30, 1995 and 1996 have been combined with Span's
financial data at August 31, 1993, 1994 and 1995 and April 30, 1995 and 1996,
respectively.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER SIX MONTHS ENDED
31, APRIL 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
HISTORICAL -- TYLAN GENERAL:
Income before extraordinary item and
cumulative effect of change in accounting
principle per share...................... $ .61 $ 1.04 $ .45 $ .72
Book value per share(1)..................... $ 3.67 $ 6.59 $ 4.04 $ 7.27
HISTORICAL -- SPAN:
Net income (loss) per share................. $ 4.19 $ 1.94 $ 2.06 $ 2.40 $(8.37)
Book value per share(1)..................... $13.42 $15.03 $16.62 $17.63 $ 5.09
PRO FORMA COMBINED INCOME BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE:
Per Tylan General share..................... $ .54 $ .89 $ .44 $ .31
Equivalent per share of Span Common
Stock(2)................................. $ 2.99 $ 4.92 $ 2.43 $ 1.72
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
1996
---------
<S> <C>
PRO FORMA COMBINED BOOK VALUE PER SHARE(3)(4):
Per Tylan General share......................................................... $ 5.77
Equivalent per share of Span Common Stock(2).................................... $ 31.92
</TABLE>
- ---------------
(1) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of Common Stock outstanding at the end of
each period. For Tylan General's fiscal year ended October 31, 1994, the
calculation assumes the conversion of all outstanding convertible preferred
stock.
(2) The Span Equivalent pro forma combined per share amounts are calculated by
multiplying the Tylan General combined pro forma per share amounts by an
Exchange Ratio of 5.53258 per share of Span Common Stock.
(3) Tylan General and Span estimate they will incur direct transaction costs of
approximately $1.0 million associated with the Merger, which will be
charged to operations upon consummation of the Merger. In addition, it is
expected that, after the Merger, Tylan General will incur additional
charges to operations, currently estimated to be between $2.5 million and
$3.0 million, to reflect costs associated with integrating the two
companies. The pro forma combined book value per share data give effect to
estimated costs, resulting in a $2.3 million charge, which is the midpoint
of the above ranges, after giving effect for the estimated tax benefit, as
if such costs and charge had been incurred as of April 30, 1996. These
costs and charge are not included in the pro forma income per share data.
See "Unaudited Pro Forma Combined Condensed Financial Information" and
accompanying notes thereto.
(4) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of Tylan
General Common Stock or Span Common Stock outstanding at the end of the
period.
12
<PAGE> 24
RISK FACTORS
The following risk factors should be considered by holders of Tylan General
Common Stock and Span Common Stock in evaluating whether to approve the Merger
Proposal. These factors should be considered in conjunction with the other
information included and incorporated by reference in this Prospectus/Joint
Proxy Statement.
The discussion in this Prospectus/Joint Proxy Statement contains
forward-looking statements that involve risks and uncertainties. Tylan
General's, Span's and the combined entity's actual results could differ
materially from those discussed here. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in the
sections entitled "Risk Factors," "Tylan General Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Tylan General
Business," "Span Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Span Business," as well as those discussed elsewhere
in this Prospectus/Joint Proxy Statement.
INTEGRATION OF OPERATIONS
If the combined company is to realize the anticipated benefits of the
Merger, the operations of the two companies must be integrated and combined
efficiently. The process of rationalizing management services, administrative
organizations, facilities, management information systems and other aspects of
operations, while managing a larger and geographically expanded entity, will
present a significant challenge to the management of the combined company. There
can be no assurance that the integration process will be successful or that the
anticipated benefits of the business combination will be fully realized. The
dedication of management resources to such integration may detract attention
from the day-to-day business of the combined company. The difficulties of
integration may be increased by the necessity of coordinating geographically
separated organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. There can be no
assurance that there will not be substantial costs associated with the
integration process, that such activities will not result in a decrease in
revenues or that there will not be other material adverse effects of these
integration efforts. Such effects could materially reduce the short-term
earnings of the combined company. Subsequent to the Merger, Tylan General
expects to incur a charge in the fourth quarter of fiscal 1996, currently
estimated to be between $3.5 million and $4.0 million, to reflect the
combination of the two companies, including transaction and integration costs.
This amount is a preliminary estimate only. There can be no assurance that Tylan
General will not incur additional charges in the fourth quarter and subsequent
quarters to reflect costs associated with the Merger.
FLUCTUATIONS IN OPERATING RESULTS
Tylan General's and Span's quarterly and annual operating results are (and
those of the combined company after the consummation of the Merger will be)
affected by a wide variety of factors that could materially and adversely affect
revenues and profitability, including factors pertaining to (i) customer demand,
such as general economic conditions in the semiconductor industry, market
acceptance of the products of both Tylan General and Span as well as the
products of their respective customers, changes in product mix and the timing,
cancellation or delay of customer orders; (ii) competition, such as competitive
pressures on prices of Tylan General's and Span's products, the introduction or
announcement of new products by competitors and intellectual property rights of
third parties; (iii) manufacturing and operations, such as fluctuations in
manufacturing yields, availability and cost of production capacity and raw
materials, inventory obsolescence and inventory management; (iv) fluctuations in
foreign currency exchange rates; (v) new product development, such as increased
research, development and marketing expenses associated with new product
introductions, Tylan General's and Span's ability to introduce new products and
technologies on a timely basis and the amount and timing of recognition of
non-recurring development revenue; (vi) sales and marketing, such as
concentration of customers, discounts that may be granted to certain customers
and product returns and exchanges; and (vii) the current and potential future
dependence on Tylan General's and Span's existing product lines, as well as
other factors, such as levels of expenses relative to revenue levels, personnel
changes and generally prevailing economic conditions.
13
<PAGE> 25
Tylan General's and Span's products typically have a lengthy sales cycle
during which Tylan General and Span may expend substantial funds and management
effort. Any delay or failure to receive anticipated orders, or any deferrals or
cancellations of existing orders, could have a material adverse effect on the
combined company's business, financial condition and results of operations.
Continued investments in research, development and engineering and the further
development of the combined company's manufacturing, sales and service
organization will result in fixed costs that the combined company will not be
able to reduce rapidly if its revenue goals for a particular period are not met.
Tylan General's and Span's backlogs at the beginning of a quarter do not include
all sales required to achieve their respective revenue goals for that quarter.
Consequently, Tylan General and Span are (and the combined company will be)
dependent on obtaining orders for shipment in a particular quarter to achieve
their respective revenue goals for that quarter. See "-- Market Acceptance,"
"Tylan General Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Span Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Tylan General Business" and "Span
Business."
CYCLICALITY OF SEMICONDUCTOR INDUSTRY
Tylan General's business depends (and the combined company's business will
depend) substantially upon the capital expenditures of integrated circuit ("IC")
manufacturers, which in turn depend upon the demand for ICs and products
utilizing ICs. Sales to semiconductor capital equipment suppliers ("equipment
suppliers") and IC manufacturers accounted for a substantial majority of Tylan
General's net sales in fiscal 1995 and in the first six months of fiscal 1996
and substantially all of Tylan General's growth in net sales in recent years.
Tylan General anticipates that sales to such customers will continue to account
for a substantial majority of its sales. The semiconductor industry is highly
cyclical and historically has experienced periods of oversupply, resulting in
significantly reduced demand for capital equipment, including the products
manufactured by Tylan General. In 1991 and 1992, the semiconductor capital
equipment industry and Tylan General were materially and adversely impacted by
decreased demand for semiconductor capital equipment. In the past four years,
the IC industry has experienced significant growth which in turn has resulted in
significant growth in the semiconductor capital equipment industry. Tylan
General believes that the rate of growth in the IC industry will deteriorate,
and there can be no assurance that demand for ICs and products utilizing ICs
will not decline or that the supply of ICs will not outpace demand. Tylan
General does not expect to be able to sustain in the future the rate of growth
in revenues that it experienced for fiscal 1995 or in the first six months of
fiscal 1996. Tylan General anticipates that a significant portion of new orders
for the combined company's products will depend upon demand from IC
manufacturers building or expanding large fabrication facilities, and there can
be no assurance that such demand will exist. In recent months, several IC
manufacturers have delayed or cancelled planned capacity expansions as the
supply of ICs from existing sources has outpaced the demand for ICs. Such delays
have resulted in rescheduling of some significant orders for Tylan General's
products. Tylan General expects that existing conditions of oversupply in the IC
market will continue, resulting in further delays and cancellation of orders for
the Company's products. In June 1996, Tylan General laid off 40 manufacturing
employees at its Rancho Dominguez facility, 33 of whom had been hired by Tylan
General on a temporary basis, in response to weakening demand for mass flow
control products. A further weakening of demand for semiconductor capital
equipment, as well as downturns or slowdowns in the IC market, will have a
material adverse effect on the combined company's business, financial condition
and results of operations. Moreover, the combined company's need to continue to
invest in research and development, marketing and customer service and support
capabilities will limit its ability to reduce expenses in response to such
downturns or slowdowns. See "Tylan General Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Span Management's
Discussion and Analysis of Financial Condition and Results of Operations."
MARKET ACCEPTANCE
Tylan General believes that the future success of the combined company will
depend, in part, on the combined company's ability to maintain and increase the
acceptance of its products in the market. Because a substantial investment is
required by IC manufacturers to install and integrate capital equipment into an
IC production line, Tylan General believes that IC manufacturers choose
equipment suppliers based on cost of
14
<PAGE> 26
ownership, past relationships, product compatibility, perceptions regarding a
supplier's ability to continue to manufacture and support its products and other
factors. Tylan General also believes that equipment suppliers choose component
suppliers based on similar factors. It has generally been Tylan General's
experience that once a component supplier has been chosen for a specific
application or system, an equipment supplier or IC manufacturer will continue to
use or nominate such component supplier's products for that application or
system and will frequently consolidate other component requirements with the
same supplier. For this reason, equipment suppliers and IC manufacturers may
develop strong ties with particular component suppliers. Consequently, it will
be difficult for the combined company to sell products to potential customers
that have established relationships with other component suppliers, and the
combined company's ability to obtain orders will depend, in part, upon potential
customers undertaking an evaluation for new equipment. Most potential customers
conduct such evaluations infrequently. As a result, there can be no assurance
that the combined company will be able to maintain or increase the market
acceptance of its products.
Sales of mass flow controllers to U.S.-based customers have accounted for a
substantial portion of Tylan General's net sales in recent years. Equipment
suppliers typically build their products using a preferred standard set of
components. In cases where Tylan General's products are not the standard, Tylan
General's ability to sell its products on such equipment is dependent upon
specifications or "nominations" in which the end-user IC manufacturers that
purchase such equipment specify to the equipment supplier that Tylan General's
products be used on such equipment. Tylan General has experienced fluctuations
in the number and size of nominations that it has been awarded from period to
period. There can be no assurance that the combined company will be able to
sustain or increase past levels of end-user nominations or that new orders will
not decline in the future.
Tylan General is attempting to develop a market for its ultraclean gas
panels, including the Intelligent Gas Panel, all of which are significantly more
sophisticated and expensive than previous-generation gas panels that equipment
suppliers have manufactured internally or relied on small local vendors to
supply. The development of the market for ultraclean gas panels may be limited
if equipment suppliers continue to manufacture gas panels internally. In
addition, to effectively incorporate the Intelligent Gas Panel on a process
tool, the supplier of such tool or the end user must modify the tool's internal
software to permit communication with the Intelligent Gas Panel's software.
There can be no assurance that a sufficient number of equipment suppliers or end
users will modify such software to permit significant market acceptance of the
Intelligent Gas Panel. There also can be no assurance whether or to what extent
the combined company will be able to sell its gas panels or its other products
to new customers, maintain its relationships with existing customers or gain
broader acceptance of its products in the market. See "-- Competition" and
"Tylan General Business -- Products."
NEW PRODUCTS AND PRODUCT ENHANCEMENTS
Tylan General believes that the future success of the combined company will
depend, in part, on the combined company's ability to develop and manufacture
new products and product enhancements. The markets in which Tylan General and
Span compete are characterized by evolving industry standards and frequent
improvements in products and services. To compete effectively in such markets,
Tylan General and Span must continually improve their respective products and
technologies and develop new technologies and products that compete effectively
on the basis of price and performance and that adequately address customer
requirements. The markets in which Tylan General's and Span's customers compete
are characterized by rapidly changing technology and emerging industry
standards. To compete effectively, Tylan General and Span must adapt their
respective products to meet these technological changes and to support such
standards. There can be no assurance that the combined company will be able to
improve its existing products or technologies or develop new products or
technologies. Even if the combined company is able to develop new or enhanced
products, there can be no assurance such products will be cost-effective or
introduced in a timely manner. Failure of the combined company to develop or
introduce new products or product enhancements in a timely manner will have a
material adverse effect on the combined company's business, financial condition
and results of operations. Moreover, the introduction of new products has in the
past contributed to fluctuations in quarterly operating results. Tylan General
believes that the introduction of new products in the
15
<PAGE> 27
future may result in fluctuations in quarterly operating results due to
manufacturing, engineering and marketing costs associated with introducing new
products. In addition, Tylan General has experienced a trend in the sales of its
flow products in which the newer, more costly products that have lower gross
margins than older products are accounting for an increasing portion of the flow
products sold by Tylan General. New Tylan General products have in the past
required new and untested manufacturing procedures that have resulted in higher
manufacturing expenses, lower gross margins, product shipping delays and product
quality problems. There can be no assurance that new products introduced by the
combined company in the future will not have similar or more adverse impacts. If
new products have reliability or quality problems, then reduced orders, higher
manufacturing costs, delays in collecting accounts receivable and additional
service and warranty expense may result. See "Tylan General
Business -- Products" and "Tylan General Business -- Research, Development and
Engineering."
COMPETITION
In each of the markets that they serve, Tylan General and Span face
substantial competition. In addition, Tylan General anticipates that the
combined company may face substantial competition in the future from new
entrants in its markets. Some of these existing and potential competitors have
substantially greater financial, engineering, manufacturing or marketing
resources than the combined company. Tylan General competes with a number of
companies in its mass flow controller markets and with other companies,
including MKS Instruments, in its pressure products markets. Competitors of
Tylan General and Span have developed and marketed products having similar
design and functionality to Tylan General's and Span's products. The combined
company's competitors can be expected to continue to improve the design and
performance of their products and to introduce new products with competitive
price/performance characteristics. To the extent the combined company's products
do not achieve performance or other advantages over products offered by
competitors, the combined company is likely to experience greater price
competition or loss of market share with respect to such products which could
have a material adverse effect on the combined company's business, financial
condition and results of operations. From time to time, Tylan General and Span
have experienced declines in prices for some of their respective products that
materially and adversely affected their respective gross margin, primarily as a
result of negotiated price reductions related to volume purchase arrangements.
Tylan General believes that worldwide competitive pressures in the combined
company's markets could result in declines in the prices of its products in the
future. Declines in the selling prices of the combined company's products, if
not offset by reductions in the cost of producing such products and increased
unit volume sales, or by sales of products with higher gross margins, could have
a material adverse effect on the combined company's business, financial
condition and results of operations. To compete successfully, the combined
company must make a high level of investment in its engineering, research and
development, marketing and customer service and support activities. There can be
no assurance that the combined company will have sufficient resources to make
such investments or that the combined company will be able to make the
technological advances demanded by its markets. With respect to the manufacture
of pressure products in its San Diego facility and gas panels in its Austin
facility, Tylan General is presently pursuing ISO 9000 certification, an
international quality standard for manufacturing operations. Tylan General
believes that such certification may be important for the combined company to
compete for orders from certain customers or for certain applications of its
products. There can be no assurance that the combined company will be able to
obtain such certification for the manufacture of those products. See "-- Market
Acceptance," "Tylan General Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Span Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Tylan General
Business -- Competition."
MANAGEMENT OF GROWTH AND GLOBAL OPERATIONS
Tylan General and Span have each undergone a period of rapid growth, and
Tylan General has undergone expansion of its worldwide organization. The
difficulty of managing a rapidly growing and globally dispersed organization has
strained Tylan General's and Span's management, manufacturing and human
resources. Continued expansion by the combined company may further strain such
resources and the ability of materials suppliers and other third parties on
which Tylan General and Span are dependent. In the past, Tylan General
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and Span have each experienced delays in shipping products due to capacity
constraints and delays in receiving materials from vendors. Any failure on the
part of the combined company to manage its dispersed organization or expand in
an efficient manner, or any failure on the part of the combined company's
suppliers or other third parties to meet the combined company's needs, could
have a material adverse effect on its business, financial condition and results
of operations. Moreover, there can be no assurance that the combined company's
systems, procedures and controls will be adequate to support its organization
and operations. In June 1996, Tylan General moved into a manufacturing facility
near its existing plant in San Diego. Such move could be disruptive and could
have a material adverse effect on the combined company's business, financial
condition and results of operations. See "Tylan General
Business -- Manufacturing," "Tylan General Business -- Facilities," "Tylan
General Management" and "Span Management."
DEPENDENCE ON KEY CUSTOMERS
Sales of Tylan General's products are becoming increasingly concentrated
with a small number of customers. Sales to Tylan General's ten largest customers
in fiscal 1993, 1994, 1995 and the six months ended April 30, 1996 were 42.1%,
49.7%, 56.4% and 59.2% of net sales, respectively, and sales to Lam Research
Corporation alone accounted for 18.1%, 18.9%, 20.0% and 25.1% of net sales in
fiscal 1993, 1994, 1995 and the six months ended April 30, 1996, respectively.
Tylan General expects that sales of the combined company's products to
relatively few customers will continue to account for a high percentage of its
net sales. None of Tylan General's customers has entered into a long-term
agreement requiring it to purchase Tylan General's products. The loss of a
significant customer or any reduction in orders from any significant customer,
including reductions due to changes in customer buying patterns, market,
economic or competitive conditions in the IC industry or in the industries that
manufacture products utilizing ICs, would have a material adverse effect on the
combined company's business, financial condition and results of operations. See
"Tylan General Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Tylan General Business -- Sales, Service and Marketing"
and "Tylan General Business -- Customers."
JAPANESE MASS FLOW CONTROL MARKET
Tylan General believes that the combined company's future success will
depend, in part, on its ability to increase its penetration of the Asian mass
flow control market, particularly Japan. The Japanese IC market (including
fabrication plants operating outside of Japan by Japanese IC manufacturers)
represents a substantial percentage of worldwide IC manufacturing capacity and
has been difficult for non-Japanese companies to penetrate. In particular, Tylan
General has not been able to significantly penetrate the Japanese market for
mass flow controllers. In addressing the Japanese mass flow control market,
Tylan General is at a competitive disadvantage compared to Japanese suppliers,
many of which have long-standing collaborative relationships with Japanese IC
manufacturers and their equipment suppliers. The combined company's ability to
penetrate this market successfully will depend upon its ability to overcome its
competitive disadvantages, the general economic and specific IC industry
conditions in Japan, the existence of free trade between Japan and the United
States in this industry, the ability of the combined company to develop in a
timely manner products that meet the technical requirements of Japanese
customers, the combined company's ability to develop satisfactory relationships
with leading companies in the Japanese IC industry and other factors. There can
be no assurance that the combined company will be able to increase its
penetration of the Japanese mass flow control market. See "Tylan General
Business -- Sales, Service and Marketing."
INTERNATIONAL SALES
International sales accounted for 41.4%, 38.9%, 33.8% and 32.7% of Tylan
General's net sales in fiscal 1993, 1994, 1995 and the six months ended April
30, 1996, respectively; international sales accounted for 15.7%, 12.6%, 14.4%
and 14.3% of Span's net sales in its fiscal 1993, 1994, 1995 and the six months
ended April 30, 1996, respectively. Tylan General anticipates that international
sales will continue to account for a significant portion of the combined
company's net sales. International sales are subject to certain risks that could
materially and adversely affect the combined company's results of operations or
financial position, including: difficulties in staffing and managing foreign
subsidiary operations; exchange rate fluctuations; tariffs, import restrictions
and other barriers; unexpected changes in regulatory requirements; political and
economic instability; difficulties in collection of accounts receivable;
extended payment terms; and potentially adverse
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tax consequences. A significant portion of Tylan General's and Span's sales to
U.S.-based equipment suppliers are incorporated into systems delivered outside
the United States, and these risks also apply to those sales. Tylan General's
and Span's international sales are also subject to certain governmental
restrictions, including the Export Administration Act and the regulations
promulgated thereunder. There can be no assurance that these factors will not
have a material adverse effect on the combined company's business, financial
condition and results of operations in the future or require the combined
company to modify its business practices. In fiscal 1995, Tylan General
recognized a foreign exchange gain resulting primarily from an increase in the
value of the Japanese yen versus the U.S. dollar. There can be no assurance that
the combined company will benefit from changes in foreign exchange rates in the
future or that the combined company will not suffer losses from changes in
foreign exchange rates in the future. In addition, the laws of certain foreign
countries may not protect Tylan General's or Span's intellectual property rights
to the same extent as do the laws of the United States. See "Tylan General
Business -- Sales, Service and Marketing."
In October 1995, Span and Tylan General entered into a strategic sales
alliance pursuant to which Tylan General agreed to support Span's semiconductor
sales and service activities and Span agreed to pay Tylan General certain fees
and reimburse Tylan General's expenses in providing such support. The strategic
sales alliance agreement provides that either party may terminate it for any
reason after two years upon one year's advance notice to the other party, and
either party may terminate the agreement at any time upon a material breach that
is not cured within 30 days of notice of the breach. Span subsequently
terminated substantially all of its then existing semiconductor distributor
relationships and began to sell semiconductor products directly to equipment
suppliers and to IC manufacturers in the United States. In November 1995, Span
and certain of Tylan General's foreign subsidiaries entered into international
distributor agreements pursuant to which such subsidiaries agreed to distribute
Span's products in certain foreign markets. Each of the international
distributor agreements is terminable upon 30 days advance notice. Despite the
transition in the foreign distribution arrangements of Span's products, Span's
international sales grew by 11.4% from $3.0 million during the six months ended
April 30, 1995 to $3.3 million during the six months ended April 30, 1996. There
can be no assurance that Span's international sales will remain at the levels
that existed prior to the termination of the former international distributor
relationships or that such sales will achieve any particular level. Failure of
the combined company to achieve comparable international sales with respect to
the Span product offering as existed prior to the termination of the former
international distributor relationships could have a material adverse effect on
the combined company's business, financial condition and results of operations.
Should the Merger fail to occur, there can be no assurance that either Tylan
General or Span will continue the strategic sales alliance beyond its initial
term or that the international distribution agreements will not be terminated.
SINGLE OR LIMITED SOURCES OF SUPPLY
Tylan General and Span rely to a substantial extent on outside vendors to
manufacture many of their components and subassemblies, some of which are
obtained from a single qualified source or a limited group of suppliers. Tylan
General's and Span's reliance on outside vendors generally, and on a single
qualified source or a limited group of suppliers in particular, involves several
risks, including a potential inability to obtain an adequate supply of required
components and reduced control over quality, pricing and timing of delivery of
components. In the past, Tylan General and Span have experienced delays in
receiving materials from vendors. Because the manufacture of certain of these
components and subassemblies is specialized and requires long lead times, there
can be no assurance that delays or shortages caused by vendors will not reoccur.
As equipment suppliers and IC manufacturers strive for higher throughput,
improved yields and system reliability, the performance and quality standards
for capital equipment components will increase rapidly. As a result, Tylan
General and Span must produce higher performing and higher quality products and
demand the same from their vendors. Any inability to obtain adequate deliveries,
or any other circumstance that would require the combined company to seek
alternative sources of supply or to manufacture such components internally,
could delay shipment of the combined company's products, increase its cost of
goods sold and have a material adverse effect on the combined company's
business, financial condition and results of operations. There can be no
assurance that the combined company's vendors will be able to meet standards
established by the combined company from time to time, and this may result in
the disqualification of such vendors. See "Tylan General Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
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<PAGE> 30
"Span Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Tylan General Business -- Manufacturing."
DEPENDENCE ON KEY PERSONNEL
The combined company's success will depend to a large extent upon the
efforts and abilities of a number of key employees, including David J. Ferran,
Chairman of the Board, President and Chief Executive Officer of Tylan General
and Don E. Whitson, Chief Executive Officer of Span who will become Vice
Chairman and Chief Administrative Officer of the combined company. The loss of
any of the combined company's key employees, including either Mr. Ferran or Mr.
Whitson, could have a material adverse effect on the combined company's
business, financial condition and results of operations. The combined company
will not have employment agreements with any management personnel, including Mr.
Ferran and Mr. Whitson, that are not terminable at will by such persons, nor
will the combined company carry any key person life insurance on its executive
officers. Tylan General believes that the future success of the combined company
will depend, in part, on its ability to attract and retain highly skilled
technical, financial, managerial and marketing personnel. Competition for such
personnel is intense, and there can be no assurance that the combined company
will be successful in attracting and retaining such personnel. See "Tylan
General Management" and "Span Management."
INTELLECTUAL PROPERTY
Although both Tylan General and Span currently hold a number of U.S. and
foreign patents, both companies believe that patents are of less significance in
their industry than such factors as continued innovation, technical expertise
and know-how of personnel and other factors. Tylan General believes that its
competitors have been able and will continue to circumvent many of Tylan
General's patents. There can be no assurance that the combined company will be
able to protect its technology. To the extent the combined company wishes to
assert its patent rights, there can be no assurance that any patents issued to
the combined company will not be challenged, invalidated or circumvented, that
any rights granted thereunder will provide adequate protection to the combined
company, or that the combined company will have sufficient resources to
prosecute its rights.
Although there are no pending lawsuits against Tylan General or Span
regarding infringement of any existing patents or other intellectual property
rights, Tylan General from time to time receives letters from third parties,
including some of its competitors, alleging infringement of such parties' patent
rights by Tylan General's products. There can be no assurance that the combined
company would prevail in any litigation seeking damages or expenses from the
combined company or seeking to enjoin the combined company from selling its
products on the basis of any alleged infringement, or that the combined company
would be able to license any valid or infringed patent on reasonable terms, if
at all. The combined company's involvement in any patent dispute or other
intellectual property dispute or action to protect trade secrets and know-how
could have a material adverse effect on the combined company's business,
financial condition and results of operations. Adverse determinations in any
litigation could subject the combined company to significant liabilities to
third parties, require the combined company to seek licenses from third parties
and prevent the combined company from manufacturing and selling its products.
Any of these situations could have a material adverse effect on the combined
company. See "-- Market Acceptance," "-- Competition" and "Tylan General
Business -- Intellectual Property."
ENVIRONMENTAL REGULATIONS
Tylan General and Span are subject to a variety of federal, state and local
laws, rules and regulations relating to the use, storage, discharge and disposal
of hazardous chemicals used in their operations. Public attention has
increasingly been focused on the environmental impact of operations that use
hazardous materials. Failure to comply with present or future regulations could
result in substantial liability to Tylan General and Span, suspension or
cessation of Tylan General's and/or Span's operations, restrictions on Tylan
General's and Span's ability to expand at its present locations or requirements
for the acquisition of significant equipment or the incurrence of other
significant expense. See "Tylan General Business -- Manufacturing."
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<PAGE> 31
FUTURE CAPITAL NEEDS
Tylan General believes that existing sources of liquidity and anticipated
funds from operations will satisfy the combined company's projected working
capital and other cash requirements for at least the next 12 months. However,
there can be no assurance that such sources will be sufficient to fund the
combined company's activities. To the extent that existing capital resources and
anticipated funds from operations are insufficient to fund the combined
company's activities, it may be necessary to raise additional funds. Additional
funds, if any, may possibly be raised through public and private financings,
including equity financings. There can be no assurance that additional financing
will be available to the combined company on acceptable terms, if at all. See
"Tylan General Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
ANTITAKEOVER PROVISIONS
Certain provisions of the Tylan General Certificate and of Delaware law
could discourage potential acquisition proposals and could delay or prevent a
change in control of Tylan General. Such provisions could diminish the
opportunities for a stockholder to participate in tender offers, including
tender offers at a price above the then current market value of the Tylan
General Common Stock. Such provisions may also inhibit increases in the market
price of the Tylan General Common Stock that could result from takeover
attempts. In addition, the Tylan General Board, without further stockholder
approval, may issue preferred stock that could have the effect of delaying,
deterring or preventing a change in control of the combined company. The
issuance of preferred stock could also adversely affect the voting power of the
holders of Tylan General Common Stock, including the loss of voting control to
others. Tylan General has no present plans to issue any preferred stock. See
"Description of Tylan General Common Stock -- Delaware Law and Certain Charter
Provisions."
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of Tylan General Common Stock is subject to significant
fluctuations in response to Tylan General's operating results and other factors,
including: announcements of developments related to Tylan General's business;
fluctuation in Tylan General's order levels; general conditions in the IC
industry or the worldwide economy; announcements of technological innovations;
new products or product enhancements by Tylan General or its competitors;
developments in patents or other intellectual property rights; and developments
in Tylan General's relationships with its customers, distributors and suppliers.
In addition, in recent years the stock market in general, and the market for
shares of small capitalization stocks in particular, have experienced extreme
price fluctuations that have often been unrelated to the operating performance
of affected companies. Consequently, the market price of the Tylan General
Common Stock may vary from the price on the date hereof, or on the dates on
which Tylan General stockholders and Span shareholders vote on the Merger
Proposal, as a result of changes in the business, operations, financial results
and prospects of Tylan General or Span, market assessments of the likelihood
that the Merger will be consummated and the timing thereof, general market and
economic conditions and other factors. The Exchange Ratio will not be adjusted
to reflect fluctuations in the market price of Tylan General Common Stock. As a
result, there can be no assurance as to the fair market value of the Merger
Consideration upon the consummation of the Merger.
ADDITIONAL SHARES TO BE ISSUED BY TYLAN GENERAL; SHARES ELIGIBLE FOR FUTURE SALE
As a result of the Merger, it is anticipated that Tylan General will issue
approximately 1,470,000 shares of Tylan General Common Stock. In general, the
shares will be eligible for sale in the public market following the Merger,
subject to certain volume and other resale limitations for affiliates of Span or
Tylan General, pursuant to Rules 144 and/or 145 under the Securities Act and to
agreements not to sell to the extent required to cause the Merger to be
accounted for as a pooling-of-interests. See "The Merger and Related
Transactions -- Affiliate Agreements." An aggregate of approximately 1,325,308
of the shares issued in the Merger will be beneficially owned by persons who may
be deemed to be affiliates of Span and, therefore, subject to such limitations.
The sale of a significant number of the foregoing shares may cause substantial
fluctuations in the market price of Tylan General Common Stock.
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THE TYLAN GENERAL MEETING
DATE, TIME AND PLACE OF MEETING
The Tylan General Meeting will be held on Wednesday, September 4, 1996 at
8:00 a.m., local time, at Tylan General's offices at 15330 Avenue of Science,
San Diego, California. Tylan General intends to mail this Prospectus/Joint Proxy
Statement and accompanying proxy on or about August 7, 1996, to all Tylan
General stockholders entitled to vote at the Tylan General Meeting.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Tylan General Common Stock at the close of
business on the Record Date are entitled to notice of and to vote at the Tylan
General Meeting. As of the close of business on the Record Date, there were
shares of Tylan General Common Stock outstanding and entitled to vote,
held of record by approximately stockholders. Each Tylan General
stockholder is entitled to one vote for each share of Tylan General Common Stock
held as of the Record Date.
VOTING OF PROXIES
The Tylan General proxy accompanying this Prospectus/Joint Proxy Statement
is solicited on behalf of the Tylan General Board for use at the Tylan General
Meeting and at any adjournment or postponement thereof. Tylan General
stockholders are requested to complete, date and sign the accompanying proxy and
promptly return it in the accompanying envelope. All proxies that are properly
executed and returned, and that are not revoked, will be voted at the Tylan
General Meeting in accordance with the instructions indicated on the proxies or,
if no direction is indicated, to approve the Merger Proposal and the other
proposals submitted to the Tylan General stockholders, each as unanimously
recommended by the Tylan General Board, as indicated herein. The Tylan General
Board is not currently aware of any business to be brought before the Tylan
General Meeting other than the specific proposals referred to in this
Prospectus/Joint Proxy Statement and specified in the accompanying notice of the
Tylan General Meeting. As to any other business that may properly come before
the Tylan General Meeting, however, it is intended that proxies, in the form
enclosed, will be voted in respect thereof in accordance with the judgment of
the persons voting such proxies.
REVOCABILITY OF PROXIES
A Tylan General stockholder who has given a proxy may revoke it at any time
before it is exercised at the Tylan General Meeting by (i) delivering to the
Secretary of Tylan General (by any means, including facsimile) a written notice,
bearing a date later than the date of the proxy, stating that the proxy is
revoked, (ii) signing and so delivering a proxy relating to the same shares and
bearing a later date prior to the vote at the Tylan General Meeting or (iii)
attending the Tylan General Meeting and voting in person (although attendance at
the Tylan General Meeting will not, by itself, revoke a proxy).
VOTE REQUIRED
Approval of the Merger Proposal requires the affirmative vote of the
holders of a majority of the shares of Tylan General Common Stock present in
person or represented by proxy and entitled to vote on the proposals at the
Tylan General Meeting. As a group, all executive officers and directors of Tylan
General and their respective affiliates beneficially owned shares, or
approximately %, of the Tylan General Common Stock outstanding on the Record
Date.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The presence, in person or by proxy, of a majority of the shares of Tylan
General Common Stock outstanding on the Record Date is necessary to constitute a
quorum for the transaction of business at the Tylan General Meeting. Abstentions
and broker non-votes will each be included in determining whether a quorum is
present. Abstentions will have the same effect as a vote against a proposal.
Broker non-votes will not be counted for any purpose in determining whether any
of the proposals have been approved.
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SOLICITATION OF PROXIES AND EXPENSES
Tylan General will bear the entire cost of the solicitation of proxies of
Tylan General stockholders, including printing, assembly and mailing of this
Prospectus/Joint Proxy Statement, the proxy and any additional information
furnished to its stockholders. Tylan General has engaged the firm of Georgeson &
Company Inc. to assist it in the distribution and solicitation of proxies and
has agreed to pay Georgeson & Company Inc. a fee of $6,000 plus expenses for its
services. Copies of the solicitation materials will be furnished to banks,
brokerage houses, fiduciaries and custodians holding in their names shares of
Tylan General's Common Stock beneficially owned by others to forward to such
beneficial owners. Tylan General may reimburse persons representing beneficial
owners of Tylan General Common Stock for their costs of forwarding solicitation
materials to such beneficial owners. Original solicitation of proxies by mail
may be supplemented by telephone, telegram, letter or personal solicitation by
directors, officers or other regular employees of Tylan General and by Georgeson
& Company Inc. No additional compensation will be paid to directors, officers
and other regular employees for such services.
BOARD RECOMMENDATION
THE TYLAN GENERAL BOARD UNANIMOUSLY BELIEVES THAT THE MERGER IS FAIR TO AND
IN THE BEST INTERESTS OF TYLAN GENERAL AND ITS STOCKHOLDERS. THE TYLAN GENERAL
BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
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THE SPAN MEETING
DATE, TIME AND PLACE OF MEETING
The Span Meeting will be held on Wednesday, September 4, 1996 at 8:00 a.m.,
local time, at 2201 Avenue K, Plano, Texas. Span intends to mail this
Prospectus/Joint Proxy Statement and accompanying proxy on or about August 7,
1996, to all Span shareholders entitled to vote at the Span Meeting.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Span Common Stock at the close of business on
July 8, 1996, the Record Date, are entitled to notice of and to vote at the Span
Meeting. As of the close of business on the Record Date, there were
shares of Span Common Stock outstanding and entitled to vote, held of record by
shareholders. Each Span shareholder is entitled to one vote for each share of
Span Common Stock held as of the Record Date.
VOTING OF PROXIES
The Span proxy accompanying this Prospectus/Joint Proxy Statement is
solicited on behalf of the Span Board for use at the Span Meeting and at any
adjournment or postponement thereof. Span shareholders are requested to
complete, date and sign the accompanying proxy and promptly return it in the
accompanying envelope. All proxies that are properly executed and returned, and
that are not revoked, will be voted at the Span Meeting in accordance with the
instructions indicated on the proxies or, if no direction is indicated, to
approve the Merger Proposal recommended by the Span Board as indicated herein.
Submission of an unmarked proxy that is voted at the meeting would constitute a
waiver of dissenters' rights under the Texas Law. The Span Board is not
currently aware of any business to be brought before the Span Meeting other than
the Merger Proposal described in this Prospectus/Joint Proxy Statement and
specified in the notice of the Span Meeting. As to any other business that may
properly come before the Span Meeting, however, it is intended that proxies, in
the form enclosed, will be voted in respect thereof in accordance with the
judgment of the persons voting such proxies.
REVOCABILITY OF PROXIES
A Span shareholder who has given a proxy may revoke it at any time before
it is exercised at the Span Meeting by (i) delivering to the Secretary of Span
(by any means, including facsimile) a written notice, bearing a date later than
the date of the proxy, stating that the proxy is revoked, (ii) signing and so
delivering a proxy relating to the same shares and bearing a later date prior to
the vote at the Span Meeting or (iii) attending the Span Meeting and voting in
person (although attendance at the Span Meeting will not, by itself, revoke a
proxy).
VOTE REQUIRED
Approval of the Merger Proposal requires the affirmative vote of the
holders of two-thirds of the shares of Span Common Stock outstanding on the
Record Date. As a group, all executive officers and directors of Span and their
respective affiliates beneficially owned shares, or approximately
%, of the Span Common Stock outstanding as of the Record Date.
QUORUM; ABSTENTIONS
The presence, in person or by proxy, of a majority of the shares of Span
Common Stock outstanding on the Record Date is necessary to constitute a quorum
for the transaction of business at the Span Meeting. Abstentions will be
included in determining whether a quorum is present and will have the same
effect as a vote against the Merger Proposal.
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<PAGE> 35
SOLICITATION OF PROXIES AND EXPENSES
Span will bear the entire cost of the solicitation of proxies of Span
shareholders, including mailing of this Prospectus/Joint Proxy Statement, the
proxy and any additional information furnished to its shareholders, except that
Tylan General will pay the fees and expenses, other than attorneys' fees,
incurred in connection with printing and filing of this Prospectus/Joint Proxy
Statement. Span will pay its own professional fees incurred in connection with
preparation of this Prospectus/Joint Proxy Statement. Original solicitation of
proxies by mail may be supplemented by telephone, telegram, letter or personal
solicitation by directors, officers or other regular employees of Span. No
additional compensation will be paid to directors, officers and other regular
employees for such services.
BOARD RECOMMENDATION
THE SPAN BOARD BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF SPAN AND ITS SHAREHOLDERS AND THEREFORE UNANIMOUSLY RECOMMENDS A
VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
CERTIFICATES REPRESENTING SHARES OF SPAN COMMON STOCK
SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF
TRANSMITTAL IS RECEIVED
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THE MERGER AND RELATED TRANSACTIONS
GENERAL
This section of the Prospectus/Joint Proxy Statement describes certain
aspects of the proposed Merger. The Plan of Reorganization provides for the
merger of Tylan General Sub, a newly formed, wholly owned Delaware subsidiary of
Tylan General, with and into Span. The discussion in this Prospectus/Joint Proxy
Statement of the Merger and the description of the principal terms of the Plan
of Reorganization are accurate in all material respects but do not purport to be
complete and are subject to and qualified in their entirety by reference to the
Plan of Reorganization, a copy of which is attached to this Prospectus/Joint
Proxy Statement as Appendix A and incorporated herein by reference. All Tylan
General stockholders and Span shareholders are urged to read the Plan of
Reorganization in its entirety.
EFFECTS OF THE MERGER
General
The Merger will be consummated promptly following approval of the Merger
Proposal by the Tylan General stockholders and the Span shareholders and the
satisfaction or waiver of all other conditions to consummation of the Merger.
The Merger will become effective on the last to occur of (i) the date the Texas
Articles of Merger are duly filed with the Texas Secretary of State, (ii) the
date the Delaware Certificate of Merger is duly filed with the Delaware
Secretary of State or (iii) such later date as may be specified in the Texas
Articles of Merger and Delaware Certificate of Merger (the "Effective Date"). On
the Effective Date, Tylan General Sub will merge with and into Span, with the
result that Span will be the Surviving Subsidiary in the Merger and will be
wholly owned by Tylan General. As described below, the shareholders of Span will
become stockholders of Tylan General, and their rights will be governed by the
Tylan General Certificate and the Tylan General Bylaws. See "Comparison of
Rights of Tylan General Stockholders and Span Shareholders."
There will be no change in the current Tylan General Board and officers of
Tylan General as a result of the Merger, except that Don E. Whitson, currently
the Chief Executive Officer and a director of Span, is expected to become the
Vice Chairman and Chief Administrative Officer and a director of Tylan General.
On the Effective Date, the officers of Span (as the Surviving Subsidiary) will
be Don E. Whitson, Leo E. Whitson, George A. Yurch, John Jul and Brian R. Day,
and the directors of Span will be David J. Ferran, Don E. Whitson and David L.
Stone.
Operations of the Combined Company Following the Merger
If the combined company is to realize the anticipated benefits of the
Merger, the operations of the two companies must be integrated and combined
efficiently. The process of rationalizing management services, administrative
organizations, facilities, management information systems and other aspects of
operations, while managing a larger and geographically expanded entity, will
present a significant challenge to the management of the combined company. There
can be no assurance that the integration process will be successful or that the
anticipated benefits of the business combination will be fully realized. The
dedication of management resources to such integration may detract attention
from the day-to-day business of the combined company. The difficulties of
integration may be increased by the necessity of coordinating geographically
separated organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. There can be no
assurance that there will not be substantial costs associated with the
integration process, that such activities will not result in a decrease in
revenues or that there will not be other material adverse effects of these
integration efforts. Such effects could materially reduce the short-term
earnings of the combined company. Subsequent to the Merger, Tylan General
expects to incur a charge in the fourth quarter of fiscal 1996, currently
estimated to be between $3.5 million and $4.0 million, to reflect the
combination of the two companies, including transaction and integration costs.
This amount is a preliminary estimate only. There can be no assurance that Tylan
General will not incur additional charges in the fourth quarter and subsequent
quarters to reflect costs associated with the Merger.
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Conversion of Shares
Exchange Ratio. On the Effective Date, each then outstanding share of Span
Common Stock, other than Dissenting Shares, will automatically, without any
action on the part of any holder of Span Common Stock, be converted into 5.53258
shares of Tylan General Common Stock.
Provided there are no Dissenting Shares, an aggregate of 1,470,000 shares
of Tylan General Common Stock will be issued in the Merger, and the former
holders of Span Common Stock will own shares of Tylan General Common Stock
representing approximately % of the shares of Tylan General Common Stock to
be outstanding immediately after consummation of the Merger (calculated on the
basis of shares of Tylan General Common Stock outstanding as of the
Record Date, plus the Merger Consideration of 1,470,000 shares to be issued in
the Merger).
Fractional Shares. No fractional shares of Tylan General Common Stock will
be issued in the Merger. Instead, each Span shareholder who would otherwise be
entitled to receive a fraction of a share of Tylan General Common Stock will
receive an amount in cash (without interest) determined by multiplying such
fraction by the closing price of Tylan General Common Stock as reported on the
Nasdaq National Market on the last trading date immediately preceding the
Effective Date. Tylan General intends to use its current cash resources to fund
the payments for fractional shares.
BACKGROUND OF THE MERGER
Business relationships between Tylan General and Span began in February
1994 when Tylan General selected Span's transducers for inclusion in Tylan
General's line of ultraclean gas panels.
In October 1995, Span and Tylan General entered into a strategic sales
alliance pursuant to which Tylan General agreed to support Span's semiconductor
sales and service activities and Span agreed to pay Tylan General certain fees
and reimburse Tylan General's expenses in providing such support. The strategic
sales alliance agreement provides that either party may terminate it for any
reason after two years upon one year's advance notice to the other party, and
either party may terminate the agreement at any time upon a material breach that
is not cured within 30 days of notice of the breach. Span subsequently
terminated substantially all of its then existing semiconductor distributor
relationships and began to sell semiconductor products directly to equipment
suppliers and to IC manufacturers in the United States. In November 1995, Span
and certain of Tylan General's foreign subsidiaries entered into international
distributor agreements pursuant to which such subsidiaries agreed to distribute
Span's products in certain foreign markets. Each of the international
distributor agreements is terminable upon 30 days advance notice.
In November 1995, the Chief Executive Officers of Tylan General and Span
concluded that a business combination was of sufficient interest that detailed
financial information concerning the two companies and their respective
businesses should be exchanged and evaluated. The Tylan General Board discussed
the potential advantages and disadvantages of a business combination of the two
companies at two special meetings in November 1995 and held its regular meeting
in December 1995 at Span's executive offices in Plano, Texas where the directors
were able to tour Span's facilities and hear presentations by the Span
management team. In January 1996, Tylan General and Span reached agreement on
the structure and significant terms of the proposed combination, including the
number of Tylan General shares to be exchanged for all of the outstanding shares
of Span capital stock, subject to the completion of definitive documentation and
the approval of the Tylan General Board and of the Span Board.
On February 1, 1996, the Span Board held a meeting for the purpose of
approving the final terms of the Plan of Reorganization. After full discussion,
the Span Board unanimously determined that the Merger was in the best interests
of Span and its shareholders, approved the Plan of Reorganization and
recommended that the Plan of Reorganization be presented to the Span
shareholders for their approval. At a meeting on February 19, 1996, the Tylan
General Board discussed and approved the principal terms of the Merger and the
Plan of Reorganization. Following approval of the Plan of Reorganization by the
Tylan General Board and the Span Board, Tylan General, Tylan General Sub, Span
and Span's shareholders executed the Plan of
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Reorganization on February 20, 1996, and Tylan General and Span announced such
execution by issuance of a joint press release on the morning of February 20,
1996.
REASONS FOR THE MERGER
Tylan General's Reasons for the Merger
The Tylan General Board believes that the following are reasons for
stockholders of Tylan General to vote FOR approval and adoption of the Plan of
Reorganization and approval of the Merger:
- The Tylan General Board's belief that the Merger represents a strategic
opportunity to diversify Tylan General's process management
instrumentation product offering and to create a significantly larger
supplier of such products to semiconductor capital equipment suppliers
and advanced IC manufacturers.
- The Tylan General Board's belief that the combined company will represent
a process management instrumentation supplier more attractive to
semiconductor capital equipment suppliers and advanced IC manufacturers
seeking to rationalize their supply requirements and requiring global
service capabilities.
- The Tylan General Board's belief that the combined company will be able
to achieve certain operating efficiencies as a result of the Merger,
including efficiencies resulting from the use of Tylan General's
worldwide direct sales and service capability to market, sell and service
Span's products as well as those of Tylan General.
- The Tylan General Board's belief that the Merger will result in increased
earnings per share for the combined company.
In the course of its deliberations, the Tylan General Board reviewed with
management a number of other factors relevant to the Merger. In particular, the
Tylan General Board considered, among other things: (i) information concerning
Tylan General's and Span's respective businesses, prospects, financial
performances, financial conditions, operations and new product lines; (ii)
multiples paid in comparable merger and acquisition transactions; (iii) an
analysis of the respective contributions to revenues, operating profits and net
profits of the combined company; (iv) the compatibility of the managements of
Tylan General and Span; (v) alternatives for growth in the markets served by
Tylan General and Span; and (vi) reports from management and legal advisors on
the results of Tylan General's due diligence investigation of Span.
The Tylan General Board also considered a variety of potentially negative
factors in its deliberations concerning the Merger, including (i) the risk that
the combined company might not achieve revenue equal to the sum of the separate
companies' anticipated revenue; (ii) the risk that the combined company might
not achieve sufficient operating efficiencies to ensure that the Merger would
not have a negative effect on Tylan General's earnings per share; (iii) the risk
that the market price of Tylan General Common Stock might be adversely affected
by announcement of the Merger; (iv) the charges expected to be incurred in
connection with the Merger, primarily in the quarter ending October 31, 1996,
including transaction costs and costs of integrating the businesses of the
companies to be reflected in a charge to be between $3.5 million and $4.0
million (see "Unaudited Pro Forma Combined Condensed Financial Information");
(v) the risk that the combined company's ability to increase or maintain revenue
might be diminished by intensified competition among providers of similar or
related services; (vi) the risk that other benefits sought to be obtained by the
Merger would not be obtained; and (vii) other risks described above under "Risk
Factors."
Based on these matters and such other matters as deemed relevant, the Tylan
General Board unanimously adopted the Merger as being in the best interests of
the Tylan General stockholders at a meeting on February 19, 1996. In addition,
the Tylan General Board has considered a financial presentation by Adams,
Harkness, including the opinion of Adams, Harkness dated June 12, 1996 to the
effect that, from a financial point of view, the Merger Consideration to be
received by the shareholders of Span is fair to the stockholders of Tylan
General.
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The foregoing discussion of the information and factors considered and
given weight by the Tylan General Board is not intended to be exhaustive but is
believed to include the material factors considered by the Tylan General Board.
In addition, in reaching the determination to approve and recommend the Merger,
in view of the wide variety of factors considered in connection with its
evaluation of a proposed Merger, the Tylan General Board did not find it
practical to, and did not quantify or otherwise attempt to, assign any relative
or specific weights to the foregoing factors, and individual directors may have
given differing weights to different factors.
Span's Reasons for the Merger
The Span Board believes that the terms of the Merger are fair to and in the
best interests of Span and its shareholders, unanimously approved the Plan of
Reorganization and recommended that the shareholders of Span vote to approve and
adopt it. The factors considered by the Span Board in reaching its determination
include, but are not limited to, the following:
- The Span Board's belief that the Merger represents a strategic
opportunity to diversify Span's product offering and to create a
significantly larger supplier of such products to semiconductor capital
equipment suppliers and IC manufacturers.
- The Span Board's belief that the combined company will represent a
process management instrumentation supplier more attractive to
semiconductor capital equipment suppliers and advanced IC manufacturers
seeking to rationalize their supply requirements and requiring global
service capabilities.
- The Span Board's belief that the combined company will be able to achieve
certain operating efficiencies as a result of the Merger, including
efficiencies resulting from the use of Tylan General's worldwide direct
sales and service capability to market, sell and service Span's products
as well as those of Tylan General.
- The Span Board's belief that the Merger will result in increased earnings
per share for the combined company.
- The performance of Tylan General Common Stock, its average trading volume
and the opportunity for liquidity associated with the Tylan General
Common Stock.
- The opportunity afforded Span shareholders to maintain a publicly traded
investment and to participate in the growth and appreciation of the
business of the combined company.
- The future capital requirements of Span to remain competitive and expand
its markets and Tylan General's access to such capital.
- The amount of consideration being paid to Span shareholders for shares of
Span Common Stock.
- The tax-free nature of the Merger to Span shareholders.
- The history, financial condition and results of operations of Tylan
General.
Based on these matters and such other matters as deemed relevant, the Span
Board unanimously adopted the Merger as being in the best interests of the Span
shareholders at a meeting on February 1, 1996.
The foregoing discussion of the information and factors considered and
given weight by the Span Board is not intended to be exhaustive but is believed
to include the material factors considered by the Span Board. In addition, in
reaching the determination to approve and recommend the Merger, in view of the
wide variety of factors considered in connection with its evaluation of a
proposed Merger, the Span Board did not find it practical to, and did not
quantify or otherwise attempt to, assign any relative or specific weights to the
foregoing factors, and individual directors may have given differing weights to
different factors.
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TYLAN GENERAL BOARD RECOMMENDATION
THE TYLAN GENERAL BOARD HAS DETERMINED THAT THE MERGER IS ADVISABLE AND IN
THE BEST INTERESTS OF TYLAN GENERAL AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY
RECOMMENDED A VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
SPAN BOARD RECOMMENDATION
THE SPAN BOARD HAS DETERMINED THAT THE MERGER IS ADVISABLE AND IN THE BEST
INTERESTS OF SPAN AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY RECOMMENDED A VOTE
FOR APPROVAL OF THE MERGER PROPOSAL.
OPINION OF ADAMS, HARKNESS & HILL, INC.
Tylan General retained Adams, Harkness & Hill, Inc. ("Adams, Harkness") to
render to the Tylan General Board an opinion as to the fairness to Tylan
General's stockholders, from a financial point of view, of the consideration to
be paid by Tylan General to the Span shareholders as specified in the Plan of
Reorganization. Adams, Harkness has rendered a written opinion dated June 12,
1996, to the Tylan General Board to the effect that, as of June 12, 1996, the
consideration to be paid by Tylan General to the Span shareholders is fair from
a financial point of view, to Tylan General's stockholders (the "Adams, Harkness
Opinion"). Although Adams, Harkness has delivered an opinion to the Tylan
General Board concerning the fairness of the transaction, the amount of
consideration to be exchanged under the Plan of Reorganization was determined
through negotiations between Tylan General and Span, and not by Adams, Harkness.
A COPY OF THE ADAMS, HARKNESS OPINION IS ATTACHED HERE TO AS APPENDIX B.
TYLAN GENERAL STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTER CONSIDERED AND LIMITS OF THE
REVIEW BY ADAMS, HARKNESS. THIS SUMMARY OF THE ADAMS, HARKNESS OPINION SET FORTH
IN THIS PROSPECTUS/JOINT PROXY STATEMENT ACCURATELY DESCRIBES SUCH OPINION BUT
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE
ADAMS, HARKNESS OPINION WAS PREPARED FOR THE TYLAN GENERAL BOARD, AND IS
DIRECTED ONLY TO THE FAIRNESS TO TYLAN GENERAL'S STOCKHOLDERS AS OF JUNE 12,
1996, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE PAID BY TYLAN
GENERAL AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OR
SHAREHOLDER.
In rendering its opinion, Adams, Harkness did not make or seek to obtain
appraisals of the assets of Span in connection with its analyses of the
valuation of Span or Span's Common Stock. Adams, Harkness relied without
independent verification upon the accuracy and completeness of all of the
financial information reviewed by it for the purposes of its opinion. No
limitations were imposed by the Tylan General Board upon Adams, Harkness with
respect to the investigation made or the procedures followed by Adams, Harkness
in rendering its opinion. Tylan General and its management cooperated fully with
Adams, Harkness in connection with its investigation. In its analyses, Adams,
Harkness made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
Tylan General's and Span's control. Any such estimate is not necessarily
indicative of actual values, which may be significantly more or less favorable
than as set forth therein. Estimates of values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies may actually be
sold. Because such estimates are inherently subject to uncertainty, none of
Tylan General, Adams, Harkness or any other person assumes responsibility for
their accuracy.
In rendering its opinion, Adams, Harkness, among other things: (i) analyzed
certain publicly available financial statements and other information concerning
Tylan General and Span; (ii) analyzed certain internal financial statements and
other financial and operating data concerning Tylan General and Span prepared by
the management of Tylan General and Span; (iii) analyzed certain financial
forecasts prepared by the management of Tylan General and Span; (iv) discussed
the past and current operations and financial condition and the prospects of
Tylan General and Span with the management of Tylan General and Span,
respectively, and analyzed the pro forma impact of the Merger on Tylan General's
earnings per share; (v) reviewed the reported prices and trading activity of
Tylan General Common Stock since its initial public offering; (vi) compared the
financial performance of Tylan General and Span and the prices and trading
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activity of Tylan General Common Stock with that of certain other comparable
publicly traded companies and their securities; (vii) reviewed the financial
terms, to the extent publicly available, of certain comparable acquisition
transactions; (viii) reviewed and discussed with the senior management of Tylan
General the strategic rationale for the Merger and the benefits of the Merger to
Tylan General; (ix) reviewed the Plan of Reorganization; and (x) performed such
other studies, analyses and inquiries and considered such other information as
Adams, Harkness deemed relevant.
Adams, Harkness performed and presented certain financial information and
comparative analyses, with such other factors as it deemed relevant, including,
among other things:
Financial Statement Analysis. Adams, Harkness reviewed and analyzed
selected annual and quarterly historical and forecasted income statements and
selected annual historical balance sheets for Tylan General and Span. Adams,
Harkness also reviewed and analyzed projected balance sheet information relating
to Span.
Peer Group Comparison. Adams, Harkness compared certain financial
information of Tylan General and Span with a group of several publicly traded
semiconductor capital equipment companies including, but not limited to, Brooks
Automation, Inc., Helix Technology Corporation, Unit Instruments, Inc., RF Power
Products, Inc., ADE Corporation, Applied Science & Technology, Inc. and Advanced
Energy Industries, Inc. (the "Control Group"). Such financial information
included, among other things, market valuation, stock price as a multiple of
earnings and aggregate market value as a multiple of revenues. In particular,
such analysis showed that on average, after excluding both the maximum and
minimum values for each valuation metric, as of June 12, 1996, based on the last
three-month average closing prices for the respective common stocks, this group
of common stocks traded at 12.1 times calendar 1996 forecasted earnings per
share and 10.0 times calendar 1997 forecasted earnings per share (based on
research and analysts' estimates as reported by Adams, Harkness, First Call,
Zacks Investment Research and IBES), and 1.8 times the last 12 months reported
revenues.
Analysis of Selected Precedent Transactions. Adams, Harkness examined
selected precedent transactions involving semiconductor capital equipment and
other similar companies for the period of January 1, 1994 through June 6, 1996.
Such analysis compared recent public mergers with respect to (i) synopses of the
transactions; (ii) premiums realized in various transactions; that is, the
offering price per share divided by the closing price per share one day, one
week and one month prior to the announcement of the transaction; and (iii)
multiples of the transaction price compared to: net income for the 12 months
prior to the transaction, revenue for the 12 months prior to the transaction and
book value at the time of the transaction.
(i) Synopses of the Transactions. The information obtained from
Securities Data Company ("SDC") regarding the selected precedent
transactions was reviewed for comparison with the Merger of Tylan General
and Span.
(ii) Transactions Premium Comparisons. Adams, Harkness prepared an
analysis of average premiums realized in various transactions one day, one
week and one month prior to the announcement of the transaction. Based on
data provided by SDC, Adams, Harkness included in its analysis certain
disclosed, completed domestic merger transactions from January 1, 1994
through June 6, 1996, each of which involved public companies. Such
analysis indicated the following: the median value for the premiums one day
prior to the announcement was 33.0% (the "Transaction Premium"); the median
value for the premiums one week prior to the announcement was 37.5%; and
the median value for the premiums one month prior to the announcement was
43.0%. Adams, Harkness utilized premiums from similar transactions to
determine the fairness to Tylan General's stockholders of the consideration
to be paid to Span's shareholders.
(iii) Transaction Multiple Analysis. Adams, Harkness analyzed
multiples of the transaction price compared to net income for the 12 months
prior to the transaction, revenue for the 12 months prior to the
transaction and book value for the 12 months prior to the transaction.
Adams, Harkness included in its analysis certain disclosed, completed
domestic merger transactions from January 1, 1994 through June 6, 1996,
each of which involved public companies. This analysis resulted in a mean
transaction valuation, after excluding both the maximum and minimum values
for each valuation metric, of 10.1 times
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12 months' net income prior to the transaction, 0.9 times 12 months'
revenue prior to the transaction and 3.0 times book value at the time of
the transaction.
Multiple Analysis. Adams, Harkness prepared an analysis that reviewed the
aggregate consideration to be paid to Span's shareholders pursuant to the Plan
of Reorganization, of 1.47 million shares of Tylan General Common Stock using:
(i) the closing price of Tylan General Common Stock as of June 12, 1996; (ii)
the closing price of Tylan General Common Stock as of June 12, 1996 less the
Transaction Premium; (iii) the implied value found by multiplying Tylan
General's estimated calendar year 1997 earnings by the average (excluding
minimum and maximum values) price-to-earnings ratio of the Control Group; and
(iv) the implied value found by multiplying Tylan General's estimated calendar
year 1997 earnings by the average (excluding minimum and maximum values)
price-to-earnings ratio of the Control Group less the Transaction Premium as a
multiple of various financial operating parameters of Span (and assuming the
Merger were not to occur), including revenues and net income. Such analysis
indicated that the aggregated consideration to be paid to the holders of Span
Common Stock using:
(i) The closing price of Tylan General Common Stock as of June 12,
1996 as a multiple of Span's calendar 1995 actual revenue, calendar 1996
projected revenue and calendar 1997 projected revenue was 0.91x, .0.65x and
0.62x, respectively; and as a multiple of calendar 1995 actual net income,
calendar 1996 projected net income and 1997 projected net income, was not
meaningful, 24.0x and 7.7x, respectively;
(ii) The closing price of Tylan General Common Stock as of June 12,
1996 less the Transaction Premium, as a multiple of Span's calendar 1995
actual revenue, calendar 1996 projected revenue and calendar 1997 projected
revenue was 0.61x, 0.44x and 0.41x, respectively; and as a multiple of
calendar 1995 actual net income, calendar 1996 projected net income and
1997 projected net income, was not meaningful, 16.1x and 5.1x,
respectively;
(iii) The implied value found by multiplying Tylan General's estimated
calendar year 1997 earnings by the average (excluding minimum and maximum
values) price-to-earnings ratio of the Control Group as a multiple of Tylan
General's calendar 1995 actual revenue, calendar 1996 projected revenue and
calendar 1997 projected revenue was 1.3x, 0.92x and 0.87x, respectively;
and as a multiple of calendar 1995 actual net income, calendar 1996
projected net income and 1997 projected net income, was not meaningful,
33.8x and 10.8x, respectively; and
(iv) The implied value found by multiplying Tylan General's estimated
calendar year 1997 earnings by the average (excluding minimum and maximum
values) estimated price-to-earnings ratio of the Control Group based on
1997 estimated earnings less the Transaction Premium, as a multiple of
Tylan General's calendar 1995 actual revenue, calendar 1996 projected
revenue and calendar 1997 projected revenue was 0.86x, 0.62x and 0.58x,
respectively; and as a multiple of calendar 1995 actual net income,
calendar 1996 projected net income and 1997 projected net income, was not
meaningful, 22.6x and 7.2x, respectively.
Contribution Analysis. Adams, Harkness analyzed the pro forma contribution
of both Tylan General and Span to the combined company if the Merger were to be
consummated. Such analysis was based on financial data provided by the
managements of Tylan General and Span. Such analysis showed that, for calendar
year 1996, Span would contribute approximately 40% of the projected revenues and
approximately 13% of the projected net income of the combined company,
respectively. The analysis further showed that for calendar year 1997 Span would
contribute approximately 32.5% of the projected revenues and approximately 29.3%
of the projected net income of the combined company respectively. Further
analysis showed that using the transaction value as determined by the product of
1.47 million shares and the closing price of Tylan General Common Stock as of
June 12, 1996, Span would consist of approximately 32.8% of the combined entity
formed by the merger of Tylan General and Span. Using this transaction value
less the Transaction Premium, Span would consist of approximately 24.6% of the
combined entity formed by the merger of Tylan General and Span.
Pro Forma Analysis. Adams, Harkness analyzed and reviewed certain pro
forma financial information for the combined entity based on 1996 and 1997
management budgets for each of Tylan General and Span,
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respectively. Such analysis indicated projected dilution for the fourth fiscal
1996 quarter, the first quarter as a combined entity, of $0.21. Such analysis
indicated the projected accretion for the first fiscal quarter through the
fourth fiscal quarter for fiscal 1997 of the combined entity to be $0.08, $0.08,
$0.08 and $0.09, respectively. The total accretion for fiscal 1997 is projected
to be $0.33.
Discounted Cash Flow Analysis. Adams, Harkness performed a discounted cash
flow analysis of Span based upon a series of financial projections prepared by
the management of Span (the "Span Projections"), for projected fiscal years
including the fiscal year ended October 31, 1996 through the fiscal year ended
October 31, 2000. Adams, Harkness discounted the projected free cash flows (EBIT
plus depreciation and amortization, less taxes, capital expenditures and net
working capital changes) plus the terminal value derived from the Span
Projections to arrive at a present value ("Present Value") for Span. From this
Present Value, for Span, Adams, Harkness subtracted all debt obligations
appearing on Span's balance sheet and added the excess cash balance appearing on
Span's balance sheet to obtain Span's equity value ("Equity Value"). Adams,
Harkness performed sensitivity analysis to understand the effect on Span's
Equity Value of different discount rates and terminal values. Such analyses were
performed under discount rate assumptions ranging from 7.23% to 12.94%. Based
upon assumptions regarding such factors as inflation rates, interest rates and
inherent business risk of Span, as well as the semiconductor capital equipment
industry as a whole, Adams, Harkness observed, after taking into account the
number of shares of Tylan General Common Stock to be issued in the Merger and
the average three-month closing price for the Tylan General Common Stock, that
the imputed purchase price for Span was within the range of implied Equity Value
for Span yielded by such analysis.
Analysis of Operating Statistics. Adams, Harkness compared Tylan General
and Span to the companies in the Control Group with respect to average revenue
growth over the past three years, gross margin for calendar year 1995, operating
margin for calendar year 1995, net profit margin for calendar year 1995,
inventory turnover for calendar year 1995, accounts receivable turnover for
calendar year 1995, return on equity for calendar year 1995 and return on assets
for calendar year 1995 ("Performance Data"). With respect to the Performance
Data, Tylan General generally ranked in the middle of the range of companies in
the Control Group, and Span generally ranked in the lower half of the range of
companies in the Control Group. Further analysis of Span's 1996 and 1997
projected Performance Data shows Span generally ranked in the middle of the
range of companies in the Control Group.
Pursuant to a letter agreement dated as of February 27, 1996, between Tylan
General and Adams, Harkness (the "Engagement Letter"), Tylan General agreed to
pay Adams, Harkness an opinion fee of $100,000. The aforementioned opinion fee
is not contingent on the favorable or unfavorable nature of the opinion. In
addition, Tylan General agreed to reimburse Adams, Harkness for all of its
reasonable out-of-pocket expenses. Tylan General also agreed to indemnify and
hold harmless Adams, Harkness against certain liabilities, including liabilities
under the federal securities laws or arising out of, or in connection with, its
rendering of services under the Engagement Letter. In the event such
indemnification were not available, however, Tylan General agreed to contribute
to the settlement, loss or expenses involved in the proportion that the relevant
financial interest of Tylan General and its stockholders bears to Adams,
Harkness' relevant financial interest.
The summary of the Adams, Harkness analyses set forth above does not
purport to be a complete description of the presentation by Adams, Harkness to
the Tylan General Board. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analyses or summary
description. Adams, Harkness believes that its analyses and the summary set
forth above must be considered as a whole and that selecting portions of its
analyses, or of the above summary, could create an incomplete view of the
process underlying the analyses performed by Adams, Harkness in connection with
the preparation of the Adams, Harkness Opinion.
Adams, Harkness, as part of its investment banking activities, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporation and other purposes.
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PLAN OF REORGANIZATION
Representations and Covenants
Under the Plan of Reorganization, Span has made a number of
representations, including representations regarding, among other things, the
organizational and capital structure of Span and its affiliates, its operations,
financial condition, tax matters, material contracts, employees, litigation and
claims, compliance with laws, environmental matters, properties, intellectual
property, disclosure, finders, transactions with affiliates and other matters,
including its authority to enter into the Plan of Reorganization and to
consummate the Merger. Under the Plan of Reorganization, Tylan General has also
made a number of representations, including representations regarding, among
other things, the organization and capital structure of Tylan General and its
affiliates, operations, compliance with laws, filings with the Commission,
financial condition, disclosure, finders, common stock to be issued and other
matters, including its authority to enter into the Plan of Reorganization and to
consummate the Merger.
In addition, Tylan General and Span have each covenanted that, until the
consummation of the Merger or the termination of the Plan of Reorganization,
they will not take certain actions relating to the operation of their respective
businesses without the other's consent and will use best efforts to consummate
the Merger in accordance with the Plan of Reorganization. Tylan General and Span
have also agreed to (i) use best efforts to perform and fulfill all conditions
and obligations under the Plan of Reorganization; (ii) use best efforts to
obtain all authorizations, consents and permits of others required to permit the
consummation of the Merger; (iii) file with any governmental agencies or
departments all notices, reports and other documents required by law with
respect to the Plan of Reorganization and the Merger; (iv) promptly notify the
other party of any change that has had a material adverse effect on the
notifying party and the occurrence of any event that causes the representations
or warranties made by the representing party in the Plan of Reorganization to be
incomplete or inaccurate in any material respect; (v) notify the other party of
any examination, review, investigation, action, suit or proceeding against any
of the parties by any federal, state, local or foreign governmental authority;
(vi) take all action necessary to call and convene a meeting of their respective
stockholders to vote upon the approval of the Plan of Reorganization and the
Merger; and (vii) notify the other party if information supplied by such party
for inclusion in the Registration Statement contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading.
Span has also agreed that it will not solicit, encourage, negotiate,
provide information for or otherwise cooperate in any way with, assist or
facilitate and use its best efforts to prevent any of its officers and
directors, employees, representatives and agents from soliciting, encouraging or
negotiating or providing information or otherwise cooperating in any way with,
assisting or facilitating any of the following: (i) any merger or consolidation
of Span or its affiliates with any person other than Tylan General or Tylan
General Sub; (ii) any sale of assets of Span or its affiliates to any person
other than Tylan General or Tylan General Sub (other than sales of inventory in
the ordinary course of business); (iii) any equity or debt investment (other
than on terms approved by Tylan General) in Span or its affiliates by any
person; or (iv) any purchase of outstanding securities of Span or its affiliates
by any person.
Span has further agreed, among other things: (i) to use reasonable best
efforts to keep intact its business organization, to keep available its present
officers and key employees and to preserve the goodwill of all suppliers,
customers and others having business relations with it; (ii) to permit Tylan
General and its authorized representatives to have full access during normal
business hours to all of its properties, assets, records, tax returns, contracts
and documents and to furnish to Tylan General such financial and other
information as Tylan General may from time to time reasonably request; (iii) to
deliver to Tylan General at the Closing the resignations of all directors of
Span; (iv) to provide Tylan General with copies of all written materials and
written communications furnished by Span to its shareholders after the date of
the Plan of Reorganization and copies of all notices, reports or other documents
filed with any government agency or department; (v) to provide Tylan General
with copies of all material operating and financial reports prepared by Span;
and (vi) to use its best efforts to deliver to Tylan General or to cause its
counsel to deliver to Tylan General certain closing documents referred to in the
Plan of Reorganization.
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Under the Plan of Reorganization, Tylan General has also agreed: (i) to use
its best efforts to qualify the Tylan General Common Stock to be issued pursuant
to the Merger under the securities or blue sky laws of certain jurisdictions;
(ii) to use best efforts to cause the Tylan General Common Stock to be issued
pursuant to the Merger to be listed on the Nasdaq National Market, free of
restrictions on transfer other than restrictions pursuant to Rule 144 and Rule
145 promulgated under the Securities Act and restrictions related to the
Continuity of Interest Certificate referred to in the Plan of Reorganization;
(iii) to cause Tylan General Sub to perform all of its obligations under the
Plan of Reorganization; (iv) to enter into the Whitson Agreement and the
Employment Agreements; (v) to prepare and file with the SEC, and any other
applicable regulatory bodies, a Registration Statement on Form S-4 with respect
to the shares of Tylan General Common Stock to be issued in the Merger and to
satisfy the requirements of the Securities Act, including Rule 145 thereunder;
and (vi) to use its best efforts to substitute Tylan General for Don E. Whitson
as guarantor of Span's senior indebtedness and certain leases of Span and, if
Tylan General is unable to do so within ninety (90) days after the Closing Date,
to repay such indebtedness in full.
Conditions to the Merger
In addition to the requirement that the Merger Proposal be approved by the
requisite votes of the Tylan General stockholders and the Span shareholders, the
obligations of Tylan General and Span to consummate the Merger are subject to
the satisfaction of a number of other conditions, including, among other things,
the effectiveness of and the absence of any stop orders with respect to the
Registration Statement filed in connection with this Prospectus/Joint Proxy
Statement and the absence of any order by any court or governmental agency to
enjoin or otherwise prevent the consummation of the Merger. Each party's
obligations under the Plan of Reorganization will also be conditioned upon (i)
the accuracy, in all material respects, of the representations and warranties
made by the other party as of the Effective Date; (ii) the performance, in all
material respects, by the other party of its covenants; (iii) the absence of any
material adverse change in the business, operations, financial conditions,
assets or prospects of the other party; (iv) the receipt by the parties of all
governmental approvals, consents, authorizations or modifications as may be
required to permit the performance by the parties of their respective
obligations under the Plan of Reorganization and the consummation of the Merger;
and (v) the receipt by Tylan General and Span of certain written opinions from
their respective legal counsel dated the Effective Date to the effect that,
among other things, the Merger will constitute a reorganization within the
meaning of Section 368(a)(2)(E) of the Code (as defined below).
Tylan General's obligations to consummate the Merger are further
conditioned upon, among other things, (i) the satisfactory completion of Tylan
General's pre-acquisition review of Span's business condition, assets,
liabilities, operations, financial performance, net income and prospects; (ii)
the receipt of a written opinion from Adams, Harkness that the consideration to
be received by the Span shareholders is fair to the Tylan General stockholders
from a financial point of view, (iii) the receipt of a letter from Ernst &
Young, Tylan General's and Span's independent auditors, relating to the
availability of pooling-of-interests accounting treatment, (iv) the receipt of
an agreed upon procedures letter from Ernst & Young in connection with the
Registration Statement, (v) the absence of litigation against Span or Ocala
that, if adversely determined, would have a material adverse effect on the
business, operations, condition (financial or otherwise), assets or prospects of
Span and Ocala, taken as a whole, (vi) no shareholders having asserted
dissenters' rights under the Texas Law, (vii) the receipt of all approvals,
consents, authorizations and modifications of governmental authorities and third
parties, (viii) the execution of noncompetition agreements by the Span
shareholders entering into the Employment Agreements, (ix) the receipt of
resignations of each director of Span, (x) no material deterioration in the
aging of Span's accounts receivable from that of November 30, 1995 and (xi) the
execution and delivery to Tylan General of certain other documents, including
the Related Agreements. See "Related Agreements; Interests of Certain Persons in
the Merger."
Span's obligations to consummate the Merger are further conditioned upon,
among other things, (i) the execution and delivery to Span of the Whitson
Agreement and the Employment Agreements, (ii) the election of Don E. Whitson to
the Tylan General Board and (iii) the continuation of David J. Ferran as
Chairman of the Board and Chief Executive Officer of Tylan General on a
full-time basis.
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At any time at or prior to the Effective Date, to the extent legally
allowed, Tylan General or Span, without approval of the Tylan General
stockholders or the Span shareholders, may waive compliance with any of the
agreements or conditions contained in the Plan of Reorganization for the benefit
of that company.
Termination
At any time prior to the Effective Date, the Plan of Reorganization may be
terminated as follows: (i) by mutual consent of all of the parties; (ii) by
Tylan General if a majority of the members of the Tylan General Board does not
approve the results of Tylan General's pre-acquisition investigation and review;
(iii) by Tylan General if there has been a material breach by Span of any
covenant, representation or warranty contained in the Plan of Reorganization,
Tylan General has notified Span in writing of the existence of such breach, and
Span has failed to cure such breach within ten days after receiving such notice;
(iv) by Span if there has been a material breach by Tylan General of a covenant,
representation or warranty contained in the Plan of Reorganization, Span has
notified Tylan General in writing of the existence of such breach, and Tylan
General has failed to cure such breach within ten days after receiving such
notice; (v) by either Tylan General or Span if there should be a non-appealable
order of a federal or state court in effect preventing consummation of the
Merger, or there shall be any action taken or any statutes, rules, regulations
or orders enacted, promulgated, issued or deemed applicable to the Merger by any
governmental entity that would make consummation of the Merger illegal; (vi) by
either Tylan General or Span if, upon a vote at a duly held meeting of
stockholders or shareholders, as the case may be, or any adjournment thereof,
any required approval of the holders of Span Common Stock or the holders of
Tylan General Common Stock shall not have been obtained; or (vii) by either
Tylan General or Span if it shall be after June 30, 1996. Tylan General, Tylan
General Sub and Span have each agreed not to exercise the right to terminate
described in clause (vii) above before September 30, 1996.
If the Plan of Reorganization shall be terminated as described above, the
Plan of Reorganization shall forthwith become void, and there shall be no
liability on the part of any party to the Plan of Reorganization to any other
party, except for, if appropriate, payment of certain legal fees and any damages
for a material breach of the Plan of Reorganization.
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Plan of Reorganization will be paid by the party
incurring such expense; provided, however, that if the Merger is consummated,
the shareholders of Span will indemnify and hold harmless Tylan General, Tylan
General Sub and Span from any costs or expenses incurred by any Span shareholder
and for all costs and expenses of Span in excess of $350,000.
At any time prior to the Effective Date, Tylan General, Tylan General Sub
or Span may extend the time for the performance of any of the obligations or
other acts of Tylan General, Tylan General Sub or Span.
Amendment
The Plan of Reorganization may be amended with the approval of Tylan
General, Tylan General Sub and Span at any time before or after approval of the
Plan of Reorganization by the stockholders of Tylan General or the shareholders
of Span, but after any such stockholder approval, no amendment shall be made
that would change the principal terms of the Plan of Reorganization without the
further approval of such stockholders and shareholders. The Plan of
Reorganization may not be amended except by an instrument in writing signed on
behalf of each of the parties to the Plan of Reorganization.
Indemnity
The Plan of Reorganization provides that, in connection with the Merger,
each Span shareholder shall, on a pro rata basis based on the fully diluted
shares of Span Common Stock outstanding, indemnify Tylan General, Tylan General
Sub and Span against any loss, expense, liability or other damages, including
the reasonable costs of investigation, interest, penalties, attorneys' and
accountants' fees incurred in connection with or arising from or attributable to
any breach or inaccuracy of any representation or warranty made by Span or the
Span shareholders in the Plan of Reorganization or any breach or failure to
perform any
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agreement or covenant of Span or the Span shareholders. Additionally, in
connection with the Merger, Tylan General shall indemnify the Span shareholders
against any damages incurred in connection with or arising from or attributable
to any breach or inaccuracy of any representation or warranty made by Tylan
General or Tylan General Sub in the Plan of Reorganization or any breach or
failure to perform any agreement or covenant of Tylan General or Tylan General
Sub in the Plan of Reorganization.
RELATED AGREEMENTS; INTERESTS OF CERTAIN PERSONS IN THE MERGER
Affiliate Agreements
To help ensure that the Merger will be accounted for as a
pooling-of-interests, Span affiliates (as defined for purposes of Rule 145) have
agreed to enter into agreements that prohibit such persons from disposing of
their shares of Tylan General Common Stock until Tylan General publicly releases
its first report of quarterly financial statements including the combined
financial results of Span and Tylan General for a period of at least 30 days of
"combined operations," as defined by the Commission. Such affiliates have also
agreed not to sell, pledge or otherwise transfer such shares except in
compliance with Rule 145 or under certain other limited circumstances.
Employment and Non-Competition Agreements
Don E. Whitson will enter into an employment agreement with Tylan General
(the "Whitson Agreement"), and each of John Jul, George A. Yurch, John Rabbitt,
Tom Gray and Brian R. Day (the "Employees") will enter into an employment
agreement with Span (collectively, the "Employment Agreements"), each of which
will be effective upon consummation of the Merger. During the term of their
respective employment agreements, Mr. Whitson and the Employees will receive
salary and specified benefits. The Whitson Agreement and the Employment
Agreements also provide that, in the event of termination, the terminated
employee will receive certain severance payments. The annual base compensation
of Mr. Whitson as an executive officer of Tylan General after the Effective Date
will be $250,000 under the Whitson Agreement. Mr. Whitson and the Employees will
be eligible to receive bonuses and stock option grants under the Whitson
Agreement and the Employment Agreements, respectively.
Under the Non-Competition Agreements executed by each of Don E. Whitson and
the Employees (the "Non-Competition Agreements"), each executive also agrees
that, until the third anniversary of the Closing of the Merger, he will not
compete with the Surviving Subsidiary or Tylan General or any of their
subsidiaries, in any geographic area in which any of them was engaged in
business during the term of the Whitson Agreement or the Employment Agreement,
as the case may be.
REGULATORY MATTERS
Other than compliance with the federal securities laws and applicable
securities and "blue sky" laws of the various states, Tylan General and Span are
not aware of any governmental or regulatory approvals required for consummation
of the Merger.
CERTAIN FEDERAL INCOME TAX MATTERS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of Span
Common Stock. This discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury Regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to Tylan General, Span or
Span's shareholders, as described herein.
Span shareholders should be aware that this discussion does not deal with
all federal income tax considerations that may be relevant to particular Span
shareholders in light of their particular circumstances, such as shareholders
who are dealers in securities, who are subject to the alternative minimum tax
provisions of the Code, who are foreign persons or who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of the Merger under foreign, state or local tax laws or the tax
consequences of
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transactions effectuated prior to or after the Merger (whether or not such
transactions are in connection with the Merger). ACCORDINGLY, SPAN SHAREHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES OF
THE MERGER TO THEM, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
Neither Tylan General nor Span has requested, or will request, a ruling
from the Internal Revenue Service (the "IRS") with regard to any of the federal
income tax consequences of the Merger. As a condition to consummation of the
Merger, Gardere & Wynne, L.L.P., counsel to Span, will render an opinion to the
Span shareholders (the "Tax Opinion") that the Merger will constitute a tax-free
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code (a
"Reorganization"). The Tax Opinion will be based on certain assumptions, as well
as representations received and to be received from Tylan General, Span, Tylan
General Sub and the shareholders of Span and will be subject to the limitations
discussed below. Moreover, the Tax Opinion will not be binding on the IRS nor
preclude the IRS from adopting a contrary position. The discussion below assumes
that the Merger will qualify as a Reorganization, based upon the Tax Opinion.
The tax description set forth below has been prepared and reviewed by Gardere &
Wynne, L.L.P., and in their opinion, to the extent such description relates to
statements of law, it is correct in all material respects.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger's qualifying as a Reorganization, the following federal
income tax consequences should, under currently applicable law, result:
- No gain or loss will be recognized for federal income tax purposes by the
holders of Span Common Stock upon the receipt of Tylan General Common
Stock solely in exchange for such Span Common Stock in the Merger (except
to the extent that cash is received in lieu of fractional shares).
- The aggregate tax basis of the Tylan General Common Stock so received by
Span shareholders in the Merger (including any fractional shares of Tylan
General Common Stock not actually received) will be the same as the
aggregate tax basis of the Span Common Stock surrendered in exchange
therefor.
- The holding period of the Tylan General Common Stock so received by each
Span shareholder in the Merger will include the period for which the Span
Common Stock surrendered in exchange therefor was considered to be held,
provided that the Span Common Stock so surrendered is held as a capital
asset at the Effective Date of the Merger.
- Cash payments received by holders of Span Common Stock in lieu of
fractional shares will be treated as if such fractional shares of Tylan
General Common Stock had been issued in the Merger and then redeemed by
Tylan General. A Span shareholder receiving such cash will recognize gain
or loss upon such payment, measured by the difference (if any) between
the amount of cash received and the basis in such fractional shares. The
gain or loss should be capital gain or loss, provided that each such
fractional share of Span Common Stock was held as a capital asset at the
Effective Date of the Merger.
- A holder of Span Common Stock who exercises dissenters' rights with
respect to a share of Span Common Stock and receives a cash payment for
such share generally should recognize capital gain or loss (if such share
was held as a capital asset at the Effective Date of the Merger) measured
by the differences between the shareholder's basis in such share and the
amount of cash received, provided that such payment is not a Dividend
Equivalent Transaction. A sale of shares pursuant to an exercise of
dissenters' rights generally will not be a Dividend Equivalent
Transaction if, as a result of such exercise, the shareholder exercising
dissenters' rights owns no shares of capital stock of Tylan General
(either actually or constructively within the meaning of Section 318 of
the Code) immediately before the Merger.
The Tax Opinion will be subject to certain assumptions and qualifications
and will be based on the truth and accuracy of certain representations of Tylan
General, Span, Tylan General Sub and the shareholders of Span, including
representations in certain certificates delivered to counsel by the respective
managements of Tylan General, Span and Tylan General Sub and the shareholders of
Span. See "The Merger and Related Transactions -- Related Agreements; Interests
of Certain Persons in the Merger -- Affiliate Agreements."
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One key assumption is that the "continuity of interest" requirement will be
satisfied in the Merger. In order for this requirement to be met, shareholders
of Span must not, pursuant to a plan or intent existing at or prior to the
Merger, dispose of so much of (i) their Span Common Stock in anticipation of the
Merger, plus (ii) the Tylan General Common Stock received in the Merger
(collectively, the "Planned Dispositions") such that the Span shareholders, as a
group, would no longer have a "significant equity interest" in the Span business
being conducted by Tylan General after the Merger. Span shareholders will
generally be regarded as having a significant equity interest as long as the
Tylan General Common Stock received in the Merger (after taking into account
Planned Dispositions), in the aggregate, represents a "substantial portion" of
the entire consideration received by the Span shareholders in the Merger. This
requirement is frequently referred to as the "continuity of interest"
requirement. If the continuity of interest requirement is not satisfied, the
Merger would not be treated as a Reorganization. The law is unclear as to what
constitutes a "significant equity interest" or a "substantial portion." The IRS
ruling guidelines require 50% continuity (although such guidelines do not
purport to represent the applicable substantive law). The case law appears to be
more liberal, however, and in one early case, the Supreme Court ruled that
approximately 40% continuity was sufficient. The Plan of Reorganization and the
Continuity of Interest Certificates contemplate that the fifty percent (50%)
standard will be applied. No assurance, however, can be made that the
"continuity of interest" requirement will be satisfied, and if such requirement
is not satisfied, the Merger will not be treated as a Reorganization.
A second key assumption is that all of the indebtedness owed by Span
constitutes "debt" for tax purposes and not an equity ownership by the creditor
in Span. Whether an instrument constitutes debt or equity for tax purposes is
generally a facts-and-circumstances test. Currently, Span owes a number of
persons (including Tylan General) moneys arising out of various commercial
transactions, some of which amounts are past due. The Tax Opinion will assume
that all indebtedness owed by Span is properly classified as debt for tax
purposes. No assurance, however, can be made that this assumption regarding the
proper classification of Span's debt is correct, and, if this assumption is not
correct, then the Merger will not be treated as a Reorganization.
A successful IRS challenge to the Reorganization status of the Merger would
result in significant tax consequences. A Span shareholder would recognize gain
or loss with respect to each share of Span Common Stock surrendered equal to the
difference between the shareholder's basis in such share and the fair market
value, as of the Effective Date, of the Tylan General Common Stock received in
exchange therefor. In such event, a shareholder's aggregate basis in the Tylan
General Common Stock so received would equal its fair market value, and the
shareholder's holding period for such stock would begin the day after the Merger
is consummated.
Even if the Merger qualifies as a Reorganization, a recipient of Tylan
General Common Stock would recognize income to the extent that, for example, any
such shares were determined to have been received in exchange for services, to
satisfy obligations or in consideration for anything other than the Span Common
Stock surrendered. Generally, such income is taxable as ordinary income upon
receipt. In addition, to the extent that a Span shareholder were treated as
receiving (directly or indirectly) consideration other than Tylan General Common
Stock in exchange for such shareholder's Span Common Stock, gain or loss would
have to be recognized.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for accounting
purposes. Under this accounting treatment, the recorded assets and liabilities
and the operating results of both Tylan General and Span are carried forward to
the combined operations of the surviving corporation at their recorded amounts.
No recognition of goodwill in the combination is required of either party to the
Merger.
To support the treatment of the Merger as a pooling-of-interests, the
affiliates of Span have entered into agreements imposing certain resale
limitations on their stock. It is a condition to Tylan General's obligations to
consummate the Merger that, among other things, Tylan General receive, if it so
requests, a letter from its
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independent public accountants and a letter from Span's independent public
accountants to the effect that the Merger will be treated as a
pooling-of-interests for accounting purposes.
DISSENTERS' RIGHTS
If the Plan of Reorganization is approved by the required vote of the Span
shareholders and not abandoned or terminated, holders of Span Common Stock who
did not vote in favor of the Merger may, by complying with Article 5.12 of the
Texas Law, be entitled to dissenters' rights as described therein. Tylan
General's obligation to consummate the Merger is conditioned on no holders of
the outstanding shares of Span Common Stock being, or having the right to
become, entitled to exercise dissenters' rights. The record holders of the
shares of Span that are eligible to, and do, exercise their dissenters' rights
with respect to the Merger are referred to herein as "Dissenting Shareholders,"
and the shares of Span Common Stock with respect to which they exercise
dissenters' rights are referred to herein as "Dissenting Shares."
The following discussion is not a complete statement of the Texas Law
relating to dissenters' rights and is qualified by reference to Articles 5.11
through 5.13 of the Texas Law attached to this Prospectus/Joint Proxy Statement
as Appendix C and incorporated herein by reference. This discussion of Articles
5.11 through 5.13 of the Texas Law should be reviewed carefully by any Span
shareholder who wishes to exercise statutory dissenters' rights or wishes to
preserve the right to do so, since failure to comply with the required
procedures will result in the loss of such rights.
Any holder of record of the Span Common Stock who objects to the Merger may
dissent from the Merger and may exercise his or her appraisal rights in
accordance with the Texas Law. Any shareholder of Span contemplating the
exercise of his or her right of appraisal is urged to review carefully the
provisions of Articles 5.11 through 5.13 of the Texas Law, which Articles are
attached as Appendix C to this Prospectus/Joint Proxy Statement, particularly
with respect to the procedural steps required to perfect the exercise of such
right of appraisal and the right of a shareholder who has demanded payment for
his or her Span Common Stock to withdraw such demand. A person who owns Span
Common Stock beneficially but not of record and who desires to dissent from the
Merger and to exercise his or her right of appraisal may do so only by and
through the holder of record of such shares. References to "shareholders" in the
following summary are to shareholders of record. Set forth below is a summary of
the steps to be taken by a holder of record if a right of appraisal is to be
exercised. Such summary should be read in conjunction with the full text of
Articles 5.11 through 5.13 referred to above.
The Texas Law provides that any shareholder of Span who files a written
objection to the Merger with Span prior to the vote of the Span shareholders
thereon, setting out that his or her right to dissent will be exercised if the
Merger is effective and giving his or her name and address and who does not
later vote in favor of the Merger, may, within ten (10) days from the delivery
or mailing of notice by Span to such shareholder that the Merger has been
consummated, make written demand upon Span for the payment of the fair value of
the Span Common Stock. This demand must set forth the number of shares of Span
Common Stock owned and their fair value as estimated by the shareholder. A proxy
or vote opposing or abstaining from the Merger will not satisfy the statutory
requirement that a shareholder give notice of the intention to dissent and to
demand payment for the Span Common Stock. Fair value is defined by the Texas Law
to mean the value as of the day before the vote was taken authorizing the Merger
and excluding any appreciation or depreciation in anticipation of the Merger.
Once the demand for payment has been filed, the dissenter is not entitled
to vote or to exercise any other rights of a shareholder, with certain statutory
exceptions. Any shareholder who has made the demand for payment pursuant to the
statutory provisions may withdraw that demand at any time before payment is made
for that dissenter's shares or before its petition to determine fair value is
filed with a court of competent jurisdiction, but no such demand may be
withdrawn after payment is made or unless Span shall consent thereto after any
such petition is filed.
Within twenty (20) days of Span's receipt of a proper written demand for
payment of the fair value of Span Common Stock by the shareholder, Span must
give written notice either (i) accepting the amount claimed in the demand and
agreeing to pay such amount within ninety (90) days or (ii) containing an
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estimate by Span of the fair value of such Span Common Stock together with an
offer to pay that amount within ninety (90) days after the date on which the
Merger is effective, upon receipt of notice from the shareholder within sixty
(60) days after the date the Merger is effective that he or she agrees to accept
that amount.
Within twenty (20) days after demanding payment for Span Common Stock, each
Dissenting Shareholder so demanding payment shall submit to Span the
certificates representing the Dissenting Shares for notation thereon that such
demand has been made. Failure to submit the certificates will terminate the
Dissenting Shareholder's right to dissent.
If within sixty (60) days after the effectiveness of the Merger, Span and
the shareholder shall agree on the value of such shares, payment therefor may be
made within ninety (90) days after the date of the effectiveness of the Merger.
Upon payment of the agreed value, the Dissenting Shareholder shall cease to have
any interest in such shares. If within the sixty (60) day period following the
date of the Merger, the Dissenting Shareholder and Span do not agree on the fair
value, then the Dissenting Shareholder may, within sixty (60) days after the
expiration of the sixty (60) day period following the Merger, file a petition in
any court of competent jurisdiction in the county in which the principal office
of Span is located (Collin County, Texas) asking for a finding and determination
of the fair value of his or her Span Common Stock.
In the absence of fraud in the transaction, Article 5.12 of the Texas Law
provides that the remedy contained therein is the exclusive remedy for the
recovery of the value of a Dissenting Shareholder's Span Common Stock or money
damages to such dissenter with respect to the Merger. Precise compliance with
the provisions of the Texas Law is required to perfect the rights of a
Dissenting Shareholder.
Under the Delaware Law, Tylan General stockholders are not entitled to
dissenters' or appraisal rights with respect to the proposed Merger.
MERGER EXPENSES AND FEES AND OTHER COSTS
Except as described below, whether or not the Merger is consummated, each
party will bear its own costs and expenses in connection with the Merger and the
transactions provided for therein, except that if the Merger is consummated, the
Span shareholders shall indemnify and hold harmless Tylan General, Tylan General
Sub and Span from any costs or expenses incurred by any Span shareholder and for
all costs and expenses of Span in excess of $350,000. See "Plan of
Reorganization -- Termination."
Tylan General has agreed to pay to Adams, Harkness a fee of $100,000 in
connection with, among other services, rendering its fairness opinion and to
reimburse Adams, Harkness for reasonable out-of-pocket expenses incurred by
Adams, Harkness in rendering services to Tylan General in connection with the
Merger. Tylan General has also agreed to indemnify Adams, Harkness against
certain claims and liabilities, including certain claims under the federal
securities laws. In addition, Tylan General has agreed to pay Michael Khougaz, a
director of Tylan General, a fee of $30,000 for advisory services rendered to
Tylan General in connection with the Merger. Span has agreed to pay to Blum &
Co., Inc. a fee of $150,000 for advising Span in connection with the Merger.
Tylan General and Span estimate that they will incur direct transaction
costs of approximately $1.0 million associated with the Merger. These
nonrecurring transaction costs will be charged to operations upon consummation
of the Merger. See "Unaudited Pro Forma Combined Condensed Financial
Information" and "Risk Factors -- Integration of Operations."
AFFILIATES' RESTRICTIONS ON SALE OF TYLAN GENERAL COMMON STOCK
The shares of Tylan General Common Stock to be issued in the Merger will
have been registered under the Securities Act pursuant to the Registration
Statement, thereby allowing such shares to be traded without restriction by all
former holders of Span Common Stock who (i) are not deemed to be affiliates of
Span at the time of the Span Meeting (as "affiliates" is defined for purposes of
Rule 145) and (ii) who do not become affiliates of Tylan General after the
Merger. All of the shareholders of Span, other than Sam Crowe and Marguerite
Whitson, are affiliates of Span for purposes of Rule 145.
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The affiliates of Span have agreed to enter into agreements not to make any
public sale of any Tylan General Common Stock received upon conversion of Span
Common Stock in the Merger prior to the date Tylan General shall have publicly
released financial results for a period that includes at least 30 days of
combined operations of Span and Tylan General, and thereafter not to make any
sale of Tylan General Common Stock received upon conversion of Span Common Stock
in the Merger, except in compliance with Rule 145 or under certain other limited
circumstances. See "Related Agreements; Interests of Certain Persons in the
Merger -- Affiliate Agreements" above. In general, Rule 145, as currently in
effect, imposes restrictions on the manner in which such affiliates may make
resales of Tylan General Common Stock and also on the number of shares of Tylan
General Common Stock that such affiliates and others (including persons with
whom the affiliates act in concert) may sell within any three-month period. Rule
145 will not generally preclude sales by affiliates. These Rule 145 restrictions
will generally apply for a period of at least two years after the Effective Date
(or longer if the person remains or becomes an affiliate of Tylan General).
SURRENDER OF CERTIFICATES
If the Merger becomes effective, Tylan General will mail a letter of
transmittal with instructions to all holders of record of Span Common Stock as
of the Effective Date for use in surrendering their stock certificates
representing Span Common Stock and a cash payment in lieu of fractional shares.
CERTIFICATES REPRESENTING THE SHARES OF SPAN COMMON STOCK SHOULD NOT BE
SURRENDERED UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED.
41
<PAGE> 53
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
give effect to the Merger of Tylan General and Span under the
pooling-of-interests method of accounting. These pro forma financial statements
are presented for illustrative purposes only and therefore are not necessarily
indicative of the operating results or financial position that might have been
achieved had the Merger occurred as of an earlier date, nor are they necessarily
indicative of operating results or financial position which may occur in the
future.
A pro forma combined condensed balance sheet is provided as of April 30,
1996, giving effect to the Merger as though it had been consummated on that
date. Pro forma combined condensed statements of operations are provided for the
six-month period ended April 30, 1995 and 1996 and the fiscal years ended
October 31, 1993, 1994 and 1995, giving effect to the Merger as though it had
occurred at the beginning of the earliest period presented. For purposes of the
pro forma operating data, Tylan General's consolidated financial statements for
the three fiscal years ended October 31, 1995 and for the six months ended April
30, 1995 and 1996 have been combined with Span's consolidated financial
statements for the three fiscal years ended August 31, 1995 and for the six
months ended April 30, 1995 and 1996. The two-month period ended October 31,
1995 relating to Span is not included in the pro forma financial statements as
it will be presented as an adjustment to retained earnings in the combined
financial statements due to the differing year-ends of Tylan General and Span.
The pro forma combined condensed statements of operations for each of the
three years in the period ended October 31, 1995 are derived from the audited
historical consolidated financial statements of Tylan General and audited
historical consolidated financial statements of Span and should be read in
conjunction with Tylan General's audited historical consolidated financial
statements, "Tylan General Management's Discussion and Analysis of Financial
Condition and Results of Operations," Span's audited historical consolidated
financial statements and "Span Management's Discussion and Analysis of Financial
Condition and Results of Operations," contained elsewhere in this
Prospectus/Joint Proxy Statement. The pro forma combined condensed financial
statements as of or for the six-month periods ended April 30, 1995 and 1996 have
been prepared in accordance with generally accepted accounting principles
applicable to interim financial information and, in the opinions of Tylan
General's and Span's respective managements, include all adjustments necessary
for a fair presentation of financial information for such interim periods.
42
<PAGE> 54
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
TYLAN GENERAL SPAN ADJUSTMENTS(1) COMBINED
------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash................................... $10,288 $ 888 $ (5,150)(d) $ 6,026
Accounts receivable.................... 18,301 7,066 (545)(b) 24,822
Income tax refund receivable........... 971 971
Current portion of notes receivable.... 1,300 -- (1,300)(a) --
Inventories............................ 15,290 10,183 25,473
Prepaid expenses and other............. 1,399 969 (192)(c),(f) 2,176
Deferred income taxes.................. 1,517 849 2,366
------- ------- ------- -------
Total current assets................ 48,095 20,926 (7,187) 61,834
------- ------- ------- -------
Note receivable -- net of current
portion................................ 2,313 (2,313)(a) --
Property................................. 13,342 11,058 24,400
Goodwill................................. 2,359 582 2,941
Deferred income taxes.................... 385 -- 385
Other assets............................. 1,065 2,049 (200)(d) 2,914
------- ------- ------- -------
Total assets................... $67,559 $ 34,615 $ (9,700) $92,474
======= ======= ======= =======
Current liabilities:
Accounts payable....................... $ 9,996 $ 5,292 $ (338)(b) $14,950
Accrued expenses....................... 4,856 720 2,250(f) 7,826
Other current liabilities.............. -- 4,999 (3,820)(a),(b) 1,179
Current portion of long-term debt...... 960 1,549 2,509
Income taxes payable................... 2,211 44 (133)(e) 2,122
------- ------- ------- -------
Total current liabilities........... 18,023 12,604 (2,041) 28,586
Long-term debt........................... 2,160 19,645 (5,000)(d) 16,805
Deferred income taxes.................... 559 559
------- ------- ------- -------
Total liabilities...................... 20,183 32,808 (7,041) 45,950
------- ------- ------- -------
Commitments and contingencies
Minority interest........................ -- 454 454
Stockholders' equity:
Common stock........................... 7 707 714
Treasury stock......................... -- (680) (680)
Paid-in capital.......................... 36,027 1,020 37,047
Notes receivable-stock purchases......... -- (342) (342)
Retained earnings........................ 11,494 648 (2,659)(c),(d), 9,483
(e),(f)
Cumulative translation adjustment........ (152) -- (152)
------- ------- ------- -------
Total stockholders' equity............. 47,376 1,353 (2,659) 46,070
------- ------- ------- -------
Total liabilities and
stockholders' equity......... $67,559 $ 34,615 $ (9,700) $92,474
======= ======= ======= =======
</TABLE>
- ---------------
(1) Pro forma adjustments as described in Note 2.
43
<PAGE> 55
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER SIX MONTHS ENDED
31, APRIL 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales....................................... $56,827 $75,372 $118,268 $54,317 $75,421
Cost of sales................................... 32,992 45,949 69,490 31,753 45,250
------- ------- -------- ------- -------
Gross profit.................................... 23,835 29,423 48,778 22,564 30,171
Operating expenses:
Sales and marketing........................... 8,244 9,824 14,720 6,800 10,356
General and administrative.................... 6,919 9,078 14,209 6,520 8,850
Research and development...................... 3,665 4,189 7,527 3,562 5,518
Amortization, primarily goodwill.............. 386 427 522 251 200
------- ------- -------- ------- -------
Income from operations.......................... 4,621 5,905 11,800 5,431 5,247
Other income (expenses) -- net.................. (1,344) (2,032) (2,124) (709) (755)
------- ------- -------- ------- -------
Income before income taxes...................... 3,277 3,873 9,676 4,722 4,492
Provision for income taxes...................... (1,479) (923) (3,749) (2,009) (1,949)
Income before extraordinary item and cumulative
effect of change in accounting principle...... $ 1,798 $ 2,950 $ 5,927 $ 2,713 $ 2,543
======= ======= ======== ======= =======
Earnings per share data:
Income before extraordinary item and
cumulative effect of change in accounting
principle.................................. $ .54 $ .89 $ .44 $ .31
Weighted average common and common equivalent
shares outstanding......................... 5,470 6,659 6,130 8,196
</TABLE>
44
<PAGE> 56
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. The unaudited pro forma combined condensed financial statements of Tylan
General and Span give retroactive effect to the Merger using the
pooling-of-interests method of accounting, and, as a result, the unaudited pro
forma combined condensed balance sheets and statements of operations are
presented as if the combining companies had been combined for all periods
presented. The unaudited pro forma combined condensed financial statements will
become the historical financial statements of Tylan General upon issuance of
financial statements for a period that includes the date of the acquisition. The
unaudited pro forma combined condensed financial statements reflect the issuance
of 5.53258 fully paid and nonassessable shares of Tylan General Common Stock for
each share of Span Common Stock to effect the Merger. The unaudited pro forma
combined condensed financial statements, including the notes thereto, should be
read in conjunction with the historical consolidated financial statements of
Tylan General and Span included in this Prospectus/Joint Proxy Statement.
2. The unaudited pro forma combined condensed balance sheets combine Tylan
General's April 30, 1996 unaudited consolidated balance sheet with Span's April
30, 1996 unaudited consolidated balance sheet. The adjustments relate to: (i)
the elimination of transactions between the companies, (ii) the elimination of
certain debt, and related debt issuance costs of Span, which is assumed to be
paid off with Tylan General's cash and (iii) the estimated costs of the
transaction and integration of the businesses.
The adjustments are summarized as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
Item (i)
(a) Elimination of note payable........................................... $3,613
(b) Elimination of balances relating to products and services supplied
between the companies............................................... 545
(c) Elimination of unamortized marketing services included in prepaid
expenses............................................................ 117
Item (ii)
(d) Paydown of subordinated debt of $5,000, prepayment penalty of $150 and
write-off of prepaid financing costs of $200........................ 5,350
(e) Tax benefit of prepayment penalty and write-off of prepaid financing
costs............................................................... 133
Item (iii)
(f) Recording of transaction and integration related costs, including $75
currently in prepaids (net of tax effect)........................... 2,325
</TABLE>
3. The unaudited pro forma statements of operations combine Tylan General's
historical results for each of the three fiscal years in the period ended
October 31, 1995 and the unaudited six months ended April 30, 1996 with the Span
results for each of the three fiscal years in the period ended August 31, 1995
and the unaudited six months ended April 30, 1996, respectively. The two-month
period ended October 31, 1995 relating to Span is not included in the pro forma
financial statements as it will be presented as an adjustment to retained
earnings in the combined financial statements due to the differing year-ends of
Tylan General and Span. No adjustments are required for any period presented
during the three-year period ended October 31, 1995 or the six-month period
ended April 30, 1995, as there were no material transactions between the two
companies prior to October 31, 1995. During the six months ended April 30, 1996,
Tylan General purchased inventory from Span. Tylan General's unsold inventory at
April 30, 1996 related to purchases from Span was not significant. The other
adjustments consist of elimination of general and administrative expenses of
$600,000 charged to Span by Tylan General for services provided under the
international distribution agreements entered into on November 20, 1995 and
$200,000 ((c) above) for a marketing report sold to Span by Tylan of which
$117,000 is included in Span's balance sheet as of April 30, 1996.
4. The unaudited pro forma data are presented for informational purposes
only and do not give effect to any synergies that may occur due to the combining
of Tylan General's and Span's existing operations. Tylan General expects to
incur charges currently estimated to be between $3.5 million and $4.0 million in
the quarter ending October 31, 1996, the quarter in which the Merger is expected
to be consummated, to reflect costs associated with combining the operations of
the two companies and transaction fees and costs incident to
45
<PAGE> 57
the Merger. An estimated charge of $2.3 million, which is the midpoint of the
above range after giving effect for estimated tax benefits, is reflected in the
unaudited pro forma combined condensed balance sheet and is not included in the
unaudited pro forma combined condensed statement of operations. This range is a
preliminary estimate and therefore is subject to change.
5. The accounting policies of the separate companies are currently being
studied from a conformity perspective. The impact of conforming accounting
policies, if any, is not presently estimable.
46
<PAGE> 58
TYLAN GENERAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Tylan General's and the combined entity's actual
results could differ materially from those discussed here. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in the sections entitled "Risk Factors" and "Tylan General Business,"
as well as those discussed elsewhere in this Prospectus/Joint Proxy Statement.
GENERAL
Tylan General designs, manufactures and markets precision mass flow
controllers, gas panels and pressure measurement and control instrumentation.
Tylan General's products are used primarily in IC fabrication, and also in other
manufacturing processes such as flat panel display and fiber optic cable
fabrication.
In October 1989, Tylan General (then named Vacuum General, Inc.) purchased
all of the outstanding shares of common stock of Tylan Corporation for $11.0
million. Of that amount, $6.6 million was initially recorded as goodwill, and as
of the end of fiscal 1995, $2.4 million remained to be amortized on a
straight-line basis over the succeeding nine-year period ending 2004. The
acquisition was financed by Tylan General through a combination of proceeds from
the sale of preferred stock to several venture capital investors, funds borrowed
on a senior and subordinated basis from a commercial bank and amounts advanced
by a former affiliate of Tylan Corporation. Over the three years following the
acquisition, Tylan General incurred additional expenses in restructuring and
integrating operations and divesting itself of two product lines that did not
fit Tylan General's strategic plan.
In November 1992, in connection with the refinancing of debt incurred in
the acquisition of Tylan Corporation, Tylan General issued to an affiliate of
Kleinwort Benson Limited 12% Subordinated Notes due November 15, 1999 in the
aggregate principal amount of $5,000,000 (the "Notes") and a ten-year warrant to
purchase 887,845 shares of Common Stock, as adjusted, for a nominal aggregate
exercise price (the "Warrant"). The value of the Warrant was recorded as a
deferred issuance cost, and such cost was scheduled to be amortized over the
term of the Notes. The majority of the net proceeds to Tylan General from its
initial public offering in January 1995 was used to prepay the Notes and to pay
a prepayment penalty. In February 1995, Tylan General recognized an
extraordinary loss of approximately $695,000, net of income tax benefit, upon
the prepayment of the Notes.
IC manufacturers purchase Tylan General's products either as part of
processing systems purchased from equipment suppliers or directly from Tylan
General for retrofit or replacement applications. IC manufacturers often specify
to equipment suppliers which vendors' process instrumentation should be supplied
on a particular process tool (such specifications are sometimes referred to as
"nominations"). During the six months ended April 30, 1996, Tylan General's five
largest customers were Lam Research Corporation, Applied Materials, Inc., Tokyo
Electron Limited, Watkins-Johnson Company and Novellus Systems, Inc., all of
which are equipment suppliers. These customers accounted in the aggregate for
49.8% of net sales during the six months ended April 30, 1996. Tylan General
believes that a significant portion of the sales to these customers in the six
months ended April 30, 1996 resulted from IC manufacturer nominations of Tylan
General's products.
Tylan General's fiscal year is comprised of either 52 or 53 weeks and ends
on the Sunday closest to October 31 each year. Fiscal 1993, 1994 and 1995 were
each 52 weeks. For convenience, Tylan General's fiscal year end has been
presented as October 31 in the following tables. All references to the fiscal
years ending on the Sunday closest to October 31 in 1995, 1994 and 1993 have
been presented in this section as "1995," "1994" and "1993," respectively. Tylan
General's first three fiscal quarters end on the Sunday closest to the last day
of January, April and July, respectively. For convenience, the end of each of
Tylan General's first three fiscal quarters has been presented as the last day
of each such month throughout this Prospectus/Joint Proxy Statement.
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<PAGE> 59
All assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at the rates of exchange in effect at the close of the period. The
aggregate effect of translating the balance sheets is included as a separate
component of stockholders' equity entitled "cumulative translation adjustment."
Revenues and expenses are translated into U.S. dollars at the average rates of
exchange during the period.
Effective November 1, 1992, Tylan General adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" under which
deferred tax assets and liabilities are determined using presently enacted tax
rates, and net deferred tax assets are recognized to the extent their
realization is more likely than not. As a result of the adoption of SFAS No.
109, Tylan General recorded in 1993 a benefit from the cumulative change in
accounting principle equal to $416,000 and a reduction in goodwill equal to
$1,469,000.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the relative
percentages that certain income and expense items bear to net sales:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED OCTOBER ENDED
31, APRIL 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 56.5 60.1 56.5 56.9 57.6
------ ------ ------ ------ ------
Gross profit................................... 43.5 39.9 43.5 43.1 42.4
Operating expenses
Sales and marketing............................ 18.0 15.3 14.2 14.4 13.2
General and administrative..................... 11.6 9.7 9.3 10.0 8.4
Research and development....................... 6.1 5.0 6.8 6.9 6.3
Amortization, primary goodwill................. 1.1 .8 .6 .7 .3
------ ------ ------ ------ ------
Total operating expenses............... 36.8 30.8 30.9 32.0 28.2
Income from operations........................... 6.7 9.1 12.6 11.1 14.2
Other income (expense) -- net.................... (1.9) (2.7) (1.1) (.3) .7
------ ------ ------ ------ ------
Income before income taxes and extraordinary
item........................................... 4.8 6.4 11.5 10.8 14.9
Provision for income taxes....................... (2.6) (1.3) (4.4) (4.5) (5.7)
------ ------ ------ ------ ------
Income before extraordinary item and cumulative
effect of change in accounting principal....... 2.2 5.1 7.1 6.3 9.2
Extraordinary item, net of income tax benefit.... (.4) -- (.9) (2.1) --
Cumulative effect of change in accounting
for income taxes............................... 1.2 -- -- -- --
------ ------ ------ ------ ------
Net income....................................... 3.0% 5.1% 6.2% 4.2% 9.2%
====== ====== ====== ====== ======
</TABLE>
Six Months Ended April 30, 1996 and 1995
Net Sales. Net sales for the six months ended April 30, 1996 increased
57.2% to $52.7 million from $33.5 million for the six months ended April 30,
1995. The increase in net sales was primarily due to increased demand for Tylan
General's flow, pressure and gas panel products by U.S.-based equipment
suppliers, increased sales of flow products in Europe and Asia and a
non-recurring pass-through sale of industrial gas panel equipment in Germany.
For the six months ended April 30, 1996, net sales to customers located
outside of the United States (primarily in Asia and Europe) increased by 47.3%
to $17.2 million from $11.7 million for the six months ended April 30, 1995. The
increase in sales to customers located outside the United States for the six
months ended April 30, 1996 compared to the prior year was primarily due to
increased sales of flow products and a
48
<PAGE> 60
non-recurring pass-through sale of industrial gas panel equipment in Germany.
Tylan General believes that a significant portion of its sales to U.S.-based
equipment suppliers was for gas flow and pressure measurement and control
equipment incorporated into systems delivered to foreign IC manufacturers.
Tylan General believes the strong business environment that has fueled the
increased demand for Tylan General's products for the six months ended April 30,
1996 compared to the prior year is beginning to weaken. Some of Tylan General's
largest customers have reduced their order rate or delayed or canceled orders
for Tylan General's products as a result of canceled or delayed planned capacity
expansions by device makers. In June 1996, Tylan General laid off 40
manufacturing employees at its Rancho Dominguez facility, 33 of whom had been
hired by Tylan General on a temporary basis in response to weakening demand for
mass flow control products. A further weakening of demand for semiconductor
capital equipment, as well as downturns or slowdowns in the IC market, will have
a material adverse effect on Tylan General's business, financial condition and
results of operations.
Gross Profit. Tylan General's gross profit for the six months ended April
30, 1996 increased to $22.4 million from $14.5 million for the six months ended
April 30, 1995 and decreased as a percentage of net sales to 42.4% from 43.1%.
For the six months ended April 30, 1996, gross margin decreased over the prior
year due primarily to a shift in product mix towards gas panels and lower gross
margin on a one-time pass-through sale of equipment for industrial gas panels in
Germany.
Sales and Marketing. Sales and marketing expense increased 44.1% to $6.9
million for the six months ended April 30, 1996 from $4.8 million for the six
months ended April 30, 1995 but decreased as a percentage of net sales to 13.2%
from 14.4%. The increase in sales and marketing expense for the six months ended
April 30, 1996 compared to the prior year was primarily due to increased
staffing in sales and marketing personnel required to support higher sales
levels and to further penetrate new and existing markets for Tylan General's
products, higher travel expenses and higher sales commissions.
General and Administrative. General and administrative expense increased
32.1% to $4.4 million for the six months ended April 30, 1996 from $3.4 million
for the six months ended April 30, 1995 but decreased as a percentage of net
sales to 8.4% from 10.0%. The increase in general and administrative expense for
the six months ended April 30, 1996 compared to the prior year was primarily due
to increased staffing in administrative personnel required to support Tylan
General's expanding international operations and business activity, increased
stockholder reporting expense, increased legal and professional fees and higher
travel expense.
Research and Development. Research and development expense increased 41.8%
to $3.3 million for the six months ended April 30, 1996 from $2.3 million for
the six months ended April 30, 1995 but decreased as a percentage of net sales
to 6.3% from 6.9%. The increase in research and development expense for the six
months ended April 30, 1996 compared to the prior year was primarily due to
increased staffing in research and development personnel and the increased use
of contracted engineering services, including payments to Integrated Sensing
Systems, Inc. under a research and development contract. Tylan General does not
expect its spending on research and development in the future to decline
significantly as a percentage of net sales.
Other Income (Expense) -- Net. For the six months ended April 30, 1996,
other income was $394,000 compared to other expense of $95,000 for the six
months ended April 30, 1995. The increase in other income for the six months
ended April 30, 1996 compared to the prior year was primarily due to a decrease
in interest expense resulting from the repayment of $5.4 million in debt in
February 1995 and other income resulting from the strategic sales alliance with
Span. See "Liquidity and Capital Resources."
Provision for Income Taxes. Tylan General's effective tax rate was 38.3%
for the six months ended April 30, 1996 as compared to 42.0% for the six months
ended April 30, 1995. The decrease in the effective tax rate for the six months
ended April 30, 1996 over the prior year was primarily due to the realization of
additional foreign tax credit benefits. Tylan General's effective tax rate for
the six months ended April 30, 1996 was higher than the U.S. statutory tax rate
of 35% due to state taxes, the non-deductibility of goodwill amortization and
higher foreign tax rates.
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<PAGE> 61
Fiscal Years Ended October 31, 1995 and 1994
Net Sales. Net Sales increased 57.7% in 1995 to $75.8 million from $48.1
million in 1994. The increase was primarily due to increased demand for Tylan
General's flow and pressure products by U.S.-based equipment suppliers,
increased sales of pressure products in Japan and increased sales of gas panels.
Tylan General believes that a significant portion of its sales to U.S.-based
equipment suppliers was for gas flow and pressure measurement and control
equipment incorporated into systems delivered to foreign IC manufacturers.
Net sales to customers located outside of the United States (primarily in
Asia and Europe) increased by 36.9% to $25.6 million in 1995 from $18.7 million
in 1994. The increase was primarily due to higher sales of pressure products in
Japan. Tylan General believes that the increased sales of pressure products was
attributable to a growing worldwide demand for pressure products and to an
increase in Tylan General's market share in Japan.
Gross Profit. Tylan General's gross profit increased to $33.0 million in
1995 from $19.2 million in 1994 and increased as a percentage of net sales to
43.5% from 39.9%. The increase in gross margin was primarily due to improved
gross margins on pressure products and gas delivery systems resulting from lower
unit material costs, improved manufacturing yields and higher production levels.
Sales and Marketing. Sales and marketing expense increased 45.8% to $10.7
million in 1995 from $7.4 million in 1994, but declined as a percentage of net
sales to 14.2% from 15.3%. The increase in sales and marketing expense was
primarily due to increased staffing in field sales and marketing personnel
required to support higher sales levels and to further penetrate new and
existing markets for Tylan General's products.
General and Administrative. General and administrative expense increased
51.4% to $7.1 million in 1995 from $4.7 million in 1994, but decreased as a
percentage of net sales to 9.3% from 9.7%. The increase was primarily due to
increased expense necessary to support Tylan General's increased revenue level,
expanding international operations and increased business activity. The increase
was also due to increased expense associated with operating as a public company,
including fees for accounting, legal and other professional services and
increased liability insurance premiums.
Research and Development. Research and development expense increased
114.0% to $5.1 million in 1995 from $2.4 million in 1994 and increased as a
percentage of sales to 6.8% from 5.0%. The increase in research and development
expense was primarily due to increased spending on new product development and
product improvement programs, including increased expense associated with the
increased use of contracted engineering services and the addition of Company
personnel.
Other Income (Expense). Other expense was $879,000 in 1995 compared to
other expense of $1.3 million in 1994. The change was primarily due to a
$687,000 decrease in interest expense primarily due to the repayment of $5.4
million in debt in February 1995.
Provision for Income Taxes. Tylan General's effective tax rate was 38.1%
in 1995 as compared to 20.0% in 1994. The lower effective tax rate in 1994 was
primarily due to a $591,000 benefit in the second quarter of 1994 resulting from
a reduction in the valuation allowance for deferred taxes. Tylan General's
effective tax rate in 1995 was higher than the U.S. statutory tax rate due to
the non-deductibility of goodwill amortization and higher foreign tax rates.
Extraordinary Item -- Net of Income Tax Benefit. In February 1995, Tylan
General prepaid the Notes with a portion of the net proceeds from Tylan
General's initial public offering of Common Stock. In connection with the
redemption of the Notes, Tylan General wrote off the unamortized deferred
issuance costs of $949,000 and incurred a prepayment penalty of $250,000. An
extraordinary item of $695,000 was recorded in February 1995, and the resultant
charge of $.14 per share is reflected in Tylan General's results of operations
for 1995.
50
<PAGE> 62
Fiscal Years Ended October 31, 1994 and 1993
Net Sales. Net sales increased 43.7% in 1994 to $48.0 million from $33.5
million in 1993. The increase in net sales resulted primarily from an increase
in U.S. sales of Tylan General's pressure and flow products to $27.0 million in
1994 from $18.5 million in 1993, primarily attributable to increased sales to
equipment suppliers, of which approximately $1.9 million resulted from
nominations from certain Korean IC manufacturers. The increase in net sales was
also attributable to increased sales of Tylan General's products in Japan,
primarily pressure products, which increased to $6.5 million in 1994 from $4.1
million in 1993, to increased sales of Tylan General's products in Europe, which
increased to $9.4 million in 1994 from $7.2 million in 1993, and to increased
sales of Tylan General's gas panels, which increased to $3.2 million in 1994
from $2.1 million in 1993.
Net sales to customers located outside the United States (principally in
Asia and Europe) increased 34.5% to $18.7 million in 1994 from $13.9 million in
1993 but declined as a percentage of net sales to 38.9% from 41.4% due to more
rapid growth in sales to U.S.-based customers. Tylan General's international
sales increased primarily as a result of an increase in sales of Tylan General's
products in Japan, primarily pressure products, to $6.5 million in 1994 from
$4.1 million in 1993, and an increase in sales to European customers to $9.4
million in 1994 from $7.2 million in 1993. Tylan General believes that a
significant portion of its sales to U.S.-based equipment suppliers was for gas
flow and pressure measurement and control equipment that was incorporated into
systems delivered to IC manufacturers outside the United States.
Gross Profit. Tylan General's gross margin declined to 39.9% in 1994 from
43.5% in 1993. The decline in gross margins was attributable primarily to the
changing mix of flow product sales from sales of older products with higher
gross margins to sales of newer products that have significantly higher direct
costs and require more complex manufacturing processes. Such product mix changes
accounted for a 1.5% decline in Tylan General's gross margins. Tylan General's
gross margins also declined by approximately 1.0% as a result of increased
depreciation and facilities expenses associated with expansion of gas panel
manufacturing.
Sales and Marketing. Sales and marketing expense increased 22.1% in 1994
but declined as a percentage of net sales to 15.3% in 1994 from 18.0% in 1993.
The sales and marketing expense increase of $1.3 million was attributable
primarily to a $663,000 increase in compensation expense for Tylan General's
sales personnel and to expenditures of $212,000 and $193,000 related to
establishing sales and marketing organizations at Tylan General's Korean
subsidiary and gas panel division, respectively.
General and Administrative. General and administrative expense increased
20.8% in 1994, but declined as a percentage of net sales to 9.7% in 1994 from
11.6% in 1993. General and administrative expense increased primarily as a
result of expenses associated with increased administrative personnel to support
Tylan General's growth.
Research and Development. Research and development expense increased 17.5%
in 1994 but declined as a percentage of net sales to 5.0% in 1994 from 6.1% in
1993. During 1994, Tylan General introduced four new mass flow products and
three new pressure products. These product introductions were the result of a
research and development management process initiated in 1992 under which Tylan
General performs product definition, development and introduction activities
concurrently.
Other Income (Expense). Other expense increased 97.1% in 1994 to $1.3
million from $650,000 in 1993 primarily due to a $243,000 decrease in license
revenue as a result of the sale in 1992 of a technology license, a $179,000
increase in interest expense resulting primarily from increased use of capital
leases and working capital lines of credit in 1994, and a $207,000 decrease in
foreign exchange gain due primarily to a less favorable overall change in the
yen-dollar exchange rate in 1994 than in 1993.
Provision for Income Taxes. Tylan General's effective tax rate declined to
20.0% in 1994 from 53.2% in 1993. The effective tax rate was less than the
statutory federal rate of 34% in 1994, primarily due to the reduction in the
valuation allowance for deferred tax assets recorded in 1993 (which decreased
Tylan General's effective tax rate by 19.3%), and the provision for income taxes
payable to other countries at rates less than the federal statutory rate, net of
federal foreign tax credits (which decreased Tylan General's effective tax rate
by 4.2%).
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LIQUIDITY AND CAPITAL RESOURCES
Tylan General has financed its operations and its capital requirements
through a combination of cash provided by operations, capital lease financings
and the sale of a license agreement. In February 1995, Tylan General completed
an initial public offering of 2,300,000 shares of Common Stock at $7.00 per
share, of which 1,300,000 shares were sold by Tylan General for net proceeds of
approximately $7.4 million. The net proceeds received by Tylan General were used
to repay outstanding indebtedness and related costs as follows: (i) $5.3 million
for the outstanding Notes in the aggregate principal amount of $5.0 million and
related interest and prepayment penalty, (ii) $375,000 for an outstanding term
note with a bank and (iii) $1.8 million against Tylan General's line of credit.
Tylan General did not receive any of the proceeds from the sale of shares by the
selling stockholders.
In September 1995, Tylan General completed a second public offering of
1,500,000 shares of Common Stock at $16.00 per share, of which 1,250,000 shares
were sold by Tylan General for net proceeds of approximately $18.5 million.
Approximately $5.6 million of the net proceeds received by Tylan General were
used to repay the outstanding balance on Tylan General's $4,000,000 line of
credit and $3,500,000 capital term loan facility. The remaining proceeds were
used to increase working capital and for general corporate purposes. Tylan
General did not receive any of the proceeds from the sale of shares by the
selling stockholders.
In 1993, a $2.4 million increase in inventories reduced cash provided by
operating activities to $292,000, and financing activities provided an
additional $873,000, primarily from the issuance of the Notes. Tylan General
used $1.0 million in 1993 in investing activities, primarily for purchases of
capital equipment. In 1994, net cash from operating activities was $3.0 million,
primarily as a result of $2.5 million in net income. In 1994, Tylan General used
$1.3 million for capital expenditures.
In 1995, Tylan General's operating activities provided $3.7 million in
cash, primarily from net income as adjusted for depreciation, amortization and
the write-off of unamortized deferred issuance costs, and an increase in
accounts payable offset by increases in accounts receivable and inventories.
Tylan General's financing activities provided $18.0 million in cash, primarily
from Tylan General's two public offerings offset by repayments of debt. Tylan
General used $8.0 million in cash for investing activities in 1995, primarily
for the purchase of capital equipment, including tenant improvements on Tylan
General's new manufacturing facility in Rancho Dominguez, California.
For the first six months of fiscal 1996, Tylan General's operating
activities used $2.4 million in cash, primarily as a result of increases in
accounts receivable and inventories and a decrease in accounts payable, offset
by income from operations. As of April 30, 1996, Tylan General had $3.6 million
due from Span for returned inventory, which was purchased under the
international distribution agreement.
Tylan General's financing activities for the first six months of fiscal
1996 generated $900,000 in cash, primarily from $1.2 million in bank borrowings
in Japan. Investing activities in the period used $3.4 million in cash for
capital expenditures.
As of April 30, 1996, Tylan General had $10.3 million in cash, cash
equivalents and short term investments and net working capital of $32.4 million.
Tylan General maintained a $4.0 million line of credit secured by substantially
all of its assets and an additional $3.5 million capital term loan facility,
both of which expire in June 1996. As of April 30, 1996, there were no amounts
outstanding under the line of credit or the capital term loan facility. In June
1996, Tylan General obtained a $11.0 million line of credit to replace the
expiring line of credit. The new line of credit permits borrowings by Tylan
General's various international subsidiaries and permits borrowings denominated
in Japanese yen and Korean Won up to $4.0 million and $1.0 million,
respectively. The new line of credit expires in March 1997.
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TYLAN GENERAL BUSINESS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Tylan General's and the combined entity's actual
results could differ materially from those discussed here. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in the sections entitled "Risk Factors" and "Tylan General
Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as those discussed elsewhere in this Prospectus/Joint Proxy
Statement.
Tylan General is a leading supplier of process management instrumentation
to semiconductor capital equipment suppliers and manufacturers of advanced ICs.
Tylan General designs, manufactures and markets mass flow controllers that
provide precise control of process gases, and capacitance diaphragm gauges,
conductance control valves and automatic pressure controllers that in
combination measure and control sub-atmospheric pressure in process chambers. To
address the need for improved "on-tool" gas management, Tylan General has also
developed ultraclean gas panels that integrate various gas management functions
in one system on the process chamber. Tylan General's products enable equipment
suppliers and IC manufacturers to increase wafer throughput, improve yields and
reduce equipment cost of ownership. Certain of Tylan General's products are also
used in the manufacture of flat panel displays, fiber optic cable and other
products. Through its global sales, service, product development and
manufacturing organization, Tylan General provides comprehensive local support
to its customers.
INDUSTRY BACKGROUND
The worldwide use of ICs is growing rapidly, and users are demanding higher
performance and lower cost as broad-based applications for ICs continue to
develop. As a result, IC designs are becoming more complex, and device
geometries are being radically reduced. The processes necessary to manufacture
submicron devices are becoming increasingly sophisticated and intolerant of
minor variations in process conditions. IC manufacturers must have sophisticated
wafer fabrication equipment that provides precise control of all process
variables, protects the in-process ICs from chemical and particulate
contamination and achieves higher yields, greater throughput and higher levels
of uptime.
Role of Process Control in IC Manufacturing
Three critical processes in IC manufacturing are the deposition of
insulating or conducting materials onto a wafer, the etching of the wafer to
remove deposited material that has not been protected by photoresist material
and the stripping of leftover photoresist material from the wafer after etching.
These processes are fundamental to the layering of films in the fabrication of
an integrated circuit and may each be repeated up to 30 times. Tylan General
believes that deposition, etch and strip equipment constitutes a significant
portion of the front-end wafer processing equipment expenditures in a new IC
fabrication facility.
Deposition, etching and stripping processes each require the introduction
of process gases, the management of process chamber conditions and the
evacuation of process gases. The introduction of each gas into the chamber must
be virtually contamination-free and accurately controlled at a precise rate. The
speed at which the gas flow rate is stabilized can have a significant impact on
system throughput and process yields. Once flow rates have been stabilized,
process pressure can be controlled by varying the rate at which the process
gases are exhausted from the chamber. Following the processing of each wafer,
process gases must be completely evacuated from the chamber before the next
wafer can be processed.
Demand for Process Instrumentation
The worldwide increase in IC use has resulted in significant overall growth
in the semiconductor process instrumentation industry. At the same time, the
trend toward more complex ICs is driving the demand for more sophisticated
process instrumentation capable of extremely accurate and precise process
control. These advanced instruments must also be designed and manufactured so as
not to introduce particulate or chemical contamination into the process
environment. Technological advances have been achieved on a wide range of
process instrumentation. For example, mass flow controllers have become faster,
cleaner and more accurate. Capacitance diaphragm gauges are being used at lower
pressure levels and over a wider range of operating
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temperatures, and the manual tuning of pressure controllers is rapidly being
replaced by fully automated internal adaptive control algorithms.
In an effort to achieve tighter process control and higher process yields,
equipment suppliers initially introduced single-chamber, single-wafer processing
systems to replace batch systems. To compensate for the generally lower
throughput of single-wafer systems and to leverage common system elements,
equipment suppliers developed cluster tools that employ multiple single-wafer
process chambers. Each of these chambers requires separate process
instrumentation. This increase in the number of process chambers significantly
expanded the need for mass flow controllers, gas panels and pressure measurement
and control systems while finer geometries have created the need for more
precise instrumentation.
The total available market for equipment suppliers' "on-tool" (i.e., on the
processing system) gas system components continues to grow as a result of the
need for IC manufacturing capacity, which has rapidly increased the total number
of process chambers built each year. In addition, the increased level of
sophistication required to achieve finer IC geometries has increased the
quantity of on-tool components, including mass flow controllers, pressure
measurement equipment, pressure control equipment, control valves and gas
panels, all items supplied by Tylan General. For example, Tylan General believes
that per chamber instrumentation total costs have increased from approximately
$40,000 ten years ago to approximately $100,000 today. The proliferation of
process chambers multiplied by the increasing number of components required per
chamber has increased the total per-tool available market opportunity.
IC users are demanding higher performance and lower cost as broad-based
applications for ICs continue to develop. To meet these evolving market needs,
IC manufacturers must have sophisticated wafer fabrication systems that provide
precise control of all process variables and protect the in-process ICs from
chemical and particulate contamination. In their effort to reduce manufacturing
costs, IC manufacturers are demanding that these systems achieve higher yields,
greater throughput and higher levels of uptime. Equipment suppliers are also
purchasing a larger portion of their subsystem requirements (including gas
delivery subsystems, such as gas panels) through outside vendors, retaining
their core process competencies internally. As a result, the relative
sophistication and average cost of on-tool pressure and flow instrumentation
purchased by equipment suppliers has increased substantially in recent years.
PRODUCTS
Tylan General designs, manufactures and markets precision mass flow
controllers, gas panels and pressure measurement and control instrumentation.
Tylan General's products are used primarily in IC fabrication, and also in other
manufacturing processes such as flat panel display and fiber optic cable
fabrication. Tylan General products assist equipment suppliers and IC
manufacturers in increasing wafer throughput, improving yields and reducing
overall cost of ownership.
FLOW PRODUCTS
Tylan General's mass flow controllers measure mass flow by separating a
small portion of the main gas stream and by sensing the heat transfer it creates
as it flows through a small measuring capillary. This information is used by the
product's servo control circuit as it adjusts the position of the product's
internal control valve. The result is a highly accurate, reliable and repeatable
measurement and control of the process gas flow rate.
While IC manufacturers have historically focused on the accuracy and speed
of response of mass flow controllers, they are increasingly concerned with their
ability to reduce or eliminate particulate and chemical contamination. In 1991,
in response to these heightened concerns, Tylan General introduced metal seals
to replace elastomeric seals on certain of its high performance FC-2900 Series
mass flow controllers. The metal seals allow the controllers to operate for
extended periods of time in contact with gases that are incompatible with
elastomeric materials. The use of metal seals also eliminates particulate
contamination introduced to the gas stream by elastomeric seals, and as a
result, provides the higher level of gas purity required for advanced IC
fabrication processes. More recently, Tylan General introduced ultraclean mass
flow controllers, and in 1995, began volume production of its first digital
series mass flow controllers. The digital electronics package
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has been incorporated into several of Tylan General's current mass flow control
products and Tylan General plans to continue to incorporate digital electronics
into its future generations of mass flow controllers. All of Tylan General's
mass flow controllers that incorporate advanced analog electronics (i.e.,
beginning with the FC-2900 Series) can be retrofitted to include a digital
electronics package.
The primary flow products currently offered by Tylan General are briefly
described below. List prices for Tylan General's flow products at April 30, 1996
ranged from $1,075 for mass flow controllers in the FC-260 series to $2,820 for
certain advanced ultraclean flow products.
FC-260 Series. The FC-260, which was designed for early semiconductor
manufacturing processes, uses a thermal valve to provide stable, accurate and
repeatable control of process gases.
FC-280 Series. As the semiconductor industry moved towards shorter, single
wafer processes, speed of response became a significant issue in mass flow
controller performance. In 1985, Tylan General introduced the FC-280, which
employs a solenoid valve to achieve a response time of 2 to 4 seconds, compared
with the 4 to 6 second response time of the FC-260. The FC-280S, introduced two
years later, employs enhanced electronics to achieve a response speed of 1 to 2
seconds.
FC-2900 Series. The entire family of FC-2900 products utilizes an advanced
electronics package that initially enabled response times of 1 to 1.5 seconds
and was later upgraded to enable response times of 300 to 800 milliseconds. The
FC-2900M, introduced in 1991, is a metal-sealed version of the FC-2900. In 1995,
in response to customer demands, Tylan General introduced additional variations
of the FC-2900M, including the FC-2930, an elastomer-free version in which
elastomers in the valve area have been replaced with inert, ceramic materials,
and the FC-2936, a shortened (106mm) version of the FC-2930 specifically
targeted at Japanese manufacturers requiring mass flow controllers with reduced
overall length.
High Flow Series (FC-2920/2925). Tylan General introduced the FC-2920 to
address the increasing number of higher flow semiconductor processes. With an
upper flow limit of 200 standard liters per minute, this product is capable of
controlling six times the gas flow rate as the FC-2900. In order to address the
higher gas flow requirements of fiber optic and other industrial processes,
Tylan General developed the FC-2925, which has an upper flow rate limit of 1,000
standard liters per minute.
Ultraclean Series (FC-2950/2960/2979). Introduced in 1994, FC-2950M was
the first of Tylan General's ultraclean product offerings. Effective
manufacturing of advanced ICs such as 64 megabyte DRAMs will require substantial
reduction in contributed particles and chemical contaminants from the mass flow
controller. The FC-2950 combines an ultraclean mechanical platform with the high
speed 2900 series electronics to offer fast, clean and accurate measurement and
control of semiconductor process gases. The FC-2960 offers the same advantages
as the FC-2950, however, it incorporates a thermal valve design for applications
requiring this method of operation. As gas panel technology has developed, a
strong trend towards miniaturization has become apparent. The FC-2979, a top
mount version of the FC-2950 with a smaller end-to-end dimension and altered gas
flow path and mounting configuration, accommodates new compact gas panel
designs.
Vapor Flow Control Series (VC-4900/4900M). Introduced in 1993, the VC-4900
was designed with a low internal pressure drop to enable measurement and control
of certain gases in applications where conventional mass flow controllers are
too restrictive to the flow of low-vapor pressure material. In 1994, Tylan
General began shipping the VC-4900M, a metal-sealed version of the VC-4900.
Inlet Pressure Control Series (PC-5900/5900M). Conventional mass flow
controllers are typically used to maintain gas flows constant at a desired rate.
Recent developments in deposition, etch and strip equipment have created an
opportunity for mass flow controllers to be used as upstream (inlet) pressure
control devices. The PC-5900 adjusts the flow of gas into the process chamber in
order to maintain the measured pressure constant at the desired level. In 1994,
Tylan General began shipping the PC-5900M, a metal-sealed version of the
PC-5900.
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Digital Electronics. Tylan General offers its digital electronics package
on its most recently introduced products, including the FC-2950, FC-2930 and
FC-2936. The digital electronics package has been designed as a drop-in
replacement for the analog electronics included on all current FC-2900/4900/5900
Series products.
PRESSURE PRODUCTS
Tylan General's pressure products are used to measure and control pressure
in process reactors. Tylan General's capacitance diaphragm gauges can be used to
measure total pressure in a process chamber and, when used in conjunction with a
variable conductance valve and a pressure controller, can be used to control the
pressure in process reactors.
Capacitance Diaphragm Gauges. Tylan General's capacitance diaphragm gauges
use a flexible diaphragm to measure pressure by detecting the change in
capacitance measured by sensing electrodes. Capacitance diaphragm gauges differ
from most other vacuum gauges in that they provide extremely accurate total
pressure measurement independent of gas composition. Their high accuracy and
resistance to corrosion have made this type of device the standard for most
advanced deposition, etch and dry-process photoresist removal systems produced.
Tylan General's capacitance diaphragm gauges are used principally in four
types of applications, as briefly described below. List prices for Tylan
General's capacitance diaphragm gauges at April 30, 1996 ranged from $950 for
gauges used in standard high pressure applications to $5,500 for Tylan General's
dual diaphragm gauge for critical very low pressure applications.
Standard High Pressure Applications. The CML, Tylan General's standard
capacitance diaphragm gauge, provides accuracy, repeatability and stability
suitable for most vacuum processes operating at above one torr. Tylan General
also produces the CDL, which offers a smaller package size and higher
performance as a result of patented sensor technology and enhanced, low noise
electronics.
Standard Low Pressure Applications. Tylan General's original product
for low pressure applications was the CMT, a temperature compensated device.
Later, Tylan General introduced the temperature controlled CMH, and, in 1994,
Tylan General introduced its most versatile temperature controlled capacitance
diaphragm gauge, the CDH. The CDH combines Tylan General's patented sensor
technology, advanced electronics and a unique temperature management package
that enables stable, high accuracy pressure measurement to be made over a wide
range of process pressures and operating temperatures.
Condensing Applications. Several IC manufacturing processes employ
process chemistries that have a tendency to condense on unheated surfaces. The
gradual buildup of condensed material on the surface of the pressure sensing
diaphragm degrades the performance of the transducer. Tylan General's original
product for condensing applications was the CMHT. By elevating the temperature
of the sensing diaphragm, the CMHT reduces or eliminates this condensation. In
1994, Tylan General introduced its CDH, which offers superior performance in a
smaller package and at a lower cost than the CMHT.
Critical Very Low Pressure Applications. To address the requirements
for very low pressure measurement and control, Tylan General developed the HVG,
the first dual diaphragm gauge for IC manufacturing applications. This patented
technology significantly diminishes seismic and gravitational effects while
substantially increasing the signal-to-noise ratio over previous gauges. Tylan
General has manufactured limited quantities of the HVG to date.
Automatic Pressure Controllers. Tylan General manufactures both analog and
digital pressure controllers that read pressure measurements from Tylan
General's capacitance diaphragm gauges and provide position commands to Tylan
General's conductance control valves in a closed loop system. The three types of
automatic pressure controllers offered by Tylan General are described briefly
below. List prices for Tylan General's automatic pressure controllers at April
30, 1996 ranged from $1,175 to $1,795.
Analog-P.I.D. Early automatic pressure control systems utilized analog
circuitry and a type of closed loop control known as Proportional, Integral,
Derivative or P.I.D. The basic approach to control when using a P.I.D. system is
to determine the appropriate settings for P, I and D and then to input those
values or
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settings into the control circuitry. For many years, analog P.I.D.
control was the standard method for closed loop pressure control. Tylan
General's analog controllers have an advanced circuit design, enabling high
performance and low manufacturing costs.
Digital-Adaptive. The major difference between adaptive control and
analog P.I.D. control is that adaptive automatic pressure controllers contain
digital circuitry and microprocessors that constantly monitor, control
performance of and adjust the controller's response characteristics based upon
their proprietary internal adaptive control algorithm. Because adaptive
automatic pressure controllers are capable of rapidly adjusting to changes in
system time constants, advanced IC processes can move quickly from process step
to process step without manual tuning or intervention. Tylan General developed
the first adaptive downstream pressure control algorithm and received a patent
on the technology. This algorithm and its several successors have been embodied
in Tylan General's line of digital adaptive pressure controllers.
Digital-Multimode. Tylan General offers a multimode automatic pressure
controller, the ACX, capable of operating in open or closed loop control modes
and capable of switching back and forth between fixed, selectable and
continuously changing time constant settings. The ACX incorporates an internal
microprocessor and an advanced adaptive algorithm that provide the platform from
which customer or application specific control routines can be developed and
implemented. The ACX is compatible with earlier adaptive automatic pressure
controllers offered by Tylan General and has a footprint less than half the size
of current competitive devices.
Conductance Control Valves. Tylan General manufactures motor-driven
control valves that are placed between the process chamber and the vacuum pump.
Their function is to vary the conductance of the pumping lines, which has the
effect of increasing or decreasing the pumping speed of the system. The valves
are typically used in IC processing systems to provide closed loop control of
the process chamber pressure. The two principal types of conductance control
valves offered by Tylan General are described briefly below. List prices for
Tylan General's conductance control valves at April 30, 1996 ranged from $1,905
to $8,900.
MDV Series. The MDV family consists of conductance control valves that
control the conductance of exhaust lines by varying the position of a rotating
plate that is coupled to a stepper motor through a precision drive assembly. The
MDV series features a rugged design which Tylan General believes has contributed
to its reliability and market acceptance.
MDVH Series. The MDVH series of heated conductance control valves is
designed for applications where residual process gases have a tendency to
condense inside the valves leading to reduced performance and failure. This
series was developed by Tylan General's Japanese subsidiary in conjunction with
a leading Japanese IC manufacturer and a large Japanese equipment supplier.
Tylan General expects advanced IC manufacturers to develop a preference for
heated conductance control valves, such as the MDVH series, for certain
applications where condensation or deposition occurs in the valve.
GAS PANELS
Gas panels are typically comprised of mass flow controllers, filters,
purifiers, shut-off valves, regulators and other associated hardware. Their
purpose is to manage the on-tool handling of the gases that are supplied to the
system. The process gases in a semiconductor fabrication facility are generally
stored in large bulk containers and are distributed throughout the facility in
highly pressurized pipes or gas lines. Once delivered to the tool, particles and
contaminants must be removed, gas flow rates must be measured and controlled and
the resultant mixture of process gases must be routed to the process chamber.
These critical functions are performed by the gas panel.
Tylan General currently designs and manufactures ultraclean gas panels both
for new process tools and for retrofit or replacement on existing tools. In
response to the growing demand for ultraclean gas panels, Tylan General has
recently developed the Intelligent Gas Panel, which allows real-time monitoring
of mass flow controller performance. The ability to perform in situ calibration
of mass flow controllers will reduce the downtime historically associated with
the diagnosis and repair of gas delivery subsystems. Tylan General believes that
significant shipments of Intelligent Gas Panels will not occur before mid-fiscal
1997. There can
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be no assurance that the Intelligent Gas Panel will achieve market acceptance or
that Tylan General will be able to enhance the Intelligent Gas Panel or to
develop additional versions of it to address available market opportunities.
SALES, SERVICE AND MARKETING
Tylan General primarily sells its products through a worldwide network of
direct sales personnel augmented by strategically located distributors and
representatives. In the United States, Tylan General maintains a direct sales
force operating out of nine locations. Internationally, Tylan General provides
sales coverage from eight Company-owned sales offices. In addition, other sales
offices are operated through agreements with certain key distributors in eight
additional locations, including Taiwan, Singapore, Ireland, Israel, Sweden,
Australia, Canada and China. Tylan General believes that the size, strength and
location of its global sales network is a significant competitive advantage.
Tylan General employs a strategy of utilizing global account managers to
monitor and manage Tylan General's activities at its largest multinational IC
manufacturer customers' locations around the world, such as Intel, Motorola,
Toshiba and SGS Thompson. Tylan General believes that it can achieve maximum
utilization of its international field sales organization by assigning
responsibility for the management of Tylan General's activities at each such
account to a single individual.
Tylan General also supplements its worldwide direct sales effort with a
small number of sales representative relationships. Sales from sales
representatives accounted for less than 5% of net sales in fiscal 1995.
Tylan General services products from six Company-owned service offices in
the United States. Internationally, Tylan General provides service through eight
Company-owned service offices, including Korea, Japan (two locations), UK,
France, Germany (two locations) and Scotland. All of these offices provide
calibration of ultraclean mass flow controllers in modern cleanroom facilities.
In addition, service is also provided internationally through agreements with
certain key distributors in four locations including Taiwan, Singapore, Ireland
and Israel.
Tylan General believes this broad network of service locations, situated
near global semiconductor manufacturing centers, provides a significant
competitive advantage.
CUSTOMERS
Tylan General's customers are primarily manufacturers of semiconductor
wafer processing equipment. Tylan General also sells retrofit or replacement
parts directly to IC manufacturers. IC manufacturers often specify to their
equipment suppliers which vendor's process instrumentation should be supplied
with a particular process tool. Tylan General believes that it continues to
receive significant orders as a result of IC manufacturers nominating Tylan
General's products.
The following is a list of Tylan General's five largest customers during
fiscal 1995 and the six months ended April 30, 1996:
Lam Research Corporation
Applied Materials, Inc.
Tokyo Electron Limited
Novellus Systems, Inc.
Watkins-Johnson Company
The foregoing customers accounted for 47.9% and 49.8% of Tylan General's
net sales in fiscal 1995 and the six months ended April 30, 1996, respectively,
and Lam Research Corporation, Tylan General's largest customer, accounted for
20.0% and 25.1% of Tylan General's net sales in fiscal 1995 and the six months
ended April 30, 1996, respectively. Although the companies listed above were
significant customers of Tylan General during fiscal 1995 and the six months
ended April 30, 1996, there can be no assurance that such companies will make
significant purchases of Tylan General's products in the future.
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RESEARCH, DEVELOPMENT AND ENGINEERING
Tylan General's research and development efforts are focused on developing
products that address the evolving needs of its customers and enhancing its
existing products. The markets in which Tylan General competes are characterized
by evolving industry standards and frequent improvements in products and
services. To compete effectively in such markets, Tylan General must continually
improve its products and its process management technologies and develop new
technologies and products that compete effectively on the basis of price and
performance and that adequately address customer requirements. The markets in
which Tylan General's customers compete are also characterized by rapidly
changing technology and emerging industry standards. To compete effectively,
Tylan General must adapt its products to meet such technological changes and to
support such standards. There can be no assurance that Tylan General will be
able to improve its existing products or its process management technologies or
develop new products or technologies. Even if Tylan General is able to develop
new or enhanced products, there can be no assurance such products will be
cost-effective or introduced in a timely manner. Failure of Tylan General to
develop or introduce new products or product enhancements in a timely manner
will have a material adverse effect on Tylan General's business, financial
condition and results of operations.
During fiscal 1993, 1994 and 1995 and the six months ended April 30, 1996,
Tylan General's research and development expenditures were approximately $2.0
million, $2.4 million, $5.1 million and $3.3 million, respectively. Tylan
General's pressure measurement and control products are designed in San Diego,
California and Yokohama, Japan. Flow products are designed in Torrance,
California and Eching, Germany. Gas panels are designed in Austin, Texas. In
addition, Tylan General is currently establishing gas panel design capability in
Korea.
As of the end of fiscal 1995, Tylan General had a full-time engineering
staff of 27 employees. Because of the complex and highly specialized design,
testing and manufacturing requirements of its products, these employees are
experienced in a wide range of engineering disciplines. Tylan General's
philosophy is to maintain strong technical expertise in each area of its core
competencies and to utilize consulting engineers for non-critical portions of
product development projects. Tylan General believes that this approach provides
flexibility and allows Tylan General to shorten time-to-market for new products.
MANUFACTURING
Tylan General manufactures high precision flow sensors, vacuum transducers
and other critical components of its products at its own facilities. Tylan
General also assembles and tests machined parts, components and subassemblies
that are acquired from third-party vendors and then integrated into Tylan
General's finished products. Tylan General has six manufacturing facilities:
three in the United States and one each in Europe, Japan and Korea.
Equipment suppliers are increasingly seeking a reduction in lead times and
an improvement in quality and internal tracking systems from their component
suppliers. Tylan General has adopted several manufacturing strategies to meet
these needs. Tylan General is in the process of implementing continuous flow
manufacturing, has obtained the applicable level of ISO 9000 certification for
its Rancho Dominguez and Swindon, England facilities and is working towards the
achievement of ISO 9000 certification at its other manufacturing operations by
the end of fiscal 1996. ISO 9000 certification is an international quality
standard that signifies that a manufacturer has appropriate controls,
documentation and procedures in all significant aspects of its manufacturing
operations to produce high quality products. In September 1995, Tylan General
moved its principal manufacturing facility for its flow products from Torrance,
California into a facility located nearby in Rancho Dominguez, California. In
June 1996, Tylan General moved its San Diego headquarters and principal
manufacturing facility for its pressure measurement and control products into a
facility located nearby in San Diego.
Certain of the machined parts, components and subassemblies included in
Tylan General's equipment are obtained from single qualified source or a limited
group of suppliers. The partial or complete loss of certain of these sources
could have an adverse effect on Tylan General's results of operations and damage
customer
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<PAGE> 71
relationships. Further, a significant increase in the price of one or more of
these components could adversely affect Tylan General's results of operations.
COMPETITION
The market for Tylan General's products is highly competitive. Significant
competitive factors include cost of ownership, historical relationships, product
quality, performance, size of installed base, breadth of product line and
customer service and support.
In each of the markets it serves, Tylan General faces substantial
competition. In addition, Tylan General anticipates that it may face substantial
competition in the future from new entrants in Tylan General's markets. Some of
these existing and potential competitors have substantially greater financial,
engineering, manufacturing or marketing resources than Tylan General. Tylan
General competes with a number of companies in its mass flow controller markets
and with other companies, including MKS Instruments, in its pressure products
markets. In addition, some competitors have a large installed base and
long-standing customer relationships that are competitive advantages. To compete
successfully, Tylan General must make substantial investments in its
engineering, research and development, marketing and customer service and
support activities. There can be no assurance that competitors will not develop
competitive products that will offer price or performance features superior to
those of Tylan General's products.
Although Tylan General has achieved significant sales of its pressure
products to the Japanese market, the Japanese mass flow control market has been
difficult for non-Japanese companies to penetrate. In addressing the Japanese
mass flow control market, Tylan General is at a competitive disadvantage
compared to Japanese suppliers, many of which have long-standing collaborative
relationships with Japanese IC manufacturers and their equipment suppliers.
Tylan General's ability to penetrate this market successfully is dependent upon
its ability to overcome its competitive disadvantages, the general economic and
specific IC industry conditions in Japan, the existence of free trade between
Japan and the United States in this industry, the ability of Tylan General to
develop in a timely manner products that meet the technical requirements of
Japanese customers, its ability to continue to develop satisfactory
relationships with leading companies in the Japanese IC industry and other
factors. There can be no assurance that Tylan General will be able to increase
its penetration of the Japanese mass flow control market.
INTELLECTUAL PROPERTY
As part of its ongoing research, development and manufacturing activities,
Tylan General has a policy of seeking patents on inventions concerning new
products and improvements when appropriate. Tylan General currently holds a
number of U.S. and foreign patents. Although Tylan General's patents have value,
Tylan General believes that the success of its business depends more on
innovation, technical expertise and know-how of its personnel and other factors.
Tylan General also relies upon trade secret protection for its confidential
and proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to Tylan General's trade secrets or disclose
such technology or that Tylan General can meaningfully protect its trade
secrets.
BACKLOG
Tylan General's backlog at the end of fiscal 1995 was approximately $11.2
million, compared to approximately $6.3 million at the end of fiscal 1994.
Backlog consists of orders for which a customer purchase order has been accepted
and a delivery date within three months has been specified. Because all purchase
orders are subject to cancellation or delay by customers with limited or no
penalty, Tylan General's backlog is not necessarily indicative of future
revenues or earnings.
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<PAGE> 72
EMPLOYEES
As of April 30, 1996, Tylan General employed 555 persons. In addition,
Tylan General contracts with independent contractors, such as employment
agencies, to fill temporary part- and full-time positions. As of April 30, 1996,
Tylan General utilized 37 persons in such positions. Of this total workforce, 50
persons were in engineering and research and development, 363 persons were in
manufacturing, 100 persons were in marketing, sales and support and 79 persons
were in finance and administration. As of April 30, 1996, Tylan General employed
or utilized 480 persons in the United States, 56 persons in Europe and 56
persons in Asia. In June 1996, Tylan General laid off 40 manufacturing employees
at its Rancho Dominguez facility, 33 of whom had been hired by Tylan General on
a temporary basis, in response to weakening demand for mass flow control
products.
Many of Tylan General's employees have specialized skills of value to Tylan
General, and Tylan General's future success will depend in large part upon its
ability to attract and retain highly skilled technical, managerial, financial
and marketing personnel, who are in great demand. No employee is represented by
a union or covered by a collective bargaining agreement, and Tylan General has
not had a work stoppage or strike. Tylan General considers its employee
relations to be good.
PROPERTY
In June 1996, Tylan General moved its headquarters and principal
manufacturing facility for its pressure measurement and control products to a
leased 43,700 square foot facility in San Diego, California. The lease on this
facility will expire in March 2006. Tylan General's primary manufacturing
facility for mass flow control products is located in a leased 54,200 square
foot facility in Rancho Dominguez, California. The lease on this facility will
expire in July 2005. Tylan General also leases a 9,700 square foot manufacturing
facility for gas panel products in Austin, Texas under a lease that expires in
August 1997. Tylan General has additional leased sales and service facilities in
Santa Clara, California, Tempe, Arizona and Salem, New Hampshire.
Tylan General's principal European manufacturing facility is leased by its
subsidiary in Swindon, England. The 6,900 square foot facility serves as the
European headquarters for manufacturing. Tylan General's subsidiaries also lease
a 6,100 square foot sales and service facility in Eching, Germany, a 570 square
foot sales and service facility in Dresden, Germany, a 4,800 square foot sales
and service facility in St. Quentin Fallavier, France and a 1,000 square foot
facility in Livingston, Scotland.
Tylan General K.K. leases a 9,300 square foot manufacturing, sales and
service center in Yokohama, Japan. In addition, Tylan General Korea Ltd. leases
a 1,700 square foot sales and service facility and Hanyang General Co., Ltd.
leases a 1,700 square foot manufacturing facility, both of which are located in
Kyunggi-Do, Korea.
LEGAL PROCEEDINGS
Tylan General is engaged in legal actions arising in the ordinary course of
its business and believes that the ultimate outcome of these actions will not
have a material adverse effect on its financial position or results of
operations.
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<PAGE> 73
TYLAN GENERAL MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of May 31, 1996, regarding
the directors and executive officers of Tylan General:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------
<S> <C> <C>
David J. Ferran.................... 39 Chairman of the Board, President and Chief Executive
Officer
David L. Stone..................... 37 Executive Vice President, Chief Financial Officer
and Secretary
Michael A. Grandinetti............. 48 Senior Vice President, Marketing
David W. Dedman.................... 42 Senior Vice President, Sales
Timothy R. Brown................... 48 Vice President and President of Vacuum Products
Division
Scott A. Cronk..................... 33 Vice President and President of Gas Delivery
Products Division
Larry L. Hansen.................... 67 Director
Michael H. Khougaz................. 37 Director
Derrick N. Key..................... 48 Director
Wade Woodson....................... 37 Director
Bruce C. Rhine..................... 38 Director
Arthur C. Spinner.................. 47 Director
</TABLE>
Mr. Ferran, a founder of Tylan General, has served as Tylan General's
President and Chief Executive Officer since 1984, Chairman of the Board of
Directors since February 1994 and a director since 1978.
Mr. Stone has served as Executive Vice President of Tylan General since
October 1994, Secretary since April 1993 and Chief Financial Officer since 1987.
From March 1991 to October 1994, Mr. Stone served as Tylan General's Vice
President, Finance, and from October 1993 to October 1994 he served as
President, International Operations.
Mr. Grandinetti has served as Senior Vice President, Marketing of Tylan
General since October 1994. From May 1992 to October 1994, he served as Vice
President, Sales and Marketing. From August 1989 to August 1990, he was employed
by MKS Instruments, a manufacturer of industrial instruments, as a marketing
manager.
Mr. Dedman has served as Senior Vice President, Sales of Tylan General
since August 1995. From October 1994 to August 1995, he served as Vice
President, Sales. From August 1990 to October 1994, Mr. Dedman was an
International Sales Manager and Marketing Manager for Brooks Instruments, the
precision flow control manufacturing division of Emerson Electric.
Mr. Brown has served as Vice President of Tylan General and President of
the Vacuum Products Division since August 1995. From October 1993 to August
1995, he served as General Manager of the Vacuum Products Division. From October
1991 to October 1993, Mr. Brown served as Technical Marketing Manager for Tylan
General's pressure products, and from 1982 to October 1991, he was a Director of
Engineering in the Vacuum Products Division.
Mr. Cronk has served as Vice President of Tylan General and President of
the Gas Delivery Products Division since August 1995. From October 1994 to
August 1995, he served as General Manager of the Gas Panel Manufacturing
Division. From October 1984 to October 1994, Mr. Cronk was employed by Air
Products and Chemicals, Inc., a manufacturer and distributor of specialty gases
for manufacturing industries, most recently as a commercial manager in its
Electronics Division.
Mr. Hansen has served as a director of Tylan General since February 1990.
From December 1989 until his retirement in 1992, Mr. Hansen was Tylan General's
Executive Vice President. Prior to December 1989, he was Executive Vice
President and a director of Varian Associates, Inc., an electronics
manufacturer.
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Mr. Hansen is currently a director of Electro Scientific Industries, Inc.,
Signal Technology Corporation and Micrel, Incorporated.
Mr. Khougaz has served as a director of Tylan General since November 1992.
From 1986 to February 1996, Mr. Khougaz was associated with Kleinwort Benson
Limited, a London-based merchant banking group. Since February 1996, Mr. Khougaz
has been associated with, and is currently a managing director of, Equinox
Investment Partners, LLC, a general partner and investment manager for private
debt and equity investments. Equinox Investment Partners is the investment
advisor to The KB Mezzanine Fund, L.P. Mr. Khougaz is also a director of The
Reliable Company.
Mr. Key has served as a director of Tylan General since December 1994. He
is Chairman of the Board, President and Chief Executive Officer of Roper
Industries, Inc., a manufacturer of pumps, valves and industrial process
controls, where he has been employed in senior management positions since 1982.
Mr. Woodson has served as a director of Tylan General since October 1989.
He is a General Partner with Sigma Partners, a venture capital organization,
with which he has been affiliated since 1987. Mr. Woodson is currently a
director of PSI Net, Inc.
Mr. Rhine has served as a director of Tylan General since December 1994.
From April 1994 to May 1996, he was President and Chief Operating Officer of
Asyst Technologies, Inc., a supplier of mini-environment systems. From 1989 to
April 1994, Mr. Rhine was employed by Lam Research Corporation, a supplier of
semiconductor manufacturing equipment, initially as Vice President of Marketing
and most recently as the Oxide Etch Business Unit Manager.
Mr. Spinner has served as a director of Tylan General since October 1989.
He is General Partner of Hambro International Venture Funds, a venture capital
investment firm, which he co-founded in 1981.
DIRECTOR COMPENSATION
As consideration for service on the Tylan General Board, each non-employee
director of Tylan General receives $2,000 for each meeting of the Tylan General
Board attended and $500 for each committee meeting of the Board of Directors
attended by committee members. In the fiscal year ended October 29, 1995, the
total compensation paid to non-employee directors was $71,000. The members of
the Tylan General Board are also eligible for reimbursement for their expenses
incurred in connection with attendance at Tylan General Board meetings in
accordance with Tylan General policy.
Each non-employee director of Tylan General also receives stock option
grants under the 1994 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). The Directors' Plan provides for the automatic grant of options to
purchase shares of Tylan General Common Stock to non-employee directors of Tylan
General. Option grants under the Directors' Plan are non-discretionary and are
not intended to qualify as incentive stock options under the Code.
The maximum number of shares of Tylan General Common Stock that may be
issued pursuant to options granted under the Directors' Plan is 75,000. During
fiscal 1995, Tylan General granted options covering 5,000 shares to each
non-employee director of Tylan General, at an exercise price of $7.00 per share,
the fair market value of the Tylan General Common Stock on the date of grant.
The options granted under the Directors' Plan become exercisable in three equal
annual installments beginning on the date one year after the date of grant. As
of December 31, 1995, options to purchase an aggregate of 30,000 shares were
outstanding, no shares had been issued upon exercise of such options and 45,000
shares remained available for future grants under the Directors' Plan.
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<PAGE> 75
EXECUTIVE OFFICER COMPENSATION
The following table sets forth for fiscal 1995 and fiscal 1994 compensation
awarded or paid to, or earned by, Tylan General's Chief Executive Officer, the
four highest compensated executive officers of Tylan General who earned more
than $100,000 in fiscal 1995 and one former executive officer who departed from
Tylan General during fiscal 1995 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(2)
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) OPTIONS(#) ($)(3)
- ---------------------------------- ---- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
David J. Ferran................... 1995 $211,000 $ 88,192 40,000 $ 3,895
Chairman of the Board, 1994 $188,000 $117,622 5,312 --
President and Chief
Executive Officer
David L. Stone.................... 1995 $137,000 $ 72,060 25,000 $ 1,581
Executive Vice President 1994 $133,000 $ 70,700 3,200 --
and Chief Financial Officer
Michael A. Grandinetti............ 1995 $123,600 $ 20,270 10,000 $ 1,623
Senior Vice President, 1994 $120,000 $ 48,652 2,112 --
Marketing
David W. Dedman................... 1995 $120,000 $ 43,200 22,500 --
Senior Vice President, Sales 1994 -- -- -- --
Timothy R. Brown.................. 1995 $110,000 $ 24,000 5,000 $ 1,360
Vice President 1994 $102,000 $ 16,000 5,000 --
Richard C. Erdman(4).............. 1995 $ 99,750 $ 30,000 -- $ 15,439
Former Senior Vice President 1994 $133,000 $ 67,575 3,200 --
and Chief Operating Officer
</TABLE>
- ---------------
(1) Includes amounts earned but deferred at the election of the executive
officers.
(2) None of the named executive officers held restricted stock at October 29,
1995.
(3) Consists of Tylan General's matching payments under its 401(k) Plan, except
as to Mr. Erdman, for whom the amount shown also includes consulting fees of
$13,859 paid after his termination as an executive officer of Tylan General.
(4) Mr. Erdman's employment terminated as of July 30, 1995.
STOCK OPTION GRANTS AND EXERCISES
Tylan General grants options to its executive officers under its 1994 Stock
Option Plan (the "1994 Plan"). As of December 31, 1995, 539,000 shares of Tylan
General Common Stock were authorized for issuance under the 1994 Plan, options
to purchase a total of 433,950 shares were outstanding under the 1994 Plan and
options to purchase 93,950 shares remained available for grant thereunder. In
February 1996, the Tylan General Board amended the 1994 Plan to increase the
number of shares authorized for issuance thereunder to 639,000 shares; the
amendment was approved by the Tylan General stockholders in April 1996.
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<PAGE> 76
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during
fiscal 1995 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL REALIZABLE
PERCENTAGE OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE OR FOR OPTION TERM(3)
OPTIONS FISCAL BASE PRICE EXPIRATION ---------------------
NAME GRANTED(1) YEAR(2) ($/SHARE) DATE 5%($) 10%($)
- ---------------------------- ---------- ------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David J. Ferran............. 10,000 3.2% $ 10.25 4/6/05 $ 64,575 $162,975
30,000 9.5% $ 14.19 10/5/05 $268,191 $676,863
David L. Stone.............. 10,000 3.2% $ 10.25 4/6/05 $ 64,575 $162,975
15,000 4.7% $ 14.19 10/5/05 $134,096 $338,432
Michael A. Grandinetti...... 10,000 3.2% $ 10.25 4/6/05 $ 64,575 $162,975
David W. Dedman............. 12,500 3.9% $ 7.00 12/16/94 $ 55,125 $139,125
10,000 3.2% $ 10.25 4/6/05 $ 64,575 $162,975
Timothy R. Brown............ 5,000 1.6% $ 14.19 10/5/05 $ 44,699 $112,811
Richard C. Erdman........... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Options become exercisable over a five-year period with 20% vesting one year
from the date of grant and 1/16th of the remaining shares vesting quarterly
thereafter. The options will fully vest upon a change of control, as
defined in Tylan General's option plans, unless the acquiring company
assumes the options or substitutes similar options. The term of the options
is ten years.
(2) Based on options to purchase 316,950 shares granted to employees in fiscal
1995, including the Named Executive Officers.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the stock
price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. These amounts represent certain assumed rates of appreciation only,
in accordance with the rules of the Commission, and do not reflect Tylan
General's estimate or projection of future stock price performance. Actual
gains, if any, are dependent on the actual future performance of Tylan
General Common Stock and no gain to the optionee is possible unless the
stock price increases over the option term, which will benefit all
stockholders.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the exercise of
stock options by the Named Executive Officers during fiscal 1995 and the number
and value of securities underlying unexercised options held by the Named
Executive Officers as of October 29, 1995:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES OCTOBER 29, 1995(2) AT OCTOBER 29, 1995(3)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Ferran........... -- -- 41,063 44,249 $ 646,448 $ 191,631
David L. Stone............ -- -- 25,107 32,093 $ 360,397 $ 205,263
Michael A. Grandinetti.... -- -- 12,423 19,689 $ 195,153 $ 211,578
David W. Dedman........... -- -- 2,500 20,000 $ 24,375 $ 162,500
Timothy R. Brown.......... -- -- 6,000 9,000 $ 90,960 $ 59,653
Richard C. Erdman......... 18,000 $326,300 5,200 -- $ 68,020 --
</TABLE>
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<PAGE> 77
- ---------------
(1) Value realized is based on the fair market value of Tylan General Common
Stock on the date of exercise minus the exercise price (or the actual sales
price if the shares were sold by the optionee simultaneously with the
exercise) without taking into account any taxes that may be payable in
connection with the transaction.
(2) Includes both "in-the-money" and "out-of-the-money" options. "In-the-money"
options are options with exercise prices below the market price of Tylan
General Common Stock.
(3) Based on the fair market value of Tylan General Common Stock as of October
29, 1995. Amounts reflected are based on the fair market value minus the
exercise price and do not indicate that the optionee sold such stock.
EMPLOYMENT AGREEMENTS
Pursuant to an employment agreement between Tylan General and David J.
Ferran entered into in 1989, Mr. Ferran's annual salary and bonus are determined
by the Compensation Committee (the "Committee") of the Tylan General Board. If
Mr. Ferran's employment is terminated by Tylan General for cause or he resigns
(except under certain circumstances), Tylan General may require Mr. Ferran to
provide exclusive consulting services to Tylan General for 45 hours per quarter
for one year following such event. In consideration for such services, Tylan
General will pay Mr. Ferran consulting fees equal to his annual salary at the
time of such termination or resignation, will continue to provide health
insurance benefits and will accelerate the vesting of a portion of his stock
options. If Mr. Ferran's employment is terminated without cause or he resigns
under certain circumstances, Mr. Ferran may at his election require Tylan
General to enter into a consulting arrangement on the same terms as above, in
which case Tylan General will pay Mr. Ferran consulting fees equal to his annual
salary at the time of such termination or resignation and the maximum bonus he
would have been entitled to through the date of termination, will continue to
provide health insurance benefits and will accelerate the vesting of a portion
of his stock options.
Pursuant to an agreement between Tylan General and Richard C. Erdman
entered into in January 1995, Mr. Erdman's employment as Senior Vice President
and Chief Operating Officer of Tylan General was terminated as of July 30, 1995.
Under this agreement, the vesting of Mr. Erdman's unvested stock options was
accelerated, and the period during which Mr. Erdman may exercise his options was
extended. In addition, under such agreement Mr. Erdman will provide consulting
services to Tylan General for a period of twelve months following his separation
date at a monthly rate of $8,150 with a potential increase up to a monthly rate
of $15,928 if certain earnings targets for Tylan General are achieved.
REPORT OF THE COMPENSATION COMMITTEE OF THE TYLAN GENERAL BOARD ON EXECUTIVE
COMPENSATION(1)
Tylan General's executive compensation program is administered by the
Committee. The Committee is appointed by the Tylan General Board and is
comprised of three non-employee Directors. The Committee has responsibility for
all compensation matters concerning executive officers.
COMPENSATION PHILOSOPHY
The Tylan General Board's executive compensation program strongly links
management pay with Tylan General's annual and long-term performance. The
program is intended to attract, motivate and retain senior management by
providing compensation opportunities that are consistent with Tylan General
performance. The program provides for base salaries which reflect such factors
as level of responsibility, individual performance, internal fairness and
external competitiveness; annual incentive cash bonus awards which are payable
upon Tylan General's achievement of annual financial and management objectives
approved by the
- ---------------
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the Commission, and is not to be incorporated by reference into
any filing of Tylan General under the Securities Act or the Exchange Act,
whether made before or after the date hereof and irrespective of any general
incorporation language contained in such filing.
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<PAGE> 78
Tylan General Board; and long-term incentive opportunities in the form of stock
options and other equity incentives which strengthen the mutuality of interest
between management and Tylan General's stockholders. Each executive officer's
target total annual compensation (i.e., salary plus bonus) is determined after a
review of independent survey data regarding similarly situated executives at
firms in Tylan General's industry. While the income tax implications of the
compensation program to Tylan General and its division executive officers are
continually assessed, including the recently enacted $1 million per covered
employee limitation on the compensation expenses deductible by Tylan General,
they are not presently a significant factor in the administration of the
program.
Tylan General strives to provide compensation opportunities which emphasize
effectively rewarding management for the achievement of critical financial
performance objectives. The Committee supports a pay-for-performance policy that
determines compensation amounts based on business unit and individual
performance. While the establishment of base salaries turns principally on the
factors noted above, annual incentive bonuses for division vice presidents are
based on the financial performance of their respective business units, and
annual incentive bonuses for senior corporate executives are based on the
financial performance of Tylan General as a whole. In addition, the program
provides stock incentive opportunities designed to align the interests of
executives and other key employees with other stockholders through the ownership
of Tylan General Common Stock. The following is a discussion of each of the
elements of Tylan General's executive compensation program including a
description of the decisions and actions taken by the Committee with respect to
compensation in fiscal 1995 for Tylan General's Chief Executive Officer and all
executive officers as a group.
MANAGEMENT COMPENSATION PROGRAM
Compensation paid to Tylan General's executive officers for fiscal 1995 (as
reflected in the foregoing tables with respect to the Named Executive Officers)
consisted of the following elements: base salary, annual incentive cash bonuses
under Tylan General's incentive bonus plans and stock options and other equity
incentives under the 1994 Plan.
BASE SALARY
With respect to determining the base salary of executive officers, the
Committee takes into consideration a variety of factors including the
executive's levels of responsibility and individual performance, and the
salaries of similar positions in Tylan General and in comparable companies in
Tylan General's industry. The Committee believes that its process for
determining and adjusting the base salary of executive officers is fully
consistent with sound personnel practices. Annual adjustments in base salaries
typically are made effective at the beginning of the fiscal year for which they
are intended to apply and therefore reflect in large part prior year's business
and individual performance achievements.
ANNUAL INCENTIVE BONUS PROGRAM
Tylan General's incentive bonus program for its executive officers
(including the Named Executive Officers) is based on the achievement of annual
financial performance targets and other management objectives which are
established annually, but which are subject to adjustment as the Committee deems
appropriate. Qualitative subjective performance criteria are utilized in the
determination of up to 15% of each executive officer's annual incentive bonus,
and the remaining 85% of such bonus is determined based upon quantitative
objective performance criteria. The objective criteria utilized included
actual-versus-target sales, actual-versus-target earnings and other specified
management objectives. Target sales and target earnings established for the
purpose of determining bonus payments are based on the annual business plans and
operating budgets of Tylan General and each of its subsidiaries. The annual
incentive bonuses of corporate-level executive officers whose responsibilities
encompass all subsidiaries and divisions is based on the average earnings
performance-versus-target of such subsidiaries and divisions taken together.
Tylan General accrues for these bonus payments currently throughout the year.
Final calculation of Tylan General's financial performance and determination and
payment of the awards is made as soon as is practicable after the completion of
Tylan General's fiscal year, which ends on the Sunday closest to October 31 each
year, unless
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<PAGE> 79
they are determinable prior to the fiscal year-end. Individual incentive bonus
awards to executive officers for Tylan General's 1995 fiscal year were
determined by the Committee based on application of the aforementioned factors
to Tylan General's financial performance for fiscal 1995 and were paid after its
conclusion.
1994 STOCK OPTION PLAN
The long term incentive element of Tylan General's management compensation
program provides for grants of stock awards, which now include (i) incentive
stock options, (ii) nonstatutory stock options, (iii) stock bonuses, and (iv)
rights to purchase restricted stock. These discretionary stock awards are
granted and administered by the Committee under the 1994 Plan which is intended
to create an opportunity for employees of Tylan General to acquire an equity
ownership interest in Tylan General and thereby enhance their efforts in the
service of Tylan General and its stockholders. The compensatory and
administrative features of the 1994 Plan conform in all material respects to the
design of standard comparable plans in industry and are, in the Committee's
estimation, fair and reasonable.
On December 16, 1994, April 6, 1995, and October 5, 1995 (the "Grant
Dates"), the Committee approved grants of stock options to certain of Tylan
General's executive officers and other employees of Tylan General all at the
exercise price of $7.00 per share, $10.25 per share and $14.19 per share,
respectively, where each price was the then-current fair market value of Tylan
General Common Stock. The stock options become exercisable over a five-year
period with 20% vesting one year from the date of grant and 1/16th of the
remaining shares vesting quarterly thereafter. The Committee believes that by
rationing the exercisability of these stock options over a five-year period, the
executive retention impact of the 1994 Plan will be strengthened and
management's motivation to enhance the value of Tylan General's stock will be
constructively influenced.
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1995, Mr. David J. Ferran, President and Chief Executive
Officer of Tylan General and Chairman of the Board, was eligible to participate
in the same executive compensation plans as were available to other executive
officers of Tylan General. Based on the performance of Tylan General in the
prior fiscal year and the Committee's assessment of Mr. Ferran's ongoing
personal performance in the position of Chief Executive Officer, Mr. Ferran
received a salary increase during fiscal 1995. Among the factors considered by
the Committee in its consideration of Mr. Ferran's performance were the
continued expansion of Tylan General's core businesses into both domestic and
international markets, the continued success of Tylan General's new product
development and sales and marketing efforts and the successful completion of two
public stock offerings.
Mr. Ferran's annual incentive bonus award for fiscal 1995 was earned under
the same plan applicable to all other executive officers of Tylan General. The
amount of his bonus was based substantially on the fiscal 1995 financial
performance of Tylan General and its subsidiaries measured by
actual-versus-target earnings. As the senior corporate executive officer, his
bonus reflected the average financial performance of each of Tylan General's
subsidiaries and divisions. On that basis, Mr. Ferran received an annual
incentive bonus award equal to approximately 42% of his fiscal 1995 year-end
salary.
Mr. Ferran was granted stock options under the 1994 Plan for 10,000 shares
of Tylan General Common Stock on April 6, 1995, at the option price of $10.25
per share, and 30,000 shares of Tylan General Common Stock on October 5, 1995,
at the option price of $14.19 per share. These options were based on the
continuing success through internally generated growth and through business
acquisitions. He is eligible to receive additional option grants in the future
at the discretion of the Committee.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Code limits Tylan General to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
executive officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code.
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<PAGE> 80
The statute containing this law and the applicable Treasury regulations
offer a number of transitional exceptions to this deduction limit for
pre-existing compensation plans, arrangements and binding contracts. As a
result, the Committee believes that at the present time it is quite unlikely
that the compensation paid to any Named Executive Officer in a taxable year
which is subject to the deduction limit will exceed $1 million. The Committee
has determined that stock options granted under the 1994 Plan with an exercise
price at least equal to the fair market value of Tylan General Common Stock on
the date of grant shall be treated as "performance-based compensation" under
Section 162(m) of the Code. The Committee has not yet established a policy for
determining which other forms of incentive compensation awarded to its Named
Executive Officers shall be designed to qualify as "performance-based
compensation." The Committee intends to continue to evaluate the effects of the
statute and any Treasury regulations and to comply with Section 162(m) of the
Code in the future to the extent consistent with the best interests of Tylan
General.
Larry L. Hansen
Wade Woodson
Michael H. Khougaz
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Committee consists of Mr. Hansen, Mr. Woodson and Mr.
Khougaz. Mr. Hansen was Tylan General's Executive Vice President from December
1989 until his retirement in 1992.
CERTAIN TRANSACTIONS
Tylan General has entered into indemnity agreements with certain officers
and directors which provide, among other things, that Tylan General will
indemnify such officer or director, under the circumstances and to the extent
provided for therein, for expenses, damages, judgments, fines and settlements he
may be required to pay in actions or proceedings which he is or may be made a
party by reason of his position as a director, officer or other agent of Tylan
General, and otherwise to the full extent permitted under Delaware law and the
Tylan General Bylaws.
In November 1992, Tylan General issued the Notes and the Warrant to an
affiliate of Kleinwort Benson Limited, an entity associated with Mr. Khougaz, a
director of Tylan General. Pursuant to the Notes, Tylan General made interest
payments of $50,000 per month through January 1995 and paid monitoring fees
which amounted to $15,000 in fiscal 1995. A portion of the proceeds from Tylan
General's initial public offering were used to prepay the Notes in February 1995
and, in connection therewith, Tylan General paid a prepayment penalty of
$250,000. In addition, the Warrant holder exercised the Warrant and sold 391,687
shares in such offering. The net value realized by the Warrant holder in such
sale was $2,549,882.
Tylan General has entered into certain additional transactions with its
directors and officers, as described under the caption "Executive Officer
Compensation."
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<PAGE> 81
TYLAN GENERAL PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Tylan General Common Stock as of April 30, 1996 by (i) each person (or group
of affiliated persons) who is known by Tylan General to own beneficially more
than 5% of Tylan General Common Stock, (ii) each of Tylan General's directors,
(iii) each of the Named Executive Officers, and (iv) all directors and executive
officers of Tylan General as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
------------------- PERCENT OWNED
NUMBER OF PERCENT OF AFTER
DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS SHARES TOTAL OFFERING
- --------------------------------------------------- ------------------- ---------- -------------
<S> <C> <C> <C>
Kopp Investment Advisors, Inc.(2).................. 736,500 11.3% 9.2%
6600 France Avenue South, Suite 672
Edina, MN 55435
Wade Woodson(3).................................... 531,741 8.2 6.7
Sigma Partners
2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025
AIM Management Group, Inc.......................... 387,400 5.9 4.9
11 Greenway Plaza, Suite 1919
Houston, TX 77046
Michael H. Khougaz(4).............................. 278,618 4.3 3.5
Arthur C. Spinner(5)............................... 271,346 4.2 3.4
David J. Ferran(6)................................. 183,309 2.8 2.3
Larry L. Hansen(7)................................. 31,667 * *
Derrick N. Key(8).................................. 1,667 * *
Bruce C. Rhine(9).................................. 1,667 * *
David L. Stone(10)................................. 37,604 * *
Michael A. Grandinetti(11)......................... 18,423 * *
David W. Dedman(12)................................ 5,195 * *
Timothy R. Brown(13)............................... 117,984 1.8 1.5
Richard C. Erdman(14).............................. 28,327 * *
All directors and executive officers as a group
(13 persons)(15)................................. 1,511,390 22.7 18.6
</TABLE>
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by executive officers,
directors and principal stockholders and Schedules 13D and 13G filed with
the Commission. Unless otherwise indicated in the footnotes to this table
and subject to community property laws where applicable, Tylan General
believes that each of the stockholders named in this table has sole voting
and investment power with respect to the shares indicated as beneficially
owned. Applicable percentages of beneficial ownership are based on
6,517,286 shares of Tylan General Common Stock outstanding on April 30,
1996, adjusted as required by rules promulgated by the Commission.
(2) A Schedule 13G was filed jointly by Kopp Investment Advisors, Inc. and
LeRoy C. Kopp. LeRoy C. Kopp is the sole owner of Kopp Investment Advisors,
Inc.
(3) Includes 179,735 shares held by Sigma Partners, 13,365 shares held by Sigma
Associates, 319,337 shares held by Sigma Partners II, L.P. and 19,304
shares held by Sigma Associates II, L.P. Mr. Woodson is a general partner
of each of these entities, and disclaims beneficial ownership of shares
held by Sigma Partners and affiliated entities, except to the extent of his
pro rata interest in such shares. Includes 1,667 shares subject to options
exercisable within 60 days of April 30, 1996.
(4) Includes 276,951 shares held by The KB Mezzanine Fund, L.P. ("KB"). Mr.
Khougaz is a director of Kleinwort Benson Limited, which is an affiliate of
the general partner of KB. Mr. Khougaz is also a
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<PAGE> 82
director of Kleinwort Benson (U.S.A.) Inc., the investment advisor to KB.
Mr. Khougaz disclaims beneficial ownership of shares held by KB, except to
the extent of his pro rata interest in such shares. Includes 1,667 shares
subject to options exercisable within 60 days of April 30, 1996.
(5) Includes 165,521 shares held by Hambro International Venture Fund II L.P.
and 105,825 shares held by Hambro International Venture Fund Offshore II,
L.P. Mr. Spinner is a general partner of the Hambro International Venture
Funds and disclaims beneficial ownership of such shares except to the
extent of his pro rata interest in such shares.
(6) Includes 43,063 shares subject to options exercisable within 60 days of
April 30, 1996. Includes 35,838 shares held by David J. Ferran in trust for
the benefit of the grandchildren of Robert J. Ferran, as to which David J.
Ferran disclaims beneficial ownership.
(7) Includes 31,667 shares subject to options exercisable within 60 days of
April 30, 1996.
(8) Includes 1,667 shares subject to options exercisable within 60 days of
April 30, 1996.
(9) Includes 1,667 shares subject to options exercisable within 60 days of
April 30, 1996.
(10) Includes 26,618 shares subject to options exercisable within 60 days of
April 30, 1996.
(11) Includes 18,423 shares subject to options exercisable within 60 days of
April 30, 1996.
(12) Includes 4,500 shares subject to options exercisable within 60 days of
April 30, 1996.
(13) Includes 7,000 shares subject to options exercisable within 60 days of
April 30, 1996.
(14) Includes 5,200 shares subject to options exercisable within 60 days of
April 30, 1996.
(15) Includes 144,739 shares subject to options exercisable within 60 days of
April 30, 1996.
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SPAN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Span's and the combined entity's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in the sections entitled "Risk Factors" and "Span Business," as well as those
discussed elsewhere in this Prospectus/Joint Proxy Statement.
GENERAL
Span designs, manufactures and markets precision pressure monitoring and
measuring equipment, including transducers and dry and liquid-filled gauges,
together with related measurement and control equipment including digital
displays, controls and scales. Span's products are used primarily in the
fabrication of ICs. Some Span products are also used in oil and gas production
and food processing, and as components in paint sprayers, emergency oxygen
supply systems and pumpers used for firefighting. Span's primary sales have been
in North America, with increasing additional sales generated in Europe and Asia.
On December 1, 1988, Span acquired the assets and assumed the liabilities
of Subeca, Inc. ("Subeca"), a firm specializing in high-precision transducers
and integrated, computer-based inventory control systems. The acquisition was
for cash and subordinated long-term notes; the balance remaining on these notes
as of April 30, 1996 was $501,000. Goodwill in the amount of $608,000
representing the excess of purchase price over the net tangible assets of Subeca
at purchase was recorded at closing. As of April 30, 1996, goodwill of $495,000
remains to be amortized by the straight-line method over the next 32 years.
On December 29, 1994, Span acquired the assets, liabilities and business of
Class 1, Inc. ("Class 1"), in exchange for 25% of the stock of Ocala, Inc., a
Texas corporation, which until then was a wholly owned subsidiary of Span
("Ocala"). Ocala specializes in the design and manufacture of pressure gauges
and controls for emergency vehicles. Goodwill in the amount of $101,000,
representing the excess of purchase price over the estimated fair value of the
net assets acquired has been recorded. As of April 30, 1996, goodwill of $87,000
remains to be amortized over the next nine years. The operating results of this
acquisition have been included in Span's consolidated statements of operations
from the date of acquisition. Earnings and equity attributable to the 25%
interest in Ocala not owned by Span are identified as minority interests on the
Span Consolidated Statements of Operations and Consolidated Balance Sheets.
In October 1995, Span and Tylan General entered into a strategic sales
alliance pursuant to which Tylan General agreed to support Span's semiconductor
sales and service activities and Span agreed to pay Tylan General certain fees
and reimburse Tylan General's expenses in providing such support. The strategic
sales alliance agreement provides that either party may terminate it for any
reason after two years upon one year's advance notice to the other party, and
either party may terminate the agreement at any time upon a material breach that
is not cured within 30 days of notice of the breach. Span subsequently
terminated substantially all of its then existing semiconductor distributor
relationships and began to sell semiconductor products directly to equipment
suppliers and to IC manufacturers in the United States. In November 1995, Span
and certain of Tylan General's foreign subsidiaries entered into international
distributor agreements pursuant to which such subsidiaries agreed to distribute
Span's products in certain foreign markets. Each of the international
distributor agreements is terminable upon 30 days advance notice.
Sales by the discontinued distributors represented approximately 40% of
Span's revenues for fiscal 1995. To facilitate cooperation through the
transition, discontinued distributors were permitted to return all unsold
inventory and to receive commissions for sales made by Span and Tylan General in
the distributors' former territories for specific periods ranging from one to 18
months. Approximately $2.5 million of distributors' inventory sold in September
and October 1995 was returned, with resulting reversal of reported sales,
additions to Span's inventories and expense to repurchase, restock and carry the
returned goods. To accommodate and resell these finished goods, Span reduced
production of new items, thereby reducing the amounts of relatively fixed
overhead expenses that could be absorbed into costs of sales. Payments of
commissions to former distributors for sales made by Span and Tylan General
substantially increased selling expenses. Because of the
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<PAGE> 84
resulting reduced cash flows, Span increased borrowings, which increased
interest expense. As a result of the cumulative effect of these events, Span
incurred a pre-tax loss of approximately $1.2 million for the two months ended
October 31, 1995 and approximately $3.3 million for the six months ended April
30, 1996.
During the six months ended April 30, 1996, Span wrote down the value of
its inventory by $713,000. The write-down was a result of a decision by
management to write off the remaining value of its Magnum series transducers
($418,000) and to increase its reserve for slow-moving inventory ($295,000)
following an evaluation of the inventory returned by discontinued distributors.
Span believes that the Magnum series transducers are effectively obsolete due to
the recent introduction of the similarly priced Tejas adaptive control
transducer, which has more features and functionality than the Magnum series.
Span's fiscal year historically has run from September 1 through August 31.
For comparability and to facilitate consolidation, results reported herein for
the current fiscal year conform with Tylan General's fiscal year, displaying
separately the two-month period from September 1, 1995 to October 31, 1995, and
the six months ended April 30, 1996 and 1995 that correspond to the first two
quarters of Tylan General's fiscal 1996 and 1995.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the relative
percentages that certain income and expense items bear to net sales:
<TABLE>
<CAPTION>
TWO MONTHS SIX MONTHS
FISCAL YEAR ENDED ENDED
ENDED AUGUST 31, OCTOBER APRIL 30,
--------------------- 31, -------------
1993 1994 1995 1995 1995 1996
----- ----- ----- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 60.2 62.4 62.9 58.9 61.0 66.3
----- ----- ----- ----- ----- -----
Gross profit.................................. 39.8 37.6 37.1 41.1 39.0 33.7
Operating expenses:
Sales and marketing........................... 9.5 9.1 9.4 20.5 9.5 17.7
General and administrative.................... 13.1 16.1 16.8 24.2 15.2 16.4
Research and development...................... 7.0 6.6 5.6 15.3 6.0 9.6
Amortization, primarily goodwill.............. 0.1 0.1 0.1 0.1 0.1 0.1
Income (loss) from operations................... 10.1 5.7 5.2 (19.0) 8.2 (10.1)
Interest expense (income)....................... 2.9 2.7 2.7 5.2 2.9 3.9
Minority interest............................... -- -- 0.1 0.4 -- 0.2
Other (income) expenses-net..................... -- -- 0.1 0.2 -- --
Income (loss) before provision for income
taxes......................................... 7.2 3.0 2.3 (24.8) 5.3 (14.2)
Provision for (benefit from) income taxes....... 2.7 1.2 1.0 (7.8) 2.4 (4.6)
----- ----- ----- ----- ----- -----
Net income (loss)............................... 4.5% 1.8% 1.3% (17.0%) 2.9% (9.6%)
===== ===== ===== ===== ===== =====
</TABLE>
Six Months Ended April 30, 1996 and 1995
Net Sales. Net sales increased 11.4% in the six-month period ended April
30, 1996 to $23.2 million from $20.8 million for the comparable period in 1995.
The increase was primarily due to increased demand for Span's transducers, dry
gauges and electronic products by semiconductor equipment suppliers and to
improved prices for IC-related products resulting from Span's transition to
direct sales of these products.
For the six months ended April 30, 1996, net sales to customers located
outside of the United States (primarily Europe and Asia) increased by 11.4% to
$3.3 million from $3.0 million for the comparable period in 1995. This increase
was primarily due to increased sales of pressure transducers, semiconductor
electronics and dry gauges. Span believes that international sales will account
for an increasing portion of total sales in the
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<PAGE> 85
future as a result of its current international distribution arrangements.
However, there can be no assurance that Span's international sales will grow or
remain at the levels that existed prior to the termination of the former
international distributor relationships or that such sales will achieve any
particular level.
Sales to Span's ten largest customers for the six months ended April 30,
1996 and April 30, 1995 were 44.4% and 60.0% of net sales, respectively. Span
attributes this decline in customer concentration to the change to direct sales.
Span's largest customer for the six months ended April 30, 1996 was Matheson
Semi-Gas Systems, which accounted for 11.4% of sales for the period. For the six
months ended April 30, 1995, Span's largest customer was Valin Corp., a
distributor, which accounted for 14.7% of net sales for the period.
Gross Profit. Span's gross profit decreased 3.7% to $7.8 million for the
six months ended April 30, 1996 from $8.1 million in the comparable period in
1995 and decreased as a percentage of net sales to 33.7% from 39.0%. The
decrease in the gross margin for the six months ended April 30, 1996 is
primarily due to the underabsorption of relatively fixed manufacturing overhead
expenses during the period as a result of management's decision to lower
production levels following the return of discontinued distributors'
inventories, as well as the inventory write-down.
Sales and Marketing Expense. Sales and marketing expense increased by
106.8% to $4.1 million for the six months ended April 30, 1996 from $2.0 million
in the comparable period in 1995 and increased as a percentage of net sales to
17.7% from 9.5%. This increase was primarily due to the transitional sales
commissions paid to discontinued distributors for sales made by Span in their
former territories, fees paid by Span to Tylan General associated with the
strategic sales alliance, the increased costs associated with selling directly
to semiconductor-related customers and training costs incurred in order to train
additional sales staff.
General and Administrative Expense. General and administrative expenses
increased 20.6% to $3.8 million for the six months ended April 30, 1996 from
$3.2 million in the comparable period in 1995 and increased as a percentage of
net sales to 16.4% from 15.2%. This increase was primarily due to increased
staffing in administrative personnel, higher legal and professional expenses,
higher travel expenses and an increase in spending on training.
Research and Development Expense. Research and development expenses
increased 79.5%, to $2.2 million for the six months ended April 30, 1996 from
$1.2 million in the comparable period in 1995, and increased as a percentage of
sales to 9.6% from 6.0%. The increase in research and development expense was
primarily due to increased spending on new product development and product
improvement programs principally directed toward cost reduction in dry gauge
manufacturing and development, and testing and engineering expense associated
with new transducer technologies, as well as higher levels of spending
associated with the continued development of Span's software products for use in
the IC manufacturing industry. Span does not expect its spending on research and
development as a percentage of net sales to remain at current levels. Span
believes that research and development expenses, as a percentage of net sales,
will return to the levels of fiscal 1995.
Interest Expense. Interest expense increased 46.3%, to $888,000 for the
six months ended April 30, 1996 from $607,000 in the comparable period in 1995,
and as a percentage of net sales to 3.9% from 2.9%. The increase in interest
expense was due principally to Span's increased borrowings to finance increasing
sales and the transition to direct sales of semiconductor-related products. See
"Liquidity and Capital Resources."
Minority Interest. Minority interest increased to $54,000 for the six
months ended April 30, 1996 from $1,000 for the comparable period in 1995, due
to income from Span's 75%-owned subsidiary Ocala, which acquired Class 1's
assets during the six-month period ended April 30, 1995.
Provision for (Benefit from) Income Taxes. Span received an income tax
benefit of $1.1 million due to the loss recorded for the six months ended April
30, 1996, as compared to a provision for income taxes of $486,000 in the
comparable period of 1995.
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Two Months Ended October 31, 1995
Net Sales. Net sales for the two months ended October 31, 1995 were $4.9
million after $2.5 million in credits for returned products from discontinued
distributors.
Gross Profit. Gross profits were 41.1% of net sales for the two months
ended October 31, 1995 as compared to 37.1% for fiscal 1995. This increase is a
result of the return of lower gross margin inventory from discontinued
distributors and the resulting shift in product mix sold toward higher margin
direct sales of semiconductor-related products.
Sales and Marketing Expense. Sales and marketing expense for the two
months ended October 31, 1995 was 20.5% of net sales as compared to 9.4% of net
sales in fiscal 1995. The increase as a percentage of net sales was primarily
due to the lower level of net sales recorded during the two month period and the
increased staffing necessary to handle the transition to direct sales.
General and Administrative Expense. General and administrative expense
increased as a percentage of net sales to 24.2% for the two months ended October
31, 1995 from 16.8% in fiscal 1995 due to the lower level of net sales and the
increased staffing necessary to handle the transition to direct sales.
Research and Development Expense. Research and development expense
increased as a percentage of net sales to 15.3% for the two months ended October
31, 1995 from 5.6% in fiscal 1995 due to the lower level of net sales and
increased development expenses associated with several new products, including
the Tejas adaptive control transducer, the laser-activated film transducer and
the Spirit data acquisition board.
Interest Expense. Interest expense recorded for the two months ended
October 31, 1995 was 5.2% of net sales as compared to 2.7% in fiscal 1995 due to
increased borrowings to repurchase inventory from Span's discontinued
distributors.
Income Taxes. Due to the loss recorded for the two months ended October
31, 1995, Span received a $376,000 income tax benefit.
Fiscal Years Ended August 31, 1995 and 1994
Net Sales. Net sales increased 55.5% to $42.4 million in fiscal 1995 from
$27.3 million in fiscal 1994. This increase was due principally to increases in
sales of semiconductor-related products, which reflected the increased demand
for ICs during 1995. Net sales to customers located outside of the United States
increased by 77.9% to $6.1 million for fiscal 1995 from $3.4 million for fiscal
1994. This increase was due primarily to increased sales by Span's foreign
distributors as well as the improved penetration of the Asian pressure
transducer market.
Gross Profit. Gross profit increased 53.8% to $15.8 million in fiscal 1995
from $10.3 million in fiscal 1994 but declined as a percentage of net sales to
37.1% from 37.6%, due primarily to higher manufacturing expenses incurred to
increase production rapidly and to an increase in the percentage of
semiconductor-related products sold through distributors and the increase in
sales to customers located outside of the United States, which were generally
sold at lower margins.
Sales and Marketing Expense. Sales and marketing expenses increased 61.7%
to $4.0 million in fiscal 1995 from $2.5 million in fiscal 1994 and as a
percentage of net sales to 9.4% from 9.1%. This increase was due primarily to
the hiring of more highly paid sales personnel and to higher commissions paid to
Span's distributors.
General and Administrative Expense. General and administrative expenses
increased 62.0%, to $7.1 million in fiscal 1995 from $4.4 million in fiscal 1994
and as a percentage of net sales to 16.8% from 16.1%. This increase was due to
the hiring of several new senior managers and spending necessary to support
higher levels of sales.
Research and Development Expense. Research and development expenses
increased 33.8% to $2.4 million in fiscal 1995 from $1.8 million in fiscal 1994,
but declined as a percentage of net sales to 5.6% from 6.6%. This increase of
research and development expense was due primarily to spending on several
potential
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new products, including the Tejas adaptive control transducer and the
laser-activated film transducer, as well as continued spending on software
development.
Interest Expense. Interest expense increased 54.7%, to $1.2 million in
fiscal 1995 from $755,000 in fiscal 1994 and remained constant as a percentage
of net sales at 2.7%. This increase was due primarily to increased borrowings to
finance higher levels of sales.
Income Taxes. Span's effective tax rate increased to 44.4% in fiscal 1995
from 38.2% in fiscal 1994 due to a higher level of nondeductible expenses
incurred in fiscal 1995.
Fiscal Years Ended August 31, 1994 and 1993
Net Sales. Net sales increased 16.8% to $27.3 million in fiscal 1994 from
$23.4 million in fiscal 1993, as a result of improving economic conditions in
the industries Span serves. Sales to customers located outside of the United
States declined 6.3% to $3.4 million in fiscal 1994 from $3.7 million in fiscal
1993 due to decreased sales by Span's foreign distributors.
Gross Profit. Gross profit increased 10.4% to $10.3 million in fiscal 1994
from $9.3 million in fiscal 1993 but declined as a percentage of net sales to
37.6% from 39.8%, due to increased production costs for new product models,
increasing customer discounts due to competitive pressures and the ramp-up of
production capacity added during the second half of fiscal 1994 to meet
increasing demand from semiconductor customers.
Sales and Marketing Expense. Sales and marketing expenses increased 11.2%
to $2.5 million in fiscal 1994 from $2.2 million in fiscal 1993 but declined as
a percentage of net sales to 9.1% from 9.5%. Sales and marketing expense
increased during the period as a result of increased costs associated with
broader geographic coverage.
General and Administrative Expense. General and administrative expenses
increased 44.5%, to $4.4 million in fiscal 1994 from $3.0 million in fiscal
1993, and as a percentage of net sales to 16.1% from 13.1%. This increase was
due primarily to increased staffing to support Span's growth.
Research and Development Expense. Research and development expense
increased 10.3% to $1.8 million in fiscal 1994 from $1.6 million in fiscal 1993,
but decreased as a percentage of net sales to 6.6% from 7.0%. This increase was
due primarily to continued development and engineering of several new
semiconductor-related products.
Interest Expense. Interest expense increased 11.5% to $755,000 in fiscal
1994 from $677,000 in fiscal 1993 but decreased as a percentage of net sales to
2.7% from 2.9% due to increased sales.
Income Taxes. Span's effective tax rate increased to 38.2% in fiscal 1994
from 37.4% in fiscal 1993 due primarily to a higher level of nondeductible
expenses incurred in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Span has financed its operations and its capital requirements through a
combination of cash provided by operations, trade credit, capital lease
financing and bank term loans and working capital lines of credit guaranteed by
its principal shareholders. The acquisition of Subeca in 1988 was financed in
part through long-term notes to the selling shareholders, subordinated to Span's
bank debt.
In March 1996, Span entered into a loan facility agreement with a bank
which refinanced all previously outstanding borrowings and provided additional
credit. The agreement provides for a $12.0 million revolving credit facility and
a $2.0 million term loan, both secured by Span's accounts receivable,
inventories, machinery and equipment not otherwise pledged under capital lease
obligations, and the partial guarantee of Don E. Whitson, Span's Chief Executive
Officer. The revolving credit facility's availability is conditioned upon
maintaining specified levels of accounts receivable and inventories, and it
requires monthly interest payments with principal due at maturity on January 1,
1998. The term loan requires equal monthly principal payments plus interest over
a four-year period commencing April 1, 1996. Both loans require Span to meet
certain
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financial covenants, restrict the incurrence of debt and prohibit the payment of
dividends or the distribution of assets.
In March 1996, Span also issued to Stratford Capital Partners, L.P. a $5.0
million senior subordinated note at par with a detachable common stock purchase
warrant. The note is unsecured and bears interest at 12.5% per annum, payable
quarterly. If the Merger is approved and completed and the note is repaid in
full prior to March 13, 1997, the warrant will expire without being exercisable.
In 1993, operating activities provided net cash of $2.2 million, primarily
from $1.0 million in net income and $1.1 million in depreciation and
amortization. Span used $1.0 million to purchase property and equipment and for
capitalized software development in 1993 and $877,000 to reduce overall debt. In
1994, Span's operating activities provided net cash of $1.5 million. Span used
$4.0 million to purchase property and equipment and for capitalized software
development and increased its overall debt by $2.2 million. In 1995, Span's
accounts receivable and inventories increased more than $6.0 million and
operating activities used $1.1 million in cash. Additional investments in
property and equipment and capitalized software used $5.0 million. Financing
activities, net of principal repayments under long-term debt and capital leases,
provided $6.3 million.
For the six months ended April 30, 1996, due primarily to the net loss of
$2.2 million resulting from the transition to direct sales for
semiconductor-related products, and the inventory write-down, operating
activities used $3.2 million. The refinancing of Span's term debt and revolving
credit facility and the issuance of the $5.0 million senior subordinated note
netted Span $5.0 million.
As of April 30, 1996, the revolving credit facility had $800,000 available
for additional borrowing, and Span had $888,000 in cash and working capital of
$8.3 million. From funds advanced for inventory purchases under the strategic
sales alliance, Span owed Tylan General $3.6 million. The $3.6 million is
payable in monthly installments of $100,000 plus interest.
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SPAN BUSINESS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Span's and the combined entity's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in the sections entitled "Risk Factors" and "Span Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as those
discussed elsewhere in this Prospectus/Joint Proxy Statement.
Founded in 1969 to manufacture liquid-filled pressure gauges, Span now
manufactures a line of pressure instrumentation, monitoring and control
products, including ultra-high purity pressure and control products for the
semiconductor, pharmaceutical and food processing industries and highly
engineered instrumentation and controls for emergency vehicle, agriculture,
paint spraying and biotechnology customers, among others. Span's product line
includes pressure transducers, digital and analog gauges, switches, industrial
scales, displays, controllers and real-time facility management and monitoring
systems.
Span's 75%-owned subsidiary, Ocala, doing business as Class 1,
headquartered in Ocala, Florida, manufactures and sells emergency vehicle
products. Span manufactures all other products at its headquarters in Plano,
Texas, and sells these products to major customers directly and to smaller
customers through specialized distributors.
In 1974, Span began producing liquid-filled pressure gauges for greater
durability and accuracy in stressful conditions. In the early 1980s, Span
introduced its high-purity gauges with face-seal fittings that improve
reliability. In 1989, Span developed the ThruTube transducer, which is designed
to maintain high gas purity. Recently, Span has introduced a transducer with
single-step electronic calibration (rather than the two-step set screw
mechanical adjustment commonly used), and has announced an advanced
laser-defined sensor transducer.
Recent growth in the semiconductor fabrication industry has stimulated
sales of Span's transducers, high-precision pressure gauges and digital controls
and displays, which constituted over 70% of Span's sales during the six months
ended April 30, 1996.
DRY GAUGES
Dial Type Pressure Gauges
Until the mid-1980s, Bourdon tube pressure gauges (a C-shaped tube that
expands when pressurized) were the primary source of high pressure measurement
in the semiconductor industry. Span continues to produce two-inch stainless
steel gauges for this industry. The S 122 series gauge was engineered to
maintain minimal system contamination. Span offers face seal connections and
performs all welds in an oxygen-free environment. Its gauges are then cleaned
and packaged in a clean room.
Switches and Transmitters
The IPS122 switch and IPT122 transmitter combine the reliability of a
Bourdon tube pressure gauge with an electronic interface to provide low-cost
switching and signal control capabilities.
PRESSURE TRANSDUCERS
Pressure transducers convert a measurement of pressure to an electrical
signal and provide greater accuracy, less contamination potential and improved
control capabilities than pressure gauges. Transducers are widely used in gas
cabinets to monitor process gases and to monitor pressures at the "tool" level.
ThruTube Transducers
In 1989, Span introduced its ThruTube transducer to the semiconductor
industry. Featuring a design that allows the process gases to pass through the
transducer in a smooth pathway, the ThruTube minimizes dead space and reduces
particle generation.
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The Tejas Series
In 1996, Span introduced a "smart" transducer designed specifically for the
semiconductor industry. Tejas transducers feature an on-board microprocessor and
digital technology, which provide constant temperature compensation for greater
accuracy. The autocalibration feature is a labor-saving feature for the user, as
transducers are often mounted in difficult-to-reach locations.
As with all Span transducers, Tejas series transducers are cleaned and
packaged in a class 10 clean room. A wide variety of process connections,
including face seals, tube stubs and special 'T' fittings are available to
ensure compatibility with most customer requirements.
DIGITAL INDICATORS AND CONTROLLERS
Pressure gauges provide users an easy-to-read local indication of the
pressure. Direct pressure indication can help improve process control and can be
a vital safety issue as many process gases are extremely hazardous. Span has
developed a series of digital indicating devices designed to provide the
operator an easy-to-read, direct indication of the pressure being monitored.
Digital Pressure Gauge
The IDG202 digital pressure gauge is battery powered and provides the user
with the combination of direct, local indication of a dial-type gauge and the
accuracy and high purity of a pressure transducer. This product is often used in
"drops" and other gas supply lines supporting an IC fabrication facility.
Local Read-Out and Switch
The LR050 series of displays is designed to be mounted directly to any Span
transducer, thereby allowing the user to add, at any time, local indication to
his transducer application without interrupting the process itself. The unit can
display pressure in psi, or bars or kg/cm(2) to meet international requirements.
Single or dual set points are also available to provide additional process
control or alarm capabilities.
PR050 Digital Display
The PR050 is a simple, compact digital display operating off of a 0-5 volt,
0-10 volt or 4-20 milliAmp signal. It can be remotely mounted and is available
with either a 110-volt or 220-volt power supply.
Multi-Channel Digital Controller
The LR300 is Span's most sophisticated control product. Its benefits
include its flexible capabilities and relatively small size. The LR300 will read
most engineering units of measure, including psi, lbs and ppm, and is
configurable by the user through the front touch pad. Single-channel,
two-channel and four-channel versions are available, and each channel can be
independently programmed with two set points. The microprocessor-based design
performs math, tare and scaling functions and can relay an analog signal or
communicate through a standard communication protocol.
OTHER PRODUCTS
Span produces several other products that are primarily sold to the
semiconductor industry:
Gas Cylinder Scale
Process gases for the semiconductor industry are often stored in large gas
cylinders. Span's GCS300 series scale features heavy stainless steel
construction designed to withstand severe abuse and corrosive chemicals.
Accurate to within 0.1%, the scale allows the user to maximize consumption from
each cylinder.
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Polymeric Pressure Transducers
Specifically designed for use with corrosive chemicals and de-ionized
water, the PPT300 series pressure transducers are available with PVC, Kynar or
Teflon housings. The transducers are accurate to within 0.25% and are available
in four different output configurations.
INDUSTRIAL INSTRUMENTATION
Prior to the early 1970's, pressure gauges used in a variety of
applications experienced a short life and high failure rate. Such problems as
pulsating pressures, equipment vibration, moisture, dust and corrosion all
contributed to the problem. In response, gauges were produced with a sealed case
and filled with a clear fluid, typically glycerin or silicone. The fill fluid
effectively dampens the pulsation and vibration and protects the gauge internals
from environmental dust and corrosion. The result is a gauge that significantly
outlasts a dry gauge in the same application while maintaining its accuracy and
readability.
Span's liquid-filled gauge line is targeted at the higher end user for whom
overall quality and service are primary considerations.
2 1/2-Inch, 3 1/2-Inch and 4 1/2-Inch Liquid-Filled Gauges
The LFS220 series gauge has a 2 1/2-inch dial and a corrosive resistant
Zytel nylon case. A variety of options are available including bottom and back
mounted connections, metric scales and special fill fluids. Both brass and
stainless steel internals are available. The LFS310 (3 1/2-inch dial) and LFS410
(4 1/2-inch dial) have a similar design. Additional features include an internal
temperature compensating diaphragm and O-ring seals.
EMERGENCY VEHICLE PRODUCTS
In the early 1980's, Span began to sell its line of liquid-filled pressure
gauges to fire truck manufacturers. Span subsequently developed the patented
SubZ-II freeze-proof isolator that prevents damage to the gauges caused by water
freezing inside the Bourdon tube. Replacing gauges on many new trucks is Span's
"Flowminder," which provides a digital indication of water flow.
With Ocala's acquisition of Class 1, the emergency product line was
expanded even further. Many of the Class 1 products are designed to simplify
truck production.
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SPAN MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Span and their ages and positions
at April 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------------------------- --- -------------------------------------
<S> <C> <C>
Leo E. Whitson................................ 78 Chairman of the Board and director
Don E. Whitson................................ 48 Chief Executive Officer and director
George A. Yurch............................... 53 President
John Jul...................................... 40 Senior Vice President -- Sales
Brian R. Day.................................. 33 Chief Financial Officer
</TABLE>
The only current executive officer of Span who will serve as an executive
officer or director of Tylan General is Don E. Whitson (the "Continuing
Executive"), who will serve as Vice Chairman of the Tylan General Board and
Chief Administrative Officer of Tylan General.
Don E. Whitson has served as Span's Chief Executive Officer since September
1995 and as a director of Span since July 1972. From October 1977 to April 1996,
he served as Span's President, and from July 1972 to October 1977 he served as
Vice President of Span.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the Continuing
Executive for services rendered to Span during the fiscal year ended August 31,
1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------------- OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION COMPENSATION(1)
- ----------------------------------------------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Don E. Whitson, Chief Executive Officer........ $305,000 -- -- $41,490
</TABLE>
- ---------------
(1) Includes Span's Matching Contributions to the Span Instruments, Inc. 401(k)
plan in the amount of $4,500 and life insurance policy premiums in the
amount of $36,990 paid by Span for a policy in which Mr. Whitson has a
beneficial interest.
CERTAIN TRANSACTIONS
Span leases a substantial portion of its office and manufacturing
facilities and certain automotive equipment from an entity controlled by Don E.
Whitson and Leo E. Whitson. Span paid rent of $464,140, $55,789 and $615,022 to
this entity for the six months ended April 30, 1996, the two months ended
October 31, 1995 and the year ended August 31, 1995, respectively.
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SPAN PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of Span's Common Stock as of May 31, 1996, by: (i) each
shareholder of Span and (ii) all executive officers and directors of Span as a
group.
<TABLE>
<CAPTION>
PERCENT OF SHARES OF TYLAN
STOCK GENERAL
COMMON OUTSTANDING COMMON STOCK PERCENT OF CLASS
STOCK PRIOR TO BENEFICIALLY OUTSTANDING
BENEFICIALLY THE OWNED AFTER
NAME OWNED(1) MERGER AFTER THE MERGER(2) THE MERGER(3)
- ------------------------------------ ------------ ----------- ------------------- ----------------
<S> <C> <C> <C> <C>
Don E. Whitson (4)(5)............... 158,051 59.5% 874,430 10.9%
Leo Whitson (4)..................... 85,611 32.2 473,649 5.9
Marguerite Whitson.................. 20,508 7.7 113,462 1.4
Sam Crowe........................... 13,145 4.9 72,725 *
Tommy Gray.......................... 13,145 4.9 72,725 *
Robert Lipsky....................... 13,145 4.9 72,725 *
Robert Barraclough.................. 13,145 4.9 72,725 *
John Jul............................ 13,145 4.9 72,725 *
John Jordon......................... 7,885 3.0 43,624 *
George A. Yurch..................... 7,885 3.0 43,624 *
Brian R. Day........................ 7,885 3.0 43,624 *
Kaveh Zarkar........................ 2,630 1.0 14,550 *
John Rabbitt........................ 2,630 1.0 14,550 *
All executive officers and directors
as a group (5 persons)(4)(5)...... 186,966 68.0 1,034,401 12.9
</TABLE>
- ---------------
* Less than one percent.
(1) "Beneficial Owner" generally means any person who, directly or indirectly,
has or shares voting power or investment power with respect to a security.
All information with respect to the beneficial ownership of any shareholder
has been furnished by such shareholder. Span believes that except as
otherwise indicated, each shareholder has sole voting and investment power
with respect to the shares listed.
(2) Based on an Exchange Ratio of 5.53258.
(3) Based on 6,531,786 shares of Tylan General Common Stock outstanding as of
June 13, 1996, plus 1,470,000 shares of Tylan General Common Stock to be
issued in the Merger.
(4) Includes 77,611 shares held of record by the Leo E. Whitson 1996 Trust, as
to which Leo E. Whitson, as Trustee, has investment power, and Don E.
Whitson has voting power.
(5) Includes 8,000 shares subject to an option exercisable within 60 days of
June 13, 1996 pursuant to a written option agreement between Don E. Whitson
and Leo E. Whitson, and 7,500 shares subject to an option exercisable within
60 days of June 13, 1996 pursuant to a written option agreement between Don
E. Whitson and Marguerite Whitson.
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DESCRIPTION OF TYLAN GENERAL COMMON STOCK
The authorized capital stock of Tylan General consists of 50,000,000 shares
of Tylan General Common Stock, $.001 par value, and 10,000,000 shares of
Preferred Stock, $.001 par value.
COMMON STOCK
As of the Record Date, there were shares of Tylan General Common
Stock outstanding held by approximately holders of record.
The holders of Tylan General Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders. The
holders of Tylan General Common Stock are not entitled to cumulative voting
rights with respect to the election of directors, and as a consequence, minority
stockholders are not able to elect directors on the basis of their votes alone.
Subject to preferences that may be applicable to any shares of Preferred Stock
issued in the future, holders of Tylan General Common Stock are entitled to
receive ratably such dividends as may be declared by the Tylan General Board out
of funds legally available for such purpose. Tylan General is a party to certain
credit agreements that prohibit payment of dividends or distribution of assets.
In the event of a liquidation, dissolution or winding up of Tylan General,
holders of Tylan General Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference of
any then outstanding Preferred Stock. Holders of Tylan General Common Stock have
no preemptive rights and no right to convert their Tylan General Common Stock
into any other securities. There are no redemption or sinking fund provisions
applicable to Tylan General Common Stock. All outstanding shares of Tylan
General Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Tylan General Board has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of Preferred Stock could adversely
affect the voting power of holders of Tylan General Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of Tylan General. Tylan General has no present plan to issue
any shares of Preferred Stock.
REGISTRATION RIGHTS
Pursuant to an Amended and Restated Registration Rights Agreement dated as
of November 11, 1992 and pursuant to a Registration Rights Agreement dated
November 11, 1992 (collectively, the "Registration Rights Agreements"), the
holders (the "Holders") of approximately 1,535,032 shares of Tylan General
Common Stock (the "Registrable Securities") are entitled to certain rights with
respect to the registration of such shares under the Securities Act, subject to
the terms and conditions of such Registration Rights Agreements. Whenever Tylan
General proposes to register any of its securities under the Securities Act,
either for its own account or the account of other security holders, the Holders
are entitled, subject to certain conditions, to notice of such registration and
to include their Registrable Securities therein at Tylan General's expense,
provided that, among other conditions, the underwriters of any offering have the
right to limit the number of shares included in such registration. In addition,
upon the expiration of lock-up agreements, the Holders may request that Tylan
General, on not more than two occasions, file a registration statement under the
Securities Act at Tylan General's expense to register the Holders' shares,
subject to certain conditions and limitations. Furthermore, the Holders may
require Tylan General at Tylan General's expense and no more than once in any
six month period, to register their shares on Form S-3 when such form becomes
available to Tylan General, subject to certain conditions and limitations.
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The registration rights applicable to approximately 1,428,394 shares of
Registrable Securities expire on January 26, 2000, and the registration rights
applicable to approximately 328,620 shares of Registrable Securities expire when
such shares are registered or sold in compliance with Rule 144 of the Securities
Act.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
Tylan General is subject to the provisions of Section 203 of the Delaware
Law, an antitakeover law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The Tylan General Certificate and the Tylan General Bylaws also require
that any action required or permitted to be taken by stockholders of Tylan
General must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing. In addition,
special meetings of the stockholders of Tylan General may be called only by the
Tylan General Board, the Chairman of the Tylan General Board or the Chief
Executive Officer or the holders of at least 10% of the outstanding shares of
Tylan General Common Stock. These provisions may have the effect of deterring
hostile takeovers or delaying changes in control or management of Tylan General.
TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston is the transfer agent and registrar for
Tylan General Common Stock.
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COMPARISON OF RIGHTS OF TYLAN GENERAL STOCKHOLDERS
AND SPAN SHAREHOLDERS
The rights of Tylan General stockholders are governed by its Certificate of
Incorporation (the "Tylan General Certificate"), its Bylaws (the "Tylan General
Bylaws") and the Delaware Law. The rights of Span shareholders are currently
governed by its Articles of Incorporation (the "Span Articles"), its Bylaws (the
"Span Bylaws") and the Texas Law. In addition, certain restrictions on rights of
transfer by Span shareholders are governed by the Affiliate Agreements. Upon
consummation of the Merger, Span shareholders will become stockholders of Tylan
General with their rights as stockholders governed by the Delaware Law, the
Tylan General Certificate and the Tylan General Bylaws.
The following is a summary of certain similarities and differences between
the rights of Tylan General stockholders and Span shareholders under the
foregoing governing documents and applicable law. This summary does not purport
to be a complete statement of such similarities and differences. The
identification of specific similarities and differences is not meant to indicate
that other equally or more significant similarities and differences do not
exist. Such similarities and differences can be examined in full by reference to
the Delaware Law, the Texas Law and the respective corporate documents of Span
and Tylan General.
Capital Stock. The authorized capital stock of Tylan General consists of
50,000,000 shares of Tylan General Common Stock, $.001 par value, of which
shares were issued and outstanding on July 8, 1996, and 10,000,000
shares of Preferred Stock, $.001 par value per share (the "Tylan General
Preferred Stock"), issuable in such series and with such rights, powers and
privileges as the Tylan General Board shall determine. To date, Tylan General
has not designated any series or issued any shares of the Tylan General
Preferred Stock. The authorized capital stock of Span consists of 500,000 shares
of Span Common Stock, of which 265,699 shares were outstanding on May 31, 1996.
See "The Span Meeting -- Vote Required." Under both the Tylan General
Certificate and the Span Articles, holders of Tylan General Common Stock and
Span Common Stock are entitled to one vote per share on all matters to be voted
on by Tylan General stockholders or Span shareholders.
Amendment of Bylaws. Under the Texas Law, a corporation's board of
directors may amend or repeal the corporation's bylaws, unless the corporation's
articles of incorporation or the Texas Law otherwise reserves the power
exclusively to the shareholders. The Span Bylaws provide that they may be
amended by the affirmative vote of a majority of the Span Board then in office
at any duly called and constituted meeting of the Span Board. The Span Bylaws
also may be amended by the shareholders of Span at any annual or special meeting
of shareholders.
Under the Delaware Law, the authority to adopt, amend or repeal the bylaws
of a Delaware corporation is held exclusively by the stockholders unless such
authority is conferred upon the board of directors in the corporation's
certificate of incorporation. Under the Tylan General Certificate, the Tylan
General Board may adopt, amend or repeal the Tylan General Bylaws. The Tylan
General stockholders may alter or amend the Tylan General Bylaws or adopt new
bylaws by the affirmative vote of at least sixty-six and two-thirds percent
(66 2/3%) of the voting power of all of the then-outstanding shares of Tylan
General voting stock.
Amendment of Tylan General Certificate and Span Articles. Under the Texas
Law, amendments to the articles of incorporation require a resolution of the
board of directors and the approval of at least sixty-six and two-thirds percent
(66 2/3%) of the outstanding shares entitled to vote thereon, unless any class
or series of shares is entitled to vote thereon as a class, in which event the
proposed amendment requires the affirmative vote of the holders of sixty-six and
two-thirds percent (66 2/3%) within each class or series of outstanding shares
entitled to vote thereon as a class and of at least sixty-six and two-thirds
percent (66 2/3%) of the total outstanding shares entitled to vote thereon.
Although the articles of incorporation may, under the Texas Law, require a
greater or lesser vote (but not less than a majority), the Span Articles contain
no provisions requiring a greater or lesser vote for amendments.
Under the Delaware Law, amendments to the certificate of incorporation of a
corporation require the recommendation of the board of directors and the
approval of a majority of the outstanding shares entitled to vote, unless a
greater vote is required in the corporation's certificate of incorporation. The
Tylan General
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Certificate requires the affirmative vote of the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the voting power of all outstanding voting
stock, voting together as a single class, to alter, amend or repeal certain
provisions of the Tylan General Certificate.
Special Meetings of Stockholders. Under the Texas Law, holders of not less
than ten percent (10%) of all the shares entitled to vote have the right to call
a special shareholders' meeting, unless the articles of incorporation provide
for a number of shares greater than or less than ten percent (10%), in which
event special meetings of the shareholders may be called by the holders of at
least the percentage of shares so specified in the articles of incorporation,
but in no event should the articles of incorporation provide for a number of
shares greater than fifty percent (50%). The Span Articles contain no provisions
altering the Texas Law's provisions or otherwise relating to the calling of
special meetings by the stockholders.
Under the Delaware Law, a special meeting of stockholders may be called by
the board of directors or any other person authorized to do so in the
corporation's certificate of incorporation or bylaws. The Tylan General Bylaws
allow a special meeting to be called by the president, by the president or
secretary at the request in writing of a majority of the Tylan General Board or
the stockholders holding two-thirds of the outstanding capital stock of Tylan
General entitled to vote on the matter.
Actions by Written Consent of Stockholders. Under the Texas Law and the
Delaware Law, stockholders may execute an action by written consent in lieu of a
meeting of stockholders. The Delaware Law permits a corporation to eliminate
such actions by written consent in its certificate of incorporation. The Tylan
General Certificate eliminates actions by written consent.
Advance Notice Provisions. The Span Bylaws do not require advance notice
of proposals or director nominations intended to be presented by a shareholder
at an annual meeting. The Tylan General Bylaws require not less than sixty (60)
days' nor more than ninety (90) days' advance notice by a stockholder of a
director nomination intended to be presented at an annual meeting.
Size of the Board of Directors. Under the Texas Law, a corporation's board
of directors must consist of one or more individuals with the number specified
in, or fixed in accordance with, the corporation's articles or bylaws. The Span
Bylaws provide that the number of directors shall be fixed from time to time by
the Span Board. Currently, the Span Board consists of two directors -- Don E.
Whitson and Leo E. Whitson.
The Delaware Law permits the board of directors of a Delaware corporation
to change the authorized number of directors by amendment to the corporation's
bylaws or in the manner provided in the bylaws, unless the number of directors
is fixed in the corporation's certificate of incorporation, in which case a
change in the number of directors may be made only by amendment to the
certificate of incorporation. The Tylan General Bylaws provide that the
authorized number of directors will be fixed in accordance with the Tylan
General Certificate. The Tylan General Certificate provides that the number of
directors which shall constitute the whole Tylan General Board shall be fixed by
the Tylan General Board. The current number of directors is fixed at seven.
Classification of Board of Directors. The Span Bylaws provide that the
board of directors shall consist of the number of directors fixed from time to
time by the Span Board. The Span Board currently consists of two directors. The
Span Bylaws provide that each director shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. The terms of
Span's directors are not staggered.
A classified board is one with respect to which a certain number of the
directors, but not necessarily all, are elected on a rotating basis each year.
The Delaware Law permits, but does not require, a Delaware corporation to
provide in its certificate of incorporation for a classified board of directors,
pursuant to which the directors can be divided into up to three classes of
directors with staggered terms of office, with only one class of directors to be
elected each year for a maximum term of three years. The Tylan General
Certificate and the Tylan General Bylaws divide the Tylan General Board into
three classes, each of which has a staggered term of three years. The
classification of the Tylan General Board may have the effect of delaying or
impeding a change in the composition of the Tylan General Board as well as a
change in control of Tylan General because at least two annual meetings of
stockholders, instead of one, generally will be required to effect a change in
the majority of a classified board.
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Cumulative Voting. In an election of directors under cumulative voting,
each share of stock normally having one vote is entitled to a number of votes
equal to the number of directors to be elected. A stockholder may then cast all
such votes for a single candidate or may allocate them among as many candidates
as the stockholder may choose (up to the number of directors to be elected).
Without cumulative voting, the holders of a majority of the shares present at an
annual meeting or any special meeting held to elect directors would have the
power to elect all the directors to be elected at that meeting, and no person
could be elected without the support of holders of a majority of the shares
voting at such meeting. Under the Texas Law, shareholders have the right to
cumulate their votes for directors unless the corporation's articles expressly
prohibit cumulative voting. The Span Articles do not prohibit cumulative voting.
Under the Delaware Law, stockholders do not have a right to cumulate their votes
for directors unless the corporation's certificate of incorporation so provides.
The Tylan General Certificate does not provide for cumulative voting. Pursuant
to both the Tylan General Bylaws and the Span Bylaws, members of each company's
board of directors are elected by a plurality of the votes cast by the shares
present or represented by proxy at a meeting called for such purpose and
entitled to vote on the election of directors.
Removal of Directors. Under the Texas Law, a corporation's articles or
bylaws may provide that, at any meeting of shareholders called expressly for
that purpose, any director or the entire board of directors may be removed, with
or without cause, by a vote of the holders of a specified portion, but not less
than a majority, of the shares then entitled to vote at an election of
directors, subject to any further restrictions that may be contained in the
bylaws. The Span Articles provide that a director may be removed at any time by
a two-thirds vote of the full Span Board.
The Delaware Law provides that directors of a corporation with a classified
board may be removed only with cause by the holders of a majority of the shares
then entitled to vote on the election of directors unless the certificate of
incorporation provides otherwise. Under the Tylan General Certificate, any
director, or the entire Tylan General Board, may be removed from office with
cause by the affirmative vote of the holders of a majority or more of the
outstanding Tylan General voting stock entitled to vote generally in the
election of directors, or without cause by the affirmative vote of at least
66 2/3% of the voting power of all of the then-outstanding shares of Tylan
General voting stock. Notwithstanding the foregoing, whenever the holders of any
one or more series of Tylan General Preferred Stock shall have the right, voting
separately as a class, to elect one or more directors, the provisions of the
Tylan General Certificate relating to removal of directors shall not apply with
respect to directors elected by holders of Tylan General Preferred Stock. To
date, Tylan General has not designated any series or issued any shares of Tylan
General Preferred Stock.
Filling Vacancies in the Board of Directors. Under Texas law, any vacancy
occurring in the board of directors may be filled by the shareholders or by the
affirmative vote of a majority of the remaining directors. A directorship to be
filled by reason of an increase in the number of directors may be filled by the
shareholders or by the board of directors for a term of office continuing only
until the next election of one or more directors by the shareholders, provided
that the board of directors may not fill more than two such directorships during
the period between any two successive annual meetings of shareholders.
Under the Delaware Law, vacancies on the board of directors and newly
created directorships may be filled by a majority of the directors then in
office (even though less than a quorum), unless (i) otherwise provided in the
certificate of incorporation or bylaws of the corporation (the Tylan General
Certificate and the Tylan General Bylaws do not provide otherwise) or (ii) the
certificate of incorporation directs that a particular class is to elect such
director, in which case any other directors elected by such class, or a sole
remaining directors, shall fill such vacancy.
Repurchase or Redemption of Stock. Both Delaware and Texas corporations
may generally purchase or redeem their own shares of capital stock.
Payment of Dividends. The Texas Law generally allows a Texas corporation,
subject to any restrictions set forth in its articles of incorporation or the
Texas Law, to declare and pay a dividend on the corporation's stock so long as,
after giving the effect to the dividends, the corporation is not insolvent and
the distribution does not exceed the surplus of the corporation. Subject to any
restrictions contained in a corporation's certificate of incorporation, the
Delaware Law generally provides that a corporation may declare and pay
87
<PAGE> 99
dividends out of surplus (defined as net assets minus stated capital) or, when
no surplus exists, out of net profits for the fiscal year in which the dividend
is declared and/or for the preceding fiscal year. Dividends may not be paid out
of net profits if the capital of the corporation is less than the amount of
capital represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. Holders of both Tylan General and
Span Common Stock are entitled to receive dividends in such amounts and at such
times as declared by their respective Boards of Directors. Neither Span nor
Tylan General has paid or declared dividends on its Common Stock. Tylan General
and Span are each parties to certain credit agreements that prohibit payment of
dividends or distribution of assets. At the present time, the Tylan General
Board intends to retain all earnings otherwise legally available to be paid as
dividends to its stockholders for use in its business.
Share Transfer Restrictions. Under the Texas Law, the articles of
incorporation, bylaws or an agreement among shareholders of a Texas corporation
may impose restrictions on the transfer of shares of the corporation. Neither
the Span Articles nor the Span Bylaws imposes restrictions on the transfer of
shares of the corporation. However, under certain repurchase agreements between
Span and certain of its shareholders who are also employees of Span, in the
event of cessation of each such shareholder-employee's employment with Span,
death or legal incapacity, the shareholder-employee will sell his or her Span
Common Stock back to Span, and Span will repurchase all such stock.
Additionally, in the event of such shareholder-employee's bankruptcy or divorce,
Span has the option to repurchase the Span Common Stock held by such
shareholder. Finally, the repurchase agreements give Span the right of first
refusal to purchase such shareholder-employees' Span Common Stock. It is a
condition to Tylan General's obligations to consummate the Merger that such
repurchase agreements be amended to provide for termination upon an initial
public offering of Span Common Stock or a change in control of Span. There is no
similar restriction on the transfer of Tylan General Common Stock, but certain
affiliates of Span (as defined for purposes of Rule 145 of the Securities Act)
have agreed not to transfer the shares of Tylan General Common Stock received by
such person in the Merger except in compliance with Rule 145 and under certain
other limited circumstances.
Appraisal Rights. Section 262 of the Delaware Law provides for appraisal
rights in certain circumstances to the stockholders of a corporation that is a
party to a merger. However, such rights are not available (i) to the holders of
shares of the surviving corporation if the merger does not require the approval
of such stockholders or (ii) to the holders of shares of a corporation if, as of
the record date for the meeting of stockholders to approve a merger, such
corporation's stock is listed on a national securities exchange or designated as
a national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more than
2,000 stockholders, so long as, in either case, the stockholders in the merger
are not required by the terms of the merger to accept for such stock anything
except (i) shares of the capital stock of the surviving corporation, (ii) shares
of the capital stock of any other corporation, provided that such stock is
listed on a national securities exchange as of the date on which the merger
becomes effective, (iii) cash in lieu of fractional shares or (iv) a combination
of the foregoing. Because the Common Stock of Tylan General is listed on the
Nasdaq National Market, appraisal rights will not be available to the holders of
Tylan General Common Stock in this or in future similar transactions.
Under the Texas Law, shareholders are entitled to dissent from, and obtain
payments of the fair value of their shares in the event of, certain corporate
actions including consummation of a plan of merger to which the corporation is a
party. Under Articles 5.11 through 5.13 of the Texas Law, the shareholders of
Span are entitled to exercise dissenters' rights in connection with the Merger.
See "The Merger and Related Transactions -- Dissenters' Rights."
Inspection of Books and Records. Any shareholder of a Texas corporation
has the right to inspect the corporation's books and records of account, minutes
and share transfer records, to make extracts therefrom and to demand that the
corporation mail to such shareholder its annual statements for the last fiscal
year. Under the Delaware Law, any stockholder, upon making a written demand
under oath stating a purpose reasonably related to such person's interest as a
stockholder, has the right to inspect a corporation's stock ledger, a list of
its stockholders and its other books and records and to make copies or extracts
therefrom. Additionally, holders of Tylan General Common Stock may inspect and
copy Tylan General's proxy
88
<PAGE> 100
statements, reports and other information as filed with the Commission and the
National Association of Securities Dealers, Inc. See "Available Information."
Limitation of Liability of Directors. Under both the Texas Law and the
Delaware Law, a corporation's articles of incorporation or certificate of
incorporation may contain a provision which, subject to the limitations
described below, would limit or eliminate a director's personal liability to the
corporation or its stockholders for monetary damages for breach of his or her
fiduciary duty. The Texas Miscellaneous Corporation Laws Act, prohibits the
limitation of liability of a director (i) for any breach of a director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve knowing misconduct or a knowing violation of law,
(iii) for a transaction from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office or (iv) for an act or omission for which the liability of a
director is expressly provided by an applicable statute. The Delaware Law
prohibits the limitation of liability of a director (i) for breaches of the duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (iii) for transactions from which the director derived an improper
personal benefit or (iv) for the payment of unlawful dividends or expenditures
of funds for unlawful stock purchases or redemptions. The Tylan General
Certificate provides that no director shall be monetarily liable for any amount
in any proceeding brought by or in the right of the corporation or brought by or
on behalf of the stockholders of Tylan General. Neither the Span Articles nor
the Span Bylaws provide for limitations on liability of directors.
Indemnification. Under the Texas Law, a corporation may indemnify its
directors, officers, employees and agents and purchase and maintain liability
insurance for those persons. The Delaware Law contains provisions setting forth
conditions under which a corporation may indemnify its directors, officers, and
employees. The Delaware Law provides for indemnification if the person acted in
good faith and in a manner he or she believed to be in, or at least not opposed
to, the best interest of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe the conduct was
unlawful. Under Delaware law, indemnification of officers, directors and
employees is permissive; provided, however, that an officer, director, employee
or agent of a corporation shall be indemnified against expenses if he or she is
successful on the merits or otherwise in defense of any action, suit or
proceeding by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, unless limited by its certificate of
incorporation. Under the Delaware Law, a corporation may not indemnify a
director, officer, employee or agent of the corporation in connection with a
proceeding by or in the right of the corporation in which the director, officer,
employee or agent was adjudged liable to the corporation. The Delaware Law,
however, permits indemnification in such a case if the Delaware Court of
Chancery or the court in which such action or suit was brought determines that
the person is fairly and reasonably entitled to indemnification.
The Tylan General Certificate provides that Tylan General shall indemnify
its directors to the full extent permitted by law. Tylan General has also
entered into indemnification agreements with its officers and directors. The
Span Articles do not provide for indemnification of directors or officers.
Stockholder Approval of Certain Corporate Transactions. The sale, lease,
exchange or disposition of all, or substantially all, of the assets of a Texas
corporation, not in the ordinary course of business, as well as any merger or
share exchange, generally must be recommended by the Board of Directors and
approved by the vote of sixty-six and two-thirds percent (66 2/3%) of the shares
entitled to vote on such matters. Under the Texas Law, approval by the
shareholders of a plan of merger is not required if (i) the corporation is the
sole surviving corporation in the merger, (ii) the articles of the corporation
will not differ from its articles before the merger, (iii) each shareholder
whose shares were outstanding immediately before the effective date of the
merger will hold the same number of shares, with identical designations,
preferences, limitations and relative rights, immediately after the effective
date of the merger, (iv) the voting power of the number of voting shares
outstanding immediately after the merger, plus the voting power of the number of
voting shares issuable as a result of the merger, will not exceed by more than
twenty percent (20%) the voting power of the total number of voting shares
outstanding immediately before the merger, (v) the number of participating
shares outstanding immediately after the merger, plus the number of
participating shares issuable as a result of the merger, will not exceed by more
than twenty percent (20%) the number of participating shares outstanding
89
<PAGE> 101
immediately before the merger and (vi) the board of directors of the corporation
adopts a resolutions approving the plan of merger. The Delaware Law has similar
provisions restricting the right of stockholder approval by the surviving
corporation if (i) the merger effects no material amendments to the charter of
the surviving corporation and (ii) stockholders of the surviving corporation who
had shares before the merger will hold the same number of shares, with identical
rights, immediately after the merger.
Business Combinations. A provision of the Delaware Law prohibits certain
transactions between a Delaware corporation and an "interested stockholder." An
"interested stockholder," for purposes of this Delaware Law provision, is a
stockholder that is directly or indirectly a beneficial owner of 15% or more of
the voting power of the outstanding voting stock of a Delaware corporation (or
its affiliate or associate). This provision prohibits certain business
combinations between an interested stockholder and a corporation for a period of
three years after the date the interested stockholder acquired its stock unless
(i) the business combination is approved by the corporation's board of directors
prior to the stock acquisition date; (ii) the interested stockholder acquired at
least 85% of the voting stock of the corporation in the transaction in which
such stockholder became an interested stockholder; or (iii) the business
combination is approved by a majority of the board of directors and the
affirmative vote of two-thirds of disinterested stockholders. Although a
Delaware corporation may elect, pursuant to its certificate of incorporation or
bylaws, not to be governed by this provision, the Tylan General Certificate and
Tylan General Bylaws contain no such election or other limitation on the
applicability of this provision. No similar statute currently exists under Texas
law.
90
<PAGE> 102
EXPERTS
The consolidated financial statements of Tylan General as of October 31,
1994 and 1995, and for each of the years in the three-year period ended October
31, 1995, included in this Prospectus/Joint Proxy Statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and are included in reliance upon the report of such firm, given upon
their authority as experts in accounting and auditing.(1)
The consolidated financial statements and schedule of Span and subsidiary
at August 31, 1995, and for the year then ended, appearing in this
Prospectus/Joint Proxy Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and are included in reliance upon such report, given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements and schedule of Span and subsidiary
at August 31, 1994 and for the two years in the period then ended, appearing in
this Prospectus/Joint Proxy Statement have been audited by Grace, Pulliam &
Patterson Company, P.C., independent auditors, as set forth in their report
thereon appearing elsewhere herein and are included in reliance upon such
report, given upon the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for Tylan General by Cooley Godward Castro Huddleson & Tatum, San Diego,
California. Certain legal matters in connection with the Merger will be passed
upon for Span by Gardere & Wynne, L.L.P., Dallas, Texas.
- ---------------
(1) On January 4, 1996, Tylan General dismissed the firm of Deloitte & Touche
LLP as its auditors and engaged Ernst & Young LLP to audit its financial
statements for the fiscal year ending October 31, 1996. Tylan General
previously reported the change in its certifying accountant in a Current
Report on Form 8-K dated as of January 4, 1996.
91
<PAGE> 103
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TYLAN GENERAL, INC.
AUDITED FINANCIAL STATEMENTS:
Report of Independent Auditors................................................... F-2
Consolidated Balance Sheets as of October 31, 1994 and 1995...................... F-3
Consolidated Statements of Income for the Years Ended October 31, 1993, 1994 and
1995............................................................................ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended October 31,
1993, 1994 and 1995............................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended October 31, 1993, 1994
and 1995....................................................................... F-6
Notes to Consolidated Financial Statements....................................... F-7
UNAUDITED FINANCIAL STATEMENTS:
Unaudited Consolidated Balance Sheet as of April 30, 1996........................ F-17
Unaudited Consolidated Statements of Income for the Six Months Ended April 30,
1995 and 1996................................................................... F-18
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended April
30, 1995 and 1996............................................................... F-19
Notes to Unaudited Consolidated Financial Statements............................. F-20
SPAN INSTRUMENTS, INC.
Report of Independent Auditors...................................................... F-21
Report of Independent Auditors...................................................... F-22
Consolidated Balance Sheets as of August 31, 1994 and 1995 and April 30, 1996
(unaudited)...................................................................... F-23
Consolidated Statements of Operations for the Years Ended August 31, 1993, 1994 and
1995, for the Two Months Ended October 31, 1995 (unaudited) and for the Six
Months Ended April 30, 1995 and 1996 (unaudited)................................. F-24
Consolidated Statements of Shareholders' Equity for the Years Ended August 31, 1993,
1994 and 1995, for the Two Months Ended October 31, 1995 (unaudited) and for the
Six Months Ended April 30, 1996 (unaudited)...................................... F-25
Consolidated Statements of Cash Flows for the Years Ended August 31, 1993, 1994 and
1995 and for the Six Months Ended April 30, 1995 and 1996 (unaudited)............ F-26
Notes to Consolidated Financial Statements.......................................... F-27
</TABLE>
F-1
<PAGE> 104
TYLAN GENERAL, INC.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Tylan General, Inc.:
We have audited the accompanying consolidated balance sheets of Tylan
General, Inc. and its subsidiaries (the "Company") as of October 31, 1994 and
1995, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended October 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at October 31, 1994
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended October 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993.
DELOITTE & TOUCHE LLP
San Diego, California
December 13, 1995
F-2
<PAGE> 105
TYLAN GENERAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31
-------------------
1994 1995
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................................... $ 1,471 $15,148
Accounts receivable (Note 4)........................................... 8,063 14,245
Inventories (Note 4)................................................... 7,728 11,903
Prepaid expenses and other............................................. 739 1,035
Deferred income taxes (Note 8)......................................... 1,152 1,517
------- -------
Total current assets........................................... 19,153 43,848
PROPERTY (Note 4)........................................................ 3,987 11,140
GOODWILL (Notes 3 and 4)................................................. 2,635 2,505
DEFERRED INCOME TAXES (Note 8)........................................... 750 385
OTHER ASSETS............................................................. 988 963
------- -------
TOTAL.................................................................... $27,513 $58,841
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................................... $ 4,616 $ 7,571
Accrued expenses (Note 4).............................................. 2,398 4,514
Borrowings under line of credit (Note 5)............................... 2,578
Current portion of long-term debt (Note 5)............................. 1,013 881
Income taxes payable (Note 8).......................................... 514 1,551
------- -------
Total current liabilities...................................... 11,119 14,517
LONG-TERM DEBT (Note 5).................................................. 5,079 1,649
------- -------
Total liabilities.............................................. 16,198 16,166
------- -------
COMMITMENTS AND CONTINGENCIES (Notes 6, 9 and 12)
COMMON STOCK WARRANT (Note 5)............................................ 717
STOCKHOLDERS' EQUITY (Note 10):
Convertible preferred stock:
-- Class B and D; authorized -- 2,000,000 shares, no par value,
issued and outstanding -- 1,208,201 shares....................... 8,235
-- authorized -- 10,000,000 shares, par value $.001, issued and
outstanding -- 0 shares..........................................
Common stock:
-- authorized -- 5,000,000 shares, no par value, issued and
outstanding -- 1,334,508 shares.................................. 165
-- authorized -- 50,000,000 shares, par value $.001, issued and
outstanding -- 6,476,228 shares.................................. 6
Paid-in capital.......................................................... 35,813
Retained earnings........................................................ 1,929 6,622
Cumulative translation adjustment........................................ 269 234
------- -------
Total stockholders' equity..................................... 10,598 42,675
------- -------
TOTAL.................................................................... $27,513 $58,841
======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 106
TYLAN GENERAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
NET SALES..................................................... $33,465 $48,079 $75,825
COST OF SALES................................................. 18,919 28,908 42,814
------- ------- -------
Gross profit........................................ 14,546 19,171 33,011
------- ------- -------
OPERATING EXPENSES:
Sales and marketing......................................... 6,026 7,357 10,730
General and administrative.................................. 3,873 4,677 7,080
Research and development.................................... 2,039 2,395 5,126
Amortization, primarily goodwill............................ 354 399 489
------- ------- -------
Total operating expenses............................ 12,292 14,828 23,425
------- ------- -------
INCOME FROM OPERATIONS........................................ 2,254 4,343 9,586
------- ------- -------
OTHER INCOME (EXPENSE):
License revenue............................................. 243
Interest expense -- net..................................... (1,148) (1,327) (640)
Foreign currency exchange gain (loss)....................... 317 110 (59)
Other -- net................................................ (62) (64) (180)
------- ------- -------
Total other income (expense)........................ (650) (1,281) (879)
------- ------- -------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.................... 1,604 3,062 8,707
PROVISION FOR INCOME TAXES.................................... (854) (613) (3,319)
------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE.............................. 750 2,449 5,388
EXTRAORDINARY ITEM, NET OF INCOME TAX BENEFIT................. (137) (695)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES.... 416
------- ------- -------
NET INCOME APPLICABLE TO COMMON
STOCKHOLDERS................................................ $ 1,029 $ 2,449 $ 4,693
======= ======= =======
EARNINGS PER SHARE DATA (Note 1):
Earnings per share before extraordinary item and cumulative
effect of change in accounting principle................. $ .61 $ 1.04
======= =======
Earnings per share.......................................... $ .61 $ .90
======= =======
Weighted average common and common equivalent shares
outstanding.............................................. 4,000 5,189
======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 107
TYLAN GENERAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CUMULATIVE
----------------- ---------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ------- ------ ------ ------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1992................ 1,208 $ 8,235 1,293 $ 94 $ (1,549) $ 162 $ 6,942
Options exercised...................... 26 23 23
Net income............................. 1,029 1,029
Translation adjustment................. (380) (380)
------ ------- ----- ----- ------- ------- ----- -------
BALANCE, OCTOBER 31, 1993................ 1,208 8,235 1,319 $ 117 (520) (218) 7,614
Issuance of common stock............... 16 48 48
Net income............................. 2,449 2,449
Translation adjustment................. 487 487
------ ------- ----- ----- ------- ------- ----- -------
BALANCE, OCTOBER 31,1994................. 1,208 8,235 1,335 165 1,929 269 10,598
Reincorporation in Delaware............ (164 ) $ 164
Conversion of preferred stock.......... (1,208) (8,235) 1,550 2 8,233
Exercise of warrant.................... 888 1 716 717
Public stock offering.................. 2,550 2 25,850 25,852
Employee stock purchases............... 36 218 218
Option exercises....................... 117 632 632
Net income............................. 4,693 4,693
Translation adjustment................. (35) (35)
------ ------- ----- ----- ------- ------- ----- -------
BALANCE, OCTOBER 31, 1995................ $ 6,476 $ 6 $35,813 $ 6,622 $ 234 $42,675
====== ======= ===== ===== ======= ======= ===== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 108
TYLAN GENERAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................ $ 1,029 $ 2,449 $ 4,693
Adjustments to reconcile net income to net cash provided by operating
activities:
Cumulative effect of change in accounting for income taxes.......... (416)
Write-off of unamortized deferred issuance cost..................... 949
Depreciation and amortization....................................... 1,717 1,933 2,022
Deferred rent expense............................................... (10) (54)
Deferred income taxes............................................... 183 (200)
Net loss of Korean Joint Venture.................................... 149
Change in assets and liabilities:
Accounts receivable............................................... (954) (1,571) (6,170)
Inventories....................................................... (2,422) (300) (4,006)
Prepaid expenses and other........................................ 138 (377) (379)
Accounts payable and other liabilities............................ 1,027 1,039 6,501
------- ------- -------
Net cash provided by operating activities...................... 292 2,973 3,705
======= ======= =======
INVESTING ACTIVITIES:
Capital expenditures.................................................. (1,115) (1,294) (7,511)
Proceeds from sale of assets.......................................... 58 37
Collection on note receivable......................................... 34
Investment in subsidiaries............................................ (497)
Acquisition of other assets, primarily technology rights.............. (418)
------- ------- -------
Net cash used for investing activities......................... (1,023) (1,675) (8,008)
------- ------- -------
FINANCING ACTIVITIES:
Net repayments under line of credit................................... (4) (769) (2,578)
Proceeds from long-term debt.......................................... 4,352 1,138 933
Repayments of long-term debt.......................................... (2,921) (250) (5,564)
Repayments of capital leases.......................................... (105) (361) (536)
Proceeds from exercise of stock options and employee stock
purchases........................................................... 23 359
Proceeds from public stock offerings.................................. 25,852
Translation adjustment and other...................................... (472) (43) (486)
------- ------- -------
Net cash provided by (used for) financing activities........... 873 (285) 17,980
------- ------- -------
INCREASE IN CASH........................................................ 142 1,013 13,677
CASH AT BEGINNING OF YEAR............................................... 316 458 1,471
------- ------- -------
CASH AT END OF YEAR..................................................... $ 458 $ 1,471 $15,148
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................................ $ 1,159 $ 1,046 $ 994
Income taxes, net of refunds........................................ $ 272 $ 1,014 $ 1,778
SUPPLEMENTAL INFORMATION OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued in connection with the acquisition of technology
rights.............................................................. $ 48
Sale of inventory for note receivable................................. $ 265
Capital lease obligations incurred for various machinery and
equipment........................................................... $ 649 $ 768 $ 699
Warrants issued in connection with subordinated debt.................. $ 717
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 109
TYLAN GENERAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company -- The Company designs, manufactures and markets precision mass
flow controllers, gas panels and pressure measurement and control
instrumentation. The Company's products are used primarily in integrated circuit
fabrication and also in other manufacturing processes, such as flat panel
display and fiber optic cable fabrication.
International sales accounted for 41.4%, 38.9% and 33.8% of sales for
fiscal 1993, 1994 and 1995, respectively. One customer individually accounted
for 18.1%, 18.9% and 20.0% of sales for fiscal 1993, 1994 and 1995,
respectively. In addition, a second customer individually accounted for 11.0% of
sales for fiscal 1995.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Tylan General, Inc. (formerly Vacuum General, Inc.) and
its wholly-owned subsidiaries, Vacuum General Export Corp. and Tylan General TCA
Corporation (formerly Tylan Corporation, which was merged with Tylan General,
Inc. in 1994), including its wholly owned subsidiaries, (i) Tylan General UK
Ltd., (ii) Tylan General TCA GmbH, (iii) Tylan General SARL, (iv) Tylan General
K.K., (v) Tylan General Korea Ltd., and (vi) Hanyang General Co., Ltd.,
collectively referred to herein as the "Company." All significant intercompany
balances and transactions have been eliminated in consolidation.
Fiscal Year -- For ease of presentation, the Company has indicated its
fiscal year as ending on October 31; whereas, in fact, the Company reports on a
52-53 week fiscal year ending on the Sunday closest to October 31. Fiscal 1993,
1994 and 1995 each included 52 weeks.
Investment in Korean Joint Venture -- In October, 1995, the Company
purchased the remaining 50% of the outstanding shares of stock of Hanyang
General Co., LTD. Prior to October, 1995, the Company was a 50% owner of Hanyang
General Co., LTD., a corporate joint venture with Hanyang Engineering Co., LTD.
Beginning in October 1995, Hanyang General Co., LTD.'s financial statements were
consolidated with the Company's financial statements. Prior to October 1995, the
Company's investment in the corporate joint venture was accounted for on the
equity method.
Concentration of Credit Risk -- The Company invests its excess cash in
money market accounts. The Company has not experienced any losses on its cash
accounts. The Company sells its product to customers primarily in the United
States, Europe and Asia. The Company maintains a reserve for potential credit
losses and such losses have been minimal.
Foreign Currency Translation -- All assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at the rates of exchange in effect
at the close of the period. The aggregate effect of translating the balance
sheets is included as a separate component of stockholders' equity entitled
"Cumulative Translation Adjustment." Revenues and expenses are translated into
U.S. dollars at the average rates of exchange during the period. Gains and
losses resulting from foreign currency transactions are included in net income.
Financial Instruments -- The Company periodically enters into foreign
currency futures contacts for the purpose of hedging foreign exchange risk on
certain transactions, primarily intercompany receivables and payables with its
foreign subsidiaries. The primary exposures for the Company are denominated in
European currencies and the Japanese yen. The Company does not engage in
financial instrument transactions for trading purposes. The counterparty to the
Company's contracts is a substantial and creditworthy financial institution. The
risk of counterparty default associated with these contracts is not considered
by the Company to be material.
At October 31, 1995 the Company had foreign exchange forward contracts to
buy $1,200,000 of Japanese yen, maturing in December 1995. These contracts had a
carrying value of $100,000 which approximated their fair value.
F-7
<PAGE> 110
TYLAN GENERAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories -- Inventories are stated at cost, which is less than market
value at October 31, 1994 and 1995, cost being determined by the first-in,
first-out method.
Property -- Property is stated at cost less accumulated depreciation and
amortization, which is computed using the straight-line method. Machinery and
equipment and furniture and fixtures are depreciated generally over five years
while equipment under capital leases and leasehold improvements are amortized
over the shorter of the estimated life or related lease term. Expenditures for
replacements and betterments are capitalized, while expenditures for repairs and
maintenance are charged to expense as incurred.
License Agreements -- License agreements are stated at cost less related
amortization. Costs are amortized over the useful lives of license agreements,
generally three to ten years, using the straight-line method.
Evaluation of License Agreements and Goodwill -- The Company's policy is to
evaluate, at each balance sheet date, the appropriateness of the carrying values
of the unamortized balances of license agreements and goodwill (Note 3) on the
basis of estimated future cash flows (undiscounted) and other factors. If such
evaluation were to indicate a material impairment of these intangible assets,
such impairment would be recognized by a writedown of the applicable asset.
Revenue Recognition -- Revenue from product sales is recognized upon
shipment.
Research and Development -- Research and development costs are expensed in
the period incurred.
Income Taxes -- Effective November 1, 1992, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Such adoption resulted in the recording of a benefit from the
cumulative effect of change in accounting principle totalling $416,000 and a
reduction in goodwill totalling $1,469,000 during 1993 (see Notes 3 and 8).
Earnings Per Share -- Earnings per share is computed based on the weighted
average number of common and common equivalent shares outstanding during each
period using the treasury stock method and it assumes conversion of all
outstanding convertible preferred stock and the exercise of all outstanding
warrants. Stock options, convertible preferred stock and warrants are considered
to be common stock equivalents. All shares of common stock and common stock
equivalents issued within twelve months of an initial public offering at a price
per share less than the offering price ($7.00) are considered to be outstanding
for all periods presented in the same manner as a stock split. Accordingly, all
shares of common stock and common stock equivalents issued subsequent to January
1994 and prior to January 1995 at a price per share below $7.00 are considered
to be outstanding.
2. RECAPITALIZATION
In January 1995, the Company effected a recapitalization whereby it
reincorporated in the State of Delaware and the number of common and preferred
shares authorized was increased to 50,000,000 and 10,000,000, respectively, at
$.001 par value per share. Immediately prior to such recapitalization, a warrant
to purchase 887,845 shares of common stock was exercised for nominal proceeds.
On February 2, 1995, all outstanding preferred stock was converted into an
aggregate of 1,550,002 common shares and the proceeds to the Company from the
sale of 1,300,000 newly issued shares, net of underwriting commissions and
expenses, of $7.4 million were received.
The initial public offering consisted of 2,300,000 shares (including the
underwriters over-allotment option of 300,000 shares which was exercised in
March 1995) of common stock which was sold at $7 per share. Of the 2,300,000
shares, 1,000,000 shares were sold by existing stockholders and 1,300,000 shares
were sold by the Company.
F-8
<PAGE> 111
TYLAN GENERAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October, the Company received proceeds of $18.5 million, net of
underwriting commissions and expenses, from a secondary offering consisting of
1,725,000 shares (including the underwriters over-allotment option of 225,000
shares) of common stock which was sold at $16 per share. Of the 1,725,000
shares, 475,000 shares were sold by existing stockholders and 1,250,000 shares
were sold by the Company.
3. GOODWILL
On October 5, 1989, Tylan General, Inc., (formerly Vacuum General, Inc.)
purchased all of the outstanding shares of common stock of Tylan. The purchase
price exceeded the net assets acquired by $6,592,000. This excess was recorded
as goodwill and is being amortized on a straight-line basis over 15 years. In
October 1995, the Company purchased the remaining 50% of the outstanding shares
of stock of Hanyang General Co., LTD., the Company's Korean joint venture. The
purchase price exceeded the net assets acquired by $140,000. This excess was
recorded as goodwill and is being amortized on a straight-line basis over five
years (Note 4). Goodwill has been reduced for certain tax benefits utilized in
1992 of $63,000 and deferred tax assets recognized in 1993 of $1,469,000 (Note
8).
4. BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
ACCOUNTS RECEIVABLE:
Accounts receivable -- trade................................... $ 8,249 $14,558
Less allowance for doubtful accounts........................... (186) (313)
------- -------
Total.................................................. $ 8,063 $14,245
======= =======
INVENTORIES:
Raw materials.................................................. $ 3,812 $ 6,535
Work in process................................................ 1,158 1,611
Finished goods................................................. 2,758 3,757
------- -------
Total.................................................. $ 7,728 $11,903
======= =======
PROPERTY -- at cost:
Machinery and equipment........................................ $ 5,255 $ 8,290
Furniture and fixtures......................................... 3,013 4,603
Leasehold improvements......................................... 1,669 5,240
------- -------
9,937 18,133
Less accumulated depreciation and amortization................. (5,950) (6,993)
------- -------
Total.................................................. $ 3,987 $11,140
======= =======
GOODWILL:
Goodwill....................................................... $ 4,598 $ 4,738
Less accumulated amortization.................................. (1,963) (2,233)
------- -------
Total.................................................. $ 2,635 $ 2,505
======= =======
ACCRUED EXPENSES:
Compensation................................................... $ 1,236 $ 2,189
Other.......................................................... 1,162 2,325
------- -------
Total.................................................. $ 2,398 $ 4,514
======= =======
</TABLE>
F-9
<PAGE> 112
TYLAN GENERAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DEBT
Loan and Security Agreement -- The Company has a loan and security
agreement with a bank, which provides for an overall credit limit of $7,500,000
and matures in June 1996. The agreement includes a $4,000,000 line of credit and
a $3,500,000 term loan facility. As of October 31, 1995, there were no amounts
outstanding under the agreement. Interest is payable monthly at prime plus .25%
(9.00% at October 31, 1995) for the line of credit and prime plus 1.00% (9.75%
at October 31, 1995) for the term loan facility. The agreement also provides for
the issuance of letters of credit not to exceed an aggregate of $2,500,000. The
agreement contains financial covenants including the requirement that the
Company maintain minimum levels of working capital and tangible net work, a
quick asset ratio of not less than .70 to 1 and a debt to tangible net worth
ratio of not more than 1.50 to 1. As of October 31, 1995, the Company was in
compliance with all covenants.
Long-Term Debt Summary -- Long-term debt is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Subordinated notes -- $5,000 face value due November 15, 1999;
interest payable monthly at 12% per year; quarterly principal
installments of $250 beginning January 1, 1996; less unamortized
discount of $996................................................. $4,004
Bank term loan -- payable in quarterly principal installments of
$125 plus interest at prime plus 2.5% (10.25% at October 31,
1994) through August 1995........................................ 500
Bank term loan (Tylan General K.K.) -- payable in quarterly
principal installments of $20 plus interest at 3.75% per year
through November 1999............................................ 413 $ 334
Bank term loan (Tylan General K.K.) -- payable in monthly principal
installments of $29 plus interest at 2.6% per year through June,
1997............................................................. 865
Unsecured promissory notes -- payable in monthly installments
through October 1995, interest at 10% per year................... 58
Capital lease obligations with weighted average yearly interest
rates of 11.1% and 11.6% respectively (Note 9)................... 1,117 1,331
------- ------
Total.............................................................. 6,092 2,530
Less current portion............................................... (1,013) (881)
------- ------
Long-term debt..................................................... $5,079 $1,649
======= ======
</TABLE>
Subordinated Notes -- In connection with the issuance of the subordinated
notes the Company issued a ten-year warrant to purchase 887,845 shares of the
Company's common stock, as adjusted. The value of the warrant ($717,000) was
recorded as a deferred issuance cost and was amortized over the maturity period
of the notes under the interest method. In January, 1995, the warrant was
exercised and in February 1995, the Company redeemed the subordinated notes with
proceeds from the Company s initial public offering (Notes 7 & 10).
F-10
<PAGE> 113
TYLAN GENERAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt repayments (excluding capital leases) as of October 31, 1995
are summarized as follows in thousands):
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31,
--------------------------------------------------------------------
<S> <C>
1996................................................................ $ 432
1997................................................................ 589
1998................................................................ 79
1999................................................................ 79
2000................................................................ 20
------
$1,199
======
</TABLE>
6. LICENSE, MARKETING AND ADVISORY AGREEMENTS
License Agreements -- The Company had an exclusive license to technology
held by Vacuum Marketing and Research Associates, a partnership that includes
certain officers and directors of the Company. The terms of the agreement
provided the Company with the option to purchase the technology for cash of
$380,000 or a combination of cash and stock in an equivalent amount. The
agreement provided that the Company pay royalties in the amount of 3% on sales
of products incorporating the technology. Royalty expense under this arrangement
totalled approximately $121,700 and $50,900 in fiscal 1993 and 1994,
respectively. In May 1994, the Company exercised its option to purchase the
technology. The purchase price of $380,000 was paid with 13,606 shares of common
stock and cash of $332,376.
Marketing and License Agreement -- The Company had a marketing and license
agreement with Nippon Tylan which provided for license fee payments equal to 2%
of Nippon Tylan's net sales. As part of the agreement, Nippon Tylan loaned the
Company $700,000 at 6% as consideration for the exclusive right to market
certain products in Japan, Republic of Korea, Taiwan, Hong Kong and Singapore.
In January 1992, the agreement was amended to (a) terminate the agreement as of
September 9, 1993, (b) convert all licenses into non-exclusive and worldwide
licenses and (c) require the payoff of the $700,000 note payable. The Company
earned approximately $243,000 of license fees under this agreement in fiscal
1993.
7. EXTRAORDINARY ITEM
During fiscal 1993 and 1995, the Company paid off $2,719,000 and
$5,000,000, respectively, of debt prior to its scheduled maturity date. The
early payoffs resulted in extraordinary losses of $137,000, net of $91,000
income tax benefit in 1993, and $695,000, net of $504,000 income tax benefit in
1995 (Note 5).
8. INCOME TAXES
Effective November 1, 1992, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" under which
deferred tax assets and liabilities are determined using presently enacted tax
rates, and net deferred tax assets are recognized to the extent their
realization is more likely than not. As a result of the adoption of SFAS No.
109, the Company recorded in 1993 a benefit from the cumulative change in
accounting principle equal to $416,000 and a reduction in goodwill equal to
$1,469,000.
F-11
<PAGE> 114
TYLAN GENERAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision for income taxes are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------
1993 1994 1995
---- ---- ------
<S> <C> <C> <C>
Current Income taxes
Federal................................................... $192 $352 $ 617
State..................................................... 102 151 317
Foreign................................................... 286 463 1,881
---- ---- ----
Total............................................. 580 966 2,815
---- ---- ----
Deferred Income taxes
Federal................................................... 194 235 83
State..................................................... (11) 3 (83)
---- ---- ----
Total............................................. 183 238 0
---- ---- ----
Reduction in valuation allowance............................ (591)
Tax benefit of extraordinary item........................... 91 504
---- ---- ----
Provision for income taxes.................................. $854 $613 $3,319
==== ==== ====
</TABLE>
The provision for income taxes is different from that which would be
obtained by applying the statutory Federal income tax rate (34%) to income
before income taxes. The items causing this difference are as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------
1993 1994 1995
---- ----- ----
<S> <C> <C> <C>
Provision at statutory rate................................... 34.0% 34.0% 34.0%
Goodwill amortization......................................... 5.9 3.0 1.0
Foreign provision in excess of (less than) Federal statutory
rate........................................................ .7 (4.2) 5.3
State Income taxes, net of Federal benefit.................... 4.2 3.3 1.9
Reduction in valuation allowance, net of write-offs........... (19.3)
Other......................................................... 8.4 3.2 (.3)
Tax credits................................................... (3.8)
---- ----- ----
53.2% 20.0% 38.1%
==== ===== ====
</TABLE>
Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for reporting and the
amounts used for income tax purposes. The tax effects of items comprising the
Company's net deferred tax assets are as follows at October 31, 1994 and 1995
(in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Net operating loss carry forwards.................................. $ 808 $ 539
Tax credit carry forwards.......................................... 155 270
Reserves currently not deductible.................................. 343 220
Accrued expenses................................................... 186 127
Differences between book and tax basis of inventory................ 261 615
Differences between book and tax basis of fixed assets............. 143 48
Other.............................................................. 6 83
------ ------
Net deferred tax assets............................................ $1,902 $1,902
====== ======
</TABLE>
F-12
<PAGE> 115
TYLAN GENERAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company had available a federal net operating loss carryforward of
$1,580,000 at October 31, 1995. The NOL carryforwards may be utilized to offset
taxable earnings up to an annual limitation of approximately $800,000. The NOL
carryforwards expire principally in the years 2001 and 2002. For financial
statement purposes, any benefits realized in future periods from the NOL
carryforwards will represent a reduction of the related deferred tax assets. The
tax credit carryforwards expire principally in the years 2001 and 2002.
Income tax benefits resulting from the exercise of non-qualified stock
options are recorded directly to paid-in-capital. Such benefits totalled
$491,000 for the year ended October 31, 1995.
9. LEASES
The Company leases its facilities and certain equipment under capital and
operating leases that expire at various dates through 2009. Certain facility
leases include provisions for inflation escalation adjustments, requirements for
the payment of property taxes, insurance and maintenance expenses as well as
5-year renewal options. Rent expense under operating leases for fiscal 1993,
1994 and 1995 was approximately $1,271,000, $1,421,000 and $1,607,000,
respectively.
The net book value of assets under capitalized leases at October 31, 1994
and 1995 was approximately $950,000 and $1,279,000 net of accumulated
amortization of approximately $390,000 and $835,000, respectively.
Future minimum lease payments under capital and operating leases as of
October 31, 1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31, CAPITAL OPERATING
----------------------------------------------------------------- ------- ---------
<S> <C> <C>
1996............................................................. $ 575 $ 1,852
1997............................................................. 334 2,066
1998............................................................. 325 1,789
1999............................................................. 320 1,646
Thereafter....................................................... 81 2,904
------ -------
Total............................................................ 1,635 $10,257
=======
Less amount representing interest................................ (304)
------
Present value of minimum lease payments (Note 5)................. 1,331
Less current portion............................................. (449)
------
Long-term obligations under capital leases....................... $ 882
======
</TABLE>
10. CAPITAL STOCK
Series B and D Convertible Preferred Stock -- At October 31, 1994 there
were 60,000 shares of Series B and D preferred stock outstanding. Each share of
Series B and D preferred stock (i) was voting, (ii) was convertible at the
option of the holder into common stock, (iii) was entitled to preference in
liquidation equal to $5.04 per share plus declared and unpaid dividends and then
participated equally with common stock, up to a maximum of $20.16 per share for
Series B preferred stock, (iv) would automatically convert into common stock
immediately upon effectiveness of a registration statement under the Securities
Act of 1933 of common stock with a minimum per share price of $10.08 and net
proceeds of $22,400,000 and (v) had certain anti-dilutive protections as
defined. In February 1994 immediately following the close of the Company's
initial public offering, all outstanding preferred stock was converted into an
aggregate of 1,550,002 common shares.
Stock Option Plan -- The Company's 1989 Stock Option plan provided that
non-qualified options to purchase up to 380,500 shares of common stock could be
granted to employees and others to purchase
F-13
<PAGE> 116
TYLAN GENERAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock at a price per share determined by the Board of Directors, which
approximated market value. In June 1994, the Company terminated the 1989 plan as
to new issuances and adopted the 1994 Stock Option Plan. Such plan provides that
incentive and non-qualified options to purchase up to 539,000 shares of common
stock may be granted to certain employees, directors, and consultants. Incentive
stock options are to be granted at prices not less than the fair market value at
the date of grant. Non-qualified stock options and options granted to
individuals possessing 10% or more of the total combined voting power of all
classes of stock are to be granted at prices not less than 85% and 110%,
respectively, of the fair market value. Options, issued under the plan,
generally vest over a period of five years from the date of grant and expire ten
years from the date of grant.
In December 1994, the 1994 Non-Employee Directors Stock Option Plan (the
"Directors Plan") was adopted by the Board of Directors and approved by the
stockholders. The Directors Plan provides for the automatic grant of options to
purchase shares of common stock to non-employee directors of the Company. The
maximum number of shares of common stock that may be issued pursuant to options
granted under the Directors Plan is 75,000. As of October 31, 1995, options to
purchase an aggregate of 30,000 shares were outstanding.
The following is a summary of all stock options activity for fiscal 1993,
1994 and 1995:
<TABLE>
<CAPTION>
NUMBER PRICE
OF SHARES PER SHARE
--------- ------------
<S> <C> <C>
October 31, 1992........................................... 253,821 $ .90-$ 3.50
Options canceled or expired.............................. (22,000) $ .90-$ 3.50
Exercised................................................ (25,500) $.90
Granted.................................................. 104,000 $.90
--------
October 31, 1993........................................... 310,321 $.90
Options canceled or expired.............................. (600) $.90
Exercised................................................ (2,400) $.90
Granted.................................................. 149,324 $3.50-$ 5.04
--------
October 31, 1994........................................... 456,645 $ .90-$ 5.04
Exercised................................................ (117,300) $ .90-$ 5.04
Granted.................................................. 346,950 $5.04-$15.75
--------
October 31, 1995........................................... 686,295 $ .90-$15.75
========
</TABLE>
At October 31, 1995, 86,550 shares remained available for grant under the
1994 Stock Option Plan and 45,000 shares remained available under the 1994
Non-Employee Directors Stock Option Plan. As options have been granted at fair
market value, no accounting recognition is given to stock options until they are
exercised, at which time the proceeds are credited to the capital accounts.
F-14
<PAGE> 117
TYLAN GENERAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. GEOGRAPHIC INFORMATION
Sales and operating income (loss) for the years ended October 31, 1993,
1994 and 1995, and identifiable assets at October 31, 1993, 1994 and 1995,
classified by geographic area, were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net sales:
United States....................................... $22,201 $32,016 $51,299
Europe.............................................. 7,172 9,358 11,578
Asia................................................ 4,092 6,705 12,948
------- ------- -------
Total....................................... $33,465 $48,079 $75,825
======= ======= =======
Income from operations
United States....................................... $ 1,346 $ 3,120 $ 5,490
Europe.............................................. 1,097 1,284 1,816
Asia................................................ (189) (61) 2,280
------- ------- -------
Total....................................... $ 2,254 $ 4,343 $ 9,586
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C> <C>
Identifiable assets:
United States....................................... $17,727 $42,395
Europe.............................................. 4,872 8,187
Asia................................................ 4,914 8,259
------- -------
Total....................................... $27,513 $58,841
======= =======
</TABLE>
Intercompany sales between geographic areas totalled $6,015,000, $8,393,000
and $11,794,000 for the years ended October 31, 1993, 1994 and 1995,
respectively. These sales represent primarily export sales of U.S. produced
goods and are accounted for based on established sales prices between the
related companies.
12. EMPLOYEE PROFIT SHARING PLANS
The Company has adopted 401(k) plans for the benefit of all qualifying
employees, generally all US employees with more than three months of service.
The plans allow participants to contribute up to 15% of annual salary (not to
exceed approximately $9,240 in 1995) which is entirely tax deferred. The
employee contributions are 100% vested. Effective December 1, 1994, the Company
matches $.25 for each dollar of qualifying employee contributions, up to 6% of
such employee's gross compensation.
13. GAIN-SHARING PLAN
In April 1995, the Company adopted a gain-sharing plan (the "Gain-Sharing
Plan") which allows eligible employees to earn incentive compensation of up to
10% of their annual salary based on the Company's performance against certain
goals and objectives. Eligible employees under the Gain-Sharing Plan are regular
or temporary employees who have been employed for a full quarter in the United
States and who are not participants in any other Company bonus plan. The
executive officers of the Company are not currently eligible to participate in
the Gain-Sharing Plan. Payouts under the Gain-Sharing Plan are made on a
quarterly basis. For the year ended October 31, 1995, total payments made under
the Gain-Sharing Plan were $604,000.
F-15
<PAGE> 118
TYLAN GENERAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS (Unaudited)
On November 20, 1995, the Company entered into an international distributor
agreement with Span Instruments, Inc. According to terms of the agreement, the
Company is appointed as the primary distributor for Span semiconductor products
in certain territories in Europe and Asia. As of January 22, 1996, the Company
had purchased inventories of Span products totalling approximately $3.6 million.
15. QUARTERLY COMPARISON (Unaudited)
The following tables set forth the results of operations by quarter for
1994 and 1995. This information includes all adjustments, consisting only of
normal recurring accruals, that management considers necessary for a fair
presentation of the data. The results of operations for historical periods may
not necessarily be indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31,
1994 1994 1994 1994 1995 1995 1995 1995
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $10,738 $12,375 $12,882 $12,084 $14,814 $18,717 $19,937 $22,357
Cost of sales............................. 6,756 7,293 7,505 7,354 8,518 10,547 10,975 12,774
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............................ 3,982 5,082 5,377 4,730 6,296 8,170 8,962 9,583
Operating expenses:
Sales and marketing..................... 1,573 1,843 1,830 2,111 2,116 2,701 2,894 3,019
General and administrative.............. 1,108 1,004 1,236 1,329 1,428 1,936 1,806 1,910
Research and development................ 479 557 736 623 909 1,416 1,302 1,499
Amortization, primarily goodwill........ 95 90 105 109 119 120 118 132
------- ------- ------- ------- ------- ------- ------- -------
Income from operations.................... 727 1,588 1,470 558 1,724 1,997 2,842 3,023
Other income (expense) net................ (413 ) (151 ) (322 ) (395 ) (378 ) 283 (384 ) (400 )
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes................ 314 1,437 1,148 163 1,346 2,280 2,458 2,623
Provision for income taxes................ (138 ) (28 ) (391 ) (56 ) (565 ) (958 ) (941 ) (855 )
------- ------- ------- ------- ------- ------- ------- -------
Income before extraordinary item.......... 176 1,409 757 107 781 1,322 1,517 1,768
Extraordinary item, net of income tax
benefit................................. -- -- -- -- -- (695 ) -- --
------- ------- ------- ------- ------- ------- ------- -------
Net income.............................. $ 176 $ 1,409 $ 757 $ 107 $ 781 $ 627 $ 1,517 $ 1,768
======= ======= ======= ======= ======= ======= ======= =======
Earnings per share data:
Income before extraordinary item........ $ .04 $ .35 $ .19 $ .03 $ .19 $ .25 $ .28 $ .30
Net income.............................. $ .04 $ .35 $ .19 $ .03 $ .19 $ .12 $ .28 $ .30
Weighted average common shares and
equivalents........................... 3,999 3,999 4,000 4,000 4,128 5,325 5,417 5,953
</TABLE>
F-16
<PAGE> 119
TYLAN GENERAL, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
APRIL 30,
1996
---------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................................. $ 10,288
Accounts receivable.............................................................. 18,301
Current portion of note receivable............................................... 1,300
Inventories (Note 2)............................................................. 15,290
Prepaid expenses and other....................................................... 1,399
Deferred income taxes............................................................ 1,517
-------
Total current assets.......................................................... 48,095
NOTE RECEIVABLE -- net of current portion.......................................... 2,313
PROPERTY -- net.................................................................... 13,342
GOODWILL -- net.................................................................... 2,359
DEFERRED INCOME TAXES.............................................................. 385
OTHER ASSETS....................................................................... 1,065
-------
TOTAL.............................................................................. $ 67,559
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 9,996
Accrued expenses................................................................. 4,856
Current portion of long-term debt and capital leases............................. 960
Income taxes payable............................................................. 2,211
-------
Total current liabilities..................................................... 18,023
LONG-TERM DEBT AND CAPITAL LEASES.................................................. 2,160
-------
Total liabilities............................................................. 20,183
=======
COMMITMENTS AND CONTINGENCIES (Notes 3, 4)
STOCKHOLDERS' EQUITY:
Common stock:
-- authorized -- 50,000,000 shares, par value $.001, issued and
outstanding -- 6,517,382 shares.............................................. 7
Paid-in capital.................................................................. 36,027
Retained earnings................................................................ 11,494
Cumulative translation adjustment................................................ (152)
-------
Total stockholders' equity.................................................... 47,376
-------
TOTAL.............................................................................. $ 67,559
=======
</TABLE>
See notes to unaudited consolidated financial statements
F-17
<PAGE> 120
TYLAN GENERAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
-------------------
1995 1996
------- -------
<S> <C> <C>
NET SALES................................................................ $33,531 $52,720
COST OF SALES............................................................ 19,065 30,350
------- -------
Gross profit........................................................ 14,466 22,370
------- -------
OPERATING EXPENSES:
Sales and marketing.................................................... 4,817 6,939
General and administrative............................................. 3,364 4,443
Research and development............................................... 2,325 3,298
Amortization, primarily goodwill....................................... 239 184
------- -------
Total operating expenses............................................ 10,745 14,864
------- -------
INCOME FROM OPERATIONS................................................... 3,721 7,506
------- -------
OTHER INCOME (EXPENSE):
Interest income (expense) -- net....................................... (459) 176
Foreign currency exchange gain -- net.................................. 397 14
Other -- net........................................................... (33) 204
------- -------
Total other income (expense)........................................ (95) 394
------- -------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM........................ 3,626 7,900
PROVISION FOR INCOME TAXES............................................... (1,523) (3,028)
------- -------
INCOME BEFORE EXTRAORDINARY ITEM......................................... 2,103 4,872
------- -------
EXTRAORDINARY ITEM, NET OF INCOME TAX BENEFIT............................ (695)
------- -------
NET INCOME............................................................... $ 1,408 $ 4,872
------- -------
EARNINGS PER SHARE DATA:
Earnings per share before extraordinary item........................... $ 0.45 $ 0.72
======= =======
Earnings per share..................................................... $ 0.30 $ 0.72
======= =======
Weighted average common and common equivalent shares outstanding....... 4,660 6,726
======= =======
</TABLE>
See notes unaudited to consolidated financial statements.
F-18
<PAGE> 121
TYLAN GENERAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
-------------------
1995 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................... $ 1,408 $ 4,872
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Write-off of unamortized Deferred Issuance Cost..................... 949
Depreciation and amortization....................................... 928 1,304
Deferred Income Taxes............................................... 43
Net loss of Korean joint venture.................................... 125
Change in assets and liabilities:
Accounts receivable............................................... (3,798) (4,339)
Note receivable................................................... (3,613)
Inventories....................................................... (2,139) (3,644)
Prepaid expenses and other........................................ (521) (539)
Accounts payable and other liabilities............................ 4,249 3,602
------- ------
Net cash provided by (used in) operating activities............ 1,244 (2,357)
------- ------
INVESTING ACTIVITIES:
Capital expenditures................................................... (1,313) (3,442)
------- ------
Net cash used in investing activities.......................... (1,313) (3,442)
------- ------
FINANCING ACTIVITIES:
Net repayments under line of credit.................................... (608)
Proceeds from long-term debt........................................... 300 1,200
Repayments of long-term debt........................................... (5,500) (314)
Proceeds from capital leases........................................... 482
Repayments of capital leases........................................... (262) (246)
Net proceeds from initial public offering.............................. 7,403
Proceeds from exercise of stock options and employee stock purchases... 215
Translation adjustment and other....................................... (94) 84
------- ------
Net cash provided by financing activities...................... 1,721 939
------- ------
INCREASE (DECREASE) IN CASH.............................................. 1,652 (4,860)
CASH AT BEGINNING OF PERIOD.............................................. 1,471 15,148
------- ------
CASH AT END OF PERIOD.................................................... $ 3,123 $10,288
======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................................ $ 549 $ 99
Income taxes, net of refunds........................................ $ 359 $ 2,258
</TABLE>
See notes to unaudited consolidated financial statements.
F-19
<PAGE> 122
TYLAN GENERAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements included herein have been
prepared by Tylan General, Inc. (the "Company") without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures, normally included in annual
financial statements, have been condensed or omitted pursuant to such SEC rules
and regulations; nevertheless, the management of the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended October 31, 1995 included in the Company's Form 10-K. In the opinion
of management, the consolidated financial statements included herein reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the consolidated financial position of the Company as of April
30, 1996 and the results of its operations for the six-month periods ended April
30, 1996 and 1995. The results of operations for the interim period ended April
30, 1996 are not necessarily indicative of the results which may be reported for
any other interim period or for the entire fiscal year.
2. INVENTORIES
The components of inventory at April 30, 1996 consisted of the following
(in thousands of dollars):
<TABLE>
<CAPTION>
APRIL 30,
1996
---------
<S> <C>
Raw materials.............................................................. $ 10,846
Work in process............................................................ 1,466
Finished goods............................................................. 2,978
-------
Total................................................................. $ 15,290
=======
</TABLE>
3. PROPOSED ACQUISITION
On February 20, 1996, the Company signed an agreement to acquire Span
Instruments, Inc., a privately held manufacturer of high purity pressure
monitoring and control instrumentation. Under terms of the agreement, the
Company will acquire all of the outstanding shares of Span capital stock in
exchange for 1,470,000 shares of Tylan General common stock. The agreement,
which is intended to be accounted for as a pooling of interest, is subject to
the approval of Tylan General's stockholders and Span's shareholders.
As of April 30, 1996, the Company had $3.6 million due from Span
Instruments for returned inventory, which had been purchased by certain of the
Company's subsidiaries under international distribution agreements. The $3.6
million is payable in monthly installments of $100,000 plus interest beginning
April 15, 1996.
4. RESEARCH AND DEVELOPMENT AGREEMENT
In April 1996, the Company signed a five-year research and development
agreement with Integrated Sensing Systems, Inc. ("ISSYS"). Under terms of the
agreement, ISSYS will undertake research and development of certain products
which may be sold to Tylan General or incorporated into Tylan General's products
and Tylan General will make equal quarterly payments of $250,000 to ISSYS
through January 2001. Tylan General may terminate the agreement prior to the
expiration date, at which time the Company will be obligated to make quarterly
payments through the end of the current contract year plus the next full
contract year.
F-20
<PAGE> 123
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Span Instruments, Inc.
We have audited the accompanying consolidated balance sheet of Span
Instruments, Inc. and subsidiary (the Company) as of August 31, 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Span
Instruments, Inc. and subsidiary at August 31, 1995, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
October 27, 1995
(except for Note 6, as to which the date is
March 14, 1996)
F-21
<PAGE> 124
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Span Instruments, Inc.
Plano, Texas
We have audited the accompanying balance sheet of Span Instruments, Inc. as
of August 31, 1994, and the related statements of operations, shareholders'
equity and cash flows for each of the two years in the period ended August 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Span Instruments, Inc. as of
August 31, 1994, and the results of its operations and its cash flows for the
years ended August 31, 1993 and 1994 in conformity with generally accepted
accounting principles.
GRACE, PULLIAM & PATTERSON COMPANY, PC
Dallas, Texas
November 24, 1994
F-22
<PAGE> 125
SPAN INSTRUMENTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31,
------------------- APRIL 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (Note 6)
Current assets:
Cash and cash equivalents........................................... $ 198 $ 480 $ 888
Trade receivables, less allowance for doubtful accounts of $29, $20,
and $30 at August 31, 1994, 1995, and April 30, 1996,
respectively...................................................... 3,720 6,988 7,066
Income tax refund receivable........................................ -- -- 971
Inventories (Note 4)................................................ 4,452 7,678 10,183
Deferred income taxes (Note 5)...................................... 11 58 849
Prepaid expenses and other current assets........................... 294 615 969
-------- -------- -------
Total current assets......................................... 8,675 15,819 20,926
Property and equipment (Note 7):
Machinery and equipment........................................... 6,886 9,499 11,357
Computers, furniture and fixtures................................. 3,073 4,239 4,464
Leasehold improvements............................................ 1,371 1,997 2,267
-------- -------- -------
11,330 15,735 18,088
Less accumulated depreciation and amortization.................... 4,536 5,745 7,030
-------- -------- -------
6,794 9,990 11,058
Other assets:
Capitalized software, net of accumulated amortization of $689, $996,
and $1,210 at August 31, 1994, 1995, and April 30, 1996,
respectively...................................................... 861 1,132 1,481
Goodwill, net of accumulated amortization of $87, $109, and $126, at
August 31, 1994, 1995, and April 30, 1996, respectively........... 521 599 582
Other............................................................... 158 320 568
-------- -------- -------
1,540 2,051 2,631
-------- -------- -------
Total assets................................................. $17,009 $27,860 $34,615
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable (Note 6)........................ $ 421 $ 815 $ 965
Current maturities of capital lease obligations (Note 7)............ 525 599 584
Accounts payable.................................................... 3,016 5,805 5,292
Due to Tylan General, Inc........................................... -- -- 3,824
Accrued expenses.................................................... 227 1,311 720
Income taxes payable................................................ 810 97 44
Deferred compensation -- officers and shareholders (Note 11)........ 734 566 454
Other current liabilities........................................... 253 80 721
-------- -------- --------
Total current liabilities.................................... 5,986 9,273 12,604
Revolving line of credit (Note 6)..................................... 5,129 9,401 10,339
Notes payable, net of current maturities (Note 6)..................... 1,193 2,922 7,856
Capital lease obligations, net of current maturities (Note 7)......... 739 1,218 1,450
Deferred tax liabilities (Note 5)..................................... 47 294 559
-------- -------- --------
Total liabilities............................................ 13,094 23,108 32,808
Minority interest (Note 3)............................................ -- 380 454
Commitments (Notes 6, 7, 9 and 10)
Shareholders' equity (Note 8):
Common stock, no par value
Authorized shares -- 500
Issued shares -- 300, 316, and 319 for 1994, 1995 and 1996,
respectively.................................................... 666 701 707
Additional capital.................................................. 770 985 1,020
Retained earnings................................................... 3,147 3,686 648
Less treasury stock at cost -- 40, 53, and 53 shares for 1994, 1995,
and 1996, respectively............................................ (441) (680) (680)
Less notes receivable for stock purchases........................... (227) (320) (342)
-------- -------- -------
Total shareholders' equity................................... 3,915 4,372 1,353
-------- -------- -------
Total liabilities and shareholders' equity................... $17,009 $27,860 $34,615
========== ========== ==========
</TABLE>
F-23
<PAGE> 126
SPAN INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWO SIX MONTHS ENDED
YEAR ENDED AUGUST 31, MONTHS ENDED APRIL 30,
--------------------------- OCTOBER 31, -----------------
1993 1994 1995 1995 1995 1996
------- ------- ------- ------------ ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Sales............................. $23,362 $27,293 $42,443 $ 4,855 $20,786 $23,156
Cost of sales......................... 14,073 17,041 26,676 2,862 12,688 15,355
------- ------- ------- ------------ ------- -------
Gross Profit.......................... 9,289 10,252 15,767 1,993 8,098 7,801
Operating Expenses:
Sales and marketing................. 2,218 2,467 3,990 997 1,983 4,100
General and administrative.......... 3,046 4,401 7,129 1,172 3,156 3,807
Research and development............ 1,626 1,794 2,401 743 1,237 2,220
Amortization of goodwill, patents
and trademarks................... 32 28 33 4 12 16
------- ------- ------- ------------ ------- -------
Income (loss) from operations......... 2,367 1,562 2,214 (923) 1,710 (2,342)
Interest expense...................... 677 755 1,168 250 607 888
Minority interest..................... -- -- 30 20 1 54
Other (income) expenses -- net........ 17 (4) 47 9 6 7
------- ------- ------- ------------ ------- -------
Income (loss) before income taxes..... 1,673 811 969 (1,202) 1,096 (3,291)
Provision for (benefit from) income
taxes............................... 625 310 430 (376) 486 (1,079)
------- ------- ------- ------------ ------- -------
Net income (loss)..................... $ 1,048 $ 501 $ 539 $ (826) $ 610 $(2,212)
======= ======= ======= ========== ======= =======
Net income (loss) per share........... $ 4.19 $ 1.94 $ 2.06 $ (3.14) $ 2.40 $ (8.37)
======= ======= ======= ========== ======= =======
</TABLE>
F-24
<PAGE> 127
SPAN INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
YEARS ENDED AUGUST 31, 1993, 1994, AND 1995
TWO MONTHS ENDED OCTOBER 31, 1995 (UNAUDITED) AND SIX MONTHS ENDED APRIL 30,
1996 (UNAUDITED)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK RECEIVABLE
--------------- ADDITIONAL RETAINED TREASURY FOR STOCK
SHARES AMOUNT CAPITAL EARNINGS STOCK PURCHASES TOTAL
------ ------ ---------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1992.................. 279 $619 $ 558 $ 1,598 $ (362) $ -- $ 2,413
Net income................................ -- -- -- 1,048 -- -- 1,048
Purchase of treasury stock, 2,630
shares................................. -- -- -- -- (37) -- (37)
Sale of common stock to officers.......... 13 29 121 -- -- (150) --
---- ----- ------ -------- ------ ------ --------
Balance at August 31, 1993.................. 292 648 679 2,646 (399) (150) 3,424
Net income................................ -- -- -- 501 -- -- 501
Purchase of treasury stock, 2,630
shares................................. -- -- -- -- (42) -- (42)
Sale of common stock to officers.......... 8 18 91 -- -- (77) 32
---- ----- ------ -------- ------ ------ --------
Balance at August 31, 1994.................. 300 666 770 3,147 (441) (227) 3,915
Net income................................ -- -- -- 539 -- -- 539
Purchase of treasury stock, 13,145
shares................................. -- -- -- -- (239) 122 (117)
Sale of common stock to officers.......... 16 35 215 -- -- (250) --
Repayments of notes receivable............ -- -- -- -- -- 35 35
---- ----- ------ -------- ------ ------ --------
Balance at August 31, 1995.................. 316 701 985 3,686 (680) (320) 4,372
Net loss.................................. -- -- -- (826) -- -- (826)
Repayments of notes receivable............ -- -- -- -- -- 3 3
---- ----- ------ -------- ------ ------ --------
Balance at October 31, 1995................. 316 701 985 2,860 (680) (317) 3,549
Net loss.................................. -- -- -- (2,212) -- -- (2,212)
Sale of common stock to officers.......... 3 6 35 -- -- (41) --
Repayments of notes receivable............ -- -- -- -- -- 16 16
---- ----- ------ -------- ------ ------ --------
Balance at April 30, 1996................... 319 $707 $1,020 $ 648 $ (680) $ (342) $ 1,353
======= ======== ========== ========== ========= ========= ==========
</TABLE>
See accompanying notes.
F-25
<PAGE> 128
SPAN INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED AUGUST 31, APRIL 30,
------------------------------- ---------------------------
1993 1994 1995 1995 1996
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................... $ 1,048 $ 501 $ 539 $ 610 $(2,212)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................. 1,128 1,336 1,659 792 1,233
Deferred income taxes......................... (30) (12) 200 122 (249)
Provision for obsolete and slow moving
inventory................................... -- -- 129 64 713
Minority interest in income of subsidiary..... -- -- 30 1 54
Changes in operating assets and liabilities
net of effects of business acquired:
Trade receivables, net...................... (682) (738) (3,090) (3,015) 59
Income tax refund receivable................ -- -- -- -- (820)
Loss on sale of equipment................... -- 5 -- -- --
Inventories................................. (1,001) (418) (3,092) (1,680) (2,854)
Prepaid expenses and other current assets... 13 (150) (310) (147) (454)
Accounts payable............................ 559 1,123 2,836 1,629 (1,474)
Due to Tylan General, Inc................... -- -- -- -- 3,824
Accrued expenses............................ 113 53 1,071 (564) (1,041)
Income taxes payable........................ 580 133 (712) (109) (99)
Deferred compensation....................... 18 (175) (168) (82) (84)
Other current liabilities................... 351 (158) (26) 785 558
Other assets................................ 93 (3) (154) (91) (324)
-------- -------- -------- ------------ -------- ---
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.................................... 2,190 1,497 (1,088) (1,685) (3,170)
INVESTING ACTIVITIES:
Additions to property and equipment............. (796) (3,775) (4,458) (1,438) (907)
Capitalization of software development costs.... (242) (176) (578) (219) (450)
Cash of business acquired in exchange for
minority interest in subsidiary............... -- -- 58 58 --
-------- -------- -------- ------------ -------- ---
NET CASH USED IN INVESTING ACTIVITIES........... (1,038) (3,951) (4,978) (1,599) (1,357)
FINANCING ACTIVITIES:
Net borrowing (repayment) under revolving line
of credit..................................... (550) 1,342 4,272 2,229 549
Principal payments under long-term debt and
capital obligations........................... (686) (856) (2,395) (1,288) (4,028)
Proceeds from long-term debt and capital lease
obligations................................... 396 1,672 4,436 2,300 8,500
Payments received on employee stock purchase
notes......................................... -- 32 35 21 16
Purchase of treasury stock...................... (37) (42) -- -- --
-------- -------- -------- ------------ -------- ---
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES.................................... (877) 2,148 6,348 3,262 5,037
-------- -------- -------- ------------ -------- ---
--- --- ---
Net increase (decrease) in cash................. 275 (306) 282 (22) 510
Cash at beginning of period..................... 229 504 198 550 378
-------- -------- -------- ------------ -------- ---
Cash at end of period........................... $ 504 $ 198 $ 480 $ 528 $ 888
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for interest........ $ 677 $ 738 $ 1,132 $ 565 $ 808
=========== =========== =========== =========== ===========
Cash paid during the period for income taxes.... $ 60 $ 190 $ 917 $ 496 $ 130
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE> 129
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO AUGUST 31, 1995 AND FOR THE SIX MONTHS
ENDED APRIL 30, 1995 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS
Span Instruments, Inc. and subsidiary (the "Company") manufactures a
complete line of pressure monitoring equipment. The Company also markets and
supports facility management products that provide on-line monitoring of
production materials, processes, and equipment. The Company's customer base
includes semiconductor capital equipment suppliers, integrated circuit
manufacturers, emergency vehicle manufacturers, and other industrial users
located primarily in North America, with additional sales generated in Europe
and Asia.
Sales to the Company's ten largest customers represent a significant
portion of the Company's revenues. One customer, whose distributor agreement was
terminated in October 1995, accounted for 9.9%, 10.8%, 15.7% and 14.7% of net
sales for the years ended August 31, 1993, 1994 and 1995 and the six months
ended April 30, 1995, respectively. The year ended August 31, 1993 and the six
months ended April 30, 1996 each had one customer which accounted for 11.2% and
11.4% of net sales, respectively. No other customer accounted for more than 10%
of net sales for the periods presented. The loss of a significant customer or
any reduction in orders from any significant customer could have a material
adverse effect on the Company's financial condition and results of operations.
A significant portion of the Company's revenues are derived from
semiconductor capital equipment suppliers. The amount and timing of future
revenue from these semiconductor capital equipment suppliers is contingent upon
continued construction and/or expansion of semiconductor wafer fabrication
facilities.
The Company relies to a substantial extent on outside vendors to
manufacture many of their components and subassemblies. A portion of these
components and subassemblies are obtained from a single qualified source or a
limited group of suppliers. The potential inability of the Company to obtain an
adequate supply of required components and/or subassemblies and/or changes to
the pricing and timing of delivery of these components and subassemblies could
have a material adverse effect on the Company's financial condition and results
of operations.
In October 1995, the Company notified its distributors of its decision to
discontinue selling through distributors and begin selling directly to original
equipment manufacturers and to end users. These distributors represented
approximately 40% of the Company's revenue for the year ended August 31, 1995.
The Company permitted distributors to return unsold inventory for credit and, as
a result, reversed sales previously recorded in September and October 1995
totalling approximately $2.5 million. (See Note 10).
On February 20, 1996, the Company announced that it had entered into an
agreement to be acquired by a newly formed subsidiary of Tylan General, Inc.
("Tylan General") in a stock transaction, subject to stockholder approval of
both companies, whereby stockholders of the Company would exchange their shares
of common stock in the Company for common shares of Tylan General. The
acquisition by Tylan General is expected to be accounted for as a pooling of
interests.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its 75% owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
Inventories
Inventories are valued at the lower of standard cost (which approximates
actual cost on a first-in, first-out basis) or market.
F-27
<PAGE> 130
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Beginning as of September 1,
1994, the Company reduced the estimated useful lives of property and equipment
and changed depreciation methods from accelerated to straight-line. The effect
of the change in estimated lives and depreciation methods did not materially
affect the accumulated depreciation amounts at the beginning of the fiscal year
or depreciation expense for fiscal 1995. Property and equipment are generally
depreciated using three- to nine-year estimated useful lives. Amortization of
capital leases is on the straight-line method over the life of the lease and is
included with depreciation expense.
Capitalized Software
The Company capitalizes the development costs of software included in their
projects after technological feasibility has been established. Amortization of
capitalized software costs is provided on a product-by-product basis at the
greater of the amount computed using (a) the ratio of current gross revenues for
a product to the total of current and anticipated future gross revenues or (b)
the straight-line method over the remaining estimated economic life of the
product, generally five years, commencing when each product is available for
general release. The net realizable value of unamortized costs is evaluated
quarterly, and the amortization period is adjusted if appropriate. Amortization
expense of capitalized software development costs for the years ended August 31,
1993, 1994, 1995 and the six months ended April 30, 1995 and 1996, was $251,000,
$275,000, $307,000, $122,000, and $164,000, respectively.
Revenue Recognition
Revenue from the sale of equipment and software is recognized at the time
of shipment.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid debt instruments with
maturities at date of purchase of three months or less.
Goodwill
Goodwill represents costs in excess of net assets of businesses acquired.
Goodwill is amortized by the straight-line method over 10 to 40 years.
Amortization of goodwill for the years ended August 31, 1993, 1994, 1995, and
the six months ended April 30, 1995 and 1996, was $15,000, $15,000, $22,000,
$11,000 and $13,000, respectively.
Income Taxes
The Company accounts for income taxes by the liability method whereby
deferred income taxes on the balance sheet represent the tax effect of the
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes.
Advertising Expenses
Advertising costs are expensed when incurred. Advertising expenses incurred
for the years ended August 31, 1993, 1994, and 1995, and the six months ended
April 30, 1995, and 1996 were $502,000, $270,000, $576,000, $150,000, and
$179,000, respectively.
F-28
<PAGE> 131
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Per Share Amounts
Net income (loss) per share are based on 249,932, 257,817, 261,757,
263,069, 253,872 and 264,384 average common shares outstanding for the years
ended August 31, 1993, 1994, 1995, the two months ended October 31, 1995 and the
six months ended April 30, 1995 and 1996, respectively. The common stock
purchase warrant outstanding during the six months ended April 30, 1996 is not
included as a common stock equivalent because the effect would be antidilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risk
Concentrations of credit risk exist with respect to the Company's
significant customers and the concentration of customers in the semiconductor
industry. The Company performs ongoing credit evaluations of its customers and
does not require collateral. The Company maintains an allowance for doubtful
accounts, which is based upon the expected collectibility of accounts receivable
and actual losses have historically been within management's estimates.
3. ACQUISITION OF A BUSINESS
On December 29, 1994, the Company acquired the assets, liabilities, and
business of Class 1, Inc. ("Class 1"), in exchange for 25% of the stock of a
previously wholly owned subsidiary of the Company. Class 1 specializes in the
manufacturing of pressure gauges for emergency vehicles. The acquisition has
been accounted for by the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based on the estimated fair values at the date of acquisition
($249,000). The excess of purchase price over the estimated fair values of the
net assets acquired ($101,000) has been recorded as goodwill and is being
amortized over a 10-year period. The operating results of this acquisition are
included in the Company's consolidated statements of operations from the date of
acquisition.
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31,
----------------- APRIL 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials......................................... $2,812 $6,210 $ 7,810
Work-in-process....................................... 1,281 421 932
Finished goods........................................ 359 1,176 2,283
------ ------ -----------
4,452 7,807 11,025
Less inventory reserves............................... -- 129 842
------ ------ -----------
Net inventories....................................... $4,452 $7,678 $10,183
====== ====== =========
</TABLE>
F-29
<PAGE> 132
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Significant components of the provision for (benefit from) income taxes are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, SIX MONTHS ENDED
-------------------------------------- APRIL 30,
1993 1994 1995 ----------------------------
---------- ---------- ---------- 1995 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal.................... $585 $296 $201 $317 $ (851)
State...................... 70 26 29 47 21
-------- ----- --- ----- --- ----- --- --------
655 322 230 364 (830)
Deferred:
Federal.................... (26) (10) 174 106 (214)
State...................... (4) (2) 26 16 (35)
-------- ----- --- ----- --- ----- --- --------
(30) (12) 200 122 (249)
-------- ----- --- ----- --- ----- --- --------
$625 $310 $430 $486 $ (1,079)
======== ======== ======== ======== ========
</TABLE>
The effective income tax rate on pretax income (loss) differed from the
Federal income tax statutory rate for the following reasons (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED AUGUST 31, ENDED
---------------------- APRIL 30,
1993 1994 1995 -------------------------
----- ----- ------ 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income tax provision (benefit):
At federal statutory rate........................ 34.0% 34.0% 34.0% 34.0% (34.0)%
Federal alternative minimum tax reducing net
operating loss benefit........................ -- -- -- -- 2.1
State income tax................................. 4.0 3.1 5.0 5.0 .6
Nondeductible amortization of goodwill........... .3 .6 .8 .8 .1
Other -- net..................................... (.9) .5 4.6 4.6 (1.6)
------ ------ -------
-- -- -
------ --
37.4% 38.2% 44.4% 44.4% (32.8)%
======== ======== ======== ========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
F-30
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31,
------------- APRIL 30,
1994 1995 1996
---- ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................... $ 11 $ 8 $ 15
Inventory reserves...................................... -- 50 328
Net operating loss carryforwards........................ -- -- 506
------
--
-----
---
11 58 849
Deferred tax liabilities:
Software development costs.............................. -- 230 445
Property and equipment.................................. 47 64 114
------
--
-----
---
47 294 559
------
--
-----
---
Net deferred tax assets (liabilities)..................... $(36) $(236) $ 290
======== ========
</TABLE>
F-31
<PAGE> 133
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES PAYABLE AND REVOLVING LINE OF CREDIT
At April 30, 1996, the Company had $10,339,000 outstanding under a
$12,000,000 revolving line of credit agreement (the "Revolver") with Comerica
Bank -- Texas that originated in March 1996, refinancing a previous revolving
line of credit. The interest rate was prime plus 1.5% and the line was
collateralized by the Company's accounts receivable, inventories, and machinery
and equipment not otherwise pledged under capital lease obligations. Comerica
also provided a term loan (the "Term Loan") of $2,000,000 to refinance a
previous term loan in unison with the revolving credit agreement. Up to
$2,000,000 of the Comerica loans were guaranteed by the Company's Chief
Executive Officer. All cash balances at April 30, 1996, can be restricted by
Comerica solely for loan payments to Comerica.
The Revolver requires monthly interest payments with principal due at
maturity on January 1, 1998. The Term Loan is due in equal monthly principal
payments plus interest over a four-year period commencing on April 1, 1996. The
Revolver and Term Loan require the Company to meet certain financial covenants
relating to minimum levels of net worth, working capital, and interest and debt
coverage, and maximum levels of leverage and capital expenditures. The loans
also restrict the incurrence of debt and prohibit payment of dividends or
distributions of assets.
At April 30, 1996, the Company had a $5,000,000 Senior Subordinated Note
(the "Note") at par with a detachable Common Stock Purchase Warrant (the
"Warrant"). The Note is unsecured and bears interest at 12.5% payable quarterly.
The principal is due at maturity which is five years from the issuance date, and
there are penalties for prepayment during the first three years except under
specified circumstances. The Warrant permits the holder to purchase 29,523
shares of Common Stock of the Company at an exercise price of $0.01 per share.
The Warrant is exercisable beginning one year after the issuance date and
expires five years after the repayment of the Note. An agreement with the holder
of the Warrant contains antidilution provisions, piggy back and demand
registration rights, and, commencing five years after the issuance date,
provides for the right to sell the Warrants back to the Company at the fair
value of the underlying stock, as defined, but no less than book value. If the
transaction with Tylan General, described in Note 1, is completed prior to the
first anniversary of the issuance of the Warrant, and the Note is paid in full,
the shares purchasable by the Warrant will be reduced to zero.
F-31
<PAGE> 134
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The classifications between the current and long-term portion of the
revolving line of credit and term notes outstanding at August 31, 1995, and the
five-year maturities shown below are based on the terms of the refinanced
Revolver and Term Loan.
The Company had the following long-term notes payable in addition to the
Revolver (in thousands):
<TABLE>
<CAPTION>
AUGUST 31,
----------------- APRIL 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Senior Subordinated note payable...................... $ -- $ -- $ 5,000
Notes payable to the CIT Group collateralized by
specific assets, bearing interest at 9.25% to
10.625%, with maturities ranging from November 1998
to November 2000.................................... -- 956 1,209
Note payable to Comerica Bank-Texas collateralized by
specific assets, bearing interest at 1.5% above
prime, with maturity on February 1, 1998............ 607 -- --
Term notes payable to Fleet Credit Corporation........ 233 2,103 --
Term notes payable to Comerica Bank-Texas............. -- -- 1,975
Subordinated notes payable to employees bearing
interest at 6.5% to 12%, with maturities ranging
from March 1996 to September 1999................... 601 518 501
Notes to former stockholders of the Company bearing
interest at 6% to 9%, maturing from May 1998 to
February 2000....................................... 66 160 136
Notes payable to suppliers, bearing interest at 9.5%
to 12%, with maturities ranging from June 1995 to
March 1997.......................................... 107 -- --
------ ------ ------
1,614 3,737 8,821
Less current maturities............................... 421 815 965
------ ------ ------
$1,193 $2,922 $ 7,856
====== ====== ======
</TABLE>
The subordinated notes were subordinated to the Revolver and Term Loan and
the Senior Subordinated Note.
The annual aggregate maturities of long-term debt, including the Revolver,
for the five years following August 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING AUGUST 31,
-------------------------------------------------------------------
<S> <C>
1996............................................................... $ 815
1997............................................................... 845
1998............................................................... 10,245
1999............................................................... 856
2000............................................................... 377
------
$13,138
======
</TABLE>
The carrying value of the Company's debt approximates its fair value.
F-32
<PAGE> 135
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CAPITAL LEASE OBLIGATIONS
The Company has entered into various lease agreements for fixed assets
including machinery, equipment, and furniture and fixtures. These leases are
accounted for as capital leases for financial and tax purposes. These leases
expire from July 1996 through January 2001 and require the following future
minimum payments (in thousands).
<TABLE>
<CAPTION>
YEARS ENDING AUGUST 31,
--------------------------------------------------------------------
<S> <C>
1996................................................................ $ 716
1997................................................................ 491
1998................................................................ 389
1999................................................................ 325
2000................................................................ 210
------
2,131
Less interest included in future minimum payments................... 314
------
1,817
Less current maturities............................................. 599
------
$1,218
======
</TABLE>
8. COMMON STOCK
The Company may be required under certain circumstances defined in
agreements with employee stockholders owning 71,465 shares of Common Stock, to
repurchase Company common stock held by employees whose employment relationship
with the Company terminates, at a price ranging from 1.0 to 1.3 times the net
book value per share of the Company prior to such termination. The Company is
also required to offer to sell additional shares to each stockholder in the
event of a sale of common stock for any reason, at the same price as the
triggering sale, in order to permit each stockholder to maintain their former
percentage ownership of the Company. The Company repurchased 13,145 shares from
a terminated employee during 1995.
Loans to officers to purchase stock are reflected as a reduction of
stockholders' equity.
9. OPERATING LEASE COMMITMENTS
The Company leases its primary office and manufacturing facilities from a
related entity controlled by the majority stockholders of the Company. The
leases are for various periods up to approximately 16 years. Minimum future
rental commitments under these obligations are $667,000, $713,000, $713,000,
$694,000, and $694,000 in each of the five fiscal years ended August 31, 1996
through 2000, respectively.
The Company leases warehouse, research and development, and other
manufacturing facilities from unrelated parties. The leases began in November
1991 and expire at various dates through March 2000. The minimum future rental
commitments under the obligations are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING AUGUST 31,
----------------------------------------------------------------------
<S> <C>
1996.................................................................. $198
1997.................................................................. 63
1998.................................................................. 31
1999.................................................................. 32
2000.................................................................. 19
-----
-
$343
======
</TABLE>
F-33
<PAGE> 136
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense for all operating leases, including related parties (see Note
11), for the years ended August 31, 1993, 1994, 1995, and the six months ended
April 30, 1995 and 1996 was $692,000, $888,000, $859,000, $453,000, and $458,000
respectively.
10. OTHER COMMITMENTS
On October 11, 1995 the Company entered into an agreement with Tylan
General (the "Tylan General Agreement") which requires Tylan General to provide
sales and marketing assistance to the Company in order to support the Company's
transition from utilizing a third party distributor marketing approach to a
direct sales and service approach. The Tylan General Agreement requires that
Tylan General make available to the Company sales and marketing data relating to
selected sales markets as well as access to Tylan General personnel and
facilities.
The Tylan General Agreement required an initial payment of $200,000 and
then requires the Company to pay Tylan General $100,000 each month for the first
year of the agreement and $200,000 each month thereafter. The Tylan General
Agreement also requires the Company to reimburse Tylan General for all out-
of-pocket expenses incurred by Tylan General on behalf of the Company and for
its use of any Tylan General personnel engaged in activities for the Company.
The initial term of the Tylan General Agreement is three years and will be
automatically renewed for one year terms until it is terminated. After the
initial two years, either party may terminate the Tylan General Agreement for
any reason upon one year written notice or it may be terminated by either party
at any time if the other party fails to cure a material breach within 30 days of
written notice. During the term of the Tylan General Agreement, and, in the
event that the Company terminates the Tylan General Agreement, for 90 days
thereafter, the Company will give Tylan General written notice prior to entering
into any transaction which results in a change in control of the Company, as
defined in the Tylan General Agreement. The Company is required to give Tylan
General the right of first refusal to enter into any such control transaction
with Span on terms which are economically equivalent.
International sales account for a significant portion of the Company's
revenue. As a result of the Tylan General Agreement, the Company terminated its
international distributor agreements and began relying on Tylan General
personnel for its international sales. In November 1995, the Company and certain
of Tylan General's foreign subsidiaries agreed to distribute the Company's
products in selected foreign markets. Each of these international distributor
agreements is terminable upon 30 day advance notice. The termination of these
international distributor agreements could have an adverse effect on the
Company's financial condition and results of operation.
Amounts due to Tylan General at April 30, 1996, including amounts due
pursuant to the Tylan General Agreement, are accruing interest at 12.5%.
11. RELATED PARTY TRANSACTIONS
With the agreement of participating officers, the following compensation
has been deferred for future payment on demand (in thousands):
<TABLE>
<CAPTION>
AUGUST 31,
------------- APRIL 30,
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Principal officers and stockholders...................... $195 $147 $ 115
Other officers (minority stockholders)................... 539 419 339
---- ---- -----------
$734 $566 $ 454
==== ==== =========
</TABLE>
F-34
<PAGE> 137
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As described in Note 9, the Company leases a substantial portion of its
office and manufacturing facility and certain automotive equipment from an
entity controlled by its principal stockholders. The Company paid rent of
$412,000, $465,000, $615,000, $348,000, and $464,000, relating to leases with
the Company's principal stockholders for the years ended August 31, 1993, 1994,
1995, and the six months ended April 30, 1995 and 1996, respectively.
12. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan (the "Plan") covering
substantially all employees. The Company contributes an amount equivalent to
100% of the first 3% of compensation that a participant contributes to the Plan.
During the years ended August 31, 1994, 1995, and the six months ended April 30,
1995 and 1996, the Company made contributions to the Plan of $113,000, $170,000,
$97,000, and $87,000, respectively.
13. GEOGRAPHIC INFORMATION
Net domestic and export sales for the years ended August 31, 1993, 1994,
1995 and the six months ended April 30, 1995 and 1996, classified by geographic
area, were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, SIX MONTHS ENDED APRIL 30,
------------------------------- ---------------------------
1993 1994 1995 1995 1996
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales:
United States....................... $19,692 $23,854 $36,326 $17,817 $19,849
Europe.............................. 3,138 2,266 3,319 1,531 2,037
Asia................................ 449 1,057 2,524 1,267 1,233
Other............................... 83 116 274 171 37
------- ------- ------- ------- -------
$23,362 $27,293 $42,443 $20,786 $23,156
======= ======= ======= ======= =======
</TABLE>
F-35
<PAGE> 138
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
TYLAN GENERAL, INC.
TYLAN GENERAL ACQUISITION SUBSIDIARY, INC.
SPAN INSTRUMENTS, INC.
AND
SHAREHOLDERS OF SPAN INSTRUMENTS, INC.
FEBRUARY 20, 1996
<PAGE> 139
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
February 20, 1996 by and among TYLAN GENERAL, INC., a Delaware corporation
("Tylan"), TYLAN GENERAL ACQUISITION SUBSIDIARY, INC., a Delaware corporation
("Tylan Sub"), SPAN INSTRUMENTS, INC., a Texas corporation ("Span") and all of
the shareholders of Span (each a "Shareholder" and collectively the
"Shareholders").
RECITALS
A. Tylan has formed Tylan Sub as a wholly owned subsidiary to effect the
merger of Tylan Sub with and into Span (the "Merger") in accordance with the
laws of the State of Texas and the State of Delaware and in accordance with this
Agreement, so that upon consummation of the Merger, Tylan Sub will cease to
exist and Span will become a wholly owned subsidiary of Tylan.
B. This Agreement has been approved by the Boards of Directors of Tylan,
Tylan Sub and Span, and by Tylan in its capacity as the sole shareholder of
Tylan Sub; and
C. The Merger is intended to qualify as a reorganization within the
meaning of the provisions of Section 368 of the Internal Revenue Code of 1986,
as amended (the "Code") and to be accounted for as a pooling-of-interests.
AGREEMENT
NOW, THEREFORE, in consideration of their mutual covenants, promises and
obligations contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be bound hereby, agree as follows:
1. DESCRIPTION OF TRANSACTION
1.1 Merger of Tylan Sub Into Span. Subject to the terms and conditions of
this Agreement, Tylan Sub shall be merged with and into Span and the separate
existence of Tylan Sub shall cease. Span shall be the surviving corporation in
the Merger under the corporate name it possesses immediately prior to the
Merger, and Tylan shall own all of the issued and outstanding shares of capital
stock of Span. Span, in its capacity as the corporation surviving the Merger, is
sometimes referred to herein as the "Surviving Corporation."
1.2 Effect of the Merger. The Merger shall have the effects set forth in
the Texas Business Corporation Act (the "Texas Law") and the Delaware General
Corporation Law ("DGCL"). Without limiting the generality of the foregoing, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises of a public as well as a private nature, and be subject to all the
restrictions, disabilities and duties, of each of Tylan Sub and Span
(collectively, the "Constituent Corporations"). The Surviving Corporation shall
be vested with the rights, privileges, powers and franchises, all property
(real, personal, and mixed) and all debts due on whatever account and all other
things in action or belonging to, and all and every other interest of, each of
the Constituent Corporations. All debts, liabilities and duties of each of the
Constituent Corporations shall attach to the Surviving Corporation and may be
enforced against it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it.
1.3 Closing. Consummation of the transactions contemplated by this
Agreement (the "Closing") will take place at such place, time and date as Tylan
and Span may mutually select (the "Closing Date"), which shall be as soon as
practicable following satisfaction or waiver of the closing conditions contained
in Articles 6 and 7 hereof, but in any event not later than June 28, 1996. At
the Closing, Tylan Sub and Span will each carry out the procedures specified
under the applicable provisions of the Texas Law and DGCL, including duly
executing and filing Articles of Merger with the Texas Secretary of State (the
"Texas Articles of Merger") and a Certificate of Merger with the Delaware
Secretary of State (the "Delaware Certificate of Merger") to the end that the
Merger shall become effective. The Merger shall become effective on the last to
occur of (a) the date the Texas Articles of Merger is duly filed with the Texas
Secretary of State (b) the date
A-1
<PAGE> 140
the Delaware Certificate of Merger is duly filed with the Delaware Secretary of
State or (c) such later date as may be specified in the Texas Articles of Merger
and Delaware Certificate of Merger (the "Effective Date").
1.4 Exchange of Span Stock.
(a) On the Effective Date, each then outstanding share, no par value,
of Span (collectively, the "Span Common Shares"), other than Span Common
Shares to be canceled pursuant to Section b and Dissenting Shares (as
defined in Section 1.14), shall cease to be an existing and issued Span
Common Share and shall become and be converted into, by virtue of the
Merger and without any action on the part of Tylan, Tylan Sub, Span or the
holder thereof, into that number of duly authorized, validly issued, fully
paid and nonassessable shares of common stock, $.001 par value, of Tylan
(the "Tylan Common Stock") equal to 1,470,000 divided by the Fully Diluted
Span Common Shares Outstanding, as defined in Section 2.1(c) (the "Common
Exchange Ratio").
(b) Each Span Common Share issued and outstanding immediately prior to
the Effective Date owned by Tylan, Tylan Sub or any subsidiary thereof
shall automatically be canceled at the Effective Date, and no conversion
shall be made in respect thereof.
1.5 Conversion of Tylan Sub Common Stock. Each share of Tylan Sub's
common stock issued and outstanding immediately prior to the Effective Date
shall automatically be converted into and become one validly issued, fully paid
and nonassessable share of Common Stock of the Surviving Corporation and the
aggregate of such shares issuable upon such conversion shall constitute the only
outstanding capital shares of the Surviving Corporation.
1.6 Closing of Company Transfer Books. On and after the Effective Date,
holders of certificates representing Span Common Shares shall cease to have any
rights as shareholders of Span (except rights, if any, under Article 5.11 of the
Texas Law) and the share transfer books of Span shall be closed with respect to
Span Common Shares issued and outstanding immediately prior to the Effective
Date, and no further transfer of such shares shall thereafter be made on such
share transfer books. If, after the Effective Date, valid certificates
previously representing such shares are presented to the Surviving Corporation
they shall be exchanged as provided in Section 1.7.
1.7 Exchange of Certificates. The parties anticipate that all Span Common
Share certificates (except certificates representing canceled shares) shall be
exchanged for Tylan Common Stock certificates (and cash in lieu of any
fractional shares) at the Closing. Any certificates for Span Common Shares not
so surrendered and exchanged at the Closing shall represent solely the right to
receive the shares of Tylan Common Stock into which the Span Common Shares it
theretofore represented shall have been converted pursuant to Section 4 (or to
perfect the holder thereof's right to receive payment for such shares pursuant
to Article 5.12 of the Texas Law and Section 1.14 hereof); provided, however,
that customary and appropriate certifications and indemnities (but without the
requirement to post a bond) allowing exchange against lost or destroyed
certificates shall be provided; and provided further that nothing in this
Section 1.7 shall require Tylan to exchange Tylan Common Stock to any holder of
Span Common Shares who shall fail to surrender a certificate representing such
shares or the certification and indemnities relating to a lost certificate.
1.8 No Fractional Shares. No fractional shares of Tylan Common Stock will
be issued in connection with the Merger and no certificate therefor will be
issued. In lieu of such fractional shares, any holder of Span Common Shares who
would otherwise receive a fractional share of Tylan Common Stock shall, upon
surrender of his certificate or certificates representing Span Common Shares, be
paid an amount in cash (without interest) determined by multiplying such
fraction by the closing price of Tylan Common Stock as reported on the NASDAQ
National Market System on the last trading date immediately preceding the
Closing Date. Tylan will, subject to any applicable statute of limitation or
abandoned property or similar law, pay to such holders, upon surrender of their
certificates representing Span Common Shares outstanding immediately prior to
the Effective Date, the cash value of such fractions so determined, without
interest.
1.9 Adjustment of Common Exchange Ratio. If, between the date of this
Agreement and the Effective Date, the outstanding Tylan Common Stock shall have
been changed into a greater or lesser number of shares of Tylan Common Stock or
into a different security by reason of a reclassification, stock split, stock
A-2
<PAGE> 141
combination, stock dividend or other recapitalization or similar transaction,
the Common Exchange Ratio shall be correspondingly adjusted.
1.10 Accounting Treatment. The parties intend that the Merger will be
treated as a pooling-of-interests for accounting purposes.
1.11 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section
368(a)(2)(E) of the Code.
1.12 Stock Subject to Conditions or Forfeiture. All shares of Tylan
Common Stock which are received in the Merger in exchange for Span Common Shares
which, under applicable stock purchase or restriction agreements, as amended,
with Span, are unvested or subject to a repurchase option or other condition of
forfeiture which by its terms does not terminate due to the Merger, will also be
unvested or subject to the same repurchase option or other condition, as the
case may be, and the certificates evidencing such shares will be marked with
appropriate legends; provided, however, that this Section 1.12 shall not
preclude modification of the existing agreements between Span and its
shareholders consistent with pooling-of-interests accounting.
1.13 Further Action. If at any time after the Effective Date any further
action is necessary or desirable to carry out the purposes of this Agreement or
to vest the Surviving Corporation with the full right, title and possession to
all assets, property, rights, privileges, immunities, powers and franchises of
either or both of the Constituent Corporations, the officers and directors of
the Surviving Corporation are fully authorized in the name of either or both of
the Constituent Corporations or otherwise to take all such action at Tylan's
expense.
1.14 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, Span Common Shares that are issued and outstanding immediately prior
to the Effective Date and that are held by shareholders who have not voted such
shares in favor of the Merger and who have delivered a written notice of
intention to demand payment for such shares in the manner provided in Article
5.12 of the Texas Law ("Dissenting Shares") shall not be canceled and converted
into shares of Tylan Common Stock in accordance with the provisions of Section
1.4(a) unless and until such holder shall have failed to perfect, or shall have
effectively withdrawn or lost, such holder's right to payment under the Texas
Law. If such holder shall have so failed to perfect, or shall have effectively
withdrawn or lost such right, such holder's Span Common Shares shall thereupon
be deemed to have been canceled and converted as described in Section 1.4 at the
Effective Date, and each such share shall represent solely the right to receive
shares of Tylan Common Stock in accordance with the provisions of Section
1.4(a). Span shall give Tylan prompt notice of any demands received by Span for
purchase of its shares, and, prior to the Effective Date, Tylan shall have the
right to participate in all negotiations and proceedings with respect to such
demands. Prior to the Effective Date, Span shall not, except with the prior
written consent of Tylan, make any payment with respect to, or settle or offer
to settle, any such demands. From and after the Effective Date, no shareholder
who has exercised dissenters' rights as provided in Article 5.12 of the Texas
Law shall be entitled to vote such holder's shares for any purpose or to receive
payment of dividends or other distributions with respect to such holder's shares
(except dividends and other distributions payable to shareholders of record at a
date which is prior to the Effective Date).
1.15 Shareholders' Agreements.
(a) Upon execution of this Agreement, each of the Shareholders shall
enter into a Shareholder Agreement with Tylan in substantially the form
attached hereto as Exhibit 1.15(a).
(b) At or prior to Closing, each of the Shareholders shall execute the
Continuity of Interest Certificate referred to in Section 4.2(h).
(c) At or prior to Closing, Donald E. Whitson, Leo E. Whitson, Robert
Barraclough, Robert Lipsky, John Rabbitt, George Yurch, John Jul, John
Jordon, Brian Day, Tom Gray and Ron Ewers (the "Affiliates") shall execute
the Affiliate Agreement referred to in Section 4.2(p).
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2. REPRESENTATIONS AND WARRANTIES OF SPAN AND THE PRINCIPAL SHAREHOLDERS
Span and each of Donald E. Whitson and Leo E. Whitson (each, a "Principal
Shareholder" and collectively, the "Principal Shareholders") jointly and
severally represent and warrant to Tylan and Tylan Sub as of the date of this
Agreement as follows:
2.1 Organization.
(a) Each of Span and Ocala, Inc. ("Ocala") is a corporation duly
organized, validly existing and in good standing, under the laws of the
State of Texas. Each of Span and Ocala has all necessary power and
authority under applicable corporate law and its Articles of Incorporation
and Bylaws to own or lease its properties and to carry on its business as
presently conducted. Span has provided Tylan with true and correct copies
of the Articles of Incorporation and Bylaws of each of Span and Ocala.
Except for Ocala, Span has no subsidiaries, and, except as set forth on
Schedule 2.1(a), Span does not own or hold, directly or indirectly, any
debt or equity securities of, nor has any other interest in, any
corporation, partnership, joint venture or other entity.
(b) Each of Span and Ocala is qualified to do business as a foreign
corporation, and is in good standing, under the laws of all jurisdictions
where the nature of its business requires such qualification and where the
failure to so qualify would have a "Material Adverse Effect." For the
purposes of this Agreement, "Material Adverse Effect" as it applies to Span
or Tylan means an adverse effect on the business, operations, condition
(financial or otherwise), assets or prospects of Span and Ocala, taken as a
whole, or Tylan and its subsidiaries, taken as a whole, respectively, which
is material. For purposes of this Agreement, documents, objects, effects,
conditions, events or occurrences shall be deemed "material" as they relate
to Span or Ocala if they involve amounts, or result in Damages (as
hereinafter defined), in excess of $50,000 during any fiscal year period.
For purposes of this Agreement, documents, objects, effects, conditions,
events or occurrences shall be deemed "material" as they relate to Tylan if
upon public disclosure, they would be viewed by a reasonable investor as
significantly altering the total mix of information then available
concerning Tylan and its subsidiaries, taken as a whole.
(c) The authorized capital stock of Span consists, and on the Closing
Date will consist, of 500,000 shares, no par value, of which 265,699 shares
are issued and outstanding. The authorized capital stock of Ocala consists,
and on the Closing Date will consist, of 1,000,000 shares, $0.01 par value
per share, of Common Stock, of which 100,000 shares are issued and
outstanding. All of the issued and outstanding shares of Span and Ocala are
validly issued, fully paid and nonassessable and the issuance of such
issued and outstanding shares were not subject to any preemptive rights
which have not been effectively waived. Schedule c sets forth a list of the
Shareholders and the holders of all outstanding shares of capital stock of
Ocala, including their names and addresses and the kind and number of
shares of Span capital stock and Ocala capital stock that they hold. No
holder of Span capital stock or Ocala capital stock possesses shares that
are subject to vesting. Except as set forth above, there are not as of the
date hereof, and on the Closing Date there will not be, any capital shares
of Span or Ocala authorized, issued or outstanding or any authorized or
outstanding subscriptions, options, warrants, stock appreciation rights,
calls, rights, convertible securities or other agreements or commitments of
any character relating to issued or unissued capital shares or other
securities of Span or Ocala, or otherwise obligating Span or Ocala to
issue, transfer or sell any capital shares of Span or Ocala, or other
securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any capital shares of Span or Ocala. The sum of the number
of Span Common Shares outstanding and the maximum number of Span Common
Shares issuable upon exercise, conversion, exchanging or subscription
pursuant to any security agreement or commitment of Span immediately before
the Effective Date shall be referred to herein as the "Fully Diluted Span
Common Shares Outstanding." Following the Closing, neither Span nor Ocala
will have any obligation to issue, transfer or sell any of its capital
shares or other securities of Span or Ocala pursuant to any currently
existing employee benefit plan or otherwise. Except as set forth on
Schedule 2.1(c), neither Span nor Ocala has any liability to any current or
former shareholder of Span or Ocala arising from or relating to the offer
and sale of any of its securities, whether under federal or state
securities law, or otherwise.
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(d) Span has full corporate power and authority to execute, deliver
and perform this Agreement. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
and validly authorized by the Board of Directors of Span, and no other
corporate proceedings on the part of Span are necessary for Span to
authorize this Agreement or to consummate the transactions contemplated
hereby (other than approval by the Shareholders). This Agreement has been
duly executed and delivered by duly authorized officers of Span. This
Agreement constitutes a legal, valid and binding obligation of Span
enforceable against it in accordance with its terms (except to the extent
that enforcement is affected by laws pertaining to bankruptcy,
reorganization, insolvency and creditors' rights and by the availability of
injunctive relief, specific performance and other equitable remedies).
(e) Except as may be required by the Securities Act of 1933, as
amended (the "Securities Act"), state securities laws, the Texas Law or the
DGCL, there is no requirement applicable to Span or Ocala to make any
filing with, or to obtain any permit, authorization, consent or approval
of, any governmental or regulatory authority as a condition to the lawful
consummation by Span of the transactions contemplated by this Agreement.
Neither Span nor either of the Principal Shareholders knows of any reason
why any required permit, authorization, consent or approval will not be
obtained. Except as set forth on Schedule 2.1(e), neither the execution and
delivery of this Agreement by Span nor the consummation by Span of the
transactions contemplated by this Agreement will (i) conflict with or
result in any breach of any provision of the Articles of Incorporation or
Bylaws of Span or Ocala, (ii) result in a material default (or give rise to
any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture or
other evidence of indebtedness of Span or Ocala or any material license
agreement, lease or other material contract, instrument or obligation to
which Span or Ocala is a party or by which Span or Ocala or any of either
of their assets may be bound, (iii) violate any statute, rule, regulation,
order, writ, injunction, decree or arbitration award applicable to Span or
Ocala or any of either of their assets, which violation would have a
Material Adverse Effect on Span, or (iv) result in the creation of any
material (individually or in the aggregate) liens, charges or encumbrances
on any of the assets of Span or Ocala.
(f) Span has delivered to Tylan complete and accurate copies of the
minutes of all its directors and shareholders meetings, and all actions by
written consent of the directors and shareholders, of Span and Ocala since
January 1, 1990 as to Span and since inception as to Ocala, and will
deliver to Tylan at or prior to the Closing complete and accurate copies of
all minutes of such meetings and such actions that occur between the date
hereof and the Closing Date.
2.2 Financial.
(a) The audited consolidated balance sheet of Span as of August 31,
1995 and the audited consolidated statement of operations, consolidated
statement of cash flows and consolidated statement of changes in
shareholders' equity of Span for the fiscal year ended August 31, 1995 (the
"Audited Financial Statements"), each certified by Ernst & Young LLP,
independent certified public accountants, whose report thereon is included
therein, and the unaudited consolidated balance sheet of Span as of
November 30, 1995 (the "November 30, 1995 Balance Sheet") and the unaudited
consolidated statement of operations and consolidated statement of cash
flows of Span for the three-month period ending November 30, 1995 have been
prepared in accordance with the books and records of Span, which books and
records are complete, maintained on a consistent basis, and correctly
reflect its income, expenses, assets and liabilities, are true, complete
and accurate and present fairly the financial position of Span as of the
date of said balance sheets and the results of operations of Span for the
periods covered by said statements of operations, in accordance with
generally accepted accounting principles ("GAAP") consistently applied,
except as otherwise disclosed therein and except, in the case of unaudited
statements, for normally recurring year-end adjustments, which adjustments
will not be material either individually or in the aggregate, and the
absence of notes required by GAAP. The financial statements described in
this Section a are referred to in this Agreement as the "Financial
Statements."
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(b) Except as disclosed in Schedule 2.2(b), neither Span nor Ocala has
any material Liability, except for any Liability which (i) is accrued or
fully reserved against in the November 30, 1995 Balance Sheet or disclosed
in the notes included in the Audited Financial Statements; or (ii) is of a
normally recurring nature and was incurred after November 30, 1995 in the
ordinary course of business consistent with past practice. As used herein,
"Liabilities" shall mean any liability or obligation of any kind or nature,
secured or unsecured (whether absolute, accrued, contingent or otherwise,
and whether due or to become due).
(c) The accounts receivable of Span on November 30, 1995, and those
existing on the Closing Date:
(i) will have arisen out of sales in the ordinary course of
business and represent bona fide indebtedness of the applicable account
debtor;
(ii) to the best knowledge of Span and each of the Principal
Shareholders, are and will be collectible in full (except as set forth
on Schedule 2.2(c)), net of the reserves therefore set forth on the
books of Span, which reserves were calculated consistent with past
practices and with GAAP applied consistently with the Audited Financial
Statements; and
(iii) except as set forth on Schedule 2.2(c), are subject to no
claim of offset, counterclaim, recoupment or setoff and, to the best
knowledge of Span and each of the Principal Shareholders, there are no
facts or circumstances (whether asserted or unasserted) that could give
rise to such a claim.
Schedule 2.2(c) sets forth complete and accurate accounts receivable
aging report as of November 30, 1995. Span will use all reasonable efforts
to ensure that the aging of the accounts receivable on the Closing Date
shall not be materially worse than that shown on Schedule 2.2(c).
(d) Other than as set forth on Schedule 2.2(d), the inventories of
Span on November 30, 1995 and those existing on the Closing Date are and
will be usable in all material respects in the ordinary course of business
at a value which is not less than the value at which such inventory is
carried on the books of Span. The inventory is adequate for the conduct of
the business of Span and inventory levels are not in excess of the normal
operating requirements of Span. Schedule d sets forth all inventories as of
the date hereof that Span in good faith believes to be in excess of the
reasonable requirements of Span for the next six months.
2.3 Tax Matters. With respect to Taxes (as defined below):
(a) Except as set forth on Schedule 2.3, Span and Ocala have filed or
will file or cause to be filed, within the time and in the manner
prescribed by law, all material returns, declarations, reports, estimates,
information returns and statements, including information returns and
reports ("Returns") required to be filed under federal, state, local or any
foreign laws by Span or Ocala for all taxable periods ending on or prior to
the Closing Date; all Returns so filed complied in all material respects
with the laws, rules and regulations applicable to such Returns.
(b) Except as set forth on Schedule 2.3, Span and Ocala have within
the time and in the manner prescribed by law, paid (and until the Closing
will, within the time and in the manner prescribed by law, pay) all Taxes
(as defined below) that are due and payable prior to the Closing, and there
is (and until the Closing shall be) no material difference between the
amount of the book basis and the tax basis of assets (net of liabilities)
that are not accounted for by an accrual on the books for federal income
tax purposes.
(c) All Taxes payable by Span or Ocala as of November 30, 1995 or
which will become payable as a result of activities of Span or Ocala on or
before November 30, 1995 are clearly identified and reflected on the
November 30, 1995 Balance Sheet as taxes payable or as accrued taxes. No
Taxes will become payable by Span or Ocala as a result of activities of
Span or Ocala between November 30, 1995 and the Closing Date other than
Taxes of a normally recurring nature incurred by Span or Ocala after
November 30, 1995 in the ordinary course of business consistent with past
practice.
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(d) Span has established (and until the Closing will establish) on its
books and records reserves that are adequate for the payment of all Taxes
not yet due and payable.
(e) There are no liens for unpaid Taxes filed against the assets of
Span or Ocala except liens for Taxes not yet due.
(f) Neither Span nor Ocala has filed (nor will file prior to the
Closing Date) any consent agreement under Section 341(f) of the Code nor
agreed to have Section 341(f)(2) of the Code apply to any disposition of
the subsection (f) asset (as such term is defined in Section 341(f)(4) of
the Code) owned by Span or Ocala.
(g) Except as set forth on Schedule 2.3(g), no deficiency or
adjustment for any Taxes has been proposed or asserted or assessed against
Span or Ocala and, to the best knowledge of Span and each of the Principal
Shareholders, no foreign, federal, state or local audits, examination or
other administrative proceedings or court proceedings are presently pending
with regard to any Taxes, and no waiver or consent extending any statute of
limitations for the assessment or collection of any Taxes, which waiver or
consent remains in effect, has been executed by (or on behalf of) Span or
Ocala nor are any requests for such waiver or consent pending. The federal
income tax returns of Span and Ocala have been examined by the Internal
Revenue Service (the "IRS") or the statutes of limitations for the
assessment of federal income taxes has expired for all periods to and
including August 31, 1991.
(h) Neither Span nor Ocala is a party to any tax-sharing or allocation
agreement, nor does Span or Ocala owe any amount under any tax-sharing or
allocation agreement.
(i) The acquisition of Span by Tylan will not result in the payment of
any "excess parachute payment" within the meaning of Section 280G of the
Code and there is no agreement, plan or arrangement covering any employee
or independent contractor of Span or Ocala that would give rise to any
payment that would not be deductible pursuant to Section 280G or Section
162 of the Code.
(j) Neither Span nor Ocala has made any election under Section 338(g)
of the Code with respect to any acquisition and no outstanding debt
obligation of Span or Ocala is "corporate acquisition indebtedness" within
the meaning of Section 279(b) of the Code.
(k) Neither Span nor Ocala is a United States Real Property Holding
Corporation as defined under Section 897(c)(2) of the Code.
(l) There have been no audits of Taxes based on income of Span or
Ocala since August 31, 1991.
(m) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies, or other assessments of whatever kind or nature,
including, without limitation, all net income, gross income, gross
receipts, sales, use, value-added, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, estimated,
severance, stamp, net worth, environmental, occupancy or property taxes,
customs duties, fees, assessments or charges of any kind whatsoever
(together with any interest and any penalties, additions to tax or
additional amounts) imposed by any taxing authority (domestic or foreign)
upon or payable by Span or Ocala.
2.4 Conduct of Business. Except as set forth in Schedule 2.4, since
August 31, 1995, neither Span nor Ocala has:
(a) sold, leased, optioned or transferred any material portion of the
assets of Span or Ocala or any material portion of the interests in such
portion, except for sales of inventory in the ordinary course of business;
(b) suffered any material loss, or material interruption in use, of
any material asset or property (whether or not covered by insurance), on
account of fire, flood, riot, strike or other hazard or Act of God;
(c) made any material change in the conduct or nature of its business
or operations;
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(d) waived any material rights arising out of the conduct of, or with
respect to, its business or operations;
(e) made or committed to make any capital expenditures in an amount in
excess of $1,500,000 in the aggregate;
(f) declared or paid any dividend or other distribution with respect
to its capital shares or redeemed, repurchased or otherwise acquired any of
its own capital shares;
(g) made any material increase in the rate or terms of compensation
payable by Span or Ocala to, or any increase in the rate or terms of any
bonus, insurance, pension or other employee benefit plan on behalf of any
director, officer or key employee of Span or Ocala;
(h) made any change in accounting methods, principles or practices
except as required by GAAP;
(i) suffered any creation, occurrence or assumption of any material
indebtedness for money borrowed other than in the form of accounts payable
for goods and services in the ordinary course of business;
(j) assumed, guaranteed, or incurred any liability for the obligations
of any other person or suffered the subjecting of any property or assets of
Span or Ocala to mortgage, lien, pledge or other encumbrance other than
purchase money security interests or liens for taxes not yet due and
payable in the ordinary course of business;
(k) suffered any termination or threatened termination, or substantial
adverse modification, of the relationship of Span or Ocala with a customer
or supplier or the occurrence of any event affecting any product or process
used by Span or Ocala having, in any such case or in the aggregate, a
Material Adverse Effect;
(l) without limitation by the enumeration of any of the foregoing,
entered into any material transaction (including any borrowing, leasing or
capital financing or any lease of real property) other than in the ordinary
course of business;
(m) incurred any material Liabilities other than in the ordinary
course of business;
(n) suffered or been threatened with any adverse change which has had
or could have a Material Adverse Effect; or
(o) agreed to do any of the foregoing.
2.5 Contracts.
(a) Except as set forth in Schedule 2.5(a), neither Span nor Ocala is
a party to, or bound by, any material undischarged written or oral:
(i) contract for the employment for any period of time whatsoever,
or restricting the employment, of any employee;
(ii) consulting agreement;
(iii) collective bargaining agreement;
(iv) contract or agreement restricting in any manner Span's or
Ocala's right to compete with any other person or restricting Span's or
Ocala's right to sell to or purchase from any other person;
(v) agreement with any affiliate of Span or Ocala or person
controlled by an affiliate of Span or Ocala for or with respect to the
purchase or sale of goods or the performance of services;
(vi) contract for the payment or receipt of license fees or
royalties to or from any person, firm or corporation;
(vii) contract of agency, representation, distribution or franchise
which cannot be canceled without payment or penalty upon notice of
thirty (30) days or less;
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(viii) service contract in an annual amount in excess of $50,000;
(ix) guaranty, performance, bid or completion bond, or surety or
indemnification agreement;
(x) contract relating to the purchase, sale, ownership, use or
license of technology except licenses for third party software generally
available to the public;
(xi) lease or sublease, either as lessee or sublessee, lessor or
sublessor, of real or personal property or intangibles;
(xii) contracts relating to the purchase, sale or margining of
securities;
(xiii) warranty or product service contracts;
(xiv) joint venture, partnership or other contracts involving a
sharing of profits, losses, costs or liabilities; or
(xv) contract not listed above.
All material contracts, leases, subleases and other instruments of the
type referred to in this Section a and described in Schedule a
(collectively, "Contracts") are in full force and effect and are binding
upon Span or Ocala, as the case may be, and, to the best knowledge of Span
and each of the Principal Shareholders, are binding on the other parties
thereto. Except as set forth on Schedule 2.5(a), no material default by
Span or Ocala, as the case may be, has occurred thereunder and, to the best
knowledge of Span and each of the Principal Shareholders, no material
default by the other contracting parties has occurred thereunder, and no
event has occurred which with the giving of notice or the lapse of time, or
both, would constitute a material default by Span or Ocala, as the case may
be. Span has delivered to Tylan true and complete copies of each contract,
lease, sublease, or other instrument described in Schedule 2.5(a).
(b) Except as disclosed in Schedule 2.5(b), neither Span nor Ocala is
a party to, or bound by, any Contract under the terms of which performance
by Span or Ocala according to the terms of this Agreement will be a default
or an event of acceleration, or would otherwise require consent.
(c) Neither Span nor Ocala is a party to, or bound by, any Contract
requiring Span or Ocala to perform engineering development or documentation
development services, which services have not been fully performed,
delivered and unconditionally accepted by the party contracting for such
services or any third party beneficiary thereof.
(d) Schedules 2.2(d) and 2.5(b) contain a list of every material
license, permit or governmental approval, order, directive and agreement
applied for, pending, issued, rejected or given to Span or Ocala with
respect to the conduct of their respective businesses or operations. Each
of Span and Ocala possesses all licenses, permits, and governmental
approvals and authorizations which are required in order to operate its
business as presently conducted and each of Span and Ocala is in compliance
with all such licenses, permits, approvals and authorizations, except where
the failure to possess, or comply with, such licenses, permits, approvals
and authorizations would not have a Material Adverse Effect.
(e) Schedule 2.2(e) contains a list of all pending or threatened
claims against Span or Ocala under each Contract (including, without
limitation, claims for back charges, rebates, price reductions, breaches of
product or service warranties or for product or service liability for
products manufactured or sold), excluding requests for service in the
ordinary course of business which Span or Ocala is required to perform
pursuant to the terms of standard warranties and which are covered by
warranty reserves, to the extent such claims, individually or in the
aggregate, could have a Material Adverse Effect.
2.6 Employees.
(a) With respect to the employees of Span and Ocala:
(i) Schedule a contains a true and complete list of each bonus,
deferred compensation, incentive compensation, stock purchase, stock
option, severance or termination pay, hospitalization
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or other medical, life or other insurance, supplemental unemployment
benefits, profit-sharing, pension, or retirement plan, program,
agreement or arrangement (collectively, the "Plans"), currently
sponsored, maintained or contributed to or required to be contributed to
by Span or Ocala for the benefit of any employee of Span or Ocala (an
"Employee" and collectively, the "Employees").
(ii) Neither Span nor Ocala, now or at any time in the past, has
maintained, sponsored or contributed to any employee pension benefit
plan (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), whether or not excluded from
coverage under specific Titles or Subtitles of ERISA) for the benefit of
Employees or former Employees (a "Pension Plan").
(iii) Span and Ocala maintain, sponsor or contribute to only those
employee welfare benefit plans (as defined in Section 3(1) of ERISA,
whether or not excluded from coverage under specific Titles or Subtitles
of ERISA) for the benefit of Employees or former Employees which are
described in Schedule a (the "Welfare Plans"), none of which is a
multiemployer plan (within the meaning of Section 3(37) of ERISA).
(iv) With respect to each of the Plans, Span has heretofore
delivered to Tylan true and complete copies of each of the following
documents:
(A) a copy of each such Plan (including all amendments thereto);
(B) a copy of the annual report, if required under ERISA, with
respect to each such Plan for the last two years;
(C) a copy of the most recent Summary Plan Description, together
with each Summary of Material Modifications, if required under ERISA,
with respect to each such Plan, and all material employee
communications relating to such Plan;
(D) if such Plan is funded through a trust or any third party
funding vehicle, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial
statements thereof;
(E) all contracts relating to the Plans, including, without
limitation, service provider agreements, insurance contracts,
investment management agreements, subscription and participation
agreements and recordkeeping agreements; and
(F) the most recent determination letter received from the IRS
with respect to each such Plan that is intended to be qualified under
Section 401 of the Code.
(v) Neither Span nor Ocala has, and neither has ever had, any
affiliates as determined under Section 4001(b)(1) of ERISA or Section
414(b), (c), (m) or (o) of the Code, nor has Span or Ocala ever been a
member of an "affiliated service group" within the meaning of Section
414(m) of the Code; neither Span nor Ocala has ever made a complete or
partial withdrawal from a multiemployer plan, as such term is defined in
Section 3(37) of ERISA, resulting in "withdrawal liability," as such
term is defined in Section 4201 of ERISA (without regard to subsequent
reduction or waiver of such liability under either Section 4207 or 4208
of ERISA).
(vi) Neither Span nor Ocala has any plan or commitment, whether
legally binding or not, to create any additional Welfare Plan or any
Pension Plan, or any plan or commitment to modify or change any existing
Welfare Plan, other than changes to comply with applicable law, that
would affect any Employee.
(vii) No Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to current or former employees of
Span or Ocala after any such employee's retirement or other termination
of service (other than (A) benefit coverage mandated by applicable law,
including, without limitation, coverage provided pursuant to Section
4980B of the Code, (B) deferred compensation benefits accrued as
liabilities on the books of Span or Ocala, (C)
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benefits the full cost of which is borne by the current or former
employee (or the employee's beneficiary)).
(viii) With respect to each of the Welfare Plans constituting a
group health plan within the meaning of Section 162(i) of the Code, the
provisions of Section 4980B of the Code have been complied with in all
material respects.
(ix) Each of the Plans has been operated and administered in all
material respects in accordance with applicable laws, including but not
limited to ERISA and the Code.
(x) Each of the Plans intended to be qualified under Section 401 of
the Code has received a favorable determination from the Internal
Revenue Service and nothing has occurred since such determinations to
adversely affect them.
(xi) Neither the execution of this Agreement nor the consummation
of the transactions contemplated hereby will result in any payment
(including, without limitation, any bonus, golden parachute or severance
payment) to any director of Span or Ocala or Employee under any Plan, or
materially increase the benefits payable under any Plan, or result in
the acceleration of the time of payment or vesting of such benefits.
(b) Schedule 2.6(b) contains a list of all employees of Span and Ocala
as of February 1, 1996. Said list correctly reflects, in all material
respects, their salaries, other compensation (other than under the Welfare
Plans), dates of employment, positions, social security numbers and birth
dates.
(c) Each of Span and Ocala has complied in all material respects and
is currently complying in all material respects with all applicable laws
relating to employment and employment practices, including, without
limitation, wages, workplace safety, equal employment opportunity and
nondiscrimination ("Labor Laws"). Other than as set forth on Schedule
2.6(c), neither Span nor Ocala has received any notice of noncompliance or
violation of any Labor Law that is pending or unresolved; no action is
pending or to the best knowledge of Span and each of the Principal
Shareholders, threatened before the National Labor Relations Board, the
Equal Employment Opportunity Commission, the U.S. Department of Labor or
any other foreign, federal, state or local governmental authority or court
relating to employment matters or any Labor Law; and there is no pending
or, to the best knowledge of Span and each of the Principal Shareholders,
threatened arbitration, suit, litigation or proceeding, against Span or
Ocala or any current or former director, major shareholder, officer or
supervisory employee of Span or Ocala, alleging wrongful termination,
racial, religious, sexual or age discrimination, improper post-termination
conduct, or breach of contract or covenant of employment.
(d) Schedule 2.6(d) identifies all employees of Span and Ocala who are
not available fully to perform work because of disability, layoff, leave or
similar status and sets forth the basis of such leave and the anticipated
date of return to full service.
(e) To the best knowledge of Span and each of the Principal
Shareholders, all individuals who are performing or have performed services
for Span or Ocala within the last two years and are or were classified as
"independent contractors" for tax purposes qualify for such classification.
(f) Neither Span nor Ocala is subject to any collective bargaining
agreement with respect to any of its employees, has any current labor
problems or disputes, or, to the best knowledge of Span and each of the
Principal Shareholders, has been subject to any effort to organize any of
its employees during the last 24 months.
2.7 Litigation and Claims; Compliance With Law.
(a) Except for litigation or proceedings relating to the environment
(which are exclusively provided for in Section 2.8 below), there is no
material arbitration, suit, litigation or proceeding, in law or in equity,
pending, or, to the best knowledge of Span and each of the Principal
Shareholders, threatened before any court, tribunal, master or governmental
agency, authority or body in which Span or Ocala is a party or to which its
business or property is subject. To the best knowledge of Span and each of
the Principal
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Shareholders, there are no preliminary proceedings or governmental
investigations before any commission or other administrative authority
pending or threatened against Span or Ocala, and, except as set forth on
Schedule 2.7(a), no event has occurred or circumstance exists that (with or
without notice or lapse of time) may serve as the basis for or give rise to
any such arbitration, suit, litigation or proceeding.
(b) Neither Span nor Ocala is a party to any decree, order or
arbitration award (or agreement entered into in any administrative,
judicial or arbitration proceeding with any governmental authority) with
respect to its properties, assets, personnel or business activities.
(c) Except for laws, rules and regulations relating to the environment
(which are exclusively provided for in Section 2.8 below), neither Span nor
Ocala is in violation of, or delinquent in respect to, any decree, order or
arbitration award or law, statute, or regulation of, or agreement with, or
any license or permit from, any federal, state, local and foreign
governmental authority to which its properties, assets, personnel or
business activities are subject or to which Span or Ocala is subject,
including, without limitation, laws, rules and regulations relating to
occupational health and safety, equal employment opportunities, fair
employment practices, and sex, race, religious and age discrimination,
except such violation of delinquency which either in the particular
instance or in the aggregate would not have a Material Adverse Effect.
2.8 Environmental Provisions.
(a) For the purposes of this Section 2.8:
(i) "Environmental Claim" means any material claim, action, cause
of action, investigation or notice (written or oral) by any person or
entity alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal
injuries, or penalties) arising out of, based on or resulting from (A)
the presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned or operated
by Span or Ocala, or (B) circumstances forming the basis for any
violation, or alleged violation, of any Environmental Law.
(ii) "Environmental Laws" means all federal, state, local and
foreign laws and regulations relating to pollution or protection of
human health or the environment (including, without limitation, ambient
air, surface water, ground water, land surface or subsurface strata),
including, without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Materials of Environmental Concern.
(iii) "Materials of Environmental Concern" means chemicals,
pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products or any other substance now or hereafter regulated by
Environmental Laws or that is otherwise a danger to health, reproduction
or the environment.
(b) Except as set forth in Schedule 2.8(b), each of Span and Ocala is
in compliance in all material respects with all applicable Environmental
Laws, which compliance includes, but is not limited to, the possession by
Span and Ocala of all material permits and other governmental
authorizations required under applicable Environmental Laws, and material
compliance with the terms and conditions thereof. Except as set forth in
Schedule 2.8(b), neither Span nor Ocala has received any communication
(written or oral), whether from a governmental authority, citizens group,
employee or otherwise, that alleges that it is not in such full compliance,
and, to the best knowledge of Span and each of the Principal Shareholders,
there are no circumstances that may prevent or interfere with such material
compliance in the future. Except as set forth in Schedule 2.8(b), to the
best knowledge of Span and each of the Principal Shareholders, no current
or prior owner of any property owned or leased by Span or Ocala has
received any communication (written or oral), whether from a government
authority, citizens group, employee or otherwise, that alleges that it, or
Span or Ocala, is not in such full compliance. All permits
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and other governmental authorizations currently held by Span or Ocala
pursuant to the Environmental Laws are identified in Schedule 2.8(b).
(c) Except as set forth in Schedule 2.8(c), there is no Environmental
Claim pending or, to the best knowledge of Span and each of the Principal
Shareholders, threatened against Span or Ocala or against any person or
entity whose liability for any Environmental Claim Span or Ocala has or may
have retained or assumed either contractually or by operation of law.
(d) Except as set forth in Schedule 2.8(d) and except as would not,
either in the particular instance or in the aggregate, have a Material
Adverse Effect, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that could form a reasonable basis for
any Environmental Claim against Span or Ocala or, to the best knowledge of
Span and each of the Principal Shareholders, against any person or entity
whose liability for any Environmental Claim Span or Ocala has or may have
retained or assumed either contractually or by operation of law.
(e) Without in any way limiting the generality of the foregoing, (i)
all on-site and off-site locations where Span or Ocala have stored,
disposed of or arranged for the disposal of, Materials of Environmental
Concern are identified in Schedule 2.8(e), (ii) to the best knowledge of
Span and each of the Principal Shareholders, all underground storage tanks
(whether or not in use by Span or Ocala), and the capacity and contents of
such tanks, located on property owned or leased by Span or Ocala, are
identified in Schedule 2.8(e), (iii) to the best knowledge of Span and each
of the Principal Shareholders, except as set forth in Schedule e, there is
no asbestos contained in or forming part of any building, building
component, structure or office space owned or leased by Span or Ocala, and
(iv) to the best knowledge of Span and each of the Principal Shareholders,
except as set forth in Schedule 2.8(e), no polychlorinated biphenyls (PCBs)
are used or stored at any property owned or leased by Span or Ocala.
2.9 Properties.
(a) Span has previously delivered to Tylan true and correct copies of
all leases pursuant to which Span or Ocala leases real or personal property
(the "Leases"). Each of the Leases is valid, binding and enforceable
against Span, Ocala or Whitson Properties, L.C. and, to the best knowledge
of Span and each of the Principal Shareholders, against each of the lessors
thereunder in accordance with its terms and is in full force and effect.
Except as described in Schedule a, neither Span nor Ocala is in default
under any term of any Lease nor, to the best knowledge of Span and each of
the Principal Shareholders, is any other party thereto in default
thereunder, and no event has occurred which (whether with or without
notice, lapse of time or both) would constitute a default by Span or Ocala.
The transactions contemplated by this Agreement shall not constitute a
breach of any Lease. The properties subject to the Leases and the
conditions of the Leases are suitable in all material respects for the
business currently being conducted thereon by Span or Ocala, as the case
may be. There are no condemnation proceedings pending or, to the best
knowledge of Span and each of the Principal Shareholders, threatened with
respect to any portion of the property subject to the Leases.
(b) Each of Span and Ocala has good and valid title to its assets
reflected as owned in the November 30, 1995 Balance Sheet (as well as all
of its properties and assets which have been fully depreciated and are not
reflected therein) or acquired after that date. Except as set forth in
Schedule 2.9(b), as of November 30, 1995 and as of the Closing, each of
Span and Ocala shall have good and valid title to its assets, free and
clear of any mortgages, pledges, liens, security interests, conditional and
installment sale agreements, encumbrances or charges of any kind
(collectively, "Liens"), other than (i) Liens shown on the November 30,
1995 Balance Sheet as securing specified liabilities (with respect to which
no default exists), (ii) Liens for current taxes not yet due, (iii)
purchase money security interests and (iv) all minor imperfections of title
and encumbrances, if any, which do not impair the operations of Span or
Ocala in any material respect. All of the assets of Span and Ocala are in
all material respects (i) fit for the purposes for which intended and (ii)
in good operating condition and repair, except for ordinary wear and tear,
are currently used by Span or Ocala in the ordinary course of its business,
and are sufficient for the operation of Span's or Ocala's business, as the
case may be. As of the Closing, the assets of Span and Ocala shall
constitute all of the properties, rights and assets (other than insurance
policies)
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necessary for the conduct of the businesses of Span and Ocala as currently
conducted and as conducted at Closing. Except as set forth in Schedule
2.9(b), all material tangible assets of Span and Ocala are located in
Plano, Texas, Ocala, Florida, and San Clemente, California. Except as set
forth on Schedule 2.9(b), no tangible personal property has been loaned or
otherwise made available to Span or Ocala for development or other
purposes.
(c) Span has fire and casualty insurance policies, with extended
coverage (subject to reasonable deductibles and policy exclusions),
sufficient to allow Span and Ocala to replace any of their material
properties that might be damaged or destroyed, and has liability insurance
reasonably adequate to protect each of Span and Ocala and its financial
condition against the risks involved in the business conducted by it.
Schedule 2.9(c) lists all such policies. Span and Ocala have paid all
premiums when due and have not done anything by way of action or inaction
which could be reasonably likely to invalidate any of such policies, in
whole or in part. There are no outstanding requirements or recommendations
of any insurance company that has issued a policy to Span or Ocala which
require or recommend any changes to the conduct of the business of Span or
Ocala, or any repair or other work with respect to any of its properties,
and no insurance company providing coverage to Span or Ocala has refused to
cover any claim or given any notice of defense subject to reservation of
rights or provided any notice of cancellation of any coverage.
(d) Each of Span and Ocala has good, marketable and insurable title to
each piece of real property owned by it (collectively, "Property"), free
and clear of all material liens, encumbrances, covenants, conditions,
restrictions, rights of way, easements and other matters affecting title.
True and complete copies of any title report relating to the Property have
been delivered to Tylan.
(e) To the best knowledge of Span and each of the Principal
Shareholders, (i) no action, suit, proceeding or investigation is pending
or threatened (including without limitation environmental litigation and
eminent domain, condemnation or similar proceedings) materially affecting
the Property or against Span or Ocala and relating to or arising from its
interest in any tangible asset owned by it, and (ii) none of Span, Ocala or
either of the Principal Shareholders has received any notice of or has any
knowledge that any such proceedings are contemplated. To the best knowledge
of Span and each of the Principal Shareholders, (A) the uses presently
being made of the Property conform to existing zoning laws, (B) all
material permits and licenses necessary for the use, occupancy and
operation of the Property have been obtained, (C) Span and Ocala have
complied in all material respects with all laws, ordinances, rules and
regulations of any governmental agency or body having or asserting
jurisdiction over the Property, and (D) the Property complies in all
material respects with all building, fire and life safety codes and
requirements.
(f) Neither Span nor Ocala is a "foreign person" as that term is
defined in the Code and in applicable regulations.
2.10 Intellectual Property.
(a) Schedule a lists all domestic and foreign patents and patent
applications owned or licensed by Span or Ocala (the "Patents") and all
material agreements relating thereto. Except where such Patents are
indicated to be licensed, Span (or Ocala, as the case may be) owns the
Patents and all related patent rights free and clear of all liens, claims
or encumbrances and may assign or license them free and clear of any liens,
claims or encumbrances. There are no proceedings, and to the best knowledge
of Span and each of the Principal Shareholders, there are no claims,
threats or other communications, which challenge the validity of any claim
of any Patent. All such Patents are currently in compliance with formal
legal requirements (including payment of filing, examination and
maintenance fees and proofs of working or use), and neither Span nor either
of the Principal Shareholders has any reason to believe that any of the
Patents is not, or upon issuance will not be, valid and enforceable. No
Patent has been or is now involved in any interference proceeding or has
been challenged in any way, and neither Span nor either of the Principal
Shareholders is aware of any interfering patent or patent application.
Neither Span nor either of the Principal Shareholders is aware of any
relevant information that is material to the examination of an application
for any Patent that has not been disclosed to the U.S. Patent and Trademark
Office pursuant to the disclosure requirements of 37 C.F.R. 1.56. Span has
delivered to Tylan copies of all opinions and
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memoranda of counsel received by it and relating to (i) the validity and
patentability of the Patents, (ii) infringement by third parties of the
Patents and (iii) Span's or Ocala's freedom to operate. Schedule 2.10(a)
lists all existing agreements including licenses relating to the Patents
granted to third parties by Span or Ocala. Except as disclosed in Schedule
2.10(a), subject to any right of Span (or Ocala, as the case may be) to
conduct an audit of its licensees, all royalties and other payments due
under said agreements have been paid, and no party to those agreements is
in material default in any manner respecting its obligations under those
agreements. Except for the agreements listed in Schedule a and except for
any license implied by the sale of a product, no other license, covenant,
or agreement has been granted or entered into by Span or Ocala with respect
to the Patents.
(b) Schedule 2.10(b) lists all domestic and foreign registered
copyrights, trademarks and trademark applications owned by Span or Ocala
and/or licensed by Span or Ocala from (other than pursuant to standard
end-user Licenses) or to third parties (the "Trademarks" and "Copyrights"),
indicating in each case whether the Trademark or Copyright is owned or
licensed, and a listing and summary description of all agreements relating
to the Trademarks and Copyrights. Other than as set forth on Schedule
2.10(b), each of Span and Ocala owns free and clear of all liens, claims or
encumbrances the Trademarks and Copyrights which are so designated as owned
by it, and all agreements with respect to Trademarks and Copyrights are
valid and binding, are in full force and effect, and neither Span nor, to
the best knowledge of Span and each of the Principal Shareholders, any
other party thereto is in material default, or with the giving of notice or
lapse of time or both, would be in material default under the terms of such
agreement. All registered Trademarks and Copyrights are in compliance with
all formal legal requirements (including, in the case of Trademarks, the
timely post registration filing of affidavits of use and incontestability
and of renewal applications), are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling due within 180
days after the Closing Date. To the best knowledge of Span and each of the
Principal Shareholders, there are no interference, opposition or
cancellation proceedings or infringement suits pending or threatened with
respect to any of the Trademarks or Copyrights. Neither Span nor either of
the Principal Shareholders has been advised or has any reason to believe
that Span or Ocala is infringing a trademark or copyright held by another
person.
(c) Each of Span and Ocala owns or has in its possession certain
information, know-how and show-how (including, without limitation, data,
documents, drawings, designs, software, procedures, customer lists and
other proprietary materials) relating to, without limitation, the
specification, examination, simulation, design, implementation,
manufacture, procurement of materials and the like from suppliers or
subcontractors, quality control and testing, use and delivery of its
products (the "Trade Secrets"). Each of Span and Ocala has taken reasonable
precautions to maintain Trade Secrets in confidence and to prevent their
disclosure to unauthorized persons, including having each of its employees
execute and deliver its standard proprietary information protection and
assignment agreement (a copy of which has been delivered to Tylan). To the
best knowledge of Span and each of the Principal Shareholders, Span (or
Ocala, as the case may be) has good title and an absolute right to use all
Trade Secrets, and the use of the Trade Secrets does not infringe the
rights of any third party. Schedule 2.10(c) sets forth a list of all
agreements relating to the Trade Secrets. To the extent that the Trade
Secrets are not available in documentary or fixed form, disclosure shall be
made to Tylan prior to Closing to permit Tylan to make full use of the
Trade Secrets to operate the business of Span.
(d) All personnel, including Employees, agents, consultants and
contractors, who have contributed to or participated in the conception and
development of the software programs, technical documentation or other
intellectual property of Span or Ocala either (i) have been party to a
"work-for-hire" arrangement or agreement with Span or Ocala, in accordance
with applicable federal and state law, that has accorded Span (or Ocala, as
the case may be) full, effective, exclusive and original ownership of all
tangible and intangible property thereby arising, or (ii) have executed
appropriate instruments of assignment in favor of Span (or Ocala, as the
case may be) as assignee that have conveyed to Span (or Ocala, as the case
may be) full, effective and exclusive ownership of all tangible and
intangible property thereby arising.
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(e) To the best knowledge of Span and each of the Principal
Shareholders, no person is infringing upon any Patent, Trademark or
Copyright or is misappropriating any Trade Secret. To the best knowledge of
Span and each of the Principal Shareholders, none of the products sold by,
nor any processes or know-how used by, Span or Ocala, infringes any patent,
trademark or copyright of any third party. To the best knowledge of Span
and each of the Principal Shareholders, there is no intellectual property,
in any form, whether patent, trademark, tradename, trade secret, copyright
or otherwise, necessary for the operation of Span's or Ocala's business as
conducted which neither Span (or Ocala, as the case may be) does not
currently own or license on commercially reasonable terms.
2.11 Disclosure.
(a) The copies of all documents furnished by Span pursuant to the
terms of this Agreement are complete and accurate.
(b) For purposes of this Agreement and the transactions contemplated
hereby, none of (i) the representations and warranties made by Span in this
Agreement, (ii) the disclosure schedules delivered to Tylan pursuant hereto
(the "Span Disclosure Schedule") or (iii) any statement by Span or, to the
best knowledge of Span and each of the Principal Shareholders, any other
person, contained in any document, certificate or other writing furnished
by Span to Tylan in connection with this Agreement, the Merger or the
transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material
fact necessary to make the statements made herein or therein, in light of
the circumstances in which they were made, not misleading.
2.12 Finders. Span has not dealt with any person, firm or corporation
(other than Blum & Co., Inc.) who is or may be entitled to a broker's
commission, finder's fee, investment banker's fee or similar payment from Span
for arranging the transaction contemplated hereby or introducing the parties to
each other.
2.13 Transactions with Affiliates. Except for compensation of employees,
every material transaction between Span and any of its "affiliates" or their
"associates" (as such terms are defined in the rules and regulations of the
Securities and Exchange Commission ("SEC")) other than Tylan, which is currently
in effect or was consummated in the last three years, is set forth on Schedule
2.13.
2.14 No Contemplated Transactions Inconsistent With Pooling-Of-Interests
Accounting. Neither Span nor any of the Shareholders is contemplating any
transaction that would constitute a change in equity interests in Span's Common
Shares or otherwise would result in the Merger not qualifying for
pooling-of-interests accounting.
3. REPRESENTATIONS AND WARRANTIES OF TYLAN AND TYLAN SUB
Tylan and Tylan Sub represent and warrant to Span as of the date of this
Agreement and as of the Closing Date as follows:
3.1 Organization.
(a) Tylan is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Tylan Sub is a
corporation duly organized, existing and in good standing under the laws of
the State of Delaware. Each of Tylan and Tylan Sub has all necessary power
and authority under applicable corporate law and its organizational
documents to own or lease its properties and to carry on its business as
presently conducted.
(b) Each of Tylan and Tylan Sub is qualified to do business as a
foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of its business requires such qualification
and where the failure to so qualify would have a Material Adverse Effect.
(c) The authorized capital stock of Tylan consists of 50,000,000
shares of common stock, par value $.001 per share, of which, as of January
31, 1996, 6,479,732 shares were issued and outstanding, and 10,000,000
shares of preferred stock, par value $.001 per share, of which, as of the
date hereof, no shares were issued and outstanding. All the issued and
outstanding shares of Tylan are validly issued, fully paid
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and nonassessable and free of preemptive rights. As of January 31, 1996,
Tylan has outstanding options to purchase 669,695 shares of Tylan Common
Stock. Except as set forth above or pursuant to the exercise of the
foregoing options, there are not as of the date hereof any shares of
capital stock of Tylan authorized, issued or outstanding or any outstanding
subscriptions, options, warrants, stock appreciation rights, calls, rights,
convertible securities or other agreements or commitments of any character
relating to unissued shares of capital stock of Tylan, or otherwise
obligating Tylan to issue, transfer or sell any shares of capital stock of
Tylan, or other securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of the capital stock of
Tylan. The authorized capital of Tylan Sub consists of 10,000 shares of
Common Stock, $.001 par value, 100 of which are issued and outstanding.
(d) Each of Tylan and Tylan Sub has full corporate power and authority
to execute, deliver and perform this Agreement. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Boards of Directors of
each of Tylan and Tylan Sub, and no other corporate proceedings on the part
of Tylan or Tylan Sub are necessary for Tylan and Tylan Sub to authorize
this Agreement or to consummate the transactions contemplated hereby (other
than approval by the stockholders of Tylan). This Agreement has been duly
executed and delivered by duly authorized officers of Tylan and Tylan Sub.
This Agreement constitutes a legal, valid and binding obligation of Tylan
and Tylan Sub, enforceable against each of them in accordance with its
terms (except to the extent that enforcement is affected by laws pertaining
to bankruptcy, insolvency, reorganization and creditors' rights and by the
availability of injunctive relief, specific performance and other equitable
remedies).
(e) The Employment Agreements (as defined in Section 5.2) have been,
or prior to the Closing will be, duly and validly authorized and, when
executed and delivered pursuant to their terms, will constitute valid and
binding agreements of Tylan enforceable against Tylan in accordance with
their terms (except to the extent that enforcement is affected by laws
pertaining to bankruptcy, insolvency, reorganization and creditors' rights
and by the availability of injunctive relief, specific performance and
other equitable remedies).
(f) Except as may be required by the Securities Act, state securities
laws, the Texas Law or the DGCL, there is no requirement applicable to
Tylan or Tylan Sub to make any filing with, or to obtain any permit,
authorization, consent or approval of, any governmental or regulatory
authority as a condition to the lawful consummation by Tylan and Tylan Sub
of the transactions contemplated by this Agreement. Neither Tylan nor Tylan
Sub knows of any reason why any required permit, authorization, consent or
approval will not be obtained. Neither the execution and delivery of this
Agreement by Tylan and Tylan Sub nor the consummation by Tylan and Tylan
Sub of the transactions contemplated by this Agreement will (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of Tylan or Tylan Sub, (ii) result in a material
default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture or other evidence of indebtedness of Tylan or
Tylan Sub or any material license agreement, lease or other material
contract, instrument or obligation to which Tylan or Tylan Sub is a party
or by which Tylan or Tylan Sub or any of their respective assets may be
bound, (iii) violate any statute, rule, regulation, order, writ,
injunction, decree or arbitration award applicable to Tylan or Tylan Sub or
any of their respective assets which violation would have a Material
Adverse Effect on Tylan or (iv) result in the creation of any material
(individually or in the aggregate) liens, charges or encumbrances on any of
the assets of Tylan or Tylan Sub.
(g) Tylan has delivered to Span complete and accurate copies of
Tylan's Certificate of Incorporation and Bylaws, and Tylan Sub's
Certificate of Incorporation and Bylaws, each as amended.
3.2 Common Stock To Be Issued. The Tylan Common Stock to be issued to the
Shareholders hereunder, when issued by Tylan to the Shareholders pursuant to the
terms of this Agreement, will be duly authorized, validly issued, fully paid and
non-assessable, will be issued in compliance with applicable federal and state
securities laws, will have the rights and preferences set forth in the
Certificate of Incorporation of Tylan previously delivered to Span, and will be
free and clear of all liens, encumbrances and adverse claims;
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provided that the Tylan Common Stock to be issued to the Shareholders may be
subject to restrictions on transfer under federal securities laws as set forth
in this Agreement.
3.3 Financial. The audited consolidated balance sheet of Tylan as of
October 31, 1995 and the audited consolidated statement of operations and
statement of cash flows of Tylan for the fiscal year ended October 29, 1995,
each certified by Deloitte & Touche LLP, independent certified public
accountants, whose report thereon is included therein, have been prepared in
accordance with the books and records of Tylan, which books and records are
complete, maintained on a consistent basis, and correctly reflect its income,
expenses, assets and liabilities, are true, complete and accurate and present
fairly the financial position of Tylan as of the date of said balance sheets and
the results of operations of Tylan for the periods covered by said statements of
operations, in accordance with GAAP consistently applied, except as otherwise
disclosed therein. The financial statements described in this Section 3.3 are
referred to in this Agreement as the "Tylan Financial Statements."
3.4 Disclosure.
(a) Tylan has previously delivered to Span copies of Tylan's Annual
Report on Form 10-K for the fiscal year ended October 29, 1995.
(b) The copies of all documents furnished by Tylan pursuant to the
terms of this Agreement are complete and accurate.
(c) For purposes of this Agreement and the transactions contemplated
thereby, none of (i) the representations and warranties made by Tylan or
Tylan Sub in this Agreement or (ii) any statement by Tylan or, to the best
of Tylan's knowledge, any other person, contained in any document,
certificate or other writing furnished by Tylan to Span in connection with
this Agreement, the Merger or the transactions contemplated hereby (when
read together), contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary to make the
statements made herein or therein, in light of the circumstances in which
they were made, not misleading.
3.5 Finders. Tylan has not dealt with any person, firm or corporation
(other than Kleinwort Benson Limited and Adams, Harkness & Hill, Inc.) who is or
may be entitled to a broker's commission, finder's fee, investment banker's fee
or similar payment for arranging the transaction contemplated hereby or
introducing the parties to each other.
4. COVENANTS OF SPAN AND THE PRINCIPAL SHAREHOLDERS
Span and each of the Principal Shareholders hereby jointly and severally
covenant and agree as follows:
4.1 Negative Covenants. Between the date of this Agreement and the
Effective Date, unless Tylan shall otherwise consent in writing, except as
provided hereunder, Span will not do, or commit to do, and neither of the
Principal Shareholders shall take any action, or omit to take any action, to
cause Span to do or commit to do, and Span shall not take any action, or omit to
take any action, to cause Ocala to do or commit to do any of the following:
(a) make any purchase, sale or disposition of any asset or property,
other than in the ordinary course of business consistent with past
practices or the disposition of immaterial assets, or mortgage, pledge,
subject to a lien or otherwise encumber any of its properties or assets
(other than the existing liens of Fleet Credit Corporation);
(b) incur any material contingent liability as a guarantor or
otherwise with respect to the obligations of any person or entity, except
for any such liability pursuant to Contracts listed on Schedule 2.5(a) (not
including any amendments thereto after the date hereof);
(c) take any action, or permit any action within Span's or the
Principal Shareholders' control, which would prevent the Merger from
qualifying as a tax-free reorganization under Section 368 of the Code or
from being eligible for pooling-of-interests accounting treatment in
accordance with GAAP and all rules,
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regulations and policies of the SEC, and Span will use its best efforts to
prevent any of the Shareholders or any of the officers or directors of Span
or Ocala from taking or permitting any such action;
(d) amend any charter documents as previously delivered to Tylan;
(e) issue any of its capital shares or grant any options, warrants or
rights to acquire any capital shares, or modify the terms or waive any
rights under any options, warrants or other securities currently
outstanding or accelerate vesting with respect to any unvested options or
capital shares; or declare, set aside or pay any dividend or make any other
distribution in respect of its capital shares, or make any direct or
indirect redemption, purchase or other acquisition of its capital shares,
except pursuant to Contracts listed on Schedule 2.5(a) (not including any
amendments thereto after the date hereof);
(f) make any material change in the compensation payable or to become
payable to any of its officers or employees or enter into, amend or
terminate any employment or consulting agreements or waive any rights
thereunder;
(g) engage in transactions with any of its shareholders, officers,
directors or employees other than in the ordinary course of business,
except pursuant to agreements in existence on the date hereof and listed on
Schedule 2.5(a) (not including any amendments thereto after the date
hereof);
(h) enter into, amend, renew, extend, modify or terminate (prior to
its scheduled termination date) any sales, agency or distribution
agreement, any management or employment or consulting agreement, any lease,
license or royalty agreement, or any other material agreement or Contract
or waive any material rights thereunder;
(i) undertake any stock split, recapitalization or reorganization;
(j) solicit, encourage, negotiate, provide information for, or
otherwise cooperate in any way with, assist, or facilitate and use its best
efforts to prevent any of its officers and directors, employees,
representatives and agents from soliciting, encouraging or negotiating or
providing information for or otherwise cooperating in any way with,
assisting or facilitating any of the following (an "Acquisition Proposal"):
(i) any merger or consolidation of Span or Ocala with any person
other than Tylan or Tylan Sub,
(ii) any sale of assets of Span or Ocala to any person other than
Tylan or Tylan Sub (other than sales of inventory in the ordinary course
of business);
(iii) any equity or debt investment (other than on terms approved
by Tylan) in Span or Ocala by any person; or
(iv) any purchase of outstanding securities of Span or Ocala by any
person;
(k) undertake a course of action inconsistent with this Agreement or
which would cause any representation or warranty in this Agreement to
become untrue in any material respect or which would prevent any condition
precedent to its obligations under this Agreement from being satisfied at
or prior to the Effective Date;
(l) provide or publish to its shareholders any material which might
constitute an unauthorized "prospectus" within the meaning of the
Securities Act, or any impermissible solicitation under the applicable
state law;
(m) incur any material obligation other than in ordinary course of
business, except pursuant to Contracts listed on Schedule 2.5(a) (not
including any amendments thereto after the date hereof);
(n) borrow money (other than pursuant to Contracts listed on Schedule
2.5(a) (not including any amendments thereto after the date hereof) or
pursuant to capital expenditures between the date hereof and the Closing
Date that will not exceed $1,500,000 in the aggregate) or incur new or
additional indebtedness (other than as set forth above in this Section
4.1(n) and accounts payable or trade payables
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incurred in the ordinary course of business and indebtedness pursuant to
Contracts listed on Schedule 2.5(a) (not including any amendments thereto
after the date hereof)) or loan money to any person (other than to Ocala in
amounts not to exceed $1,000,000 in the aggregate and travel and similar
advances to employees in the ordinary course of business);
(o) incur liabilities in connection with the leasing of property or
assets;
(p) issue any press release or public disclosure, either written or
oral, of the transactions contemplated by this Agreement without the prior
knowledge and written consent of Tylan;
(q) make any investment in any other business or entity through
purchase of stock or securities, contribution to capital, property
transfer, purchase of property or assets or otherwise;
(r) alter the manner of keeping its books and accounts or its
accounting practices and procedures other than as required by GAAP;
(s) revalue any of its assets, including without limitation writing
down the value of inventory or accounts receivable other than in the
ordinary course of business consistent with past practice;
(t) make any material tax election except in the ordinary course of
business consistent with past practice, change any material tax election
already made, adopt any tax accounting method except in the ordinary course
of business consistent with past practice, change any tax accounting
method, enter into any closing agreement, settle any tax claim or
assessment or consent to any tax claim or assessment or any waiver of the
statute of limitations for any such claim or assessment;
(u) commence any lawsuit except for routine collection of bills or for
a breach of this Agreement;
(v) impair any of its Patents, Copyrights, Trademarks or other
intellectual property rights; or
(w) fail to maintain its qualifications to do business in any state in
which Span or Ocala is qualified, or fail to maintain any other permit,
license, authorization or approval material to the operations of its
business.
Notwithstanding the foregoing, this Section 4.1 shall not prohibit (i)
any refinancing or increase in Span's senior indebtedness, provided that
the aggregate amount of such indebtedness (including existing amounts)
shall not exceed $14,000,000, and/or (ii) incurrence by Span or Ocala of
subordinated indebtedness not to exceed $5,000,000 in the aggregate.
4.2 Affirmative Covenants. Prior to the Effective Date, Span will do, and
each of the Principal Shareholders will take such action as is necessary or
appropriate to cause Span to do, each of the following:
(a) use its best efforts to perform and fulfill all conditions and
obligations on its part to be performed and fulfilled under this Agreement,
to the end that the transactions contemplated by this Agreement shall be
fully carried out;
(b) subject to Section 4.1, use its best efforts to obtain all
authorizations, consents and permits of others required to permit the
consummation by Span of the transactions contemplated by this Agreement and
the continuation of Span's business after the consummation of the Merger;
(c) promptly advise Tylan in writing of (i) any change that has or had
a Material Adverse Effect on Span; (ii) the occurrence of any event which
causes the representations and warranties made by Span in this Agreement or
the information included in the Span Disclosure Schedule to be incomplete
or inaccurate in any material respect; and (iii) the receipt of any inquiry
relating to an Acquisition Proposal from a third party, including the
identity of the third party and a copy of the inquiry;
(d) use reasonable best efforts to keep intact its business
organization, to keep available its present officers and key employees and
to preserve the goodwill of all suppliers, customers and others having
business relations with it;
(e) permit Tylan and its authorized representatives to have full
access during normal business hours to all of its properties, assets,
records, tax returns, contracts and documents and furnish to Tylan and its
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authorized representatives such financial and other information with
respect to its business and properties as Tylan may from time to time
reasonably request for purposes of making a review of the business of Span
and Ocala;
(f) as promptly as reasonably practicable after the date of this
Agreement, file with any governmental agencies or departments all notices,
reports and other documents required by law with respect to this Agreement
and the Merger and promptly submit any additional information or
documentary material properly requested by any such governmental agency or
department;
(g) in the event that between the date hereof and the Effective Date,
any federal, state, local or foreign governmental authority shall commence
any examination, review, investigation, action, suit or proceeding against
Span with respect to the Merger, give prompt notice thereof to Tylan, keep
Tylan informed as to the status thereof, and (except as may be prohibited
by such governmental authority or by any court order or decree in an action
or suit instituted by a person other than Span or an affiliate of Span)
permit Tylan to observe and be present at each meeting, conference or other
proceeding and have access to and be consulted in connection with any
document filed or provided to such governmental authority in connection
with such examination, review, investigation, action, suit or proceeding
(provided, however, that Span will not be required to waive any privilege
it may have in connection with any such examination, review, investigation,
action, suit or proceeding);
(h) use its best efforts to deliver to Tylan a Continuity of Interest
Certificate in the form attached hereto as Exhibit h (a "Continuity of
Interest Certificate") executed by each Shareholder;
(i) deliver to Tylan at the Closing the resignations of all directors
of Span;
(j) promptly provide Tylan with (i) copies of all written materials
and written communications furnished by Span to its shareholders after the
date of this Agreement, and (ii) copies of all notices, reports or other
documents filed with any government agency or department pursuant to
Section g hereof; (provided, however, that Span will not be required to
waive any privilege it may have in connection with any such examination,
review, investigation, action, suit or proceeding);
(k) promptly provide Tylan copies of all material operating and
financial reports prepared by Span, including copies of Span's consolidated
balance sheet and related consolidated statements of operations and
consolidated statements of cash flows for each month commencing January
1996 through the Closing Date; such monthly financial statements shall be
prepared in conformity with GAAP applied on a consistent basis and shall
fairly present (subject to immaterial year-end audit adjustments) the
financial condition, results of operations and cash flows of Span as of the
dates and for the periods covered by such statements and shall be delivered
promptly after preparation, but in no event later than 21 days after the
end of the month;
(l) use its best efforts to deliver to Tylan, or to cause its counsel
to deliver to Tylan, the closing documents referred to in this Agreement;
(m) with respect to the Notification letter described in Section 6.16,
provide the notification to the IRS required pursuant to Treasury
Regulations Section 1.897-2(h)(2);
(n) use its best efforts to deliver to Tylan the audited consolidated
balance sheet of Span as of February 29, 1996 and the audited consolidated
statement of operations, consolidated statement of cash flows and
consolidated statement of changes in shareholders' equity of Span for the
six months ended February 29, 1996, each certified by Ernst & Young LLP,
whose report thereon shall be unqualified;
(o) provide to Tylan, and use its best efforts to cause Ernst & Young
LLP to provide to Tylan, such financial statements and information and such
accountant's consents as may be required to be provided by Tylan in any
filing required by the Securities Act, the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or any state securities or Blue Sky law;
(p) use its best efforts to deliver to Tylan an Affiliate Agreement in
the form attached hereto as Exhibit 4.2(p) executed by each Affiliate;
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(q) provide to tax counsel for both Tylan and Span appropriate
representation certificates as described in Sections 6.17 and 7.9;
(r) take all steps necessary in accordance with its Articles of
Incorporation and By-laws to call, give notice of, convene and hold a
meeting of its shareholders (the "Span Shareholder Meeting") as soon as
practicable after the effectiveness of the Registration Statement (as
defined in Section 5.2(m) hereof), for the purpose of approving this
Agreement and for such other purposes as may be necessary. Unless this
Agreement shall have been validly terminated as provided herein, the Board
of Directors of Span (subject to any fiduciary duties it may have under
applicable law to do otherwise) will (i) recommend to its shareholders the
approval of this Agreement, the transactions contemplated hereby and any
other matters to be submitted to its shareholders in connection therewith,
to the extent that such approval is required by applicable law in order to
consummate the Merger, and (ii) use its reasonable, good faith efforts to
obtain the approval by its shareholders of this Agreement and the
transactions contemplated hereby;
(s) the information specifically designated as being supplied by Span
for inclusion in the Registration Statement shall not, at the time the
Registration Statement is declared effective, at the time the Proxy
Statement (as defined in Section 5.2(m) hereof) is first mailed to holders
of Span common stock and holders of Tylan Common Stock, at the time of the
Meetings (as defined in Section 5.2(l) hereof) and on the Effective Date,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
are made, not misleading. If at anytime prior to the Effective Date any
event or circumstance relating to Span or its officers or directors, should
be discovered by Span which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Span shall
promptly inform Tylan. All documents, if any, that Span is responsible for
filing with the SEC in connection with the transactions contemplated herein
will comply as to form and substance in all material respects with the
applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations thereunder;
(t) shall furnish all information to Tylan with respect to Span and
Ocala as Tylan may reasonably request for inclusion in the Registration
Statement and the Proxy Statement and shall otherwise cooperate with Tylan
in the preparation and filing of such documents; and
(u) shall deliver to Tylan a comfort letter, dated a date not more
than two business days before the date upon which the Registration
Statement becomes effective, from Ernst & Young LLP, in form and substance
reasonably satisfactory to Tylan and Tylan's counsel and accountants,
covering such matters as are normally covered in a comfort letter delivered
in connection with a Registration Statement on Form S-4 covering
transactions of the type contemplated by this Agreement.
5. COVENANTS OF TYLAN AND TYLAN SUB
Tylan and Tylan Sub covenant and agree as follows:
5.1 Negative Covenants. From the date of this Agreement until the
Effective Date, Tylan and Tylan Sub will not, unless Span shall otherwise
consent in writing:
(a) undertake a course of action inconsistent with this Agreement or
which would cause any representation or warranty of Tylan in this Agreement
to become untrue in any material respect or which would prevent any
condition precedent to its obligations under this Agreement from being
satisfied at or prior to the Effective Date;
(b) take or permit any action which would prevent the Merger from
qualifying as a reorganization under Section 368 of the Code or from being
eligible for pooling-of-interests accounting treatment in accordance with
GAAP and all rules, regulations and policies of the SEC, and Tylan will use
its best efforts to prevent any of its officers or directors from taking or
permitting any such action;
(c) amend its Certificate of Incorporation in any manner which would
adversely affect the Merger;
(d) declare, set aside or pay any dividend in respect of its capital
shares; or
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(e) issue any press release or public disclosure, either written or
oral, of the transactions contemplated by this Agreement without the prior
knowledge and written consent of Span except to the extent required by
applicable laws, rules and regulations in which event Span shall be
provided with a copy of any such release at or prior to its publication; or
(f) change the number of votes to which each share of Tylan's capital
stock is entitled.
5.2 Affirmative Covenants. Prior to the Effective Date, Tylan and/or
Tylan Sub will do the following:
(a) use its best efforts to perform and fulfill all conditions and
obligations on its part to be performed and fulfilled under this Agreement,
to the end that the transactions contemplated by this Agreement shall be
fully carried out, provided, however, that in no event shall this covenant
be deemed to impose any obligation on Tylan or Tylan Sub to waive any of
the conditions set forth in Article 6;
(b) use its best efforts to obtain all authorizations, consents and
permits of others required to permit the consummation by Tylan and Tylan
Sub of the transactions contemplated by this Agreement;
(c) use its best efforts to qualify the Tylan Common Stock to be
issued pursuant to the Merger under the securities or "blue sky" laws of
every jurisdiction of the United States in which a Shareholder has an
address on the records of Span's transfer agent on the record date for
determining the Span shareholders entitled to notice of and to vote on the
Merger, except any such jurisdiction with respect to which counsel for
Tylan has determined that such qualification is not required under the
securities or "blue sky" laws of such jurisdiction;
(d) as promptly as reasonably practicable after the date of this
Agreement, file with any governmental agencies or departments of all
notices, reports and other documents required by law with respect to this
Agreement and the Merger and promptly submit any additional information or
documentary material properly requested by any such governmental agency or
department;
(e) use its best efforts to cause the Tylan Common Stock to be issued
pursuant to the Merger to be listed on the Nasdaq National Market, free of
restrictions on transfer other than (i) restrictions pursuant to Rule 144
and Rule 145 promulgated under the Securities Act and (ii) restrictions
related to the Continuity of Interest Certificate referred to in Section
4.2(h);
(f) cause Tylan Sub to perform all of its agreements contained herein;
(g) promptly advise Span in writing of (i) any change that has or had
a Material Adverse Effect on Tylan; and (ii) the occurrence of any event
which causes the representations or warranties made by Tylan or Tylan Sub
in this Agreement to be incomplete or inaccurate in any material respect;
(h) in the event that between the date hereof and the Effective Date,
any federal, state, local or foreign governmental authority shall commence
any examination, review, investigation, action, suit or proceeding against
Tylan with respect to the Merger, give prompt notice thereof to Span, keep
Span informed as to the status thereof, and (except as may be prohibited by
such governmental authority or by any court order or decree in an action or
suit instituted by a person other than Tylan or an affiliate of Tylan)
permit Span to observe and be present at each meeting, conference or other
proceeding and have access to and be consulted in connection with any
document filed or provided to such governmental authority in connection
with such examination, review, investigation, action, suit or proceeding
(provided, however, that neither Tylan nor Tylan Sub will be required to
waive any privilege either of them may have in connection with any such
examination, review, investigation, action, suit or proceeding);
(i) enter into an employment agreement in substantially the form
attached hereto as Exhibit 5.2(i) with Donald E. Whitson (the "Whitson
Employment Agreement").
(j) enter into an employment agreement in substantially the form
attached hereto as Exhibit 5.2(j) with each of John Jul, George A. Yurch,
John Rabbitt, John Jordon, Tom Gray and Brian Day (collectively with the
Whitson Employment Agreement, the "Employment Agreements");
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(k) provide to tax counsel for both Tylan and Span appropriate
representation certificates as described in Sections 6.17 and 7.9;
(l) take all steps necessary in accordance with its Certificate of
Incorporation and By-laws to call, give notice of, convene and hold a
meeting of stockholders (the "Tylan Stockholder Meeting" and, together with
the Span Shareholder Meeting, the "Meetings") as soon as practicable after
the effectiveness of the Registration Statement, for the purpose of
approving this Agreement and for such other purposes as may be necessary.
Unless this Agreement shall have been validly terminated as provided
herein, the Board of Directors of Tylan (subject to any fiduciary duties it
may have under applicable law to do otherwise) will (i) recommend to its
stockholders the approval of this Agreement, the transactions contemplated
hereby and any other matters to be submitted to its stockholders in
connection therewith, to the extent that such approval is required by
applicable law in order to consummate the Merger, and (ii) use its
reasonable, good faith efforts to obtain the approval by its stockholders
of this Agreement and the transactions contemplated hereby;
(m) prepare and file with the SEC and any other applicable regulatory
bodies, as soon as reasonably practicable, a Registration Statement on Form
S-4 with respect to the shares of Tylan Common Stock to be issued in the
Merger (the "Registration Statement"), and will otherwise proceed promptly
to satisfy the requirements of the Securities Act, including Rule 145
thereunder. Such Registration Statement shall contain a joint proxy
statement of Tylan and Span containing the information required by the
Exchange Act (the "Proxy Statement"). Tylan shall take all reasonable steps
to cause the Registration Statement to be declared effective and to
maintain such effectiveness until all of the shares covered thereby have
been distributed. Tylan shall promptly amend or supplement the Registration
Statement to the extent necessary in order to make the statements therein
not misleading. Tylan shall use its reasonable, good faith efforts to have
the Proxy Statement approved by the SEC under the provisions of the
Exchange Act. Tylan shall provide Span with copies of all filings made
pursuant to this Section m and shall consult with Span on responses to any
comments made by the Staff of the SEC with respect thereto;
(n) the information specifically designated as being supplied by Tylan
for inclusion in the Registration Statement shall not, at the time the
Registration Statement is declared effective, at the time the Proxy
Statement is first mailed to holders of Span common stock and holders of
Tylan Common Stock, at the time of the Meetings and on the Effective Date,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, not misleading. The information specifically
designated as being supplied by Tylan for inclusion in the Proxy Statement
to be sent to the holders of Span common stock in connection with the Span
Shareholder Meeting and to the holders of Tylan Common Stock in connection
with the Tylan Stockholder Meeting shall not, at the date the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed
to holders of Span common stock and holders of Tylan Common Stock, at the
time of the Meetings or on the Effective Date, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, not
misleading. If at any time prior to the Effective Date any event or
circumstance relating to Tylan or its officers of directors, should be
discovered by Tylan which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Tylan shall
promptly inform Span and shall promptly file such amendment to the
Registration Statement. All documents that Tylan is responsible for filing
with the SEC in connection with the transactions contemplated herein will
comply as to form and substance in all material respects with the
applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations thereunder;
and
(o) use its best efforts to substitute Tylan for Donald E. Whitson as
guarantor of Span's senior indebtedness and leases that Donald E. Whitson
guarantees (which senior indebtedness and leases are identified on Schedule
5.2(o)) and, if Tylan is unable to do so within 90 days after the Closing
Date, Tylan shall repay such indebtedness in full.
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6. CONDITIONS PRECEDENT TO OBLIGATIONS OF TYLAN AND TYLAN SUB
The obligations of Tylan and Tylan Sub to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, prior to or upon
the Closing, of the following conditions precedent:
6.1 Satisfactory Completion Of Pre-Acquisition Review. Tylan shall have
satisfactorily completed its pre-acquisition investigation and review of Span's
business, condition, assets, liabilities, operations, financial performance, net
income and prospects and shall be satisfied with the results of that
investigation and review as evidenced by the approval of such results by a
majority of the members of the Board of Directors of Tylan.
6.2 Compliance With Covenants; Representations And Warranties
Correct. Span and the Share-holders shall have complied with and performed in
all material respects each covenant contained in this Agreement to be performed
by it or them at or prior to the Closing Date; the representations and
warranties of Span and the Shareholders contained in this Agreement shall be
true and correct in all material respects as of the Closing Date with the same
effect as though made on the Closing Date except to the extent that information
in Span's Schedules as of the date hereof changes as of the Closing Date (and
such changes are contained in the certificate referred to below in this Section
6.2) and each such change does not violate Section 4.1 or 4.2 hereof or any
other provision in this Article 6; and Span shall have delivered to Tylan a
certificate of the Chief Executive Officer and the Chief Financial Officer of
Span evidencing compliance with the conditions set forth in this Section 6.2.
6.3 No Material Adverse Change. After the date hereof, there shall have
been no change that had an adverse effect on the business, operations, condition
(financial or otherwise), assets or prospects of Span and Ocala, taken as a
whole, in excess of $100,000.
6.4 Consents Of Others. The consent to the Merger of each third party
whose consent is required for Span to consummate the transactions completed
hereby shall have been received except for consents which, if not obtained, in
the aggregate would not have a Material Adverse Effect on Span, including
without limitation the parties to the contracts listed on Schedule 2.5(a).
6.5 Legal Opinion. Tylan shall have received an opinion of Gardere &
Wynne, L.L.P., counsel to Span, dated the Closing Date, substantially to the
effect of Exhibit 6.5 hereto.
6.6 Dissenters' Rights. No holders of outstanding Span Common Shares
shall be, or shall have the right to become, entitled to dissenters rights
pursuant to Section 5.11 of the Texas Law.
6.7 Continuity of Interest. Tylan shall have received prior to the
Closing Date executed copies of the Continuity of Interest Certificate from the
Shareholders as provided in Section 4.2(h).
6.8 Absence of Restraint. No action shall be pending or threatened before
any court or administrative body to restrain, enjoin or otherwise prevent the
consummation of, or which questions the validity or legality of, this Agreement
or the transactions contemplated hereby, and no order, statute, rule,
regulation, executive order, decree, judgment, injunction or court order shall
have been enacted, entered, issued or promulgated by any court or governmental
authority which prohibits or materially restricts the consummation of this
Agreement and the transactions contemplated hereby, and no such action shall be
threatened.
6.9 No Litigation. No litigation shall have commenced against Span or
Ocala which would, if adversely determined, have an adverse effect on the
business, operations, condition (financial or otherwise), assets or prospects of
Span and Ocala, taken as a whole, in excess of $100,000.
6.10 Required Approvals. Tylan, Tylan Sub and Span shall have received
all such governmental approvals, consents, authorizations or modifications as
may be required to permit the performance by Tylan, Tylan Sub and Span, of their
respective obligations under this Agreement and the consummation of the
transactions herein contemplated.
6.11 State Securities Law Requirements. The shares of Tylan Common Stock
to be issued in connection with the Merger shall have been issued in
transactions qualified or exempt from registration under the securities or "blue
sky" laws of every jurisdiction required under Section 5.2(c) hereof.
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6.12 Span Shareholders' Approval. The approval and adoption of this
Agreement by the requisite vote of the outstanding shares of Span Common Shares
entitled to vote, in accordance with Section 4.2(s) hereof and the applicable
provisions of the Texas Law, shall have occurred and be continuing and remain in
full force and effect.
6.13 Tylan Stockholders' Approval. The approval and adoption of this
Agreement by the requisite vote of the outstanding shares of Tylan Common Stock
entitled to vote, in accordance with Section 5.2(l) hereof and the applicable
provisions of the DGCL, shall have occurred and be continuing and remain in full
force and effect.
6.14 Noncompetition Agreements. Each of the Shareholders who will be
party to an Employment Agreement as provided in Section 5.2(i) or 5.2(j) shall
have executed a noncompetition agreement substantially in the form attached
hereto as Exhibit 6.14.
6.15 Resignations. Tylan shall have received the written resignation,
effective as of the Closing, of each director of Span.
6.16 FIRPTA. Tylan, as agent for the Shareholders, shall have received a
properly executed "FIRPTA" Notification Letter, in form and substance reasonably
acceptable to Tylan, which states that shares of Span do not constitute "United
States Real Property Interests" under Section 897(c) of the Code for purposes of
satisfying Tylan's obligations under Treasury Regulations Section
1.1445-2(c)(3).
6.17 Tax Opinion. Each of Tylan and Span shall have received a written
opinion from its respective counsel, dated the Closing Date, to the effect that
the Merger will constitute a reorganization within the meaning of Section
368(a)(2)(E) of the Code, which opinions will be substantially identical in form
and substance. Such counsel shall, in rendering such opinions, be entitled to
rely on, and to the extent reasonably required the parties shall make,
reasonable representations related thereto.
6.18 Pooling-Of-Interest Letters. Tylan shall have received, if it so
requests, a reaffirmation from its independent public accountants and from
Span's independent public accountants, dated the Effective Date, of letters in
form and substance satisfactory to Tylan, to the effect that the Merger will
qualify for pooling-of-interests accounting treatment in accordance with GAAP
and all rules, regulations and policies of the SEC.
6.19 Affiliate Agreements. Tylan shall have received an Affiliate
Agreement from each Affiliate as contemplated by Section 4.2(p).
6.20 Effectiveness of Registration Statement. The Registration Statement
shall have been declared effective and no stop order with respect to the
Registration Statement shall be in effect.
6.21 Accounts Receivable. The aging of Span's accounts receivable on the
Closing Date shall not be materially worse than that shown on Schedule 2.2(c).
6.22 Fairness Opinion. The Board of Directors of Tylan shall have
received the written opinion of Adams, Harkness & Hill, Inc., financial advisor
to Tylan, to the effect that the consideration to be received by the
Shareholders is fair to the stockholders of Tylan from a financial point of
view, which fairness opinion shall be in customary form, without any unusual
limitations or qualifications.
6.23 Comfort Letter. Tylan shall have received the comfort letter
required under Section 4.2(u) and, in addition, a bring-down letter, in form and
substance reasonably satisfactory to Tylan, dated the Closing Date.
7. CONDITIONS PRECEDENT TO SPAN'S OBLIGATIONS
The obligation of Span to consummate the transactions contemplated herein
is subject to the fulfillment, prior to or upon the Closing, of the following
conditions precedent:
7.1 Compliance with Covenants; Representations and Warranties
Correct. Tylan and Tylan Sub shall have complied with and performed in all
material respects each covenant contained in this Agreement to be performed by
them at or prior to the Closing Date; the representations and warranties of
Tylan and Tylan Sub
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contained in this Agreement shall be true and correct in all material respects
as of the Closing Date with the same effect as though made on the Closing Date;
and Tylan shall have delivered to Span a certificate of the Chief Executive
Officer and Chief Financial Officer of Tylan evidencing compliance with the
conditions set forth in this Section 7.1.
7.2 No Material Adverse Change. After the date hereof, there shall have
been no change that had a Material Adverse Effect on Tylan.
7.3 Legal Opinion. Span shall have received an opinion of Cooley Godward
Castro Huddleson & Tatum, dated the Closing Date, substantially to the effect of
Exhibit 7.3 hereto.
7.4 Required Approvals. Tylan, Tylan Sub and Span shall have received all
such governmental approvals, consents, authorizations or modifications as may be
required to permit the performance by Tylan, Tylan Sub and Span, of their
respective obligations under this Agreement and the consummation of the
transactions herein and therein contemplated.
7.5 Securities Law Requirements. All permits, licenses, consents and
approvals necessary under any laws relating to the issuance and sale of the
Tylan Common Stock to the Shareholders shall have been issued or given, and no
such permit, license, consent or approval, shall have been revoked, canceled,
terminated, suspended or made the subject of any stop order or proceeding
therefor.
7.6 Span Shareholders' Approval. The approval and adoption of this
Agreement by the requisite vote of the outstanding Span Common Shares entitled
to vote, as required by and in accordance with the applicable provisions of the
Texas Law, shall have occurred and remain in full force and effect.
7.7 Tylan Stockholders' Approval. The approval and adoption of this
Agreement by the requisite vote of the outstanding shares of Tylan Common Stock
entitled to vote, in accordance with Section 5.2(l) hereof and the applicable
provisions of the DGCL, shall have occurred and be continuing and remain in full
force and effect.
7.8 Absence of Restraint. No action shall be pending or threatened before
any court or administrative body to restrain, enjoin or otherwise prevent the
consummation of, or which questions the validity or legality of, this Agreement
or the transactions contemplated hereby, and no order, statute, rule,
regulation, executive order, decree, judgment, injunction or court order shall
have been enacted, entered, issued or promulgated by any court or governmental
authority which prohibits or materially restricts the consummation of this
Agreement and the transactions contemplated hereby, and no such action shall be
threatened.
7.9 Tax Opinion. Each of Tylan and Span shall have received a written
opinion from its respective counsel, dated the Closing Date, to the effect that
the Merger will constitute a reorganization within the meaning of Section
368(a)(2)(E) of the Code, which opinions will be substantially identical in form
and substance. Such counsel shall, in rendering such opinions, be entitled to
rely on, and to the extent reasonably required the parties shall make,
reasonable representations related thereto.
7.10 Employment Agreements. The Employment Agreements shall have been
executed by Tylan.
7.11 Effectiveness of Registration Statement. The Registration Statement
shall have been declared effective and no stop order with respect to the
Registration Statement shall be in effect.
7.12 Chairman of the Board. David J. Ferran ("Ferran") shall be the
Chairman of the Board and Chief Executive Officer of Tylan, and Ferran shall be
active on a full-time basis in Tylan's business.
7.13 Board of Directors. Donald E. Whitson shall have been elected for a
full term to serve on Tylan's Board of Directors.
8. INDEMNITY BY SHAREHOLDERS
8.1 Indemnity. In connection with the Merger, each Shareholder shall, on
a pro rata basis based on the Fully Diluted Span Common Shares Outstanding,
indemnify Tylan, Tylan Sub and Span against any loss, expense, liability, or
other damages, including the reasonable costs of investigation, interest,
penalties and
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attorney's and accountant's fees ("Damages"), incurred in connection with or
arising from or attributable to any breach or inaccuracy of any representation
or warranty made by Span or the Shareholders herein or any breach or failure to
perform any agreement or covenant of Span or the Shareholders herein.
8.2 Threshold. The Shareholders shall not be required to make any
indemnification payment pursuant to Section 8.1 for any Damages until such time
as the total amount of all Damages that have been directly or indirectly
suffered or incurred by any one or more of Tylan, Tylan Sub and Span, or to
which any one or more of Tylan, Tylan Sub and Span has or have otherwise become
subject exceeds $100,000 in the aggregate. At such time as the total amount of
such Damages exceeds $100,000 in the aggregate, Tylan, Tylan Sub and Span shall
be entitled to be indemnified against the full amount of such Damages (and not
solely the amount that exceeds $100,000).
8.3 Expiration of Indemnity. Tylan, Tylan Sub and Span may make no claim
for indemnification for Damages after January 31, 1997 (the "Claim Deadline").
The expiration of the period within which claims may be made shall not affect
any rights of Tylan, Tylan Sub and Span with respect to claims made prior to the
Claim Deadline.
8.4 Fraud. Notwithstanding any provision in this Agreement to the
contrary, the liability of a shareholder for fraud shall be subject only to
applicable statutes of limitations, and any claim against any shareholder
alleging fraud need not be presented by the Claim Deadline.
8.5 Survival of Representations and Warranties. Other than disclosures
set forth in the Schedules hereto or in the compliance certificate to be
delivered at Closing pursuant to Section 6.2 hereof, no disclosure by Span nor
any investigation by or on behalf of Tylan or Tylan Sub with respect to Span
shall be deemed to affect Tylan's or Tylan Sub's reliance on the
representations, warranties, covenants or agreements contained herein or to
waive Span's, Tylan's or Tylan Sub's rights to indemnity as provided herein for
the breach or inaccuracy or failure to perform or comply with any
representation, warranty, covenant or agreement of Span. The indemnity
obligations of the Shareholders under this Article 8 (and the representations,
warranties, covenants and agreements of Span and the Shareholders) shall survive
the Closing until the Claim Deadline.
8.6 Merger Consideration Adjustments. Any amount paid by the Shareholders
to Tylan, Tylan Sub or Span pursuant to this Article 8 shall be an adjustment to
the consideration paid to the Shareholders in connection with the Merger.
8.7 Shareholders' Agent.
(a) Each of the Shareholders hereby constitutes and appoints Donald E.
Whitson (the "Shareholders' Agent") as his agent and attorney-in-fact to
take such action on behalf of the Shareholder, and to exercise such rights,
power and authority as are authorized, delegated and granted to the
Shareholders' Agent under this Agreement in connection with the
transactions contemplated hereby, to give and receive notices and
communications, and to take all actions necessary or appropriate in the
judgment of the Shareholders' Agent for the accomplishment of the
foregoing, including without limitation the right to resolve any
disagreement or disputes, and to exercise such rights, power and authority
as are incidental thereto. A decision, act, consent, instruction or
determination of the Shareholders' Agent shall constitute a decision of all
Shareholders and shall be final, binding and conclusive upon each of the
Shareholders. The Shareholders' Agent shall not be liable for any act done
or omitted hereunder as Shareholders' Agent unless resulting from gross
negligence or willful misconduct. The Shareholders shall jointly and
severally indemnify the Shareholders' Agent and hold him harmless against
any loss, liability or expense incurred without negligence or bad faith on
the part of such Shareholders' Agent and arising out of or in connection
with the acceptance or administration of his duties hereunder. No bond
shall be required of the Shareholders' Agent, and the Shareholders' Agent
shall receive no compensation for his services.
(b) The provisions set forth in this Section 8.7 shall have no effect
on the obligations of either the Shareholders' Agent or the Shareholders to
Tylan, Tylan Sub or Span, and such provisions are solely for the purposes
of determining the rights and obligations of the Shareholders, on the one
hand, and the Shareholders' Agent, on the other, vis-a-vis each other and
shall in no way impose any obligations on Tylan, Tylan Sub or Span other
than those explicitly set forth in this Agreement. In particular,
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notwithstanding in any case any notice received by Tylan, Tylan Sub or Span
to the contrary, Tylan, Tylan Sub or Span shall be fully protected in
relying upon and shall be entitled (i) to rely upon actions, decisions,
consents, instructions and determinations of the Shareholders' Agent in his
capacity as the Shareholders' Agent, and (ii) to assume that all actions,
decisions, consents, instructions and determinations of the Shareholders'
Agent are fully authorized by the Shareholders, and all such actions,
decisions, consents, instructions and determinations shall be binding and
conclusive upon each Shareholder.
(c) In the event that Donald E. Whitson is unavailable to act as the
Shareholders' Agent, or becomes incapable (through death or legal
incapacity) of acting as the Shareholders' Agent, then Leo E. Whitson shall
become the Shareholders' Agent, and, in connection therewith, is authorized
to take such action on behalf of the Shareholders and to exercise such
rights, power and authority as are authorized, delegated and granted to
such Shareholders' Agent under this Agreement in connection with the
transactions contemplated hereby, and to exercise such rights, power and
authority as are incidental thereto.
9. INDEMNITY BY TYLAN
9.1 Indemnity. In connection with the Merger, Tylan shall indemnify the
Shareholders against any Damages incurred in connection with or arising from or
attributable to any breach or inaccuracy of any representation or warranty made
by Tylan or Tylan Sub herein or any breach or failure to perform any agreement
or covenant of Tylan or Tylan Sub herein.
9.2 Threshold. Tylan shall not be required to make any indemnification
payment pursuant to Section 9.1 for any Damages until such time as the total
amount of all Damages that have been directly or indirectly suffered or incurred
by any one or more of the Shareholders, or to which any one or more of the
Shareholders has or have otherwise become subject exceeds $100,000 in the
aggregate. At such time as the total amount of such Damages exceeds $100,000 in
the aggregate, the Shareholders shall be entitled to be indemnified against the
full amount of such Damages (and not solely the amount that exceeds $100,000).
9.3 Expiration of Indemnity. The Shareholders may make no claim for
indemnification for Damages after the Claim Deadline. The expiration of the
period within which claims may be made shall affect any rights of the
Shareholders with respect to claims made prior to the Claim Deadline.
9.4 Fraud. Notwithstanding any provision in this Agreement to the
contrary, the liability of Tylan for fraud shall be subject only to applicable
statutes of limitations, and any claim against Tylan alleging fraud need not be
presented by the Claim Deadline.
9.5 Survival of Representations and Warranties. The indemnity obligations
of Tylan under this Article 9 (and the representations, warranties, covenants
and agreements of Tylan and Tylan Sub) shall survive the Closing until the Claim
Deadline.
10. EMPLOYEE MATTERS
10.1 Employees. Each employee of Span immediately before the Closing
(each, a "Span Employee") shall continue to be employed by Span or Tylan after
the Effective Date; provided that, except as provided in Section i hereof or
pursuant to existing employment agreements between Ronald L. Ewers and Bradley
L. Busch and Ocala, such employment shall be on an at-will basis, and nothing
herein shall obligate Span or Tylan to continue to employ any Span Employee for
any period of time; and provided further that with respect solely to the
employee benefit plans and arrangements of Tylan, the term of each Span
Employee's employment at Span will be added to his or her term of employment at
Tylan or the Surviving Corporation.
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11. TERMINATION OF AGREEMENT
11.1 Termination. At any time prior to the Closing Date, this Agreement
may be terminated:
(a) by mutual consent of all the parties;
(b) by Tylan if a majority of the members of the Board of Directors of
Tylan does not approve the results of Tylan's pre-acquisition investigation
and review as required in Section 6.1;
(c) by Tylan if (i) there has been a material breach by Span of any
covenant, representation or warranty contained in this Agreement, (ii)
Tylan has notified Span in writing of the existence of such breach, and
(iii) Span has failed to cure such breach within ten days after receiving
such notice;
(d) by Span if (i) there has been a material breach by Tylan of a
covenant, representation or warranty contained in this Agreement, (ii) Span
has notified Tylan in writing of the existence of such breach, and (iii)
Tylan has failed to cure such breach within ten days after receiving such
notice; or
(e) by either Tylan or Span if (i) there shall be a non-appealable
order of a federal or state court in effect preventing consummation of the
Merger, (ii) there shall be any action taken, or any statute, rule,
regulations or order enacted, promulgated, issued or deemed applicable to
the Merger, by any governmental entity that would make consummation of the
Merger illegal, (iii) upon a vote at a duly held meeting of stockholders or
any adjournment thereof, any required approval of the holders of Span
common stock or the holders of Tylan Common Stock shall not have been
obtained, or (iv) it shall be after June 28, 1996.
11.2 Effect of Termination. If this Agreement shall be terminated as
provided in Section 11.1, this Agreement shall forthwith become void and there
shall be no liability on the part of any party hereto to any other party except
for (a) if appropriate, payment of legal fees pursuant to Section 12.3 and (b)
any damages for a material breach of this Agreement.
11.3 Costs and Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement will be paid by
the party incurring such expense; provided, however, that if the Merger is
consummated, the Shareholders shall indemnify and hold harmless Tylan, Tylan Sub
and Span from any costs or expenses incurred by any Shareholder and for all
costs and expenses of Span in excess of $350,000, which amount may be increased
only with the prior written approval of Tylan.
11.4 Extension of Time; Waivers. At any time prior to the Closing Date:
(a) Tylan and Tylan Sub may (i) extend the time for the performance of
any of the obligations or other acts of Span, and (ii) waive compliance
with any of the agreements or conditions contained herein to be performed
by Span. Any agreement on the part of Tylan and Tylan Sub to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of Tylan and Tylan Sub; and
(b) Span may (i) extend the time for the performance of any of the
obligations or other acts of Tylan and/or Tylan Sub, and (ii) waive
compliance with any of the agreements or conditions contained herein to be
performed by Tylan and/or Tylan Sub. Any agreement on the part of Span to
any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of Span.
12. MISCELLANEOUS
12.1 Amendment. This Agreement may be amended with the approval of the
Board of Directors of Tylan, Tylan Sub and Span at any time before or after
approval hereof by the shareholders of Span, but, after any such shareholder
approval, no amendment shall be made which would change the principal terms of
this Agreement without the further approval of such shareholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
12.2 Entire Agreement; Counterparts; Applicable Law. This Agreement and
the agreements contemplated by the exhibits hereto (a) constitute the entire
agreement and supersede all prior agreements and
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understandings, both written and oral, among the parties with respect to the
subject matter hereof (excluding the Strategic Sales Alliance Agreement and all
international distribution agreements of Span), (b) may be executed in several
counterparts, each of which will be deemed an original and all of which shall
constitute one and the same instrument and (c) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of California as applied to contracts entered into and to be performed
entirely within California.
12.3 Attorneys' Fees. In any action at law or suit in equity to enforce
this Agreement or the rights of the parties hereunder, the prevailing party in
such action or suit shall be entitled to receive a reasonable sum for its
attorneys' fees and all other reasonable costs and expenses incurred in such
action or suit.
12.4 Assignability. This Agreement shall be binding upon, and shall be
enforceable by and inure to the benefit of, the parties named herein and their
respective successors; provided, however, that this Agreement may not be
assigned by any party without the prior written consent of the other parties,
and any attempted assignment in violation of this Section 12.4 shall be void and
of no effect.
12.5 Notices. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given if delivered by hand or mailed
by certified or registered mail:
<TABLE>
<S> <C>
To Span: with a copy to:
Span Instruments, Inc. Gardere & Wynne, L.L.P.
P.O. Box 860709 1601 Elm Street, Suite 3000
Plano, Texas 75086 Dallas, Texas 75201
Attn: Donald E. Whitson Attn: Richard L. Waggoner
or
Span Instruments, Inc.
2201 Avenue K
Plano, Texas 75074
Attn: Donald E. Whitson
</TABLE>
To a Shareholder:
To such person's address as set forth on Schedule c hereof.
<TABLE>
<S> <C>
Tylan or Tylan Sub: with a copy to:
Tylan General, Inc. Cooley Godward Castro Huddleson & Tatum
9577 Chesapeake Drive 4365 Executive Drive, Suite 1100
San Diego, California 92123 San Diego, California 92121-2128
Attn: David J. Ferran Attn: D. Bradley Peck
</TABLE>
or to such other address at which any party may be registered mail notify the
other party, and shall be deemed given on the date on which hand-delivered or on
the third business day following the date on which mailed.
12.6 Titles. The titles and captions of the sections and paragraphs of
this Agreement are included for convenience of reference only and shall have no
effect on the construction or meaning of this Agreement.
12.7 Cooperation. Tylan, Tylan Sub and Span each agree to execute and
deliver such other documents, certificates, agreements and other writings and to
take such other actions as may be necessary or desirable in order to consummate
expeditiously or implement the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Reorganization as of the date first written above.
TYLAN GENERAL, INC.
By: /s/ David J. Ferran
------------------------------------
David J. Ferran
Chairman of the Board, President and
Chief
Executive Officer
TYLAN GENERAL ACQUISITION
SUBSIDIARY, INC.
By: /s/ David L. Stone
------------------------------------
David L. Stone
Executive Vice President and Chief
Financial Officer
SPAN INSTRUMENTS, INC.
By: /s/ Don E. Whitson
------------------------------------
Don E. Whitson
President and Chief Executive
Officer
SHAREHOLDERS
/s/ Don E. Whitson
--------------------------------------
Don E. Whitson
/s/ Leo E. Whitson
--------------------------------------
Leo E. Whitson
/s/ Sam R. Crowe
--------------------------------------
Sam R. Crowe
/s/ Tommy Gray
--------------------------------------
Tommy Gray
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/s/ Marguerite Whitson
--------------------------------------
Marguerite Whitson
/s/ Robert M. Lipsky
--------------------------------------
Robert M. Lipsky
/s/ Robert J. Barraclough
--------------------------------------
Robert J. Barraclough
/s/ John Jul
--------------------------------------
John Jul
/s/ John Jordon
--------------------------------------
John Jordon
/s/ George A. Yurch
--------------------------------------
George A. Yurch
/s/ Brian Day
--------------------------------------
Brian Day
/s/ Kaveh Zarkar
--------------------------------------
Kaveh Zarkar
/s/ John Rabbitt
--------------------------------------
John Rabbitt
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EXHIBIT 5.2(I) TO APPENDIX A
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and effective as of ,
1996 by and between TYLAN GENERAL, INC., a Delaware corporation (the "Company"),
and DONALD E. WHITSON (the "Employee"), with respect to the following facts.
A. The Board of Directors (the "Board") of the Company has determined that
the best interests of the Company would be served by Employee's employment by
the Company in the capacity of Vice Chairman and Chief Administrative Officer
and such mutually acceptable additional capacities as the Chief Executive
Officer may delegate to him from time-to-time during the term of this Agreement.
B. The Company wishes to assure itself of the continued benefit of
Employee's services provided in this Agreement, and Employee is willing to serve
in the employ of the Company solely within the terms hereof for said period.
C. The Company and Employee desire to define their respective rights and
obligations as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT
The Company hereby agrees to employ the Employee to serve in the capacity
of Vice Chairman and Chief Corporate Officer of the Company, and Employee hereby
accepts such employment by the Company upon the terms and conditions set forth
herein.
2. POSITION AND RESPONSIBILITIES
(a) Duties. The Company shall employ Employee in the capacity of Vice
Chairman and Chief Corporate Officer and such other mutually acceptable
executive positions as the Chief Executive Officer may determine to be in the
best interests of the Company, and Employee shall serve as such for the term and
under other conditions hereinafter set forth. Employee shall devote his full
business time and attention to the performance of such services and to such
other services as may be necessarily requested by the Chief Executive Officer
that are consistent with those required of a Vice Chairman and Chief Corporate
Officer of a company. In this capacity as Vice Chairman and Chief Corporate
Officer, Employee shall perform such duties and have such powers and authority
as are customary for the Vice Chairman and Chief Corporate Officer of a company.
The Employee shall report directly to and shall be responsible to the Chief
Executive Officer regarding his services. In the event that, without his
consent, Employee is assigned to a position involving a different title or
materially lesser authority and responsibility, then Employee shall have the
option, exercisable for 30 days following notice to Employee of such assignment
or new title, to consider that this Agreement has been terminated without cause
in which case Employee shall be entitled to the benefits set forth in Section
8(c) herein.
(b) Competitive Activity. Except upon the prior written consent of the
Chief Executive Officer, Employee, during the term of his employment hereunder,
will not accept any other employment of any nature and will not engage, directly
or indirectly, in any other business activity (whether or not pursued for
pecuniary advantage) that is or may be competitive with, or that might place him
in a competing position to that of the Company or any other corporation or
entity that directly or indirectly controls, is controlled by or is under common
control with the Company.
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3. TERM OF EMPLOYMENT
The effective date of this Agreement shall be , 1996 (the
"Effective Date") and shall remain in effect until terminated pursuant to
Section 7.
4. WORKING FACILITIES
Employee shall be furnished with a private office, secretarial and other
necessary clerical and stenographic assistance, and such other facilities,
amenities and services as may at the time be generally furnished to executive
officers of the Company and as are appropriate for Employee's position and
adequate for the performance of his duties hereunder.
5. PLACE OF PERFORMANCE
In connection with this Agreement, Employee shall maintain an office at the
principal executive offices of Span Instruments, Inc. ("Span") in Plano, Texas.
6. SALARY, BONUS, EXPENSES AND BENEFITS
(a) Salary. The Company shall pay Employee an initial salary of $250,000
per year. Employee's salary shall be reviewed and revised (if appropriate) at
least annually by the Chief Executive Officer and shall be adjusted based upon
Employee's job performance, the Company's financial condition and performance
and the salary and compensation levels of executives in similar companies with
similar responsibilities. Furthermore, any salary payable to Employee after the
second anniversary of the Effective Date shall be determined in accordance with
the Company's compensation policy for senior management. Any increases in
Employee's salary pursuant to this Section 6(a) shall require approval by the
Compensation Committee of the Board of Directors of the Company (the
"Committee") (without the vote of the Employee if Employee is a member of such
committee).
(b) Bonus. The Company shall pay Employee an annual bonus of up to
twenty-five percent (25%) of Employee's annual salary for the immediately
preceding year. The Committee (without the vote of the Employee if Employee is a
member of such committee) shall determine in good faith the amount of such bonus
giving consideration to the Company's overall achievement of the goals set forth
in the Company's annual plan for the applicable fiscal year and Employee's
performance during the year. The Company shall pay such bonus no later than 45
days after the end of each fiscal year of the Company.
(c) Participation in Welfare and Benefit Plans. Employee shall be entitled
to participate in, personally and/or for the benefit of his family or other
beneficiaries, any welfare, insurance, pension, or other employee benefit plans
as are at the time made generally available to other executives of the Company.
Employee shall be eligible to receive during the term hereof all benefits for
which executives are eligible under every such plan or program to the extent
permissible under the general terms and provisions of such plans or programs and
in accordance with the provisions thereof.
(d) Vacation. Employee shall be entitled to six weeks' paid vacation time
each year, during which such time his compensation hereunder shall be paid in
full. Unless otherwise directed by the Chief Executive Officer, Employee shall
have the discretion to take vacation time on the dates as he determines to be
appropriate and not detrimental to the Company.
(e) Holidays, Leave Days, Etc. Employee shall be entitled to such
holidays, sick leave, leaves of absence and other absences as are at the time
made generally available to other executives of the Company of comparable tenure
and position.
(f) Automobile. During the term of this Agreement, the Company shall make
an automobile available to Employee under such terms and conditions as are
presently applied or as may be later applied to other executives of the Company
of comparable tenure and position. In connection therewith, the Company shall
bear all expenses relating to such automobile, including insurance, maintenance
and repair, gas and oil. Upon termination of this Agreement, the Company shall
offer Employee the right to purchase the automobile then
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being operated by Employee at the depreciated value of such automobile or to
assume the Company's lease of such automobile and shall execute and deliver to
Employee all documentation necessary to establish Employee's ownership or
leasing of such automobile.
(g) Life Insurance. The Company shall pay for and provide life insurance
for each year of this Agreement for the benefit of Employee under the Company's
group life insurance plan.
(h) Health Insurance. The Company shall provide health insurance for
Employee under the Company's health insurance plan.
(i) Disability Insurance. The Company shall provide disability insurance
for Employee pursuant to the Company's directors' and officers' disability
policy according to the Company's policy established by the Committee.
(j) Reimbursement of Expenses. The Company shall pay or reimburse
Employee, on a monthly basis, for reasonable travel, entertainment, promotional
and other expenses incurred by Employee in the performance of his obligations
under this Agreement. Employee must submit timely detailed expense reports for
appropriate review prior to reimbursement.
(k) Tax, Legal and Financial Advice. The Company shall pay for the fees
and expenses of legal, tax and financial advisory, and income tax preparation
services for Employee in an aggregate amount not to exceed $1,500 for each year
of this Agreement; provided that no payment of any fees shall be made by the
Company for legal services obtained by Employee in connection with any dispute
with the Company regarding this Agreement.
(l) Other Fringe Benefits. Employee shall be entitled to any and all other
fringe benefits according to the Company's policy as set by the Committee.
7. TERMINATION
Employee's employment under this Agreement may be terminated by the Company
or Employee as herein provided, without further obligation or liability except
as expressly provided herein.
(a) Resignation, Death or Disability. Employee's employment hereunder may
be terminated at any time by Employee's resignation (other than a resignation
for good reason as provided in Section 7(d)), or by Employee's death or
disability. In the event Employee wishes to resign, he shall give the Company
not less than 30 days prior notice of such resignation, which notice shall
indicate the proposed resignation date. Following receipt of such notice, the
Company shall have the right to accelerate the date of Employee's resignation
and to cause his resignation to become effective at any time prior to the
resignation date set forth in Employee's original notice; provided, however,
that such acceleration or changed effective date of resignation shall not affect
in any manner the delivery of any benefits or payments to which Employee may be
entitled under Section 8 of this Agreement. For purposes of this Agreement,
disability shall be deemed to have occurred only after the following procedure
has been satisfied. If within 45 days after notice of proposed termination for
disability is given to Employee by the Company, Employee has not returned to the
performance of substantially all his duties, the Company may terminate
Employee's employment by giving notice of termination for disability. The notice
of proposed termination may only be given by the Company following Employee's
substantial and material absence from Employee's duties by reason of physical or
mental disability for a period of 120 calendar days.
(b) Termination For Cause. Employee's employment hereunder may be
terminated by the Company for cause; provided, however, that Employee shall be
given notice of the Company's findings of conduct by Employee amounting to cause
for such termination. Cause for termination under this Agreement shall be
limited to (i) Employee's personal dishonesty or gross misconduct; (ii) a
material breach of any material provision of this Agreement; (iii) Employee's
refusal or failure to act in accordance with any lawful, reasonable direction or
order of the Chief Executive Officer or the Board and such refusal or failure
results or is reasonably likely to result in a materially adverse effect on the
Company's business; (iv) conviction of any felony involving moral turpitude (not
including a conviction for operating a motor vehicle under the influence
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of alcohol or any other motor vehicle violation if no bodily injury to a third
party is involved); (v) any chemical dependency or substance abuse resulting in
a continuous and material impairment of Employee's ability to perform his duties
under this Agreement; or (vi) the willful and continued failure by Employee to
substantially perform Employee's duties with the Company or its subsidiaries or
affiliates (other than any failure resulting from disability) after a written
demand identifies the manner in which the Company believes that Employee has not
substantially performed his duties. Termination of Employee's employment under
this Agreement for cause as set forth in clauses (i) or (iv) of the preceding
sentence shall be deemed to be effective upon delivery of notice thereof in
accordance with the provisions of Section 9(i) of this Agreement. Employee shall
have 30 days from the date notice is given for cause as set forth in clause
(ii), (iii), (v) or (vi) of the second sentence of this Section 7(b) to cure
such conduct.
(c) Termination Without Cause. The Company shall have the right,
exercisable at any time during the term of this Agreement upon written notice to
Employee, to terminate Employee's employment without cause upon 30 days prior
notice. If Employee is terminated without cause, he shall be entitled to receive
the severance benefits pursuant to Section 8(c) hereof subject to his full
compliance with said Section 8(c).
(d) Resignation for Good Reason. During the term hereof, Employee may
regard Employee's employment as being constructively terminated and may,
therefore, resign within 30 days of Employee's discovery of the occurrence of
one or more of the following events, any of which will constitute "good reason"
for such resignation:
(1) Without Employee's express written consent, the assignment to
Employee of any duties materially inconsistent with Employee's position,
duties, responsibilities and status with the Company;
(2) Without Employee's express written consent, the termination and/or
material reduction in Employee's facilities (including office space and
general location) and staff reporting available to Employee, unless such
reduction occurs as part of a company-wide action authorized by the Board
(including the vote of Employee) to reduce the Company's expenses;
(3) A reduction by the Company of Employee's base salary or of any
bonus compensation formula applicable to him unless in connection with (i)
an across-the-board reduction for all senior management of the Company,
(ii) a reduction after the second anniversary of the Effective Date in
order to make Employee's salary consistent with the Company's compensation
policy for senior management or (iii) a company-wide salary expense
reduction necessitated by poor financial performance of the Company, in any
case as determined by the Committee in its reasonable discretion;
(4) A failure by the Company to maintain any of the employee benefits
to which Employee is entitled at a level substantially equal to or greater
than the value of those employee benefits currently in effect through the
continuation of the same or substantially similar plans, programs and
policies; or the taking of any action by the Company or its affiliate(s)
that would materially affect Employee's participation in or reduce
Employee's benefits under any such plans, programs or policies, or deprive
Employee of any material fringe benefits enjoyed by Employee unless such
failure or reduction occurs as part of a company-wide action authorized by
the Board (including the vote of Employee if Employee is a Director of the
Company) to reduce the Company's expenses;
(5) The failure by the Company to permit Employee to take
substantially the same number of paid vacation days and leave to which
Employee is entitled;
(6) The Company or any affiliate(s) requiring Employee to be based
anywhere other than within 20 miles of Plano, Texas, except for required
travel on the Company's or an affiliate's business to an extent
substantially consistent with Employee's present business travel
obligations;
(7) Any termination of Employee's employment by the Company which is
not affected pursuant to the requirements of this Section 7 with respect to
death, disability or termination for cause;
(8) The failure of the Company to obtain the assumption of this
Agreement by any successor as contemplated in Section 9(e) hereof; and
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(9) A material breach of any provision of this Agreement by the
Company.
In the event of the occurrence of any of the above listed events and in the
event Employee wishes to resign on the basis of occurrence of such event,
Employee shall give the Company notice of his proposed resignation, and the
Company shall have a period of 30 days following its receipt of such notice to
remedy the breach or occurrence giving rise to such proposed resignation. In the
event the Company fails to so remedy said breach or occurrence by expiration of
said 30-day period, Employee shall be deemed to have resigned from his
employment with the Company for good reason pursuant to this Section 7(d).
(e) Termination Obligations. Employee hereby acknowledges and agrees that
all personal property of the Company, including, without limitation, all books,
manuals, records, reports, notes, contracts, lists, and other documents,
proprietary information, copies of any of the foregoing, and equipment furnished
to or prepared by Employee in the course of or incident to his employment,
belong to the Company and shall be promptly returned to the Company upon
termination of his employment for any reason. Employee shall retain the rights
to remove all of his personal property from the premises of the Company and any
personal property of the Company as may be mutually agreed upon between the
Company and Employee.
8. PAYMENTS TO EMPLOYEE UPON TERMINATION.
(a) Death or Disability. In the event of Employee's death or disability,
all benefits generally available to the Company's executives as of the date of
such an event as determined by the Committee shall be payable to Employee or
Employee's estate, without reduction, in accordance with the terms of any plan,
contract, understanding or arrangement forming the basis for such payment,
including, but not limited to, payments under the plans identified in Section
6(c). Employee shall be entitled to such other payments as might arise from any
plan, contract, understanding or arrangement between Employee and the Company at
the time of any such event pursuant to Section 6(c) or 6(i) hereof.
(b) Termination for Cause or Resignation Without Good Reason. In the event
Employee is terminated by the Company for cause as provided in Section 7(b) or
Employee resigns for other than good reasons as defined in Section 7(d), neither
the Company nor an affiliate shall have any further obligation or liability of
any nature to Employee under this Agreement or otherwise.
(c) Termination Without Cause or Resignation For Good Reason. Upon the
occurrence of termination without cause, or resignation for good reason, as
defined in Section 7(d), Employee shall be entitled to receive the following:
(1) Severance Payment. The Company shall continue to pay to the
Employee his salary (i) until the date that is eighteen (18) months from
the effective date of this Agreement (the "Initial Period") and (ii) for
twelve (12) months following the later of (x) the date of Employee's actual
termination of employment and (y) termination of the Initial Period (the
"Severance Payment"). Such salary shall be determined with reference to the
salary in effect for the month in which the date of employment termination
occurs.
(2) Method of Payment. The Severance Payment shall be paid to
Employee in cash in one lump sum no later than thirty (30) days following
the actual date of termination.
(3) Payment in Lieu of Contract Damages. The Severance Payment shall
be in lieu of any further payments to the Employee and any further accrual
of benefits with respect to periods subsequent to the date of the
employment termination and shall constitute a full satisfaction and
discharge of any claims by Employee related to the Agreement or the
circumstances surrounding the termination of employment hereunder.
Notwithstanding the preceding sentence, neither the Severance Payment nor
any other payments under this Section 8(c) shall reduce or offset any
benefits the Employee may be entitled to under the specific terms of the
benefit plans of the Company.
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9. GENERAL PROVISIONS
(a) Entire Agreement. The terms and provisions of this Agreement, together
with the terms and provisions of the Noncompetition Agreement dated the date
hereof between Employee and the Parent, shall constitute the entire
understanding between Employee and the Company with respect to the subject
matter hereof, and shall supersede any and all prior agreements or
understandings between Employee and the Company (or any affiliate of the
Company, including Span), whether written or oral.
(b) Amendments. This Agreement may be amended or modified only by a
written instrument executed by Employee and the Company.
(c) Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(d) Severability. In the event that any terms or provisions of this
Agreement shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remaining terms and provisions hereof.
(e) Assumption. The Company shall require any successor-in-interest
(whether direct or indirect or as a result of purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform the obligations under this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
(f) Assignability. The rights or obligations contained in this Agreement
shall not be assigned, transferred or divided in any manner by Employee or the
Company, without the prior written consent of the other; provided, however, that
nothing in this Section 9(f) shall preclude Employee from designating a
beneficiary to receive any benefits hereunder upon his death, or the executors,
administrators or other legal representatives of Employee or his estate from
assigning any rights hereunder to the person(s) entitled thereto.
Notwithstanding the foregoing, this Agreement shall be assignable by the Company
without Employee's consent and be binding on (i) any affiliate of the Company
and (ii) any entity which by purchase of assets, merger or otherwise, becomes a
successor to the business of the Company.
(g) Waiver of Breach. Any waiver of any breach of employment terms set
forth herein shall not be construed to be a continuing waiver or consent to any
subsequent breach on the part of Employee or the Company.
(h) Headings. The headings of paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation and
performance of any of the provisions of this Agreement.
(i) Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered or if mailed by United States certified or registered mail,
prepaid, to the parties or their permitted assignees at the following addresses
(or at such other address as shall be given in writing by either party to the
other):
To: Tylan General, Inc.
9577 Chesapeake Drive
San Diego, California 92123
Attn: Chief Executive Officer
To: Donald E. Whitson
Span Instruments, Inc.
1947 Avenue K
Plano, Texas 75074
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the day and year first written above.
TYLAN GENERAL, INC.
By:
------------------------------------
Its: Chairman of the Board,
President
and Chief Executive Officer
EMPLOYEE
---------------------------------
Donald E. Whitson
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EXHIBIT 5.2(j) TO APPENDIX A
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and effective as of ,
1996, by and between TYLAN GENERAL, INC., a Delaware corporation (the "Parent"),
SPAN INSTRUMENTS, INC., a Texas corporation and a wholly-owned subsidiary of
Parent (the "Company"), and (the "Employee").
WHEREAS, the Company desires to assure itself of the continued services of
Employee, and Employee desires to be employed by the Company, under the terms
and conditions herein; and
WHEREAS, the Company, the Parent and Employee desire to define their
respective rights and obligations as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT; TERM
(a) Employment. The Company hereby agrees to continue to employ, and the
Parent hereby agrees to cause the Company to continue to employ, the Employee to
serve in the capacity of of the Company, and Employee hereby accepts
such continued employment by the Company upon the terms and conditions set forth
herein.
(b) Term. The effective date of this Agreement shall be , 1996
(the "Effective Date") and shall remain in effect until the earlier of
(i)____________or (ii) the date when Employee's employment is terminated
pursuant to Section 3 of this Agreement.
(c) Duties. During the term of this Agreement, Employee will, to the best
of his ability, devote substantially all of his business time and attention to
the performance of his duties hereunder, including such responsibilities as
shall be established by custom, by the Bylaws of the Company and, from time to
time, by the Board of Directors and/or senior management of the Company or the
Parent.
(d) Competitive Activity. Employee, during the term of his employment
hereunder, will not accept any other employment of any nature and will not
engage, directly or indirectly, in any other business activity (whether or not
pursued for pecuniary advantage) that is or may be competitive with, or that
might place him in a competing position to that of the Company or any other
corporation or entity that directly or indirectly controls, is controlled by or
is under common control with the Company.
2. SALARY AND BENEFITS
(a) Salary. The Company shall pay to Employee for the services to be
rendered hereunder a salary at an annual rate of $ , payable in
installments in accordance with Company policy, subject to increase in
accordance with the policies of the Company or the Parent, as determined by its
Board of Directors, in force from time to time (the "Salary").
(b) Benefits. Employee shall be eligible to participate in the Company's
employee benefit plans and incentive compensation programs for employees,
including the stock option plan of the Parent, subject in each case to the
generally applicable terms and conditions of the plan or program in question.
3. TERMINATION
(a) General. Employee's employment under this Agreement may be terminated
by the Company, the Parent or Employee as herein provided, without further
obligation or liability except as expressly provided herein. The Company shall
not provide or pay for any employee benefits or bonuses following the
termination of Employee's employment pursuant to Section 3(b), 3(c) or 3(d)
hereof, and the vesting of any stock
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options granted to Employee during the term of his employment with the Company
shall cease on the date of such termination of employment.
(b) Resignation. Employee's employment hereunder may be terminated at any
time, upon 30 days prior notice, by Employee's resignation. If Employee resigns,
he shall be entitled to receive payments pursuant to Section 4(a) hereof,
subject to his full compliance with said Section 4(a).
(c) Death or Disability. Employee's employment shall terminate upon the
date of Employee's death or disability. For purposes of this Agreement,
disability shall be deemed to have occurred only after the following procedure
has been satisfied. If within 45 days after notice of proposed termination for
disability is given to Employee by the Company or the Parent, Employee has not
returned to the performance of substantially all his duties, the Company or the
Parent may terminate Employee's employment by giving notice of termination for
disability. The notice of proposed termination may only be given by the Company
or the Parent following Employee's substantial and material absence from
Employee's duties by reason of physical or mental disability for a period of 120
calendar days.
(d) Termination For Cause. Employee's employment hereunder may be
terminated by the Company or the Parent for cause; provided, however, that
Employee shall be given notice of the findings of conduct by Employee amounting
to cause for such termination. Cause for termination under this Agreement shall
be limited to (i) Employee's personal dishonesty or gross misconduct; (ii) a
material breach of any provision of this Agreement; (iii) Employee's refusal or
failure to act in accordance with any lawful, reasonable direction or order of
the Board of Directors or senior management of the Company or the Parent and
such refusal or failure results or is reasonably likely to result in a
materially adverse effect on the Company's or the Parent's business; or (iv) the
continued failure by Employee to perform Employee's duties with the Company or
its subsidiaries or affiliates, including the Parent (other than any failure
resulting from disability) in a manner consistent with Employee's position after
a written demand identifies the manner in which Employee's supervisor believes
that Employee has not substantially performed his duties. Termination of
Employee's employment under this Agreement for cause as set forth in clause (i)
of the preceding sentence shall be deemed to be effective upon delivery of
notice thereof in accordance with the provisions of Section 5(i) of this
Agreement. Employee shall have 30 days from the date notice is given for cause
as set forth in clause (ii), (iii) or (iv) of the second sentence of this
Section 3(d) to cure such conduct.
(e) Termination Without Cause. The Company and the Parent shall have the
right, exercisable at any time during the term of this Agreement upon written
notice to Employee, to terminate Employee's employment without cause upon 30
days prior notice. If Employee is terminated without cause, he shall be entitled
to receive severance benefits pursuant to Section 4(d) hereof, subject to his
full compliance with said Section 4(d).
(f) Termination Obligations. Employee hereby acknowledges and agrees that
all personal property of the Company or the Parent, including, without
limitation, all books, manuals, records, reports, notes, contracts, lists, and
other documents, proprietary information, copies of any of the foregoing, and
equipment furnished to or prepared by Employee in the course of or incident to
his employment, belong to the Company or the Parent, as the case may be, and
shall be promptly returned to the Company or the Parent, as the case may be,
upon termination of his employment for any reason. Employee shall retain the
rights to remove all of his personal property from the premises of the Company
and any personal property of the Company or the Parent as may be mutually agreed
upon between the Company or the Parent and Employee.
4. PAYMENTS TO EMPLOYEE UPON TERMINATION.
(a) Resignation. In the event of Employee's resignation, the Company shall
continue to pay Employee Employee's Salary for a period of six (6) months
commencing on the date of Employee's resignation. Such salary shall be
determined with reference to the salary in effect for the month in which the
date of employment termination occurs. The Company's obligation to make each
such monthly payment is conditioned on Employee's performance of four (4) hours
of consulting services per month for the Company; provided, however, that the
Company's obligation to make such monthly payments pursuant to this Section 4(a)
shall cease if Employee engages, at any time during the six (6) months following
his resignation, directly or
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indirectly, in any other business activity (whether or not pursued for pecuniary
advantage) that is or may be competitive with, or that might place him in a
competing position to that of the Company or any other corporation or entity
that directly or indirectly controls, is controlled by or is under common
control with the Company.
(b) Death or Disability. In the event of Employee's death or disability,
all benefits generally available to the Company's employees as of the date of
such an event as determined by the Board of Directors of the Company shall be
payable to Employee or Employee's estate, without reduction, in accordance with
the terms of any plan, contract, understanding or arrangement forming the basis
for such payment.
(c) Termination For Cause. In the event Employee is terminated by the
Company or the Parent for cause as provided in Section 3(d) hereof, Employee
shall be entitled to receive the following:
(1) Termination Payment. The Company shall continue to pay to the
Employee his salary for six (6) months following the date of Employee's
actual termination of employment (the "Termination Payment"). Such salary
shall be determined with reference to the salary in effect for the month in
which the date of employment termination occurs.
(d) Termination Without Cause. In the event Employee is terminated by the
Company or the Parent without cause as provided in Section 3(e) hereof, Employee
shall be entitled to receive the following:
(1) Severance Payment. The Company shall continue to pay to the
Employee his salary (i) until the date that is [eighteen (18)/six (6)]
months from the effective date of this Agreement (the "Initial Period") and
(ii) for six (6) months following the later of (x) the date of Employee's
actual termination of employment and (y) termination of the Initial Period
(the "Severance Payment"). Such salary shall be determined with reference
to the salary in effect for the month in which the date of employment
termination occurs.
(e) Payment in Lieu of Contract Damages. The Termination Payment and the
Severance Payment shall be in lieu of any further payments to the Employee and
any further accrual of benefits with respect to periods subsequent to the date
of the employment termination and shall constitute a full satisfaction and
discharge of any claims by Employee related to the Agreement or the
circumstances surrounding the termination of employment hereunder.
Notwithstanding the preceding sentence, neither the Termination Payment, the
Severance Payment nor any other payments under this Section 4(e) shall reduce or
offset any benefits the Employee may be entitled to under the specific terms of
the benefit plans of the Company.
5. GENERAL PROVISIONS
(a) Entire Agreement. The terms and provisions of this Agreement, together
with the terms and provisions of the Noncompetition Agreement dated the date
hereof between Employee and the Parent, shall constitute the entire
understanding between Employee, the Company and the Parent with respect to the
subject matter hereof, and shall supersede any and all prior agreements or
understandings between Employee, the Company and the Parent, whether written or
oral.
(b) Amendments. This Agreement may be amended or modified only by a
written instrument executed by Employee, the Company and the Parent.
(c) Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(d) Severability. In the event that any terms or provisions of this
Agreement shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remaining terms and provisions hereof.
(e) Assumption. The Company and the Parent shall require any
successor-in-interest (whether direct or indirect or as a result of purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company or the Parent to expressly assume and agree to
perform the obligations
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<PAGE> 182
under this Agreement in the same manner and to the same extent that the Company
or the Parent would be required to perform it if no such succession had taken
place.
(f) Assignability. The rights or obligations contained in this Agreement
shall not be assigned, transferred or divided in any manner by Employee, the
Company or the Parent, without the prior written consent of the other; provided,
however, that nothing in this Section 5(f) shall preclude Employee from
designating a beneficiary to receive any benefits hereunder upon his death, or
the executors, administrators or other legal representatives of Employee or his
estate from assigning any rights hereunder to the person(s) entitled thereto.
Notwithstanding the foregoing, this Agreement shall be assignable by the Company
without Employee's consent and be binding on (i) the Parent or any other
affiliate of the Company, and (ii) any entity which by purchase of assets,
merger or otherwise, becomes a successor to the business of the Company or the
Parent.
(g) Waiver of Breach. Any waiver of any breach of employment terms set
forth herein shall not be construed to be a continuing waiver or consent to any
subsequent breach on the part of Employee, the Parent or the Company.
(h) Headings. The headings of paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation and
performance of any of the provisions of this Agreement.
(i) Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered or if mailed by United States certified or registered mail,
prepaid, to the parties or their permitted assignees at the following addresses
(or at such other address as shall be given in writing by either party to the
other):
To: Tylan General, Inc.
9577 Chesapeake Drive
San Diego, California 92123
Attn: Chief Executive Officer
To: Span Instruments, Inc.
2201 Avenue K
Plano, Texas 75074
Attn: President
To: ________________________
________________________
________________________
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<PAGE> 183
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the day and year first written above.
TYLAN GENERAL, INC.
By:
-----------------------------------------------------
Its: Chairman of the Board, President
and Chief Executive Officer
SPAN INSTRUMENTS, INC.
By:
---------------------------------------------------------
Its: President
EMPLOYEE
- ------------------------------------------------
[Name]
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<PAGE> 184
EXHIBIT 6.14 TO APPENDIX A
NON-COMPETITION AGREEMENT
This Non-Competition Agreement (the "Agreement") is made this day of
1996, by and between TYLAN GENERAL, INC., a Delaware corporation
("Tylan"), and the undersigned shareholder ("Shareholder") of SPAN INSTRUMENTS,
INC., a Texas corporation ("Span").
RECITALS
A. Tylan, TYLAN GENERAL ACQUISITION SUBSIDIARY, INC., a Delaware
corporation ("Tylan Sub"), Span, Shareholder and the other shareholders of Span
have entered into an Agreement and Plan of Reorganization dated as of February
20, 1996 (the "Reorganization Agreement"), providing for the merger of Tylan Sub
with and into Span pursuant to the terms and conditions of the Reorganization
Agreement (the "Merger") and setting forth certain representations, warranties,
covenants and agreements which each of the parties thereto is making thereby in
connection with the Merger.
B. The Reorganization Agreement contemplates that the Shareholder has voted
his Span Common Shares (as defined in the Reorganization Agreement) in favor of
the Merger and will agree not to compete with Tylan in the manner and to the
extent herein set forth.
C. To comply with the Reorganization Agreement and to induce Tylan to
proceed to consummate the Merger, Shareholder has agreed to enter into this
Agreement.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. Defined Terms. Capitalized terms used in this Agreement and not
otherwise defined shall have the meanings given them in the Reorganization
Agreement.
2. Acknowledgment By Shareholder. Shareholder acknowledges that by virtue
of his position with Span he has developed considerable expertise in the
business operations of Span and has had access to trade secrets and confidential
business methods, plans and practices considered confidential by Span and not
generally known in its industry. Shareholder recognizes that this information
will have commercial value in the business in which Tylan is engaged and
therefore that Tylan would be irreparably damaged if Shareholder were to enter
into an activity competing or interfering with Span's business in violation of
the terms of this Agreement or if Shareholder were to disclose or make
unauthorized use of any confidential information concerning the business of
Span. Accordingly, Shareholder expressly acknowledges that he is voluntarily
entering into this Agreement and that the terms and conditions of this Agreement
are fair and reasonable to Shareholder in all respects and that Tylan, in
addition to any other remedies which it may have, shall be entitled, as a matter
of right, to injunctive relief, including specific performance, in any court of
competent jurisdiction with respect to any actual or threatened breach by
Shareholder of any of the provisions of Sections 3 and 4 hereof.
3. Non-Competition. Until the third anniversary of the Closing Date,
Shareholder agrees that he shall not:
(a) directly or indirectly own, manage, operate, or control, in whole
or in part, or become engaged, directly or indirectly, as a director,
officer, employee, partner, principal, agent, or representative of or
consultant to, any business, enterprise, firm or person engaged in direct
competition with Tylan's or Span's current businesses (a "Competing
Company"), in (i) every state in which Tylan or Span currently operates
their respective businesses, (ii) every state in which Tylan or Span has
taken action to facilitate commencement of the operation of their
respective businesses and (iii) every state in which Tylan or Span has
current definite plans to operate their respective businesses within the
next year (the "Territory"); or
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<PAGE> 185
(b) directly or indirectly purchase equity in, lend money to, borrow
money from or otherwise render financial assistance to or accept financial
assistance from any Competing Company.
Notwithstanding the above, Shareholder shall not be deemed to be engaged
directly or indirectly in any business in contravention of this Agreement, if
Shareholder participates in any such business solely as a passive investor in up
to 1% of the equity securities of a company or partnership, the securities of
which are publicly traded.
4. Non-Interference. Shareholder further agrees that until the third
anniversary of the Closing Date, he will not, without the prior written consent
of Tylan, (i) interfere with the business of Span or Tylan by soliciting,
attempting to solicit, inducing, or otherwise causing any employee or consultant
of Span or Tylan to terminate his or her employment as such in order to become
an employee, consultant or independent contractor to or for any Competing
Company or to or for any company with which Shareholder is associated in any
way; or (ii) induce or attempt to induce any customers, suppliers, distributors,
resellers, or independent contractors of Span to terminate their relationships
with Span.
5. Independence of Obligations. The covenants of Shareholder set forth in
this Agreement shall be construed as independent of any other agreement or
arrangement between Shareholder, on the one hand, and Span or Tylan or any of
their subsidiaries, on the other, and the existence of any claim or cause of
action by Shareholder against Span or Tylan or any of their subsidiaries shall
not constitute a defense to the enforcement of such covenants against
Shareholder.
6. Severability. If any provision of this Agreement or the application of
such provision to any person or circumstances shall be held invalid by a court
of competent jurisdiction, the remainder of the provision held invalid and the
application of such provision to persons or circumstances, other than the party
as to which it is held invalid, shall not be affected.
7. Notices. All notices or other communications hereunder shall be in
writing and deemed given if and when delivered to a party in person, or if and
when mailed by registered or certified mail, return receipt requested, to the
parties at the addresses set forth below or such other addresses as shall be
specified by notice to the other party hereunder:
To Tylan at: TYLAN GENERAL, INC.
9577 Chesapeake Drive
San Diego, CA 92123
Attn: David J. Ferran
To Shareholder at: ________________________
________________________
________________________
8. Waiver of Breach. No waiver of any provisions hereof by any party shall
be deemed a waiver by any such party, and no such waiver shall be deemed a
continuing waiver of any provision hereof by such party.
9. Assignment. This Agreement shall be assignable by Tylan only to any
person, firm or corporation which may become a successor in interest by
purchase, merger or otherwise to Tylan, or the business operated by Tylan, or
the business operated by Span prior to the Merger, provided Shareholder receives
prompt notice of such assignment. This Agreement is not assignable by
Shareholder.
10. Entire Agreement; Amendment. This Agreement supersedes all prior
agreements, written or oral, among the parties hereto with respect to the
subject matter hereof and, together with the Reorganization Agreement and any
other agreement to be executed by each undersigned party pursuant to the
Reorganization Agreement, contains the entire agreement among the parties with
respect to the subject matter hereof. This Agreement may not be amended,
supplemented or modified, and no provisions hereof may be modified or waived,
except expressly by an instrument in writing signed by all the parties hereto.
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11. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of Tylan and its permitted successors and assigns and Shareholder and
their respective heirs and legal representatives.
12. Governing Law. This Agreement shall be deemed a contract made under,
and for all purposes shall be construed in accordance with, the laws of the
State of California.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
SHAREHOLDER
--------------------------------------
TYLAN GENERAL, INC.
By:
------------------------------------
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APPENDIX B
June 12, 1996
BOARD OF DIRECTORS
Tylan General, Inc.
15330 Avenue of Science
San Diego, CA 92128
Attention: David J. Ferran
Gentlemen:
Pursuant to the Plan of Reorganization dated February 20, 1996 among Tylan
General, Inc. ("Tylan General") and Span Instruments, Inc. ("Span"), and Tylan
General Acquisition Subsidiary, Inc., a newly formed, wholly-owned Delaware
subsidiary of Tylan General ("Tylan General Sub"), Tylan General Sub will merge
with and into Span, pursuant to which among other things, Tylan General Sub will
cease to exist and Span will survive as a wholly-owned subsidiary of Tylan
General (the "Merger"). An aggregate of 1,470,000 shares of Tylan General Common
Stock will be issued to the shareholders of Span in the Merger (provided that
there are no dissenting Span shareholders).
You have asked Adams, Harkness & Hill, Inc. ("AH&H") for its opinion as to
the fairness to the current stockholders of Tylan General from a financial point
of view of the consideration to be paid by Tylan General in the Merger (the
"Opinion"). AH&H, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes.
In rendering its opinion, AH&H, among other things: (i) analyzed certain
publicly available financial statements and other information concerning Tylan
General and Span; (ii) analyzed certain internal financial statements and other
financial and operating data concerning Tylan General and Span prepared by the
management of Tylan General and Span; (iii) analyzed certain financial forecasts
prepared by the managements of Tylan General and Span; (iv) discussed the past
and current operations and financial condition and the prospects of Tylan
General and Span with the managements of Tylan General and Span, respectively,
and analyzed the pro forma impact of the Merger on Tylan General's earnings per
share; (v) reviewed the reported prices and trading activity of Tylan General's
Common Stock since its initial public offering; (vi) compared the financial
performance of Tylan General and Span and the prices and trading activity of
Tylan General's Common Stock with that of certain other comparable publicly
traded companies and their securities; (vii) reviewed the financial terms, to
the extent publicly available, of certain comparable acquisition transactions;
(viii) reviewed and discussed with the senior management of Tylan General the
strategic rationale for the Merger and the benefits of the Merger to Tylan
General; (ix) reviewed the Plan of Reorganization; and (x) performed such other
studies, analyses and inquiries and considered such other information as AH&H
deemed relevant.
In connection with our review, we have not independently verified any of
the foregoing information provided to us and have relied, with your consent, on
its being complete and accurate in all material respects. With respect to any
financial forecasts reviewed relating to the prospects of Tylan General or Span,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of Tylan General's and Span's
management as to the future financial performance of Tylan General and Span. Our
Opinion is rendered on the basis of securities market conditions prevailing as
of the date hereof and on the conditions and prospects, financial and otherwise,
of Tylan General and Span as known to us on the date hereof. We have not
conducted, nor have we received copies of, any independent evaluation or
appraisal of any of the assets of Tylan General or Span.
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Tylan General, Inc.
June 12, 1996
page 2
The opinion rendered by us pursuant hereto may be reproduced in full in
Tylan General's proxy statement or other materials distributed to Tylan
General's stockholders and/or Span's shareholders in connection with the Merger
and may be referred to in the minutes of the meetings of your Board of
Directors.
You acknowledge that our opinion and any oral advice given by us to you in
connection with our engagement are intended solely for your use in connection
with the Merger, and your evaluation of the consideration to be paid in the
Merger, but does not constitute a recommendation to any stockholder or
shareholder to approve the Merger, and you agree that, except as provided in the
preceding paragraph, no such opinion or advice shall be reproduced,
disseminated, quoted or referred to at any time, in any manner, or for any
purpose, without our prior written consent (except to the extent otherwise
required by law).
We agree that any confidential or non-public information furnished to us by
you or at your direction in connection with our rendering services hereunder
will be used solely for the purpose of performing our services hereunder and
that such information will be kept confidential by us (except to the extent
otherwise required by law).
Based on the above factors considered by AH&H and subject to the foregoing,
it is our opinion that as of the date hereof, the consideration to be paid in
the Merger by Tylan General is fair to the stockholders of Tylan General from a
financial point of view.
Very truly yours,
ADAMS, HARKNESS & HILL, INC.
By: /s/ TIMOTHY J. MCMAHON
------------------------------------
Timothy J. McMahon
Managing Director
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<PAGE> 189
APPENDIX C
ARTICLES 5.11 THROUGH 5.13 OF THE TEXAS BUSINESS CORPORATION ACT
5.11 RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS.
A. Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and
the shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all,
the property and assets, with or without good will, of a corporation
requiring the special authorization of the shareholders as provided by this
Act;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in which
there is a single surviving or new domestic or foreign corporation, or from any
plan of exchange, if (1) the shares held by the shareholder are part of a class
shares of which are listed on a national securities exchange, or are held of
record by not less than 2,000 holders, on the record date fixed to determine the
shareholders entitled to vote on the plan of merger or the plan of exchange, and
(2) the shareholder is not required by the terms of the plan of merger or the
plan of exchange to accept for his shares any consideration other than (a)
shares of a corporation that, immediately after the effective time of the merger
or exchange, will be part of a class or series of shares of which are (i)
listed, or authorized for listing upon official notice of issuance, on a
national securities exchange, or (ii) held of record by not less than 2,000
holders, and (b) cash in lieu of fractional shares otherwise entitled to be
received. (Ch. 901, L. 91, eff. 8-26-91.)
5.12 PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTION.
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1) (A) With respect to proposed corporate action that is submitted to
a vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair market value of
the shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(B) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the
case of action other than a merger, and the surviving or new
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corporation (foreign or domestic) or other entity that is liable to
discharge the shareholder's right of dissent, in the case of a merger,
shall, within ten (10) days after the date the action is effected, mail to
each shareholder of record as of the effective date of the action notice of
the fact and date of the action and that the shareholder may exercise the
shareholder's right to dissent from the action. The notice shall be
accompanied by a copy of this Article and any articles or documents filed
by the corporation with the Secretary of State to effect the action. If the
shareholder shall not have consented to the taking of the action, the
shareholder may, within twenty (20) days after the mailing of the notice,
make written demand on the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, for payment of the fair
value of the shareholder's shares. The fair value of the shares shall be
the value thereof as of the date the written consent authorizing the action
was delivered to the corporation pursuant to Section A of Article 9.10 of
this Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, of a demand for payment made by a dissenting shareholder in accordance
with Subsection (1) of this Section, the corporation (foreign or domestic)
or other entity shall deliver or mail to the shareholder a written notice
that shall either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees to pay
that amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and
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shall appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing, and
they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
power and authority as may be conferred on Masters in Chancery by the Rules of
Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs, shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action. (Last amended by Ch. 215,
L. 93, eff. 9-1-93.)
5.13 PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS.
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the
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corporation, terminate such shareholder s rights under Articles 5.12 and 5.16 of
this Act unless a court of competent jurisdiction for good and sufficient cause
shown shall otherwise direct. If uncertificated shares for which payment has
been demanded or shares represented by a certificate on which notation has been
so made shall be transferred, any new certificate issued therefor shall bear
similar notation together with the name of the original dissenting holder of
such shares and a transferee of such shares shall acquire by such transfer no
rights in the corporation other than those which the original dissenting
shareholder had after making demand for payment of the fair value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder s rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, Tylan General,
Inc. ("Tylan General") has broad powers to indemnify its directors and officers
against liabilities they may incur in such capacities, including liability under
the Securities Act of 1933 as amended (the "Securities Act").
Tylan General's Certificate of Incorporation, as amended, provides that,
pursuant to Delaware law, its directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty of care to Tylan General and its
stockholders. The provision in the Certificate of Incorporation does not
eliminate the duty of care, and, in appropriate circumstances, equitable
remedies, such as injunctive or other forms of non-monetary relief, will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to Tylan
General, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
Tylan General's Certificate of Incorporation, as amended, and the Bylaws
also provide that Tylan General will indemnify its directors and officers to the
fullest extent permitted by Delaware law. In addition, the Board of Directors
has authorized Tylan General to enter into indemnification agreements with its
directors and executive officers. The agreements require Tylan General to
indemnify such persons against expenses, judgments, fines, settlements and other
amounts incurred (including expenses of a derivative action) in connection with
any proceeding, whether actual or threatened, to which any such person may be
made a party by reason of the fact that such person is or was a director or an
executive officer of Tylan General or any of its affiliated enterprises,
provided such person acted in the best interests of Tylan General and, with
respect to a criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The indemnification agreements also set forth certain
procedures that will apply in the event of a claim for indemnification
thereunder.
At present, there is no pending litigation or proceeding involving a
director or officer of Tylan General as to which indemnification is being
sought, nor is Tylan General aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ --------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization by and among Tylan General, Tylan General
Acquisition Subsidiary, Inc., Span Instruments, Inc. ("Span") and certain
shareholders of Span, dated as of February 20, 1996.(1)*
3.1 Amended and Restated Certificate of Incorporation of Tylan General.(2)
3.2 Bylaws of Tylan General.(2)
3.3 Certificate of Incorporation of Tylan General Sub.
3.4 Bylaws of Tylan General Sub.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Stock Certificate of Tylan General.(2)
5.1 Opinion of Cooley Godward Castro Huddleson & Tatum.
8.1 Tax Opinion of Gardere & Wynne, L.L.P.+
</TABLE>
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<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ --------------------------------------------------------------------------------
<C> <S>
10.1 Form of Indemnity Agreement entered into between Tylan General and its directors
and officers.(2)
10.2 Employment Agreement between Tylan General and David J. Ferran effective as of
October 5, 1989.(2)
10.3 Separation/Consulting Agreement, dated January 3, 1995, between Tylan General
and Richard C. Erdman.(2)
10.4 Tylan General's 1994 Stock Option Plan, as amended (the "Option Plan").+
10.5 Form of Incentive Stock Option under the Option Plan.(2)
10.6 Form of Non-Statutory Stock Option under the Option Plan.(2)
10.7 Tylan General's 1994 Non-Employee Directors' Stock Option Plan.(2)
10.8 Tylan General's Employee Stock Purchase Plan.(2)
10.9 Registration Rights Agreement, dated November 11, 1992, between Tylan General
and The KB Mezzanine Fund, L.P.(2)
10.10 Amended and Restated Registration Rights Agreement, dated November 11, 1992,
between Tylan General and certain stockholders.(2)
10.11 Standard Industrial Lease -- Multi-Tenant, dated January 8, 1993, between Tylan
General and Surf Management Associates.(2)
10.12 Chesapeake Center Standard Lease, dated April 15, 1986, between Tylan General
and Chesapeake Business Park -- 1983, as amended.(2)
10.13 Lease Agreement, dated July 5, 1991, between Tylan General and University
Business Center Joint Venture.(2)
10.14 Standard Industrial/Commercial Single-Tenant Lease-Net, dated February 24, 1995
between Tylan General and Carson Dominguez Properties, L.P.(3)
10.15 Lease dated March 28, 1995 between Tylan General and the Mutual Life Insurance
Company of New York.(3)
10.16 Loan and Security Agreement, dated January 29, 1993, between Tylan General and
Silicon Valley Bank, as amended.(2)
10.17 Amendment to Loan Agreement dated May 31, 1995 between Tylan General and Silicon
Valley Bank.(3)
10.18 Loan Agreement and Security Agreement between Manufacturers Bank and Tylan
General dated as of June 5, 1996.
10.19 Joint Venture Termination Agreement dated October 25, 1995 between Tylan
General, Hanyang Engineering Co., Ltd., Hanyang General Co., Ltd. and Tylan
General Korea, Ltd.(4)
10.20 Credit Agreement, Revolver Note and Term Note between Span and Comerica Bank --
Texas, dated as of March 14, 1996.
10.21 Note Purchase Agreement and Warrant Purchase Agreement between Span and
Stratford Capital Partners, L.P., dated as of March 14, 1996.
10.22 Lease Agreement between Span and Whitson Properties, L.C., dated as of August
31, 1995 and amendment thereto, dated October 1, 1995.
10.23 Lease Agreement between Span and Whitson Properties, L.C., dated as of June 14,
1996.
11.1 Statement regarding computation of earnings per share.
21.1 Subsidiaries of Tylan General.(2)
</TABLE>
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<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ --------------------------------------------------------------------------------
<C> <S>
23.1 Consent of Deloitte & Touche LLP (Tylan General Predecessor Auditor).
23.2 Consent of Ernst & Young LLP (Span Auditor).
23.3 Consent of Grace, Pulliam & Patterson Company PC (Span Predecessor Auditor).
23.4 Consent of Cooley Godward Castro Huddleson & Tatum (contained in opinion filed
as Exhibit 5.1).
23.5 Consent of Gardere & Wynne, L.L.P.+
24.1 Power of attorney (see Pages II-4 to II-5 of this Registration Statement).
</TABLE>
- ---------------
* Schedules omitted pursuant to Regulation S-K, Item 601(b)(2) of the
Commission. Tylan General undertakes to furnish such schedules to the
Commission supplementally upon request.
+ To be filed by amendment.
(1) Filed as an exhibit to Tylan General's Quarterly Report on Form 10-Q for the
quarter ended April 28, 1996 and incorporated by reference herein.
(2) Filed as an exhibit to Tylan General's Registration Statement on Form S-1
(No. 33-87470) or an amendment thereto and incorporated by reference herein.
(3) Filed as an exhibit to Tylan General's Registration Statement on Form S-1
(No. 33-96374) or an amendment thereto and incorporated by reference herein.
(4) Filed as an exhibit to Tylan General's Annual Report on Form 10-K for the
fiscal year ended October 29, 1996 and incorporated herein by reference.
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF SCHEDULE
------ --------------------------------------------------------------------------------
<C> <S>
II Valuation and Qualifying Accounts of Span Instruments, Inc. for the Years Ended
August 31, 1994 and 1995, for the Two Months Ended October 31, 1995 (unaudited)
and for the Six Months Ended April 30, 1995 and 1996 (unaudited).
</TABLE>
ITEM 22. UNDERTAKINGS.
(1) The Registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the Registrant
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 (the "Act")
and is used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the Registration Statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Prospectus/Joint Proxy Statement
pursuant to Items 4, 10(b), 11 or 13 of Form S-4, within one business day of
receipt of such request and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
II-3
<PAGE> 196
(4) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(5) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Certificate of Incorporation and the Bylaws of the Registrant
and the Delaware General Corporation Law, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in a
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
question has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy, as expressed in the Act, and will be governed by the
final adjudication of such issue.
(6) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (that is incorporated by reference in the
Registration Statement) shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 197
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Tylan General, Inc. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, County of San Diego, State of California, on the 17th day of June, 1996.
TYLAN GENERAL, INC.
By: /s/ DAVID J. FERRAN
------------------------------------
David J. Ferran
Chairman of the Board, Chief
Executive
Officer and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David J. Ferran and David L. Stone, and
each or any one of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ DAVID J. FERRAN Chairman of the Board, President, June 17, 1996
- ------------------------------------------ Chief Executive Officer and
David J. Ferran Director (Principal executive
officer)
/s/ DAVID L. STONE Executive Vice President, Chief June 17, 1996
- ------------------------------------------ Financial Officer and Secretary
David L. Stone (Principal financial and
accounting officer)
- ------------------------------------------ Director June , 1996
Larry L. Hansen
/s/ DERRICK N. KEY Director June 17, 1996
- ------------------------------------------
Derrick N. Key
/s/ MICHAEL H. KHOUGAZ Director June 17, 1996
- ------------------------------------------
Michael H. Khougaz
</TABLE>
II-5
<PAGE> 198
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ BRUCE C. RHINE Director June 17, 1996
- ------------------------------------------
Bruce C. Rhine
/s/ ARTHUR C. SPINNER Director June 17, 1996
- ------------------------------------------
Arthur C. Spinner
/s/ WADE WOODSON Director June 17, 1996
- ------------------------------------------
Wade Woodson
</TABLE>
II-6
<PAGE> 199
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Span Instruments, Inc.
We have audited the consolidated financial statements of Span Instruments,
Inc. and subsidiary as of August 31, 1995 and for the year then ended, and have
issued our report thereon dated October 27, 1995 (except for Note 6, as to which
the date is March 14, 1996), which report is included elsewhere in this
Registration Statement. Our audit also included the financial statement schedule
listed in Item 21(b) of this Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Dallas, Texas
October 27, 1995
S-1
<PAGE> 200
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Span Instruments, Inc.
We have audited the balance sheet of Span Instruments, Inc. as of August
31, 1994 and the related statements of operations, shareholders' equity and cash
flows for each of the two years in the period ended August 31, 1994, and have
issued our report thereon dated November 24, 1994, which report is included
elsewhere in this Registration Statement. Our audits also included the financial
statement schedule listed in Item 21(b) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Grace, Pulliam & Patterson Company, PC
Dallas, Texas
November 24, 1994
S-2
<PAGE> 201
SCHEDULE II
SPAN INSTRUMENTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1993
Allowance for doubtful accounts............. $ 17 $ 12 $-- $9 $ 20
Reserve for inventory valuation............. -- -- -- -- --
YEAR ENDED AUGUST 31, 1994
Allowance for doubtful accounts............. 20 32 -- 23 29
Reserve for inventory valuation............. -- -- -- -- --
YEAR ENDED AUGUST 31, 1995
Allowance for doubtful accounts............. 29 43 -- 52 20
Reserve for inventory valuation............. -- 129 -- -- 129
TWO MONTHS ENDED OCTOBER 31, 1995
(UNAUDITED)
Allowance for doubtful accounts............. 20 -- -- -- 20
Reserve for inventory valuation............. 129 -- -- -- 129
SIX MONTHS ENDED APRIL 30, 1995 (AUDITED)
Allowance for doubtful accounts............. 29 -- -- -- 29
Reserve for inventory valuation............. 22 64 -- -- 86
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
Allowance for doubtful accounts............. 20 10 -- -- 30
Reserve for inventory valuation............. 129 713 -- -- 842
</TABLE>
S-3
<PAGE> 202
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ -------------------------------------------------------------------------- ------------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization by and among Tylan General, Tylan
General Acquisition Subsidiary, Inc., Span Instruments, Inc. ("Span") and
certain shareholders of Span, dated as of February 20, 1996.(1)*
3.1 Amended and Restated Certificate of Incorporation of Tylan General.(2)
3.2 Bylaws of Tylan General.(2)
3.3 Certificate of Incorporation of Tylan General Sub.
3.4 Bylaws of Tylan General Sub.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Stock Certificate of Tylan General.(2)
5.1 Opinion of Cooley Godward Castro Huddleson & Tatum.
8.1 Tax Opinion of Gardere & Wynne, L.L.P.+
10.1 Form of Indemnity Agreement entered into between Tylan General and its
directors and officers.(2)
10.2 Employment Agreement between Tylan General and David J. Ferran effective
as of October 5, 1989.(2)
10.3 Separation/Consulting Agreement, dated January 3, 1995, between Tylan
General and Richard C. Erdman.(2)
10.4 Tylan General's 1994 Stock Option Plan, as amended (the "Option Plan").+
10.5 Form of Incentive Stock Option under the Option Plan.(2)
10.6 Form of Non-Statutory Stock Option under the Option Plan.(2)
10.7 Tylan General's 1994 Non-Employee Directors' Stock Option Plan.(2)
10.8 Tylan General's Employee Stock Purchase Plan.(2)
10.9 Registration Rights Agreement, dated November 11, 1992, between Tylan
General and The KB Mezzanine Fund, L.P.(2)
10.10 Amended and Restated Registration Rights Agreement, dated November 11,
1992, between Tylan General and certain stockholders.(2)
10.11 Standard Industrial Lease -- Multi-Tenant, dated January 8, 1993, between
Tylan General and Surf Management Associates.(2)
10.12 Chesapeake Center Standard Lease, dated April 15, 1986, between Tylan
General and Chesapeake Business Park -- 1983, as amended.(2)
10.13 Lease Agreement, dated July 5, 1991, between Tylan General and University
Business Center Joint Venture.(2)
10.14 Standard Industrial/Commercial Single-Tenant Lease-Net, dated February 24,
1995 between Tylan General and Carson Dominguez Properties, L.P.(3)
10.15 Lease dated March 28, 1995 between Tylan General and the Mutual Life
Insurance Company of New York.(3)
10.16 Loan and Security Agreement, dated January 29, 1993, between Tylan General
and Silicon Valley Bank, as amended.(2)
10.17 Amendment to Loan Agreement dated May 31, 1995 between Tylan General and
Silicon Valley Bank.(3)
10.18 Loan Agreement and Security Agreement between Manufacturers Bank and Tylan
General dated as of June 5, 1996.
</TABLE>
<PAGE> 203
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ -------------------------------------------------------------------------- ------------
<C> <S> <C>
10.19 Joint Venture Termination Agreement dated October 25, 1995 between Tylan
General, Hanyang Engineering Co., Ltd., Hanyang General Co., Ltd. and
Tylan General Korea, Ltd.(4)
10.20 Credit Agreement, Revolver Note and Term Note between Span and Comerica
Bank -- Texas, dated as of March 14, 1996.
10.21 Note Purchase Agreement and Warrant Purchase Agreement between Span and
Stratford Capital Partners, L.P., dated as of March 14, 1996.
10.22 Lease Agreement between Span and Whitson Properties, L.C., dated as of
August 31, 1995 and amendment thereto, dated October 1, 1995.
10.23 Lease Agreement between Span and Whitson Properties, L.C., dated as of
June 14, 1996.
11.1 Statement regarding computation of earnings per share.
21.1 Subsidiaries of Tylan General.(2)
23.1 Consent of Deloitte & Touche LLP (Tylan General Predecessor Auditor).
23.2 Consent of Ernst & Young LLP (Span Auditor).
23.3 Consent of Grace, Pulliam & Patterson Company PC (Span Predecessor
Auditor).
23.4 Consent of Cooley Godward Castro Huddleson & Tatum (contained in opinion
filed as Exhibit 5.1).
23.5 Consent of Gardere & Wynne, L.L.P.+
24.1 Power of attorney (see Pages II-4 to II-5 of this Registration Statement).
</TABLE>
- ---------------
(1) Filed as an exhibit to Tylan General's Quarterly Report on Form 10-Q for the
quarter ended April 28, 1996 and incorporated by reference herein.
(2) Filed as an exhibit to Tylan General's Registration Statement on Form S-1
(No. 33-87470) or an amendment thereto and incorporated by reference herein.
(3) Filed as an exhibit to Tylan General's Registration Statement on Form S-1
(No. 33-96374) or an amendment thereto and incorporated by reference herein.
(4) Filed as an exhibit to Tylan General's Annual Report on Form 10-K for the
fiscal year ended October 29, 1996 and incorporated herein by reference.
* Schedules omitted pursuant to Regulation S-K, Item 601(b)(2) of the
Commission. Tylan General undertakes to furnish such schedules to the
Commission supplementally upon request.
+ To be filed by amendment.
<PAGE> 1
Exhibit 3.3
CERTIFICATE OF INCORPORATION
OF
TYLAN GENERAL ACQUISITION SUBSIDIARY, INC.
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is TYLAN GENERAL ACQUISITION SUBSIDIARY, INC.
II.
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent, and the
name of the registered agent of the corporation in the State of Delaware at such
address is National Registered Agents, Inc.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
The corporation is authorized to issue only one class of stock, to be
designated "Common Stock." The total number of shares of Common Stock presently
authorized is ten thousand (10,000), each having a par value of one-tenth of one
cent ($.001).
V.
The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.
VI.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors shall have the power, both before and after
receipt of any payment for any of the corporation's capital stock, to adopt,
amend, repeal or otherwise alter the By-laws of the corporation without any
action on the part of the stockholders; provided, however, that the grant
<PAGE> 2
of such power to the Board of Directors shall not divest the stockholders of nor
limit their power to adopt, amend, repeal or otherwise alter the By-laws.
VII.
Elections of directors need not be by written ballot unless the By-laws
of the corporation shall so provide.
VIII.
A director of the corporation shall, to the full extent permitted by
the Delaware General Corporation Law, as it now exists or as it may hereafter be
amended, not be liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Neither any amendment nor
repeal of this Article VIII, nor the adoption of any provision of this
Certificate of Incorporation inconsistent with this Article VIII, shall
eliminate or reduce the effect of this Article VIII in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article
VIII, would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
IX.
The corporation reserves the right to adopt, repeal, rescind or amend
in any respect any provision contained in this Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
the stockholders herein are granted subject to this reservation.
X.
The name and the mailing address of the Sole Incorporator is as
follows:
NAME MAILING ADDRESS
Jane K. Adams Cooley Godward Castro
Huddleson & Tatum
4365 Executive Drive, Suite 1100
San Diego, California 92121
IN WITNESS WHEREOF, this Certificate has been subscribed this 19th day
of February, 1996 by the undersigned who affirms that the statements made herein
are true and correct.
/s/ Jane K. Adams
------------------------------
Jane K. Adams
Sole Incorporator
<PAGE> 1
Exhibit 3.4
BYLAWS
OF
TYLAN GENERAL ACQUISITION SUBSIDIARY, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - OFFICES.............................................................. 1
Section 1. Registered Office..................................... 1
Section 2. Other Offices......................................... 1
ARTICLE II - CORPORATE SEAL...................................................... 1
Section 3. Corporate Seal........................................ 1
ARTICLE III - STOCKHOLDERS' MEETINGS............................................. 1
Section 4. Place of Meetings..................................... 1
Section 5. Annual Meeting........................................ 2
Section 6. Special Meetings...................................... 3
Section 7. Notice of Meetings.................................... 4
Section 8. Quorum................................................ 4
Section 9. Adjournment and Notice of Adjourned Meetings.......... 5
Section 10. Voting Rights......................................... 5
Section 11. Joint Owners of Stock................................. 5
Section 12. List of Stockholders.................................. 5
Section 13. Action Without Meeting................................ 6
Section 14. Organization.......................................... 6
ARTICLE IV - DIRECTORS........................................................... 7
Section 15. Number and Term of Office............................. 7
Section 16. Powers................................................ 7
Section 17. Election.............................................. 7
Section 18. Vacancies............................................. 7
Section 19. Resignation........................................... 8
Section 20. Removal............................................... 8
Section 21. Meetings.............................................. 8
(a) Annual Meetings....................................... 8
(b) Regular Meetings...................................... 8
(c) Special Meetings...................................... 9
(d) Telephone Meetings.................................... 9
(e) Notice of Meetings.................................... 9
(f) Waiver of Notice...................................... 9
Section 22. Quorum and Voting..................................... 9
Section 23. Action Without Meeting................................ 10
Section 24. Fees and Compensation................................. 10
Section 25. Committees............................................ 10
(a) Executive Committee................................... 10
(b) Other Committees...................................... 10
(c) Term.................................................. 11
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(d) Meetings.............................................. 11
Section 26. Organization.......................................... 11
ARTICLE V - OFFICERS............................................................. 12
Section 27. Officers Designated................................... 12
Section 28. Tenure and Duties of Officers......................... 12
(a) General............................................... 12
(b) Duties of Chairman of the Board of Directors.......... 12
(c) Duties of President................................... 12
(d) Duties of Vice Presidents............................. 12
(e) Duties of Secretary................................... 13
(f) Duties of Chief Financial Officer..................... 13
Section 29. Delegation of Authority............................... 13
Section 30. Resignations.......................................... 13
Section 31. Removal............................................... 13
ARTICLE VI - EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION........................................ 14
Section 32. Execution of Corporate Instruments.................... 14
Section 33. Voting of Securities Owned by the Corporation......... 14
ARTICLE VII - SHARES OF STOCK.................................................... 14
Section 34. Form and Execution of Certificates.................... 14
Section 35. Lost Certificates..................................... 15
Section 36. Transfers............................................. 15
Section 37. Fixing Record Dates................................... 16
Section 38. Registered Stockholders............................... 17
ARTICLE VIII - OTHER SECURITIES OF THE CORPORATION............................... 17
Section 39. Execution of Other Securities......................... 17
ARTICLE IX - DIVIDENDS........................................................... 17
Section 40. Declaration of Dividends.............................. 17
Section 41. Dividend Reserve...................................... 18
ARTICLE X - FISCAL YEAR.......................................................... 18
Section 42. Fiscal Year........................................... 18
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE XI - INDEMNIFICATION........................................................................... 18
Section 43. Indemnification of Directors, Executive Officers, Other Officers,
Employees and Other Agents.................................................. 18
(a) Directors and Executive Officers............................................ 18
(b) Other Officers, Employees and Other Agents.................................. 18
(c) Expenses.................................................................... 19
(d) Enforcement................................................................. 19
(e) Non-Exclusivity of Rights................................................... 20
(f) Survival of Rights.......................................................... 20
(g) Insurance................................................................... 20
(h) Amendments.................................................................. 20
(i) Saving Clause............................................................... 20
(j) Certain Definitions......................................................... 20
ARTICLE XII - NOTICES.................................................................................. 21
Section 44. Notices..................................................................... 22
(a) Notice to Stockholders...................................................... 22
(b) Notice to directors......................................................... 22
(c) Affidavit of Mailing........................................................ 22
(d) Time Notices Deemed Given................................................... 22
(e) Methods of Notice........................................................... 22
(f) Failure to Receive Notice................................................... 22
(g) Notice to Person with Whom Communication Is Unlawful........................ 22
(h) Notice to Person with Undeliverable Address................................. 23
ARTICLE XIII - AMENDMENTS.............................................................................. 23
Section 45. Amendments.................................................................. 23
ARTICLE XIV - LOANS TO OFFICERS........................................................................ 23
Section 46. Loans to Officers........................................................... 23
ARTICLE XV - MISCELLANEOUS............................................................................. 24
Section 47. Annual Report............................................................... 24
</TABLE>
iii.
<PAGE> 5
BYLAWS
OF
TYLAN GENERAL ACQUISITION SUBSIDIARY, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
1.
<PAGE> 6
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be: (A)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (B) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not later than the close
of business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
2.
<PAGE> 7
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 5. At the request of the Board of Directors, any
person nominated by a stockholder for election as a director shall furnish to
the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors, shall fix.
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(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding
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shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes
cast, including abstentions, by the holders of shares of such class or classes
or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open
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to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of the State of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is
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absent, a chairman of the meeting chosen by a majority in interest of the
stockholders entitled to vote, present in person or by proxy, shall act as
chairman. The Secretary, or, in his absence, an Assistant Secretary directed to
do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. ELECTION. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, directors shall be elected at each annual meeting of stockholders
for a term of one year. Each director shall serve until his successor is duly
elected and qualified or until his death, resignation or removal. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification,
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removal or other causes and any newly created directorships resulting from any
increase in the number of directors, shall unless the Board of Directors
determines by resolution that any such vacancies or newly created directorships
shall be filled by stockholders, be filled only by the affirmative vote of a
majority of the directors then in office, even though less than a quorum of the
Board of Directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the director
for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Bylaw in the case of the death,
removal or resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL. Subject to the rights of the holders of any series
of Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the office
of the corporation required to be maintained pursuant to Section 2 hereof.
Unless otherwise restricted by the Certificate of Incorporation, regular
meetings of the Board of Directors may also be held at any place within or
without the State of Delaware which has been designated by resolution of the
Board of Directors or the written consent of all directors.
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(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different vote
be required by law, the Certificate of Incorporation or these Bylaws.
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SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, including without limitation the power or
authority to declare a dividend, to authorize the issuance of stock and to adopt
a certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, from time to
time appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall such committee have the powers denied to the
Executive Committee in these Bylaws.
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(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
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ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
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(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given him
in these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
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ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate
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signed by or in the name of the corporation by the Chairman of the Board of
Directors, or the President or any Vice President and by the Treasurer or
Assistant Treasurer or the Secretary or Assistant Secretary, certifying the
number of shares owned by him in the corporation. Any or all of the signatures
on the certificate may be facsimiles. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued with the same effect as if
he were such officer, transfer agent, or registrar at the date of issue. Each
certificate shall state upon the face or back thereof, in full or in summary,
all of the powers, designations, preferences, and rights, and the limitations or
restrictions of the shares authorized to be issued or shall, except as otherwise
required by law, set forth on the face or back a statement that the corporation
will furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Within a
reasonable time after the issuance or transfer of uncertificated stock, the
corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to this section or otherwise required by law or with respect to this
section a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
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SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of record
seeking to have the stockholders authorize or take corporate action by written
consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed by
the Board of Directors within 10 days of the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (60) days prior to such action. If no record date is fixed, the record
date for determining stockholders for any
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such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be
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paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall
have power to indemnify its other officers, employees and other agents as set
forth in the Delaware General Corporation Law.
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(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer, of the corporation, or is or was serving at the request of
the corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to an executive
officer of the corporation (except by reason of the fact that such executive
officer is or was a director of the corporation in which event this paragraph
shall not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the
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claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct. In
any suit brought by a director or executive officer to enforce a right to
indemnification or to an advancement of expenses hereunder, the burden of
proving that the director or executive officer is not entitled to be
indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(i) The term "proceeding" shall be broadly construed
and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the
giving of testimony in, any threatened, pending or
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completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.
(ii) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees,
witness fees, fines, amounts paid in settlement or judgment and any
other costs and expenses of any nature or kind incurred in connection
with any proceeding.
(iii) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in
the same position under the provisions of this Bylaw with respect to
the resulting or surviving corporation as he would have with respect to
such constituent corporation if its separate existence had continued.
(iv) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include,
without limitation, situations where such person is serving at the
request of the corporation as, respectively, a director, executive
officer, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
(v) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Bylaw.
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ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to
any director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such director shall have
filed in writing with the Secretary, or, in the absence of such filing, to the
last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any
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governmental authority or agency for a license or permit to give such notice to
such person. Any action or meeting which shall be taken or held without notice
to any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the action
taken by the corporation is such as to require the filing of a certificate under
any provision of the Delaware General Corporation Law, the certificate shall
state, if such is the fact and if notice is required, that notice was given to
all persons entitled to receive notice except such persons with whom
communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by (a) the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock or (b)
the Board of Directors.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other
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assistance may be with or without interest and may be unsecured, or secured in
such manner as the Board of Directors shall approve, including, without
limitation, a pledge of shares of stock of the corporation. Nothing in these
Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or
warranty of the corporation at common law or under any statute.
ARTICLE XV
MISCELLANEOUS
SECTION 47. ANNUAL REPORT.
(a) Subject to the provisions of paragraph (b) of this Bylaw,
the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation not later than one hundred twenty (120) days
after the close of the corporation's fiscal year. Such report shall include a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied by
any report thereon of independent accounts or, if there is no such report, the
certificate of an authorized officer of the corporation that such statements
were prepared without audit from the books and records of the corporation. When
there are more than 100 stockholders of record of the corporation's shares, as
determined by Section 605 of the California Corporations Code, additional
information as required by Section 1501(b) of the California Corporations Code
shall also be contained in such report, provided that if the corporation has a
class of securities registered under Section 12 of the 1934 Act, that Act shall
take precedence. Such report shall be sent to stockholders at least fifteen (15)
days prior to the next annual meeting of stockholders after the end of the
fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of
record of the corporation's shares, the requirement of sending of an annual
report to the stockholders of the corporation is hereby expressly waived.
24.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF COOLEY GODWARD CASTRO HUDDLESON & TATUM]
June 14, 1996
Tylan General, Inc.
15330 Avenue of Science
San Diego, CA 92128
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Tylan General, Inc. (the "Company") of a Registration
Statement on Form S-4 (the "Registration Statement") with the Securities and
Exchange Commission covering the offering of up to 1,470,000 shares of the
Company's Common Stock, $.001 par value (the "Shares").
In connection with this opinion, we have examined the Registration Statement and
related Prospectus, your Certificate of Incorporation and By-laws, as amended,
and such other documents, records, certificates, memoranda and other instruments
as we deem necessary as a basis for this opinion. We have assumed the
genuineness and authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as copies thereof and
the due execution and delivery of all documents where due execution and delivery
are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when issued in accordance with the Registration Statement and
related Prospectus, will be validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Sincerely,
COOLEY GODWARD CASTRO
HUDDLESON & TATUM
By: /s/ D. Bradley Peck
---------------------------------
D Bradley Peck, Esq.
<PAGE> 1
Exhibit 10.18
[MANUFACTURERS BANK LOGO]
LOAN AGREEMENT
THIS LOAN AGREEMENT is entered into as of , by and between MANUFACTURERS BANK
("Bank"), a California corporation, and TYLAN GENERAL, INC. ("Borrower"), a
Delaware corporation.
To induce Bank to extend credit accommodations to Borrower, and in consideration
of such credit accommodations as may be e tended from time to time by Bank to
Borrower, Borrower hereby agrees with Bank as follows:
1. DEFINITIONS. All accounting terms not specifically defined in this Agreement
shall be construed in accordance with generally accepted accounting principles
and practices in effect from time to time ("GAAP"). Any terms used in this
Agreement which are defined in the California Uniform Commercial Code (the
"Code") shall be construed and defined as set forth in the Code unless otherwise
defined herein. As used in this Agreement, the terms listed in this Section 1
shall have the following assigned definitions:
1.1 "AGREEMENT" means this Loan Agreement, any concurrent or subsequent
rider to this Loan Agreement, and any extensions, supplements, notes,
amendments, or modifications to or in connection with this Loan Agreement or to
any such rider.
1.2 "BANK EXPENSES" means all costs or expenses (including taxes and
insurance premiums) required to be paid by Borrower under any Loan Documents
which are paid or advanced by Bank; filing, recording, publication, and search
fees paid or incurred by Bank in connection with Bank's transactions with
Borrower; costs and expenses incurred by Bank to correct any default or enforce
any provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof irrespective of
whether a sale is consummated; costs and expenses of suit incurred by Bank in
enforcing or defending the Loan Documents; and Bank's reasonable attorneys' fees
and expenses incurred in advising, structuring, drafting, reviewing, amending,
terminating, enforcing, defending, or concerning the Loan Documents,
irrespective of whether suit is brought.
1.3 "BASE LIBOR RATE" means, with respect to any Interest Period for a
LIBOR Advance, the per annum rate determined by Bank to be the rate of interest
at which deposits in dollars can be acquired by Bank in the London interbank
currency market two days before the commencement of such Interest Period in an
amount comparable to the amount of the LIBOR Advance and for a period comparable
to the Interest Period. Bank's determination of such per annum rate shall be
conclusive in the absence of manifest error, whether or not such deposits are
actually acquired by Bank.
1.4 "BUSINESS DAY" means any day which is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
1.5 "COLLATERAL" is defined in Section 3.2(b).
1.6 "COMMERCIAL L/C" is defined in Section 2.4(a).
1.7 "DOLLAR" means the United States dollar.
1.8 "DOLLAR EQUIVALENT" means, for any particular sum of Foreign
Currency at any particular moment in time, the United States dollar exchange
value of that sum of Foreign Currency at that time, as reasonably determined by
Bank.
1.9 "FOREIGN CURRENCY" is defined in Section 2.2(b).
1.10 "INSIDER" means any shareholder, director, or officer of Borrower.
1.11 "INTEREST PERIOD" means, for any LIBOR Advance, the time period
selected by Borrower pursuant to Section 2.3(a) or 2.3(d)(4) which commences on
the first day of such LIBOR Advance and ends on the last day of such time
period, and thereafter each subsequent time period selected by Borrower pursuant
to Section 2.3(d)(3) which commences on the last day of the immediately
preceding Interest Period.
1.12 "LIBOR ADVANCE" is defined in Section 2.3(a).
1.13 "LIBOR RATE" means, with respect to any LIBOR Advance for any
Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest
1/8th of 1%) determined pursuant to the following formula:
LIBOR Rate = Base LIBOR Rate
----------------------
1 - Reserve Percentage
1.14 "LOAN DOCUMENTS" means, collectively, this Agreement, any Note or
Notes executed by Borrower to the order of Bank, and any other agreement entered
into between Borrower and Bank in connection with this Agreement, or otherwise
evidencing or securing any of the Obligations.
1.15 "NOTE" means any and every promissory note, application,
disclosure statement, agreement or other document evidencing some or all of the
credit terms governing any of the Obligations.
1.16 "OBLIGATIONS" means all loans, advances, debts, liabilities
(including all amounts charged to Borrower's loan account pursuant to any
agreement authorizing Bank to charge Borrower's loan account), obligations,
lease payments,
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<PAGE> 2
guaranties, covenants, and duties owing by Borrower to Bank of any kind and
description (whether pursuant to or evidenced by the Loan Documents, by any Note
or other instrument, or by any other agreement between Bank and Borrower, and
irrespective of whether for the payment of money), whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including any debt, liability, or obligation owing from Borrower to others
which Bank may have obtained by assignment or otherwise, and further including
all interest not paid when due and all Bank Expenses which Borrower is required
to pay or reimburse by the Loan Documents, by law, or otherwise; but excluding
any obligation of Borrower owing to Bank which is secured by a lien on real
property in favor of Bank.
1.17 "PRIME RATE" means an index rate which Bank establishes from time
to time in connection with pricing certain of its loans. Bank may make loans at,
above, or below its stated Prime Rate. Information on the current Prime Rate can
be obtained by contacting Bank. Any change in the Prime Rate shall become
effective on the same business day on which the Prime Rate changes.
1.18 "RESERVE PERCENTAGE" means, with respect to any Interest Period
for a LIBOR Advance, the percentage prescribed by the Board of Governors of the
Federal Reserve System and in effect on the first day of the Interest Period,
for determining the maximum reserve requirement applicable to "Eurocurrency
liabilities" of Bank pursuant to Regulation D or any other applicable regulation
of the Board of Governors which prescribes reserve requirements applicable to
"Eurocurrency liabilities" as presently defined in Regulation D.
1.19 "TYLAN-JAPAN" means Tylan General K.K., Borrower's Japanese
subsidiary.
1.20 "TYLAN-KOREA" means Tylan General Korea Ltd., Borrower's Korean
subsidiary.
1.21 "WON STANDBY L/C" is defined in Section 2.7(a).
1.22 "YEN STANDBY L/C" is defined in Section 2.6(a).
2. AVAILABILITY OF CREDIT AND TERMS OF PAYMENT.
2.1 CREDIT ACCOMMODATIONS. In addition to any credit facilities which
Bank has extended or may in the future extend to Borrower pursuant to separate
Notes or other Loan Documents, Bank agrees to extend credit to Borrower from
time to time in such amounts as Borrower may request, subject to the terms of
this Agreement, including the various credit limits and sublimits set forth
below. Borrower may obtain credit under this Agreement through any of six (6)
separate facilities, referred to as the "Commercial Advance Facility,"
"Commercial L/C Facility," "Acceptance Facility," "Yen Standby L/C Facility,"
"Won Standby L/C Facility," and "Standby L/C Advance Facility," respectively
(collectively, the "Trade Finance Line").
2.2 CREDIT LIMIT. The aggregate principal amount of credit outstanding
at any one time under the Trade Finance Line shall not exceed, after giving
effect to any credit extension, the sum of Eleven Million Dollars
($11,000,000.00). The aggregate principal amount of credit outstanding at any
one time under the Commercial Advance Facility, Commercial L/C Facility and
Acceptance Facility, together, shall not exceed, after giving effect to any
credit extension, the sum of Ten Million Dollars ($10,000,000.00). The aggregate
principal amount of credit outstanding at any one time under the Commercial L/C
Facility and Acceptance Facility, together, shall not exceed, after giving
effect to any credit extension, the sum of One Million Dollars ($1,000,000.00).
The aggregate principal amount of credit outstanding at any one time under the
Yen Standby L/C Facility, Won Standby L/C Facility and Standby L/C Advance
Facility, together, shall not exceed, after giving effect to any credit
extension, the sum of Six Million Dollars ($6,000,000.00).
(a) CREDIT OUTSTANDING ON LETTERS OF CREDIT. The "principal
amount of credit outstanding" with respect to any Commercial L/C shall be deemed
to be the full face amount of such Commercial L/C. The "principal amount of
credit outstanding" with respect to the Yen Standby L/C and the Won Standby L/C
(each a "Standby L/C") shall be deemed to be one hundred twenty percent (120%)
of the Dollar Equivalent of the full face amount of such Standby L/C on the date
of its issuance, subject to adjustment as set forth in Section 2.2(b) below.
(b) ADJUSTMENT FOR CURRENCY FLUCTUATIONS. The exchange rate
between the Dollar and the Japanese yen or the Korean won (each a "Foreign
Currency"), as appropriate, on the issuance date of any Standby L/C is referred
to as the "Base Exchange Rate." If, at any time subsequent to the issuance date
of any Standby L/C, the Foreign Currency in which that Standby L/C is
denominated appreciates by more than twenty percent (20%) against the Dollar, as
compared to the Base Exchange Rate, Bank may from time to time, at its sole
option, adjust the formula for calculating the principal amount of credit
outstanding with respect to that Standby L/C. The adjusted principal amount of
credit outstanding with respect to that Standby L/C would be a percentage of the
Dollar Equivalent of the full face amount of the Standby L/C, which percentage
would be equal to one hundred percent (100%) plus the percentage of appreciation
of the appropriate Foreign Currency against the Dollar, as compared with the
Base Exchange Rate. For example, if the appropriate Foreign Currency appreciates
30% against the Dollar as compared to the Base Exchange Rate, Bank may change
the formula for determining the principal amount of credit outstanding to one
hundred thirty percent (130%) of the Dollar Equivalent of the full face amount
of the Standby L/C. If any adjustment in the determination of the principal
amount of credit outstanding for a Standby L/C causes Borrower to be
overadvanced on the Trade Finance Line, then upon written notice from Bank,
Borrower must cure the overadvance by paying down the outstanding balance on the
Commercial Advance Facility.
2.3 COMMERCIAL ADVANCE FACILITY.
(a) COMMERCIAL ADVANCES. Subject to the terms and conditions
of this Agreement, and upon the request of Borrower made at any time on or
before March 31, 1997, Bank agrees to extend credit to Borrower in the form of
advances ("Commercial Advances"). Commercial Advances shall not be used to
refinance Borrower's obligations under any other facility provided in this
Agreement. Each request for a Commercial Advance shall be made by an irrevocable
notice to Bank (a "Notice of Advance") which specifies: (i) whether the
requested Commercial Advance is to be one which bears interest as provided in
Section 2.3(d)(1)(i) (a "Prime Rate Advance") or an Advance which bears interest
as provided in Section 2.3(d)(1)(ii) (a "LIBOR Advance"), (ii) the amount of the
requested Commercial Advance, (iii) the date of the requested Commercial
Advance, which must be a Business Day, and (iv) if the requested Advance is to
be a LIBOR Advance, the initial Interest Period selected by Borrower for such
Commercial Advance in accordance with Section 2.3(d)(3). For each
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<PAGE> 3
LIBOR Advance, Borrower shall give the Notice of Advance to Bank at least two
(2) Business Days before the date of the requested Commercial Advance. Each
Notice of Advance shall be given by telephone or telex and thereafter
immediately confirmed by Borrower in writing to Bank. Notwithstanding anything
contained in this Agreement to the contrary, Bank shall have no obligation to
make any LIBOR Advance unless the aggregate amount of all LIBOR Advances,
including the requested LIBOR Advance, is or will be at least One Million
Dollars ($1,000,000.00).
(b) CREDIT SUBLIMIT. The aggregate amount of credit
outstanding at any one time in the form of Commercial Advances shall not exceed,
after giving effect to any credit extension, the sum of Ten Million Dollars
($10,000,000.00).
(c) MATURITY OF ADVANCES. The principal amount of each
Commercial Advance shall be repaid in full on or before March 31, 1997.
(d) INTEREST RATE.
(1) APPLICABLE RATE. At Borrower's election, each
Commercial Advance shall bear interest from the date thereof until paid in full,
except as adjusted in Section 2.3(d)(8) below, at a per annum rate equal to
either:
(i) Prime Rate Option. During such periods
as any Commercial Advance is a Prime Rate Advance, at a fluctuating rate per
annum equal to the Prime Rate. The interest rate applicable to each Prime Rate
Advance shall be adjusted concurrently with, and such adjustments shall be
effective on the same date as, adjustments in the Prime Rate.
(ii) LIBOR Rate Option. During such periods
as any Commercial Advance is a LIBOR Advance, at a rate per annum equal at all
times during each Interest Period to Bank's LIBOR Rate plus one and
three-quarters percent (1.75%). The interest rate applicable to each LIBOR
Advance shall be adjusted on the first day of each Interest Period.
(2) CALCULATION OF INTEREST. Each Commercial Advance
shall, at any given time prior to the maturity date, bear interest at one, and
only one, of the rates set forth in Section 2.3(d)(1). Interest shall be
computed on the basis of a year of 360 days for the actual number of days
elapsed.
(3) INTEREST PERIODS FOR LIBOR ADVANCES. The initial
Interest Period and any subsequent Interest Period selected by Borrower pursuant
to the terms of this Agreement for any LIBOR Advance may be for a period of one
(1), two (2), or three (3) months. If any Interest Period would otherwise expire
on a day which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day. No Interest Period shall extend beyond March 31,
1997.
(4) CONVERSION OF PRIME RATE ADVANCES. Borrower may
convert any Prime Rate Advance into a LIBOR Advance, or any LIBOR Advance into a
Prime Rate Advance. Any conversion of a LIBOR Advance into a Prime Rate Advance
shall be made on, and only on, the last day of the Interest Period for that
Commercial Advance pursuant to Section 2.3(d)(3). Borrower shall request Bank to
make a conversion of a Prime Rate Advance into a LIBOR Advance by an irrevocable
notice to Bank (a "Notice of Conversion") which specifies: (i) the Prime Rate
Advance to be converted; (ii) the date of the requested conversion, which shall
be a Business Day; and (iii) the initial Interest Period selected by Borrower
for such Commercial Advance in accordance with Section 2.3(d)(3). Borrower shall
give each Notice of Conversion to Bank at least two (2) business days before the
date of the requested conversion. Each Notice of Conversion shall be given by
telephone or telex and thereafter immediately confirmed by Borrower in writing
to Bank.
(5) SUBSEQUENT INTEREST PERIODS. Borrower shall
notify Bank by an irrevocable notice ("Notice of Interest Period Selection") at
least two (2) business days prior to the last day of each Interest Period of the
time period selected by Borrower for the next succeeding Interest Period for
such Commercial Advance in accordance with Section 2.3(d)(3). Each Notice of
Interest Period Selection shall be given by telephone or telex and thereafter
immediately confirmed by Borrower in writing to Bank. If Borrower fails to give
Bank a Notice of Interest Period Selection, the Commercial Advance will
automatically convert to a Prime Rate Advance on the last day of the then
existing Interest Period for such Commercial Advance.
(6) BANK'S RECORDS. Bank's records shall control any
difference between a verbal notice and the corresponding written confirmation of
any Notice of Advance, Notice of Conversion, or Notice of Interest Period
Selection. Failure by Bank to receive a written confirmation of any verbal
notice shall not affect Borrower's obligation to Bank if Bank act's on the
verbal notice.
(7) ADDITIONAL INTEREST. Borrower shall pay to Bank
on demand, as additional interest, such amounts as will compensate Bank for any
increase in the cost or reduction in the rate of return to Bank of making or
maintaining any LIBOR Advances under this Agreement (determined by Bank's
reasonable allocation of the aggregate of such increases or reductions) by
reason of any change in or establishment of (i) any reserve, special deposit or
other requirement with respect to assets of, deposits with or for the account
of, or credit extended by Bank which are imposed on or deemed applicable by Bank
under any law, treaty, rule, regulation (including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System), (ii) any
interpretation thereof by any governmental, fiscal, monetary or other authority
charged with the administration thereof or having jurisdiction over Bank, and/or
(iii) any requirement imposed by any such authority, whether or not having the
force of law.
(8) DEFAULT RATE. The outstanding principal balance
under the Commercial Advance Facility shall bear interest from and after written
notice by Bank to Borrower of the occurrence of an Event of Default, at a
fluctuating rate equal to the Prime Rate in effect from time to time plus three
percent (3.0%).
(9) PREPAYMENT. Upon prepayment of any LIBOR Advance
on a day other than the last day of the Interest Period for that LIBOR Advance
pursuant to Section 2.3(d)(3), Borrower shall pay to Bank a prepayment fee
calculated by multiplying the principal amount being prepaid times the number of
days between the date of the prepayment and the last day of the Interest Period
divided by 360, times the applicable Interest Differential; provided, that, no
such fee shall be payable if the product of the foregoing formula is not
positive. "Interest Differential" means, with respect to any prepayment, (a) the
per annum interest rate payable under this Agreement with respect to the
applicable LIBOR Advance as of the date
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<PAGE> 4
of prepayment, minus (b) the Term Fed Funds (Sold) Rate on the date of
prepayment in an amount approximately equal to the principal amount being
repaid. "Term Fed Funds (Sold) Rate" means the rate per annum determined by Bank
in its sole discretion and announced from time to time as its Term Fed Funds
(Sold) Rate for a period approximately equal to the period from the date of the
prepayment to the last day of the Interest Period.
(e) COMMERCIAL ADVANCE FACILITY FEE. Borrower shall pay to
Bank, in quarterly installments in arrears, a fee equal to one-quarter of one
percent (0.25%) per annum of the average daily unutilized portion of the credit
available under the Commercial Advance Facility for the quarter.
2.4 COMMERCIAL L/C FACILITY.
(a) COMMERCIAL L/CS. Subject to the terms and conditions set
forth herein, and upon the request of Borrower made at any time and from time to
time on or before March 31, 1997, Bank agrees to issue commercial letters of
credit ("Commercial L/Cs") for the account of Borrower under and pursuant to
Bank's Applications and Security Agreements for Commercial Letters of Credit
("Commercial L/C Applications"). Unless otherwise provided herein, all goods
purchased with any Commercial L/C shall be consigned to Bank, and such
consignment shall be reflected to Bank's satisfaction in all documents of title
to such goods. Borrower shall be liable for the payment of any and all sums
which may become due to Bank under any Commercial L/C Application.
(b) CREDIT SUBLIMIT. Bank shall have no obligation to issue
any Commercial L/C hereunder whenever the aggregate face amount of Commercial
L/Cs currently issued and to be issued would exceed One Million Dollars
($1,000,000.00).
(c) COMMERCIAL L/C EXPIRATION DATES. Bank shall have no
obligation to issue a Commercial L/C which expires after the earlier of (i) one
hundred eighty (180) days from the date the Commercial L/C is issued, or (ii)
June 30, 1997.
(d) REIMBURSEMENT OF PAYMENTS ON DRAFTS. Borrower shall
immediately reimburse Bank for each and every payment on a draft under any
Commercial L/C.
(e) DOCUMENTATION. Bank's obligation to issue any Commercial
L/C shall be conditioned upon Borrower's prior execution and delivery to Bank of
a properly completed Commercial L/C Application, in form and substance
satisfactory to Bank.
(f) COMMERCIAL L/C FEES. Borrower shall pay Bank's standard
fees and commissions in effect from time to time for the issuance, creation,
drawdown and/or negotiation of Commercial L/Cs.
2.5 ACCEPTANCE FACILITY.
(a) ACCEPTANCES. Subject to the terms and conditions of this
Agreement, and upon the request of Borrower made at any time on or before March
31, 1997, Bank agrees to create acceptances ("Acceptances") based on time drafts
under Commercial L/Cs, pursuant to the terms of that certain Acceptance
Agreement executed or to be executed by Bank and Borrower (the "Acceptance
Agreement"), provided that Bank shall have no obligation to create an Acceptance
which has a maturity of more than one hundred eighty (180) days from the date of
its creation, or later than September 30, 1997.
(b) CREDIT SUBLIMIT. Bank shall have no obligation to create
any Acceptance whenever the aggregate face amount of Acceptances created and to
be created would exceed One Million Dollars ($1,000,000.00).
(c) PAYMENT UPON NEGOTIATION. Borrower shall pay Bank the
amount of each Acceptance on demand, but not later than one business day prior
to maturity, in accordance with the terms of the relevant Commercial L/C
Application, and shall otherwise pay or reimburse Bank in relation to any time
draft under a Commercial L/C in accordance with the terms of the relevant
Commercial L/C Application and Acceptance Agreement.
2.6 YEN STANDBY L/C FACILITY.
(a) YEN STANDBY L/CS. Subject to the terms and conditions of
this Agreement, Bank shall issue a standby letter of credit denominated in
Japanese yen (the "Yen Standby L/C") for the account of Borrower and for the
benefit of The Sakura Bank, Ltd., Shin-Yokohama Branch ("Sakura-Yokohama"),
under and pursuant to Bank's Standby Letter of Credit Application and Advance
Agreement ("the Yen Standby L/C Application"). The purpose of the Yen Standby
L/C is to support borrowings by Tylan-Japan from Sakura-Yokohama. The
beneficiary shall be entitled to draw on the Yen Standby L/C if Tylan-Japan
defaults on any agreement relating to the credit facilities provided to
Tylan-Japan by Sakura-Yokohama. Borrower shall become liable for the payment of
any and all sums which may become due to Bank under the Yen Standby L/C
Application.
(b) CREDIT SUBLIMIT. Bank shall have no obligation to issue
the Yen Standby L/C in a face amount in excess of that sum of Japanese yen for
which the Dollar Equivalent at the time of issuance would be Four Million
Dollars ($4,000,000.00).
(c) L/C EXPIRATION DATE. Bank shall have no obligation to
issue the Yen Standby L/C to expire after March 31, 1997.
(d) REIMBURSEMENT OF PAYMENTS ON DRAFTS. Borrower shall
immediately reimburse Bank for each and every payment on a draft under the Yen
Standby L/C.
(e) DOCUMENTATION. Bank's obligation to issue the Standby L/C
shall be conditioned upon Borrower's prior execution and delivery to Bank of a
properly completed Yen Standby L/C Application, in form and substance
satisfactory to Bank.
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<PAGE> 5
(f) YEN STANDBY L/C FEE. Borrower shall pay to Bank, in
quarterly installments in advance, a fee equal to seven-eighths of one percent
(0.875%) per annum of the Dollar Equivalent at the time of issuance of the full
face amount of the Yen Standby L/C.
2.7 WON STANDBY L/C FACILITY.
(a) WON STANDBY L/C. Subject to the terms and conditions of
this Agreement, Bank shall issue a standby letter of credit denominated in
Korean won (the "Won Standby L/C") for the account of Borrower and for the
benefit of The Sakura Bank, Ltd., Seoul Branch ("Sakura-Seoul"), under and
pursuant to Bank's Standby Letter of Credit Application and Advance Agreement
("the Won Standby L/C Application"). The purpose of the Won Standby L/C is to
support borrowings by Tylan-Korea from Sakura-Seoul. The beneficiary shall be
entitled to draw on the Won Standby L/C if Tylan-Korea defaults on any agreement
relating to the credit facilities provided to Tylan-Korea by Sakura-Seoul.
Borrower shall become liable for the payment of any and all sums which may
become due to Bank under the Won Standby L/C Application.
(b) CREDIT SUBLIMIT. Bank shall have no obligation to issue
the Won Standby L/C hereunder in a face amount in excess of that sum of Korean
won for which the Dollar Equivalent at the time of issuance would be One Million
Dollars ($1,000,000.00).
(c) L/C EXPIRATION DATE. Bank shall have no obligation to
issue the Won Standby L/C to expire after March 31, 1997.
(d) REIMBURSEMENT OF PAYMENTS ON DRAFTS. Borrower shall
immediately reimburse Bank for each and every payment on a draft under the Won
Standby L/C.
(e) DOCUMENTATION. Bank's obligation to issue the Won Standby
L/C shall be conditioned upon Borrower's prior execution and delivery to Bank of
a properly completed Won Standby L/C Application, in form and substance
satisfactory to Bank.
(f) WON STANDBY L/C FEE. Borrower shall pay to Bank, in
quarterly installments in advance, a fee equal to seven-eighths of one percent
(0.875%) per annum of the Dollar Equivalent at the time of issuance of the full
face amount of the Won Standby L/C.
2.8 STANDBY L/C ADVANCE FACILITY.
(a) STANDBY L/C ADVANCES. Subject to the terms and conditions
of this Agreement, and upon the request of Borrower made at any time on or
before March 31, 1997, Bank agrees to extend credit to Borrower in the form of
advances ("Standby L/C Advances"), which shall be used for the sole purpose of
refinancing Borrower's obligations in relation to drafts under the Yen Standby
L/C and/or the Won Standby L/C.
(b) CREDIT SUBLIMIT. The aggregate amount of credit
outstanding at any one time in the form of Standby L/C Advances shall not
exceed, after giving effect to any credit extension, the sum of Six Million
Dollars ($6,000,000.00).
(c) MATURITY OF STANDBY L/C ADVANCES. The principal amount of
each L/C Advance shall be repaid in full on or before March 31, 1997.
(d) INTEREST RATE. The principal amounts of all Standby L/C
Advances shall bear interest at a fluctuating rate equal to one percent (1.0%)
per annum above the Prime Rate in effect from time to time, except as provided
in Section 2.8(f), entitled "Default Rate."
(e) CALCULATION AND PAYMENT OF INTEREST. Interest accruing on
each Standby L/C Advance shall be calculated on the basis of a 360-day year for
the actual number of days elapsed and shall be due and payable monthly in
arrears on the first day of each month, except that interest accruing at the
default rate set forth in Section 2.8(f) shall be due and payable on demand.
(f) DEFAULT RATE. The outstanding principal balance under the
Standby L/C Advance Facility shall bear interest from and after written notice
by Bank to Borrower of the occurrence of an Event of Default, at a fluctuating
rate equal to the Prime Rate in effect from time to time plus four percent
(4.0%).
3. CONDITIONS TO CREDIT.
3.1 GENERAL CONDITIONS. Bank's obligation to grant, extend or continue
any credit to Borrower is subject to the following conditions:
(a) DOCUMENTATION. Bank shall have received this Agreement and
all documentation required hereunder in relation to any particular extension of
credit, duly executed and in form and content satisfactory to Bank.
(b) ALL TERMS IN EFFECT. All terms set forth in this Agreement
and any other document or agreement executed in connection with the any credit
accommodations provided by Bank to Borrower (collectively, the "Credit
Accommodations") shall be in full force and effect.
(c) NO BREACH. No breach of this Agreement or any other
document executed in connection with the Credit Accommodations shall have
occurred and be continuing.
(d) DOCUMENTATION FEE. Borrower shall have paid to Bank a
documentation fee in the amount of Six Thousand Dollars ($6,000.00).
(e) OTHER FEES. Borrower shall have paid to Bank: (i) any
Commercial Advance Fee that is due and payable; (ii) any Yen Standby L/C Fee
that is due and payable; (iii) any Won Standby L/C Fee that is due and payable;
and (iv) any Commercial L/C Fees that are due and payable.
Page 5 of 11
<PAGE> 6
(f) SILICON VALLEY BANK LIENS. Borrower shall have delivered
to Bank four (4) properly completed and executed UCC-2 terminations, one for
each UCC-1 financing statement naming Silicon Valley Bank as the creditor
(together, the "Silicon Filings") that is described in Section 3.2(b) below
(i.e., file nos. 93023869, 93037673, 93037674, and 9518160390).
3.2 COLLATERAL.
(a) BUSINESS COLLATERAL. As security for the performance of
all Obligations, Borrower hereby grants Bank a security interest in all of
Borrower's accounts receivable, inventory, equipment, general intangibles, and
the products and proceeds thereof located in the United States (the
"Collateral").
(b) PRIORITY OF SECURITY INTEREST. Except as otherwise
provided in this Section 3.2(b), Bank's security interest in the Collateral
shall, without exception, be of first priority. Except for the Silicon Filings,
each of the UCC-1 financing statements described below cover only equipment.
Bank's security interest in the items of equipment shown in the UCC-1 financing
statements described below shall be of second priority:
<TABLE>
<CAPTION>
Creditor Date UCC-1 Filed File Number
-------- ---------------- -----------
<S> <C> <C>
Toshiba America Information Systems 7/31/91 91166340
Pitney Bowes Credit Corp. 10/10/91 91219636
Pitney Bowes Credit Corp. 10/10/91 91244782
Pitney Bowes Credit Corp. 10/10/91 92099700
Hewlett-Packard-Company 8/14/92 92178021
Silicon Valley Bank 2/3/93 93023869
Copelco Leasing Corporation 2/8/93 93028479
Silicon Valley Bank 2/22/93 93037674
Silicon Valley Bank 2/22/93 93037673
National Westminster Bank USA 6/9/93 93110104
Financing for Science International, Inc. 7/21/93 93145734
Financing for Science International, Inc. 10/20/93 93211647
Financing for Science International, Inc. 11/12/93 93226895
Financing for Science international, Inc. 12/24/93 93257629
Bridgeway Capital Corporation 5/2/94 94085204
Bridgeway Capital Corporation 6/9/94 94116992
Bridgeway Capital Corporation 6/24/94 94128581
Bridgeway Capital Corporation 8/10/94 94163837
Bridgeway Capital Corporation 10/6/94 9429460663
Bridgeway Capital Corporation 10/6/94 9429560006
Bridgeway Capital Corporation 10/24/94 9431160050
Minolta Business System 1/13/95 9502461057
Bridgeway Capital Corporation 10/24/94 9431860986
Bridgeway Capital Corporation 2/6/95 9504560296
Bridgeway Capital Corporation 2/16/95 9505460540
Bridgeway Capital Corporation 2/21/95 9505660181
Bridgeway Capital Corporation 3/3/95 9506760480
Bridgeway Capital Corporation 3/23/95 9508760156
The Mutual Life Insurance Company of New York 3/31/95 9509460917
Bridgeway Capital Corporation 4/10/95 9510360171
Bridgeway Capital Corporation 5/1/95 9512161167
Bridgeway Capital Corporation 5/1/95 9512260871
Bridgeway Capital Corporation 6/12/95 9516560185
Silicon Valley Bank 6/28/95 9518160390
Bridgeway Capital Corporation 7/25/95 9520960014
Minolta Business System 8/16/95 9522960626
Office Depot/Eastman Inc. 8/31/95 9525060009
</TABLE>
(c) DOCUMENTATION. As a condition precedent to Bank's
obligation to grant, extend or continue any credit to Borrower, Borrower shall
have executed and delivered to Bank such documentation, including but not
limited to security agreements, assignment agreements, and financing statements,
as Bank deems necessary to create and perfect the security interests referred to
in this Agreement, all in form and substance satisfactory to Bank.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby makes the following
representations and warranties, which shall be deemed repeated on the occasion
of each granting, extension, or continuation of credit by Bank to Borrower:
4.1 IDENTITY AND ORGANIZATION. Borrower is a corporation duly organized
and existing under the laws of the state of Delaware and has the organizational
power to make and perform this Agreement and any Note or other Loan Document.
4.2 LICENSING AND QUALIFICATION. Borrower is duly authorized, qualified
and licensed under all applicable laws, regulations, ordinances or orders of
public authorities to carry on Borrower's business in the places and manner
presently conducted.
4.3 FINANCIAL STATEMENTS AND FINANCIAL CONDITION. Borrower's financial
statements, as of January 31, 1996, previously furnished to Bank, are complete,
correct and fairly present the financial position of Borrower as of the date and
for the period indicated. Borrower has no contingent liabilities of any
substantial amount which are not reflected in such financial statements. Since
the date of the financial statements referred to in this section, (i) there has
been no materially adverse change in the condition of Borrower, financial or
otherwise, and (ii) Borrower has not entered into, incurred or assumed any
material long-term debts, mortgages, leases or oral or written commitments,
commenced any significant project, or made any significant purchase or
acquisition of any property, other than in the ordinary course of business.
Page 6 of 11
<PAGE> 7
4.4 ASSETS. Borrower has good and marketable title to all property and
assets reflected in the financial statement referred to in the immediately
preceding section of this Agreement, except property and assets sold or
otherwise disposed of in the ordinary course of business subsequent to that
date. Borrower does not have any outstanding liens or encumbrances on any of
Borrower's properties or assets, except as reflected in such financial statement
or in Section 3.2(b) above. Borrower is not a party to any security agreements
or title retention agreements, whether in the form of leases or otherwise,
affecting any of Borrower's personal property except as reflected in such
financial statement or in Section 3.2(b) above.
4.5 LITIGATION. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of Borrower upon reasonable inquiry,
threatened against or affecting Borrower at law, in equity, or before or by any
governmental department, commission, board, bureau, agency, or instrumentality,
domestic or foreign, which if adversely determined would have a materially
adverse effect on the business or financial condition of Borrower. Borrower is
not in default of any order, writ, injunction or decree.
4.6 ENVIRONMENTAL CONDITION. None of Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any hazardous waste or hazardous substance. To the
best of Borrower's knowledge, none of Borrower's properties or assets has ever
been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute. No
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower. Borrower has not
received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal or state governmental agency concerning
any action or omission by Borrower resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
4.7 TAXES. Borrower has filed all United States federal and state tax
returns which are required to be filed and has paid or made adequate provision
for the payment of all taxes which have or may become due pursuant to those
returns, to any matters raised by audits, assessments received by Borrower, and
for any other causes known to Borrower, including foreign taxes.
4.8 OTHER AGREEMENTS. No event has occurred and is continuing which
constitutes, or which, with the giving of notice or lapse of time or both, would
constitute, an event of default or a default under any agreement, note or other
evidence of indebtedness of to which Borrower is a party.
4.9 VALID AND BINDING AGREEMENTS. This Agreement and all Notes and
other Loan Documents executed by Borrower and delivered to Bank at any time
will, when executed and delivered, constitute valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the rights of creditors generally.
5. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that, so long as Bank
has committed to extend any credit accommodations to Borrower, and until payment
in full of all Obligations, Borrower shall do all of the following:
5.1 FINANCIAL STATEMENTS AND TAX RETURNS.
(a) ANNUAL FINANCIAL STATEMENTS. Deliver to Bank, within
ninety (90) days after the end of each of Borrower's fiscal years, financial
statements of Borrower for each such fiscal period, audited by independent
certified public accountants acceptable to Bank. Such financial statements shall
include a balance sheet,and profit and loss statement, as well as all related
letters and opinions rendered by the accountants to Borrower, and shall fairly
reflect the financial condition and operations of Borrower.
(b) ANNUAL CONSOLIDATING FINANCIAL STATEMENTS. Deliver to
Bank, within ninety (90) days after the end of each of Borrower's fiscal years,
consolidating financial statements of Borrower and it's operating subsidiaries,
for each such fiscal period, audited by independent certified public accountants
acceptable to Bank. Such financial statements shall include a balance sheet and
profit and loss statement, as well as all related letters and opinions rendered
by the accountants to Borrower and it's operating subsidiaries, and shall fairly
reflect the financial condition and operations of Borrower and it's operating
subsidiaries. together with the above, Borrower shall also deliver Borrower's
form 10-K's, if any, as soon as the same become available.
(c) 10-Q REPORT AND QUARTERLY CONSOLIDATING FINANCIAL
STATEMENTS. Deliver to Bank, within sixty (60) days after the end of each of
Borrower's fiscal quarters: (i) a copy of Borrower's 10-Q report for the fiscal
quarter; and (ii) consolidating financial statements of Borrower and it's
operating subsidiaries for the fiscal quarter, prepared by Borrower. Such
financial statements shall include a balance sheet and profit and loss
statement, and shall fairly reflect the financial condition and operations of
Borrower and it's operating subsidiaries.
(d) FINANCIAL PROJECTIONS. Deliver to Bank within sixty (60)
days of the beginning of each of Borrower's fiscal years, consolidating and
consolidated financial projections for Borrower including balance sheets, income
statements, and cash flow projections for the next succeeding fiscal year,
prepared by Borrower.
(e) CERTIFICATES. Deliver to Bank together with each financial
statement delivered to Bank the certificate of the principal financial officer
of Borrower stating that, as of the end of the period covered by such financial
statement, he or she has no knowledge that an Event of Default, or an event
which with notice or lapse of time, or both, would constitute an Event of
Default, has occurred and is continuing or, if any Event of Default or other
such event has occurred and is continuing, a statement as to its nature and the
action which Borrower proposes to take with respect to it.
(f) ADDITIONAL FINANCIAL INFORMATION. Deliver such additional
information as Bank may from time to time reasonably request with respect to the
business affairs and financial condition of Borrower or any Guarantor.
5.2 FINANCIAL COVENANTS.
Page 7 of 11
<PAGE> 8
(a) EFFECTIVE TANGIBLE NET WORTH. At all times maintain an
Effective Tangible Net Worth (defined as Borrower's net worth, plus Borrower's
debt subordinated to Bank, less all of the following: Borrower's patents,
licenses, goodwill, subscription lists, organization expenses, deferred taxes,
monies due from affiliates [including employees, officers, directors and
shareholders] and prepaid expenses) of not less than Thirty Five Million Dollars
($35,000,000.00).
(b) DEBT TO WORTH RATIO. At all times maintain a maximum Debt
to Effective Tangible Net Worth Ratio (defined as Borrower's total liabilities,
less Borrower's debt subordinated to Bank, divided by Borrower's Effective
Tangible Net Worth) of not more than 1.25:1.
(c) CURRENT RATIO. At all times maintain a minimum Current
Ratio (defined as Borrower's current assets divided by Borrower's current
liabilities) of 1.5:1.
(d) QUICK RATIO. At all times maintain a minimum Quick Ratio
(defined as Borrower's cash, marketable securities and accounts receivable
divided by Borrower's current liabilities) of 0.75:1.
(e) FIXED CHARGE COVERAGE RATIO. At all times maintain a
minimum Fixed Charge Coverage Ratio (defined as Borrower's profits before
provision for interest expenses, income taxes, depreciation and amortization,
divided by Borrower's interest payments, capital expenditures and the current
portion of long-term debt) of 1.5:1.
(f) PROFITABILITY. Achieve a net after tax profit for each of
Borrower's fiscal years of at least One Dollar ($1.00); avoid sustaining, after
taxes, a loss for any two consecutive fiscal quarters.
5.3 MAINTENANCE OF BUSINESS STRUCTURE. Remain in and continue to
operate substantially the same line of business presently engaged in; conduct
business in an orderly, efficient, and customary manner; maintain and preserve
all rights, privileges and franchises necessary or desirable in the conduct of
Borrower's business; and maintain and preserve its organizational existence.
5.4 MAINTENANCE OF PROPERTIES. Maintain, preserve and keep all
properties and assets necessary or useful in Borrower's business in good working
order and condition.
5.5 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations and orders of all governmental authorities,
including obligations imposed by ERISA and hazardous substance laws,
non-compliance with which could materially adversely affect its business or
credit, except where contested in good faith and by appropriate proceedings.
5.6 TAXES AND CLAIMS. Pay and discharge promptly all taxes,
assessments, governmental charges and levies imposed upon Borrower or upon
Borrower's income and profits or upon any properties belonging to Borrower,
prior to the date upon which penalties could be imposed, pay or deposit in a
timely manner all F.I.C.A. payments and withholding taxes required of Borrower
by applicable law, and, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower has made such payments or deposits, and pay all
lawful claims for labor, materials and supplies that, if unpaid, might become a
lien or charge upon Borrower's property, provided that Borrower shall not be
required to pay any such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good faith by
proper proceedings and if Borrower shall have set aside on Borrower's books and
shall maintain adequate reserves for the payment of the same in accordance with
GAAP.
5.7 INSURANCE. Obtain and maintain insurance with responsible companies
in such amounts and against such risks (a) as is usually carried by business
entities engaged in similar businesses similarly situated, and (b) as is
specifically required by Bank in writing, and furnish Bank on request copies of
and full information as to the insurance maintained by Borrower.
5.8 NOTICE OF DEFAULTS. Give prompt written notice to Bank of any Event
of Default under this Agreement or of any event of default arising under any
other agreement or indenture entered into by Borrower, or of any other matter
which has resulted in or might result in a materially adverse change in
Borrower's financial condition or operations.
5.9 CHANGES IN MANAGEMENT OR LOCATION. Give prompt written notice to
Bank of any changes in (a) the senior management positions of Borrower, or (b)
the location of Borrower's chief executive offices.
5.10 LIENS, LITIGATION. Give prompt written notice of the existence of
any and all liens, judgments, litigation and contingent liabilities affecting
Borrower or any of its assets, and which involve a dispute or obligation (actual
or alleged) where at least One Hundred Thousand Dollars ($100,000) is at issue.
5.11 RECORDS. Keep and maintain full and accurate accounts and records
of Borrower's business operations according to GAAP and permit Bank and its
designated officers, employees, agents and representatives to have access to
such accounts, records and operations and to make examinations thereof at all
reasonable times.
5.12 EXECUTION OF OTHER INSTRUMENTS. Do, execute, acknowledge and
deliver, or cause to be done, executed, acknowledged and delivered, such further
acts, covenants, assurances or further instruments and documents as Bank may
reasonably request in order to carry out the intent and purpose of this
Agreement and each other agreement of Borrower with Bank.
5.13 BANK EXPENSES. Immediately upon notice thereof, reimburse Bank for
all sums expended by Bank which constitute Bank Expenses. Borrower hereby
authorizes and approves all reasonable advances and payments by Bank for items
constituting Bank Expenses; provided, however, that Borrower shall not reimburse
Bank for Bank's expenses incurred in advising, structuring, drafting and
reviewing the Loan Documents in excess of the Six Thousand Dollar ($6,000.00)
documentation fee set forth in Section 3.1(d).
6. NEGATIVE COVENANTS. Borrower covenants and agrees that, so long as Bank has
committed to extend any credit accommodations to Borrower, and until payment in
full of all Obligations, Borrower will not do any of the following without
Bank's prior written consent:
Page 8 of 11
<PAGE> 9
6.1 DISPOSAL OF ASSETS. Sell, lease, otherwise dispose of any material
part of its property or assets, now owned or hereafter acquired, except (a)
obsolete or worn-out property, (b) real estate not used or useful in its
business, or (c) inventory sold in the ordinary course of business.
6.2 ACQUISITIONS. Except for Borrower's pending acquisition of Span
Instruments, Inc., purchase, acquire or incur any liability for the purchase or
acquisition of any or all of the assets or business of any person, firm or
corporation.
6.3 CAPITAL EXPENDITURES. Make capital expenditures, including but not
limited to expenditures for fixed assets such as real property, improvements and
equipment, in excess of an aggregate for any one (1) fiscal year of Six Million
Dollars ($6,000,000.00).
6.4 NEW LEASES. Lease or become liable as lessee upon any new lease of
real or personal property if the aggregate rental payments under all such leases
accrued and to accrue shall exceed One Million Dollars ($1,000,000.00) for each
fiscal year of Borrower. For the purpose of this covenant, the term "rental
payments", with respect to any lease for any period, shall mean the aggregate
amounts payable by the lessee for such period, including taxes, insurance,
interest, and amortization charges, but excluding maintenance charges.
6.5 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or in stock) on, or purchase, acquire, redeem, or retire any
of Borrower's capital stock, of any class, whether now or hereafter outstanding.
6.6 PURCHASE OF SECURITIES. Utilize any proceeds of any credit extended
by Bank to purchase or carry any margin stock (within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System) or to extend credit
to others for the purpose of purchasing or carrying any margin stock.
6.7 EXTRAORDINARY DEBTS. Incur any debts outside the ordinary and usual
course of Borrower's business except for renewals or extensions of existing
debts.
6.8 PREPAYMENTS. Prepay any existing indebtedness owing to any third
party.
6.9 ENCUMBRANCES AND LIENS. Create, execute, assume or permit the
existence of any mortgage, deed of trust, security agreement, pledge, or
encumbrance, including the lien of an attachment, judgment or execution, or
execute or permit to be filed any financing statement, affecting any or all of
Borrower's property, real, personal or mixed, whether now owned or hereafter
acquired, except: (a) liens or charges for current taxes, assessments or other
governmental charges which are not delinquent or which remain payable without
penalty, or the validity of which is contested in good faith by appropriate
proceedings upon stay of execution of the enforcement thereof, provided Borrower
shall have set aside on its books and shall maintain adequate reserves for their
payment in conformity with GAAP, and (b) liens, deposits or pledges made to
secure statutory obligations, surety or appeal bonds, or bonds for the release
of attachments or for stay of execution, or to secure the performance of bids,
tenders, contracts (other than for the payment of borrowed money), leases or for
purposes of like general nature in the ordinary course of its business.
6.10 EXTRAORDINARY LOANS. Make any advance or loan except loans or
advances in the ordinary course of Borrower's business as presently conducted.
6.11 GUARANTY. Guaranty or otherwise become in any way liable in an
aggregate amount in excess of Five Hundred Thousand Dollars ($500,000.00) with
respect to the obligations of any third party except by indorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Bank, and except for the following guaranties
of Tylan-Japan in effect as of the date hereof:
<TABLE>
<CAPTION>
Lender Approximate Balance at 3/31/96 (in Yen)
------ ---------------------------------------
<S> <C>
Japan Development Bank 30,000,000
Mitsubishi Trust & Banking 73,000,000
Mitsubishi Trust & Banking 35,000,000
Asahi Bank 88,000,000
</TABLE>
6.12 CHANGE OF NAME. Change Borrower's name, business structure, or
identity, or add any new fictitious name.
6.13 SUSPENSION OF BUSINESS. Suspend or go out of business.
6.14 CONSOLIDATION AND MERGER. Merge or consolidate with or into any
other business organization, except for Borrower's pending acquisition of Span
Instruments, Inc.
6.15 CHANGE OF OWNERSHIP. Cause, permit, or suffer any change greater
than ten percent (10.0%), direct or indirect, in the capital ownership in
Borrower of any Insider.
6.16 ACCOUNTING METHODS. Modify or change Borrower's method of
accounting or enter into, modify, or terminate any agreement presently existing,
or at any time hereafter entered into with any third party, accounting firm or
service bureau for the preparation or storage of Borrower's accounting records
without said accounting firm or service bureau agreeing to provide Bank
information regarding Borrower's assets or financial condition. Borrower waives
the right to assert a confidential relationship, if any, it may have with any
accounting firm or service bureau in connection with any information requested
by Bank pursuant to or in accordance with this Agreement, and agrees that Bank
may contact directly any such accounting firm or service bureau in order to
obtain such information.
7. EVENTS OF DEFAULT. If one or more of the following described events (each
an "Event of Default") occurs:
7.1 Borrower fails to pay, within ten (10) days after receipt of notice
from Bank, any portion of the Obligations (whether of principal, interest,
taxes, reimbursement of Bank Expenses, or otherwise) that are then due and
payable or declared due and payable;
Page 9 of 11
<PAGE> 10
7.2 Borrower fails or neglects to perform or observe any term,
provision, condition, or covenant contained in this Agreement, in any of the
Loan Documents, or in any other present or future agreement between Borrower and
Bank;
7.3 There is a material impairment of the prospect of repayment of any
portion of the Obligations owing to Bank or a material impairment of the value
or priority of Bank's security interest in any Collateral;
7.4 Any material portion of Borrower's assets is attached, seized,
subjected to a writ or distress warrant, or levied upon, or comes into the
possession of any judicial officer or assignee;
7.5 An Insolvency Proceeding is commenced by Borrower;
7.6 An Insolvency Proceeding is commenced against Borrower, and remains
undismissed, unstayed and in effect sixty (60) days after the commencement
thereof;
7.7 Borrower is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs (for purposes of this Section 7.7, a "material part of its business
affairs" shall mean a part generating more than five percent (5.0%) of its
annual revenue);
7.8 A notice of lien, levy, or assessment is filed of record with
respect to Borrower's assets having a value in excess of One Hundred Thousand
Dollars ($100,000.00) by the United States government, or any department,
agency, or instrumentality thereof, or by any state, county, municipal, or other
governmental agency, or if any taxes or debts owing at any time hereafter to any
one or more of such entities becomes a lien, whether choate or otherwise, upon
Borrower's assets having a value in excess of One Hundred Thousand Dollars
($100,000.00) and the same is not paid on the payment date thereof;
7.9 A judgment or other claim becomes a lien or encumbrance upon any
material portion of Borrower's assets;
7.10 A default occurs under any agreement to which Borrower is a party
with third parties resulting in a right by such third parties to accelerate the
maturity of Borrower's indebtedness, and such indebtedness is in excess of One
Hundred Thousand Dollars ($100,000.00) and is not cured within thirty (30) days
of Borrower's notice thereof;
7.11 Borrower makes any payment on account of indebtedness which has
been subordinated to the Obligations except to the extent such payment is
allowed under any subordination agreement entered into with Bank;
7.12 Any misstatement or misrepresentation exists now or hereafter in
any warranty, representation, statement, or report made to Bank by Borrower or
any officer, employee, agent, or director of Borrower in relation to any credit
accommodations extended by Bank to Borrower, or if any such warranty or
representation is withdrawn by the maker thereof;
THEN, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by Bank, at the option of
Bank and at Bank's sole discretion, Bank may terminate each commitment to extend
any credit accommodations to Borrower and each Obligation outstanding shall,
without presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived, be forthwith due and payable, if not otherwise then due
and payable, anything herein or in any Note or other document contained to the
contrary notwithstanding, and Bank may immediately, and without expiration of
any period of grace, enforce any and all of Bank's rights or remedies provided
by this Agreement or any Note or other Loan Document, or any other rights or
remedies afforded by law.
8. MISCELLANEOUS PROVISIONS.
8.1 EFFECTIVENESS. This Agreement shall be binding and deemed effective
when executed by Borrower and accepted and executed by Bank.
8.2 ENTIRE AGREEMENT. All previous oral understandings and agreements
between the parties respecting the transactions contemplated by this Agreement
are merged in this Agreement. This Agreement, together with the underlying Loan
Documents evidencing or contemplated by this Agreement, represents the entire
agreement between the parties and supersedes any and all previous written or
oral agreements or discussions between the parties and any other person or
entity concerning the transactions contemplated herein. If any conflict exists
between the terms of this Agreement and the terms of any Note executed in
relation to this Agreement, the terms of this Agreement shall control.
8.3 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights
hereunder without Bank's prior written consent and any prohibited assignment
shall be absolutely void. No consent to an assignment by Bank shall release
Borrower from its Obligations. Bank may assign this Agreement and its rights and
duties hereunder. Bank reserves the right to sell, assign, transfer, negotiate,
or grant participations in, all or any part of Bank's rights and benefits
hereunder. In connection therewith, Bank may disclose all documents and
information which Bank now or hereafter may have relating to Borrower or
Borrower's business.
8.4 SECTION HEADINGS. Headings and numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
8.5 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Bank or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
8.6 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
8.7 AMENDMENTS IN WRITING. This Agreement cannot be changed or
terminated orally. All prior agreements, understandings, representations,
warranties, and negotiations, if any, are merged into this Agreement.
Page 10 of 11
<PAGE> 11
8.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
8.9 JURY TRIAL WAIVER. BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH.
8.10 CHOICE OF LAW AND VENUE. THE VALIDITY OF THIS AGREEMENT, ITS
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HEREUNDER AND CONCERNING THE COLLATERAL SECURING THE OBLIGATIONS, IF ANY, SHALL
BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS
ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN
THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA. BORROWER WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF
FORUM NON CONVENIENS OR TO OBJECT TO SUCH VENUE AND HEREBY CONSENTS TO ANY COURT
ORDERED RELIEF.
Borrower and Bank have executed this Agreement as of the date first
above written.
TYLAN GENERAL, INC.,
a Delaware corporation
By: /s/ David L. Stone
----------------------------
Title: Chief Financial Officer
----------------------------
By:
----------------------------
Title:
----------------------------
MANUFACTURERS BANK,
a California banking corporation
By: /s/ K. Y. Cheng
----------------------------
Title: Senior Vice President
----------------------------
Page 11 of 11
<PAGE> 12
[MANUFACTURERS BANK LOGO]
SECURITY AGREEMENT
MANUFACTURERS BANK, a California corporation ("Bank"), whose address is 320 B
Street, San Diego, California 92101 and TYLAN GENERAL, INC. ("Debtor"), whose
mailing address is 9577 Cheasapeake Drive, San Diego, California 92123 and whose
principal place of business is located at same address as mailing address,
hereby agree as follows:
1. SECURITY INTEREST. Debtor hereby grants to Bank a security interest in the
property described in paragraph 2 below.
2. DESCRIPTION OF COLLATERAL. The property in which Debtor grants Bank a
security interest shall consist of all of the following property of Debtor, now
owned or hereafter acquired, and all accessions, products, offspring, rents,
profits and proceeds thereof located in the United States ("Collateral"):
-----------------------------
- All Accounts
- All Inventory
- All Equipment
- All General Intangibles
-----------------------------
3. DEFINITIONS.
3.1 The term "Accounts" means all of Debtor's presently existing and
hereafter arising accounts, contract rights, and all other forms of obligations
owing to Debtor arising out of the sale or lease of goods or the rendition of
services by Debtor, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Debtor;
3.2 The term "Inventory" means all present and future inventory in
which Debtor has any interest including goods held for sale or lease or to be
furnished under contract of service and all of Debtor's present and future raw
materials, work in process, finished goods, and packaging and shipping
materials, wherever located, and any documents of title representing any of the
above. The term Inventory as used in this Agreement shall be deemed to include
Imported Inventory;
3.3 The terms "Imported Inventory and Documents" mean, respectively,
(i) all of Debtor's inventory wherever located, including but not limited to
goods, merchandise, raw materials, goods in process, finished and unfinished
goods and other tangible personal property held for sale or lease or furnished
or to be furnished under contracts of service or used or consumed in Debtor's
business, which is imported under letters of credit issued by Bank from any
nation, territory, member of a commonwealth, principality or possession of a
nation other than a state of the United States of America ("Imported
Inventory"), and (ii) all documents evidencing or relating to such Imported
Inventory, including but not limited to documents of title, bills of lading,
dock warrants, dock receipts and negotiable and non-negotiable warehouse
receipts.
3.4 The term "Equipment" means all of Debtor's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, motor vehicles, tools, parts, dies, jigs, goods (other than consumer
goods or farm products) and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
3.5 The term "General Intangibles" means all of Debtor's present and
future general intangibles and other personal property (including all credit
balances with, and any monies due from, a factor, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks, blueprints, drawings,
purchase orders, customer lists, monies due or recoverable from pension funds,
route lists, infringement claims, computer programs, computer discs, computer
tapes, literature, reports, catalogs, deposit accounts, tax refunds, and refund
claims) other than goods and Accounts;
3.6 The term "proceeds" includes whatever is received by Debtor upon
the sale, exchange, collection or other disposition of Collateral or proceeds
thereof, including without limitation insurance proceeds;
3.7 The term "Bank" as used in this Agreement shall be deemed to
include Manufacturers Bank, a California corporation, and any successor or
assign of Manufacturers Bank;
3.8 The term "Debtor" as used in this Agreement shall be deemed to
include the individual or individuals, association, partnership, corporation or
other entity heretofore identified as "Debtor" and any successor of Debtor,
including without limitation, in the case of a partnership, any general or
limited partnership which is created by reason of the admission of any new
partner to the existing partnership, the dissolution of the existing
partnership, or the continuation of the business of the existing partnership
after the death, resignation, or withdrawal of any partner.
4. SECURED OBLIGATIONS. The security interest granted herein shall secure the
payment and performance of all Obligations of Debtor to Bank, however incurred,
and now or hereafter existing. The term "Obligations" means:
4.1 All loans, advances and other extensions of credit heretofore, now,
or hereafter made by Bank to Debtor and all other obligations of Debtor to Bank.
whether voluntary or involuntary, whether due or not due, whether absolute or
contingent, whether joint or several, and whether incurred directly to Bank or
acquired by Bank by assignment or otherwise, together with interest thereon, and
all renewals, modifications and extensions thereof;
4.2 Debtor's obligation to pay all amounts advanced, expended or
incurred by Bank resulting from Debtor's failure to perform any term or
condition of this Agreement or resulting from Debtor's breach of any warranty or
representation made by Debtor to Bank under this Agreement or otherwise;
Page 1 of 6
<PAGE> 13
4.3 Debtor's obligation to pay all amounts advanced, expended or
incurred by Bank under the terms of this Agreement, or for the maintenance, or
preservation of the Collateral, together with interest thereon;
4.4 All obligations of Debtor arising from any guaranty executed by
Debtor in favor of Bank guaranteeing the debts of another to Bank;
4.5 Any and all other obligations of Debtor to Bank, direct or
indirect, absolute or contingent, joint or several, whether or not otherwise
secured.
Unless Debtor and Bank otherwise agree in writing, the term Obligations does not
include "consumer credit" subject to the disclosure requirements of the Federal
Truth in Lending Act or any regulations promulgated thereunder.
5. WARRANTIES AND REPRESENTATIONS. The following warranties and representations,
which are hereby made by Debtor to Bank, are true and correct at the time of the
execution of this Agreement and shall survive so long as any of the Obligations
remain unsatisfied.
5.1 If Debtor is a corporation or other entity, Debtor is duly
organized, validly existing and in good standing under the laws of each
jurisdiction in which it transacts business;
5.2 Debtor is duly authorized and empowered to enter into, implement
and carry out the provisions of this Agreement and any note or other document or
agreement relating to this Agreement and will not thereby be in conflict with or
violate any of the terms or provisions, of any statute, regulation, ordinance,
corporate charter or by-law, agreement or other instrument which is binding upon
Debtor;
5.3 Except for the security interest granted under this Agreement and
the senior security interests described in Section 3.2(b) of that certain Loan
Agreement dated as of _____________, 1996 between Debtor and Bank (the "Loan
Agreement"), the Collateral is free and will remain free from any default,
offset, security interest, lien, encumbrance, adverse claim, counterclaim,
contingency, or right of cancellation or return;
5.4 There are no actions, suits or claims pending or to Debtor's
knowledge threatened against Debtor or any part or all of the Collateral which
may adversely affect Bank's security interest in the Collateral, Debtor or
Debtor's ability to perform any of Debtor's obligations under the terms of this
or any other agreement between Debtor and Bank;
5.5 Debtor's chief place of business is located at the address set
forth in this Agreement, and Debtor has given Bank the addresses of all other
business locations of Debtor;
5.6 The name of Debtor set forth above is Debtor's full and correct
name, and Debtor does not operate under any other names, trade names or trade
styles except as disclosed in writing to Bank;
5.7 Debtor is the true and lawful owner of the Collateral, and Debtor
will be the true and lawful owner of all Collateral acquired hereafter by
Debtor;
5.8 All Inventory and Equipment constituting a part of the Collateral
are and will be maintained in good condition and repair;
5.9 Each of the Accounts and Instruments and all documents pertaining
thereto are genuine in all respects, and the amount thereof represents and will
represent an undisputed claim or demand for the amount shown due and is not and
will not be subject to any defense, offset, counterclaim or contingency
whatsoever; and
5.10 Subject to any limitations stated therein, all balance sheets,
earnings statements and other financial data which have been or may hereafter be
furnished to Bank by or on behalf of Debtor accurately represent the financial
condition of Debtor as of the dates they are furnished to Bank and have been and
will be prepared in conformity with generally accepted accounting principles
applied on consistent basis. All other information, reports and data furnished
by or on behalf of Debtor to Bank are and will be at the time they are
furnished, complete, accurate and correct in all respects.
6. DEBTOR'S COVENANTS. Debtor agrees as follows:
6.1 Debtor will maintain complete and accurate books and records with
respect to the Collateral at its principal place of business in form and
substance satisfactory to Bank. Bank shall at all times be afforded access to
Debtor's books and records and may inspect, audit, and make copies of all or any
part of such books and records and any data relating to the Collateral, and Bank
will have free access to and the right to obtain and copy any computer
information held by Debtor or third parties pertaining to the Collateral. At
Bank's request, Debtor will provide Bank with balance sheets, earning statements
and such other financial data of Debtor as Bank may request as of the dates
specified by Bank;
6.2 Debtor will pay and perform all of the Obligations when due,
including without limitation all of its obligations under this Agreement;
6.3 Debtor at Debtor's cost will appear in and defend any and all
lawsuits and proceedings of any type which in Bank's opinion do or may affect
the Collateral;
6.4 At Bank's request, Debtor will deliver to Bank any and all
instruments and other documents as Bank may request relating to all or any part
of the Collateral and pay Bank's costs for any review thereof by Bank;
6.5 Debtor will make any and all notations in Debtor's books and
records requested by Bank relating to all or any part of the Collateral;
6.6 Debtor will execute any and all documents and instruments,
including any specified by Bank, to evidence, effectuate, perfect, maintain,
preserve, and protect Bank's security interest in the Collateral;
Page 2 of 6
<PAGE> 14
6.7 Debtor will post such notices as Bank shall designate upon the
Collateral or in or about the areas where the Collateral may be located;
6.8 Debtor will notify Bank immediately of any theft, loss, or
destruction of or damage to all or any part of the Collateral;
6.9 Debtor will pay promptly any and all expenses incurred in the
purchase, delivery, repair or use of the Collateral;
6.10 At Bank's request, Debtor will give Bank detailed statements of
any and all bills, notes, charges or wages which have not been paid by Debtor or
are overdue or of any other obligations which Debtor has not fulfilled;
6.11 Debtor will give Bank prompt notice of all claims, actions and
proceedings instituted or threatened against Debtor or affecting all or any part
of the Collateral;
6.12 Without Bank's prior written consent, Debtor will not sell,
transfer, pledge, hypothecate, lease or otherwise dispose of or abandon all or
any part of the Collateral, other than Inventory in the ordinary course of
business;
6.13 Debtor agrees that if Equipment constitutes a part of the
Collateral, such Equipment shall be located and kept at the Debtor's principal
place of business indicated above unless otherwise agreed to in writing by Bank.
Without Bank's prior written consent, Debtor will not move Equipment or
Inventory (except as to sales of Inventory in the ordinary course of business)
from its location at Debtor's principal place of business or from such other
location as Bank may have agreed upon in writing. Debtor hereby represents that
no Equipment constituting a part of the Collateral is a fixture to real
property, and Debtor agrees that no Equipment shall become a fixture to real
property without Bank's prior written consent;
6.14 Debtor will immediately pay to Bank any and all costs and
expenses, including attorneys' fees, incurred or paid by Bank in establishing,
maintaining, protecting or enforcing any and all of Bank's rights under this
Agreement, including without limitation any costs and expenses incurred or paid
by Bank in defending Bank's security interest in or title or right to all or any
part of the Collateral or in collecting or attempting to collect, or enforcing
or attempting to enforce payment of any of the Accounts and Instruments
constituting a part of the Collateral. Debtor agrees to pay interest on the
funds so expended by Bank at the rate set forth in the Loan Agreement;
6.15 Debtor shall at all times provide and maintain, at Debtor's cost,
insurance policies insuring the Collateral against loss or damage by fire and
other risks normally covered by extended coverage insurance, theft, burglary,
and such other risks customarily insured against by companies engaged in
businesses similar to that of Debtor. Each such policy shall be in an amount,
upon such terms, and written by a company satisfactory to Bank. Each such policy
shall name the Bank as the exclusive additional named insured under a lender's
loss payable form satisfactory to Bank which shall provide, in part, that no act
or omission by Debtor shall affect Bank's right to recover under such policy.
All policies of insurance shall provide for at least 30 days prior written
cancellation notice to Bank. Bank is authorized to use the proceeds of such
insurance to reduce any or all of the Obligations in such manner and order as
Bank may determine, in its sole discretion. Debtor will provide Bank with a
certificate of insurance for each policy and a copy of all reports given to
insurance companies. Upon Bank's request, Debtor shall deliver all such policies
of insurance to Bank. If Debtor fails to maintain such insurance, Bank may at
its option provide such insurance at the expense of Debtor. If Bank takes
possession of any Inventory or Equipment, the insurance policies and any
unearned or returned premium thereon shall, at the option of Bank, become the
sole property of Bank. At no time will Debtor use or operate any of the
Collateral in a manner which is contrary to or which would invalidate any of the
provisions of any insurance policy pertaining to the Collateral;
6.16 Debtor will undertake any and all acts required to maintain,
preserve and protect the Collateral and Bank's security interest in the
Collateral, including any such acts requested by Bank, and Debtor will not
permit any waste of the Collateral.
6.17 Debtor will not modify the terms of any of the Accounts which
constitute a part of the Collateral without the prior written consent of Bank;
6.18 At Bank's request, Debtor will use its best efforts to obtain and
deliver to Bank a document executed by each party with any interest in the real
property upon which any part of the Collateral is located, stating that such
party consents to Bank's security interest in such Collateral, (disclaims any
interest in or right to such Collateral), disclaims any interest in or right to
such Collateral, waives any right to foreclose or levy upon such Collateral, and
authorizes Bank to enter on such real properly at any time to remove such
Collateral;
6.19 Debtor assumes all risk and liability arising from the use and
operation of the Collateral, either by negligence or otherwise, and hereby
indemnifies and holds Bank harmless from any and all claims, costs, damage, loss
and expenses, including but not limited to attorneys' fees, arising out of or
related to the Collateral, any loss or damage of any kind to person or property
caused by the Collateral or its use and operation, or Debtor's performance under
this Agreement;
6.20 If the Collateral is in the possession or control of Bank, such
Collateral will be stored, deposited and cared for at the risk of Debtor;
6.21 If the Collateral consists of one or more time deposits, the
Debtor will promptly renew and continue to renew the time deposits so along as
Bank has committed to extend any credit to Debtor or any of Debtor's Obligations
remain unpaid or outstanding. In the event Debtor does not promptly renew any of
the time deposits, Bank may in its sole discretion elect to renew the time
deposits on behalf of Debtor, and the interest rate applicable for any such
renewals will be Bank's standard rate in effect from time to time for time
deposits of like amount and terms as of the effective date of the renewal;
6.22 Debtor will hold all proceeds of the Collateral in trust for Bank
and will not commingle such proceeds with any other property;
6.23 Debtor will give Bank proof of payment of all taxes, liens and
assessments on the Collateral at least 10 days prior to the date such payments
are due;
Page 3 of 6
<PAGE> 15
6.24 Debtor will give Bank written notice of all changes in the
directors, officers and other key personnel of Debtor (if Debtor is a
corporation), or partners or joint venturers of Debtor (if Debtor is a
partnership or joint venture) or all managing personnel of Debtor (if Debtor is
an entity other than a corporation, partnership or joint venture, including but
not limited to a trust);
6.25 Debtor will provide Bank with at least 30 days prior written
notice of any change in Debtor's name, trade name, trade style or address; and
6.26 Debtor will comply with all statutes, regulations and ordinances
pertaining to the Collateral or the conduct of Debtor's business.
7. ACCOUNTS AND INSTRUMENTS. If Accounts constitute a part of the Collateral:
7.1 Upon the occurrence of an Event of Default under and as defined in
the Loan Agreement, Bank may notify any Account or Instrument debtor or any
obligor of Debtor to make payments directly to Bank. If such notification is
made, Debtor hereby authorizes each Account and Instrument debtor or obligor to
whom such notification is given to make payment to Bank;
7.2 Bank authorizes Debtor to collect any and all Accounts and any and
all payments under any Instruments, and Debtor agrees to use its best efforts to
effect the prompt collection thereof;
7.3 Bank may at anytime and without notice to Debtor cancel Debtor's
right to collect any or all of the Accounts and Instruments. Upon such
cancellation, Bank will have the sole right, whether or not Debtor is in default
under the terms of this Agreement, to settle, adjust or release any or all of
the Accounts and Instruments and to collect payment upon any or all of the
Accounts and Instruments. Upon such collection, after deducting any attorneys'
fees and other collection expenses, Bank shall apply the net amount received by
Bank upon the Obligations in such order and manner as Bank may determine;
7.4 At Bank's request, Debtor shall within such time as Bank designates
furnish Bank with a schedule of all Accounts and Instruments showing as to each
Account and Instrument the name and address of the debtor thereunder, the amount
of each payment made by the debtor thereunder, the amount outstanding and any
other information Bank may request;
7.5 At Bank's option, Bank may request payment in kind from any Account
or Instrument debtor or obligor. If such request is made by Bank, Debtor hereby
authorizes each Account and Instrument debtor and each obligor to whom such a
request is made to make payment to Bank;
7.6 At Bank's option, Bank may instruct Debtor to deposit any or all
payments upon Accounts and Instruments into a special account subject to Bank's
control, and Debtor shall comply with such instruction;
7.7 Debtor's right to collect Accounts and payments on any Instruments
shall automatically terminate upon default by Debtor under the terms of this or
any other agreement with Bank; and
7.8 At Bank's request, Debtor shall immediately deposit with Bank all
Instruments which are a part of the Collateral containing such endorsements and
together with such documents of transfer as Bank may require.
8. ADDITIONAL RIGHTS OF BANK. In addition to all other rights provided in this
Agreement and under law to Bank:
8.1 Bank has the sole right to direct the application of payments
received from Debtor in any manner Bank may deem advisable, notwithstanding any
entry on Bank's books or records;
8.2 If Bank attempts to take possession of all or any part of the
Collateral by court process, to the extent permitted by law, Bank shall not be
required to post any bonds, surety or security relating to the Collateral which
may be required by any statute, court rule, or otherwise as an incident to
Bank's possession of the Collateral.
8.3 Bank shall not be required to credit Debtor with any non-cash
payments or proceeds received by Bank. Such payments or proceeds shall
constitute conditional payments until cash or cash equivalent is received by
Bank;
8.4 If any payment made by or on behalf of Debtor to Bank on account of
any or all of the Obligations is invalidated, determined to be fraudulent or
preferential, set aside, or required to be repaid to any trustee, receiver,
custodian, assignee, or any other party for any reason, including without
limitation because of any State or Federal law (including without limitation any
Bankruptcy law), then, to the extent thereof, the Obligations or portion thereof
which were satisfied by such payment shall be revived, reinstated and shall
continue in full force and effect as if such payment had not originally been
made by or on behalf of Debtor;
8.5 As further security for the Obligations, Debtor hereby pledges and
grants a security interest to Bank in all deposits which Debtor may have with
Bank (including without limitation general and special deposit accounts) and in
all funds, money and other property of Debtor now or hereafter actually or
constructively in Bank's possession or control in any manner and for any purpose
whatsoever. The property in which Bank is granted a security interest pursuant
to this paragraph 8.5 shall be deemed to be included within the definition of
Collateral for purposes of this Agreement; and
8.6 Bank shall be entitled to exercise an equitable right of set-off
against any deposits (including without limitation general and special deposit
accounts) which Debtor may have with Bank and against any other obligations or
indebtedness of any kind of Bank to Debtor.
9. POWER OF ATTORNEY. Debtor irrevocably appoints Bank, or any agent or
representative of Bank designated by Bank, as Debtor's true and lawful
attorney-in fact coupled with an interest, to do any or all of the following:
(a) perform any act which Debtor is obligated to perform by this or any other
agreement with Bank; (b) exercise Debtor's right to collect all proceeds, rents,
and profits relating to all or any part of the Collateral; (c) endorse the name
of Debtor on any notes.
Page 4 of 6
<PAGE> 16
acceptances, checks, drafts, money orders, or other remittances, instruments and
other documents pertaining to the Collateral: (d) pay taxes; security interests,
liens or other obligations pertaining to the Collateral; (e) compromise, settle
and adjust claims pertaining to the Collateral, (t) defend lawsuits and actions
pertaining to or which in Bank's opinion may affect the Collateral; (g) sell,
transfer, pledge or otherwise dispose of all or any part of the Collateral; and
(h) make any agreement with respect to the Collateral and otherwise deal with
the Collateral as though Bank were the owner thereof for all purposes. Debtor
will immediately reimburse Bank for any expenses Bank has incurred, including
but not limited to attorneys' fees, while acting as Debtor's attorney-in-fact.
10. NO DUTY. Bank may at its option, but need not and shall be under no duty to,
do any of the acts and things which it is empowered to do by the power of
attorney given to Bank under this Agreement or under any other rights granted to
Bank under law or this Agreement.
11. CHARGES. Debtor authorizes Bank to charge or offset against any or all of
Debtor's deposit accounts with Bank at any time for any and all expenses, costs,
and interest incurred by Bank under the terms of this or any other agreement or
instrument with Bank.
12. EVENTS OF DEFAULT. An Event of Default under and as defined in the Loan
Agreement shall constitute a default by Debtor under this agreement.
13. RIGHTS AND REMEDIES UPON DEFAULT. Upon default by Debtor under this
Agreement, Bank may, but need not, pursue any one or more of the following
rights and remedies;
13.1 Any and all of the remedies of a secured party pursuant to the
Uniform Commercial Code of the State of California or any other applicable law;
13.2 Without demand or notice to Debtor, declare that any or all of the
Obligations are due and payable immediately;
13.3 Require Debtor to assemble the Collateral and the records
pertaining to the Collateral and make them available to Bank at a place
designated by Bank;
13.4 Without a breach of the peace and without notice to or demand upon
Debtor, enter any of the premises of Debtor and search for, take possession of,
remove, keep and store the Collateral and the records pertaining thereto, or
keep and store the Collateral in any of Debtor's premises without cost to Bank;
13.5 Without regard to the adequacy of security for the Obligations,
obtain possession of the Collateral and any and all records pertaining thereto
through the appointment of a court receiver, and Debtor irrevocably consents to
such appointment;
13.6 Grant extensions and compromise and settle claims at less than
face value without prior notice to Debtor;
13.7 Without notice to or demand upon Debtor, render the Collateral
unusable without removing it;
13.8 Sell or otherwise dispose of any or all of the Collateral while it
remains on the premises of Debtor;
13.9 Collect upon any and all proceeds, rents and profits which
constitute a part of the Collateral; and
13.10 Prior to any foreclosure sale respecting the Collateral, Bank
may, at its option, complete the processing of and repair or recondition any
Inventory or Equipment comprising all or any part of the Collateral, and Bank
may take possession of Debtor's premises for such purpose without compensation
to Debtor. Any sums expended by Bank for such purpose shall become a part of the
Obligations and shall be immediately repaid by Debtor.
14. WAIVER. No delay or omission by Bank in exercising,partially exercising or
enforcing any of its rights,powers or remedies under this Agreement or any other
agreement between Bank and Debtor shall constitute a waiver thereof or
modification thereto and shall not preclude Bank from exercising any right or
remedy. No waiver by Bank of any default by Debtor shall operate as a waiver of
any other default by Debtor. Bank's acceptance of partial or delinquent payments
shall not be a waiver of any of Debtor's obligations to Bank. No term or
provision of this Agreement shall be waived, altered or modified except in a
writing signed by Bank. Debtor hereby waives any right it may have to require
Bank to proceed against any endorser, surety or guarantor or to proceed against
or exhaust the Collateral before proceeding against Debtor. Debtor waives any
rights it may have to require Bank to pursue or preserve any other remedy Bank
may have for the benefit of Debtor. All rights and remedies of Bank under this
Agreement shall be cumulative and not alternative or exclusive and may be
exercised by Bank separately or concurrently and at such time or times and in
such order as Bank in its sole discretion may determine and for the sole benefit
of Bank.
15. NOTICES. All notices to be given hereunder by Bank may be oral or in writing
and, if written, shall be deemed effective upon the earlier of receipt by
Debtor's or two (2) days after deposit in the United States mail addressed to
Debtor at either Debtor's last known mailing address as it appears on Bank's
records or Debtor's principal place of business set forth above. All notices to
be given hereunder by Debtor shall be in writing and shall be effective upon
receipt by an officer of Bank at its address heretofore set forth in this
Agreement. The addresses herein provided for may be changed by notice given to
the other party in accordance with this paragraph.
16. GOVERNING LAW. This Agreement shall be construed in accordance with and
governed by the laws of the State of California.
17. STATUTE OF LIMITATIONS. The right of Debtor to plead any and all statutes of
limitation as a defense to any action to enforce any and all obligations
contained in this Agreement or secured by this Agreement is hereby waived to the
fullest extent and longest period allowed by law.
18. TIME OF ESSENCE. Time is of the essence with respect to all of the
provisions of this Agreement.
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<PAGE> 17
19. CONSTRUCTION. The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the substance or
interpretation of this Agreement. Whenever the context so requires, the
masculine gender herein shall include the feminine or neuter gender, the plural
shall include the singular and vice versa. The words "Debtor" and "Bank" as used
herein shall be construed to include the successors and assigns of Debtor and
Bank, respectively. If more than one person or entity comprises Debtor, each
such person and entity shall be jointly and severally liable under this
Agreement and shall perform each and all of the provisions of this Agreement.
20. MULTIPLE DEBTORS. If more than one person or entity comprises Debtor, all
such persons and entities agree that:
20.1 A breach by any of such persons or entities shall be deemed a
breach by Debtor;
20.2 If Bank discharges any one such person or entity or extends,
forbears, releases or otherwise deals with any one such person or entity, such
forbearance, release or dealing shall not operate as a waiver of Bank's rights
with respect to any other of such persons or entities; and
20.3 Each such person and entity waives any right it may have to
require that (i) Bank pursue any right or remedy that Bank may have against any
one such person or entity before Bank proceeds against any other of such persons
or entities or (ii) Bank proceed against the Collateral before proceeding
against any of such persons or entities.
21. COMPLETE AGREEMENT. This Agreement,together with all other documents
executed in connection with this Agreement,constitutes the entire Agreement
between Debtor and Bank with respect to the subject matter hereof and supersedes
all prior and other contemporaneous agreements and understandings, whether
written or oral.
22. SEVERABILITY. If any of the provisions of this Agreement shall be held by
any court of competent jurisdiction to be unlawful,void or unenforceable for any
reason as to any person or circumstance, such provision or provisions shall be
deemed severable from and shall in no way affect the validity or enforceability
of the remaining provisions of this Agreement.
23. THIRD PARTIES. This Agreement has been entered into for the benefit of
Debtor and Bank and there is no intent on the part of either Debtor or Bank to
benefit any third parries.
24. ASSIGNMENT. Bank may, at its option and at any time, assign its rights under
this Agreement to any person or entity.
25. TERM. This Agreement shall continue in full force and effect as long as any
of the Obligations remain unsatisfied.
26. ATTORNEYS' FEES. Debtor agrees to pay all attorneys' fees and costs incurred
by Bank in enforcing Bank's rights hereunder.
27. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. This
Agreement shall be effective and binding upon Debtor upon execution by Debtor,
whether or not this Agreement is executed by Bank.
Date: June 5, 1996 TYLAN GENERAL, INC.,
-----------------------------
a Delaware corporation
By: /s/ David L. Stone
--------------------------------
Title: Chief Financial Officer
-----------------------------
By:
--------------------------------
Title:
-----------------------------
MANUFACTURERS BANK,
a California banking corporation
By: /s/ K. Y. Cheng
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Title: Senior Vice President
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Page 6 of 6
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EXHIBIT 10.20
CREDIT AGREEMENT
THIS AGREEMENT dated as of the 14th day of March 1996, is made by and
among SPAN INSTRUMENTS, INC., a Texas corporation ("Span"); OCALA, INC., a Texas
corporation ("Ocala") (Span and Ocala are herein collectively called
"Borrowers") and COMERICA BANK - TEXAS (herein called "Lender");
W I T N E S S E T H:
For and in consideration of the mutual covenants and agreements herein
contained, and the Loans hereinafter referred to, Borrowers and Lender hereby
agree as follows:
ARTICLE 1: DEFINITIONS, GENERAL RULES
Section 1.1. General Rules. For the purposes of this Agreement:
(a) The terms defined in this Article I, unless the context
requires otherwise, have the meanings applied to them in Article I and
will include the plural as well as the singular. Additional definitions
may be found in the preamble and throughout this Agreement;
(b) All accounting terms not otherwise defined herein will have
the meanings assigned to them in accordance with GAAP; and
(c) The words "herein", "hereof", "hereunder" and words of
similar import refer to this Agreement as a whole and not to a
particular section, paragraph or other subdivision.
Section 1.2. Certain Definitions. As used in this Agreement the
following terms shall have the following meanings, unless the context otherwise
requires:
"Account" means, and includes, with respect to any Person, all of such
Person's accounts, account receivables, contract rights, acceptances, notes,
note receivables, chattel paper, instruments (other than margin stock), drafts,
general intangibles and other forms of obligations or rights to payment and
receivables, whether or not yet earned by performance. In addition, this
definition shall include the definition of "Account" as that term is used in the
UCC.
"Account Debtor" means any Person who is obligated on an Account.
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls or is controlled by or is under common control
with such Person and without
CREDIT AGREEMENT PAGE -1-
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limiting the generality of the foregoing, includes (a) each Person that owns or
controls, whether beneficially, or as trustee, guardian or other fiduciary, ten
percent (10%) or more of any class of voting securities of such Person, (b) each
Person in which ten percent (10%) or more of any class or series of voting
securities (or in the case of a Person that is not a corporation, ten percent
(10%) or more of the equity interest) is owned or controlled by such Person, and
(c) each of such Person's directors, joint venturers and partners. For the
purpose of this definition, "control" (including, with correlative meanings the
terms "controlled by" and "under common control with"), as used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of such Person, whether
through ownership of voting securities or by contract or otherwise.
"Agreement" means this Credit Agreement, as the same may from time to
time be amended or supplemented.
"Applicable Inventory Advance Percentage" means fifty percent (50%) or
such lesser percentage as may be applicable from time to time, as determined in
accordance with Section 2.10 hereof.
"Applicable Rate" means a variable rate of interest per annum at all
times equal to the Prime Rate plus one and one-half percent (1.5%), with
adjustments to the Applicable Rate to be made on the same day as any change in
the Prime Rate.
"Bankruptcy Code" means Title 11 of the United States Code, as from
time to time amended, and the rules and regulations promulgated thereunder.
"Borrowing Base" means at the particular time in question, an amount
equal to the sum of:
(a) eighty-five percent (85%) of Eligible Accounts, as shown on
the latest Borrowing Base Report received by Lender; and
(b) an amount equal to the lesser of (i) the Applicable Inventory
Advance Percentage of Eligible Inventory, as shown on the latest
Borrowing Base Report received by Lender and (ii) $5,000,000.00.
"Borrowing Base Report" means a report in the form of report attached
hereto as Exhibit "A", appropriately completed, together with the following
attachments: (a) summary schedule of all Eligible Accounts, as of the date
specified in such report, listing face amounts and dates of invoices of each
Eligible Account and the name of each Account Debtor obligated on an Eligible
Account (and upon request by Lender, copies of invoices, credit reports and any
other matters and information relating to Eligible Accounts), and (b) a schedule
of Eligible Inventory, setting forth the locations of Eligible Inventory.
"Business Day" means a day (other than Saturday, Sunday or a legal
holiday) on which commercial banks are open for business in Dallas, Texas.
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"Capital Lease Obligations" means, with respect to Borrowers, the
obligations to pay rent or other amounts payable under a lease of (or agreement
conveying the right to use) real and/or personal Property, which obligations are
classified as a capital lease on a consolidated balance sheet of Borrowers
prepared in accordance with GAAP. For purposes of this Agreement, the amount of
such Capital Lease Obligations is the capitalized amount thereof, determined in
accordance with GAAP.
"Change of Control" shall be deemed to have occurred upon the
occurrence of (a) the Merger if the conditions to the Merger set forth in
Section 5.4 of this Agreement have not been complied with, (b) the transfer by
Donald E. Whitson to a third party (other than to a trust of which Donald E.
Whitson is the sole trustee or to a family limited partnership controlled by
Donald E. Whitson) of his shares of the Stock of Span, or (c) the death of
Donald E. Whitson unless a chief executive officer reasonably satisfactory to
Lender shall be appointed within 180 days from his death.
"Collateral" means all Property which is subject or is to become
subject to the Liens granted or created by the Security Instruments including,
without limitation, all Accounts, Equipment, General Intangibles and Inventory
of each of the Borrowers and the proceeds and products therefrom.
"Commitments" means the Revolver Commitment and the Term Loan
Commitment.
"Controlled Operating Account" has the meaning assigned that term in
Section 4.22 of this Agreement.
"Current Assets" means, with respect to Borrowers as of the date of
calculation, all assets of Borrowers that, in accordance with GAAP, would be
included as current assets on a consolidated balance sheet of Borrowers.
"Current Liabilities" means, with respect to Borrowers, all liabilities
of Borrowers that, in accordance with GAAP, would be included as current
liabilities on a consolidated balance sheet of Borrowers.
"Debt" means, with respect to any Person, all liabilities, obligations
and reserves of such Person, contingent or otherwise, which in accordance with
GAAP, would be reflected as a liability on the balance sheet of such Person or
would be required to be disclosed in a financial statement, including, without
limitation or duplication (a) all obligations of such Person for borrowed money,
(b) all obligations of such Person evidenced by bonds, debentures, notes and
other similar instruments, (c) all obligations of such Person issued or assumed
as the deferred purchase price of property or services (other than accounts
payable to suppliers in the ordinary course of business), (d) all obligations
under leases which shall have been or should be, in accordance with GAAP,
recorded as capital leases in respect of which such Person is liable as lessee,
(e) all guarantees, endorsements, and other contingent obligations of such
Person with respect to the obligations of other Persons of the type described in
(a) through (d) preceding including, but not limited to, any obligations to
acquire any of such obligations, to purchase, sell, or furnish property or
services primarily for the purpose of enabling such
CREDIT AGREEMENT PAGE -3-
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other Person to make payment of any of such obligations and/or to assure the
owner of any of such obligations against loss with respect thereto, (f) all
reimbursement obligations, contingent or otherwise, in respect of letters of
credit, surety and appeal bonds and performance bonds or similar instruments
assuring any other Person of the performance of any act or acts or the payment
of any obligation, (g) all Debt referred to in clauses (a), (b), (c), (d), (e)
or (f) above secured by (or for which the holder of such Debt has an existing
right, contingent or otherwise, to be secured by) any lien, security interest or
other charge or encumbrance upon or in property owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Debt, and (h) liabilities in respect of unfunded vested benefits under any
Plans.
"Default" means any of the events or conditions specified in Section
6.1 of this Agreement, whether or not any requirement for notice or lapse of
time or any other condition has been satisfied.
"Dollar" and "$" each mean the lawful money of the United States of
America.
"Drawdown Termination Date" means January 1, 1998.
"EBIT" means, with respect to Borrowers and for any period, the sum of
(a) the Net Income (or deficit) of Borrowers before provision for income and
franchise taxes for such period, plus (b) Interest Expense of Borrowers for such
period.
"EBITDA" means, with respect to Borrowers and for any period, the sum
of (a) EBIT of Borrowers for such period, plus (b) depreciation and amortization
of Borrowers for such period.
"Eligible Accounts" means, as of any date of determination (without
duplication) the aggregate of all Accounts of Borrowers created in the ordinary
course of business that satisfy each of the following conditions:
(a) The Account complies with all applicable laws, rules and
regulations, including, without limitation, usury laws, the Federal
Truth in Lending Act and Regulation Z of the Board of Governors of the
Federal Reserve System;
(b) The Account has not been outstanding for more than 90 days
past the original date of invoice;
(c) The Account was created in connection with (i) the sale of
Inventory by Borrowers and such sale has been fully consummated and
such Inventory has been received by the Account Debtor or (ii) the
performance of services by Borrowers and such services have been
completed and accepted by the Account Debtor;
(d) The Account does not arise from the sale of any Inventory on
a bill-and-hold, guaranteed sale, sale-or-return, sale on approval,
consignment or any other conditional basis;
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(e) A Borrower has good and valid title to the Account and the
Account is subject to a valid, perfected, first priority security
interest in favor of Lender and is not subject to any Liens except
Liens in favor of Lender and other Permitted Liens to the extent they
are not listed on Exhibit "B" attached hereto;
(f) The Account does not arise out of a contract or an order
that, by its terms, prohibits or makes void or unenforceable the grant
of a security interest to Lender in and to such Account;
(g) The amount of the Account included in Eligible Accounts is
not subject to any setoff, counterclaim, defense, dispute, recoupment
or adjustment other than normal discounts for prompt payment;
(h) The Account Debtor is not insolvent or the subject of any
bankruptcy, insolvency or similar proceeding and has not made an
assignment for the benefit of creditors, suspended normal business
operations, dissolved, liquidated, terminated its existence, ceased to
pay its debts as they become due or suffered a receiver or trustee to
be appointed for any of its assets or affairs;
(i) The Account is not evidenced by chattel paper or an
instrument;
(j) No default exists under the Account by any party thereto;
(k) The Account Debtor has not returned or refused to retain, or
otherwise notified Borrower of any dispute concerning, or claimed
nonconformity of, any of the Inventory or services relating to such
Account;
(l) The Account is not owed by an Affiliate of either of the
Borrowers, or any stockholder or employee of either of the Borrowers;
(m) The Account is payable in Dollars by the Account Debtor;
(n) The Account does not constitute progress billings,
retainages, or deferred payments under a contract or order not fully
performed;
(o) The Account Debtor with respect to such Account is not
domiciled in any country other than the United States, unless the
account is (i) fully insured by the Export-Import Bank of the United
States or another insuring entity acceptable to Lender or is fully
secured by a standard letter of credit issued or confirmed by a bank
reasonably acceptable to Lender and such letter of credit contains
terms and conditions reasonably acceptable to Lender or (ii) guaranteed
by an account debtor domiciled in the United States and organized under
the laws of the United States (or any state thereof) acceptable to
Lender;
(p) The Account is not owed by an Account Debtor as to which more
than twenty-five percent (25%) of the aggregate balances then
outstanding on
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Accounts owed by such Account Debtor thereon and/or its Affiliates to
Borrowers are more than 90 days past due from the dates of their
original invoices;
(q) The Account Debtor with respect to such Account is not the
United States or any department, bureau, agency or instrumentality
thereof, unless, with respect to the security interest in such Account
in favor of Lender, the Federal Assignment of Claims Act of 1940, as
amended, and any other applicable laws, shall have been complied with;
and
(r) The Account is not owed by an Account Debtor as to which the
aggregate of all Accounts owing by such Account Debtor or an Affiliate
of such Account Debtor exceeds twenty-five percent (25%) of the
aggregate of all Accounts at such date, provided, that, an amount of
Accounts owing by such Account Debtor that do not exceed twenty-five
percent (25%) of the aggregate of all Accounts at such date shall not
be excluded pursuant to this clause(s).
The amount of the Eligible Accounts owed by an Account Debtor to
Borrowers shall be net of, and shall be reduced by (if and to the extent not
already so reduced by virtue of the preceding clauses of this definition), the
amount of all contra accounts, reserves, credits, rebates and other
indebtedness, liabilities and obligations owed by Borrower to such Account
Debtor.
"Eligible Inventory" means, as of any date of determination, the value
of all Inventory then owned by and in the possession of a Borrower and held for
sale or completed disposition in the ordinary course of business in which Lender
has a valid, perfected, first priority security interest, valued at the lower of
(a) actual cost on an standard cost basis or (b) fair market value. Eligible
Inventory shall not include (i) Inventory in which a Person (other than Lender)
has a Lien, (ii) work in process or materials consumed in the business of
Borrowers, (iii) inventory that has been shipped or delivered to a customer on a
bill-and-hold, guaranteed sale, sale-or-return, sale on approval, consignment,
or any other repurchase, return or conditional basis, (iv) inventory with
respect to which a claim exists disputing Borrowers' title to or right to
possession of such inventory, (v) inventory that is not in good condition or
does not comply with all applicable laws, rules and regulations with respect to
its manufacture, use or sale, (vi) inventory that is located outside of the
United States, (vii) inventory produced in violation of the Fair Labor Standards
Act, (viii) inventory that is evidenced by a negotiable or non-negotiable
document of title, or (ix) inventory that has become obsolete or has been
damaged or is not saleable in its present state for the use for which it was
manufactured or purchased. For purposes hereof, transducers lacking only
customer specific fittings will be classified as finished goods.
"Environmental Laws" means any and all laws, statutes, ordinances,
rules, regulations, orders, or determinations of any Governmental Authority
pertaining to health or the environment in effect in any and all jurisdictions
in which Borrowers are conducting or at any time have conducted business, or
where any Property of either of the Borrowers is located, or where any hazardous
substances generated by or disposed of by either of the Borrowers are located
including, without limitation, the Clean Air Act,
CREDIT AGREEMENT PAGE -6-
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as amended, the Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, and other environmental conservation or protection laws.
"Equipment" means, with respect to any Person, all of such Person's now
owned or hereafter acquired equipment, fixtures, and machinery, including,
without limitation, furniture, furnishings, vehicles, trade fixtures, machinery
and other goods used in its business, together with any and all accessions,
parts and appurtenances thereto, substitutions therefor and replacements
thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person who for purposes of Title IV of
ERISA is a member of Borrowers' controlled group, or under common control with
Borrowers, within the meaning of Section 414 of the Internal Revenue Code of
1986, as amended, and the regulations promulgated and rulings issued thereunder.
"Event of Default" means any of the events or conditions specified in
Section 6.1 of this Agreement, provided that any requirement for notice or lapse
of time or any other condition has been satisfied.
"Financial Statements" means the financial statements of Borrowers
described or referred to in Section 3.10 of this Agreement.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in the Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or their successors
which are applicable in the circumstances as of the date in question; provided,
however, for purposes of determining compliance with any covenant set forth in
Article 4 hereof, such terms shall be construed in accordance with GAAP as in
effect on the date of this Agreement applied on a basis consistent with the
application used in Borrowers' audited financial statements referred to in
Section 3.10. hereof. Accounting principles are applied on a "consistent basis"
when the accounting principles applied in a current period are comparable in all
material respects to those accounting principles applied in a preceding period.
"General Intangibles" means, with respect to any Person, any and all of
such Person's rights, claims, causes of action and all other intangible personal
property of every kind and nature (other than Accounts) now owned or hereafter
acquired by such Person including, without limitation, corporate and other books
and records, evidences of corporate debt or equity, inventions, designs,
patents, patent applications, trademarks, trademark applications, trade names,
trade secrets, goodwill, copyrights, registrations,
CREDIT AGREEMENT PAGE -7-
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licenses, franchises, tax refund claims, tax refunds, customer lists, and any
letters of credit and rights and claims against carriers and shippers, rights to
indemnification, security interests or other security held by or granted to such
Person to secure payment by an Account Debtor of any of the Accounts.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guarantor" means Donald Whitson.
"Guaranty Agreement" means the guaranty agreement executed and
delivered to Lender pursuant to Section 7.2 of this Agreement.
"Indebtedness" means (without duplication) all indebtedness,
liabilities and obligations of each of the Borrowers to Lender arising pursuant
to this Agreement, the Notes or any other Loan Document, now existing or
hereafter arising, whether direct, indirect, related, unrelated, fixed,
contingent, liquidated, unliquidated, joint, several or joint and several,
including, without limitation, the obligation of the Borrowers to repay the
Loans, to pay interest on the Loans and to pay all fees, costs and expenses
(including attorneys' fees) provided for in the Loan Documents.
"Inventory" means, with respect to any Person, any and all goods,
merchandise and other personal property wheresoever located and whether or not
in transit, now owned or hereafter acquired by such Person which is or may at
any time be held for sale or lease, furnished under any contract of service or
held as raw materials, work in process, finished goods, supplies or materials
used or consumed in such Person's business and all such property the sale or
other disposition of which has given rise to Accounts or which has been returned
to or repossessed or stopped in transit by such Person and/or might be used in
connection with the manufacturing, packing, shipping, advertising, selling or
finishing such goods, merchandise and other personal property, all returned or
repossessed goods now or at any time or times hereafter, in the possession or
under the control of such Person or Lender, and all documents of title or
documents representing same.
"Lien" means any mortgage, lien (statutory or others), pledge,
hypothecation, assignment, security interest, title retention arrangement, levy,
assessment, claim, encumbrance, preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement or any
capital or financing lease having lawfully the same effect as any of the
foregoing), and the filing of any financing statement under the UCC or
comparable law of any jurisdiction in respect of any of the foregoing, other
than notice filings to reflect true leases and lease consignments.
"Loan Documents" means this Agreement, the Notes, the Security
Instruments, the Guaranty Agreement, the Lockbox Agreements, the Subordination
Agreements and any
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and all other certificates, documents and agreements executed and delivered
pursuant to or in connection with this Agreement and any future amendments
hereto or thereto.
"Loans" means the Revolver Loans and the Term Loan.
"Lockbox Agreements" means (a) the Automated Wholesale Lockbox
Agreements between Lender and Span and (b) the Dominion of Funds Processing
Account Agreements between Lender and Span, all of which shall be in form and
substance reasonably satisfactory to Lender.
"Material Adverse Effect" means, with respect to Borrowers, any set of
circumstances or events which (a) is or could reasonably be expected to be
material and adverse to the business, condition (financial or otherwise),
operations, property, assets, prospects or profits of the Borrowers on a
consolidated basis, (b) has or could reasonably be expected to have any material
adverse effect whatsoever upon the validity or enforceability of this Agreement
or any of the other Loan Documents or any of the transactions contemplated
hereby or thereby, (c) materially impairs or could reasonably be expected to
materially impair the ability of either of the Borrowers to pay any of the
Indebtedness or to perform any of its obligations under any of the Loan
Documents to which it is a party, (d) impairs or could reasonably be expected to
impair the ability of Lender to enforce its legal rights and remedies under this
Agreement or any of the other Loan Documents, or (e) impairs or could reasonably
be expected to impair the priority of the Liens under any of the Loan Documents
or the value of the Collateral.
"Maximum Rate" means the maximum lawful rate of interest permitted by
applicable usury laws now or hereafter enacted, which interest rate shall change
when and as said laws change, to the extent permitted by said laws, effective on
the day such change in said laws becomes effective, provided, however, that the
term "Maximum Rate" means a rate of interest equal to five percentage points
above the Prime Rate as it varies if there is no Maximum Rate.
"Merger" means the merger of Span with and into Tylan.
"Merger Agreement" means the Agreement and Plan of Reorganization dated
as of February 20, 1996, among Tylan General, Inc., Tylan General Acquisition
Subsidiary, Inc., Span Instruments, Inc. and all of the shareholders of Span
Instruments, Inc.
"Multi-employer Plan" means a Plan which is a Multi-employer plan as
defined in Section 4001 of ERISA.
"Net Income" means with respect to Borrowers for any period, the net
income (or loss) of Borrowers during such period as determined in accordance
with GAAP.
"Notes" means the Revolver Note, the Term Note and the Prepayment Note,
together with any and all renewals, extensions and/or rearrangements thereof.
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"Operating Agreements" means the leases, licenses, equipment leases,
collective bargaining agreements, servicing agreements, service marks,
trademarks, patents, copyrights, permits, Governmental Authority approvals and
other agreements relating to the operation of the business of each of the
Borrowers.
"Permitted Liens" means (a) Liens in favor of Lender, (b) Liens for
taxes, assessments and other governmental charges arising by law in the ordinary
course of business for sums which are not yet due and payable, (c) Liens of
mechanics, materialmen, warehousemen and other like Persons arising by law in
the ordinary course of business for sums which are not yet due and payable, (d)
Liens, not delinquent, created by statute in connection with worker's
compensation, unemployment insurance and social security obligation, (e)
encumbrances consisting of minor irregularities easements, zoning restrictions
or other restrictions on the use of real property that do not (individually or
in the aggregate) materially affect the value of the assets encumbered thereby
or materially impair the ability of either of the Borrowers to use such assets
in its business, and (f) existing liens described in Exhibit "B" attached
hereto.
"Person" means any individual, sole proprietorship, corporation,
partnership, joint venture, trust, joint stock company, unincorporated
organization, association, institution, entity, party or government (whether
national, federal, state, county, city, municipal or otherwise including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Plan" means any employee benefit or other plan established or
maintained by Borrowers or any ERISA Affiliate and which is covered by Title IV
of ERISA.
"Prepayment Note" means the promissory note of the Borrowers in a
principal amount equal to the Term Loan Prepayment Amount bearing interest at
the rates provided for in the Term Note and payable to the order of Lender in
twelve (12) monthly installments, which may be executed by Borrowers in
accordance with the terms of Section 2.8 of this Agreement, and being in form
and substance acceptable to Lender and any and all renewals, extensions and/or
rearrangements thereof.
"Prime Rate" means the interest rate per annum announced by Lender from
time to time as its prime rate. The Prime Rate is set by Lender as a general
reference rate of interest taking into account such factors as Lender may deem
appropriate, it being understood that it is not necessarily the lowest or best
rate actually charged to any customer or a favored rate, that it may not
correspond to any future increases or decreases of interest rates charged by
other lenders, or market rates in general, and Lender may make various
commercial or other loans at rates of interest having no relationship to such
rate.
"Proceeds" means all forms of payment received by or due to each of the
Borrowers from the collection of Accounts or sale, exchange, collection or other
disposition of Inventory or other property constituting Collateral and any and
all claims against any third party for loss or damage to any Collateral,
including insurance claims, and further, without limiting the generality of the
foregoing, Proceeds shall include all
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Accounts, checks, cash, money orders, drafts, chattel paper, instruments, notes
or other documents evidencing payment obligations to Borrower for sale or
exchange of Collateral.
"Property" means any interest in any kind of property or assets,
whether real, personal or mixed, or tangible or intangible.
"Revolver Commitment" means the obligation of Lender to make the
Revolver Loans to Borrowers pursuant to Section 2.1 of this Agreement.
"Revolver Loan" means a Loan made by Lender to Borrowers pursuant to
the Revolver Commitment.
"Revolver Note" means the promissory note of Borrowers dated as of the
date of this Agreement in the stated principal amount of $12,000,000.00 payable
to the order of Lender and being in form and substance acceptable to Lender and
any and all renewals, extensions and/or rearrangements thereof.
"Security Instruments" means the documents, agreements and instruments
described in Section 7.2 and any and all other instruments now or hereafter
executed in connection with or as security for the payment of any of the
Indebtedness.
"Senior Debt" means, with respect to Borrowers, the Total Debt of
Borrowers less Subordinated Debt.
"Senior Debt Interest Expense" means, with respect to Borrowers and for
any period, the interest charges paid or accrued during such period (including
imputed interest on Capital Lease Obligations but excluding amortization of debt
discount and expense and excluding capitalized interest) on Senior Debt.
"Shareholders" means Hank McCarrick, John Jul and their respective
heirs, beneficiaries, personal representatives, successors and assigns.
"Shareholder Subordinated Debt Documents" means the Shareholder
Subordinated Notes, and any and all other documents and agreements executed in
connection therewith.
"Shareholder Subordinated Notes" means (a) Promissory Note dated May
15, 1992, in the stated principal amount of $132,038.30 executed by Span and
payable to the order of Hank McCarrick as therein provided, (b) Subordinated
Promissory Note dated June 6, 1994 in the stated principal amount of $353,447.83
executed by Span and payable to the order of Hank McCarrick as therein provided,
as amended and modified by letter agreement dated August 31, 1995, between Span
and Hank McCarrick, (c) Subordinated Promissory Note dated June 6, 1994, in the
stated principal amount of $147,359.68 executed by Span and payable to the order
of John Jul as therein provided, as amended by letter agreement dated August 31,
1995, between Span and John Jul, and (d) all notes issued in exchange or
substitution for any of the foregoing.
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<PAGE> 12
"Shareholder Subordination Agreements" means (a) Subordination
Agreement of even date herewith executed by Span, Hank McCarrick and Lender, (b)
Subordination Agreement of even date herewith executed by Span, John Jul and
Lender and (c) all amendments and modifications to any of the foregoing.
"Stock" means all shares, options, interests, participations, or other
equivalents (howsoever designated) of or in a corporation, whether voting or
non-voting, including, without limitation, common stock, warrants, preferred
stock, convertible debentures, and all agreements, instruments and documents
convertible, in whole or in part, into any one or more of all of the foregoing.
"Stratford" means Stratford Capital Partners, L.P., a Texas limited
partnership together with its permitted transferees, successors and assigns.
"Stratford Subordinated Debt Documents" means the Stratford
Subordinated Note, that certain Note Purchase Agreement of even date herewith by
and between Span and Stratford, that certain Warrant Purchase Agreement of even
date herewith by and among Span, certain shareholders of Span, and Stratford,
and the Warrant.
"Stratford Subordinated Note" means that certain Senior Subordinated
Note of even date herewith in the stated principal amount of $5,000,000.00
executed by Span and payable to the order of Stratford, and all notes issues in
exchange or substitution therefor.
"Stratford Subordination Agreement" means that certain Subordination
Agreement of even date herewith executed by Span, Stratford and Lender and all
amendments and modifications thereto.
"Subordinated Debt" means (a) the Debt evidenced by the Stratford
Subordinated Debt Documents, (b) the Debt evidenced by the Shareholder
Subordinated Debt Documents, and (c) any other Debt of Borrowers, hereafter
incurred by Borrowers, that, by the express terms of the instrument evidencing
or creating such Debt or by the terms of a subordination agreement, in form and
substance satisfactory to Lender, is validly and effectively made subordinate
and subject in right to payment, to whatever extent Lender may require, to the
prior payment of the Indebtedness to Lender.
"Subordinated Debt Documents" means all agreements, documents and
instruments evidencing or governing the Subordinated Debt including, without
limitation, the Stratford Subordinated Debt Documents and the Shareholder
Subordinated Debt Documents.
"Subordination Agreements" means the Shareholder Subordination
Agreements and the Stratford Subordination Agreements.
"Subsidiary" means any corporation of which more than fifty percent
(50%) of the issued and outstanding securities having ordinary voting power for
the election of directors is owned or controlled, directly or indirectly, by
either of the Borrowers and/or one or more of its Subsidiaries.
CREDIT AGREEMENT PAGE -12-
<PAGE> 13
"Tangible Net Worth" means, with respect to Borrowers at the time of
calculation, all amounts which, in conformity with GAAP, would be included as
shareholder equity on a consolidated balance sheet of Borrowers plus
Subordinated Debt; provided, however, there is excluded therefrom; (a) any note
receivable or account receivable from any Affiliate or Subsidiary of either of
the Borrowers or from any employee or shareholder of either of the Borrowers or
any Affiliate or Subsidiary of either of the Borrowers, (b) any amount
attributable to treasury shares, (c) goodwill, including any amounts however
designated, that represent the excess of the purchase price paid for assets or
stock over the value assigned thereto, (d) patents, trademarks, trade names and
copyrights, and (e) all other assets which are properly classified as intangible
assets under GAAP.
"Term Loan Commitment" means the obligation of Lender to make the Term
Loan pursuant to Section 2.2 of this Agreement.
"Term Loan" means the loan made by Lender to Borrowers from the Term
Loan Commitment.
"Term Loan Prepayment Amount" means, as of the date of calculation, an
amount equal to the difference between (a) the unpaid principal balance of the
Term Note as of the date of calculation less (b) $1,423,000.00.
"Term Note" means the promissory note of Borrowers dated as of the date
of this Agreement in the stated principal amount of $2,000,000.00 payable to the
order of Lender described in Section 2.2. of this Agreement and being in form
and substance satisfactory to Lender, together with any and all renewals,
extensions and/or rearrangements thereof.
"Total Debt" means, with respect to any Person, all liabilities,
obligations and reserves of each of the Borrowers, contingent or otherwise,
which in accordance with GAAP, would be reflected as a liability on the
consolidated balance sheet of Borrowers or would be required to be disclosed in
a financial statement, including, without limitation or duplication (a) all
obligations of each of the Borrowers for borrowed money, (b) all obligations of
each of the Borrowers evidenced by bonds, debentures, notes and other similar
instruments, (c) all obligations of each of the Borrowers issued or assumed as
the deferred purchase price of property or services (other than accounts payable
to suppliers in the ordinary course of business), (d) all obligations under
leases which shall have been or should be, in accordance with GAAP, recorded as
capital leases in respect of which either of the Borrowers is liable as lessee,
(e) all guarantees, endorsements, and other contingent obligations of each of
the Borrowers with respect to the obligations of other Persons of the type
described in (a) through (d) preceding including, but not limited to, any
obligations to acquire any of such obligations, to purchase, sell, or furnish
property or services primarily for the purpose of enabling such other Person to
make payment of any of such obligations and/or to assure the owner of any of
such obligations against loss with respect thereto, (f) all reimbursement
obligations, contingent or otherwise, in respect of letters of credit, surety
and appeal bonds and performance bonds
CREDIT AGREEMENT PAGE -13-
<PAGE> 14
or similar instruments assuring any other Person of the performance of any act
or acts or the payment of any obligation, (g) all Debt referred to in clauses
(a), (b), (c), (d), (e) or (f) above secured by (or for which the holder of such
Debt has an existing right, contingent or otherwise, to be secured by) any lien,
security interest or other charge or encumbrance upon or in property owned by
either of the Borrowers, even though Borrowers have not assumed or become liable
for the payment of such Debt, and (h) liabilities in respect of unfunded vested
benefits under any Plans.
"Total Debt Interest Expense" means, with respect to Borrowers and for
any period, the interest charges paid or accrued during such period (including
imputed interest on Capital Lease Obligations but excluding amortization of debt
discount and expense and excluding capitalized interest) on Total Debt of
Borrowers.
"Total Liabilities" means, with respect to Borrowers at the time of
calculation, all amounts which in conformity with GAAP, would be included as
liabilities on a consolidated balance sheet of Borrowers.
"Tylan" means Tylan General, Inc., a Delaware corporation.
"UCC" means the Uniform Commercial Code as adopted by the State of
Texas.
"Warrant" means the warrant dated March 14, 1996, issued by Span to
Stratford providing for the purchase of up to 10% of Span's common stock (on a
fully diluted basis), as the same may be adjusted from time to time pursuant to
the terms of such warrant, and all warrants issued upon the transfer of, or in
substitution for, such warrants.
"Working Capital" means, with respect to Borrowers, the excess of
Current Assets of Borrowers over Current Liabilities of Borrowers.
ARTICLE 2: AMOUNT AND TERMS OF CREDIT
Section 2.1. The Revolver Commitment.
(a) Revolver Loans. Subject to the terms and conditions and relying on
the representations and warranties contained in this Agreement, Lender agrees,
from the date of this Agreement up to but not including the Drawdown Termination
Date, to make Revolver Loans to Borrowers from time to time on any Business Day
up to but not exceeding an aggregate principal sum at any time outstanding equal
to the lesser of (i) the Borrowing Base and (ii) $12,000,000.00. Within such
limits and during such period, Borrowers may borrow, repay and reborrow
hereunder.
(b) Revolver Note. To evidence the Revolver Loans, Borrowers will
issue, execute and deliver the Revolver Note dated of even date with this
Agreement in the stated principal amount of $12,000,000.00 and payable to the
order of Lender. The outstanding principal balance of the Revolver Loans shall
be payable on the Drawdown Termination Date. Interest on the Revolver Loans
shall be due and payable monthly on
CREDIT AGREEMENT PAGE -14-
<PAGE> 15
the first (1st) day of each calendar month as it accrues on the principal amount
from time to time outstanding, at the rates provided in Section 2.1(c) hereof,
with payments commencing April 1, 1996.
(c) Interest Rate. The unpaid principal of the Revolver Loans shall
accrue interest from the date of advancement until maturity or default at the
lower of (i) the Applicable Rate, as it varies, or (ii) the Maximum Rate. All
past due principal and interest, whether due as a result of acceleration of
maturity or otherwise, shall accrue interest at the Maximum Rate from the date
payment thereof shall have become due until the same shall have been fully
discharged by payment.
(d) Making the Revolver Loans. Lender is authorized, without further
authorization from or notice to Borrower, to make Revolver Loans without any
request or instruction from Borrowers (whether written or oral) to pay (i)
checks and other items executed by Borrowers drawn on the Controlled Operating
Account, (ii) accrued unpaid interest owing on the Revolver Loans, as and when
due, and (iii) at Lender's sole option (but without any obligation), accrued and
unpaid interest and installments of principal owing on the Term Note and the
Prepayment Note, as and when due, if not paid by Borrowers in accordance with
the terms of said Notes.
(e) Funding the Revolver Loans. Upon fulfillment of the applicable
conditions set forth in Article 7 hereof, Lender will make the Revolver Loans
available to Borrowers by depositing the proceeds of the Revolver Loans into the
Controlled Operating Account.
Section 2.2. The Term Loan Commitment.
(a) Term Loan. Subject to the terms and conditions and relying on
the representations and warranties contained in this Agreement, Lender
agrees to make a Term Loan to Borrowers on the date of this Agreement
in the principal amount of $2,000,000.00.
(b) Term Note. To evidence the Term Loan, Borrowers will issue,
execute and deliver the Term Note dated as of the date of its issuance
in the stated principal amount of $2,000,000.00 and payable to the
order of Lender in forty-eight (48) monthly installments. Interest on
the Term Loan will accrue on the principal amount from time to time
outstanding at the rates provided in Section 2.2(c) hereof.
(c) Interest Rate. The outstanding principal amount of the Term
Loan shall accrue interest prior to maturity or default at the lower of
(i) the Applicable Rate, as it varies or (ii) the Maximum Rate. All
past due principal and interest, whether due as a result of
acceleration of maturity or otherwise, shall accrue interest at the
Maximum Rate from the date payment thereof shall have become due until
the same shall have been fully discharged by payment.
CREDIT AGREEMENT PAGE -15-
<PAGE> 16
Section 2.3. Voluntary Prepayments. Subject to the terms of Section
2.9(c) hereof, Borrowers may prepay the unpaid principal of any of the Notes at
any time in whole or from time to time in part without premium or penalty, but
with accrued interest to the date of prepayment on the amount so prepaid. Each
prepayment of principal of the Revolver Note shall be applied to reduce the
outstanding principal balance thereof. Each prepayment of principal of the Term
Note or the Prepayment Note shall be applied to installments of unpaid principal
of the Term Note or the Prepayment Note, as applicable, in the inverse order of
their stated maturity.
Section 2.4. Computation of Interest. All payments of interest and fees
shall be computed on the per annum basis of a year of 360 days, but to the
extent such computations of interest might cause the rate of interest to exceed
the Maximum Rate, such interest shall be computed on the basis of a year of 365
or 366 days, as applicable.
Section 2.5. Payment on Non-Business Day. Whenever any payment to be
made hereunder or under the Notes shall be stated to be due on a day which is
not a Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of payment of interest hereunder and under the Notes.
Section 2.6. Manner of Paying and Prepaying. All payments of principal,
interest, fees and expenses under this Agreement and the Notes shall be made to
Lender in lawful currency of the United States of America and in immediately
available funds not later than 11:00 a.m., Dallas, Texas time, on the date
called for hereunder and under the Notes, at Lender's address set forth in
Section 8.1 of this Agreement.
Section 2.7. Termination of Revolver Commitment. Prior to the Drawdown
Termination Date, Borrowers shall have the right to terminate in whole (but not
in part) the Revolver Commitment upon at least three (3) Business Days prior
written notice (which notice shall be irrevocable) to Lender specifying the
effective date thereof by paying to Lender (a) the aggregate unpaid principal
amount of the Revolver Note together with all accrued and unpaid interest owing
thereon and (b) the fee owing to Lender pursuant to Section 2.9(c) of this
Agreement.
Section 2.8. Mandatory Prepayments.
(a) Revolving Note Prepayments. If at any time the outstanding
principal balance of the Revolver Note exceeds the lesser of (i) the
Borrowing Base or (ii) $12,000,000.00, Borrowers shall forthwith prepay
the amount of such excess for application towards reduction of the
outstanding principal balance of the Revolver Note.
(b) Term Loan Prepayment. In the event that (a) the Merger
Agreement is terminated, (b) good faith negotiations between Span and
Tylan with respect to the Merger cease, or (c) the Merger is not closed
and consummated in accordance with the terms of the Merger Agreement on
or prior to September 1, 1996, then, upon the date of the occurrence of
the event specified in (a) or (b)
CREDIT AGREEMENT PAGE -16-
<PAGE> 17
above, or on September 1, 1996, upon the occurrence of the circumstance
specified in (c) above, Borrowers shall forthwith prepay the Term Loan
Prepayment Amount (calculated as of the date such Term Loan Prepayment
Amount is due) for application to the remaining unpaid installments of
the Term Note in the inverse order of their stated maturity; provided,
however, if no Default exists on the date the Term Loan Prepayment
Amount is due pursuant to this Section 2.8(b), Borrowers may satisfy
their obligation to make such prepayment by executing and delivering to
Lender the Prepayment Note in an amount equal to the Term Loan
Prepayment Amount. Upon execution of the Prepayment Note by Borrowers
and delivery thereof to Lender, Lender will credit the Term Loan
Prepayment Amount to the remaining unpaid installments of principal on
the Term Note in the inverse order of their stated maturity.
Section 2.9. Fees.
(a) Borrowers agree to pay to Lender, on or before the date of
this Agreement, a facility fee of $50,000.00.
(b) For the period from the date hereof through the earlier of
(i) the Drawdown Termination Date or (ii) the date of the termination
of the Revolver Commitment in accordance with Section 2.7 hereof,
Borrowers agree to pay to Lender on the last day of each calendar
quarter commencing March 31, 1996 and on the Drawdown Termination Date
or such earlier date of termination, an unused revolver commitment fee
of one-quarter of one percent (1/4 of 1%) per annum on the daily
average of the unadvanced portion of the Revolver Commitment for the
then ending calendar quarter.
(c) In the event Borrowers terminate the Revolver Commitment in
accordance with Section 2.7 hereof, Borrowers agree to pay to Lender a
fee in the amount of $100,000.00.
(d) The fees described in this Section 2.9 represent compensation
for services rendered and to be rendered separate and apart from the
lending of money or the provision of credit and do not constitute
compensation for the use, detention or forbearance of money, and the
obligation of Borrowers to pay each fee described herein shall be in
addition to, and not in lieu of, the obligation of Borrowers to pay
interest and other expenses otherwise described in this Agreement and
in each of the other Loan Documents.
Section 2.10. Adjustments to Applicable Inventory Advance Rate.
In the event that (a) the Merger Agreement is terminated, (b) good
faith negotiations between Span and Tylan with respect to the Merger cease, or
(c) the Merger is not closed and consummated in accordance with the terms of the
Merger Agreement on or prior to September 1, 1996, then commencing on the first
(1st) day of the calendar month immediately following the occurrence of either
of the events specified in (a) or (b) above, or on September 1, 1996 upon the
occurrence of the circumstances specified
CREDIT AGREEMENT PAGE -17-
<PAGE> 18
in (c) above, and upon the first (1st) day of each calendar month thereafter the
Applicable Inventory Advance Percentage shall, at Lender's option, be reduced by
two percent (2%) each calendar month until such time as the Applicable Inventory
Advance Percentage is reduced to thirty-two percent (32%).
Section 2.11 Proceeds from Accounts and other Collateral.
(a) Lender shall (without notice to or demand on Borrowers), from the
date hereof until the occurrence of an Event of Default, apply against the
outstanding balance of the Revolver Note from time to time any collection on and
Proceeds from Borrowers' Accounts forwarded to Lender.
(b) Lender may (without notice to a demand on Borrowers) after the
occurrence and during the continuance of an Event of Default, apply any and all
collections on and Proceeds from Borrowers' Accounts and the other Collateral
forwarded to Lender to the payment of the Indebtedness in such order and
priority as Lender may elect.
(c) Lender shall not be required to make application to the Revolver
Note or any other Indebtedness with the amount of any check or other instrument
constituting provisional payment until Lender has received final payment thereof
in cash or solvent credits accepted by Lender.
ARTICLE 3: REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement and to make the
Loans called for hereunder, Borrowers represent and warrant to Lender (which
representations and warranties will survive the delivery of the Notes and the
making of the Loans thereunder) that:
Section 3.1. Organization, Standing, Qualification, Etc. of Borrowers.
Each of the Borrowers:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation;
(b) has all requisite power and authority and all necessary
consents, approvals, licenses, permits, franchises and other
authorizations (i) to own and operate its Property, (ii) to carry on
its business as now conducted and as presently proposed to be
conducted, (iii) to create and issue the Notes and to execute and
deliver the Merger Agreement, the Subordinated Debt Documents, this
Agreement and the other Loan Documents to which it is a party, and (iv)
to carry out and comply with the terms of the Merger Agreement, the
Subordinated Debt Documents, this Agreement and the other Loan
Documents to which it is a party; and
CREDIT AGREEMENT PAGE -18-
<PAGE> 19
(c) is duly qualified and authorized to transact business and is
in good standing as a foreign corporation in all jurisdictions wherein
the Property owned or the business transacted by it makes such
qualification necessary.
Section 3.2. Subsidiaries. Other than Ocala, Span has no Subsidiaries.
Ocala has no Subsidiaries.
Section 3.3. Place of Business. The principal place of business of Span
and the office where Span keeps the records relating to its Property (including
the Collateral) and all contracts relating thereto and all accounts arising
therefrom is located at the address referenced for Borrowers in Section 8.1 of
this Agreement. The principal place of business of Ocala and the office where
Ocala keeps the records relating to its Property (including the Collateral) and
all contracts relating thereto and all accounts arising therefrom is 607
Northwest 27th Avenue, Ocala, Florida 34470.
Section 3.4. Binding Obligation. All action on the part of Borrowers
requisite for the due creation, issuance and delivery of the Merger Agreement,
the Subordinated Debt Documents, this Agreement, the Notes and the other Loan
Documents has been duly and effectively taken. This Agreement constitutes, and
the other Loan Documents when executed and delivered will constitute, legal,
valid and binding obligations of each of the Borrowers, enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency and other laws of general application relating to the
enforcement of creditors' rights.
Section 3.5. No Defaults. Neither of the Borrowers is in violation of
any term of (a) its Certificate and/or Articles of Incorporation or Bylaws, or
(b) the Merger Agreement, any of the Subordinated Debt Documents or any
indenture, mortgage, deed of trust, promissory note, loan agreement or any other
agreement or undertaking to which it is a party or by which it is or any of its
Property may be bound or subject.
Section 3.6. Compliance. Neither of the Borrowers:
(a) to the best of their knowledge, is in violation of any law
(including, without limitation, Section 6 or 7 of the Fair Labor
Standards Act), ordinance, statute, rule, regulation, franchise,
certificate or permit to which it is subject; or
(b) is in default with respect to any judgment, order, writ,
injunction, decree or demand of any court or Governmental Authority.
Section 3.7. Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of either of the Borrowers, threatened against or
affecting either of the Borrowers in any court or before any Governmental
Authority which on the date of this Agreement has, or which if adversely
determined against either of the Borrowers could have, a Material Adverse Effect
on either of the Borrowers.
Section 3.8. No Legal Bar, Resultant Lien or Governmental Approval.
Neither the execution and delivery of this Agreement or any of the other Loan
Documents nor
CREDIT AGREEMENT PAGE -19-
<PAGE> 20
the consummation of the transactions contemplated herein or therein, nor
compliance by either of the Borrowers with the provisions hereof or thereof:
(a) will conflict with or result in a breach of, or constitute a
default under, any of the terms, conditions or provisions of any law,
rule, regulation, order, writ, injunction or decree of any court or
Governmental Authority to which either of the Borrowers is subject, or
of the Certificate and/or Articles of Incorporation or Bylaws of either
of the Borrowers, or of the Merger Agreement or any of the Subordinated
Debt Documents, or of any indenture, mortgage, deed of trust,
promissory note, loan agreement or any other agreement or undertaking
to which either of the Borrowers is a party or by which either of the
Borrowers or any of its Property may be bound or subject;
(b) will result in the creation or imposition of any Lien upon
any Property of either of the Borrowers (other than those contemplated
by this Agreement); or
(c) will require any action of, or declaration or filing with,
any Governmental Authority, other than (i) filings required to perfect
Liens created pursuant to the Security Instruments and (ii) filings
necessary to assign to Lender existing financing statements in favor of
Fleet Credit Corporation and Fleet National Bank.
Section 3.9. Restrictions on Borrowers. Neither of the Borrowers is a
party to any contract, agreement or undertaking nor subject to any law,
regulation, order, writ, injunction or decree of any court or Governmental
Authority which has or could reasonably be expected to have a Material Adverse
Effect on either of the Borrowers.
Section 3.10. Financial Statements. The audited consolidated financial
statements of Borrowers for the fiscal year ended August 31, 1995, and the
corresponding unaudited consolidated interim financial statements as of January
31, 1996, which have been delivered to Lender have been prepared in accordance
with GAAP and present fairly the financial condition and results of the
operations of Borrowers as at the dates and for the periods covered (subject
only to normal year end audit adjustments with respect to such unaudited interim
statements). Since January 31, 1996, no event, condition or circumstance has
occurred which could have a Material Adverse Effect on either of the Borrowers.
Section 3.11. Investments and Guaranties. Neither of the Borrowers has
made investments in, advances to, or guaranties of the Debt of, any Person,
except as disclosed in the Financial Statements or as disclosed in Schedule 3.11
attached hereto.
Section 3.12. Debt. Neither of the Borrowers has any Debt except as
disclosed in the Financial Statements or as disclosed in Schedule 3.12 attached
hereto.
Section 3.13. Taxes. All tax returns required to be filed by each of
the Borrowers in each jurisdiction have been filed and each of the Borrowers has
paid all taxes as
CREDIT AGREEMENT PAGE -20-
<PAGE> 21
shown on said returns and all assessments received by it, and neither of the
Borrowers has any knowledge of any actual or proposed deficiency or additional
assessments in connection therewith.
Section 3.14. Title. Each of the Borrowers has good and indefeasible
title to all its real property and has good title to all its other Property,
including that reflected in the most recent balance sheet referred to in Section
3.10 of this Agreement and to all real property and other Property acquired by
it since the date of such balance sheet, subject to no Liens, except for
Permitted Liens.
Section 3.15. Adverse Conditions. Neither the business nor any of the
Property of either of the Borrowers is affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance) which has or could reasonably be expected
to have a Material Adverse Effect on either of the Borrowers.
Section 3.16. Solvency. Neither of the Borrowers (a) is insolvent on
the date of this Agreement and will not become insolvent as a result of entering
into this Agreement and the other Loan Documents, (b) is engaged in a business
or transaction nor is about to engage in a business or transaction, for which
any Property remaining with either of the Borrowers constitutes an unreasonably
small amount of capital, or (c) intends to incur Debt that will be beyond the
ability of Borrowers to pay as such Debt matures.
Section 3.17. Margin Securities. Neither of the Borrowers is engaged
nor will either of the Borrowers engage, principally or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any margin stock (within the meaning of Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System), and no part of the proceeds
of the Loans hereunder will be used for purchasing or carrying any such margin
stock. Neither of the Borrowers nor any Person acting on its behalf has taken
any action that might cause the transactions contemplated by this Agreement or
any of the other Loan Documents to violate Regulations G, T, U or X or to
violate the Securities Exchange Act of 1934, as amended.
Section 3.18. Investment Company Act. Neither of the Borrowers is an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended. The making
of the Loans by Lender, the application of the proceeds and repayment thereof by
Borrowers and the consummation of the transactions contemplated by this
Agreement and the other Loan Documents will not violate any provision of such
Act or any rule, regulation or order issued by the Securities and Exchange
Commission thereunder.
Section 3.19. Regulatory Matters. Each of the Borrowers has duly and
timely filed all reports and other filings which are required to be filed by it
under any rules or regulations promulgated by any Governmental Authority or
other Person having jurisdiction over either of the Borrowers or any of its
operations. All information provided by or on behalf of Borrowers in any filing
with any Governmental Authority or
CREDIT AGREEMENT PAGE -21-
<PAGE> 22
other Person having jurisdiction over the Borrowers was, at the time of filing,
true, complete and correct in all material respects, and the appropriate Person
has been notified of any substantial or significant changes in such information
as may be required in accordance with applicable laws, rules and regulations.
Section 3.20. Good Consideration. The Loan Documents and the
transactions contemplated thereby have been or will be executed, delivered and
performed in good faith and in exchange for reasonably equivalent value.
Section 3.21. Intellectual Property and Operating Agreements. Neither
of the Borrowers has been (a) charged with any material infringement of any
patent, copyright, trademark, or service mark or (b) notified or advised of any
such claim. Each of the Borrowers owns, possesses and has the right to use all
Operating Agreements, and all rights with respect thereto, necessary for the
conduct of its business, without any known conflict with the rights of others
and, in each case, free of Liens. No event has occurred that could result in the
cancellation or termination of any Operating Agreement or the imposition
thereunder of any liability against either of the Borrowers and there is no
reason to believe that any Operating Agreement will not be renewed in the
ordinary course. Neither of the Borrowers has any Operating Agreements which
consist of a license to use patents, trademarks, service marks, trade names or
other similar items of intellectual property. The consummation of the
transactions contemplated hereby will not alter or impair any right, title or
interest of either of the Borrowers in any of the Operating Agreements.
Section 3.22. Merger Agreement. Borrowers have delivered to Lender a
true and complete copy of the Merger Agreement executed by Span, Tylan and the
other parties thereto. The Merger Agreement has been duly authorized, executed
and delivered by all parties thereto, has not been amended or otherwise
modified, is in full force and effect, and is binding upon and enforceable
against all parties thereto in accordance with its terms. There exists no
default under the Merger Agreement and all obligations required to have been
performed by the date of this Agreement have been performed in accordance with
the terms thereof.
Section 3.23. Subordinated Debt Documents. Borrowers have delivered to
Lender true and complete copies of the Subordinated Debt Documents executed by
Span and the other parties thereto. The Subordinated Debt Documents have not
been amended or otherwise modified, are in full force and effect, and are
binding upon and enforceable against all parties thereto in accordance with
their terms. There exists no default under any of the Subordinated Debt
Documents and all obligations required to have been performed by the date of
this Agreement have been performed in accordance with the terms thereof.
Section 3.24. Operation and Maintenance of Equipment. Neither of the
Borrowers nor, to either of the Borrower's knowledge, any other Person owning or
operating any Equipment necessary for the operation of the business of either of
the Borrowers has used, operated, or maintained the same in a manner which now
or hereafter could result in the cancellation or termination of the right of
either of the Borrowers to use the same
CREDIT AGREEMENT PAGE -22-
<PAGE> 23
or which could result in any material liability of either of the Borrowers for
damages in connection therewith. All of the Equipment and other tangible
personal property owned by each of the Borrowers is in good operating condition
and repair and has been used, operated and maintained in compliance with all
applicable laws, rules and regulations.
Section 3.25. No Material Misstatements. No information, exhibit, or
report furnished to Lender by either of the Borrowers in connection with the
negotiation of this Agreement contained any material misstatement of fact or
omitted to state a material fact or any fact necessary to make the statement
contained therein not misleading.
Section 3.26. ERISA. Neither of the Borrowers has (a) incurred an
accumulated funding deficiency under any Plan in an amount sufficient to have a
Material Adverse Effect on either of the Borrowers, (b) incurred material
liability to the Pension Benefit Guaranty Corporation in connection with any
Plan, (c) withdrawn in whole or in part from participation in a multi-employer
pension plan (as defined in ERISA) or (d) committed, permitted or suffered a
"prohibited transaction" or "reportable event" (as such terms are defined in
ERISA).
Section 3.27. Environmental Matters. Neither any Property of either of
the Borrowers nor the operations conducted thereon violates any Environmental
Laws in any material respect or order of any court or Governmental Authority
with respect to Environmental Laws. The business and operations of Borrowers do
not produce nor involve the use or disposal of any hazardous substances not in
compliance with Environmental Laws.
Section 3.28. Use of Proceeds. Borrowers will use the proceeds of the
Revolver Loans solely for the purpose of refinancing existing Debt of Borrowers
and providing working capital. The Borrowers will use the proceeds of the Term
Loan solely for the purpose of refinancing existing Debt of Borrowers.
ARTICLE 4: AFFIRMATIVE COVENANTS
So long as the Commitments shall remain available to Borrowers, and
until the payment in full of the Indebtedness unless Lender shall otherwise
consent in writing, Borrowers agrees that:
Section 4.1. Business and Financial Information. Each of the Borrowers
will promptly furnish to Lender from time to time such information regarding the
business and affairs and financial condition of each of the Borrowers and the
Guarantor as Lender may reasonably request, and will furnish Lender:
(a) Monthly Financial Statements - as soon as available and in
any event within thirty (30) days after the end of each calendar month
during the term of this Agreement, the consolidated and consolidating
balance sheets (including, without limitation, a statement of
contingent liabilities) of Borrowers as of the close of the immediately
preceding calendar month and the consolidated and consolidating
statements of income, cash flows, and shareholders' equity of
CREDIT AGREEMENT PAGE -23-
<PAGE> 24
Borrowers for the immediately preceding calendar month, setting forth,
in each case in comparative form, the figures for the corresponding
periods in the previous calendar year as well as year-to-date figures,
all in such detail as Lender may reasonably request and accompanied by
a statement of an authorized financial officer of each of the Borrowers
certifying that such statements fairly present the financial position
of Borrowers at the close of such period and the results of their
operations for such period (subject to normal year end audit
adjustments);
(b) Annual Financial Statements - as soon as available but in any
event within one hundred twenty (120) days after the close of each
fiscal year of Borrowers during the term of this Agreement, the audited
consolidated and consolidating balance sheets (including, without
limitation, a statement of contingent liabilities) of Borrowers as at
the end of such fiscal year and the audited consolidated and
consolidating statements of income, cash flows, and shareholders'
equity of Borrowers for such fiscal year, setting forth, in each case
in comparative form, the figures for the previous fiscal year, all in
reasonable detail and audited and certified by a "big six" accounting
firm or other independent certified public accountants of recognized
national standing acceptable to Lender, to the effect that such report
has been prepared in accordance with GAAP and accompanied by a
certificate of such independent certified public accountants to Lender
(i) stating that to their knowledge no Default has occurred and is
continuing, or if in their opinion a Default has occurred and is
continuing, a statement as to the nature thereof, and (ii) confirming
the calculations set forth in Borrowers' compliance certificate
delivered simultaneously therewith;
(c) Other Statements - promptly upon becoming available, a copy
of (i) all other financial statements, reports, notices and proxy
statements sent by either of the Borrowers to stockholders, (ii) all
other regular and periodic reports and all registration statements and
prospectuses filed by either of the Borrowers with any securities
exchange or with the Securities and Exchange Commission or any
Governmental Authority succeeding to any or all of the functions of
said Commission, and (iii) all statements generally made available by
either of the Borrowers or others concerning material developments in
the business of either of the Borrowers;
(d) Notice of Default - immediately upon becoming aware of the
existence of any Default under this Agreement or any of the other Loan
Documents, a written notice specifying the nature and period of
existence thereof and what action Borrowers are taking or propose to
take with respect thereto;
(e) Notice of Claimed Default - immediately upon becoming aware
that any Person has given notice or taken any other action with respect
to a claimed default under the Merger Agreement, any of the
Subordinated Debt Documents, any Operating Agreement or under any note,
agreement, contract, or undertaking to which either of the Borrowers or
Guarantor is a party, a written notice specifying the notice given or
action taken by such Person and the nature of the
CREDIT AGREEMENT PAGE -24-
<PAGE> 25
claimed default and what action Borrowers or the Guarantor is taking or
proposes to take with respect thereto;
(f) Litigation, Adverse Events - immediately upon becoming aware
of (i) any action, suit or proceeding pending or threatened against or
affecting either of the Borrowers or the Guarantor in any court or
before any Governmental Authority, which if adversely determined could
have or could reasonably be expected to have a Material Adverse Effect
on either of the Borrowers or the Guarantor, or (ii) any lapse or
termination of any license, permit, franchise, agreement or other
authorization issued to either of the Borrowers by any Governmental
Authority or any other Person or the refusal to renew or extend any
such license, permit, franchise, agreement or other authorization, a
written notice specifying the nature thereof and what action Borrowers
or the Guarantor is taking or proposes to take with respect thereto;
(g) Material Adverse Effect - immediately upon becoming aware of
any event, condition or circumstance that has, or could reasonably be
expected to have, a Material Adverse Effect on either of the Borrowers
or the Guarantor, a written notice specifying the nature thereof and
what action Borrowers or the Guarantor is taking or proposes to take
with respect thereto;
(h) Weekly Borrowing Base Reports - on Friday of each calendar
week during the term of this Agreement, or on such other frequency as
Lender may request, a Borrowing Base Report (without the required
attachments) as of the close of business on the immediately preceding
Thursday or such other applicable period, appropriately completed, and
certified as complete and correct by an authorized financial officer of
each of the Borrowers;
(i) Monthly Borrowing Base Reports - as soon as available and in
any event within thirty (30) days after the end of each calendar month
during the term of this Agreement, a Borrowing Base Report (with the
required attachments) as of the end of the immediately preceding
calendar month, appropriately completed, and certified as complete and
correct by an authorized financial officer of each of the Borrowers;
(j) Inventory Reports - as soon as available and in any event
within thirty (30) days after the end of each calendar month during the
term of this Agreement, or on such other frequency as Lender may
request, a written report with respect to the immediately preceding
calendar month or other period, setting forth each of the Borrower's
opening Inventory, Inventory acquired, Inventory sold, Inventory
returned, Inventory used in the business of either of the Borrowers,
closing Inventory, any other Inventory not within the preceding
categories, and such other information as Lender may request from time
to time, such report to be in reasonable detail and prepared on a basis
and in a format acceptable to Lender and certified as complete and
correct by an authorized financial officer of each of the Borrowers;
CREDIT AGREEMENT PAGE -25-
<PAGE> 26
(k) Account Receivable Reports - as soon as available and in any
event within thirty (30) days after the end of each calendar month
during the term of this Agreement, or on such other frequency as Lender
may request, a written report setting forth the amount of the billed
but uncollected Accounts of each of the Borrowers which, among other
things, specifies the names of the Account Debtors and age of each
Account in increments of at least thirty-day intervals (with all credit
balances to be aged as current) as at the end of the immediately
preceding calendar month or such other period, such report to be in
reasonable detail and prepared on a basis and in a format acceptable to
Lender and certified as complete and correct by an authorized financial
officer of each of the Borrowers;
(l) Account Payable Reports - as soon as available and in any
event within thirty (30) days after the end of each calendar month
during the term of this Agreement, or such other frequency as Lender
may request, a written report setting forth the amount of the accrued
payables of each of the Borrowers as of the end of the immediately
preceding calendar month or such other period, both in the aggregate
and by creditor which, among other things, specifies the names of the
creditors and due dates of such payables, such report to be in
reasonable detail and prepared on a basis and in a format acceptable to
Lender and certified as complete and correct by an authorized financial
officer of each of the Borrowers;
(m) Equipment Listing - upon request by Lender, a listing of all
Equipment of each of the Borrowers (specifying the location(s)
thereof), such report to be in reasonable detail and prepared on a
basis and in a format acceptable to Lender and certified as complete
and correct by an authorized financial officer of each of the
Borrowers;
(n) Changes in Collateral - immediately upon becoming aware of
any matter adversely affecting any of the Collateral, including,
without limitation, any event causing loss or depreciation in the value
of any of the Collateral, a written notice specifying the nature
thereof and what action Borrowers are taking or propose to take with
respect thereto; and
(o) Merger - immediately upon becoming aware that (i) the Merger
Agreement has been terminated, (ii) good faith negotiations between
Span and Tylan regarding the Merger have ceased, or (iii) any party has
failed to perform and/or observe any of its obligations under the
Merger Agreement, a written notice specifying the nature thereof and
what action Span is taking or proposes to take with respect thereto;
(p) ERISA Information and Compliance - (i) promptly after the
filing thereof with the United States Secretary of Labor or the Pension
Benefit Guaranty Corporation, copies of each annual and other report
with respect to each Plan and (ii) immediately upon becoming aware of
the occurrence of any "reportable event" or "prohibited transaction"
(as such terms are defined in ERISA) in connection
CREDIT AGREEMENT PAGE -26-
<PAGE> 27
with any Plan, a written notice specifying the nature thereof, what
action Borrowers are taking or propose to take with respect thereto
and, when known, any action taken by the Internal Revenue Service or
the Pension Benefit Guaranty Corporation with respect thereto.
Section 4.2. Certificates of Compliance. Borrowers will furnish, or
cause to be furnished, to Lender concurrently with the furnishing of the monthly
and annual financial statements pursuant to Section 4.1 hereof, a certificate in
the form of certificate attached hereto as Exhibit "D" signed by an authorized
financial officer of each of the Borrowers stating:
(a) that a review of the activities of Borrowers has been made
under their supervision with a view to determining whether Borrowers
have fulfilled all of their obligations under this Agreement and the
other Loan Documents; and
(b) that Borrowers have fulfilled all of their obligations under
this Agreement and the other Loan Documents and that all
representations made herein and therein continue to be true and correct
(or specifying the nature of any change) or if either of the Borrowers
shall be in Default, specifying any Default and the nature and status
thereof, and showing in detail the computations required by the
provisions of Sections 4.14, 4.15, 4.16, 4.17 and 4.18 of this
Agreement based on the figures which appeared on the books of account
of Borrowers at the close of such respective period;
Section 4.3. Taxes and Other Liens. Each of the Borrowers will pay
before they become delinquent:
(a) all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or Property or any part thereof; and
(b) all claims of any kind (including claims for labor,
materials, supplies and rent) which, if unpaid, might result in the
creation of a Lien upon any Property of either of the Borrowers;
provided, that items of the foregoing description need not be paid while being
contested in good faith by appropriate proceedings diligently conducted, and
provided, further, that reserves adequate under GAAP have been established with
respect thereto, and provided, further, that the owing company's title to, and
its right to use, its Property is not adversely affected thereby.
Section 4.4. Maintenance of Existence, Property and Financial Records.
Each of the Borrowers will:
(a) Existence and Rights - maintain its corporate existence,
rights and franchises, and continue to be duly authorized and qualified
to transact business
CREDIT AGREEMENT PAGE -27-
<PAGE> 28
in each jurisdiction wherein the Property owned or the business
transacted by it makes such qualification necessary;
(b) Property - maintain its Property in good and workable
condition at all times and make all repairs, replacements, additions,
betterments and improvements to its Property as are needful and proper
so that the business carried on in connection therewith may be
conducted properly and efficiently at all times; and
(c) Financial Records - maintain and keep books of records and
accounts in which full, true and correct entries in accordance with
GAAP will be made of all dealings and transactions in relation to its
business and activity.
Section 4.5. Maintenance of Licenses and Operating Agreements. Each of
the Borrowers shall maintain in full force and effect at all times, and apply in
a timely manner for renewal of, all of its licenses, approvals, permits,
franchises, patents, copyrights, trademarks, service marks, trade names and
other Operating Agreements necessary for the continuation of the operation of
the business of each of the Borrowers.
Section 4.6. Compliance with Laws; Environmental Indemnity. Each of the
Borrowers will (a) observe and comply with all laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules, certificates,
franchises, permits, licenses, authorizations, regulations, directions and
requirements of all Federal, state, county, municipal and other governments,
departments, commissions, boards, courts, authorities, officials and officers,
domestic and foreign, (b) comply with all applicable Environmental Laws and
obtain all permits, licenses, or similar approvals required by any such
Environmental Laws. Borrowers hereby jointly and severally indemnify Lender and
hold Lender harmless from and against any claims, loss or damage to which Lender
is subjected as a result of any past, present or future existence, use,
handling, storage, transportation or disposal of any hazardous waste or
substance or toxic substance by either of the Borrowers. This indemnification
shall survive the termination of this Agreement and payment of the Indebtedness
hereunder.
Section 4.7. Further Assurances. Borrowers will promptly cure any
defects in the creation and issuance of the Notes and the execution and delivery
of this Agreement and the other Loan Documents. Borrowers will do all acts and
things, and will execute and file or record, all instruments requested by
Lender, to establish, perfect, maintain and continue the perfected security
interest of Lender in or the Lien of Lender on the Collateral. Borrowers will
pay the costs and expenses of all filings and recordings and all searches deemed
necessary by Lender to establish and determine the validity and the priority of
the Liens created or intended to be created by the Security Instruments; and
Borrowers will satisfy all other claims and charges which in the opinion of
Lender might prejudice, impair or otherwise affect any of the Collateral or
Lender's Lien thereon.
Section 4.8. Performance of Obligations. Borrowers will pay the Notes
and all other Indebtedness to Lender according to the reading, tenor and effect
thereof and hereof. Borrowers will do and perform every act and discharge all of
the obligations
CREDIT AGREEMENT PAGE -28-
<PAGE> 29
provided to be performed and discharged by Borrowers under the Merger Agreement,
the Subordinated Debt Documents, this Agreement and the other Loan Documents at
the time or times and in the manner herein and therein specified.
Section 4.9. Reimbursement of Expenses. Borrowers will pay all
reasonable legal fees incurred by Lender in connection with the preparation of
this Agreement and the other Loan Documents and will also pay all fees, charges
or taxes for the recording or filing of the Security Instruments. Borrowers
will, upon request, promptly reimburse Lender for all amounts expended, advanced
or incurred by Lender to satisfy any obligation of either of the Borrowers under
the Merger Agreement, the Subordinated Debt Documents, this Agreement or any of
the other Loan Documents, or to protect the Collateral, or to collect the Notes,
or to enforce the rights of Lender under this Agreement or any of the other Loan
Documents, which amounts will include all court costs, reasonable attorney's
fees, fees of auditors and accountants, and investigation expenses reasonably
incurred by Lender in connection with any such matters, together with interest
at the Maximum Rate on each such amount from the date that the same is expended,
advanced or incurred by Lender until the date it is repaid.
Section 4.10. Insurance. Each of the Borrowers now maintain and will
continue to maintain with financially sound and reputable insurers, insurance
with respect to its Property and business against such liabilities, casualties,
risks and contingencies and in such types and amounts as is customary in the
case of corporations engaged in the same or similar business and similarly
situated, plus any additional insurance, if any, reasonably required by Lender.
Upon request of Lender, each of the Borrowers will furnish Lender from time to
time a summary of the insurance coverage of each of the Borrowers in form and
substance satisfactory to Lender and if requested will furnish Lender copies of
the applicable policies.
Section 4.11. Inspection. At any and all reasonable times, upon the
request of Lender, Borrowers will permit Lender or any agents or representatives
designated by Lender:
(a) to examine the books of accounts, records, reports and other
papers of each of the Borrowers (and to make copies and extracts
therefrom);
(b) to inspect Property of each of the Borrowers; and
(c) to discuss the business and affairs of each of the Borrowers
with its officers and its independent certified public accountants.
Section 4.12. Accounts Receivable and Payable. Each of the Borrowers
will pay its accounts payable and maintain its accounts receivable in a manner
consistent with normal business practices, including normal terms and conditions
for payment, for companies engaged in similar operations in similar
jurisdictions.
Section 4.13. Mandatory Prepayments. Borrowers will make the mandatory
prepayments in the amounts and in the manner set forth in Article 2 of this
Agreement.
CREDIT AGREEMENT PAGE -29-
<PAGE> 30
Section 4.14. Total Liabilities Ratio. Borrowers will maintain a ratio
of Total Liabilities to Tangible Net Worth, on a consolidated basis, of not
greater than 4.5 to 1.0 from the date of this Agreement through May 31, 1996,
and 4.2 to 1.0 at all times thereafter throughout the term of this Agreement.
Section 4.15. Working Capital. Borrowers will maintain Working Capital,
on a consolidated basis, of not less than $5,500,000.00 at all times throughout
the term of this Agreement. For purposes of this covenant, it is understood and
agreed that as of the date of any calculation the outstanding principal amount
owing on the Revolver Loans shall not be included in Current Liabilities of
Borrowers.
Section 4.16. Tangible Net Worth. Borrowers will maintain a positive
Tangible Net Worth, on a consolidated basis, of at least $5,500,000.00 at all
times through May 31, 1996, at which time the amount of Tangible Net Worth
required to be maintained by Borrowers pursuant to this Section shall increase
by $300,000.00. Thereafter, at the end of each fiscal quarter of Borrowers
during the term of this Agreement, the amount of Tangible Net Worth required to
be maintained by Borrowers pursuant to this Section shall be increased by
$300,000.00. It is expressly understood and agreed that in no event will the
amounts of Tangible Net Worth required to be maintained by Borrowers hereunder
decrease due to a net loss during any fiscal year of Borrowers.
Section 4.17. Total Debt Coverage Ratio. Borrowers will maintain, as of
May 31, 1996, a ratio of (a) EBITDA divided by (b) the sum of Total Debt
Interest Expense, current maturities of long-term Total Debt of Borrowers, and
all payments on Capital Lease Obligations, of not less than 1.15 to 1.0.
Thereafter, Borrowers will maintain, as of the last day of each fiscal quarter
of Borrowers during the term of this Agreement a ratio of (a) EBITDA divided by
(b) the sum of Total Debt Interest Expense, current maturities of long-term
Total Debt of Borrowers, and all payments on Capital Lease Obligations, for the
twelve month period ending on such day, of not less than 1.35 to 1.0; provided,
however, calculations of the Total Debt Coverage Ratio made prior to the fiscal
quarter of Borrowers ending February 28, 1997, shall include only fiscal
quarters of Borrower ending after February 29, 1996.
Section 4.18. Total Debt Interest Coverage Ratio. Borrowers will
maintain, as of May 31, 1996, a ratio of (a) EBIT divided by (b) Total Debt
Interest Expense of not less than 1.25 to 1.0. Thereafter, Borrowers will
maintain, as of the last day of each fiscal quarter of Borrowers during the term
of this Agreement, a ratio of (a) EBIT divided by (b) Total Debt Interest
Expense, for the twelve (12) month period ending on such day, of not less than
2.0 to 1.0; provided, however, calculations of the Total Debt Interest Coverage
Ratio made prior to the fiscal quarter of Borrowers ending February 28, 1997,
shall include only fiscal quarters of Borrowers ending after February 29, 1996.
Section 4.19. Senior Debt Interest Coverage Ratio. Borrowers will
maintain, as of May 31, 1996, a ratio of (a) EBIT divided by (b) Senior Debt
Interest Expense, of not less than 1.9 to 1.0. Thereafter, Borrowers will
maintain, as of the last day of each fiscal quarter of Borrowers during the term
of this Agreement, a ratio of (a) EBIT divided by (b) Senior Debt Interest
Expense, for the twelve (12) month period ending
CREDIT AGREEMENT PAGE -30-
<PAGE> 31
on such day, of 2.25 to 1.0; provided, however, calculations of the Senior Debt
Interest Coverage Ratio made prior to the fiscal quarter of Borrowers ending
February 28, 1997, shall include only fiscal quarters of Borrowers ending after
February 29, 1996.
Section 4.20. Audit and Asset Management Review. Span will submit to
two (2) audits and asset management reviews in each fiscal year of Span during
the term of this Agreement to be performed by Lender, the expenses of which are
to be paid by Borrowers.
Section 4.21. Lockbox. Span shall cause all Account Debtors of Span to
remit all payments on its Accounts to the lockbox accounts established pursuant
to the Lockbox Agreements. Lender shall have sole access to such lockbox
accounts. Span shall endorse to Lender and forthwith deliver to Lender all
payments which Span receives on its Accounts in the form received by Span
without commingling with any funds belonging to Span.
Section 4.22. Controlled Operating Account. Borrowers shall establish
and maintain with Lender a single designated account (the "Controlled Operating
Account") with respect to which Lender will deposit the proceeds of the Revolver
Loans and debit all checks, items and other amounts authorized by this Agreement
and the other Loan Documents. Borrowers expressly agree and hereby authorize
Lender to debit against the Controlled Operating Account all sums, charges,
amounts and payments past due under or in connection with this Agreement
including, without limitation, amounts which may be owing by the Borrowers to
Lender pursuant to Sections 2.9 and 4.9 hereof. Unless otherwise agreed by
Lender and Borrowers, the proceeds of each Revolver Loan shall be deposited into
the Controlled Operating Account and shall be used by Borrowers through the
issuance of checks solely for the purposes set forth in Section 3.28. Borrowers
acknowledge, agree and represent that all expenditures made by Borrowers from
the Controlled Operating Account will be for the purposes set forth in Section
3.28 hereof and will be of direct benefit to Borrowers.
ARTICLE 5: NEGATIVE COVENANTS
So long as the Commitments shall remain available to Borrowers, and
until payment in full of the Indebtedness unless Lender shall otherwise consent
in writing, Borrowers agrees that:
Section 5.1. Debt. Neither of the Borrowers will incur, create, assume,
or permit to exist any Debt, except that the foregoing restriction shall not
apply to:
(a) the Notes and other Indebtedness;
(b) Debt of Borrowers existing on the date of this Agreement
which is reflected in the Financial Statements or is disclosed on
Schedule 3.12 attached hereto but not any renewals, extensions and/or
rearrangements thereof;
CREDIT AGREEMENT PAGE -31-
<PAGE> 32
(c) liabilities for taxes, assessments, governmental charges or
levies which are not yet due and payable;
(d) endorsements of negotiable instruments for collection in the
ordinary course of business;
(e) normal trade debts of Borrowers incurred in the ordinary
course of business;
(f) capital leases and term debt to fund capital expenditures to
the extent permitted by Section 5.15 of this Agreement; and
(g) Subordinated Debt.
Section 5.2. Liens. Neither of the Borrowers will create, incur, assume
or permit to exist any Lien on any of its Property (now owned or hereafter
acquired), other than Permitted Liens.
Section 5.3. Investments, Loans and Advances. Neither of the Borrowers
will make or permit to remain outstanding any loans or advances to, or
investments in, any Person, except that the foregoing restrictions shall not
apply to:
(a) investments, loans and advances existing on the date of this
Agreement which are reflected in the Financial Statements; and
(b) outstanding accounts receivables which arise from the sale of
goods or services in the ordinary course of business.
Section 5.4. Mergers, Consolidations, Etc. Neither of the Borrowers
will (a) amend its Certificate or Articles of Incorporation or otherwise change
its corporate name or structure, (b) form a subsidiary company, (c) consolidate
with or merge into, or acquire any Person, (d) permit any Person to consolidate
with or merge into, or acquire either of the Borrowers, or (e) acquire the stock
of any corporation; provided, however, that the foregoing restrictions shall not
prohibit the Merger provided:
(i) the Merger is consummated in strict accordance with the
terms of the Merger Agreement (including the economic terms) or
such amendments thereto as Lender may have consented to in
writing;
(ii) on the effective date of the Merger and immediately
after the consummation of the Merger and after having given
effect thereto, no Default exists; and
(iii) Tylan has assumed the payment of the Indebtedness in a
manner acceptable to Lender and has executed such agreements and
instruments as Lender may reasonably require to evidence such
assumption.
Section 5.5. Disposition of Property. Neither of the Borrowers will
convey, sell, assign, lease, transfer or otherwise dispose of (whether in one
transaction or in a series of transactions) any of its Property (whether now
owned or hereafter acquired), or Stock
CREDIT AGREEMENT PAGE -32-
<PAGE> 33
or other evidence of beneficial ownership of any Person, except that the
foregoing restrictions shall not apply to:
(a) the sale or other disposition of any asset which, in the
reasonable judgment of Borrowers, has become uneconomic, obsolete or
worn and which is disposed of in the ordinary course of business,
provided the proceeds of such sale or other disposition are immediately
delivered to Lender for application to the Indebtedness;
(b) sales of Inventory made in the ordinary course of business;
and
(c) (i) the issuance and sale of the Warrant or (ii) the issuance
and sale of stock of Span to the holder of the Warrant upon the
exercise of the Warrant in accordance with the terms of [Warrant
Purchase Agreement].
Section 5.6. Dividends, Distributions and Redemptions. Neither of the
Borrowers will declare or pay any dividend or, except with respect to the
Warrant, purchase, redeem, or otherwise acquire for value any of its Stock, now
or hereafter outstanding, return any capital to its stockholders, or make any
distribution of its assets to its stockholders.
Section 5.7. Nature of Business. Neither of the Borrowers will (a)
engage in any lines of business or business ventures other than those in which
it is presently engaged or that is directly related thereto, (b) change in any
material respect its methods of operation or manner of doing business, (c) carry
on its business at any location or locations other than those presently in
existence or (d) change its name or its identity as its corporation.
Section 5.8. Redemption of Stock. Except with respect to the Warrant,
neither of the Borrowers will directly or indirectly retire, purchase or
otherwise acquire, directly or indirectly, any Stock of either of the Borrowers.
Section 5.9. Prepayment of Debt. Neither of the Borrowers will prepay,
purchase, redeem, retire or otherwise acquire, or make any optional payment on
account of any principal of, interest on, or premium payable in connection with
the optional prepayment, redemption or retirement of any Debt of either of the
Borrowers except that the foregoing restriction shall not apply to (a) the Notes
or other Indebtedness and (b) prepayments to Stratford of the Stratford
Subordinated Note pursuant to Section 2.3 of the Note Purchase Agreement of even
date herewith between Span and Stratford to the extent permitted by the terms of
the Stratford Subordination Agreement.
Section 5.10. Payment on Subordinated Debt. Neither of the Borrowers
will make any payment on the Subordinated Debt of either of the Borrowers,
except as provided in the Subordinated Debt Documents to the extent permitted by
the Subordination Agreements.
CREDIT AGREEMENT PAGE -33-
<PAGE> 34
Section 5.11. Proceeds of Loans. Neither of the Borrowers will permit
the proceeds of the Loans made hereunder to be used for any purpose other than
those stated in this Agreement.
Section 5.12. Capital Structure. Except with respect to the Warrant,
neither of the Borrowers will issue any capital stock or any warrants, options
or rights to subscribe to any capital stock of either of the Borrowers.
Section 5.13. Transactions with Affiliates and Other Persons. Neither
of the Borrowers will engage in any transaction with an Affiliate on terms less
favorable to them than would be obtainable at the time in comparable
transactions with Persons not affiliated with Borrowers.
Section 5.14. Merger Agreement and Subordinated Debt Documents.
Borrowers will not amend, modify or otherwise alter any of the terms and
provisions of the Merger Agreement or any of the Subordinated Debt Documents,
without the prior written consent of Lender.
Section 5.15. Capital Expenditures. Neither of the Borrowers will enter
into any commitment to expend an amount for the acquisition or lease of any
property or asset, whether tangible, intangible, fixed or capital, including
repairs, replacements and improvements, which are capitalized under proper
accounting practice, which exceeds $2,000,000.00 in the aggregate during any
fiscal year of Borrowers during the term of this Agreement.
Section 5.16. ERISA Compliance. Neither of the Borrowers will adopt a
Plan or amend an existing Plan that results in a material increase of benefits.
Neither of the Borrowers will at any time permit any Plan maintained by either
of the Borrowers to:
(a) engage in any "prohibited transaction" or "reportable event"
as such terms are defined in ERISA;
(b) incur any accumulated funding deficiency; or
(c) terminate any such Plan in a manner which could result in the
imposition of a Lien on the Property of either of the Borrowers or any
Subsidiary.
CREDIT AGREEMENT PAGE -34-
<PAGE> 35
ARTICLE 6: EVENTS OF DEFAULT
Section 6.1. Events. Any of the following events shall be considered an
"Event of Default" as that term is used herein:
(a) default is made in the payment or prepayment of any of the
Notes or any of the other Indebtedness, either principal or interest or
any installment thereof, when due and payable and such default
continues unremedied for a period of five (5) days; or
(b) any representation or warranty made by either of the
Borrowers in this Agreement or in any of the other Loan Documents
proves to have been untrue in any material respect as of the date
hereof or thereof; or any representation, statement (including
financial statements), certificate or data furnished or made by either
of the Borrowers (or any officer, accountant or attorney of either of
them) hereunder or thereunder proves to have been untrue in any
material respect as of the date as of which the facts therein set forth
were stated or certified; or
(c) default is made in the due observance or performance by
either of the Borrowers of any of the covenants contained in Sections
4.1, 4.2, 4.3, 4.4(b), 4.4(c), 4.5, 4.6, 4.7, 4.9, 4.10, 4.11, 4.12 or
4.20 of this Agreement and such default continues unremedied for a
period of thirty (30) days after notice thereof is given by Lender to
Borrowers; or
(d) default is made in the due observance or performance by
either of the Borrowers of any of the covenants contained in Sections
4.4(a), 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.21, 4.22 or in
Article 5 of this Agreement; or
(e) default is made in the due observance or performance by any
party of any of the covenants, terms or agreements contained in any of
the other Loan Documents; or
(f) either of the Borrowers dissolves or terminates its existence
or discontinues its usual business; or either of the Borrowers is
enjoined, restrained or in any way prevented by court order, or order
of any Governmental Authority, from conducting all or any material part
of its business and such order shall not be lifted within thirty (30)
days; or
(g) any involuntary case or other proceeding is commenced against
either of the Borrowers which seeks liquidation, reorganization or
other relief with respect to it or its Debts or other liabilities under
any bankruptcy, insolvency or similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its
Property, and such involuntary proceeding shall remain undismissed and
unstayed for a period of thirty (30) days; or
CREDIT AGREEMENT PAGE -35-
<PAGE> 36
(h) either of the Borrowers commences a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its Debts or other liabilities under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its Property or consents to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or makes a general assignment for the
benefit of creditors, or fails generally to, or admits in writing its
inability to, pay its Debts generally as they become due or takes any
corporate action to authorize or effect any of the foregoing; or
(i) any event or condition occurs which constitutes an Event of
Default under any of the other Loan Documents; or
(j) any event or condition occurs which constitutes a default or
event of default under any of the Shareholder Subordinated Debt
Documents; or
(k) any event or condition occurs which constitutes a default or
event of default under any of the Stratford Subordinated Debt Documents
and such default or event of default is not waived in writing by
Stratford prior to Lender's commencement of actions pursuant to Section
6.2 of this Agreement; or
(l) either of the Borrowers defaults in the payment of principal
of or interest on any other Debt beyond the period of grace, if any,
provided with respect thereto or in the performance or observance of
any other term, condition or agreement contained in any instrument or
agreement evidencing, securing or relating thereto if the effect of
such default is to cause such obligation to become due prior to its
stated maturity or to permit the holder or holders of such obligations
(or a trustee or agent on behalf of such holder or holders) to cause
such obligation to become due prior to its stated maturity, whether or
not such default or failure to perform should be waived by the holder
or holders of such obligation or such trustee; or
(m) one or more judgments for the payment of money in excess of
$100,000.00 in the aggregate are rendered against the Borrowers or
either one of them and such judgment or judgments remain unsatisfied,
undischarged or unstayed and in effect for a period in excess of
fifteen (15) days; or
(n) a notice is filed of record disclosing a Lien with respect to
all or any Property of either of the Borrowers by the United States, or
any department, agency or instrumentality thereof, or by any state,
county, municipal or other governmental agency, including, without
limitation, the Pension Benefit Guaranty Corporation, or if any taxes
or debts owing at any time hereafter to any one of these becomes a Lien
upon any Property of either of the Borrowers; or
CREDIT AGREEMENT PAGE -36-
<PAGE> 37
(o) Borrowers fail to (i) furnish Lender, within fifteen (15)
days after discovery thereof using reasonable diligence, written notice
of the occurrence of any of the following events: (aa) the happening of
a Reportable Event with respect to any Plan of either of the Borrowers,
(bb) the termination of any Plan, (cc) the appointment of a trustee by
an appropriate United States district court to administer any Plan, or
(dd) the institution of any proceedings by the Pension Benefit Guaranty
Corporation to terminate any Plan or to appoint a trustee to administer
any Plan; or (ii) notify Lender promptly upon receipt by either of the
Borrowers or any Subsidiary of any notice of the institution of any
proceeding or other action which may result in the termination of any
Plan; or
(p) this Agreement or any of the other Loan Documents for any
reason, other than any action taken or omitted to be taken by Lender,
cease to be in full force and effect or are declared null and void or
the validity or enforceability thereof is contested or challenged by
any party thereto (other than Lender), or any party (other than Lender)
denies that it has any further liability or obligation under any of the
Loan Documents, or any Lien or security interest created by the Loan
Documents for any reason, other than any action taken or omitted to be
taken by Lender, ceases to be a valid, first priority perfected
security interest in and lien upon any of the Collateral;
(q) any substantial impairment of value, loss, damage or
destruction (not covered by insurance) of the Collateral occurs; or
(r) the occurrence of any Change of Control, without the prior
written consent of Lender.
Section 6.2. Remedies Upon Default.
(a) Acceleration.
(i) Upon the occurrence of any Event of Default described in
Section 6.1 (f), (g), (h), or (i) of this Agreement, the
Commitments and all other lending obligations, if any, of Lender
under this Agreement shall immediately terminate, and the entire
aggregate principal amount of the Notes then outstanding together
with interest then accrued thereon and all other Indebtedness to
Lender shall become immediately due and payable, all without
demand, presentment, notice of dishonor, notice of acceleration,
notice of intent to accelerate, notice of intent to demand,
protest, or other notice of default of any kind, all or which are
hereby expressly waived by Borrowers.
(ii) Upon the occurrence and at any time during the
continuance of any other Event of Default specified in Section
6.1 of this Agreement, Lender may, by written notice to
Borrowers, (i) declare the entire aggregate principal amount of
the Notes then
CREDIT AGREEMENT PAGE -37-
<PAGE> 38
outstanding together with interest then accrued thereon and all
other Indebtedness to Lender to be immediately due and payable
without demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, notice of intent to
demand, protest, or other notice of default of any kind, all of
which are hereby expressly waived by Borrowers, and/or (ii)
terminate the Commitments and other lending obligations, if any,
of Lender under this Agreement unless and until Lender shall
reinstate the same in writing.
(b) Other Rights. In addition, upon the occurrence of any Event
of Default, Lender may, at its election, do any one or more of the
following:
(i) reduce any claim to judgment;
(ii) exercise the rights of offset and/or banker's lien and
apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at
any time owing by Lender to or for the credit or the account of
Borrowers against any and all of the Indebtedness of Borrowers,
irrespective of whether or not Lender shall have made any demand
under this Agreement or the Notes and although such Indebtedness
may be unmatured;
(iii) foreclose any and all Liens in favor of Lender and/or
otherwise realize upon any and all of the rights Lender may have
in and to any Collateral, or any part thereof; or
(iv) exercise any and all other rights afforded by any
applicable laws, or by the Loan Documents, at law or in equity,
or otherwise, including but not limited to, the rights to bring
suit or other proceedings before any court of competent
jurisdiction, either for specific performance of any covenant or
condition contained in the Loan Documents or in aid of the
exercise of any right granted to Lender in the Loan Documents,
all as Lender shall deem appropriate in its sole discretion.
Section 6.3. No Waiver or Exhaustion. No waiver by Lender of any of its
rights or remedies hereunder or in any of the other Loan Documents shall be
considered a waiver of any other or subsequent right or remedy of Lender; no
delay or omission in the exercise or enforcement by Lender of any rights or
remedies shall ever be construed as a waiver of any right or remedy of Lender;
and no exercise or enforcement of any such rights or remedies shall ever be held
to exhaust any right or remedy of Lender.
ARTICLE 7: CONDITIONS PRECEDENT
CREDIT AGREEMENT PAGE -38-
<PAGE> 39
Section 7.1. Conditions to Revolver Loans. The obligation of Lender to
make each Revolver Loan pursuant to Section 2.1 of this Agreement hereof shall
be subject to the following conditions:
(a) Representations and Warranties. Each and every representation
of each of the Borrowers and the Guarantor made in this Agreement and
the other Loan Documents shall be true and unbreached on and as of the
date on which each Revolver Loan is to be made with the same effect as
through such representations and warranties had been made on and as of
said date.
(b) Default. There shall exist no Default under this Agreement
and no event, condition or act which constitutes, or with notice or
lapse of time (or both) would constitute, a default or an event of
default under any indenture, mortgage, deed of trust, promissory note,
loan agreement or any other agreement or undertaking to which either of
the Borrowers or the Guarantor is a party or by which either of the
Borrowers or the Guarantor or any of their respective Properties may be
bound or subject.
(c) Material Adverse Effect. There shall have been, in the sole
opinion of Lender, no event, condition or circumstance which has, or
could reasonably be expected to have, a Material Adverse Effect on
either of the Borrowers or the Guarantor.
Section 7.2. Conditions to the Initial Loan. The obligation of Lender
to make the initial Revolver Loan pursuant to Section 2.1 hereof and to make the
Term Loan pursuant to Section 2.2 of this Agreement, in addition to being
subject to the conditions set forth in Section 7.1 of this Agreement in relation
to each Revolver Loan, shall be subject to the following:
(a) Notes. Lender shall have received the Notes, in form and
substance satisfactory to Lender, duly and validly issued, executed and
delivered by Borrowers.
(b) Security Instruments. The following instruments shall have
been duly and validly executed and delivered to Lender by the parties
thereto, in form and substance satisfactory to Lender, and in
sufficient executed counterparts for recording purposes when
applicable, as security for the Notes and other Indebtedness:
(i) One or more Security Agreements executed by each of the
Borrowers in favor of Lender granting Lender a valid, perfected
first priority security interest in the Accounts, Equipment,
General Intangibles, Inventory and all other personal property of
each of the Borrowers whether now owned or hereafter acquired and
wherever located and the proceeds and products from any and all
thereof;
CREDIT AGREEMENT PAGE -39-
<PAGE> 40
(ii) One or more UCC-1 Financing Statements reflecting each
of the Borrowers, as Debtor, and Lender, as Secured Party,
covering the Collateral; and
(iii) Such other agreements, documents, and certificates as
Lender may reasonably request.
(c) Guaranty Agreement. Lender shall have received the Guaranty
Agreement, in form and substance satisfactory to Lender, duly executed
by the Guarantor.
(d) Resolutions of Borrowers. Lender shall have received a
certified copy of resolutions of the Board of Directors of each of the
Borrowers, in form and substance satisfactory to Lender, with respect
to the authorization of this Agreement, the Notes and the other Loan
Documents to which each of the Borrowers is a party.
(e) Corporate Documents. Lender shall have received a copy,
certified as true by the Secretary or Assistant Secretary of each of
the Borrowers of the Articles or Certificate of Incorporation and the
Bylaws of each of the Borrowers.
(f) UCC Searches. Lender shall have received search certificates
from the Secretaries of State of the States of California, Florida and
Texas (and, upon request by Lender, such other Governmental Authorities
as may be repositories for UCC financing statements, chattel mortgages,
assignments or similar documents in any state, county or parish where
each of the Borrowers conducts its business or where any Collateral may
be located), setting forth all Uniform Commercial Code filings,
financing statements, chattel mortgages, assignments and other pledges
of personal property (including those in favor of Lender) and any and
all mechanics' or repairmen's liens and federal, state and county tax
filings against Borrowers and each Subsidiary, which certificates shall
be in form, scope and content satisfactory to Lender and accompanied by
copies of the filed financing statements, chattel mortgages and/or
assignments and shall confirm that the Collateral is free and clear of
all pledges, assignments, security interests and liens other than those
existing in favor of Lender.
(g) Assignment of Liens and UCC-3 Statements. Lender shall have
received assignments and UCC-3 Statements executed by such Persons as
Lender may deem necessary to insure Lender's first priority security
interest in and to the Collateral.
(h) Certificates of Existence and Good Standing. Lender shall
have received (i) Certificates of Existence issued by the Secretary of
State of the State of Texas with respect to each of the Borrowers, (ii)
Certificates of Good Standing issued by the Comptroller of Public
Accounts of the State of Texas with respect to each of the Borrowers,
and (iii) certificates of authority to transact business
CREDIT AGREEMENT PAGE -40-
<PAGE> 41
and good standing from the appropriate officials of the State of
Florida with respect to Ocala and of the State of California with
respect to Span.
(i) Lockbox Agreements. Lender shall have received the Lockbox
Agreements duly executed by Span and the lockbox accounts shall have
been established pursuant to the terms thereof.
(j) Controlled Operating Account. The Controlled Operating
Account shall have been established at Lender upon terms and conditions
acceptable to Lender.
(k) Merger Agreement. Lender shall have received the Merger
Agreement, in form and substance satisfactory to Lender, duly executed
and delivered by all of the parties thereto, and the Merger Agreement
shall be in full force and effect.
(l) Subordinated Debt Documents. Lender shall have received the
Subordinated Debt Documents, in form and substance satisfactory to
Lender, duly executed by all of the parties thereto, and the
Subordinated Debt Documents shall be in full force and effect.
(m) Funding of Subordinated Debt. The transaction contemplated by
the Subordinated Debt Documents shall have been consummated and the
Shareholder Subordinated Debt and the Stratford Subordinated Debt shall
have been funded to Span and Span shall have the exclusive use of the
proceeds thereof.
(n) Subordination Agreements. Lender shall have received the
Subordination Agreements, in form and substance satisfactory to Lender,
duly executed by Stratford, Borrowers, and the Shareholders, and the
Subordination Agreements shall be in full force and effect.
(o) Legal Opinion. Lender shall have received from Gardere &
Wynne, L.L.P., counsel for Borrowers, a favorable written opinion in
form and substance satisfactory to Lender.
(p) Counsel to Lender. All legal matters incident to the
transactions herein contemplated shall be satisfactory to legal counsel
to Lender.
(q) Recordings. The Security Instruments or other notices related
thereto if necessary or appropriate, shall have been duly delivered to
the appropriate officer for filing or recording, and Lender shall have
received confirmation of receipt thereof from the appropriate filing or
recording officer.
ARTICLE 8: MISCELLANEOUS
Section 8.1. Notices. All notices, requests and communications
hereunder shall be in writing or by telex or telegram confirmed in writing, and
(a) if to Borrowers shall
CREDIT AGREEMENT PAGE -41-
<PAGE> 42
be sufficient in all respects if delivered or sent by registered or certified
mail to Borrowers at the following address:
Span Instruments, Inc.
Ocala, Inc.
1947 Avenue K
Plano, Texas 75074
Attention: Brian Day
and (b) if to Lender shall be sufficient in all respects if delivered or sent by
registered or certified mail at the following address:
Comerica Bank - Texas
1601 Elm Street
Dallas, Texas 75201
Attention: Reed Allton
Any party may, by proper written notice hereunder to all other parties, change
the address to which written notice shall thereafter be sent to it.
Section 8.2. Deviation from Covenants. This Agreement may not be
amended without the written consent of Borrowers and Lender. The observance or
performance of any covenant, condition or obligation imposed on Borrowers
hereunder may not be waived without the written consent of Lender. The procedure
to be followed by Borrowers to obtain the consent of Lender to any deviation
from the covenants contained in this Agreement shall be as follows:
(a) Borrowers shall send a written notice to Lender setting forth
(i) the covenant(s) relevant to the matter, (ii) the requested
deviation from the covenant(s) involved, and (iii) the reason for the
requested deviation from the covenant(s); and
(b) Lender will, within a reasonable time after receiving the
request, send a written notice to Borrowers, signed by an authorized
officer of Lender, permitting or refusing the request.
Section 8.3. Invalidity. In the event any one or more of the provisions
contained in this Agreement or in any of the other Loan Documents shall, for any
reason, be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement or any of the other Loan Documents.
Section 8.4. Survival of Agreement. All representations and warranties
of Borrowers herein, and all covenants and agreements herein not fully performed
before the effective date of this Agreement, shall survive such date.
CREDIT AGREEMENT PAGE -42-
<PAGE> 43
Section 8.5. Successors and Assigns. All covenants and agreements
herein contained by or on behalf of Borrowers shall bind its legal
representatives, successors and assigns and shall inure to the benefit of Lender
and its successors and assigns.
Section 8.6. Renewal, Extension or Rearrangement. All provisions of
this Agreement relating to the Notes shall apply with equal force and effect to
each and all promissory notes hereinafter executed which in whole or in part
represent a renewal, extension or rearrangement of any part of the Indebtedness
originally represented by the Notes.
Section 8.7. Waivers. No course of dealing on the part of Lender, its
officers or employees, nor any failure or delay by Lender with respect to
exercising any right, power or privilege of Lender under this Agreement, or any
of the other Loan Documents shall operate as a waiver thereof. Rights and
remedies of Lender under this Agreement and the other Loan Documents shall be
cumulative and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
Section 8.8. Termination. This Agreement shall remain in effect until
full and complete payment of the Notes and all other Indebtedness.
Section 8.9. Waivers by Borrowers. Each of the Borrowers waives (i)
presentment, demand and protest and notice of presentment, notice of intent to
accelerate the maturity of the Indebtedness and notice of such acceleration,
protest, default, non-payment, maturity, release, compromise, settlement,
extension or renewal of any or all commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guaranties at any time held by Lender
on which either of the Borrowers may in any way be liable and hereby ratify and
confirm whatever Lender may do in this regard; (ii) all rights to notice of a
hearing prior to Lender's taking possession or control of, or to Lender's
replevy, attachment or levy upon, the Collateral or any bond or security which
might be required by any court prior to allowing Lender to exercise any of
Lender's remedies; and (iii) the benefit of all valuation, appraisement and
exemption laws. Borrowers acknowledge that they have been advised by counsel
with respect to this Agreement and the transactions evidenced by this Agreement.
Section 8.10. GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, AND
THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS EXECUTED, DELIVERED AND
PERFORMED WITHIN SUCH STATE. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY
RECEIVED, BORROWERS CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN TEXAS, WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO
IT AT THE ADDRESS STATED IN SECTION 8.1 OF THIS AGREEMENT AND SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. IN ADDITION,
BORROWERS HEREBY WAIVE TRIAL BY JURY AND WAIVE ANY OBJECTION
CREDIT AGREEMENT PAGE -43-
<PAGE> 44
TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH
LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
Section 8.11. Interest. It is the intent of Lender and Borrowers in the
execution of this Agreement and all other instruments now or hereafter
evidencing or securing the Indebtedness to contract in strict compliance with
applicable usury law. In furtherance thereof, Lender and Borrowers stipulate and
agree that none of the terms and provisions contained herein or in any other
Loan Documents shall ever be construed to create a contract to pay, for the use,
forbearance or detention of money, interest at a rate in excess of the Maximum
Rate. Neither Borrowers nor any co-makers, endorsers, sureties, guarantors or
other parties now or hereafter becoming liable for payment of any of the
Indebtedness shall ever be required to pay interest or finance charges at a rate
in excess of the Maximum Rate, and the provisions of this Section shall control
over all other provisions of the Loan Documents and any other instruments now or
hereafter executed in connection herewith which may be in apparent conflict
herewith. Lender and any other holder of any or all of the Indebtedness
expressly disavow any intention to charge or collect excessive unearned interest
or finance charges in the event the maturity of any of the Indebtedness is
accelerated. If demand is made or if the maturity of any Indebtedness shall be
accelerated for any reason or if the principal of any of the Indebtedness is
prepaid, and as a result thereof the interest or finance charge received for the
actual period of existence of the Indebtedness exceeds the Maximum Rate, the
holder of any or all of the Indebtedness shall, at its option, either refund to
Borrowers the amount of such excess or credit the amount of such excess against
the principal balance of the Indebtedness then outstanding, and thereby shall
render inapplicable any and all penalties of any kind provided by applicable law
as a result of such excess interest. In the event that Lender or any other
holder of any or all of the Indebtedness shall collect monies and/or any other
thing of value which are deemed to constitute interest which would increase the
effective interest rate on the Indebtedness to a rate in excess of the Maximum
Rate, all such sums deemed to constitute interest in excess of the Maximum Rate
shall, upon such determination, at the option of the holder of the Indebtedness,
be either immediately returned to Borrowers or credited against the principal
balance of the Indebtedness, then outstanding, in which event any and all
penalties of any kind under applicable law as a result of such excess interest
shall be inapplicable. In determining whether or not the interest paid or
payable, under any specific circumstance, exceeds the Maximum Rate, Lender and
Borrowers shall to the greatest extent permitted by applicable law, (a)
characterize any non-principal payment as an expense, fee or premium rather than
as interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
amortize, prorate, allocate and spread the total amount of interest throughout
the entire contemplated term hereof in accordance with the amounts outstanding
from time to time thereunder and the Maximum Rate from time to time in effect
under applicable law in order to lawfully charge the maximum amount of interest
permitted under applicable law. By execution of this Agreement, Borrowers
acknowledge that they believe the Indebtedness to be non-usurious and agrees
that if, at any time, Borrowers should have reason to believe that this
Agreement, the Notes or any of the other Loan Documents is in fact usurious,
they will give the holder of the Indebtedness notice of such condition and
Borrowers agree that said holder shall have
CREDIT AGREEMENT PAGE -44-
<PAGE> 45
ninety (90) days in which to make appropriate refund or other adjustment in
order to correct such condition if in fact such exists. The term "applicable
law" as used in this Agreement shall mean the laws of the State of Texas or the
laws of the United States, whichever laws allow the greater rate of interest, as
such laws now exist or may be changed or amended or come into effect in the
future.
Section 8.12. Disclosures. Every reference in this Agreement to
disclosures of Borrowers to Lender in writing (except the Financial Statements),
to the extent that such references refer or are intended to refer to disclosures
at or prior to the execution of this Agreement, shall be deemed strictly to
refer only to written disclosures delivered to Lender concurrently with the
execution of this Agreement. It is the intention of the parties that such
disclosures are to be limited to those presented in an orderly manner at the
time of entering into this Agreement and are not deemed to include expressly or
implied any disclosures which may previously have been delivered from time to
time to Lender, except to the extent that such previous disclosures are again
presented to Lender concurrently with the execution of this Agreement.
Section 8.13. No Oral Agreements. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS CONSTITUTE A WRITTEN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO
THE LOANS.
WITNESS THE EXECUTION HEREOF, as of the date first above written.
BORROWERS:
SPAN INSTRUMENTS, INC.
By: /s/ BRIAN R. DAY
-----------------------------
Name: Brian R. Day
---------------------------
Title: Chief Financial Officer
--------------------------
CREDIT AGREEMENT PAGE -45-
<PAGE> 46
OCALA, INC.
By: /s/ BRIAN R. DAY
-----------------------------
Name: Brian R. Day
---------------------------
Title: Vice President
--------------------------
LENDER:
COMERICA BANK - TEXAS
By: /s/ W. REED ALLTON
-----------------------------
Name: W. Reed Allton
---------------------------
Title: Vice President
--------------------------
CREDIT AGREEMENT PAGE -46-
<PAGE> 47
REVOLVER NOTE
$12,000,000.00 Dallas, Texas March 14, 1996
For value received, the undersigned (hereinafter collectively called
"Makers") jointly and severally promise to pay as hereinafter provided unto the
order of COMERICA BANK - TEXAS (hereinafter called "Lender") at its offices at
1601 Elm Street, Dallas, Texas 75201 or such other location as Lender may
hereafter designate in writing, in lawful money of the United States of America
the sum of TWELVE MILLION AND NO/100 DOLLARS ($12,000,000.00) or so much thereof
as may be advanced and outstanding, together with interest on the principal from
time to time outstanding from the date of advancement until maturity or default
at the lower of (a) a variable rate per annum (the "Applicable Rate") at all
times equal to the sum of the Prime Rate plus one and one-half percent (1.5%),
with adjustments in the Applicable Rate to be made on the same date as any
change in the Prime Rate or (b) the Maximum Rate. Adjustment due to changes in
the Maximum Rate will be made on the effective date of any change in the Maximum
Rate.
If at any time during the term of this note the Applicable Rate exceeds
the Maximum Rate, the rate of interest to accrue on this note shall be limited
to the Maximum Rate, but if thereafter the Applicable Rate is less than the
Maximum Rate, at the option of Lender, the rate of interest to accrue on this
note shall be the Maximum Rate until the total amount of interest accrued on
this note equals the amount of interest which would have accrued if the
Applicable Rate had at all times been in effect.
The principal of this note is due and payable on January 1, 1998.
Accrued interest hereunder is due and payable in monthly installments as it
accrues commencing April 1, 1996 and on the first (1st) day of each and every
succeeding calendar month thereafter until January 1, 1998, on which date the
unpaid principal and all accrued unpaid interest thereon shall be due and
payable in full.
The unpaid principal balance hereof shall at no time exceed the amount
of Twelve Million and No/100 Dollars ($12,000,000.00). The unpaid principal
balance of this note at any time shall be the total amounts loaned or advanced
hereunder by the holder hereof, less the amount of payments or prepayments of
principal made hereon by or for the account of Makers. It is contemplated that
by reason of prepayments hereon there may be times when no indebtedness is owing
hereunder; but notwithstanding such occurrences, this note shall remain valid
and shall be in full force and effect as to loans or advances made pursuant to
and under the terms of this note subsequent to each such occurrence. In the
event that the unpaid principal amount hereof at any time, for any reason,
exceeds the maximum amount hereinabove specified, Makers covenant and agree
REVOLVER NOTE PAGE 1 OF 4
<PAGE> 48
to pay the excess principal amount forthwith upon demand; such excess principal
amount shall in all respects be deemed to be included among the loans or
advances made pursuant to the other terms of this note and shall bear interest
at the rates hereinabove stated.
Makers hereby authorize Lender to record in Lender's internal records
the amount of all Revolver Loans made to Makers by Lender and all payments of
principal in respect of such Loans, which recordings shall, in absence of
manifest error, be conclusive as to the outstanding amount of all Revolver
Loans; provided, however, that the failure to make such recordings with respect
to such advances, payments or other appropriate debits or credit shall not limit
or otherwise affect the obligations of Makers under the Credit Agreement
(hereinafter defined) or this note.
If this note is not paid at maturity whether by acceleration or
otherwise and is placed in the hands of an attorney for collection, or suit is
filed hereon, or proceedings are had in probate, bankruptcy, receivership,
reorganization, arrangement or other legal proceedings for collection hereof,
Makers and each other liable party agree to pay Lender its collection costs,
including a reasonable amount for attorney's fees, but in no event to exceed the
maximum amount permitted by law. Makers and each other liable party are and
shall be directly and primarily, jointly and severally, liable for the payment
of all sums called for hereunder, and Makers and each other liable party, hereby
expressly waive demand, presentment for payment, protest, notice of protest,
notice of intent to accelerate, notice of acceleration, diligence in collecting
and the bringing of any suit against any party, and Makers and each other liable
party hereby consent to and agree to remain liable hereon regardless of any
renewals, extensions for any period or rearrangements hereof, or partial
prepayments hereon, or any release or substitution of security herefor, in whole
or in part, with or without notice, from time to time, before or after maturity.
It is the intent of Lender and Makers in the execution of this note and
all other instruments now or hereafter evidencing or securing the indebtedness
evidenced hereby to contract in strict compliance with applicable usury law. In
furtherance thereof, Lender and Makers stipulate and agree that none of the
terms and provisions contained herein or in any other instrument executed in
connection herewith shall ever be construed to create a contract to pay, for the
use, forbearance or detention of money, interest at a rate in excess of the
maximum interest rate permitted to be charged by applicable law. Neither Makers
nor any co-makers, endorsers, sureties, guarantors or other parties now or
hereafter becoming liable for payment of this note shall ever be required to pay
interest or finance charges at a rate in excess of the maximum interest rate
that may be lawfully charged by applicable law, and the provisions of this
paragraph shall control over all other provisions of this note and any other
instruments now or hereafter executed in connection herewith which may be in
apparent conflict herewith. Lender and any other holder of this note expressly
disavow any intention to charge or collect excessive unearned interest or
finance charges in the event the maturity of this note is accelerated. If demand
is made or if the maturity of this note shall be accelerated for any reason or
if any of the principal of this note is prepaid, and as a result thereof the
interest or finance charge received for the actual period of existence of the
loan evidenced by this
REVOLVER NOTE PAGE 2 OF 4
<PAGE> 49
note exceeds the applicable maximum lawful rate, the holder of this note shall,
at its option, either refund to Makers the amount of such excess or credit the
amount of such excess against the principal balance of this note then
outstanding, and thereby shall render inapplicable any and all penalties of any
kind provided by applicable law as a result of such excess interest. In the
event that Lender or any other holder of this note shall collect monies and/or
any other thing of value which are deemed to constitute interest which would
increase the effective interest rate on this note to a rate in excess of that
permitted to be charged by applicable law, all such sums deemed to constitute
interest in excess of the lawful rate shall, upon such determination, at the
option of the holder of this note, be either immediately returned to Makers or
credited against the principal balance of this note then outstanding, in which
event any and all penalties of any kind under applicable law as a result of such
excess interest shall be inapplicable. In determining whether or not the
interest paid or payable, under any specific circumstance, exceeds the maximum
amount permitted under applicable law, Lender and Makers shall to the greatest
extent permitted by applicable law, (i) characterize any non- principal payment
as an expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) amortize, prorate, allocate and
spread the total amount of interest throughout the entire contemplated term
hereof in accordance with the amounts outstanding from time to time thereunder
and the maximum legal rate of interest from time to time in effect under
applicable law in order to lawfully charge the maximum amount of interest
permitted under applicable law. By execution of this note, Makers acknowledge
that they believe the loan evidenced hereby to be non- usurious and agrees that
if, at any time, Makers should have reason to believe that this note is in fact
usurious, they will give the holder of this note notice of such condition and
Makers agree that said holder shall have ninety (90) days in which to make
appropriate refund or other adjustment in order to correct such condition if in
fact such exists. The term "applicable law" as used in this note shall mean the
laws of the State of Texas or the laws of the United States, whichever laws
allow the greater rate of interest, as such laws now exist or may be changed or
amended or come into effect in the future.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO
TRANSACTIONS WITHIN SUCH STATE. MAKERS EXPRESSLY AGREE THAT THIS NOTE SHALL NOT
BE SUBJECT TO CHAPTER 4 OR CHAPTER 15 OF THE TEXAS CREDIT CODE. MAKERS HEREBY
IRREVOCABLY SUBMIT THEMSELVES TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS SITTING IN THE STATE OF TEXAS AND TO THE VENUE OF DALLAS COUNTY
AND CONSENT AND AGREE THAT SERVICE OF PROCESS MAY BE MADE UPON THEM IN ANY LEGAL
PROCEEDING RELATING TO THIS NOTE BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL
LAW.
If this note bears interest at a variable rate, unless changed in
accordance with law, the applicable method of calculating the usury ceiling rate
under Texas law shall be in the indicated (weekly) ceiling rate from time to
time in effect, as provided in Tex. Rev. Civ. Stat. Ann. art. 5069-1.04, as
amended.
REVOLVER NOTE PAGE 3 OF 4
<PAGE> 50
This note is issued pursuant to and is entitled to the benefits of that
certain Credit Agreement dated of even date herewith by and among Makers and
Lender (such agreement as the same may be amended from time to time is herein
called the "Credit Agreement") and evidences Revolver Loans made by Lender
thereunder. Reference is hereby made to the Credit Agreement for certain
provisions relating to the acceleration of the maturity hereof upon the
occurrence of certain events specified therein and for all other pertinent
purposes. All defined terms used but not defined herein shall have the meanings
respectively assigned to them in the Credit Agreement.
Payment of this note is secured by the Collateral as described in the
Credit Agreement and is unconditionally guaranteed by Donald Whitson.
MAKERS:
SPAN INSTRUMENTS, INC.
By: /s/ Brian R. Day
--------------------------
Name: Brian R. Day
------------------------
Title: Chief Financial Officer
-----------------------
OCALA, INC.
By: /s/ Brian R. Day
--------------------------
Name: Brian R. Day
------------------------
Title: Vice President
-----------------------
REVOLVER NOTE PAGE 4 OF 4
<PAGE> 51
TERM NOTE
$2,000,000.00 Dallas, Texas March 14, 1996
For value received, the undersigned (hereinafter collectively called
"Makers") jointly and severally promise to pay as hereinafter provided unto the
order of COMERICA BANK - TEXAS (hereinafter called "Lender") at its offices at
1601 Elm Street, Dallas, Texas 75201, or such other location as Lender may
hereafter designate in writing, in lawful money of the United States of America
the sum of TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) together with interest
on the principal from time to time outstanding from the date of advancement
until maturity or default at the lower of (a) a variable rate per annum (the
"Applicable Rate") at all times equal to the sum of the Prime Rate plus one and
one-half percent (1.5%), with adjustments in the Applicable Rate to be made on
the same day as any change in the Prime Rate or (b) the Maximum Rate. Adjustment
due to changes in the Maximum Rate will be made on the effective date of any
change in the Maximum Rate.
If at any time during the term of this note the Applicable Rate exceeds
the Maximum Rate, the rate of interest to accrue on this note shall be limited
to the Maximum Rate, but if thereafter the Applicable Rate is less than the
Maximum Rate, at the option of Lender, the rate of interest to accrue on this
note shall be the Maximum Rate until the total amount of interest accrued on
this note equals the amount of interest which would have accrued if the
Applicable Rate had at all times been in effect.
This note is and shall be due and payable in forty-eight (48) monthly
installments. The first forty-seven (47) installments are and shall be in the
amount of $41,667.00 plus accrued interest, each and the forty-eighth (48th) and
final installment is and shall be in amount equal to the balance of principal
and accrued interest then owing hereon. The first (1st) installment is and shall
be due and payable on April 1, 1996, and the remaining installments are and
shall be due and payable in consecutive order on the first (1st) day of each and
every consecutive calendar month thereafter, with the final installment being
due and payable on March 1, 2000.
If this note is not paid at maturity whether by acceleration or
otherwise and is placed in the hands of an attorney for collection, or suit is
filed hereon, or proceedings are had in probate, bankruptcy, receivership,
reorganization, arrangement or other legal proceedings for collection hereof,
Makers and each other liable party agree to pay Lender its collection costs,
including a reasonable amount for attorney's fees, but in no event to exceed the
maximum amount permitted by law. Makers and each other liable party are and
shall be directly and primarily, jointly and severally, liable for the payment
of all sums called for hereunder, and Makers and each other liable party, hereby
expressly waive demand, presentment for payment, protest, notice of protest,
notice of
TERM NOTE PAGE 1 OF 4
<PAGE> 52
intent to accelerate, notice of acceleration, diligence in collecting and the
bringing of any suit against any party, and Makers and each other liable party
hereby consent to and agree to remain liable hereon regardless of any renewals,
extensions for any period or rearrangements hereof, or partial prepayments
hereon, or any release or substitution of security herefor, in whole or in part,
with or without notice, from time to time, before or after maturity.
It is the intent of Lender and Makers in the execution of this note and
all other instruments now or hereafter evidencing or securing the indebtedness
evidenced hereby to contract in strict compliance with applicable usury law. In
furtherance thereof, Lender and Makers stipulate and agree that none of the
terms and provisions contained herein or in any other instrument executed in
connection herewith shall ever by construed to create a contract to pay, for the
use, forbearance or detention of money, interest at a rate in excess of the
maximum interest rate permitted to be charged by applicable law. Neither Makers
nor any co-makers, endorsers, sureties, guarantors or other parties now or
hereafter becoming liable for payment of this note shall ever be required to pay
interest or finance charges at a rate in excess of the maximum interest rate
that may be lawfully charged by applicable law, and the provisions of this
paragraph shall control over all other provisions of this note and any other
instruments now or hereafter executed in connection herewith which may be in
apparent conflict herewith. Lender and any other holder of this note expressly
disavow any intention to charge or collect excessive unearned interest or
finance charges in the event the maturity of this note is accelerated. If demand
is made or if the maturity of this note shall be accelerated for any reason or
if any of the principal of this note is prepaid, and as a result thereof the
interest or finance charge received for the actual period of existence of the
loan evidenced by this note exceeds the applicable maximum lawful rate, the
holder of this note shall, at its option, either refund to Makers the amount of
such excess or credit the amount of such excess against the principal balance of
this note then outstanding, and thereby shall render inapplicable any and all
penalties of any kind provided by applicable law as a result of such excess
interest. In the event that Lender or any other holder of this note shall
collect monies and/or any other thing of value which are deemed to constitute
interest which would increase the effective interest rate on this note to a rate
in excess of that permitted to be charged by applicable law, all such sums
deemed to constitute interest in excess of the lawful rate shall, upon such
determination, at the option of the holder of this note, be either immediately
returned to Makers or credited against the principal balance of this note then
outstanding, in which event any and all penalties of any kind under applicable
law as a result of such excess interest shall be inapplicable. In determining
whether or not the interest paid or payable, under any specific circumstance,
exceeds the maximum amount permitted under applicable law, Lender and Makers
shall to the greatest extent permitted by applicable law, (i) characterize any
non- principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate and spread the total amount of interest throughout the entire
contemplated term hereof in accordance with the amounts outstanding from time to
time thereunder and the maximum legal rate of interest from time to time in
effect under applicable law in order to lawfully charge the maximum amount of
interest permitted under applicable law. By execution of this note, Makers
acknowledge that they believe the loan evidenced hereby to be non-
TERM NOTE PAGE 2 OF 4
<PAGE> 53
usurious and agree that if, at any time, Makers should have reason to believe
that this note is in fact usurious, they will give the holder of this note
notice of such condition and Makers agree that said holder shall have ninety
(90) days in which to make appropriate refund or other adjustment in order to
correct such condition if in fact such exists. The term "applicable law" as used
in this note shall mean the laws of the State of Texas or the laws of the United
States, whichever laws allow the greater rate of interest, as such laws now
exist or may be changed or amended or come into effect in the future.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO
TRANSACTIONS WITHIN SUCH STATE. MAKERS EXPRESSLY AGREE THAT THIS NOTE SHALL NOT
BE SUBJECT TO CHAPTER 4 OR CHAPTER 15 OF THE TEXAS CREDIT CODE. MAKERS HEREBY
IRREVOCABLY SUBMIT THEMSELVES TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS SITTING IN THE STATE OF TEXAS AND TO THE VENUE OF DALLAS COUNTY
AND CONSENT AND AGREE THAT SERVICE OF PROCESS MAY BE MADE UPON THEM IN ANY LEGAL
PROCEEDING RELATING TO THIS NOTE BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL
LAW.
If this note bears interest at a variable rate, unless changed in
accordance with law, the applicable method of calculating the usury ceiling rate
under Texas law shall be in the indicated (weekly) ceiling rate from time to
time in effect, as provided in Tex. Rev. Civ. Stat. Ann. art. 5069-1.04, as
amended.
This note is issued pursuant to and is entitled to the benefits of that
certain Credit Agreement dated of even date herewith by and among Makers and
Lender (such agreement as the same may be amended from time to time is herein
called the "Credit Agreement") and evidences the Term Loan made by Lender
thereunder. Reference is hereby made to the Credit Agreement for certain
provisions relating to the acceleration of the maturity hereof upon the
occurrence of certain events specified therein and for all other pertinent
purposes. All defined terms used but not defined herein shall have the meanings
respectively assigned to them in the Credit Agreement.
Payment of this note is secured by the Collateral as described in the
Credit Agreement and is unconditionally guaranteed by Donald Whitson.
MAKERS:
SPAN INSTRUMENTS, INC.
By: /s/ Brian R. Day
--------------------------
Name: Brian R. Day
------------------------
Title: Chief Financial Officer
-----------------------
TERM NOTE PAGE 3 OF 4
<PAGE> 54
OCALA, INC.
By: /s/ Brian R. Day
--------------------------
Name: Brian R. Day
------------------------
Title: Vice President
-----------------------
TERM NOTE PAGE 4 OF 4
<PAGE> 1
NOTE PURCHASE AGREEMENT EXHIBIT 10.21
This Note Purchase Agreement (this "Agreement"), dated as of March 14,
1996, is by and between SPAN INSTRUMENTS, INC., a Texas corporation (the
"Company"), and STRATFORD CAPITAL PARTNERS, L.P., a Texas limited partnership
(the "Purchaser"). Capitalized terms used in this Agreement are defined in
Section 11.1.
To induce Purchaser to purchase the Senior Subordinated Note from the
Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows.
I. DESCRIPTION OF SENIOR SUBORDINATED NOTE AND COMMITMENT
1.1 Description of Senior Subordinated Note. The Company will authorize
the issuance and sale of its Senior Subordinated Note which shall be dated as of
the Closing Date, shall be in the aggregate original principal amount of
$5,000,000 and shall bear interest at the fixed rate of 12.5% per annum;
provided, however, that upon the occurrence of any Event of Default, and during
the continuation thereof, the unpaid principal amount of the Senior Subordinated
Note shall bear interest at the rate of 15.5% per annum. Interest on the Senior
Subordinated Note shall be computed on the basis of the actual number of days
elapsed over a three hundred-sixty (360) day year. The Senior Subordinated Note
shall be substantially in the form attached hereto as Exhibit A.
1.2 Commitment; Funding of the Senior Subordinated Note. Subject to the
terms and conditions hereof and on the basis of the representations and
warranties hereinafter set forth, the Company agrees to issue and sell to
Purchaser and Purchaser agrees to purchase from the Company, the Senior
Subordinated Note in the principal amount of $5,000,000 at a price of one
hundred percent (100%) of such principal amount. The Senior Subordinated Note
will be delivered to Purchaser in fully registered form, and shall be issued in
its name or the name of its nominee. Simultaneously with purchase of the Senior
Subordinated Note, pursuant to the Senior Loan Agreement, the Senior Lender will
provide the Company with a revolving loan facility in an amount not to exceed
$12,000,000 and a term loan facility in an amount not to exceed $2,000,000. The
Company expects that a total of approximately $6,500,000 will be advanced by the
Senior Lender to the Company on the Closing Date.
1.3 Processing Fee. The Company shall pay to Purchaser a processing fee
in the amount of $100,000 (less $25,000 paid to Purchaser by the Company prior
to the Closing Date in consideration of the issuance of the commitment letter by
Purchaser which amount has been fully earned and is non-refundable), in
immediately available funds, on the Closing Date, which shall be deemed fully
earned and nonrefundable on the Closing Date. Purchaser may, at its option,
deduct the net amount (i.e., $75,000) of the processing fee from the purchase
price of the Senior Subordinated Note.
1
<PAGE> 2
1.4 Use of Proceeds. The proceeds from the sale of the Senior
Subordinated Note shall be used solely to (a) provide working capital for the
Company and (b) finance Capital Expenditures (subject to the limitations set
forth in Section 7.9 hereof).
II. PAYMENT AND PREPAYMENT OF SENIOR SUBORDINATED OBLIGATIONS
2.1 Principal and Interest Payments. Principal and interest on the
Senior Subordinated Note shall be due and payable as follows:
(a) Except as otherwise provided pursuant to the terms of Section
2.3 hereof, the entire principal amount of the Senior Subordinated Note
shall be due and payable in full on the Termination Date.
(b) Interest shall be due and payable (i) quarterly in arrears on
the last Business Day of each fiscal quarter of the Company, commencing
May 31, 1996, and (ii) on the Termination Date.
2.2 Optional Prepayments.
(a) Unless otherwise provided in this Section 2.2(a), at the
Company's option, upon notice given as provided below, the Company may,
at any time and from time to time, prepay all or any part of the
principal of the Senior Subordinated Note, by payment to Purchaser of
an amount equal to (i) the principal amount to be prepaid, plus (ii)
accrued unpaid interest on the principal amount so prepaid, plus (iii)
any expenses for which Purchaser may be entitled to receive payment or
reimbursement hereunder or, if the Senior Subordinated Note is being
prepaid in full, the aggregate amount of all other Senior Subordinated
Obligations, plus (iv) a premium equal to the percentage of the
principal amount so prepaid which is applicable in accordance with the
following table based on the date on which such prepayment is made (a
"Prepayment Fee"):
<TABLE>
<CAPTION>
Prepayment Date Premium
--------------- -------
<S> <C>
Closing Date through March 14, 1998 3%
March 15, 1998 through March 14, 1999 2%
March 15, 1999 and thereafter 0%
</TABLE>
Notwithstanding this Section 2.2(a), prepayment of all or any part of
the principal amount of the Senior Subordinated Note by the Company
shall not be permitted prior to March 14, 1997, unless such prepayment
is made upon consummation of the Merger, and then only if the Company
prepays the Senior Subordinated Note in full, together with the
Prepayment Fee required pursuant to this Section 2.2(a).
(b) Each partial prepayment under this Section 2.2 shall be in a
principal amount of not less than $1,000,000 or, if greater than
$1,000,000, then in integral
2
<PAGE> 3
multiples of $100,000. Each prepayment under this Section 2.2 shall be
applied first to accrued interest on the principal amount prepaid,
second to any applicable Prepayment Fee, third to installments of
principal, and fourth to any expenses to which Purchaser may be
entitled. The amount of any such prepayment may not be reborrowed by
the Company. The Company shall give notice of any optional prepayment
to Purchaser not less than thirty (30) days nor more than sixty (60)
days before the date for prepayment, specifying in each such notice the
date upon which prepayment is to be made and the principal amount
(together with accrued interest and any applicable Prepayment Fee) to
be prepaid on such date. Notice of prepayment having been so given, the
applicable prepayment amount shall become due and payable on the
specified prepayment date, unless such notice is withdrawn by the
Company in writing within five (5) days of giving such notice. The
Company shall have no right to prepay the Senior Subordinated Note
except as provided in this Section 2.2 or in Section 2.3.
2.3 Mandatory Prepayments. Any prepayment under this Section 2.3 shall
be applied first to accrued interest, second to any applicable Prepayment Fee
(as determined in accordance with the table set forth in Section 2.2(a)), third
to installments of principal and fourth to any expenses and/or damages for which
Purchaser may be entitled. The amount of any such mandatory prepayment may not
be reborrowed by the Company. The amount of any prepayment required under this
Section 2.3 shall be reduced by the amount of any prepayment required under the
Senior Loan Agreement resulting from the same event triggering the prepayment
requirement contained in this Section 2.3. The Company shall make mandatory
prepayments in each of the following circumstances:
(a) In the event of any Public Offering by the Company or any of
its Subsidiaries of any of the Company's or any of its Subsidiaries'
debt or equity securities in which the net proceeds of such Public
Offering are equal to or in excess of $15,000,000, the Company shall
prepay the Senior Subordinated Obligations in an amount equal to the
aggregate amount of all Senior Subordinated Obligations (including any
applicable Prepayment Fee), such prepayment to be made within five (5)
Business Days of receipt by the Company of such net proceeds.
(b) If during any fiscal year the Company shall sell or otherwise
dispose of (other than sales of inventory in the ordinary course of
business and other than as permitted by Section 6.8 or Section 7.3) all
or any material portion of the assets of the Company or any Subsidiary
in a single transaction or series of transactions, then the Company
shall prepay the Senior Subordinated Obligations in an amount equal to
the lesser of (i) the aggregate net cash proceeds received by the
Company from such sales or other dispositions (after (A) payment of
legal fees, accounting fees, taxes or other amounts payable by the
Company with respect thereto and (B) any mandatory payments and
prepayments in permanent reduction of the Senior Debt required under
the Senior Loan Agreement made with respect thereto) or (ii) the
aggregate amount of all Senior Subordinated Obligations (including any
applicable Prepayment Fee), such prepayment to be made within five (5)
Business Days of any such sale.
3
<PAGE> 4
(c) In the event of any sale or other disposition of more than
fifty percent (50%) of the outstanding voting stock of the Company or
any Subsidiary in a single transaction or series of transactions, the
Company shall prepay the Senior Subordinated Note in an amount equal to
the aggregate amount of all Senior Subordinated Obligations (including
any applicable Prepayment Fee), such prepayment to be made within five
(5) Business Days of any such sale.
(d) In the event of any merger or consolidation involving the
Company or any of its Subsidiaries in which the Company does not retain
ownership or management control, the Company shall prepay the Senior
Subordinated Note in an amount equal to the aggregate amount of all
Senior Subordinated Obligations, such prepayment to be made within five
(5) Business Days of the date of such merger or consolidation.
2.4 Additional Payments. Unless otherwise provided herein or in the
Other Agreements, all Senior Subordinated Obligations, other than principal and
interest on the Senior Subordinated Note, shall be payable by the Company to the
Holder thereof, on demand, and shall bear interest from the date of demand until
paid at the rate of interest then applicable to the principal amount of the
Senior Subordinated Note under Section 1.1. Payment of fees and expenses due and
payable on the Closing Date to Purchaser and Purchaser's legal counsel shall be
paid in full on the Closing Date.
2.5 Liquidated Damages. Any Prepayment Fee payable pursuant to Section
2.2 or Section 2.3 shall be payable as liquidated damages for loss of the
opportunity to recover loan origination expenses and profits over the balance of
the term of this Agreement and not as a penalty.
2.6 Direct Payment. The Company will pay all sums becoming due
hereunder and on the Senior Subordinated Note to Purchaser at the address
specified for Purchaser on Annex I hereto, by wire transfer in U.S. Dollars of
Federal Reserve Funds or other immediately available funds, to the account
specified for Purchaser on Annex I, or at such other address or in such other
form as Purchaser shall have designated by notice to the Company at least five
Business Days prior to the date of any such payment, in each case without
presentment and without notations being made thereon. All payments by the
Company shall be made without set-off or counterclaim. Any wire transfer shall
identify such payment as "Span Instruments, Inc., 12.5% Senior Subordinated
Note" and shall identify the payment as principal, premium, interest and/or
reimbursement of costs and expenses, together with the applicable date or period
to which it relates.
2.7 Payments Payable on Business Days. Payments of all amounts due
hereunder or under the Senior Subordinated Note shall be made on a Business Day.
Any payment due on a day that is not a Business Day shall be made on the next
Business Day, together with all interest (if any) accrued in the interim.
2.8 Interest Laws. Notwithstanding any provision to the contrary
contained in this Agreement or any Other Agreement, the Company shall not be
required to pay, and Purchaser
4
<PAGE> 5
shall not be permitted to contract for, take, reserve, charge or receive, any
compensation which constitutes interest under applicable law in excess of the
maximum amount of interest permitted by law ("Excess Interest"). If any Excess
Interest is provided for or determined by a court of competent jurisdiction to
have been provided for in this Agreement or in any Other Agreement or otherwise
contracted for, taken, reserved, charged or received, then in such event: (a)
the provisions of this Section 2.8 shall govern and control; (b) the Company
shall not be obligated to pay any Excess Interest; (c) any Excess Interest that
Purchaser may have contracted for, taken, reserved, charged or received
hereunder shall be, at Purchaser's option, (i) applied as a credit against the
outstanding principal balance of the Senior Subordinated Obligations or accrued
and unpaid interest (not to exceed the maximum amount permitted by law), (ii)
refunded to the payor thereof, or (iii) any combination of the foregoing; (d)
the interest provided for shall be automatically reduced to the maximum lawful
rate allowed from time to time under applicable law (the "Maximum Rate"), and
this Agreement and the Other Agreements shall be deemed to have been, and shall
be, reformed and modified to reflect such reduction; and (e) the Company shall
have no action against Purchaser for any damages arising due to any Excess
Interest. Notwithstanding the foregoing, if for any period of time interest on
any Senior Subordinated Obligations is calculated at the Maximum Rate rather
than the applicable rate under this Agreement, and thereafter such applicable
rate becomes less than the Maximum Rate, the rate of interest payable on such
Senior Subordinated Obligations shall remain at the Maximum Rate until Purchaser
shall have received the amount of interest which Purchaser would have received
during such period on such Senior Subordinated Obligations had the rate of
interest not been limited to the Maximum Rate during such period. All sums paid
or agreed to be paid hereunder or under the Other Agreements for the use,
forbearance or detention of sums due shall, to the extent permitted by
applicable law, be amortized, pro-rated, allocated and spread throughout the
full term of the Senior Subordinated Obligations until payment in full so that
the rate or amounts of interest on account of the Senior Subordinated
Obligations does not exceed the Maximum Rate. The terms of this Section 2.8
shall be deemed incorporated into each Other Agreement and any other document or
instrument between the Company and Purchaser or directed to the Company by
Purchaser, whether or not specific reference to this Section 2.8 is made.
III. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company as follows:
3.1 Existence. It is a limited partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization.
3.2 Authority. It has the right and power and authority to enter into,
execute, deliver and perform its obligations under this Agreement, and its
partners, officers or agents executing and delivering this Agreement are duly
authorized to do so. This Agreement has been duly and validly executed and
delivered and constitutes the legal, valid and binding obligation of Purchaser,
enforceable in accordance with its terms.
3.3 Investor Status. It (i) is an "accredited investor," as that term
is defined in Regulation D under the Securities Act of 1933, as amended, and
(ii) has such knowledge, skill,
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sophistication and experience in business and financial matters, based on actual
participation, that it is capable of evaluating the merits and risks of the
purchase of the Senior Subordinated Note from the Company and the suitability
thereof for Purchaser.
3.4 Investment for own Account. Except as otherwise contemplated by
this Agreement, it is acquiring the Senior Subordinated Note for investment for
its own account and not with a view to any distribution thereof in violation of
applicable securities laws.
3.5 Legend on Note. It agrees that the Senior Subordinated Note will
bear the appropriate legends referencing restrictions on transfer and will not
be offered, sold or transferred in the absence of registration or exemption
under applicable securities laws.
3.6 Specific Investment. It was not formed for the specific purpose of
acquiring the Senior Subordinated Note or any other security of the Company.
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce Purchaser to enter into this Agreement, the Company
represents and warrants to Purchaser that the following statements are true,
correct and complete:
4.1. Corporate Existence and Authority. The Company (a) is a
corporation duly organized, validly existing, and in good standing under the
laws of Texas, (b) has all requisite corporate power and authority to own its
assets and carry on its business as now conducted; and (c) is qualified to do
business in all jurisdictions in which the nature of its business makes such
qualification necessary and where failure to so qualify would have a Material
Adverse Effect. The Company has the corporate power and authority to execute,
deliver, and perform its obligations under this Agreement, the Senior Loan
Documents, and all Other Agreements to which it is, or in connection with the
transactions contemplated hereby, may become, a party.
4.2 Financial Statements. The Company has delivered to Purchaser (a)
audited financial statements of the Company as at and for the fiscal year ended
August 31, 1995, (b) unaudited financial statements of the Company for the five
month period ended January 31, 1996, and (c) cash flow projections and analyses
of the Company for the five-year period following the Closing Date together with
a written statement of the assumptions underlying them. The financial statements
referred to in clause (a) of this Section 4.2 are true and correct in all
material respects, have been prepared in accordance with GAAP (except as
otherwise noted therein), and fairly present both the financial condition of the
Company as of the respective dates indicated therein and the results of the
Company's operations for the respective periods indicated therein. The cash flow
projections and analyses referred to in clause (c) of this Section 4.2 fairly
present the Company's best estimate of the future cash flow position of the
Company, based on the Company's historical performance and the Company's
knowledge of its business plans and assumptions underlying them. It is the
Company's good faith belief that such cash flow projections are reasonably
achievable by the Company. At January 31, 1996, the Company has no liabilities
or obligations (absolute, accrued, contingent or otherwise) of a nature required
by GAAP to be reflected in such financial statements which are, individually or
in the aggregate,
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material to the condition, financial or otherwise, or operations of the Company
as of that date which are not reflected on such financial statements. There has
been no material adverse change in the condition, financial or otherwise, or
operations of the Company since December 31, 1995, nor has there otherwise
occurred a Material Adverse Effect.
4.3 Default. Except as disclosed on Schedule 4.3, the Company is not in
default under any loan agreement, indenture, mortgage, security agreement,
lease, franchise, permit, license or other agreement or obligation to which it
is a party or by which any of its properties may be bound, which default could
reasonably be expected to have a Material Adverse Effect. The Company is paying
its debts as they become due, excluding amounts due to vendors and suppliers of
the Company.
4.4 Authorization and Compliance with Laws and Material Agreements. The
execution, delivery and performance by the Company of this Agreement, the Senior
Loan Documents and the Other Agreements to which it is or may in connection with
the transactions contemplated hereby become a party, have been or prior to the
consummation of such transactions will be duly authorized by all requisite
action on the part of the Company and do not and will not violate its Articles
of Incorporation or By-laws or any law applicable to the Company or any order
known to the Company of any court, governmental authority or arbitrator having
jurisdiction over the Company, and do not and will not upon the consummation of
the transactions contemplated hereby conflict with, result in a breach of, or
constitute a default under, or result in the imposition of any Lien (except
Permitted Liens) upon any assets of the Company pursuant to the provisions of
any loan agreement, indenture, mortgage, security agreement, franchise, permit,
license or other instrument or agreement by which the Company or any of its
properties is bound. Except as set forth on Schedule 4.4, no authorization,
approval or consent of, and no filing or registration with, any court,
governmental authority or third Person is or will be necessary for the
execution, delivery or performance by the Company of this Agreement, the Senior
Loan Documents, and the Other Agreements to which it is a party or the validity
or enforceability thereof. All such authorizations, approvals, consents, filings
and registrations described in Schedule 4.4 have been obtained or will be
obtained by Senior Lender within thirty (30) days of the Closing Date. The
Company is not in violation of (i) any term of its Articles of Incorporation or
By-laws, (ii) any contract or agreement the violation of which could reasonably
be expected to have a Material Adverse Effect or (iii) any judgment or decree
binding upon the Company. The Company is in full compliance with all applicable
laws, regulations and rules.
4.5 Environmental Condition of the Property. Except as disclosed on
Schedule 4.5:
(a) The location, construction, occupancy, operation and use of the
Property do not violate any applicable law, statute, ordinance, rule,
regulation, order or determination of any governmental authority or
other body exercising similar functions, or any restrictive covenant or
deed restriction (recorded or otherwise) affecting the Property,
including, without limitation, all applicable zoning ordinances and
building codes, flood disaster, occupational health and safety laws and
Environmental Laws and regulations (as referred to in this Section 4.5,
collectively, "applicable laws");
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(b) Without limitation of clause (a) of this Section 4.5, neither
the Company nor the Property is subject to any existing, pending or
threatened investigation or inquiry by any governmental authority or
subject to any remedial obligations due to violations of applicable
laws;
(c) To the best of its knowledge, the Company is not subject to any
liability or obligation relating to (i) the environmental conditions
on, under or about the Property, including, without limitation, the
soil and ground water conditions at the Property, or (ii) the use,
management, handling, transport, treatment, generation, storage,
disposal, release or discharge of any Polluting Substance;
(d) There is no Polluting Substance or other substance that may
pose any risk to safety, health or the environment on, under or about
any Property;
(e) The Company has taken reasonable steps to determine and hereby
represents and warrants that, to the best of its knowledge, no
Polluting Substances have been disposed of or otherwise released on,
onto, into, or from the Property, and the use which the Company makes
and intends to make of the Property does not and will not result in the
disposal or other release of any Polluting Substances on, onto, into or
from the Property; and
(f) The Company has been issued all required federal, state and
local licenses, certificates or permits relating to, and the Property,
the Company and the Company's facilities, business, assets, leaseholds
and equipment are all in compliance in all respects with all applicable
federal, state and local laws, rules and regulations relating to, air
emissions, water discharge, noise emissions, solid or liquid waste
disposal, Polluting Substances, or other environmental, health or
safety matters.
4.6 Solvency. After giving effect to the transactions contemplated by
the Senior Loan Agreement, this Agreement and the Other Agreements, the Company
will be solvent, able to pay its debts as they mature, have capital sufficient
to carry on its business and all businesses in which it is about to engage, and
(a) the assets of the Company, at a fair valuation, exceed the
total liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of the Company;
(b) current projections which are based on underlying assumptions
which provide a reasonable basis for the projections and which reflect
the Company's judgment based on present circumstances, the most likely
set of conditions and the Company's most likely course of action for
the period projected, demonstrate that the Company will have sufficient
cash flow to enable it to pay its debts as they mature; and
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(c) the Company does not have an unreasonably small capital base
with which to engage in its anticipated business.
For purposes of clause (a) of this Section 4.6, the "fair valuation" of the
assets of the Company shall be determined on the basis of the amount which may
be realized within a reasonable time, either through collection or sale of such
assets at market value, deeming the latter as the amount which could be obtained
for the property in question within such period by a capable and diligent
businessman from an interested buyer who is willing to purchase under ordinary
selling conditions.
4.7 Litigation and Judgments. Except as disclosed on Schedule 4.7,
there is no action, suit, proceeding or, to the best of the Company's knowledge,
investigation before any court, governmental authority or arbitrator pending, or
to the knowledge of the Company threatened, against or affecting the Company,
this Agreement, the Senior Loan Documents and/or the Other Agreements. Except as
disclosed on Schedule 4.7, there are no outstanding judgments against the
Company. None of the matters listed on Schedule 4.7 could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.
4.8 Rights in Properties; Liens. The Company has good and indefeasible
title to all properties and assets reflected on its balance sheets, and none of
such properties or assets is subject to any Liens, except Permitted Liens. The
Company enjoys peaceful and undisturbed possession under all leases necessary
for the operation of its other properties, assets, and businesses and all such
leases are valid and subsisting and are in full force and effect. There exists
no default under any provision of any lease which would permit the lessor
thereunder to terminate any such lease or to exercise any rights under such
lease which, individually or together with all other such defaults, could have a
Material Adverse Effect. The Company has the exclusive right to use all of the
Intellectual Property necessary to its business as presently conducted, and the
Company's use of the Intellectual Property does not infringe on the rights of
any other Person. To the best of the Company's knowledge, no other Person is
infringing the rights of the Company in any of the Intellectual Property. Except
with respect to computer software programs used in the ordinary course of
business, the Company owes no royalties, honoraria or fees to any Person by
reason of its use of the Intellectual Property.
4.9 Enforceability. This Agreement, the Senior Loan Documents and the
Other Agreements to which the Company is a party, when delivered, shall
constitute the legal, valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms, except to the
extent such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforceability of
creditors' rights generally, (b) general principles of equity and (c) rights to
indemnification may be limited by applicable securities laws.
4.10 Indebtedness. The Company has no Indebtedness, except Permitted
Indebtedness. All Indebtedness owed by the Company to any Affiliate is set forth
on Schedule 4.10.
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4.11 Taxes. The Company has filed all tax returns (federal, state, and
local) required to be filed, including, without limitation, all income,
franchise, employment, property, and sales taxes, and has paid all of its tax
liabilities, other than immaterial amounts and taxes that are being contested by
the Company in good faith by appropriate actions or proceedings diligently
pursued, and for which adequate reserves in conformity with GAAP with respect
thereto have been established to the reasonable satisfaction of Purchaser. The
Company knows of no pending investigation of the Company by any taxing authority
or pending but unassessed tax liability of the Company. The Company has made no
presently effective waiver of any applicable statute of limitations or request
for an extension of time to file a tax return, and the Company is not a party to
any tax-sharing agreement.
4.12 Use of Proceeds; Margin Securities. The Company is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any extension of credit under
this Agreement will be used to purchase or carry any such margin stock or to
extend credit to others for the purpose of purchasing or carrying margin stock.
Neither the Company nor any Person acting on its behalf has taken any action
that might cause the transactions contemplated by this Agreement, the Senior
Loan Documents or any Other Agreements to violate Regulations G, T, U or X or to
violate the Securities Exchange Act of 1934, as amended.
4.13 ERISA. All members of any Controlled Group have complied with all
applicable minimum funding requirements and all other applicable and material
requirements of ERISA and the Code, applicable to the Employee Benefit Plans it
or they sponsor or maintain, and there are no existing conditions that would
give rise to material liability thereunder. With respect to any Employee Benefit
Plan, all members of any Controlled Group have made all contributions or
payments to or under each Employee Benefit Plan required by law, by the terms of
such Employee Benefit Plan or the terms of any contract or agreement. No
Termination Event has occurred in connection with any Pension Plan, and there
are no unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA,
with respect to any Pension Plan which poses a risk of causing a Lien to be
created on the assets of the Company or which will result in the occurrence of a
Reportable Event. No member of any Controlled Group has been required to
contribute to a multiemployer plan, as defined in Section 4001(a)(3) of ERISA,
since September 2, 1974. No material liability to the Pension Benefit Guaranty
Corporation has been, or is expected to be, incurred by any member of a
Controlled Group. The term "liability," as referred to in this Section 4.13,
includes any joint and several liability. No prohibited transaction under ERISA
or the Code has occurred with respect to any Employee Benefit Plan which could
have a Material Adverse Effect or a material adverse effect on the condition,
financial or otherwise, of an Employee Benefit Plan.
4.14 Non-Compete and Employment Agreements. Purchaser has received
complete copies of the Non-Compete and the Employment Agreement and all
documents executed in connection therewith (including all exhibits, schedules
and disclosure letters referred to therein or delivered pursuant thereto, if
any) and all amendments thereto, waivers relating thereto and other side letters
or agreements affecting the terms thereof. None of such documents and
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agreements has been amended or supplemented, nor have any of the provisions
thereof been waived, except pursuant to a written agreement or instrument which
has heretofore been delivered to Purchaser.
4.15 Disclosure. No representation or warranty made by the Company in
this Agreement, the Senior Loan Documents or any Other Agreement to which the
Company is a party contains any untrue fact or omits to state any material fact
necessary to make the statements herein or therein not misleading. There is no
fact known to the Company which the Company has determined has a Material
Adverse Effect, or which the Company has determined could have a Material
Adverse Effect, that has not been disclosed in writing to Purchaser.
4.16 Subsidiaries and Capitalization. The Company has no Subsidiaries
except as otherwise set forth on Schedule 4.16. All the issued and outstanding
shares of capital stock of the Company are duly authorized, validly issued,
fully paid and nonassessable. The capitalization of the Company on the Closing
Date is set forth on Schedule 4.16. No violation of any preemptive rights of
shareholders of the Company has occurred by virtue of the transactions
contemplated under this Agreement, the Senior Loan Documents or any Other
Agreement. There are no outstanding contracts, options, warrants, instruments,
documents or agreements binding upon the Company granting to any Person or group
of Persons any right to purchase or acquire shares of the Company's capital
stock, except pursuant to the Warrant Documents, the Merger Agreement, the Ocala
Shareholder Agreement and the Management Shareholder Agreements.
4.17 Current Locations. Schedule 4.17 identifies (a) the Company's
principal place of business and chief executive office, (b) all the locations
where the Company maintains any books or records relating to any of its assets,
(c) all other locations where the Company has a place of business, and (d) each
address where any of the Company's assets are located. Schedule 4.17 accurately
indicates whether each such location is owned or leased, and, if leased,
identifies the owner of such location. No Person other than the Company has
possession of any material amount of the assets of the Company except as
disclosed on Schedule 4.17.
4.18 Investment Company Act. Neither the Company nor any company
controlling the Company is required to be registered as an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
4.19 Public Utility Holding Company Act. The Company is not a "holding
company" or a "subsidiary company" of a "holding company" or an "affiliate" of a
"holding company" or a "public utility" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
4.20 Securities Laws. The Company has complied with or is exempt from
the registration and/or qualification requirements of all federal and state
securities or blue sky laws applicable to the issuance or sale of the Senior
Subordinated Note.
4.21 No Labor Disputes. The Company is not involved in any labor
dispute. The Company is not party to any collective bargaining agreement, and
there are no strikes or
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walkouts or union organization of any of the Company's employees threatened or
in existence and no labor contract is scheduled to expire during the term of
this Agreement.
4.22 Brokers. Neither the Company nor any of its shareholders has dealt
with any broker, finder, commission agent or other Person in connection with the
transactions referenced in or contemplated by this Agreement, nor is the Company
or any of its shareholders under any obligation to pay any broker's fee or
commission in connection with such transactions, except as set forth on Schedule
4.22.
4.23 Transactions with Affiliates. Except as set forth on Schedule 4.23
hereto, the Company has not entered into any transaction with any director,
officer, employee, shareholder, or Affiliate of the Company.
4.24 Insurance. The amount and types of insurance carried by the
Company, and the terms and conditions thereof, are substantially similar to the
coverage maintained by companies in the same or similar business as the Company
and similarly situated.
4.25 Conduct of Business. On the Closing Date, the Company is engaged
only in businesses of the type described in Schedule 4.25.
4.26 Small Business Concern. The Company is a "small business concern"
as defined in Section 103(5) of the Act, which for purposes of size eligibility
meets the applicable criteria set forth in Section 121.802(a)(3) of Title 13 of
the Code of Federal Regulations.
4.27 Investments. The Company has not made any advance, loan, extension
of credit, or capital contribution to or investment in, or purchased any stock,
bonds, notes, debentures, or other securities of any Person, except for (i)
Permitted Investments and (ii) Permitted Indebtedness.
V. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
Purchaser's obligations hereunder shall be subject to (a) the
performance by the Company of its obligations hereunder which by the terms
hereof are to be performed at or prior to delivery of the Senior Subordinated
Note, and (b) the satisfaction of the following conditions on or before the
Closing Date:
5.1 Effectiveness of Senior Loan Documents. The Senior Loan Documents
shall have been duly executed and delivered by the parties thereto and shall be
on terms and conditions satisfactory to Purchaser. All conditions precedent to
the making of the Senior Loans shall have been satisfied, or waived with
Purchaser's consent.
5.2 Effectiveness of Senior Subordination Agreement. The Senior
Subordination Agreement shall have been duly executed and delivered by the
parties thereto, and shall be on terms and conditions which are satisfactory to
Purchaser.
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5.3 Minimum Availability. The Company shall have available cash and
immediately accessible availability under the Senior Loans in an amount equal to
not less than $3,000,000 on the Closing Date after giving affect to the payment
of (a) prior indebtedness, (b) all fees payable to Purchaser under the terms of
this Agreement, and (c) all costs and expenses arising as a result of the
transactions contemplated by this Agreement, the Senior Loan Documents and any
Other Agreement to which the Company is a party, and Purchaser shall have
received satisfactory evidence thereof.
5.4 No Litigation; Consummation of Transactions. No injunction,
preliminary injunction, or temporary restraining order shall be threatened or
shall exist which prohibits or may prohibit the transactions contemplated herein
or any other related transaction, and no litigation or similar proceeding
(including, without limitation, any litigation or other proceeding seeking
injunctive or similar relief) shall be threatened or shall exist with respect to
the transactions contemplated herein, which, if adversely determined, could in
the judgment of Purchaser have a Material Adverse Effect.
5.5 Documents. Purchaser shall have received the following, each in
form and substance satisfactory to Purchaser:
(a) Senior Subordinated Note. The Senior Subordinated Note issued
in the name of Purchaser duly executed by the Company;
(b) Warrant and Warrant Documents. The Warrant, duly issued by the
Company to Purchaser in the denomination specified on Annex I hereto,
along with the other fully executed Warrant Documents and all other
documents and instruments required pursuant thereto;
(c) Junior Subordination Agreements. A junior subordination
agreement duly executed in favor of Purchaser by each shareholder
and/or Affiliate to whom the Company owes Indebtedness, each in form
and substance satisfactory to Purchaser, in its sole discretion;
(d) Other Agreements. All Other Agreements, duly executed by the
parties thereto;
(e) Insurance. Certified copies of all insurance policies and
endorsements thereto required by Section 6.12;
(f) Approvals and Consents. Copies, certified by the Company, of
all consents, authorizations, filings, licenses and approvals, if any,
required in connection with the execution, delivery and performance by
the Company, or the validity and enforceability of, this Agreement, the
Senior Loan Documents or the Other Agreements to which the Company is a
party;
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(g) Opinion of Counsel to the Company. The written legal opinion of
Gardere & Wynne, L.L.P., legal counsel to the Company in form and
substance satisfactory to Purchaser;
(h) General Certificate of the Company's Secretary. A certificate
of the Secretary of the Company together with true, correct and
complete copies of the following:
(i) Articles of Incorporation. The Articles of Incorporation
of the Company, including all amendments thereto, certified by the
Secretary of State of the state of its incorporation and dated
within thirty (30) days prior to the Closing Date;
(ii) Bylaws. The Bylaws of the Company, including all
amendments thereto;
(iii) Resolutions. The resolutions of the Board of Directors of
the Company authorizing the execution, delivery and performance of
this Agreement, the Senior Loan Documents, and the Other Agreements
to which the Company is a party;
(iv) Existence and Good Standing Certificates. Certificates of
the appropriate government officials of the state of incorporation
of the Company as to its existence and good standing, and
certificates of the appropriate government officials in each state
where the Company does business and where failure to qualify as a
foreign corporation would have a Material Adverse Effect, as to its
good standing and due qualification to do business in such state,
each dated within thirty (30) days prior to the Closing Date; and
(v) Incumbency. The names of the officers of the Company
authorized to sign this Agreement and the Other Agreements to be
executed by the Company, together with a sample of the true
signature of each such officer;
(i) Senior Loan Documents. Copies of the Senior Loan Documents and
each document relating thereto in form and substance satisfactory to
Purchaser, and a certificate of the Chief Executive Officer and Chief
Financial Officer of the Company certifying that the attached documents
are a true, correct and complete set of the Senior Loan Documents, that
all conditions precedent to funding of the Senior Loans have been met
or waived, and that those transactions have been consummated or are
being consummated simultaneously with the sale of the Senior
Subordinated Note;
(j) Solvency Certificate. A certificate regarding the solvency of
the Company, which includes a pro forma balance sheet and cash flow
projections and analyses for the Company, executed by the Chief
Executive Officer and the Chief Financial Officer of the Company;
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(k) Sources and Uses Certificate. A certificate executed by the
Chief Executive Officer and Chief Financial Officer of the Company,
setting forth in reasonable detail the sources and uses of funds in the
transactions contemplated herein, in the Senior Loan Documents and in
the Other Agreements;
(l) Transaction Certificate. A certificate of the Chief Executive
Officer and the Chief Financial Officer of the Company that, to the
best of their knowledge after due investigation, all conditions
precedent to the effectiveness of this Agreement have been satisfied or
waived;
(m) Environmental Reports. Copies of all environmental reports of
an independent environmental consulting firm which have been delivered
to the Senior Lender with respect to the Property and all improvements,
fixtures and equipment located thereon;
(n) SBA Documentation. (i) Originals executed by the Company of
each of (i) the Size Status Declaration on SBA Form 480 (2-92), and
(ii) the Assurance of Compliance on SBA Form 652(8-85) and (iii) all
information and documentation that Purchaser shall have requested in
connection with the preparation and completion of the Portfolio
Financing Report on SBA Form 1031;
(o) Non-Compete Agreement and Employment Agreements. A copy of the
Non-Compete and Employment Agreements, each in form and substance
satisfactory to Purchaser and a letter agreement executed by each of
Donald E. Whitson, John Jul, Brian Day, John Jordon and George A.
Yurch, obligating each such Person to execute his/her Non-Compete
and/or Employment Agreement at the earlier to occur of (i) one (1) year
from the date of this Agreement in the event the Merger has not been
consummated or (ii) immediately upon becoming aware that (A) the Merger
Agreement has been terminated or (B) good faith negotiations between
the Company and Tylan regarding the proposed Merger have ceased; and
(p) Additional Information, Other Documents and Agreements. Such
other information, documents, agreements, commitments and undertakings
as Purchaser or Purchaser's counsel shall reasonably request.
5.6 Material Adverse Change. For the period from November 30, 1995 to
the Closing Date, and except for the transactions contemplated by this
Agreement, the Other Agreements, and the Senior Loan Documents, there shall have
been (a) no occurrence or event which, in Purchaser's opinion, has or could have
a Material Adverse Effect, and (b) no occurrence or event which would lead the
Company or Purchaser to believe that the Company would fail to meet the cash
flow projections delivered to Purchaser pursuant to Section 4.2.
5.7 Fees. A processing fee in the amount set forth in Section 1.3,
shall have been paid to Purchaser. All other fees then payable pursuant to this
Agreement (including the fees,
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expenses and disbursements of the Purchaser's counsel) shall have been paid to
Purchaser (or such counsel, as applicable).
5.8 No Event of Default. No Event of Default or Potential Default shall
have occurred and be continuing.
5.9 Representations and Warranties. All representations and warranties
contained in this Agreement and the Other Agreements shall be true and correct
on the Closing Date.
VI. AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof and until
the Senior Subordinated Obligations have been finally and irrevocably paid in
full in accordance with the terms hereof and thereof:
6.1 Financial Statements. The Company will furnish to Purchaser:
(a) As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Company, beginning with the
fiscal year ending August 31, 1996, (i) a copy of the annual audit
report of the Company for such fiscal year containing a consolidated
and consolidating balance sheet, statement of income, statement of
stockholders' equity, and statement of cash flow as at the end of such
fiscal year and for the fiscal year then ended, in each case setting
forth in comparative form the figures for the preceding fiscal year,
all in reasonable detail and audited and certified by a "big six"
accounting firm, or other independent certified public accountants of
recognized national standing selected by the Company and consented to
by Purchaser (provided Purchaser's consent shall not unreasonably be
withheld) to the effect that such report has been prepared in
accordance with GAAP; (ii) a certificate delivered to Purchaser by such
independent certified public accountants confirming the calculations
set forth in the officers' certificate delivered to Purchaser
simultaneously therewith in accordance with Section 6.2(a); and (iii) a
comparison of the actual results during such fiscal year to those
originally budgeted by the Company prior to the beginning of such
fiscal year, together with a summary analysis of variances prepared by
the Company's management. The annual audit report required hereby shall
not be qualified or limited. The Company shall deliver copies of all
material reports and correspondence sent to the Company by its
independent certified public accountants promptly upon receipt thereof.
(b) As soon as available, and in any event within forty-five (45)
days after the end of each fiscal quarter of the Company, other than
each fiscal quarter ending August 31, a copy of an unaudited financial
report of the Company as of the end of such fiscal quarter and for the
portion of the fiscal year then ended, containing consolidated and
consolidating balance sheets, statements of income, and statements of
cash flow, in each case setting forth in comparative form the figures
for the corresponding period of the preceding fiscal year, together
with a comparison of the actual results during such period
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to those originally budgeted by the Company for such period with
explanations of significant variances.
(c) On or before forty-five (45) days prior to the beginning of
each fiscal year of the Company, an annual budget or business plan for
such fiscal year on a monthly basis, including projected consolidated
and consolidating balance sheets, income statements, and cash flow
statements for each month of such fiscal year, and, at the beginning of
each fiscal quarter, all revisions thereto approved by the Board of
Directors of the Company.
6.2 Certificates; Other Information. The Company will furnish to
Purchaser all of the following:
(a) Concurrently with the delivery of each of the financial
statements referred to in Section 6.1(a) and Section 6.1(b), a
certificate of an authorized officer of the Company in the form of the
officer's certificate attached hereto as Exhibit B (i) stating that no
Potential Default or Event of Default has occurred and is continuing
or, if such officer has knowledge of a Potential Default or Event of
Default, the nature thereof and specifying the steps taken or proposed
to remedy such matter, (ii) showing in reasonable detail the
calculations showing compliance with Sections 7.9 and 7.10, (iii)
stating that the financial statements attached have been prepared in
accordance with GAAP and fairly and accurately present (subject to
year-end audit adjustments, for the annual certificates) the financial
condition and results of operations of the Company at the date and for
the period indicated therein, (iv) containing a schedule of the
outstanding Indebtedness for borrowed money of the Company and its
Subsidiaries describing in reasonable detail each such debt issue or
loan outstanding and the principal amount and amount of accrued and
unpaid interest with respect to each such debt issue or loan, and (v)
containing management's discussion and analysis of the business and
affairs of the Company which includes, but is not limited to, a
discussion of the results of operations compared to those originally
budgeted for such period.
(b) As soon as available, (i) a copy of each financial statement,
report, notice or proxy statement sent by the Company to its
stockholders in their capacity as stockholders, (ii) a copy of each
regular, periodic or special report, registration statement, or
prospectus filed by the Company with any securities exchange or the
Securities and Exchange Commission or any successor agency, (iii) any
material order issued by any court, governmental authority, or
arbitrator in any material proceeding to which the Company is a party,
(iv) copies of all press releases and other statements made available
generally by the Company to the public generally concerning material
developments in the Company's business, and (v) a copy of all material
correspondence and reports sent by the Company to the Senior Lender in
or outside of the ordinary course of business.
(c) Promptly, such additional information concerning the Company as
Purchaser may reasonably request.
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6.3 Books and Records. The Company will (a) keep proper books of record
and account in which full, true and correct entries will be made of all dealings
or transactions of or in relation to its business and affairs; (b) set up on its
books accruals with respect to all taxes, assessments, charges, levies and
claims; and (c) on a reasonably current basis set up on its books against its
earnings such allowances against doubtful receivables, advances and investments
and all other proper accruals (including, without limitation, by reason of
enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties), which
should be set aside from such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in accordance with, or
as required by, GAAP consistently applied.
6.4 Financial Disclosure. The Company hereby irrevocably authorizes and
directs all accountants and auditors employed by it at any time during the term
of this Agreement to exhibit and deliver to Purchaser copies of any of the
Company's financial statements, trial balances or other accounting records of
any sort in the accountant's or auditor's possession, and to disclose to
Purchaser any information they may have concerning the Company's financial
status and business operations. The Company hereby irrevocably authorizes all
federal, state and municipal authorities to furnish to Purchaser copies of
reports or examinations relating to the Company, whether made by the Company or
otherwise.
6.5 Disclosure of Material Matters. The Company will, immediately upon
learning thereof, report to Purchaser (a) all matters materially affecting the
value, enforceability or collectibility of any material portion of its assets
including, without limitation, changes to significant contracts, schedules of
equipment, changes of significant equipment or real property, the reclamation or
repossession of, or the return to the Company of, a material amount of goods and
material claims or disputes asserted by any customer or other obligor, and (b)
any material adverse change in the relationship between the Company and any of
its suppliers or customers.
6.6 Performance of Obligations. The Company will duly and punctually
pay and perform its obligations under this Agreement, the Senior Loan Documents
and the Other Agreements to which it is a party.
6.7 Preservation of Existence and Conduct of Business. The Company will
preserve and maintain its corporate existence and all of its leases, privileges,
franchises, qualifications and rights that are necessary or useful in the
ordinary conduct of its business, and conduct its business as presently
conducted in an orderly and efficient manner in accordance with good business
practices.
6.8 Maintenance of Properties. The Company will operate and maintain in
good condition and repair (ordinary wear and tear excepted) and replace as
necessary, all of its assets and properties which are necessary or useful in
accordance with sound business practices in the proper conduct of its business
so that the value and operating efficiency of its assets and properties are
maintained and preserved. The Company will at all times maintain the
Intellectual Property in full force and effect, and will defend and protect the
Intellectual Property against all adverse claims.
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6.9 Payment of Taxes and Claims. The Company will pay or discharge, at
or before maturity or before becoming delinquent (a) all taxes, levies,
assessments, vault, water and sewer rents, rates, charges, levies, permits,
inspection and license fees and other governmental and quasi-governmental
charges and any penalties or interest for nonpayment thereof, heretofore or
hereafter imposed or which may become a Lien upon any property owned by the
Company or arising with respect to the occupancy, use, possession or leasing
thereof (collectively the "Impositions") and (b) all lawful claims for labor,
material, and supplies, which, if unpaid, might become a Lien upon any of its
property; provided, however, the Company will not be required to pay or
discharge any claim for labor, material, or supplies or any Imposition which is
being contested in good faith by appropriate actions or proceedings diligently
pursued, and for which adequate reserves in conformity with GAAP with respect
thereto have been established to the reasonable satisfaction of Purchaser.
6.10 Compliance with Laws. The Company will comply with all acts,
rules, regulations and orders of any legislative, administrative or judicial
body or official applicable to the operation of the Company's business if
noncompliance with such acts, rules, regulations or orders could have a Material
Adverse Effect; provided, however, the Company may contest or dispute any acts,
rules, regulations, orders and directions of those bodies or officials by
appropriate actions or proceedings diligently pursued, if adequate reserves in
conformity with GAAP with respect thereto are established to the reasonable
satisfaction of Purchaser.
6.11 Payment of Leasehold Obligations. The Company will at all times
pay, when and as due, its rental obligations under all leases under which it is
a tenant or lessee, and shall otherwise comply, in all material respects, with
all other terms of such leases and keep them in full force and effect and, at
Purchaser's request, will provide evidence of its having done so; provided,
however, the Company may contest or dispute its obligations under such leases by
appropriate actions or proceedings diligently pursued if adequate reserves in
conformity with GAAP with respect thereto are established to the reasonable
satisfaction of Purchaser. The Company shall not, without Purchaser's prior
written consent, modify in any material respect, or cause or permit the
termination of such leases.
6.12 Insurance. The Company will maintain, with financially sound,
reputable and solvent companies, insurance policies acceptable to Purchaser (a)
insuring its assets against loss by fire, explosion, theft and other risks and
casualties as are customarily insured against by companies engaged in the same
or a similar business, and (b) insuring it against liability for personal injury
and property damages relating to its assets, such policies to be in such amounts
and covering such risks as are usually insured against by companies engaged in
the same or a similar business, and insuring such other matters as may from time
to time be requested by Purchaser. All general liability policies shall be
endorsed in favor of Purchaser as an additional insured. The Company shall
provide copies of all such insurance policies to Purchaser within ten (10) days
following Purchaser's request for the same. The Company shall (i) pay, or cause
to be paid, all premiums for such insurance on or before the date such premiums
become due, (ii) furnish to Purchaser satisfactory proof of the timely making of
such payments, (iii) deliver all renewal policies to Purchaser at least five (5)
days before the expiration date of each expiring
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policy and (iv) cause such policies to require the insurer to give notice to
Purchaser of termination of any such policy at least thirty (30) days before
such termination is to be effective. If the Company fails to provide and pay for
any such insurance, Purchaser may, at its option, but shall not be required to,
pay the same and charge the Company therefor.
6.13 Inspection Rights. At any reasonable time and from time to time,
the Company will permit representatives of Purchaser to examine and make copies
of the books and records of, and visit and inspect the properties of, the
Company, and to discuss the business, operations, and financial condition of the
Company with its respective officers and employees and with its independent
certified public accountants. Such examinations and inspections may include, but
are not limited to, audits of the application of proceeds from the Senior
Subordinated Notes. In accordance with the terms of Section 12.1 hereof, the
Company will promptly reimburse Purchaser for all reasonable expenses incurred
by representatives of Purchaser in connection with such inspections.
6.14 Notices. The Company will promptly, but in any event within two
(2) Business Days after first becoming aware thereof, notify Purchaser in
writing of:
(a) the commencement of any event, including but not limited to,
any action, suit, or proceeding against the Company, that could have a
Material Adverse Effect, which notice shall specify the nature of such
event and what action the Company has taken or is taking or proposes to
take with respect thereto;
(b) the occurrence of an event of default, or an event which with
the passage of time or giving of notice or both constitutes an event of
default under the Senior Loan Documents or under any instrument or
agreement evidencing any other Indebtedness of the Company, which
notice shall specify the nature of such event, condition or default and
what action the Company has taken or is taking or proposes to take with
respect thereto; or
(c) The occurrence of a Potential Default or an Event of Default,
which notice shall specify the nature of such event, condition or
default and what action the Company has taken or is taking or proposes
to take with respect thereto.
Any notification required by this Section 6.14 shall be accompanied by a
certificate of the Chief Executive Officer or Chief Financial Officer setting
forth the details of the specified events and the action which the Company
proposes to take with respect thereto.
6.15 Senior Loan Document Amendments. The Company shall promptly
provide Purchaser with copies of all proposed amendments to the Senior Loan
Documents and of all other loan agreements to which the Company is a party.
6.16 Further Assurances. The Company shall execute and deliver to
Purchaser from time to time, upon demand, such supplemental agreements,
statements, assignments and
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transfers, or instructions or documents as Purchaser may reasonably request, in
order that the full intent of this Agreement and the Other Agreements may be
carried into effect.
6.17 Compliance with ERISA and the Code. The Company will comply, and
will cause each other member of any Controlled Group to comply, with all minimum
funding requirements, and all other material requirements, of ERISA and the
Code, if applicable, to any Employee Benefit Plan it or they sponsor or
maintain, so as not to give rise to any liability thereunder. The Company will
pay and will cause each other member of any Controlled Group to pay when due any
amount payable by it to the Pension Benefit Guaranty Corporation. Promptly after
the filing thereof, the Company shall furnish to Purchaser with regard to each
Employee Benefit Plan, copies of each annual report required to be filed
pursuant to Section 104 of ERISA in connection with each such plan for each plan
year.
6.18 Compliance with Regulations G, T, U and X. Neither the Company nor
any Person acting on its behalf will take any action which might cause this
Agreement, the Senior Subordinated Note, the Warrant Documents, the Senior Loan
Documents or any Other Agreements to violate, and the Company will take all
actions necessary to cause compliance with, Regulations G, T, U and X of the
Board of Governors of the Federal Reserve System and the Securities Exchange Act
of 1934, in each case as now in effect or as the same may hereafter be in
effect.
6.19 Board Observation and Membership. The Company will deliver to
Purchaser a copy of the minutes of and all materials distributed at or prior to
all meetings of the Board of Directors of the Company, certified as true and
accurate by the Secretary of the Company, promptly following each such meeting.
The Company will (a) permit each Holder (other than Purchaser) to designate one
(1) person, and, provided that Purchaser either (i) has not designated a
director under Subsection (d) hereof or (ii) has designated a director under
Subsection (d) hereof who is not an employee of Purchaser, permit Purchaser so
long as Purchaser is a Holder or owns any stock, warrants or other equity
interest in the Company, to designate one (1) person to attend all meetings of
the Company's Board of Directors as an observer, (b) provide such designee(s)
not less than ten (10) calendar days' actual notice of all regular meetings and
five (5) calendar days' actual notice of all special meetings of the Company's
Board of Directors, (c) permit such designee(s) to attend such meetings as an
observer, (d) permit Purchaser to designate one (1) Person to serve as a member
of the Company's Board of Directors; provided, however, that Purchaser agrees
not to designate such Person prior to August 1, 1996, unless a default has
occurred under (i) Sections 8.1(a), (c), (f), (g), (j) or (l) of this Agreement
or (ii) Sections [6.1(a) or 6.1(d)] of the Senior Loan Agreement, and (e)
provide to such designees a copy of all materials distributed at such meetings
or otherwise to the Directors of the Company. Such meetings shall be held in
person at least quarterly. At all times during the term of this Agreement, the
Board of Directors will consist of no more than five (5) members, including one
(1) individual designated by Purchaser, if Purchaser elects to so designate an
individual pursuant to Subsection (d) above. The Company agrees to compensate
the designee of Purchaser referred to in Subsection (d) above in the same manner
as each of the other members of the Company's Board of Directors and agrees to
reimburse each observer referred to in Subsection (a) above for
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all reasonable expenses incurred in traveling to and from such meetings and
attending such meetings.
6.20 Environmental Costs.
(a) The Company hereby indemnifies and holds Purchaser harmless
from and against any liability, loss, damage, suit, action or
proceeding pertaining to solid or hazardous waste materials or other
waste-like or toxic substances, including, but not limited to, claims
of any federal, state or municipal government or quasi-governmental
agency or any third person, whether arising under any federal, state or
municipal law or regulation, or tort, contract or common law that
relates to the Company.
(b) To the extent the laws of the United States or any state in
which property, leased or owned, of the Company provide that a Lien
upon the property of the Company may be obtained for the removal of
Polluting Substances which have been released, no later than sixty (60)
days after notice is given by Purchaser to the Company, the Company
shall deliver to Purchaser a report issued by a qualified, third party
environmental consultant selected by the Company and approved by
Purchaser as to the existence of any Polluting Substances located upon
or beneath the specified property, leased or owned by the Company. To
the extent any such Polluting Substance is located therein or
thereunder that either (i) subjects the property to Lien or (ii)
requires removal to safeguard the health of any Person, the Company
shall remove, or cause to be removed, such Lien and such Polluting
Substance at the Company's expense.
6.21 The Act. At the request of Purchaser, the Company will promptly
correct any defect, error, or omission with respect to the Act which may be
discovered in the contents of this Agreement or the Other Agreements or in the
execution or acknowledgment thereof, and will execute, acknowledge and deliver
such further instruments and do such further acts as may be reasonably necessary
for this Agreement and the Other Agreements, and all transactions contemplated
thereby, to comply with the Act.
6.22. Non-Compete and Employment Agreements. The Company will at all
times maintain the Non-Compete and Employment Agreements in full force and
effect, and will diligently enforce the Non-Compete and Employment Agreements
against any parties thereto who violate or attempt to violate the terms of such
Non-Compete and Employment Agreements.
6.23 Merger. The Company shall promptly provide written notice to the
Purchaser immediately upon becoming aware that (i) the Merger Agreement has been
terminated, or (ii) good faith negotiations between the Company and Tylan
regarding the proposed Merger have ceased.
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VII. NEGATIVE COVENANTS
The Company covenants and agrees that from the date hereof until the
Senior Subordinated Obligations have been finally and irrevocably paid in full
in accordance with the terms hereof and thereof:
7.1 Indebtedness. The Company will not create, incur, issue, assume,
guarantee or otherwise become liable for any Indebtedness except (a) Permitted
Indebtedness; (b) any extension, renewal or refinancing of any Permitted
Indebtedness (other than the Senior Loans) on such terms and conditions as are,
on the whole, no more onerous to the Company than the terms and conditions of
such Permitted Indebtedness on the date of such extension, renewal or
refinancing; and (c) any replacement or refinancing of the Senior Loans;
provided that (i) the interest rate on such refinancing shall be no greater than
the interest rate provided for in the Senior Loan Agreement in effect on the
date hereof, (ii) the amortization of principal on such refinancing shall be for
no shorter period, and for no greater annual amounts, than the amortization
provided for in the Senior Loan Agreement in effect on the date hereof, (iii)
the amount so replaced or refinanced shall be no greater than the maximum amount
permitted to be outstanding under the Senior Loan Agreement in effect on the
date hereof on the date of such replacement or refinancing, (iv) the collateral
security for such replacement or refinancing does not extend to assets other
than those contemplated by the Senior Loan Agreement in effect on the date
hereof (and proceeds thereof) and (v) the other terms and conditions of such
replacement or refinancing are, on the whole, no more onerous to the Company
than the terms of the Senior Loan Agreement in effect on the date hereof. Any
Permitted Indebtedness which is subordinated to the Senior Subordinated
Obligations shall continue to be subordinated to the Senior Subordinated
Obligations on terms and conditions satisfactory to Purchaser and no prepayments
shall be permitted on any such subordinate Permitted Indebtedness incurred by
the Company subsequent to the date hereof.
7.2 Limitation on Liens. The Company will not incur, create, assume, or
permit to exist any Lien upon any of its property, assets, or revenues,
including, but not limited to, its shares of capital stock of each of its
Subsidiaries, whether now owned or hereafter acquired, except Permitted Liens.
7.3 Merger, Acquisition, Dissolution and Sale of Assets. The Company
will not (a) become a party to a merger or consolidation (other than the
Merger), (b) purchase or otherwise acquire all or a substantial part of the
assets of any Person (other than purchases of inventory or equipment in the
ordinary course of business) or any shares or other evidence of beneficial
ownership of any Person, (c) dissolve or liquidate, (d) form, acquire or permit
the existence of any Subsidiary or Subsidiaries other than Ocala or (e) without
Purchaser's prior written consent, sell (except inventory in the ordinary course
of business and other assets reasonably and in good faith determined by the
Company to be obsolete or no longer necessary to the Company's business), assign
or transfer any of its assets.
7.4 Restricted Payments. Other than as set forth on Schedule 7.4, the
Company will not at any time make or become obligated to make, directly or
indirectly, any (a) declaration of
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any dividend on, or any other payment or distribution in respect of, any shares
of the Company, (b) except as otherwise provided for herein, any professional
consulting or management fees or any other payments to any shareholders of the
Company, (c) payment or distribution on account of the purchase, repurchase,
redemption, put, call or other retirement of any shares of the Company or of any
warrant, option or other right to acquire such shares (except pursuant to the
Warrant Documents), or (d) payment or distribution on account of any
Indebtedness of the Company which is subordinate to the Senior Subordinated
Note.
7.5 Loans and Investments. Except for Permitted Investments, the
Company will not make any advance, loan, extension of credit, or capital
contribution to or investment in, or purchase any stock, bonds, notes,
debentures, or other securities of any Person.
7.6 Transactions with Affiliates. Except as contemplated by this
Agreement and the Other Agreements, the Company will not enter into any
transaction with any director, officer, employee, shareholder, or Affiliate of
the Company except transactions (including those permitted by Section 7.5, if
any) upon terms which are fair and reasonable and which shall be at least as
favorable as would result in a comparable arm's-length transaction with a Person
not a director, officer, employee, shareholder or Affiliate of the Company.
7.7 Nature of Business. The Company will not engage in any business
other than the businesses set forth on Schedule 4.25, or any business reasonably
related thereto.
7.8 Modification of Senior Loan Agreement. The Company will not agree
or consent to any modification, amendment or waiver of any of the terms or
provisions of the Senior Loan Documents in effect on the date hereof without
Purchaser's prior written consent except as set forth in the Senior
Subordination Agreement.
7.9 Capital Expenditures. The Company will not make any Capital
Expenditures if, as a result thereof, the Capital Expenditures of the Company in
the aggregate would, as a result thereof, exceed $2,000,000 in any fiscal year
of the Company during the term hereof. In the event that the Company enters into
a capital lease with respect to fixed assets, for purposes of calculating
Capital Expenditures under this Section 7.9, the lesser of (a) the aggregate
amount of the present value of all minimum payments (excluding executory costs)
due for the entire term of such capital lease, or (b) the cost of such fixed
asset at the inception of such capital lease shall be considered expended in
full on the date that the Company enters into such capital lease.
7.10 Financial Covenants.
(a) Total Liabilities Ratio. The Company and Ocala will maintain a
ratio of Total Liabilities to Tangible Net Worth, on a consolidated
basis, of not greater than 4.5 to 1.0 from the date hereof through May
31, 1996 and 4.2 to 1.0 at all times thereafter throughout the term of
this Agreement.
(b) Working Capital. The Company and Ocala will maintain Working
Capital, on a consolidated basis, of not less than $5,500,000.00 at all
times throughout the
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term of this Agreement. For purposes of this covenant, it is understood
and agreed that as of the date of any calculation, the outstanding
principal amount owing on the Revolving Loans (as defined in the Senior
Loan Agreement) shall not be included in Current Liabilities of the
Company or Ocala.
(c) Tangible Net Worth. The Company and Ocala will maintain a
positive Tangible Net Worth, on a consolidated basis, of at least
$5,500,000.00 at all times through March 31, 1996, at which time the
amount of Tangible Net Worth required to be maintained by the Company
and Ocala pursuant to this Section 7.10(c) shall increase by
$300,000.00. Thereafter, at the end of each fiscal quarter of the
Company and Ocala during the term of this Agreement, the amount of
Tangible Net Worth required to be maintained by the Company and Ocala
pursuant to this Section 7.10(c) shall be increased by $300,000.00. It
is expressly understood and agreed that in no event will the amount of
Tangible Net Worth required to be maintained by the Company and Ocala
hereunder decrease due to a net loss during any fiscal year of the
Company and Ocala.
(d) Total Debt Coverage Ratio. The Company and Ocala will
maintain, on a consolidated basis, as of May 31, 1996 a ratio of (a)
EBITDA divided by (b) the sum of Total Debt Interest Expense, current
maturities of long-term Total Debt of the Company and Ocala, and all
payments on Capital Lease Obligations, of not less than 1.15 to 1.00.
Thereafter, the Company and Ocala will maintain, as of the last days of
each fiscal quarter of the Company and Ocala during the term of this
Agreement a ratio of (a) EBITDA divided by (b) the sum of Total Debt
Interest Expense, current maturities of long-term Total Indebtedness of
the Company and Ocala, and all payments on Capital Lease Obligations,
for the twelve month period ending on such day of not less than 1.35 to
1.0; provided, however, calculations of the Total Debt Coverage Ratio
made prior to the fiscal quarter of the Company and Ocala ending
February 28, 1997, shall include only fiscal quarters of the Company or
Ocala ending after February 29, 1996.
(e) Total Debt Interest Coverage Ratio. The Company and Ocala will
maintain, on a consolidated basis, as of May 31, 1996, a ratio of (a)
EBIT divided by (b) Total Debt Interest Expense of not less than 1.25
to 1.0. Thereafter, the Company and Ocala will maintain, on a
consolidated basis, as of the last day of each fiscal quarter of the
Company and Ocala during the term of this Agreement, a ratio of (a)
EBIT dividend by (b) Total Debt Interest Expense, for the twelve (12)
month period ending on such day, of not less than 2.0 to 1.0; provided,
however, calculations of the Total Debt Interest Coverage Ratio made
prior to the fiscal quarter of the Company and Ocala ending February
28, 1997, shall include only fiscal quarters of the Company and Ocala
ending after February 29, 1996.
(f) Debt Interest Coverage Ratio. The Company and Ocala will
maintain, on a consolidated basis, as of May 31, 1996, a ratio of (a)
EBIT divided by (b) Senior Debt Interest Expense, of not less than 1.9
to 1.0. Thereafter, the Company and Ocala will maintain, as of the last
day of each fiscal quarter of the Company and Ocala during the term of
this Agreement, a ratio of (a) EBIT divided by (b) Senior Debt Interest
Expense,
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for the twelve (12) month period ending on such day, of 2.25 to 1.0;
provided, however, calculations of the Senior Debt interest Coverage
Ratio made prior to the fiscal quarter of the Company and Ocala ending
February 28, 1997, shall include only fiscal quarters of the Company
and Ocala ending after February 29, 1996.
7.11 Remuneration. The Company will not permit the aggregate amount of
salary and other direct and indirect remuneration (including, but not limited
to, employee benefits and professional, consulting and management fees and
expenses) paid by the Company during any fiscal year to any officer, director or
employee, any successor or transferee shareholder of any of the foregoing
Person(s) directly or indirectly through such Person(s), or any member of such
Person's immediate family, without the prior written consent of Purchaser, to
exceed such amount as a publicly traded company of like size and type as the
Company would pay during such fiscal year to an officer, director or employee in
a similarly situated position, as the case may be.
7.12 Modification of Non-Compete Agreements and Employment Agreements.
The Company will not agree to any modification, amendment or waiver of any of
the terms or provisions of the Non-Compete Agreements or the Employment
Agreement without Purchaser's prior written consent.
7.13 Junior Debt Documents. The Company will not agree or consent to
any modification, amendment or waiver of any terms or provisions of the Junior
Debt Documents as in effect on the date hereof without the Purchaser's prior
written consent.
VIII. EVENTS OF DEFAULT AND REMEDIES THEREFOR
8.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(a) The Company shall fail to pay, when due (whether upon
acceleration or otherwise), any principal, interest or other sums
payable under the Senior Subordinated Note or this Agreement, or shall
fail to pay, when due (whether upon acceleration or otherwise), any
other Senior Subordinated Obligations;
(b) The Company shall fail to pay when due and after passage of
any applicable notice and cure periods, (whether upon acceleration or
otherwise), any Indebtedness in excess of $50,000;
(c) The Company shall fail to perform or observe any agreement,
covenant, term or condition contained in the Senior Subordinated Note
or in Sections 6.14, 6.15 6.19 and all of Article VII this Agreement;
(d) Except as otherwise provided in Section 8.1(c) above, the
Company shall fail to perform or observe any agreement, covenant, term
or condition contained in this
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Agreement and such failure shall continue unremedied for a period of
thirty (30) days after the occurrence thereof;
(e) The Company shall fail to comply with any agreement,
indenture, mortgage, deed of trust, or other agreement binding on it or
affecting its properties or business (after giving effect to any
applicable grace or cure periods), including, without limitation, the
Senior Loan Documents and the Other Agreements to which the Company is
a party;
(f) Any representation, warranty or other material information
whatsoever made or provided by the Company in connection with this
Agreement or otherwise to induce Purchaser to purchase the Senior
Subordinated Note or the Warrant was incorrect or misleading in any
material respect, when made;
(g) The Company shall become subject to an Event of Bankruptcy;
(h) Any judgment or order for payment of money shall be rendered
against the Company which exceeds $50,000 and either (i) enforcement
proceedings shall have been commenced by any creditor upon such
judgment or order, or (ii) there shall be a period of thirty (30)
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in
effect;
(i) The occurrence or existence of any event of default under the
Senior Loan Documents, except for such defaults as have been waived by
the Senior Lender;
(j) The Shareholder shall cease to directly own and control 53.65%
of the issued and outstanding shares of voting capital stock of the
Company;
(k) The Company shall use the proceeds of the sale of the Senior
Subordinated Note for any other purpose except (i) as set forth in
Section 1.4 or (ii) as permitted by applicable law;
(l) The occurrence of a change in management control, directly or
indirectly of the Company; or
(m) Ocala shall revoke or attempt to revoke the guaranty agreement
executed by Ocala in favor of Purchaser, or shall repudiate its
liability thereunder or shall fail to comply with the terms thereof.
8.2 Remedies of Holders upon Occurrence of Event of Default. When any
Event of Default described in Section 8.1 above, other than any Event of Default
described in clause (g) thereof, has occurred and is continuing, Purchaser may
(in addition to any other right, power or remedy permitted to Purchaser by law)
declare the entire amount of the Senior Subordinated Obligations, including,
without limitation, the entire principal, Prepayment Fee (if any) and all
interest accrued then outstanding under the Senior Subordinated Note, to be, and
the same shall
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thereupon become, forthwith due and payable, without any presentment, demand,
protest, notice of default, notice of intention to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby expressly
waived, and in such event the Company shall (subject to the terms of the Senior
Subordination Agreement) forthwith pay to Purchaser an amount equal to one
hundred percent (100%) of the amount thereof. When any Event of Default
described in clause (g) of Section 8.1 above shall occur, all of the Senior
Subordinated Obligations, including, without limitation, the entire principal,
Prepayment Fee (if any), and all accrued interest then outstanding under the
Senior Subordinated Note, shall thereupon be forthwith due and payable without
any presentment, demand, protest, notice of default, notice of intention to
accelerate, notice of acceleration or other notice of any kind (including any
notice by the Holders of the Senior Subordinated Note), all of which are hereby
expressly waived by the Company, and the Company will (subject to the terms of
the Senior Subordination Agreement) forthwith pay to Purchaser an amount equal
to one hundred percent (100%) of the amount thereof.
8.3 Annulment of Acceleration. The provisions of the foregoing Section
8.2 are subject to the condition that, if all or any part of the Senior
Subordinated Obligations have been declared or have otherwise become immediately
due and payable by reason of the occurrence of any Event of Default, Purchaser
may, by written instrument delivered to the Company (an "Annulment Notice"),
rescind and annul such declaration and the consequences thereof as to the Senior
Subordinated Note, provided that (a) at the time such Annulment Notice is
delivered no judgment or decree has been entered for the payment of any monies
due pursuant to such Senior Subordinated Obligations in connection therewith,
and (b) all arrears of interest and all other sums payable on such Senior
Subordinated Obligations in connection therewith (except any principal, interest
or Prepayment Fee which has become due and payable solely by reason of such
declaration under Section 8.2 hereof) shall have been duly paid or deferred by
the Holder of the Senior Subordinated Obligations agreeing to such rescission
and annulment; and provided further, that no such rescission and annulment shall
extend to or affect any subsequent default or Event of Default or impair any
right consequent thereto, and shall not be deemed a waiver of the Event of
Default giving rise to the acceleration unless specifically waived in writing by
Purchaser.
8.4 Payment of Senior Subordinated Obligations. Subject to the terms of
the Senior Subordination Agreement, Purchaser shall have the right, which is
absolute and unconditional, to receive payment of the principal of and interest
on such Senior Subordinated Note and payment of all other Senior Subordinated
Obligations on the date when due and, upon the occurrence and continuance of an
Event of Default, to institute suit against the Company for the enforcement of
any such payment. Such rights shall not be impaired without Purchaser's prior
written consent.
8.5 Remedies. Subject to the terms of the Senior Subordination
Agreement, if any Event of Default shall occur and be continuing, each and every
Holder may exercise any right or remedy it has at law, in equity or under this
Agreement or any Other Agreement. No right or remedy conferred upon or reserved
to Purchaser under this Agreement or any Other Agreement is intended to be
exclusive of any other right or remedy, and every right and remedy shall be
cumulative and in addition to every other right or remedy given hereunder or now
or hereafter existing under any applicable law. Every right and remedy given by
this Agreement or by
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applicable law to Purchaser may be exercised from time to time and as often as
may be deemed expedient by Purchaser.
8.6 Conduct No Waiver. No course of dealing on the part of Purchaser,
nor any delay or failure on the part of Purchaser to exercise any of its rights,
shall operate as a waiver of such right or otherwise prejudice Purchaser's
rights, powers and remedies. If the Company fails to pay, when due, the
principal of, Prepayment Fee (if any) or the interest on, the Senior
Subordinated Note, or fails to comply with any other provision of this
Agreement, the Company shall pay to the Holder, to the extent permitted by law,
on demand, such further amounts as shall be sufficient to cover the cost and
expenses, including, but not limited to, reasonable attorney's fees, incurred by
Purchaser in collecting any sums due on the Senior Subordinated Note or in
otherwise enforcing any of Purchaser's rights.
IX. SUBORDINATION
Notwithstanding any provision in this Agreement to the contrary, the
Indebtedness evidenced by the Senior Subordinated Note shall be subordinate in
right of payment to all regularly scheduled payments of principal and interest
with respect to Senior Debt, and Purchaser's rights and remedies hereunder shall
be subordinate to the rights and remedies of the Senior Lender, in accordance
with the terms of the Senior Subordination Agreement. Nothing contained in this
Article IX or elsewhere in this Agreement, in the Senior Subordinated Note or
the Senior Subordination Agreement is intended to or shall impair, as between
the Company and Purchaser, the obligations of the Company, which are absolute
and unconditional, to pay to Purchaser the principal of, Prepayment Fee (if any)
and interest on the Senior Subordinated Note and all other Senior Subordinated
Obligations as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of Purchaser
and creditors of the Company other than the holders of the Senior Debt, nor
shall anything herein or therein prevent Purchaser from exercising all remedies
otherwise permitted by applicable law upon an Event of Default under this
Agreement.
X. FORM OF SENIOR SUBORDINATED NOTE, REGISTRATION, TRANSFER AND
REPLACEMENT
10.1 Form of Senior Subordinated Note. The Senior Subordinated Note
initially delivered under this Agreement will be a fully registered note on the
books of the Company. The Senior Subordinated Note is issuable only in fully
registered form in denominations of at least $1,000,000 (or the then-remaining
outstanding balance thereof, if less than $1,000,000).
10.2 Senior Subordinated Note Register. The Company shall cause to be
kept at the principal office a register for the registration and transfer of the
Senior Subordinated Note. The names and addresses of the Holder of the Senior
Subordinated Note, the transfer thereof and the name and address of the
transferee of the Senior Subordinated Note shall be recorded in such register.
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10.3 Issuance of New Senior Subordinated Note upon Exchange or
Transfer. Upon surrender for exchange or registration of transfer of the Senior
Subordinated Note at the office of the Company designated for notices in
accordance with Section 12.3 hereof, the Company shall execute and deliver, at
its expense, one or more new Senior Subordinated Notes of any authorized
denomination requested by the Holder of the surrendered Senior Subordinated
Note, each dated the date to which interest has been paid on the Senior
Subordinated Note so surrendered (or, if no interest has been paid, the date of
the surrendered Senior Subordinated Note), but in the same aggregate unpaid
principal amount as the surrendered Senior Subordinated Note, and registered in
the name of such Person or Persons as shall be designated in writing by such
Holder. Every Senior Subordinated Note surrendered for registration of transfer
shall be duly endorsed, or be accompanied by a written instrument of transfer
duly executed, by the Holder of such Senior Subordinated Note or by his attorney
duly authorized in writing.
10.4 Replacement of Senior Subordinated Note. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of the
Senior Subordinated Note and, in the case of any such loss, theft or
destruction, upon delivery of a bond of indemnity in such form and amount as
shall be reasonably satisfactory to the Company or, in the event of such
mutilation, upon surrender and cancellation of the Senior Subordinated Note, the
Company, without charge to the Holder thereof, will make and deliver a new
Senior Subordinated Note of like tenor and the same series in lieu of such lost,
stolen, destroyed or mutilated Senior Subordinated Note. If any such lost,
stolen or destroyed Senior Subordinated Note is owned by Purchaser or any other
Holder whose credit is satisfactory to the Company, then the affidavit of an
authorized officer of such owner setting forth the fact of loss, theft or
destruction and of its ownership of the Senior Subordinated Note at the time of
such loss, theft or destruction shall be accepted as satisfactory evidence
thereof, and no further indemnity shall be required as a condition to the
execution and delivery of a new Senior Subordinated Note, other than a written
agreement of such owner (in form reasonably satisfactory to the Company) to
indemnify the Company.
XI. INTERPRETATION OF AGREEMENT
11.1 Certain Terms Defined. When used in this Agreement, the terms set
forth below are defined as follows:
"Act" means the Small Business Investment Act of 1958, as amended and
in effect from time to time, and the regulations promulgated
thereunder.
"Affiliate" means any Person directly or indirectly controlling,
controlled by, or under common control with, the Person in question. A
Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether
through the ownership of voting securities, by contract, or otherwise.
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"Agreement" means this Note Purchase Agreement, including all schedules
and exhibits hereto, as the same may be modified, supplemented,
extended and/or amended from time to time.
"Annulment Notice" is defined in Section 8.3.
"Business Day" means each day of the week except Saturdays, Sundays,
and days on which banking institutions are authorized by law to close
in the State of Texas.
"Capital Expenditures" means expenditures made and liabilities incurred
for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more
than one (1) year, including, but not limited to, the direct or
indirect acquisition of such assets or incurrence of such expenses by
way of increased product or service charges, offset items or otherwise
and payments with respect to capitalized lease obligations.
"Capital Lease Obligations" means, with respect to the Company and
Ocala, the obligations to pay rent or other amounts payable under a
lease of (or agreement conveying the right to use) real and/or personal
property, which obligations are classified as a capital lease on a
consolidated balance sheet prepared in accordance with GAAP. For
purposes of this Agreement, the amount of such Capital Lease
Obligations is the capitalized amount thereof, determined in accordance
with GAAP.
"Closing Date" means the date on which all of the conditions stated in
Article V of this Agreement have been met to Purchaser's satisfaction
and the purchase price for the Senior Subordinated Note has been paid,
but in any event not later than March 14, 1996.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, and the regulations promulgated thereunder.
"Company" means Span Instruments, Inc., a Texas corporation, and,
unless the context requires otherwise, shall include its Subsidiaries,
if any (including, without limitation, for purposes of Articles IV, V,
VI, VII, VIII and IX hereof).
"Controlled Group" means any group of organizations within the meaning
of Section 414(b), (c), (m) or (o) of the Code of which the Company is
a member.
"Current Assets" means, with respect to the Company and Ocala as of the
date of calculation, all assets of the Company and Ocala that, in
accordance with GAAP, would be included as current assets on a
consolidated balance sheet of the Company and Ocala.
"Current Liabilities" means, with respect to the Company and Ocala, all
liabilities of the Company and Ocala that, in accordance with GAAP,
would be included as current liabilities on a consolidated balance
sheet of the Company and Ocala.
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"Debt" means, with respect to the Company and Ocala, the Total Debt of
the Company and Ocala less the Senior Subordinated Obligations.
"EBIT" means, with respect to the Company and Ocala and for any period,
the sum of (a) the Net Income (or deficit) of the Company and Ocala
before provision for income and franchise taxes for such period, plus
(b) Interest Expense of the Company and Ocala for such period.
"EBITDA" means, with respect to the Company and Ocala and for any
period, the sum of (a) EBIT of the Company and Ocala for such period,
plus (b) depreciation and amortization of the Company and Ocala for
such period.
"Employee Benefit Plan" means any employee benefit plan, as defined in
Section 3(3) of ERISA, which is, previously has been or will be
established or maintained by any member of a Controlled Group.
"Employment Agreement" means collectively, the form of Employment
Agreement attached hereto as Exhibit C to be executed by and between
the Company and Donald E. Whitson, and the form of Employment Agreement
attached hereto as Exhibit D to be executed by and between the Company
and John Jul, Brian Day, John Jordon and George A. Yurch at the earlier
to occur of (i) one (1) year from the date of this Agreement in the
event the Merger has not been consummated or (ii) immediately upon
becoming aware that (A) the Merger Agreement has been terminated or (B)
good faith negotiations between the Company and Tylan regarding the
proposed Merger have ceased.
"Environmental Laws" means all federal, state, or local laws,
ordinances, rules, regulations, interpretations and orders of courts or
administrative agencies or authorities relating to pollution or
protection of the environment (including, without limitation, ambient
air, surface water, ground water, land surface, and subsurface strata),
and other laws relating to (a) Polluting Substances or (b) the
manufacture, processing, distribution, use, treatment, handling,
storage, disposal, or transportation of Polluting Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and in effect from time to time, and the regulations
promulgated thereunder.
"Event of Bankruptcy" means any of (a) the filing by a Person of a
voluntary petition in bankruptcy under any provision of any bankruptcy
law or a petition to take advantage of any insolvency act, (b) the
admission in writing by the Company of its inability to pay its debts
generally as they become due, (c) the appointment of a receiver or
receivers for all or a material part of a Person's assets with the
consent of such Person, (d) the filing of any bankruptcy, arrangement
or reorganization petition by or, with the consent of a Person, against
such Person under any provision of any bankruptcy law, (e) a receiver,
liquidator or trustee of a Person or a substantial part of its assets
shall be appointed pursuant to the Federal Bankruptcy Code by the order
of a court of competent jurisdiction which shall not be dismissed or
stayed within thirty (30) days, or (f) an involuntary
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petition to reorganize or liquidate a Person pursuant to the Federal
Bankruptcy Code shall be filed against such Person and shall not be
dismissed or stayed within 30 days.
"Event of Default" is defined in Section 8.1.
"Excess Interest" is defined in Section 2.8.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or
in statements of the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the circumstances as
of the date in question. Accounting principles are applied on a
"consistent basis" when the accounting principles observed in a current
period are comparable in all material respects to those accounting
principles applied in a preceding period.
"Holder" when used in reference to the Senior Subordinated Note and/or
the Senior Subordinated Obligations, means the Person or Persons (not
to exceed five (5) Persons in the aggregate at any one time) who, at
the time of determination, is/are the lawful owner(s) of all or a
portion of the Senior Subordinated Note or an obligee of all or a
portion of the Senior Subordinated Obligations. Unless otherwise
provided in this Agreement, in each instance that the Holders are
required to request or consent in concert to an action, the Holders
will be deemed to have requested or consented to such action if the
Holders of a majority-in-interest of the Senior Subordinated Note so
request or consent.
"Impositions" is defined in Section 6.9.
"Indebtedness" means for any Person: (a) all indebtedness, whether or
not represented by bonds, debentures, notes, securities, or other
evidences of indebtedness, for the repayment of money borrowed, (b) all
indebtedness representing deferred payment of the purchase price of
property or assets, (c) all indebtedness under any lease which, in
conformity with GAAP, is required to be capitalized for balance sheet
purposes and leases of property or assets made as a part of any sale
and lease-back transaction if required to be capitalized, (d) all
indebtedness under guaranties, endorsements, assumptions, or other
contractual obligations, including any letters of credit, or the
obligations in respect of, or to purchase or otherwise acquire,
indebtedness of others, (e) all indebtedness secured by a Lien existing
on property owned, subject to such Lien, whether or not the
indebtedness secured thereby shall have been assumed by the owner
thereof, (f) trade accounts payable more than one hundred twenty (120)
days past due, (g) all amendments, renewals, extensions, modifications
and refundings of any indebtedness or obligations referred to in
clauses (a), (b), (c), (d) or (e), excluding trade accounts payable in
the ordinary course of business.
"Intellectual Property" means all patents, patent rights, patent
applications, licenses, inventions, trade secrets, know-how,
proprietary techniques (including processes and substances),
trademarks, service marks, trade names and copyrights.
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"Junior Debt Documents" means, collectively, that certain (i)
Subordinated Promissory Note dated June 6, 1994, in the original
principal amount of $147,359.68, executed by the Company and payable to
the order of John Jul, (ii) that certain Subordinated Promissory Note
dated June 6, 1994, in the original principal amount of $353,447.83,
executed by the Company and payable to the order of Hank McCarrick, and
(iii) that certain Promissory Note dated May 15, 1992, in the original
principal amount of $132,038.30, executed by the Company and payable to
the order of Hank McCarrick.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, financing statement, or conditional sale or title
retention agreement, or any other interest in property designed to
secure the repayment of Indebtedness or any other obligation, whether
arising by agreement, operation of law, or otherwise.
"Management Shareholder Agreements" means collectively, (a) that
certain agreement dated July 27, 1995 by and between George Yurch and
the Company, (b) that certain agreement dated December 17, 1993 by and
between John Jordon and the Company, (c) that certain agreement dated
July 27, 1995 by and between Brian Day and the Company, (d) that
certain agreement dated July 1, 1991 by and between Kaveh Zarkar and
the Company, (e) that certain agreement dated November 28, 1988 by and
between John Jul and the Company, (f) that certain agreement dated May
9, 1988 by and between Robert J. Barraclough and the Company, (g) that
certain agreement dated May 6, 1988 by and between Sam R. Crowe and the
Company, (h) that certain agreement dated March 19, 1985 by and between
Robert M. Lipsky and the Company and (i) that certain agreement dated
November 13, 1995 by and between John Rabbitt and the Company
"Material Adverse Effect" means (a) a material adverse effect upon the
business, operations, properties, assets, condition or prospects
(financial or otherwise) of the Company or (b) the impairment of the
ability of any party to perform its obligations under this Agreement or
any of the Other Agreements to which it is a party or of Purchaser to
enforce or collect any of the Senior Subordinated Obligations. In
determining whether any individual event would result in a Material
Adverse Effect, notwithstanding that such event does not of itself have
such effect, a Material Adverse Effect shall be deemed to have occurred
if the cumulative effect of such event and all other then existing
events would result in a Material Adverse Effect.
"Maximum Rate" is defined in Section 2.8.
"Merger" means the merger of the Company with and into Tylan or Tylan
Subsidiary.
"Merger Agreement" means that certain Agreement and Plan of
Reorganization dated February 20, 1996, by and among the Company, Tylan
Subsidiary and Tylan, setting forth the terms, provisions and
conditions regarding the proposed merger of the Company with and into
Tylan Subsidiary.
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"Non-Compete Agreement" means the form of Non-Compete Agreement,
attached hereto as Exhibit C, by and between the Company and Donald E.
Whitson, such form to be executed at the earlier to occur of (i) one
(1) year from the date of this Agreement in the event the Merger has
not been consummated or (ii) immediately upon becoming aware that (A)
the Merger Agreement has been terminated or (B) good faith negotiations
between the Company and Tylan regarding the proposed Merger have
ceased, and any other non-compete agreement hereafter entered into by
and between the Company and any other officer of the Company, together
with all renewals, modifications, amendments or supplements thereto.
"Ocala" means Ocala, Inc., a Texas corporation, a Subsidiary of the
Company.
"Ocala Shareholders Agreement" means that certain shareholders
agreement dated December 29, 1994 by and among Ronald L. Ewers, Bradley
A. Ewers, Randall L. Ewers, Gary P. Ewers, Bradley L. Busch, Gregory
Scott Thompson, the respective spouses of each of the foregoing, Ocala
and the Company.
"Other Agreements" means the Senior Subordinated Note, the Warrant
Documents and all other agreements, instruments and documents
(including, without limitation, notes, guarantees, powers of attorney,
consents, assignments, contracts, notices, subordination agreements and
all other written matter), and all renewals, modifications and
extensions thereof, whether heretofore, now or hereafter executed by or
on behalf of the Company and delivered to and for the benefit of
Purchaser or any Person participating with Purchaser in the Senior
Subordinated Note with respect to this Agreement or any of the
transactions contemplated by this Agreement.
"Pension Plan" means any employee pension benefit plan, as defined in
Section 3(2) of ERISA, which is, was or will be established or
maintained by any member of the Controlled Group.
"Permitted Indebtedness" means (a) any Indebtedness in favor of the
Senior Lender under the Senior Loan Agreement and created pursuant
thereto, (b) any Indebtedness in favor of Purchaser under this
Agreement and/or the Other Agreements and created pursuant thereto, (c)
presently existing purchase money Indebtedness incurred by the Company
to finance the acquisition of capital assets by the Company, subject to
the limitations placed on Capital Expenditures in Section 7.9, and (d)
the other Indebtedness set forth on Schedule 11.1(a) and approved by
Purchaser.
"Permitted Investments" means the following:
(a) securities issued or directly and fully guaranteed or insured
by the United States Government or any agency or instrumentality
thereof (provided that the full faith and credit of the United
States Government is pledged in support thereof), having
maturities of not more than twelve (12) months from the date of
acquisition;
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(b) time deposits and certificates of deposit (i) of any
commercial bank incorporated in the United States of recognized
standing having capital and surplus in excess of $100,000,000
with maturities of not more than twelve months from the date of
acquisition or (ii) which are fully insured by the Bank Insurance
Fund with maturities of not more than twelve (12) months from the
date of acquisition;
(c) commercial paper issued by any Person incorporated in the
United States rated at least A-1 or the equivalent thereof by
Standard & Poor's Corporation or at least P-1 or the equivalent
thereof by Moody's Investors Service, Inc. and in each case
maturing not more than twelve (12) months after the date of
acquisition;
(d) investments in money market funds substantially all of whose
assets are comprised of securities of the types described in
clauses (a) through (c) above; or
(e) loans or advances from the Company to Ocala in an aggregate
amount at any one time not exceeding $1,000,000.
"Permitted Liens" means (a) Liens in favor of the Senior Lender under
the Senior Loan Agreement in effect on the date hereof or created
pursuant thereto, (b) Liens securing purchase money Indebtedness
incurred to finance the acquisition of capital assets by the Company,
subject to the limitations placed on Capital Expenditures in Section
7.9 hereof, but only so long as (i) such Lien attaches only to the
asset so financed, (ii) the Indebtedness secured by such Lien does not
exceed one hundred percent (100%) of the purchase price, including
installation and freight, of the asset so financed and (iii) no
Potential Default or Event of Default has occurred and is continuing,
(c) Liens for property taxes not yet due, (d) materialmen's,
mechanics', worker's, repairmen's, employees' or other like Liens
arising against the Company in the ordinary course of business, in each
case which are either not delinquent or are being contested in good
faith and by appropriate actions or proceedings conducted with due
diligence and for the payment of which adequate reserves in accordance
with GAAP have been established with respect thereto to the reasonable
satisfaction of Purchaser, (e) deposits to secure payment of worker's
compensation, unemployment insurance or other social security benefits
and (f) Liens disclosed on Schedule 11.1(b) and approved by Purchaser.
"Person" means any individual, sole proprietorship, corporation,
business trust, unincorporated organization, association, company,
partnership, joint venture, governmental authority (whether a national,
federal, state, county, municipality or otherwise, and shall include
without limitation any instrumentality, division, agency, body or
department thereof), or other entity.
"Polluting Substances" means all pollutants, contaminants, chemicals,
or industrial, toxic or hazardous substances or wastes and shall
include, without limitation, any flammable explosives, radioactive
materials, oil, hazardous materials, hazardous or solid wastes,
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hazardous or toxic substances or related materials defined in the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of 1986, the
Resource Conservation and Recovery Act of 1976, the Hazardous and Solid
Waste Amendments of 1984, and the Hazardous Materials Transportation
Act, as any of the same are hereafter amended, and in the regulations
adopted and publications promulgated thereto; provided, in the event
any of the foregoing Environmental Laws is amended so as to broaden the
meaning of any term defined thereby, such broader meaning shall apply
subsequent to the effective date of such amendment and, provided,
further, to the extent that the applicable laws of any state establish
a meaning for "hazardous substance," "hazardous waste," "hazardous
material," "solid waste," or "toxic substance" which is broader than
that specified in any of the foregoing Environmental Laws, such broader
meaning shall apply.
"Potential Default" means the occurrence of any condition or event
which, with the passage of time or giving of notice or both, would
constitute an Event of Default.
"Prepayment Fee" is defined in Section 2.2 and includes any Prepayment
Fee arising as a result of Purchaser's exercise of its rights and
remedies under Section 8.2.
"Property" means all real property owned, leased or operated by the
Company.
"Public Offering" means an offering of securities pursuant to a
registration statement declared effective by the United States
Securities and Exchange Commission.
"Purchaser" means Purchaser, together with all of its respective
transferees, successors and assigns of all or any portion of the Senior
Subordinated Note or the Senior Subordinated Obligations and any
nominees on whose behalf any of the foregoing purchase or otherwise
acquire any of such Indebtedness of the Company, and shall include, but
not be limited to, each and every "Holder" as defined herein. With
respect to any right or action to be taken by Purchaser under this
Agreement, the term Purchaser means (a) so long as Purchaser is a
Holder, Purchaser, and (b) if Purchaser is no longer a Holder, Holders
representing a majority in interest of the Senior Subordinated
Obligations.
"Reportable Event" means (i) any of the events set forth in Sections
4043(b) (other than a merger, consolidation or transfer of assets in
which no Pension Plan involved has any unfunded benefit liabilities),
4068(f) or 4063(a) of ERISA, (ii) any event requiring any member of the
Controlled Group to provide security under Section 401(a)(29) of the
Code, or (iii) any failure to make payments required by Section 412(m)
of the Code.
"Senior Debt" means, at any given time, the Indebtedness (whether now
outstanding or hereafter incurred) of the Company and Ocala, Inc. in
respect of the Senior Loan Agreement, in a principal amount not to
exceed $12,000,000 in revolving loans and $2,000,000 in term loans
(less the aggregate amount of principal payments made by the Company to
the Senior Lender under such term loans), plus interest, fees,
expenses,
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indemnities and all other amounts payable under the Senior Loan
Agreement and any notes, security documents, guaranties or other loan
documents referred to therein or pursuant thereto, secured by all
assets of the Company.
"Senior Debt Interest Expense" means with respect to the Company and
Ocala and for any period, the interest charges paid or accrued during
such period (including imputed interest on Capital Lease Obligations
but excluding amortization of debt discount and expense and excluding
capitalized interest) on Debt.
"Senior Loan Documents" means the Senior Loan Agreement and the
agreements, documents and instruments executed in connection therewith
or contemplated thereby, and all amendments thereto.
"Senior Lender" means Comerica Bank-Texas, its respective successors
and assigns, and any Person who replaces or refinances the Senior Loans
under the terms set forth in Section 7.1(c).
"Senior Loan Agreement" means the Credit Agreement between the Company,
Ocala, Inc. and the Senior Lender, dated as of March 14, 1996, and all
documents and instruments delivered pursuant thereto in connection with
the loans and advances made thereunder.
"Senior Loan Documents" means the Senior Loan Agreement and the
agreements, documents and instruments executed in connection therewith
or contemplated thereby, and all amendments thereto.
"Senior Loans" means revolving loans in the maximum principal amount of
$12,000,000 and terms loans in the maximum principal amount of
$2,000,000 made to the Company and Ocala, Inc. by the Senior Lender
under the Senior Loan Agreement and any permitted replacements and
refinancings thereof.
"Senior Subordinated Note" means a term promissory note issued to
Purchaser pursuant to this Agreement in substantially the same form as
Exhibit A attached hereto, together with all renewals, modifications,
extensions, substitutions and replacements thereof.
"Senior Subordinated Obligations" means and includes any and all
Indebtedness and/or liabilities of the Company to Purchaser of every
kind, nature and description, direct or indirect, secured or unsecured,
joint, several, joint and several, absolute or contingent, due or to
become due, now existing or hereafter arising, under this Agreement or
any Other Agreement (regardless of how such Indebtedness or liabilities
arise or by what agreement or instrument they may be evidenced or
whether evidenced by any agreement or instrument) and all obligations
of the Company to Purchaser to perform acts or refrain from taking any
action under any of the aforementioned documents, together with all
renewals, modifications, extensions, increases, substitutions or
replacements of any of such Indebtedness.
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"Senior Subordination Agreement" means that certain Senior
Subordination Agreement of even date herewith executed by the Company,
the Senior Lender and Purchaser pursuant to which the relative
priorities of the Senior Lender and Purchaser with respect to the
repayment of Senior Debt and the Senior Subordinated Obligations are
established, and all amendments and modifications thereto.
"Shareholder" means, collectively, Donald E. Whitson, Leo E. Whitson,
Leo E. Whitson 1996 Trust and Marguerite K. Whitson.
"Shareholder Agreement" means the Shareholder Agreement dated as of the
Closing Date by and among the Company, the Purchaser and the
Shareholder.
"Subsidiary" means any Person of which or in which the Company and its
other Subsidiaries own directly or indirectly fifty percent (50%) or
more of (a) the combined voting power of all classes having general
voting power under ordinary circumstances to elect a majority of the
board of directors or equivalent body of such Persons, if it is a
corporation, (b) the capital interest or profits interest of such
Person, if it is a partnership, joint venture or similar entity, or (c)
the beneficial interest of such Person if it is a trust, association or
other unincorporated organization.
"Tangible Net Worth" means, with respect to the Company and Ocala at
the time of calculation, all amounts which, in conformity with GAAP,
would be included as shareholder equity on a consolidated balance sheet
of the Company and Ocala plus the Senior Subordinated Obligations and
the Junior Debt: provided, however, there is excluded therefrom; (a)
any note receivable or account receivable from any Affiliate or
Subsidiary of the Company or from any employee or shareholder of the
Company or any Affiliate or Subsidiary of the Company, (b) any amount
attributable to treasury shares, (c) goodwill, including any amounts
however designated, that represent the excess of the purchase price
paid for assets or stock over the value assigned thereto, (d) patents,
trademarks, trade names and copyrights, and (e) all other assets which
are properly classified as intangible assets under GAAP.
"Termination Date" means the earliest to occur of (a) March 14, 2001,
(b) the date on which the Senior Subordinated Note is accelerated
pursuant to Article VIII, or (c) the date on which the Senior
Subordinated Obligations are paid in full.
"Termination Event" means (a) a Reportable Event, (b) the termination
of a Pension Plan which has unfunded benefit liabilities (including an
involuntary termination under Section 4042 of ERISA), (c) the filing of
a Notice of Intent to Terminate a Pension Plan, (d) the initiation of
proceedings to terminate a Pension Plan under Section 4042 of ERISA or
(e) the appointment of a trustee to administer a Pension Plan under
Section 4042 of ERISA.
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"Total Debt" means, with respect to any Person, all liabilities,
obligations and reserves of each of the Company and Ocala, contingent
or otherwise, which in accordance with GAAP, would be reflected as a
liability on the consolidated balance sheet of the Company and Ocala or
would be required to be disclosed in a financial statement, including,
without limitation or duplication (a) all obligations of each of the
Company and Ocala for borrowed money, (b) all obligations of each of
the Company and Ocala evidenced by bonds, debentures, notes and other
similar instruments, (c) all obligations of each of the Company and
Ocala issued or assumed as the deferred purchase price of property or
services (other than accounts payable to suppliers in the ordinary
course of business), (d) all obligations under leases which shall have
been or should be, in accordance with GAAP, recorded as capital leases
in respect of which either of the Company and Ocala is liable as
lessee, (e) all guarantees, endorsements, and other contingent
obligations of each of the Company and Ocala with respect to the
obligations of other Persons of the type described in (a) through (d)
preceding including, but not limited to, any obligations to acquire any
of such obligations, to purchase, sell, or furnish property or services
primarily for the purpose of enabling such other Person to make payment
of any of such obligations and/or to assure the owner of any of such
obligations and/or to assure the owner of any of such obligations
against loss with respect thereto, (f) all reimbursement obligations,
contingent or otherwise, in respect of letters of credit, surety and
appeal bonds and performance bonds or similar instruments assuring any
other person of the performance of any act or acts or the payment of
any obligation, (g) all indebtedness referred to in clauses (a), (b),
(c), (d), (e) or (f) above secured by (or for which the holder of such
indebtedness has an existing right, contingent or otherwise, to be
secured by) any lien, security interest or other charge or encumbrance
upon or in property owned by either of the Company and Ocala, even
though the Company and Ocala have not assumed or become liable for the
payment of such Debt, and (h) liabilities in respect of unfunded vested
benefits under any Employee Benefit Plans.
"Total Debt Interest Expense" means, with respect to the Company and
Ocala and for any period, the interest charges paid or accrued during
such period (including imputed interest on Capital Lease Obligations
but excluding amortization of debt discount and expense and excluding
capitalized interest) on Total Debt of the Company and Ocala.
"Total Liabilities" means, with respect to the Company and Ocala at the
time of calculation, all amounts which in conformity with GAAP, would
be included as liabilities on a consolidated balance sheet of the
Company and Ocala.
"Transfer" is defined in Section 12.5 hereof.
"Transferee" means any Person to whom a Transfer is made.
"Tylan" means Tylan General, Inc., a Delaware corporation.
"Tylan Subsidiary" means Tylan General Acquisition Subsidiary, Inc., a
Delaware corporation and a wholly-owned subsidiary of Tylan.
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"Warrant" means the warrant to purchase up to ten percent (10%) of the
Company's common stock (on a fully diluted basis), as the same may be
adjusted from time to time pursuant to the terms and conditions of the
Warrant Documents.
"Warrant Documents" means, collectively, (a) the Warrant, (b) the
Warrant Purchase Agreement dated as of the Closing Date executed by and
among the Company, Purchaser and the Shareholder, with respect to the
issuance to Purchaser of the Warrant, and (c) the Shareholders
Agreement, as each of the foregoing may be amended from time to time.
"Working Capital" means, with respect to the Company and Ocala, the
excess of Current Assets of the Company and Ocala over Current
Liabilities of the Company and Ocala.
Terms which are defined in other Sections of this Agreement shall have the
meanings specified therein. All other terms contained in this Agreement shall
have, when the context so indicates, the meanings provided for by the Uniform
Commercial Code as adopted and in force in the State of Texas, as from time to
time in effect.
11.2 Accounting Principles. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done, unless specified otherwise,
in accordance with GAAP, except where such principles are inconsistent with the
requirements of this Agreement. The financial statements and other information
furnished to Purchaser pursuant to subsections 4.2 and 6.1 have been or shall be
prepared in accordance with GAAP as in effect at the time of such preparation.
No "Accounting Changes" (as defined below) shall affect financial covenants,
standards or terms in this Agreement; provided, that the Company shall prepare
footnotes to each Compliance Certificate and the financial statements required
to be delivered hereunder that show the differences between the financial
statements delivered (which reflect such Accounting Changes) and the basis for
calculating financial covenant compliance (without reflecting such Accounting
Changes). "Accounting Changes" means: (a) changes in accounting principles
required by GAAP and implemented by the Company; (b) changes in accounting
principles recommended by the Company's certified public accountants and
implemented by the Company; and (c) changes in carrying value of the Company's
(or any of its Subsidiaries') assets, liabilities or equity accounts.
11.3 Directly or Indirectly. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person.
XII. MISCELLANEOUS
12.1 Expenses. The Company agrees to pay (a) all out-of-pocket expenses
of Purchaser (including reasonable fees, expenses and disbursements of
Purchaser's outside counsel) in connection with the preparation, negotiation,
enforcement, operation and administration of this Agreement, the Senior
Subordinated Note, the Other Agreements, or any
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<PAGE> 42
documents executed in connection therewith, or any waiver, modification or
amendment of any provision hereof or thereof; and (b) if an Event of Default
occurs, all court costs and costs of collection, including, without limitation,
reasonable fees, expenses and disbursements of counsel employed in connection
with any and all collection efforts. The attorneys' fees arising from such
services, including those of any appellate proceedings, and all expenses, costs,
charges and other fees incurred by such counsel or Purchaser in any way or
respect arising in connection with or relating to any of the events or actions
described in this Article XII shall be payable by the Company to Purchaser, on
demand, and shall be additional Senior Subordinated Obligations secured under
this Agreement. Without limiting the generality of the foregoing, such expenses,
costs, charges and fees may include: recording costs, appraisal costs, paralegal
fees, costs and expenses; accountants' fees, costs and expenses; court costs and
expenses; photocopying and duplicating expenses; court reporter fees, costs and
expenses; long distance telephone charges; air express charges, telegram
charges; facsimile charges; secretarial overtime charges; and expenses for
travel, lodging and food paid or incurred in connection with the performance of
such legal services. The Company agrees to indemnify Purchaser from and hold it
harmless against any documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery by the Company or
any other Person of this Agreement, the Other Agreements, and any documents
executed in connection therewith.
12.2 Indemnification. IN ADDITION TO AND NOT IN LIMITATION OF THE OTHER
INDEMNITIES PROVIDED FOR HEREIN OR IN ANY OTHER AGREEMENTS, THE COMPANY HEREBY
INDEMNIFIES AND AGREES TO HOLD HARMLESS PURCHASER AND ANY OTHER HOLDERS, AND
EVERY AFFILIATE OF ANY OF THE FOREGOING, AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS, FROM ANY CLAIMS, ACTIONS, DAMAGES, COSTS,
ATTORNEYS' FEES AND EXPENSES (INCLUDING ANY OF THE SAME ARISING OUT OF THE SOLE
OR CONTRIBUTORY NEGLIGENCE OF THE PERSON TO BE INDEMNIFIED) TO WHICH ANY OF THEM
MAY BECOME SUBJECT, INSOFAR AS SUCH LOSSES, LIABILITIES, CLAIMS, ACTIONS,
DAMAGES, COSTS AND EXPENSES ARISE FROM OR RELATE TO THIS AGREEMENT OR THE OTHER
AGREEMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR FROM ANY
INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION,
ANY THREATENED INVESTIGATION, LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF
THE FOREGOING, OR FROM ANY VIOLATION OR CLAIM OF VIOLATION OF ANY APPLICABLE
ENVIRONMENTAL LAWS WITH RESPECT TO ANY REAL OR PERSONAL PROPERTY, OR FROM ANY
GOVERNMENTAL OR JUDICIAL CLAIM, ORDER OR JUDGMENT WITH RESPECT TO ANY REAL OR
PERSONAL PROPERTY OF THE COMPANY, OR FROM ANY BREACH OF THE WARRANTIES,
REPRESENTATIONS OR COVENANTS CONTAINED IN THIS AGREEMENT OR THE OTHER
AGREEMENTS. THE FOREGOING INDEMNIFICATION INCLUDES ANY SUCH CLAIMS, ACTIONS,
DAMAGES, COSTS, AND EXPENSES INCURRED BY REASON OF THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF THE PERSON TO BE INDEMNIFIED, BUT EXCLUDES ANY OF THE SAME
INCURRED BY REASON OF SUCH PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
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12.3 Notices. Except as otherwise expressly provided herein, all
communications provided for hereunder shall be in writing and delivered or
mailed by the United States mails, certified mail, return receipt requested, (a)
if to Purchaser, addressed to Purchaser at the address specified on Annex I
hereto or to such other address as Purchaser may in writing designate, (b) if to
any other Holder, addressed to such Holder at such address as such Holder may in
writing designate, and (c) if to the Company, addressed to the Company at the
address set forth next to its name on the signature pages hereto or to such
other address as the Company may in writing designate. Notices shall be deemed
to have been validly served, given or delivered (and "the date of such notice"
or words of similar effect shall mean the date) five (5) days after deposit in
the United States mails, certified mail, return receipt requested, with proper
postage prepaid, or upon actual receipt thereof (whether by noncertified mail,
telecopy, telegram, facsimile, express delivery or otherwise), whichever is
earlier.
12.4 Reproduction of Documents. This Agreement and all documents
relating hereto, including, without limitation (a) consents, waivers and
modifications which may hereafter be executed, (b) documents received by
Purchaser at the closing of the purchase of the Senior Subordinated Note, and
(c) financial statements, certificates and other information previously or
hereafter furnished to Purchaser, may be reproduced by Purchaser by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and Purchaser may destroy any original document so reproduced.
The Company agrees and stipulates that any such reproduction which is legible
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by you in the regular course of
business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence; provided that nothing
herein contained shall preclude the Company from objecting to the admission of
any reproduction on the basis that such reproduction is not accurate, has been
altered, is otherwise incomplete or is otherwise inadmissible.
12.5 Assignment, Sale of Interest. The Company may not sell, assign or
transfer this Agreement, or the Other Agreements or any portion thereof,
including, without limitation, the Company's rights, title, interests, remedies,
powers and/or duties hereunder or thereunder. The Company hereby consents to
Purchaser's participation, sale, assignment, transfer or other disposition
(collectively, a "Transfer"), at any time or times hereafter, of this Agreement,
or the Other Agreements to which the Company is a party, or of any portion
hereof or thereof, including, without limitation, Purchaser's rights, title,
interests, remedies, powers and/or duties hereunder or thereunder. In connection
with any Transfer, any Transferee shall make the representations and warranties
set forth in Article III of this Agreement. In connection with any Transfer, the
Company agrees to cooperate fully with Purchaser and any potential Transferee.
Such cooperation shall include, but is not limited to, cooperating with any
audits or other due diligence investigation undertaken by any potential
Transferee.
12.6 Successors and Assigns. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns.
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12.7 Headings. The headings of the sections and subsections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
12.8 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart or reproduction thereof permitted by Section
12.3.
12.9 Reliance on and Survival Provisions. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with a
closing, (a) shall be deemed to be material and to have been relied upon by
Purchaser, notwithstanding any investigation heretofore or hereafter made by
Purchaser or on Purchaser's behalf, and (b) shall survive the delivery of this
Agreement and the Senior Subordinated Note until all obligations owing by the
Company to the Purchaser under this Agreement shall have been satisfied.
12.10 Integration and Severability. This Agreement embodies the entire
agreement and understanding between Purchaser and the Company, and supersedes
all prior agreements and understandings relating to the subject matter hereof.
In case any one or more of the provisions contained in this Agreement or in any
Senior Subordinated Note, or any application thereof, shall be invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein and therein, and any other application
thereof, shall not in any way be affected or impaired thereby.
12.11 LAW GOVERNING. THIS AGREEMENT HAS BEEN SUBSTANTIALLY NEGOTIATED
AND IS BEING EXECUTED, DELIVERED, AND ACCEPTED, AND IS INTENDED TO BE PERFORMED,
IN PART IN THE STATE OF TEXAS. ALL OBLIGATIONS, RIGHTS AND REMEDIES HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS. THE SENIOR SUBORDINATED NOTE SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE SPECIFIED
THEREIN. PURCHASER RETAINS ALL RIGHTS UNDER THE LAWS OF THE UNITED STATES OF
AMERICA, INCLUDING THOSE RELATING TO THE CHARGING OF INTEREST.
12.12 WAIVERS; MODIFICATION. NO PROVISION OF THIS AGREEMENT MAY BE
WAIVED, CHANGED OR MODIFIED, OR THE DISCHARGE THEREOF ACKNOWLEDGED, ORALLY, BUT
ONLY BY AN AGREEMENT IN WRITING SIGNED BY THE PARTY AGAINST WHOM THE ENFORCEMENT
OF ANY WAIVER, CHANGE, MODIFICATION OR DISCHARGE IS SOUGHT.
12.13 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE COMPANY AND PURCHASER HEREBY IRREVOCABLY AND EXPRESSLY WAIVE
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT,
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<PAGE> 45
TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE SENIOR
SUBORDINATED NOTE OR ANY DOCUMENTS ENTERED INTO IN CONNECTION THEREWITH OR THE
TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF PURCHASER IN THE
NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
12.14 The Act. This Agreement, the Other Agreements and all
transactions contemplated hereby and thereby are subject to provisions of the
Act, and shall be governed thereby to the extent of any conflict therewith.
IN WITNESS WHEREOF, the Company and Purchaser have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized.
COMPANY:
SPAN INSTRUMENTS, INC.
By: /s/ Brian R. Day
--------------------------------
Brian Day
Chief Financial Officer
Company's Address for Notices:
2201 Avenue K
Plano, Texas 75074
Attn: Mr. Brian Day
Facsimile: (214) 422-2165
with a copy to:
Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attn: Mr. Richard L. Waggoner, Esq.
Facsimile: (214) 999-4667
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PURCHASER:
STRATFORD CAPITAL PARTNERS, L.P.
By: Stratford Capital GP Associates, L.P.
Its: General Partner
By: Stratford Capital Corporation
Its: General Partner
By: /s/ John Farmer
----------------------------------
John Farmer
Managing Director and Treasurer
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ANNEX I
TO
NOTE PURCHASE AGREEMENT
Information Concerning Purchaser
Purchaser: STRATFORD CAPITAL PARTNERS, L.P.
Aggregate Principal Amount of
Senior Subordinated Notes: $5,000,000
Denomination of Warrant: Representing 10% of the common stock of the
Company
Address for notices: 200 Crescent Court
Suite 1650
Dallas, Texas 75201
Attn: John Farmer, Managing Partner
Facsimile: (214) 740-7340
With a copy to: Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attn: Larry A. Makel, Esq.
Facsimile: (214) 939-6100
Payments to be made
by wire transfer to: Texas Commerce Bank National Association
2200 Ross Avenue
Dallas, Texas 75201
ABA Routing #: 1130-0060-9
Account #: 08805173695
For the Account of: Stratford Capital
Partners, L.P.
Re: Span Instruments, Inc
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WARRANT PURCHASE AGREEMENT
Warrant Purchase Agreement (this "Agreement") made as of March 14,
1996, by and among SPAN INSTRUMENTS, INC., a Texas corporation (the "Company"),
Donald E. Whitson, Leo E. Whitson, Leo E. Whitson 1996 Trust and Marguerite K.
Whitson (collectively, the "Shareholder"), and STRATFORD CAPITAL PARTNERS, L.P.,
a Texas limited partnership (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Shareholder owns beneficially and of record 64.38% of the
issued and outstanding capital stock of the Company;
WHEREAS, the Company and the Purchaser have entered into a Note
Purchase Agreement (the "Note Agreement") dated of even date with this Agreement
with the Purchaser;
WHEREAS, the Company, the Shareholder and the Purchaser have entered
into a Shareholder Agreement (the "Shareholder Agreement") dated of even date
with this Agreement; and
WHEREAS, the Purchaser is willing to enter into and consummate the
transactions contemplated by the Note Agreement only if, among other things, the
Company and the Shareholder enter into, and perform under, this Agreement and
the Shareholder Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Purchaser, the
Shareholder and the Company, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the meanings
indicated:
Act. This term is defined in Section 3.01(k).
Additional Securities. This term is defined in Section 2.08(a)(iv).
Adjustment Event. Any event in which (a) the Company issues any shares
of Capital Stock in an Adjustment Public Offering for consideration per
share that exceeds the amount received per share by any Holder in
connection with the exercise of the Put Option with respect to such
Holder; (b) any Shareholder sells, transfers, pledges or otherwise
disposes of any Capital Stock for consideration per share that exceeds
the
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<PAGE> 49
amount received per share by any Holder in connection with the exercise
of the Put Option with respect to such Holder; (c) any Person acquires
Capital Stock in connection with the acquisition of the beneficial
ownership of more than fifty percent (50%) of the voting securities of
the Company, or acquires Capital Stock and the right to elect a
majority of the members of the Company's board of directors for a
consideration per share or unit that exceeds the amount received per
share by any such Holder in connection with the exercise of such Put
Option; (d) the Company sells all or a majority of its assets or
revenue or income generating capacity for such amount of consideration
that, if the Company were liquidated on the date that such sale is
consummated, the holders of any class of Capital Stock would receive
per share distributions exceeding the amount received per share by any
such Holder in connection with the exercise of such Put Option; or (e)
the Company participates in any merger, consolidation, reorganization,
share exchange, recapitalization, or similar transaction or series of
related transactions involving a change of control of the Company or
disposition of all or a majority of its assets or revenue or income
generating capacity, directly or indirectly, in which the holders of
any class of Capital Stock receive per share consideration for, or
distributions with respect to, their shares in an amount that exceeds
the amount received per share by such Holder in connection with the
exercise of such Put Option.
Adjustment Public Offering. Each primary public offering of shares of
any class of Capital Stock pursuant to a registration statement filed
with the Commission.
Affiliate. With respect to any Person, (a) a Person that, directly or
indirectly or through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person; (b) any
Person of which such Person or such Person's spouse is an officer,
director, security holder of not less than ten percent (10%) of the
Capital Stock (on a fully diluted basis), partner, or, in the case of a
trust, the beneficiary or trustee, and (c) any Person that is an
officer, director, security holder of not less than ten percent (10%)
of the Capital Stock (on a fully diluted basis), partner, or, in the
case of a trust, the beneficiary or trustee of such Person. The term
"control" as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction
of the management or policies of such Person, whether through the
ownership of voting securities, by contract, or otherwise.
Agreement. This term is defined in the preamble.
Appraised Value. The value determined in accordance with the following
procedures. For a period of thirty (30) days after the date of a
Valuation Event (the "Negotiation Period"), each party to this
Agreement agrees to negotiate in good faith to reach agreement upon the
Appraised Value of the securities or property at issue, as of the date
of the Valuation Event, which will be the fair market value of such
securities or property, without premium for control or discount for
minority interests, illiquidity, or restrictions on transfer. In the
event that the parties are unable to agree upon the Appraised Value of
such securities or other property by the end of the Negotiation Period,
then the Appraised
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Value of such securities or property will be determined for purposes of
this Agreement by a recognized appraisal or investment banking firm
mutually agreeable to the Holders and the Company (the "Appraiser"). If
the Holders and the Company cannot agree on an Appraiser within fifteen
(15) days after the end of the Negotiation Period, the Company, on the
one hand, and the Holders, on the other hand, shall each select an
Appraiser within twenty-one (21) days after the end of the Negotiation
Period and those two Appraisers shall select within twenty-five (25)
days after the end of the Negotiation Period an independent Appraiser
to determine the fair market value of such securities or property,
without premium for control or discount for minority interests. Such
independent Appraiser shall be directed to determine fair market value
of such securities or property as soon as practicable, but in no event
later than thirty (30) days from the date of its selection. The
determination by an Appraiser of the fair market value will be
conclusive and binding on all parties to this Agreement. Appraised
Value of each share of Common Stock at a time when (i) the Company is
not a reporting company under the Exchange Act and (ii) the Common
Stock is not traded in the organized securities markets, will, in all
cases, be calculated by determining the Appraised Value of the entire
Company taken as a whole and dividing that value by the sum of (x) the
number of shares of Common Stock then outstanding plus (y) the number
of shares of Common Stock Equivalents, without premium for control or
discount for minority interests, illiquidity, or restrictions on
transfer. The costs of the Appraiser will be borne equally by the
Company and the Purchaser. In no event will the Appraised Value of the
Common Stock or Other Securities be less than the per share
consideration received or receivable with respect to the Common Stock
or securities or property of the same class as the Other Securities, as
the case may be, in connection with a pending transaction involving a
sale, merger, recapitalization, reorganization, consolidation, or share
exchange, dissolution of the Company, sale or transfer of all or a
majority of its assets or revenue or income generating capacity, or
similar transaction. The prevailing market prices for any security or
property will not be dispositive of the Appraised Value thereof.
Appraiser. This term is defined in the definition of Appraised Value.
Average Market Value. The average of the Closing Price for the security
in question for the thirty (30) trading days immediately preceding the
date of determination.
Book Value. With respect to shares of Common Stock, an amount equal to
the quotient determined by dividing (a) the sum of (x) the total
consolidated assets of the Company shown on the consolidated balance
sheet of the Company as of the date of the Valuation Event in question
minus (y) the total consolidated liabilities of the Company as shown on
the consolidated balance sheet of the Company as of the date of the
Valuation Event by (b) the aggregate number of shares of Common Stock
and Common Stock Equivalents as of the date of the Valuation Event. For
the purposes of this Agreement, the Book Value of the shares of Common
Stock will be determined by the independent certified public
accountants then retained by the Company as described in Section 4.06.
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Buyer. This term is defined in Section 5.02(a)(ii) of the Shareholder
Agreement.
Capital Stock. As to any Person, its common stock and any other capital
stock of such Person authorized from time to time, and any other
shares, options, interests, participations, or other equivalents
(however designated) of or in such Person, whether voting or nonvoting,
including, without limitation, common stock, options, warrants,
preferred stock, phantom stock, stock appreciation rights, convertible
notes or debentures, stock purchase rights, and all agreements,
instruments, documents, and securities convertible, exercisable, or
exchangeable, in whole or in part, into any one or more of the
foregoing.
Closing Date. March 14, 1996.
Closing Price.
(a) If the primary market for the security in question is
a national securities exchange registered under the Exchange Act, the
National Association of Securities Dealers Automated Quotation System
-- National Market System, or other market or quotation system in which
last sale transactions are reported on a contemporaneous basis, the
last reported sales price, regular way, of such security for such day,
or, if there has not been a sale on such trading day, the highest
closing or last bid quotation therefor on such trading day (excluding,
in any case, any price that is not the result of bona fide arm's length
trading); or
(b) If the primary market for such security is not an
exchange or quotation system in which last sale transactions are
contemporaneously reported, the highest closing or last bona fide bid
or asked quotation by disinterested Persons in the over-the-counter
market on such trading day as reported by the National Association of
Securities Dealers through its Automated Quotation System or its
successor or such other generally accepted source of publicly reported
bid quotations as the Holders designate.
Common Stock. The common stock, no par value, of the Company.
Common Stock Equivalent. Any option, warrant, right, or similar
security exercisable into, exchangeable for, or convertible to Common
Stock.
Commission. The Securities and Exchange Commission and any successor
federal agency having similar powers.
Company. Span Instruments, Inc. and any successor or assign, and,
unless the context requires otherwise, the term Company includes any
Subsidiary. No specific reference to a Subsidiary in any provision of
this Agreement or the Shareholder Agreement shall create any
implication that any Subsidiary is not included in any reference to the
Company in any other provision of this Agreement or the Shareholder
Agreement.
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Co-Sell Shares. This term is defined in Section 5.04(d) of the
Shareholder Agreement.
Co-Sellers. This term is defined in Section 5.04(d) of the Shareholder
Agreement.
Dilution Fee. This term is defined in Article III of the Shareholder
Agreement.
Election Notice. This term is defined in Section 5.02(b) of the
Shareholder Agreement.
Employment Agreement. This term is defined in Section 11.1 of the Note
Agreement.
Excess Consideration. The amount that a Holder would have realized
following the Adjustment Event had the Put Option not been exercised by
such Holder until such time, minus the amount that such Holder realized
due to the exercise of the Put Option; provided, however, that the
amount of Excess Consideration will in all events be deemed to be at
least zero.
Exchange Act. The Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
Exchange Common Stock. This term is defined in Section 6.12 of the
Shareholder Agreement.
Exchange Company. This term is defined in Section 6.12 of the
Shareholder Agreement.
Exchange Notice. This term is defined in Section 6.12 of the
Shareholder Agreement.
Exercise Price. The price per share specified in Section 2.03 as
adjusted from time to time pursuant to the provisions of this
Agreement.
Fair Market Value. (a) As to securities regularly traded in the
organized securities markets, the Average Market Value; and (b) as to
all securities not regularly traded in the securities markets and other
property, the fair market value of such securities or property as
determined in good faith by the board of directors of the Company at
the time it authorizes the transaction (a "Valuation Event") requiring
a determination of Fair Market Value under this Agreement; provided,
however, that, at the election of the Holders, the Fair Market Value of
such securities and other property will be the Appraised Value.
Holders. The Purchaser, and all Persons (not to exceed five (5) Persons
in the aggregate at any one time) holding Registrable Securities,
except that neither the Company nor any Shareholder nor any Affiliate
of the Company or the Shareholder will at any time be a Holder. Unless
otherwise provided in this Agreement, in each instance that the Holders
are required to request or consent in concert to an action, the Holders
will be deemed to
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have requested or consented to such action if the Holders of a
majority-in-interest of the Registrable Securities so request or
consent.
Indemnified Party. This term is defined in Section 6.01 and in Section
10.01 of the Shareholder Agreement.
Initial Holders. The Purchaser and any Affiliate of the Purchaser to
which any of the Warrants or any part of or interest in the Warrants is
assigned.
Intellectual Property. This term is defined in Section 3.01(g).
Issuable Warrant Shares. Shares of Common Stock or Other Securities
issuable on exercise of the Warrants.
Issued Warrant Shares. Shares of Common Stock or Other Securities
issued on exercise of the Warrants.
Management Shareholder Agreements. This term is defined in Section 11.1
of the Note Agreement.
Material Adverse Effect. (a) A material adverse effect upon the
business, operations, properties, assets, condition or prospects
(financial or otherwise) of the Company or (b) the impairment of the
ability of any party to perform its obligations under this Agreement or
the Shareholder Agreement or of Purchaser to enforce or collect any of
the Senior Subordinated Obligations (as defined in the Note Agreement).
In determining whether any individual event would result in a Material
Adverse Effect, notwithstanding that such event does not of itself have
such effect, a Material Adverse Effect shall be deemed to have occurred
if the cumulative effect of such event and all other then existing
events would result in a Material Adverse Effect.
Merger. This term is defined in Section 2.08(e).
Merger Agreement. That certain Agreement and Plan of Reorganization
dated February 20, 1996, by and among the Company, Tylan Subsidiary and
Tylan, setting forth the terms, provisions and conditions regarding the
proposed merger of the Company with and into Tylan Subsidiary.
Negotiation Period. This term is defined in the definition of Appraised
Value.
New Securities. Any Capital Stock other than Warrant Shares and other
than the Permitted Stock.
Non-Compete Agreement. This term is defined in Section 11.1 of the Note
Agreement.
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Note Agreement. This term is defined in the preamble and includes the
Note Purchase Agreement of even date with this Agreement between the
Company and the Purchaser and all documents evidencing indebtedness
thereunder or otherwise related to the Note Agreement as the same may
be amended from time to time, and any refinancing, refunding, or
replacements of the indebtedness under the Note Agreement.
Note. All or any portion of the Senior Subordinated Note (as defined in
the Note Agreement) and any and all documents evidencing the
indebtedness under the Note and any refinancing, refunding, or
replacement of the Note.
Notice of Sale. This term is defined in Section 5.02(a) of the
Shareholder Agreement.
Ocala. Ocala, Inc., a Texas corporation, a Subsidiary of the Company.
Ocala Shareholder Agreement. This term is defined in Section 11.1 of
the Note Agreement.
Other Securities. Any stock, other securities, property, or other
property or rights (other than Common Stock) that the Holders become
entitled to receive upon exercise of the Warrants.
Permitted Stock. Common Stock or options or warrants to acquire Common
Stock, constituting, in the aggregate, ten percent (10%) or less of the
outstanding Common Stock, issued or reserved for issuance to present
and future key management of the Company pursuant to a management
incentive program.
Person. This term will be interpreted broadly to include any
individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, company,
institution, entity, party, or government (whether national, federal,
state, county, city, municipal, or otherwise, including, without
limitation, any instrumentality, division, agency, body, or department
of any of the foregoing).
Purchaser. This term is defined in the preamble.
Put Option. This term is defined in Section 4.01 of the Shareholder
Agreement.
Put Option Closing. This term is defined in Section 4.05 of the
Shareholder Agreement.
Put Option Period. This term is defined in Section 4.01 of the
Shareholder Agreement.
Put Price. This term is defined in Section 4.02 of the Shareholder
Agreement.
Put Shares. The Warrant Shares plus any other shares of Capital Stock
owned from time to time by a Holder.
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Qualified Initial Public Offering. The first firm commitment
underwritten public offering of Common Stock to the general public
under the Securities Act completed by the Company and resulting in net
proceeds (before underwriting discounts and commissions) to the Company
of an amount equal to or in excess of $15,000,000.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance
with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
Registrable Securities. (a) the Issuable Warrant Shares and (b) the
Issued Warrant Shares that have not been previously sold to the public.
Related Party. An entity wholly owned by a Selling Shareholder or one
or more Related Parties.
Selling Shareholder. This term is defined in Section 5.02 of the
Shareholder Agreement.
Securities Act. The Securities Act of 1933, as amended, and the rules
and regulations thereunder.
Senior Lender. Comerica Bank-Texas, and its successors and assigns, and
any Person who replaces or refinances the Senior Loans (as defined in
the Note Agreement) under the terms set forth in Section 7.1(c) of the
Note Agreement.
Senior Loan Agreement. The Credit Agreement by and among the Company,
Ocala, Inc. and the Senior Lender, dated as of March 14, 1996, and all
documents and instruments delivered pursuant thereto in connection with
the loans and advances made thereunder.
Senior Loan Documents. The Senior Loan Agreement and all agreements,
documents and instruments executed in connection therewith or
contemplated thereby, and all amendments thereto.
Shareholder. This term is defined in the preamble.
Shareholder Agreement. This term is defined in the preamble and
includes the Shareholder Agreement dated as of the Closing Date between
the Company, the Purchaser, and the Shareholder in substantially the
form attached to this Agreement as Annex A and incorporated in this
Agreement by reference.
Shareholder Group. Collectively, Don Whitson, Leo Whitson Leo E.
Whitson 1996 Trust and Marguerite Whitson.
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Subsidiary. Each Person of which or in which the Company or its other
Subsidiaries own directly or indirectly fifty-one percent (51%) or more
of (i) the combined voting power of all classes of stock having general
voting power under ordinary circumstances to elect a majority of the
board of directors or equivalent body of such Person, if it is a
corporation or similar person; (ii) the capital interest or profits
interest of such Person, if it is a partnership, joint venture, or
similar entity; or (iii) the beneficial interest of such Person, if it
is a trust, association, or other unincorporated organization.
Tylan. Tylan General, Inc., a Delaware corporation.
Tylan Subsidiary. Tylan General Acquisition Subsidiary, Inc., a
Delaware corporation and wholly-owned subsidiary of Tylan.
Valuation Event. This term is defined in the definition of Fair Market
Value.
Warrant Agreement. This term is defined in the preamble to the
Shareholder Agreement and includes this Agreement and all documents
related to this Agreement as this Agreement may be amended from time to
time.
Warrants. The Warrants referred to in Section 2.01, dated as of the
Closing Date, issued to Initial Holders, and all Warrants issued upon
the transfer or division of, or in substitution for, such Warrants.
Warrant Shares. The Issued Warrant Shares and the Issuable Warrant
Shares.
Whitson Option Agreements. This term is defined in Section 11.1 of the
Note Agreement.
ARTICLE II
THE WARRANT
2.01 The Warrant. On the Closing Date, Purchaser agrees to purchase
from the Company for the purchase price set forth beneath the name of Purchaser
on the signature page of this Agreement, and the Company agrees to issue to
Purchaser, a Warrant in substantially the form attached to this Agreement as
Annex B and incorporated in this Agreement by reference to purchase the number
of shares of Common Stock set forth beneath the name of Purchaser on the
signature page of this Agreement, all in accordance with the terms and
conditions of this Agreement.
2.02 Legend. The Company will deliver to Purchaser on the Closing
Date one or more certificates representing the Warrant purchased by such
Purchaser in such denominations as such Purchaser requests. Such certificates
will be issued in the Purchaser's name or in the name or names of its designee
or designees, as the case may be. It is understood and agreed that the
certificates evidencing the Warrants will bear the following legend:
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"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN
CONNECTION WITH THE DISTRIBUTION HEREOF. THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION
FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS."
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE
SUBJECT TO THE TERMS AND PROVISIONS OF A WARRANT PURCHASE AGREEMENT AND
A SHAREHOLDER AGREEMENT, EACH DATED AS OF MARCH 14, 1996, BY AND AMONG
SPAN INSTRUMENTS, INC. (THE "COMPANY"), DONALD E. WHITSON, LEO E.
WHITSON, LEO E. WHITSON 1996 TRUST AND MARGUERITE K. WHITSON
(COLLECTIVELY, THE "SHAREHOLDER") AND STRATFORD CAPITAL PARTNERS, L.P.
(THE "PURCHASER") (AS SUCH AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED,
AMENDED, OR RESTATED FROM TIME TO TIME, THE "AGREEMENTS"). COPIES OF
THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY."
2.03 Exercise Price. The Exercise Price per share will be $.01 for
each share of Common Stock covered by the Warrants; provided, however, that in
no event will the aggregate Exercise Price for all of the shares of Common Stock
covered by all Warrants exceed $100, whether as a result of any change in the
par value of the Common Stock or Other Securities, as a result of any change in
the number of shares purchasable as provided in this Article II, or otherwise;
provided, further, that such limitation of the aggregate Exercise Price will
have no effect whatsoever upon the amount or number of Warrant Shares for which
the Warrants may be exercised.
2.04 Exercise.
(a) Unless canceled pursuant to Section 2.08(e) hereof,
each of the Warrants may be exercised at any time or from time to time
on or after the earlier of (i) the first anniversary of the Closing
Date or (ii) immediately upon the Company becoming aware that (A) the
Merger Agreement has been terminated, or (B) good faith negotiations
between the Company and Tylan regarding the proposed Merger have ceased
(it being the express obligation of the Company to notify Purchaser in
writing of the occurrence of the events referenced in clauses (A) or
(B) above) and prior to five (5) years after the date the Note is paid
in full, on any day that is a Business Day, for all or any part of the
number of Issuable Warrant Shares purchasable upon its exercise. In
order to exercise any Warrant, in whole or in part, the Holder will
deliver to the Company at the address designated by the Company
pursuant to Section 6.06, (x) a written notice of such Holder's
election to exercise its
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Warrant, which notice will specify the number of Issuable Warrant
Shares to be purchased pursuant to such exercise, (y) payment of the
Exercise Price, in an amount equal to the aggregate purchase price for
all Issuable Warrant Shares to be purchased pursuant to such exercise,
and (z) the Warrant. Such notice will be substantially in the form of
the Subscription Form appearing at the end of the Warrants. Upon
receipt of such notice, the Company will, as promptly as practicable,
and in any event within three (3) Business Days, execute, or cause to
be executed, and deliver to such Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock and
Other Securities issuable upon such exercise, as provided in this
Agreement. The stock certificate or certificates so delivered will be
in such denominations as may be specified in such notice and will be
registered in the name of such Holder, or such other name as designated
in such notice. A Warrant will be deemed to have been exercised, such
certificate or certificates will be deemed to have been issued, and
such Holder or any other Person so designated or named in such notice
will be deemed to have become a holder of record of such shares for all
purposes, as of the date that such notice, together with payment of the
Exercise Price and the Warrant, is received by the Company. If the
Warrant has been exercised in part, the Company will, at the time of
delivery of such certificate of certificates, deliver to such Holder a
new Warrant evidencing the rights of such Holder to purchase a number
of Issuable Warrant Shares with respect to which the Warrant has not
been exercised, which new Warrant will, in all other respects, be
identical with the Warrants, or, at the request of such Holder,
appropriate notation may be made on the Warrant and the Warrant
returned to such Holder.
(b) Payment of the Exercise Price will be made, at the
option of the Holder, by (i) company or individual check, certified or
official bank check, (ii) cancellation of any debt owed by the Company
to the Holder, or (iii) cancellation of Warrants, valued at Fair Market
Value. If the Holder surrenders a combination of cash or cancellation
of any debt owed by the Company to the Holder or Warrants, the Holder
will specify the respective number of shares of Common Stock to be
purchased with each form of consideration, and the foregoing provisions
will be applied to each form of consideration with the same effect as
if the Warrant were being separately exercised with respect to each
form of consideration; provided, however, that a Holder may designate
that any cash to be remitted to a Holder in payment of debt be applied,
together with other monies, to the exercise of the portion of the
Warrant being exercised for cash.
2.05 Taxes. The issuance of any Common Stock or Other Securities
upon the exercise of the Warrant will be made without charge to any Holder for
any tax, other than income taxes assessed on such Holder, in respect of such
issuance.
2.06 Warrant Register. The Company will, at all times while any of
the Warrants remain outstanding and exercisable, keep and maintain at its
principal office a register in which the registration, transfer, and exchange of
the Warrants will be provided for. The Company will not at any time, except upon
the dissolution, liquidation, or winding up of the Company, close such register
so as to result in preventing or delaying the exercise or transfer of any
Warrant.
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2.07 Transfer and Exchange. The Warrants and all options and rights
under the Warrants are transferable, as to all or any part of the number of
Issuable Warrant Shares purchasable upon its exercise, by the Holders of the
Warrants, in person or by duly authorized attorney, on the books of the Company
upon surrender of the Warrants at the principal offices of the Company, together
with the form of transfer authorization attached to the Warrants duly executed;
provided, however, such transfers will be made only in compliance with
applicable state securities laws and to Persons that the transferor in good
faith believes to be an "accredited investor" as such term is defined in
Regulation D under the Securities Act. In connection with any such transfer of
the Warrants, any transferee shall make the representations and warranties set
forth in Section 3.02 of this Agreement. Absent any such transfer and subject to
the Shareholder Agreement, the Company may deem and treat the registered Holders
of the Warrants at any time as the absolute owners of the Warrants for all
purposes and will not be affected by any notice to the contrary. If any Warrant
is transferred in part, the Company will, at the time of surrender of such
Warrant, issue to the transferee a Warrant covering the number of Issuable
Warrant Shares transferred and to the transferor a Warrant covering the number
of Issuable Warrant Shares not transferred.
2.08 Adjustments to Number of Shares Purchasable.
(a) The Warrants will be exercisable for the number of
shares of Common Stock in such manner that, following the complete and
full exercise of the Warrant of each Holder, the amount of Common Stock
issued to all Holders will equal the aggregate number of shares of
Common Stock set forth beneath the name of the Purchaser on the
signature pages of this Agreement, as adjusted, to the extent
necessary, to give effect to the following events:
(i) In case at any time or from time to time,
the holders of any class of Common Stock or Common Stock
Equivalent have received, or (on or after the record date
fixed for the determination of shareholders eligible to
receive) have become entitled to receive, without payment
therefor:
(A) consideration (other than cash) by
way of dividend or distribution; or
(B) consideration (including cash) by
way of spin-off, split-up, reclassification
(including any reclassification in connection with a
consolidation or merger in which the Company is the
surviving corporation), recapitalization, combination
of shares into a smaller number of shares, or similar
corporate restructuring;
other than additional shares of Common Stock issued as a stock
dividend or in a stock-split (adjustments in respect of which
are provided for in Sections 2.08(a)(ii) and (iii)), then, and
in each such case, the Holders, on the exercise of the
Warrants, will be entitled to receive for each share of Common
Stock issuable under the
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Warrants as of the record date fixed for such distribution,
the greatest per share amount of consideration received by any
holder of any class of Common Stock or Common Stock Equivalent
or to which such holder is entitled less the amount of any
Dilution Fee actually and irrevocably paid to such Holders.
All such consideration receivable upon exercise of the Warrant
with respect to such a distribution will be deemed to be
outstanding and owned by such Holder for purposes of
determining the amount of consideration to which such Holder
is entitled upon exercise of the Warrant with respect to any
subsequent distribution.
(ii) If at any time there occurs any stock split,
stock dividend, reverse stock split, or other subdivision of
the Common Stock, then the number of Issuable Warrant Shares
and the Exercise Price, subject to the limitations set forth
in this Agreement, will be proportionately adjusted.
(iii) In case of any reclassification or change of
outstanding shares of any class of Common Stock or Common
Stock Equivalent (other than a change in par value, or from
par value to no par value, or from no par value to par value),
or in the case of any consolidation of the Company with, or
merger or share exchange of the Company with or into, another
Person, or in case of any sale of all or a majority of the
property, assets, business, income or revenue generating
capacity, or goodwill of the Company, the Company, or such
successor or other Person, as the case may be, will provide in
writing that the Holder of this Warrant will thereafter be
entitled to receive the highest per share kind and amount of
consideration received or receivable (including cash) upon
such reclassification, change, consolidation, merger, share
exchange, or sale by any holder of any class of Common Stock
or Common Stock Equivalent that this Warrant entitles the
Holder to receive immediately prior to such reclassification,
change, consolidation, merger, share exchange, or sale (as
adjusted pursuant to Section 2.08(a)(i) and otherwise in this
Agreement). Any such successor Person, which thereafter will
be deemed to be the Company for purposes of the Warrants, will
provide for adjustments that are as nearly equivalent as may
be possible to the adjustments provided for by this Section
2.08.
(iv) If at any time the Company issues or sells
any shares of any Common Stock or any Common Stock Equivalent
at a per unit or share consideration (which consideration will
include the price paid upon issuance plus the minimum amount
of any exercise, conversion, or similar payment made upon
exercise or conversion of any Common Stock Equivalent) less
than the Exercise Price or the then current Fair Market Value
per share of Common Stock immediately prior to the time such
Common Stock or Common Stock Equivalent is issued or sold (the
"Additional Securities"), then:
(A) the Exercise Price will be reduced
to the lower of the prices calculated by:
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(I) dividing (x) an amount
equal to the sum of (1) the number of shares
of Common Stock outstanding on a fully
diluted basis immediately prior to such
issuance or sale multiplied by the then
existing Exercise Price plus (2) the
aggregate consideration, if any, received by
the Company upon such issuance or sale, by
(y) the total number of shares of Common
Stock outstanding immediately after such
issuance or sale on a fully diluted basis;
and
(II) multiplying the then
existing Exercise Price by a fraction, the
numerator of which is (x) the sum of (1) the
number of shares of Common Stock outstanding
on a fully diluted basis immediately prior
to such issuance or sale, multiplied by the
Fair Market Value per share of Common Stock
immediately prior to such issuance or sale,
plus (2) the aggregate consideration
received by the Company upon such issuance
or sale, (y) divided by the total number of
shares of Common Stock outstanding on a
fully diluted basis immediately after such
issuance or sale, and the denominator of
which is the Fair Market Value per share of
Common Stock immediately prior to such
issuance or sale (for purposes of this
subsection (II), the date as of which the
Fair Market Value per share of Common Stock
will be computed will be the earlier of the
date upon which the Company (aa) enters into
a firm contract for the issuance of such
shares, or (bb) issues such shares); and
(B) the number of shares of Common
Stock for which any of the Warrants may be exercised
at the Exercise Price resulting from the adjustment
described in subsection (A) above will be equal to
the product of the number of shares of Common Stock
purchasable under such Warrants immediately prior to
such adjustment multiplied by a fraction, the
numerator of which is the Exercise Price in effect
immediately prior to such adjustment and the
denominator of which is the Exercise Price resulting
from such adjustment.
(v) In case any event occurs as to which the
preceding Sections 2.08(a)(i) through (iv) are not strictly
applicable, but as to which the failure to make any adjustment
would not fairly protect the purchase rights represented by
the Warrants in accordance with the essential intent and
principles of this Agreement, then, in each such case, the
Holder may appoint an independent investment bank or firm of
independent public accountants, which will give its opinion as
to the adjustment, if any, on a basis consistent with the
essential intent and principles established in this Agreement,
necessary to preserve the purchase rights represented by the
Warrants. Upon receipt of such opinion, the Company will
promptly deliver a copy of such opinion to the Holder and will
make the adjustments described in
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such opinion. The fees and expenses of such investment bank or
independent public accountants will be borne by the Company.
(b) The Company and the Shareholder will not by any
action including, without limitation, amending, or permitting the
amendment of, the charter documents, bylaws, or similar instruments of
the Company or through any reorganization, reclassification, transfer
of assets, consolidation, merger, share exchange, dissolution, issue or
sale of securities, or any other similar voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Agreement or the Warrants, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of the
Holders against impairment or dilution. Without limiting the generality
of the foregoing, each of the Company and the Shareholder will (i) take
all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable
shares of Common Stock and Other Securities, free and clear of all
liens, encumbrances, equities, and claims and (ii) use its best efforts
to obtain all such authorizations, exemptions, or consents from any
public regulatory body having jurisdiction as may be necessary to
enable the Company to perform its obligations under the Warrants.
Without limiting the generality of the foregoing, the Company
represents and warrants that the board of directors of the Company has
determined the Exercise Price to be adequate and the issuance of the
Warrants to be in the best interests of the Company.
(c) Any calculation under this Section 2.08 will be made
to the nearest one ten-thousandth of a share and the number of Issuable
Warrant Shares resulting from such calculation will be rounded up to
the next whole share of Common Stock or Other Securities comprising
Issuable Warrant Shares.
(d) The Company will not issue any Capital Stock other
than Common Stock and Common Stock Equivalents, and will not permit any
Subsidiary to issue any Capital Stock (other than the shares of Capital
Stock owned directly by the Company on the Closing Date).
(e) If the Company (i) successfully completes its
proposed merger with and into Tylan or Tylan Subsidiary (the "Merger")
and (ii) pays the Note in full, including all principal and interest
thereon, together with any applicable Prepayment Fee (as defined in the
Note Agreement), both prior to the first anniversary of the Closing
Date, the aggregate number of Warrant Shares shall be reduced to zero.
2.09 Lost, Stolen, Mutilated, or Destroyed Warrants. If any Warrant
is lost, stolen, mutilated, or destroyed, the Company will issue a new Warrant
of like denomination, tenor, and date as the Warrant so lost, stolen, mutilated,
or destroyed.
2.10 Stock Legend. The Warrants and the Warrant Shares have not
been registered under the Securities Act or qualified under applicable state
securities laws. Accordingly, unless there is
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an effective registration statement and qualification respecting the Warrants
and the Warrant Shares under the Securities Act or under applicable state
securities laws at the time of exercise of a Warrant, any stock certificate
issued pursuant to the exercise of a Warrant will bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (A) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES
LAWS AND (B) ARE SUBJECT TO THE TERMS OF AND PROVISIONS OF A WARRANT
PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH DATED AS OF MARCH
14, 1996 BY AND AMONG SPAN INSTRUMENTS, INC. (THE "COMPANY"), DONALD E.
WHITSON, LEO E. WHITSON, LEO E. WHITSON 1996 TRUST AND MARGUERITE K.
WHITSON (COLLECTIVELY, THE "SHAREHOLDER") AND STRATFORD CAPITAL
PARTNERS, L.P. (THE "PURCHASER") (AS SUCH AGREEMENTS MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE
"AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE OFFICES OF
THE COMPANY."
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.01 Representations and Warranties of the Company and the
Shareholder. The Company and the Shareholder jointly and severally represent and
warrant to the Purchaser that:
(a) The Company is a corporation duly organized and
existing and in good standing under the laws of its state of
incorporation and is qualified or licensed to do business in all other
countries, states, and jurisdictions where the failure to be so
qualified would have a Material Adverse Effect. The Company has no
Subsidiaries or debt or equity investment in any Person other than
Ocala. The Company owns 75% of the equity interest of Ocala free and
clear of all liens, claims and encumbrances other than pursuant to
Ocala Shareholders Agreement, and no Person has any rights, whether
granted by the Company or any other Person, to acquire any portion of
the equity interest of Ocala other than pursuant to the Ocala
Shareholder Agreement or the assets of Ocala. The Shareholder owns
64.38% of the equity interest of the Company free and clear of all
liens, claims, and encumbrances, and no Person has any rights, whether
granted by the Company or any other Person, to acquire any portion of
the equity interest of the Company, other than pursuant to the Merger
Agreement, the Whitson Option Agreements and the Management Shareholder
Agreements.
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(b) Each of the Company and the Shareholder has, and at
all times that this Agreement is in force will have, the right and
power, and is duly authorized, to enter into, execute, deliver, and
perform this Agreement, the Shareholder Agreement, and, in the case of
the Company, the Warrants, and the officers of Company and the
Shareholder executing and delivering this Agreement, the Shareholder
Agreement, and, in the case of the Company, the Warrants are duly
authorized to do so. This Agreement, the Shareholder Agreement, and, in
the case of the Company, the Warrants have been duly and validly
executed, issued, and delivered and constitute the legal, valid, and
binding obligations of the Company and the Shareholder, enforceable in
accordance with their respective terms.
(c) The execution, delivery, and performance of this
Agreement, the Shareholder Agreement, and the Warrants will not, by the
lapse of time, the giving of notice, or otherwise, constitute a
violation of any applicable provision contained in the charter, bylaws,
or organizational documents of the Company or contained in any
agreement, instrument, or document to which the Company or the
Shareholder is a party or by which either of them is bound.
(d) As of the Closing Date, the authorized capital stock
of the Company consists of 500,000 shares of common stock, no par
value, of which 265,699 shares are issued and outstanding. As of the
Closing Date, the authorized capital stock of Ocala consists of
1,000,000 shares of common stock, 0.01 par value, of which 100,000
shares are issued and outstanding, of which 75,000 are owned
beneficially and of record by the Company. 29,523 shares of Common
Stock are reserved for issuance on exercise of the Warrants. All such
issued and outstanding shares have been duly authorized and validly
issued, are fully paid and nonassessable, and have been offered,
issued, sold, and delivered by Company free from preemptive rights,
rights of first refusal, or similar rights and in compliance with
applicable federal and state securities laws. Except pursuant to this
Agreement and the Management Shareholder Agreements, and except for the
Permitted Stock, the Company is not obligated to issue or sell any
Capital Stock, and neither the Company nor the Shareholder is party to,
or otherwise bound by, any agreement affecting the voting of any
Capital Stock. Except for the Shareholder Agreement, the Company is
not, nor will it be, a party to, or otherwise bound by, any agreement
obligating it to register any of its Capital Stock.
(e) The Warrant Shares and other consideration issuable
on exercise of the Warrants have been duly and validly authorized and
reserved for issuance and, when issued in accordance with the terms of
the Warrants will be validly issued, fully paid, and nonassessable and
free of preemptive rights, rights of first refusal, or similar rights.
(f) The Company has good, indefeasible, merchantable, and
marketable title to, and ownership of, all of its assets free and clear
of all liens, pledges, security interests, claims, or other
encumbrances except those in favor of the Senior Lender pursuant to the
Senior Loan Documents and those assets that are leased by the Company
from a third party.
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(g) The Company has the right to use all patents, patent
rights, patent applications, licenses, inventions, trade secrets,
know-how, proprietary techniques, including processes and substances,
trademarks, service marks, trade names, and copyrights used in or
necessary or desirable to its business as presently, or presently
proposed to be, conducted (the "Intellectual Property"), and the use by
the Company of the Intellectual Property does not infringe the rights
of any other Person. No other Person is infringing the rights of the
Company in any of the Intellectual Property. The Company owes no
royalties, honoraria, or fees to any Person by reason of its use of any
of Intellectual Property.
(h) There is not now, and at no time during the term of
this Agreement or the Shareholder Agreement will there be, any
agreement, arrangement, or understanding involving the Company or the
Shareholder, other than this Agreement, the Shareholder Agreement, and
the documents contemplated hereby and thereby, modifying, restricting,
or in any way affecting the rights of any security holder to vote
securities of the Company.
(i) Each of the representations and warranties made by
the Company and the Shareholder pursuant to the Note Agreement and the
Shareholder Agreement is true and correct.
(j) None of the documents, instruments, or other
information furnished to the Purchaser by the Company or the
Shareholder, contains any untrue statement of a material fact or omits
to state any material fact necessary in order to make any statements
made therein not misleading. No representation, warranty, or statement
made by the Company or the Shareholder in this Agreement, the Note
Agreement, or the Shareholder Agreement, or in any document,
certificate, exhibit or schedule attached hereto or thereto or
delivered in connection herewith or therewith, contains or will contain
any untrue statement of a material fact, or omits or will omit to state
a material fact necessary to make any statements made herein or therein
not misleading. There is no fact that materially and adversely affects
the condition (financial or otherwise), results of operations,
business, properties, or prospects of the Company or any of its
Subsidiaries that has not been disclosed in the documents provided to
the Purchaser.
(k) Small Business Concern. The Company is a "small
business concern" as defined in Section 103(5) of the Small Business
Investment Act of 1958, as amended and in effect from time to time, and
the regulations promulgated thereunder (the "Act"), which for purposes
of size eligibility meets the applicable criteria set forth in Section
121.802(a)(3) of Title 13 of the Code of Federal Regulations.
3.02 Representations and Warranties of the Purchaser. The Purchaser,
severally and not jointly, represents and warrants to the Company and the
Shareholder with respect to itself and not with respect to any other Purchaser:
(a) It is a limited partnership duly organized and
existing and in good standing under the laws of the state of its
organization.
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(b) It has the right and power and is duly authorized to
enter into, execute, deliver, and perform this Agreement and the
Shareholder Agreement, and its partners, officers or agents executing
and delivering this Agreement and the Shareholder Agreement are duly
authorized to do so. This Agreement and the Shareholder Agreement have
been duly and validly executed, issued, and delivered and constitute
the legal, valid, and binding obligation of the Purchaser, enforceable
in accordance with its terms.
(c) It (i) is an "accredited investor," as that term is
defined in Regulation D under the Securities Act; and (ii) has such
knowledge, skill, and experience in business and financial matters,
based on actual participation, that it is capable of evaluating the
merits and risks of an investment in the Company and the suitability
thereof as an investment for the Purchaser.
(d) Except as otherwise contemplated by this Agreement
and the Shareholder Agreement, the Purchaser is acquiring its Warrant
and any securities issuable upon exercise of the Warrant for investment
for its own account and not with a view to any distribution thereof in
violation of applicable securities laws.
(e) It agrees that the certificates representing its
Warrant and any Issued Warrant Shares will bear the legends referenced
in this Agreement, and such Warrant or securities issuable upon
exercise of the Warrant and pursuant to the Shareholder Agreement, as
the case may be, will not be offered, sold, or transferred in the
absence of registration or exemption under applicable securities laws.
(f) It was not formed for the specific purpose of
acquiring the Warrants or any Warrant Shares.
ARTICLE IV
COVENANTS
The Company covenants and agrees (until such time as the Holders cease
to own Warrant Shares representing five percent (5%) or more of the Common
Stock) as follows:
4.01 Financial Statements. The Company will keep books of account
and prepare financial statements and will cause to be furnished to the Purchaser
or other Holder (all of the foregoing and following to be kept and prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis):
(a) As soon as available, and in any event within ninety
(90) days after the end of each fiscal year of the Company, beginning
with the fiscal year ending August 31, 1996, (i) a copy of the
financial statements of the Company for such fiscal year containing a
consolidated and consolidating balance sheet, statement of income,
statement of shareholders' equity, and statement of cash flows, each as
at the end of such fiscal year and
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for the period then ended and in each case setting forth in comparative
form the figures for the preceding fiscal year, all in reasonable
detail and audited and certified by a "big six" accounting firm, or
other independent certified public accountants of recognized standing
selected by the Company and consented to by the Holders, (ii) a
certificate delivered to the Holders by such independent certified
public accountants confirming the calculations set forth in the
officer's certificate delivered to the Holders simultaneously therewith
in accordance with Section 4.01(d), and (iii) a comparison of the
actual results during such fiscal year to those originally budgeted by
the Company prior to the beginning of such fiscal year, together with a
summary analysis of all variances prepared by the Company's management.
The annual audit report required by this Agreement will not be
qualified or limited. The Purchaser shall receive copies of all reports
and material correspondence sent to the Company's management by the
auditors.
(b) As soon as available, and in any event within
forty-five (45) days after the end of each fiscal quarter of the
Company, other than each fiscal quarter ending August 31, a copy of
unaudited consolidated and consolidating financial statements of the
Company as of the end of such fiscal quarter and for the portion of the
fiscal year then ended, containing a balance sheet, statement of
income, and statement of cash flows, in each case setting forth in
comparative form the figures for the corresponding period of the
preceding fiscal year, together with a comparison of the actual results
during such period to those originally budgeted by the Company for such
period with explanations of significant variances.
(c) On or before forty-five (45) days prior to the
beginning of each fiscal year of the Company, an annual budget or
business plan for such fiscal year on a monthly basis, including a
projected consolidated and consolidating balance sheet, income
statement, and cash flow statement for each month of such year, and, at
the beginning of each fiscal year, all revisions thereto approved by
the board of directors of the Company.
(d) Concurrently with the delivery of each of the
financial statements referred to in Section 4.01(a) and Section
4.01(b), a certificate of an authorized officer of the Company in form
and substance satisfactory to the Holders certifying that the financial
statements attached have been prepared in accordance with generally
accepted accounting principles, consistently applied and fairly and
accurately present (subject to year-end audit adjustments, for the
annual certificates) the consolidated and consolidating financial
condition and results of operations of the Company at the date and for
the period indicated therein, and containing a narrative report of the
business and affairs of the Company that includes, but is not limited
to, a discussion of the results of operations compared to those
originally budgeted for such period by the Company prior to the
beginning of such period.
(e) As soon as available, a copy of each (i) financial
statement, report, notice, or proxy statement sent by the Company to
its shareholders; (ii) regular, periodic, or special report,
registration statement, or prospectus filed by the Company with any
securities exchange, state securities regulator, or the Commission;
(iii) material order issued by any
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court, governmental authority, or arbitrator in any material proceeding
to which the Company is a party or to which any of its assets is
subject; (iv) press release or other statement made available generally
by the Company or the Shareholder to the public generally concerning
material developments in the business of the Company; and (v) a copy of
all correspondence, reports, and other information sent by the Company
to any holder of any indebtedness, including, without limitation the
Senior Lender.
(f) Promptly, such additional information concerning the
Company as any Holder may request, including, without limitation,
auditor management reports and audit "waive" lists.
4.02 Laws. The Company will comply with all applicable statutes,
regulations, and orders of the United States, domestic and foreign states, and
municipalities, agencies, and instrumentalities of the foregoing applicable to
the Company.
4.03 Inspection; Board of Directors. The Company will permit any
representative designated by the Holders to (a) visit and inspect any of the
properties of the Company; (b) examine the corporate and financial records of
the Company and make copies thereof or extracts therefrom; and (c) discuss the
affairs, finances, and accounts of the Company with the directors, officers, key
employees, and independent accountants of the Company. The Company will deliver
to Purchaser a copy of the minutes of and all materials distributed at or prior
to all meetings of the Board of Directors of the Company, certified as true and
accurate by the Secretary of the Company, promptly following each such meeting.
The Company will (a) permit each Holder (other than Purchaser) to designate one
(1) person, and, provided that Purchaser either (i) has not designated a
director under Subsection (d) hereof or (ii) has designated a director under
Subsection (d) hereof who is not an employee of Purchaser, permit Purchaser so
long as Purchaser is a Holder or owns any stock, warrants or other equity
interest in the Company, to designate one (1) person to attend all meetings of
the Company's Board of Directors, (b) provide such designee(s) not less than ten
(10) calendar days' actual notice of all regular meetings and five (5) calendar
days' actual notice of all special meetings of the Company's Board of Directors,
(c) permit such designee(s) to attend such meetings as an observer, (d) permit
Purchaser to designate one (1) Person to serve as a member of the Company's
Board of Directors; provided, however, that Purchaser agrees not to designate
such Person prior to August 1, 1996, unless a default has occurred under (i)
Sections 8.1(a), (c), (f), (g), (j) or (l) of the Note Agreement or (ii)
Sections [6.1(a) or 6.1(d)] of the Senior Loan Agreement (as defined in the Note
Agreement), and (e) provide to such designees a copy of all materials
distributed at such meetings or otherwise to the Directors of the Company. Such
meetings shall be held in person at least quarterly. At all times during the
term of this Agreement, the Board of Directors will consist of not more than
five (5) members, including one (1) individual designated by Purchaser, if
Purchaser elects to so designate an individual, pursuant to Subsection (d)
above. The Company agrees to compensate the designee of Purchaser referred to in
Subsection (d) above in the same manner as each of the other members of the
Company's Board of Directors and agrees to reimburse each observer referred to
in Subsection (a) above for all reasonable expenses incurred in traveling to and
from such meetings and attending such meetings.
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4.04 Certain Actions. Without the prior written consent of the
Holders, which consent may be withheld in the sole discretion of the Holders,
the Company will not, and the Shareholder will not permit the Company to:
(a) permit to occur any amendment, alteration, or
modification of the Articles of Incorporation or Bylaws or other
charter or organizational documents of the Company, as constituted on
the date of this Agreement, the effect of which, in the sole judgment
of the Holders, would be to alter, impair, or affect adversely, either
the rights and benefits of the Holders or the duties and obligations of
Company or the Shareholder under this Agreement, the Warrants, or the
Shareholder Agreement;
(b) declare or make any dividends or distributions of its
cash, stock, property, or assets or redeem, retire, purchase, or
otherwise acquire, directly or indirectly, any of the Capital Stock or
capital stock or securities of any Affiliate of the Company, or any
securities convertible or exchangeable into Capital Stock or capital
stock or securities of any Affiliate of the Company;
(c) effect any sale, lease, assignment, transfer, or
other conveyance of any portion of the assets or operations or the
revenue or income generating capacity of the Company (other than
inventory in the ordinary course of business and other assets
reasonably and in good faith determined by the Company to be obsolete
or no longer necessary to the business of the Company) or to take any
such action that has the effect of any of the foregoing;
(d) except pursuant to this Agreement or the Shareholder
Agreement and except for Permitted Stock, issue or sell, or otherwise
dispose of any Capital Stock or Capital Stock of any Subsidiary,
dissolve or liquidate, or effect any consolidation or merger involving
the Company or any Subsidiary (other than the Merger) or any
reclassification, corporate reorganization, stock split or reverse
stock split, or other change of any class of Capital Stock;
(e) enter into any business that the Company is not
conducting on the date of this Agreement or acquire any substantial
business operation or assets (through a stock or asset purchase or
otherwise);
(f) except for the issuance of Permitted Stock, enter
into any transaction or transactions with any director, officer,
employee, or shareholder of the Company, or any Affiliate or relative
of the foregoing except upon terms that, in the opinion of the Holders,
are fair and reasonable and that are, in any event, at least as
favorable as would result in a comparable arm's-length transaction with
a Person not a director, officer, employee, shareholder, or Affiliate
of the Company or any Affiliate or related party of the foregoing, or
advance any monies to any such Persons, except for travel advances in
the ordinary course of business;
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(g) increase beyond the amounts permitted pursuant to the
Note Agreement as of the date of this Agreement the amount of benefits
payable under any benefit plan in the aggregate, or increase the
aggregate amount of salary and any other direct and indirect
remuneration (including, but not limited to, employee benefits,
professional, management, and consulting fees and expenses, and bonuses
under any plans) paid or accrued by the Company during any fiscal year
to or for the direct or indirect benefit of any of its officers,
directors, or security holders;
(h) acquire any debt or equity interest in any Person or
establish or acquire a Subsidiary or make any additional capital
contribution or purchase any additional equity in any Subsidiary or
make any advances or loans to any Subsidiary or transfer any technology
or assets to any Subsidiary;
(i) modify, amend, terminate or waive any provision of
the Employment Agreement, or Non-Compete Agreement or allow or permit
Don Whitson to cease to perform the functions of chief executive
officer (or president) of the Company;
(j) allow the aggregate par value of the Capital Stock
subject to the Warrants from time to time to exceed the price payable
upon exercise of the Warrants, as adjusted from time to time; or
(k) obligate itself or otherwise agree to take, permit or
enter into any of the events described in subsections (a) through (j)
above.
4.05 Records. The Company and each of its Subsidiaries will keep
books and records of account in which full, true, and correct entries will be
made of all dealings and transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a consistent
basis.
4.06 Accountants. The Company will retain independent public
accountants who will certify the consolidated and consolidating financial
statements of the Company at the end of each fiscal year, and in the event that
the services of the independent public accountants so selected, or any firm of
independent public accounts hereafter employed by Company, are terminated, the
Company will promptly thereafter notify each Holder and upon the Holders'
request, the Company will request the firm of independent public accountants
whose services are terminated to deliver (without liability for such firm) to
each Holder a letter of such firm setting forth the reasons for the termination
of their services and in its notice to each Holder the Company will state
whether the change of accountants was recommended or approved by the board of
directors of the Company or any committee thereof.
4.07 Existence. The Company will maintain in full force and effect
its corporate existence, rights, and franchises and all licenses and other
rights to use Intellectual Property.
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4.08 Notice.
(a) In the event of (i) any setting by the Company of a
record date with respect to the holders of any class of Capital Stock
for the purpose of determining which of such holders are entitled to
dividends, repurchases of securities or other distributions, or any
right to subscribe for, purchase or otherwise acquire any shares of
Capital Stock or other property or to receive any other right; or (ii)
any capital reorganization of the Company, or reclassification or
recapitalization of the Capital Stock or any transfer of all or a
majority of the assets, business, or revenue or income generating
capacity of the Company, or consolidation, merger, share exchange,
reorganization, or similar transaction involving the Company; or (iii)
any voluntary or involuntary dissolution, liquidation, or winding up of
the Company; or (iv) any proposed issue or grant by the Company of any
Capital Stock, or any right or option to subscribe for, purchase, or
otherwise acquire any Capital Stock (other than the issue of Issuable
Warrant Shares upon exercise of the Warrants), then, in each such
event, the Company will deliver or cause to be delivered to the Holders
a notice specifying, as the case may be, (A) the date on which any such
record is to be set for the purpose of such dividend, distribution, or
right, and stating the amount and character of such dividend,
distribution, or right; (B) the date as of which the holders of record
will be entitled to vote on any reorganization, reclassification,
recapitalization, transfer, consolidation, merger, share exchange,
conveyance, dissolution, liquidation, or winding-up; (C) the date on
which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, share exchange, conveyance,
dissolution, liquidation, or winding-up is to take place and the time,
if any is to be fixed, as of which the holders of record of any class
of Capital Stock will be entitled to exchange their shares of Capital
Stock for securities or other property deliverable upon such event; (D)
the amount and character of any Capital Stock, property, or rights
proposed to be issued or granted, the consideration to be received
therefor, and, in the case of rights or options, the exercise price
thereof, and the date of such proposed issue or grant and the Persons
or class of Persons to whom such proposed issue or grant will be
offered or made; and (E) such other information as the Holders may
reasonably request. Any such notice will be deposited in the United
States mail, postage prepaid, at least thirty (30) days prior to the
date therein specified, and notwithstanding anything in this Agreement
or the Warrants to the contrary the Holders may exercise the Warrants
within thirty (30) days from the receipt of such notice.
(b) If there is any adjustment as provided above in
Article II, or if any Other Securities become issuable in lieu of
shares of such Common Stock upon exercises of the Warrants, the Company
will immediately cause written notice thereof to be sent to each
Holder, which notice will be accompanied by a certificate of the
independent public accountants of the Company setting forth in
reasonable detail the basis for the Holders' becoming entitled to
receive such Other Securities, the facts requiring any such adjustment
in the number of shares receivable after such adjustment, or the kind
and amount of any Other Securities so purchasable upon the exercise of
the Warrants, as the case may be. At the request of any Holder and upon
surrender of the Warrant of such Holder, the Company will reissue the
Warrant of such Holder in a form conforming to such adjustments.
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4.09 Taxes. The Company will file all required tax returns,
reports, and requests for refunds on a timely basis and will pay on a timely
basis all taxes imposed on either of it or upon any of its assets, income, or
franchises, other than taxes that are being contested by the Company in good
faith by appropriate proceedings and with respect to which adequate reserves in
accordance with GAAP have been provided for on the Company's books.
4.10 Warrant Rights. The Company covenants and agrees that during
the term of this Agreement and so long as any Warrant is outstanding, (a) the
Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock and Other Securities, if applicable, to provide for the
exercise in full of the rights represented by the Warrants and the exercise in
full of the rights of the Holders under the Shareholder Agreement; (b) the
Company will not increase or permit to be increased the par value per share or
stated capital of the Issuable Warrant Shares or the consideration receivable
upon issuance of its Issuable Warrant Shares; and (c) in the event that the
exercise of the Warrant would require the payment by the Holder of consideration
for the Common Stock or Other Securities receivable upon such exercise of less
than the par or stated value of such Issuable Warrant Shares, the Company and
the Shareholder will promptly take such action as may be necessary to change the
par or stated value of such Issuable Warrant Shares to an amount less than or
equal to such consideration.
4.11 Small Business Investment Act. At the request of any Holder,
the Company will, and each Shareholder will use his/its best efforts to,
promptly correct any defect, error or omission with respect to the Act that may
be discovered in the contents of this Agreement or the documents executed in
connection herewith or in the execution or acknowledgment thereof, and will
execute, acknowledge and deliver such further instruments and do such further
acts as may be necessary for this Agreement and such other documents, and all
transactions contemplated thereby, to comply with the Act.
4.12 Merger. The Company shall promptly provide written notice to
the Purchaser immediately upon becoming aware that (i) the Merger Agreement has
been terminated, or (ii) good faith negotiations between the Company and Tylan
regarding the proposed Merger have ceased.
ARTICLE V
CONDITIONS
The obligations of the Purchaser to effect the transactions
contemplated by this Agreement are subject to the following conditions
precedent:
5.01 Opinion. The Purchaser will have received favorable opinions,
dated the Closing Date, from Gardere & Wynne, L.L.P., counsel for the Company
covering matters raised by the Note Agreement, this Agreement, the Shareholder
Agreement, and such other matters as the Purchaser or their counsel may request,
and otherwise in form and substance satisfactory to the Purchaser and its
counsel.
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5.02 Note Agreement Conditions. All of the conditions precedent to
the obligations of the Purchaser under the Note Agreement will have been
satisfied in full.
5.03 Material Change. There will have occurred no material adverse
change in the business, prospects, results, operations, or condition, financial
or otherwise, of the Company.
5.04 Shareholder Agreement. The Company and the Shareholder will
have entered into the Shareholder Agreement with Purchaser.
5.05 Representations and Agreements. Each representation and
warranty of the Company and the Shareholder set forth in this Agreement will be
true and correct when made and as of the Closing Date, and the Company and the
Shareholder will have fully performed all their covenants and agreements set
forth in this Agreement.
5.06 Proceedings; Consents. All proceedings taken in connection
with the transactions contemplated by this Agreement, and all documents
necessary to the consummation of this Agreement, will be satisfactory in form
and substance to the Purchaser and their counsel, and the Purchaser and their
counsel will have received certificates of compliance and copies (executed or
certified as may be appropriate) of all documents, instruments, and agreements
that the Purchaser or such counsel may request in connection with the
consummation of such transactions. All consents of any Person necessary to the
consummation of the transactions contemplated by this Agreement and the
Shareholder Agreement will have been received, be in full force and effect, and
not be subject to any onerous condition.
5.07 Small Business Concern Documents. The Company will have
completed, executed and delivered to the Purchaser a Size Status Declaration on
SBA Form 480(2-92), a Non-Discrimination Certificate on SBA Form 652-D(8-85) and
shall have provided the Purchaser the information necessary to complete the
Portfolio Financing Report on SBA Form 1031.
5.08 Shareholder Waivers. The Purchaser will have received executed
waivers from all of the Company's shareholders and employees having preemptive,
first refusal, preferential or similar rights on issuances of Capital Stock,
waiving any such preemptive, first refusal, preferential or similar right that
the undersigned has to purchase any of the Warrants or Warrant Shares to be
issued in connection with this Agreement or the Shareholder Agreement.
ARTICLE VI
MISCELLANEOUS
6.01 Indemnification. In addition to any other rights or remedies
to which the Purchaser and the Holders may be entitled, the Company and the
Shareholder jointly and severally agree to and will indemnify and hold harmless
the Purchaser, the Holders, and their Affiliates and their respective
successors, assigns, officers, directors, employees, attorneys, and agents
(individually and collectively, an "Indemnified Party") from and against any and
all losses, claims, obligations,
26
<PAGE> 74
liabilities, deficiencies, diminutions in value, penalties, causes of action,
damages, costs, and expenses (including, without limitation, costs of
investigation and defense, attorneys' fees, and expenses), including, without
limitation, those arising out of the sole or contributory negligence of any
Indemnified Party, that the Indemnified Party may suffer, incur, or be
responsible for, arising or resulting from any misrepresentation, breach of
warranty, or nonfulfillment of any covenant or agreement on the part of the
Company or the Shareholder under this Agreement, the Shareholder Agreement, or
under any other agreement to which the Company or the Shareholder is a party in
connection with this transaction, or from any misrepresentation in or omission
from any certificate or other instrument furnished or to be furnished to the
Purchaser or the Holders under this Agreement.
6.02 Default. It is agreed that a violation by any party of the
terms of this Agreement cannot be adequately measured or compensated in money
damages, and that any breach or threatened breach of this Agreement by a party
to this Agreement would do irreparable injury to the nondefaulting party. It is,
therefore, agreed that in the event of any breach or threatened breach by a
party to this Agreement of the terms and conditions set forth in this Agreement,
the nondefaulting party will be entitled, in addition to any and all other
rights and remedies that it may have in law or in equity, to apply for and
obtain injunctive relief requiring the defaulting party to be restrained from
any such breach or threatened breach or to refrain from a continuation of any
actual breach.
6.03 Integration. This Agreement and the Shareholder Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and thereof and supersede all previous written, and all previous
or contemporaneous oral, negotiations, understandings, arrangements, and
agreements. This Agreement may not be amended or supplemented except by a
writing signed by Company, the Shareholder, and each Holder.
6.04 Headings. The headings in this Agreement are for convenience
and reference only and are not part of the substance of this Agreement.
References in this Agreement to Sections and Articles are references to the
Sections and Articles of this Agreement unless otherwise specified.
6.05 Severability. The parties to this Agreement expressly agree
that it is not the intention of any of them to violate any public policy,
statutory or common law rules, regulations, or decisions of any governmental or
regulatory body. If any provision of this Agreement is judicially or
administratively interpreted or construed as being in violation of any such
policy, rule, regulation, or decision, the provision, section, sentence, word,
clause, or combination thereof causing such violation will be inoperative (and
in lieu thereof there will be inserted such provision, sentence, word, clause,
or combination thereof as may be valid and consistent with the intent of the
parties under this Agreement) and the remainder of this Agreement, as amended,
will remain binding upon the parties, unless the inoperative provision would
cause enforcement of the remainder of this Agreement to be inequitable under the
circumstances.
6.06 Notices. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration, or other communication be given
to or served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will
27
<PAGE> 75
be in writing and will be deemed to have been validly served, given or delivered
(and "the date of such notice" or words of similar effect will mean the date)
five (5) days after deposit in the United States mails, certified mail, return
receipt requested, with proper postage prepaid, or upon receipt thereof (whether
by non-certified mail, telecopy, telegram, express delivery, or otherwise),
whichever is earlier, and addressed to the party to be notified as follows:
If to the Purchaser, at: Stratford Capital Partners, L.P.
200 Crescent Court
Suite 1650
Dallas, Texas 75201
Attention: John Farmer, Managing Partner
Fax: (214) 740-7340
with courtesy copies to: Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attn: Larry A. Makel, Esq.
Fax: 214-939-6100
If to the Company, at: Span Instruments, Inc.
2201 Avenue K
Plano, Texas 75074
Attn: Brian Day, Chief Financial Officer
Fax: (214) 422-2165
with courtesy copies to: Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attn: Richard L. Waggoner, Esq.
Fax: (214) 999-4667
If to the Shareholder, at: Don Whitson
Leo Whitson
Leo E. Whitson 1996 Trust
Marguerite Whitson
c/o Span Instruments, Inc.
2201 Avenue K
Plano, Texas 75074
Fax: (214) 422-2165
28
<PAGE> 76
with courtesy copies to: Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attn: Richard L. Waggoner, Esq.
Fax: (214) 999-4667
or to such other address as each party may designate for itself by like notice.
Notice to any Holder other than the Purchaser will be delivered as set forth
above to the address shown on the stock transfer books of the Company or the
Warrant Register unless such Holder has advised the Company in writing of a
different address to which notices are to be sent under this Agreement.
Failure or delay in delivering courtesy copies of any notice, demand,
request, consent, approval, declaration, or other communication to the persons
designated above to receive copies of the actual notice will in no way adversely
affect the effectiveness of such notice, demand, request, consent, approval,
declaration, or other communication.
No notice, demand, request, consent, approval, declaration or other
communication will be deemed to have been given or received unless and until it
sets forth all items of information required to be set forth therein pursuant to
the terms of this Agreement.
6.07 Successors. This Agreement will be binding upon and inure to
the benefit of the parties and their respective successors and assigns.
6.08 Remedies. The failure of any party to enforce any right or
remedy under this Agreement, or promptly to enforce any such right or remedy,
will not constitute a waiver thereof, nor give rise to any estoppel against such
party, nor excuse any other party from its obligations under this Agreement. Any
waiver of any such right or remedy by any party must be in writing and signed by
the party against which such waiver is sought to be enforced.
6.09 Survival. All warranties, representations, and covenants made
by any party in this Agreement or in any certificate or other instrument
delivered by such party or on its behalf under this Agreement will be considered
to have been relied upon by the party to which it is delivered and will survive
the Closing Date, regardless of any investigation made by such party or on its
behalf. All statements in any such certificate or other instrument will
constitute warranties and representations under this Agreement.
6.10 Fees. Any and all fees, costs, and expenses, of whatever kind
and nature, including attorneys' fees and expenses, incurred by the Holders in
connection with the defense or prosecution of any actions or proceedings arising
out of or in connection with this Agreement will be borne and paid by the
Company within ten (10) days of demand by the Holders.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one agreement.
29
<PAGE> 77
6.12 Other Business. It is understood and accepted that the
Purchaser, the Holders, and their Affiliates have interests in other business
ventures that may be in conflict with the activities of the Company and that
nothing in this Agreement will limit the current or future business activities
of such parties whether or not such activities are competitive with those of the
Company. The Company and the Shareholder agree that all business opportunities
in any field substantially related to the business of the Company will be
pursued exclusively through the Company.
6.13 CHOICE OF LAW. THIS AGREEMENT HAS BEEN EXECUTED, DELIVERED,
AND ACCEPTED BY THE PARTIES IN THE STATE OF TEXAS, WILL BE DEEMED TO HAVE BEEN
MADE IN THE STATE OF TEXAS, AND WILL BE INTERPRETED AND THE RIGHTS OF THE
PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES APPLICABLE
THERETO AND THE INTERNAL LAWS OF THE STATE OF TEXAS APPLICABLE TO AN AGREEMENT
EXECUTED, DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT TO THE
CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE
APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
6.14 Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner of such
Registrable Securities, the beneficial owner of Registrable Securities may, at
its election, be treated as the Holder of such Registrable Securities for
purposes of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement or any determination of any number of
percentage of shares of Registrable Securities held by any Holder or Holders or
Registrable Securities contemplated by this Agreement. If the beneficial owner
of any Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities. In no event will a Holder be required to exercise the
Warrants as a condition to the registration of such Warrant or Registrable
Securities thereunder.
6.15 Duties Among Holders. Each Holder agrees that no other Holder
will by virtue of this Agreement be under any fiduciary or other duty to give or
withhold any consent or approval under this Agreement or to take any other
action or omit to take any action under this Agreement, and that each other
Holder may act or refrain from acting under this Agreement as such other Holder
may, in its discretion, elect.
6.16 Small Business Investment Act. This Agreement, the other
purchase documents executed in connection herewith, and all transactions
contemplated hereby and thereby are subject to the provisions of the Act, and
shall be governed thereby to the extent of any conflict therewith.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 78
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
SPAN INSTRUMENTS, INC.
By: /s/ Brian R. Day
------------------------------------
Name: BRIAN R. DAY
-----------------------------------
Title: CFO
----------------------------------
SHAREHOLDER:
/s/ Don E. Whitson
----------------------------------------
Donald E. Whitson
/s/ Leo E. Whitson
----------------------------------------
Leo E. Whitson
LEO E. WHITSON 1996 TRUST
By: /s/ Leo E. Whitson, in
------------------
his capacity as Trustee
/s/ Marguerite K. Whitson
----------------------------------------
Marguerite K. Whitson
31
<PAGE> 79
PURCHASER:
STRATFORD CAPITAL PARTNERS, L.P.
By: Stratford Capital GP
Associates, L.P.
Its: General Partner
By: Stratford Capital
Corporation
Its: General Partner
By: /s/ John Farmer
--------------------------
John Farmer
Managing Director,
Treasurer
200 Crescent Court, Suite 1650
Dallas, Texas 75201
Attention: John Farmer
Facsimile: (214) 740-7340
Number of Warrant Shares: 29,523
Purchase Price: $100
32
<PAGE> 1
LEASE AGREEMENT EXHIBIT 10.22
THIS LEASE AGREEMENT, made and entered into by and between Whitson
Properties, L.C., a Texas limited liability company. hereinafter referred to as
"Landlord", and Span Instruments, Inc., a Texas corporation, hereinafter
referred to as "Tenant".
W I T N E S S E T H:
1. PREMISES AND TERM. In consideration of the obligation of
Tenant to pay rent herein provided, and in consideration of the other,terms
provisions and covenants hereof, Landlord hereby demises and leases to Tenant,
and Tenant hereby takes from Landlord, certain premises situated within the
County of Collin, State of Texas, more particularly described on Exhibit "A"
attached hereto and incorporated herein by reference, together with all rights,
privileges, easements, appurtenances, and immunities belonging to or in any way
pertaining to the premises and together with the buildings and other
improvements situated or to be situated upon said premises (said real property,
buildings and improvements being hereinafter referred to as the "premises").
TO HAVE AND TO HOLD the premises for a term commencing on the
"Commencement Date", as hereinafter defined, and ending one hundred (120) months
thereafter, provided, however, that, in the event the "Commencement Date" is a
date other than the first day of a calendar month, said term shall extend for
said number of months in addition to the remainder of the calendar month
following the "Commencement Date".
The "Commencement Date" shall be September 1, 1995. Tenant acknowledges
that it has inspected and accepts the premises, and specifically the buildings
and improvements comprising the same, in their present condition as suitable for
the purpose for which the premises are leased. The taking of possession by
Tenant shall be deemed conclusively to establish that said buildings and other
improvements are in good and satisfactory condition as of when possession was
taken. Tenant further acknowledges that no representations as to the repair of
the premises, nor promises to alter, remodel or improve the premises have been
made by Landlord, unless such are expressly set forth in this lease.
2. RENT. Tenant agrees to pay to Landlord rent for the premises
in advance, without demand, deduction or set off, in monthly installments of
$55,500. One such monthly installment shall be due and payable on the date
hereof and a like monthly installment shall be due and payable, without demand,
on or before the first day of each calendar month succeeding the "Commencement
Date" during the hereby demised term, except that the rental payment for any
fractional calendar month at the commencement of the lease term shall be
prorated.
3. USE. During the term of this lease, the premises shall be
used for any lawful purpose. Tenant shall, at its own cost and expense,
obtain any and all licenses and permits necessary for any such use. Tenant
shall comply with all governmental laws, ordinances and regulations applicable
to the use of the premises, including, but not limited to the Americans With
Disabilities Act, and shall promptly comply with all governmental orders and
directives for the correction, prevention and abatement of nuisances in
or upon or connected with the premises, all at Tenant's sole expense. Tenant
shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise
or vibrations to emanate from the premises. Without Landlord's prior written
consent, Tenant shall not receive, store or otherwise handle any product,
material or merchandise which is explosive of highly inflammable. Tenant will
not permit the premises to be used for any purpose or in any manner which
<PAGE> 2
would render the insurance thereon void or the insurance risk more hazardous or
cause the State Board of Insurance or other insurance authority to disallow any
sprinkler credits.
4. TAXES.
A. Tenant agrees to pay, before they become delinquent, all taxes
and assessments and other governmental charges of any kind and nature whatsoever
(hereinafter collectively referred to as the "taxes") lawfully levied or
assessed against the premises. Tenant shall furnish to Landlord, not later than
twenty (20) days before the date any such taxes become delinquent, official
receipts of the appropriate taxing authority or other evidence satisfactory to
Landlord evidencing payment thereof. If Tenant should fail to pay any taxes
required to be paid by Tenant hereunder, in addition to any other remedies
provided herein, Landlord may, if it so elects, pay such taxes.
B. If, at any time during the term of this lease, the present
method of taxation shall be changed so that in lieu of the whole or any part of
any taxes levied, assessed or imposed on real estate and the improvements
thereon, there shall be levied, assessed or imposed on Landlord a capital levy
or other tax directly on the rents received therefrom and/or a franchise tax,
assessment, levy or charge measured by or based, in whole or in part, upon such
rents for the present or any future building or buildings on the premises, then
all such taxes, assessments, levies or charges. or the part thereof so measured
or based, shall be deemed to be included within the term "taxes" for the
purposes hereof.
C. Tenant may, at its sole cost and expense, in its own name
and/or in the name of Landlord, dispute and contest any taxes by appropriate
proceedings diligently conducted in good faith, but only after Tenant has
deposited with Landlord the amount so contested and unpaid, which shall be held
by Landlord without obligation for interest until the termination of the
proceedings, at which time the amount deposited shall be applied by Landlord
toward the payment of the items held valid (plus any court costs, interest,
penalties, and other liabilities associated with the proceedings), and Tenant's
share of any excess shall be returned to Tenant. Tenant further agrees to pay to
Landlord, upon demand, Tenant's share (as among all tenants who participated in
the contest) of all court costs, interest, penalties, and other liabilities
relating to such proceedings. Tenant hereby indemnifies and agrees to hold
harmless the landlord from and against any cost, damage, or expense (including
attorneys' fees) in connection with any such proceedings.
D. Any payment to be made pursuant to this Paragraph 4, with
respect to the real estate tax year in which this lease commences or terminates,
shall be prorated.
5. REPAIRS AND MAINTENANCE. Tenant shall, at its own cost and
expense, keep and maintain all parts of the premises in good condition, promptly
making all necessary repairs and replacements, interior and exterior, structural
and non-structural, ordinary and extraordinary, including, but not limited to,
windows, glass and plate glass doors, and any special office entry, walls and
finish work, floor and floor covering, roof, foundations, down spouts, gutters,
heating and air conditioning systems, dock boards, truck doors, dock bumpers,
paving, plumbing work and fixtures, termite and pest extermination, regular
removal of trash and debris, regular mowing of any grass, trimming, weed removal
and general landscape maintenance, including keeping the parking areas,
driveways, alleys and the whole of the premises in a clean and sanitary
condition. Tenant shall at its own cost and expense repaint exterior overhead
doors, canopies, entries, handrails, gutters, and other
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<PAGE> 3
exposed parts of the building which reasonably require periodic repainting to
prevent deterioration or to maintain aesthetic standards.
6. ALTERATIONS. Tenant shall not make any material alterations
additions or improvements to the premises without the prior written consent of
Landlord. Tenant may, without the consent of Landlord, but at its own cost and
expense and in a good workmanlike manner make such minor alterations, additions
or improvements or erect, remove or alter such partitions, or erect such
shelves, bins, machinery and trade fixtures as it may deem advisable, without
altering the basic character of the building or improvements and without
overloading or damaging such building or improvements, and in each case
complying with all applicable governmental laws, ordinances, regulations and
other requirements. All alterations, additions, improvements and partitions
erected by Tenant shall be and remain the property of Tenant during the term of
this lease, and Tenant shall, unless Landlord otherwise elects as hereinafter
provided, remove all alterations, additions, improvements and partitions erected
by Tenant and restore the premises to their original condition by the date of
termination of this lease: provided, however, that if Landlord so elects prior
to termination of this lease, such alterations, additions, improvements and
partitions shall become the property of Landlord as of the date of termination
of this lease and shall be delivered up to the Landlord with the premises. All
shelves, bins, machinery and trade fixtures shall be and remain property of
Tenant and may be removed by Tenant prior to the termination of this lease if
Tenant so elects, and shall be removed if required by Landlord; upon any such
removal Tenant shall restore the premises to their original condition. All such
removals and restoration shall be accomplished in a good workmanlike manner so
as not to damage the primary structure or structural qualities of the buildings
and other improvements situated on the premises. If Landlord requires that the
shelves, bins, machinery, and trade fixtures be removed and they are not
removed prior to termination of this Lease. Landlord may store said shelves,
bins, machinery and trade fixtures at the premises or at some other location for
a period of up to 60 days after termination of this Lease. If the shelves, bins,
machinery and trade fixtures have not been claimed within said 60 day period
they shall conclusively be deemed to have been abandoned by Tenant and may be
appropriated, sold, destroyed or otherwise disposed of by Landlord without
notice to Tenant or to any other person and without obligation to account for
them. Tenant will pay Landlord all expenses incurred in connection with
Landlord's disposition of such property, including without limitation the cost
of repairing any damage to the building or the premises caused by removal of
such property. Tenant's obligation to observe and perform this covenant will
survive the end of this Lease.
7. SIGNS. Tenant shall have the right to install signs upon the
premises only when first approved in writing by Landlord and subject to any
applicable governmental laws, ordinances, regulations and other requirements.
Tenant shall remove all such signs by the termination of this lease. Such
installations and removals shall be made in such manner as to avoid injury to or
defacement of the building and other improvements, and Tenant shall repair any
injury or defacement, including, without limitation, discoloration caused by
such installation or removal.
8. INSPECTION. Landlord and Landlord's agents and representatives
shall have the right to enter and inspect the premises at any reasonable time
during business hours for the purpose of ascertaining the condition of the
premises or in order to make such repairs as may be required or permitted to be
made by Landlord under the terms of this lease. During the period that is six
(6) months prior to the end of the term hereof, Landlord and Landlord's agents
and representatives shall have the right to enter the premises at any reasonable
time during business hours for the purpose of showing the premises, and shall
have the right to erect on the premises a suitable sign indicating
-3-
<PAGE> 4
that the premises are available. Tenant shall give written notice to Landlord at
least thirty (30) days prior to vacating the premises and shall arrange to meet
with Landlord for a joint inspection of the premises at the time of vacating. In
the event of Tenant's failure to give such notice or arrange such joint
inspection, Landlord's inspection at or after Tenant's vacating the premises
shall be conclusively deemed correct for purposes of determining Tenant's
responsibility for repairs and restoration.
9. UTILITIES. Tenant shall pay for all water, gas, heat, light,
power, telephone, sewer, sprinkler charges and other utilities and services used
on or from the premises, together with any taxes, penalties, surcharges or the
like pertaining thereto. and maintenance charges for utilities, and shall
furnish all electric light bulbs and tubes. If any such services are not
separately metered to Tenant, Tenant shall pay a reasonable proportion, as
determined by Landlord, of all charges jointly metered with other premises.
Landlord shall in no event be liable for any interruption or failure of utility
services on the premises.
10. ASSIGNMENT AND SUBLETTING. Tenure shall not have the right to
assign this lease or to sublet the whole or any part of the premises without the
prior written consent of Landlord. Notwithstanding any permitted assignment or
subletting, Tenant shall at all times remain directly, primarily and fully
responsible and liable for the payment of the rent herein specified and for
compliance with all of Tenant's other obligations under the terms, provisions
and covenants of this lease. Upon the occurrence of an "event of default" as
hereinafter defined, if the premises or any part thereof are then assigned or
sublet, landlord, in addition to any other remedies herein provided or provided
by law, may at its option collect directly from such assignee or subtenant all
rents becoming due to Tenant under such assignment or sublease and apply such
rent against any sums due to Landlord from Tenant hereunder, and no such
collections shall be construed to constitute a novation or a release of Tenant
from the further performance of Tenant's obligations hereunder.
11. INSURANCE, FIRE AND CASUALTY DAMAGE.
A. Tenant, at Tenant's expense, agrees to maintain insurance
covering the building of which the premises are a part in an amount not less
than eighty percent (80%) (or such greater percentage as way be necessary to
comply with the provisions of any co-insurance clauses of the policy) of the
"replacement cost" thereof as such term is defined in the Replacement Cost
Endorsement to be attached thereto, insuring against the perils of Fire,
Lightening, Extended Coverage, Vandalism and Malicious Mischief, extended by
Special Extended Coverage Endorsement to insure against all other Risks of
Direct Physical Loss. All such coverages and endorsements shall be as defined,
provided and limited in the standard bureau forms prescribed by the insurance
regulatory authority for the State of Texas for use by insurance companies
admitted in such state for the writing of such insurance risks located within
such state. Landlord shall be named as an additional insured on all policies.
Any mortgagee of the premises shall be listed as such on all policies as well.
Certified copies of such policies, together with receipt evidencing payment of
premiums therefor, shall be delivered to Landlord prior to the Commencement Date
of this lease. Not less than fifteen (15) days prior to the expiration date of
any such policies, certified copies of the renewals thereof (bearing notations
evidencing the payment of renewal premiums) shall be delivered to Landlord. Such
policies shall further provide that not less than thirty (30) days' written
notice shall be given to Landlord before such policy may be canceled or changed
to reduce the insurance provided thereby.
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<PAGE> 5
B. If the buildings situated upon the premises should be damaged
or destroyed in whole or in part for any reason whatsoever, regardless of
whether or not the same is caused by any peril covered by the insurance to be
provided by Tenant under subparagraph 11A above, Tenant shall give immediate
notice thereof to Landlord, and Tenant shall at its sole cost and expense
thereupon proceed with reasonable diligence to rebuild and repair such buildings
to substantially the condition in which they existed prior to such damage or
destruction, subject to Landlord's prior written approval of the plans and
specifications for such rebuilding and repairing. Landlord shall allow Tenant a
fair diminution of rent during the time and to the extent the premises are unfit
for occupancy as a result of any such damage or destruction. Subject to
Paragraph 11C below, Tenant shall be entitled to use all insurance proceeds
payable under the policies described in Paragraph 11A above.
C. Notwithstanding anything herein to the contrary, in the event
the holder of any indebtedness secured by a mortgage or deed of trust covering
the premises requires that the insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such requirement is made by any such holder, whereupon Tenant shall assign
to Landlord all rights to any insurance proceeds payable under the insurance
required under subparagraph 11A above, and all rights and obligations hereunder
shall cease and terminate.
D. Each of Landlord and Tenant hereby releases the other from any
and all liability or responsibility to the other or any person claiming through
or under them by way of subrogation or otherwise for any loss or damage to
property caused by fire or any other perils insured in policies of insurance
covering such property, even if such loss or damage shall have been caused by
the fault or negligence of the other party, or anyone for whom such party may be
responsible; provided, however, that this release shall be applicable and in
force and effect only with respect to loss or damage occurring during such times
as the releasor's policies shall contain a clause or endorsement to the effect
that any such release shall not adversely affect or impair said policies or
prejudice the right of the releasor to recover thereunder and then only to the
extent of the insurance proceeds payable under such policies. Each of Landlord
and Tenant agrees that it will request its insurance carriers to include in its
policies such a clause or endorsement.
12. LIABILITY. Landlord shall not be liable to Tenant or Tenant's
employees, agents, patrons or visitors, or to any other person whomsoever, for
any injury to person or damage to property on or about the premises, resulting
from and/or caused in part or whole by the negligence or misconduct of Tenant,
its agents, servants or employees, or of any other person entering upon the
premises, or caused by the buildings and improvements located on the premises
becoming out of repair, or caused by leakage of gas, oil, water or steam, or by
electricity emanating from the premises, or due to any cause whatsoever, and
Tenant hereby covenants and agrees that it will at all times indemnify and hold
safe and harmless the property, Landlord (including without limitation the
trustee and beneficiaries if Landlord is a trust), and Landlord's agents and
employees from any loss, liability, claims, suits, costs, expenses, including,
without limitation, attorneys' fees and damages, both real and alleged, arising
out of any such damage or injury. Tenant shall procure and maintain throughout
the term of this lease, at its sole cost and expense, comprehensive general
liability insurance with broad form extensions covering claims for personal and
bodily injury or property damage occurring in, on, under, within, upon or about
to premises, or as a result of operations thereon (including contractual
liability covering indemnities set forth in this lease), for limits, unless
otherwise agreed by Landlord, of not less than $1,000,000.00 combined single
limit for personal and bodily injury or property damage. All such policies shall
be procured by Tenant from responsible insurance companies licensed
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<PAGE> 6
to do business in Texas which are satisfactory to Landlord. Certified copies of
such policies, together with receipt evidencing payment of premiums therefor,
shall be delivered to Landlord prior to the Commencement Date of this lease. Not
less than fifteen (15) days prior to expiration date of any such policies,
certified copies of the renewals thereof (bearing notations evidencing the
payment of renewal premiums) shall be delivered to Landlord. Such policies shall
further provide that not less than thirty (30) days' written notice shall be
given to Landlord before such policy may be cancelled or changed to reduce the
insurance provided thereby.
13. CONDEMNATION.
A. If the whole or any substantial part of the premises should be
taken for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the use of
the premises for the purpose for which they are then being used, this lease
shall terminate and the rent shall be abated during the unexpired portion of
this lease, effective when the physical taking of said premises shall occur.
B. If part of the premises shall be taken for any public or
quasi-public use under any governmental law, ordinance, or regulation, or by
fight of eminent domain or by private purchase in lieu thereof, and this lease
is not terminated as provided in subparagraph 13A above, this lease shall not
terminate, but the rent payable hereunder during the unexpired portion of this
lease stall be reduced to such extent as may be fair and reasonable under all of
the circumstances.
C. In the event of any such taking or private purchase in lieu
thereof, all compensation awarded for any taking (or sale process in lieu
thereof) shall be the sole property of the Landlord and Tenant shall have no
claim thereto.
14. HOLDING OVER. Tenant will, at the termination of this lease by
lapse of time or otherwise, yield up immediate possession to Landlord. In the
event of any holding over by Tenant or any of its successors in interest after
the termination of this lease, unless the parties hereto otherwise agree in
writing, the hold-over tenancy shall be subject to termination by Landlord at
any time upon not less than five (5) days' advance written notice, or by Tenant
at any time upon not less than thirty (30) days' advance written notice, and all
of the other terms and provisions of this lease shall be applicable during that
period. No holding over by Tenant, whether with or without consent of Landlord,
shall operate to extend this lease except as otherwise expressly provided.
15. QUIET ENJOYMENT. Landlord represents and warrants that it has
full right and authority to enter into this lease and that Tenant, upon paying
the rental herein set forth and performing its other covenants and agreements
herein set forth, shall peaceably and quietly have, hold and enjoy the premises
for the term. hereof without hindrance or molestation from Landlord, subject to
the terms and provisions of this lease.
16. EVENTS OF DEFAULT. The following events shall be deemed to be
events of default by Tenant under this lease:
(a) Tenant shall fail to pay any installment of the rent
hereby reserved when due, or any payment with respect to taxes
hereunder when due, or any other payment or
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<PAGE> 7
reimbursement to Landlord required herein when due, and such failure
shall continue for a period of ten (10) days after written notice
thereof to Tenant.
(b) Tenant shall become insolvent, or shall make a
transfer in fraud of creditors, or shall make an assignment for the
benefit of creditors.
(c) Tenant shall file a petition for relief under any
section or chapter of the United States Bankruptcy Code, as amended, or
under any similar law or statute of the United States or any State
thereof, or any bankruptcy or similar proceedings shall be filed
involuntarily against Tenant thereunder.
(d) A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant.
(e) Tenant shall desert or vacate any substantial portion
of the premises.
(f) Tenant shall fail to comply with any term, provision,
or covenant of this lease (other than the foregoing in this Paragraph
16), and shall not cure such failure within thirty (30) days after
written notice thereof to Tenant (or such longer period as is
reasonably necessary to cure such failure, provided that Tenant shall
commence the cure of such failure within such thirty (30) day period
and shall continuously and diligently pursue the remedy of such
failure).
17. REMEDIES. Upon the occurrence of any of such events of
default described in Paragraph 16 hereof, Landlord shall have the option to
pursue any one or more of the following remedies without any notice or demand
whatsoever:
(a) Terminate this lease, in which event Tenant shall
immediately surrender the premises to Landlord, and if Tenant fails so
to do, Landlord may, without prejudice to any other remedy which it may
have for possession or arrearages in rent, enter upon and take
possession of the premises and expel or remove Tenant and any other
person who may be occupying such premises or any part thereof, by force
if necessary, without being liable for prosecution or any claim or
damages therefor; and Tenant agrees to pay to Landlord on demand the
amount of any loss and damage which Landlord may suffer by reason of
such termination, whether through inability to relet the premises on
satisfactory terms or otherwise.
(b) Enter upon and take possession of the premises and
expel or remove Tenant and any other person who may be occupying such
premises or any part thereof, by force if necessary, without being
liable for prosecution or any claim for damages therefor, and relet the
premises and receive the rent therefor, and Tenant agrees to pay to the
Landlord on demand any deficiency that may arise by reason of such
reletting. In the event Landlord is successful in reletting the
premises at a rental in excess of that agreed to be paid by Tenant
pursuant to the terms of this Agreement, Landlord and Tenant each
mutually agree that Tenant shall not be entitled, under any
circumstances, to such excess rental, and Tenant does hereby
specifically waive any claim to such excess rental.
(c) Enter upon the premises, by force if necessary,
without being liable for prosecution or any claim for damages therefor,
and do whatever Tenant is obligated to do
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<PAGE> 8
under the terms of this lease; and Tenant agrees to reimburse Landlord,
on demand, for any expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this lease, and Tenant
further agrees that Landlord shall not be liable for any damages
resulting to the Tenant from such action, whether caused by the
negligence of the Landlord or otherwise.
Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies provided by law,
nor shall pursuit of any remedy herein provided constitute a forfeiture or
waiver of any rent due to Landlord hereunder or of any damages accruing to
Landlord by reason of the violation of any of the terms, provisions and
covenants herein contained. No act or thing done by Landlord or its agents
during the term hereby granted shall be deemed a termination of this lease or an
acceptance of the surrender of the premises, and no agreement to terminate this
lease or to accept a surrender of said premises shall be valid unless in writing
signed by Landlord. No waiver by Landlord or any violation or breach of any of
the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other violation or breach of any of the
terms, provisions and covenants herein contained. Forbearance by Landlord to
enforce one or more of the remedies herein provided upon an event of default
shall not be deemed or construed to constitute a waiver of such default or of
Landlord's right to enforce any such remedies with respect to such default or
any subsequent default. If on account of any breach or default by Tenant in
Tenant's obligations under the terms and conditions of this lease, it shall
became necessary or appropriate for Landlord to employ or consult with an
attorney concerning or to enforce or defend any of Landlord's rights or remedies
hereunder. Tenant agrees to pay any attorneys' fees so incurred by Landlord.
18. NO LANDLORD'S LIEN. Landlord hereby waives any landlord's
lien or similar lien for rent, whether the same arises by statute or common law.
19. MORTGAGES. Tenant accepts this lease subject and subordinate
to any mortgage(s) and/or deed(s) of trust now or at any time hereafter
constituting a lien or charge upon the premises or the improvements situated
thereon; provided, however, that if the mortgagee, trustee, or holder of any
such mortgage or deed of trust elects to have Tenant's interest in this lease
superior to any such instrument, then by notice to Tenant from such mortgagee,
trustee or holder, this lease shall be deemed superior to such lien, whether
this lease was executed before or after said mortgage or deed of trust. Tenant
shall at any time hereafter, on demand, execute any instruments, releases or
other documents which may be required by any mortgagee for the purpose of
subjecting and subordinating this lease to the lien of any such mortgage.
20. MECHANIC'S LIENS. Tenant shall have no authority, express or
implied, to create or place any lien or encumbrance of any kind or nature
whatsoever upon, or in any manner to bind, the interest of Landlord in the
premises or to charge the rentals payable hereunder for any claim in favor of
any person dealing with Tenant, including those who may furnish materials or
perform labor for any construction or repairs, and each such claim shall affect
and each such lien shall attach to, if at all, only the leasehold interest
granted to Tenant by this instrument. Tenant covenants and agrees that it will
pay or cause to be paid all sums legally due and payable by it on account of any
labor performed or materials furnished in connection with any work performed on
the premises on which any lien is or can be validly and legally asserted against
its leasehold interest in the premises or the improvements thereon and that it
will save and hold Landlord harmless from any and all loss, cost
-8-
<PAGE> 9
or expense based on or arising out of asserted claims or liens against the
leasehold estate or against the right, title and interest of the Landlord in the
premises or under the terms of this lease.
21. NOTICES. Each provision of this instrument or of any
applicable governmental laws, ordinances, regulations and other requirements
with reference to the sending, mailing or delivery of any notice or the making
of any payment by Landlord to Tenant or with reference to the sending, mailing,
or delivery of any notice or the making of any payment by Tenant to Landlord
shall be deemed to be complied with when and if the following steps are taken:
(a) All rent and other payments required to be made by
Tenant to Landlord hereunder shall be payable to Landlord at the
address hereinbelow set forth or at such other address as Landlord may
specify from time to time by written notice delivered in accordance
herewith. Tenant's obligation to pay rent and any other amounts to
Landlord under the terms of this lease shall not be deemed satisfied
until such rent and other amounts have been actually received by
Landlord.
(b) All payment required to be made by Landlord to Tenant
hereunder shall be payable to Tenant at the address hereinbelow set
forth, or at such other address within the continental United States as
Tenant may specify from time to time by written notice delivered in
accordance herewith.
(c) Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered whether actually
received or not when deposited in the United States Mail, postage
prepaid, Certified or Registered Mail, addressed to the parties hereto
at the respective addresses set out below, or at such other address as
they have theretofore specified by written notice delivered in
accordance herewith:
LANDLORD: TENANT:
Whitson Properties, L.C. Span Instruments, Inc.
1947 Avenue K 1947 Avenue K
Plano, Texas 75074 Plano, Texas 75074
If and when included within the term "Landlord", as used in this
instrument, there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address for the receipt of notices
and payments to Landlord; if and when included within the term "Tenant", as used
in this instrument, there are more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of such a
notice specifying some individual at some specific address within the
continental United States for the receipt of notices and payments to Tenant. All
parties included within the terms "Landlord" and "Tenant", respectively, shall
be bound by notices given in accordance with the provisions of this paragraph to
the same effect as if each had received such notice.
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<PAGE> 10
22. MISCELLANEOUS.
A. Words of any gender used in this lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires.
B. The terms, provisions, covenants, and conditions contained in
this lease shall apply to, inure to the benefit of, and be binding upon, the
parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns except as otherwise herein expressly provided.
Each party agrees to furnish the other, promptly upon demand, a corporate
resolution, proof of due authorization by partners, or other appropriate
documentation evidencing the due authorization of such party to enter into this
lease.
C. The captions inserted in this lease are for convenience only
and in no way define, limit or otherwise describe the scope or intent of this
lease, or any provision hereof, or in any way affect the interpretation of this
lease.
D. Tenant agrees from time to time within ten (10) days after
request of landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this lease is in full force and effect, the date to
which rent has been paid, the unexpired term of this lease and such other
matters pertaining to this lease as may be reasonably requested by Landlord. It
is understood and agreed that Tenant's obligation to furnish such estoppel
certificates in a timely fashion is a material inducement for Landlord's
execution of this lease.
E. This lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
F. All obligations of Tenant hereunder not fully performed as of
the expiration or earlier termination of the term of this lease shall survive
the expiration of earlier termination of the term hereof, including without
limitation all payment obligations with respect to taxes and insurance and all
obligations concerning the condition of the premises. Upon the expiration or
earlier termination of the term hereof, and prior to Tenant vacating the
premises, Tenant shall pay to Landlord any amount reasonably estimated by
Landlord as necessary to put the premises, including without limitation all
heating and air conditioning systems and equipment therein, in good condition
and repair. Tenant shall also, prior to vacating the premises, pay to Landlord
the amount, as estimated by Landlord, of Tenant's obligation hereunder for real
estate taxes and insurance premiums for the year in which the lease expires or
terminates. All such amounts shall be used and held by Landlord for payment of
such obligations of Tenant hereunder, with Tenant being liable for any
additional costs therefor upon demand by Landlord, or with any excess to be
returned to Tenant after all such obligations have been determined and
satisfied, as the case may be. Any security deposit held by Landlord shall be
credited against the amount payable by Tenant under this subparagraph 22F.
G. If any cause or provision of this lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
lease, then and in that event, it is the intention of the parties hereto
that the remainder of this lease shall not be affected thereby, and it is also
the intention of the parties of this lease that in lieu of each clause or
provision of this lease that is illegal, invalid or unenforceable, there be
added as a part of this lease contract a clause or provision as
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<PAGE> 11
similar in terms to such illegal, invalid or unenforceable clause or provision
as may be possible and be legal and enforceable.
H. All references in this lease to "the date hereof" or similar
references shall be deemed to refer to the last date, in point of time, on which
all parties hereto have executed this lease.
EXECUTED BY LANDLORD, this 31st day of August, 1995.
LANDLORD:
WHITSON PROPERTIES, L.C.
By: /s/ Don E. Whitson
----------------------------------------
Name (print): DON E. WHITSON
----------------------------------------
Title: PRESIDENT
----------------------------------------
EXECUTED BY TENANT, this 31st day of August, 1995.
TENANT:
SPAN INSTRUMENTS, INC.
By: /s/ Brian R. Day
----------------------------------------
Name (print): Brian R. Day
----------------------------------------
Title: CFO
----------------------------------------
Exhibits:
Exhibit "A" - Description of Premises
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<PAGE> 12
Exhibit "A"
Description of Premises
<PAGE> 13
Exhibit 4.23
AMENDMENT TO LEASE AGREEMENT
This Amendment to Lease Agreement is made and entered into as of the
1st day of October, 1995, by and between Whitson Properties, L.C., a Texas
limited liability company, hereinafter referred to as "Landlord", and Span
Instruments, Inc., a Texas corporation, hereinafter referred to as "Tenant".
W I T N E S S E T H:
WHEREAS, Landlord and Tenant have previously entered into that certain
Lease Agreement ("Lease"), dated August 31, 1995, covering the property
described on Exhibit "A" attached hereto and incorporated herein by reference
for all purposes;
WHEREAS, Landlord and Tenant desire to amend the terms of the Lease as
hereinafter provided;
NOW, THEREFORE, IN WITNESS WHEREOF, Landlord and Tenant desire to amend
the Lease in the following respects:
1. The second paragraph of the section in the Lease entitled "1.
Premises and Term" is hereby deleted in its entirety and the following paragraph
is substituted therefor:
TO HAVE AND TO HOLD the premises for a term commencing on the
"Commencement Date", as hereinafter defined, and ending two hundred and
six (206) months thereafter, provided, however, that, in the event the
"Commencement Date" is a date other than the first day of a calendar
month, said term shall extend for said number of months in addition to
the remainder of the calendar month following the "Commencement Date".
2. The first sentence of the section in the Lease entitled "2.
Rent" is hereby deleted in its entirety and the following sentence is
substituted therefor:
Tenant agrees to pay to Landlord rent for the premises in advance,
without demand, deduction or set off, in monthly installments as set
forth on Exhibit "B" attached hereto and incorporated herein by this
reference.
3. Exhibit "B" attached to this Amendment is hereby incorporated
into and made a part of the Lease.
4. Except as amended herein, the Lease shall remain in full force
and effect.
5. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same agreement, and
either of the parties hereto may execute this Amendment by signing any such
counterpart.
<PAGE> 14
IN WITNESS WHEREOF, this Amendment is hereby executed as the date first
set forth above.
WHITSON PROPERTIES, L.C., a Texas
limited liability company
By: /s/ Brian R. Day
---------------------------------
Its: VICE PRESIDENT
SPAN INSTRUMENTS, INC., a Texas
corporation
By: /s/ Brian R. Day
---------------------------------
Its: CHIEF FINANCIAL OFFICER
<PAGE> 15
EXHIBIT A
TRACT 1:
BEING located at 1947 Avenue K, being Lot 1, Block 1 of Whitson Addition, an
addition to the City of Plano, Texas, according to the plat recorded in Volume
G, Page 469, Map Records Collin County, Texas, and being more particularly
described as follows:
BEGINNING at the intersection of the East line of an 80' Southern & Pacific
Railroad right-of-way, with the Southeast line of 22nd Street, said point being
the most Northwesterly corner of said Lot 1, same being in a curve to the left,
having a central angle of 07 deg. 52 min. 44 sec., a radius of 320.00 feet, a
chord bearing of North 69 deg. 49 min. 39 sec. East, a 1/2" iron rod set for
corner;
THENCE: Northeasterly, with said curve to the left, same being with the said
Southeast line of 22nd Street, an arc distance of 44.00 feet to the beginning of
a curve to the right, having a central angle of 24 deg. 06 min. 43 sec., a
radius of 280.00 feet, a 1/2" iron rod set for corner;
THENCE: Northeasterly, with said curve to the right, same being with the said
Southeast line of 22nd Street, an arc distance of 117.83 feet to the end of said
curve, a 1/2" iron rod set for corner;
THENCE: East, with the South line of 22nd Street, a distance of 27.98 feet to
the Northwest corner of Dickinson Addition, an addition to the City of Plano,
Texas according to the plat recorded in Volume C, Page 152, Map Records Collin
County, Texas an "x" found in concrete for corner;
THENCE: South 00 deg. 39 min. 05 sec. West, with the West line of said Dickinson
Addition, a distance of 153.79 feet, a 1/2" iron rod set for corner;
THENCE: South 89 deg. 55 min. 33 sec. East with the South line of Said Dickinson
Addition, a distance of 227.28 feet to a point in the West line of Avenue K, (a
100' R.O.W.), a 1/2" iron rod set for corner;
THENCE: South 00 deg. 29 min. 12 sec. West, with the said West line of Avenue K,
a distance of 216.39 feet to the Southeast corner of said Lot 1, a 1/2" iron set
for corner;
THENCE: North 89 deg. 44 min. West, with the North line of Lot 1, Block B of
Miller & Hood Highway Addition, an addition to the City of Plano, Texas, a
distance of 150.82 feet, a 1/2" iron rod set for corner;
THENCE: North 00 deg. 09 min. 11 sec. East with the East line of Lot 3, Block B
of said Miller & Hood Highway Addition, a distance of 58.11 feet, a 1/2" iron
rod found for corner;
<PAGE> 16
EXHIBIT A - continued
THENCE: North 89 deg. 28 min. 15 sec. West, with the North line of Block B of
said Miller & Hood Highway Addition, a distance of 259.66 feet to a point in the
said East line of the Southern Pacific Railroad right-of-way, a 1/2" iron rod
found for corner;
THENCE: North 00 deg. 38 min. 03 sec. East with the East line of said railroad
right-of-way, a distance of 269.67 feet to the PLACE OF BEGINNING and CONTAINING
99,228 square feet or 2.278 acres of land.
TRACT 2:
BEING located at 2201 Avenue K, being part of Lot 1, Block 1 of Apple Square
Revised Addition, an addition to the City of Plano, Texas, according to the plat
recorded in Volume F, Page 233, Map Records of Collin County, Texas, and being
more particularly described as follows:
BEGINNING at a point in West line of Avenue K, (a 100' R.O.W.), said point being
North 00 deg. 29 min. 12 sec. East, a distance of 133.00 feet from the
intersection of the said West line of Avenue K, with the North line of 22nd
Street, (a 40' R.O.W.), same being from the Southeast corner of said Lot 1, a
p.k. nail set for corner;
THENCE: West, a distance of 181.10 feet, an "x" in concrete for corner;
THENCE: South 00 deg. 29 min. 12 sec. West, a distance of 133.00 feet to a point
in the said North Line of 22nd Street, a 1/2" iron rod set for corner;
THENCE: West, with the said North line of 22nd Street, a distance of 74.06 feet
to the beginning of a curve to the left, having a central angle of 10 deg. 46
min. 07 sec. a radius of 320.00 feet, a 1/2" iron rod set for corner;
THENCE: Westerly, with the said North line of 22nd Street, same being with said
curve to the left, an arc distance of 60.14 feet to the end of said curve, a
1/2" iron rod set for corner;
THENCE: South 89 deg. 58 min. 10 sec. West, with the South line of said Lot 1, a
distance of 95.05 feet to a point in the East line of an 80' Southern & Pacific
Railroad right-of-way, an "x" cut found for corner;
THENCE: North 00 deg. 38 min. 03 sec. East, with the East line of said railroad
right-of-way, a distance of 527.58 feet to the Northwest corner of said Lot 1, a
1" iron rod found for corner;
<PAGE> 17
EXHIBIT A - continued
THENCE: South 89 deg. 22 min. 08 sec. East, with the North line of said Lot 1,
same being with the South line of Vista North Apartments, a distance of 408.58
feet to a point in the said West line of Avenue K, an "x" found in concrete for
corner;
THENCE: South 00 deg. 29 min. 12 sec. West, with the said West line of Avenue K,
a distance of 384.38 feet to the PLACE OF BEGINNING and CONTAINING 189,225
square feet or 4.344 acres of land.
<PAGE> 18
EXHIBIT B
<TABLE>
<CAPTION>
Lease Month Monthly Rental Installments
- ----------- ---------------------------
<S> <C>
1 through 60 $37,500.00
61 through 120 $39,375.00
121 through 206 $41,343.75
</TABLE>
<PAGE> 1
EXHIBIT 10.23
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into by and between Whitson
Properties, L.C., a Texas limited liability company, hereinafter referred to as
"Landlord", and Span Instruments, Inc., a Texas corporation, hereinafter
referred to as "Tenant";
W I T N E S S E T H:
1. Premises and Term. In consideration of the obligation of Tenant to
pay rent herein provided, and in consideration of the other terms, provisions
and covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant
hereby takes from Landlord, certain premises described on Exhibit "A" attached
hereto and incorporated herein by reference, together with all rights,
privileges, easements, appurtenances, and immunities belonging to or in any way
pertaining to the premises and together with the buildings and other
improvements situated or to be situated upon said premises (said real property,
buildings and improvements being hereinafter referred to as the "premises").
TO HAVE AND TO HOLD the premises for a term commencing on the
"Commencement Date", as hereinafter defined, and ending two hundred (200) months
thereafter, provided, however, that, in the event the "Commencement Date" is a
date other than the first day of a calendar month, said term shall extend for
said number of months in addition to the remainder of the calendar month
following the "Commencement Date".
The "Commencement Date" shall be March 1, 1996. Tenant acknowledges
that it has inspected and accepts the premises, and specifically the buildings
and improvements comprising the same, in their present condition as suitable for
the purpose for which the premises are leased. The taking of possession by
Tenant shall be deemed conclusively to establish that said buildings and other
improvements are in good and satisfactory condition as of when possession was
taken. Tenant further acknowledges that no representations as to the repair of
the premises, nor promises to alter, remodel or improve the premises have been
made by Landlord, unless such are expressly set forth in this lease.
2. Rent. Tenant agrees to pay to Landlord rent for the premises in
advance, without demand, deduction or set off, in monthly installments of
$20,300.00. One such monthly installment shall be due and payable on the date
hereof and a like monthly installment shall be due and payable, without demand,
on or before the first day of each calendar month succeeding the "Commencement
Date" during the hereby demised term, except that the rental payment for any
fractional calendar month at the commencement of the lease term shall be
prorated.
3. Use. During the term of this lease, the premises shall be used for
any lawful purpose. Tenant shall, at its own cost and expense, obtain any and
all licenses and permits necessary for any such use. Tenant shall comply with
all governmental laws, ordinances and regulations applicable to the use of the
premises, including, but not limited to, the Americans With Disabilities Act,
and shall promptly comply with all governmental orders and directives for the
correction, prevention and abatement of nuisances in or upon or connected with
the premises, all at Tenant's sole expense. Tenant shall not permit any
objectionable or unpleasant
<PAGE> 2
odors, smoke, dust, gas, noise or vibrations to emanate from the premises.
Without Landlord's prior written consent, Tenant shall not receive, store or
otherwise handle any product, material or merchandise which is explosive or
highly inflammable. Tenant will not permit the premises to be used for any
purpose or in any manner which would render the insurance thereon void or the
insurance risk more hazardous or cause the State Board of Insurance or other
insurance authority to disallow any sprinkler credits.
4. Taxes.
A. Tenant agrees to pay, before they become delinquent, all taxes and
assessments and other governmental charges of any kind and nature whatsoever
(hereinafter collectively referred to as the "taxes") lawfully levied or
assessed against the premises. Tenant shall furnish to Landlord, not later than
twenty (20) days before the date any such taxes become delinquent, official
receipts of the appropriate taxing authority or other evidence satisfactory to
Landlord evidencing payment thereof. If Tenant should fail to pay any taxes
required to be paid by Tenant hereunder, in addition to any other remedies
provided herein, Landlord may, if it so elects, pay such taxes.
B. If, at any time during the term of this lease, the present method of
taxation shall be changed so that in lieu of the whole or any part of any taxes
levied, assessed or imposed on real estate and the improvements thereon, there
shall be levied, assessed or imposed on Landlord a capital levy or other tax
directly on the rents received therefrom and/or a franchise tax, assessment,
levy or charge measured by or based, in whole or in part, upon such rents for
the present or any future building or buildings on the premises, then all such
taxes, assessments, levies or charges, or the part thereof so measured or based,
shall be deemed to be included within the term "taxes" for the purposes hereof.
C. Tenant may, at its sole cost and expense, in its own name and/or in
the name of Landlord, dispute and contest any taxes by appropriate proceedings
diligently conducted in good faith, but only after Tenant has deposited with
Landlord the amount so contested and unpaid, which shall be held by Landlord
without obligation for interest until the termination of the proceedings, at
which time the amount deposited shall be applied by Landlord toward the payment
of the items held valid (plus any court costs, interest, penalties, and other
liabilities associated with the proceedings), and Tenant's share of any excess
shall be returned to Tenant. Tenant further agrees to pay to Landlord, upon
demand, Tenant's share (as among all tenants who participated in the contest) of
all court costs, interest, penalties, and other liabilities relating to such
proceedings. Tenant hereby indemnifies and agrees to hold harmless the Landlord
from and against any cost, damage, or expense (including attorneys' fees) in
connection with any such proceedings.
D. Any payment to be made pursuant to this Paragraph 4, with respect to
the real estate tax year in which this lease commences or terminates, shall be
prorated.
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<PAGE> 3
5. Repairs and Maintenance. Tenant shall, at its own cost and expense,
keep and maintain all parts of the premises in good condition, promptly making
all necessary repairs and replacements, interior and exterior, structural and
non-structural, ordinary and extraordinary, including, but not limited to,
windows, glass and plate glass, doors and any special office entry, walls and
finish work, floors and floor covering, roof, foundations, down spouts, gutters,
heating and air conditioning systems, dock boards, truck doors, dock bumpers,
paving, plumbing work and fixtures, termite and pest extermination, regular
removal of trash and debris, regular mowing of any grass, trimming, weed removal
and general landscape maintenance, including keeping the parking areas,
driveways, alleys and the whole of the premises in a clean and sanitary
condition. Tenant shall at its own cost and expense repaint exterior overhead
doors, canopies, entries, handrails, gutters, and other exposed parts of the
building which reasonably require periodic repainting to prevent deterioration
or to maintain aesthetic standards.
6. Alterations. Tenant shall not make any material alterations,
additions or improvements to the premises without the prior written consent of
Landlord. Tenant may, without the consent of Landlord, but at its own cost and
expense and in a good workmanlike manner make such minor alterations, additions
or improvements or erect, remove or alter such partitions, or erect such
shelves, bins, machinery and trade fixtures as it may deem advisable, without
altering the basic character of the building or improvements and without
overloading or damaging such building or improvements, and in each case
complying with all applicable governmental laws, ordinances, regulations and
other requirements. All alterations, additions, improvements and partitions
erected by Tenant shall be and remain the property of Tenant during the term of
this lease, and Tenant shall, unless Landlord otherwise elects as hereinafter
provided, remove all alterations, additions, improvements and partitions erected
by Tenant and restore the premises to their original condition by the date of
termination of this lease; provided, however, that if Landlord so elects prior
to termination of this lease, such alterations, additions, improvements and
partitions shall become the property of Landlord as of the date of termination
of this lease and shall be delivered up to the Landlord with the premises. All
shelves, bins, machinery and trade fixtures shall be and remain property of
Tenant and may be removed by Tenant prior to the termination of this lease if
Tenant so elects, and shall be removed if required by Landlord; upon any such
removal Tenant shall restore the premises to their original condition. All such
removals and restoration shall be accomplished in a good workmanlike manner so
as not to damage the primary structure or structural qualities of the buildings
and other improvements situated on the premises. If Landlord requires the that
shelves, bins, machinery and trade fixtures be removed and they are not removed
prior to termination of this Lease, Landlord may store said shelves, bins,
machinery and trade fixtures at the premises or at some other location for a
period of up to 60 days after termination of this Lease. If the shelves, bins,
machinery and trade fixtures have not been claimed within said 60 day period
they shall conclusively be deemed to have been abandoned by Tenant and may be
appropriated, sold, destroyed or otherwise disposed of by Landlord without
notice to Tenant or to any other person and without obligation to account for
them. Tenant will pay Landlord all expenses incurred in connection with
Landlord's disposition of such property, including without limitation the cost
of repairing any damage to the building or the premises caused by removal of
such property. Tenant's obligation to observe and perform this covenant will
survive the end of this Lease.
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<PAGE> 4
7. Signs. Tenant shall have the right to install signs upon the
premises only when first approved in writing by Landlord and subject to any
applicable governmental laws, ordinances, regulations and other requirements.
Tenant shall remove all such signs by the termination of this lease. Such
installations and removals shall be made in such manner as to avoid injury to or
defacement of the building and other improvements, and Tenant shall repair any
injury or defacement, including, without limitation, discoloration caused by
such installation or removal.
8. Inspection. Landlord and Landlord's agents and representatives shall
have the right to enter and inspect the premises at any reasonable time during
business hours for the purpose of ascertaining the condition of the premises or
in order to make such repairs as may be required or permitted to be made by
Landlord under the terms of this lease. During the period that is six (6) months
prior to the end of the term hereof, Landlord and Landlord's agents and
representatives shall have the right to enter the premises at any reasonable
time during business hours for the purpose of showing the premises, and shall
have the right to erect on the premises a suitable sign indicating that the
premises are available. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the premises and shall arrange to meet with
Landlord for a joint inspection of the premises at the time of vacating. In the
event of Tenant's failure to give such notice or arrange such joint inspection,
Landlord's inspection at or after Tenant's vacating the premises shall be
conclusively deemed correct for purposes of determining Tenant's responsibility
for repairs and restoration.
9. Utilities. Tenant shall pay for all water, gas, heat, light, power,
telephone, sewer, sprinkler charges and other utilities and services used on or
from the premises, together with any taxes, penalties, surcharges or the like
pertaining thereto, and maintenance charges for utilities, and shall furnish all
electric light bulbs and tubes. If any such services are not separately metered
to Tenant, Tenant shall pay a reasonable proportion, as determined by Landlord,
of all charges jointly metered with other premises. Landlord shall in no event
be liable for any interruption or failure of utility services on the premises.
10. Assignment and Subletting. Tenant shall not have the right to
assign this lease or to sublet the whole or any part of the premises without the
prior written consent of Landlord. Notwithstanding any permitted assignment or
subletting, Tenant shall at all times remain directly, primarily and fully
responsible and liable for the payment of the rent herein specified and for
compliance with all of Tenant's other obligations under the terms, provisions
and covenants of this lease. Upon the occurrence of an "event of default" as
hereinafter defined, if the premises or any part thereof are then assigned or
sublet, Landlord, in addition to any other remedies herein provided or provided
by law, may at its option collect directly from such assignee or subtenant all
rents becoming due to Tenant under such assignment or sublease and apply such
rent against any sums due to Landlord from Tenant hereunder, and no such
collection shall be construed to constitute a novation or a release of Tenant
from the further performance of Tenant's obligations hereunder.
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<PAGE> 5
11. Insurance, Fire and Casualty Damage.
A. Tenant, at Tenant's expense, agrees to maintain insurance covering
the building of which the premises are a part in an amount not less than eighty
percent (80%) (or such greater percentage as may be necessary to comply with the
provisions of any co-insurance clauses of the policy) of the "replacement cost"
thereof as such term is defined in the Replacement Cost Endorsement to be
attached thereto, insuring against the perils of Fire, Lightning, Extended
Coverage, Vandalism and Malicious Mischief, extended by Special Extended
Coverage Endorsement to insure against all other Risks of Direct Physical Loss.
All such coverages and endorsements shall be as defined, provided and limited in
the standard bureau forms prescribed by the insurance regulatory authority for
the State of Texas for use by insurance companies admitted in such state for the
writing of such insurance on risks located within such state. Landlord shall be
named as an additional insured on all policies. Any mortgagee of the premises
shall be listed as such on all policies as well. Certified copies of such
policies, together with receipt evidencing payment of premiums therefor, shall
be delivered to Landlord prior to the Commencement Date of this lease. Not less
than fifteen (15) days prior to the expiration date of any such policies,
certified copies of the renewals thereof (bearing notations evidencing the
payment of renewal premiums) shall be delivered to Landlord. Such policies shall
further provide that not less than thirty (30) days' written notice shall be
given to Landlord before such policy may be cancelled or changed to reduce the
insurance provided thereby.
B. If the buildings situated upon the premises should be damaged or
destroyed in whole or in part for any reason whatsoever, regardless of whether
or not the same is caused by any peril covered by the insurance to be provided
by Tenant under subparagraph 11A above, Tenant shall give immediate notice
thereof to Landlord, and Tenant shall at its sole cost and expense thereupon
proceed with reasonable diligence to rebuild and repair such buildings to
substantially the condition in which they existed prior to such damage or
destruction, subject to Landlord's prior written approval of the plans and
specifications for such rebuilding and repairing. Landlord shall allow Tenant a
fair diminution of rent during the time and to the extent the premises are unfit
for occupancy as a result of any such damage or destruction. Subject to
Paragraph 11C below, Tenant shall be entitled to use all insurance proceeds
payable under the policies described in Paragraph 11A above.
C. Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
premises requires that the insurance proceeds be applied to such indebtedness,
then Landlord shall have the right to terminate this lease by delivering written
notice of termination to Tenant within fifteen (15) days after such requirement
is made by any such holder, whereupon Tenant shall assign to Landlord all rights
to any insurance proceeds payable under the insurance required under
subparagraph 11A above, and all rights and obligations hereunder shall cease and
terminate.
D. Each of Landlord and Tenant hereby releases the other from any and
all liability or responsibility to the other or any person claiming through or
under them by way of subrogation or otherwise for any loss or damage to property
caused by fire or any other perils
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<PAGE> 6
insured in policies of insurance covering such property, even if such loss or
damage shall have been caused by the fault or negligence of the other party, or
anyone for whom such party may be responsible; provided, however, that this
release shall be applicable and in force and effect only with respect to loss or
damage occurring during such times as the releasor's policies shall contain a
clause or endorsement to the effect that any such release shall not adversely
affect or impair said policies or prejudice the right of the releasor to recover
thereunder and then only to the extent of the insurance proceeds payable under
such policies. Each of Landlord and Tenant agrees that it will request its
insurance carriers to include in its policies such a clause or endorsement.
12. Liability. Landlord shall not be liable to Tenant or Tenant's
employees, agents, patrons or visitors, or to any other person whomsoever, for
any injury to person or damage to property on or about the premises, resulting
from and/or caused in part or whole by the negligence or misconduct of Tenant,
its agents, servants or employees, or of any other person entering upon the
premises, or caused by the buildings and improvements located on the premises
becoming out of repair, or caused by leakage of gas, oil, water or steam, or by
electricity emanating from the premises, or due to any cause whatsoever, and
Tenant hereby covenants and agrees that it will at all times indemnify and hold
safe and harmless the property, Landlord (including without limitation the
trustee and beneficiaries if Landlord is a trust), and Landlord's agents and
employees from any loss, liability, claims, suits, costs, expenses, including,
without limitation, attorneys' fees and damages, both real and alleged, arising
out of any such damage or injury. Tenant shall procure and maintain throughout
the term of this lease, at its sole cost and expense, comprehensive general
liability insurance with broad form extensions covering claims for personal and
bodily injury or property damage occurring in, on, under, within, upon or about
the premises, or as a result of operations thereon (including contractual
liability covering indemnities set forth in this lease), for limits, unless
otherwise agreed by Landlord, of not less than $1,000,000.00 combined single
limit for personal and bodily injury or property damage. All such policies shall
be procured by Tenant from responsible insurance companies licensed to do
business in Texas which are satisfactory to Landlord. Certified copies of such
policies, together with receipt evidencing payment of premiums therefor, shall
be delivered to Landlord prior to the Commencement Date of this lease. Not less
than fifteen (15) days prior to the expiration date of any such policies,
certified copies of the renewals thereof (bearing notations evidencing the
payment of renewal premiums) shall be delivered to Landlord. Such policies shall
further provide that not less than thirty (30) days' written notice shall be
given to Landlord before such policy may be cancelled or changed to reduce the
insurance provided thereby.
13. Condemnation.
A. If the whole or any substantial part of the premises should be taken
for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the use of
the premises for the purpose for which they are then being used, this lease
shall terminate and the rent shall be abated during the unexpired portion of
this lease, effective when the physical taking of said premises shall occur.
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<PAGE> 7
B. If part of the premises shall be taken for any public or
quasi-public use under any governmental law, ordinance, or regulation, or by
right of eminent domain, or by private purchase in lieu thereof, and this lease
is not terminated as provided in subparagraph 13A above, this lease shall not
terminate, but the rent payable hereunder during the unexpired portion of this
lease shall be reduced to such extent as may be fair and reasonable under all of
the circumstances.
C. In the event of any such taking or private purchase in lieu thereof,
all compensation awarded for any taking (or sale proceeds in lieu thereof) shall
be the sole property of the Landlord, and Tenant shall have no claim thereto.
14. Holding Over. Tenant will, at the termination of this lease by
lapse of time or otherwise, yield up immediate possession to Landlord. In the
event of any holding over by Tenant or any of its successors in interest after
the termination of this lease, unless the parties hereto otherwise agree in
writing, the hold-over tenancy shall be subject to termination by Landlord at
any time upon not less than five (5) days' advance written notice, or by Tenant
at any time upon not less than thirty (30) days' advance written notice, and all
of the other terms and provisions of this lease shall be applicable during that
period. No holding over by Tenant, whether with or without consent of Landlord,
shall operate to extend this lease except as otherwise expressly provided.
15. Quiet Enjoyment. Landlord represents and warrants that it has full
right and authority to enter into this lease and that Tenant, upon paying the
rental herein set forth and performing its other covenants and agreements herein
set forth, shall peaceably and quietly have, hold, and enjoy the premises for
the term hereof without hindrance or molestation from Landlord, subject to the
terms and provisions of this lease.
16. Events of Default. The following events shall be deemed to be
events of default by Tenant under this lease:
(a) Tenant shall fail to pay any installment of the rent
hereby reserved when due, or any payment with respect to taxes
hereunder when due, or any other payment or reimbursement to Landlord
required herein when due, and such failure shall continue for a period
of ten (10) days after written notice thereof to Tenant.
(b) Tenant shall become insolvent, or shall make a transfer in
fraud of creditors, or shall make an assignment for the benefit of
creditors.
(c) Tenant shall file a petition for relief under any section
or chapter of the United States Bankruptcy Code, as amended, or under
any similar law or statute of the United States or any State thereof,
or any bankruptcy or similar proceedings shall be filed involuntarily
against Tenant thereunder.
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<PAGE> 8
(d) A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant.
(e) Tenant shall desert or vacate any substantial portion of
the premises.
(f) Tenant shall fail to comply with any term, provision, or
covenant of this lease (other than the foregoing in this Paragraph 16),
and shall not cure such failure within thirty (30) days after written
notice thereof to Tenant (or such longer period as is reasonably
necessary to cure such failure, provided that Tenant shall commence the
cure of such failure within such thirty (30) day period and shall
continuously and diligently pursue the remedy of such failure).
17. Remedies. Upon the occurrence of any of such events of default
described in Paragraph 16 hereof, Landlord shall have the option to pursue any
one or more of the following remedies without any notice or demand whatsoever:
(a) Terminate this lease, in which event Tenant shall
immediately surrender the premises to Landlord, and if Tenant fails so
to do, Landlord may, without prejudice to any other remedy which it may
have for possession or arrearages in rent, enter upon and take
possession of the premises and expel or remove Tenant and any other
person who may be occupying such premises or any part thereof, by force
if necessary, without being liable for prosecution or any claim or
damages therefor; and Tenant agrees to pay to Landlord on demand the
amount of any loss and damage which Landlord may suffer by reason of
such termination, whether through inability to relet the premises on
satisfactory terms or otherwise.
(b) Enter upon and take possession of the premises and expel
or remove Tenant and any other person who may be occupying such
premises or any part thereof, by force if necessary, without being
liable for prosecution or any claim for damages therefor, and relet the
premises and receive the rent therefor; and Tenant agrees to pay to the
Landlord on demand any deficiency that may arise by reason of such
reletting. In the event Landlord is successful in reletting the
premises at a rental in excess of that agreed to be paid by Tenant
pursuant to the terms of this Agreement, Landlord and Tenant each
mutually agree that Tenant shall not be entitled, under any
circumstances, to such excess rental, and Tenant does hereby
specifically waive any claim to such excess rental.
(c) Enter upon the premises, by force if necessary, without
being liable for prosecution or any claim for damages therefor, and do
whatever Tenant is obligated to do under the terms of this lease; and
Tenant agrees to reimburse Landlord, on demand, for any expenses which
Landlord may incur in thus effecting compliance with Tenant's
obligations under this lease, and Tenant further agrees that Landlord
shall not be liable for any damages resulting to the Tenant from such
action, whether caused by the negligence of the Landlord or otherwise.
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<PAGE> 9
Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies provided by law,
nor shall pursuit of any remedy herein provided constitute a forfeiture or
waiver of any rent due to Landlord hereunder or of any damages accruing to
Landlord by reason of the violation of any of the terms, provisions and
covenants herein contained. No act or thing done by the Landlord or its agents
during the term hereby granted shall be deemed a termination of this lease or an
acceptance of the surrender of the premises, and no agreement to terminate this
lease or to accept a surrender of said premises shall be valid unless in writing
signed by Landlord. No waiver by Landlord or any violation or breach of any of
the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other violation or breach of any of the
terms, provisions and covenants herein contained. Forbearance by Landlord to
enforce one or more of the remedies herein provided upon an event of default
shall not be deemed or construed to constitute a waiver of such default or of
Landlord's right to enforce any such remedies with respect to such default or
any subsequent default. If on account of any breach or default by Tenant in
Tenant's obligations under the terms and conditions of this lease, it shall
become necessary or appropriate for Landlord to employ or consult with an
attorney concerning or to enforce or defend any of Landlord's rights or remedies
hereunder, Tenant agrees to pay any attorneys' fees so incurred by Landlord.
18. No Landlord's Lien. Landlord hereby waives any landlord's lien or
similar lien for rent, whether the same arises by statute or common law.
19. Mortgages. Tenant accepts this lease subject and subordinate to any
mortgage(s) and/or deed(s) of trust now or at any time hereafter constituting a
lien or charge upon the premises or the improvements situated thereon; provided,
however, that if the mortgagee, trustee, or holder of any such mortgage or deed
of trust elects to have Tenant's interest in this lease superior to any such
instrument, then by notice to Tenant from such mortgagee, trustee or holder,
this lease shall be deemed superior to such lien, whether this lease was
executed before or after said mortgage or deed of trust. Tenant shall at any
time hereafter, on demand, execute any instruments, releases or other documents
which may be required by any mortgagee for the purpose of subjecting and
subordinating this lease to the lien of any such mortgage.
20. Mechanic's Liens. Tenant shall have no authority, express or
implied, to create or place any lien or encumbrance, of any kind or nature
whatsoever upon, or in any manner to bind, the interest of Landlord in the
premises or to charge the rentals payable hereunder for any claim in favor of
any person dealing with Tenant, including those who may furnish materials or
perform labor for any construction or repairs, and each such claim shall affect
and each such lien shall attach to, if at all, only the leasehold interest
granted to Tenant by this instrument. Tenant covenants and agrees that it will
pay or cause to be paid all sums legally due and payable by it on account of any
labor performed or materials furnished in connection with any work performed on
the premises on which any lien is or can be validly and legally asserted against
its leasehold interest in the premises or the improvements thereon and that it
will save and hold Landlord harmless from any and all loss, cost or expense
based on or arising out of asserted claims or liens
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<PAGE> 10
against the leasehold estate or against the right, title and interest of the
Landlord in the premises or under the terms of this lease.
21. Notices. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivery of any notice or the making of any payment
by Landlord to Tenant or with reference to the sending, mailing, or delivery of
any notice or the making of any payment by Tenant to Landlord shall be deemed to
be complied with when and if the following steps are taken:
(a) All rent and other payments required to be made by Tenant
to Landlord hereunder shall be payable to Landlord at the address
hereinbelow set forth or at such other address as Landlord may specify
from time to time by written notice delivered in accordance herewith.
Tenant's obligation to pay rent and any other amounts to Landlord under
the terms of this lease shall not be deemed satisfied until such rent
and other amounts have been actually received by Landlord.
(b) All payment required to be made by Landlord to Tenant
hereunder shall be payable to Tenant at the address hereinbelow set
forth, or at such other address within the continental United States as
Tenant may specify from time to time by written notice delivered in
accordance herewith.
(c) Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered whether actually
received or not when deposited in the United States Mail, postage
prepaid, Certified or Registered Mail, addressed to the parties hereto
at the respective addresses set out below, or at such other address as
they have theretofore specified by written notice delivered in
accordance herewith:
LANDLORD: TENANT:
Whitson Properties, L.C. Span Instruments, Inc.
1947 Avenue K 1947 Avenue K
Plano, Texas 75074 Plano, Texas 75074
If and when included within the term "Landlord", as used in this
instrument, there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address for the receipt of notices
and payments to Landlord; if and when included within the term "Tenant", as used
in this instrument, there are more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of such a
notice specifying some individual at some specific address within the
continental United States for the receipt of notices and payments to Tenant. All
parties included within the terms "Landlord" and "Tenant", respectively, shall
be bound by notices given in accordance with the provisions of this paragraph to
the same effect as if each had received such notice.
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22. Miscellaneous.
A. Words of any gender used in this lease shall be held and construed
to include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
B. The terms, provisions, covenants, and conditions contained in this
lease shall apply to, inure to the benefit of, and be binding upon, the parties
hereto and upon their respective heirs, legal representatives, successors and
permitted assigns except as otherwise herein expressly provided. Each party
agrees to furnish the other, promptly upon demand, a corporate resolution, proof
of due authorization by partners, or other appropriate documentation evidencing
the due authorization of such party to enter into this lease.
C. The captions inserted in this lease are for convenience only and in
no way define, limit or otherwise describe the scope or intent of this lease, or
any provision hereof, or in any way affect the interpretation of this lease.
D. Tenant agrees from time to time within ten (10) days after request
of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this lease is in full force and effect, the date to
which rent has been paid, the unexpired term of this lease and such other
matters pertaining to this lease as may be reasonably requested by Landlord. It
is understood and agreed that Tenant's obligation to furnish such estoppel
certificates in a timely fashion is a material inducement for Landlord's
execution of this lease.
E. This lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
F. All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this lease shall survive the
expiration of earlier termination of the term hereof, including without
limitation all payment obligations with respect to taxes and insurance and all
obligations concerning the condition of the premises. Upon the expiration or
earlier termination of the term hereof, and prior to Tenant vacating the
premises, Tenant shall pay to Landlord any amount reasonably estimated by
Landlord as necessary to put the premises, including without limitation all
heating and air conditioning systems and equipment therein, in good condition
and repair. Tenant shall also, prior to vacating the premises, pay to Landlord
the amount, as estimated by Landlord, of Tenant's obligation hereunder for real
estate taxes and insurance premiums for the year in which the lease expires or
terminates. All such amounts shall be used and held by Landlord for payment of
such obligations of Tenant hereunder, with Tenant being liable for any
additional costs therefor upon demand by Landlord, or with any excess to be
returned to Tenant after all such obligations have been determined and
satisfied, as the case may be. Any security deposit held by Landlord shall be
credited against the amount payable by Tenant under this subparagraph 22F.
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<PAGE> 12
G. If any clause or provision of this lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
lease, then and in that event, it is the intention of the parties hereto that
the remainder of this lease shall not be affected thereby, and it is also the
intention of the parties of this lease that in lieu of each clause or provision
of this lease that is illegal, invalid or unenforceable, there be added as a
part of this lease contract a clause or provision as similar in terms to such
illegal, invalid or unenforceable clause or provision as may be possible and be
legal, valid and enforceable.
H. All references in this lease to "the date hereof" or similar
references shall be deemed to refer to the last date, in point of time, on which
all parties hereto have executed this lease.
EXECUTED this 14th day of June, 1996 to be EFFECTIVE as of March 1,
1996.
LANDLORD:
WHITSON PROPERTIES, L.C.
By: /s/ Don E. Whitson
--------------------------
Name (print): Don E. Whitson
-----------------
Title: President
------------------------
TENANT:
SPAN INSTRUMENTS, INC.
By: /s/ Brian Day
--------------------------
Name (print): Brian Day
-----------------
Title: Chief Financial Officer
------------------------
Exhibits:
Exhibit "A" - Description of Premises
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<PAGE> 13
Exhibit "A"
Description of Premises
TRACT I:
BEING located at 2205 Avenue K, being part of Lot 1, Block 1 of Apple Square
Revised Addition, an addition to the City of Plano, Texas, according to the plat
recorded in Volume F, Page 233, Map Records Collin County, Texas, and being more
particularly described as follows:
BEGINNING at the intersection of the West line of Avenue K, (a 100' R.O.W.),
with the North line of 22nd Street, (a 40' R.O.W.), said point being the
Southeast corner of said Lot 1, an "x" cut in concrete for corner;
THENCE: West, with the said North line of 22nd Street, a distance of 181.10
feet, a 1/2" iron rod set for corner;
THENCE: North 00 deg. 29 min. 12 sec. East, a distance of 133.00 feet, an "x"
cut in concrete for corner;
THENCE: East, a distance of 181.10 feet to a point in the said West line of
Avenue K, a p.k. nail set for corner;
THENCE: South 00 deg. 29 min. 12 sec. West, with the said West line of Avenue K,
a distance of 133.00 feet to the PLACE OF BEGINNING and CONTAINING 24,085 square
feet or 0.553 acres of land.
TRACT II:
The property/building located at 1007 20th Street, Plano, Texas, commonly
referred to as the South Building and the property located on the south side of
the street across from 1007 20th Street, Plano, Texas.
13
<PAGE> 1
EXHIBIT 11.1
TYLAN GENERAL, INC.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
OCTOBER 31, APRIL 30,
----------------- -----------------
1994 1995 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income before extraordinary item and cumulative effect
of change in accounting principle..................... $2,449 $5,388 $2,103 $4,872
====== ======
Net income.............................................. $2,449 $4,693 $1,408 $4,872
====== ======
Weighted Average Common and Common Equivalent Shares
Outstanding:
Weighted average common shares........................ 1,319 4,925 4,463 6,490
Common shares issued subsequent to December 1993(1)... 14
Common stock options granted subsequent to December
1993(1)............................................ 77
Assumed exercise of outstanding stock options and
warrants(2)........................................ 1,042 264 197 236
Assumed conversion of Series B and D convertible
preferred stock.................................... 1,548
------ ------
Total......................................... 4,000 5,189 4,660 6,726
====== ======
Income before extraordinary item and cumulative effect
of change in accounting principle applicable to common
stockholders.......................................... $2,449 $5,388 $2,103 $4,872
====== ======
Net income applicable to common stockholders............ $2,449 $4,693 $1,408 $4,872
====== ======
EARNINGS PER SHARE DATA(3)
Earnings per share before extraordinary items and
cumulative effect of change in accounting
principle.......................................... $ .61 $ 1.04 $ .45 $ .72
====== ======
Earnings per share.................................... $ .61 $ .90 $ .30 $ .72
====== ======
Weighted average common and common equivalent share
outstanding........................................... 4,000 5,189 4,660 6,726
====== ======
</TABLE>
- ---------------
(1) Represents shares of common stock or common stock equivalents issued
subsequent to December 1993 at a price per share less than the offering
price of $7.00 per share. Such shares are considered to be cheap stock and,
accordingly, are reflected as being outstanding for all period presented.
See Note (2) below.
(2) Computed utilizing the treasury stock method. 1994 amount includes 887,845
shares for warrants exercised on January 27, 1995.
(3) Earnings per share is unchanged on a fully diluted basis for all periods
presented.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Tylan General, Inc.
on Form S-4 of our report dated December 13, 1995, appearing in the Prospectus,
which is part of this Registration Statement, and to the reference to us under
the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
San Diego, California
June 12, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the captions "Summary" and
"Experts" and to the use of our reports dated October 27, 1995, with respect to
the financial statements and schedule of Span Instruments, Inc. included in the
Registration Statement on Form S-4 which includes the Prospectus/Joint Proxy
Statement of Tylan General, Inc. and Span Instruments, Inc. for the registration
of 1,470,000 shares of Tylan General, Inc. common stock.
Ernst & Young LLP
Dallas, Texas
June 14, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF GRACE, PULLIAM & PATTERSON COMPANY, PC
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated November 24, 1994, with respect to the financial
statements and schedule of Span Instruments, Inc. included in the Registration
Statement on Form S-4 which includes the Prospectus/Joint Proxy Statement of
Tylan General, Inc. and Span Instruments, Inc. for the registration of 1,470,000
shares of Tylan General, Inc. common stock.
Grace, Pulliam & Patterson Company, PC
Dallas, Texas
June 14, 1996
