AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION ON
OCTOBER 8, 1997
- --------------------------------------------------------------------------------
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement /_/ Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LIBERTY TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / No Fee Required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies: N/A
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies: N/A
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined): N/A
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
5) Total fee paid
_____________________________________________________________________________
/X/ Fee paid previously with preliminary materials.
_____________________________________________________________________________
/X/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount previously paid: $2,998
_____________________________________________________________________________
2) Form, Schedule or Registration No.: Initial Schedule 14A
_____________________________________________________________________________
3) Filing party: Liberty Technologies, Inc.
_____________________________________________________________________________
4) Date filed: August 1, 1997
_____________________________________________________________________________
<PAGE>
LIBERTY TECHNOLOGIES, INC.
555 North Lane
Lee Park
Conshohocken, Pennsylvania 19428
(610) 834-0330
NOTICE AND PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 30, 1997
To the Shareholders of Liberty Technologies, Inc.:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Shareholders of
Liberty Technologies, Inc. (the "Company") will be held at the Company's offices
at 555 North Lane, Lee Park, Conshohocken, Pennsylvania 19428, on Thursday,
October 30, 1997 at 10:00 a.m. local time (the "Meeting"), for consideration of
and action upon the following matters:
1. The approval of the sale of the Company's nondestructive testing and
evaluation services business (the "NDE Business") and the adoption of the Asset
Purchase Agreement (the "Acquisition Agreement") providing for the sale of the
NDE Business; and
2. The transaction of such other business as may properly come before
the Meeting and any postponement or adjournment thereof, and matters incident to
the conduct of the Meeting.
The Board of Directors has fixed the close of business on October 3,
1997 as the record date for the determination of shareholders of the Company
entitled to notice of, and to vote at, the Meeting and any postponement or
adjournment thereof.
If the Meeting is adjourned for one or more periods aggregating at
least 15 days because of an absence of the quorum with respect to the proposed
sale of the NDE Business, then those shareholders entitled to vote who are
present at the adjourned Meeting in person or by proxy shall nevertheless
constitute a quorum for the purpose of acting upon such proposal. In the event
that there are not sufficient votes to approve the proposed sale of the NDE
Business, it is expected that the Meeting will be postponed or adjourned in
order to permit further solicitation of proxies by the Company.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ James D. Rosener
-----------------------------------
JAMES D. ROSENER
Secretary
Conshohocken, Pennsylvania
October 9, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK,
DATE AND SIGN YOUR PROXY, AND MAIL IT IN THE STAMPED ENVELOPE ENCLOSED FOR YOUR
CONVENIENCE. IN ORDER TO AVOID THE ADDITIONAL EXPENSE TO THE COMPANY OF FURTHER
SOLICITATION, WE ASK YOUR COOPERATION IN MAILING YOUR PROXY PROMPTLY. RETURNING
THE PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON ON ALL MATTERS BROUGHT
BEFORE THE MEETING, BUT WILL HELP ASSURE A QUORUM IF YOU DO NOT ATTEND.
<PAGE>
LIBERTY TECHNOLOGIES, INC.
555 North Lane
Lee Park
Conshohocken, Pennsylvania 19428
(610) 834-0330
PROXY STATEMENT
----------------
SPECIAL MEETING OF SHAREHOLDERS
October 30, 1997
----------------
The enclosed proxy is solicited by and on behalf of the Board of
Directors (the "Board of Directors" or the "Board") of Liberty Technologies,
Inc. (the "Company") for use at the Special Meeting of Shareholders to be held
on October 30, 1997 at 10:00 a.m., local time, and at any postponement or
adjournment thereof (the "Meeting"). This Proxy Statement and the enclosed proxy
are first being mailed to shareholders of the Company on or about October 9,
1997.
At the Meeting, the shareholders will be asked to consider and take
action on the following matters:
1. The approval of the sale of the Company's nondestructive
testing and evaluation services business (the "NDE Business") and the adoption
of the Acquisition Agreement (as defined below) providing for the sale of the
NDE Business (the "Sale of the NDE Business"). The Sale of the NDE Business is
intended to be made pursuant to the terms of an Asset Purchase Agreement (as it
may be amended or supplemented from time to time, the "Acquisition Agreement"),
dated as of July 25, 1997, among the Company, Liberty Technical Services, Inc.,
an indirect wholly-owned subsidiary of the Company ("LTS"), LTH Delaware, Inc.,
a wholly-owned subsidiary of the Company ("LTH"), General Electric Company
("GE") and GE Inspection Services, Inc., a subsidiary of GE ("GE-IS"). The Sale
of the NDE Business is expected to close promptly after the shareholders of the
Company approve the transaction (the "Closing"). Because there may be purchase
price adjustments and indemnification claims, as described below, there is no
guaranteed minimum purchase price. The initial purchase price to be paid at
Closing (the "Purchase Price") for the NDE Business is $12,101,000 in cash. In
addition, $1,499,000 will be deposited in an escrow account to secure, in part,
the Company's indemnification obligations. If the Closing had occurred as of
August 31, 1997, the Purchase Price would have been reduced by approximately
$400,000 as a result of the Working Capital Adjustment (as defined herein). The
actual cash payment to the Company and the payment into escrow depends on the
amount of liabilities to be assumed by GE-IS, which will not be determinable
until the Closing. Should the actual amount of assumed liabilities be less than
$1,390,000, the initial cash purchase price will be increased by up to $139,000
and the amount placed in escrow will be reduced by the same amount due to the
computation of the escrow amount. However, the sum of the cash payment and the
escrow deposit will be $13.6 million, subject to adjustment, as described below.
The amounts in the escrow account will be reduced to the extent of any
indemnification payments by the Company, and therefore the Company's receipt of
the amount in escrow is contingent. The Escrow Funds are less than the maximum
liability for indemnification for which the Company could be obligated to pay to
GE-IS or GE should there be any requirement for the Company to indemnify GE or
GE-IS. The Purchase Price will also include assumed liabilities consisting of
accounts payable, accrued expenses and accrued taxes of the NDE Business, not to
exceed $1,390,000 in the aggregate. There is no minimum amount of liabilities
that GE-IS is required to assume. However, if the Closing had occurred as of
August 31, 1997, the amount of liabilities assumed by GE-IS would have been $1.2
million. The actual amount of assumed liabilities may differ because they will
be calculated as of the closing date. In the event of any material amendment or
modification in the amount or type of consideration to be received or the assets
to be sold by the Company under the Acquisition Agreement that is made prior to
the Meeting, the Company will furnish shareholders with written notice of the
material terms thereof. Prior to the Closing, the Company will seek shareholder
approval for any material amendment or modification to the Acquisition Agreement
that is made after the Meeting. The cash portion of the Purchase Price to be
<PAGE>
paid at Closing is subject to adjustment by a post-Closing working capital audit
(the "Working Capital Adjustment") to be conducted by representatives of GE-IS
and reviewed by the Company. The portion of the Purchase Price to be held in
escrow, which will equal ten percent of (i) $13.6 million plus (ii) the amount
of assumed liabilities (the "Escrow Funds"), will be deposited into an escrow
account (the "Escrow Account") for one year (subject to extension for claims not
then settled) at PNC Bank, National Association (the "Escrow Agent") and shall
be paid to GE-IS to the extent necessary to satisfy the Company's
indemnification obligations under the Acquisition Agreement and any amounts
remaining after the indemnity period shall be paid to the Company. While the
Company does not know of any basis for any material indemnification claims,
other than a possible claim, estimated to be approximately $100,000, for certain
environmental and safety remediation, the total amount of the Purchase Price, as
adjusted by the Working Capital Adjustment, could be required to be repaid to
GE-IS should the amount of such claims equal or exceed that amount. The "Working
Capital Adjustment" is a post-Closing reduction of the Purchase Price if and to
the extent the closing balance sheet prepared by representatives of GE-IS
(subject to review by the Company) indicates that "working capital," which is an
amount equal to (a) accounts receivable, inventory and prepaid expenses minus
(b) accounts payable and accrued expenses, is less than $2.1 million. For
example, if the Closing had taken place as of August 31, 1997, there would have
been a Working Capital Adjustment of $0.4 million because "working capital" was
approximately $1.7 million. The actual Working Capital Adjustment may differ
because it will be based on a balance sheet prepared as of the Closing date but
after Closing. There is no maximum Working Capital Adjustment. All or a portion
of the Purchase Price may have to be repaid to GE and GE-IS post-Closing by
indemnification claims by GE-IS under the Acquisition Agreement. See
"Acquisition Agreement - Survival and Indemnification, Escrow Agreement." The
maximum amount of indemnification obligations of the Company is the amount of
the Purchase Price, including the amount held in escrow. Claims for
indemnification made by GE-IS during the escrow period, which are not disputed
by the Company, are to be first satisfied out of the Escrow Funds. Any disputed
claims for indemnification made by GE-IS will be settled by appropriate
litigation. After the one-year escrow period (subject to extension for claims
not then settled), any remaining amounts in the Escrow Account, if any, will be
delivered by the Escrow Agent to the Company. Shareholders will not know the
final Purchase Price until after Closing, as the Working Capital Adjustment and
any indemnification claims will occur post-Closing. However, the Company knows
that at the Closing the amount of the cash payment will be not less than
$12,101,000 and the amount to be deposited into the Escrow Account will be not
greater than $1,499,000. The amount of liabilities to be assumed by GE-IS and
the amount of a Working Capital Adjustment, if any, will not be known until
approximately 90 to 120 days after the Closing. The Company does not have the
right under the Acquisition Agreement to terminate the transaction due to any
adjustments to the Purchase Price. The Company does not anticipate that any
material reductions in the Purchase Price will occur as a result of the Working
Capital Adjustment or indemnification claims. The Company is not aware of any
potential material indemnification claims, other than a possible claim for
certain environmental and safety remediation based upon an environmental and
safety audit of the NDE Business conducted by GE prior to the execution of the
Acquisition Agreement. The Acquisition Agreement contains a provision for a
Purchase Price adjustment based on a pre-Closing audit by GE of the fixed assets
of the NDE Business (the "Fixed Asset Adjustment"). GE has informed the Company
that it has completed its audit and there will be no Fixed Asset Adjustment to
the Purchase Price. See "Acquisition Agreement - General." The shareholders will
not know at the Meeting if any of the Purchase Price will have to be repaid
after the Closing due to indemnification obligations. See "APPROVAL OF THE SALE
OF THE NDE BUSINESS."
2. The transaction of such other business as may properly come
before the Meeting and any adjournment thereof, and matters incident to the
conduct of the Meeting.
The proposed Sale of the NDE Business is a complex transaction.
Shareholders are urged to read this Proxy Statement in its entirety.
In the absence of contrary instructions, properly executed proxies,
received and unrevoked, will be voted by the persons named in the proxy: (i) FOR
the Sale of the NDE Business and adoption of the Acquisition Agreement and (ii)
in accordance with their best judgment with respect to such other business as
may properly come before the Meeting and matters incident to the conduct of the
Meeting.
-2-
<PAGE>
The Board of Directors of the Company has unanimously approved the Sale
of the NDE Business and the adoption of the Acquisition Agreement and recommends
that the Company's shareholders vote to approve it.
In arriving at its conclusion that the Sale of the NDE Business is fair
to, and in the best interests of, the Company and its shareholders, the Board of
Directors considered the opinion of Compass Capital Advisors ("Compass
Capital"), its independent financial advisor, that, as of July 24, 1997, the
consideration to be received by the Company from the Sale of the NDE Business
pursuant to the Acquisition Agreement was fair to the shareholders from a
financial point of view. A copy of Compass Capital's opinion is attached as
Appendix A to this Proxy Statement and shareholders should read this opinion in
its entirety.
The Board of Directors knows of no business that will be presented at
the Meeting other than the matters described in this Proxy Statement. If any
other matter should be presented at the Meeting for action, the persons named in
the accompanying proxy card will vote the proxy in accordance with their best
judgment on the matter.
Shareholders will be asked to authorize the Company to adjourn the
Meeting should a quorum not be obtained at the Meeting or adjournment thereof.
If such adjournment is required, the Company will not be required to give
further notice thereof.
A shareholder may revoke his or her proxy at any time by executing and
returning another proxy of a later date, by written notice to the Company
(attention: Daniel G. Clare, Vice President, Finance and Chief Financial Officer
of the Company) at its address above prior to the Meeting, or by attending the
Meeting and voting in person.
If the Meeting is adjourned for one or more periods aggregating at
least 15 days because of an absence of the quorum with respect to the proposed
Sale of the NDE Business, then those shareholders entitled to vote who are
present at the adjourned Meeting in person or by proxy shall nevertheless
constitute a quorum for the purpose of acting upon the proposed Sale of the NDE
Business. In the event that there are not sufficient votes to approve the Sale
of the NDE Business, it is expected that the Meeting will be postponed or
adjourned in order to permit further solicitation of proxies by the Company.
The delivery of this Proxy Statement shall not, under any
circumstances, create any implication that the information contained herein is
correct after the date hereof, October 9, 1997.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
VOTING SECURITIES OF THE COMPANY
Only holders of record of Common Stock at the close of business on
October 3, 1997 (the "Record Date") are entitled to notice of, and to vote at,
the Meeting. At the close of business on the Record Date, 5,010,339 shares of
Common Stock were outstanding. Each share of Common Stock is entitled to one
vote on all matters presented at the Meeting. Under Pennsylvania law and the
By-laws of the Company, the presence at the Meeting, in person or by proxy, of
shareholders entitled to cast at least a majority of the votes that all
shareholders are entitled to cast on a particular matter to be acted upon at the
Meeting shall constitute a quorum. All valid proxies returned will be included
in the determination of whether a quorum is present at the Meeting. "Broker
non-votes," abstentions and withheld authority votes all count for the purposes
of determining a quorum.
An affirmative vote of a majority of the votes cast by shareholders
present in person or by proxy and entitled to vote at the Meeting is required
for approval of the Sale of the NDE Business.
-3-
<PAGE>
Certain directors and officers of the Company who have the power to
vote approximately 12% of the outstanding shares of Common Stock have indicated
that they intend to vote their shares in favor of the Sale of the NDE Business.
SOLICITATION OF PROXIES
The Company has retained Georgeson & Company, Inc. (the "Proxy Agent")
to assist in the solicitation of proxies. The Proxy Agent will receive a fee
from the Company of approximately $8,000 for its services, plus reimbursement
for its out-of-pocket expenses. All additional expenses of the solicitation of
proxies for the Meeting, including printing and the cost of mailing, will be
borne by the Company. In addition to solicitation by mail, and the services
performed by the Proxy Agent, officers and regular employees of the Company may
solicit proxies from shareholders by telephone, telegram, facsimile or in
person. Such persons will receive no additional compensation for such services.
MARKET PRICES FOR THE COMMON STOCK
The Common Stock is listed on the Nasdaq Stock Market ("Nasdaq") under
the symbol "LIBT." On July 24, 1997, the trading day immediately preceding
announcement of the execution of the Acquisition Agreement, the high and low
prices of the Common Stock, as indicated on Nasdaq, were $3 5/8 and $3 1/4,
respectively. For additional information relating to market prices of the Common
Stock, see "Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters" in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, as amended by the Form 10-K/A, attached hereto as
Appendix B-1 and made a part hereof.
PRINCIPAL SHAREHOLDERS AND HOLDINGS OF OFFICERS AND DIRECTORS
The following table sets forth the number and percentage of shares of
Common Stock which, according to information supplied to the Company, are
beneficially owned by: (i) each person who is the beneficial owner of more than
5% of the Common Stock and (ii) each of the Company's directors and executive
officers, and (iii) all directors and executive officers as a group. Under rules
of the Securities and Exchange Commission, a person is deemed to be the
beneficial owner of Common Stock with respect to which such person has or shares
voting power or investment power. A person is also deemed to be the beneficial
owner of shares of Common Stock as of a given date with respect to which such
person has the right to obtain voting or investment power within 60 days of such
given date, such as upon the exercise of options or warrants. Unless otherwise
indicated, the information in the following table is as of October 3, 1997.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF ---------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT
- -------------------- ------- -------
<S> <C> <C>
Edison Venture Fund, L.P.(2) 407,972 8.1%
997 Lenox Drive #3
Lawrenceville, NJ 08648
Richard J. Defieux(2) 422,972 8.4%
Edison Venture Fund, L.P.
997 Lenox Drive #3
Lawrenceville, NJ 08648
Atalanta Selective Fund Number Six Limited Partnership(3) 380,200 7.6%
601 Fairview Blvd.
Incline Village, NV 89450
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C>
L. Mark Newman(4) 380,200 7.6%
601 Fairview Blvd.
Incline Village, NV 89450
The Kauffman Fund, Inc.(5) 350,000 7.0%
140 East 45th Street, 43rd Floor
New York, NY 10017
Robert L. Leon(6) 265,743 5.3%
R. Nim Evatt(7) 269,360 5.4%
John A. Hinds(8) 16,200 *
Daniel G. Clare(9) 16,250 *
James D. Rosener(10) 12,500 *
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
All executive officers and directors 1,003,025 20.0%
as a group (6 persons)(11)
</TABLE>
- ---------------------------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) The address of Messrs. Leon, Evatt, Hinds, and Clare is c/o Liberty
Technologies, Inc., 555 North Lane, Conshohocken, PA 19428.
(2) As reported in a Schedule 13G dated February 12, 1997 and filed with
the Securities and Exchange Commission. Mr. Defieux is a General
Partner of Edison Partners, L.P., the general partner of Edison Venture
Fund, L.P. Mr. Defieux, together with the other general partners of
Edison Partners, L.P., shares voting and investment power with respect
to the shares owned by Edison Venture Fund, L.P. Mr. Defieux does not
own any outstanding shares of Common Stock in his individual capacity
and disclaims beneficial ownership of the shares held by Edison Venture
Fund, L.P. except as to his proportionate partnership interest therein.
The number of shares also includes, with respect to Mr. Defieux, stock
options granted by the Company which are currently exercisable or
exercisable within 60 days of October 3, 1997 to purchase 15,000 shares
of Common Stock.
(3) As reported in a Schedule 13D dated June 26, 1997 and filed with the
Securities and Exchange Commission.
(4) As reported in a Schedule 13D dated June 26, 1997 and filed with the
Securities and Exchange Commission. Mr. Newman owns an approximately
70% interest in, and is the General Partner of, Atalanta Selective Fund
Number Six Limited Partnership. As General Partner, Mr. Newman has or
shares voting and investment power with respect to the shares held by
Atalanta Selective Fund Number Six Limited Partnership.
(5) As reported in a Schedule 13G dated December 31, 1996 and filed with the
Securities and Exchange Commission.
(6) Includes stock options granted by the Company which are currently
exercisable or exercisable within 60 days of October 3, 1997 to purchase
63,700 shares of Common Stock.
(7) Includes stock options granted by the Company which are currently
exercisable or exercisable within 60 days of October 3, 1997 to purchase
265,500 shares of Common Stock.
(8) Includes stock options granted by the Company which are currently
exercisable or exercisable within 60 days of October 3, 1997 to purchase
15,000 shares of Common Stock.
(9) Includes stock options granted by the Company which are currently
exercisable or exercisable within 60 days of October 3, 1997 to purchase
16,250 shares of Common Stock.
-5-
<PAGE>
(10) Includes stock options granted by the Company which are currently
exercisable or exercisable within 60 days of October 3, 1997 to purchase
12,500 shares of Common Stock.
(11) Includes the shares held of record by Edison Venture Fund, L.P., which
is represented on the Board of Directors by Mr. Defieux, and stock
options granted by the Company which are currently exercisable or
exercisable within 60 days of October 3, 1997 to purchase 387,950
shares of Common Stock.
-6-
<PAGE>
APPROVAL OF THE SALE OF THE NDE BUSINESS
Introduction
On July 25, 1997, the Company entered into the Acquisition Agreement
with GE and GE-IS to sell substantially all of the assets of the NDE Business
for an initial purchase price to be paid at Closing of at least $12,101,000,
subject to downward adjustment based upon the post-Closing Working Capital
Adjustment plus the assumption of up to $1,390,000 in liabilities of the NDE
Business consisting of accounts payable, accrued expenses and accrued taxes.
Because there may be purchase price adjustments and indemnification claims, as
described below, there is no guaranteed minimum purchase price. The initial cash
consideration to be paid at Closing plus $1,499,000, to be deposited in escrow
to secure in part the Company's indemnification obligations ("Escrow Funds") and
the assumed liabilities of up to $1,390,000, as any may be adjusted, shall be
referred to in the aggregate as the "Purchase Price." If the Closing had
occurred as of August 31, 1997, the Purchase Price would have been reduced by
approximately $400,000 as a result of the Working Capital Adjustment. Should the
actual amount of assumed liabilities be less than $1,390,000, the initial cash
purchase price will be increased by up to $139,000 and the amount placed in
escrow will be reduced by the same amount due to the computation of the Escrow
Funds. However, the sum of the initial cash payment and the Escrow Funds will be
$13.6 million, subject to adjustment, as described below. The Company has also
agreed to indemnify GE and GE-IS for certain liabilities in an amount not to
exceed the Purchase Price (including the amount of assumed liabilities), as
amended by the Working Capital Adjustment. The Escrow Funds will be deposited
into the Escrow Account for up to one year (subject to extension in the case of
claims made but not then resolved) at PNC Bank, National Association (the
"Escrow Agent") to secure, in part, the Company's indemnification obligations
under the Acquisition Agreement. The amount in the escrow account will be
reduced to the extent of any indemnification payments by the Company and,
therefore, the Company's receipt of the amounts in escrow is contingent. The
Escrow Funds are less than the maximum liability for indemnification for which
the Company could be obligated to pay to GE-IS or GE should there be any
requirement for the Company to indemnify GE or GE-IS. The obligations of the
Company under the Acquisition Agreement with respect to the consummation of the
Sale of the NDE Business are subject to the approval by the shareholders at the
Meeting, as well as other conditions summarized below. The Company expects, on a
preliminary basis, that the Sale of the NDE Business will result in a gain of
approximately $3.6 million for financial accounting reporting purposes.
The "Working Capital Adjustment" is a post-Closing reduction of the
Purchase Price if and to the extent the closing balance sheet of the NDE
Business prepared by representatives of GE-IS and subject to review by the
Company (the "Closing Balance Sheet"), indicates that "working capital", which
is an amount equal to (a) accounts receivable, inventory and prepaid expenses
minus (b) accounts payable and accrued expenses (whether or not such accounts
payable or accrued expenses exceed the maximum amount being assumed by GE-IS),
is less than $2.1 million. For example, if the Closing had taken place as of
August 31, 1997, there would have been a Working Capital Adjustment of $0.4
million. The actual Working Capital Adjustment may differ because it will be
based on the Closing Balance Sheet, which will be prepared as of the Closing
date but after Closing. There is no maximum Working Capital Adjustment and if
accounts receivable and inventory unexpectedly decreased while accounts payable
and accrued expenses increased, the Working Capital Adjustment would materially
affect the amount of the Purchase Price retained by the Company. In the event
the Company disputes the proposed Working Capital Adjustment, an independent
accounting firm selected by the Company and GE-IS will resolve the dispute.
The Purchase Price may also have to be repaid to GE-IS post-Closing on
account of indemnification claims by GE-IS under the Acquisition Agreement. The
maximum amount of indemnification obligations of the Company is the amount of
the Purchase Price, as adjusted by the Working Capital Adjustment. The Company
is not aware of any potential material indemnification claims, other than a
possible claim for certain environmental and safety remediation based upon an
environmental and safety audit of the NDE Business conducted by GE prior to the
execution of the Acquisition Agreement. The Company anticipates that such claim
for environmental and safety remediation will be approximately $100,000 in the
aggregate. The Escrow Funds are to be held to secure, in part, indemnification
obligations of the Company under the Acquisition Agreement. See "Acquisition
Agreement - Survival and
-7-
<PAGE>
Indemnification, Escrow Agreement." Claims for indemnification made by GE-IS
during the one-year escrow period, which are not disputed by the Company, are to
be first satisfied out of the Escrow Funds. Any disputed claims for
indemnification made by GE-IS will be settled by appropriate litigation. After
the one-year escrow period (subject to extension in the case of claims made but
not then resolved), any remaining amounts in the Escrow Account, if any, will be
delivered by the Escrow Agent to the Company.
The Acquisition Agreement contains a provision for a Purchase Price
adjustment based on a pre-Closing audit by GE of the fixed assets of the NDE
Business. GE has informed the Company that it has completed its audit and there
will be no Fixed Asset Adjustment to the Purchase Price. See "Acquisition
Agreement - General."
Shareholders will not know the final Purchase Price until after
Closing, as the Working Capital Adjustment and indemnification claims will occur
post-Closing. However, the Company knows that at Closing the amount of the cash
payment will be at least $12,101,000 and the amount to be deposited into the
Escrow Account will be not more than $1,499,000. The amount of liabilities to be
assumed by GE-IS and the amount of a Working Capital Adjustment, if any, will
not be known until approximately 90 to 120 days after the Closing. The Company
does not have the right under the Acquisition Agreement to terminate the
transaction due to any adjustments to the Purchase Price. The Company does not
anticipate that any material reductions in the Purchase Price will occur as a
result of the Working Capital Adjustment or indemnification claims.
The Company, GE and GE-IS
Description of the Company. Liberty Technologies, Inc., a Pennsylvania
corporation founded in 1984, develops, manufactures, markets and sells
diagnostic, condition monitoring and nondestructive evaluation systems and
provides related services to customers in the worldwide power, process and
industrial markets. The Company has four business segments: (1) performance and
condition monitoring products and services, (2) Liberty Technical Services,
consisting of the NDE Business, (3) RADView(TM) imaging systems and (4)
international business development. The businesses described in clauses (1), (3)
and (4) in the preceding sentence, shall sometimes hereinafter be referred to
collectively as the "Products Business." For a description of the Products
Business which will be retained by the Company after the completion of the Sale
of the NDE Business, see "Business of the Company After the Sale."
The NDE Business provides comprehensive nondestructive services for
customers in the power, chemical, paper, petroleum and construction industries.
Nondestructive evaluation services include special applications of visual
inspection, ultrasonic, radiographic, dye penetrant, eddy current, and magnetic
particle technologies. Special services include process safety management
support, plant inspection, computerized reporting, and training in
nondestructive testing. For further information on the NDE Business please see
Item 1 of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, as amended by the Form 10-K/A No. 3, attached hereto as
Appendix B-1 and made a part hereof.
On September 17, 1997, Arthur Andersen LLP, the Company's independent
public accountants, modified its report to the consolidated financial statements
of the Company and its subsidiaries for the year ended December 31, 1996 and
issued in connection with the Company's annual report on Form 10-K for the year
ended December 31, 1996, as amended by the Form 10-K/A No. 3, which is attached
to this Proxy Statement as Appendix B-1 and made a part hereof, to provide a
"going concern" qualification in the report. Arthur Andersen LLP has consented
to the inclusion of its report, as amended, in the Company's Form 10-K/A. Arthur
Andersen indicated in its report that the Company (i) has continued to incur
losses in 1997, (ii) continues to experience limitations on its ability to
borrow and (iii) is in violation of certain loan covenants that gives the lender
the right to accelerate the due date of the loan. Arthur Andersen concluded that
these factors create a substantial doubt about the Company's ability to continue
as a "going concern" and an uncertainty as to the recoverability and
classification of recorded asset amounts and the amounts and classification of
liabilities. Such noncompliance was reported by the Company in its quarterly
report on Form 10-Q for the period ended June 30, 1997, as amended by the Form
10-Q/A No. 2, which is attached to this Proxy Statement as Appendix B-2 and made
a part
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hereof. The Company will use proceeds from the Sale of the NDE Business to repay
its bank debt in full. See "Use of Proceeds".
Description of GE. GE is one of the largest and most diversified
industrial corporations in the world. GE's businesses include, but are not
limited to, aircraft engines, appliances, power systems, plastics, financial
services and broadcasting. In its fiscal year ended December 31, 1996, GE had
revenues of approximately $79 billion. GE is incorporated in New York, its
principal executive offices are located at 3135 Easton Turnpike, Fairfield,
Connecticut 06431, and its telephone number is (203) 373-2211.
Description of GE-IS. GE-IS is a newly-formed subsidiary of GE. GE-IS
was formed to acquire the assets of the NDE Business, and operate the NDE
Business. GE-IS is incorporated in Delaware, its principal executive offices are
located at 1 River Road, Schenectady, New York 12345, and its telephone number
is (518) 385-1407.
Prior Relationships. The Company has periodically sold services and
products to GE and its affiliates. Such sales have been on arm's-length terms,
consistent with industry practice. In 1996, the Company and its affiliates sold
approximately $15,000 of products and services to GE and its affiliates. There
were no sales by the Company of its products and services to GE during the six
month period ended June 30, 1997. In 1993, the Company and GE entered into a
five-year License Agreement under which GE has the right to use certain
technology relating to the Company's VOTES(Registered) system in boiling water
reactors in various geographic regions. Under said License Agreement GE paid the
Company an up-front licensing fee of $100,000. Subsequently, there have been no
material amounts paid under the License Agreement.
Reasons of GE and GE-IS for the Acquisition of the NDE Business. GE has
advised the Company that GE is acquiring the NDE Business to further GE's
interest in expanding its field service business in the industrial market.
Background of Sale of the NDE Business
The Company acquired the NDE Business in March 1994, with the
expectation that the acquired business, consisting primarily of field service
operations, would develop into a captive marketing channel for the Company's
condition monitoring products and dynamic testing services using those products.
Prior to the acquisition of the NDE Business, the Company's business was
concentrated, virtually exclusively, in the United States nuclear power market,
providing condition monitoring products and services, principally on
motor-operated valves. The NDE Business was concentrated, virtually exclusively,
in providing traditional non-destructive testing and evaluation services in the
process, power and paper plant, and petrochemical process facility markets.
In 1994 through 1996, the Company devoted efforts to develop and
provide an array of dynamic testing services using condition monitoring products
for sale to the NDE Business' traditional markets. The Company believed that
demand in these markets for condition monitoring products sold by the Company
would develop after customers experienced the benefits from the provision of
dynamic testing services. However, despite promising inroads in testing and
promoting the Company's RADView(TM) product range, and while the NDE Business
has continued to be profitable, the results of the Company's efforts to build a
dynamic testing business or sell condition monitoring products through the NDE
Business have been unsatisfactory.
In November 1996, in connection with its press release announcing its
results of operations for the nine months ended September 30, 1996, the Company
announced it would commence a review of possible strategic alternatives for all
of its businesses. In December 1996, as part of that review of strategic
alternatives, the Board of Directors of the Company conducted a review of each
of the Company's businesses (i) to assess strategic alternatives for each such
business, (ii) to identify areas of business focus to preserve financial and
human resource capital available to the Company, (iii) to evaluate each business
area's opportunities and threats, and (iv) to assess the financial strength and
liquidity needs of the Company. That review identified the need for greater
focus by management on specific product business niches and, in particular,
three market areas -- (1) sale of condition monitoring products and associated
services,
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(2) digital radiography using RADView and (3) international power and process
industries through strategic alliances. The Board concluded that even though the
NDE Business was an historically profitable business segment of the Company and
the remaining businesses of the Company, in the aggregate after accounting for
continuing corporate overhead, have been unprofitable (see "Pro Forma Financial
Statements"), the NDE Business was not effective at serving as a marketing
channel for the Company's Products Business, and that the Sale of the NDE
Business would generate cash to repay existing bank debt and capital which could
be used in the development of the Company's Products Business. Consequently, the
Board directed management to pursue a strategic buyer for the NDE Business.
Moreover, in light of an unsolicited approach in October 1996 by an industry
competitor (a privately held company) who expressed interest in purchasing the
NDE Business, the Board believed that, if adequate price and terms could be
agreed, the sale of the NDE Business could be concluded quickly so as to satisfy
the Company's cash requirements.
The industry competitor had contacted the Company on an unsolicited
basis and made an offer which involved a cash component (approximately 60%) and
a deferred component and certain purchase price adjustments. The initial offer
contained a contingency in respect of the cash portion of the purchase price
that made the actual amount of the purchase price subject to significant
downward adjustment if the net asset value of the NDE Business was less than $5
million. In addition, a substantial portion of the purchase price would have
been paid by a note which would have been subordinated to bank debt. Based upon
the purchase price formula that was discussed, the Company believes that the
actual purchase price would have been in the range of $12 million to $13
million, not including any amounts, if any, which would have been required to
have been repaid for indemnification claims. Six million dollars of the purchase
price would have been paid by a note subordinated to bank debt and payable at
the end of five years. While the face amount of the note would have been $6
million (with an annual interest rate of 8%), the present value of the note
would have been only $4.5 million, because it would have contained an original
issue discount of 6% per annum. Due to the complexity, risk and contingent
nature of the purchase price, the Company was unable to agree upon the
definitive price, terms and timing of a potential transaction with that
potential buyer. Discussions with the potential buyer terminated in February
1997. GE also contacted the Company on an unsolicited basis and discussions then
ensued. Given the timing of these discussions and the initial indications that
favorable cash terms could be agreed upon with GE, which ultimately agreed to
pay a cash purchase price of $13.6 million, subject to adjustment, the Company
elected not to pursue alternative buyers or solicit the first potential buyer.
This approach was pursued to preserve the confidentiality of the discussions so
as not to risk an adverse impact on the NDE Business due to employee and
customer uncertainty, as the time period of the discussions was just prior to
and during the NDE Business's peak business cycle. The Company has not received
any other indications of interest and is not aware whether another offer of
equal or greater value could have been pursued.
During the week of April 7, 1997, Jerry A. Miller, Manager, Services
Marketing of GE Nuclear Energy, called R. Nim Evatt, the President, Chief
Executive Officer and Chairman of the Company, to set up a meeting with Mr.
Evatt for purposes that were not identified by Mr. Miller to Mr. Evatt at that
time.
On April 16, 1997, Mr. Miller of GE met with Mr. Evatt of the Company
in Philadelphia. Mr. Miller indicated that GE was interested in buying the NDE
Business. Mr. Evatt told Mr. Miller that the Company would not consider selling
the NDE Business to GE unless GE was prepared to pay a multiple of six or seven
times earnings before interest and taxes ("EBIT") for the NDE Business. No other
terms were discussed.
On April 22, 1997, GE and the Company entered into a Confidentiality
Agreement regarding certain information that would be provided by the Company to
GE during the course of GE's due diligence review and agreed to negotiate
exclusively with GE through August 1, 1997.
On April 25, 1997 in Philadelphia, at Mr. Miller's request, Mr. Miller,
John W. Self, Manager, Inspection Services of GE Nuclear Energy, and Darren
Huxol, Manager, Financial Planning & Analysis of GE Nuclear Energy, met with Mr.
Evatt and Daniel G. Clare, Vice President, Finance and Chief Financial Officer
of the Company. Mr. Evatt and Mr. Clare presented and discussed the financial
statements for the NDE Business for the fiscal years 1995, 1996 and the
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estimated results for 1997. Mr. Evatt and Mr. Clare also presented information
relating to the management team, the organization and the principal customers of
the NDE Business.
No discussions took place between the parties until the next meeting
on May 22, 1997.
On May 22, 1997, at Mr. Miller's request, Mr. Miller met with Mr. Evatt
in Chicago. Mr. Miller reiterated GE's interest in purchasing the NDE Business.
The parties then proceeded to begin negotiating a letter of intent prepared by
GE for the purchase by GE of the NDE Business.
On May 23, 1997, GE and the Company signed a letter of intent. The
letter of intent set forth certain general terms of the proposed transaction: a
cash purchase price of $14 million (with 10% deposited into escrow to secure
indemnification obligations of the Company), and the types of representations
and warranties, covenants and conditions to closing that would be set forth in a
definitive agreement. The letter of intent left for future negotiation other
material terms and conditions of the transaction, provided GE with the
opportunity to perform its due diligence and provided that the parties would
proceed to negotiate an acquisition agreement. The initial purchase price
proposal by GE was $14.0 million and was based upon certain assumptions in the
earnings before interest and taxes of the NDE Business, which were computed
based on pro-forma adjustments for savings in certain corporate overhead
allocations, legal and accounting costs and the reduction in operating expenses
due to the elimination of the position of general manager of the NDE Business.
On June 4, 1997, at the Philadelphia offices of Arthur Andersen LLP,
the Company's independent accountants, Matthew Turnbull, Manager, Financial
Planning & Analysis of GE Nuclear Services, and Paul Sisson of KPMG Peat Marwick
LLP, the independent accountants of GE retained to review this transaction,
reviewed audit workpapers with Mr. Clare of the Company.
On June 12, 1997, a meeting was held at GE Nuclear Energy in San Jose,
California to negotiate the asset purchase agreement. Present were James D.
Rosener of Pepper, Hamilton & Scheetz, LLP, counsel to the Company, Mr. Clare
and Mr. Evatt of the Company, an attorney from Morgan, Lewis & Bockius LLP,
counsel to GE in this transaction, Harold J. Neems, Chief Counsel of GE Nuclear
Energy, Mr. Miller and Mr. Turnbull of GE. The parties discussed material terms
of the asset purchase agreement: limitation of liabilities assumed by GE,
purchase price adjustments based on income, intellectual property to be
transferred or licensed, employee matters and conditions to closing.
No meetings between the parties took place between June 12, 1997 and
July 11, 1997. During this period, the parties and their counsel further
negotiated and revised the asset purchase agreement several times. GE and its
counsel reviewed due diligence materials, including customer contracts, income
tax returns, financial statements and employee benefit materials. GE conducted
an environmental assessment of the NDE Business locations.
On June 20, 1997, the Company retained Compass Capital to render an
opinion as to the fairness of the consideration from a financial point of view
to the shareholders of the Company.
On July 11, 1997, at the Philadelphia offices of Pepper, Hamilton &
Scheetz LLP, Mr. Rosener, Mr. Evatt, Mr. Clare and Daniel Damstra of Pepper,
Hamilton & Scheetz LLP, met with Mr. Miller, Mr. Neems and an attorney from
Morgan, Lewis & Bockius LLP to negotiate further the asset purchase agreement.
The parties discussed the accounts receivable reserve, the assignment of
customer contracts, employee benefits and 401(k) plan issues, accrued vacation
and severance, and a dollar-for-dollar purchase price adjustment proposed by GE
in the event that working capital and fixed assets were less than $4.0 million
in the aggregate. GE and the Company reviewed the initial assumptions used in
determining the $14.0 million purchase price and concluded that the pro-forma
savings for legal, accounting and the general manager position could not be
realized and downward adjustment was appropriate. After generalized discussions
on the merits of GE's positions, a downward adjustment of $400,000 to $13.6
million was agreed to by the parties.
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On July 14, 1997, Mr. Miller, James Kerbey, Manager, Settlements
Finance of GE Nuclear Energy , Mr. Self and Annie Garriga of the human resources
department of GE Nuclear Energy, visited LTS's offices at Charleston, South
Carolina with Mr. Clare and Mr. Evatt, and met with Messrs. Tremblay, Clevenger,
Leonard, Saxon and Bishop, the Accounting Manager, the Marketing Manager and the
three Regional Managers of LTS, respectively. The parties discussed the
financial performance by region of LTS, customers of the NDE Business, and
business prospects.
On July 17, 1997, at the Philadelphia offices of Morgan, Lewis &
Bockius LLP, Mr. Evatt, Mr. Rosener, Mr. Clare and Mr. Damstra met with Mr.
Miller, Mr. Kerbey and an attorney from Morgan, Lewis & Bockius LLP to negotiate
aspects of the asset purchase agreement. The parties discussed customer contract
assignments and the mechanics for the purchase price adjustments. The parties
agreed to reduce the purchase price on a dollar-for-dollar basis if (1) the book
value of the verified fixed assets were less than $1.6 million and (2) working
capital was less than $2.1 million. At this meeting, the cash purchase price was
agreed to be $13.6 million.
During the week of July 21, 1997, the parties had several conference
calls to negotiate the provisions of the asset purchase agreement relating to
the mechanics for the purchase price adjustments and assignments of customer
contracts.
The definitive terms of the Acquisition Agreement, including the
Purchase Price and mechanics for the Fixed Asset and Working Capital
Adjustments, were finalized and, thereafter, the Board of Directors held a
meeting on July 24, 1997 where it discussed and reviewed the terms of the
Acquisition Agreement, the financial and business impact of the Sale of the NDE
Business (i.e., it would enable the Company to focus on its core Products
Business and strengthen the Company's balance sheet (see "Pro Forma Financial
Statements"), and the presentation and opinion of Compass Capital that the
consideration to be received by the Company from the Sale of the NDE Business
pursuant to the Acquisition Agreement was fair to the shareholders from a
financial point of view. Compass Capital presented to the Board an analysis of
the stock price performance of the Company's common stock, an analysis of the
imputed breakup values in relation to market price of the Company's Common
Stock, an analysis of the values of selected public companies and an analysis of
the valuation ratios of publicly announced acquisitions. See "Opinion of
Financial Advisor." After extensive discussion and consideration of the purchase
price, the terms and conditions of the Acquisition Agreement, the need for cash
to repay bank debt and capital to expand its condition monitoring product and
RADView businesses, and the fairness opinion of Compass Capital, the Board
unanimously approved the execution and performance of the Acquisition Agreement
by the Company, and recommended that the Acquisition Agreement be presented to
the shareholders for their approval.
On July 24, 1997, Mr. Evatt and Mr. Miller concluded negotiations to
finalize the procedures for handling the assignment of customer contracts and,
that evening, GE and the Company executed the Acquisition Agreement, dated as of
July 25, 1997. On July 25, 1997, the Company issued a press release announcing
the Sale of the NDE Business. On July 28, 1997, the Company filed a Current
Report on Form 8-K attaching the press release.
Use of Proceeds
Upon consummation of the Sale of the NDE Business, the Company expects
to receive net proceeds of approximately $10.1 million, after estimated expenses
and transaction costs of $0.3 million, amounts held in escrow of approximately
$1.5 million and payments for federal and state income taxes of approximately
$2.2 million. The Company intends to use the proceeds from the Sale of the NDE
Business (i) to repay its outstanding bank debt of approximately $7.1 million,
(ii) to invest in the Products Business and (iii) for general corporate
purposes.
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The Company's Reasons for the Sale of the NDE Business; Recommendation of the
Board of Directors
The Board of Directors has determined that the Sale of the NDE Business
is fair to, and in the best interests of, the Company and its shareholders, and
has approved the Acquisition Agreement. Accordingly, the Board recommends that
the shareholders vote to adopt the Acquisition Agreement and approve the Sale of
the NDE Business. In reaching its conclusion, the Board considered the following
factors:
1. the terms and conditions of the Acquisition Agreement (including
the cash purchase price) which the Board viewed as favorable in
that the Company would receive a large percentage of the purchase
price in cash at Closing, and that while the Acquisition
Agreement did not contain any right for the Company to terminate
the Acquisition Agreement due to material decreases in the
Purchase Price due to the Fixed Asset Adjustment, Working Capital
Adjustment and indemnity provisions, the Board, based on the
historical performance of the NDE Business, did not believe there
would ultimately be any material reductions to the Purchase
Price. Thus, the risk of any pre-closing material downward
adjustment was minimal, and in the case of the Working Capital
Adjustment, material downward adjustments would be, in large
measure, due to the collection of cash from accounts receivable,
which the Company would be entitled to retain. In the case of
indemnification claims, upon advice of management, no material
claims were believed to exist and any claims would not be known
until after closing when the Company would not have been able to
terminate the Acquisition Agreement. The Company and GE had
considerable discussions concerning the ability of the Company to
terminate the Acquisition Agreement in the event the Board
determined, to comply with its fiduciary duties, such termination
to be in the best interest of the shareholders. GE did not wish
to permit the Company to terminate the Acquisition Agreement
under any circumstances. After discussion regarding both the
right to terminate in the event of the receipt of a superior
offer or material pre-closing negative purchase price
adjustments, the Company and GE agreed to a provision allowing
the Board to accept a financially superior unsolicited offer if
the Company paid GE: (x) all transaction expenses incurred by GE;
and (y) a $1,000,000 break-up fee;
2. the ability to focus in the future the Company's management
time, attention and capital, on growing the Company's Products
Business, notably, that the Sale of the NDE Business:
(i) provides capital to commercialize the Company's digital
radiography product RADView;
(ii) provides capital to enhance and expand the sales of the
Company's condition monitoring products in the worldwide
industrial market;
(iii) provides the opportunity for potential technology or
market channel niche acquisitions to complement RADView
and condition monitoring; and
(iv) provides the opportunity for further international
market development and strategic alliances.
3. the opportunity to strengthen the Company's balance sheet by
paying in full the current bank line-of-credit without resorting
to issuance of equity, and its attendant attractiveness as an
alliance partner due to improved balance sheet;
4. GE's ability to conclude the transaction without financing
contingency or risk;
5. GE-IS's plan to hire substantially all full-time employees of the
NDE Business;
6. management's recommendation of the Sale of the NDE Business
based upon their view that the Company needed capital on a
timely basis to pay off its bank debt and to expand its
Products Business, that given GE's strong financial position
and access to sufficient cash, GE had the ability to close the
transaction without a financing contingency, the trade off
between (i) the possible disruption and adverse impact on the
NDE Business of soliciting other proposals, and the negative
affect on the
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Company if a transaction was not completed, and (ii) the
likelihood that the sale to GE would occur without material
adjustment in the Purchase Price, and that Compass Capital
would opine that the Sale of the NDE Business pursuant to the
Acquisition Agreement is fair to the shareholders of the
Company from a financial point of view; and
7. the opinion of Compass Capital presented to the Board of
Directors on July 24, 1997, to the effect that the Sale of the
NDE Business is fair to the shareholders of the Company from a
financial point of view. See "Opinion of Financial Advisor" below
and Compass Capital's written opinion attached as Appendix A.
Based on Compass Capital's opinion of the value of the NDE
Business of $12.475 million, adjustments to working capital and
fixed assets which are less than $1,125,000 in the aggregate (the
difference between the cash component of the Purchase Price
(including the Escrow Funds) of $13.6 million and the Compass
Capital value of $12.475 million) would not affect Compass
Capital's fairness opinion, that is, the Sale of the NDE Business
would continue to be fair from a financial point of view to the
current shareholders of the Company. The impact on the fairness
of the Purchase Price from indemnification claims depends in
large part on the nature of the claims. As a general matter,
there would be a reduction of the value of the NDE Business
corresponding to the amount of any indemnification claim because
the value of the business was determined based on the assumption
that no such claim existed. Compass Capital has indicated that
indemnity claims, together with any Working Capital and Fixed
Asset adjustments, of $1,125,000 or less in the aggregate would
not affect its fairness opinion. While the Board discussed the
fact that the actual purchase price could fall below $12.475
million due to the Fixed Asset and Working Capital Adjustments,
and that the Company would have no ability to terminate the
Acquisition Agreement, the Board believed, based upon
management's view, that such a result was remote and unlikely to
occur. Thus, while it is possible that the Working Capital
Adjustment could cause the Purchase Price to be reduced, because
such reduction would be offset in large part by the receipt of
cash from collections of such accounts receivable, the impact on
the Company was not believed to be material. In its
deliberations, after determining to sell the NDE Business the
Board believed that any transaction would contain similar
indemnification provisions to those in the Acquisition Agreement.
Thus, such indemnification provisions were not a material factor
in the Board's decision to pursue the Sale of the NDE Business to
GE.
The Board did not seek alternative transactions so as not to risk an
adverse impact on the NDE Business due to employee and customer uncertainty, the
timely need for capital, GE's ability to conclude the transaction without a
financing contingency or risk and Compass Capital's opinion as to the fairness
of the transaction.
The foregoing discussion of the factors considered by the Board is not
intended to be all inclusive. In view of the variety of factors considered in
connection with its evaluation of the Sale of the NDE Business, the Board did
not find it practicable to and did not attempt to rank or assign relative
weights to the foregoing factors. The Board did not assign relative weights to
these factors. Rather, the Board viewed its decision and recommendation as being
based on the totality of the information presented to and considered by it. The
Board, however, did consider the cash purchase price and the need for cash to
repay bank debt to be of paramount importance.
The Board recommends that the shareholders vote FOR adoption of the
Acquisition Agreement and the Sale of the NDE Business.
Opinion of Financial Advisor
Compass Capital Advisors (previously defined as "Compass Capital") has
delivered a written opinion to the Board on July 24, 1997 to the effect that the
Sale of the NDE Business was fair from a financial point of view to the current
shareholders of the Company. No limitations were imposed by the Board upon
Compass Capital with respect to the investigations made, procedures followed or
otherwise in connection with Compass Capital rendering its opinion.
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The full text of Compass Capital's opinion is attached as Appendix A to
this Proxy Statement. Shareholders are urged to read the opinion in its entirety
for the assumptions made, matters considered and limits of the review undertaken
by Compass Capital. Compass Capital's opinion is directed only to the fairness
of the consideration to be received by the Company and does not constitute a
recommendation to any shareholder of the Company as to how such shareholder
should vote such shareholder's shares of the Company's common stock regarding
approval and adoption of the Sale of the NDE Business. The summary of the
opinion of Compass Capital set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of such opinion.
In arriving at its opinion, Compass Capital:
1) reviewed and relied upon a draft proxy statement dated July 2,
1997 which, inter alia, describes the Sale of the NDE Business;
2) reviewed and relied upon a draft of the Acquisition Agreement
containing the terms of the Acquisition Agreement;
3) reviewed and relied upon the Company's filings with the
Securities and Exchange Commission on Forms 10-K and 10-Q for the
fiscal year ended December 31, 1996 and for the period ended
March 31, 1997;
4) reviewed and relied upon internally prepared pro forma balance
sheets of the NDE Business as of May 31, 1997 and as reported
for and as of December 31, 1994 through 1996; internally
prepared results of operations of the NDE Business for the
fiscal years ended December 31, 1994 through 1996; and
projected results of operations for the fiscal year ended
December 31, 1997;
5) reviewed recent press releases issued by the Company;
6) reviewed price and volume information relating to trading in the
Company's common stock;
7) reviewed and analyzed market trading and financial information
about certain publicly-traded companies which were deemed to be
engaged in businesses reasonably comparable to that of the NDE
Business;
8) reviewed publicly available information with respect to announced
acquisitions of businesses reasonably comparable to the NDE
Business;
9) discussed the business and prospects of the NDE Business with the
Company's senior management;
10) prepared a discounted cash flow analysis;
11) was advised by management that the Sale of the NDE Business is
necessary to provide for capital needs of the Company for its
remaining business and to make acquisitions;
12) undertook such other reviews and analyses as it deemed
appropriate; and
13) reviewed all of the foregoing with the Board before forming its
opinion.
In connection with its review, Compass Capital did not independently
verify any of the foregoing information and relied on all such information being
completed and accurate in all material respects. In addition, Compass Capital
did not make an independent evaluation or appraisal of the assets of the NDE
Business, nor was it furnished with any such appraisals.
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In arriving at its opinion and delivering the opinion to the Board,
Compass Capital performed a variety of financial analyses, including those
summarized below. The summary set forth below includes summaries of all of the
material financial analyses discussed by Compass Capital with the Board, but
does not purport to be a complete description of the analyses performed by
Compass Capital in arriving at its opinion. Arriving at a fairness opinion is a
complex process that involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of those methods
to the particular circumstances and, therefore, such an opinion is not
necessarily susceptible to partial analysis or summary description. In
performing its analysis, Compass Capital made numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of the
Company. Any estimates incorporated in the analyses by Compass Capital are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses or securities neither purport
to be appraisals nor necessarily reflect the prices at which businesses or
securities may actually be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. No public company utilized as a
comparison is identical to the NDE Business, and none of the acquisition
transactions utilized as a comparison is identical to the Sale of the NDE
Business. Accordingly, an analysis of publicly traded comparable companies and
comparable acquisition transactions is not mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading value of the comparable companies or company to
which they are being compared.
The following is a summary of the material financial analyses performed
by Compass Capital in connection with its fairness opinion:
Methodologies. Compass Capital reviewed price and volume information
with respect to trading on Nasdaq in the Company's stock; prepared a breakup
analysis; analyzed publicly available information about trading in the stock of
companies prospectively comparable to the NDE Business; analyzed publicly
available information about acquisitions in the Company's industry; and prepared
a discounted cash flow analysis.
The foregoing are analyses that are customarily undertaken by
investment bankers in forming an opinion as to the fairness of a transaction
such as the Sale of the NDE Business. The analyses and conclusions reached by
Compass Capital are described below:
Market Price Analysis. The Company's stock is traded by eight
registered market makers and the monthly volume reported by such firms averages
about 250,000 shares per month in 1997. Analysis of trading activity following
press releases issued by the Company indicates that the market has not reacted
strongly to positive Company-issued information but has reacted negatively to
the two most recent press releases, in April and May of this year. Because the
Company most recently reported a loss on a consolidated basis, its stock is
valued by the market at book value. Based on the foregoing, Compass Capital
concluded that the market was efficient in evaluating the business and prospects
of the Company on a consolidated basis.
Compass Capital calculated the imputed breakup value of the Company's
stock by aggregating the purchase price for the NDE Business with the book value
of the remaining assets, based on the market's pricing of the Company's stock at
consolidated book value. That analysis yielded an indicated price of $4.52 per
share, which represents a premium of $1.64 per share or 57% of market value. In
Compass Capital's experience, this is at the high end of the range of premiums
to market value paid in the acquisition of public companies.
Comparables Analysis. Compass Capital reviewed financial and market
information with respect to eight public companies (Barringer Laboratories,
Inc.; Ecos Group, Inc.; ETS International, Inc.; Hawks Industries, Inc.; ICO,
Inc.; Liberty Technologies, Inc.; NDE Environmental Corp.; and Tuboscope Vetco
International Corp.) which were prospectively comparable to the NDE Business,
including the Company. Compass Capital deemed these companies to be comparable
because they all provided testing services to industry, as does the NDE
Business. Compass Capital noted that the NDE Business's historical revenue
growth was lower than all but one of the comparables. The NDE Business's
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net margin, EBITDA margin, EBIT margin, return on assets, and return on equity
were within the range of those ratios for the profitable comparables. The NDE
Business's ratios and the profitable comparables' range of such ratios are:
NDE Business Comparables
------------ -----------
Net Margin 7.7% 5.5% -8.6%
EBITDA Margin 15.7% 1.4% -21.9%
EBIT Margin 12.9% 5.9% -16.7%
Return on Assets 20.9% 4.6% -27.5%
Return on Equity 28.3% 6.4% -145.2%.
Compass Capital noted that the purchase price for the NDE Business represented
imputed price to revenues, price to net income, total capital to EBITDA, and
price to equity multiples (0.8x, 10.0x, 4.9x, and 2.8x, respectively) that were
within the range of the profitable comparables' ratios (price to revenues: 0.4x
to 2.0x; price to net income: 6.9x to 23.3x; total capital to EBITDA: 4.4x to
11.3x; price to equity: 0.8x to 4.3x). The imputed total capital to EBIT
multiple (6.0x) is just below the comparable multiple for the lowest of the
profitable comparables (6.8x).
Publicly Reported Acquisitions Analysis. Compass Capital was able to
obtain publicly available information about ten publicly reported acquisitions
since October 1994 of businesses prospectively comparable to the NDE Business.
The ten businesses which Compass Capital deemed prospectively comparable
(because they provided similar services to industry or their lines of business
carried SIC codes that were the same as the SIC codes listed for the Company)
were: Fluid Management, Inc.; Seragen, Inc.; KCM, Inc.; PRC Environmental;
Century Contractors West; Quality Analytical Labs Inc.; Bryn Awel Corp.; NORM
Environmental Services; Woodworth & Company, Inc. and ConTest, Inc. The
published information with respect to such acquisitions was insufficient for
Compass Capital to analyze those companies' debt levels, operating margins or
growth prospects. Inasmuch as those three factors are crucial in valuing a
company, Compass Capital considered the published acquisitions information to be
not meaningful in analyzing the Sale of the NDE Business. Nevertheless, Compass
Capital noted that all but one of the six listed acquisitions for which such
information was available were completed at price/revenues multiples (0.1x to
1.0x) that were lower than the imputed price/revenues multiple (0.8x) of the
purchase price for the NDE Business; two of the four acquisitions for which
price/earnings ratios were available were completed at a lower multiple (5.0x
and 5.2x) than the imputed price/earnings multiple (10.0x) of the purchase price
for the NDE Business; and three of the six acquisitions for which positive
price/equity ratios were available were completed at price/equity ratios (0.1x,
1.0x and 2.1x) that were lower than the imputed price/equity ratio (2.8x) of the
purchase price for the NDE Business.
Compass Capital did not calculate values for the NDE Business using
these multiples, but merely compared these multiples to the imputed NDE Business
purchase price multiples. It did not give any weight to this analysis in
reaching its conclusion.
Discounted Future Cash Flow Analysis. Compass Capital reviewed with
management the NDE Business's 1997 projected operating statement and whether
projections for additional years were available. Compass Capital was advised
that the Company was unable to project results out beyond 1997, but did not
foresee the factors affecting the NDE Business to be different for the
foreseeable future. Compass Capital accordingly prepared an analysis on the
assumption (which is solely that of Compass Capital) that the NDE Business would
be able to increase its revenues at the inflation rate of 3%, which is a higher
rate of increase than its three year historical average revenue growth of 1.1%.
Compass Capital also assumed that the NDE Business would be able to hold expense
increases to the inflation rate. Accordingly, the NDE Business would be
operating at 1997's projected earnings level increased by 3% per year for the
foreseeable future. With those assumptions and a built-up capitalization rate of
15%, the calculated value of the NDE Business is $12.475 million. Assuming a
revenue growth rate of 4% (which is not the rate Compass Capital assumed in
forming its opinion) generates an indicated value of $13.5 million. The imputed
capitalization rate of Compass Capital's forecast cash flows at the NDE Business
purchase price is 14.2%.
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Compass Capital informed the Company that Compass Capital assumed in
its discounted future cash flow analysis that no additional working capital
would be needed to operate the NDE Business going forward. The Asset Purchase
Agreement provides for a decrease in the purchase price on a dollar for dollar
basis if working capital at closing is less than $2.1 million. In the event that
a price adjustment is needed, Compass Capital's analysis would require a dollar
for dollar deduction for additional working capital from its calculation of 1997
and possibly later years' debt free cash flows, resulting in a decrease in the
calculated equity value of the NDE Business of $12.475 million. Based on Compass
Capital's opinion of the value of the NDE Business of $12.475 million,
adjustments to working capital and fixed assets which are less than $1,125,000
in the aggregate (the difference between the cash component of the Purchase
Price of $13.6 million and the Compass Capital value of $12.475 million) would
not affect Compass Capital's fairness opinion, that is, the Sale of the NDE
Business would continue to be fair from a financial point of view to the current
shareholders of the Company. Compass Capital has informed the Company that it
might not be able to provide its fairness opinion if the ultimate consideration
retained by the Company is less than $12.475 million after reductions for the
Working Capital Adjustment and for indemnification obligations.
Conclusion. In Compass Capital's opinion, its Market Price Analysis and
Comparables Analysis are important in reaching its conclusion and the Discounted
Future Cash Flow Analysis was the most important analysis in reaching its
conclusion. Compass Capital was unable to arrive at any conclusion based on the
Publicly Reported Acquisitions Analysis.
Based on the foregoing analyses, Compass Capital concluded that the
Sale of the NDE Business was fair from a financial point of view to the current
shareholders of the Company.
Compass Capital, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, employee benefit plans and valuations
for corporate, estate and other purposes. Compass Capital is not affiliated with
the Company and, prior to being retained by the Company to render the foregoing
opinion, had never been employed by the Company. The Company retained Compass
Capital based upon its reputation. Compass Capital did not recommend or set a
purchase price for the NDE Business. The Company, through its negotiation with
GE, set the Purchase Price for the NDE Business.
The Company has agreed to pay Compass Capital a fee of $25,000. The
Company has also agreed to reimburse Compass Capital for its reasonable
out-of-pocket expenses including all reasonable fees and disbursements of
counsel, and to indemnify Compass Capital and certain related persons against
certain liabilities relating to or arising out of its engagement, including
certain liabilities under the federal securities laws. The fee is payable to
Compass Capital without regard to the opinion rendered by Compass Capital and
whether or not the Sale of the NDE Business is consummated.
Business of the Company after the Sale of the NDE Business
This Proxy Statement contains certain statements of a forward-looking
nature relating to future events or future financial performance of the Company.
Prospective and current investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, prospective and current investors should
specifically consider the various factors which could cause actual results to
differ from those indicated by such forward-looking statements including,
without limitation, the timely development, production and acceptance of new
products; changes in product/service revenue mix; continued acceptance in the
market place, competition and buying patterns of customers; and the absence of a
significant order backlog. Further information on the factors that could effect
the Company's financial results are included in the Company's filings with the
Securities and Exchange Commission.
Introduction. After the completion of the Sale of the NDE Business, the
Company will continue to operate the Products Business which, in the aggregate
and after accounting for continuing corporate overhead, has been unprofitable
(see "Pro Forma Financial Statements"). For the fiscal years ended December 31,
1996 and 1995, respectively, the NDE Business had operating income of
approximately $2.0 million and $1.7 million, respectively. The Company reported
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on a consolidated basis operating losses for the fiscal years ended December 31,
1996 and 1995 of approximately $2.3 million and $3.7 million, respectively. For
the six months ended June 30, 1997, the NDE Business had operating income of
approximately $0.8 million. The Company reported on a consolidated basis
operating income of approximately $0.2 million. Consequently, without the NDE
Business, the Company's operating losses would have been greater for those years
and it would have had an operating loss for such six month period. See "Pro
Forma Financial Statements". If the sale of the NDE Business is completed, based
on the Company's expected level of operations and capital expenditure
requirements, management believes that the Company's cash, internally generated
funds and ability to conclude new financing arrangements will be sufficient to
meet the Company's cash requirements at least through 1998.
The Company's Products Business, as of the date of this Proxy
Statement, consists of the following business segments: (i) performance and
condition monitoring products and services, including dynamic testing services,
(ii) RADView(TM) imaging systems and (iii) international business development.
The following is a summary of the Products Business and is qualified in its
entirety by the more complete description of the products and services currently
offered set forth in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 attached hereto as Appendix B-1 and made a part
hereof.
Performance and Condition Monitoring Products and Services. The
Company's performance and condition monitoring products are designed to provide
customers with the tools to prevent unplanned downtime, improve asset
utilization and increase plant safety and reliability. The Company's proprietary
products gather and interpret operating data of valves, engines, compressors,
motors, and certain motor-driven equipment. The products utilize sensors,
instruments and proprietary software that capture and log data for trending and
analysis. Dynamic testing services are provided using primarily the Company's
condition monitoring products and systems. These services involve the condition
monitoring of, and predictive and general maintenance and repair for, plant
equipment, including without limitation, valves, compressors, engines, motors
and certain motor-driven equipment. The service business provides a channel for
the Company's products into new markets.
RADView(TM) Imaging Systems. RADView(TM) imaging systems involves the
production and sale of the Company's RADView(TM) Digital Radiography product
line and related equipment. The Company believes that RADView(TM) offers
improvements over conventional and industrial radiography, providing faster,
more accurate, lower cost and safer methods for acquiring and analyzing
radiographic information. During 1995, the Company released the first phase, the
Film Digitizer and Workstation, which converts conventional film to digital
format. The second phase, Filmless Radiography, which replaces conventional film
with reusable phosphor screens, was released in 1996. The Imaging Systems
Division focuses on marketing to customers in the power, process and aeronautics
industries. For the fiscal year ended December 31, 1996, the Company had
approximately $1.5 million in revenues from the sale of RADView products, which
represented a significant increase in RADView sales revenues from the previous
fiscal year, which were approximately $45,000.
International Business Development. The Company has actively sought
joint venture and strategic alliance opportunities abroad. In December 1995, the
Company formed a joint venture, Liberty Maintenance Predictive S.A.S. ("Liberty
M.P."), with French-owned Electricite de France ("EdF"), the largest utility in
the world. Through June 1997, the joint venture has contributed approximately
$3.5 million in revenues to the Company. Liberty M.P. provides predictive
maintenance products and related services critical to the safe, reliable
operation of electric power and industrial plants in the European Union. In
1996, the Company developed several business alliances for Europe, Scandinavia,
the United Kingdom, and the Far East. The Company intends to continue to
establish business alliances, joint ventures and partnerships in various
locations around the world where appropriate to meet its business objectives.
Strategic Alliances. The Company has entered into agreements with, and
continues to seek, strategic partners for its Products Business to support
product development and the sales and marketing of diagnostic systems and
services. A more complete description of strategic alliances is set forth in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, attached hereto as Appendix B-1 and made a part hereof.
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Products and Services Currently Offered. By combining advanced
diagnostic technologies with comprehensive software analysis, the Company's
products and services are designed to assist plant operators in various
industries in preventing unplanned downtime, improve asset utilization and
increase plant safety. The Company's proprietary products monitor machinery
condition and performance by gathering and interpreting operating data of
valves, engines, compressors, motors, and certain motor-driven equipment. In
addition to product sales, the Company provides sensors, accessories, hardware
and software upgrades, and offers field services and training to its customers.
The Company also performs specialized diagnostic and consulting services as part
of customers' periodic predictive maintenance programs.
Acquisition Agreement
The following summary of the Acquisition Agreement is subject to, and
qualified in its entirety by, the complete text of the Acquisition Agreement
which is attached to this Proxy Statement as Appendix C and made a part hereof.
Any capitalized terms not defined in this section shall have the meaning
assigned to such term in the Acquisition Agreement.
General. Pursuant to the Acquisition Agreement, LTS ("Seller" and
together with LTH and the Company, the "Selling Parties") will sell
substantially all of the assets of the NDE Business (the "Purchased Assets") to
GE-IS ("Buyer" and together with GE the "Buying Parties"). In addition, as of
the Closing Buyer will assume certain liabilities of the NDE Business (the
"Assumed Liabilities"), including accounts payable, certain accrued expenses and
accrued taxes reflected on the balance sheet as of the Closing Date (the
"Closing Balance Sheet"), not to exceed $1,390,000 in the aggregate. There is no
minimum amount of liabilities that GE-IS is required to assume and, thus, if
there were no Assumed Liabilities there would be no change to the cash portion
of the Purchase Price or the Working Capital Adjustment or obligation to
indemnify GE. If the Closing had occurred on August 31, 1997, the amount of the
Assumed Liabilities would have been $1.2 million, consisting of $0.3 million in
accounts payable, $0.9 million in accrued expenses, and $0.0 million in accrued
taxes. Buyer will assume the Assumed Liabilities at Closing, based on a
preliminary estimate of the Assumed Liabilities provided by Seller to Buyer
immediately prior to Closing. Such preliminary estimate will be finalized
following the Closing in connection with the preparation of the Closing Balance
Sheet. Should the preliminary estimate of the Assumed Liabilities differ from
the Closing Balance Sheet and require an adjustment, Buyer will be deemed to
have assumed as of the Closing Date the adjusted amount of Assumed Liabilities
up to $1,390,000. The Working Capital Adjustment, however, will take into
account the total amount of accounts payable, accrued expenses and accrued taxes
on the Closing Balance Sheet, even the amount in excess of the maximum amount of
Assumed Liabilities.
The Purchased Assets include: (i) real properties owned and leased;
(ii) equipment, machinery and other tangible personal property; (iii) contracts
relating to the NDE Business; (iv) customer records, sales and marketing
materials; (v) governmental permits; (vi) trade secrets; (vii) intellectual
property; (viii) property, personnel and accounting records; (ix) inventory; (x)
accounts receivable; (xi) prepaid expenses; (xii) software; (xiii) insurance
contracts and policies and (xiv) other intangible assets.
The following assets of Seller will not be sold to GE-IS (the "Excluded
Assets"): (i) cash and cash equivalents; (ii) goodwill on the Seller's balance
sheet; (iii) the consideration paid to Seller under the Acquisition Agreement;
(iv) corporate minute books and stock books; (v) intellectual property relating
to the Company's products; (vi) any claims and rights relating to liabilities
not assumed by Buyer; (vii) the assets relating to the dynamic testing services
business, including the valves and mechanical component testing services
business (including the business acquired from Boggs Technical Services) and
(viii) certain non-assumed customer contracts.
At the Closing, the Company will enter into a license agreement with
Buyer whereby the Company will license to Buyer on a royalty-free basis, the
right to use RADView software programs in respect of the three RADView systems
owned by Seller in connection with the NDE Business.
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The total purchase price (the "Purchase Price") consists of (a)
$13,600,000 in cash (the "Cash Payment") of which the Company will receive at
least $12,101,000 and not more than $1,499,000 will be deposited into escrow,
plus (b) the assumption as of Closing by GE-IS of accounts payable, accrued
expenses and accrued taxes that would be included on a closing balance sheet of
the NDE Business, in an amount not to exceed $1,390,000 in the aggregate. The
actual cash payment to the Company and the payment into escrow depends on the
amount of liabilities to be assumed by GE-IS, which will not be determinable
until the Closing. Should the actual amount of assumed liabilities be less than
$1,390,000, the initial cash purchase price will be increased by up to $139,000
and the amount placed in escrow will be reduced by the same amount due to the
computation of the Escrow Funds. However, the sum of the initial cash payment
and the Escrow Funds will be $13.6 million, subject to adjustment, as described
below. Because there may be purchase price adjustments and indemnification
claims, as described below, there is no guaranteed minimum purchase price. At
the Closing, Buyer will pay to Seller the Cash Payment less an amount equal to
ten percent of the Purchase Price (the "Escrow Funds"). The Escrow Funds shall
be deposited in a segregated account (the "Escrow Account") of PNC Bank,
National Association (the "Escrow Agent"). The Escrow Account secures the
indemnification obligations of the Selling Parties under the Acquisition
Agreement during the one year escrow period (subject to extension in the case of
claims made but not then resolved). The amount in the Escrow Account will be
reduced to the extent of any indemnification payments by the Company, and
therefore the Company's receipt of the amounts in escrow is contingent. The
Escrow Funds are less than the maximum liability for indemnification for which
the Company could be obligated to pay to GE-IS or GE should there be any
requirement for the Company to indemnify GE or GE-IS.
The Purchase Price will be subject to reduction by the Fixed Asset
Adjustment and the Working Capital Adjustment. The Company has also agreed to
indemnify GE and GE-IS for certain liabilities in an amount not to exceed the
adjusted Purchase Price (including the amount of assumed liabilities).
The Acquisition Agreement contains a provision for a pre-Closing
Purchase Price adjustment based on a pre-Closing audit by GE-IS of the fixed
assets set forth on the May 31, 1997 balance sheet of the NDE Business (the
"Fixed Asset Adjustment"). If in the course of such audit fixed assets valued at
less than $1.6 million could not be accounted for, the Purchase Price would have
been reduced by the book value of the fixed assets not verified up to a maximum
of $1.6 million. GE has informed the Company that this audit has been completed
and no Fixed Asset Adjustment is required.
The "Working Capital Adjustment" is a post-Closing reduction of the
Purchase Price if and to the extent the closing balance sheet of the NDE
Business prepared by KPMG Peat Marwick LLP, the accounting firm selected by GE,
and subject to review by the Company indicates that "working capital", which is
an amount equal to (a) accounts receivable, inventory and prepaid expenses minus
(b) accounts payable and accrued expenses, is less than $2.1 million. For
example, if the Closing had taken place as of August 31, 1997, there would have
been a Working Capital Adjustment of $0.4 million because "working capital" was
approximately $1.7 million. The actual Working Capital Adjustment may differ
because it will be based on a balance sheet prepared as of the Closing date but
after Closing. There is no maximum Working Capital Adjustment. In the event the
Company disputes the proposed Working Capital Adjustment, an independent
accounting firm selected by the Company and GE-IS will resolve the dispute. The
Working Capital Adjustment could require a downward adjustment in the Purchase
Price even if such adjustment is due, in whole or in part, to the existence of
accounts payable and accrued liabilities that are in excess of the aggregate
amount of Assumed Liabilities. Thus, even though GE-IS would not assume such
excess accounts payable and accrued liabilities, the Purchase Price would
nevertheless be reduced thereby.
Because the Working Capital Adjustment is based on a formula of
accounts receivable, inventory and prepaid expenses minus accounts payable and
accrued expenses, the Working Capital Adjustment theoretically could exceed each
of (i) $2.1 million, (ii) the Cash Payment, or (iii) the Cash Payment plus the
Assumed Liabilities. Based on historical financial experience of the NDE
Business, however, the Company believes it is highly unlikely that the Working
Capital Adjustment will exceed an immaterial amount.
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The Working Capital Adjustment will be made not later than 90 days
after the Closing Date unless the Company disputes the amount of the adjustment,
in which case the Working Capital Adjustment will ultimately be determined
during the 30 day period after such 90 day period. The Company intends to pay
any Working Capital Adjustment from the Company's operating cash flow. The
Escrow Funds may not be used to satisfy any Working Capital Adjustment, as the
Escrow Funds are solely to be used to satisfy any indemnification obligations of
the Company.
The Purchase Price may also be reduced post-Closing by indemnification
claims by GE-IS under the Acquisition Agreement. The maximum amount of
indemnification obligations of the Company is the amount of the Purchase Price,
as adjusted by the Fixed Asset and Working Capital adjustments. The Company is
not aware of any potential material indemnification claims, other than a
possible claim for various environmental and safety remediation based upon an
environmental and safety audit of the NDE Business conducted by GE prior to the
execution of the Acquisition Agreement. The Company anticipates that such claim
for environmental and safety remediation will be approximately $100,000 in the
aggregate. The Escrow Funds, which will equal ten percent of (i) $13.6 million
plus (ii) the amount of assumed liabilities, are to be held to secure
indemnification obligations of the Company under the Acquisition Agreement.
Claims for indemnification made by GE-IS during the one-year escrow period,
which are not disputed by the Company, are to be first satisfied out of the
Escrow Funds. Any disputed claims for indemnification made by GE-IS will be
settled by appropriate litigation. After the one-year escrow period (subject to
extension in the case of claims made but not then resolved), any remaining
amounts in the Escrow Account, if any, will be delivered by the Escrow Agent to
the Company.
Shareholders will not know the final Purchase Price until after
Closing, as the Working Capital Adjustment and indemnification claims will be
determined post-Closing. The Company does not have the right under the
Acquisition Agreement to terminate the transaction due to any adjustments to the
Purchase Price. The Company does not anticipate that any material reductions in
the Purchase Price will occur as a result of the Working Capital Adjustment or
indemnification claims.
Closing. At the Closing, the Selling Parties will deliver the following
documents: (i) the Escrow Agreement; (ii) special warranty deeds; (iii) a
general bill of sale, assignment and assumption; (iv) assignments of trademarks;
(v) the RADView License Agreement; (vi) certificates of title to motor vehicles;
(vii) third party consents and assignments, including the consent of the
Company's bank; and (viii) such additional instruments of conveyance and
transfer as the Buyer Parties reasonably request. At the Closing, the Buying
Parties will deliver the following documents: (i) the Escrow Agreement; (ii) the
Closing Payment to Seller, which may be made, in part, directly to the Company's
bank to repay the Company's line of credit; (iii) the Escrow Funds to the Escrow
Agent and (iv) the RADView License Agreement.
Representations and Warranties. In the Acquisition Agreement, the
Selling Parties make customary representations and warranties to the Buying
Parties as to: (i) corporate status; (ii) authorization; (iii) consents and
approvals; (iv) businesses and subsidiaries; (v) financial statements; (vi)
accounts receivable; (vii) inventory; (viii) the absence of certain changes in
the NDE Business; (ix) the absence of undisclosed liabilities; (x) title to
assets; absence of liens and encumbrances; (xi) contracts; (xii) the absence of
litigation; (xiii) compliance with laws; (xiv) real property; (xv) intellectual
property; (xvi) insurance coverage; (xvii) licenses and permits; (xviii) taxes;
(xix) previous sales and warranties; (xx) employees; (xxi) employee benefit
matters; (xxii) the absence of environmental liabilities; (xxiii) customers and
suppliers; (xxiv) books and records; (xxv) condition of assets; (xxvi) finders
fees; (xxvii) accuracy of information; (xxviii) affiliate transactions; and
(xxix) solvency.
The Buying Parties also make customary representations and warranties
to the Selling Parties as to: (i) corporate status; (ii) authorization; (iii)
consents and approvals; (iv) finders fees; and (v) accuracy of information.
Covenants. The Acquisition Agreement provides that the Selling Parties
comply with certain covenants during the period between execution of the
Acquisition Agreement on July 25, 1997 and the Closing Date (the "Pre-Closing
Period"), and following the closing. During the Pre-Closing Period the Company
must: (i) generally cause the NDE Business to be conducted in the ordinary
course consistent with past practice and use commercially reasonable efforts
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to preserve intact the NDE Business, and to preserve relationships with
customers, suppliers and others having business dealings with Seller in
connection with the NDE Business; (ii) afford the Buying Parties access to its
books and records; (iii) obtain certain consents to the assignment of customer
contracts or enter into an alternative arrangement, including a subcontract to
GE-IS or a third party to satisfy or terminate the Seller's obligations under
such contracts; (iv) hold confidential all documents and information related to
the NDE Business; (v) obtain general liability insurance coverage in respect of
the NDE Business naming the Buying Parties as additional insureds for a period
of two years after the Closing Date and (vi) cure any defects to title in
respect of the real property included in the Purchased Assets. The Acquisition
Agreement also prohibits the Company from soliciting or encouraging proposals
from third parties to purchase the NDE Business or engage in negotiations with
third parties concerning the sale of all or a material portion of the NDE
Business, except to the extent required by fiduciary duties applicable to the
Board.
Non-Competition. The Acquisition Agreement provides that for a
five-year period beginning on the Closing Date no Selling Party will directly or
indirectly, unless acting in accordance with the written consent of the Buying
Parties, engage in, own, manage, operate, finance or participate in the
ownership, management, operation or financing of or permit its name to be used
by or in connection with any business or enterprise engaged in the provision of
nondestructive testing and evaluation services in the United States, except for
(i) the sale of the Company's current and future products and the performance of
demonstrations in connection with such sales and (ii) the operation by the
Company of its dynamic testing services business.
Employee Related Matters. The Acquisition Agreement provides that Buyer
will offer employment, commencing on the Closing Date, to substantially all
individuals who were actively employed full-time by Seller in the conduct of the
Business on the Closing Date (each, an "Employee"), at base salaries not less
than the base salaries provided to such Employees by Seller on the Closing Date.
The Acquisition Agreement provides that Buyer shall provide to each
Employee hired by Buyer such benefits as Buyer deems appropriate in its sole
discretion.
Under the Acquisition Agreement, the Company will amend its 401(k) Plan
effective as of the Closing Date (i) to fully vest all Employees who are hired
by Buyer in their account balances thereunder; (ii) to provide that in the event
of a sale of substantially all of the assets used in a trade or business, a
participant will be eligible to receive a distribution of his or her plan
account in connection with that disposition of assets in accordance with
Internal Revenue Code Section 401(k)(10) and regulations thereunder, and the
Company will permit Employees who are hired by Buyer and are eligible for a
distribution to receive an immediate distribution of their account balances in
its 401(k) Plan and (iii) to permit, in accordance with current administrative
practice, all Employees who are hired by Buyer and who have loans under the
Company's 401(k) Plan that are outstanding as of the Closing Date to continue
repayment of such loans pursuant to their terms under the Company's 401(k) Plan
after the Closing Date. The Acquisition Agreement further provides that Buyer
will establish or provide on terms it deems appropriate a defined contribution
plan that includes a qualified cash or deferred arrangement within the meaning
of Section 401(k) of the Code for eligible Employees who are hired by Buyer.
Under the Acquisition Agreement, the Selling Parties will, jointly and
severally, be responsible for any and all liabilities arising out of or relating
to (i) employment of the Employees and former employees of the Selling Parties,
(ii) the termination by a Selling Party of the employment of any such Employee
or former employee, and (iii) the provision of any employee benefits to any such
Employee or former employee (and their beneficiaries and eligible dependents)
attributable to their employment with, or their participation in any Benefit
Plans or any other benefit arrangement of any kind whatsoever maintained or
contributed to by, a Selling Party or any of their Affiliates. The Employees of
the Seller who are hired by the Buyer will continue to be considered employed by
the Seller for the purpose of being entitled to vest in options to purchase the
Company's Common Stock under the Company's 1992 Stock Option Plan.
The Acquisition Agreement provides that Seller shall provide any
required notice under the Worker Adjustment and Retraining Notification Act, 29
U.S.C. ss.ss.2101 et seq. (the "Warn Act"), and any similar statute with respect
to any
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"plant closing" or "mass layoff" (as defined in the Warn Act) or similar event
as a result of any discharges by a Selling Party of any Employees not hired by
Buyer. In addition, the Acquisition Agreement provides that (i) the Selling
Parties, jointly and severally, shall indemnify the Buying Parties against any
liabilities incurred by a Buyer Indemnified Party (including reasonable
attorneys' fees) in connection with application of the Warn Act as a result of
any discharges by a Selling Party of Employees who are not hired by Buyer and
(ii) the Buying Parties, jointly and severally, shall indemnify the Selling
Parties against any liabilities incurred by a Seller Indemnified Party
(including reasonable attorneys' fees) in connection with application of the
Warn Act as a result of any discharges after the Closing Date by a Buying Party
of Employees hired by Buyer.
Proxy Statement. The Acquisition Agreement provides that as soon as
reasonably practicable after the date of the Acquisition Agreement, the Company
will prepare and file with the Securities and Exchange Commission a preliminary
proxy statement under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), for the purpose of soliciting shareholder approval of the Sale
of the NDE Business. The Company will use commercially reasonable efforts to
respond to comments by, and to cause the Proxy Statement to be approved by, the
Securities and Exchange Commission.
Under the Acquisition Agreement the Board of Directors of the Company,
subject to its fiduciary duties under applicable law as advised by counsel (i)
(x) shall recommend to its shareholders the approval of the Sale of the NDE
Business and (y) will not withdraw such approval, (ii) will use reasonable
efforts to cause the directors and those executive officers of the Company who
file reports under Section 16(a) of the Exchange Act to vote their shares of the
Company held by them and entitled to vote in respect of the Sale of the NDE
Business in favor of the Sale of the NDE Business, and (iii) will use their
reasonable efforts to obtain such shareholders' approval of the Sale of the NDE
Business at the Meeting or any adjournment thereof.
Regulatory Compliance. The Acquisition Agreement provides that if the
Purchase Price equals or exceeds $15 million, the Sale of the NDE Business will
be subject to the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act").
Conditions to Closing. The obligation of the Buying Parties to
consummate the Sale of the NDE Business are subject to the satisfaction or
waiver of the following conditions: (i) the accuracy of the representations and
warranties of the Selling Parties contained in the Acquisition Agreement on and
as of the Closing Date; (ii) the performance and compliance by the Selling
Parties with all agreements, covenants and other conditions required to be
performed or complied with by them prior to the Closing Date; (iii) receipt by
the Buying Parties of a certificate executed by an officer of each Selling Party
as to the matters set forth in (i) and (ii) above; (iv) receipt by the Buying
Parties of a secretary's certificate of each Selling Party certifying the
articles (or certificate) of incorporation, by-laws, authorizing resolutions and
incumbency and specimen signature of each representative of such Selling Party
executing the Acquisition Agreement; (v) receipt by the Buying Parties of good
standing certificates of each Selling Party; (vi) the absence of any judgment,
decree, injunction, order or ruling (a "Court Order") issued or entered by any
court or governmental authority that would be violated by the consummation of
the Sale of the NDE Business or may have a material adverse effect on the NDE
Business; (vii) the absence of certain litigation; (viii) the receipt by the
Buying Parties of post-signing financial statements of the Selling Parties; (ix)
the receipt by the Buying Parties of a satisfactory environmental report; (x)
the receipt by the Buying Parties of certain third party consents to the Sale of
the NDE Business, excluding consents from customers under the customer
contracts; (xi) the receipt by the Buying Parties of a legal opinion of counsel
to the Selling Parties, in substance and form reasonably satisfactory to the
Buying Parties as to the authorization, validity and enforceability of the
Acquisition Agreement, and as to such other matters to be agreed upon by the
parties; (xii) the receipt of title insurance policies in form satisfactory to
the Buying Parties; (xiii) the receipt by each Selling Party of requisite
shareholder approval of the Sale of the NDE Business; (xiv) the receipt by the
Selling Parties of a fairness opinion from Compass Capital; (xv) the absence of
any material adverse affect on the NDE Business; (xvi) the termination or
expiration of the waiting period under the HSR Act, if applicable; (xvii) the
receipt by Selling Parties of a release and consent from the Company's bank; and
(xviii) the execution and delivery by the Selling Parties of all transaction
documents, including the Escrow Agreement.
-24-
<PAGE>
Additionally, the obligation of the Selling Parties to consummate the
Sale of the NDE Business are subject to the satisfaction or waiver of the
following conditions: (i) the accuracy of the representations and warranties of
the Buying Parties contained in the Acquisition Agreement on and as of the
Closing Date; (ii) the performance and compliance by the Buying Parties with all
agreements, conditions and covenants required to be performed by them prior to
the Closing Date; (iii) the absence of any Court Order issued or entered by any
court or governmental authority that would be violated by the consummation of
the Sale of the NDE Business; (iv) the receipt by the Company of requisite
shareholder approval for the Sale of the NDE Business; (v) the receipt by the
Selling Parties, of a legal opinion of counsel to the Buying Parties, in
substance and form reasonably satisfactory to the Selling Parties as to the
authorization, validity and enforceability of the Acquisition Agreement, and as
to such other matters to be agreed upon by the parties; (vi) the receipt by the
Selling Parties of a fairness opinion from Compass Capital; (vii) the
termination or expiration of the waiting period under the HSR Act, if applicable
and (viii) the execution and delivery of Buying Parties of all transaction
documents, including the Escrow Agreement.
Survival and Indemnification, Escrow Agreement. The representations and
warranties of the parties set forth in the Acquisition Agreement will survive
two years from the Closing Date, except those regarding title to the Purchased
Assets, real property, litigation, compliance with laws and environmental
matters, which survive indefinitely. The representations and warranties relating
to taxes will survive the Closing and remain in effect until 60 days after the
expiration of the applicable statute of limitations.
The Selling Parties will indemnify the Buying Parties and their
Affiliates for any damage, loss, liability or expense (including reasonable
investigation and attorneys' fees) incurred or suffered by the Buying Parties
arising out of any of the following events: (i) any misrepresentation or breach
of warranty by any Selling Party of any representation or warranty contained in
the Acquisition Agreement (see "Acquisition Agreement - Representations and
Warranties") or any failure to comply with covenants contained in the
Acquisition Agreement by the Selling Parties (see "Acquisition Agreement -
Covenants"); (ii) any defective or improperly designed products or services sold
by the Selling Parties; (iii) any tax liabilities incurred by any Buying Party
relating to operations of the NDE Business prior to the sale of the NDE
Business; (iv) customer contracts not assumed by Buyer; (v) the pre-Closing
operation of the NDE Business; and (vi)(a) the storage, disposal or release into
the environment by any person of hazardous substances at the real property owned
or leased by Seller (the "Real Property"), (b) the disposal of hazardous
substances from the Real Property onto other property, (c) the migrating,
leaking or flowing of hazardous substances from the Real Property prior to
Closing and requiring investigation, removal or remediation under environmental
law, (d) the noncompliance with environmental laws in connection with the NDE
Business occurring prior to Closing and (e) any presence of hazardous substances
that requires abatement or correction or is subject to civil or criminal
liability under environmental law, or has created a public nuisance. Specific
indemnification amounts will not be determined until claims have arisen and have
been resolved. Under the Acquisition Agreement, either the Selling Parties or
the Buying Parties, as applicable, may make a claim for indemnification by
providing written notice to the other parties. If the party from whom
indemnification is sought does not contest the amount or validity of the claim
it is settled for the amount of the claim. If the party from whom
indemnification is sought contests the claim, then the validity and amount of
the claim will be settled by appropriate litigation. The maximum aggregate
indemnification obligation of the Company is the amount of the Purchase Price
(consisting of the Cash Payment of $13.6 million, plus the amount of Assumed
Liabilities), as adjusted by the Fixed Asset and Working Capital adjustments.
The Escrow Funds secure, for the one-year escrow period (subject to extension in
the case of claims made but not then resolved), any claim for indemnification by
the Buying Parties.
The Selling Parties indemnification obligations are secured by the
Escrow Funds. The Parties have entered into an Escrow Agreement with the Escrow
Agent governing the disposition of the Escrow Funds. The Escrow Agreement
provides that promptly after the first anniversary of the Closing Date the
Escrow Agent will release to the Seller the remaining Escrow Funds excluding
amounts in respect of unresolved claims which will remain in the Escrow Account.
The fees and expenses of the Escrow Agent will be shared by the Buying Parties
and the Selling Parties. The Buying Parties and the Selling Parties will,
jointly and severally, indemnify the Escrow Agent for any liabilities arising
out of the performance of its obligations as Escrow Agent under the Escrow
Agreement.
The Buying Parties will indemnify the Selling Parties and their
Affiliates for any damage, loss, liability or expense (including reasonable
investigation and attorneys' fees) incurred or suffered by the Selling Parties
arising out
-25-
<PAGE>
of any misrepresentation or breach of warranty or any failure to comply with
covenants contained in the Acquisition Agreement by the Buying Parties. The
Buying Parties are also required to indemnify the Selling Parties for losses
arising after the Closing from the Assumed Liabilities.
Termination Provisions. The Acquisition Agreement may be terminated at
any time prior to the Closing: (i) by the mutual written consent of the Company
and GE; (ii) by either the Selling Parties or the Buying Parties if the Closing
has not taken place on or before November 1, 1997; provided, however, that no
Party then in breach of any obligations under the Acquisition Agreement shall
have the right to terminate; (iii) by either the Selling Parties or the Buying
Parties if a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued a Court Order that
permanently restrains, enjoins or otherwise prohibits the Sale of the NDE
Business, and such Court Order shall have become final and nonappealable; (iv)
by the Buying Parties if any of the Selling Parties shall have breached, or
failed to comply with, any of its obligations under the Acquisition Agreement or
any representation or warranty made by the Selling Parties shall have been
incorrect when made, and such breach, failure or misrepresentation is not cured
within 20 days after notice thereof, and in either case, any such breaches,
failures or misrepresentations, individually or in the aggregate, results or
would reasonably be expected to result in a material adverse effect on the NDE
Business or Purchased Assets; (v) by the Buying Parties in the event the Buying
Parties are not satisfied with their environmental assessment of the real
properties included in the NDE Business; (vi) by the Selling Parties if any of
the Buying Parties shall have breached, or failed to comply with, any of its
obligations under the Acquisition Agreement or any representation or warranty
made by the Buying Parties shall have been incorrect when made, and such breach,
failure or misrepresentation is not cured within 20 days after notice thereof;
(vii) by the Buying Parties if their review of the real properties included in
the Purchased Assets reveals a material adverse effect on the use and operation
of the real property which is not cured by the Selling Parties and (viii) by the
Selling Parties if a Selling Party receives and accepts an Acquisition Proposal
from any Person if, and only to the extent that, (a) in response to a written
bona fide, unsolicited Acquisition Proposal, the Board of Directors of the
Company determines in good faith after consultation with its financial advisors
that such Acquisition Proposal is superior than the Sale of the NDE Business to
the shareholders of the Company, taking into account the ability of the person
making such Acquisition Proposal to finance the transactions contemplated by
such Acquisition Proposal and such person's ability to obtain any regulatory and
third party approvals for the transactions contemplated by such Acquisition
Proposal, and (b) the Board of Directors of the Company, after consultation with
and based upon the advice of independent legal counsel, determines in good faith
that such action is necessary for the Board of the Company to comply with its
fiduciary duties to shareholders under applicable law.
Effect of Termination; Break-Up Fee. The Acquisition Agreement further
provides that if the Acquisition Agreement is terminated by the Selling Parties
or the Buying Parties as permitted thereunder and not as a result of a breach of
a representation or warranty or the failure of any Party to perform its
obligations thereunder, such termination shall be without liability of any
Party. If a Party terminates the Acquisition Agreement as a result of a breach
of a representation or warranty by the other Party or the failure of the other
Party to perform its obligations thereunder, the nonbreaching Party will be
entitled to reimbursement from the breaching Party for all expenses incurred by
the nonbreaching Party in connection with the Acquisition Agreement as the
exclusive remedy for any such breach or nonperformance. If the Acquisition
Agreement is terminated and the Sale of the NDE Business is not consummated as
the result of (i) the Company's failure to obtain shareholder approval of the
Sale of the NDE Business, which failure results from the withdrawal by the Board
of Directors of the Company of its recommendation of approval for the Sale of
the NDE Business, or (ii) termination by the Selling Parties pursuant to a
superior Acquisition Proposal, the Buying Parties will be entitled to
reimbursement from the Selling Parties, jointly and severally, for the total
amount of (x) all expenses incurred by the Buying Parties in connection with the
Acquisition Agreement and (y) $1,000,000.
Expenses. The Acquisition Agreement provides that except as otherwise
provided in the Acquisition Agreement, and whether or not the transactions
thereunder shall be consummated, the Buying Parties and the Selling Parties will
each pay their own fees, expenses and disbursements, including the fees and
expenses of their respective counsel, accountants and other experts, in
connection with the subject matter of the Acquisition Agreement and all other
costs and expenses incurred in performing and complying with all conditions to
be performed under the Acquisition Agreement.
-26-
<PAGE>
Interests of Certain Persons in the Sale of the NDE Business
James D. Rosener, a member of the Board of Directors and shareholder,
is a partner in the law firm of Pepper, Hamilton & Scheetz LLP which provides
legal services to the Company, including legal services relating to the Sale of
the NDE Business.
Shareholder Approval
The Company is a Pennsylvania corporation and, under Pennsylvania law,
a sale of all or substantially all of the Company's assets requires shareholder
approval by the affirmative vote of a majority of the votes cast by shareholders
present in person or by proxy and entitled to vote at the Meeting. The Sale of
the NDE Business may constitute the sale of all or substantially all of the
Company's assets under applicable Pennsylvania law. The Board of Directors of
the Company has authorized the submission of the Sale of the NDE Business to the
Company's shareholders and has resolved that the Sale of the NDE Business will
be concluded only if the affirmative vote of a majority of the votes cast by all
shareholders entitled to vote thereon, voting in person or by proxy at the
Meeting, approves the Sale of the NDE Business. "Broker non-votes," abstentions
and withheld authority votes all count for the purposes of determining a quorum.
In the event of any material amendment or modification in the amount or type of
consideration to be received or the assets to be sold by the Company under the
Acquisition Agreement that is made prior to the Meeting, the Company will
furnish shareholders with written notice of the material terms thereof. Prior to
the Closing, the Company will seek shareholder approval for any material
amendment or modification to the Acquisition Agreement that is made after the
Meeting.
Rights of Dissenting Shareholders
Dissenters' rights of appraisal will not be available under
Pennsylvania law in connection with the Sale of the NDE Business.
Accounting Treatment
The Sale of the NDE Business will be considered a taxable sale of
assets by the Company. The Company believes that it will realize a gain on the
Sale of the NDE Business of approximately $3.6 million for financial accounting
reporting purposes.
Federal Income Tax Consequences
General. The following discussion is a general summary of the federal
income tax consequences that will result from the Sale of the NDE Business. This
summary does not discuss state or local taxation, or all aspects of federal
taxation that may be relevant to the Sale of the NDE Business and is not
intended as tax advice.
Consequences to the Company. The sale will be a taxable disposition for
federal income tax purposes. It is expected that a gain will be realized for
federal income tax purposes. It is further expected that the Sale of the NDE
Business will result in a federal income tax payment of approximately $1.7
million.
Consequences to Shareholders. The Sale of the NDE Business will not
result in any independent federal income tax consequences to the shareholders of
the Company.
Regulatory Compliance
No federal or state regulatory approvals will be required to consummate
the Sale of the NDE Business.
-27-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth certain selected financial data for the
Company. The historical data for the five years ended December 31, 1996 are
derived from the Company's audited consolidated financial statements. The
historical financial data for the six months ended June 30, 1997 and 1996 are
derived from unaudited financial statements and are not necessarily indicative
of the results of the remainder of the year or any future period. These tables
should be read in conjunction with the financial statements and other
information included in this document (see Appendix B-1 and Appendix B-2, each
of which is attached hereto and made a part hereof) and the pro forma financial
statements included elsewhere herein (see PRO FORMA FINANCIAL STATEMENTS). All
amounts are in thousands, except earnings per share.
Historical Statement of Operations Data: (1)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31
---------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Product .................................. $ 7,563 $ 5,944 $ 12,456 $ 12,474 $ 9,049 $ 12,397 $ 12,685
Service .................................. 13,122 12,408 23,125 26,645 18,682 6,161 1,037
-------- -------- --------- -------- -------- -------- --------
20,685 18,352 35,581 39,119 27,731 18,558 13,722
-------- -------- --------- -------- -------- -------- --------
Income (loss) before extraordinary item and
change in accounting principle ............ (20) (22) (2,572) (2,642) (104) 2,409 1,214
Extraordinary item and accounting change ..... -- -- -- -- -- 100 34
-------- -------- --------- -------- -------- -------- --------
Net income (loss) ............................ $ (20) $ (22) $ (2,572) $ (2,642) $ (104) $ 2,509 $ 1,248
-------- -------- --------- -------- -------- -------- --------
Net income (loss) per share:
Before extraordinary item and accounting
change ................................. $ .00 $ .00 $ (.52) $ (.53) $ (.02) $ 0.52 $ 0.34
Extraordinary item/accounting change ...... -- -- -- -- -- 0.02 0.01
-------- -------- --------- -------- -------- -------- --------
$ .00 $ .00 $ (.52) $ (.53) $ (.02) $ 0.54 $ 0.35
======== ======== ========= ======== ======== ======== ========
Pro Forma Statement of Operations Data: (2)
Six Months Year Ended
Ended June 30, December 31,
1997 1996
-------- --------
Revenues
Product .................................. $ 7,563 $ 12,456
Service .................................. 4,390 5,090
-------- --------
11,953 17,546
-------- --------
Net loss ..................................... $ (572) $ (4,313)
-------- --------
Net loss per share: .......................... $ (.11) $ (.87)
======== ========
June 30, 1997 December 31,
------------------------ --------------------------------------------------------
Pro Forma Historical 1996 1995 1994 1993 1992
------------ ---------- -------- -------- -------- -------- --------
Total assets ................................. $ 20,737 $ 26,072 $ 25,017 $ 23,803 $ 24,403 $ 19,875 $ 7,160
Long-term debt ............................... 197 197 217 259 315 188 327
Working capital .............................. 11,785 3,353 2,828 5,773 6,967 15,226 3,046
Shareholders' equity (deficit) ............... 17,517 13,957 13,973 16,410 18,954 17,502 (153)
Book value per share ......................... $ 3.50 $ 2.79 $ 2.81 $ 3.32 $ 3.90 $ 3.77 $ (0.04)
</TABLE>
- ------------------------
(1) See Note 2 to the Consolidated Financial Statements in the Company's
Form 10-K for the year ended December 31, 1996 for information regarding the
acquisitions of Beta Monitors and Controls, Ltd. on August 12, 1994,
Industrial NDT Company, Inc. on March 28, 1994 and Boggs Technical Services,
Inc. in 1993.
(2) The unaudited pro forma statements of operations for the six months ended
June 30, 1997 and the year ended December 31, 1996 and the balance sheet as
of June 30, 1997 are presented to give the effect of the Sale of the NDE
Business.
-28-
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The following unaudited Pro Forma Balance Sheet as of June 30, 1997,
and the Pro Forma Statements of Operations for the period ended June 30, 1997
and the year ended December 31, 1996, are presented to give effect to the Sale
of the NDE Business.
Historical financial data used to prepare the pro forma financial
statements were derived from the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996, as amended by the Form 10-K/A No. 3, which is attached to this Proxy
Statement as Appendix B-1 and made a part hereof, and the unaudited consolidated
financial statements included in the Company's quarterly reports on Form 10-Q
for the periods ended June 30, 1997, as amended by the Form 10-Q/A No. 2, and
March 31, 1997, respectively, which are attached to this Proxy Statement as
Appendix B-2 and made a part hereof. These pro forma financial statements should
be read in conjunction with such historical financial statements.
The pro forma adjustments reflected herein are based on available
information and certain assumptions that the Company's management believes are
reasonable. Pro forma adjustments made in the Pro Forma Balance Sheet assume
that the Sale of the NDE Business was consummated on June 30, 1997, and do not
reflect the impact of the NDE Business' operating results or changes in balance
sheet amounts subsequent to June 30, 1997. The pro forma adjustments to the Pro
Forma Statements of Operations assume that the Sale of the NDE Business was
consummated on January 1, 1996.
The Pro Forma Balance Sheet and Pro Forma Statements of Operations are
based on assumptions and approximations and, therefore, do not reflect in
precise numerical terms the impact of the transaction on the historical
financial statements. In addition, such pro forma financial statements should
not be used as a basis for forecasting the future operations of the Company.
-29-
<PAGE>
LIBERTY TECHNOLOGIES INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
Less NDE net Plus other
Historical assets sold adjustments Pro Forma
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents .......... $ 506 $ -- $2,472 (A) $ 2,978
Accounts receivable, net ........... 9,455 4,145 -- 5,310
Inventories ........................ 3,746 93 -- 3,653
Deferred income taxes .............. 327 -- -- 327
Prepaid income taxes ............... 263 -- -- 263
Escrow receivable .................. -- -- 1,400 1,400
Prepaid expenses and other ......... 974 98 -- 876
------- ------ ------ -------
Total current assets ............. 15,271 4,336 3,872 14,807
------- ------ ------ -------
Property and equipment, net ........ 4,261 2,083 -- 2,178
Goodwill, net ...................... 4,800 -- (2,622)(B) 2,178
Deferred income taxes, net ......... 367 -- (166)(C) 201
Minority Interest .................. 50 50
Other assets ....................... 1,323 -- -- 1,323
------- ------ ------ -------
$26,072 6,419 1,084 $20,737
======= ====== ====== =======
Liabilities and Shareholders' Equity:
Line of credit .................... $ 7,145 -- (7,145)(D) --
Current maturities of long term
debt.............................. 58 -- -- 58
Book overdraft ..................... 247 -- -- 247
Accounts payable ................... 2,901 798 -- 2,103
Accrued compensation and benefits .. 1,118 822 -- 296
Unearned revenue ................... 50 -- -- 50
Income taxes payable ............... -- 46 -- (46)
Other accrued expenses ............. 399 85 -- 314
------- ------ ------ -------
Total current liabilities ........ 11,918 1,751 (7,145) 3,022
------- ------ ------ -------
Long Term Debt ..................... 197 -- -- 197
------- ------ ------ -------
Minority interest .................. -- -- -- --
------- ------ ------ -------
Capital stock ...................... 50 -- -- 50
Additional paid-in capital ......... 17,222 -- -- 17,222
Accumulated deficit ................ (3,198) -- 3,560 (E) 362
Treasury Stock ..................... (94) -- -- (94)
Cumulative translation adjustment .. (23) -- -- (23)
------- ------ ------ -------
Total shareholders' equity ....... 13,957 -- 3,560 17,517
------- ------ ------ -------
$26,072 $20,737
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
-30-
<PAGE>
LIBERTY TECHNOLOGIES INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Plus other
Historical Less NDE adjustments Pro Forma
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product ................................ $ 7,563 $ -- $ -- $ 7,563
Service ................................ 13,122 8,732 -- 4,390
------- ------ ---- -------
20,685 8,732 -- 11,953
------- ------ ---- -------
Cost of Revenues:
Product ................................ 2,815 0 -- 2,815
Service ................................ 8,450 5,591 -- 2,859
------- ------ ---- -------
11,265 5,591 -- 5,674
------- ------ ---- -------
Gross profit ........................... 9,420 3,141 -- 6,279
------- ------ ---- -------
Operating Expenses:
Engineering and product development .... 2,285 0 -- 2,285
Selling, general and administrative .... 6,962 2,292 -- 4,670
------- ------ ---- -------
9,247 2,292 -- 6,955
------- ------ ---- -------
Operating income (loss) ................ 173 849 -- (677)
Interest income (expense), net ........... (298) 20 318(F) --
------- ------ ---- -------
Income (loss) before taxes and
minority interest .................... (125) 869 318 (677)
Income tax ............................... -- -- -- --
------- ------ ---- -------
Income (loss) before minority interest.. (125) 869 318 (677)
Minority interest loss of joint venture... 105 -- -- 105
------- ------ ---- -------
Net income (loss) ........................ $ (20) $ 869 318 $ (572)
======= ====== ==== =======
Net loss per share ....................... $ 0.00 $ (0.11)
======= =======
Shares used in computing loss per share .. 5,000 5,000
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
-31-
<PAGE>
LIBERTY TECHNOLOGIES INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Plus other
Historical Less NDE adjustments Pro Forma
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product ................................ $12,456 $ -- $ -- $12,456
Service ................................ 23,125 18,035 -- 5,091
------- ------- ---- -------
35,581 18,035 -- 17,546
------- ------- ---- -------
Cost of Revenues:
Product ................................ 4,243 -- -- 4,243
Service ................................ 15,255 11,014 -- 4,241
------- ------- ---- -------
19,498 11,014 -- 8,484
------- ------- ---- -------
Gross profit ........................... 16,083 7,021 -- 9,062
------- ------- ---- -------
Operating Expenses:
Engineering and product development .... 4,656 -- -- 4,656
Selling, general and administrative .... 13,736 4,997 -- 8,739
------- ------- ---- -------
18,392 4,997 -- 13,396
------- ------- ---- -------
Operating income (loss) ................ (2,309) 2,024 0 (4,333)
Interest income (expense), net ........... (226) (23) 203(F) --
------- ------- ---- -------
Net income (loss) before tax ........... (2,535) 2,001 203 (4,333)
Income tax ............................... 87 57 -- 30
------- ------- ---- -------
Income (loss) before minority interest.. (2,622) 1,944 203 (4,363)
Minority interest loss of joint venture... 50 -- -- 50
------- ------- ---- -------
Net income (loss) ........................ $(2,572) $ 1,944 $203 $(4,313)
======= ======= ==== =======
Net loss per share ....................... $ (0.52) $ (0.87)
======= =======
Shares used in computing loss per share .. 4,970 4,970
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
-32-
<PAGE>
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. HISTORICAL:
The historical balances represent the financial position as of June 30,
1997 and the results of operations for the six months ended June 30, 1997 and
for the year ended December 31, 1996 as reported in the historical consolidated
financial statements of Liberty Technologies, Inc. (the Company), included
elsewhere in this Proxy Solicitation by reference to Liberty Technologies, Inc.
Form 10-K for the year ended December 31, 1996 and Form 10-Q for the quarter
ended June 30, 1997.
2. SALE OF THE ASSETS OF THE NON-DESTRUCTIVE EVALUATION SERVICES BUSINESS:
The Company has sold, subject to shareholder approval, substantially
all of the net assets of its NDE business. The Company acquired the
Non-Destructive Evaluation Services Business (NDE Business) on March 28, 1994.
The sale will be accounted for as a taxable sale of assets.
The amount to be deposited in the escrow account at the date of sale is
calculated at 10% of the purchase price plus the liabilities assumed by the
Buyer. The Buyer may make claims against the escrow account for (1) breach of
representations or warranties made by the Company, (2) default by the Company in
respect to the agreement of sale, (3) certain product and service warranties,
(4) certain taxes, (5) liabilities arising from the performance of customer
contracts that have not been assumed, (6) excess operating liabilities paid for
by the Buyer that relate to operations of the business prior to the closing date
and (7) certain environmental liabilities. The unused escrow will be returned to
the Company one year after the closing date. For accounting purposes, the full
amount of the escrow will be reserved at the time of closing. The Company will
periodically review the need for the reserve and adjust it accordingly.
The following pro forma adjustments for the Sale of the NDE Business
are reflected as of June 30, 1997 in the case of the pro forma consolidated
balance sheet, or as of January 1, 1997 or January 1, 1996, respectively, in the
case of the pro forma consolidated statements of operations for the six months
ended June 30, 1997 and the year ended December 31, 1996:
(A) Net cash proceeds to be received in connection with the Sale of
the NDE Business, including transaction costs, is estimated at
$2,472,000 and is calculated as follows:
<TABLE>
<S> <C>
Gross proceeds from sale $ 13,600,000
Less - Amounts held in escrow (1,500,000)
Estimated State and Federal tax payments (2,183,000)
Estimated expenses related to sale (300,000)
------------
Net proceeds 9,617,000
Less - Line of credit payments (7,145,000)
------------
Net increase in cash $ 2,472,000
============
</TABLE>
(B) Write off of net goodwill related to acquisition of Industrial NDT
Company.
(C) Deferred taxes used to offset federal taxes related to sale.
(D) Proceeds used to pay down line of credit.
(E) Net change in retained earnings is calculated as follows:
<TABLE>
<S> <C>
Gross proceeds from sale $ 13,600,000
Less - Estimated expenses related to sale (300,000)
------------
Proceeds net of expenses 13,300,000
Less - NDE net assets sold (7,291,000)
Contingency reserve held in escrow (100,000)
Estimated State and Federal taxes (2,349,000)
------------
Net book gain on sale of NDE net assets $ 3,560,000
============
</TABLE>
(F) Elimination of interest expense contributed by borrowings under the
bank line of credit.
-33-
<PAGE>
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP have been the Company's auditors since 1992.
Representatives of Arthur Andersen LLP will attend the Meeting where they will
be available to respond to appropriate shareholder questions and have the
opportunity to make a statement if they so desire.
SHAREHOLDER PROPOSALS
Shareholder proposals submitted for presentation at the next Annual
Meeting of Shareholders must be received by the Secretary of the Company at its
principal executive offices in Conshohocken, Pennsylvania on or before December
29, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and in accordance thereof files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, or obtained by mail from the
Public Reference Section of the Commission, at prescribed rates. Additionally,
such reports, proxy statements and other information are publicly available
through the Commission's site on the World Wide Web, located at
http://www.sec.gov.
OTHER BUSINESS
The Company knows of no other matter to be presented at the Meeting.
However, if other matters should properly come before the Meeting, it is the
intention of the persons named in the enclosed proxy to vote the proxy with
respect to such matters in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ James D. Rosener
------------------------------------
JAMES D. ROSENER
Secretary
Conshohocken, Pennsylvania
October 9, 1997
-34-
<PAGE>
Appendix A
COMPASS CAPITAL ADVISORS
259 Radnor-Chester Road, Suite 220
Radnor, PA 19087-5289
Phone: 610-293-0210
Fax: 610-293-0211
July 24, 1997
Board of Directors
Liberty Technologies, Inc.
555 North Lane
Conshohocken, PA 19428
Members of the Board:
You have asked CCA to render its opinion as to the fairness from a
financial point of view to the current shareholders of Liberty Technologies,
Inc. (the "Company") on the sale of the assets of the Company's Liberty
Technical Services business segment (the "Business") to General Electric Company
for a cash consideration of $13.6 million (the "Transaction").
Compass Capital Advisors ("CCA"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, employee benefit plans,
and valuations for corporate, estate, and other purposes. Neither CCA nor any of
its officers or employees has any interest in the Company or in the assets which
are the subject of this opinion, and all of such persons are otherwise
independent with respect to the Transaction.
In arriving at its opinion, CCA:
1) reviewed and relied upon a draft proxy statement dated July 2, 1997
which, inter alia, describes the Transaction;
2) reviewed and relied upon the Company's filings with the Securities and
Exchange Commission on Forms 10-K and 10-Q for the fiscal year ended
December 31, 1996 and for the period ended March 31, 1997;
<PAGE>
Board of Directors
July 24, 1997
Page 2
3) reviewed and relied upon internally prepared pro forma balance sheets
of the Business as of May 31, 1997 and as reported for as of December
31, 1994 through 1996; internally prepared results of operations of
the Business for the fiscal years ended December 31, 1994 through
1996; and projected results of operations for the fiscal year ended
December 31, 1997;
4) reviewed press releases issued by the Company between August, 1996 and
the date hereof;
5) reviewed price and volume information relating to trading in the
Company's common stock between June 1996 and July 12, 1997;
6) reviewed and analyzed market trading and financial information about
certain publicly-traded companies which we deemed to be engaged in
businesses reasonably comparable to that of the Business;
7) reviewed publicly available information with respect to announced
acquisitions of businesses reasonably comparable to the Business;
8) discussed the business and prospects of the Business with the
Company's senior management;
9) prepared a discounted cash flow analysis;
10) was advised by management that the Transaction is necessary to provide
for capital needs of the Company for its remaining business and to
make acquisitions;
11) undertook such other reviews and analyses as it deemed appropriate;
and
12) reviewed all of the foregoing with the Board of Directors before
forming its opinion.
In arriving at its opinion, CCA has not independently verified any of the
information it reviewed and its opinion is given in reliance on the accuracy and
completeness of the information furnished to CCA. CCA has not made an
independent evaluation or appraisal of the assets of the Business, nor has CCA
been furnished with any independent appraisals thereof. Should any of the
information provided to CCA be inaccurate or incomplete in any material respect,
its opinion may change.
-2-
<PAGE>
Board of Directors
July 24, 1997
Page 3
This opinion does not address the relative merits of the Transaction and
any other transactions or business strategies that may have been discussed by
the Company's Board of Directors as alternatives to the Transaction or the
decision of the Board of Directors to proceed with the Transaction. CCA's
opinion has been prepared for the use of the Company's Board of Directors in its
consideration of the Transaction and may not be reproduced, summarized,
described, or referred to or given to any person or otherwise made public
without CCA's prior written consent, except for inclusion in full in any filings
or disclosures made by the Company under applicable securities laws.
Based upon and subject to the foregoing, it is CCA's opinion that, as of
the date hereof, the Transaction is fair, from a financial point of view, to the
current shareholders of the Company.
COMPASS CAPITAL ADVISORS
By: /s/ Gabriel F. Nagy
-----------------------------
Gabriel F. Nagy
Principal
-3-
<PAGE>
APPENDIX B-1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A Amendment No. 3
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended December 31, 1996
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
______ to _____________
Commission file number 1-11729
LIBERTY TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2295708
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
555 North Lane, Lee Park 19428
Conshohocken, Pennsylvania (Zip Code)
(Address of principal executive offices)
(610) 834-0330
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES __X__ NO _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of April 7, 1997, the aggregate market value of voting stock held by
non-affiliates of the registrant based on the last sales price as reported by
the NASDAQ National Market was $14,997,348 (4,999,116 shares outstanding at a
closing price of $3.00 per share).
As of April 7, 1997, the registrant had 4,999,116 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The registrant's Proxy Statement for the Annual Meeting of Shareholders on
June 10, 1997 is incorporated by reference in Part III of this Form 10-K to the
extent stated herein.
================================================================================
Page 1 of 455 Pages
Exhibit Index at Page 54
1
<PAGE>
INDEX TO FORM 10-K
LIBERTY TECHNOLOGIES, INC.
Page
References
PART I
ITEM 1. BUSINESS ...................................................... 3
ITEM 2. PROPERTIES..................................................... 17
ITEM 3. LEGAL PROCEEDINGS.............................................. 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS............................................ 18
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA........................... 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................... 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................ 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 27
ITEM 11. EXECUTIVE COMPENSATION......................................... 28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K............................................ 32
2
<PAGE>
PART I
ITEM 1. BUSINESS
Liberty Technologies, Inc. ("Liberty" or the "Company"), founded in 1984,
develops, manufactures, markets and sells diagnostic, condition monitoring and
nondestructive evaluation systems and provides related services to customers in
the worldwide power, process and industrial markets. Liberty's products and
services are designed to reduce operating and maintenance costs and increase
efficiency, reliability and safety of plant operation. The Company has
established certain strategic technical and commercial alliances to advance its
business objectives. The Company believes that its focused long-term strategies,
and substantial portfolio of products, services and technology provide the
foundation from which it may achieve its goals and objectives.
Liberty has four key business segments to support its mission: (1)
performance and condition monitoring products, (2) Liberty Technical Services,
(3) RADView(TM) imaging systems and (4) international business development.
Liberty's performance and condition monitoring products provide customers
with the tools to prevent unplanned downtime, improve asset utilization and
increase plant safety. Liberty's proprietary products gather and interpret
operating data of valves, turbines, engines, compressors, motors, and certain
motor-driven equipment. The products utilize sensors, instruments and
proprietary software that capture and log data for trending and analysis.
Liberty Technical Services provides comprehensive nondestructive and
dynamic testing services for customers in the power, chemical, paper, petroleum
and construction industries. Dynamic testing services are provided for many
plant components, including valves, compressors, turbines, engines, motors and
motor-driven equipment. Nondestructive evaluation services include special
applications of visual inspection, ultrasonic, radiographic, dye penetrant, eddy
current, and magnetic particle technologies. Special services include process
safety management support, plant inspection, computerized reporting, and
training in nondestructive testing.
RADView imaging systems concentrates exclusively on the production and sale
of the Company's RADView Digital Radiography product line. The Company believes
that RADView represents the future of industrial radiography and that its
technology offers significant advancements beyond the scope of conventional
industrial radiography, enabling faster, more accurate, lower cost and safer
methods for acquiring and analyzing radiographic information. During 1995,
Liberty released the first phase, the Film Digitizer and Workstation, which
converts existing radiographic film to a digital format. The second phase,
Filmless Radiography, which replaces conventional film with reusable phosphor
screens, was released in 1996. The Imaging Systems Division focuses on marketing
to customers in the power, process and aerospace industries.
In December 1995, the Company formed a joint venture company, Liberty
Maintenance Predictive, S.A.S. ("Liberty M.P."), with French-owned Electricite
de France ("EdF"), the largest utility in the world. Liberty M.P. provides
predictive maintenance products and related services critical to the safe,
reliable operation of electric power and industrial plants in the European
Union. In 1996, Liberty developed several business alliances for Europe,
Scandinavia, the United Kingdom, and the Far East. Liberty intends to continue
to establish business alliances, joint ventures and partnerships in various
locations around the world where appropriate to meet its business objectives.
3
<PAGE>
Market Overview
The Company believes that increased demands for improved productivity,
reliability, safety and environmental compliance in various process industries
will continue to lead to a growing market for diagnostic products and services
specifically designed for predictive maintenance. The Company also believes that
the international nuclear power and process markets will develop using the
Company's diagnostic products.
Increasing regulatory requirements, operation and maintenance costs, and
global competition have led to intensified efforts by companies to improve the
productivity, reliability and safety of their production facilities. Unplanned
production shutdowns can have particularly severe economic consequences in
process industries, which are characterized by continuous facility operation. In
addition, concern about environmental damage and worker health is increasing
attention to the safety of industrial plants where dangerous accidents can occur
if critical or safety-related equipment fails to perform according to design.
Maintenance practices have evolved from reactive to preventive and more
recently, to predictive maintenance. Previously, repairs or refurbishments were
reactive, typically in response to plant equipment failure. This approach gave
way to preventive maintenance where components were serviced on a scheduled
basis. While this approach offered some improvements, it often resulted in the
rebuilding of good components while problem components remained. New management
practices focus on monitoring the condition of equipment through inspection and
predictive maintenance in order to minimize downtime, reduce maintenance costs
and improve asset utilization. An important element of these efforts is the
diagnostic testing of critical production and safety-related equipment such as
valves, turbines, motors, engines, motor-driven systems, and compressors. These
practices require more accurate and cost-effective technologies, systems and
procedures, such as those offered by the Company to predict, detect and avoid
problems with critical equipment before failures lead to costly plant outages or
hazardous situations.
Concern for reliability and safety in the U.S. nuclear power industry
prohibits capacity expansion and therefore requires utilities to make
significant capital investments to maintain existing plants. In addition, U.S.
regulatory requirements have increased over time, particularly with respect to
safety-related equipment, where diagnostic testing is used to verify equipment
operability. Presently, international requirements for the testing of
safety-related equipment are generally less stringent than in the United States.
The Company believes, however, that increasing corporate, government and public
pressure to maintain high levels of reliability and safety in the approximately
300 nuclear power plants located outside the United States will lead to
increased diagnostic testing for these plants as well. The Company believes that
similar concerns in various other process industries are leading operators to
commit resources to ensure the reliable and safe operation of their facilities,
and that the purchase and use of diagnostic testing systems will be driven by
increased awareness of the cost effectiveness of predictive maintenance
practices.
The demands for productivity, reliability, and compliance have expanded the
market for non-destructive testing evaluation equipment and services (NDE). In
turn, the NDE industry is demanding more advanced and efficient equipment. One
emerging trend is the replacement of film-based radiography with filmless
radiography. Filmless radiography utilizes non-hazardous, reusable phosphor
screens to more efficiently capture and store images in a digital format which
allows images to be transmitted for viewing around the world while eliminating
hazardous waste disposal issues. The trend towards filmless radiography is
expected to accelerate as industries continue to move to paperless documentation
systems. Target areas where radiography is practiced are the aerospace, power,
process, defense, automotive, electrical and electronics, forging and casting
industries.
4
<PAGE>
The trend towards outsourcing in many industries creates demand for
subcontracting much of the NDE work to service companies. These service
companies, such as Liberty Technical Services, have the specialized knowledge
and access to labor which enables them to efficiently perform this work.
Inspections of fixed assets in process plants are performed on a routine basis
to prevent equipment failure and to ensure compliance with safety and
environmental regulations.
Strategy
Liberty provides cost-effective, technologically advanced diagnostic,
condition monitoring and nondestructive evaluation products and services for
industries worldwide. The Company has three concurrent strategies to support its
mission:
o Develop value-added products and services
o Expand Liberty's presence world-wide
o Emphasize solutions-oriented customer service.
Develop value-added products and services. Liberty develops software
intensive products and diagnostic services in response to existing and to
rapidly growing needs for diagnostic, condition monitoring and nondestructive
evaluation in the power and process industries. Technologies being sold and
developed are protected by over 60 Company-owned or licensed U.S. and foreign
patents. The Company intends to continue devoting substantial resources to
engineering and product development in order to enhance its proprietary
technological capabilities. The Company continually strives to improve the
functionality, cost effectiveness, and ease of use of its diagnostic systems.
Expand Liberty's presence worldwide. The Company seeks to expand its
presence internationally by establishing joint ventures and marketing alliances
in the North American, European and Asian markets. The Company also intends to
establish sales, marketing and production facilities outside the United States
to the extent deemed warranted to achieve the Company's business objectives. The
Company's efforts to sell its products and services internationally is based on
its belief that growing concern for reliability and safety will lead to
increased interest in predictive maintenance and adoption of diagnostic testing
standards by power and process plant operators.
Emphasize solutions-oriented customer service. Liberty Technical Services
provides asset management for our clients utilizing M-Health(TM), PRISM(R),
RADView, and other nondestructive and condition monitoring testing technologies.
As Liberty develops new products, it works closely with customers who provide
valuable feedback by sharing ideas, developing and testing prototypes and
analyzing performance. The Company augments the resulting products with
training, consulting, application, and implementation services. Liberty believes
that product reputation and customer relationships play a significant role in
vendor selection. It also believes that market acceptance of new products and
product extensions is enhanced by close cooperation and engineering
relationships between the Company and its customers.
5
<PAGE>
Acquisitions
As part of the Company's strategic direction to extend its marketing reach
to industries worldwide, the Company has made, and will continue to seek, when
consistent with its business objectives, acquisitions that will position the
Company for sustainable, long-term growth. The acquisitions outlined below have
enlarged the Company's product and service portfolio and significantly improved
access to various industries for its full range of products and services.
In August 1994, the Company acquired Beta Monitors & Controls Ltd. (Beta),
a Canadian-based company, whose proprietary systems analyze the mechanical
condition, performance, and vibration characteristics of engines, compressors,
motors, turbines, and industrial processes. Beta's systems include sensors and
probes, signal processors and proprietary software that capture and log data for
trending and analysis. The Company's acquisition of Beta created marketing
opportunities in the hydrocarbon and other process industries where Beta has
long-standing customer relationships.
In March 1994, the Company acquired Charleston, SC based Industrial NDT
Company, a supplier of nondestructive testing services in the industrial market.
This acquisition's services utilize visual inspection, ultrasonic, radiographic,
dye penetrant and magnetic particle technologies to inspect equipment, such as
pressure vessels, above-ground storage tanks, pipelines, boilers and weldments.
Special services include process safety management, plant inspection,
computerized reporting, and training in nondestructive testing.
In February 1993, the Company expanded its direct services and training
capabilities through its acquisition of Boggs Technical Services, Inc., a
supplier of valve testing, repair, diagnostic services and personnel training.
A description of the consideration paid by the Company in connection with
the above acquisitions is provided under the Notes to Consolidated Financial
Statements portion of this Form 10-K document. Refer to Note 2. Acquisitions,
page F-11.
Strategic Alliances
The Company has entered into agreements with, and continues to seek,
strategic partners to support product development and the sales and marketing of
diagnostic systems and services. The following describes the Company's current
strategic alliances:
Kodak. In December 1996, Liberty MP signed a non-exclusive agreement with
Kodak to represent RADView into the French market. Kodak receives a commission
on net sales of RADView products which it sells.
Sentinel/Amersham. In June 1996, Liberty entered into a non-exclusive
agreement with Sentinel, the non-destructive test equipment business of Amersham
International, to represent RADView digital and filmless radiography in the
United Kingdom, German, and Benelux markets. Sentinel/Amersham receives a
commission on net sales of RADView products which it sells.
Groner Offshore I&M AS; Groner STK, Carl Bro. In May, 1996 Liberty signed
an agreement with these three leading inspection and condition monitoring
companies to offer the complete range of Liberty's diagnostic products and
services to the Scandinavian market. Liberty pays a commission on net sales of
Liberty products to the Scandinavian market. Liberty receives a royalty on any
services sold that utilize Liberty products.
6
<PAGE>
Electricite de France. In December 1995, Liberty and EdF formed a joint
venture company, Liberty M.P. to expand the Company's presence in the European
power and process markets. Liberty M.P., with headquarters near Paris, France,
provides predictive maintenance products and related services critical to the
safe, reliable operation of electric power and industrial plants in the European
Union. Liberty M.P. utilizes technologies developed by both Liberty Technologies
and EdF. EdF is the largest utility in the world. In 1993 Liberty and EdF signed
a joint development agreement with respect to the commercialization of the
Company's STARS(R) Acoustic Blade Monitor, for monitoring blades in large,
low-pressure turbines. Through December 31, 1996, the Company had invested
$116,000 for a 51% ownership interest in Liberty M.P. For the year ended
December 31, 1996, Liberty M.P. had revenues of $2,423,000 and a net loss of
$101,940. There were no material operating activities through December 31, 1995.
Framatome S.A. In March 1995, the Company entered into a 5-year
non-exclusive license which allows Framatome S.A. to provide VOTES services in
Spain. In January 1996, the two companies entered into a 5-year non-exclusive
license which allows Framatome S.A. to sell the Company's VOTES product and
provide related services to Electricite de France. Liberty receives a royalty on
VOTES services provided by Framatome S.A.
Asea Brown Boveri. In June 1994, the Company entered into a five-year
exclusive license agreement with Asea Brown Boveri (ABB) Combustion Engineering
Nuclear Operations which allows the Company to provide ABB's AirCEt(TM) Air
Operated Valve diagnostic system and AirCEt related services to power and
process customers worldwide. Concurrently, the Company granted ABB a
non-exclusive license to provide Liberty's Valve Operation Test and Evaluation
System (VOTES(R)) products and services in Russia and the Ukraine. Both
companies pay a commission or receive a royalty on respective sales of their
company's products or services.
Quantex Corporation. In June 1994, Liberty entered into a ten-year
exclusive worldwide licensing agreement (with a 10-year option) with Quantex
Corporation of Rockville, Maryland that allows Liberty to manufacture, use and
sell electron radiographic imaging technology developed by Quantex in non-bone
and tissue applications. This technology, protected by 38 patents, replaces
conventional film radiography with electron transfer methods to be used for
nondestructive testing in the industrial field. The Company paid Quantex
$625,000, of which $500,000 was for the rights to the Quantex technology and
$125,000 of which was an advance against future royalties. Until Liberty has
paid Quantex $2,500,000, Liberty will pay royalties of 5% on net sales of
products and 2% on net sales of services utilizing Quantex technology.
Thereafter, until Liberty has paid Quantex $5,000,000 the royalty will be 2% of
net sales of products or services. Thereafter, the royalty will be 1% of net
sales of products or services. There is a minimum annual royalty of $50,000
commencing in June 1997.
Framatome Technologies, Inc. Since August 1988, Framatome Technologies,
Inc. (formerly Babcock and Wilcox Nuclear Services, a subsidiary of Framatome
S.A.) has been granted the right to provide training and field service support
for VOTES in the United States and Canadian nuclear power industries. Liberty
receives a royalty on services provided by Framatome Technologies, Inc.
Products and Services Currently Offered
By combining advanced diagnostic technologies with comprehensive software
analysis, Liberty's products and services assist plant operators in various
industries in preventing unplanned downtime, improve asset utilization and
increase plant safety. Liberty's proprietary products monitor machinery
condition and performance by gathering and interpreting operating data of
valves, turbines,
7
<PAGE>
engines, compressors, motors, and motor-driven equipment. The Company's computed
radiography products and services improve upon cost and safety as compared to
conventional radiography.
In addition to product sales, the Company provides sensors, accessories,
hardware and software upgrades, and offers field services and training to its
customers. The Company also performs specialized diagnostic and consulting
services as part of customers' periodic predictive maintenance programs. The
following table outlines the products and services currently offered by the
Company:
<TABLE>
<CAPTION>
Products Initially Sold Applications
-------- -------------- ------------
<S> <C> <C>
AirCEt(TM) 1994 Data acquisition system for air operated valves
BETA-LINK(TM) 1995 Gathers and transmits data using radio telemetry
simplifying data collection
BETA-TRAP(TM) 1982 Evaluates peak firing pressures and consistency
among combustion engine cylinders
DATA-TRAP(R) 1983 Vibration-based condition monitoring and analysis
for all classes of rotating equipment
DIESEL-TRAP(TM) 1994 Analysis and condition monitoring for diesel engines
FOUDRE 1996 Acoustic valve leak detection instrument
M-HEALTH(TM) 1988 Plant-wide machinery data collection and analysis
system for condition monitoring and predictive
maintenance
Motor Nalysis Software 1996 Database management and analysis software for motor
instruments
Motor Performance Analyzer 1996 Instrument automatically detects early stage
problems in electric motors
Motor Power Monitor(R) 1993 Detects early-stage problems in motors and
motor-driven equipment
Packing 'nForcer(R) 1993 Measurement of valve stem packing force
PERFORM(TM) 1995 Compressor operating efficiency optimization system
PRISM(TM)dms 1994 Comprehensive mechanical integrity support software
system
Quarter Turn(TM) 1993 Quarter turn valve diagnostic system
QuickCheck II(R) 1995 Check valve testing system
RADView(TM) Film Digitizer and Workstation 1995 Converts existing radiographic film records to a
digital format and offers improved records
management and image analysis
RADView(TM) Filmless Radiography 1996 Industrial Radiography system uses reusable phosphor
screens instead of radiographic films
RECIP-TRAP(R) 1985 Analyzes performance and health of reciprocating
compressors and engines
RECIP-TRAP 9240 1997 Multi-channel real time analyzer for engines and
compressors
RECIP-TRAP/Online(TM) 1995 Monitors reciprocating machinery on line, multiple
machines, networks data
Rt Win 1996 Microsoft Windows based analysis software for
Recip-Trap and Recip-Trap 9240
Valve Vision 1996 Control valve testing instrument
VOTES(R) 100E 1996 Compact version of Votes for motor operated
VOTES(R) For Windows 1995 Advanced valve analysis software product
VOTES (R) Systems, Sensors and 1998 Motor operated valve diagnostic testing
Accessories
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
valve diagnostics
VOTES(R) for Windows 1995 Advanced valve analysis software product
VOTES(R) Systems, Sensors and Accessories 1988 Motor operated valve diagnostic testing
Services
--------
Customer Service and Applications 1979(1) Sales, service and calibration of the Company's
Engineering products plus customer training and other technical
services.
Liberty Technical Services 1968(2) Nondestructive Testing Services include visual
inspection, ultrasonic, radiographic, dye penetrant,
magnetic particle technologies and special services.
Liberty Technical Services 1993 Dynamic testing includes diagnostics of critical
plant equipment in power and process facilities
</TABLE>
- ----------
(1) Customer Service and Applications Engineering Services supplied originally
by Beta, acquired by the Company in August 1994.
(2) Nondestructive Testing Services provided originally by INDT, acquired by
Liberty in March 1994.
Products
AirCEt(TM). The AirCEt system provides the ability to track, quantify and
evaluate up to sixteen air operated valve functional inputs measured over real
time. AirCEt is non-intrusive and can be used with any type air operated or
hydraulically operated valve. The system enables set-up, bench marking and
troubleshooting. This product is sold under an exclusive world-wide license from
Asea Brown Boveri (ABB).
BETA-LINK(TM). Many proprietary products developed by the Company monitor
the condition of reciprocating and rotating engines and compressors. The
BETA-LINK simplifies data collection and eliminates the need to use a flywheel
marker data cable. It uses radio telemetry to transmit the signal from the
flywheel to a receiver attached to the engine analyzer.
BETA-TRAP(TM). BETA-TRAP is a portable instrument used to evaluate peak
firing pressures and combustion across combustion engine cylinders. BETA-TRAP
accommodates four engines, each with up to 20 cylinders. The system handles any
internal combustion engine with indicator pressure valves. It records date and
time from an internal clock and continuously samples pressures. BETA-TRAP
displays statistics based on numerous peak firing pressures.
DATA-TRAP(R). DATA-TRAP is a portable vibration-based condition monitoring
instrument that can be used for all classes of rotating equipment. Features
include a user-friendly design with eight push buttons and menu-driven software.
Automatic anomaly detection is enabled through fixed alarms, percentage changes,
statistical analysis and changes in spectrum components.
9
<PAGE>
DIESEL-TRAP(TM). DIESEL-TRAP is a portable instrument that uses
computerized analysis, including baseline and trending, to determine diesel
engine performance, analyze power cylinder output, timing of injection and
combustion and deviations among cylinders. Pressure and vibration data are
displayed simultaneously on the computer screen with an animated piston to see
how the graphs relate to actual piston motion.
Foudre. Foudre is a portable, non-intrusive diagnostic instrument for the
detection of leaks in all types of valves. The system utilizes acoustics,
vibration sensors, and signal processing to test the valve while in use. Foudre
technology is licensed from Electricite de France.
M-HEALTH(TM). M-HEALTH collects plant-wide machinery data and converts it
into meaningful information for engineering, maintenance, operations and
managerial purposes. Graphing and reporting functions enable efficiency
calculations, normalized trending and future events. The system extracts
essential data from control systems either on-line or with Liberty's portable
MICRO-TRAP(TM) data collector for timely detection of degraded conditions.
MotorNalysis(TM). MotorNalysis supports the Motor Performance Analyzer
(MPA) and Motor Performance Tracker (scheduled for release in 1997) products. It
provides tools for waveform analysis and motor comparisons. Features include
data management capabilities and communications features to enable remote
monitoring.
Motor Performance Analyzer(TM) (MPA). MPA is a portable diagnostic
instrument that provides information on the health and operating efficiencies of
induction poly-phase motors as they operate. MPA has integrated auto-analysis
software to present diagnostic information in easy to understand reports to
minimize user training.
Motor Power Monitor(R). Motor Power Monitor is a portable diagnostic
instrument designed to reliably detect early-stage mechanical and electrical
problems in both motors and motor-driven machines while the equipment is
operating. It provides accurate current and voltage measurements and computes
motor power and other key variables for multi-phase electric motors. Motor Power
Monitor will acquire data either at the motor or at the motor control center
where several motors in a plant are controlled. The system provides accurate
data useful for real-time motor health diagnostics and trending. The Company
believes Motor Power Monitor technology also has broad applications for testing
multi-phase motors in industrial process facilities.
Packing 'nForcer(R). Packing 'nForcer is a portable diagnostic system using
Liberty's patented C-clamp sensor technology that measures packing friction
force on all types of rising stem valves. Ensuring that packing friction force
is in the proper range is the only way to verify that packing bolts are
sufficiently tightened to prevent leaks, yet not overly tightened to impair
operability or damage the packing. The C-clamp, which temporarily and quickly
attaches to the valve stem, has significant competitive advantages over
installing labor intensive semi-permanent stem sensors. The Company believes
that currently, there is no competing product on the market that can directly
measure packing friction forces. This is particularly important in the
industries where fugitive emissions are a major environmental issue.
PERFORM(TM). PERFORM generates parameters and loading curves that
accurately represent the performance capabilities of compressors. Analysis of
test results produce empirical equations for horsepower and flow capacity. This
enables calculations of actual performance over the entire operating range of
the unit. The equations are used in control systems, for system models, and to
predict operation
10
<PAGE>
with mechanical changes such as cylinder boring. Accurate performance curves
permit effective use of the available horsepower on each unit and provide a
simple method to compare different operating characteristics between units.
PRISM(TM)dms. The "Process Related Integrity Systems Management" program is
a facility-wide equipment management system which helps all types of plants meet
OSHA 1910 process safety management requirements. The PRISMdms software
streamlines maintenance practices and provides necessary OSHA documentation.
Quarter Turn(TM). Quarter Turn is an extension of VOTES that measures
torque and performs diagnostics on butterfly valves. The system provides data
acquisition, signal conditioning, data processing and report generation.
QuickCheck II(R). QuickCheck II is a fully integrated, portable, software
intensive instrument that uses the Company's proprietary technologies to
non-intrusively test all common types of check valves. A typical nuclear power
plant utilizes approximately 150 safety-related check valves, which use an
internal hinge-mounted disk or lift piston to prevent reverse flows in a pipe.
QuickCheck II reduces the need for the costly and time consuming valve
disassembly to identify needed repairs. The system uses externally mounted
accelerometers to detect structure-borne acoustic signals to diagnose metal
impacts and rubs, cavitation, disk flutter and back leakage. Additionally, the
unit's magnetic subsystem generates and senses a magnetic field within the check
valve that is used to determine the position and motion of the disk. QuickCheck
II and its technology are covered by three of the Company's U.S. patents.
RADView(TM) Film Digitizer, Workstation and Software. The RADView Film
Digitizer converts existing film records to a digital format which reduces
records management costs, prevents information loss, and provides rapid and easy
electronic access to NDT records. Digital images are optimized and viewed on a
high resolution monitor, permanently archived on optical disks, and can be
electronically transmitted for remote viewing and analysis. Analysis software
enables dimensional and optical density measurements and features advanced
information management capabilities through a SQL database.
RADView(TM) Filmless Radiography. Industrial radiography is utilized to
investigate the internal integrity of welds, castings, pipes, valves, and
electronic components. The Company believes that filmless radiography represents
the future of industrial radiography and that its technology offers significant
advancements beyond the scope of conventional industrial radiography. RADView
reduces exposure times and errors; eliminates film waste and expense; eliminates
use of hazardous chemicals; manages, transmits and archives images
electronically; obtains optical density and dimensional information; and
digitally optimizes images to extract more information. This technology is
protected by 38 U.S. patents under license by the Company.
RECIP-TRAP(R) 9220 and 9240. RECIP-TRAP analyzes the mechanical condition,
and the operating performance, vibration, IR temperature, pressure and other
characteristics of reciprocating compressors and engines. Portable
instrumentation and custom software facilitate data collection, diagnostics,
trending and historical comparisons. Machinery problems are identified through
programmed alarms, percentage changes and statistical analysis. The RECIP-TRAP
9240 was released in March 1997 and provides the capability to collect data
simultaneously from multiple channels. The RECIP-TRAP 9220 allows single channel
data collection.
RECIP-TRAP/Online(TM). RECIP-TRAP/Online(TM) continuously monitors
reciprocating machinery providing information to optimize availability, increase
plant safety and improve maintenance practices. Highly reliable sensors,
hardware, and software monitor compressor and engine cylinder pressure,
vibration and temperature. Multiple engines and compressors are monitored in one
system. Data is passed over a LAN to the central analysis workstation or to the
customer's man-machine interface or control system. Data is also accessed over
modems and Internet connections for remote site monitoring.
RT Win. The RT Win Windows-based software is a companion product to the
Recip-Trap and Diesel-Trap. The SQL software enables customers to monitor to
monitor the performance and condition
11
<PAGE>
of reciprocating machinery across multiple plant locations.
ValveVision(TM). ValveVision is a hand-held device that utilizes a Liberty
patented C-clamp sensor to measure the condition of control valves. The unit
interfaces via a PCMC/A interface and companion Windows-based software to
connect to any notebook personal computer.
VOTES(R) Systems, Sensors and Accessories. Liberty's Valve Operation Test
and Evaluation System (VOTES) is the predominant system in the worldwide nuclear
power industry for testing motor-operated valves. VOTES is a fully integrated
diagnostic system that provides a comprehensive profile of a plant's motor
operated valves, including the condition of the valve's motor, gearing, control,
settings, stem, packing, bearings and other components. VOTES contributes to a
plant's predictive maintenance program by helping to optimize valve operability,
reduce maintenance costs and reduce personnel exposure to hazardous
environments. VOTES for Windows analysis software evaluates tests acquired with
the VOTES system using a Microsoft Windows(TM) platform offering many advanced
diagnostic and data management tools.
VOTES(R) 100e. The VOTES(R) 100e is an enhancement to the Company's
VOTES(R) 100 system.
Services
Liberty provides nondestructive evaluation services and dynamic testing for
critical plant equipment for facilities that rely on outsourcing. The service
business provides a channel for Liberty's products into new markets.
Liberty Technical Services. Testing services are provided for many plant
components including valves, pumps, fans, compressors, turbines, engines, motors
and motor-driven equipment. Nondestructive evaluation services include visual
inspection, ultrasonic, radiographic, dye penetrant, and magnetic particle
technologies. Special services include process safety management, plant
inspection, computerized reporting and training in nondestructive testing.
Customer Service and Applications Engineering. Liberty has a full staff of
field applications engineers, service technicians, training instructors, and
electrical and mechanical design engineers to assist in the sales, service and
calibration of the Company's products. Field services, training courses, and
calibration and repair services ensure maintenance activities and tests are
completed promptly and cost-effectively. Applications and customer service
engineers and technicians also respond to customer questions relating to field
testing and to calibrate and repair hardware. The Company also offers on-going
engineering and technical support and regular software upgrades through annual
maintenance contracts. This program allows for customer participation in
development programs and includes priority status for customer services,
equipment rental and technical consultation.
12
<PAGE>
Products Under Development
The Company's product development efforts focus on further enhancing the
performance and capabilities of its current products as well as on
commercializing its technologies for targeted applications in new markets.
Liberty maintains close contact with customers thereby providing valuable
feedback on product design and ideas for new products and applications to the
Company's research and development programs. The Company designs and develops
products in Conshohocken, PA and in Calgary, Alberta. The following products are
in various stages of development with no assurance that they will be
commercialized:
Easy Torque-Thrust Sensor (ETT) - The Easy Torque Thrust Sensor takes the
art out of strain gauging. ETT is quick and simple to install and is adaptable
for various stem diameters.
Motor Performance Tracker(TM) (MPT). MPT is a control panel-mounted
electric motor performance and health monitor. It provides continuous data on a
motor's rotor, stator, power source, motor shaft speed, torque efficiency, and
other operating parameters. MPT performs its tests while the motor is in normal
operation. There have been two patents awarded and several others pending on
this product.
Motor Power Monitor (MPM) DC Capabilities - Additional capabilities of
measuring DC currents and voltages will be added to the current MPM system. This
application is needed in boiling water reactors (BWRs) in which many of the
motor operated valves are DC controlled.
PRISM(TM)dms Version 3.0 - This version of the software which supports the
mechanical integrity compliance program offered by Liberty Technical Services
will incorporate features suggested by our clients. New features of this version
include internal code calculations for evaluating system components, along with
"smart graphics" which allow the user a visual method of information retrieval.
RADView(TM) Filmless Radiography - The U.S. Air Force awarded Liberty a
$1.2 million contract to utilize Liberty's experience in industrial filmless
radiography, signal processing, and other areas of expertise, to develop and
produce an enhanced version of RADView to meet Air Force requirements. This
effort will result in improved resolution, larger image formats, and
implementation of systems at several air bases.
SAMIR/VOTES(R). A joint development project, SAMIR/VOTES will combine in
one product the capabilities of Liberty's VOTES and MPM and Electricite de
France's SAMIR. Both are portable motor operated valve diagnostic systems.
Upgrade packages will be available for existing VOTES users.
Advanced Research Projects
In the last five years, Liberty invested an average of 16% of revenues on
research and development, a portion of which is devoted to advanced research
projects. The Company is investing in knowledge-based diagnostic systems, unique
sensors, wavelet transform, algorithm development, data compression, information
displays, wireless communications and phosphor imaging technology. As a market
leader in certain sensor technologies, the Company intends to maintain its
leadership position by continuing development in this area. This research is
addressing probe limitations related to environmental conditions and adding
intelligent capabilities to the sensors.
13
<PAGE>
Engineering and Product Development
The Company believes that its future success will depend in large part on
its ability to enhance and broaden its existing product lines and to develop new
products. Each potential project is screened through four fundamental stages
prior to commercialization: (i) market assessment, product requirements and
planning; (ii) design; (iii) proto-typing and development; and (iv) testing and
validation. Throughout the development process the Product Manager with a
multi-disciplinary team of technical and business personnel oversees each major
project.
Expenditures for engineering and product development in fiscal 1996, 1995
and 1994 were approximately $4.7 million, $4.6 million (of which $1.7 million
was capitalized software development costs) and $4.8 million (of which $1.7
million was capitalized software development costs), or approximately 13%, 12%
and 17% of total revenues, respectively. No software development costs were
capitalized in 1996. The decline in engineering and product development costs as
a percentage of total revenues from 1994 to 1995 reflected the increase in
service revenues. Of such amounts, approximately $4.6 million, $4.5 million and
$4.7 million, respectively, were funded by the Company from internally generated
sources and approximately $0.2million, $0.1 million and $0.1 million,
respectively, were funded by customers of the Company or third parties.
The dollars spent for engineering and product development expenditures
primarily reflects the Company's focus on development of new products and
extension of existing product applications. In this regard, although engineering
and product development expenditures were relatively flat from 1994 to 1995 to
1996, expenditures on condition monitoring decreased from $4.7 million to $3.8
million to $3.5 million, respectively. During this same period, expenditures on
RADView increased from $0.1 million to $0.8 million to $1.2 million,
respectively. Investments in 1997 and beyond will vary depending on product
development plans.
Sales and Marketing
The Company sells its systems and services through a direct sales force
located in the United States, Canada, and Europe. The Company's principal office
is in Conshohocken, Pennsylvania. Other offices including sales and service are
located in Calgary, Alberta; Florence, WI; Savannah, GA; Houston, TX;
Jacksonville, FL; Kingsport, TN; Mobile, AL; North Augusta, SC; North
Charleston, SC; Olathe, KS; Richmond, VA; Shreveport, LA; and Cheshire, England.
LMP is located outside Paris, France. In addition, the Company has entered into
third party distribution agreements with distributors in various locations
around the world to expand its international sales.
The Company markets its systems and services through trade shows, on-going
customer communications programs, promotional material, direct mail, public
relations and advertising. Several times a year, the Company sponsors user-group
meetings, to which current and prospective customers are invited. These
meetings, which focus on the applications of the Company's systems, are an
important element of the Company's marketing efforts. In addition, the Company's
customer service and applications engineering groups are important elements in
providing support to customers and gathering information on current product
performance and future product development.
14
<PAGE>
Customers
Current customers for the Company's products are companies in the domestic
and international power and process industries. In 1996, the Company's foreign
operations and export sales approximated $4.6 million or 13% of total revenues.
In 1995 and 1994, foreign operations and export sales accounted for less than
10% of total revenues. In 1996, 1995 and 1994, no customer accounted for 10% or
more of total revenues. Because of the Company's typical pattern of revenues,
its growth and the increase in its customer base, the Company does not believe
that the loss of any particular customer would have a material adverse effect on
the Company's business. However, due to the variability in the size and timing
of orders for both products and services from the Company's customers, the
Company's operating results may vary significantly from quarter to quarter.
Backlog
The Company typically fills orders for commercial products within 30 to 45
days, although certain product orders require more time to complete, depending
on customer schedules for planned facility maintenance and product availability.
Customers usually purchase products on an as-needed basis, and thus, the Company
generally has less than two months' revenues in product backlog. Due to the
variable nature of service contracts, the Company generally carries about three
month's revenues in service backlog. The Company does not believe that backlog
is a meaningful indicator of future revenues.
Patents and Intellectual Property
The Company relies primarily on a combination of patent, copyright,
trademark and trade secret laws, employee and third-party nondisclosure
agreements and other intellectual property protection methods to protect its
products and proprietary technologies. The Company believes that their patents
and intellectual property provide Liberty with a competitive advantage. The loss
of any single item, however, would not have a significant impact on the Company.
The Company currently owns 24 U.S. patents (one expires in 1998, 23 expire
between 2007 and 2015) and 27 foreign patents (expire between 2008 and 2012) and
in addition has assigned four U.S. and one foreign patent to EPRI in return for
exclusive worldwide marketing and licensing rights for STARS ABM. The RADView
technology is protected by 38 U.S. patents (expire between 2006 and 2009) under
license from Quantex Corporation. In addition, the Company currently has eight
U.S. and 23 foreign patent applications pending. The Company's software is
protected under copyright laws.
Although the Company continues to implement measures to protect its
intellectual property and intends to defend its proprietary rights, policing
unauthorized use of the Company's technology or products, including instances
where the Company believes infringement has occurred, is difficult and often not
economically justifiable. There can be no assurance that the Company's efforts
to protect its intellectual property will be successful.
Manufacturing and Quality Assurance
All Liberty products currently are manufactured in the Conshohocken, PA
facility. The Company also intends to establish production facilities outside
the United States to the extent deemed warranted to achieve the Company's
business objectives.
The Company's manufacturing operation consists primarily of final assembly
and testing of materials, electronic components and subsystems produced by the
Company or purchased from suppliers. Sensors,
15
<PAGE>
calibrators and RADView phosphor screens are manufactured from basic components
and raw materials. The Company has established comprehensive quality assurance
programs in all areas, including procurement, manufacturing, engineering, design
and development of both hardware and software. Raw materials, parts,
subassemblies and fully configured finished products undergo rigorous functional
and quality assurance testing. Because of the critical safety-related
applications in which the Company's products are used, customers and industry
sponsored monitoring groups regularly inspect and audit the Company's operations
as part of the vendor certification programs required by federal law and by
individual customers' quality assurance programs.
The Company has multiple sources of supply for most critical components
used in its products. As part of its Total Quality Management program, the
Company seeks to build a close working relationship with a small number of
component vendors for particular products, which in certain circumstances may
cause the Company to utilize a single source of supply. In situations where the
Company relies on a single source of supply, the Company believes that an
adequate quantity of components will be available to meet its needs for the
foreseeable future.
Competition
The Company believes that cost effectiveness of diagnostic testing systems
is an important competitive factor in the market for diagnostic products and
services for the process industries. In addition, other competitive factors
include product performance, accuracy, reliability and ease of use. Overall, the
market for process industry equipment diagnostics is highly fragmented, with
many firms providing systems or services to monitor a single physical variable,
such as equipment vibration, heat emission or metal wear. A small number of
firms offer monitoring or diagnostic capabilities for several physical
variables, and certain firms control a substantial share of particular specialty
markets such as vibration monitoring. Firms engaged in the overall industrial
diagnostics market may be viewed as potential competitors of the Company.
Liberty believes that competition in the diagnostic testing market for the
power and process industries is based on product performance, accuracy,
reliability, ease of use, and integration into existing systems. The Company
believes that its systems are the most effective diagnostic systems for motor
operated valves and check valves currently in use in the nuclear power industry
and for reciprocating engines and compressors in the petrochemical industries.
In addition, the Company believes its industrial electric motor diagnostic
products will be differentiated through its extensive on-line monitoring and
diagnostic capabilities. Certain of the Company's current competitors, some of
which are affiliated with multinational technology companies, have access to
substantially greater financial, research and development, sales and marketing,
and production resources than the Company.
Liberty believes its digital radiography solution for the industrial market
is unique. Major competitors are large radiographic film product manufacturers.
However, Liberty believes the RADView product line will be competitive based on
pricing and performance characteristics.
Employees
As of December 31, 1996, the Company employed approximately 379 persons of
whom 28 were engaged in sales and marketing, 46 in engineering and product
development, 25 in manufacturing and quality assurance, 234 in technical service
and support and 46 in finance and administration. None of the Company's
employees are subject to a collective bargaining agreement. The Company believes
that its employee relations are good.
16
<PAGE>
ITEM 2. PROPERTIES
Liberty leases approximately 40,000 square feet for its principal
administrative, marketing, manufacturing and product development and support
facility in Conshohocken, Pennsylvania, under an agreement which expires in
December 2000. The Company also leases a 20,000 square foot facility in Houston,
Texas for sales, product support, and service under an agreement which expires
in February 2001. In addition, approximately 6,600 square feet is leased for
product development and sales functions in Calgary, Alberta under an agreement
which expires in May 2001. Other locations for sales and service operations are
leased in St. Joseph, Michigan; Florence, Wisconsin; Olathe, Kansas; Richmond,
Virginia; Savannah, Georgia; Jacksonville, Florida; and Mobile, Alabama. under
agreements expiring at various times through 1999. Liberty M.P. leases office
space near Paris, France.
Owned facilities include the 14,286 square foot headquarters for Liberty
Technical Services in North Charleston, South Carolina located on 1.7 acres.
Also owned are service operations offices in North Augusta, South Carolina
located on 1.5 acres and Shreveport, Louisiana located on 1.4 acres. The Company
believes that its facilities are adequate for the foreseeable future and that
suitable additional or alternative space will be available on commercially
reasonable terms when needed in the future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, nor,
to the Company's knowledge, is any material legal proceeding threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
its fourth quarter of 1996.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Since the Company's initial public offering commenced on March 31, 1993,
the Common Stock has been traded on the Nasdaq National Market under the trading
symbol "LIBT". The following table sets forth the high and low closing sale
prices for the Common Stock as reported by Nasdaq for the periods indicated.
These prices do not include retail mark-ups, mark-downs or commissions.
High Low
1995
----
First Quarter 5 3/4 3 1/2
Second Quarter 6 1/2 5
Third Quarter 6 3/4 4 1/2
Fourth Quarter 5 1/2 3 3/4
1996
----
First Quarter 6 1/8 4 3/8
Second Quarter 8 5/8 5 1/2
Third Quarter 6 1/4 3 3/16
Fourth Quarter 4 1/4 2 1/2
On April 7, 1997, the closing sale price for the Company's Common Stock was
$3.00 per share. As of that date, there were 203 record holders of the Common
Stock, and the Company estimates that there were approximately 1,500 beneficial
holders of the Common Stock.
The Company currently intends to retain any future earnings to fund
operations and the continued development of its business and, therefore, does
not anticipate paying any cash dividends on its Common Stock in the foreseeable
future. Future cash dividends, if any, will be determined by the Company's Board
of Directors, and will be based upon the Company's earnings, capital
requirements, financial condition and other factors deemed relevant by the Board
of Directors.
The Company did not sell any equity securities during the year ended
December 31, 1996 that were not registered under the Securities Act.
18
<PAGE>
Item 6. Selected Consolidated Financial Data
The selected historical consolidated financial data presented below have been
derived from the Company's consolidated financial statements for each of the
years indicated. The data set forth below is qualified by reference to and
should be read in conjunction with the consolidated financial statements and
management's discussion and analysis of financial condition and results of
operations included as items 7 and 8, respectively, in this Annual Report on
Form 10-K.
<TABLE>
<CAPTION>
Statement of Operations Data: Year Ended December 31
(In thousands, except per share data)
1996 1995 1994(1) 1993(1) 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Product $ 12,456 $ 12,474 $ 9,049 $ 12,397 $ 12,685
Service 23,125 26,645 18,682 6,161 1,037
-------- -------- -------- -------- --------
35,581 39,119 27,731 18,558 13,722
-------- -------- -------- -------- --------
Cost of revenues
Product 4,243 5,364 3,335 3,380 3,890
Service 15,255 17,266 12,247 3,862 311
-------- -------- -------- -------- --------
19,498 22,630 15,582 7,242 4,201
-------- -------- -------- -------- --------
Gross profit
Product 8,213 7,110 5,714 9,017 8,795
Service 7,870 9,379 6,435 2,299 726
-------- -------- -------- -------- --------
16,083 16,489 12,149 11,316 9,521
-------- -------- -------- -------- --------
Operating expenses
Engineering and product development 4,656 2,868 3,122 3,393 3,649
Selling, general and administrative 13,736 12,883 9,233 4,577 3,347
Non-recurring charge -- 4,428(2) -- -- 509
-------- -------- -------- -------- --------
18,392 20,179 12,355 7,970 7,505
-------- -------- -------- -------- --------
Operating income (loss) (2,309) (3,690) (206) 3,346 2,016
Interest income (expense), net (226) (61) 139 169 9
Other -- -- (41) -- --
-------- -------- -------- -------- --------
Income (loss) before income taxes,
extraordinary item, change in
accounting principle and
minority interest (2,535) (3,751) (108) 3,515 2,025
Income taxes (benefit) 87 (1,109) (4) 1,106 811
-------- -------- -------- -------- --------
Income (loss) before extraordinary
item, change in accounting
principle and minority interest (2,622) (2,642) (104) 2,409 1,214
Minority interest in loss of joint venture (50) -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before extraordinary
item and change in accounting
principle (2,572) (2,642) (104) 2,409 1,214
Extraordinary item and accounting change -- -- -- 100 34
-------- -------- -------- -------- --------
Net income (loss) $ (2,572) $ (2,642) $ (104) $ 2,509 $ 1,248
======== ======== ======== ======== ========
Net income (loss) per share(3):
Before extraordinary item and
accounting change $ (.52) $ (.53) $ (.02) $ 0.52 $ 0.34
Extraordinary item/accounting change -- -- -- 0.02 0.01
-------- -------- -------- -------- --------
$ (.52) $ (.53) $ (.02) $ 0.54 $ 0.35
======== ======== ======== ======== ========
Shares used in computing net income (loss)
per share 4,970 4,943 4,859 4,637 3,588
======== ======== ======== ======== ========
Balance Sheet Data:
Cash and investments $ 324 $ 356 $ 1,083 $ 9,175 $ 1,973
Working capital 2,828 5,773 6,967 15,226 3,046
Total assets 25,017 23,803 24,403 19,875 7,160
Long-term debt 217 259 315 188 327
Total debt 6,008 2,551 566 371 575
Redeemable convertible preferred stock -- -- -- -- 4,321
Shareholders' equity (deficit) 13,973 16,410 18,954 17,502 (153)
</TABLE>
(1) See Note 2 to the Notes to the consolidated financial statements for
information on acquisitions in 1994 and 1993.
(2) In 1995, the Company recorded non-recurring charges related to the
write-off of capitalized software development costs and a corporate
restructuring. See Notes 1 and 3 to Notes to the consolidated financial
statements.
(3) In 1996, 1995 and 1994, net loss per share was computed on the basis
described in Note 1 of Notes to Consolidated Financial Statements. For all
prior periods, net income per share was calculated by dividing net income
by the weighted average number of shares outstanding for the respective
periods, adjusted for the dilutive effect of common stock equivalents.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
1996 Compared to 1995
Total Revenues. Total revenues decreased from $39.1 million in 1995 to
$35.6 million in 1996, or 9%. Service revenues decreased from $26.6 million in
1995 to $23.1 million in 1996, or 13%, primarily as a result of lower nuclear
service revenues as customers continued to reduce their maintenance outages. The
decline was offset by a 7% increase in industrial service revenues. Royalties
and license fees remained relatively flat while outside funding sources
increased approximately $100,000.
Product revenues remained flat at $12.5 million in both 1995 and 1996.
Condition monitoring product sales into the domestic nuclear and industrial
markets decreased $2.5 million, offset by an increase of $1.0 million in
international condition monitoring sales and an increase of $1.5 million in
RADView(TM) sales.
Cost of Revenues. Cost of revenues decreased from $22.6 in 1995 to $19.5 in
1996, or 14%. As a percentage of total revenues, cost of revenues decreased from
58% in 1995 to 55% in 1996.
Cost of service revenues increased from 65% in 1995 to 66% in 1996. Cost of
product revenues decreased from 43% in 1995 to 34% in 1996, primarily as a
result of the elimination of the amortization of capitalized software from costs
of sales in 1996 and the consolidation of manufacturing operations in the
beginning of 1996.
In accordance with SFAS No. 86, the Company capitalized software
development costs through 1995. Amortization related to these costs was $0.7
million in 1995. The Company wrote-off the balance of capitalized software
development costs at the end of 1995 and has no such amortization in 1996.
Gross Profit. Gross profit decreased from $16.5 million in 1995 to $16.1
million in 1996, or 2%. As a percentage of total revenues, gross profit
increased from 42% in 1995 to 45% in 1996. The Company expects that the gross
profit percentage will vary from period to period depending primarily on the mix
of products and services sold.
Engineering and Product Development Expenses. Engineering and product
development expenses increased from $2.9 million in 1995 to $4.7 million in
1996, or 62%, primarily as a result of software development costs which did not
meet the criteria for capitalization. During 1995 the Company capitalized
software development expenditures of $1.7 million. As discussed above, at the
end of 1995 the Company wrote off the balance of capitalized software and has
not capitalized any additional software development costs in 1996.
Excluding the impact of software development costs capitalized during 1995,
total engineering and product development costs including capitalized software
development expenditures remained relatively flat, increasing from $4.6 million
to $4.7 million, or 2%, from 1995 to 1996. As a percentage of total revenues,
engineering and product development expenses, including capitalized
expenditures, increased from 12% in 1995 to 13% in 1996, reflecting the lower
revenues in 1996.
20
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $12.9 million in 1995 to $13.7 million in
1996, or 6%, and increased as a percentage of total revenues from 33% in 1995 to
39% in 1996. The increase in expenditures resulted primarily from the addition
of $0.7 million in Liberty M.P. operating expenses, which became operational at
the beginning of 1996. The increase as a percentage of revenues is a result of
the decrease in revenues.
Non-recurring Charges. The Company incurred restructuring charges of $.8
million during 1995 as a result of the consolidation of its two product
divisions, including manufacturing, into a single products business unit, and
its two service subsidiaries into a single service division as of December 31,
1995. There were no such charges in 1996.
The Company wrote off $3.7 million of capitalized software costs during
1995. This writeoff of the software development costs was due to the rapidly
changing technology environment in which the Company operates and its impact on
product life cycles. Therefore, as the Company continues to develop and enhance
the software components of its products, the future amounts of capitalized
software are expected to be minimal.
Interest Expense, net. Net interest expense was $0.1 million in 1995 and
$0.2 million in 1996. The increase was a result of increased short-term bank
financing to fund working capital during 1996.
Income Taxes (Benefit). The Company had an income tax benefit of $1.1
million for 1995 and expense of $0.1 million for 1996. The net tax benefit in
1995 is a result of the federal income tax benefit from the consolidated losses
being greater than the state income tax expense which resulted from taxable
income from certain of the Company's subsidiaries. The net tax expense in 1996
represents state income taxes and foreign taxes from certain of the Company's
subsidiaries. The federal income tax benefit for 1996 ($0.9 million) was offset
by a valuation allowance of the same amount.
The Company's effective tax benefit of 29% for 1995 and tax expense of 3%
for 1996 are not representative of the expected income tax rates to be incurred
in future years because of the effect of losses incurred during 1996 and 1995
and because of the valuation allowance recorded in 1996. See Note 11 of Notes to
Consolidated Financial Statements.
Net Loss. Net loss for both 1995 and 1996 was $2.6 million, or $0.53 and
$0.52 loss per share in 1995 and 1996, respectively. The net loss in 1995
reflects the effect of the non-recurring charges, as discussed above. The net
loss in 1996 reflects lower gross profit and operating income and the valuation
allowance of $0.9 million recorded on the deferred tax asset. The number of
shares used in calculating earnings per share increased to 4,970,000 in 1996
from 4,943,000 in 1995 due to the issuance of shares in connection with the
exercise of stock options under the Company's 1988 and 1992 Stock Option Plans
and the sale of stock through the Company's Employee Stock Purchase Plan.
1995 Compared to 1994
Total Revenues. Total revenues increased from $27.7 million in 1994 to
$39.1 million in 1995, or 41%. Service revenues increased from $18.7 million in
1994 to $26.6 million in 1995, or 42%, primarily as a result of the Company's
acquisition of INDT in March 1994 and internal growth. Liberty nuclear service
revenues, royalties and license fees remained relatively flat.
21
<PAGE>
Product revenues increased from $9.0 million in 1994 to $12.5 million in
1995, or 39%, as a result of the full year impact of the acquisition of Beta
Monitors and Controls, Ltd. on August 12, 1994, which had $1.8 million of
revenue during the remainder of 1994 and $6.1 million for the full year 1995. In
addition, international nuclear sales increased from $.2 million in 1994 to $1.5
million in 1995, largely attributable to sales to Electricite de France. These
gains were offset by $1.7 million lower domestic nuclear sales.
Cost of Revenues. Cost of revenues increased from $15.6 million in 1994 to
$22.6 million in 1995, or 45%. As a percentage of total revenues, cost of
revenues increased from 56% in 1994 to 58% in 1995 due to the significant
increase in the volume of service revenues, which have a lower margin. Cost of
product revenues increased as a percentage of product sales from 37% in 1994 to
43% in 1995 as a result of product mix.
Gross Profit. Gross profit increased from $12.1 million in 1994 to $16.5
million in 1995, or 36%. As a percentage of total revenues, gross profit
decreased from 44% in 1994 to 42% in 1995. The Company expects that the gross
profit percentage will vary from year to year depending primarily on the mix of
products and services sold.
Engineering and Product Development Expenses. Engineering and product
development expenses decreased from $3.1 million in 1994 to $2.9 million in
1995, or 6%. The Company capitalized software development expenditures of $1.7
million during 1994 and 1995. Amortization of capitalized software development
costs totaled $.2 million in 1994 and $.8 million in 1995. These expenditures
were capitalized in accordance with Statement of Financial Accounting Standards
(SFAS) No. 86. Total engineering and product development costs, including
capitalized software development expenditures, remained relatively flat,
declining from $4.8 million to $4.6 million, or 4%, from 1994 to 1995. As a
percentage of total revenues, engineering and product development expenses,
including capitalized expenditures, decreased from 17% in 1994 to 12% in 1995,
reflecting the increase in service revenues as a percentage of total revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $9.2 million in 1994 to $12.9 million in
1995 and remained unchanged as a percentage of total revenues at approximately
33%. The increase in expenditures is due primarily to the acquisitions of INDT
and Beta.
Non-recurring Charges. The Company incurred restructuring charges of $.8
million during 1995 as a result of the consolidation of its two product
divisions, including manufacturing, into a single products business unit, and
its two service subsidiaries into a single service division as of December 31,
1995.
The Company wrote off $3.7 million of capitalized software costs during
1995. This writeoff of the software development costs was due to the rapidly
changing technology environment in which the Company operates and its impact on
product life cycles. Therefore, as the Company continues to develop and enhance
the software components of its products, the future amounts of capitalized
software are expected to be minimal.
Interest Income (Expense), net. Net interest expense for 1995 was $(.1)
million, compared to net interest income of $.1 million in 1994. This change is
as a result of the sale of short-term investments in 1994 to acquire INDT, Beta,
and various technology licenses and of increased short-term bank financing
during 1995 to fund working capital.
22
<PAGE>
Income Tax Benefit. The Company had an income tax benefit of $1.1 million
for 1995 compared to a nominal benefit for 1994. These net tax benefits are a
result of the federal income tax benefit from the consolidated losses being
greater than the state income tax expense which resulted from taxable income
from certain of the Company's subsidiaries. The Company's effective tax benefit
of 29% for 1995 and 3% for 1994 are not representative of the expected income
tax rates to be incurred in future years because of the effect of losses
incurred during 1994 and 1995. See Note 10 of Notes to Consolidated Financial
Statements.
Net Income (Loss). Net loss increased from a loss of $.1 million, or $.02
loss per share, in 1994 to a loss of $2.6 million, or $.53 loss per share, in
1995. The increase in the net loss in 1995 resulted from the $.8 million
restructuring charge and the $3.7 million write-off of capitalized software, and
was partially offset by improved operating results before such charges and a
larger income tax benefit. The number of shares used in calculating earnings per
share increased to 4,943,000 in 1995 from 4,859,000 in 1994 due to the issuance
of shares in connection with the purchase of INDT in March 1994, the exercise of
stock options under the Company's 1988 and 1992 Stock Option Plans and the sale
of stock through the Company's Employee Stock Purchase Plan.
Liquidity and Capital Resources
For the past three years, the Company has financed its working capital
requirements and capital expenditures and acquisitions through operations, bank
debt and the proceeds of its initial public offering.
1996 Compared to 1995
The Company had cash of $0.3 million and $0.4 million at both December 31,
1996 and 1995, respectively.
Net cash used by operations in 1996 was $2.0 million compared to cash
provided by operating activities of $0.9 million in 1995. The decrease is
primarily a result of a higher net loss as adjusted for deprecation and
amortization, deferred income taxes and the write-off of capitalized software; a
buildup of inventory levels in the second half of 1996 in preparation for the
release of new products; and lower accrued expenses. These changes were offset
by lower accounts receivable in 1996.
Net cash used by investing activities in 1996 was $2.2 million compared to
$3.7 million in 1995. The 1995 activity included a final payment for the
acquisition of INDT and the capitalization of software development costs.
Investment in fixed assets increased from $1.5 million in 1995 to $1.8 million
in 1996.
Net cash provided by financing activities in 1996 was $4.1 million compared
to $2.1 million in 1995. The cash provided in 1996 and 1995 was due primarily to
the additional borrowings against the Company's bank line of credit.
23
<PAGE>
1995 Compared to 1994
The Company had cash of $0.4 million and $1.1 million at December 31, 1995
and 1994, respectively.
Net cash provided by operations was $.9 million in 1995 compared to $2.9
million in 1994. The decrease is due primarily to higher accounts receivable
resulting from strong fourth quarter sales, offset by an increase in accounts
payable and accrued expenses. This decrease was further offset by an increase in
non-cash operating charges, primarily the writeoff of capitalized software.
Net cash used by investing activities in 1995 was $3.7 million compared to
$1.7 million in 1994. The 1994 activity included the liquidation of short-term
investments used to pay for the acquisitions of INDT and Beta, and by a payment
for the licensing of phosphor radiography technology. Investment in fixed assets
and capitalized software remained flat from 1994 to 1995.
Net cash provided by financing activities in 1995 was $2.1 million compared
to net cash used by financing activities of $1.5 million in 1994. The cash
provided in 1995 was due primarily to the additional borrowings against the
Company's bank line of credit, contrasted with the use of cash in 1994 for the
repayment of certain debt assumed in connection with the acquisition of INDT
($1.1 million) and the purchase of treasury stock.
Liquidity
During 1996 the Company increased its maximum availability on its revolving
credit facility with a commercial bank from $5,000,000 to $7,500,000. The
balance outstanding was $5.7 million and $2.2 million at December 31, 1996 and
1995, respectively, and the balance of the facility was available. The line is
collateralized by substantially all of the Company's accounts receivable and
inventory. The credit facility may be used for working capital or acquisitions.
Borrowings under this facility bear interest at a rate equal to the lower of the
bank's prime rate less 0.5% or the Eurodollar rate plus 1.25%. The average
interest rate was 6.87% and 6.75% at December 31, 1996 and 1995, respectively.
The line requires that the Company maintain compliance with certain financial
covenants. The Company was not in compliance with certain of these covenants at
December 31, 1996. The bank had waived non-compliance through May 1, 1997.
The Company has amended the credit facility effective April 3, 1997. The
amended facility provides availability of $9,000,000 through June 30, 1997;
$7,500,000 through September 30, 1997; $6,500,000 through December 31, 1997; and
$5,500,000 through March 31, 1998. After June 30, 1997, borrowings under the
line are limited to 85% of eligible receivables and 25% of eligible inventory,
as defined. Beginning after October 1, 1997, the borrowing base will be limited
solely to 85% of eligible receivables, as defined. The interest rate on the
facility varies from the Eurodollar rate plus 1.50% to the bank's prime rate
plus 1.00% and is payable at the maturity of each draw against the facility. The
line of credit expires on March 31, 1998.
The Company's primary source of financing in 1996 and 1997 has been
borrowings under its line of credit. Since the original filing of this report,
the Company has failed to perform certain covenants contained in its line of
credit, resulting in it being in default thereunder, an event which was reported
in the original filing of its Form 10-Q for the quarter ended June 30, 1997. To
date, the Company has been permitted by its lenders to continue to borrow moneys
from time to time under the credit facility, up to the maximum $7,500,000,
notwithstanding the existing default. However, no assurance can be given that
the lenders will continue to permit such additional borrowings in the future or
24
<PAGE>
will not accelerate all outstanding amounts under the line of credit. As a
result of such default, Arthur Andersen LLP, the Company's independent auditors,
modified its report to the consolidated financial statements of the Company and
its subsidiaries for the year ended December 31, 1996, which revised report is
filed with Form 10-K/A.
The modified opinion of Arthur Andersen, LLP indicates that the Company (i)
incurred losses during the last three fiscal years and has continued to incur
losses in 1997 (ii) continues to experience limitations on its ability to borrow
and (iii) is in violation of certain loan covenants that give the lenders the
right to accelerate the due date of the loan. These factors create a substantial
doubt about the Company's ability to continue as a going concern and an
uncertainty as to the recoverability and classification of recorded asset
amounts and the amounts and classification of liabilities.
On July 25, 1997, the Company entered into an agreement with General
Electric Company (GE) to sell substantially all of the assets of the Company's
nondestructive testing and evaluation services business (the NDE Business) for
$13.6 million in cash, subject to downward adjustment based upon the closing
balance sheet. An amount equal to 10% of the purchase price must be held in an
escrow account for a period of one year from the closing date. The Company
intends to use the proceeds from the sale of the NDE Business to repay its bank
debt, to invest in the products business and for other corporate purposes. The
sale of the NDE Business is subject to the approval of the Company's
shareholders, among other things. There can be no assurance that the Company
will consummate the sale of the NDE Business. If the sale of the NDE Business is
not completed, the Company would need to pursue alternative financing such as a
private placement. Management is unable to estimate the amount and timing of
funding required, if any, from these alternative sources.
The Company believes that its current cash and short-term investment
resources, cash provided by the anticipated sale of the NDE Business and
availability under its current and anticipated line of credit, will be
sufficient to fund the Company's operations, debt and lease obligations, and
expected capital expenditures for the next twenty-four months and to the best
belief of management on a longer term basis. Additional financing may be
required for the Company to consummate any material business acquisitions.
Inflation
Inflation has not had a significant impact on the Company.
Special Note Regarding Forward Looking Statements
Statements in this annual report on Form 10-K, including those concerning
the Company's expectations of future sales; gross profit; net income;
engineering and product development expenditures; selling, general and
administrative expenses; product introductions and cash requirements include
certain forward-looking statements. As such, actual results may vary materially
from such expectations.
In evaluating such statements, prospective and current investors should
specifically consider the various factors which could cause actual results to
differ from those indicated by such forward-looking statements including,
without limitation, the timely development, production and acceptance of new
products; changes in product/service revenue mix; continued acceptance in the
marketplace, competition and buying patterns of customers; and absence of
significant order backlog.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth on pages F-1 through
F-19 hereto and is incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 relating to directors of the Company is
presented under the caption "Nomination and Election of Directors" of the
Company's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission not later than April 29,
1997 and is hereby incorporated by reference herein.
The Company's executive officers are elected annually by the Board of
Directors and serve at the discretion of the Board.
The following sets forth information concerning the individuals who serve,
as of April 14, 1997, as executive officers of the Company:
Name Age Position
---- --- --------
R. Nim Evatt 55 President; Chief Executive Officer and
Chairman of the Board
Daniel G. Clare 38 Vice President, Finance; Chief
Financial Officer; Treasurer
Mr. Evatt joined the Company as Executive Vice President and Chief
Operating Officer in April 1991. Mr. Evatt was elected President and Chief
Executive Officer and a Director in October 1991 and Chairman of the Board in
April 1992. From 1988 to 1990, Mr. Evatt was President of ICC Technologies,
Inc., which develops, manufactures and markets co-generation and desiccant
cooling systems. From 1986 to 1988, he was President of CE Environmental, Inc.,
an environmental services company, and from 1984 to 1986, he was Vice President
of Marketing at Combustion Engineering, Inc., an engineering and manufacturing
company. Mr. Evatt held a variety of technical, sales and marketing positions at
General Electric Company from 1968 to 1984, including General Manager of the
Europe/Africa/Middle East Services Department from 1982 to 1984.
Mr. Clare joined the Company as Vice President, Finance, Chief Financial
Officer and Treasurer in March 1995. Previously, Mr. Clare held various
financial management positions in Martin Marietta/General Electric (GE)
Aerospace. Previously he held positions throughout GE, including the Plastics
Group, GE Capital Corporation, the Corporate Audit Staff and the Power Delivery
Division.
27
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to
its officers for the years ended December 31, 1996, 1995 and 1994:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation(1) Long-Term Compensation
---------------------- ----------------------
Name and Other Annual All other
Principal Salary Bonus Compensation(1) Options/ Compensation(2)
Position Year ($) ($) ($) SARs (#) ($)
- -------- ---- ------- ------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R. Nim Evatt 1996 194,500 - - 25,000 2,375
Chief Executive 1995 180,153 - - 55,000 2,310
Officer; President 1994 164,988 - - - 2,310
Daniel G. Clare 1996 131,176 - - 15,000 1,767
Chief Financial Officer; 1995 90,600 - - 25,000 486
Vice President
</TABLE>
- -------------
(1) Would include perquisites and other personal benefits paid for by the
Company, such as automobile payments, long-term disability and life
insurance premiums and relocation expenses. The value of such personal
benefits for each of the named executive officers was less than the
minimum required to be reported, the lesser of $50,000 or 10% of annual
salary and bonus.
(2) Represents allocations to accounts of executive officers under the
Company's Retirement Savings Plan, which is intended to qualify under
Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as
amended (the "401(k) Plan"). Employees of the Company who have
completed at least one-half year of service with the Company are
eligible to make contributions to the 401(k) Plan on a pre-tax basis in
accordance with certain limitations set forth in the 401(k) Plan or
defined in the Code. The Company matches 25% of each employee's pre-tax
contributions, up to a maximum matching contribution of 1.5% of such
participant's annual compensation. The pre-tax contributions by
participants and the earnings thereon are at all times fully vested.
The Company's contribution vests to the employee at a rate of 50% for
each year of service with the Company. A participant's vested benefit
under the 401(k) Plan may be distributed to the participant upon his
retirement, death, disability or termination of employment or upon
reaching age 59 1/2.
The following table presents information concerning stock options granted
to the named executive officers in 1996:
Option/SAR Grants in 1996
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Individual Grants Rates of Stock
Appreciation for Option
Term
- --------------------------------------------------------------------------------- ---------------------------
Number of % of Total
Securities Options/
Underlying SARs Granted Exercise or
Options/SARs to Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ------------- -------------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
R. Nim Evatt 25,000 (1) 11.9% $4.875 2/01/06 $76,775 $193,775
Daniel G. Clare 10,000 (2) 4.8% $3.250 9/25/06 $20,475 $ 51,680
5,000 (1) 2.4% $4.875 2/01/06 $15,355 $ 38,755
</TABLE>
- -------------
(1) Options under this grant vest on the earlier of five years from the
date of grant, or annually over four years in increments of 25% of
total shares granted if the stock price of the Company has reached
$9.75 by February, 1997; $9.75 by February, 1998; $13.75 by February,
1999; and $19.25 by February, 2000. If the stock price does not reach
$9.75 by February, 1997, but does reach $9.75 by February, 1998, 50% of
the grant would vest immediately. These options expire February, 2007.
(2) Options under this grant vest over four years on the annual anniversary
of the option grant date in increments of 25% of total shares granted.
These options expire September, 2007.
28
<PAGE>
The following table presents information concerning the exercise of
stock options by any of the named executive officers during 1996 and stock
option values for unexercised stock options held by each of the named executive
officers as of the end of 1996:
Aggregated Option Exercises in 1996
and Year End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options/SARs at
Options at Year End Year End
------------------------- -------------------------------
Number of Shares
Acquired on
Name Exercise Value Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ---------------- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Nim Evatt -- -- 248,500 46,500 $269,500 $0
Daniel G. Clare -- -- 6,250 33,750 $0 $0
</TABLE>
- -------------
(1) Represents the product of the number of shares acquired on exercise,
multiplied by the difference between (i) the per share fair market
value of the Common Stock on the date of exercise and (ii) the exercise
price per share.
Employment Agreements
The Company has an employment agreement with Mr. Evatt dated April 1,
1991. Mr. Evatt is employed at will under his agreement and, if terminated
without cause, is entitled to one-half of his then current base salary for a
period of two years from the time notice is given, reduced by any period during
which the agreement's noncompetition provision, which runs for two years after
employment terminates, is violated. The Company entered into an employment
agreement with Mr. Leon, dated December 28, 1995, which provides for, in effect,
a phased-in retirement for the former executive officer with a gradual reduction
of time commitments and responsibilities, as well as compensation, over the term
of the agreement. Mr. Leon's agreement has a three year term from January 1,
1996 through December 31, 1998 and includes covenants not to compete during the
term.
Board of Directors
With regard to compensation for the Board of Directors, employee directors
are not compensated for their services as members of the Board. Compensation of
outside directors is determined by action of the Compensation and Benefits
Committee or the whole Board after receiving the recommendations of the Chief
Executive Officer. Currently, non-employee directors are paid $1,250 per meeting
attended. Each non-employee director has been granted an option to purchase
10,000 shares of Common Stock on the later to occur of October 1, 1993 and the
date that such director is first elected to the Board. In addition, each
non-employee director is entitled to receive an annual grant of a stock option
under the Company's 1992 Stock Option Plan to purchase 2,500 shares of Common
Stock, such option to be granted, priced and fully vested on the date that is
the anniversary of the commencement of such director's service. The exercise
price of option grants is set at the NASDAQ closing price on the day prior to
the date of grant.
29
<PAGE>
COMPENSATION AND BENEFITS COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of the Board of Directors (the
"Committee") is charged with reviewing and approving the Company's compensation
objectives, practices and policies for all employees, setting the specific
compensation for the Chief Executive Officer and other executive officers of the
Company and making determinations with respect to the granting of stock options
under the Company's 1992 Stock Option Plan, including the relevant terms
thereof. The current members of the Committee are Messrs. Evatt, Defieux, Hinds
and Rosener, except with respect to the grant of stock options to executive
officers, in which case the members are Messrs. Defieux and Hinds alone. Mr.
Evatt is the Company's President, Chief Executive Officer and Chairman of the
Board, and Messrs. Defieux, Hinds and Rosener are non-employee directors of the
Company.
For the fiscal year ended December 31, 1996, the Committee continued to
implement compensation policies, plans and programs that were developed during
1995 which align the financial interests of the Company's senior management, in
their management capacities, with those of its shareholders. The Committee
believes that (1) executive compensation should be meaningfully related to the
performance of the Company and the value created for shareholders; (2)
compensation programs should support both short and long-term goals and
objectives of the Company; (3) compensation programs should reward individuals
for outstanding contributions to the Company's success; and (4) short and
long-term compensation policies play a significant role in attracting and
retaining well qualified executives.
In setting annual compensation for executive officers, the Committee
reviews a number of criteria relating to the performance of the Company
generally and of each executive officer specifically (other than the Chief
Executive Officer) during the prior fiscal year and evaluates its expectation as
to each such individual's future contributions to the Company. With respect to
the Chief Executive Officer, such review is conducted by the three non-employee
directors of the Company who serve on the Committee.
The salaries of the executive officers for 1996 were based on an
evaluation of individual job performance and the performance of the Company as a
whole. In making its decision on salary levels, the Committee did not use any
predetermined formula or assign any particular weight to any individual
criteria. The Committee also has discretion to pay bonus compensation, although
there is no formalized incentive payment plan or program and no annual bonuses
were paid to executive officers for 1996.
The Committee believes that it is essential for executives, as well as
other employees, of the Company, to own significant amounts of Common Stock,
through the granting of stock options which generally vest over a four year
period, thereby better aligning the long-term interest of executives with that
of the Company's shareholders. The Compensation and Benefits Committee believes
that stock options provide incentive to executives by giving them a strong
economic interest in maximizing stock price appreciation and enhancing their
performance in attaining long-term Company objectives. In January of 1996, the
Committee modified the typical vesting provision of the Company's standard form
of employee stock option agreement to include target price levels that the
Company's Common Stock would have to reach for each year of a stock option's
vesting period for such option to become exercisable immediately with respect to
that portion of the option which vested over the year; otherwise, the options
would not vest for five years. The Committee believes that such modification
will further align the long-term interest of the Company's executives and other
employees to that of the Company's shareholders. The Company also uses initial
option grants to induce qualified senior management candidates to accept offers
of employment.
30
<PAGE>
Beginning in 1994, Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), limits the deductibility of compensation in excess of
$1 million paid to the Company's Chief Executive Officer and to any of the other
four highest-paid executive officers unless such compensation qualifies as
"performance-based," as defined in Section 162(m) and the regulations
thereunder. The Company is assessing, and generally will seek to implement steps
to eliminate or minimize, the impact of this provision on its compensation plans
and policies and to assure future deductibility of senior executive
compensation, to the extent that so qualifying does not compromise the
Committee's flexibility in designing effective, competitive compensation plans
and is not inconsistent with the Company's fundamental compensation policies.
The effect of Section 162(m) did not limit the deductibility of any compensation
paid to any of the "covered employees" of the Company between 1994 to 1996.
R. Nim Evatt
Richard J. Defieux
John A. Hinds
James D. Rosener
The above Report shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 (the "Securities Act") or the Exchange
Act and shall not otherwise be deemed filed under such Acts.
Compensation and Benefits Committee Interlocks
and Insider Participation
The Compensation and Benefits Committee of the Board of Directors
currently consists of R. Nim Evatt, Richard J. Defieux, John A. Hinds and James
D. Rosener. Mr. Evatt is the Chairman of the Board, Chief Executive Officer and
President of the Company. Mr. Defieux is an affiliate of one of the two venture
capital funds that together were controlling shareholders of the Company prior
to its initial public offering, each of which had a right to designate one board
member at such time, which right terminated upon the closing of the initial
public offering. See also "Certain Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is presented under the caption
"Security Ownership of Certain Beneficial Owners and Management" of the
Company's definitive Proxy Statement to be filed with the Commission not later
than April 29, 1997 and is hereby incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is presented under the caption "Certain
Transactions" of the Company's definitive Proxy Statement to be filed with the
Commission not later than April 29, 1997 and is hereby incorporated by reference
herein.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules.
(1) The Consolidated Financial Statements of the Company and its
subsidiaries filed as part of this Report are listed in the
attached Index to Consolidated Financial Statements and Financial
Statement Schedules.
(2) The Schedules to the Consolidated Financial Statements of the
Company and its subsidiaries filed as part of this Report are
listed in the attached Index to Consolidated Financial Statements
and Financial Statement Schedules.
(3) The exhibits filed as part of this Report are listed in the Index
to Exhibits immediately following the Consolidated Financial
Statements included in this Report.
(b) Reports on Form 8-K. One Form 8-K was filed by the Registrant during
the fourth quarter of 1996.
32
<PAGE>
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1996 AND 1995 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1996, 1995 AND 1994 F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED DECEMBER 31, 1996, 1995 AND 1994 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE:
II. VALUATION AND QUALIFYING ACCOUNTS F-21
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Liberty Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Liberty
Technologies, Inc. (a Pennsylvania corporation) and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements and schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule 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 Liberty Technologies, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1, subsequent to February 5, 1997, the date of our original
report (except for the matter discussed in Notes 1 and 6 as to which the date is
April 4, 1997), the Company (i) has continued to incur losses in 1997 (ii)
continues to experience limitations on its ability to borrow and (iii) is in
violation of certain loan covenants that gives the lenders the right to
accelerate the due date of the loan. These factors, as described in Note 1,
create a substantial doubt about the Company's ability to continue as a going
concern and an uncertainty as to the recoverability and classification of
recorded asset amounts and the amounts and classification of liabilities.
Management's plans in regard to these matters are also described in Note 1. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Financial Statements and Financial Statement Schedule is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
September 17, 1997
F-2
<PAGE>
<TABLE>
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
December 31,
--------------------
ASSETS 1996 1995
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................. $ 324 $ 356
Accounts receivable, net of allowance for doubtful
accounts of $182 and $111 ............................. 8,499 9,050
Inventories ............................................ 3,742 2,075
Deferred income taxes .................................. 385 730
Prepaid income taxes ................................... 230 319
Prepaid expenses and other ............................. 414 377
-------- --------
Total current assets ......................... 13,594 12,907
Property and equipment, net ................................ 4,612 3,890
Goodwill, net .............................................. 4,961 5,325
Deferred income taxes, net ................................. 367 281
Other assets ............................................... 1,483 1,400
-------- --------
$ 25,017 $ 23,803
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit ......................................... $ 5,725 $ 2,200
Current maturities of long-term debt ................... 66 92
Book overdraft ......................................... 472 --
Accounts payable ....................................... 2,728 2,277
Accrued compensation and benefits ...................... 1,250 1,361
Unearned revenue ....................................... 12 340
Income taxes payable ................................... 137 196
Other accrued expenses ................................. 376 668
-------- --------
Total current liabilities .................... 10,766 7,134
-------- --------
Long-term debt ............................................. 217 259
-------- --------
Due to minority shareholder 61 --
-------- --------
Commitments (Note 8)
Shareholders' equity:
Series A Preferred stock, $.001 par value, 10,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 10,000,000 shares
authorized, 5,018,987 and 5,003,362 shares issued,
and 4,989,915 and 4,957,151 outstanding ............. 50 50
Additional paid-in capital ............................. 17,242 17,195
Accumulated deficit .................................... (3,178) (606)
Treasury stock at cost ................................. (149) (237)
Cumulative translation adjustment ...................... 8 8
-------- --------
Total shareholders' equity ................... 13,973 16,410
-------- --------
$ 25,017 $ 23,803
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Product ................................................... $ 12,456 $ 12,474 $ 9,049
Service ................................................... 23,125 26,645 18,682
-------- -------- --------
35,581 39,119 27,731
-------- -------- --------
Cost of revenues:
Product ................................................... 4,243 5,364 3,335
Service ................................................... 15,255 17,266 12,247
-------- -------- --------
19,498 22,630 15,582
-------- -------- --------
Gross profit ................................... 16,083 16,489 12,149
-------- -------- --------
Operating expenses:
Engineering and product development ....................... 4,656 2,868 3,122
Selling, general and administrative ....................... 13,736 12,883 9,233
Non-recurring charges (Note 3) ............................ -- 4,428 --
-------- -------- --------
18,392 20,179 12,355
-------- -------- --------
Operating loss ................................. (2,309) (3,690) (206)
Interest income (expense), net ............................... (226) (61) 139
Other ........................................................ -- -- (41)
-------- -------- --------
Loss before income taxes and minority interest.. (2,535) (3,751) (108)
Income taxes (benefit) ....................................... 87 (1,109) (4)
-------- -------- --------
Loss before minority interest .................. (2,622) (2,642) (104)
Minority interest in loss of joint venture ................... (50) -- --
-------- -------- --------
Net loss ..................................................... $ (2,572) $ (2,642) $ (104)
======== ======== ========
Net loss per share ........................................... $ (.52) $ (.53) $ (.02)
======== ======== ========
Shares used in computing net loss per share .................. 4,970 4,943 4,859
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<TABLE>
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
<CAPTION>
Common Stock Treasury Stock Total
------------------ Additional Retained ------------------ Cumulative Share-
Number Paid-in Earnings Number Translation holders'
of Shares Amount Capital (Deficit) of Shares Amount Adjustment Equity
--------- ------ -------- ------- --------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ...................... 4,614,638 $ 46 15,315 $ 2,140 -- $ -- $ -- $17,501
Shares issued in connection with acquisition of
Industrial NDT Company, Inc. (Note 2) ....... 317,460 3 1,751 -- -- -- -- 1,754
Exercise of stock options ..................... 57,100 1 131 -- -- -- -- 132
Purchase of treasury stock .................... -- -- -- -- 75,000 (406) -- (406)
Shares issued for employee stock purchase plan 4,914 -- 15 -- (9,422) 62 -- 77
Net loss ...................................... -- -- -- (104) -- -- -- (104)
--------- ------ -------- ------- ------ ------ ------ -------
Balance, December 31, 1994 ...................... 4,994,112 50 17,212 2,036 65,578 (344) -- 18,954
Exercise of stock options ..................... 9,250 -- 16 -- -- -- -- 16
Shares issued for employee stock purchase plan -- -- (33) -- (19,367) 107 -- 74
Currency translation adjustment ............... -- -- -- -- -- -- 8 8
Net loss ...................................... -- -- -- (2,642) -- -- -- (2,642)
--------- ------ -------- ------- ------ ------ ------ -------
Balance, December 31, 1995 ...................... 5,003,362 50 17,195 (606) 46,211 (237) 8 16,410
Exercise of stock options ..................... 15,625 -- 67 -- -- -- -- 67
Shares issued for employee stock purchase plan -- -- (20) -- (17,139) 88 -- 68
Net loss ...................................... -- -- -- (2,572) -- -- -- (2,572)
--------- ------ -------- ------- ------ ------ ------ -------
Balance, December 31, 1996 ...................... 5,018,987 $ 50 $ 17,242 $(3,178) 29,072 $ (149) $ 8 $13,973
========= ====== ======== ======= ====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
LIBERTY TECHNOLOGIES INC. AND SUBSIDIARIES
- -----------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $(2,572) $(2,642) $ (104)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization ................................. 1,924 2,518 1,577
Deferred income taxes ......................................... 284 (931) 377
Minority interest in loss of joint venture .................... (50) -- --
Write-off capitalized software ................................ -- 3,670 --
Change in assets and liabilities, net of effect from
acquisitions-
(Increase) decrease in:
Accounts receivable ............................... 551 (2,865) 2,042
Inventories ....................................... (1,975) (406) (41)
Prepaid income taxes .............................. 67 (24) (292)
Prepaid expenses and other ........................ (31) (19) 85
Other assets ...................................... 63 (10) (105)
Increase (decrease) in:
Accounts payable .................................. 451 738 (417)
Accrued expenses and compensation ................. (403) 706 (437)
Income taxes payable .............................. 46 190 --
Unearned revenue .................................. (328) (58) 220
------- ------- -------
Net cash provided by (used in) operating
activities ....................................... (1,973) 867 2,905
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment ............................... (1,844) (1,526) (1,397)
Sale of short-term investments .................................... -- -- 7,757
Purchases of technology licenses .................................. (100) -- (688)
Capitalization of software development costs ...................... -- (1,745) (1,674)
Payment for purchase of acquisitions, net of cash acquired
and common stock issued ......................................... -- (500) (5,674)
Other ............................................................. (224) 118 (63)
------- ------- -------
Net cash used in investing activities ............... (2,168) (3,653) (1,739)
------- ------- -------
Cash flows from financing activities:
Payments of long-term debt (INDT acquisition) ..................... -- -- (1,112)
Payments of long-term debt (other) ................................ (134) (240) (192)
Net borrowings under line of credit ............................... 3,525 2,200 --
Increase in book overdraft ........................................ 472 -- --
Proceeds from exercise of stock options and warrants .............. 67 16 132
Proceeds from Employee Stock Purchase Plan ........................ 68 75 77
Treasury stock purchases .......................................... -- -- (406)
Investment from minority shareholder in joint venture ............. 111 -- --
------- ------- -------
Net cash provided by (used in) financing
activities ........................................ 4,109 2,051 (1,501)
------- ------- -------
Effect of foreign exchange rate changes on cash ...................... -- 8 --
------- ------- -------
Net decrease in cash and cash equivalents ............................ (32) (727) (335)
Cash and cash equivalents, beginning of year ......................... 356 1,083 1,418
------- ------- -------
Cash and cash equivalents, end of year ............................... $ 324 $ 356 $ 1,083
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Background
Liberty Technologies, Inc. (the Company), founded in 1984, develops,
manufactures, markets and sells diagnostic, condition monitoring and
nondestructive evaluation systems and provides related services to customers in
worldwide pulp and paper, aerospace, automotive, chemical, petrochemical, and
power industries. The Company's products are designed to reduce operating and
maintenance costs and increase efficiency, reliability and safety of plant
operations. The Company has established certain strategic technical and
commercial alliances to advance its business objectives.
Going Concern
As indicated in the accompanying financial statements, the Company has incurred
losses during the last three years. Additionally, for the six months ended June
30, 1997 the Company incurred a net loss of $20,000. During 1996 and 1997, the
Company's primary source of financing has been borrowings under its line of
credit. During 1997, the Company has experienced and continues to experience
limitations on its ability to borrow. Additionally, in 1997, the Company was in
violation of certain loan covenants that gives the lenders the right to
accelerate the due date of the loan. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
In April 1997, the Company's line of credit facility was amended to extend the
line through March 1998 (see Note 6). As of September 17, 1997, the Company is
in violation of certain loan covenants under the loan agreement with its bank.
Additionally, since June 30, 1997, the Company's outstanding principal balance
under the credit facility has exceeded the line's borrowing base. These events
constitute events of default under the Company's loan agreement with its bank.
The bank has reserved the right not to make any further advances under the
facility in excess of the borrowing base and any future advances are at the
discretion of the bank. The Company's maximum borrowing availability,
notwithstanding the borrowing base limitations, decreases to $6,500,000 at
September 30, 1997 from $7,500,000 at June 30, 1997. At August 31, 1997,
approximately $6,900,000 was outstanding under the line. These events of default
may have a material adverse effect on the Company.
On July 25, 1997, the Company entered into an agreement to sell substantially
all of the assets of its nondestructive testing and evaluation services business
(the NDE Business) to a subsidiary of General Electric Company (GE) for
$13,600,000 (subject to a dollar-for-dollar reduction based on the amount of
working capital and the amount of fixed assets of the NDE Business on the
closing date) and the assumption of certain associated liabilities not to exceed
$1,390,000. Approximately 10% of the cash portion of the purchase price will be
held in escrow to secure certain indemnification obligations of the Company to
the buyer. Consummation of the transaction is subject to, among other things,
the approval of the Company's shareholders. If approved and the other conditions
are satisfied it is currently expected that the transaction will close by
October 31, 1997. The Company intends to use the proceeds from the sale of the
NDE Business to repay its bank debt, to invest in the existing product business
and for other corporate purposes.
F-7
<PAGE>
These can be no assurance that the Company will consummate the sale of the NDE
Business. If the sale of the NDE Business is not completed, the Company would
need to pursue alternative financing such as a private placement. Management is
unable to estimate the amount and timing of funding required, if any, from these
alternative sources.
These financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and its 51% owned joint venture, Liberty Maintenance
Predictive (Liberty M.P.). Minority interest represents the minority
shareholder's proportionate share of the equity in the Company's consolidated
joint venture (See Note 13). All inter-company transactions and balances have
been eliminated in consolidation.
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories include the cost of materials, freight, direct labor and
manufacturing overhead.
Software Development Costs
In accordance with Statement of Financial Accounting Standards No. 86
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed" ("SFAS No. 86"), the Company capitalizes certain product development
costs related to the development of new software and significant enhancements to
existing software. The capitalization of such costs begins when a project
reaches technical feasibility, and ceases when the product is available for
general release. Capitalized software development costs are amortized on a
straight-line basis over the estimated economic life of the product (usually
three years), beginning with its release to customers. Product maintenance costs
are charged to expense as incurred.
F-8
<PAGE>
For the years ended December 31, 1995 and 1994, the Company capitalized
$1,745,000 and $1,674,000, respectively, of software development costs relating
to new product lines. The Company also purchased $450,000 of capitalized
software with the acquisition of Beta Monitors and Controls Ltd. in 1994. For
the years ended December 31, 1995 and 1994, the Company recorded amortization of
$733,000 and $185,000, respectively. As of December 31, 1995 the Company wrote
off capitalized software costs of $3,670,000. This write-off of the software
development costs was due to the rapidly changing technology environment in
which the Company operates and its impact on product life cycles. Software
development costs were not capitalized in 1996.
Property and Equipment
Property and equipment are recorded at cost. Additions or improvements are
capitalized, while repairs and maintenance are charged to expense. Depreciation
is computed on straight-line methods for financial reporting purposes and on
accelerated methods for income tax purposes. Buildings and improvements are
depreciated over 25 years and 15 years, respectively, while machinery and
equipment and furniture and fixtures are depreciated over their estimated useful
lives of 3 to 7 years.
Leasehold improvements and capitalized leases are amortized over the shorter of
the useful life of the related asset or the lease term. Upon retirement or
disposition, the applicable property amounts are relieved from the accounts, and
any gain or loss is recorded in the statement of income.
Revenue Recognition
Product revenues are recognized when products are shipped and service revenues
are recognized as earned when the related services are performed. Included in
service revenues are royalties, license fees and research funding of $231,000,
$132,000 and $122,000 in 1996, 1995 and 1994, respectively.
Major Customers and Concentration of Credit Risk
The Company sells its products and services primarily to the domestic and
international power and process industries. Financial instruments that
potentially subject the Company to credit risk consist primarily of trade
accounts receivable. For the years ended December 31, 1996, 1995 and 1994, no
customer accounted for more than 10% of total revenues. For the year ended
December 31, 1996, the Company's foreign operations and export sales
approximated $4.6 million or 13% of total revenues. For the years ended December
31, 1995 and 1994, foreign operations and export sales accounted for less than
10% of total revenues. There is no single geographic area of significant
concentration.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses, and debt
instruments. The values of cash and cash equivalents, accounts receivable,
accounts payable, and accrued expenses are considered to be representative of
their respective fair values. Based on the terms of the Company's debt
instruments that are outstanding as of December 31, 1996, the carrying values
are considered to approximate their respective fair values. See Notes 6 and 7
for the terms and carrying values of the Company's various debt instruments.
F-9
<PAGE>
Warranty Provision
A provision for expected future product warranty claims is estimated by
management based on the Company's prior claim experience.
Income Taxes
Income taxes are calculated using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax basis of assets and
liabilities and are measured using enacted tax rates that are expected to be in
effect when the differences reverse.
Engineering and Product Development
Engineering and product development costs, which are not capitalized software,
are charged to expense in the period incurred.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include
cash in checking accounts, highly liquid investments and short-term investments
with an initial maturity term of three months or less.
Statements of Cash Flows Information
For the years ended December 31, 1996, 1995 and 1994, the Company paid interest
of $270,000, $129,000, and $44,000, respectively, and income taxes of $103,000,
$75,000 and $280,000, respectively. The following table displays non-cash assets
that were recorded as a result of the acquisitions discussed in Note 2.
1994
-----------
NON-CASH ASSETS:
Accounts receivable $ 2,828,000
Inventory 509,000
Prepaid expenses 441,000
Property and equipment 1,857,000
Non-compete agreement --
Goodwill 5,600,000
Other assets 808,000
-----------
Net non-cash assets acquired 12,043,000
Assumed liabilities (4,615,000)(a)
-----------
Total consideration 7,428,000
Note payable to seller under non-compete agreement (Note 7) --
Common stock issued to sellers (1,754,000)
-----------
Net cash paid $ 5,674,000
===========
(a) $1,112,000 of assumed debt was repaid to third parties subsequent to the
closing of the INDT acquisition.
F-10
<PAGE>
Net Loss Per Share
Net loss per share is calculated by dividing net loss by the weighted average
number of common shares outstanding for the respective periods.
Foreign Currency Translation
The Company's foreign subsidiaries translate their balance sheet and income
statement accounts from their local currency to U.S. dollars, using the year end
and weighted average exchange rates, respectively. Translation adjustments
resulting from this process are recorded directly in shareholders' equity.
Reclassifications
Certain reclassifications have been made to the 1995 financial statements to
conform to current presentations.
Goodwill
The excess of the purchase prices of acquisitions over the fair market value of
the acquired net assets is recorded as goodwill and amortized on a straight-line
basis over 10 or 20 years. As of December 31, 1996 and 1995, goodwill is net of
accumulated amortization of $850,000 and $486,000, respectively. The Company
continually evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life may warrant revision or that the
remaining balance of goodwill may not be recoverable. When factors indicate that
goodwill should be evaluated for possible impairment, the Company uses an
estimate of the related undiscounted future cash flows over the remaining life
of the goodwill in measuring whether the goodwill is recoverable.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long
Lived Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121 established
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill. The Company adopted SFAS No. 121
effective January 1, 1996. The adoption did not have an effect on the Company's
financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 established financial accounting
and reporting standards for stock based compensation plans. The Company has
adopted the disclosure requirements of SFAS No. 123 (see Note 10).
F-11
<PAGE>
2. ACQUISITIONS:
On August 12, 1994, the Company acquired 100% of the capital stock of Beta
Monitors and Controls Ltd., a Canadian company (Beta), for Canadian $5,500,000,
equivalent to U.S. $4,022,000. The Company also entered into a four year
employment agreement with Beta's former president, who retired at the end of
1996, which required a base level of compensation and an annual bonus based on
the performance of the business. The transaction was accounted for using the
purchase method of accounting, whereby the purchase price is allocated to the
assets and liabilities of Beta based on their fair market value at the
acquisition date. Such allocation has been based on estimates that may be
revised at a later date. The excess of cash paid over the estimated fair value
of the net assets acquired was approximately $2,490,000 which was recorded as
goodwill and is being amortized on a straight-line basis over 20 years.
On March 28, 1994, the Company acquired 100% of the capital stock of Industrial
NDT Company, Inc. (INDT) in exchange for $2,000,000 in cash and 317,460 shares
of common stock of the Company (valued at $1,754,000), and a contingent payment
of up to $500,000 (paid in February 1995). The acquisition has been accounted
for using the purchase method, whereby the purchase price is allocated to the
assets and liabilities of INDT based on their fair market value at the
acquisition date. Such allocation has been based on estimates that may be
revised at a later date. The purchase price, including transaction costs and the
$500,000 contingent payment paid in February 1995, exceeded the fair market
value of the net assets acquired by $3,110,000 which was recorded as goodwill
and is being amortized on a straight-line basis over 20 years.
In 1993, the Company acquired substantially all of the net assets of Boggs
Technical Services, Inc. (MOV Services) and entered into a ten-year non-compete
agreement with the owner of MOV Services. The acquisition was accounted for
using the purchase method of accounting. The related goodwill and non-compete
agreement are being amortized over ten years.
The following unaudited pro forma information is presented for the acquisitions
of Beta and INDT as if the acquisitions had occurred on January 1, 1994.
The unaudited pro forma information does not purport to be indicative of the
results that would have been attained if the operations had actually been
combined during the periods presented, and is not necessarily indicative of
operating results to be expected in the future.
For the Year Ended
December 31, 1994
-----------------------
Total revenues $33,723,000
Net income $ 241,000
Shares used in computing earnings per share 4,938,000
Net income per share $ .05
F-12
<PAGE>
3. NON-RECURRING CHARGES:
In 1995 the Company reorganized its two product operations into one unit and its
two service operations into a second unit. This reorganization resulted in a
restructuring charge of $758,000 for the year ended December 31, 1995.
Also in 1995 the Company wrote-off capitalized software costs totaling
$3,670,000 (see Note 1).
4. INVENTORIES:
December 31,
------------------------------------
1996 1995
---------------- ----------------
Raw materials & work in process $ 3,171,000 $ 1,687,000
Finished goods 571,000 388,000
---------------- ----------------
$ 3,742,000 $ 2,075,000
================ ================
F-12
<PAGE>
5. PROPERTY AND EQUIPMENT:
December 31,
------------------------------------
1996 1995
---------------- ----------------
Land $ 163,000 $ 163,000
Machinery and equipment 7,220,000 5,761,000
Furniture and fixtures 990,000 1,117,000
Buildings and improvements 615,000 604,000
Leasehold improvements 235,000 143,000
---------------- ----------------
9,223,000 7,788,000
Less- Accumulated depreciation and
amortization (4,611,000) (3,898,000)
---------------- ----------------
$ 4,612,000 $ 3,890,000
================ ================
6. LINE OF CREDIT:
The Company had a $7,500,000 credit facility with a commercial bank, with
interest at the lower of the Eurodollar rate plus 1.25% or the bank's prime rate
less one-half percent. The rate at December 31, 1996 was 6.36%. The line
requires an annual fee of one quarter percent on the unused portion and requires
that the Company maintain certain financial covenants. The Company was not in
compliance with certain of these covenants at December 31, 1996. The bank has
waived non compliance with these covenants through May 1, 1997. The line is
collateralized by substantially all of the Company's accounts receivable and
inventory. The maximum additional availability as of December 31, 1996 was
$1,775,000. Interest of $265,000 and $56,000 was charged to expense for the
years ended December 31, 1996 and 1995, respectively, at a weighted average
interest rate of 6.87% and 6.75%, respectively.
F-13
<PAGE>
The Company amended the credit facility effective April 3, 1997. The amended
facility provides maximum availability of $9,000,000 through June 30, 1997;
$7,500,000 through September 30, 1997; $6,500,000 through December 31, 1997; and
$5,500,000 through March 31, 1998. After June 30, 1997, borrowings under the
line are limited to 85% of eligible receivables and 25% of eligible inventory,
as defined. Beginning after October 1, 1997, the borrowing base will be limited
solely to 85% of eligible receivables, as defined. The interest rate on the
facility varies from the Eurodollar rate plus 1.50% to the bank's prime rate
plus 1.00% and is payable at the maturity of each draw against the facility. The
line of credit expires on March 31, 1998.
Liberty M.P. has a credit facility with a commercial bank which provides for
maximum availability of approximately $342,000, with interest at the bank's
weighted middle rate plus 1.8%. There were no borrowings for the year ended
December 31, 1996.
7. LONG-TERM DEBT:
December 31,
------------------------
1996 1995
--------- ---------
Annuity payable to former shareholder
of INDT, monthly payments of $3,000,
net of unamortized discount of $81,000
and $99,000 at December 31, 1996 and
1995, respectively $ 207,000 $ 223,000
Note payable in connection with
covenant not-to-compete, net of
unamortized discount of $1,000 at
December 31, 1995 (see Note 2) -- 49,000
Other 76,000 79,000
--------- ---------
283,000 351,000
Less- Current portion (66,000) (92,000)
--------- ---------
$ 217,000 $ 259,000
========= =========
Long-term debt maturities as of December 31, 1996 are as follows:
1997 $ 83,000
1998 52,000
1999 37,000
2000 36,000
2001 33,000
Thereafter 123,000
------------
364,000
Less- Unamortized discount (81,000)
------------
$ 283,000
============
8. LEASE COMMITMENTS:
The Company leases office space under non-cancelable operating leases that
expire on various dates through 2001. Rent expense was $771,000, $687,000, and
$709,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Future minimum payments under the leases as of December 31, 1996, are as
follows:
1997 $ 677,000
1998 673,000
1999 688,000
2000 649,000
2001 87,000
------------
$ 2,774,000
============
F-14
<PAGE>
9. SHAREHOLDER RIGHTS PLAN:
In May 1996, the Company adopted a Shareholder Rights Plan ("the Rights Plan")
to insure that any acquisition of the Company would be on terms that are fair to
and in the best interest of all shareholders. Under the Rights Plan, holders of
common stock are entitled to receive one right for each share of common stock
held. Separate rights certificates would be issued and become exercisable in the
event that an acquiring party accumulates 15% or more of the Company's common
stock or announces an offer to acquire 15% or more of the outstanding Company
common stock.
Each right will entitle a holder, except a 15% or more holder, to buy one
one-thousandth share of Series A Preferred Stock at an exercise price of $48 per
unit. Each one one-thousandth share of such Preferred stock is essentially
equivalent to one share of the Company's common stock. However, if an acquiring
party accumulates 15% or more of the Company common stock or certain other
events occur, each right entitles the holder (other than a 15% holder) to
purchase for $48 either $96 worth of the Company's common stock or $96 worth of
the 15% holder's common stock.
The rights expire in May 2006 and may be redeemed by the Company at a price of
$.001 per right at any time up to ten days after they become exercisable or in
connection with a transaction approved by the Board of Directors.
10. STOCK INCENTIVE PLANS:
Stock Option Plans
The Company has two stock option plans, the 1992 Stock Option Plan and the 1988
Stock Option Plan, which provide for the granting of options to purchase an
aggregate of 1,800,000 shares of Common Stock to eligible employees and others.
The 1992 Stock Option Plan provides for the grant of options to purchase up to
1,300,000 shares. There were 578,000 options available for future grant as of
December 31, 1996 under this Plan. No additional options will be granted under
the 1988 Stock Option Plan, which provided for the grant of options to purchase
up to 500,000 shares.
Options granted may be at fair market value of the stock or at a price
determined by a committee of the Board. The stock options generally vest over a
four-year period, except for non-employee director grants which vest
immediately, and are exercisable over a period determined by the committee but
not longer than ten years.
F-15
<PAGE>
Information with respect to the options under both plans and certain prior
options is as follows:
<TABLE>
<CAPTION>
Aggregate Option Price
Shares Price Per Share
--------- ------------- ---------------
<S> <C> <C> <C>
Outstanding, December 31, 1993 727,100 $ 2,972,000 $ 1.65 - 9.50
Granted 459,500 2,842,000 3.75 - 9.25
Exercised (57,100) (132,000) 1.65 - 6.00
Canceled (76,625) (391,000) 1.65 - 8.75
--------- -------------
Outstanding, December 31, 1994 1,052,875 5,291,000 $ 1.65 - 9.50
Granted 81,000 403,000 4.25 - 6.25
Exercised (9,250) (16,000) 1.65 - 4.00
Canceled (54,875) (260,000) 3.75 - 9.00
--------- -------------
Outstanding, December 31, 1995 1,069,750 5,418,000 $ 1.65 - 9.50
Granted 212,000 1,208,000 3.00 - 4.88
Exercised (15,625) (67,000) 1.65 - 5.25
Canceled (243,625) (1,920,000) 4.00 - 9.75
--------- -------------
Outstanding, December 31, 1996 1,022,500 $ 4,639,000 $ 1.65 - 9.75
========= =============
</TABLE>
At December 31, 1996, options totaling 657,269 were vested at exercise prices
ranging from $1.65 to $9.75 per share. The aggregate exercise price of these
options was $2,539,000 as of December 31, 1996.
Employee Stock Purchase Plan
Under the terms of the Company's 1993 Employee Stock Purchase Plan, eligible
employees may purchase shares of the Company's common stock, based on
compensation, though payroll deductions. The purchase price is equal to 85% of
the lower of the average of the highest and the lowest price of the stock on the
first and on the last day of the preceding quarter.
Fair Value of Stock Based Compensation
The Company applies Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees," and the related interpretations in accounting for
its stock option plans. The disclosure requirements of SFAS No. 123 were adopted
by the Company in 1996. Had compensation cost for the Company's common stock
option plans been determined based upon the fair value of the options at the
date of grant, as prescribed under SFAS No. 123, the Company's net loss would
have been increased to the following pro forma amounts:
F-16
<PAGE>
Year Ended December 31,
-----------------------------
1996 1995
------------ ------------
Net loss as reported $ (2,572,000) $ (2,642,000)
Pro forma net loss $ (2,727,000) $ (2,723,000)
Net loss per share as reported $ (.52) $ (.53)
Pro forma net loss per share $ (.55) $ (.55)
Because the SFAS No. 123 method of accounting is not required to be applied to
options granted prior to January 1, 1995, the resulting pro-forma compensation
cost may not be representative of that to be expected in future years. The
weighted average fair value of options granted was $2.56 and $3.39 for the years
ended December 31, 1996 and 1995, respectively.
Information with respect to the options outstanding under the two stock options
plans at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Outstanding Contractual Exercise Outstanding Exercise
Periods Granted at 12/31/96 Life Price at 12/31/96 Price
--------------- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
Prior to January 1, 1995 757,990 5.7 years $ 4.22 627,144 $ 3.83
During 1995 62,006 8.4 years $ 5.12 22,625 $ 4.99
During 1996 202,504 9.4 years $ 5.56 7,500 $ 3.21
------------ --------- ------ ---------- ------
1,022,500 6.6 years $ 4.54 657,269 $ 3.86
============ ========= ====== ========== ======
</TABLE>
The fair value of each grant is estimated on the date of grant using the
Black-Sholes option pricing model with the following assumptions used for grants
in 1996 and 1995: no expected dividend yield; volatility - 60%; risk free
interest rate of 5.4% to 7.9% based on the rate in effect on the date of grant;
and an expected life of 6.0 years.
F-17
<PAGE>
11. INCOME TAXES (BENEFIT):
The components of loss before income taxes (benefit) were as follows:
Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Income (loss) before income taxes:
Domestic $(2,474,000) $(3,288,000) $ (220,000)
Foreign (61,000) (454,000) 112,000
----------- ----------- -----------
$(2,535,000) $(3,742,000) $ (108,000)
----------- ----------- -----------
The components of income taxes (benefit) were as follows:
Year Ended December 31,
-----------------------------------------
Current provision (benefit):
Federal $ (366,000) $ (294,000) $ (438,000)
State 57,000 64,000 53,000
Foreign 112,000 52,000 4,000
----------- ----------- -----------
(197,000) (178,000) (381,000)
----------- ----------- -----------
Deferred provision (benefit):
Federal (523,000) (708,000) 379,000
State -- 5,000 (2,000)
Foreign (82,000) (228,000) --
----------- ----------- -----------
(605,000) (931,000) 377,000
----------- ----------- -----------
Increase in valuation allowance 889,000 -- --
----------- ----------- -----------
$ 87,000 $(1,109,000) $ (4,000)
=========== =========== ===========
The reconciliation of the statutory federal rate to the Company's effective
income tax rate is as follows:
Year Ended December 31,
----------------------------
1996 1995 1994
------ ------ ------
Statutory tax provision (benefit) (34.0)% (34.0)% (34.0)%
State income taxes, net of federal tax benefit 1.5 1.2 31.4
Foreign taxes 2.0 0.6 33.8
Tax credits utilized (3.8) -- --
Net operating losses for which no tax benefit is
currently available 35.1 -- --
Other, net 2.6 2.6 (34.6)
------ ------ ------
3.4% (29.6)% (3.4)%
====== ====== ======
F-18
<PAGE>
The tax effect of temporary differences that give rise to deferred income taxes
are as follows:
December 31,
--------------------------
1996 1995
----------- -----------
Gross deferred tax asset:
Accruals and reserves currently not deductible $ 385,000 $ 250,000
Net operating loss carryforwards 1,114,000 480,000
Tax credit carryforwards 305,000 278,000
Intangible asset amortization -- 60,000
Other 53,000 57,000
Valuation allowance (889,000) --
----------- -----------
$ 968,000 $ 1,125,000
=========== ===========
Gross deferred tax liability:
Depreciation $ (203,000) $ (4,000)
Other (13,000) (108,000)
----------- -----------
$ (216,000) $ (112,000)
=========== ===========
As December 31, 1996, the Company had net operating loss carryforwards and tax
credit carryforwards for federal income tax purposes of approximately $2,131,000
and $511,000, respectively. The net operating loss carryforwards and tax credit
carryforwards will begin to expire in 2009 and 2007, respectively.
During 1996, management evaluated the realizability of the deferred tax asset
under the guidelines set forth in SFAS No. 109 and recorded a valuation
allowance. Realization of the remaining carryforwards and timing differences are
dependent on generating sufficient taxable income prior to expiration of the
carryforwards. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income
during the carryforward period are reduced. Any future benefits recognized from
the reduction of the valuation allowance will result in a reduction of income
tax expense.
12. SAVINGS PLAN:
The Company has established a Retirement Savings Plan that is intended to
qualify under Sections 401(a) and 401(k) of the Internal Revenue Code and covers
substantially all employees. The Company currently matches 25% of eligible
employees' contributions up to a maximum of 1.5% of each employee's
compensation. The expense under this plan was approximately $136,000, $88,000
and $51,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
F-19
<PAGE>
13. JOINT VENTURE:
In December 1995 the Company formed a joint venture with Electricite de France
for the sale of products and services within the European Union. The Company
invested $116,000 for a 51% ownership interest in Liberty M.P., SAS. Liberty
M.P. had revenues of $2,423,000 and a net loss of $101,940 for the year ended
December 31, 1996. Liberty M.P. had no material operating activities through
December 31, 1995.
F-20
<PAGE>
Schedule II
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Additions
Balance at Charged to Balance at
Beginning Costs and Other End of
Classifications of Period Expenses Deductions Increases (A) Period
--------------- --------- -------- ---------- ------------- ------
<S> <C> <C> <C> <C> <C>
For the Year Ended,
December 31, 1996
Allowance for doubtful
accounts $ 111,000 $ 81,000 $ 10,000 $ -- $ 182,000
=========== ============= ============ ============ ============
For the Year Ended,
December 31, 1995
Allowance for doubtful
accounts $ 136,000 $ 169,000 $ 194,000 $ -- $ 111,000
=========== ============= ============ ============ ============
For the Year Ended,
December 31, 1994
Allowance for doubtful
accounts $ 83,000 $ 31,000 $ 81,000 $ 103,000 $ 136,000
=========== ============= ============ ============ ============
</TABLE>
(A) Balances as of acquisition dates of INDT and Beta (see Note 2 of Notes to
Consolidated Financial Statements)
F-21
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequentially
No. Numbered
Description Page
----------- ----
2.1 Agreement and Plan of Merger dated as of March 11,
1994 among the Company, Liberty Acquisition
Corp., Industrial NDT Company, Inc., John D. Ridgeway,
Jr. and Sandra R. Miles. The Exhibits and Schedules
to the Agreement and Plan of Merger other than the
Disclosure Memorandum (not including attachments
thereto), the Registration Rights and Stock Restriction
Agreement and the Employment Agreements are not being
filed with this Annual Report on Form 10-K.**...............
2.2 Registration Rights and Stock Restriction Agreement
between the Company and the shareholders of INDT dated
as of March 28, 1994**......................................
2.4 Stock Purchase Agreement dated as of August 9, 1994 by
and among Liberty Technologies, Inc., 3039111 Canada,
Ltd., and the shareholders of Beta Monitors & Controls,
Ltd. ( which are listed on Schedule A attached to the
Stock Purchase Agreement.)***...............................
3.1 Restated Certificate of Incorporation of the Company*.......
3.2 By-Laws of the Company, Effective November 10, 1992*........
4.1 Specimen Stock Certificate*.................................
10.1 1992 Stock Option Plan and related Form of Stock Option
Agreement*..................................................
10.2 1988 Stock Option Plan*.....................................
10.3 Employee Stock Purchase Plan*...............................
10.4 Retirement Savings Plan*....................................
- --------
* Filed as an exhibit to the Company's Form S-1
Registration Statement, No. 33-58600, and incorporated
herein by this reference.
** Filed as an exhibit to the Company's Report on Form 8-K
dated April 8, 1994.
*** Filed as an exhibit to the Company's Report on Form 8-K
dated August 24, 1994.
**** Filed as an exhibit to the Company's Report on Form
10-K for the year ended December 31, 1993.
***** Filed as an exhibit to the Company's Report on Form
10-K for the year ended December 31, 1994.
****** Filed as an exhibit to the Company's Report on Form
10-K for the year ended December 31, 1995.
******* Filed as an exhibit to the Company's Report on Form 8-K
dated May 15, 1996.
54
<PAGE>
10.5 Agreements between the Company and each of R. Nim Evatt
and Anthony L. Moffa*.......................................
10.6 Lease between the Company and Lee Park Investors, L.P. with
respect to the Company's principal executive offices*.......
10.7 Asset Purchase Agreement between the Company, Boggs
Technical Services, Inc. and Marcus Boggs*..................
10.9 Form of Employee Innovation and Non-Disclosure
Agreement*..................................................
10.11 Agreement between the Company and B&W Nuclear
Services dated August 5, 1988*..............................
10.13 Settlement Termination of Product Licensing
Agreement*..................................................
10.14 Restrictive Covenant Agreement between the Company
and Marcus Boggs*...........................................
10.16 Credit Agreement between the Company and First
Fidelity Bank, N.A. as amended dated December
30, 1995*******.............................................
10.17 Joint Development Agreement between the Company
and EdF****.................................................
10.19 Joint Venture Agreement between the Company and CHARTH,
an affiliate of EdF, dated November 22, 1994*****...........
10.20 Amended Joint Venture Agreement between the Company and
CHARTH, an affiliate of EdF dated December 1995******.......
10.21 Teaming Agreement Between Framatome and Liberty
Technologies, Inc. for Spain dated March 1, 1995******......
10.22 Technology Transfer and License Agreement between the
Company and Quantex Corporation dated June 14,
1994******..................................................
10.23 Teaming Agreement Between Framatome, Liberty M.P., S.A.S.
and Liberty Technologies, Inc. for France dated January
1, 1996******...............................................
10.24 Shareholders' Rights Plan*******............................
10.25 Credit Agreement between the Company and First Union
Bank, N.A. as amended dated October 11, 1996................ 57
10.26 Credit Agreement between the Company and First Union
Bank, N.A. as amended dated February 27, 1997............... 72
10.27 Credit Agreement between the Company and First Union
Bank, N.A. as amended dated April 1, 1997................... 160
10.28 Agreement between the Company and Robert L. Leon............ 453
11.1 Earnings per share calculation.............................. 450
21.1 Subsidiaries................................................ 451
23.1 Consent of Arthur Andersen LLP.............................. 452
55
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Conshohocken, Commonwealth of Pennsylvania, on the 14th day of April, 1997.
LIBERTY TECHNOLOGIES, INC.
By:/s/ R. Nim Evatt
-----------------------------------
President, Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ R. Nim Evatt President, Chief Executive Officer and Chairman of 9/18/97
- -------------------------- the Board (principal executive officer)
R. Nim Evatt
/s/ Daniel G. Clare Vice President - Finance (principal financial and 9/18/97
- -------------------------- accounting officer)
Daniel G. Clare
/s/ Robert L. Leon Director 9/18/97
- --------------------------
Robert L. Leon
/s/ James D. Rosener Director 9/18/97
- --------------------------
James D. Rosener
/s/ Richard J. Defieux Director 9/18/97
- --------------------------
Richard J. Defieux
/s/ John A. Hinds Director 9/18/97
- --------------------------
John A. Hinds
</TABLE>
56
<PAGE>
APPENDIX B-2
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q/A Amendment No. 2
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________
Commission File Number 1-11729
Liberty Technologies, Inc.
--------------------------
(Exact name of registrant as specified in its Charter)
Pennsylvania 23-2295708
- -------------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
--------------------------
Lee Park
555 North Lane
Conshohocken, PA 19428
610-834-0330
--------------------------
(Address, including zip code, and telephone number
(including area code) of registrant's principal
executive office)
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days. YES X NO ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Shares Outstanding at August 14, 1997
- ------------------ ----------------------------------------
Common Stock 5,010,339
================================================================================
<PAGE>
LIBERTY TECHNOLOGIES, INC.
INDEX
PART I FINANCIAL INFORMATION
----------------------------
Item 1. Consolidated Financial Statements (unaudited): Page No.
--------
Consolidated Statements of Operations
Three months and six months ended June 30,
1997 and 1996.......................... .............. 3
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996.................... 4
Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1996............... 5
Notes to Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................... 9
PART II OTHER INFORMATION
-------------------------
Item 6. Exhibits and Reports on Form 8-K............................ 13
Signatures................................................... 14
Exhibit Index................................................ 15
Exhibit - Calculation of Earnings Per Share.................. 16
2
<PAGE>
PART I. Financial Information
<TABLE>
Item 1. Consolidated Financial Statements
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
For the three months ended June 30, For the six months ended June 30,
----------------------------------- ---------------------------------
(Unaudited) (Unaudited)
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product ............................................. $ 3,473 $ 2,850 $ 7,563 $ 5,944
Service ............................................. 7,456 7,211 13,122 12,408
-------- -------- -------- --------
10,929 10,061 20,685 18,352
-------- -------- -------- --------
Cost of revenues:
Product ............................................. 1,294 1,086 2,815 2,027
Service ............................................. 4,591 4,498 8,450 7,750
-------- -------- -------- --------
5,885 5,584 11,265 9,777
-------- -------- -------- --------
Gross profit ............................. 5,044 4,477 9,420 8,575
-------- -------- -------- --------
Operating expenses:
Engineering and product development ................. 1,177 947 2,285 1,947
Selling, general and administrative ................. 3,493 3,380 6,962 6,514
-------- -------- -------- --------
4,670 4,327 9,247 8,461
-------- -------- -------- --------
Operating income ......................... 374 150 173 114
Interest expense, net .................................. (214) (21) (298) (71)
Other income ........................................... -- 25 -- 25
-------- -------- -------- --------
Income (loss) before taxes
and minority interest ............... 160 154 (125) 68
Income taxes ........................................... -- 64 -- 23
-------- -------- -------- --------
Income (loss) before
minority interest ................... 160 90 (125) 45
Minority interest ...................................... (33) (12) (105) 67
-------- -------- -------- --------
Net income (loss) ...................................... $ 193 $ 102 $ (20) $ (22)
======== ======== ======== ========
Net income (loss) per share ............................ $ 0.04 $ 0.02 $ 0.00 $ 0.00
======== ======== ======== ========
Shares used in computing net income (loss)
per share ........................................ 5,064 5,310 5,000 4,964
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
ASSETS June 30, December 31,
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................. $ 506 $ 324
Accounts receivable, net ............................... 9,455 8,499
Inventories ............................................ 3,746 3,742
Deferred income taxes .................................. 327 385
Prepaid income taxes ................................... 263 230
Prepaid expenses and other ............................. 974 414
-------- --------
Total current assets ......................... 15,271 13,594
Property and equipment, net ................................ 4,261 4,612
Goodwill, net .............................................. 4,800 4,961
Deferred income taxes, net ................................. 367 367
Minority interest .......................................... 50 --
Other assets ............................................... 1,323 1,483
-------- --------
$ 26,072 $ 25,017
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit ......................................... $ 7,145 $ 5,725
Current maturities of long-term debt ................... 58 66
Book overdraft ......................................... 247 472
Accounts payable ....................................... 2,901 2,728
Accrued compensation and benefits ...................... 1,118 1,250
Unearned revenue ....................................... 50 12
Income taxes payable ................................... -- 137
Other accrued expenses ................................. 399 376
-------- --------
Total current liabilities .................... 11,918 10,766
-------- --------
Long-term debt ............................................. 197 217
-------- --------
Minority interest .......................................... -- 61
-------- --------
Shareholders' equity:
Series A Preferred stock, $.001 par value, 10,000 shares
authorized, none issued ............................. -- --
Common stock, $.01 par value, 10,000,000 shares
authorized, 5,022,987 and 5,018,987 shares issued,
and 5,004,615 and 4,989,915 outstanding ............. 50 50
Additional paid-in capital ............................. 17,222 17,242
Accumulated deficit .................................... (3,198) (3,178)
Treasury stock at cost ................................. (94) (149)
Cumulative translation adjustment ...................... (23) 8
-------- --------
Total shareholders' equity ................... 13,957 13,973
-------- --------
$ 26,072 $ 25,017
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
LIBERTY TECHNOLOGIES INC. AND SUBSIDIARIES
- ------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
(Unaudited)
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................... $ (20) $ (22)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization ........................................... 1,056 1,018
Deferred income taxes ................................................... 58 --
Minority interest in income (loss) of joint venture ..................... (105) 67
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable ......................................... (957) (732)
Inventories ................................................. (170) (522)
Prepaid expenses and other .................................. (332) 71
Other assets ................................................ (130) (165)
Increase (decrease) in:
Accounts payable ........................................... 173 315
Accrued expenses ........................................... (109) (529)
Income taxes payable ....................................... (154) (64)
Unearned revenue ........................................... 38 (308)
------- -------
Net cash used in operating activities ............................ (652) (871)
------- -------
Cash flows from investing activities:
Purchases of property and equipment ......................................... (269) (892)
Purchases of licenses ....................................................... -- (100)
Patent costs ................................................................ -- (177)
Other ....................................................................... (26) 21
------- -------
Net cash used in investing activities ............................ (295) (1,148)
------- -------
Cash flows from financing activities:
Payments of long-term debt .................................................. (28) (58)
Net borrowings under line of credit ......................................... 1,420 1,800
Decrease in book overdraft .................................................. (225) --
Proceeds from Employee Stock Purchase Plan .................................. 28 33
Exercise of options and warrants ............................................ 7 67
Investment from minority shareholder in joint venture ....................... (42) 23
------- -------
Net cash provided by (used in) financing activities .............. 1,160 1,865
------- -------
Effect of foreign exchange rate changes on cash ................................ (31) (22)
------- -------
Net increase (decrease) in cash and cash equivalents ........................... 182 (176)
Cash and cash equivalents, beginning of year ................................... 324 356
------- -------
Cash and cash equivalents, end of period ....................................... $ 506 $ 180
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Item 1 -- Financial Statements -- Cont'd.
LIBERTY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements as of June 30, 1997 and for the three
and six month periods ended June 30, 1997 and 1996 are unaudited and
reflect all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation
of the financial position and operating results for the interim periods.
The consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996. The results of the Company's operations for
any interim period are not necessarily indicative of results of the
Company's operations for any other interim period or for the full year.
Going Concern
As indicated in the financial statements contained in the Company's Annual
Report on Form 10-K/A Number 2, the Company has incurred losses during the
last three years. Additionally, for the six months ended June 30, 1997 the
Company incurred a net loss of $20,000. During 1996 and 1997, the Company's
primary source of financing has been borrowings under its line of credit.
During 1997, the Company continues to experience limitations on its ability
to borrow. Additionally, in 1997, the Company was in violation of certain
loan covenants that give the lenders the right to accelerate the due date
of the loan. These conditions raise substantial doubt about the Company's
ability to continue as a going concern.
In April 1997, the Company's line of credit facility was amended to extend
the line through March 1998 (see Note 6). As of September 17, 1997, the
Company is in violation of certain loan covenants under the loan agreement
with its bank. Additionally, since June 30, 1997, the Company's outstanding
principal balance under the credit facility has exceeded the line's
borrowing base. These events constitute events of default under the
Company's loan agreement with its bank. The bank has reserved the right not
to make any further advances under the facility in excess of the borrowing
base and any future advances are at the discretion of the bank. The
Company's maximum borrowing availability, notwithstanding the borrowing
base limitations, decreases to $6,500,000 at September 30, 1997 from
$7,500,000 at June 30, 1997. At August 31, 1997, approximately $6,900,000
was outstanding under the line. These events of default may have a material
adverse effect on the Company.
6
<PAGE>
On July 25, 1997, the Company entered into an agreement to sell
substantially all of the assets of its nondestructive testing and
evaluation services business (the NDE Business) to a subsidiary of General
Electric Company (GE) for $13,600,000 (subject to a dollar-for-dollar
reduction based on the amount of working capital and the amount of fixed
assets of the NDE Business on the closing date) and the assumption of
certain associated liabilities not to exceed $1,390,000. Approximately 10%
of the cash portion of the purchase price will be held in escrow to secure
certain indemnification obligations of the Company to the buyer.
Consummation of the transaction is subject to, among other things, the
approval of the Company's shareholders. If approved and the other
conditions are satisfied it is currently expected that the transaction will
close by October 31, 1997. The Company intends to use the proceeds from the
sale of the NDE Business to repay its bank debt, to invest in the existing
product business and for other corporate purposes.
There can be no assurance that the Company will consummate the sale of the
NDE Business. If the sale of the NDE Business is not completed, the Company
would need to pursue alternative financing such as a private placement.
Management is unable to estimate the amount and timing of funding required,
if any, from these alternative sources.
These financial statements do not include any adjustments relating to the
recoverablility and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be
unable to continue as a going concern.
2. Inventories are summarized as follows:
June 30, 1997 December 31, 1996
------------- -----------------
Raw materials $3,207,000 $3,171,000
Finished goods 539,000 571,000
---------- ----------
$3,746,000 $3,742,000
========== ==========
3. Cash payment of income taxes for the six months ended June 30, 1997 and
1996 were approximately $79,000 and $83,000, respectively, all of which
pertained to payment of prior year taxes. Interest paid for the six months
ended June 30, 1997 and 1996 was $286,000 and $95,000, respectively.
4. Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
per Share," which supersedes ABP Opinion No. 15, "Earnings per Share," was
issued in February, 1997. SFAS 128 requires dual presentation of basic and
diluted earnings per share (EPS) for complex capital structures on the face
of the statement of operations. Basic EPS is computed by dividing income or
loss by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution from the exercise or
conversion of securities into common stock, such as stock options. SFAS 128
is required to be adopted for year-end 1997; earlier application is not
permitted. Management does not expect the basic or diluted EPS measured
under SFAS 128 to be materially different than the Company's primary or
fully-diluted EPS measured under APB No. 15. The Company will present both
7
<PAGE>
EPS measures on the face of the statement of operations.
5. After June 30, 1997, borrowings under the Company's revolving credit
facility with a commercial bank (the Bank) are limited to 85% of eligible
receivables and 25% of eligible inventory. The Company's outstanding
principal balance under the credit facility exceed the borrowing base,
which constitutes an Event of Default. The Bank has reserved the right not
to make any further advances under the facility in excess of the borrowing
base and any future advances are at the discretion of the Bank.
6. At June 30, 1997 the Minority Interest in the Company's joint venture,
Liberty M.P., S.A. (LMP), was in a receivable balance. Since that date the
minority partner in LMP has made additional contributions that would
eliminate the receivable balance.
8
<PAGE>
LIBERTY TECHNOLOGIES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Three and Six Months Ended June 30, 1997 Compared to Three and Six Months Ended
June 30, 1996:
Total Revenues. For the three and six month comparative periods ended June 30,
1996 and 1997, total revenues increased from $10,061,000 to $10,929,000, or 9%,
and from $18,352,000 to $20,685,000, or 13%, respectively.
Service revenues increased from $7,211,000 to $7,456,000, or 3%, for the three
months ended June 30, 1996 and 1997, respectively, and from $12,408,000 to
$13,122,000, or 6%, for the six months ended June 30, 1996 and 1997,
respectively, principally as a result of stronger nuclear and industrial service
revenues. This increase was partially offset by lower non-destructive evaluation
(NDE) service revenues.
Product revenues increased from $2,850,000 to $3,473,000, or 22%, for the three
months ended June 30, 1996 and 1997, respectively, on higher sales of industrial
condition monitoring products to domestic power and international industrial
customers. Product revenues increased from $5,944,000 to $7,563,000, or 27%, for
the six months ended June 30, 1996 and 1997, respectively, on higher sales of
both industrial condition monitoring products and RADView(TM).
Cost of Revenues. Cost of revenues increased from $5,584,000 to $5,885,000, or
5%, for the three months ended June 30, 1996 and 1997, respectively, and from
$9,777,000 to $11,265,000, or 15%, for the six months ended June 30, 1996 and
1997, respectively, as a result of higher sales volume. For the three month
comparative period, overall costs of revenues decreased as a percentage of total
revenues from 56% to 54%. For the six month comparative period, overall cost of
revenues as a percentage of revenues increased from 53% to 54%.
Gross Profit. Gross profit increased from $4,477,000 to $5,044,000 and from
$8,575,000 to $9,420,000 for the three and six month periods ended June 30, 1996
and 1997, respectively. For the three month comparative period, gross profit as
a percentage of total revenues increased from 44% to 46%. For the six month
comparative period, gross profit as a percentage of revenues decreased from 47%
to 46%. The Company expects that gross profit margin will vary from quarter to
quarter depending on the mix and volume of products and services sold.
9
<PAGE>
Operating Expenses. Operating expenses increased 8%, from $4,327,000 to
$4,670,000 and 9%, from $8,461,000 to $9,247,000, respectively, for the three
and six month periods ended June 30, 1996 and 1997. Increased operating expenses
were attributable to Liberty Maintenance Predictive (LMP), which was not fully
operational in 1996 and which had operating expenses of $198,000 and $497,000
for the six months ended June 30, 1996 and 1997, respectively. RADView operating
expenses increased from $847,000 to $1,103,000 for the same period.
Additionally, there were $203,000 of favorable restructuring reserve adjustments
in 1996, with no such corresponding adjustments in 1997.
Interest expense, net. Net interest expense increased from $21,000 to $214,000
and from $71,000 to $298,000 for the three and six months ended June 30, 1996
and 1997, respectively, as a result of higher average borrowings against the
Company's bank line of credit and an increase in the average interest rate
charged for this facility, from an average of 6.5% in 1996 to an average of 8.1%
in 1997.
Income taxes. The Company's effective income tax rate was 42% and 34%,
respectively for the three and six month periods ended June 30, 1996. Consistent
with the valuation allowance recorded against the Company's deferred tax asset
in 1996, no tax benefit was recorded against the loss for the six months period
ended June 30, 1997. This tax benefit would be recoverable from any future
earnings, including any gains to be recognized on the sale of the assets of the
Company's NDE business described below.
Net income (loss). Net income increased from $102,000, or $0.02 per share, to
$193,000, or $0.04 per share for the three month comparative period. Net loss
decreased from $22,000 to $20,000 for the six month comparative period. The
improvement in earnings for the three month comparative period is attributable
primarily to higher operating income and no income tax expense, partially offset
by higher interest expense.
The number of shares used in calculating loss per share decreased from 5,310,000
to 5,064,000 in the three month comparative period, and increased from 4,964,000
to 5,000,000 in the six month comparative period. The decrease in shares in the
three month period resulted primarily from the lower dilutive effect of options
because of the change in stock price. The increase in shares in the six month
period resulted from the exercise of stock options under the Company's 1988 and
1992 Stock Option Plans and the sale of stock through the Company's Employee
Stock Purchase Plan.
Liquidity and Capital Resources
- -------------------------------
The Company has financed its working capital requirements and capital
expenditures primarily through borrowings against its revolving credit facility.
At June 30, 1997, the Company had cash and investments aggregating $506,000
compared to $324,000 at December 31, 1996, reflecting the cash provided by
financing activities.
10
<PAGE>
Net cash used in operations decreased from $871,000 during the first half of
1996 to $652,000 during the first half of 1997. The change was principally
attributable to a lower increase in inventories and higher increases in accrued
expenses and unearned revenue, offset by an increase in accounts receivable and
an increase in prepaid and other assets, and further offset by lower accounts
payable and income taxes payable.
Net cash used in investing activities decreased from $1,148,000 in the first
half of 1996 to $295,000 in the first half of 1997. This decrease resulted from
lower capital additions, no purchases of licenses and no additional patent
costs.
Net cash provided by financing activities decreased from $1,865,000 during the
first half of 1996 to $1,160,000 in the first half of 1997. Net borrowings
against the Company's bank line of credit increased $1,800,000 in 1996 compared
to an increase of $1,420,000 in 1997. The additional borrowings in 1997 are
offset by a decrease of $225,000 in the book overdraft.
The Company amended its revolving credit facility with a commercial bank
effective April 3, 1997. The amended facility provides availability of
$9,000,000 through June 30, 1997; $7,500,000 through September 30, 1997;
$6,500,000 through December 31, 1997; and $5,500,000 through March 31, 1998.
After June 30, 1997, borrowings under the line are limited to 85% of eligible
receivables and 25% of eligible inventory, as defined. Beginning October 1,
1997, the borrowing base will be limited solely to 85% of eligible receivables,
as defined. The interest rate on the facility varies, based on the ratio of the
Company's debt to equity, from the Eurodollar rate plus 1.50% to the bank's
prime rate plus 1.00% and is payable at the maturity of each draw against the
facility. The line of credit expires on March 31, 1998. The balance outstanding
was $7,145,000 and $5,725,000 at June 30, 1997 and 1996, respectively.
The Company's primary source of financing in 1996 and 1997 has been borrowings
under its line of credit. Since the original filing of this report, the Company
has failed to perform certain covenants contained in its line of credit,
resulting in it being in default thereunder, an event which was reported in the
original filing of its Form 10-Q for the quarter ended June 30, 1997. To date,
the Company has been permitted by its lenders to continue to borrow moneys from
time to time under the credit facility, up to the maximum $7,500,000,
notwithstanding the existing default. However, no assurance can be given that
the lenders will continue to permit such additional borrowings in the future or
will not accelerate all outstanding amounts under the line of credit. As a
result of such default, Arthur Andersen LLP, the Company's independent auditors,
modified its report to the consolidated financial statements of the Company and
its subsidiaries for the year ended December 31, 1996, which revised report is
filed on Form 10-K/A Number 2.
Sale of the Nondestructive Testing and Evaluation Services Business
- -------------------------------------------------------------------
In the financial statements reported on Form 10-K/A Number 2, the modified
opinion of Arthur Andersen, LLP indicates that the Company (i) has incurred
losses during the last three years and has continued to incur losses in 1997
(ii) continues to experience limitations on its ability to borrow and (iii) is
in violation of certain loan covenants that give the lenders the right to
accelerate the due date of he loan. These factors create a substantial doubt
about the Company's ability to continue as a going concern and an uncertainty as
to the recoverability and classification of recorded asset amounts and the
amounts and classification of liabilities.
11
<PAGE>
On July 25, 1997, the Company entered into an agreement with General Electric
Company (GE) to sell substantially all of the assets of the Company's
nondestructive testing and evaluation services business (the NDE Business) for
$13.6 million in cash, subject to downward adjustment based upon the closing
balance sheet. An amount equal to 10% of the purchase price must be held in an
escrow account for a period of one year from the closing date. The Company
intends to use the proceeds from the sale of the NDE Business to repay its bank
debt, to invest in the products business and for other general corporate
purposes. The sale of the NDE Business is subjet to the approval of the
Company's shareholders, among other things. There can be no assurance that the
Company will consummate the sale of the NDE Business. If the sale of the NDE
Business is not completed, the Company would need to pursue alternative
financing such as a private placement. Management is unable to estimate the
amount and timing of funding required, if any, from these alternative sources.
The Company believes that its current cash and short-term investment resources,
cash provided by the anticipated sale of the NDE Business and availability under
its current and anticipated line of credit will be sufficient to fund the
Company's operations, debt and lease obligations and expected capital
expenditures for the next twenty-four months and to the best belief of
management on a longer term basis. Additional financing may be required for the
Company to consummate any material business acquisitions.
As a result of the sale of the NDE Business, the Company's revenues, operating
income and cash flow would decrease. However, the cash generated from the sale
would allow the Company to repay its line of credit and would provide additional
working and investment capital to support its Products Businesses, which
consists of the following: (1) performance and condition monitoring products and
service, including dynamic testing services, (2) RADView(TM) imaging systems and
(3) international business development.
12
<PAGE>
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K
1. No reports on Form 8-K were filed during the quarter ended June 30, 1997.
13
<PAGE>
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 thereunto duly authorized.
Dated: September 18, 1997
LIBERTY TECHNOLOGIES, INC.
(Registrant)
/s/ R. Nim Evatt
----------------------------------
R. Nim Evatt, President and
Chief Executive Officer
/s/ Daniel G. Clare
----------------------------------
Daniel G. Clare, V.P. Finance and
Chief Financial Officer (principal
financial and accounting officer)
14
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
Number Number
- ------ ------
11 Calculation of Earnings Per Share 16
15
<PAGE>
Exhibit 11
Liberty Technologies, Inc.
Earnings Per Share Calculation
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 193,000 $ 102,000 $ (20,000) $ (22,000)
Weighted average shares outstanding 5,004,317 4,973,925 4,999,759 4,964,318
Dilutive effect of outstanding options
and warrants, net of tax benefit 60,184 336,038 -- --
---------- ---------- ---------- ----------
Shares used in computing earnings
per share 5,064,491 5,309,963 4,999,759 4,964,318
========== ========== ========== ==========
Earnings (loss) per share (primary
and fully diluted) $0.04 $0.02 $0.00 $0.00
========== ========== ========== ==========
</TABLE>
16
<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 31, 1997
---------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from
-----------------------
Commission File Number 0-21274
----------
Liberty Technologies, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its Charter)
Pennsylvania 23-2295708
------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
---------------
Lee Park
555 North Lane
Conshohocken, PA 19428
610-834-0330
---------------------------------
(Address, including zip code, and
telephone number (including area
code) of registrant's principal
executive office)
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days. YES |X| NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Shares Outstanding at May 13, 1997
- ------------------ -----------------------------------------
Common Stock 5,004,615
===============================================================================
<PAGE>
LIBERTY TECHNOLOGIES, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
(unaudited): Page No.
--------
Consolidated Statements of Operations
Three months ended March 31, 1997 and 1996............... 3
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996..................... 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996............... 5
Notes to Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................... 10
Signatures................................................. 11
Exhibit Index.............................................. 12
Exhibit - Calculation of Earnings Per Share................ 13
2
<PAGE>
PART I. Financial Information
Item 1. Consolidated Financial Statements
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended March 31,
(Unaudited)
1997 1996
------- -------
<S> <C> <C>
Revenues:
Product .......................................... $ 4,091 $ 3,094
Service .......................................... 5,665 5,197
------- -------
9,756 8,291
------- -------
Cost of revenues:
Product .......................................... 1,521 941
Service .......................................... 3,859 3,341
------- -------
5,380 4,282
------- -------
Gross profit .............................. 4,376 4,009
------- -------
Operating expenses:
Engineering and product development .............. 1,107 1,000
Selling, general and administrative .............. 3,470 3,045
------- -------
4,577 4,045
------- -------
Operating loss ............................ (201) (36)
Interest expense, net ............................... (84) (50)
------- -------
Loss before taxes and minority interest ... (285) (86)
Income tax benefit .................................. -- (41)
------- -------
Loss before minority interest ......... (285) (45)
Minority interest ................................... (72) (78)
------- -------
Net loss ............................................ $ (213) $ (123)
------- -------
Net loss per share .................................. $ (0.04) $ (0.02)
======= =======
Shares used in computing net loss per share ......... 4,995 4,961
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
LIBERTY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
----- 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................. $ 865 $ 324
Accounts receivable, net ............................... 9,123 8,499
Inventories ............................................ 3,659 3,742
Deferred income taxes .................................. 329 385
Prepaid income taxes ................................... 246 230
Prepaid expenses and other ............................. 788 414
-------- --------
Total current assets ......................... 15,010 13,594
Property and equipment, net ................................ 4,445 4,612
Goodwill, net .............................................. 4,881 4,961
Deferred income taxes, net ................................ 367 367
Other assets ............................................... 1,396 1,483
-------- --------
$ 26,099 $ 25,017
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit ......................................... $ 7,175 $ 5,725
Current maturities of long-term debt ................... 45 66
Book overdraft ......................................... 148 472
Accounts payable ....................................... 2,677 2,728
Accrued compensation and benefits ...................... 1,793 1,250
Unearned revenue ....................................... 25 12
Income taxes payable ................................... 49 137
Other accrued expenses ................................. 228 376
-------- --------
Total current liabilities .................... 12,140 10,766
-------- --------
Long-term debt ............................................. 212 217
-------- --------
Due to minority shareholder ................................ (15) 61
-------- --------
Shareholders' equity:
Series A Preferred stock, $.001 par value, 10,000 shares
authorized, none issued ............................. -- --
Common stock, $.01 par value, 10,000,000 shares
authorized, 5,018,987 and 5,018,987 shares issued,
and 4,995,116 and 4,989,915 outstanding ............. 50 50
Additional paid-in capital ............................. 17,227 17,242
Accumulated deficit (3,391) (3,178)
Treasury stock at cost ................................. (134) (149)
Cumulative translation adjustment ...................... 10 8
-------- --------
Total shareholders' equity ................... 13,762 13,973
-------- --------
$ 26,099 $ 25,017
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
LIBERTY TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the three months ended March 31,
(Unaudited)
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $ (213) $ (123)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization ............................. 530 462
Deferred income taxes ..................................... 56 --
Minority interest in income (loss) of joint venture ....... (72) 78
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable ........................... (624) 892
Inventories ................................... (83) 31
Prepaid expenses and other .................... (223) 11
Other assets .................................. (53) (67)
Increase (decrease) in:
Accounts payable .............................. (51) (18)
Accounts expenses ............................. 395 (268)
Income taxes payable .......................... (88) (194)
Unearned revenue............................... 13 (304)
------- -------
Net cash provided by (used in) operating activities... (413) 500
------- -------
Cash flows from investing activities:
Purchases of property and equipment ........................... (79) (570)
Other ......................................................... (84) 11
------- -------
Net cash used in investing activities ................ (163) (559)
------- -------
Cash flows from financing activities:
Payments of long-term debt .................................... (26) (141)
Net borrowings under line of credit ........................... 1,450 (75)
Decrease in book overdraft .................................... (324) --
Proceeds from Employee Stock Purchase Plan .................... 15 24
Investment in minority shareholder in joint venture ........... -- 38
------- -------
Net cash provided by (used in) financing activities .. 1,115 (154)
------- -------
Effect of foreign exchange rate changes on cash .................. 2 55
------- -------
Net increase (decrease) in cash and cash equivalents ............. 541 (158)
Cash and cash equivalents, beginning of year ..................... 324 356
------- -------
Cash and cash equivalents, end of period ......................... $ 865 $ 198
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Item 1 -- Financial Statements -- Cont'd.
LIBERTY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements as of March 31, 1997 and for the
three month periods ended March 31, 1997 and 1996 are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996. The results of the Company's operations for
any interim period are not necessarily indicative of results of the
Company's operations for any other interim period or for the full year.
Certain reclassifications have been made to the 1996 financial statements
to conform to 1997 presentations.
2. Inventories are summarized as follows:
March 31, 1997 December 31, 1996
-------------- -----------------
Raw materials $3,109,000 $3,171,000
Finished goods 550,000 571,000
---------- ----------
$3,659,000 $3,742,000
========== ==========
3. Cash payment of income taxes for the three months ended March 31, 1997 and
1996 were approximately $17,000 and $39,000, respectively, all of which
pertained to payment of prior year taxes. Interest paid for the three
months ended March 31, 1997 and 1996 was $124,000 and $52,000,
respectively.
4. Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
per Share," which supersedes ABP Opinion No. 15, "Earnings per Share," was
issued in February, 1997. SFAS 128 requires dual presentation of basic and
diluted earnings per share (EPS) for complex capital structures on the face
of the statement of operations. Basic EPS is computed by dividing income or
loss by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution from the exercise or
conversion of securities into common stock, such as stock options. SFAS 128
is required to be adopted for year-end 1997; earlier application is not
permitted. Management does not expect the basic or diluted EPS measured
under SFAS 128 to be materially different than the Company's primary or
fully-diluted EPS measured under APB No. 15. The Company will present both
EPS measures on the face of the statement of operations.
6
<PAGE>
LIBERTY TECHNOLOGIES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996:
Total Revenues. Total revenues increased from $8,291,000 to $9,756,000, or
18%, from the first quarter of 1996 to the first quarter of 1997.
Service revenues increased from $5,197,000 to $5,665,000, or 9%, principally as
a result of stronger nuclear service revenues. This increase was partially
offset by lower industrial service revenues.
Product revenues increased from $3,094,000 to $4,091,000, or 32%, on higher
sales of both condition monitoring products and RADView(TM). Condition
monitoring sales increased from $2,912,000 to $3,517,000, or 21%, as a result of
the release of a second-generation reciprocating engine/compressor product, the
RECIP-TRAP(R) 9240. Sales of RADView increased from $182,000 to $574,000, or
215%, .
Cost of Revenues. Cost of revenues increased from $4,282,000 to $5,380,000, or
26%, from the first quarter 1996 to the first quarter 1997. As a percentage of
total revenues, overall cost of revenues increased from 52% to 55% on higher
sales of lower margin products and services.
Cost of service revenues increased as a percentage of service revenues from 64%
in 1996 to 68% in 1997 due to the increased mix of lower margin nuclear services
relative to industrial testing services.
Cost of product revenues increased as a percentage of product sales from 30% in
1996 to 37% in 1997. This higher cost of sales percentage was a result of
increased sales in lower margin product lines.
Gross Profit. Gross profit increased from $4,009,000 to $4,376,000 from the
first quarter of 1996 to the first quarter of 1997. As a percentage of total
revenues, gross profit decreased from 48% to 45%. The Company expects that gross
profit margin will vary from quarter to quarter depending on the mix and volume
of products and services sold.
Operating Expenses. Operating expenses increased 13%, from $4,045,000 to
$4,577,000 from the first quarter of 1996 to the first quarter of 1997.
Operating expenses for Liberty Maintenance Predictive (LMP), which was not fully
operational in 1996, increased from $11,000 to $262,000. Additionally, there
were $203,000 of favorable restructuring reserve adjustments in 1996, with no
such corresponding adjustments in 1997.
7
<PAGE>
Income taxes. The Company's effective income tax rate was 37% in the first
quarter of 1996. Consistent with the valuation allowance recorded against the
Company's deferred tax asset in 1996, no tax benefit was recorded against the
loss in the first quarter of 1997. This tax benefit would be recoverable through
sufficient future earnings.
Net loss. Net loss increased from $123,000, or $0.02 per share, in the first
quarter of 1996 to $213,000, or $0.04 per share, in the first quarter of 1997,
primarily as a result of increased operating expenses and not recording a tax
benefit on the loss in the first quarter of 1997.
The number of shares used in calculating loss per share increased from 4,961,000
in 1996 to $4,995,000 in 1997. The increase in shares resulted from the exercise
of stock options during 1996 under the Company's 1988 and 1992 Stock Option
Plans and the sale of stock through the Company's Employee Stock Purchase Plan
during 1996 and 1997.
Liquidity and Capital Resources
The Company has financed its working capital requirements and capital
expenditures primarily through borrowings against the revolving credit facility.
At March 31, 1997, the Company had cash and investments aggregating $865,000
compared to $324,000 at December 31, 1996, reflecting the cash provided by
financing activities.
Net cash provided by operations during the first quarter of 1996 was $500,000
compared to cash used by operations of $413,000 during the first quarter of
1997. The change was principally attributable to an increase in accounts
receivable on higher sales and in an increase in prepaid and other assets,
offset by an increase in accrued expenses.
Net cash used in investing activities decreased from $559,000 in the first
quarter 1996 to $163,000 in the first quarter 1997. This decrease resulted from
lower capital additions.
Net cash used by financing activities in the first quarter 1996 was $154,000
compared to cash provided of $1,115,000 in the first quarter of 1997. The 1996
amount reflects net repayments of $75,000 against the revolving credit facility,
while the 1997 amount reflects net borrowings of $1,450,000 against that
facility, offset by a decrease of $324,000 in the book overdraft.
During 1996 the Company increased its maximum availability on its revolving
credit facility with a commercial bank from $5,000,000 to $7,500,000. The
balance outstanding was $7,175,000 and $2,125,000 at March 31, 1997 and 1996,
respectively, and the balance of the facility was available.
The line is collateralized by substantially all of the Company's accounts
receivable and inventory. The credit facility may be used for working capital or
acquisitions. Borrowings under this facility bear interest at a rate equal to
the lower of the bank's prime rate less 0.5% or the Eurodollar rate plus 1.25%.
8
<PAGE>
The Company has amended the credit facility effective April 3, 1997. The amended
facility provides availability of $9,000,000 through June 30, 1997; $7,500,000
through September 30, 1997; $6,500,000 through December 31, 1997; and $5,500,000
through March 31, 1998. After June 30, 1997, borrowings under the line are
limited to 85% of eligible receivables and 25% of eligible inventory, as
defined. Beginning after October 1, 1997, the borrowing base will be limited
solely to 85% of eligible receivables, as defined. The interest rate on the
facility varies from the Eurodollar rate plus 1.50% to the bank's prime rate
plus 1.00% and is payable at the maturity of each draw against the facility.
The line of credit expires on March 31, 1998.
The Company believes that its current cash and short-term investment
resources, cash generated from operations, the availability under its line of
credit, alternative financing and other options will be sufficient to fund the
Company's operations and expected capital expenditures for the current year.
Additional financing may be required for the Company to consummate any material
business acquisitions.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
1. No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
10
<PAGE>
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 thereunto duly authorized.
Dated: May 13, 1997
LIBERTY TECHNOLOGIES, INC.
(Registrant)
/s/ R. Nim Evatt
-------------------------------
R. Nim Evatt, President and
Chief Executive Officer
/s/ Daniel G. Clare
----------------------------------
Daniel G. Clare, V.P. Finance and
Chief Financial Officer (principal
financial and accounting officer)
11
<PAGE>
EXHIBIT INDEX
Exhibit Sequentially
Page Numbered
Number Number
- ------ ------
11 Calculation of Earnings Per Share 13
12
<PAGE>
Exhibit 11
Liberty Technologies, Inc.
Earnings Per Share Calculation
Three Months Ended
March 31,
---------
1997 1996
---- ----
Net loss $ (213,000) $ (123,000)
Weighted average shares outstanding 4,995,116 4,961,264
Dilutive effect of outstanding options and
warrants, net of tax benefits -- --
---------- ----------
Shares used in computing loss per share 4,995,116 4,961,264
========== ==========
Loss per share (primary and fully diluted) $(0.04) $(0.02)
========== ==========
13
Appendix C
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
among
GENERAL ELECTRIC COMPANY
(a New York corporation),
GE INSPECTION SERVICES, INC.
(a Delaware corporation),
LIBERTY TECHNOLOGIES, INC.
(a Pennsylvania corporation),
LTH DELAWARE, INC.
(a Delaware corporation)
and
LIBERTY TECHNICAL SERVICES, INC.
(a Pennsylvania corporation)
July 25, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions .............................................................1
2. Sale and Purchase .......................................................9
2.1 Purchased Assets ...............................................9
2.2 Excluded Assets ...............................................11
2.3 License to Use Certain Assets .................................12
2.4 Purchase Price ................................................12
2.5 Escrow Account ................................................13
2.6 Allocation of Purchase Price ..................................13
2.7 Assumption of Liabilities .....................................13
2.8 Limitations on Assumption of Liabilities ......................14
2.9 Purchase Price Adjustments ....................................15
2.10 Customer Contracts ............................................17
2.11 Third Party Consents ..........................................18
3. Employee Matters .......................................................18
3.1 Employment of Employees of the Business .......................18
3.2 Employee Benefits .............................................18
3.3 Seller's Employee Benefits Plans and Benefit Arrangements .....19
3.4 WARN Act ......................................................19
4. Closing ................................................................20
4.1 Time; Location ................................................20
4.2 Transaction Documents and Other Deliveries by the
Selling Parties ...............................................20
4.3 Transaction Documents and Other Deliveries by the
Buying Parties ................................................21
4.4 Closing Documents .............................................21
4.5 Reasonable Steps ..............................................21
5. Representations and Warranties of the Selling Parties ..................21
5.1 Corporate Status ..............................................21
5.2 Authorization .................................................21
5.3 Consents and Approvals ........................................22
5.4 Business and Subsidiaries .....................................22
5.5 Financial Statements ..........................................22
5.6 Accounts Receivable ...........................................23
5.7 Inventory .....................................................23
5.8 Absence of Certain Changes or Events ..........................23
5.9 Title to Assets; Absence of Liens and Encumbrances ............24
5.10 Real Property .................................................25
- i -
<PAGE>
5.11 Intellectual Property, Software and Confidential
Information ...................................................26
5.12 Contracts .....................................................27
5.13 Governmental Permits ..........................................29
5.14 Legal Proceedings and Compliance with Laws;
Environmental Matters .........................................29
5.15 Absence of Undisclosed Liabilities ............................30
5.16 Taxes .........................................................30
5.17 Books and Records .............................................30
5.18 Employees and Employee Relations; Independent Contractors .....30
5.19 Employee Benefit Plans ........................................31
5.20 Finder's Fee ..................................................33
5.21 Interest in Business or Purchased Assets ......................33
5.22 Condition of Assets ...........................................33
5.23 Affiliate Transactions ........................................33
5.24 Insurance .....................................................34
5.25 No Significant Items Excluded .................................34
5.26 Previous Sales; Warranties ....................................34
5.27 Customers and Suppliers .......................................34
5.28 Completeness and Accuracy of Information ......................35
5.29 Solvency ......................................................35
6. Representations and Warranties of the Buying Parties ...................35
6.1 Corporate Status ..............................................35
6.2 Authorization .................................................35
6.3 Consents and Approvals ........................................36
6.4 Finder's Fees .................................................36
6.5 Accuracy of Information .......................................36
7. Covenants Related to Proxy Statement and Special Meeting................36
7.1 Proxy Statement ...............................................36
7.2 Disclosure ....................................................36
7.3 Special Meeting................................................37
7.4 Filings and Correspondence ....................................37
7.5 Buyer Provided Information ....................................37
8. Covenants of the Selling Parties Prior to Closing Date .................37
8.1 Required Actions ..............................................37
8.2 Prohibited Actions ............................................41
8.3 No Solicitation. ..............................................42
9. Covenants of the Buying Parties Prior to Closing Date ..................43
9.1 Required Actions ..............................................43
9.2 Title Review ..................................................43
9.3 Approvals, Consents ...........................................44
- ii -
<PAGE>
10. Conditions Precedent to Obligations of the Buying Parties .............44
10.1 Representations, Warranties and Agreements ...................44
10.2 Certificates of Selling Parties ..............................44
10.3 Secretary's Certificates .....................................45
10.4 Good Standing Certificates ...................................45
10.5 Legal Matters ................................................45
10.6 No Material Adverse Effect or Damage .........................45
10.7 Actions and Proceedings ......................................45
10.8 Post-Signing Financial Statements ............................45
10.9 Environmental Assessment .....................................46
10.10 Shareholder Approvals ........................................46
10.11 Consents .....................................................46
10.12 Ancillary Documents ..........................................46
10.13 Legal Opinion ................................................46
10.14 Title Insurance and Surveys ..................................46
10.15 Fairness Opinion .............................................46
10.16 Bank Consent and Release .....................................46
10.17 HSR Act Waiting Period .......................................46
11. Conditions Precedent to Obligations of the Selling Parties ............47
11.1 Representations, Warranties and Agreements ...................47
11.2 Legal Matters ................................................47
11.3 Actions and Proceedings ......................................47
11.4 Shareholder Approval .........................................47
11.5 Ancillary Documents ..........................................47
11.6 Legal Opinion ................................................47
11.7 Fairness Opinion .............................................47
11.8 HSR Act Waiting Period .......................................47
12. Competition and Confidentiality by the Selling Parties ................48
12.1 Noncompetition ...............................................48
12.2 Confidentiality ..............................................48
12.3 Affiliates ...................................................48
12.4 Injunctive Relief ............................................48
13. Additional Covenants ..................................................49
13.1 Post-Closing Receipts ........................................49
13.2 Bulk Transfer Laws ...........................................49
13.3 Transfer Taxes ...............................................49
13.4 Termination of Non-Assumed Customer Contracts ................49
13.5 Seller Insurance Policy ......................................49
13.6 Administrative Assistance by the Selling Parties .............50
- iii -
<PAGE>
13.7 Further Assurances of the Selling Parties .....................50
13.8 Further Assurances of the Buying Parties ......................50
14. Termination ............................................................50
14.1 Termination of Agreement ......................................50
14.2 Return of Documents ...........................................51
14.3 Effect of Termination .........................................51
15. Survival of Representations and Warranties; Indemnification ............52
15.1 Survival of Representations and Warranties ....................52
15.2 Indemnification by the Selling Parties ........................52
15.3 Limitations on Obligation of Selling Parties to Indemnify .....53
15.4 Indemnification by the Buying Parties .........................54
15.5 Limitations on Obligation of Buying Parties to Indemnify ......54
15.6 Environmental Losses ..........................................54
15.7 Procedures for Indemnification ................................56
15.8 Payment of Indemnification Obligations ........................57
15.9 Interest on Unpaid Obligations ................................57
15.10 Sole Remedies .................................................57
16. General ................................................................58
16.1 Expenses ......................................................58
16.2 Limitation on Selling Parties' Representations ................58
16.3 Publicity .....................................................58
16.4 Amendment, Severability, Parties in Interest, Assignment,
Etc. ..........................................................58
16.5 Waivers .......................................................59
16.6 Notices .......................................................59
16.7 Entire Agreement ..............................................60
16.8 Interpretation ................................................60
16.9 Governing Law .................................................61
16.10 Counterparts ..................................................61
- iv -
<PAGE>
SCHEDULES
1(a) Certain Directors, Officers and
Employees of the Selling Parties
2.1 Permitted Encumbrances
2.1.1 Real Property Owned
2.1.2 Real Property Leased
2.1.3 Equipment, Machinery and Other
Tangible Personal Property
2.1.4 Certain Assigned Contracts
2.1.6 Governmental Permits
2.1.12 Prepaid Expenses
2.2.6 Excluded Assets of Boggs Technical Services Business
and Dynamic Testing Services Business
2.2.7 Other Excluded Assets
2.6 Allocation of Purchase Price
2.10 Assumed Customer Contracts and
Non-Assumed Customer Contracts
3.1 Employees Actively Employed Full-Time by
Seller in the Conduct of the Business
5.3 Required Consents
5.5 Financial Statements
5.6 Absence of Certain Accounts Receivable
5.7 Location of Inventory
5.8 Certain Changes or Events
5.9 Assets Disposed of Since Balance Sheet Date
5.10.2 Leased Real Property of Seller and Assigned Leases
5.10.3 Real Property Previously Owned, Leased
or Operated
5.11 Intellectual Property and Software
5.12 Contracts
5.14 Legal Proceedings and Court Orders;
Environmental Matters
5.15 Other Liabilities
5.18 Employees and Employee Relations
5.18A Liabilities With Respect to Independent
Contractors
5.19 Employee Benefit Plans
5.21 Interest in Business or Purchased Assets
5.23 Affiliate Transactions
5.24 Insurance
5.27 Customers and Suppliers
7.2 Buyer Provided Information
12.1 Product Sales and Sales Demonstrations
- v -
<PAGE>
EXHIBITS
A Form of Escrow Agreement
B Form of Radview License Agreement
C Customer Terms and Conditions
D Form of Warranty Deed
E Form of Bill of Sale, Assignment
and Assumption
F Form of Assignment of Trademarks,
Service Marks and Registrations
G Form of Consent and Release of
First Union National Bank
- vi -
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of July 25, 1997 by and among
General Electric Company, a New York corporation ("GE"), GE Inspection Services,
Inc., a Delaware corporation and wholly-owned subsidiary of GE ("Buyer" and,
together with GE, the "Buying Parties"), Liberty Technologies, Inc., a
Pennsylvania corporation ("LTI"), LTH Delaware, Inc., a Delaware corporation and
wholly-owned subsidiary of LTI ("LTH"), and Liberty Technical Services, Inc., a
Pennsylvania corporation and indirect wholly-owned subsidiary of LTI ("Seller"
and, collectively with LTH and LTI, the "Selling Parties"). Certain other terms
are used herein as defined below in Section 1 or elsewhere in this Agreement.
Background
This Agreement sets forth the terms and conditions under which Buyer is
purchasing the assets (other than Excluded Assets, as hereinafter defined) of
Seller used by Seller in the conduct of its business, and Seller is selling to
Buyer such assets (other than Excluded Assets).
Witnesseth
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Definitions.
For convenience, certain terms used in more than one part of this Agreement
are listed in alphabetical order and defined or referred to below (such terms as
well as any other terms defined elsewhere in this Agreement shall be equally
applicable to both the singular and plural forms of the terms defined).
"Accounts Payable" means as of any date any accounts payable as would
appear on a balance sheet of the Business as of such date prepared in accordance
with GAAP, other than any amounts payable to any Selling Party or an Affiliate
of a Selling Party.
"Accounts Receivable" means as of any date any accounts receivable, notes
receivable, bid or performance deposits, employee advances and other
miscellaneous receivables included in the assets of or that arose in connection
with the Business.
"Accrued Expenses" means as of any date any accrued payroll and vacation
and other accrued expenses as would appear on a balance sheet of the Business as
of such date prepared in accordance with GAAP, other than any amounts payable to
a Selling Party or an Affiliate of a Selling Party and any compensation payable
to Employees or others contingent upon or as a result of the Transactions.
<PAGE>
"Affiliates" means, with respect to a particular Party, Persons or entities
controlling, controlled by or under common control with that Party, as well as
any officers and directors of that Party or any Affiliates of any of the
foregoing. For the purposes of the foregoing, ownership, directly or indirectly,
of 20% or more of the voting stock or other equity interest shall be deemed to
constitute control.
"Agreement" means this Agreement and the Exhibits and Schedules hereto.
"Assigned Leases" is defined in Section 5.10.2.
"Assumed Customer Contracts" is defined in Section 2.10.
"Assumed Liabilities" is defined in Section 2.7.
"Balance Sheet" is defined in Section 5.5.
"Balance Sheet Date" is defined in Section 5.5.
"Benefit Plan" means any (i) "employee benefit plan" as defined in Section
3(3) of ERISA and any related or separate Contract, plan, trust, program, policy
and arrangement and (ii) supplemental retirement, bonus, vacation, deferred
compensation, severance, incentive or other employee benefit plan, program,
arrangement, practice, custom or understanding, in each case whether formal or
informal, that provides benefits of economic value to any Employee or any former
employee of a Selling Party (including, without limitation, any entity described
in Section 5.19.1) or any present or former beneficiary, dependent or assignee
of any such Employee or former employee.
"Boggs Technical Services Business" means the valve and mechanical
component testing and diagnostic services business and assets acquired pursuant
to the Option to Purchase and Asset Purchase Agreement among LTI, Boggs
Technical Services, Inc., d/b/a M.O.V. Service Group, and Marcus Boggs dated as
of January 11, 1993 (as amended to date), and as replaced or acquired since such
date and owned and operated by the Selling Parties.
"Books and Records" is defined in Section 5.17.
"Business" means the entire business and operations of Seller, LTI's
indirect wholly-owned subsidiary, as presently conducted by Seller, and the real
property and facilities owned, leased or used, in whole or in part, by Seller;
provided, however, that the term "Business" as used in this Agreement shall not
be deemed to include the Boggs Technical Services Business and the Dynamic
Testing Services Business.
"Buyer" is defined above in the preamble.
"Buyer Indemnified Party" is defined in Section 15.2.
- 2 -
<PAGE>
"Buyer Provided Information" is defined in Section 7.2.
"Buyers' General Liabilities" is defined in Section 15.4.
"Buying Party" is defined above in the preamble.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, certificate of formation, operating agreement, joint
venture agreement or similar document governing the entity.
"Claim Notice" is defined in Section 15.7.1.
"Closing" means the consummation of the Transactions.
"Closing Date" means October 1, 1997, or, if all conditions precedent to
the Closing set forth in Section 10 and Section 11 of this Agreement are not
satisfied or waived as of October 1, 1997, the earliest practicable date after
all such conditions precedent are satisfied or waived or such other date as the
Parties shall mutually agree.
"Closing Payment" is defined in Section 2.4.2.1.
"Code" means the Internal Revenue Code of 1986, as it may be amended from
time to time, and any successor thereto.
"Confidential Information" is defined in Section 12.2.
"Contract" means any written or oral contract, agreement, lease, instrument
or other commitment that is binding on any Person or its property under
applicable Law.
"Copyrights" means any registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling of
any federal, state, local or foreign court or governmental or regulatory body or
authority that is binding on any Person or its property under applicable Law.
"Customer Records" is defined in Section 2.1.5.
"Customer Terms and Conditions" is defined in Section 2.10.
- 3 -
<PAGE>
"Default" means (i) a breach, default or violation, (ii) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (iii) with respect to
any Contract, the occurrence of an event that with or without the passage of
time or the giving of notice, or both, would give rise to a right of
termination, renegotiation or acceleration or a right to receive damages or a
payment of penalties.
"Dynamic Testing Services" means the provision of services involving the
condition monitoring of, and predictive and general maintenance and repair for,
plant equipment, including, without limitation, valves, compressors, turbines,
engines, motors and motor-driven equipment, now or hereafter provided.
"Dynamic Testing Services Business" means the Dynamic Testing Services
business of the Selling Parties.
"Employee" is defined in Section 5.18.
"Encumbrances" means any lien, mortgage, security interest, license right,
pledge, restriction on transferability, defect of title or other claim, charge
or encumbrance of any nature whatsoever on any property or property interest.
"Environmental Assessment" is defined in Section 8.1.11.
"Environmental Condition" is defined in Section 5.14.2.
"Environmental Law" means any Law (including but not limited to the Clean
Water Act, 33 U.S.C. ss.ss. 1251 et seq., the Toxic Substances Control Act, 15
U.S.C. ss.ss. 2601 et seq., the Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq.,
the Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f et seq., the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.ss. 9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901 et seq.,
the River and Harbor Act, 33 U.S.C. ss. 407, and the Occupational Safety and
Health Act, 29 U.S.C. ss.ss. 651 et. seq., each as may be amended from time to
time), Court Order (whether or not by consent), any duties imposed by applicable
common law and any applicable provision or condition of any Governmental Permit
relating to (i) the protection of the environment, employees or the public
welfare from actual or potential exposure (or the effects of exposure) to any
actual or potential release, discharge, disposal or emission (whether past or
present) of any Hazardous Substance or (ii) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any
Hazardous Substance.
"Environmental Losses" is defined in Section 15.6.1.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means PNC Bank, National Association.
- 4 -
<PAGE>
"Escrow Agreement" means the Escrow Agreement among LTI, LTH, Seller, GE,
Buyer and the Escrow Agent to be entered into effective as of the Closing,
substantially in the form of Exhibit A.
"Escrow Funds" is defined in Section 2.4.2.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" is defined in Section 2.2.
"Financial Statements" is defined in Section 5.5.
"Fixed Assets Verification" is defined in Section 2.9.1.
"GAAP" means generally accepted accounting principles of the United States
of America consistently applied.
"GE" is defined above in the preamble.
"Governmental Permits" means all governmental permits, licenses,
registrations, certificates of occupancy, orders, approvals and other
governmental authorizations.
"Hazardous Substances" means any toxic or hazardous gaseous, liquid or
solid material or waste that may or could pose a hazard to the environment or
human health or safety including (i) any "hazardous substances" as defined by
the federal Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss.ss. 9601 et seq., (ii) any "extremely hazardous substance,"
"hazardous chemical" or "toxic chemical" as those terms are defined by the
federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C. ss.ss.
11001 et seq., (iii) any "hazardous waste," as defined under the federal Solid
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. ss.ss. 6901 et seq., (iv) any "pollutant," as defined under the federal
Water Pollution Control Act, 33 U.S.C. ss.ss. 1251 et seq., as any of such laws
in clauses (i) through (iv) may be amended from time to time, and (v) any
regulated substance or waste under any Laws or Court Orders that currently exist
or that may be enacted, promulgated or issued in the future by any federal,
state or local governmental authorities concerning protection of the environment
or the public welfare.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules promulgated thereunder.
"Indemnified Party" means either a Seller Indemnified Party or a Buyer
Indemnified Party, as the context so requires.
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"Intellectual Property" means any and all Copyrights, Patents, Trademarks,
technology rights and licenses, logos, trade names, Trade Secrets, franchises,
know-how, inventions, methods, techniques and other intellectual property used,
in whole or in part, directly or indirectly, in the conduct of the Business.
"Inventory" means the inventory of the Business, including raw materials,
supplies, work in process and finished goods.
"Knowledge" and words of similar import means, with respect to any Party,
actual knowledge of a particular fact being known by any director or officer of
such Party and with respect to the Selling Parties, also includes each of the
individuals listed in Schedule 1(a) hereto who, in the ordinary course, make or
have made reasonable inquiry of his or her direct subordinates.
"Law" means any statute, law, ordinance, regulation, order or rule of any
federal, state, local, foreign or other governmental agency or body or of any
other type of regulatory body, including those covering environmental, energy,
safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Licensed Assets" is defined in Section 2.3.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Losses" means all losses, costs, claims, Liabilities, demands, fines,
judgments, penalties, damages and expenses of any nature whatsoever, including
interest which may be imposed in connection therewith and court costs and
reasonable fees and disbursements of counsel and consultants of every kind,
nature and description charged to or incurred by them in connection therewith.
"LTH" is defined above in the preamble.
"LTI" is defined above in the preamble.
"Material Adverse Effect" means a material adverse effect on the Business,
including the Purchased Assets, financial condition, results of operations,
liquidity, Products, prospects, customers and customer relations thereof.
"NDT Services" means nondestructive testing and evaluation services.
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"Non-Assumed Customer Contracts" is defined in Section 2.10.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practice.
"Party" means LTI, LTH, Seller, GE or Buyer, individually, as the context
so requires, and the term "Parties" means LTI, LTH, Seller, GE and Buyer,
collectively.
"Patents" means any patents, patent applications, reissue patents, patents
of addition, divisions, renewals, continuations, continuations-in-part,
substitutions, additions and extensions of any of the foregoing.
"PBCL" means the Pennsylvania Business Corporation Law of 1988, as amended.
"Permitted Encumbrances" is defined in Section 2.1.
"Person" means any natural person, corporation, company, partnership,
proprietorship, trust or estate, joint venture, association or other legal
entity.
"Post-Signing Customer Contract" is defined in Section 2.10.
"Post-Signing Financial Statements" is defined in Section 5.5.
"Pre-Signing Customer Contracts" is defined in Section 5.12.
"Prime Rate" means the prime lending rate as published from time to time in
The Wall Street Journal).
"Prior Acquisition" means the acquisition by LTI and Seller of the assets
and business of Industrial NDT Company, Inc., a South Carolina corporation,
pursuant to the Ridgeway Agreement.
"Products" means any of the products or product lines manufactured and/or
marketed by Seller in the conduct of the Business.
"Proxy Statement" is defined in Section 7.1.
"Purchased Assets" is defined in Section 2.1.
"Purchase Price" is defined in Section 2.4.1.
"Radview License Agreement" means the Radview License Agreement among LTI
and Buyer to be entered into effective as of the Closing, substantially in the
form of Exhibit B.
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"Real Property" means the Real Property Leased and the Real Property Owned,
collectively.
"Real Property Leased" is defined in Section 2.1.2.
"Real Property Owned" is defined in Section 2.1.1.
"Required Consents" is defined in Section 5.3.
"Ridgeway Agreement" means the Agreement and Plan of Merger by and among
LTI, Seller, Industrial NDT Company, Inc., a South Carolina corporation, John D.
Ridgeway, Jr. and Sandra R. Miles, dated as of March 11, 1994, as amended to
date, together with related employment and severance agreements between the
parties thereto.
"SEC" means the United States Securities and Exchange Commission.
"Seller" is defined above in the preamble.
"Seller Indemnified Party" is defined in Section 15.4.
"Seller Insurance Policy" is defined in Section 8.1.16.
"Sellers' General Liabilities" is defined in Section 15.2.
"Selling Party" is defined above in the preamble.
"Software" means any computer software of any nature whatsoever, including
all systems software, all applications software, whether for general business
usage (e.g., accounting, finance, word processing, graphics, spreadsheet
analysis, etc.) or specific, unique-to-the-Business usage (e.g., purchase or
service order processing, etc.) and all computer operating, security or
programming software, that is owned by or licensed to Seller or used, in whole
or in part, directly or indirectly, or has been developed or designed for or is
in the process of being developed or designed for use, in whole or in part,
directly or indirectly, in the conduct of the Business, and any and all
documentation and object and source codes related thereto.
"Special Meeting" is defined in Section 7.3.
"Taxes" means all taxes, duties, charges, fees, levies or other assessments
imposed by any taxing authority, including, without limitation, income, gross
receipts, value-added, excise, withholding, personal property, real estate,
sale, use, ad valorem, license, lease, service, severance, stamp, transfer,
payroll, employment, customs, duties, alternative, add-on minimum, estimated and
franchise taxes (including any interest, penalties or additions attributable to
or imposed on or with respect to any such assessment).
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"Trademarks" means any registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"Trade Secrets" means any trade secrets, methods, processes and procedures,
engineering, production, assembly, design, installation, other technical
drawings and specifications, working notes and memos, market studies,
consultants' reports, know-how, proprietary information, research, product
plans, products, services plans, services, customer lists, marketing,
distribution and sales methods and systems, formulae, technical and laboratory
data, competitive samples, engineering prototypes, and all similar property of
any nature, tangible or intangible, used, in whole or in part, or related to,
directly or indirectly, the Business.
"Transaction Documents" means, collectively, this Agreement, the Escrow
Agreement, the real property conveyances described in Section 4.2.2, the
assignments of the Assigned Leases described in Section 4.2.3, the Bill of Sale,
Assignment and Assumption described in Section 4.2.4, the Trademark Assignment
described in Section 4.2.5, the Radview License Agreement described in Section
4.2.6 and the consent and release of First Union National Bank described in
Section 4.2.7.
"Transactions" means the sale of the Purchased Assets and the other
transactions contemplated by the Transaction Documents.
"Unliquidated Claim" is defined in Section 15.7.1.
"Warn Act" is defined in Section 3.4.
2. Sale and Purchase.
2.1 Purchased Assets. Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall grant, sell, convey, assign, transfer
and deliver to Buyer, free and clear of all Encumbrances whatsoever, other than
permitted Encumbrances set forth in Schedule 2.1 (the "Permitted Encumbrances"),
and Buyer shall purchase from Seller, the Business as a going concern and all
right, title and interest of Seller in and to all of the assets, properties and
rights of every kind and description, real, personal and mixed, tangible and
intangible, wherever situated constituting or used, in whole or in part, in the
Business (the "Purchased Assets") as the same shall exist on the Closing Date
(other than the Excluded Assets), including, without limitation, the following:
2.1.1 Real Property Owned. The real property owned by Seller described
in Schedule 2.1.1, together with the buildings, structures, improvements
and fixtures located thereon, and all rights, privileges, easements,
licenses, hereditaments and other appurtenances relating thereto (the "Real
Property Owned");
2.1.2 Real Property Leased. Seller's interest, as lessee, in the real
property leased by Seller described in Schedule 2.1.2, and any easements,
deposits or other rights pertaining thereto (the "Real Property Leased");
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2.1.3 Equipment, Machinery and Other Tangible Personal Property. All
machinery, equipment, leasehold improvements, trucks, automobiles,
supplies, office furniture and office equipment, computers and
telecommunications equipment and other items of personal property that are
owned by Seller and used, in whole or in part, in the conduct of the
Business, including those described in Schedule 2.1.3;
2.1.4 Contracts Relating to the Business. All of the interest of
Seller in all Contracts, leases of machinery, equipment and other personal
property, sale orders, purchase orders, commitments, instruments and all
other agreements (other than the Non-Assumed Customer Contracts and the
Assumed Customer Contracts), but including those listed in Schedule 2.1.4,
relating to the acquisition or ownership by Seller of any of the Purchased
Assets or the operation of the Business, including, without limitation, any
agreements with respect to noncompetition under any Contracts related to
the Prior Acquisition;
2.1.5 Customer Records, Sales and Marketing Materials. All customer
records, including principal contacts, address and telephone number,
purchasing history, payment information and any other information with
respect to the customers of the Business (the "Customer Records"), sales
data, catalogs, brochures, suppliers' names, mailing lists, art work,
photographs and advertising material that relate to the Business, whether
in electronic form or otherwise;
2.1.6 Governmental Permits. All rights under Governmental Permits
relating to the Business, including those listed in Schedule 2.1.6, to the
extent such Governmental Permits are transferable to Buyer;
2.1.7 Trade Secrets. All Trade Secrets;
2.1.8 Intellectual Property. All Intellectual Property, including,
without limitation, the Intellectual Property described in Schedule 5.11
(other than that described in Section 2.1.7) and the rights to the name
"Industrial NDT Company, Inc.";
2.1.9 Property, Personnel and Accounting Records. All other records of
Seller relating to the Business, including property records and copies of
records relating to Employees;
2.1.10 Inventory. All Inventory relating to the Business on the
Closing Date;
2.1.11 Accounts Receivable. All Accounts Receivable existing at the
Closing Date;
2.1.12 Prepaid Expenses. All rights relating to any prepaid expenses
of or arising in connection with the Business at the Closing Date,
including those described in Schedule 2.1.12;
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2.1.13 Software. All Software, including, without limitation, the
Software described in Schedule 5.11, in both object code and source code
form, and all documentation related thereto; provided, however, that all
third-party licensed Software included in the Purchased Assets shall be
transferred to Buyer subject to the terms and conditions of the third-party
licenses listed in Schedule 5.11 under which Seller acquired such licensed
Software;
2.1.14 Insurance Contracts and Policies. All rights under any
insurance Contracts to which Seller is a party and any insurance policies
maintained by Seller with respect to the Business;
2.1.15 Other Intangible Assets. All other assets (including all causes
of action, rights of action, contract rights and warranty and product
liability claims against third parties) relating to the Purchased Assets or
the Business; and
2.1.16 Customer Contracts. The Assumed Customer Contracts listed in
Schedule 2.10 and any Non-Assumed Customer Contract for which the Buying
Parties make the election pursuant to Section 2.10 to include such
Non-Assumed Customer Contract within the Purchased Assets.
2.2 Excluded Assets. Notwithstanding Section 2.1, the following assets of
Seller (collectively, the "Excluded Assets") shall be excluded from this
Agreement, and shall not be assigned or transferred to Buyer:
2.2.1 Cash and cash equivalents on hand or in bank accounts;
2.2.2 Goodwill on Seller's balance sheet as of the Closing Date;
2.2.3 The consideration paid to Seller pursuant to this Agreement;
2.2.4 Corporate minute books and stock books;
2.2.5 Any claims and rights against third parties (including, without
limitation, insurance carriers), to the extent they relate to Liabilities
that are not assumed by Buyer hereunder (except to the extent Buyer shall
have incurred Liabilities related to such claims and rights);
2.2.6 The assets of the Boggs Technical Services Business and the
Dynamic Testing Services Business owned by Seller listed in Schedule 2.2.6;
2.2.7 The assets listed in Schedule 2.2.7 (including intellectual
property and trade secrets relating thereto); and
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2.2.8 The Non-Assumed Customer Contracts (other than those Non-Assumed
Customer Contracts that the Buying Parties elect, pursuant to Section 2.10
and subject to the indemnification obligations of the Selling Parties set
forth in Section 15, to include within the Purchased Assets).
2.3 License to Use Certain Assets. To the extent that there are any
tangible or intangible assets owned or licensed by LTI or LTH and used, in whole
or in part, by Seller in the conduct of the Business that (i) are not included
as Purchased Assets under Section 2.1 and (ii) are not specifically designated
as Excluded Assets under Section 2.2 (collectively, the "Licensed Assets") (none
of which the Selling Parties have knowledge exist on the date hereof), the
Selling Parties hereby grant to Buyer an irrevocable, nonexclusive, perpetual,
paid-up, royalty-free, worldwide, transferable license, with full rights to
sublicense, to:
2.3.1 use, operate, copy, make, manufacture, maintain, market,
license, sell or otherwise distribute the Licensed Assets or any portion of
the Licensed Assets in connection with the conduct of the Business after
the Closing Date;
2.3.2 create derivative works based upon, incorporating or derived
from the Licensed Assets or any portion of the Licensed Assets, and to use,
operate, copy, make, manufacture, maintain, market, license, sell or
otherwise distribute such derivative works in connection with the conduct
of the Business after the Closing Date; and
2.3.3 modify, enhance and improve the Licensed Assets or any portion
of the Licensed Assets or any derivative works based upon, incorporating or
derived from the Licensed Assets or any portion of the Licensed Assets, and
to use, operate, copy, make, manufacture, maintain, market, license, sell
or otherwise distribute such modifications, enhancements and improvements
in connection with the conduct of the Business after the Closing Date.
To the extent that any of the Licensed Assets may not be licensed, the
Selling Parties shall take all steps reasonably required to assure that Buyer
obtains the benefit of such Licensed Assets without the incurrence of any
Liability by a Buying Party.
2.4 Purchase Price.
2.4.1 Subject to any adjustment pursuant to Section 2.9, the total
purchase price for the Purchased Assets (the "Purchase Price") equals the
sum of $13,600,000 in cash and the Assumed Liabilities.
2.4.2 Subject to the terms and conditions of this Agreement, Buyer
shall pay the Purchase Price to Seller as set forth below:
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2.4.2.1 At the Closing, Buyer shall pay by a wire transfer of
immediately available funds (A) to the Escrow Agent in accordance with
the Escrow Agreement, 10% of (y) $13,600,000 plus (z) the aggregate
dollar amount of the Assumed Liabilities set forth in Section 2.7.1
(collectively, the "Escrow Funds"), and (B) to Seller in accordance
with instructions provided by Seller at least three business days
prior to the Closing Date, the difference between the Purchase Price
and the Escrow Funds (the "Closing Payment").
2.4.2.2 At the Closing, Buyer shall assume the Assumed
Liabilities as provided in Section 2.7.
2.5 Escrow Account. At the Closing, LTI, LTH, Seller, GE and Buyer shall
enter into the Escrow Agreement with the Escrow Agent under which the Escrow
Agent shall hold the Escrow Funds to secure the indemnification obligations of
the Selling Parties hereunder.
2.6 Allocation of Purchase Price. The Purchase Price shall be allocated
based upon the fair market values of the Purchased Assets conforming with the
requirements of Section 1060 of the Code. At least 10 business days prior to the
Closing, the Buying Parties shall prepare and deliver to the Selling Parties
Schedule 2.6 setting forth the allocation of the Purchase Price in accordance
with this Section 2.6 as agreed to by the Parties. Neither the Selling Parties
nor the Buying Parties will take a position on any income tax return, before any
governmental agency charged with the collection of any income tax or in any
judicial proceeding that is in any way inconsistent with the terms of this
Section 2.6, except to the extent such a position is prohibited under applicable
Law.
2.7 Assumption of Liabilities. As of the Closing, Buyer shall acquire the
Purchased Assets subject only to, and shall undertake, assume, perform and
otherwise pay, satisfy and discharge, and hold Seller harmless from, the
following Liabilities, excluding any Liabilities (but including Liabilities
under the Radview License Agreement) to a Selling Party or any Affiliate of a
Selling Party (collectively, the "Assumed Liabilities"):
2.7.1 Subject to the limitation set forth below, all Accounts Payable,
Accrued Expenses (excluding accrued vacation for years prior to 1997) and
accrued Taxes that would be included in a balance sheet of the Business
prepared as of the Closing Date in accordance with GAAP and have not been
incurred as a result of any action of the type prohibited by Section 8.2;
provided, however, that Buyer shall not assume any Accounts Payable,
Accrued Expenses and accrued Taxes under this Section 2.7.1 that in the
aggregate exceed $1,390,000;
2.7.2 Any Contract of the Business, other than the Non-Assumed
Customer Contracts and the Assumed Customer Contracts, entered into in the
ordinary course of business (a) that would not be required under GAAP to be
included in the Balance Sheet or a balance sheet of the Business prepared
as of the Closing Date in accordance with GAAP, (b) that were not entered
into in violation of any covenant contained in Section 8.2, and (c)
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for which the rights thereunder have been duly and effectively assigned to
Buyer as of the Closing; and
2.7.3 Any Assumed Customer Contracts listed in Schedule 2.10 and any
Non- Assumed Customer Contract that the Buying Parties elect, pursuant to
Section 2.10 and subject to the indemnification obligations of the Selling
Parties set forth in Section 15, to include within the Purchased Assets or
take a subcontract from Seller to perform NDT Services on Seller's behalf
after the Closing.
2.8 Limitations on Assumption of Liabilities. Except for Permitted
Encumbrances and as otherwise provided in Section 2.7, Seller shall transfer the
Purchased Assets to Buyer free and clear of all Encumbrances, and without any
assumption of Liabilities, and Buyer shall not, by virtue of its purchase of the
Purchased Assets, assume or become responsible for under this Agreement or any
other Transaction Document, as of the Closing or at any time, any Liabilities of
any Selling Party or any other Person, including, without limitation, the
following: (i) any notes payable or long-term debt (including any current
portion) of Seller or of any other Person guaranteed by Seller or secured by any
of the Purchased Assets prior to the Closing; (ii) any Liabilities arising out
of any breach by a Selling Party of any provision of any Contract; (iii) any
product liability or similar claim for injury to any Person or property,
regardless of when made or asserted, that arises out of or is based upon any
express or implied representation, warranty, agreement or guarantee made by a
Selling Party, or alleged to have been made by a Selling Party, or which is
imposed or asserted to be imposed by operation of law, in connection with any
service performed or product sold or leased by or on behalf of a Selling Party
on or prior to the Closing; (iv) any Liabilities arising in connection with
services performed by Buyer after the Closing Date in conformity with defective
engineering or other specifications agreed to or established by Seller prior to
the Closing Date that are caused by, arise from or relate to defects in such
specifications; (v) any service or warranty obligations of Seller to redo or
re-perform services or repair or replace defective products sold or leased by
Seller under the terms of any Contract, order or transaction entered into by
Seller prior to the Closing Date or any incidental or consequential damages or
any personal injury or property damages related thereto; (vi) any federal, state
or local income or other Tax payable with respect to the Business, the Purchased
Assets, or other properties or operations of a Selling Party or any member of
any affiliated group of which a Selling Party is a member for any period prior
to the Closing Date (except to the extent that such Taxes are included in the
Taxes specified in Section 2.7.1); (vii) any Liabilities under or in connection
with any Excluded Assets; (viii) any Liabilities arising prior to or as a result
of the Closing to or with respect to any employees, agents or independent
contractors of the Selling Parties (except to the extent that such Liabilities
are included in the Liabilities specified in Section 2.7.1) and any Liabilities
arising under any Benefit Plan or other benefit arrangement of any kind
whatsoever of any Selling Party (including, without limitation, any entity
described in Section 5.19.1), including, without limitation, any severance
payments or obligations or any obligations arising under the Consolidated
Omnibus Budget Reconciliation Act of 1985 or Section 4980B of the Code; (ix) any
Liabilities of the Selling Parties arising from or incurred in connection with
the negotiation, execution and performance of this Agreement, the other
Transaction Documents and the Transactions except as otherwise provided herein
or therein; (x) any Environmental Losses arising from or related to
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circumstances existing on or before the Closing Date; (xi) any Liabilities
arising from or incurred in connection with, before or after the Closing, the
Boggs Technical Services Business and the Dynamic Testing Services Business;
(xii) any Liabilities arising from or incurred in connection with any Defaults
by a Selling Party under applicable Laws; (xiii) any Liabilities arising from or
incurred in connection with the performance of the Assumed Customer Contracts or
the Non-Assumed Customer Contracts by the Selling Parties on or before the
Closing; (xiv) any Liabilities arising from or incurred in connection with the
performance or termination of the Non-Assumed Customer Contracts by any Person
other than the Buying Parties after the Closing; (xv) any Liabilities arising
from or incurred in connection with the performance of a Non-Assumed Customer
Contract by Buyer after the Closing either pursuant to the election of the
Buying Parties to (A) include such Non-Assumed Customer Contract within the
Purchased Assets or (B) take a subcontract from Seller to perform NDT Services
on Seller's behalf after the Closing under such Non-Assumed Customer Contract,
which Liabilities, whether arising in tort or contract Law, exceed the sale
price of such Non-Assumed Customer Contract or represent consequential damages;
and (xvi) any Liabilities arising from or incurred in connection with the breach
of a representation or warranty by a Selling Party.
2.9 Purchase Price Adjustments.
2.9.1 Pre-Closing Fixed Assets Verification. Prior to the Closing, the
Buying Parties shall conduct a verification (the "Fixed Assets
Verification") of up to 80% in aggregate book value of the fixed assets of
Seller as reflected on the balance sheet of Seller as of May 31, 1997 (such
80% in aggregate book value of such fixed assets being referred to herein
as the "Minimum Fixed Assets"). In the event that the Buying Parties are
unable to verify the existence prior to the Closing of the Minimum Fixed
Assets, the Purchase Price set forth in Section 2.4.1 and the Closing
Payment to be paid by Buyer at the Closing pursuant to Section 2.4.2.1
shall be reduced by the aggregate book value of the fixed assets not
verified by the Buying Parties that are included in the Minimum Fixed
Assets. Notwithstanding anything herein to the contrary, any reduction in
the Purchase Price pursuant to this Section 2.9.1 shall not reduce the
amount of the Escrow Funds. The Selling Parties shall cooperate with the
Buying Parties in the conduct of the Fixed Assets Verification, including,
without limitation, giving the Buying Parties and their accountants,
consultants and other representatives, upon reasonable notice and during
normal business hours, full access to such fixed assets.
2.9.2 Post-Closing Purchase Price Adjustment. As soon as practicable
following the Closing Date, but not later than 90 days thereafter, KPMG
Peat Marwick LLP (the "Independent Accountant") shall conduct an audit of
the balance sheet of Seller as of the Closing Date, including, without
limitation, the aging of and independent verification of all Accounts
Receivable of Seller as of the Closing Date. In connection with its audit,
the Independent Accountant shall determine (a) the actual amount of the
Working Capital of Seller as of the Closing Date and (b) the final
aggregate dollar amount of any adjustments in the Accounts Receivable
balance of Seller as of the Closing Date resulting from such independent
verification and audit (the "Accounts Receivable Adjustment"). The
Independent
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Accountant shall execute a certificate (the "Working Capital Certificate")
setting forth the final dollar amount of the Working Capital as of the
Closing Date and the amount of the Accounts Receivable Adjustment included
within the determination of Working Capital. The Working Capital
Certificate shall also contain the audited balance sheet of Seller as of
the Closing Date and an aging schedule of Accounts Receivable as of the
Closing Date. For purposes of this Agreement, "Working Capital" as of any
date shall be deemed to be the aggregate dollar value determined in
accordance with GAAP represented by: (i) Accounts Receivable (net of an
allowance for doubtful accounts determined in accordance with GAAP), (ii)
Inventory and (iii) Prepaid Expenses, less (y) Accounts Payable and (z)
Accrued Expenses. If the Working Capital as reflected on the Working
Capital Certificate is less than $2,100,000, then Seller shall pay in cash
to Buyer the amount of the difference. The payment, if any, to be made
under this Section 2.9.2 shall be made, without interest thereon, within
five business days after delivery of the Working Capital Certificate by the
Independent Accountant to the Parties. The fees and expenses of the
Independent Accountant in connection with the audit shall be paid by Buyer.
To the extent that the audit performed in accordance with this Section
2.9.2 identifies an Accounts Receivable Adjustment that has the effect of
reducing the amount of Working Capital as reflected on the Working Capital
Certificate to less than $2,100,000 (the difference between $2,100,000 and
that portion of the Accounts Receivable Adjustment that decreases Working
Capital to below $2,100,000 being referred to herein as the "Accounts
Receivable Reduction"), the Buying Parties shall only be entitled to make a
Claim for indemnification under Section 15 with respect to the breach of a
representation and warranty set forth in Section 5.6 or otherwise in this
Agreement relating to Accounts Receivable, if any, to the extent that such
Claim exceeds the amount of the Accounts Receivable Reduction.
2.9.3 Dispute Resolution. In the event the Selling Parties dispute any
Purchase Price adjustment set forth in Section 2.9.1, then the Selling
Parties shall notify the Buying Parties in writing of such dispute within
five days after delivery to the Selling Parties of the Fixed Assets
Verification by the Buying Parties. In the event the Selling Parties
dispute any Purchase Price adjustment set forth in Section 2.9.2, then the
Selling Parties shall notify the Buying Parties in writing of such dispute
within 15 days after delivery of the Working Capital Certificate by the
Independent Accountant. The Parties shall then attempt to reconcile their
differences and any resolution by them as to any disputed amounts shall be
final, binding and conclusive on the Parties. If the Selling Parties and
the Buying Parties are unable to reach a resolution to such effect within
30 days of receipt of the Selling Parties' written notice of such dispute
to the Buying Parties, then the Parties shall submit the amounts remaining
in dispute for resolution to an independent accounting firm of national
reputation mutually appointed by the Selling Parties and the Buying Parties
(such independent accounting firm being referred to as the "Third
Accounting Firm"), which shall, within 30 days after such submission,
determine and report to the Parties upon such remaining disputed amounts,
and such report shall be final, binding and conclusive on the Parties. The
Buying Parties shall use commercially reasonable efforts to collect any
Accounts Receivable that have been determined to be uncollectible pursuant
to the audit conducted in accordance with Section
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2.9.2 and are disputed pursuant to this Section 2.9.3. The Buying Parties
and the Selling Parties shall each pay one-half of the fees and
disbursements of the Third Accounting Firm incurred in connection with
resolving any such dispute; provided, however, that if the final adjustment
amount determined by the Third Accounting Firm is at least five percent
less than the proposed adjustment submitted by the Buying Parties, then the
Buying Parties shall pay all of the fees and disbursements of the Third
Accounting Firm.
2.10 Customer Contracts. As soon as reasonably practicable after the date
hereof, the Parties shall use commercially reasonable efforts to obtain prior to
the Closing the written consent of the parties, other than the Selling Parties,
to the Pre-Signing Customer Contracts to (i) the terms and conditions
substantially in the form of Exhibit C attached hereto (the "Customer Terms and
Conditions") and (ii) the assignment of such Pre-Signing Customer Contracts, as
so modified by the Customer Terms and Conditions, to Buyer effective as of the
Closing; provided, however, that in connection with obtaining such consents
relating to the Pre-Signing Customer Contracts, Buyer shall offer to perform
those NDT Services for which Seller is contractually obligated under such Pre-
Signing Customer Contracts in accordance with the prices and rates previously
agreed to in writing by Seller under such Pre-Signing Customer Contracts. After
the date of this Agreement and prior to the Closing, Seller shall not enter into
any Contract, including for the purposes of this Section 2.10, any quote
letters, purchase orders or sales orders or agreements of any kind, with any
Person for the provision of NDT Services (each, a "Post-Signing Customer
Contract"), unless such Person consents in writing to (A) the Customer Terms and
Conditions and (B) the assignment of such Post-Signing Customer Contract to
Buyer effective as of the Closing. Any Pre-Signing Customer Contracts and
Post-Signing Customer Contracts for which obligations by Seller remain as of the
Closing and for which both consents described in clauses (i) and (ii) of the
first sentence of this Section 2.10 or described in clauses (A) and (B) of the
immediately preceding sentence, respectively, are obtained in writing prior to
the Closing are referred to herein as the "Assumed Customer Contracts." Any Pre-
Signing Customer Contracts and Post-Signing Customer Contracts other than the
Assumed Customer Contracts are referred to herein as the "Non-Assumed Customer
Contracts." Seller shall list such Assumed Customer Contracts and such
Non-Assumed Customer Contracts in Schedule 2.10 to be prepared by Seller and
delivered to the Buying Parties at least 15 business days prior to the Closing,
which Schedule 2.10 shall contain as attachments thereto the Assumed Customer
Contracts and the Non-Assumed Customer Contracts. Subject to the indemnification
obligations of the Selling Parties set forth in Section 15, the Buying Parties,
at their sole discretion, may elect to (I) include within the Purchased Assets
any Non-Assumed Customer Contract or (II) take a subcontract from Seller to
perform NDT Services on Seller's behalf after the Closing pursuant to any
Non-Assumed Customer Contract that is not included within the Purchased Assets
on terms and conditions acceptable to Buyer in its sole discretion and to the
extent permitted by the terms of such Non-Assumed Customer Contract. Any such
election shall be made by the Buying Parties by written notification to the
Selling Parties at least five business days prior to the Closing. In the event
that the Buying Parties do not make an election with respect to a Non-Assumed
Customer Contract, the Selling Parties shall terminate such Non-Assumed Customer
Contract or subcontract the performance thereunder on behalf of Seller to a
third party in accordance with Section 13.4.
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2.11 Third Party Consents. To the extent that Seller's rights under any
contract, agreement, lease, permit, franchise, claim or asset included in the
Purchased Assets to be assigned to Buyer hereunder may not be assigned without
the consent of another Person which has not been obtained, this Agreement shall
not constitute an agreement to assign the same if an attempted assignment would
constitute a breach thereof or be unlawful, and the Selling Parties, at their
expense, shall use commercially reasonable efforts to obtain any such Required
Consents (except as otherwise provided in Section 2.10 or with respect to the
Ridgeway Agreement) as promptly as possible. Except as otherwise provided in
Section 13.4, if any such Required Consent shall not be obtained or if any
attempted assignment would be ineffective or would impair Buyer's rights under
the Purchased Asset in question so that Buyer would not in effect acquire the
benefit of all such rights, the Selling Parties, to the maximum extent permitted
by Law and the Purchased Asset, shall act after the Closing as Buyer's agent in
order to obtain for it the benefits thereunder and shall cooperate, to the
maximum extent permitted by Law and the Purchased Asset, with Buyer in any other
reasonable arrangement designed to provide such benefits to Buyer.
3. Employee Matters.
3.1 Employment of Employees of the Business. Buyer shall offer employment,
commencing on the Closing Date, to substantially all the Employees of Seller who
are actively employed full-time by Seller in the conduct of the Business on the
Closing Date and who are listed in Schedule 3.1, at base salaries not less than
the base salaries provided to such Employees by Seller on the Closing Date.
Before the Closing Date, Buyer will provide to the Selling Parties a list of the
Employees to whom Buyer will offer employment as of the Closing Date.
3.2 Employee Benefits.
3.2.1 Buyer shall provide to each Employee hired by Buyer as of the
Closing Date such benefits as Buyer deems appropriate in its sole
discretion. Buyer shall only be responsible for benefits provided under its
benefit plans and, except to the extent of Liabilities specified in Section
2.7.1, shall have no Liability or responsibility with respect to any
Benefit Plans of a Selling Party (including, without limitation, any entity
described in Section 5.19.1).
3.2.2 LTI shall timely submit to the Internal Revenue Service a
request for a favorable determination letter with respect to the LTI 401(k)
Matched Savings Plan (the "Seller's 401(k) Plan"), taking into account all
currently applicable Laws, and LTI shall make such amendments and take such
other actions as may be necessary to receive a favorable determination
letter from the Internal Revenue Service. LTI shall amend Seller's 401(k)
Plan effective as of the Closing Date to fully vest all Employees who are
hired by Buyer in their account balances thereunder. In addition, LTI shall
amend Seller's 401(k) Plan effective as of the Closing Date to provide that
in the event of a sale of substantially all of the assets used in a trade
or business, a participant shall be eligible to receive a distribution of
his or her plan account in connection with that disposition of assets in
accordance with Code Section 401(k)(10) and regulations thereunder, and LTI
shall apply this provision to permit
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Employees who are hired by Buyer and eligible for a distribution in
accordance with Code Section 401(k)(10) and regulations thereunder to
receive an immediate distribution of their account balances in Seller's
401(k) Plan. Further, LTI shall amend Seller's 401(k) Plan effective as of
the Closing Date to permit, in accordance with LTI's current administrative
practice, all Employees who are hired by Buyer and who have loans under
Seller's 401(k) Plan that are outstanding as of the Closing Date to
continue repayment of such loans pursuant to their terms under Seller's
401(k) Plan after the Closing Date. Buyer shall establish or provide a
defined contribution plan that includes a qualified cash or deferred
arrangement within the meaning of Section 401(k) of the Code for eligible
Employees who are hired by Buyer, on such terms as Buyer deems appropriate
in its sole discretion.
3.3 Seller's Employee Benefits Plans and Benefit Arrangements. The Selling
Parties shall, jointly and severally, indemnify the Buying Parties against any
Liabilities incurred by a Buyer Indemnified Party (including reasonable
attorneys' fees) in connection with, and at their expense, honor or cause their
insurance carriers to honor, all claims for workers' compensation by any
Employee or former employee of a Selling Party arising out of events occurring
prior to the Closing, and (except to the extent of Liabilities specified in
Section 2.7.1) all Liabilities with respect to Benefit Plans or other benefit
arrangements of any kind whatsoever of a Selling Party (including, without
limitation, any entity described in Section 5.19.1), whether reported or
unreported as of the Closing and whether insured or uninsured (including,
without limitation, workers' compensation, life insurance, medical and
disability programs) in accordance with the terms and conditions of such
programs or applicable workers' compensation statutes. Without limiting the
scope of the preceding sentence, the Selling Parties shall, jointly and
severally, be responsible for any and all Liabilities arising out of or relating
to (i) employment of the Employees and former employees of the Selling Parties,
(ii) the termination by a Selling Party of the employment of any such Employee
or former employee, and (iii) the provision of any employee benefits to any such
Employee or former employee (and their beneficiaries and eligible dependents)
attributable to their employment with, or their participation in any Benefit
Plans or any other benefit arrangement of any kind whatsoever maintained or
contributed to by, a Selling Party (including, without limitation, any entity
described in Section 5.19.1) or any of their Affiliates.
3.4 WARN Act. Seller agrees to provide any required notice under the Worker
Adjustment and Retraining Notification Act, 29 U.S.C. ss.ss. 2101 et seq. (the
"Warn Act"), and any similar statute with respect to any "plant closing" or
"mass layoff" (as defined in the Warn Act) or similar event as a result of any
discharges by a Selling Party of any Employees not hired by Buyer. The Selling
Parties, jointly and severally, shall indemnify the Buying Parties against any
Liabilities incurred by a Buyer Indemnified Party (including reasonable
attorneys' fees) in connection with the application of the Warn Act as a result
of any discharges by a Selling Party of Employees who are not hired by Buyer.
The Buying Parties, jointly and severally, shall indemnify the Selling Parties
against any Liabilities incurred by a Seller Indemnified Party (including
reasonable attorneys' fees) in connection with the application of the WARN Act
as a result of any discharges after the Closing Date by a Buying Party of
Employees hired by Buyer.
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4. Closing.
4.1 Time; Location. Subject to the terms and conditions contained herein,
the Closing shall be held on the Closing Date at 10:00 a.m., local time, at the
offices of Morgan, Lewis & Bockius LLP, 2000 One Logan Square, Philadelphia,
Pennsylvania, or such other time or place as the Parties shall mutually agree in
writing.
4.2 Transaction Documents and Other Deliveries by the Selling Parties. At
the Closing, the Selling Parties, as applicable, shall execute and deliver the
following Transaction Documents and instruments of transfer and assignment:
4.2.1 The Escrow Agreement;
4.2.2 Duly executed warranty deeds substantially in the form of
Exhibit D hereto, in recordable form, transferring good and marketable fee
simple title to the Real Property Owned, subject only to Permitted
Encumbrances, and such affidavits as a title insurance company retained by
the Buying Parties may reasonably request;
4.2.3 All assignments and any other Required Consents of third parties
that are required to make the assignment of the Assigned Leases to Buyer
effective as to such third parties;
4.2.4 A general bill of sale, assignment and assumption substantially
in the form of Exhibit E hereto, transferring to Buyer good and
indefeasible title to all of the tangible personal property included in the
Purchased Assets, subject only to Permitted Encumbrances and the Assumed
Liabilities and assigning to Buyer Seller's right, title and interest in
each of the Contracts, licenses and other agreements included in the
Purchased Assets, together with all consents of third parties that are
required to make each such assignment effective as to such third parties;
4.2.5 Assignments of Trademarks substantially in the form of Exhibit F
hereto;
4.2.6 Radview License Agreement substantially in the form of Exhibit B
hereto;
4.2.7 Consent and release of First Union National Bank substantially
in the form of Exhibit G hereto;
4.2.8 Certificates of title to all vehicles included in the Purchased
Assets with assignments to Buyer; and
4.2.9 Such additional instruments of conveyance and transfer as the
Buying Parties may reasonably require in order to more effectively vest in
Buyer, and put it in possession of, the Purchased Assets.
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4.3 Transaction Documents and Other Deliveries by the Buying Parties. At
the Closing, the Buying Parties, as applicable, shall deliver:
4.3.1 The executed Escrow Agreement;
4.3.2 The executed Radview License Agreement;
4.3.3 The Closing Payment to Seller; and
4.3.4 The Escrow Funds to the Escrow Agent.
4.4 Closing Documents. At the Closing, the Selling Parties and the Buying
Parties shall deliver or cause to be delivered the documents required to satisfy
the conditions specified in Sections 10 and 11.
4.5 Reasonable Steps. Prior to the Closing Date, the Selling Parties shall
take such reasonable steps as may be necessary or appropriate so that on the
Closing Date, Buyer shall be placed in actual possession and control of all of
the Purchased Assets.
5. Representations and Warranties of the Selling Parties.
The Selling Parties hereby, jointly and severally, represent and warrant to
the Buying Parties as follows:
5.1 Corporate Status. Each of LTI, LTH and Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Seller is qualified to do business as a
foreign corporation in any jurisdiction where it is required to be so qualified
except where the failure so to qualify would not have a Material Adverse Effect.
The Charter Documents and bylaws of LTI, LTH and Seller that have been delivered
to the Buying Parties as of the date hereof are effective under applicable Laws
and are current, correct and complete.
5.2 Authorization. Each of LTI, LTH and Seller has the requisite power and
authority to own its property and to carry on its business as now being
conducted. Each of LTI, LTH and Seller has the requisite power and authority to
execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions performed or to be performed by it. Such execution,
delivery and performance by LTI, LTH and Seller have been duly authorized by all
necessary corporate action, including approval by the shareholders of LTI, LTH
and Seller. Each Transaction Document executed and delivered by LTI, LTH or
Seller has been duly executed and delivered by such Party and constitutes a
valid and binding obligation of such Party, enforceable against such Party in
accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, reorganization, insolvency and other Laws of
general application affecting enforcement of creditors' rights generally.
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5.3 Consents and Approvals. Except for any consents specified in Schedule
5.3 (the "Required Consents") and the consent to the assignment of the Ridgeway
Agreement, which shall not be obtained, and except for any approvals or filings
required under the HSR Act or under the Exchange Act in connection with the
Proxy Statement, neither the execution and delivery by LTI, LTH or Seller of the
Transaction Documents to which it is a party, nor the performance of the
Transactions performed or to be performed by LTI, LTH or Seller, (i) require any
filing, consent or approval, conflict with, constitute a Default or cause any
payment obligation to arise under (a) any Law or Court Order to which LTI, LTH
or Seller or any of the Purchased Assets is subject, (b) the Charter Documents
or bylaws of LTI, LTH or Seller or (c) any Contract, Governmental Permit or
other document to which LTI, LTH or Seller is a party or by which any of the
Purchased Assets is bound, or (ii) result in the creation or imposition of any
Encumbrance upon the Purchased Assets.
5.4 Business and Subsidiaries. All of the nondestructive testing and
evaluation services business of LTI and LTH is conducted through Seller and LTI
and LTH have no other nondestructive testing and evaluation services business.
Seller does not own, directly or indirectly, any interest or investment (whether
equity or debt) in any corporation, partnership, limited liability company,
trust, joint venture or other legal entity.
5.5 Financial Statements. Seller has delivered to the Buying Parties
correct and complete copies of (i) financial statements of LTI, consisting of a
balance sheet as of December 31, 1995 and 1996 and the related statements of
income and cash flows for the years then ended, which were audited by Arthur
Andersen LLP, independent public accountants; (ii) consolidating financial
statements of Seller, included within the financial statements of LTI,
consisting of a balance sheet as of December 31, 1994, 1995 and 1996 and the
related statements of income for the years then ended, which were audited by
Arthur Andersen LLP, independent public accountants; and (iii) unaudited monthly
financial statements of Seller, consisting of a balance sheet as of May 31, 1997
and the related statement of income for the five months then ended. All such
audited and unaudited financial statements, together with the financial
statements to be delivered after the date hereof pursuant to Section 8.1.3, are
referred to herein collectively as the "Financial Statements." Correct and
complete copies of the Financial Statements specified in the first sentence of
this Section 5.5 are attached hereto as Schedule 5.5. The Financial Statements
contained in Schedule 5.5 are referred to herein collectively as the
"Pre-Signing Financial Statements," and the Financial Statements to be delivered
after the date hereof are referred to herein collectively as the "Post-Signing
Financial Statements." The Pre-Signing Financial Statements are, and the
Post-Signing Financial Statements will be, consistent in all material respects
with the Books and Records, and there have not been or will not be any material
transactions that have not been or will not be recorded in the accounting
records underlying such Financial Statements. The Pre-Signing Financial
Statements have been, and the Post-Signing Financial Statements will be,
prepared in accordance with GAAP, and the Pre-Signing Financial Statements,
including the related notes, present, and the Post-Signing Financial Statements
will present, fairly the financial position and assets and Liabilities of Seller
as of the dates thereof, and the results of operations and cash flows for the
periods then ended in accordance with GAAP, subject, in the case of unaudited
Financial Statements, to normal year-end adjustments and the absence of notes.
The balance sheet of Seller as of December 31, 1996 that is included in the
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Financial Statements is referred to herein as the "Balance Sheet," and the date
thereof is referred to as the "Balance Sheet Date."
5.6 Accounts Receivable. Except as set forth in Schedule 5.6, the Accounts
Receivable as set forth on the balance sheet of Seller as of May 31, 1997 (the
"May Balance Sheet") or arising since the date thereof (i) are valid and
genuine; (ii) have arisen only in the ordinary course of business out of
performance of services or bona fide sales and deliveries of goods; (iii) are
not subject to valid defenses, set-offs or counterclaims; and (iv) are
collectible in full at the recorded amounts thereof (without resort to
litigation or assignment to a collection agency) within 90 days after billing,
net of any allowance for doubtful accounts reflected on the May Balance Sheet.
The allowance for doubtful accounts reflected on the May Balance Sheet has been
determined in accordance with GAAP. Neither of the Selling Parties knows of any
facts or circumstances (other than general economic conditions) that are likely
to result in any material increase in the uncollectibility of such Accounts
Receivable in excess of any allowance therefor set forth on the Balance Sheet.
The provisions of this Section 5.6 referring to the May Balance Sheet shall be
automatically amended effective as of the Closing so that the representations
and warranties set forth in this Section 5.6 as of the Closing shall refer
solely to the balance sheet of Seller prepared as of the Closing Date in
accordance with GAAP.
5.7 Inventory. The Inventory as set forth on the Balance Sheet or acquired
since the date thereof was acquired and has been maintained in accordance with
the regular business practices of Seller, is of good, usable and merchantable
quality, consists of new and unused items of a quality and quantity useable or
saleable in the ordinary course of business, is valued in accordance with GAAP,
is not subject to any write-down or write-off and, with respect to Inventory
intended for sale, is saleable as current inventory at current prices thereof in
the ordinary course of business. Schedule 5.7 lists the locations of all items
of the Inventory.
5.8 Absence of Certain Changes or Events. Except as set forth in Schedule
5.8 and except for changes resulting from the negotiation of the consents
contemplated by Section 2.10 relating to the Pre-Signing Customer Contracts,
since the Balance Sheet Date, Seller has conducted the Business in the ordinary
course and Seller, LTI or LTH, as the case may be, has not:
5.8.1 Amended in any material respect or terminated any Contract to
which Seller is a party or for the benefit of Seller relating to the
Business or the Purchased Assets, other than in the ordinary course of the
Business;
5.8.2 Closed any office or facility or made plans to close any office
or facility used, in whole or in part, by Seller in the conduct of the
Business as of the Balance Sheet Date;
5.8.3 Suffered the occurrence of any events that, individually or in
the aggregate, have had, or could reasonably be expected to have, a
Material Adverse Effect;
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5.8.4 Incurred any damage or destruction having a Material Adverse
Effect by fire, storm, or similar casualty, whether or not covered by
insurance;
5.8.5 Declared or made any distribution or payment in respect of
Seller's capital stock by way of dividend, purchase or redemption of shares
or otherwise;
5.8.6 Sold, transferred, replaced or leased any of the Purchased
Assets or sold any Inventory at a discount, except for transactions in the
ordinary course of the Business;
5.8.7 Waived or released any material rights with respect to the
Business or the Purchased Assets;
5.8.8 Transferred or granted any rights to any Intellectual Property
owned by, licensed to or used, in whole or in part, in the conduct of, the
Business;
5.8.9 Entered into any transaction or made any commitments (for
capital expenditures or otherwise) relating to the Business or the
Purchased Assets other than in the ordinary course of the Business;
5.8.10 Changed its methods of accounting;
5.8.11 Made any payments to any Selling Party or any Affiliate of a
Selling Party other than in the ordinary course of the Business;
5.8.12 Increased or made any commitments to increase the compensation
of Employees or other service providers, except following normal review
procedures or as reasonably deemed necessary in the ordinary course of the
Business and as disclosed to the Buying Parties prior to the Closing; or
5.8.13 Materially altered the conduct of its relations with customers
or suppliers of the Business.
5.9 Title to Assets; Absence of Liens and Encumbrances. Seller owns and
will transfer to Buyer at the Closing good, marketable and indefeasible title
to, or with respect to leased assets included in the Purchased Assets, a valid
leasehold interest in, subject to the terms and conditions of such leases, all
of the Purchased Assets, including, without limitation, the material properties
and assets reflected on the Balance Sheet (except as disclosed in Schedule 5.9
or except as sold or otherwise disposed of by Seller after the Balance Sheet
Date in the ordinary course of business), free and clear of all Encumbrances,
other than Permitted Encumbrances. The use of the Purchased Assets is not
subject to any Encumbrances (other than Permitted Encumbrances), and such use
does not materially encroach on the property or rights of any other Person.
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5.10 Real Property.
5.10.1 The Real Property Owned is the only real property owned by
Seller and used in whole or in part by Seller in the conduct of the
Business. Seller owns and will transfer to Buyer at the Closing good,
marketable and indefeasible title in fee simple absolute to the Real
Property Owned, insurable as such by any reputable title insurance company
selected by Buyer and licensed to do business in South Carolina with
respect to the Real Property Owned located in South Carolina and by any
reputable title insurance company selected by Buyer and licensed to do
business in Louisiana with respect to the Real Property Owned located in
Louisiana, at regular standard rates, free and clear of all Encumbrances,
including, without limitation, all encroachments, boundary disputes,
covenants, restrictions, easements, rights of way, mortgages, security
interests, leases, encumbrances and title objections, other than Permitted
Encumbrances. Seller has obtained all licenses and rights-of-way from
governmental entities or private parties that are necessary to ensure
vehicular and pedestrian ingress and egress to and from the Real Property
Owned.
5.10.2 Seller owns and will transfer to Buyer at the Closing a valid
leasehold interest in the Real Property Leased. Except as set forth in
Schedule 5.10.2, the Real Property Leased is the only real property leased
by Seller and used in whole or in part by Seller in the conduct of the
Business. All leases and amendments thereto pertaining to the Real Property
Leased are listed in Schedule 5.10.2 (the "Assigned Leases"). Copies of the
Assigned Leases, as amended and as currently in effect, have been made
available to the Buying Parties. Seller or the lessor of any Real Property
Leased has obtained all licenses and rights-of-way from governmental
entities or private parties that are necessary to ensure vehicular and
pedestrian ingress and egress to and from the Real Property Leased. Each of
the Assigned Leases is valid and in full force and effect and, to the
Knowledge of any Selling Party, constitutes the legal, valid and binding
obligation of the lessor thereunder, enforceable in accordance with its
terms. Seller is not in Default under any Assigned Lease, all rent and
other sums payable by or to Seller thereunder are current within applicable
notice and grace periods and no lessor under any Assigned Lease has
asserted a Default on the part of Seller that would give it the right to
terminate such Assigned Lease or set off against rent and other sums
payable by Seller thereunder and, to the Knowledge of any Selling Party,
there is no Default under any Assigned Lease by any other party. No Selling
Party has received notice that any party to any Assigned Lease intends to
cancel, terminate or refuse to renew the same or to exercise or decline to
exercise any option or other right thereunder. All improvements to be
constructed by any lessor under any Assigned Lease have been completed and
the use of the Real Property Leased in the conduct of the Business is a
permitted use under the terms of each Assigned Lease.
5.10.3 The improvements located on the Real Property are in good
condition and are structurally sound, and all mechanical and other systems
located therein are in good operating condition, reasonable wear and tear
excepted, and no condition exists requiring material repairs, replacements,
alterations or corrections. Schedule 5.10.3 describes any other
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real estate previously owned, leased or otherwise operated by Seller or any
predecessor thereof and the time periods of any such ownership, lease or
operation. All of the Real Property is served by all utilities necessary
for the conduct of the Business.
5.10.4 All of the Real Property is usable in the ordinary course of
the Business and conforms in all material respects with any applicable Laws
relating to its construction, ownership, lease, use, occupancy and
operation and Seller has obtained all Governmental Permits required
thereunder. The Real Property complies with applicable zoning Laws. No
Selling Party has received any notice, oral or written, of any violation of
Law with respect to the Real Property or any notice, oral or written, or
has any reason to believe, that any governmental or regulatory body or
authority having jurisdiction over the Real Property intends to exercise
the power of eminent domain, condemnation, annexation or moratorium or
similar power with respect to all or any part of the Real Property. To the
Knowledge of any Selling Party, the Real Property Owned has been assessed
and real estate Taxes have been paid on the basis of the value of all
improvements as completed, and to the Knowledge of any Selling Party, there
are no proposed reassessments of any of the Real Property Owned by any
taxing authority and there are no threatened or pending special assessments
or other actions or proceedings that could reasonably be expected to give
rise to an increase in real property taxes or assessments against any of
the Real Property. Neither Selling Party has received notice, oral or
written, of and, to the Knowledge of any Selling Party, there does not
exist any violation or Default of a condition or agreement contained in any
easement, restrictive covenant or any similar instrument or agreement
affecting the Real Property or any portion thereof.
5.11 Intellectual Property, Software and Confidential Information.
5.11.1 Schedule 5.11 sets forth a correct and complete list and
description of all Intellectual Property and all Software owned by or
licensed to Seller and used in, in whole or in part, directly or
indirectly, and material to the Business, and indicates whether such
Intellectual Property and Software is owned or licensed by Seller. Except
as set forth in Schedule 5.11, Seller owns or licenses all material
Intellectual Property and Software used in, in whole or in part, directly
or indirectly, the Business.
5.11.2 Except as disclosed in Schedule 5.11: (a) to the Knowledge of
any Selling Party, Seller owns or possesses adequate licenses or other
valid rights to use (without the making of any payment to others or the
obligation to grant rights to others in exchange) all of such Intellectual
Property and Software; (b) the Intellectual Property and Software included
in the Purchased Assets constitute all such rights and property necessary
to conduct the Business in accordance with past practice and are being
conveyed to Buyer together with the other Purchased Assets; (c) Seller is
not in Default under any Contract with respect to any of such Intellectual
Property or Software; (d) the validity of such Intellectual Property and
the rights of Seller therein and to the Software have not been questioned
in any Litigation to which Seller is a party or in any other written notice
to Seller, nor, to the Knowledge of any
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Selling Party, is any such Litigation threatened; and (e) to the Knowledge
of any Selling Party, the conduct of the Business does not materially
conflict with patent rights, licenses, trademark rights, trade name rights,
copyrights or other intellectual property rights of others.
5.11.3 Except as disclosed in Schedule 5.11, neither of the Selling
Parties has Knowledge that any material use of any Intellectual Property or
Software included within the Purchased Assets has heretofore been, or is
now being, made by any Person other than Seller, except for Software
licensed to Seller under a third-party license agreement listed in Schedule
5.11. The Selling Parties have no Knowledge of any infringement of any such
Intellectual Property or Software owned or licensed by Seller or used in
the Business. No present or former director, officer, employee or
consultant of Seller or any Affiliate of Seller has any interest, direct or
indirect, in any of the Intellectual Property or Software.
5.11.4 To the Knowledge of any Selling Party, (a) none of Seller's
Confidential Information has been used, divulged or appropriated for the
benefit of any Person other than Seller or otherwise to the detriment of
Seller and (b) no employee or consultant of Seller is, or is currently
expected to be, in Default under any term of any employment Contract,
agreement or arrangement relating to the Intellectual Property, or any
confidentiality agreement or any other Contract or any restrictive covenant
relating to the Intellectual Property, or the development or exploitation
thereof.
5.12 Contracts. Schedule 5.12 lists all Contracts, including quotes,
purchase orders and sale agreements, existing on the date hereof between Seller
and customers for the provision of NDT Services that may have continuing
obligations by Seller after October 1, 1997 (the "Pre-Signing Customer
Contracts") and indicates the termination date and the estimated dollar value of
services to be performed by Seller thereunder. Seller shall update and deliver
to the Buying Parties Schedule 5.12 beginning on the 15th calendar day after the
date hereof and continuing each 15 calendar days thereafter until the Closing,
including such shorter period as is necessary to update the schedule immediately
prior to the Closing, to include any Post-Signing Customer Contract entered into
by Seller and indicating the termination date and the estimated dollar value of
services to be performed by Seller thereunder. Except as listed and described in
Schedule 5.12, Seller is not with respect to the Purchased Assets or the
Business a party to any written or oral:
5.12.1 Contracts with any present or former shareholder, director,
officer, employee, partner or consultant of any Selling Party or Affiliate
thereof (other than the Ridgeway Agreement);
5.12.2 Contracts for the future purchase of, or payment for, supplies,
inventory or products, or for the lease of any Purchased Asset from or the
performance of services by a third party, in excess of $50,000 in any
individual case, or any Contracts to perform services or to sell Inventory
or Products that involve any amount in excess of $50,000 in any individual
case;
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5.12.3 Contracts continuing over a period of more than six months from
the date hereof and that involve an amount in excess of $25,000 in any
individual case;
5.12.4 Representative, sales agency, dealer or distributor Contracts;
5.12.5 Leases under which Seller is either lessor or lessee other than
the Assigned Leases;
5.12.6 Contracts made by or on behalf of Seller, or by which Seller is
bound, other than the Assigned Leases, with respect to the limitation,
operation, management, maintenance, utility and construction of the Real
Property;
5.12.7 Any notes, debentures, bonds, conditional sale agreements,
equipment trust agreements, letter of credit agreements, reimbursement
agreements, loan agreements or other Contracts for the borrowing or lending
of money (including loans to or from officers, directors, partners or
shareholders of a Selling Party or any Affiliate of a Selling Party or any
members of their immediate families), agreements or arrangements for a line
of credit or for a guarantee of, or other undertaking in connection with,
the indebtedness of any other Person, including indebtedness of LTI or LTH;
5.12.8 Contracts limiting or restraining Seller or any successor or
assign from engaging or competing in any lines of business with any Person;
5.12.9 Contracts under which any Encumbrances exist with respect to
any Purchased Assets;
5.12.10 Contracts, licenses or distributorships that relate in whole
or in part to any Intellectual Property or Software; or
5.12.11 Any other material Contracts not made in the ordinary course
of business.
Except as disclosed in Schedule 5.12, (i) each of the Contracts listed in
Schedule 5.12 is valid and enforceable in accordance with its terms, the parties
thereto are in compliance with the provisions thereof, no party is in Default in
the performance, observance or fulfillment of any material obligation, covenant
or condition contained therein, and no event has occurred that would constitute
a Default thereunder; (ii) no such Contract, in the reasonable opinion of
Seller, contains any contractual requirement with which there is a reasonable
likelihood Seller or any other party thereto will be unable to comply; (iii) no
advance payments have been received by Seller by or on behalf of any party to
any of the Contracts listed in Schedule 5.12 for services to be rendered or
products to be delivered to such party after the Closing Date; (iv) except as
set forth in Schedule 5.3, no consent or approval of any party to any Contract
listed in Schedule 5.12 is required for the execution and delivery of the
Transaction Documents by any Selling Party or the consummation of the
Transactions; and (v) each
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of LTI and LTH is not a party to any Contract that would be required to be
disclosed in Schedule 5.12 if Seller were a party to such Contract.
5.13 Governmental Permits. Seller has all Governmental Permits of federal,
state or local governmental or regulatory bodies that are required to operate
the Business (including, without limitation, those required under any
Environmental Law) and Seller is in compliance with the terms and conditions of
the Governmental Permits, except where the failure so to comply would not,
individually or in the aggregate, have a Material Adverse Effect. Schedule 2.1.6
sets forth a correct and complete list of all Governmental Permits along with
their expiration dates, each one of which is currently valid and in full force.
Seller has filed such timely and complete renewal applications as may be
required with respect to its Governmental Permits. To the Knowledge of any
Selling Party, no suspension, revocation, cancellation or withdrawal of any of
the Governmental Permits is threatened and no cause exists for such suspension,
revocation, cancellation or withdrawal. Any Governmental Permits that cannot be
transferred in connection with the Transactions are identified in Schedule
2.1.6.
5.14 Legal Proceedings and Compliance with Laws; Environmental Matters.
5.14.1 Except as set forth in Schedule 5.14, there is no Litigation
that is pending or, to the Knowledge of any Selling Party, threatened
against the Business or any of the Purchased Assets, or relating to the
Transactions, nor does any Selling Party know or have reasonable grounds to
know of any basis for any such Litigation. There has been no Default under
any Laws applicable to the conduct or operation of the Business or the
ownership or use of the Purchased Assets, including Environmental Laws,
except for any Defaults that would not, individually or in the aggregate,
have a Material Adverse Effect, and Seller has not received any notices
from any governmental entity regarding any alleged Defaults under any Laws.
Except as set forth in Schedule 5.14, Seller has not received any notice
relating to the Business or the Real Property alleging any violation of any
Environmental Law or any written request for information from any
governmental agency or other Person pursuant to any Environmental Law.
Seller is in compliance with the terms and conditions of all Governmental
Permits required under any Environmental Law or relating to any Hazardous
Substance. Except as set forth in Schedule 5.14, Seller is not a party to,
and the Business and the Purchased Assets are not subject to the provisions
of, any Court Order, nor is there any Court Order that might affect the
Transactions. There has been no Default with respect to any Court Order
applicable to the Business or the Purchased Assets.
5.14.2 Without limiting the generality of Section 5.14.1, there has
not been any Environmental Condition (a) at any property or premises at
which the Business has been conducted, (b) at any property owned, leased or
operated at any time by Seller, any Person controlled by Seller or any
predecessor of any of them, or (c) at any property at which Hazardous
Substances have been deposited or disposed by or at the behest or direction
of any of the foregoing, nor has any of the Selling Parties received
written notice of any such Environmental Condition. "Environmental
Condition" means any condition or circumstance,
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including the presence of Hazardous Substances, whether created by Seller
or any other Person, at or relating to any such property or premises that
(i) requires abatement or correction under an Environmental Law, (ii) gives
rise to any civil or criminal liability on the part of Seller under an
Environmental Law, or (iii) has created a public or private nuisance. To
the Knowledge of any Selling Party, the Real Property does not contain any:
(A) underground storage tanks, (B) underground injection wells; (C) septic
tanks in which process wastewater or any Hazardous Substances have been
disposed; (D) asbestos; (E) equipment using polychlorinated biphenyls; or
(F) drums buried in the ground.
5.14.3 Schedule 5.14 identifies all environmental reports, studies,
assessments, analyses or any other related documents in the possession or
custody or under the control of any Selling Party relating to any
Environmental Condition, the Business, the Real Property or the other
Purchased Assets, true and complete copies of which have been delivered to
the Buying Parties.
5.15 Absence of Undisclosed Liabilities. Except as set forth in Schedule
5.15, Seller has no Liabilities relating to the Business except (i) Liabilities
set forth on the Balance Sheet and not heretofore paid or discharged; (ii)
Liabilities under any Contracts that are specifically disclosed in Schedule 5.12
(or not required to be disclosed because of the term or amount involved) that
were not required under GAAP to have been specifically disclosed or reserved for
on the Balance Sheet; and (iii) Liabilities incurred in the ordinary course of
business since the Balance Sheet Date that, individually or in the aggregate,
are not material to the Business.
5.16 Taxes. Seller has duly filed all returns for Taxes that are required
to be filed and that were due (with applicable extensions) prior to the Closing
Date, all such Tax returns are correct and complete in all material respects and
Seller has paid all Taxes due pursuant to such returns or assessments received.
All Taxes that Seller has been required by Law to withhold or to collect have
been duly withheld and collected and have been paid over to the proper
governmental authorities or are properly held by Seller for such payment. There
are no proceedings or other actions, nor to the Knowledge of any Selling Party
is there any basis for any proceedings or other actions, for the assessment and
collection of additional Taxes of any kind with respect to the Business or the
Purchased Assets for any period for which returns have or should have been
filed.
5.17 Books and Records. All material books of account and other financial
records of Seller directly relating to the Business (the "Books and Records")
are complete and correct in all respects and have been made available to the
Buying Parties. All of the Books and Records have been prepared and maintained
in accordance with good business practices and, where applicable, in conformity
with GAAP (except as otherwise stated therein) and in compliance in all respects
with applicable Laws.
5.18 Employees and Employee Relations; Independent Contractors. Schedule
5.18 sets forth a current, correct and complete list of all individuals employed
as common law employees by a Selling Party in the conduct of the Business (each,
an "Employee"), their date of hire, their present
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position, rate of compensation (including cash and non-cash compensation) and
accrued vacation (such Schedule being subject to change between the date hereof
and the Closing Date as a result of changes in the ordinary course of business).
Seller is not a party to any collective bargaining agreement or currently
negotiating any collective bargaining agreement. Except as described in Schedule
5.18, there is no labor strike, slowdown or stoppage pending or, to the
Knowledge of any Selling Party, threatened against or affecting Seller, there
are no discrimination complaints nor any other kind of employment or labor
related disputes or unfair labor practice charges or complaints against Seller
in connection with the Business pending before or, to the Knowledge of any
Selling Party, threatened before any federal, state or local court or agency,
and, to the Knowledge of any Selling Party, no dispute respecting minimum wage
or overtime claims or other conditions or terms of employment in connection with
the Business exists. Except as set forth in Schedule 5.18A, the Selling Parties
(including, without limitation, any entity described in Section 5.19.1) have no
Liabilities with respect to any independent contractors who perform or have
performed services for the Selling Parties in connection with the Business under
any Benefit Plans or other benefit arrangement of any kind whatsoever or under
any Laws applicable to the Business, including any Liabilities under any labor,
employment or tax Laws or imposed by common law.
5.19 Employee Benefit Plans.
5.19.1 Schedule 5.19 contains a current, correct and complete list of
each Benefit Plan maintained by or under which a Selling Party has any
Liability, whether actual or contingent, to Employees or their respective
beneficiaries, former employees of the Selling Parties or their respective
beneficiaries, or otherwise in connection with the Business. For purposes
of this Section 5.19 and Section 5.18 and the definition of "Benefit Plan"
as used in this Agreement, the term "Selling Parties" shall include any
corporation that is a member of any controlled group of corporations (as
defined in Section 414(b) of the Code) that includes a Selling Party, any
trade or business (whether or not incorporated) that is under common
control (as defined in Section 414(c) of the Code) with a Selling Party,
any organization (whether or not incorporated) that is a member of an
affiliated service group (as defined in Section 414(m) of the Code) that
includes a Selling Party and any other entity required to be aggregated
with a Selling Party pursuant to the regulations issued under Section
414(o) of the Code.
5.19.2 All such Benefit Plans conform (and at all times have
conformed) in all material respects to, and are being administered and
operated (and have at all time been administered and operated) in material
compliance with, the requirements of ERISA, the Code and all other
applicable Laws. All returns, reports and disclosure statements required to
be made under ERISA and the Code with respect to all such Benefit Plans
have been timely filed or delivered. There have not been any "prohibited
transactions," as such term is defined in Section 4975 of the Code or
Section 406 of ERISA, involving any of the Benefit Plans, that could
subject the Business to any material penalty or tax imposed under the Code
or ERISA.
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5.19.3 Except as set forth in Schedule 5.19, any such Benefit Plan
that is intended to be qualified under Section 401(a) of the Code and
exempt from tax under Section 501(a) of the Code has been determined by the
Internal Revenue Service to be so qualified or an application for such
determination is pending. Any such determination that has been obtained
remains in effect and has not been revoked, and with respect to any
application that is pending, the Selling Parties have no reason to suspect
that such application for determination will be denied. Nothing has
occurred since the date of any such determination that is reasonably likely
to affect adversely such qualification or exemption, or result in the
imposition of excise Taxes or income Taxes on unrelated business income
under the Code or ERISA with respect to any such Benefit Plan.
5.19.4 The Selling Parties do not sponsor or contribute to, and have
not in the past sponsored or contributed to, and have no Liability with
respect to, any defined benefit plan subject to Title IV of ERISA or any
multiemployer plan (as defined in Section 3(37) of ERISA), nor do they have
a current or contingent obligation to contribute to any multiemployer plan
(as defined in Section 3(37) of ERISA). The Selling Parties do not have any
Liability with respect to any employee benefit plan or arrangement other
than with respect to Benefit Plans listed in Schedule 5.19.
5.19.5 There are no pending or, to the Knowledge of any Selling Party,
threatened claims by or on behalf of any such Benefit Plans, or by or on
behalf of any individual participants or beneficiaries of any such Benefit
Plans, alleging any breach of fiduciary duty on the part of a Selling Party
or any of its officers, directors or employees under ERISA or any other
applicable regulations, or claiming benefit payments (other than those made
in the ordinary operation of such plans), nor is there, to the Knowledge of
any Selling Party, any basis for such claim. Such Benefit Plans are not the
subject of any pending (or to the Knowledge of any Selling Party, any
threatened) investigation or audit by the Internal Revenue Service, the
Department of Labor or the Pension Benefit Guaranty Corporation ("PBGC").
5.19.6 The Selling Parties have timely made all required contributions
under such Benefit Plans including the payment of any insurance premiums.
There have been no accumulated funding deficiencies (as defined in Section
412 of the Code or Section 302 of ERISA) with respect to any Benefit Plan
and no request for a waiver from the Internal Revenue Service with respect
to any minimum funding requirement under Section 412 of the Code. The
Selling Parties have not incurred any Liability for any Tax, excise Tax,
penalty or fee with respect to any Benefit Plan, and no event has occurred
and no circumstance exists or has existed that could give rise to any such
Liability. The execution of and performance of the Transactions
contemplated by this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) result in any payment,
acceleration, vesting or increase in benefits with respect to any Employee
or former employee of a Selling Party that would be an "excess parachute
payment" under Section 280G of the Code.
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5.19.7 With respect to any such Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (a
"Welfare Plan"), (a) each Welfare Plan for which contributions are claimed
by a Selling Party as deductions under any provision of the Code is in
material compliance with all applicable requirements pertaining to such
deduction, (b) with respect to any welfare benefit fund (within the meaning
of Section 419 of the Code) related to a Welfare Plan, there is no
disqualified benefit (within the meaning of Section 4976(b) of the Code)
that would result in the imposition of a tax under Section 4976(a) of the
Code in connection with the Business, and (c) any Benefit Plan that is a
group health plan (within the meaning of Section 4980B(g)(2) of the Code)
complies and has been administered in material respects in accordance with
all of the applicable requirements of Section 4980B of the Code, ERISA,
Title XXII of the Public Health Service Act, the Social Security Act and
other applicable Laws.
5.19.8 The Selling Parties have not taken any action that may result
in any Buying Party being a party to, or bound by, any such Benefit Plan,
and the Buying Parties shall have no Liability under, or be subject to any
Liability on account of, any such Benefit Plan following the consummation
of the Transactions. No Benefit Plan has provided or provides for the
payment of health, life or other welfare coverage or retirement or
severance benefits by any Buying Party.
5.20 Finder's Fee. No Person retained by a Selling Party is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions.
5.21 Interest in Business or Purchased Assets. Except as set forth in
Schedule 5.21, the Selling Parties have not granted, and there is not
outstanding, any option, right, agreement or other obligation pursuant to which
any Person could claim a right to acquire in any way all or any part of, or
interest in, the Business or any of the Purchased Assets.
5.22 Condition of Assets. All Real Property Owned and tangible personal
property (other than Inventory) included in the Purchased Assets are suitable
for the purposes for which they are used, are in good operating condition and
repair, reasonable wear and tear excepted, are usable in the ordinary course of
business, are free from any known defects, except such minor defects that would
not have a Material Adverse Effect, individually or in the aggregate, and
conform in all material respects to all applicable Laws relating to their
construction, use and operation. Any Software included in the Purchased Assets,
together with all know-how and processes used in connection therewith, functions
as intended and is in machine-readable form.
5.23 Affiliate Transactions. Schedule 5.23 sets forth a summary of all
purchases or sales of goods or services from or to the Business by a Selling
Party or any Affiliate of a Selling Party for the three years ended December 31,
1996 and by any such Selling Party or Affiliate since December 31, 1996. Except
as set forth in Schedule 5.23, no Selling Party or Affiliate of a Selling Party
purchases or provides services or products from or to the Business.
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5.24 Insurance. Schedule 5.24 lists all policies or binders of insurance
held by or on behalf of Seller or relating to the Business or any of the
Purchased Assets, specifying with respect to each policy the insurer, the amount
of the coverage, the type of insurance, the risks insured, the expiration date,
the policy number and any pending claims thereunder, including all insurance
policies known by any Selling Party to have been maintained by any other Person
that may provide any coverage with respect to any Environmental Losses. To the
Knowledge of any Selling Party, there is no Default with respect to any such
policy or binder, nor has there been any failure to give any notice or present
any claim under any such policy or binder in a timely fashion or in the manner
or detail required by the policy or binder, except for any of the foregoing that
would not, individually or in the aggregate, have a Material Adverse Effect.
There is no notice of nonrenewal or cancellation with respect to, or
disallowance of any claim under, any such policy or binder that has been
received by any Selling Party, except for any of the foregoing that would not,
individually or in the aggregate, have a Material Adverse Effect.
5.25 No Significant Items Excluded. Seller owns or licenses, and the
Purchased Assets include, all rights and property that are necessary to the
conduct of the Business by Buyer in the manner in which it is currently
conducted by Seller or are otherwise of material importance to the ongoing
operation of the Business by Buyer.
5.26 Previous Sales; Warranties. All Products sold or distributed by Seller
were of merchantable quality, and Seller has not breached any express or implied
warranties in connection with the sale or distribution of such Products or in
connection with the performance of any services, except for breaches that would
not, individually or in the aggregate, have a Material Adverse Effect. Seller
has provided the Buying Parties with true and correct copies of all warranties
(i) made by all Persons from whom Seller has obtained any goods that have been
resold or distributed by Seller, including any goods that constituted parts
included in Products sold or distributed by Seller, and (ii) made by Seller with
respect to any Products that have been sold or distributed by Seller or services
performed by Seller.
5.27 Customers and Suppliers. Seller has used its reasonable business
efforts to maintain and currently maintains, good working relationships with all
of its customers. Schedule 5.27 contains lists of the names of each of the ten
customers that, for each of the years ended December 31, 1995 and 1996 and for
the five months ended May 31, 1997, were the largest dollar volume customers of
services or Products, or both, sold by Seller. Except as specified in Schedule
5.27, none of such customers has given Seller notice terminating, canceling or
threatening to terminate or cancel any Contract or relationship with Seller.
Schedule 5.27 also contains lists of the names of each of the ten suppliers
that, for the year ended December 31, 1996 and for the five months ended May 31,
1997, were the largest dollar volume suppliers of services or products, or both,
purchased by Seller. Except as specified in Schedule 5.27, none of such
suppliers has given Seller notice terminating, canceling or threatening to
terminate or cancel any Contract or relationship with Seller. No Selling Party
is aware that any major customer or supplier intends to cease doing business
with Seller or, after the Closing, with Buyer, or to alter materially the amount
of business done with Seller or Buyer due to
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the consummation of the Transactions or any other reason. To the Knowledge of
any Selling Party, the Customer Records are accurate in all material respects.
5.28 Completeness and Accuracy of Information. All information set forth in
any Schedule hereto is true, correct and complete. No representation or warranty
by any of the Selling Parties in any Transaction Document, and no information
contained therein or otherwise delivered by or on behalf of a Selling Party to
the Buying Parties in writing in connection with the Transactions, including the
Financial Statements, contains any untrue statement of a material fact or omits
to state any material fact necessary in order to make the statements contained
herein or therein not misleading. All Contracts, permits and other documents and
instruments furnished or made available to the Buying Parties by any of the
Selling Parties, when so furnished or made available are or will be true,
complete and accurate originals or copies of originals and include all
amendments, supplements, waivers and modifications thereto. There is no fact,
development or threatened development (excluding general economic factors
affecting business in general) that the Selling Parties have not disclosed to
the Buying Parties in writing that has or, so far as the Selling Parties can now
foresee, may have, a Material Adverse Effect.
5.29 Solvency. Immediately after the consummation of the Transactions, (i)
the fair value of the assets of each of LTI, LTH and Seller will exceed its
debts and liabilities, subordinated, contingent or otherwise, (ii) the present
fair saleable value of the property of each of LTI, LTH and Seller will be
greater than the amount that will be required to pay the probable liability of
its debts and other liabilities, subordinated, contingent or otherwise, as such
debts and other liabilities become absolute and matured, and (iii) each of LTI,
LTH and Seller will be able to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured.
6. Representations and Warranties of the Buying Parties.
The Buying Parties hereby, jointly and severally, represent and warrant to
the Selling Parties as follows:
6.1 Corporate Status. Each of GE and Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation.
6.2 Authorization. Each of GE and Buyer has the requisite power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions performed or to be performed by it. Such
execution, delivery and performance by GE and by Buyer have been duly authorized
by all necessary corporate action. Each Transaction Document executed and
delivered by GE or Buyer has been duly executed and delivered by such Party and
constitutes a valid and binding obligation of such Party, enforceable against
such Party in accordance with its terms.
6.3 Consents and Approvals. Except for any approvals or filings required
under the HSR Act, neither the execution and delivery by GE or by Buyer of the
Transaction Documents to which
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it is a party, nor the performance of the Transactions performed or to be
performed by GE or by Buyer, require any filing, consent or approval or
constitute a Default under (i) any Law or Court Order to which GE or Buyer is
subject, (ii) the Charter Documents or bylaws of GE or of Buyer or (iii) any
Contract, Governmental Permit or other document to which GE or Buyer is a party.
6.4 Finder's Fees. No Person retained by a Buying Party is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions.
6.5 Accuracy of Information. No representation or warranty by any of the
Buying Parties in any Transaction Document, and no information contained therein
or otherwise delivered by or on behalf of a Buying Party to the Selling Parties
in writing in connection with the Transactions, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements contained herein or therein not misleading.
7. Covenants Related to Proxy Statement and Special Meeting.
7.1 Proxy Statement. As soon as reasonably practicable after the date
hereof, LTI shall prepare and file with the SEC a preliminary proxy statement
under the Exchange Act and the rules and regulations promulgated thereunder for
the purpose of soliciting shareholder approval of the Transactions by the
shareholders of LTI entitled to vote with respect thereto. Such a proxy
statement, including any amendments or supplements thereto, whether in
preliminary or definitive form, is referred to herein as the "Proxy Statement."
LTI shall use commercially reasonable efforts to (i) respond promptly to SEC
comments, if any, and (ii) cause such Proxy Statement to be approved by the SEC
or enable LTI to file the definitive Proxy Statement without objection by the
SEC as soon as reasonably practicable after the date hereof. As soon as
reasonably practicable after the date that the definitive Proxy Statement is
filed with the SEC, LTI shall caused to be furnished to the shareholders of LTI
entitled to vote with respect to the Transactions the Proxy Statement and other
proxy solicitation materials relating to the Special Meeting required under the
Exchange Act and the rules and regulations promulgated thereunder and the PBCL
and in compliance with the applicable time periods set forth thereunder.
7.2 Disclosure. LTI covenants that the Proxy Statement at the time such
document is filed in preliminary form with the SEC and at all times after it is
so filed and until the time of voting by shareholders of LTI at the Special
Meeting or any adjournment thereof (i) will comply in all material respects with
the applicable provisions of the Exchange Act and the rules and regulations
promulgated thereunder and the applicable provisions of the PBCL with respect to
the Transactions and the Special Meeting and (ii) will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or necessary to
correct any statement in any earlier filing with the SEC of the Proxy Statement;
provided, however, that no representation, covenant or agreement is made by LTI
with respect to an untrue statement made in such Proxy Statement in reliance
upon and in conformity with the information supplied by the Buying Parties for
inclusion in the Proxy Statement as set forth in Schedule 7.2 (the "Buyer
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Provided Information"). LTI covenants that the Proxy Statement shall contain
such information as is sufficient to satisfy in all material respects the
requirements of Section 1932(b) of the PBCL and LTI's Charter Documents and
bylaws with respect to obtaining shareholder approval of a plan of asset
transfer or the sale of all or substantially all of the assets of LTI.
7.3 Special Meeting. LTI shall call a special meeting of shareholders (the
"Special Meeting"), to be held as soon as reasonably practicable after the date
the definitive Proxy Statement is filed with the SEC, for the purpose of voting
by shareholders entitled to vote in respect of the Transactions and any related
matters as it deems appropriate. In connection with the Special Meeting, the
Board of Directors of LTI, subject to its fiduciary duties to shareholders of
LTI under applicable Law based upon the advice of independent legal counsel,
shall (i) recommend to the shareholders of LTI the approval of the Transactions
and any related matters submitted for shareholder approval at the Special
Meeting, (ii) not withdraw such approval, (iii) use reasonable efforts to cause
the directors and executive officers of LTI who are required to file reports
under Section 16(a) of the Exchange Act to vote all shares of LTI held by them
and entitled to vote in respect of the Transactions in favor of the
Transactions, and (iv) use reasonable efforts to obtain such shareholders'
approval of the Transactions and any related matters at the Special Meeting or
any adjournment thereof.
7.4 Filings and Correspondence. LTI shall promptly deliver to the Buying
Parties copies of all filings, correspondence and communications to and from the
SEC or any other governmental or regulatory authority in connection with the
Proxy Statement and the Special Meeting.
7.5 Buyer Provided Information. The Buyer Provided Information will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
8. Covenants of the Selling Parties Prior to Closing Date.
8.1 Required Actions. Except as otherwise agreed by GE in writing, between
the date of this Agreement and the Closing Date, the Selling Parties covenant
that Seller shall, and LTI shall or shall cause Seller to:
8.1.1 Access to Information. Give to the Buying Parties and their
counsel, accountants, consultants and other representatives, during the
period commencing 60 days prior to the Closing Date, upon reasonable notice
and during normal Business hours, full and unlimited access to communicate
with all Employees, and give to the Buying Parties and their counsel,
accountants, consultants and other representatives, at the Buying Parties
sole expense and risk, upon reasonable notice and during normal business
hours, full access to such properties, books, accounts, Contracts, records
and affairs as are relevant to the Business and the Purchased Assets,
including, without limitation, those relating to the Required Consents, and
furnish or otherwise make available to the Buying Parties all such
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information concerning the Business and the Purchased Assets as the Buying
Parties may reasonably request, provided that the confidentiality of any
data or information so acquired shall be maintained as confidential by each
of the Buying Parties and its representatives in accordance with Section
9.1.1;
8.1.2 Conduct of Business. Operate the Business only in the usual,
regular and ordinary manner as such Business was conducted prior to the
date hereof and, to the extent consistent with such operation, use its best
efforts until the Closing Date to (a) preserve and keep intact the
Business, (b) keep available the services of the Employees, and (c)
preserve its relationships with customers, suppliers and others having
business dealings with Seller in connection with the Business;
8.1.3 Financial Statements. Within 15 days after the end of each month
after May 31, 1997, deliver to the Buying Parties unaudited Post-Signing
Financial Statements for Seller as of the end of each such month that
precedes the Closing, which Financial Statements shall be of the same type
as the unaudited monthly Financial Statements referred to in Section 5.5;
8.1.4 Maintenance of Properties and Insurance. Maintain the Purchased
Assets, whether owned or leased, in good repair, order and condition, in
accordance with manufacturers' instructions and Seller's past practice,
reasonable wear and tear excepted, maintain the insurance policies or
binders relating to the Purchased Assets referred to in Schedule 5.24 in
accordance with past practice and notify the Buying Parties of any changes
in the terms of the insurance policies or binders referred to in Schedule
5.24;
8.1.5 Maintenance of Books and Records. Maintain the Books and Records
in the usual, regular and ordinary manner, on a basis consistent with past
practice;
8.1.6 Compliance with Applicable Law. Comply in all material respects
with all Laws applicable to the Purchased Assets and to the conduct of the
Business and all applicable Laws in connection with the execution, delivery
and performance of the Transaction Documents or affecting the Transactions;
8.1.7 Litigation and Adverse Developments. Promptly advise the Buying
Parties in writing of the threat or commencement of any Litigation against
or involving the Business or the Purchased Assets or affecting the
Transactions or of the occurrence of any development (exclusive of general
economic factors affecting business in general) of a nature that has or may
have a Material Adverse Effect;
8.1.8 Disclosure of Certain Matters. Promptly advise the Buying
Parties in writing of any event or development that occurs that (a) had it
existed or been known on the date hereof would have been required to be set
forth or disclosed in or pursuant to this Agreement, (b) would cause any of
the representations and warranties of the Selling Parties contained herein
to be inaccurate or otherwise misleading or would result in the breach in
any
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material respect by the Selling Parties of any of their representations,
warranties, covenants or agreements hereunder, or (c) gives any Selling
Party any reason to believe that any of the conditions set forth herein
applicable to such Selling Party will not be satisfied;
8.1.9 Performance of Obligations. Perform all the material obligations
and satisfy all material Liabilities of Seller relating to the Business and
the Purchased Assets in accordance with the past practice of Seller;
8.1.10 Warn Act Compliance. Comply with all applicable provisions of
the Warn Act with respect to the discharge of Employees in connection with
the Transactions;
8.1.11 Environmental Assessment. Provide to the Buying Parties all
environmental reports, studies, assessments, analyses and any other related
documents relating to any Environmental Condition, the Business, the Real
Property or the other Purchased Assets in the possession or custody or
under the control of any Selling Party, and cooperate with the Buying
Parties in conducting an environmental assessment of any Environmental
Condition, the Business, the Real Property and the other Purchased Assets,
including physical inspection of the Real Property, the Purchased Assets
and the operations of the Business, review of all relevant records in the
possession or custody or under the control of any Selling Party, review of
relevant governmental agency records and contact with governmental agency
personnel and conduct of sampling activities and any other investigatory
activities, all of a scope satisfactory to the Buying Parties (the
"Environmental Assessment"), the costs of which shall be borne by the
Buying Parties;
8.1.12 Consents. Use its best efforts to obtain in writing as promptly
as possible all waivers, approvals and Required Consents, including those
described in Section 2.10 relating to Pre-Signing Customer Contracts and
Post-Signing Customer Contracts, required to be obtained by Seller, LTH or
LTI, as the case may be, in order to effectuate the Transactions,
including, without limitation, the approval of the sole shareholder of each
of LTH and Seller of this Agreement and the Transactions and the approval
of the shareholders of LTI of the Transactions, and deliver to the Buying
Parties copies of such waivers, approvals and Required Consents;
8.1.13 Notice of Material Damage. Give to the Buying Parties prompt
written notice of any material damage by fire or other casualty to the
Purchased Assets or the Business;
8.1.14 License to Certain Assets. Use commercially reasonable efforts
to assure that Buyer shall obtain at the Closing any and all licenses
necessary to obtain the benefit of the Licensed Assets described in Section
2.3;
8.1.15 Employees. (a) Not interfere with Buyer's efforts to employ
those Employees to whom Buyer has notified the Selling Parties it will
offer employment as of the Closing Date, (b) permit the Buying Parties to
meet with Employees at such times as shall be
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approved by a representative of the Selling Parties (which approval shall
not be unreasonably withheld) and (c) distribute to such Employees such
correspondence, forms and other documents setting forth the terms and
conditions upon which employment after the Closing, if any, by Buyer is
offered and any other correspondence, forms and documents relating to
employment after the Closing Date by Buyer as the Buying Parties may
request; provided, however, that it is explicitly understood and agreed by
the Parties that, except as provided in Section 3.1, the Buying Parties
shall have no obligation under this Agreement to offer employment to or
otherwise retain the services of any Employee subsequent to the Closing,
but may do so at the sole discretion of the Buying Parties and upon such
terms and conditions as shall be deemed acceptable to the Buying Parties in
their sole discretion;
8.1.16 Seller Insurance Policy. Obtain a "tail"comprehensive general
liability insurance policy naming the Buying Parties as additional insureds
with the same coverage provided by the existing policy issued to the
Selling Parties by New Hampshire Insurance Company in Policy #CPP
0000-512-25-47 96, with a term beginning on or prior to the Closing Date
and ending on the date that is the second anniversary of the Closing Date
(the "Seller Insurance Policy"), and provide to the Buying Parties prior to
the Closing a certificate(s) of insurance for the insurance coverage
described in this Section 8.1.16; provided, however, that the existence of
any such insurance shall not be deemed to affect any indemnification
obligations or limitation of Liability provided for in this Agreement;
8.1.17 Fixed Assets Verification. Cooperate with the Buying Parties in
their conduct of the Fixed Assets Verification and give to the Buying
Parties and their counsel, accountants, consultants and other
representatives, upon reasonable notice and during normal Business hours,
full and unlimited access to such properties, fixed assets, books, accounts
and records as are relevant to the Fixed Assets Verification; and
8.1.18 HSR Filing and Approval. (a) Promptly file any notification
required of it under the HSR Act relating to the Transactions with the
United States Department of Justice and the Federal Trade Commission, (b)
promptly respond to inquiries from the United States Department of Justice
and the Federal Trade Commission in connection with such notification, (c)
request early termination or waiver of the waiting period under the HSR
Act, and (d) assist the Buying Parties in fulfilling their covenants in
Section 9.3;
8.1.19 Fulfillment of Conditions; Compliance with Agreement. (a) Use
commercially reasonable efforts to fulfill the conditions applicable to it
set forth in this Agreement, including the execution and delivery of the
Transaction Documents and the taking or refraining from such actions as may
be necessary to fulfill such conditions (including refraining from any
actions that would cause any of the representations and warranties of the
Selling Parties contained herein to be inaccurate in any material respect
as of the Closing), (b) use commercially reasonable efforts to do all such
acts and take all such measures as may be reasonably necessary, proper or
advisable to comply with the representations, agreements, conditions and
other provisions of this Agreement and consummate and make effective as
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promptly as practicable the Transactions, and (c) in the case of LTI, cause
Seller and LTH each to perform its obligations hereunder and under any
other Transaction Document.
8.2 Prohibited Actions. Except as otherwise agreed by the Buying Parties in
writing, between the date of this Agreement and the Closing Date, each of the
Selling Parties shall not:
8.2.1 Sale of Purchased Assets. Sell, transfer, assign, lease,
encumber or otherwise dispose of any of the Purchased Assets other than in
the ordinary course of business;
8.2.2 Business Changes. Change in any material respect the character
of the Business, including, without limitation, closing any office or
facility used, in whole or in part, by Seller in the conduct of the
Business as of the date hereof;
8.2.3 Fundamental Transactions. (a) Amend its Charter Documents or
bylaws or (b) in the case of Seller, merge or consolidate with, or purchase
substantially all of the assets of, or otherwise acquire any business of,
any Person or business division thereof;
8.2.4 Incurrence of Material Obligations. Incur any material fixed or
contingent obligation or enter into any material agreement, commitment or
other transaction or arrangement in connection with the Business that is
not in the ordinary course;
8.2.5 Incurrence of Liens; Condition of Title. Subject to lien,
security interest or any other Encumbrance, other than Permitted
Encumbrances, any of the Purchased Assets or do, or permit or suffer to be
done, anything which could adversely affect the condition of title to the
Real Property Owned from and after the date hereof through the Closing;
8.2.6 Capital Expenditures. Make any capital expenditure in connection
with the Business involving in any individual case more than $20,000;
8.2.7 Change in Employee Compensation and Benefits. Increase or commit
to increase the rate of compensation paid, or pay any bonus, to anyone
connected with the Business, except for those increases or bonuses planned,
in the ordinary course of business, or establish or adopt any new pension
or profit-sharing plan, deferred compensation agreement or employee benefit
arrangement of any kind whatsoever covering or affecting Employees;
8.2.8 Extraordinary Distributions. Declare or make any distribution or
payment in respect of Seller's capital stock by way of dividend, purchase
or redemption of shares or otherwise or make any extraordinary distribution
affecting the Purchased Assets or the Business or the operation thereof;
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8.2.9 Publicity; Advertisement. Except as required by Law, publicize,
advertise or announce to any third party, except as required pursuant to
this Agreement to obtain a Required Consent, the entering into of the
Transaction Documents or the terms of the Transaction Documents or the
Transactions;
8.2.10 No Release. Except in the ordinary course consistent with past
practice of the Business, cancel, release or relinquish any material debts
of or claims against others with respect to the Business or waive any
material rights relating to the Business; and
8.2.11 No Termination or Modification. Terminate or materially modify
any material Contract, Governmental Permit or other agreement or
authorization affecting the Purchased Assets or the Business or the
operation thereof.
8.3 No Solicitation. From and after the date hereof, each Selling Party,
without the prior written consent of GE, will not, and will not authorize or
permit any of such Party's officers, directors, employees, agents, counsel,
accountants, consultants or other representatives to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) or
take any other action to facilitate knowingly any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to an
Acquisition Proposal from any Person, or engage in any discussion or
negotiations relating thereto or accept any Acquisition Proposal, except to the
extent that, (i) in response to a written, bona fide, unsolicited Acquisition
Proposal, the Board of Directors of LTI determines in good faith after
consultation with its financial advisors that such Acquisition Proposal is
superior than the Transactions to the shareholders of LTI, taking into account
the ability of the Person making such Acquisition Proposal to finance the
transactions contemplated by such Acquisition Proposal and such Person's ability
to obtain any required regulatory and third party approvals for the transactions
contemplated by such Acquisition Proposal, and (ii) the Board of Directors of
LTI, after consultation with and based upon the advice of independent legal
counsel, determines in good faith that such action is necessary for the Board of
Directors of LTI to comply with its fiduciary duties to shareholders under
applicable Law. LTI shall notify GE orally and in writing of any such inquiries,
offers or proposals (including the terms and conditions of any such proposal and
the identity of the Person making it), within 24 hours of the receipt thereof,
shall keep GE informed of the status and details of any such inquiry, offer or
proposal, and shall give GE five days' advance notice of any agreement to be
entered into with, or any information to be supplied to, any Person making such
inquiry, offer or proposal. As used herein, "Acquisition Proposal" means a
proposal or offer (other than pursuant to this Agreement) for a tender or
exchange offer, merger, consolidation or other business combination or
acquisition involving any proposal to acquire in any manner a substantial equity
interest in, or all or substantially all of the assets of a Selling Party.
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9. Covenants of the Buying Parties Prior to Closing Date.
9.1 Required Actions. Except as otherwise agreed by LTI in writing, between
the date of this Agreement and the Closing Date, each of the Buying Parties
shall:
9.1.1 Confidentiality. Not publish or disclose and not authorize or
permit any of its officers, employees, directors, agents or representatives
or any third party to publish or disclose any Confidential Information of
or pertaining to the Selling Parties, which has been furnished to the
Buying Parties by the Selling Parties or to which a Buying Party or any of
its officers, employees, directors, agents, counsel, accountants or other
representatives have had access during any investigation made in connection
with this Agreement and which is not otherwise available to the Buying
Parties, except as required by Law or Court Order;
9.1.2 Fulfillment of Conditions; Compliance with Agreement. (a) Use
commercially reasonable efforts to fulfill the conditions applicable to it
set forth in this Agreement, including the execution and delivery of the
Transaction Documents and the taking or refraining from such actions as may
be necessary to fulfill such conditions (including refraining from any
actions that would cause any of its representations and warranties
contained herein to be inaccurate in any material respect as of the
Closing) and (b) use commercially reasonable efforts to do all such acts
and take all such measures as may be reasonably necessary, proper or
advisable to comply with the representations, agreements, conditions and
other provisions of this Agreement and consummate and make effective as
promptly as practicable the Transactions; and
9.1.3 Publicity; Advertisement. Except as required by Law and except
as contemplated by Section 2.10 to obtain a consent of a party to a
Pre-Signing Customer Contract or a Post-Signing Customer Contract, not
publicize, advertise or announce to any third party the entering into of
the Transaction Documents or the terms of the Transaction Documents or the
Transactions.
9.2 Title Review. Within 30 days following the date of this Agreement, the
Buying Parties shall notify the Selling Parties in writing as to the extent, if
any, to which title to the Real Property Owned is not satisfactory to the Buying
Parties in their sole discretion (including, without limitation, the Permitted
Encumbrances); provided, however, that the Buying Parties shall not have any
rights under this Section 9.2 unless liens, claims, easements, rights of way or
encumbrances exist with respect to any Real Property Owned, which, individually
or in the aggregate, have a material adverse effect on the use and operation of
such Real Property Owned. "Material adverse effect," as used in this Section 9.2
only and notwithstanding any other definition thereof provided in this
Agreement, shall mean any material limitation on the use of such Real Property
Owned in substantially the same manner as presently used in connection with the
Business, or any lien, claim, easement, right of way or encumbrance as to which
the Buying Parties must institute litigation or expend funds in settlement
thereof in order to convey such Real Property Owned to an unrelated third party.
Notwithstanding the foregoing, the Buying Parties shall have no right to object
to any lien or claim of an ascertainable
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monetary amount, such as mortgages, tax or mechanics liens, or assessments for
pending public improvements, all of which the Selling Parties shall pay and
satisfy at Closing out of the Purchase Price otherwise payable to the Selling
Parties if not otherwise cured prior to Closing pursuant to this Section 9.2. If
the Buying Parties notify the Selling Parties of any objections to the title to
any Real Property Owned, the Selling Parties shall have five days from the date
of the Buying Parties' notice in which to elect to cure such objection or
objections to title to the Buying Parties' satisfaction. If the Selling Parties
(i) fail to respond within such five day period, (ii) elect by written notice to
the Buying Parties within such five day period not to cure such objection or
objections to title, or (iii) elect by written notice to the Buying Parties
within such five day period to cure such objection or objections to title but
fail to complete such cure within 10 days after giving such notice to the Buying
Parties, then in each instance the Buying Parties shall have the right, at their
option, to terminate this Agreement by written notice to the Selling Parties at
any time on or prior to the Closing Date. Such termination of this Agreement by
the Buying Parties shall not limit or affect any other right or remedy the
Buying Parties may have under this Agreement, at law or in equity on account of
any breach by the Selling Parties of this Agreement.
9.3 Approvals, Consents. The Buying Parties shall (i) promptly file any
notification and make any payment required of any Selling Party or Buying Party
under the HSR Act relating to the Transactions with the United States Department
of Justice and the Federal Trade Commission, (ii) respond to inquiries from the
United States Department of Justice and the Federal Trade Commission in
connection with such notification, (iii) request early termination or waiver of
the waiting period under the HSR Act, and (iv) assist the Selling Parties in
fulfilling their covenants in Section 8.1.18.
10. Conditions Precedent to Obligations of the Buying Parties.
All obligations of the Buying Parties hereunder to consummate the
Transactions are subject to the satisfaction, or waiver in writing by the Buying
Parties, at or prior to the Closing, of each of the following conditions:
10.1 Representations, Warranties and Agreements. The representations and
warranties of the Selling Parties contained in this Agreement and in the other
Transaction Documents shall be true on and as of the Closing Date (except with
respect to any changes contemplated by this Agreement). The Selling Parties
shall have performed and complied with all respective agreements, conditions and
covenants required by this Agreement and the other Transaction Documents to be
performed or complied with by them prior to or at the Closing.
10.2 Certificates of Selling Parties. The Buying Parties shall have
received a certificate from a duly authorized officer of each Selling Party,
dated as of the Closing Date, reasonably satisfactory in form and substance to
the Buying Parties and their counsel, certifying as to the matters specified in
Section 10.1 hereof. The matters set forth in such certificates shall constitute
representations and warranties hereunder.
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10.3 Secretary's Certificates. The Buying Parties shall have received
certificates, dated the Closing Date, of the Secretary of each of Seller, LTI
and LTH with respect to (i) the incumbency and specimen signature of each
officer or representative of such Selling Party executing this Agreement, the
certificate referred to in Section 10.2 and the other Transaction Documents to
which such Selling Party is a party, (ii) certifying that attached to the
certificate is a true and complete copy of the Charter Documents and bylaws of
such Selling Party, as in full force and effect at the time of the Closing, and
(iii) certifying that attached to the certificate are copies of resolutions duly
adopted by the Board of Directors and shareholders of such Selling Party
evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement and the other Transaction
Documents and the consummation of the Transactions, all in such reasonable
detail as the Buying Parties and their counsel shall request.
10.4 Good Standing Certificates. The Buying Parties shall have received a
certificate issued by the Secretary of State of the Commonwealth of Pennsylvania
with respect to Seller and of each state in which Seller is qualified to do
business as a foreign corporation as of a recent date before the Closing Date
showing Seller to be validly existing or qualified as a foreign corporation in
its states of existence and qualification, as the case may be, and in good
standing and that all franchise taxes required to be paid and all reports
required to be filed have been duly paid and filed, and with respect to the
certificate of the Secretary of State of the Commonwealth of Pennsylvania,
listing all documents filed and attaching certified copies thereof.
10.5 Legal Matters. No Court Order shall have been issued or entered into
that would be violated by consummation of any of the Transactions or has or may
have a Material Adverse Effect, and no Litigation shall have been instituted or
threatened which questions the validity or legality of the Transactions or which
if successfully asserted might otherwise have a Material Adverse Effect or
impose any additional material financial obligation on, or require the surrender
of any material right by, any of the Buying Parties.
10.6 No Material Adverse Effect or Damage. No event, occurrence, fact,
condition, change, development or effect shall have occurred, exist or come to
exist that, individually or in the aggregate, has constituted or resulted in, or
could reasonably be expected to constitute or result in, a Material Adverse
Effect. No material damage to or destruction or loss of (whether or not covered
by insurance) any of the Purchased Assets or affecting the Business shall have
occurred.
10.7 Actions and Proceedings. All corporate actions, proceedings,
instruments and documents required to carry out the Transactions or incidental
thereto and all other related legal matters shall be reasonably satisfactory to
counsel for the Buying Parties, and such counsel shall have been furnished with
such certified copies of such corporate actions and proceedings and such other
instruments and documents as it shall have reasonably requested.
10.8 Post-Signing Financial Statements. The Buying Parties shall have
received the Post-Signing Financial Statements.
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10.9 Environmental Assessment. The Buying Parties shall have received an
Environmental Assessment in form and substance satisfactory to the Buying
Parties.
10.10 Shareholder Approvals. LTI, LTH and Seller each shall have obtained
shareholder approval of the Transactions.
10.11 Consents. Except for Pre-Signing Customer Contracts and Post-Signing
Customer Contracts (the procedures for which are set forth in Section 2.10), any
Required Consents shall have been obtained, without any modification to any
Contracts or Assigned Leases that the Buying Parties deem unacceptable.
10.12 Ancillary Documents. The Selling Parties shall have executed and
delivered all Transaction Documents to which they are intended to be parties,
including the Escrow Agreement, the real property conveyances described in
Section 4.2.2, the assignments of the Assigned Leases described in Section
4.2.3, the Bill of Sale, Assignment and Assumption described in Section 4.2.4,
the Trademark Assignment described in Section 4.2.5, the Radview License
Agreement described in Section 4.2.6, the consent and release of First Union
National Bank described in Section 4.2.7 and the certificate(s) of insurance
described in Section 8.1.16.
10.13 Legal Opinion. The Buying Parties shall have received a legal opinion
of Pepper, Hamilton & Scheetz LLP, counsel for the Selling Parties, in substance
and form reasonably satisfactory to the Buying Parties.
10.14 Title Insurance and Surveys. The Buying Parties shall have received a
title insurance policy or policies issued by reputable title insurance companies
selected by the Buying Parties in form satisfactory to them and their counsel at
regular rates insuring Buyer's title to the Real Property Owned as good and
marketable, in fee simple and free of all Encumbrances except Permitted
Encumbrances, and the Selling Parties shall have paid the cost to the Buying
Parties of obtaining surveys of the Real Property Owned conforming to the
ALTA/ACSM Class A standard.
10.15 Fairness Opinion. LTI shall have received a written opinion from its
financial adviser to the effect that the Transactions are fair, from a financial
point of view, to the shareholders of LTI, which opinion shall be in effect as
of the time of the solicitation of the approval of the shareholders of LTI of
the Transactions and as of the Closing.
10.16 Bank Consent and Release. The Selling Parties shall have obtained the
consent and release of First Union National Bank substantially in the form of
Exhibit G hereto.
10.17 HSR Act Waiting Period. Any waiting period applicable to the
consummation of the Transactions under the HSR Act shall have expired or
terminated.
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11. Conditions Precedent to Obligations of the Selling Parties.
All obligations of the Selling Parties hereunder to consummate the
Transactions are subject to the satisfaction, or waiver in writing by the
Selling Parties, at or prior to the Closing, of each of the following
conditions:
11.1 Representations, Warranties and Agreements. The representations and
warranties of the Buying Parties contained in this Agreement and in the other
Transaction Documents shall be true on and as of the Closing Date (except with
respect to any changes contemplated by this Agreement). The Buying Parties shall
have performed and complied with all respective agreements, conditions and
covenants required by this Agreement and the other Transaction Documents to be
performed or complied with by them prior to or at the Closing.
11.2 Legal Matters. No Court Order shall have been issued or entered that
would be violated by consummation of any of the Transactions.
11.3 Actions and Proceedings. All corporate actions, proceedings,
instruments and documents required to carry out the Transactions or incidental
thereto and all other related legal matters shall be reasonably satisfactory to
counsel for the Selling Parties, and such counsel shall have been furnished with
such certified copies of such corporate actions and proceedings and such other
instruments and documents as it shall have reasonably requested.
11.4 Shareholder Approval. LTI shall have obtained shareholder approval of
the Transactions.
11.5 Ancillary Documents. The Buying Parties shall have executed and
delivered all Transaction Documents to which they are intended to be a party,
including the Escrow Agreement.
11.6 Legal Opinion. The Selling Parties shall have received a legal opinion
of Morgan, Lewis & Bockius LLP, counsel for the Buying Parties, in substance and
form reasonably satisfactory to the Selling Parties.
11.7 Fairness Opinion. LTI shall have received a written opinion from its
financial adviser to the effect that the Transactions are fair, from a financial
point of view, to the shareholders of LTI, which opinion shall be in effect as
of the time of the solicitation of the approval of the shareholders of LTI of
the Transactions and as of the Closing.
11.8 HSR Act Waiting Period. Any waiting period applicable to the
consummation of the Transactions under the HSR Act shall have expired or
terminated.
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12. Competition and Confidentiality by the Selling Parties.
12.1 Noncompetition. From the Closing Date and to the end of the fifth year
following the Closing Date, each Selling Party will not, directly or indirectly,
unless acting in accordance with the written consent of the Buying Parties,
engage in, own, manage, operate, finance or participate in the ownership,
management, operation or financing of or permit its name to be used by or in
connection with any business or enterprise engaged in the provision of NDT
Services or the sale or lease of Products (other than products described in
Schedule 12.1) in the United States. This Section 12.1 shall not be deemed to
limit or restrict any Selling Party from (i) providing Dynamic Testing Services
to or for Persons whether or not engaged in the NDT Services business or (ii)
selling the products or conducting demonstrations solely in connection with the
sale of the products described in Schedule 12.1 to or for Persons whether or not
engaged in the NDT Services business.
12.2 Confidentiality. Prior to the Closing and indefinitely thereafter,
unless this Agreement is terminated, none of the Selling Parties shall, except
as may be required by Law or Court Order, at any time reveal, divulge,
communicate or make known to any Person (other than the Buying Parties or their
agents or Affiliates) or, after the Closing, use in any way any information that
relates to this Agreement, the Transactions or the Business (whether now
possessed by the Selling Parties or furnished by the Buying Parties after the
Closing Date), including, without limitation, all Trade Secrets, customer lists
or other customer information, supplier information, marketing plans or
proposals, financial information, personnel information or any data, written
material, records or documents used by or relating to the Business that are of a
confidential nature (collectively, the "Confidential Information").
12.3 Affiliates. The terms of this Section 12 shall apply to each Selling
Party and any of its Affiliates to the same extent as if they were parties
hereto, and each Selling Party shall take whatever actions may be necessary to
cause its Affiliates to adhere to the terms of this Section 12.
12.4 Injunctive Relief. Each Selling Party acknowledges that the provisions
of this Section 12 are reasonable and necessary to protect the interests of the
Buying Parties, that any violation of this Section will result in an irreparable
injury to the Buying Parties and that damages at law would not be reasonable or
adequate compensation to the Buying Parties for violation of this Section. In
the event of any breach or threatened breach by any Selling Party or any
Affiliate thereof of any provision of this Section 12, the Buying Parties shall
be entitled to injunctive or other equitable relief, restraining such party from
using or disclosing any Confidential Information in whole or in part, or from
engaging in conduct that would constitute a breach of the obligations of such
party under this Section 12. Such relief shall be in addition to and not in lieu
of any other remedies that may be available, including an action for the
recovery of damages. In addition to any other available remedies, the Buying
Parties shall be entitled to have the provisions of this Section 12 specifically
enforced by preliminary and permanent injunctive relief without the necessity of
proving actual damages or posting a bond or other security and to an equitable
accounting of all earnings, profits and other benefits arising out of any
violation of this Section 12. In the event that the provisions of this Section
12 shall ever be deemed to exceed the time, geographic, product or other
limitations
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permitted by applicable Law, then the provisions shall be deemed reformed to the
maximum extent permitted by applicable Law. Each Selling Party acknowledges,
however, that this Section 12 has been negotiated by the Parties and that the
time, geographic and product limitations, as well as the limitation on
activities, are reasonable in light of the circumstances pertaining to the
Business.
13. Additional Covenants.
13.1 Post-Closing Receipts. LTI, on behalf of the Selling Parties, and
Buyer each will hold and will promptly transfer and deliver to the other Party,
from time to time as and when received by them and, in the case of LTI, by
Seller, any cash, checks with appropriate endorsements or other property that
they may receive on or after the Closing that properly belongs to the other
Party under the terms of this Agreement, and will account to the other for all
such receipts.
13.2 Bulk Transfer Laws. The Buying Parties hereby waive compliance by the
Selling Parties with the provisions of any and all Laws relating to bulk
transfer in connection with the sale of the Purchased Assets. The Selling
Parties, jointly and severally, covenant and agree to indemnify and save
harmless the Buyer Indemnified Parties from and against any and all Liabilities
(including reasonable attorneys' fees) arising out of noncompliance with such
bulk transfer Laws.
13.3 Transfer Taxes. Seller and Buyer shall each pay at the Closing
one-half of all state and local sales, documentary and other transfer Taxes,
other than real estate transfer Taxes, if any, due as a result of the purchase,
sale or transfer of the Purchased Assets hereunder. Seller shall pay at the
Closing all state and local real estate transfer Taxes, if any, due as a result
of the purchase, sale or transfer of the Real Property hereunder.
13.4 Termination of Non-Assumed Customer Contracts. The Selling Parties
shall use commercially reasonable efforts to terminate effective no more than
ten business days after the Closing Date any Non-Assumed Customer Contract that
is not included within the Purchased Assets or for which the Buying Parties have
not made the election pursuant to Section 2.10 to take a subcontract from Seller
to perform NDT Services on behalf of Seller thereunder (each, a "Seller
Remaining Contract"). In the event that the Selling Parties are unable to
negotiate commercially reasonably terms relating to the termination of any
Seller Remaining Contract, notwithstanding anything in Section 12.1 to the
contrary, the Selling Parties may subcontract the performance of Seller's
services thereunder to a third party.
13.5 Seller Insurance Policy. The Selling Parties shall promptly deliver to
Buyer any and all amendments, supplements or replacements to the certificate(s)
of insurance for the Seller Insurance Policy specified in Section 8.1.16 as in
force at all times during the period beginning on the Closing Date and ending on
the date that is the second anniversary of the Closing Date, which
certificate(s) shall at all times name the Buying Parties as additional
insureds; provided, however, that the existence of any such insurance shall not
be deemed to affect any indemnification obligations or limitation of Liability
provided for in this Agreement.
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13.6 Administrative Assistance by the Selling Parties. Except as otherwise
agreed, LTI shall provide such accounting, data processing and other support
services to Buyer as are reasonably required in connection with the transfer of
the Business to Buyer without cost to the Buying Parties for a period of not
more than 60 days following the Closing Date and thereafter for an additional
period of up to 120 days at a reasonable cost to be negotiated. The Selling
Parties shall cooperate with the auditors of the Buying Parties in connection
with the preparation of any report or filing required in connection with the
Transactions, such cooperation to be provided by the Selling Parties at no cost
to the Buying Parties.
13.7 Further Assurances of the Selling Parties. From and after the Closing
Date, each of the Selling Parties shall, at the request of a Buying Party,
execute, acknowledge and deliver to such Buying Party, without further
consideration, all such further assignments, conveyances, endorsements, deeds,
special powers of attorney, consents and other documents, and take such other
action, as a Buying Party may reasonably request (i) to transfer to and vest in
Buyer, and protect its rights, title and interest in, all the Purchased Assets
and (ii) otherwise to consummate the Transactions. In addition, from and after
the Closing Date, each of the Selling Parties shall afford the Buying Parties
and their counsel, accountants and other representatives access, during normal
business hours, to any books and records relating to the Business that such
Selling Party may retain as may reasonably be required in connection with the
preparation of financial information or tax returns of a Buying Party.
13.8 Further Assurances of the Buying Parties. From and after the Closing
Date, the Buying Parties shall afford to LTI and its attorneys, accountants and
other representatives access, during normal business hours, to such books and
records relating to the Business as may reasonably be required in connection
with the preparation of financial information for periods concluding on or prior
to the Closing Date. The Buying Parties shall cooperate in all reasonable
respects with LTI with respect to its former interest in the Business and in
connection with financial account closing and reporting, including, without
limitation, making employees of Buyer available to assist with, or provide
information in connection with financial account closing and reporting,
provided, that LTI reimburses the Buying Parties for their reasonable
out-of-pocket expenses (including costs of employees so assisting) in connection
therewith.
14. Termination
14.1 Termination of Agreement. This Agreement may be terminated at any time
prior to the Closing:
14.1.1 by the mutual written consent of LTI and GE;
14.1.2 by either the Selling Parties or the Buying Parties if the
Closing has not taken place on or before November 1, 1997; provided,
however, that no Party then in breach of any obligations hereunder shall
have the right to terminate;
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14.1.3 by either the Selling Parties or the Buying Parties if a court
of competent jurisdiction or governmental, regulatory or administrative
agency or commission shall have issued a Court Order (which Court Order the
Parties shall use their best efforts to lift) that permanently restrains,
enjoins or otherwise prohibits the Transactions, and such Court Order shall
have become final and nonappealable;
14.1.4 by the Buying Parties if any of the Selling Parties shall have
breached, or failed to comply with, any of its obligations under this
Agreement or any representation or warranty made by the Selling Parties
shall have been incorrect when made, and such breach, failure or
misrepresentation is not cured within 20 days after notice thereof, and in
either case, any such breaches, failures or misrepresentations,
individually or in the aggregate, results or would reasonably be expected
to result in a Material Adverse Effect;
14.1.5 by the Buying Parties (a) pursuant to Section 9.2 or (b) in the
event the Buying Parties are not satisfied with the Environmental
Assessment;
14.1.6 by the Selling Parties if any of the Buying Parties shall have
breached, or failed to comply with, any of its obligations under this
Agreement or any representation or warranty made by the Buying Parties
shall have been incorrect when made, and such breach, failure or
misrepresentation is not cured within 20 days after notice thereof; and
14.1.7 by the Selling Parties if a Selling Party receives and accepts
an Acquisition Proposal from any Person if, and only to the extent that,
(a) in response to a written, bona fide, unsolicited Acquisition Proposal,
the Board of Directors of LTI determines in good faith after consultation
with its financial advisors that such Acquisition Proposal is superior than
the Transactions to the shareholders of LTI, taking into account the
ability of the Person making such Acquisition Proposal to finance the
transactions contemplated by such Acquisition Proposal and such Person's
ability to obtain any required regulatory and third party approvals for the
transactions contemplated by such Acquisition Proposal, and (b) the Board
of Directors of LTI, after consultation with and based upon the advice of
independent legal counsel, determines in good faith that such action is
necessary for the Board of Directors of LTI to comply with its fiduciary
duties to shareholders under applicable Law.
14.2 Return of Documents. If this Agreement is terminated for any reason
pursuant to this Section 14, each Party shall return to the other Party all
documents and copies thereof which shall have been furnished to it by such other
Party or, with the agreement of the other Party, shall destroy all such
documents and copies thereof and certify in writing to the other Party any such
destruction.
14.3 Effect of Termination. If this Agreement is terminated by the Selling
Parties or the Buying Parties as permitted under Section 14.1 and not as a
result of a breach of a representation or warranty or the failure of any Party
to perform its obligations hereunder, such termination shall be without
Liability of any Party. If a Party terminates this Agreement as a result of a
breach of a representation or warranty by the other Party or the failure of the
other Party to perform its
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obligations hereunder, the nonbreaching Party shall be entitled to reimbursement
from the breaching Party for all expenses incurred by or on behalf of the
nonbreaching Party in connection with this Agreement and the Transactions as the
exclusive remedy for any such breach or nonperformance. If this Agreement is
terminated and the Transactions are not consummated as the result of (i) LTI's
failure to obtain shareholder approval of the Transactions, which failure
results from the withdrawal by the Board of Directors of LTI of its
recommendation of approval for the Transactions or (ii) termination by the
Selling Parties pursuant to Section 14.1.7, the Buying Parties shall be entitled
to reimbursement from the Selling Parties, jointly and severally, of the total
amount of (y) all expenses incurred by or on behalf of the Buying Parties in
connection with this Agreement and the Transactions and (z) $1,000,000. The
agreements contained in this Section 14.3 are an integral part of the
Transactions and constitute liquidated damages and not a penalty. If one Party
fails to promptly pay to the other any amounts due under this Section, the
defaulting Party shall pay the costs and expenses (including legal fees and
expenses) in connection with any action, including the filing of any lawsuit or
other legal action, taken to collect payment, together with interest on the
amount of any unpaid fee at the Prime Rate from the date such fee was required
to be paid.
15. Survival of Representations and Warranties; Indemnification.
15.1 Survival of Representations and Warranties. Except as otherwise set
forth in Section 15.6 and in this Section 15.1, all representations and
warranties of the Parties shall survive for two years after the Closing Date;
provided that there shall be no termination of any such representation or
warranty as to which a claim, including an Unliquidated Claim, has been asserted
prior to the termination of such survival period. All representations and
warranties of the Selling Parties set forth in Sections 5.9, 5.10.1 and 5.14
shall survive indefinitely. All representations and warranties of the Selling
Parties set forth in Section 5.16 shall survive the Closing and remain effective
until 60 days after the expiration of the applicable statute of limitations for
claims that might be asserted for matters related thereto. All representations,
warranties and covenants contained herein shall not be deemed to be waived or
otherwise affected by any investigation at any time made by or on behalf of any
Party hereto. Except as otherwise expressly provided in this Agreement, all
covenants, agreements, undertakings and indemnities set forth in this Agreement
shall survive indefinitely.
15.2 Indemnification by the Selling Parties. "Sellers' General Liabilities"
shall mean all Losses (other than Environmental Losses subject to Section 15.6)
resulting from, arising out of, or incurred by any Buying Party or any of its
Affiliates, or any of their respective successors or assigns and their
respective directors, officers and employees (each a "Buyer Indemnified Party")
after the Closing Date in connection with (i) any breach of any of the
representations or warranties made by the Selling Parties in this Agreement,
(ii) any default by any Selling Party in respect of any of the covenants or
agreements made by such Selling Party in this Agreement, (iii) any injuries to
Persons, property or business by reason of defectiveness, improper design or
manufacture or malfunction, or otherwise, of any product sold or services
provided by any Selling Party, whether known or unknown, currently asserted or
arising hereafter, if such claims are based upon or arise out of products sold
or services performed on or prior to the Closing Date, (iv) any attempt by any
Person to collect any Liability for Taxes under Treasury Regulation ss. 1.1502-6
(or any successor provision
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or any similar provision under state, local or foreign Laws), (v) any
Liabilities arising from or incurred in connection with the performance of a
Non-Assumed Customer Contract by Buyer after the Closing either pursuant to the
election of the Buying Parties to (A) include such Non-Assumed Customer Contract
within the Purchased Assets or (B) take a subcontract from Seller to perform NDT
Services on Seller's behalf after the Closing under such Non-Assumed Customer
Contract, which Liabilities, whether arising in tort or contract Law, exceed the
sale price of such Non-Assumed Customer Contract or represent consequential
damages, or (vi) any attempt (whether or not successful) by any Person to cause
or require a Buyer Indemnified Party to pay any Liability of, or claim against,
any Selling Party of any kind in respect of the operation of the Business prior
to the Closing Date, to the extent not otherwise specified in this Section 15.2,
specifically assumed under this Agreement or subject to an indemnity by the
Buying Parties under the terms of this Agreement. Subject to the provisions of
Section 15.3 and to the further provisions of this Section 15, the Selling
Parties shall, jointly and severally, indemnify all Buyer Indemnified Parties,
and hold them harmless from, against and in respect of, any and all Sellers'
General Liabilities.
15.3 Limitations on Obligation of Selling Parties to Indemnify.
15.3.1 Except as otherwise provided in Sections 15.1 and 15.6, the
Selling Parties shall have no obligation to indemnify any Buyer Indemnified
Party based solely upon any breach by a Selling Party of any representation
or warranty as to which LTI has not received a Claim Notice within two
years after the Closing Date.
15.3.2 Nothing herein shall be deemed to limit or restrict in any
manner any rights or remedies available at law, in equity or otherwise
against a Selling Party based on a willful misrepresentation or willful
breach of warranty by a Selling Party hereunder.
15.3.3 Notwithstanding anything to the contrary contained in this
Agreement (including Section 15.6 hereof), the Selling Parties shall not
have any liability for indemnification under this Agreement unless the
aggregate of all Losses relating thereto for which the Selling Parties
would, but for this Section 15.3.3, be liable exceeds on a cumulative basis
$50,000 (the "Threshold"), and then only to the extent of such excess;
provided, however, that such Threshold shall not apply to any Losses
attributable to or arising out of an inaccuracy in any representation or
warranty set forth in (a) Section 5.14.2, 5.14.3, 5.16, 5.19 or 5.29 or (b)
Section 5.13 or 5.14.1 solely in connection with an inaccuracy in any
representation or warranty relating to an environmental matter.
15.3.4 The maximum aggregate amount of indemnifiable Losses that may
be recovered by the Buyer Indemnified Parties from the Selling Parties
under this Section 15 shall not exceed the amount of the Purchase Price.
15.3.5 Subject to the limitation set forth below, the amount of any
Losses for which indemnification by the Selling Parties is provided under
Section 15 of this Agreement shall be net of the amount of any insurance
proceeds actually recovered by a Buyer
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Indemnified Party pursuant to the Seller Insurance Policy (the "Insurance
Proceeds"); provided, however, that notwithstanding this Section 15.3.5,
any payment required under Section 15 shall accrue and become due and
payable in full as provided herein at the time such payment obligation
arises without taking into account any such Insurance Proceeds. In the
event that Insurance Proceeds are actually recovered by a Buyer Indemnified
Party after payment by the indemnifying Party of any amount required to be
paid to a Buyer Indemnified Party under this Section 15, such Buyer
Indemnified Party shall repay to the indemnifying Party, promptly after
such recovery, any amount that the indemnifying Party would not have had to
pay pursuant to this Section 15.3.5 had such recovery been made to the
Buyer Indemnified Party at the time of the payment by the indemnifying
Party.
15.4 Indemnification by the Buying Parties. "Buyers' General Liabilities"
shall mean all Losses resulting from, arising out of, or incurred by any Selling
Party or any of its Affiliates, or any of their respective successors or assigns
and their respective directors, officers and employees (each a "Seller
Indemnified Party") after the Closing Date in connection with (i) any breach of
any of the representations or warranties made by the Buying Parties in this
Agreement, (ii) any default by any Buying Party in respect of any of the
covenants or agreements made by such Buying Party in this Agreement, or (iii)
any attempt (whether or not successful) by any Person to cause or require a
Seller Indemnified Party to pay or discharge any Assumed Liability or any
Liability of, or claim against, any Buying Party of any kind in respect of the
operation of the Business on or after the Closing Date to the extent not
specifically subject to an indemnity by the Selling Parties under the terms of
this Agreement. Subject to the provisions of Section 15.5 and to the further
provisions of this Section 15, the Buying Parties shall, jointly and severally,
indemnify all Seller Indemnified Parties, and hold them harmless from, against
and in respect of, any and all Buyers' General Liabilities.
15.5 Limitations on Obligation of Buying Parties to Indemnify.
15.5.1 The Buying Parties shall have no obligation to indemnify any
Seller Indemnified Party based solely upon any breach by the Buying Parties
of any representation or warranty as to which the Buying Parties have not
received a Claim Notice within two years after the Closing Date.
15.5.2 The maximum aggregate amount of indemnifiable Losses that may
be recovered by the Seller Indemnified Parties from the Buying Parties
under this Section 15 shall not exceed the amount of the Purchase Price.
15.6 Environmental Losses.
15.6.1 The following (whether or not they involve or result from
breaches of any representation or warranty in this Agreement) shall
constitute "Environmental Losses": (a) all Losses imposed or incurred under
Environmental Law resulting from the storage or disposal or the emission,
discharge, release or threatened release into the environment, by any
Person of any Hazardous Substance at the Real Property or arising from or
related to any
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Default under any Environmental Law at any time prior to the Closing Date,
(b) all Losses resulting from the presence of any Hazardous Substance at
any location other than the Real Property disposed of (directly or
indirectly) from the Real Property at any time prior to the Closing Date,
(c) all Losses resulting from the migration, leaking, leaching, flowing,
emitting or other movement of Hazardous Substances from the Real Property
or any such location at any time prior to the Closing Date, in each case
requiring investigation, removal or remediation under Environmental Law,
(d) all Losses arising from any noncompliance with Environmental Laws
arising in connection with the Business on or before the Closing Date, and
(e) any and all other Losses arising from or related to an Environmental
Condition existing on or before the Closing Date.
15.6.2 Subject to the other provisions of this Section 15.6, the
Selling Parties shall, jointly and severally, indemnify all Buyer
Indemnified Parties, and hold them harmless from, against and in respect
of, any and all Environmental Losses; provided, however, that the Selling
Parties' indemnification obligations relating to any remediation performed
in connection with an Environmental Loss shall not extend beyond those
actions required by applicable regulatory authorities under any
Environmental Law; and provided further that any increased cost of any
remediation that is attributable to activities or omissions of Buyer on or
after the Closing Date shall be borne by the Buying Parties.
Notwithstanding anything to the contrary contained in this Section 15.6.2,
the Buying Parties may elect to perform any or all remediation and shall
have no obligation to conduct remediation or otherwise in connection with a
matter that is an Environmental Loss; provided, however, that the Buying
Parties shall consult with LTI regarding the selection of third party
vendors from the Buying Parties' approved vendor list to conduct any
remediation that has been identified in the Buying Parties' pre-Closing
Environmental Assessment.
15.6.3 Buyer shall provide to LTI a copy of all information or reports
that are provided by Buyer to any federal, state or local agency with
regard to any matter related to Hazardous Substances that may constitute or
result in an indemnification Liability for the Selling Parties. Buyer shall
promptly provide to LTI copies of all reports or other information
(including photographs), prepared, produced or obtained by Buyer relating
to any such matter.
15.6.4 Buyer shall afford LTI, its employees, agents and contractors,
reasonable access to and rights to investigate the Real Property and
inspect and copy all relevant documents and records relating to any
Environmental Losses for which the Selling Parties have, or are alleged to
have, responsibility. However, except to the extent prohibited by
applicable Law or Court Order, the following conditions and agreements
shall apply with respect to the foregoing: (a) no entry or investigation
upon such Real Property shall be made except during normal business hours
and then only upon reasonable advance notice to Buyer; (b) Buyer shall be
entitled to require that any persons entering upon such Real Property shall
be accompanied by a representative of Buyer at all times; (c) intrusive
investigations, such as well-drilling or soil boring or testing of any
substances, shall be permitted only to the extent
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that they do not materially interfere with the operations of the Business,
upon demonstrated reasonable cause and to such extent as is consented to by
Buyer, such consent not to be unreasonably withheld; (d) any samples taken
shall be split between Buyer's and LTI's representatives if so requested by
Buyer; (e) LTI shall provide to Buyer within five days after receipt
thereof a copy of any report or other written information delivered to a
Selling Party by any representative thereof or governmental representative
with regard to any investigations or other activities of such
representative upon the property of Buyer; and (f) to the extent the
condition of any property of Buyer is disturbed in any material respect as
a result of any such activities, the Selling Parties, jointly and
severally, shall be responsible for all costs and expenses associated with
restoring the property to substantially its condition prior to the
occurrence of such activities.
15.7 Procedures for Indemnification.
15.7.1 In the case of a claim against the Selling Parties that may be
covered at least in part by the Escrow Funds, a Buyer Indemnified Party
shall pursue such claim in accordance with the Escrow Agreement. In the
case of a claim against the Selling Parties that cannot be fully satisfied
by the amount of Escrow Funds then maintained by the Escrow Agent, and in
the case of any claim against the Buying Parties, the Indemnified Party may
pursue whatever legal remedies may be available for recovery of Losses
claimed from any indemnifying Party. Each Indemnified Party shall promptly
give notice hereunder (the "Claim Notice") to the indemnifying Party and,
to the extent applicable, in accordance with the Escrow Agreement, after
becoming aware of any claim as to which recovery may be sought against the
indemnifying Party because of the indemnity provided in this Section 15 or
otherwise in this Agreement. After giving such Claim Notice, the
Indemnified Party shall have the right to assume at its own expense the
defense of any such action, suit or other proceeding, and any indemnifying
Party, if so requested by the Indemnified Party, shall participate in any
such action, suit or other proceeding or assume the defense thereof, with
counsel satisfactory to the Indemnified Party; provided, however, that the
Indemnified Party shall have the right to participate at its own expense in
the defense of any such action, suit or other proceeding. Notwithstanding
the foregoing, the right to indemnification hereunder shall not be affected
by any failure of an Indemnified Party to give such Claim Notice (or by
delay by an Indemnified Party in giving such Claim Notice) unless, and then
only to the extent that, the rights and remedies of the indemnifying Party
shall have been prejudiced as a result of the failure to give, or delay in
giving, such Claim Notice. The Claim Notice required hereunder shall
specify the basis for the claim for indemnification to the extent
ascertainable at the time of the Claim Notice. If the matter to which a
claim relates shall not have been resolved as of the date of the Claim
Notice, the Indemnified Party shall include an estimate of the amount of
the claim in the Claim Notice to be provided pursuant to this Section
15.7.1, accompanied by a statement therein that the claim has not yet been
liquidated (an "Unliquidated Claim"). In the event that an Indemnified
Party gives a Claim Notice for an Unliquidated Claim relating to or arising
from the breach of a representation or warranty prior to the termination of
the survival period of a representation or warranty set forth in this
Section 15, such survival
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period shall be tolled with respect to such Unliquidated Claim until it
becomes finally resolved pursuant to the provisions of this Section 15. If
an Indemnified Party gives a Claim Notice for an Unliquidated Claim, the
Indemnified Party shall also give a second Claim Notice within 30 days
after the matter giving rise to the claim becomes finally resolved, and
such second Claim Notice shall specify the amount of the claim.
15.7.2 The indemnifying Party shall not, in the defense of such claim
or any Litigation resulting therefrom, consent to entry of any judgment
(other than a judgment of dismissal on the merits without costs) or enter
into any settlement, except with the written consent, which consent shall
not be unreasonably withheld, of the Indemnified Party, which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect
of such claim or Litigation.
15.7.3 If an indemnifying Party shall not, within 30 days after its
receipt of the Claim Notice required by Section 15.7.1 hereof or in
accordance with the Escrow Agreement or, in the case of an Unliquidated
Claim, within 30 days after its receipt of the second Claim Notice
described in Section 15.7.1, advise the Indemnified Party that the
indemnifying Party denies the right of the Indemnified Party to indemnity
in respect of the claim, then the amount of such claim shall be deemed to
be finally determined between the Parties hereto. If the indemnifying Party
shall notify the Indemnified Party that it disputes any claim made by the
Indemnified Party, then the Parties hereto shall endeavor to settle and
compromise such claim, and if unable to agree on any settlement or
compromise, such claim for indemnification shall be settled by appropriate
litigation, and any Liability established by reason of such settlement,
compromise or litigation shall be deemed to be finally determined. Any
claim that is finally determined in the manner set forth above shall be
paid promptly by the indemnifying Party in cash.
15.8 Payment of Indemnification Obligations. Each Party shall pay promptly
to any Indemnified Party the amount of all Losses to which the foregoing
indemnity relates.
15.9 Interest on Unpaid Obligations. If all or part of any indemnification
obligation under this Agreement is not paid when due, the indemnifying Party
shall pay the Indemnified Party interest on the unpaid amount of such obligation
for each day from the date the amount became due until it is paid in full,
payable on demand, at the rate equal to the lower of (i) the maximum rate
permitted by Law or (ii) two percent (2%) per annum plus the Prime Rate.
15.10 Sole Remedies. Except with respect to the payment obligations
specified in Sections 2.9, 10.14 and 14 and except to the extent the Buying
Parties may be entitled to the remedy of specific performance or other
injunctive relief pursuant to Section 12, the indemnification provisions set
forth in Sections 3.3, 3.4, 13.2 and 15 and the provisions contained in the
Escrow Agreement constitute the sole and exclusive remedies of the Parties
hereto with respect to Losses arising out of or relating to this Agreement, and
shall preclude the assertion by any Party of any other rights, or the
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seeking of any other remedies against any other Party for claims arising out of
or relating to this Agreement.
16. General.
16.1 Expenses. Except as otherwise provided in this Agreement, and whether
or not the Transactions shall be consummated, the Buying Parties and the Selling
Parties shall each pay their own fees, expenses and disbursements, including the
fees and expenses of their respective counsel, accountants and other experts, in
connection with the subject matter of this Agreement and all other costs and
expenses incurred in performing and complying with all conditions to be
performed under this Agreement.
16.2 Limitation on Selling Parties' Representations. The Selling Parties
have not made any representation or warranty, expressed or implied, as to the
accuracy or completeness of any information regarding the Selling Parties, the
Business or the Purchased Assets, other than those representations and
warranties expressly made by the Selling Parties in this Agreement, and none of
the Selling Parties will have or be subject to any Liability to the Buying
Parties resulting from the Buying Parties' or their representatives' use of any
financial information, projections, budgets or any other document or
information, other than those representations and warranties expressly made by
the Selling Parties in this Agreement, provided by or on behalf of the Selling
Parties to the Buying Parties or their representatives. EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED IN SECTION 5 AND IN SECTION 7.2, THE SELLING PARTIES MAKE
NO REPRESENTATIONS OR WARRANTIES TO THE BUYING PARTIES, EXPRESS OR IMPLIED, WITH
RESPECT TO ANY SELLING PARTY'S BUSINESS (INCLUDING, WITHOUT LIMITATION, THE
BUSINESS), PROPERTIES (INCLUDING, WITHOUT LIMITATION, THE PURCHASED ASSETS), AND
LIABILITIES OR OBLIGATIONS (INCLUDING, WITHOUT LIMITATION, THE ASSUMED
LIABILITIES), WHETHER ARISING BY STATUTE OR OTHERWISE IN LAW INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR OTHERWISE.
16.3 Publicity. The Parties hereto will consult with each other before
issuing any press release or making any public statement with respect to this
Agreement and the Transactions and, except as may be required by applicable Law
or any stock exchange regulations, no Party shall issue any such press release
or make any such public statement without the consent of the other Party hereto.
16.4 Amendment, Severability, Parties in Interest, Assignment, Etc. This
Agreement may be amended, modified or supplemented only by a written instrument
duly executed by each of the Parties hereto. If any provision of this Agreement
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, legal representatives, successors and
permitted
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assigns of the Parties hereto. Nothing in this Agreement, express or implied, is
intended to confer on any Person other than the Parties hereto, or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement. No Party hereto shall assign
or otherwise transfer this Agreement or any right, benefit or obligation
hereunder (whether by operation of Law or otherwise) to any other Person without
the prior written consent of the other Party, except in the case of a Buying
Party, to a Person which is an Affiliate of such Buying Party. The Parties
hereto shall execute and deliver any and all documents and take any and all
other actions that may be deemed reasonably necessary by their respective
counsel to complete the Transactions.
16.5 Waivers. Any term or provision of this Agreement may be waived at any
time by the Party entitled to the benefit thereof by a written instrument duly
executed by such Party. The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any provision of this
Agreement in one or more instances shall operate or be construed as a waiver of
any other condition or subsequent breach.
16.6 Notices. All notices that are required or permitted hereunder shall be
in writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
Parties hereto:
16.6.1 If to a Selling Party, to:
Liberty Technologies, Inc.
Lee Park
555 North Lane, Suite 6000
Conshohocken, PA 19428-2208
FAX: (610) 834-0601
Attention: R. Nim Evatt
With a copy to:
Pepper, Hamilton & Scheetz LLP
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
FAX: (610) 640-7835
Attention: James D. Rosener, Esquire
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<PAGE>
16.6.2 If to GE or Buyer, to:
GE Nuclear Energy
175 Curtner Avenue
San Jose, CA 95125
FAX: (408) 925-1148
Attention: Jerry A. Miller
GE Nuclear Energy
175 Curtner Avenue
San Jose, CA 95125
FAX: (408) 925-1234
Attention: David R. Helwig
With copies to:
GE Nuclear Energy
175 Curtner Avenue, M/C 823
San Jose, CA 95125
FAX: (408) 925-5376
Attention: Harold J. Neems, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
FAX: (215) 963-5299
Attention: Howard L. Shecter, Esquire
16.7 Entire Agreement. This Agreement (including the Exhibits and Schedules
hereto), together with the other Transaction Documents, sets forth the entire
agreement and understanding of the Parties hereto with respect to the
Transactions and the other matters set forth herein and supersedes all prior
agreements or understandings, oral and written, among the Parties hereto or
otherwise with respect to the subject matter hereof.
16.8 Interpretation. Unless the context of this Agreement clearly requires
otherwise, (i) references to the plural include the singular, the singular the
plural, the part the whole, (ii) references to any gender include all genders,
(iii) "or" has the inclusive meaning frequently identified with the phrase
"and/or," (iv) "including" has the inclusive meaning frequently identified with
the phrase "but not limited to" and (v) references to "hereunder" or "herein"
relate to this Agreement. The section and other headings contained in this
Agreement are for reference purposes only and shall not control or affect the
construction of this Agreement or the interpretation thereof in any respect.
Section, subsection, Schedule and Exhibit references are to this Agreement
unless otherwise specified. Each
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<PAGE>
accounting term used herein that is not specifically defined herein shall have
the meaning given to it under GAAP.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE>
16.9 Governing Law. This Agreement shall be construed and interpreted in
accordance with the Laws of the State of New York without regard to its
provisions concerning conflict of Laws.
16.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, this Agreement has been executed by the Parties hereto
as of the day and year first above written.
GENERAL ELECTRIC COMPANY
By:/s/ David R. Helwig
------------------------------------
David R. Helwig
General Manager, Nuclear Services
GE INSPECTION SERVICES, INC.
By:/s/ David R. Helwig
------------------------------------
David R. Helwig
President
LIBERTY TECHNOLOGIES, INC.
By:/s/ R. Nim Evatt
------------------------------------
R. Nim Evatt
President and Chief Executive Officer
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<PAGE>
LTH DELAWARE, INC.
By:/s/ R. Nim Evatt
------------------------------------
R. Nim Evatt
President
LIBERTY TECHNICAL SERVICES, INC.
By:/s/ R. Nim Evatt
------------------------------------
R. Nim Evatt
President
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<PAGE>
PROXY LIBERTY TECHNOLOGIES, INC. PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 30, 1997
The undersigned hereby revokes all previous proxies, acknowledges receipt of
the notice of special shareholders meeting to be held on October 30, 1997 and
appoints R. Nim Evatt and Daniel G. Clare, as proxies, each with the power to
appoint his substitute, and hereby authorizes either of them to act and vote at
the special meeting of shareholders of Liberty Technologies, Inc. (the
"Company") to be held on October 30, 1997 and at any adjournments or
postponements thereof, as indicated upon all matters referred to on this proxy
card and described in the Proxy Statement for the meeting, and, in their
discretion, upon any other matters which may properly come before the meeting or
any adjournments or postponements thereof.
The approval of the sale of the Company's nondestructive testing and
evaluation services business (the "NDE Business") and the adoption of the Asset
Purchase Agreement (the "Acquisition Agreement") providing for the sale of the
NDE Business (the "Sale of the NDE Business"), as it may be amended or
supplemented from time to time:
/ / FOR / / AGAINST / / ABSTAIN
- --------------------------------------------------------------------------------
The postponement or adjournment of the meeting by the Company in its
discretion, in order to solicit additional votes.
/ / FOR / / AGAINST / / ABSTAIN
(Continued on reverse side)
<PAGE>
The Board of Directors recommends a vote FOR the Proposal. IN THE ABSENCE OF
SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED FOR THE PROPOSAL.
Each of the proxies are authorized to vote this proxy card in their
discretion as to any other matter that may properly come before the Meeting.
Dated: ___________________, 1997
(Seal) _________________________
(Signature)
(Seal) _________________________
(Signature)
NOTE: PLEASE SIGN ABOVE EXACTLY
AS NAME APPEARS ON THE STOCK
CERTIFICATE. IF STOCK IS HELD IN
THE NAME OF TWO OR MORE PERSONS,
ALL MUST SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE
AS SUCH. IF A CORPORATION,
PLEASE SIGN IN FULL CORPORATE
NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON.
PLEASE RETURN YOUR EXECUTED PROXY IN THE ENCLOSED ENVELOPE.
