<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 3, 1996
------------------------
TYLAN GENERAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
<TABLE>
<S> <C>
0-25376 04-2659273
(COMMISSION FILE NO.) (IRS EMPLOYER IDENTIFICATION NO.)
</TABLE>
15330 AVENUE OF SCIENCE
SAN DIEGO, CALIFORNIA 92128
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 618-1990
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<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 3, 1996, Tylan General Acquisition Subsidiary, Inc. ("Tylan General
Sub"), a Delaware corporation and a wholly owned subsidiary of Tylan General,
Inc. ("Tylan General"), was merged with and into Span Instruments, Inc.
("Span"), a Texas corporation, pursuant to an Agreement and Plan of
Reorganization, dated July 2, 1996, among Tylan General, Tylan General Sub, Span
and all of the shareholders of Span (the "Span Shareholders") (the "Plan of
Reorganization"). Upon consummation of the merger of Tylan General Sub with Span
(the "Merger"), Tylan General Sub ceased to exist, and Span, the surviving
corporation, became a wholly owned subsidiary of Tylan General. Span
manufactures a line of pressure instrumentation, monitoring and control
products. The Merger is intended to be a tax-free reorganization for federal
income tax purposes and is to be accounted for under the pooling of interests
method by Tylan General.
Under the terms of the Plan of Reorganization, each share of Span Common
Stock, no par value ("Span Common Stock"), outstanding immediately prior to the
closing of the Merger converted into 4.89275 shares of Common Stock, $.001 par
value, of Tylan General ("Tylan General Common Stock"). At the closing of the
Merger, 1,300,000 shares of Tylan General Common Stock were issued, which
represented approximately 16.6% of the shares of Tylan General Common Stock
outstanding immediately after consummation of the Merger. A cash payment was
made for fractional shares resulting from the conversion. Tylan General used its
current cash resources to fund the payments for fractional shares.
Don E. Whitson, Chief Administrative Officer, Vice Chairman and a director
of Tylan General and an officer, director and former shareholder of Span,
received 393,572 shares of Tylan Common Stock and $10.02 in lieu of fractional
shares in exchange for his Span Common Stock in the Merger.
Upon consummation of the Merger, Tylan General anticipates incurring a
pre-tax charge of approximately $1.0 million to reflect direct transaction
costs. This amount is a preliminary estimate and there can be no assurance that
Tylan General will not incur additional charges to reflect costs associated with
the transaction. 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.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
<TABLE>
<S> <C>
Report of Independent Auditors
Report of Independent Auditors
Consolidated Balance Sheets as of August 31, 1994 and 1995 and April 30, 1996
(unaudited)
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)
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)
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)
Notes to Consolidated Financial Statements
</TABLE>
(B) PRO FORMA FINANCIAL INFORMATION
<TABLE>
<S> <C>
Unaudited Pro Forma Combined Condensed Financial Information
Unaudited Pro Forma Combined Condensed Balance Sheets as of April 30, 1996
Unaudited Pro Forma Combined Condensed Statements of Operations for the Years Ended
October 31, 1993, 1994 and 1995 and for the Six Months Ended April 30, 1995 and
1996
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
</TABLE>
(C) EXHIBITS.
<TABLE>
<S> <C> <C>
2.1 Agreement and Plan of Reorganization dated July 2, 1996 among Tylan General,
Inc., Tylan General Acquisition Subsidiary, Inc., Span Instruments, Inc. and
the shareholders of Span.
99.1 Press release, dated July 3, 1996.
</TABLE>
2
<PAGE> 3
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
October 27, 1995
(except for Note 6, as to which the date is
March 14, 1996)
3
<PAGE> 4
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
4
<PAGE> 5
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>
5
<PAGE> 6
SPAN INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED AUGUST 31, TWO APRIL 30,
--------------------------- MONTHS ENDED -----------------
1993 1994 1995 OCTOBER 31, 1995 1996
------- ------- ------- 1995 ------- -------
------------
(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>
6
<PAGE> 7
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.
7
<PAGE> 8
SPAN INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(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>
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.
8
<PAGE> 9
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 its majority owned 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, the terms of which were approved by
the Company's shareholders on July 2, 1996, whereby stockholders of the Company
exchanged their shares of common stock in the Company for common shares of Tylan
General. The acquisition by Tylan General was 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.
9
<PAGE> 10
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 year 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, $158,000, 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
$222,000, respectively.
10
<PAGE> 11
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.
Reclassifications
Certain amounts in the 1993, 1994 and 1995 consolidated financial
statements have been reclassified to conform to the 1996 presentation.
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. In connection with the acquisition, the Company and the minority
shareholders entered into a Shareholders Agreement under which the minority
shareholders of Class 1 have the option, exercisable after July 4, 1998, to
acquire the Company's 75% interest in Class 1 if a change in controlling
interest of the Company occurs. Revenues for Class 1 were approximately
$3,056,000, $521,000 and $3,901,000 for the period December 29, 1994 to August
31, 1995, for the period December 29, 1994 to April 30, 1995 and for the six
months ended April 30, 1996, respectively.
11
<PAGE> 12
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
12
<PAGE> 13
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<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.............................. -- 226 445
Property and equipment.................................. 47 68 114
---- ----- ----
47 294 559
---- ----- ----
Net deferred tax assets (liabilities)..................... $(36) $(236) $ 290
==== ===== ====
</TABLE>
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.
13
<PAGE> 14
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>
As a significant portion of the Company's debt was recently refinanced,
with no resulting gain or loss recognized, the Company believes the carrying
value of its debt approximates its fair value.
14
<PAGE> 15
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 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>
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.
15
<PAGE> 16
SPAN INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
APRIL 30,
AUGUST 31, 1996
------------- -----------
1994 1995
---- ---- (UNAUDITED)
<S> <C> <C> <C>
Principal officers and stockholders...................... $195 $147 $ 115
Other officers (minority stockholders)................... 539 419 339
---- ---- -----------
$734 $566 $ 454
==== ==== =========
</TABLE>
16
<PAGE> 17
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>
17
<PAGE> 18
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. The pro forma financial
information should be read in conjunction with the audited historical financial
statements of both Tylan General and Span, including the notes thereto. Audited
historical financial statements of Span are included in this Form 8-K. Audited
historical financial statements of Tylan General are included in Tylan General's
Annual Report on Form 10-K for the year ended October 31, 1995 and in its April
30, 1996 Form 10-Q. 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.
18
<PAGE> 19
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.
19
<PAGE> 20
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.................................. $ .56 $ .91 $ .46 $ .32
Weighted average common and common equivalent
shares outstanding......................... 5,300 6,489 5,960 8,026
</TABLE>
20
<PAGE> 21
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 4.89275 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. Audited historical financial statements of Span are
included in this Form 8-K. Audited historical financial statements of Tylan
General are included in Tylan General's Annual Report on Form 10-K for the year
ended October 31, 1995 and in its April 30, 1996 Form 10-Q.
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
21
<PAGE> 22
quarter ending July 28, 1996, the quarter in which the Merger was consummated,
to reflect costs associated with combining the operations of the two companies
and transaction fees and costs incident to 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.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TYLAN GENERAL, INC.
By: /s/ DAVID J. FERRAN
------------------------------------
David J. Ferran
President and Chief Executive
Officer
Dated: July 17, 1996
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
- ------ ---------------------------------------------------------------------------- --------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization dated July 2, 1996 among Tylan General,
Inc., Tylan General Acquisition Subsidiary, Inc., Span Instruments, Inc. and
the shareholders of Span....................................................
99.1 Press release, dated July 3, 1996...........................................
</TABLE>
24
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
TYLAN GENERAL, INC.
TYLAN GENERAL ACQUISITION SUBSIDIARY, INC.
SPAN INSTRUMENTS, INC.
AND
SHAREHOLDERS OF SPAN INSTRUMENTS, INC.
JULY 2, 1996
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
July 2, 1996 by and among TYLAN GENERAL, INC., a Delaware corporation ("Tylan
General"), TYLAN GENERAL ACQUISITION SUBSIDIARY, INC., a Delaware corporation
("Tylan General Sub"), SPAN INSTRUMENTS, INC., a Texas corporation ("Span"), and
all the shareholders of Span (each a "Shareholder" and collectively the
"Shareholders").
RECITALS
A. Tylan General has formed Tylan General Sub as a wholly owned subsidiary
to effect the merger of Tylan General 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
General Sub will cease to exist and Span will become a wholly owned subsidiary
of Tylan General.
B. This Agreement has been approved by the Boards of Directors of Tylan
General, Tylan General Sub and Span, and by Tylan General in its capacity as the
sole shareholder of Tylan General 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 General Sub Into Span. Subject to the terms and
conditions of this Agreement, Tylan General Sub shall be merged with and into
Span and the separate existence of Tylan General 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 General 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 General 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
General 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 September
30, 1996. At the Closing, Tylan General 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
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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 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 1.4(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 General, Tylan General
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 General (the "Tylan General Common Stock") equal to
1,300,000 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 General, Tylan General 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 General Sub Common Stock. Each share of Tylan
General 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 General 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 General Common Stock into which the Span Common
Shares it theretofore represented shall have been converted pursuant to Section
1.4 (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 General to exchange Tylan General 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 General 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 General 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 General Common Stock as
reported on the NASDAQ National Market System on the last trading date
immediately preceding the Closing Date. Tylan General 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
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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 General Common Stock
shall have been changed into a greater or lesser number of shares of Tylan
General Common Stock or into a different security by reason of a
reclassification, stock split, stock 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
General 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
General'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 General 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 General Common Stock in accordance with the
provisions of Section 1.4(a). Span shall give Tylan General prompt notice of any
demands received by Span for purchase of its shares, and, prior to the Effective
Date, Tylan General 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 General, 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) At or prior to Closing, each of the Shareholders shall execute the
Continuity of Interest Certificate referred to in Section 4.2(h) and the
Investment Letter referred to in Section 4.2(p).
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(b) At or prior to Closing, Don 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(o).
2. REPRESENTATIONS AND WARRANTIES OF SPAN AND THE PRINCIPAL SHAREHOLDERS
Span and each of Don E. Whitson and Leo E. Whitson (each a "Principal
Shareholder" and, collectively, the "Principal Shareholders") jointly and
severally represent and warrant to Tylan General and Tylan General 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 General 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 General 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 General 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 General if upon public disclosure, they would be
viewed by a reasonable investor as significantly altering the total mix of
information then available concerning Tylan General 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 2.1(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
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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.
(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 and the
Shareholders enforceable against them 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 General 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 General 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 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
(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 April
30, 1996 (the "April 30, 1996 Balance Sheet") and the unaudited
consolidated statement of operations and consolidated statement of cash
flows of Span for the six-month period ending April 30, 1996 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,
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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 2.2(a) are referred to in this Agreement as the "Financial
Statements."
(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 April 30, 1996 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 April 30, 1996 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 April 30, 1996, 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 April 30, 1996. 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 April 30, 1996 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 2.2(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 April 30, 1996 or which
will become payable as a result of activities of Span or Ocala on or before
April 30, 1996 are clearly identified and reflected on the April 30, 1996
Balance Sheet as taxes payable or as accrued taxes. No Taxes will become
payable by
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Span or Ocala as a result of activities of Span or Ocala between April 30,
1996 and the Closing Date other than Taxes of a normally recurring nature
incurred by Span or Ocala after April 30, 1996 in the ordinary course of
business consistent with past practice.
(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 General 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
February 29, 1996, 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;
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(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;
(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;
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(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;
(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 2.5(a) and described in Schedule 2.5(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 General 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 2.5(d) and 2.8(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 2.5(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.
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2.6 Employees.
(a) With respect to the employees of Span and Ocala:
(i) Schedule 2.6(a) contains a true and complete list of each
bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance or termination pay, hospitalization 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 2.6(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 General 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.
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(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) 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 June 30, 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), and as set forth
on Schedule 2.7(a) 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
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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 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
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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 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 2.8(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 General 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 2.9(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 April 30, 1996 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 April 30, 1996 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 April 30, 1996
Balance Sheet and the notes to the consolidated financial statements
attached thereto 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
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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) 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 General.
(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 2.10(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
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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 General copies of all opinions and 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 2.10(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 General).
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 General prior to Closing to permit Tylan General 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
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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.
(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 and the
Principal Shareholders in this Agreement, (ii) the disclosure schedules
delivered to Tylan General 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 General 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 GENERAL AND TYLAN GENERAL SUB
Tylan General and Tylan General Sub represent and warrant to Span and the
Shareholders as of the date of this Agreement and as of the Closing Date as
follows:
3.1 Organization.
(a) Tylan General is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Tylan General
Sub is a corporation duly organized, existing and in good standing under
the laws of the State of Delaware. Each of Tylan General and Tylan General
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 General and Tylan General 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.
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(c) The authorized capital stock of Tylan General consists of
50,000,000 shares of common stock, par value $.001 per share, of which, as
of June 28, 1996, 6,532,586 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 General are validly issued, fully
paid and nonassessable and free of preemptive rights. As of June 28, 1996,
Tylan General has outstanding options to purchase 715,162 shares of Tylan
General 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 General 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
General, or otherwise obligating Tylan General to issue, transfer or sell
any shares of capital stock of Tylan General, or other securities
convertible into, exchangeable for, or evidencing the right to subscribe
for, any shares of the capital stock of Tylan General. The authorized
capital of Tylan General Sub consists of 10,000 shares of Common Stock,
$.001 par value, 100 of which are issued and outstanding.
(d) Each of Tylan General and Tylan General 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 General and Tylan General Sub, and
no other corporate proceedings on the part of Tylan General or Tylan
General Sub are necessary for Tylan General and Tylan General Sub to
authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by duly
authorized officers of Tylan General and Tylan General Sub. This Agreement
constitutes a legal, valid and binding obligation of Tylan General and
Tylan General 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 General enforceable against Tylan General 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 General or Tylan General 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
General and Tylan General Sub of the transactions contemplated by this
Agreement. Neither Tylan General nor Tylan General 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
General and Tylan General Sub nor the consummation by Tylan General and
Tylan General 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 General or Tylan General
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 General or Tylan General Sub or any
material license agreement, lease or other material contract, instrument or
obligation to which Tylan General or Tylan General Sub is a party or by
which Tylan General or Tylan General 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 General or
Tylan General Sub or any of their respective assets which violation would
have a Material Adverse Effect on Tylan General 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 General or Tylan General Sub.
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(g) Tylan General has delivered to Span complete and accurate copies
of Tylan General's Certificate of Incorporation and Bylaws, and Tylan
General Sub's Certificate of Incorporation and Bylaws, each as amended.
3.2 Common Stock To Be Issued. The Tylan General Common Stock to be
issued to the Shareholders hereunder, when issued by Tylan General 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 General
previously delivered to Span, and will be free and clear of all liens,
encumbrances and adverse claims; provided that the Tylan General 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 General as
of October 29, 1995 and the audited consolidated statement of operations and
statement of cash flows of Tylan General 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 General, 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 General as of the date of said
balance sheets and the results of operations of Tylan General 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
General Financial Statements."
3.4 Disclosure.
(a) Tylan General has previously delivered to Span copies of Tylan
General's Annual Report on Form 10-K for the fiscal year ended October 29,
1995 and Tylan General's Quarterly Reports on Form 10-Q for the quarters
ended January 28, 1996 and April 28, 1996.
(b) The copies of all documents furnished by Tylan General 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
General or Tylan General Sub in this Agreement or (ii) any statement by
Tylan General or, to the best of Tylan General's knowledge, any other
person, contained in any document, certificate or other writing furnished
by Tylan General 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 General has not dealt with any person, firm or
corporation (other than Michael Khougaz 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 General 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
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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 Comerica Bank-Texas);
(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, 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
General;
(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 General or Tylan General Sub,
(ii) any sale of assets of Span or Ocala 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 Ocala by any person; or
(iv) any purchase of outstanding securities of Span or Ocala by any
person;
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(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 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 General;
(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.
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;
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(c) promptly advise Tylan General 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 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 furnish to Tylan General
and its authorized representatives such financial and other information
with respect to its business and properties as Tylan General 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
General, keep Tylan General 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 General 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 General a Continuity of
Interest Certificate in the form attached hereto as Exhibit 4.2(h) (a
"Continuity of Interest Certificate") executed by each Shareholder;
(i) deliver to Tylan General at the Closing the resignations of all
directors of Span;
(j) promptly provide Tylan General 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 4.2(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 General 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 General, or to cause its
counsel to deliver to Tylan General, the closing documents referred to in
this Agreement;
(m) with respect to the Notification letter described in Section 6.15,
provide the notification to the IRS required pursuant to Treasury
Regulations Section 1.897-2(h)(2);
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(n) use its best efforts to deliver to Tylan General 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) use its best efforts to deliver to Tylan General an Affiliate
Agreement in the form attached hereto as Exhibit 4.2(o) executed by each
Affiliate;
(p) use its best efforts to deliver to Tylan General an Investment
Letter in the form attached hereto as Exhibit 4.2(p) executed by each
Shareholder;
(q) provide to tax counsel for both Tylan General and Span appropriate
representation certificates as described in Sections 6.16 and 7.8;
(r) take all steps necessary in accordance with its Articles of
Incorporation and By-laws to obtain the requisite vote of its shareholders
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.
5. COVENANTS OF TYLAN GENERAL AND TYLAN GENERAL SUB
Tylan General and Tylan General Sub covenant and agree as follows:
5.1 Negative Covenants. From the date of this Agreement until the
Effective Date, Tylan General and Tylan General 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 General 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 General
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
(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 General's
capital stock is entitled.
5.2 Affirmative Covenants. Prior to the Effective Date, Tylan General
and/or Tylan General 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
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impose any obligation on Tylan General or Tylan General 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 General and
Tylan General Sub of the transactions contemplated by this Agreement;
(c) 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
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 General 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 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 (i) restrictions pursuant to
Rule 144 and Rule 145 promulgated under the Securities Act and the
interpretations of the SEC on restrictions on resale of securities issued
under Section 4(2) of the Securities Act and the Investment Letters
referred to Section 4.2(p), and (ii) restrictions related to the Continuity
of Interest Certificate referred to in Section 4.2(h);
(f) cause Tylan General 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 General; and (ii) the occurrence of any
event which causes the representations or warranties made by Tylan General
or Tylan General 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 General 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 General or an
affiliate of Tylan General) 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 General
nor Tylan General 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 Don 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 Leo E. Whitson, Kevin
MacGibbon, Majid Fazeli, George A. Yurch, John Rabbitt, Tom Gray and Brian
Day (collectively with the Whitson Employment Agreement, the "Employment
Agreements");
(k) provide to tax counsel for both Tylan General and Span appropriate
representation certificates as described in Sections 6.16 and 7.8;
(l) use its best efforts to substitute Tylan General for Don E.
Whitson as guarantor of Span's senior indebtedness and leases that Don E.
Whitson guarantees (which senior indebtedness and leases are
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identified on Schedule 5.2(l)) and, if Tylan General is unable to do so
within 90 days after the Closing Date, Tylan General shall repay such
indebtedness in full.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF TYLAN GENERAL AND TYLAN GENERAL SUB
The obligations of Tylan General and Tylan General 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 General
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 General.
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
General 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 General 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 General 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 General, Tylan General Sub and Span shall
have received all such governmental approvals, consents, authorizations or
modifications as may be required to permit the perform-
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<PAGE> 26
ance by Tylan General, Tylan General 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 General
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.
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(r) hereof and the applicable
provisions of the Texas Law, shall have occurred and be continuing and remain in
full force and effect.
6.13 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 6.13.
6.14 Resignations. Tylan General shall have received the written
resignation, effective as of the Closing, of each director of Span.
6.15 FIRPTA. Tylan General, as agent for the Shareholders, shall have
received a properly executed "FIRPTA" Notification Letter, in form and substance
reasonably acceptable to Tylan General, 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 General's obligations under Treasury
Regulations Section 1.1445-2(c)(3).
6.16 Tax Opinion. Each of Tylan General 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.
6.17 Pooling-Of-Interest Letters. Tylan General shall have received, if
it so requests, a reaffirmation from Ernst & Young LLP, Tylan General's and
Span's independent public accountants, dated the Effective Date, a letter in
form and substance satisfactory to Tylan General, 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.
6.18 Affiliate Agreements. Tylan General shall have received an Affiliate
Agreement from each Affiliate as contemplated by Section 4.2(o).
6.19 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).
6.20 Investment Letters. Each of the Shareholders shall have executed and
delivered an Investment Letter as contemplated by Section 4.2(p).
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 General and Tylan General 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 General and Tylan General Sub 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 General shall have
delivered to Span a certificate of the Chief Executive Officer and Chief
Financial Officer of Tylan General evidencing compliance with the conditions set
forth in this Section 7.1.
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7.2 No Material Adverse Change. After the date hereof, there shall have
been no change that had a Material Adverse Effect on Tylan General.
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 General, Tylan General Sub and Span shall
have received all such governmental approvals, consents, authorizations or
modifications as may be required to permit the performance by Tylan General,
Tylan General 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 General 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 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.
7.8 Tax Opinion. Each of Tylan General 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.
7.9 Employment Agreements. The Employment Agreements shall have been
executed by Tylan General.
7.10 Chairman of the Board. David J. Ferran ("Ferran") shall be the
Chairman of the Board and Chief Executive Officer of Tylan General, and Ferran
shall be active on a full-time basis in Tylan General's business.
7.11 Board of Directors. Don Whitson shall have been elected for a full
term to serve on Tylan General's Board of Directors.
8. RESTRICTIONS ON TRANSFERABILITY; COMPLIANCE WITH SECURITIES ACT;
REGISTRATION RIGHTS
8.1 Certain Definitions. As used in this Article 8, the following terms
shall have the following respective meanings:
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of
the SEC thereunder, all as the same shall be in effect at the time.
"Holder" shall mean any Shareholder and any person holding Registrable
Securities to whom the rights under this Article 8 have been transferred in
accordance with Section 8.12 hereof.
"Initiating Holders" shall mean any Holders who in the aggregate are
Holders of greater than 30% of the then outstanding Registrable Securities.
"Prior Registration Rights Agreements" shall mean (i) the Registration
Rights Agreement, by and between Tylan General and The KB Mezzanine Fund,
L.P., and (ii) the Amended and Restated
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Registration Rights Agreement, by and between Tylan General and the
stockholders who are signatories thereto, each dated as of November 11,
1992.
"Publication Date" shall mean the date on which Tylan General
publishes financial results covering at least 30 days of post-Merger
combined operations;
"Registrable Securities" means the Tylan General Common Stock issued
to the Shareholders in the Merger and any Tylan General Common Stock issued
or issuable in respect of the Tylan General Common Stock issued to the
Shareholders in the Merger upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event; provided,
however, that shares of Common Stock or other securities shall no longer be
treated as Registrable Securities if (i) they have been sold to or through
a broker or dealer or underwriter in a public distribution or a public
securities transaction or (ii) they have been sold in a transaction exempt
from the registration and prospectus delivery requirements of the
Securities Act so that all transfer restrictions and restrictive legends
with respect thereto were removed upon the consummation of such sale.
The terms "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.
"Registration Expenses" shall mean all expenses, except Selling
Expenses as defined below, incurred by Tylan General in complying with
Sections 8.5 and 8.6 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow
fees, fees and disbursements of counsel for Tylan General, Blue Sky fees
and expenses, the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees
of Tylan General which shall be paid in any event by Tylan General).
"Restricted Securities" shall mean the securities of Tylan General
required to bear the legend set forth in Section 8.3 hereof.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities
registered by the Holders, and, except as set forth in Registration
Expenses above, all reasonable fees and disbursements of counsel for any
Holder (if such counsel is different from counsel to the Tylan General).
8.2 Restrictions on Transferability. The Registrable Securities shall not
be sold, assigned, transferred or pledged except upon the conditions specified
in this Article 8, which conditions are intended to ensure compliance with the
provisions of the Securities Act. Each of the Shareholders will cause any
proposed purchaser, assignee, transferee or pledgee of the Registrable
Securities of such Shareholder in any transaction other than a registered
transaction to agree to take and hold such securities subject to the provisions
and upon the conditions specified in this Article 8.
8.3 Restrictive Legend. Each certificate representing Registrable
Securities and any other securities issued in respect of the Registrable
Securities upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of Section 8.4 below) be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required under
applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE
CORPORATION RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE
TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES
AND RESTRICTING THEIR TRANSFER
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MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
CORPORATION.
Each Holder consents to Tylan General making a notation on its records and
giving instructions to any transfer agent of the Tylan General Common Stock as
and if necessary in order to implement the restrictions on transfer established
in this Article 8.
8.4 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 8.4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than a
transfer not involving a change in beneficial ownership), unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to Tylan General of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied, at such holder's expense by either (a) a written opinion of legal
counsel who shall be, and whose legal opinion shall be, reasonably satisfactory
to Tylan General, addressed to Tylan General, to the effect that the proposed
transfer of the Restricted Securities may be effected without registration under
the Securities Act, or (b) a "no action" letter from the SEC to the effect that
the transfer of such securities without registration will not result in a
recommendation by the staff of the SEC that action be taken with respect
thereto, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to Tylan General. Each certificate evidencing the
Restricted Securities transferred as above provided shall bear, except if such
transfer is made pursuant to Rule 144 or in a registered transaction, the
appropriate restrictive legend set forth in Section 8.3 hereof, except that such
certificate shall not bear such restrictive legend if, in the reasonable opinion
of counsel for such holder and Tylan General, such legend is not required in
order to establish compliance with any provision of the Securities Act.
8.5 Requested Registration.
(a) If Tylan General shall receive from Initiating Holders a written
request that Tylan file a registration statement on Form S-3 (or any
successor form to Form S-3) for a public offering of shares of the
Registrable Securities and Tylan General is a registrant entitled to use
Form S-3 to register the Registrable Securities for such an offering, Tylan
General shall:
(i) promptly give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use its best lawful efforts to effect
such registration (including, without limitation, appropriate
qualification under applicable Blue Sky or other state securities laws
and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any Holders joining in such request as are
specified in a written request received by Tylan General within 20 days
after the written notice specified in clause (i) above has been given
(subject in any event to Section 8.5(a)(ii)(C) and Section 8.14);
provided, however, Tylan General shall not be obligated to take any
action to effect any registration pursuant to this Section 8.5:
(A) in any particular jurisdiction in which Tylan General would be
required to execute a general consent to service of process in effecting
such registration unless Tylan General is already subject to service in
such jurisdiction and except as may be required by the Securities Act;
or
(B) prior to the Publication Date; or
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<PAGE> 30
(C) with respect to any Registrable Securities in excess of a
cumulative total of 50% of the Tylan General Common Stock issued to the
Shareholders in the Merger, until after the first anniversary of the
Closing Date; or
(D) during the period starting with the date 30 days prior to Tylan
General's estimated date of filing of, and ending on the date six months
immediately following, the effective date of any registration statement
pertaining to securities of Tylan General (other than a registration of
securities in a shelf registration pursuant to Rule 415 (or any similar
successor rule promulgated by the SEC), in a Rule 145 (or any similar
successor rule promulgated by the SEC) transaction, for the resale of
securities solely by selling shareholders or with respect to an employee
benefit plan), provided that Tylan General is actively employing in good
faith all reasonable efforts to cause such registration statement to
become effective; or
(E) if Tylan General shall furnish to such Holder a certificate
signed by the President of Tylan General stating that in the good faith
judgment of the Board of Directors it would be seriously detrimental to
Tylan General or its shareholders for a registration statement to be
filed in the near future, provided that pursuant to this clause (E)
Tylan General cannot delay implementation of such request for
registration for more than 30 days; or
(F) if Tylan General has effected an aggregate of two registrations
pursuant to Section 8.5 and such registrations have been declared or
ordered effective. For purposes of the foregoing, a registration from
which the Holders have withdrawn all Registrable Securities prior to the
effectiveness of such registration (or with respect to which Holders of
a majority of Registrable Securities have requested that all Registrable
Securities be withdrawn) shall not count as one of the two registrations
permitted to the Holders.
(b) If a registration pursuant to this Section 8.5 is for a registered
public offering involving an underwriting (pursuant to the request of the
Shareholders' Agent (as defined in Section 9.7)), Tylan General shall so
advise the Holders as part of the notice given pursuant to Section
8.5(a)(i). In such event, the right of any Holder to registration pursuant
to this Section 8.5 shall be conditioned upon such Holder's participation
in the underwriting arrangements required by this Section 8.5, and the
inclusion of such Holder's Registrable Securities in the underwriting to
the extent requested shall be limited to the extent provided herein.
Tylan General shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by Shareholders' Agent but subject to Tylan General's reasonable approval.
Notwithstanding any other provision of this Section 8.5, if the managing
underwriter advises the Shareholders' Agent in writing that marketing factors
require a limitation of the number of shares to be underwritten, then Tylan
General shall so advise all Holders and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, Tylan General or the underwriters may
round the number of shares allocated to any Holder to the nearest multiple of
100 shares.
If any selling Holder of Registrable Securities disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written notice
to Tylan General, the managing underwriter and the Shareholders' Agent. The
Registrable Securities so withdrawn shall also be withdrawn from registration,
and such Registrable Securities shall not be transferred in a public
distribution prior to 120 days after the effective date of such registration, or
such shorter period of time as the underwriters may require.
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8.6 Company Registration.
(a) If at any time or from time to time Tylan General shall determine
to register any of its securities, either for its own account or the
account of a security holder or holders, in connection with a public
offering of such securities solely for cash on a form that would also
permit the registration of Registrable Securities, Tylan General will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under Blue Sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written
request or requests, made within 20 days after the written notice
specified in clause (i) above has been given.
provided, however, Tylan General shall not be obligated to take any action
to effect any registration pursuant to this Section 8.6 (A) prior to the
Publication Date or (B) if the Holders of a majority of the Registrable
Securities then outstanding give written notice to Tylan prior to the
effectiveness of such registration that all of the Registrable Securities
are to be withdrawn from such registration.
(b) If the registration of which Tylan General gives notice is for a
registered public offering involving an underwriting, Tylan General shall
so advise the Holders as a part of the written notice given pursuant to
Section 8.6(a)(i). In such event, the right of any Holder to registration
pursuant to this Section 8.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with Tylan General and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such
underwriting by Tylan General. Notwithstanding any other provision of this
Section 8.6, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the
managing underwriter may limit the Registrable Securities to be included in
such registration. If the managing underwriter so limits the number of
Registrable Securities to be registered and underwritten, Tylan General
shall so advise all selling stockholders of Tylan General, including the
Holders, and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
stockholders of Tylan General, including the Holders, in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities
held by such selling stockholders of Tylan General, including the selling
Holders at the time of filing the registration statement; provided,
however, that with respect to any registration resulting from any demand
registration rights (the "Prior Demand Rights") pursuant to the Prior
Registration Rights Agreements, the Registrable Securities shall be
included in such registration only if all of the securities requested to be
registered pursuant to the Prior Demand Rights have been included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, Tylan General may round the number of shares allocated to
any Holder or holder to the nearest multiple of 100 shares.
If any selling Holder disapproves of the terms of any such
underwriting, including any limitation on the number of Registrable
Securities that such Holder may include in such underwriting, such person
may elect to withdraw therefrom by written notice to Tylan General and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration and shall not be
transferred in a public distribution prior to 120 days after the effective
date of the registration statement relating thereto, or such shorter period
of time as the underwriters may require.
(c) Tylan General shall have the right to terminate or withdraw any
registration initiated by it under this Section 8.6 prior to the
effectiveness of such registration whether or not any Holder has elected to
include securities in such registration.
(d) From and after the date hereof, Tylan General shall not enter into
any agreement with any holder or prospective holder of any securities of
Tylan General which would allow such holder or prospective holder to
require Tylan General to include shares or securities in any registration
initiated by
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<PAGE> 32
the Holders under Section 8.5 of this Agreement, without the written
consent of a majority in interest of the Holders requesting registration
unless, under the terms of such agreement, such holder or prospective
holder may include such securities in such registration only to the extent
that the inclusion of its securities will not diminish the amount of
Registrable Securities that are included. Nothing in this Section 8.6(d)
shall limit the right of Tylan General to enter into an agreement with any
holder or prospective holder of any securities of Tylan General pursuant to
which Tylan General will agree to include among the securities which it is
registering upon its own initiation securities owned by such holder.
8.7 Expenses of Registration. All Registration Expenses incurred in
connection with any registration of Registrable Securities pursuant to Sections
8.5 and 8.6 shall be borne by Tylan General. All Selling Expenses relating to
Registrable Securities registered on behalf of the Holders shall be borne by the
Holders of such Registrable Securities pro rata on the basis of the number of
shares so registered; provided that each Holder is solely responsible for the
fees and disbursements of its separate individual counsel, if any.
8.8 Registration Procedures. In the case of each registration,
qualification or compliance effected by Tylan General pursuant to this Article
8, Tylan General will keep each Holder advised in writing as to the initiation
of each registration, qualification and compliance and as to the completion
thereof. At its expense, Tylan General will:
(i) prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the lesser of (A)
180 days or (B) until the distribution described in the registration
statement has been completed; and
(ii) furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number
of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably
request in order to facilitate the public offering of such securities.
8.9 Indemnification.
(a) Tylan General will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to
this Article 8, and each underwriter, if any, and each person who controls
any underwriter within the meaning of Section 15 of the Securities Act,
against all expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of
any litigation, commenced or threatened, arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation by
Tylan General of the Securities Act or the Exchange Act or any rule or
regulation promulgated under the Securities Act or the Exchange Act
applicable to Tylan General in connection with any such registration,
qualification or compliance, and Tylan General will reimburse each such
Holder, each of its officers and directors, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that Tylan General will not be liable
in any such case to the extent that any such claim, loss, damage, liability
or expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to Tylan General by such
Holder, controlling person or underwriter and specifically for use therein.
Notwithstanding the foregoing, as far as the foregoing indemnity relates to
any untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in
the amended prospectus on file with the SEC at the time the registration
statement becomes effective or in the final prospectus filed with the SEC
pursuant to Rule 424(b), the
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indemnity agreement herein shall not inure to the benefit of any
underwriter or, if there is no underwriter, any Holder if a copy of the
final prospectus filed pursuant to Rule 424(b) was not furnished to the
person or entity asserting the loss, liability, claim or damage at or prior
to the time such furnishing is required by the Securities Act.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification
or compliance is being effected, indemnify Tylan, each of its directors and
officers, each underwriter, if any, of Tylan General's securities covered
by such registration, qualification or compliance, each person who controls
Tylan General or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder including Registrable Securities
in such registration, each of its officers and directors and each person
controlling such other Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or
any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse Tylan General, such other Holders, or
such directors, officers, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to Tylan General by such Holder specifically for use
therein. Notwithstanding the foregoing, the liability of each Holder under
this subsection (b) shall be limited in an amount equal to the initial
public offering price of the shares sold by such Holder, unless such
liability arises out of or is based on willful conduct by such Holder.
Notwithstanding the foregoing, as far as the foregoing indemnity relates to
any untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in
the amended prospectus on file with the SEC at the time the registration
statement becomes effective or in the final prospectus filed pursuant to
Rule 424(b), the indemnity agreement herein shall not inure to the benefit
of Tylan General, any underwriter or any other Holder if a copy of the
final prospectus filed pursuant to Rule 424(b) was not furnished to the
person or entity asserting the loss, liability, claim or damage at or prior
to the time such furnishing is required by the Securities Act, unless
delivery of such final prospectus was the responsibility of the
Indemnifying Party (as hereinafter defined) hereunder.
(c) Each party entitled to indemnification under this Section 8.9 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense. The failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article 8 unless the
failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action. The Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest
or separate and different defenses. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation. No Indemnified
Party shall consent to entry of any judgment or enter into any settlement
without the consent of each Indemnifying Party.
(d) If the indemnification provided for in this Section 8.9 is
unavailable to an Indemnified Party in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such
32
<PAGE> 34
Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by Tylan General, all shareholders offering
securities in the offering (the "Selling Shareholders") and the
underwriters of the offering (the "Underwriters") from the offering of
Tylan General securities, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of Tylan General, the Selling
Shareholders and the Underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by Tylan General, the Selling Shareholders and the Underwriters
shall be deemed to be in the same proportion as the net proceeds from the
offering (before deducting expenses) received by Tylan General and the
Selling Shareholders, respectively, and the underwriting discounts and
commissions received by the Underwriters bear to the aggregate price of the
offering to the public. The relative fault of Tylan General, the Selling
Shareholders and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of
material fact or the omission or alleged omission to state a material fact
relates to information supplied by Tylan General, the Selling Shareholders
or the Underwriters and the parties' relevant intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. It is agreed that it would not be just and equitable if
contribution pursuant to this Section 8.9(d) were based solely upon the
number of entities from whom contribution was requested or by any other
method of allocation which does not take into account the equitable
considerations referred to above in this Section 8.9(d). The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages
and liabilities referred to above in this Section 8.9(d) shall be deemed to
include any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating, preparing or defending any such
action or claim, subject to the provisions of Section 8.9(c) hereof.
Notwithstanding the provisions of this Section 8.9(d), no Selling
Shareholder shall be required to contribute any amount or make any other
payments under this Agreement which in the aggregate exceed the proceeds
received by such Selling Shareholder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11 of the Securities Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
8.10 Information by Holder. Each Holder holding Registrable Securities
included in any registration shall furnish to Tylan General such information
regarding such Holder, the Registrable Securities held by such Holder and the
distribution proposed by such Holder as Tylan General may request in writing and
as shall be required in connection with any registration, qualification or
compliance referred to in this Article 8.
8.11 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the SEC which may at any time permit the sale
of the Restricted Securities to the public without registration, Tylan General
agrees to use its best efforts to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(ii) file with the SEC in a timely manner all reports and other
documents required of Tylan General under the Securities Act and the
Exchange Act; and
(iii) so long as a Holder owns any Restricted Securities, to furnish
to such Holder forthwith upon request a written statement by Tylan General
as to its compliance with the reporting requirements of said Rule 144 and
of the Securities Act and the Exchange Act, a copy of the most recent
annual or quarterly report of Tylan General, and such other reports and
documents of Tylan General as such Holder may reasonably request in
availing itself of any rule or regulation of the SEC allowing such Holder
to sell any such securities without registration.
8.12 Transfer of Registration Rights. The rights to cause Tylan General
to register securities granted to a Holder under this Article 8 may be assigned
to a transferee or assignee in connection with any transfer or assignment of
Registrable Securities by such Holder provided that such transfer may otherwise
be effected in accordance with applicable securities laws.
33
<PAGE> 35
8.13 Termination of Registration Rights. The right of any Holder to request
registration or inclusion in any registration pursuant to Section 8.5 or 8.6
shall terminate on the earlier of (a) such date as all shares of Registrable
Securities held by such Holder may immediately be sold under Rule 144 during any
90-day period or (b) the third anniversary of the Closing Date.
8.14 Volume Limitation on Sale of Registrable Securities Included in Any
Registration Hereunder. Notwithstanding anything to the contrary in this Article
8, during any 90-day period no Holder shall be entitled to sell Registrable
Securities registered or included in any registration pursuant to Section 8.5 or
8.6 in excess of the number of shares which, absent such registration, could be
sold by such Holder under Rule 144(e), assuming for purposes of this calculation
that such Holder satisfies the holding period for restricted securities set
forth in Rule 144(d) and the other requirements of Rule 144.
9. INDEMNITY BY SHAREHOLDERS
9.1 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 General, Tylan General Sub and Span against any loss, expense,
liability, or other damages, including the reasonable costs of investigation,
interest, penalties and 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.
9.2 Threshold. The Shareholders 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 Tylan General, Tylan General Sub and
Span, or to which any one or more of Tylan General, Tylan General 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 General, Tylan General 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).
9.3 Expiration of Indemnity. Tylan General, Tylan General 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 General, Tylan General Sub and Span 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 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.
9.5 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 General or Tylan General Sub with
respect to Span shall be deemed to affect Tylan General's or Tylan General Sub's
reliance on the representations, warranties, covenants or agreements contained
herein or to waive Span's, Tylan General's or Tylan General 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 9 (and the
representations, warranties, covenants and agreements of Span and the
Shareholders) shall survive the Closing until the Claim Deadline.
9.6 Merger Consideration Adjustments. Any amount paid by the Shareholders
to Tylan General, Tylan General Sub or Span pursuant to this Article 9 shall be
an adjustment to the consideration paid to the Shareholders in connection with
the Merger.
9.7 Shareholders' Agent.
(a) Each of the Shareholders hereby constitutes and appoints Don 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'
34
<PAGE> 36
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 9.7 shall have no effect
on the obligations of either the Shareholders' Agent or the Shareholders to
Tylan General, Tylan General 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
General, Tylan General Sub or Span other than those explicitly set forth in
this Agreement. In particular, notwithstanding in any case any notice
received by Tylan General, Tylan General Sub or Span to the contrary, Tylan
General, Tylan General 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 Don 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.
10. INDEMNITY BY TYLAN GENERAL
10.1 Indemnity. In connection with the Merger, Tylan General 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 General or Tylan General Sub herein or any breach or
failure to perform any agreement or covenant of Tylan General or Tylan General
Sub herein.
10.2 Threshold. Tylan General shall not be required to make any
indemnification payment pursuant to Section 10.1 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).
10.3 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.
10.4 Fraud. Notwithstanding any provision in this Agreement to the
contrary, the liability of Tylan General for fraud shall be subject only to
applicable statutes of limitations, and any claim against Tylan General alleging
fraud need not be presented by the Claim Deadline.
35
<PAGE> 37
10.5 Survival of Representations and Warranties. The indemnity
obligations of Tylan General under this Article 10 (and the representations,
warranties, covenants and agreements of Tylan General and Tylan General Sub)
shall survive the Closing until the Claim Deadline.
11. EMPLOYEE MATTERS
11.1 Employees. Each employee of Span immediately before the Closing
(each, a "Span Employee") shall continue to be employed by Span or Tylan General
after the Effective Date; provided that, except as provided in Section 5.2(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 General 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 General, the term
of each Span Employee's employment at Span will be added to his or her term of
employment at Tylan General or the Surviving Corporation.
12. TERMINATION OF AGREEMENT
12.1 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 General if a majority of the members of the Board of
Directors of Tylan General does not approve the results of Tylan General's
pre-acquisition investigation and review as required in Section 6.1;
(c) by Tylan General if (i) there has been a material breach by Span
of any covenant, representation or warranty contained in this Agreement,
(ii) Tylan General 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 General
of a covenant, representation or warranty contained in this Agreement, (ii)
Span has notified Tylan General in writing of the existence of such breach,
and (iii) Tylan General has failed to cure such breach within ten days
after receiving such notice; or
(e) by either Tylan General 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 shareholders 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 (iv) it shall be after September 30,
1996.
12.2 Effect of Termination. If this Agreement shall be terminated as
provided in Section 12.1, 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 13.3 and (b)
any damages for a material breach of this Agreement.
12.3 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 General,
Tylan General Sub and Span from any costs or expenses incurred by any
Shareholder and for all costs and expenses of Span in excess of $450,000, which
amount may be increased only with the prior written approval of Tylan General.
36
<PAGE> 38
12.4 Extension of Time; Waivers. At any time prior to the Closing Date:
(a) Tylan General and Tylan General 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 General and
Tylan General Sub to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of Tylan General and
Tylan General Sub; and
(b) Span may (i) extend the time for the performance of any of the
obligations or other acts of Tylan General and/or Tylan General Sub, and
(ii) waive compliance with any of the agreements or conditions contained
herein to be performed by Tylan General and/or Tylan General 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.
13. MISCELLANEOUS
13.1 Amendment. This Agreement may be amended with the approval of the
Board of Directors of Tylan General, Tylan General 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.
13.2 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 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.
13.3 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.
13.4 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 13.4 shall be void and
of no effect.
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<PAGE> 39
13.5 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 or a Shareholder: 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: Don E. Whitson Attn: Richard L. Waggoner
or
Span Instruments, Inc.
2201 Avenue K
Plano, Texas 75074
Attn: Don E. Whitson
Tylan General or Tylan
General Sub: with a copy to:
Tylan General, Inc. Cooley Godward Castro Huddleson & Tatum
15330 Avenue of Science 4365 Executive Drive, Suite 1100
San Diego, California 92128 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.
13.6 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.
13.7 Cooperation. Tylan General, Tylan General 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.
38
<PAGE> 40
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
39
<PAGE> 41
/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
40
<PAGE> 1
EXHIBIT 99.1
[TYLAN GENERAL LETTERHEAD]
CONTACTS: David Ferran or David Stone Deborah Stapleton
Tylan General Stapleton Communications Inc.
(214) 461-2401 or 2402 (415) 988-9207
TYLAN GENERAL ACCELERATES SPAN INSTRUMENTS AGREEMENT
TYGN BOARD ADOPTS SHAREHOLDER RIGHTS PLAN
Company Comments on Q3 Outlook
SAN DIEGO -- July 3, 1996 -- Tylan General, Inc. (NASDAQ:TYGN) and Span
Instruments Inc. today announced they have entered into an amended definitive
agreement relating to Tylan General's acquisition of Span Instruments, a Plano,
Texas-based manufacturer of high purity pressure monitoring and control
instruments. The board of directors of both companies and the stockholders of
Span Instruments have approved the amended agreement, which is expected to
close later today. Under the amended agreement, Tylan General will acquire Span
Instruments for 1.3 million shares of Tylan General common stock, as compared
to the 1.47 million shares under the original agreement. As a result of this
amendment, the approval of Tylan General stockholders is no longer required.
The stock being issued to the Span Instruments stockholders will be restricted,
and the stockholders will have certain registration rights. Under the original
terms of the transaction, all of the shares would have been registered at the
time the acquisition closed.
The company also announced that the board has adopted a shareholder
rights plan designed to protect shareholders from various abusive takeover
tactics, including attempts to acquire control of Tylan General at an
inadequate price.
-- More --
<PAGE> 2
TYGN Accelerates Span Instruments Agreement/Board Adopts Shareholder Rights
Plan/Company Comments on Q3 Outlook
July 3, 1996
Page 2
As a result of industry trends the company has previously identified,
Tylan General said that it expects revenues and net income for its third
quarter ending July 28, 1996, to be below second quarter levels, without taking
into account the Span Instruments acquisition. The company also believes its
third quarter earnings per share will be below the earnings per share reported
in the third quarter a year ago, also without taking into account the Span
Instruments transaction.
TYLAN GENERAL ACCELERATES ACQUISITION OF SPAN INSTRUMENTS
"The Tylan General board of directors has today reaffirmed the
strategic importance of Span Instruments to the future success of Tylan
General," said David Ferran, chairman, president and chief executive officer of
Tylan General. "Management of both companies are very excited about the
prospects presented by the new combined entity. We believe it is in both
companies' best interest to accelerate the merger, thereby dispelling any
uncertainties that would have been created had we delayed until September, as
previously scheduled."
Ferran said that the Span Instruments product line will further
strengthen Tylan General's position as a leading supplier of process management
equipment. He also said that Span Instruments' presence in the semiconductor
and the much larger industrial process control industries will help expand the
size of Tylan General's target market.
The acquisition will be accounted for as a pooling of interest. At the
time of the close of the acquisition, Tylan General will assume Span
Instruments' debt of approximately $20.6 million. The company expects a
one-time charge of $3.5 to $4.0 million to be recorded in its third quarter.
-- More --
<PAGE> 3
TYGN Accelerates Span Instruments Agreement/Board Adopts
Shareholder Rights Plan/
Company Comments on Q3 Outlook
July 3, 1996
Page 3
As part of the acquisition, Don Whitson, co-founder and chief executive
officer of Span Instruments, will join Tylan General as vice chairman, chief
administrative officer and a member of the company's board of directors. George
Yurch, president of Span Instruments, will become president of the Span
Instruments Division of Tylan General. David Ferran will remain chairman,
president and chief executive officer of Tylan General.
Span Instruments had revenues of $42.4 million in its fiscal year ended
Aug. 31, 1995.
BOARD ADOPTS SHAREHOLDER RIGHTS PLAN
Tylan General also announced that its board of directors has adopted a
shareholder rights plan designed to protect shareholders from various abusive
takeover tactics, including attempts to acquire control of the company at an
inadequate price. The plan is also intended to provide additional protection
from partial or two-tiered takeover attempts, coercive stock accumulation
programs, street sweeps and other tactics that may be used to gain control of
the company without offering an adequate price to all shareholders.
Under the plan, each shareholder will receive a dividend of one Right
for each share of the company's outstanding common stock. Each Right will
entitle the holder to purchase one one-hundredth of a share of new Series A
Junior Participating Preferred Stock of the company at an initial exercise
price of $70.
--More--
<PAGE> 4
TYGN Accelerates Span Instruments Agreement/Board Adopts
Shareholder Rights Plan/
Company Comments on Q3 Outlook
July 3, 1996
Page 4
Initially, the Rights are attached to the company's common stock and
are not exercisable. They become immediately exercisable after any person or
group acquires beneficial ownership of 15 percent or more of the company's
common stock, or 10 days after any person or group announces a tender or
exchange offer that would result in that same beneficial ownership level (other
than pursuant to certain "Permitted Offers").
If a buyer acquires a 15 percent position in the company, all Rights
holders except that buyer will be entitled to purchase Tylan General common
stock at a discounted price. The effect will be to discourage acquisitions of
more than 15 percent without prior negotiations with the board.
The distribution of Rights will be made to common shareholders of
record on July 15, 1996, and shares of common stock that are newly issued after
that date will also carry Rights. The Rights will expire 10 years later. The
company may redeem the Rights for one cent ($0.01) each at any time before a
buyer acquires a 15 percent position in the company, and under certain other
circumstances. The Rights distribution is not taxable to stockholders. Details
of the plan are included with a letter that will be mailed to all of the
company stockholders.
"The board continues to believe that the company can best achieve its
goal of maximizing long-term shareholder values through its current strategy of
internal product development and carefully selected strategic transactions,
such as the merger with Span Instruments," said Ferran. "By protecting our
shareholders from inadequate takeover proposals and abusive takeover tactics,
the Rights will help the board ensure that all of the company's shareholders
realize the long-term value of their investment," he said.
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<PAGE> 5
TYGN Accelerates Span Instruments Agreement/Board Adopts Shareholder Rights
Plan/Company Comments on Q3 Outlook
July 3, 1996
Page 5
In response to the recent announcement by Danaher Corporation that it
had acquired approximately 10.4 percent of Tylan General's outstanding common
stock, Ferran said, "Danaher has made no proposals to Tylan General regarding
any possible transaction involving the two companies. We have no plans for any
meetings with Danaher."
TYLAN GENERAL COMMENTS ON Q3 OUTLOOK
Tylan General also announced that as a result of industry trends it has
previously identified, the company expects revenues and net income for its
third quarter ending July 28, 1996, to be below second quarter levels, without
taking into account the Span Instruments acquisition. The company also believes
its third quarter earnings per share will be below the earnings per share
reported in the third quarter a year ago, without the impact of the Span
Instruments acquisition. The company reiterated that its third quarter
financial results will also be adversely impacted by the charges resulting from
the Span Instruments acquisition.
"As we stated in our recent SEC filings, we've seen indications that
the market for semiconductor capital equipment is slowing; in fact, we are
seeing rescheduling and pushouts of some significant orders," said Ferran.
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<PAGE> 6
TYGN Accelerates Span Instruments Agreement/Board Adopts Shareholder Rights
Plan/Company Comments on Q3 Outlook
July 3, 1996
Page 6
This news release contains forward-looking statements that involve risks and
uncertainties, including the risks associated with the integration of the Span
Instruments operations and product offerings into Tylan General's and Span
Instruments' customers, a weakening demand for semiconductor capital equipment,
downturns or slowdowns in the IC market, the company's dependence on the
capital expenditures of IC manufactures and the highly cyclical nature of the
semiconductor industry. Certain of these factors as well as additional risks
and uncertainties are detailed from time to time in Tylan General's periodic
filings with the Securities and Exchange Commission, including its Annual
Report on Form 10-K for the year ended Oct. 31, 1995 and its most recent Form
10-Q for the quarterly period ended April 28, 1996, as well as in its recently
filed registration statement on Form S-4.
Tylan General, Inc. is a San Diego-based manufacturer of precision mass flow
controllers, ultraclean gas panels and pressure measurement and control
equipment. The company's products are used in the fabrication of integrated
circuits (ICs) in addition to other manufacturing processes such as flat panel
displays and fiber optic cable manufacturing. Tylan General's worldwide
operations are directed from its offices in the United States, the United
Kingdom, France, Germany, Japan and Korea. Its stock is traded on the NASDAQ
stock market under the symbol TYGN. Further information on Tylan General may be
obtained from the company's SEC filings or by contacting the company directly.
###
