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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (the "Act")
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
For the transition period from______ to_____
Commission File Number 0-23070
AFC CABLE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-1517994
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Kennedy Plaza, Suite 1250, Providence, Rhode Island 02903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 453-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock ($.01 Par Value)
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 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 the 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. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $103,329,493 on March 24, 1997, based on the
closing sales price of the registrant's common stock, $.01 par value (the
"Common Stock"), as reported on the NASDAQ National Market System as of such
date.
The number of shares of the registrant's Common Stock outstanding as of
March 24, 1997 was 7,458,025 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement to be filed with the Securities and Exchange Commission in
connection with the 1997 Annual Meeting of Stockholders is incorporated
herein by reference (in Part III).
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PART I
ITEM 1. BUSINESS
GENERAL
AFC Cable Systems, Inc. ("AFC" or the "Company") is a designer,
manufacturer and supplier of electrical, voice and data distribution products
used primarily in the construction and modernization of non-residential
buildings. The Company's products include prewired armored cable, flexible
conduit, modular wiring systems, electrical fittings and specialty coated
metals. The Company believes its products offer a total installed cost
advantage over traditional, labor intensive wiring methods by eliminating
on-site installation time and labor costs associated with bending, connecting
and pulling wire through metal pipe. The Company is the leading manufacturer
of prewired armored cable in the United States, with approximately 45% of the
sales in the domestic armored cable market based upon Company estimates.
In order to penetrate higher margin, specialty application niche markets,
the Company has focused on the creation of proprietary value-added products
which utilize the Company's design and engineering expertise and various
technologies. These products include color-coded cables used for fire alarm
systems and health care facilities. In addition, the Company offers premise
wiring systems, including The Intelligent Floor and The Intelligent Ceiling,
designed for the modern workstation environment. These premise wiring systems
are custom engineered and pre-assembled by the Company for modular installation
and have the ability to supply the voice, data and electrical requirements
throughout an entire facility.
AFC sells its products principally to leading distributors of electrical
products and actively targets do-it-yourself ("DIY") customers and original
equipment manufacturers ("OEMs"). In an effort to include its products in
preferred project specifications, the Company educates electrical contractors
and inspectors, construction consultants and architects regarding the
technological advantages, compatibility and cost savings of the Company's
products. AFC distributes its products from its fifteen manufacturing,
warehouse and distribution facilities located throughout the country using
its own trucking fleet as well as other carriers and from sales
representatives that carry inventory on consignment.
The Company's products can be separated into two broad categories: armored
cable, flexible conduit, specialty cables, electrical fittings and specialty
coated metals, all manufactured by the Wire and Cable Division, and flexible and
premise wiring systems and related products manufactured by the America Cable
Systems Division. The divisions are vertically integrated in that many of the
products manufactured in the America Cable Systems Division utilize components,
including cable remnants, produced in the Wire and Cable Division.
The Company's executive offices are located at 50 Kennedy Plaza, Suite
1250, Providence, Rhode Island 02903, and its telephone number is (401)
453-2000.
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PRODUCTS
WIRE AND CABLE DIVISION. Wire and Cable Division products are utilized
for construction (both new and reconstruction, renovation and tenant
improvement projects) of offices, commercial buildings, industrial plants,
shopping centers, multifamily dwellings, hotels and health care, educational
and recreational facilities. Wire and Cable Division products consist
primarily of armored cable, flexible conduit, specialty cables, electrical
fittings and connectors and specialty processed metals and accounted for
$144.3 million, or 89.1%, and $124.4 million, or 89.1%, of the Company's net
sales for the years ended December 31, 1996 and 1995, respectively. The
Company is the leading manufacturer of armored cable in the United States,
with approximately 45% of the domestic market based on current Company
estimates. Wire and Cable Division products have been listed and labeled
where required in accordance with Underwriters Laboratories ("UL") standards
and comply with the National Electrical Code ("NEC"). Wire and Cable Division
products also meet the standards of the Canadian Standards Association
("CSA") where required. See "Quality Assurance."
Products manufactured by the Wire and Cable Division include the following:
- ARMORED CABLE is armor sheathed electrical cable that provides a versatile
and economical alternative to traditional pipe and wire. Fully
preassembled and tested, armored cable features excellent mechanical
protection, consistent color coding and a cost effective electrical
installation. Armored cable products are available in steel or aluminum
sheathing. Aluminum sheathed armored cable,
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which reduces a product's weight by 30%, has gained wide customer
acceptance over recent years due to ease of preparation and installation
and resulting cost savings.
METAL-CLAD (MC) CABLE is a single, steel clad assembly used for power,
lighting, control and signal circuits. MC has an internal insulated solid
copper ground wire for sensitive applications, including places of public
assembly such as convention halls and auditoriums. MC is available in a
lighter weight aluminum version, MC Lite.
AC-90 is 90 DEG.C rated for branch circuits and feeders in commercial,
multi-unit residential and industrial applications and for hard wiring
fixtures and other high temperature applications. Designed for higher
thermal capability, AC-90 provides more usable power per conductor size.
AC-90 Lite is the line's lighter weight aluminum version.
- SPECIALTY CABLE products are specialized applications of the Company's
armored cable designed to meet a particular niche of the commercial
construction industry.
HCF-90 is AC-90 cable that features a fully insulated ground wire
providing dual path grounding for branch circuits and feeders where a
dedicated ground is required. This product is designed primarily for
health care facilities and has a process-patented green striped armor
designed to enhance ease of installation and identification. HCF-90 is
available in a lighter weight aluminum version, HCF-90 Lite.
FIRE ALARM/CONTROL CABLE is MC Cable that features a process-patented red
striped armor that is designed to enhance identification by fire
inspectors and prevent accidental disabling of fire security systems.
SUPER NEUTRAL CABLE is MC Cable containing an oversized neutral conductor
for use in electrical systems in which nonlinear switching loads produce
additive, third order harmonic currents which may overload standard size
neutral conductors. Typical applications include computer systems,
business equipment, variable speed drives, electronic discharge lighting
and other switching mode power supplies.
JACKETED MC CABLE is MC Cable with an added polyvinyl chloride ("PVC")
jacket designed for maximum physical circuit protection and
identification, and is utilized for installations in wet locations, soil
and concrete.
HOME RUN CABLE is MC Cable that is designed to hold a 6, 8, 12 or 16 wire
insulated conductor assembly inside galvanized steel armor.
- FLEXIBLE CONDUIT is wireless conduit that provides mechanical protection
for electrical wiring where flexibility is required. Flexible conduit can
be made of steel, aluminum or plastic and is used in a variety of
construction applications as an alternative to pipe.
REDUCED WALL FLEXIBLE CONDUIT provides the strength and durability of
heavy gauge pipe at 40% less weight. It installs easily and is available
in sizes from 5/16" to 4" diameter. The Company also offers a Reduced
Wall Flexible Aluminum Conduit that provides the strength and durability
of steel at one-third the weight.
LIQUID-TIGHT FLEXIBLE CONDUIT, which is offered in both metallic and
plastic versions, has been designed for use in factories, foundries and
assembly plants. It features a flexible conduit covered
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by a PVC jacket and is resistant to oil, gasoline, salt spray and toxic
fumes. It is available in sizes from 3/8" to 4" diameter.
- OTHER PRODUCTS of the Wire and Cable Division include the following:
SPECIALTY PROCESSED METAL products have developed as a result of the
Company's ability to handle, slit and coil metals and supply galvanized
strip steel and various alloys of aluminum oscillate coils to a variety
of customers primarily in the petroleum drilling industry.
FITTINGS AND CONNECTORS are designed to connect armored cable and conduit
to electrical junction boxes and to join multiple types of conduit. These
products compliment the Company's AC, MC and Liquid-Tight product lines.
AMERICA CABLE SYSTEMS DIVISION
America Cable Systems Division products provide an integrated infrastructure
for electrical, voice and data distribution in a modular, plug-in fashion. The
products are used primarily in office buildings and retail centers with
accessible ceilings and/or accessible floors, and can be reused after
retenanting or remodeling. America Cable Systems Division products are
completely preassembled for easy on-site installation and are generally
accompanied by detailed installation drawings produced by computer aided
drafting ("CAD") software. Therefore, these modular wiring products reduce the
time of initial installations, as well as the time required to make changes in
the office layout during the life of the building. The Company continues to
enhance its modular wiring systems used in broader premise wiring markets, which
encompass combined voice, data and electrical distribution. America Cable
Systems Division products have been listed and labeled where required in
accordance with UL and CSA standards and comply with the NEC. See "Quality
Assurance." Sales of America Cable Systems Division products were $16.7
million, or 10.3%, and $14.2 million, or 10.2%, of the Company's net sales
for the years ended December 31, 1996 and 1995, respectively.
Products manufactured by the America Cable Systems Division include the
following:
- MODULAR WIRING SYSTEMS provide fast and efficient installation for
applications such as offices, health care facilities, industrial
facilities and educational institutions that require repetitive patterns
of branch circuit lighting fixtures and power outlets as well as a high
degree of flexibility to meet future needs. The Company estimates that
facilities can be completely "fitted out" with an integrated building
electrical infrastructure for lighting and power with total installed cost
savings of up to 40%.
- THE INTELLIGENT FLOOR AND THE INTELLIGENT CEILING are modifications to the
standard Modular Wiring System. These products provide an integrated
modular solution by supplying power distribution and optional voice and
data capability from the master distribution box to accessible floor and
ceiling modules and are designed primarily for space efficient
installation. The Intelligent Floor, which utilizes a patented
connector component, is completely modular, providing plug-in access for
the modern workstation under a raised floor. The Company believes that
raised floor modular wiring applications, such as The Intelligent Floor,
significantly reduce electrical related operating costs of office
buildings and add to present and resale value. The Intelligent Ceiling
incorporates lighting, power, and telecommunication systems through
ceiling distribution into a single integrated solution, thereby
significantly reducing installation time. The Intelligent Ceiling is
particularly effective in retail malls and health care facilities, which
traditionally do not employ raised floor systems. The Company has
established strategic alliances with a major national manufacturer of
office equipment and a major manufacturer of raised flooring in an
effort to expand the number of distribution channels for The Intelligent
Ceiling and The Intelligent Floor product offerings.
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- CUSTOM CUTS AND FIXTURE WHIPS provide builders with factory cut branch
circuit wiring used to connect convenience power receptacles and lighting
fixtures on the job site. Custom Cuts and Fixture Whips significantly
reduce installation time for branch circuit power distribution systems.
- PDQ SYSTEM COMPONENTS enable prefabrication of the entire electrical
branch circuit distribution network at the factory and complete system
delivery to the job site. PDQ System Components are the electrical devices
and support mechanisms to which Custom Cut wiring is attached. Through the
development of a patented specialized connector, prewired switches and
receptacles already set in electrical boxes can now be plugged together on
either end of the Custom Cut cable and from leads extending from the
prewired electrical boxes.
- OTHER CABLE AND LIGHTING PRODUCTS include temporary construction lights,
power poles, high bay lighting systems and prenumbered and prebundled
conductors.
MARKETING
The Company's products are marketed through approximately 150 independent
regional sales representatives, including several located outside the United
States. Sales representatives do not exclusively market the Company's
products. At December 31, 1996, 32 of the Company's domestic representatives
maintained product inventories on consignment. The independent sales
representatives are trained by the Company through a comprehensive marketing
program that includes a wide range of product literature, specification
sheets and technical brochures. The Company actively markets its advanced
engineering capabilities, including CAD, for custom designed integrated
systems to electrical contractors, construction engineers and building
contractors. The Company also advertises certain of its product offerings in
trade magazines and regularly participates in industry trade shows. The
domestic sales representatives are serviced by the Company's fleet of trucks
and trailers, which provide delivery and scheduled stock replenishment. The
Company believes that its internal trucking capability gives it a competitive
advantage by providing prompt delivery to its customers.
Commensurate with its strategy of promoting armored cable, flexible wiring
and flexible conduit as the preferred alternative to traditional labor intensive
pipe and wire installation methods, the Company has specifically focused its
marketing efforts at electrical contractors and inspectors, construction
consultants, architects and other end users. This marketing strategy is
particularly important to the marketing efforts of the America Cable Systems
Division as its products are often developed to custom specifications. The
Company's in-house telemarketing department and field representatives research
pending construction projects in an effort to change project specifications to
allow for the use of the Company's prewired armored cable products. The Wire and
Cable Division has had particular success with this specification strategy in
the area of specialty cable products where competition is relatively limited.
The Company expects to continue this marketing strategy as it develops new
products for broader premise wiring markets.
Use of certain of the Company's armored cable products is not currently
permitted by local building codes in a limited number of municipalities,
including Chicago, San Antonio and Toledo. In several instances, the Company has
successfully illustrated to municipal building code authorities the benefits and
efficiencies of armored cable products over pipe and wire installations,
resulting in favorable changes in the particular municipality's building code.
For example, during the past two years, several municipalities, including Dade
County, Florida, Orange County, Florida, the city of Tampa, Florida and
Sacramento County, California, have amended their building codes to approve the
use of the Company's metal clad cables. Although the Company expects to continue
such efforts, there can be no assurance that it will be successful in
influencing other municipalities in adopting similar legislation. The failure to
obtain a change in these local codes is not anticipated to have a material
adverse effect on the Company's business, operating results or financial
condition.
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CUSTOMERS
The Company sells its products primarily to distributors of electrical
products for resale to end users. Sales to distributors accounted for
approximately 87% of the Company's net sales during each of the years ended
December 31, 1996 and 1995. The Company's top ten customers have traditionally
accounted for approximately 30% of the Company's gross sales. In addition to
sales to distributors, the Company directs significant marketing efforts toward
DIY customers. Sales to DIY customers accounted for approximately 7% of the
Company's gross sales for each of the years ended December 31, 1996 and 1995,
and were comprised mostly of armored cable and flexible conduit.
COMPETITION
The Company faces competition for many of its core armored cable products
and for those products manufactured by the America Cable Systems Division.
The Company, however, has experienced less competition with respect to many
of its specialty cable products. The Company's competitors include both
manufacturers of products similar to those of the Company and producers of
alternative electrical, voice and data distribution systems, predominantly
pipe and wire. The number and size of the Company's competitors varies
depending on the product line. Competition can be generally categorized as
either national in scope, with companies that have substantial financial,
research and development, manufacturing and marketing resources, or regional
in scope, with companies that have more limited product offerings but compete
effectively on the basis of price.
The principal competitive factors in all product markets are price, quality,
product features, availability, customer support and distribution strength. The
relative importance of each of these factors varies depending on the specific
product category. As products mature, such as certain of the Company's core
armored cable products, competitive forces tend to drive down prices. In
contrast, the Company has been able to maintain higher margins on its specialty
cable products and certain of its products manufactured by the America Cable
Systems Division. There can be no assurances, however, that this trend will
continue.
MANUFACTURING
The Company's manufacturing operations utilize a wide variety of raw
materials for which it has multiple commercial sources, and include a broad
variety of processes reflective of the Company's product diversity. See "Raw
Materials." Operations for cable manufacturing at the Wire and Cable Division
include drawing copper wire; extruding wire; slitting and galvanizing steel and
aluminum used for armor; wrapping, twisting and cutting wire; armoring
conductors; and testing for conductor continuity and grounding. The Company's
manufacturing equipment allows for a wide assortment of product categories with
armored cable diameters ranging from 1/4" to 2" and flexible conduit diameters
ranging from 5/16" to 4". The America Cable Systems Division manufacturing
operations primarily consist of metal stamping, riveting, custom wire cutting,
custom assembly and packaging operations. This division utilizes proprietary
tooling in its assembly techniques. Manufacturing operations at the Company's
two divisions are vertically integrated, which enables the Company to source
primary raw materials at favorable prices and terms, control inventories and
better manage lead times. The America Cable Systems Division uses remnants from
the Wire and Cable Division in its manufacturing process, thereby reducing the
Company's overall scrap ratio.
RAW MATERIALS
Copper, steel and aluminum used in manufacturing represented approximately
63% of cost of goods sold for the year ended December 31, 1996. The principal
raw material used by the Company is copper, which is purchased in the form of
redrawn rod from several domestic producers. Price terms are based on monthly
average copper prices, as determined by the New York Commodity Exchange, plus a
premium. The Company believes world stocks and capacity continue to be adequate
to meet market needs. At
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December 31, 1996, the Company had agreed to purchase the majority of its 1997
copper usage from two vendors. Other raw materials used by the Company include
aluminum, galvanized steel, molding materials, PVC and nylon, for which the
Company generally has either alternative sources of supply or access to
alternative materials. Supplies of these materials are adequate and are
expected to remain so for the foreseeable future.
QUALITY ASSURANCE
The Company is committed to the philosophy that meeting industry standards
and codes is critical to its success, and its products are designed to satisfy
the safety and performance standards set by various industrial groups and
testing laboratories. Underwriters Laboratories, a nonprofit, independent
organization, operates a listing service for electrical and electronic materials
and equipment. UL listing is required by national and most local electrical
codes in the United States, and UL conformity assessment includes testing,
evaluation and certification. UL inspectors visit the Company's various
facilities on a regular basis.
The Canadian Standards Association is the UL equivalent in Canada. Like
UL listing, CSA listing is product based and is awarded after testing and
evaluation. The British Approval Service for Cables ("BASEC") provides
product assessment and certification for cable products which are intended
for use in the United Kingdom. Other European Community countries currently
rely on UL or BASEC approval or certification for cable products.
In addition to standards organizations, the Company's products are
designed to comply with required electrical code requirements, particularly
the NEC and federal specifications. The NEC, administered by the National
Fire Protection Association ("NFPA"), sets the minimum safety standards to
which electrical products are manufactured and installed in the United
States. NEC standards are enforced and supplemented by the appropriate State,
county and municipal authorities having jurisdiction. Federal specifications
detail the requirements for all electric products to be installed in federal
buildings.
The Company has implemented a Total Quality Management ("TQM") program which
is intended to maximize customer satisfaction while implementing cost effective
production methods. The Company's TQM program embodies an interlocking set of
procedures and practices that ensures employees in various departments are
adequately trained and directed to continuously implement improvements in
quality, service and cost savings. In connection with its TQM program, the
Company has obtained ISO 9001 certification at two of its facilities in New
Bedford, Massachusetts and ISO 9002 certification at its Byesville, Ohio
facility. ISO 9001 certification is a standard developed by the International
Standards Organization that provides a management systems model for process
quality assurance in design, development, installation and servicing. ISO 9002
is a quality systems model for quality assurance in production, installation and
servicing. The Company believes that ISO 9001 and 9002 certifications signify
excellence in manufacturing and process integrity, thereby serving as a
competitive advantage and strengthening its marketing efforts. There can be no
assurance, however, that further certifications will be granted. The Company
believes that if additional certifications are not granted at its other
facilities, its business and competitive position will not be materially
adversely affected.
DEVELOPMENT, DESIGN AND ENGINEERING
The Company employs 27 draftsmen and engineers and 16 professional
technicians that are actively engaged in product and process development.
Development and design efforts often result from informal dialogues with major
electrical contractors, consulting engineers and facility managers, and
generally include product development, testing and analysis, component
development and testing, tooling design and resolution of process problems. The
Company fabricates some of the tooling and key machinery used in its cable
production.
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The Company takes an active role in guiding industry standards. The
Company has representatives on the electrical section of the NFPA and the
Industry Advisory Council of UL and maintains ongoing relations with
standards enforcement organizations such as UL, the NFPA, the International
Association of Electrical Inspectors, the National Armored Cable
Manufacturers Association and the National Electrical Manufacturing
Association.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The Company believes that its success depends more heavily on name
recognition, technical competence and the marketing abilities of its sales
representatives than on any individual patent, trademark or copyright.
Nevertheless, the Company intends to seek patent coverage for its products and
manufacturing technology where appropriate. The Company holds several patents
covering certain of its products and processes and also has several registered
trademarks. Although in the aggregate these patents and trademarks are of
considerable importance to the manufacturing and marketing of many of Company's
products, the Company does not consider any single patent or trademark or group
of patents or trademarks to be material to its business as a whole.
The Company also relies upon trade secret protection for its confidential
and proprietary information. The Company routinely enters into confidentiality
agreements with its employees. There can be no assurance, however, that others
will not independently obtain similar information and techniques or otherwise
gain access to the Company's trade secrets or that the Company can effectively
protect its trade secret.
BACKLOG
The Company's business is characterized by short-term order and shipment
schedules rather than volume purchase contracts. Accordingly, the Company does
not consider backlog at any given date to be indicative of future sales.
Immediate delivery requirements and the nature of the Company's business
preclude any significant backlog.
EMPLOYEES
At December 31, 1997 the Company had 749 full-time employees, of which
465 employees were represented by labor unions. The Company's union contracts
expire July 31, 1998, June 30, 1999 and February 4, 2000. Of the Company's
employees, 61 are in administration, 36 in sales and marketing, 38 in
engineering, 560 in manufacturing and 54 in distribution. The Company has not
experienced any work stoppages at its plants and believes its current
relations with its employees are good.
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ITEM 2. PROPERTIES
The following table provides information with respect to the Company's
facilities:
<TABLE>
<CAPTION>
OWNED/
LOCATION FACILITY TYPE SQUARE FEET LEASED
- -------------------------------------------- -------------------------------------------- ----------- ---------
<S> <C> <C> <C>
New Bedford, MA (1) Assembly-America Cable Systems Division,
Fittings and
Connectors, Administration, Engineering 123,000 Owned
New Bedford, MA Manufacturing-Cable, Warehousing 71,700 Owned
New Bedford, MA Manufacturing-Wire, Administration,
Engineering 64,000 Owned
New Bedford, MA Trucking, Warehousing 44,000 Leased
New Bedford, MA Warehousing 15,000 Leased
Fullerton, CA Manufacturing-Conduit and Armor Cable,
Warehousing 59,800 Leased
Largo, FL Manufacturing-Conduit and Cable 43,200 Leased
Largo, FL Warehousing 20,500 Leased
Ottawa, IL Manufacturing-Modems and Connectors 21,000 Owned
Burlington, NJ Manufacturing-Conduit and Cable,
Warehousing 84,500 Leased
Hackettstown, NJ Manufacturing-Photo Controls and Electrical
Devices,
Warehousing 40,000 Leased
Linden, NJ Distribution Center 23,800 Leased
Byesville, OH Manufacturing-Metal Processing 37,000 Leased
Bensalem, PA Manufacturing-Metal Processing 28,800 Leased
Providence, RI Administration 2,100 Leased
Dallas, TX Manufacturing-America Cable Systems
Division 25,000 Leased
</TABLE>
(1) This property secures the repayment of the proceeds received from the
issuance of the Industrial Revenue Bonds issued by the Massachusetts
Industrial Finance Agency in July 1996. See Item 7--"Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various nonenvironmental legal proceedings and
administrative actions, all of which are incidental to the operations of the
Company. In the opinion of the Company's management, such proceedings and
actions should not, individually or in the aggregate, have a material adverse
effect on the Company's financial condition or results of operations.
Regarding environmental matters, owners and operators of sites containing
hazardous substances, as well as generators of hazardous substances, are subject
to broad liability under various federal and State environmental laws and
regulations, including liability for clean up costs and damages arising out of
past disposal activity. The principal raw material used by the Company is
copper, which is classified as a hazardous substance. In addition, prior to the
Company's acquisition of its present business, it was engaged
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in certain activities that may have utilized other hazardous substances.
Governmental authorities may seek to impose liability regardless of fault or the
legality of the original disposal activity and regardless of whether the Company
is otherwise currently responsible for liabilities with respect to such
activities. The Company has been named in connection with certain proceedings
relating to various properties currently being investigated or remediated for
environmental problems arising therefrom. The Company's business was formerly
operated as American Flexible Conduit Company Inc. ("American"), a manufacturer
of flexible conduit and armored cable products, which commenced operations in
1926. In 1969, Nortek, Inc. ("Nortek") purchased the assets and liabilities of
American and subsequently transferred the business to its Monogram Industries,
Inc. ("Monogram") subsidiary, incorporated in Delaware in September 1969. In
December 1989, a corporation controlled by Mr. Papitto purchased Monogram from
Nortek. The purchasing corporation and Monogram were subsequently merged, with
Monogram becoming the surviving corporation. In October 1993, the Company
changed its name to AFC Cable Systems, Inc. Prior to the sale of the stock of
Monogram by Nortek in December 1989, Monogram transferred to another
subsidiary of Nortek all the assets and liabilities associated with the
businesses not related to the Company's present business operations. In
connection with the sale of the stock of Monogram, Nortek agreed to indemnify
the Company, subject to certain limitations, for liabilities and obligations
of Monogram unrelated to the business operations of Nortek's American
Flexible Conduit Division, which had been transferred to the Company in
connection with such sale. With the exception of property discussed below
located in New Bedford, Massachusetts (the "Sullivans Ledge Site") all of the
properties being investigated or remediated are unrelated to the business
operations acquired.
In 1984, the United States Environmental Protection Agency ("EPA") placed
the Sullivan's Ledge Site on the National Priorities List, which is a list of
sites that the EPA has ranked in terms of priority for remedial action pursuant
to the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"). Under CERCLA, all owners and operators (former and current) and
generators can be found jointly and severally liable with respect to the
Sullivan's Ledge Site. In March 1990, the EPA requested information from the
Company, and the Company admitted that between 1960 and 1969, American, the
predecessor of the business currently operated by the Company, had disposed of
waste metal at the site. A number of responsible parties entered into a consent
decree with regard to a portion of the Sullivan's Ledge Site in June 1991 and,
subsequently, such parties as plaintiffs (the "Plaintiffs") have sought
contribution in the United States District Court for the District of
Massachusetts from twelve corporations, including the Company and Nortek,
neither of which were named as potentially responsible parties by the EPA. In
the consent decree, the EPA estimated the cost of remediation at the Sullivan's
Ledge Site to be approximately $10-$12 million. The Company has defended and
will continue to defend the action based upon its belief that its predecessors
contributed only DE MINIMIS amounts of waste material. On December 17, 1996, the
United States District Court for The District of Massachusetts entered a
judgment in favor of the Company with respect to this claim. The time period
during which the Plaintiffs may file an appeal has not yet lapsed.
The Company is not able to predict with certainty the extent of its ultimate
liability with respect to any pending or future environmental matters. However,
the Company does not believe that any such liability with respect to the
aforementioned environmental matters would have a material adverse effect upon
its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters during the fourth quarter of the
fiscal year covered by this report to a vote of the security holders through the
solicitation of proxies or otherwise.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
NAME AGE POSITION SINCE
- --------------------------- --- ----------------------------------------- ---------------------
<S> <C> <C> <C>
Ralph R. Papitto 70 Chairman of the Board and Chief Executive Officer December 1989
Robert R. Wheeler 52 President and Chief Operating Officer October 1995
Raymond H. Keller 59 Vice President and Chief Financial Officer December 1989
</TABLE>
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
Ralph R. Papitto has been Chairman of the Board and a Director of the
Company since December 1989. Mr. Papitto has been Chief Executive Officer
since 1995. Until 1990 Mr. Papitto was the Chairman of the Board, Chief
Executive Officer and a director of Nortek, an industrial conglomerate. Mr.
Papitto founded Nortek in 1967. In 1956, Mr. Papitto founded Glass-Tite
Industries, Inc. ("Glass-Tite"), a manufacturer of electronic semiconductor
components. Glass-Tite was acquired by GTI Corporation ("GTI") in 1963. Mr.
Papitto served as Chairman of the Board of GTI Corporation until 1966. Mr.
Papitto is also a director of Lynch Corporation, a communications and
multi-media services company.
Robert R. Wheeler has been President and Chief Operating Officer of the
Company since December 1995 and a Director of the Company since March 1996.
Mr. Wheeler was Executive Vice President and Chief Operating Officer of the
Company from October 1995 to December 1995. From 1992 to 1995, Mr. Wheeler
had been President and Chief Executive Officer of The North American
Industrial Company of BICC Cable, Inc.
Raymond H. Keller has been Vice President and Chief Financial Officer of
the Company since December 1989 and a Director of the Company since October
1993. From January 1989, he served as the Vice President and Chief Financial
Officer of the American Flexible Conduit Division of Nortek. Prior to that
time, Mr. Keller held several positions with Microdot, Inc., a multi-industry
components manufacturer, most recently as Vice President and Chief Financial
Officer of the Microdot, Inc. operating companies. Mr. Keller had been
employed by Microdot, Inc. since 1972.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "AFCX." The following table sets forth for the two most recently
completed fiscal years the high and low closing sale prices for the Common
Stock as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
First Quarter 17 12 1/2
Second Quarter 19 1/2 15 1/4
Third Quarter 20 3/8 16 3/4
Fourth Quarter 18 1/4 11 1/4
1996
First Quarter 14 3/4 11 7/8
Second Quarter 17 1/2 13 1/4
Third Quarter 18 1/2 15 1/2
Fourth Quarter 23 7/8 17
</TABLE>
Since its initial public offering in 1993, the Company has not declared
or paid a cash dividend on its Common Stock and does not intend to do so in
the foreseeable future. The Company's current policy is to retain its
earnings, if any, to finance expansion and product development. Payment of
dividends in the future will depend on the earnings and financial condition
of the Company and such other factors as the Company's Board of Directors may
consider or deem appropriate at the time.
As of March 24, 1997, there were approximately 67 holders of record of the
Company's Common Stock and approximately 800 beneficial Shareholders.
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
The following financial information is qualified by reference to, and should
be read in conjunction with, the Company's financial statements, including the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this report. For the fiscal
year ended December 31, 1992 and for the short tax year from January 1 through
December 16, 1993, the consummation date of the Company's initial public
offering ("IPO"), the Company elected to be
13
<PAGE>
treated for income tax reporting purposes as an S corporation under the Internal
Revenue Code.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1992 1993 1994 1995 1996
---------------- ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Income Statement
Data:
Net sales............ $78,453 $89,890 $ 114,386 $ 139,483 $ 161,868
Cost of goods sold... 59,085 66,775 82,497 107,087 118,487
------------ ----------- ---------- ---------- ----------
Gross profit......... 19,368 23,115 31,889 32,396 43,381
Selling, general and
administrative
expenses........... 15,125 16,460 21,491 21,926 26,384
Owners'
compensation(1).... 2,081 3,141 -- -- --
------------ ----------- ---------- ---------- ----------
Income from
operations......... 2,162 3,514 10,398 10,470 16,997
Other income
(expense), net..... 330 (23) 160 39 (48)
Investment income.... -- 14 80 3,001 2,339
Interest expense...... 1,405 1,142 176 614 728
------------ ----------- ---------- ---------- ----------
Income before
taxes.............. 1,087 2,363 10,462 12,896 18,560
Income taxes......... -- 1,209 4,269 4,791 7,100
------------ ------------ ---------- ---------- ----------
Net income (loss)(2). $1,087 $1,154 $ 6,193 $ 8,105 $ 11,460
------------ ----------- ---------- ---------- ----------
------------ ----------- ---------- ---------- ----------
Earnings per common
share.............. $.33 $ 1.12 $ 1.12 $ 1.54
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Average shares
outstanding and
common stock
equivalents........ 3,477,083 5,527,078 7,234,075 7,421,179
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
(Footnotes appear on following page)
14
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................... $ 324 $ 2,986 $ 2,571 $ 2,090 $ 980
Working capital............................. 4,831 14,485 17,789 48,099 58,959
Total assets................................ 28,810 33,953 50,254 84,784 97,923
Short-term debt............................. 9,098 1,250 3,500 6,925 2,270
Long-term debt.............................. 9,420 -- -- -- 3,300
Total liabilities........................... 26,097 12,155 19,867 23,473 24,933
Stockholders' equity........................ 2,713 21,798 30,387 61,311 72,990
</TABLE>
- ------------------------
(1) Includes amounts distributed to the Company's stockholders as additional
compensation, a portion of which was to provide those stockholders with
funds to pay their income taxes, which included income taxes on the
Company's income. The portion of such additional compensation in excess of
the stockholders' income tax obligations was loaned back to the Company.
(2) Pro Forma net income after considering the following adjustments is
$3,584,000, or .67 per common share (5,340,645 average common shares and
common stock equivalents assumed to be outstanding after the IPO. The
adjustments (i) reduce the level of compensation to the Company's
stockholders by $2.5 million in 1993, based upon current compensation
practices as determined by written agreement and the Company's compensation
committee, (ii) provide related income taxes (at an assumed rate of 40%)
based on pro forma income before income taxes as if the Company were taxed
as a C corporation and (iii) reflect the reduction in interest expense of
$1.1 million in 1993 resulting from the conversion of certain of the
Company's subordinated debt to equity and the repayment of certain debt
from proceeds of the IPO.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
THESE STATEMENTS INCLUDE, AMONG OTHERS, STATEMENTS RELATING TO FUTURE EVENTS
OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY. SUCH STATEMENTS ARE ONLY
EXPECTATIONS AND ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. FACTORS
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN
SUCH FORWARD-LOOKING STATEMENTS ARE SET FORTH IN "FACTORS THAT MAY AFFECT
FUTURE PERFORMANCE."
RESULTS OF OPERATIONS
Year Ended December 31, 1996 versus Year Ended December 31, 1995
NET SALES. Net sales for the year ended December 31, 1996 increased $22.4
million, or 16.1%, to $161.9 million from $139.5 million for the year ended
December 31, 1995. Net sales for the Wire and Cable Division increased by $19.9
million, or 16.0%, to $144.3 million for the year ended December 31, 1996 from
$124.4 million for the year ended December 31, 1995. Contributing to the
increase were additional sales of the Company's traditional armored cable and
flexible conduit products as well as increased sales of the Company's higher
margin specialty application cables. Also contributing to this increase were
higher sales of fittings and connectors and specialty coated metal products
introduced by the Company in early 1995. Net sales for the America Cable Systems
Division increased by $2.5 million, or 17.6%, to $16.7 million for the year
ended December 31, 1996 from $14.2 million for the year ended December 31, 1995.
This increase is attributable to improved demand for modular wiring systems,
including The Intelligent Floor and The Intelligent Ceiling products.
GROSS PROFIT. Gross profit for the year ended December 31, 1996 increased
$11.0 million, or 33.9%, to $43.4 million from $32.4 million for the year ended
December 31, 1995. Gross margin increased to 26.8% for the year ended December
31, 1996 from 23.2% for the year ended December 31, 1995. This increase is
attributable to (i) decreased cost of raw materials through more efficient
purchasing, lower market prices of commodities and improved manufacturing
processes resulting in better yields on materials and (ii) increased sales of
higher margin specialty application products.
INCOME FROM OPERATIONS. Income from operations for the year ended December
31, 1996 increased $6.5 million, or 62.3%, to $17.0 million from $10.5 million
for the year ended December 31, 1995. Income from operations as a percentage of
net sales increased to 10.5% for the year ended December 31, 1996 from 7.5% for
the year ended December 31, 1995. This increase resulted from improved gross
margin, but was partially offset by an increase in selling, general and
administrative expenses attributable to increases in freight costs, sales
agent commissions, compensation expense and fees for professional services.
NET INCOME. Net income for the year ended December 31, 1996 increased $3.4
million, or 41.4%, to $11.5 million from $8.1 million for the year ended
December 31, 1995. Net income as a percentage of net sales increased to 7.1% for
the year ended December 31, 1996 from 5.8% for the year ended December 31, 1995.
This increase was primarily due to increased income from operations, partially
offset by a slight decline in other income, which consisted primarily of income
on investments in securities, and a higher effective tax rate of 38.2% for the
year ended December 31, 1996 compared to 37.2% for the year ended December 31,
1995 which was due to a higher marginal tax rate in 1996.
16
<PAGE>
Year Ended December 31, 1995 versus Year Ended December 31, 1994
NET SALES. Net sales for the year ended December 31, 1995 increased $25.1
million, or 21.9%, to $139.5 million from $114.4 million for the year ended
December 31, 1994. Net sales for the Wire and Cable Division increased $22.4
million, or 22.0%, to $124.4 million for the year ended December 31, 1995 from
$102.0 million for the year ended December 31, 1994. Contributing to the
increase were strong sales of the Company's traditional armored cable and
flexible conduit products, specialty cables and metals and sales related to the
new electrical fittings and connectors line of products. A portion of this
increase was also attributable to the acquisition of Kaf-Tech in the third
quarter of 1994. Net sales for the America Cable Systems Division increased $2.8
million, or 24.6%, to $14.2 million for the year ended December 31, 1995 from
$11.4 million for the year ended December 31, 1994. This increase is
attributable to improved demand for modular wiring systems and sales by this
division's pre-fabricated electronic distribution unit which was acquired in the
first quarter of 1995.
GROSS PROFIT. Gross profit for the year ended December 31, 1995 increased
$0.5 million, or 1.6%, to $32.4 million from $31.9 million for the year ended
December 31, 1994. Gross margin decreased to 23.2% for the year ended December
31, 1995 from 27.9% for the year ended December 31, 1994. This decrease was
attributable to (i) fluctuations in the price of metals that were not offset by
corresponding selling price adjustments in the Company's products, (ii) lower
margins at the Company's new advanced metals processing facility in Byesville,
Ohio and new cable fittings operation in New Bedford, Massachusetts, (iii) price
competition in traditional cable products and (iv) a shift in product mix.
INCOME FROM OPERATIONS. Income from operations for the year ended December
31, 1995 increased $72,000, or 0.7%, to $10.5 million from $10.4 million for the
year ended December 31, 1994. Income from operations as a percentage of net
sales decreased to 7.5% for the year ended December 31, 1995 from 9.1% for the
year ended December 31, 1994. This decrease was primarily attributable to the
decline in gross margins for 1995 compared to 1994.
NET INCOME. Net income for the year ended December 31, 1995 increased
$1.9 million, or 30.9%, to $8.1 million from $6.2 million for the year end
December 31, 1994. Net income as a percentage of net sales increased to 5.8%
for the year ended December 31, 1995 from 5.4% for the year ended December
31, 1994. Contributing to this increase was $3.0 million of investment income
for the year ended December 31, 1995 compared to $80,000 of investment income
for year ended December 31, 1994. This increase in investment income resulted
primarily from the application of the net proceeds from the February 1995
Common Stock offering. Another factor in this increase was a lower effective
tax rate of 37.2% for the year ended December 31, 1995 compared to 40.8% for
the year ended December 31, 1994.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term liquidity needs have generally consisted of
operating capital necessary to finance inventories and receivables. Long-term
liquidity needs generally relate to capital expenditures necessary to expand
the production capacity of its manufacturing operations. The Company has
satisfied its short- and long-term liquidity needs with cash generated from
operations and proceeds from the public offering of its Common Stock in early
1995, supplemented by available borrowings under its revolving line of credit
and proceeds from the Industrial Revenue Bonds ("IRBs") issued by the
Massachusetts Industrial Finance Agency in July 1996. The Company expects
that it will meet its ongoing working capital needs for the next twenty-four
months primarily with cash generated from operations and the net proceeds
from the offering of Common Stock which the Company expects to complete
during the second quarter of 1997 ("1997 Offering"), supplemented by
available borrowings under its revolving line of credit.
Cash generated from operations totaled $11.5 million and $4.4 million for
the years ended December 31, 1996 and 1994, respectively, and was attributable
primarily to increased profitability. Cash used in operations was $1.3 million
for the year ended December 31, 1995, primarily due to an increase in
inventories and accounts receivable. Working capital on December 31, 1996 was
$59.0 million and the ratio of current assets to current liabilities was 4.08 to
1.00. The Company's average inventory of $20.0 million for the year ended
December 31, 1996 represented an increase of $2.6 million over the average
inventory of $17.4 million for the year ended December 31, 1995.
Accounts receivable at December 31, 1996 were $3.3 million higher than the
balance at December 31, 1995 due primarily to increased sales. For the year
ended December 31, 1996 average day sales outstanding were 54 compared to 56 for
the year ended December 31, 1995. At December 31, 1996, accounts receivable over
60 days represented 1.7% of accounts receivable.
Capital expenditures for the year ended December 31, 1996 of $7.0 million
were for new or replacement production equipment to increase manufacturing
capacity and for the new manufacturing facility in New Bedford,
Massachusetts. Capital expenditures amounted to $2.3 million and $3.6 million
for the years ended December 31, 1995 and 1994, respectively. For the years
ended December 31, 1996, 1995 and 1994, the Company leased certain
manufacturing equipment valued at $1.7 million, $2.0 million and $4.8
million, respectively. Of the $4.8 million in 1994, $3.6 million relates to
the Byesville, Ohio facility. Capital expenditures for 1997 are expected to
be approximately $7 million, primarily for the purchase of new armored cabling
machines, including related equipment, and extruders.
At December 31, 1996, bank indebtedness under the Company's unsecured
revolving line of credit was $2.0 million. This revolving line of credit
terminates on March 31, 1999 and provides for direct borrowings of up to $25.0
million, including letter of credit borrowings up to $3.0 million. Up to $10.0
million of the line of credit may be used without the lender's prior consent for
business acquisitions. At December 31,
18
<PAGE>
1996, letters of credit totaling approximately $0.8 million were outstanding
under the line of credit. Borrowings under the line of credit averaged $7.5
million for the year ended December 31, 1996. The Company expects to pay the
outstanding balance of the line of credit with a portion of the net proceeds of
the 1997 Offering. See "Use of Proceeds."
Borrowings under the revolving line of credit are available at interest
rates equal to either the lender's base rate or the Eurodollar rate plus 0.5% to
1.25% for a fixed period of one, two, three or six months. At December 31, 1996,
the weighted average cost of borrowings under the line of credit was 6.3%. The
line of credit contains certain restrictive covenants, including the requirement
that the Company maintain minimum levels of tangible capital funds and meet
other specified ratio requirements.
During 1996, the Company was loaned the proceeds from the issuance of $3.57
million in Industrial Revenue Bonds by the Massachusetts Industrial Finance
Agency for the purpose of acquiring and refurbishing a 99,000 square-foot
manufacturing facility in New Bedford, Massachusetts, which secures the IRBs.
The IRBs mature on July 24, 2016 and carry an average interest rate of
approximately 3.5% adjustable on a weekly basis. In addition, an annual fee of
1.0% of the amount of an unsecured stand-by letter of credit is payable to the
bank holding the letter of credit and also acting as trustee under the terms of
the IRB issuance. The Company has the right to convert from the variable
interest rate to a fixed rate established at the time of conversion. The bonds
are payable in nineteen annual installments of $180,000 with a final payment of
$150,000 due at maturity, all funded through monthly payments of $15,000 to the
trustee over the twelve months preceding the installment due dates.
INFLATION AND FOREIGN EXCHANGE FLUCTUATION
The Company believes that inflation has not had a material effect on its
business, operating results or financial condition during the three-year period
ended December 31, 1996. While the Company does not believe that its business is
highly sensitive to inflation, there can be no assurance that future increases
in the rate of inflation would not have a material adverse effect on the
Company's operations.
The Company is currently not exposed to foreign exchange risk because
foreign sales are denominated in U.S. dollars to U.S.-based trading companies.
The Company may seek to manage any such future risk by entering into foreign
exchange contracts as management deems appropriate.
19
<PAGE>
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
SUBSTANTIAL PRICE COMPETITION, MARGIN MAINTENANCE AND PRICES OF RAW
MATERIALS. Price competition for the Company's core products is significant,
and the Company sells its products in accordance with prevailing market
prices. Copper rod is the principal raw material used in the Company's
manufacturing operations, accounting for approximately 31% of cost of goods
sold for the year ended December 31, 1996. The Company expects that copper
will continue to account for a significant portion of the cost of goods sold
in the future. Historically, the price of copper has fluctuated significantly
(i.e. between $121.20 and $145.90, and $86.85 and $130.10 per 100 pounds in
1995 and 1996, respectively). The Company's other principal raw materials
include steel and aluminum, which collectively accounted for approximately
32% of cost of goods sold for the year ended December 31, 1996. Although in
the past these raw materials have not been subject to the same degree of
price volatility as copper, there can be no assurance that significant
fluctuations will not occur in the future. The Company attempts to insulate
its products from these price fluctuations through improved purchasing
procedures and appropriate selling price adjustments. There can be no
assurance, however, that the Company will be able to maintain acceptable
gross profit margins on product sales in the future and, if it is unable to
do so, its business, operating results and financial condition could be
adversely affected. The Company does not currently engage in metal futures
trading or other hedging activities, but does have various producer supply
contracts, which currently expire on December 31, 1997 and under which the
Company purchases copper in any given month at a price equal to the average
copper selling prices, as determined by the New York Commodity Exchange, for
the month of shipment plus a premium. The Company may engage in hedging
activities in the future as management deems appropriate.
MANAGEMENT OF GROWTH. The Company has experienced rapid growth,
particularly during the last three years. The continued rapid growth of the
Company could place a significant strain on its management and other resources.
The Company anticipates that continued growth, if any, will require it to
continue to recruit, hire, train and retain a substantial number of new and
highly skilled product development, administrative, information technology,
finance, sales and marketing and support personnel. The Company's ability to
compete effectively and to manage future growth, if any, will depend on its
ability to continue to implement and improve operational, financial and
management information systems on a timely basis and to expand, train, motivate
and manage its work force. Should the Company continue to experience rapid
growth, there can be no assurance that the Company's personnel, systems,
procedures and controls will be adequate to support the Company's operations or
that management will adequately anticipate all demands that growth will place on
the Company. If the Company's management is unable to manage growth effectively,
the quality of the Company's products and its business, operating results and
financial condition could be materially adversely affected. See "--Integration
of Acquisitions."
20
<PAGE>
INTEGRATION OF ACQUISITIONS. The Company intends to grow its business by
pursuing selective acquisitions of companies with products complementary to
its existing business. Acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, technologies and
products, the diversion of management's attention from other business
concerns, risks of entering markets in which the Company has no or limited
direct prior experience, operating companies in different geographical
locations, and the potential loss of key employees of the acquired company.
Future acquisitions by the Company could result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities and amortization expenses related to goodwill and other
intangible assets, which could materially adversely affect the Company's
operating results and financial condition. There can be no assurance that
future acquisitions can be successfully integrated or that management will be
successful in managing the combined operations. See "--Management of Growth."
DEPENDENCE ON NEW PRODUCTS AND PRODUCT IMPROVEMENTS. The commercial
construction industry and the evolution of the modern workstation are
characterized by advances in electrical distribution and communications systems
which require ongoing improvements in the capabilities of wire and cable
products. The Company believes that its future success will depend in part upon
its ability to enhance existing products and to develop and manufacture new
products that meet or anticipate such changes. The failure to introduce new or
enhanced products on a timely and cost competitive basis could have an adverse
impact on the Company's business, operating results or financial condition.
MANUFACTURING CAPACITY. The Company is currently operating at or near
capacity in nearly all of its manufacturing facilities. Although the Company
has plans to open additional facilities and expand its capacity at others,
there can be no assurance that these additional facilities or expansions will
be completed on time and/or on budget, that the Company will not experience
manufacturing delays or problems, or that adequate equipment and personnel
will be available to operate these new facilities. The additional facilities
and equipment will also require substantial funds. The Company anticipates
that the estimated net proceeds of the 1997 Offering, borrowings and existing
cash will be adequate to fund its planned expansions. See "Management
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." If the Company experiences
significant delays or problems in implementing its current plans, such delays
or problems could have a material adverse effect on the Company's business,
results of operations or financial condition.
21
<PAGE>
VOLATILITY OF NEW CONSTRUCTION MARKET. The volatility of the nonresidential
new construction market has a direct impact on sales of certain of the Company's
products. Certain regions of the United States have experienced, and in the
future may experience, significant economic recessions that have reduced, or may
reduce, the number of nonresidential new construction projects, which in turn
could adversely affect the Company's business, operating results and financial
condition. The Company has historically derived a substantial portion of its
sales from the building modernization market, which has not been significantly
adversely affected by downturns in the nonresidential new construction market.
There can be no assurance, however, that the modernization market will not enter
a downturn or that the Company's sales will not be affected by future downturns
in the nonresidential new construction market. The Company's sales have also
been impacted from time to time by unseasonable and excessive weather conditions
that delay new construction. There can be no assurance that such conditions will
not have a material adverse effect on the Company's operating results in the
future.
COMPETITION. The Company faces competition from a number of national and
regional competitors, both in the armored cable and pipe and wire industries,
some of which have greater financial, engineering, research and development,
manufacturing and other resources than the Company. The Company's competitors
can be expected to continue to improve the design and performance of their
products and to introduce new products with competitive price and performance
characteristics. Although the Company believes that it has certain
technological and other advantages over its competitors, maintaining and
leveraging any such advantages will require continued investment by the
Company in design and engineering, development, marketing and customer
service and support. There can be no assurance that the Company will have
sufficient resources to continue to make such investments or that the Company
will be successful in maintaining and leveraging any such advantages. See
"--Management of Growth" and "Business--Competition."
22
<PAGE>
RELIANCE ON INDEPENDENT SALES REPRESENTATIVES AND NONEXCLUSIVE
DISTRIBUTORS. The Company sells its products to distributors through a network
of approximately 150 independent sales representatives who generally work on a
commission basis. The Company's top ten sales representatives accounted for
approximately 50% of sales during 1996. These representatives are not under
direct control of the Company, are not subject to minimum purchase requirements
and are not contractually obligated to carry the Company's product lines
exclusively or for any period of time. Although the Company believes that the
loss of any one representative would not have a material adverse impact on the
Company's business, there can be no assurance that the Company will be able to
maintain its existing relationships with these representatives. In addition, the
distributors which ultimately sell the Company's products could purchase and
distribute products that compete with the Company's products or cease purchasing
the Company's products at any time. There can be no assurance that the
distributors will continue to distribute or recommend the Company's products or
do so successfully.
DEPENDENCE ON KEY MANAGEMENT PERSONNEL. The Company's long-term success and
its growth strategy depend on its senior management, particularly Ralph R.
Papitto, the Company's Chairman and Chief Executive Officer, Robert R. Wheeler,
the Company's President and Chief Operating Officer, and Raymond H. Keller, the
Company's Chief Financial Officer. The loss of service of one or more of the
Company's key senior management personnel could have an adverse effect on the
Company's business, financial condition and results of operations. See
"Executive Officers of the Registrant."
ANTITAKEOVER PROVISIONS. Certain provisions of the Company's Restated
Certificate of Incorporation, as amended, and By-Laws and of the Delaware
General Corporation Law (the "DGCL") could discourage potential acquisition
proposals and could delay or prevent a change in control of the Company. Such
provisions, which include supermajority voting requirements for specified
business combinations, a staggered Board of Directors, and the right of the
Board of Directors, without further stockholder approval, to issue preferred
stock (the "Preferred Stock") upon such terms and conditions, and having such
rights, privileges and preferences as the Board of Directors may determine, may
have the effect of deferring hostile takeovers or delaying or preventing changes
in control or management of the Company. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of any
holders of Preferred Stock that may be issued in the future. The Company has no
present plans to issue any Preferred Stock.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
CONTENTS
Audited Consolidated Financial Statements
<S> <C>
Consolidated Balance Sheets......................................................... 25
Consolidated Statements of Income................................................... 27
Consolidated Statements of Shareholders' Equity..................................... 28
Consolidated Statements of Cash Flows............................................... 29
Notes to Consolidated Financial Statements.......................................... 31
Report of Independent Auditors...................................................... 45
</TABLE>
24
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 3)...................................... $ 980 $ 2,090
Marketable securities (Note 3).......................................... 30,508 25,524
Accounts receivable, net of allowance for doubtful accounts and sales
allowances of $3,140 in 1996 and $2,365 in 1995....................... 23,919 20,575
Inventories:
Finished goods......................................................... 11,559 10,162
Work-in-process........................................................ 3,702 1,332
Raw materials.......................................................... 5,665 7,868
-------- --------
20,926 19,362
Current deferred taxes (Note 9).......................................... 637 635
Other current assets..................................................... 1,121 1,015
-------- --------
Total current assets..................................................... 78,091 69,201
Property, plant and equipment:
Land.................................................................... 510 510
Buildings and improvements.............................................. 8,754 4,972
Machinery and equipment................................................. 16,050 13,571
Furniture and fixtures.................................................. 1,791 1,390
Construction in progress................................................ 83 --
-------- --------
27,188 20,443
Less accumulated depreciation........................................... 9,482 7,331
-------- --------
Net property, plant and equipment....................................... 17,706 13,112
Other long-term assets, net............................................. 2,126 2,471
-------- --------
Total assets............................................................ $ 97,923 $ 84,784
-------- --------
-------- --------
</TABLE>
25
<PAGE>
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Current portion of long-term debt...................................... $ 270 $ --
Revolving credit note payable (Note 4)................................. 2,000 6,925
Accounts payable....................................................... 12,471 11,840
Accrued expenses:
Payroll and employee benefits......................................... 2,506 1,426
Other................................................................. 1,885 911
-------- --------
Total accrued expenses.................................................. 4,391 2,337
-------- --------
Total current liabilities............................................... 19,132 21,102
Long-term debt (Note 4)................................................. 3,300 --
Deferred income taxes (Note 9).......................................... 1,547 1,571
Other long-term liabilities............................................. 954 800
Commitments and contingencies (Notes 6 and 7)........................... -- --
Shareholders' equity (Note 8):
Preferred stock, $.01 par value, 1,000,000 shares authorized, none
issued............................................................... -- --
Common stock, $.01 par value, 15,000,000 shares authorized, 7,335,025
and 7,333,750 shares issued and outstanding in 1996 and 1995,
respectively......................................................... 73 73
Paid-in capital........................................................ 48,011 47,918
Other.................................................................. 218 40
Treasury stock, 4,825 and 2,488 shares in 1996 and 1995, respectively,
at cost.............................................................. (82) (30)
Retained earnings...................................................... 24,770 13,310
-------- --------
Total shareholders' equity.............................................. 72,990 61,311
-------- --------
Total liabilities and shareholders' equity.............................. $ 97,923 $ 84,784
-------- --------
-------- --------
</TABLE>
See accompanying notes.
26
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales.................................................................. $ 161,868 $ 139,483 $ 114,386
Cost of goods sold......................................................... 118,487 107,087 82,497
--------- -------- --------
Gross profit............................................................... 43,381 32,396 31,889
Selling, general and administrative expenses............................... 26,384 21,926 21,491
--------- -------- --------
Income from operations..................................................... 16,997 10,470 10,398
Other income (expense):
Interest expense.......................................................... (728) (614) (176)
Investment income......................................................... 2,339 3,001 80
Other, net................................................................ (48) 39 160
--------- -------- --------
1,563 2,426 64
--------- -------- --------
Income before income taxes................................................. 18,560 12,896 10,462
Income taxes (Note 9)...................................................... 7,100 4,791 4,269
--------- -------- --------
Net income................................................................. $ 11,460 $ 8,105 $ 6,193
--------- -------- --------
--------- -------- --------
Earnings per common share.................................................. $ 1.54 $ 1.12 $ 1.12
--------- -------- --------
--------- -------- --------
Average shares outstanding and common stock equivalents................... 7,421,179 7,234,075 5,527,078
--------- -------- --------
--------- -------- --------
</TABLE>
See accompanying notes.
27
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION> RETAINED
EARNINGS
COMMON PAID-IN TREASURY (ACCUMULATED
STOCK CAPITAL OTHER STOCK DEFICIT) TOTAL
---------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at
December 31,
1993........... $ 52 $22,734 $ -- $ -- $ (988) $ 21,798
Net income for
1994........... -- -- -- -- 6,193 6,193
Proceeds from
issuance of
219,250 shares
of common
stock.......... 2 2,039 -- -- -- 2,041
Grant of
restricted
stock (Note
8)............. 1 869 (670) -- -- 200
Issuance of
15,000 shares
of common stock
in connection
with Kaf-Tech
purchase....... -- 200 -- -- -- 200
Adjustment to
unrealized
gains (losses)
on available-
for-sale
securities, net
of tax......... -- -- (74) -- -- (74)
Other............ -- 29 -- -- -- 29
---------- ---------- ---------- ---------- ------------- ----------
Balance at
December 31,
1994........... 55 25,871 (744) -- 5,205 30,387
Net income for
1995........... -- -- -- -- 8,105 8,105
Proceeds from
issuance of
1,762,500
shares of
common stock... 18 21,906 -- -- -- 21,924
Repurchase of
restricted
stock, net..... -- -- -- (30) -- (30)
Amortization of
compensation
(Note 8)....... -- -- 191 -- -- 191
Exercise of stock
options (Note
8)............. -- 140 -- -- -- 140
Adjustment to
unrealized
gains (losses)
on available-
for-sale
securities, net
of tax......... -- -- 593 -- -- 593
Other............ -- 1 -- -- -- 1
---------- ---------- ---------- ---------- ------------- ----------
Balance at
December 31,
1995........... 73 47,918 40 (30) 13,310 61,311
Net income for
1996........... -- -- -- -- 11,460 11,460
Repurchase of
restricted
stock, net..... -- -- -- (52) -- (52)
Amortization of
compensation
(Note 8)....... -- -- 189 -- -- 189
Cancellation of
25,900
restricted
shares......... -- (276) 276 -- -- --
Exercise of stock
options and
related tax
benefit (Note
8)............. -- 369 -- -- -- 369
Adjustment to
unrealized
gains (losses)
on available-
for-sale
securities, net
of tax......... -- -- (287) -- -- (287)
---------- ---------- ---------- ---------- ------------- ----------
Balance at
December 31,
1996........... $73 $ 48,011 $ 218 $ (82) $24,770 $ 72,990
---------- ---------- ---------- ---------- ------------- ----------
---------- ---------- ---------- ---------- ------------- ----------
</TABLE>
See accompanying notes.
28
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Operating activities
Net income......................................................................... $ 11,460 $ 8,105 $ 6,193
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation...................................................................... 2,235 1,860 1,450
Amortization of intangibles....................................................... 776 195 22
Net gain on sale of property, plant and equipment................................. (54) -- --
Net gain realized on available-for-sale securities................................ (618) (1,720) --
Deferred income taxes............................................................. 77 12 (363)
Provision for bad debts........................................................... 263 76 173
Provision for sales allowances.................................................... 719 480 330
Compensation expense for restricted stock and compensatory options................ 239 292 200
Increase (decrease) in cash arising from changes in assets and liabilities:
Accounts receivable.............................................................. (4,326) (2,694) (4,642)
Inventories...................................................................... (1,564) (6,732) (3,483)
Other current assets............................................................. (106) (289) (625)
Other long-term assets........................................................... (431) (996) --
Accounts payable................................................................. 631 899 4,344
Accrued payroll and employee benefits............................................ 1,030 (80) 552
Other accrued liabilities........................................................ 974 (703) 247
Long-term liabilities............................................................ 154 -- --
--------- ------- --------
Net cash provided by (used in) operating activities................................ 11,459 (1,295) 4,398
Investing activities
Purchase of Kaf-Tech, including expenses (Note 2).................................. -- -- (4,840)
Capital expenditures............................................................... (6,970) (2,340) (3,589)
Proceeds from sale of property, plant and equipment................................ 195 -- --
Purchase of available-for-sale securities.......................................... (29,063) (44,907) (584)
Proceeds from sale of available-for-sale securities................................ 24,349 22,601 --
Purchase of patents, intangibles and other......................................... -- -- (91)
--------- ------- --------
Net cash used in investing activities.............................................. (11,489) (24,646) (9,104)
</TABLE>
29
<PAGE>
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Financing activities
Proceeds from revolving line of credit borrowings................................. 60,615 52,948 49,585
Repayments of revolving line of credit borrowings................................. (65,540) (49,523) (47,335)
Proceeds from term loan........................................................... 3,200 -- --
Repayment of term loan............................................................ (3,200) -- --
Proceeds from long-term debt...................................................... 3,570 -- --
Proceeds from issuance of common stock............................................ 327 22,065 2,041
Purchase of treasury stock........................................................ (52) (30) --
--------- ------- --------
Net cash provided by (used in) financing activities............................... (1,080) 25,460 4,291
--------- ------- --------
Net decrease in cash and cash equivalents......................................... (1,110) (481) (415)
Cash and cash equivalents at beginning of year.................................... 2,090 2,571 2,986
--------- ------- --------
Cash and cash equivalents at end of year.......................................... $ 980 $ 2,090 $ 2,571
--------- ------- --------
--------- ------- --------
Supplemental schedule of cash flow information:
Cash paid during the year for interest.......................................... $ 814 $ 614 $ 157
--------- ------- --------
--------- ------- --------
Cash paid during the year for income taxes...................................... $ 6,058 $ 5,863 $ 4,500
--------- ------- --------
--------- ------- --------
</TABLE>
See accompanying notes.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
AFC Cable Systems, Inc. (the Company) is a manufacturer of electrical
distribution products, including prewired armored cable, flexible conduit and
modular wiring systems used in the nonresidential construction electrical wiring
industry. The Company's customers primarily consist of electrical supply
wholesalers located throughout the United States. The Company performs credit
evaluations on all new customers and generally does not require collateral.
Credit losses are provided for in the financial statements and consistently have
been within management's expectations.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated.
CASH EQUIVALENTS
Cash equivalents are defined as all short-term, highly-liquid investments
with an original maturity of three months or less.
MARKETABLE SECURITIES
Management determines the appropriate classification of marketable
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. All debt and equity securities have been classified as
available-for-sale.
Available-for-sale securities are carried at fair value based on quoted
market prices, with the unrealized gains and losses, net of tax, reported in a
separate component of shareholders' equity. The amortized cost of debt
securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in investment
income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in investment
income. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in investment income.
31
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
a first-in, first-out (FIFO) basis.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are stated at cost. Depreciation is computed
on the straight-line method over the estimated lives of the assets as follows:
Buildings and improvements 5 to 30 years
Machinery and equipment 3 to 10 years
Furniture and fixtures 5 to 10 years
INTANGIBLE ASSETS
Intangible assets consist primarily of the excess cost over the fair value
of assets acquired in the purchase of Kaf-Tech, Inc. (see Note 3). Intangible
assets are being amortized using the straight-line method over periods of four
to forty years.
SELF-INSURANCE
The Company is self-insured for its employee health and workers'
compensation plans. The plans, which are administered by insurance companies,
contain certain stop loss provisions that limit the Company's liability in the
event of catastrophic losses. Claims are accrued for as incurred based on
available claim information and management's estimate of claims incurred but not
yet reported.
SALES RECOGNITION
The Company recognizes sales when goods are shipped to the customer.
EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of common
shares and common equivalent shares outstanding during the year. Common
equivalent shares result from the assumed exercise of outstanding stock options
and warrants that have a dilutive effect when applying the treasury stock
method.
32
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK COMPENSATION
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees."
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1996, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities." The
overall objective of the SOP is to improve and narrow the way existing
accounting guidance is applied to the recognition of the costs of environmental
remediation, including the clean-up of superfund sites. The new rules are
effective for fiscal years beginning after December 15, 1996, and are not
expected to have a material impact on the Company upon implementation in 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ADVERTISING COSTS
Advertising costs are expensed as incurred and were $950,000, $854,000 and
$722,000 in 1996, 1995 and 1994, respectively.
RECLASSIFICATION
Certain reclassifications were made to the 1995 and 1994 financial
statements in order that they may be consistent with the 1996 presentation.
33
<PAGE>
2. ACQUISITION
On September 30, 1994, the Company acquired certain assets constituting the
business of Florida-based Kaf-Tech, Inc., a manufacturer and distributor of
electrical conduit and armored cables. The assets acquired consist of
inventories, receivables, machinery, tooling, and intangible assets. The
purchase price of approximately $4.9 million consisted of cash of $4.7 million
and 15,000 shares of the Common Stock of the Company.
The pro forma statements of income assuming the assets of Kaf-Tech had been
acquired at the beginning of 1994, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 1994
-----------------
(IN THOUSANDS)
<S> <C>
Net sales.................................................................. $ 121,052
Cost of goods sold......................................................... 87,512
--------------
Gross profit............................................................... 33,540
Selling, general and administrative expenses............................... 22,731
--------------
Income from operations..................................................... 10,809
Other income (expense):
Interest expense.......................................................... (353)
Interest income........................................................... 80
Other, net................................................................ 175
--------------
Income before income taxes................................................. 10,711
Income taxes............................................................... 4,371
--------------
Net income................................................................. $ 6,340
--------------
--------------
Earnings per common share.................................................. $ 1.14
--------------
--------------
Average shares outstanding and common stock equivalents (1)................ 5,538,328
--------------
--------------
</TABLE>
- ------------------------
(1) Adjusted for issuance of 15,000 shares of the Company included in purchase
price.
The above pro forma information does not purport to represent the Company's
results of operations that would have been attained had the acquisition of the
Kaf-Tech assets in fact occurred at the beginning of the period indicated or to
project the Company's results for any future periods.
34
<PAGE>
3. MARKETABLE SECURITIES
The Following is a Summary of securities Held by the Company. All
securities are classified as available-for-sale.
<TABLE>
<CAPTION> GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
December 31, 1996
U.S. corporate debt securities... $ 1,509 $ 92 $ -- $ 1,601
U.S. Treasury securities and
obligations of U.S. Government
agencies....................... 26,193 52 (6) 26,239
Equity securities................ 2,576 168 (76) 2,668
-------- ------ ------- ---------
Total included in investments.... $30,278 $ 312 $(82) $ 30,508
-------- ------ ------- ---------
-------- ------ ------- ---------
December 31, 1995
Mutual funds included in cash
equivalents.................... $ 3,351 $ -- $(184) $ 3,167
========= ===== ====== =======
U.S. corporate debt securities... $ 4,456 $ 161 $ -- $ 4,617
U.S. Treasury securities and
obligations of U.S. Government
agencies....................... 8,123 90 -- 8,213
Equity securities................ 12,133 561 -- 12,694
-------- ------ ------- ---------
Total included in investments.... $ 24,712 $ 812 $ -- $25,524
-------- ------ ------- ---------
-------- ------ ------- ---------
</TABLE>
U.S. corporate debt securities mature within the year and U.S. Treasury
securities generally mature within the year. Expected maturities will differ
from contractual maturities because the issuers of the securities may have the
right to prepay obligations without prepayment penalties. Realized gains and
(losses) included in investment income amounted to $859,000 and $(241,000) in
1996 and $1,720,000 in 1995.
35
<PAGE>
4. SHORT AND LONG-TERM DEBT
REVOLVING CREDIT NOTE PAYABLE
During 1996, the Company entered into an unsecured revolving line of credit
agreement which provides for direct borrowings of up to $25,000,000 of which up
to $10,000,000 is available, without the lender's prior consent, for business
acquisitions. The line of credit agreement provides for letter of credit
borrowings of up to $3,000,000, of which $816,000 is outstanding at December 31,
1996. A monthly fee based on the unused portion of credit is payable under the
agreement.
Borrowings under the line of credit are available at interest rates equal to
either the lender's base rate or the Eurodollar rate plus one half of one
percent to one and one quarter of one percent for a fixed period of one, two,
three or six months. The Company has the option of electing the applicable rate
upon notification to the lender and as a result, portions of the outstanding
balance accrue interest at different rates. The weighted average rate of
outstanding short-term borrowing is 6.3% at December 31, 1996. The carrying
value of the line of credit approximates fair value.
The line of credit contains certain restrictive covenants, which require
that the Company maintain minimum levels of tangible capital funds and meet
other specified ratio requirements.
LONG-TERM DEBT
During 1996, the Company received the proceeds from the issuance of $3.57
million in Industrial Revenue Bonds ("IRBs") through the Massachusetts
Industrial Finance Agency for the purpose of acquiring and refurbishing a 99,000
square-foot manufacturing facility in New Bedford, Massachusetts, which secures
the IRBs. The IRBs mature on July 24, 2016, and carry an average interest rate
of approximately 3.5% adjustable on a weekly basis. Additionally, an annual fee
of 1.0% on the letter of credit securing the bonds ($3.6 million at December 31,
1996) will be paid to the bank acting as a trustee in the issuance of the bonds.
The Company has the right to convert from the weekly interest rate to a fixed
rate established at the time of conversion. The bonds are payable in 19 annual
installments of $180,000 with a final payment of $150,000 due at maturity funded
through monthly payments of $15,000 to the trustee over the twelve months
preceding the installment due dates. At December 31, 1996, $3.3 million of the
total was classified as long-term debt. The carrying value of the bonds
approximates market at December 31, 1996.
36
<PAGE>
5. EMPLOYEE BENEFIT PLANS
The Company sponsors a Supplemental Executive Retirement Plan ("the Plan")
for senior management. The Plan is a defined contribution plan whereby
participant accounts are credited in an amount equal to a percent, determined
by the Company, of each participant's compensation plus the participant's
allocable share of net earnings of the Plan. At December 31, 1996, the
Company has assets (market value of $900,000), segregated in a trust,
available to meet the obligations of the Plan. Expenses for this plan were
approximately $276,000, $190,000, and $400,000, for the years ended December
31, 1996, 1995, and 1994, respectively. The total liability under the plan at
December 31, 1996, is approximately $976,000.
The Company also has five defined contribution (401(k)) plans covering
substantially all employees. Contributions to the plans are based on a
percentage of the employee's compensation. The Company also participates in a
multi-employer defined contribution plan covering certain union employees.
The Company's expense under the 401(k) and multi-employer plans was
approximately $449,000, $437,000, and $336,000 for the years ended December
31, 1996, 1995, and 1994, respectively.
6. COMMITMENTS
The Company has various operating lease agreements for buildings and
equipment extending through December 2006. The following is a schedule of the
future minimum rental payments due under these leases:
(IN THOUSANDS)
1997 $ 2,758
1998 2,222
1999 1,587
2000 1,357
2001 1,236
---------
Thereafter 3,339
---------
$ 12,499
---------
---------
37
<PAGE>
6. COMMITMENTS (continued)
Rent expense amounted to $3,738,390, $3,088,056, and $1,543,000, in 1996,
1995, and 1994, respectively.
In the normal course of business, the Company enters into purchase agreements
with certain raw material vendors. At December 31, 1996, the Company has
agreed to purchase approximately 100% of the 1997 copper usage from two
vendors.
7. CONTINGENCIES
The Company is a defendant in certain claims that relate to matters that
occurred prior to the present ownership. In accordance with the purchase and
sale agreement of the Company, the prior owner has indemnified the Company
for such claims and, accordingly, the matters are being defended by the prior
owners and its insurance companies. Management is of the opinion that these
claims relate to the prior owners and therefore will not have a material
adverse effect on the Company's financial position or results of operations.
Additionally, the Company is a party to one environmental matter and certain
other legal proceedings not covered by the indemnification. In the
environmental matter, a number of responsible parties entered into a consent
decree with the EPA in 1991 and subsequently, such parties as plaintiffs have
sought contribution from the Company, which was not named as a responsible
party by the EPA. The Company has admitted that a predecessor of the business
currently operated by the Company had disposed of a de minimus amount of
waste at the site. On December 17, 1996, the U.S. District Court for the
district of Massachusetts entered a judgment in favor of the Company with
respect to this claim. The time during which the Plaintiffs may file an
appeal has not yet lapsed.
38
<PAGE>
8. SHAREHOLDERS' EQUITY AND STOCK AWARD PLANS
On February 9, 1995, the Company completed the issuance of 1,500,000 shares
of Common Stock at a price of $13.50 per share. As part of this offering, the
Company granted the underwriters an option to purchase a maximum of 262,500
additional shares to cover over-allotments, which was exercised on February
9, 1995.
The Company has an Equity Incentive Plan under which the Company may grant
stock options, stock appreciation rights, restricted stock and unrestricted
stock awards, deferred stock awards and performance awards to key employees.
The Company has reserved a total of 400,000 shares for issuance under this
plan.
Additionally, directors who are not employees of the Company may be awarded
options for shares of Common Stock under the Directors' Stock Option Plan. A
total of 100,000 shares of Common Stock have been reserved for issuance under
the Directors' Plan.
The options, under both plans, generally vest in equal installments over the
five years subsequent to the date of grant, with the exception of 50,000
options granted in 1996 and 30,000 options granted in 1995 which vest over
four years. The options expire ten years after the date of grant.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (FAS No. 123), "Accounting for
Stock-Based Compensation." Accordingly, compensation cost has been recognized
in the financial statements only for stock options that are compensatory as
defined under APB 25. Had compensation cost for the Company's two stock
option plans been determined based on the fair value at the grant date for
awards in 1996 and 1995 consistent with the provisions of FAS No. 123, the
Company's net earnings and earnings per share would have been the pro forma
amounts indicated below.
1996 1995
--------- ---------
Net income, as reported.................... $ 11,460 $ 8,105
Net income, pro forma...................... 11,383 8,093
Earnings per common share, as reported..... $ 1.54 $ 1.12
Earnings per common share, pro forma....... 1.54 1.12
39
<PAGE>
8. SHAREHOLDERS' EQUITY AND STOCK AWARD PLANS (continued)
The fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model. For 1995 and 1996, option grants with an
expected life of four years, the following assumptions were used: risk-free
interest rate of 5.8%; dividend yield of 0%; and a volatility factor of the
expected market price of the Company's Common Stock of .40. For 1995 and 1996
option grants with an expected life of five years, the following assumptions
were used: risk-free interest rate of 5.9%; dividend yield of 0%; and
expected volatility of .40.
The effects on pro forma net income and earnings per share of expensing the
estimated fair value of stock options are not necessarily representative of
the effects on reported net income for future years due to such things as the
vesting period of the stock options and the potential for issuance of
additional stock options in future years. Additionally, because FAS No. 123
is applicable only to options granted subsequent to December 31, 1994, its
pro forma effect will not be fully reflected until 1998.
A summary of the status of the Company's Plan at year-end 1996, 1995 and
1994, and changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- --------------------------------------------------------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......................... 296,000 $ 10.52 265,000 $ 9.98 200,000 $ 10.00
Granted.................................................. 80,000 13.50 45,000 13.50 95,000 9.95
Exercised................................................ (32,000) 10.25 (14,000) 10.00 -- --
Canceled................................................. (24,000) 10.50 -- -- (30,000) 10.00
--------- --------- --------- --------- -------- ---------
Outstanding at end of year............................... 320,000 $ 11.29 296,000 $ 10.52 265,000 $ 9.98
--------- --------- --------- --------- -------- ---------
--------- --------- --------- --------- -------- ---------
Options exercisable at year end.......................... 102,500 $ 10.24 73,000 $ 9.99
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted-average fair value of options granted during
year................................................... $ 5.59 $ 5.58
--------- ---------
--------- ---------
</TABLE>
40
<PAGE>
The range of exercise prices at December 31, 1996, is from $7 to $16.50 and
the weighted average remaining contractual life in years of outstanding options
is 8.0.
Shares of capital stock reserved for possible future issuance are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Options granted......................................................... 320,000 296,000
Options as yet ungranted................................................ 86,900 117,000
Qualified employee savings plans........................................ 500,000 500,000
--------- ---------
906,900 913,000
--------- ---------
--------- ---------
</TABLE>
During 1994, the Company granted 73,000 shares of restricted common stock to
certain employees at par value. The employees vest in the restricted common
stock ratably over periods of two to four years. The difference between the
par value and the fair market value of shares of stock on the date of grant
was considered compensation and will be amortized ratably over the vesting
period. During 1996 and 1995, the restrictions lapsed on 22,600 and 23,500
shares, respectively. In 1996, 25,900 forfeited restricted shares were
repurchased by the Company at par value. The Company purchased 2,337 and
2,488 shares of vested restricted stock during 1996 and 1995, respectively,
from certain employees, at fair market value, to provide them with the funds
necessary to pay federal and state income taxes on the receipt of the vested
shares.
9. INCOME TAXES
Deferred income taxes are recognized for the expected consequences of
temporary differences by applying enacted statutory rates, applicable to
future years, to differences between the financial reporting basis and tax
basis of assets and liabilities.
41
<PAGE>
9. INCOME TAXES (continued)
The principal reasons that the aggregate income tax provisions differ from
the U.S. statutory rate of 34% for the years ended December 31, 1996 and 1995,
are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ---------------------
(000s) (000s)
<S> <C> <C> <C> <C>
Income tax provision at statutory rate......................................... $ 6,310 34.0% $4,385 34.0%
State taxes, net of federal benefit............................................ 666 3.6% 380 3.0%
Other.......................................................................... 124 .7% 26 .2%
--------- --- --------- ---
$ 7,100 38.3% $ 4,791 37.2%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
The components of the provision for income taxes for the years ended December
31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(000s)
<S> <C> <C>
Current:
Federal.................................................................. $ 6,018 $ 4,154
State.................................................................... 1,005 625
--------- ---------
Total current.............................................................. 7,023 4,779
Deferred:
Federal.................................................................. 58 53
State.................................................................... 19 (41)
--------- ---------
Total deferred............................................................. 77 12
--------- ---------
Total...................................................................... $ 7,100 $ 4,791
--------- ---------
--------- ---------
</TABLE>
A summary of the significant components of the Company's deferred tax
liabilities and assets as of December 31, 1996 and 1995, follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(000s)
<S> <C> <C>
Deferred tax liabilities:
Fixed assets............................................................. $ 1,857 $ 1,766
Marketable securities.................................................... 134 237
-------- --------
Total deferred tax liabilities............................................. 1,991 2,003
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(000s)
<S> <C> <C>
Deferred tax assets:
Supplemental executive retirement plan..................................... 389 416
Goodwill................................................................... 13 --
Stock compensation......................................................... 19 40
Inventory.................................................................. 315 195
Allowance for doubtful accounts............................................ 142 129
Accrued liabilities........................................................ 203 287
---------------------
Total deferred tax assets.................................................. 1,081 1,067
---------------------
Net deferred tax liabilities............................................... $ 910 $ 936
---------------------
---------------------
</TABLE>
10. SUBSEQUENT EVENT
On January 28, 1997, the Company acquired all of the outstanding stock of
Illinois-based B&B Electronics Manufacturing Company, a manufacturer and
distributor of electronic interfaces and connectors that facilitate data
communications. The purchase price consisted of $4.2 million in cash and
60,000 shares of Common Stock. On January 31, 1997, the Company acquired
certain assets and assumed certain liabilities of New Jersey-based Area
Lighting Research, Inc., a designer, manufacturer and distributor of photo
controls and electrical devices for lighting control and fixture industries.
Assets acquired include inventories, receivables, equipment, tooling, patents
and other intangible assets. The purchase price, funded from the liquidation
of marketable securities, was $7.7 million (plus $.9 million of assumed
liabilities). In both instances, additional consideration will be paid by the
Company if certain financial targets are achieved by the acquired companies.
43
<PAGE>
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for 1996 and 1995 (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER FULL
30 29 28 31 YEAR
--------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1996
Net sales............................................... $ 33,885 $ 42,218 $ 41,559 $ 44,206 $ 161,868
Income from operations.................................. 2,047 4,283 5,259 5,408 16,997
Net income.............................................. 1,636 2,904 3,350 3,570 11,460
Earnings per common share............................... 0.22 0.39 0.45 0.48 1.54
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
APRIL JULY SEPTEMBER DECEMBER FULL
1 1 30 31 YEAR
--------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1995
Net sales............................................... $ 33,253 $ 33,664 $ 36,543 $ 36,023 $ 139,483
Income from operations.................................. 3,055 3,033 2,481 1,901 10,470
Net income.............................................. 1,922 2,207 2,227 1,749 8,105
Earnings per common share............................... 0.29 0.30 0.30 0.24 1.12
</TABLE>
44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
and Shareholders AFC Cable Systems, Inc.
We have audited the accompanying consolidated balance sheets of AFC Cable
Systems, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of AFC Cable Systems, Inc. at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Providence, Rhode Island
February 14, 1997
45
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the current executive officers of the Company is
included in Item 4A of Part I.
Information relating to the Directors of the Company is incorporated herein
by reference to the "Election of Directors" section of the Company's Proxy
Statement to be filed with the Commission in connection with the 1997 Annual
Meeting of Stockholders (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is incorporated herein by
reference to the "Executive Compensation" section of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership is incorporated herein by
reference to the "Security Ownership of Certain Beneficial Owners and
Management" section of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
46
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) The following financial statements of AFC Cable Systems, Inc. are
included in Item 8:
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) The following financial statement schedule of AFC Cable Systems, Inc.
is included in Item 14(d):
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
related instructions or are inapplicable and therefore have been omitted.
(b) Reports on Form 8-K
None
(c) Exhibits--The response to this portion of Item 14 is submitted as a
separate section of this report. See Exhibit Index on page 49.
47
<PAGE>
ITEM 14(d). FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
ADDITIONS
---------------------------------------------------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- --------------------------------------------- ----------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(IN
THOUSANDS)
Year ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts.......... $ 300 $ 263 $ 207(1) $ 356
Reserve for sales allowances............. 2,065 4,148 3,429(2) 2,784
----------- ------ ----------- ------ -----------
Totals................................... $ 2,365 $ 4,411 $ 3,636 $ 3,140
----------- ------ ----------- ------ -----------
----------- ------ ----------- ------ -----------
Year ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts.......... $ 316 $ 76 $ 92(1) $ 300
Reserve for sales allowances............. 1,585 3,008 2,528(3) 2,065
----------- ------ ----------- ------ -----------
Totals................................... $ 1,901 $ 3,084 $ 2,620 $ 2,365
----------- ------ ----------- ------ -----------
----------- ------ ----------- ------ -----------
Year ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts.......... $ 311 $ 173 $ 168(1) $ 316
Reserve for sales allowances............. 1,260 2,480 2,155(4) 1,585
----------- ------ ----------- ------ -----------
Totals................................... $ 1,571 $ 2,653 $ 2,323 $ 1,901
----------- ------ ----------- ------ -----------
----------- ------ ----------- ------ -----------
</TABLE>
- ------------------------
(1) Uncollectible accounts written off, net of any recoveries.
(2) Represents $3,429 of allowances given in the form of credit memos.
(3) Represents $2,528 of allowances given in the form of credit memos.
(4) Represents $2,150 of allowances given in the form of credit memos and $5 of
allowances paid in cash.
48
<PAGE>
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith of have heretofore been filed with the Securities and Exchange
Commission under the Securities Act of 1933 or the Securities Exchange Act of
1934 and are referred to and incorporated herein by reference to such filings.
As indicated, various exhibits are incorporated herein by reference to (i) the
Registrant's Registration Statement on Form S-1 (No. 33-70234), (referred to
herein below as "33-70234"), (ii) the Registant's Form 10-K for the year ended
December 31, 1993 (File No. 0-23070) (referred to herein below as "1993 10-K"),
(iii) the Registrant's Form 10-Q for the quarter ended April 2, 1994 (File No.
0-23070) (referred to herein below as "4/2/94 10-Q"), (iv) the Registrant's Form
8-K (File No. 0-23070) dated October 14, 1994 (referred to herein below as
"10/14/94 8-K"), (v) the Registrant's Form 10-Q for the quarter ended October 1,
1994 (File No. 0-23070) (referred to herein below as "10/1/94 10-Q"), (vi) the
Registrant's Registration Statement on Form S-1 (No. 33-87884) (referred to
herein below as "33-87884"), (vii) the
49
<PAGE>
Registrant's Form 10-K for the year ended December 31, 1994 (File No.
0-23070) (referred to herein below as "1994 10-K"), (viii) the Registrant's
Form 10-K for the year ended December 31, 1995 (File No. 0-23070) (referred
to herein below as "1995 10-K"), and (ix) the Registrant's Form 10-Q for the
quarter ended September 28, 1996 (File No. 0-23070) (referred to herein below
as "9/28/96 10-Q").
<TABLE>
<CAPTION>
SEC EXHIBIT
EXHIBIT NUMBER DOCKET
------------------------------------------- ----------- --------------
<S> <C> <C> <C>
Exhibit 3. Articles of Incorporation and Bylaws
3.1 Restated Certificate of Incorporation, as
amended 3.1 33-87884
3.2 Bylaws of the Company 3.2 33-70234
Exhibit 4. Instruments defining the rights of security
holders
4.1 Specimen Certificate of Common Stock 4.1 33-70234
Exhibit 10. Material contracts
10.1 Representatives' Warrants 10.1 1993 10-K
10.2 Selective Retirement Plan of the
Registrant, dated December 31, 1991,
including Trust Agreement relating thereto 10.2 33-70234
10.3 1993 Equity Incentive Plan 10.3 33-70234
10.4 1993 Directors' Stock Option Plan 10.4 33-70234
10.5 Lease dated November 1, 1988 (including
amendment) between the Registrant and
Bensalem II Enterprises, relating to
property at State Road, Bensalem, PA 10.18 33-70234
10.6 Lease dated June 30, 1992 between the
Registrant and E&M Equities, relating to
property at Edward Street, Linden, NJ 10.19 33-70234
10.7 Lease dated July 22, 1993 between the
Registrant and Fleet Center Associates,
relating to property at Fleet Center,
Providence, RI 10.20 33-70234
10.8 Stock Purchase Agreement dated as of
December 22, 1989 by and between Nortek,
Inc. and Bristol Industries, Inc. 10.22 33-70234
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
SEC EXHIBIT
EXHIBIT NUMBER DOCKET
------------------------------------------- ----------- --------------
<S> <C> <C> <C>
10.9 Lease dated December 21, 1993 between the
Registrant and Whitesell Enterprises,
relating to property at Dulty's Lane,
Burlington, NJ 10.23 1993 10-K
10.10 Lease dated March 18, 1994 between the
Registrant and William L. Baker and Nancy
A. Baker, relating to property at Leyshon
Drive, Byesville, OH 10.1 4/2/94 10-Q
10.11 Master Lease Agreement dated February 8,
1993 by and between BancBoston Leasing,
Inc. and the Registrant 10.5 4/2/94 10-Q
10.12 Equipment Acquisition Agreement dated April
15, 1994 by and between BancBoston Leasing,
Inc. and the Registrant 10.6 4/2/94 10-Q
10.13 Asset Purchase Agreement dated September
30, 1994 by and among the Registrant, AFC
Acquisition, Inc., Kaf-Tech, Inc. and David
Kruse 2.1 10/14/94 8-K
10.14 Lease dated as of September 30, 1994 by and
between AFC Acquisition, Inc. and Kaf-Tech,
Inc., relating to property in Largo, FL 10.1 10/1/94 10-Q
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
SEC EXHIBIT
EXHIBIT NUMBER DOCKET
------------------------------------------- ----------- --------------
<S> <C> <C> <C>
10.15 Lease dated February 1, 1995 by and between
the Registrant and H. Glenn Butler,
relating to property at 2660 Brenner Dr.,
Dallas, TX 10.25 1994 10-K
10.16 Lease dated December 7, 1994 by and between
the Registrant and TRST Orange County,
Inc., relating to property at 1425 S.
Acacia, Fullerton, CA 10.26 1994 10-K
10.17 Purchase and sale agreement dated March 7,
1996 between AFC Cable Systems, Inc. and
L.J. Menco, Inc. 10.27 1995 10-K
10.18 Credit Agreement dated as of March 29, 1996
by and between the Registrant and Fleet
National Bank 10.28 1995 10-K
10.19 Revolving Credit Note in the aggregate
principal amount of $25,000,000 dated as of
March 29, 1996 by the Registrant to Fleet
National Bank 10.29 1995 10-K
10.20 Term Note in the amount of $3,200,000 dated
as of March 29, 1996 by the Registrant to
Fleet National Bank 10.30 1995 10-K
10.21 Loan and Trust Agreement among
Massachusetts Industrial Finance Agency,
the Registrant and Fleet National Bank, as
Trustee, dated July 1, 1996 10.1 9/28/96 10-Q
10.22 Reimbursement Agreement between the
Registrant and Fleet National Bank, dated
July 1, 1996 10.2 9/28/96 10-Q
10.23 Letter of Credit issued by Fleet National
Bank for the account of the Registrant, for
the benefit of Massachusetts Industrial
Finance Agency, dated July 24, 1996 10.3 9/28/96 10-Q
10.24 Mortgage and Security Agreement
issued by the Registrant to Fleet National
Bank, dated July 1, 1996 10.4 9/28/96 10-Q
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
SEC EXHIBIT
EXHIBIT NUMBER DOCKET
------------------------------------------- ----------- --------------
<S> <C> <C> <C>
10.25 Pledge Agreement by and between the
Registrant and Fleet National Bank, dated
July 1, 1996 10.5 9/28/96 10-Q
10.26 Stock Purchase Agreement dated January 28,
1997 by and between the Registrant and the
Stockholders of B & B Electronics
Manufacturing Co., Inc. 10.26 *
10.27 Asset Purchase Agreement dated January 31,
1997 by and among AFC Acquisition, Inc. and
Area Lighting Research, Inc. 10.27 *
Exhibit 21. Subsidiaries of the Registrant
21.1 Subsidiaries of the Registrant *
Exhibit 23. Consents of experts and counsel
23.1 Consent of Ernst & Young LLP *
</TABLE>
- ------------------------
* Filed herewith
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AFC CABLE SYSTEMS, INC.
BY: /s/ Ralph R. Papitto
-----------------------------------------
Ralph R. Papitto
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
DATE: MARCH 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ --------------------------- ----------------
<S> <C> <C>
/s/ Ralph R. Papitto
- ------------------------------ Chairman of the Board, Chief March 25, 1997
Ralph R. Papitto Executive Officer (Principal
Executive Officer)
/s/ Robert R. Wheeler
- ------------------------------ President and Director March 25, 1997
Robert R. Wheeler
/s/ Raymond H. Keller
- ------------------------------ Vice President, Chief Financial March 25, 1997
Raymond H. Keller Officer and Director (Principal
Financial and Accounting
Officer)
/s/ Anthony J. Santoro
- ------------------------------ Director March 25, 1997
Anthony J. Santoro
/s/ Malcolm M. Donahue
- ------------------------------ Director March 25, 1997
Malcolm M. Donahue
</TABLE>
54
<PAGE>
EXHIBIT 10.26
STOCK PURCHASE AGREEMENT
AMONG
AFC CABLE SYSTEMS, INC.
AND
THE STOCKHOLDERS
OF
B&B ELECTRONICS MANUFACTURING COMPANY
January 7, 1997
<PAGE>
TABLE OF CONTENTS
1. Definitions....................................................-1-
2. Purchase and Sale of Target Shares.............................-5-
(a) Basic Transaction........................................-5-
(b) Initial Purchase Price...................................-5-
(c) Additional Purchase Price................................-6-
(d) The Closing..............................................-7-
(e) Deliveries at the Closing................................-7-
3. Representations and Warranties Concerning the Transaction............-7-
(a) Representations and Warranties of the Sellers..................-7-
(b) Representations and Warranties of the Buyer....................-8-
4. Representations and Warranties Concerning the Target.................-9-
(a) Organization, Qualification, and Corporate Power..............-10-
(b) Capitalization................................................-10-
(c) Noncontravention..............................................-10-
(d) Brokers' Fees.................................................-11-
(e) Title to Assets...............................................-11-
(f) Subsidiaries..................................................-11-
(g) Financial Statements..........................................-11-
(h) Events Subsequent to Most Recent Fiscal Year End..............-11-
(i) Undisclosed Liabilities.......................................-13-
(j) Legal Compliance..............................................-14-
(k) Tax Matters...................................................-14-
(l) Real Property.................................................-15-
(m) Intellectual Property.........................................-17-
(n) Tangible Assets...............................................-19-
(o) Inventory.....................................................-20-
(p) Contracts.....................................................-20-
(q) Notes and Accounts Receivable.................................-21-
(r) Powers of Attorney............................................-21-
(s) Insurance.....................................................-21-
(t) Litigation....................................................-22-
(u) Product Warranty..............................................-22-
(v) Product Liability.............................................-23-
(w) Employees.....................................................-23-
(x) Employee Benefits.............................................-23-
(y) Guaranties....................................................-25-
(z) Environmental, Health, and Safety Matters.....................-25-
-i-
<PAGE>
(aa) Certain Business Relationships with the Target................-26-
(bb) Disclosure....................................................-27-
5. Pre-Closing Covenants...............................................-27-
(a) General.......................................................-27-
(b) Notices and Consents..........................................-27-
(c) Operation of Business.........................................-27-
(d) Preservation of Business......................................-27-
(e) Full Access...................................................-27-
(f) Notice of Developments........................................-27-
(g) Exclusivity...................................................-28-
(h) Title Insurance...............................................-28-
(i) Surveys.......................................................-28-
(j) Seller Taxes..................................................-28-
6. Post-Closing Covenants..............................................-29-
(a) General.......................................................-29-
(b) Litigation Support............................................-29-
(c) Transition....................................................-29-
(d) Confidentiality...............................................-29-
(e) Buyer Stock...................................................-30-
7. Conditions to Obligation to Close...................................-30-
(a) Conditions to Obligation of the Buyer.........................-30-
(b) Conditions to Obligation of the Sellers.......................-32-
8. Remedies for Breaches of This Agreement.............................-33-
(a) Survival of Representations and Warranties....................-33-
(b) Indemnification Provisions for Benefit of the Buyer...........-33-
(c) Indemnification Provisions for Benefit of the Sellers.........-34-
(d) Matters Involving Third Parties...............................-34-
(e) Determination of Adverse Consequences.........................-35-
(f) Recoupment Under Earnout Payments.............................-35-
(g) Other Indemnification Provisions..............................-36-
9. Tax Matters.........................................................-36-
(a) Section 338(h)(10) Election...................................-36-
(b) Tax Periods Ending on or Before the Closing Date..............-36-
(c) Cooperation on Tax Matters....................................-36-
(d) Certain Taxes.................................................-37-
10. Termination.........................................................-37-
(a) Termination of Agreement......................................-37-
-ii-
<PAGE>
(b) Effect of Termination.........................................-38-
11 Miscellaneous.......................................................-38-
(a) Nature of Certain Obligations.................................-38-
(b) Press Releases and Public Announcements.......................-38-
(c) No Third-Party Beneficiaries..................................-38-
(d) Entire Agreement..............................................-38-
(e) Succession and Assignment.....................................-38-
(f) Counterparts..................................................-39-
(g) Headings......................................................-39-
(h) Notices.......................................................-39-
(j) Amendments and Waivers........................................-40-
(k) Severability..................................................-40-
(l) Expenses.....................................................-40-
(m) Construction..................................................-40-
(n) Incorporation of Exhibits, Annexes, and Schedules.............-40-
(o) Specific Performance..........................................-40-
(p) Submission to Jurisdiction....................................-41-
Exhibit A--Historical Financial Statements
Exhibit B--Form of Escrow Agreement
Exhibit C--Form of William H. Franklin Jr. Employment Agreement
Exhibit D--Form of Registration Rights Agreement
Exhibit E--Form of Opinion of Myers, Daugherity Berry & O'Conor
Exhibit F--Form of Opinion of Ropes & Gray
Annex I--Exceptions to the Sellers' Representations and Warranties
Concerning the Transaction
Annex II--Exceptions to the Buyer's Representations and Warranties
Concerning the Transaction
Disclosure Schedule--Exceptions to Representations and Warranties
Concerning the Target and Its Subsidiaries
-iii-
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT entered into on January 7, 1997, by and among AFC Cable Systems,
Inc., a Delaware corporation (the "Buyer"), and William H. Franklin, Jr., Gloria
J. Franklin, William H. Franklin, III, David D. Ross, Paul A. Boeing, Thomas J.
Hinkey, and J. Richard Wheeler (collectively the "Sellers"). The Buyer and the
Sellers are referred to collectively herein as the "Parties."
The Sellers in the aggregate own all of the outstanding capital stock of
B&B Electronics Manufacturing Company, an Illinois corporation (the "Target").
This Agreement contemplates a transaction in which the Buyer will purchase
from the Sellers, and the Sellers will sell to the Buyer, all of the issued and
outstanding capital stock of the Target in return for the consideration set
forth in Section 2 hereof.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
Section 1504(a) or any similar group defined under a similar provision of state,
local, or foreign law.
"Applicable Rate" means the prime rate of interest publicly announced from
time to time by Fleet National Bank.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
-1-
<PAGE>
"Buyer" has the meaning set forth in the preface above.
"Buyer Stock" has the meaning set forth in Section 2(b) below.
"Closing" has the meaning set forth in Section 2(d) below.
"Closing Date" has the meaning set forth in Section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of the Target and its Subsidiaries that is not already generally
available to the public.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
"EBIT" means the earnings of the Target Business before provision for
interest and taxes determined in accordance with GAAP consistently applied by
Target and without giving effect to the Section 338(h)(10) Election described in
Section 9 hereof; provided, however, that for purposes of determining the
Earnout Payments for any period there shall be added to expenses for such period
an administrative charge in an amount equal to 1 1/2% of net sales for such
period to cover legal, audit, consulting, management and other expenses incurred
by Buyer in connection with its ownership of Target.
"Employee Benefit Plan" means any (a) non-qualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental, Health, and Safety Requirements" shall mean all federal,
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
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contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended and as now or
hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" shall mean State Street Bank and Trust Company or, if it is
not willing or able to act in such capacity, such other institution as the
parties may agree to.
"Escrow Agreement" shall mean the Escrow Agreement, dated as of the
Closing Date, by and among the Sellers, Buyer and Escrow Agent, in the form
attached hereto as Exhibit B.
"Excess Loss Account" has the meaning set forth in Reg. Section 1.1502-19.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section 4(g) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Intellectual Property" means (a) all inventions, whether patentable or
unpatentable and whether or not reduced to practice, all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information, including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals, (f) all computer software, including data and
related documentation and (g) all copies and tangible embodiments thereof, in
whatever form or medium.
"Knowledge" means actual knowledge after reasonable investigation.
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"Liability" means any liability, whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due,
including any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in
Section 4(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 4(g)
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4(g)
below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice, including with respect to quantity and
frequency.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Purchase Price" has the meaning set forth in Section 2(c) below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Requisite Sellers" means Sellers holding a majority in interest of the
Target Shares as set forth in Section 4(b) of the Disclosure Schedule.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, attachment,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for Taxes not yet due and payable,
(c) purchase money liens and liens securing rental payments
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under capital lease arrangements, and (d) other liens arising in the Ordinary
Course of Business and not incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Survey" has the meaning set forth in Section 5(i) below.
"Target" has the meaning set forth in the preface above.
"Target Business" has the meaning set forth in Section 2(d) below.
"Target Debt" means indebtedness of the Target for money borrowed
including accrued but unpaid interest thereon.
"Target Share" means any share of the Common Stock, per value $.01 par
share, of the Target.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8(d) below.
2. Purchase and Sale of Target Shares.
(a) Basic Transaction. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase from each of the Sellers, and each of
the Sellers agrees to sell to the Buyer, all of his or its Target Shares for the
consideration specified below in this Section 2.
(b) Initial Purchase Price. The Buyer agrees to pay to the Sellers at the
Closing an aggregate amount of Five Million Nine Hundred Sixty Thousand Dollars
($5,960,000) (the "Initial Purchase Price") by delivery (i) to the Sellers of
(A) cash in the amount of Four Million Seven
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Hundred Fifty Thousand Dollars ($4,750,000) reduced by the amount of the Target
Debt as of the Closing Date, payable by wire transfer or delivery of other
immediately available funds and (B) Sixty Thousand (60,000) shares of Common
Stock of Buyer (the "Buyer Stock") at an agreed price per share equal to $16.00
and (ii) to the Escrow Agent, of Cash in the amount of Two Hundred Fifty
Thousand Dollars ($250,000) payable by wire transfer or delivery of other
immediately available funds in accordance with the instructions of the Escrow
Agent provided to the Buyer, to be held in escrow pursuant to the terms of the
Escrow Agreement. The Initial Purchase Price shall be allocated among the
Sellers in proportion to their respective holdings of Target Shares as set forth
in Section 4(b) of the Disclosure Schedule.
(c) Additional Purchase Price. The Buyer shall make additional payments to
the Sellers (the "Earnout Payments" and, together with the Initial Purchase
Price, the "Purchase Price") subsequent to the Closing Date in accordance with
the terms and conditions set forth below. The Earnout Payments shall be
allocated among the Sellers in proportion to their respective holdings of Target
Shares as set forth in Section 4(b) of the Disclosure Schedule.
(i) First Earnout Payment. The Buyer shall operate the business
acquired from the Sellers (the "Target Business") as a separate subsidiary
of Buyer, and for each fiscal year commencing after December 31, 1996
shall pay to the Sellers an amount equal to forty percent (40%) of the
EBIT of the Target Business in excess of the Base Amount for such fiscal
year, until the earlier of (A) the Buyer has paid to the Sellers an
aggregate amount of Two Million Dollars ($2,000,000) or (B) the expiration
of the Earnout Period, without regard to the aggregate amount which Buyer
has paid to the Sellers as of such date. The Base Amount for fiscal year
1997 shall be One Million Two Hundred Thousand Dollars ($1,200,000), and
for each fiscal year thereafter shall be increased by five percent (5%).
The Earnout Period shall be defined as fiscal 1997 and the four (4)
subsequent fiscal year periods.
(ii) Second Earnout Payment. If EBIT for the Target Business shall
exceed One Million Six Hundred Thousand Dollars ($1,600,000) in any one
fiscal year during the Earnout Period, the Buyer shall pay to the Sellers
an additional Five Hundred Thousand Dollars ($500,000). The Buyer may pay
this amount in any one of the following manners:
(A) Cash; or
(B) Common Stock of the Buyer, where the price per share used
to determine the number of shares of Common Stock of the Buyer to be
issued to the Sellers shall be the average of such price per share
over a thirty (30) day trading period selected jointly by William H.
Franklin, Jr. and Ralph R. Papitto, or their respective designees;
or
(C) Promissory Note, the principal of which shall be due and
payable in two equal annual installments, such installments becoming
due and payable on
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the first and second anniversaries of the date of issuance, and the
interest on which shall accrue thereon at a rate per annum equal to
the Applicable Rate and which shall be due and payable quarterly in
arrears; or
(D) any combination of A, B or C above.
The Buyer shall cause the Earnout Payments payable pursuant to Section s 2(c)(i)
and (ii) above, if any, to be determined based on the financial statements of
the Target Business prepared in accordance with GAAP consistently applied and
paid to the Sellers promptly upon the release of such financial statements;
provided, however, that in no event shall the Earnout Payments be paid to the
Sellers later than 120 days after the end of the fiscal year of the Target
Business. Any portion of the Earnout Payments to be paid in cash shall be
payable by wire transfer or delivery of other immediately available funds. The
Sellers shall be permitted to have one representative observe and review the
internal audit relating to the preparation of the financial statements of the
Target Business.
(d) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Ropes & Gray in
Boston, Massachusetts, commencing at 10:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Buyer and the Requisite Sellers
may mutually determine (the "Closing Date").
(e) Deliveries at the Closing. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 7(a) below, (ii) the Buyer will deliver to the Sellers
the various certificates, instruments, and documents referred to in
Section 7(b) below, (iii) each of the Sellers will deliver to the Buyer stock
certificates representing all of his or her Target Shares, endorsed in blank
or accompanied by duly executed assignment documents,(iv) the Buyer and
Sellers will execute the Escrow Agreement and (v) the Buyer will deliver to
each of the Sellers and to the Escrow Agent the consideration specified in
Section 2(b) above.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Sellers. Each of the Sellers
represents and warrants to the Buyer that the statements contained in this
Section 3(a) are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(a)) with respect to himself or itself, except as
set forth in Annex I attached hereto.
(i) Authorization of Transaction. The Seller has full power and
authority to execute and deliver this Agreement and to perform his or her
obligations hereunder. This
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Agreement constitutes the valid and legally binding obligation of the
Seller, enforceable in accordance with its terms and conditions. The
Seller need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(ii) Noncontravention. Neither the execution and the delivery of
this Agreement and the Escrow Agreement, nor the consummation of the
transactions contemplated hereby and thereby, will violate any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject.
(iii) Brokers' Fees. The Seller has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement for which the Buyer
could become liable or obligated.
(iv) Investment. The Seller (A) understands that the Buyer Stock has
not been, and will not be, registered under the Securities Act, or under
any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (B) is acquiring the Buyer Stock solely for his or her own
account for investment purposes, and not with a view to the distribution
thereof, (C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information
concerning the Buyer and has had the opportunity to obtain additional
information as desired in order to evaluate the merits and the risks
inherent in holding the Buyer Stock, (E) is able to bear the economic risk
and lack of liquidity inherent in holding the Buyer Stock, and (F) is an
Accredited Investor or is not otherwise required to be an Accredited
Investor for the reasons set forth on Annex I.
(v) Target Shares. The Seller holds of record and owns beneficially
the number of Target Shares set forth next to his or her name in
Section 4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities,
claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the
Seller to sell, transfer, or otherwise dispose of any capital stock of
the Target (other than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to
the voting of any capital stock of the Target.
(b) Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Sellers that the statements contained in this Section 3(b)
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3(b)), except as set forth in Annex II attached hereto.
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(i) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. The Buyer
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(iii) Noncontravention. Neither the execution and the delivery of
this Agreement and the Escrow Agreement, nor the consummation of the
transactions contemplated hereby and thereby, will (A) violate any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any
provision of its charter or bylaws or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which
it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) Investment. The Buyer is not acquiring the Target Shares with a
view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.
4. Representations and Warranties Concerning the Target. The Sellers
represent and warrant to the Buyer that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in the disclosure schedule
delivered by the Sellers to the Buyer on the date hereof and initialed by the
Parties (the "Disclosure Schedule"). Nothing in the Disclosure Schedule shall
be deemed adequate to disclose an exception to a representation or warranty
made herein, however, unless the Disclosure Schedule identifies the exception
with reasonable particularity and describes the relevant facts in reasonable
detail. Without limiting the generality of the foregoing, the mere listing
(or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 4.
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(a) Organization, Qualification, and Corporate Power. The Target is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Target is duly authorized
to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. The Target has full
corporate power and authority and all licenses, permits, and authorizations
necessary to carry on the businesses in which it is engaged and in which it
presently proposes to engage and to own and use the properties owned and used
by it. Section 4(a) of the Disclosure Schedule lists the directors and
officers of the Target. The Sellers have delivered to the Buyer correct and
complete copies of the charter and bylaws of the Target (as amended to date).
The minute books (containing the records of meetings of the stockholders, the
board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of the Target are correct and
complete. The Target is not in default under or in violation of any provision
of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of the Target
consists of One Thousand (1,000) Target Shares, of which Five Hundred (500)
Target Shares are issued and outstanding and none of which Target Shares are
held in treasury. All of the issued and outstanding Target Shares have been
duly authorized, are validly issued, fully paid, and nonassessable, and are
held of record by the respective Sellers as set forth in Section 4(b) of the
Disclosure Schedule. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require the Target to
issue, sell, or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to the Target.
There are no voting trusts, proxies, or other agreements or understandings
with respect to the voting of the capital stock of the Target. Section 4(b)
of the Disclosure Schedule sets forth the Target Debt as of the date hereof
by lender and specifies the interest rate with respect thereto and scheduled
amortization and interest payments through January 1997. All Target Debt is
prepayable without penalty.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement and the Escrow Agreement, nor the consummation of the transactions
contemplated hereby and thereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the Target
is subject or any provision of the charter or bylaws of the Target or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Target is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets). The Target is not required to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
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(d) Brokers' Fees. The Target does not have any Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(e) Title to Assets. The Target has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, wherever
located, or shown on the Most Recent Balance Sheet or acquired after the date
thereof, free and clear of all Security Interests, charges, easements, covenants
or other restrictions, except for installments of special assessments not yet
delinquent and recorded easements, covenants or other restrictions which do not
impair the current use, occupancy, or value, or the marketability of title, of
the property subject thereto, and except for properties and assets disposed of
in the Ordinary Course of Business since the date of the Most Recent Balance
Sheet.
(f) Subsidiaries. The Target does not own or control, directly or
indirectly, or have any direct or indirect equity participation in any
corporation, partnership, trust, or other business association.
(g) Financial Statements. Attached hereto as Exhibit A are the following
financial statements (collectively the "Financial Statements"): (i) audited
balance sheets and statements of income, changes in stockholders' equity, and
cash flow as of and for the fiscal years ended December 31, 1993, December 31,
1994, and December 31, 1995, (the "Most Recent Fiscal Year End") for the Target;
and (ii) unaudited balance sheets and statements of income, changes in
stockholders' equity, and cash flow (the "Most Recent Financial Statements") as
of and for the nine months ended September 30, 1996 (the "Most Recent Fiscal
Month End") for the Target. The Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, present fairly the financial
condition of the Target as of such dates and the results of operations of the
Target for such periods, are correct and complete, and are consistent with the
books and records of the Target (which books and records are correct and
complete) ; provided, however, that the Most Recent Financial Statements are
subject to normal year-end adjustments (which will not be material individually
or in the aggregate) and lack footnotes and other presentation items.
(h) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any material adverse change in the
business, financial condition, operations, or results of operations, of the
Target. Without limiting the generality of the foregoing, since that date:
(i) the Target has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than for a fair consideration in
the Ordinary Course of Business;
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(ii) the Target has not entered into any agreement, contract, lease
(including any lease of real property), or license (or series of related
agreements, contracts, leases, and licenses) either involving more than
$25,000 or outside the Ordinary Course of Business;
(iii) no party (including the Target) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) involving
more than $25,000 to which the Target is a party or by which it is bound;
(iv) the Target has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) the Target has not made any capital expenditure (or series of
related capital expenditures) either involving more than $10,000
individually or $50,000 in the aggregate, or outside the Ordinary Course
of Business;
(vi) the Target has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either
involving more than $25,000 or outside the Ordinary Course of Business;
(vii) the Target has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$5,000 singly or $50,000 in the aggregate;
(viii) the Target has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of
Business;
(ix) the Target has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either
involving more than $10,000 or outside the Ordinary Course of Business;
(x) the Target has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or
bylaws of the Target;
(xii) the Target has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
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(xiii) the Target has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv) the Target has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xv) the Target has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside
the Ordinary Course of Business;
(xvi) the Target has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(xvii) the Target has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xviii) the Target has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees, or taken any such action with respect to any other Employee
Benefit Plan;
(xix) the Target has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xx) the Target has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxi) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Target; and
(xxii) the Target has not committed to any of the foregoing.
(i) Undisclosed Liabilities. The Target does not have any Liability (and
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against it giving rise to any
Liability), except for (i) Liabilities set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (ii) Liabilities which have
arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
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(j) Legal Compliance. Each of the Target, and its respective predecessors
and Affiliates has complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof), and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
any of them alleging any failure so to comply.
(k) Tax Matters.
(i) Except as set forth in Section 4(k) of the Disclosure Schedule,
(A) all Tax Returns of, relating to or which include the Target which are
required to have been filed have been filed on a timely basis with the
appropriate authorities and all such Tax Returns are true, correct and
complete in all respects, (B) all Taxes required to have been paid by the
Target have been paid in full on a timely basis to the appropriate
authorities, and (C) all Taxes or other amounts required to have been
collected or withheld by the Target have been timely and properly
collected or withheld.
(ii) Except as set forth in Section 4(k) of the Disclosure Schedule,
(A) no Taxing authority has asserted in writing any adjustment,
deficiency, or assessment that could result in additional Taxes for which
the Target is or may be liable, (B) there is no pending audit,
examination, investigation, dispute, proceeding or claim for which the
Target has received notice relating to any Taxes for which the Target is
or may be liable, (C) no statute of limitations with respect to any Taxes
for which the Target is or may be liable has been waived or extended, (D)
the due date of any Tax Returns that the Target is required to file has
not been extended, and (E) the Target is not and has never been a party
to any Tax sharing or Tax allocation agreement, arrangement or
understanding.
(iii) There are no Security Interests on any of the assets of the
Target which arose in connection with any failure or asserted failure to
pay any Taxes, other than liens for current Taxes not yet due and payable.
(iv) The Target is not a party to any contract, agreement, plan or
arrangement that,individually or collectively, could give rise to any
payment that would be non-deductible by reason of Section 162, 280G or
404 of the Code. The Target has not made an election under Section
341(f) of the Code.
(v) The Target is not and has never been a member of an affiliated
group filing a consolidated federal income Tax Return or a consolidated,
combined or unitary state or local income Tax return.
(vi) Copies of (A) any Tax examinations, (B) extensions of statutory
limitations, (C) the federal, state and local income Tax Returns and
franchise Tax Returns of the
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Target, and (D) correspondence between the Target and all Taxing
authorities for its last three (3) taxable years have previously been
furnished to the Buyer.
(vii) The Target is and has been an S corporation as defined in
Section 1361(a) of the Code for all periods since January 1, 1990.
(l) Real Property.
(i) Section 4(l)(i) of the Disclosure Schedule lists and describes
briefly all real property that the Target owns. With respect to each such
parcel of owned real property:
(A) the Target has good and marketable fee simple title to
each parcel of real property, free and clear of any Security
Interest, easement, covenant, or other restriction, except for
installments of special assessments not yet delinquent and recorded
easements, covenants, and other restrictions which do not impair the
current use, occupancy, or value, or the marketability of title, of
the property as described in 4(1)(i) of the Disclosure Schedule;
(B) there are no pending or, to the Knowledge of any of the
Sellers and the directors and officers (and employees with
responsibility for real estate matters) of the Target, threatened
condemnation proceedings, lawsuits, or administrative actions
relating to the property or other matters affecting materially and
adversely the current use, occupancy, or value thereof;
(C) the legal description for the parcel contained in the deed
thereof describes such parcel fully and adequately, the buildings
and improvements are located within the boundary lines of the
described parcels of land, are not in violation of applicable
setback requirements, zoning laws, and ordinances (and none of the
properties or buildings or improvements thereon are subject to
"permitted non-conforming use" or "permitted non-conforming
structure" classifications), and do not encroach on any easement
which may burden the land, and the land does not serve any adjoining
property for any purpose inconsistent with the use of the land, and
the property is not located within any flood plain or subject to any
similar type restriction for which any permits or licenses necessary
to the use thereof have not been obtained;
(D) all facilities have received all approvals of governmental
authorities (including licenses and permits) required in connection
with the ownership or operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and
regulations;
(E) there are no leases, subleases, licenses, concessions, or
other agreements, written or oral, granting to any party or parties
the right of use or
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occupancy of any portion of the parcel of real property except as
disclosed in 4(1)(i) of the Disclosure Schedule;
(F) there are no outstanding options or rights of first
refusal to purchase the parcel of real property, or any portion
thereof or interest therein;
(G) there are no parties (other than the Target) in possession
of the parcel of real property, other than tenants under any leases
disclosed in Section 4(l)(i) of the Disclosure Schedule who are in
possession of space to which they are entitled;
(H) all facilities located on the parcel of real property are
supplied with utilities and other services necessary for the
operation of such facilities, including gas, electricity, water,
telephone, sanitary sewer, and storm sewer, all of which services
are adequate and in accordance with all applicable laws, ordinances,
rules, and regulations and are provided via public roads or via
permanent, irrevocable, appurtenant easements benefitting the parcel
of real property; and
(I) each parcel of real property abuts on and has direct
vehicular access to a public road, or has access to a public road
via a permanent, irrevocable, appurtenant easement benefitting the
parcel of real property, and access to the property is provided by
paved public right-of-way with adequate curb cuts available.
(ii) Section 4(l)(ii) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to the Target including the
term thereof and a description of any available renewal periods, rental
payment terms, owner of the property subject to such lease, the identity
of any of the primary lessors from whom the property may be sublet and a
description of each such arrangement, if any, and whether any consents are
required under such lease in connection with the transactions contemplated
by this Agreement. The Sellers have delivered to the Buyer correct and
complete copies of the leases and subleases listed in Section 4(l)(ii) of
the Disclosure Schedule (as amended to date). With respect to each lease
and sublease listed in Section 4(l)(ii) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated
hereby;
(C) no party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time or
both, would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
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(D) no party to the lease or sublease has repudiated any
provision thereof;
(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(F) with respect to each sublease, the representations and
warranties set forth in subsections (A) through (E) above are true
and correct with respect to the underlying lease;
(G) the Target has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(H) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including
licenses and permits) required in connection with the operation
thereof and have been operated and maintained in accordance with
applicable laws, rules, and regulations; and
(I) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of
said facilities.
(m) Intellectual Property.
(i) The Target owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary
for the operation of the businesses of the Target as presently conducted
and as presently proposed to be conducted. Each item of Intellectual
Property owned or used by the Target immediately prior to the Closing
hereunder will be owned or available for use by the Target on identical
terms and conditions immediately subsequent to the Closing hereunder. The
Target has taken all necessary action to maintain and protect each item of
Intellectual Property that it owns or uses.
(ii) To the Knowledge of any of the Sellers and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Target, the Target has not interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and none of the Sellers and
the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Target has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Target must license or refrain from using any Intellectual Property rights
of any third party). To the Knowledge of any of the Sellers and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Target, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Target.
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(iii) Section 4(m)(iii) of the Disclosure Schedule identifies each
patent or registration which has been issued to the Target with respect
to any of its Intellectual Property, identifies each pending patent
application or application for registration which the Target has made with
respect to any of its Intellectual Property, and identifies each license,
agreement, or other permission which the Target has granted to any third
party with respect to any of its Intellectual Property (together with any
exceptions). The Sellers have delivered to the Buyer correct and complete
copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date) and have made available
to the Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of
each such item. Section 4(m)(iii) of the Disclosure Schedule also
identifies each trade name or unregistered trademark used by the Target
in connection with its business. With respect to each item of Intellectual
Property required to be identified in Section 4(m)(iii) of the Disclosure
Schedule:
(A) the Target possess all right, title, and interest in and
to the item, free and clear of any Security Interest, license, or
other restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge
of any of the Sellers and the directors and officers (and employees
with responsibility for Intellectual Property matters) of the
Target, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) the Target has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(iv) Section 4(m)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that the
Target uses pursuant to license, sublicense, agreement, or permission. The
Sellers have delivered to the Buyer correct and complete copies of all
such licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Intellectual Property required to be
identified in Section 4(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force
and effect;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms
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following the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2
above);
(C) neither the Target nor, to the knowledge of any of the
Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Target, any
other Person which is a party to the license, sublicense, agreement,
or permission is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or
default or permit termination, modification, or acceleration
thereunder;
(D) neither the Target nor, to the knowledge of any of the
Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Target, any
other Person which is a party to the license, sublicense, agreement,
or permission has repudiated any provision thereof;
(E) to the knowledge of any of the Sellers and the directors
and officers (and employees with responsibility for Intellectual
Property matters) of the Target, with respect to each sublicense,
the representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
(F) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(G) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge
of any of the Sellers and the directors and officers (and employees
with responsibility for Intellectual Property matters) of the
Target, is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property; and
(H) the Target has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(v) To the Knowledge of any of the Sellers and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Target, the Target will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the continued operation of
its businesses as presently conducted and as presently proposed to be
conducted.
(n) Tangible Assets. The Target owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its business
as presently conducted and as presently proposed to be conducted. Each such
tangible asset is free from defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating
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condition and repair (subject to normal wear and tear), and is suitable for the
purposes for which it presently is used and presently is proposed to be used.
(o) Inventory. The inventory of the Target consists of raw materials and
supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory write down set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Target.
(p) Contracts. Section 4(p) of the Disclosure Schedule lists the following
contracts and other agreements to which the Target is a party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $10,000 per annum;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year,
result in a material loss to the Target, or involve consideration in
excess of $10,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money including Target Debt, or any capitalized lease obligation,
under which it has imposed a Security Interest on any of its assets,
tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Sellers and their Affiliates
(other than the Target);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
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(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
(x) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xi) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of the Target; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $25,000.
The Sellers have delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 4(p) of the Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and conditions
of each oral agreement referred to in Section 4(p) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the agreement
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) no party is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts receivable of
the Target are reflected properly on their books and records, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Target.
(r) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Target.
(s) Insurance. Section 4(s) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which the Target has been a
party, a named insured, or otherwise the beneficiary of coverage at any time
within the past 10 years:
(i) the name, address, and telephone number of the agent;
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(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) neither the Target nor any other party to the policy
is in breach or default (including with respect to the payment of premiums or
the giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (D) no
party to the policy has repudiated any provision thereof. The Target has been
covered during the past 10 years by insurance in scope and amount customary
and reasonable for the businesses in which it has engaged during the
aforementioned period. Section 4(s) of the Disclosure Schedule describes any
self-insurance arrangements affecting the Target.
(t) Litigation. Section 4(t) of the Disclosure Schedule sets forth each
instance in which the Target (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or, to the
Knowledge of any of the Sellers and the directors and officers (and employees
with responsibility for litigation matters) of the Target, is threatened to
be made a party to any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. None
of the actions, suits, proceedings, hearings, and investigations set forth in
Section 4(t) of the Disclosure Schedule could result in any material adverse
change in the business, financial condition, operations, results of
operations, or future prospects of the Target. None of the Sellers and the
directors and officers (and employees with responsibility for litigation
matters) of the Target has any reason to believe that any such action, suit,
proceeding, hearing, or investigation may be brought or threatened against
any of the Target.
(u) Product Warranty. Each product manufactured, sold, leased, or
delivered by the Target has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Target does not have
any Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) for replacement or repair thereof or
other damages in connection therewith, subject only to the reserve for product
warranty claims set forth
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on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Target. No product
manufactured, sold, leased, or delivered by the Target is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms
and conditions of sale or lease. Section 4(u) of the Disclosure Schedule
includes copies of the standard terms and conditions of sale or lease for the
Target (containing applicable guaranty, warranty, and indemnity provisions).
(v) Product Liability. The Target does not have any Liability (and there
is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) arising out of any injury to individuals or property as a
result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by the Target.
(w) Employees. To the Knowledge of any of the Sellers and the directors
and officers (and employees with responsibility for employment matters) of the
Target, no executive, key employee, or group of employees has any plans to
terminate employment with the Target. The Target is not a party to or bound by
any collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. The Target has not committed any unfair labor practice. None of the
Sellers and the directors and officers (and employees with responsibility for
employment matters) of the Target has any Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of the Target.
(x) Employee Benefits.
(i) Section 4(x) of the Disclosure Schedule lists each Employee
Benefit Plan that the Target maintains or to which the Target contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in
all respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part
6 of Subtitle B of Title I of ERISA and of Code Section 4980B have
been met with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all employer contributions
and employee salary reduction contributions) which are due have been
paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all
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contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and
practice of the Target. All premiums or other payments for all
periods ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code Section 401(a) and has received, within the last two
years, a favorable determination letter from the Internal Revenue
Service.
(E) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than
any Multiemployer Plan) equals or exceeds the present value of all
vested and nonvested Liabilities thereunder determined in accordance
with PBGC methods, factors, and assumptions applicable to an
Employee Pension Benefit Plan terminating on the date for
determination.
(F) The Sellers have delivered to the Buyer correct and
complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts, and other funding
agreements which implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Target
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely
or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been instituted
or, to the Knowledge of any of the Sellers and the directors and
officers (and employees with responsibility for employee benefits
matters) of the Target, threatened.
(B) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of
any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or the
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investment of the assets of any such Employee Benefit Plan (other
than routine claims for benefits) is pending or, to the Knowledge of
any of the Sellers and the directors and officers (and employees
with responsibility for employee benefits matters) of the Target,
threatened. None of the Sellers and the directors and officers (and
employees with responsibility for employee benefits matters) of the
Target has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
(C) The Target has not incurred, and none of the Sellers and
the directors and officers (and employees with responsibility for
employee benefits matters) of the Target has any reason to expect
that the Target will incur, any Liability to the PBGC (other than
PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code with respect
to any such Employee Benefit Plan which is an Employee Pension
Benefit Plan.
(iii) The Target does not contribute to, never has contributed to,
and never has been required to contribute to any Multiemployer Plan or has
any Liability (including withdrawal Liability) under any Multiemployer
Plan.
(iv) The Target does not maintain and never has maintained and does
not contribute, never has contributed, and never has been required to
contribute to any Employee Welfare Benefit Plan providing medical, health,
or life insurance or other welfare-type benefits for current or future
retired or terminated employees, their spouses, or their dependents (other
than in accordance with Code Section 4980B).
(y) Guaranties. The Target is not a guarantor or otherwise liable for any
Liability or obligation (including indebtedness) of any other Person.
(z) Environmental, Health, and Safety Matters.
(i) Each of the Target and its predecessors and Affiliates has
complied and is in compliance with all Environmental, Health, and Safety
Requirements.
(ii) Without limiting the generality of the foregoing, each of the
Target and its Affiliates has obtained and complied with, and is in
compliance with, all permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for
the occupation of its facilities and the operation of its business and a
list of all such permits, licenses and other authorizations is set forth
on the attached "Environmental and Safety Permits Schedule."
(iii) Neither the Target nor its predecessors or Affiliates has
received any written or oral notice, report or other information regarding
any actual or alleged violation of Environmental, Health, and Safety
Requirements, or any liabilities or potential liabilities
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(whether accrued, absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective obligations, relating
to any of them or its facilities arising under Environmental, Health, and
Safety Requirements.
(iv) None of the following exists at any property or facility owned
or operated by the Target: (1) underground storage tanks, (2)
asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
(v) None of the Target or its predecessors or Affiliates has
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action costs,
personal injury, property damage, natural resources damages or attorney
fees, pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), the Solid Waste Disposal
Act, as amended ("SWDA") or any other Environmental, Health, and Safety
Requirements.
(vi) Neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for
site investigation or cleanup, or notification to or consent of government
agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health, and Safety Requirements.
(vii) Neither the Target nor any of its predecessors or Affiliates
has, either expressly or by operation of law, assumed or undertaken any
liability, including without limitation any obligation for corrective or
remedial action, of any other Person relating to Environmental, Health,
and Safety Requirements.
(viii) No facts, events or conditions relating to the past or
present facilities, properties or operations of the Target or any of its
predecessors or Affiliates will prevent, hinder or limit continued
compliance with Environmental, Health, and Safety Requirements, give rise
to any investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements, or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental, Health, and Safety Requirements,
including without limitation any relating to onsite or offsite releases or
threatened releases of hazardous materials, substances or wastes, personal
injury, property damage or natural resources damage.
(aa) Certain Business Relationships with the Target. None of the Sellers
and their Affiliates has been involved in any business arrangement or
relationship with the Target within
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the past 12 months, and none of the Sellers and their Affiliates owns any asset,
tangible or intangible, which is used in the business of any of the Target and
its Subsidiaries.
(bb) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Section 7 below).
(b) Notices and Consents. The Sellers will cause the Target to give any
notices to third parties, and will cause the Target to use its reasonable best
efforts to obtain any third party consents, that the Buyer reasonably may
request in connection with the matters referred to in Section 4(c) above. Each
of the Parties will (and the Sellers will cause the Target to) give any notices
to, make any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 3(a)(ii),
Section 3(b)(ii), and Section 4(c) above.
(c) Operation of Business. The Sellers will not cause or permit the Target
to engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business. Without limiting the generality of the
foregoing, the Sellers will not cause or permit the Target to (i) declare, set
aside, or pay any dividend or make any distribution with respect to its capital
stock or redeem, purchase, or otherwise acquire any of its capital stock or (ii)
otherwise engage in any practice, take any action, or enter into any transaction
of the sort described in Section 4(h) above.
(d) Preservation of Business. The Sellers will cause the Target to keep
its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
(e) Full Access. Each of the Sellers will permit, and the Sellers will
cause the Target to permit, representatives of the Buyer to have full access at
all reasonable times, and in a manner so as not to interfere with the normal
business operations of the Target, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Target.
(f) Notice of Developments. The Sellers will give prompt written notice to
the Buyer of any material adverse development causing a breach of any of the
representations and warranties
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in Section 4 above. Each Party will give prompt written notice to the others of
any material adverse development causing a breach of any of his or her own
representations and warranties in Section 3 above. No disclosure by any Party
pursuant to this Section 5(f), however, shall be deemed to amend or supplement
Annex I, Annex II, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) Exclusivity. None of the Sellers will (and the Sellers will not cause
or permit the Target to) (i) solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any substantial portion of the assets, of
the Target (including any acquisition structured as a merger, consolidation, or
share exchange) or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. None of the Sellers will vote their Target Shares in favor
of any such acquisition structured as a merger, consolidation, or share
exchange. The Sellers will notify the Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) Title Insurance. The Sellers, at their expense, will cause the Target
to obtain, in preparation for the Closing and with respect to each parcel of
real estate that the Target owns, an ALTA Owner's Policy of Title Insurance Form
B-1987 (or equivalent policy reasonably acceptable to the Buyer if the real
property is located in a state in which an ALTA Owner's Policy of Title
Insurance Form B-1987 is not available) issued by a title insurer reasonably
satisfactory to the Buyer, in such amount as the Buyer reasonably may determine
to be the fair market value of such real property (including all improvements
located thereon), insuring title to such real property to be in the Target in
fee simple absolute as of the Closing (subject only to the title exceptions
described above in Section 4(l)(i) and in Section 4(l)(i) of the Disclosure
Schedule) and containing such endorsements as are reasonably requested by Buyer.
(i) Surveys. With respect to each parcel of real property that the
Target owns and as to which a title insurance policy is to be procured
pursuant to Section 5(h) above, the Sellers, at their expense, will cause the
Target to procure in preparation for the Closing a current survey of the real
property certified to the Buyer, prepared by a licensed surveyor and
conforming to current ALTA Minimum Detail Requirements for Land Title
Surveys, disclosing the location of all improvements, easements, party walls,
sidewalks, roadways, utility lines, and other matters shown customarily on
such surveys, and showing access affirmatively to public streets and roads
(the "Survey"). The Survey shall not disclose any survey defect or
encroachment from or onto the real property which has not been cured or
insured over prior to the Closing.
(j) Seller Taxes. Prior to the Closing Date, the Sellers shall cause the
Target to declare cash distributions (the "Tax Distributions") payable to the
Sellers, in an amount sufficient to pay the Taxes of Sellers attributable to the
estimated income of the Company for fiscal 1996 and for the portion of 1997
ending at the close of the Closing Date (other than income that is attributable
to the Section 338(h)(10) Election as defined below). The Tax Distributions
shall be calculated
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assuming a Tax rate of 42.6% and shall be reduced by any prior distributions to
Sellers in 1996 in respect of 1996 Taxes. If the actual income of the Company
for fiscal 1996 and the portion of 1997 ending on the Closing Date (other than
income that is attributable to the Section 338(h)(10) Election as defined below)
differs from the estimated income for such periods, the Buyer and Sellers shall
make such payments to one another as shall be necessary to ensure that the
Sellers have received pursuant to this Section 5(j) a net amount equal to the
Tax Distributions that would have been payable based on the actual income for
such periods. Such additional amounts shall to be paid to the Buyer or Sellers
respectively by wire transfer or delivery of other immediately available funds
within five (5) days after such actual income is finally determined.
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
(a) General. In case at any time after the Closing any further action
is necessary to carry out the purposes of this Agreement, each of the Parties
will take such further action (including the execution and delivery of such
further instruments and documents) as any other Party reasonably may request,
all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8
below). The Sellers acknowledge and agree that from and after the Closing the
Buyer will be entitled to possession of all documents, books, records
(including Tax records), agreements, and financial data of any sort relating
to the Target.
(b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Target, each of the other Parties will cooperate with him or it
and his or her counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Section 8 below).
(c) Transition. None of the Sellers will take any action that is designed
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Target from maintaining the same
business relationships with the Target after the Closing as it maintained with
the Target prior to the Closing. Each of the Sellers will refer all customer
inquiries relating to the business of the Target to the Buyer from and after the
Closing.
(d) Confidentiality. Each of the Sellers will treat and hold as such all
of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the Buyer or destroy, at the request and option of the Buyer, all tangible
embodiments (and all copies) of the Confidential Information
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which are in his or her possession. In the event that any of the Sellers is
requested or required (by oral question or request for information or documents
in any legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, that Seller will
notify the Buyer promptly of the request or requirement so that the Buyer may
seek an appropriate protective order or waive compliance with the provisions of
this Section 6(d). If, in the absence of a protective order or the receipt of a
waiver hereunder, any of the Sellers is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, that Seller may disclose the Confidential Information to the tribunal;
provided, however, that the disclosing Seller shall use his or her reasonable
best efforts to obtain, at the reasonable request of the Buyer, an order or
other assurance that confidential treatment will be accorded to such portion of
the Confidential Information required to be disclosed as the Buyer shall
designate. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior to the
time of disclosure.
(e) Buyer Stock. Each certificate of the Buyer Stock will be imprinted
with a legend substantially in the following form:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or under the securities laws of
any state, and may not be sold, or otherwise transferred, in the absence
of such registration or an exemption therefrom under such Act and under
any such applicable state laws."
Each holder desiring to transfer any share of the Buyer Stock must furnish the
Buyer with (i) an opinion of counsel addressed to the Buyer, in form and
substance reasonably acceptable to the Buyer, to the effect that the proposed
transfer may be effected without registration under the Securities Act and (ii)
the written agreement of the proposed transferee to be bound by transfer
restrictions of this Agreement. Each certificate representing Buyer Stock issued
upon or in connection with such transfer shall bear the restrictive legend set
forth above, in each case unless the opinion delivered pursuant to this section
shall state that such restrictions are no longer required in order to assure
compliance with the Securities Act. Whenever any of such restrictions shall
terminate as to any share of Buyer Stock, the holder thereof shall be entitled
to have a new certificate issued with the legends removed and the restrictions
on transfer in this section shall no longer apply.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3(a)
and Section 4 above shall be true and correct in all material respects
at and as of the Closing Date;
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(ii) the Sellers shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing;
(iii) the Target shall have procured all of the third party consents
specified in Section 5(b) above, all of the title insurance commitments
and policies specified in Section 5(h) above, and all of the surveys
specified in Section 5(i) above;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Buyer to own the
Target Shares and to control the Target, or (D) affect adversely the
right of the Target to own its assets and to operate its businesses
(and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(v) the Sellers shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in
Section 7(a)(i)-(iv) is satisfied in all respects and stating by lender
the amount of Target Debt as of the Closing Date;
(vi) the Parties and the Target shall have received all
authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii), Section 3(b)(ii),
and Section 4(c) above;
(vii) the relevant parties shall have entered into the Escrow
Agreement in form and substance as set forth in Exhibit A attached hereto,
the Employment Agreement in form and substance as set forth in Exhibit C
attached hereto, and the Registration Rights Agreement in form and
substance as set forth in Exhibit D attached hereto, and the same shall be
in full force and effect;
(viii) the Buyer shall have received from counsel to the Sellers an
opinion in form and substance as set forth in Exhibit E attached hereto,
addressed to the Buyer, and dated as of the Closing Date;
(ix) the Buyer shall have received the resignations, effective as of
the Closing, of each director and officer of the Target other than those
whom the Buyer shall have specified in writing at least five business days
prior to the Closing; and
(x) all actions to be taken by the Sellers in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer.
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(xi) the Target shall have terminated or waived all of its rights
under each of the Incentive Compensation and Restrictions on Transfer of
Stock Agreements entered into with each of the Sellers.
The Buyer may waive any condition specified in this Section 7(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Sellers. The obligation of the Sellers
to consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3(b)
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and
no such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) the Buyer shall have delivered to the Sellers a certificate to
the effect that each of the conditions specified above in
Section 7(b)(i)-(iii) is satisfied in all respects;
(v) the Parties and the Target shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(a)(ii), Section 3(b)(ii), and
Section 4(c) above;
(vi) the relevant parties shall have entered into the Escrow
Agreement in form and substance as set forth in Exhibit A attached hereto,
the Employment Agreement in form and substance as set forth in Exhibit C
attached hereto, and the Registration Rights Agreement in form and
substance as set forth in Exhibit D attached hereto and the same shall be
in full force and effect;
(vii) the Sellers shall have received from counsel to the Buyer an
opinion in form and substance as set forth in Exhibit F attached hereto,
addressed to the Sellers, and dated as of the Closing Date; and
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(viii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Requisite Sellers.
(ix) William H. Franklin, Jr. and Gloria J. Franklin shall have been
released from any and all personal guarantees executed by them and
relating to any Target Debt which will remain outstanding after the
Closing Date.
(x) the Buyer shall have granted to William H. Franklin, III a stock
option to purchase fifteen thousand (15,000) shares of its Common Stock
(the "Stock Option"), such Stock Option to vest at a rate of twenty
percent (20%) per year beginning on the first anniversary of the date of
this Agreement.
The Requisite Sellers may waive any condition specified in this Section 7(b)
if they execute a writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Sellers contained in Section 4(a)-(j)
and Section 4(l)-(bb) above shall survive the Closing hereunder (even if the
Buyer knew or had reason to know of any misrepresentation or breach of
warranty at the time of Closing) and continue in full force and effect for a
period of three years thereafter. All of the other representations and
warranties of the Parties contained in this Agreement (including the
representations and warranties of the Sellers contained in Section 4(k) above)
shall survive the Closing (even if the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty at the time of Closing)
and continue in full force and effect forever thereafter (subject to any
applicable statutes of limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
(i) Except for the covenants in Section 2(a) above or Section 9
below, and the representations and warranties in Section 3(a) above, in
the event any of the Sellers breaches any of their representations,
warranties, and covenants contained herein, and, if there is an
applicable survival period pursuant to Section8(a) above, provided that
the Buyer makes a written claim for indemnification against any of the
Sellers pursuant to Section 11(h) below within such survival period, then
each of the Sellers agrees to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature of, or
caused by the breach; provided, however, that the Sellers shall not have
any obligation to indemnify the Buyer from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature
of, or caused by the breach of any
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representation or warranty of the Sellers contained in Section 4(a)-(j)
and Section 4(l)-(bb) above until the Buyer has suffered Adverse
Consequences by reason of all such breaches (or alleged breaches) in
excess of a $100,000 aggregate threshold (at which point the Sellers will
be obligated to indemnify the Buyer from and against all such Adverse
Consequences relating back to the first dollar). Notwithstanding the
above, in no event shall the liability of any Seller for indemnification
under this Section 8(b)(ii) exceed in the aggregate the product of the
entirety of the Adverse Consequences subject to indemnification under this
Section 8(b)(ii) multiplied by a fraction, the numerator of which is the
number of Target Shares sold by such Seller hereunder and the denominator
of which is the total number of Target Shares sold hereunder.
(ii) In the event any of the Sellers breaches any of his or her
covenants in Section 2(a) above or Section 9 below, or any of his or her
representations and warranties in Section 3(a) above, and, if there is an
applicable survival period pursuant to Section 8(a) above, provided that
the Buyer makes a written claim for indemnification against the Seller
pursuant to Section 11(h) below within such survival period, then the
Seller agrees to indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences the
Buyer may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused
by the breach.
(c) Indemnification Provisions for Benefit of the Sellers. In the event
the Buyer breaches any of its representations, warranties, and covenants
contained herein, and, if there is an applicable survival period pursuant to
Section 8(a) above, provided that any of the Sellers makes a written claim for
indemnification against the Buyer pursuant to Section 11(h) below within such
survival period, then the Buyer agrees to indemnify each of the Sellers from and
against the entirety of any Adverse Consequences the Seller may suffer through
and after the date of the claim for indemnification resulting from, arising out
of, relating to, in the nature of, or caused by the breach.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may
give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party
from any obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in
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writing within 15 days after the Indemnified Party has given notice of the
Third Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim, (B)
the Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying Party
will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice
adverse to the continuing business interests of the Indemnified Party, and
(E) the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 8(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 8(d)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (C) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Section 8.
(e) Determination of Adverse Consequences. The Parties shall make
appropriate adjustments for insurance coverage and take into account the time
cost of money (using the Applicable Rate as the discount rate) in determining
Adverse Consequences for purposes of this Section 8. All indemnification
payments under this Section 8 shall be deemed adjustments to the Purchase
Price.
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(f) Recoupment Under Earnout Payments. The Buyer shall have the option of
recouping all or any part of any Adverse Consequences it may suffer (in lieu of
seeking any indemnification to which it is entitled under this Section 8) by
notifying each Seller that the Buyer is reducing the amounts owed to each Seller
pursuant to Section 2(d) hereof.
(g) Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy (including without limitation any such remedy
arising under Environmental, Health, and Safety Requirements) any Party may have
with respect to the Target or the transactions contemplated by this Agreement.
Each of the Sellers hereby agrees that he or it will not make any claim for
indemnification against the Target by reason of the fact that he or it was a
director, officer, employee, or agent of any such entity or was serving at the
request of any such entity as a partner, trustee, director, officer, employee,
or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim, or demand brought by the Buyer against such Seller (whether
such action, suit, proceeding, complaint, claim, or demand is pursuant to this
Agreement, applicable law, or otherwise).
9. Tax Matters. The following provisions shall govern the allocation of
responsibility as between Buyer and Sellers for certain tax matters following
the Closing Date:
(a) Section 338(h)(10) Election. Each of Sellers agree to join with Buyer
in making an election under Section 338(h)(10) of the Code (and any
corresponding elections under state, local, or foreign tax law) (collectively, a
"Section 338(h)(10) Election") with respect to the purchase and sale of the
stock of the Target hereunder. Buyer will pay any Tax imposed on Target for any
period ending on or before the Closing Date, including any liability of Target
for Tax resulting from the application to it of Section 1374 of the Code, and
will indemnify the Sellers and the Target against any Adverse Consequences
arising out of any failure to pay such Tax; provided, however, that in no event
shall Buyer be responsible for any Taxes attributable to the Target's failure to
qualify as an S corporation for any taxable year ending after December 31, 1990
and on or before the Closing Date (other than a failure caused by the
transactions contemplated by this Agreement). Buyer further agrees to reimburse
Sellers for the excess, if any, of (x) the Taxes actually imposed on the Sellers
as a result of the sale of the Target Shares over (y) the Taxes that would have
been imposed on the Sellers as a result of the sale of the Target Shares if no
Section 338(h)(10) Election had been made.
(b) Tax Periods Ending on or Before the Closing Date. Buyer shall prepare
or cause to be prepared and file or cause to be filed all Tax Returns for the
Target for all periods ending on or prior to the Closing Date which are filed
after the Closing Date. Buyer shall permit Target to review and comment on each
such Tax Return described in the preceding sentence prior to filing.
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(c) Cooperation on Tax Matters. Buyer, the Target and Sellers shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder.
(d) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and interest
and including, without limitation, any Taxes applicable to the transfer of the
real property) incurred in connection with this Agreement, shall be paid by
Sellers when due, and Sellers will, at their own expense, file all necessary Tax
Returns and other documentation with respect to all such transfer, documentary,
sales, use, stamp, registration and other Taxes and fees, and, if required by
applicable law, Buyer will, and will cause its affiliates to, join in the
execution of any such Tax Returns and other documentation.
10. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Requisite Sellers may terminate this Agreement
by mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written notice
to the Requisite Sellers on or before the 30th day following the date of
this Agreement if the Buyer is not reasonably satisfied with the results
of its continuing business, legal, environmental, and accounting due
diligence regarding the Target; provided, however, upon termination of
this Agreement pursuant to this subparagraph (ii), Buyer shall pay to the
Target Twenty-Five Thousand Dollars ($25,000) within thirty (30) days of
such termination, payable by wire transfer or other immediately available
funds;
(iii) the Buyer may terminate this Agreement by giving written
notice to the Requisite Sellers at any time prior to the Closing (A) in
the event any of the Sellers has breached any material representation,
warranty, or covenant contained in this Agreement, the Buyer has notified
the Requisite Sellers of the breach, and the breach has continued without
cure for a period of 30 days after the notice of breach or (B) if the
Closing shall not have occurred on or before January 31, 1997, by reason
of the failure of any condition precedent under Section 7(a) hereof
(unless the failure results primarily from the Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement); and
(iv) the Requisite Sellers may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing (A) in the
event the Buyer has breached any
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<PAGE>
material representation, warranty, or covenant contained in this
Agreement, any of the Sellers has notified the Buyer of the breach, and
the breach has continued without cure for a period of 30 days after the
notice of breach or (B) if the Closing shall not have occurred on or
before January 31, 1997, by reason of the failure of any condition
precedent under Section 7(b) hereof (unless the failure results primarily
from any of the Sellers themselves breaching any representation, warranty,
or covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 10(a) above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other
Party (except for any Liability of any Party then in breach).
11. Miscellaneous.
(a) Nature of Certain Obligations.
(i) The covenants of each of the Sellers in Section 2(a) above
concerning the sale of his or her Target Shares to the Buyer and the
representations and warranties of each of the Sellers in Section 3(a)
above concerning the transaction are several obligations. This means
that the particular Seller making the representation, warranty, or
covenant will be solely responsible to the extent provided in Section 8
above for any Adverse Consequences the Buyer may suffer as a result of
any breach thereof.
(ii) The remainder of the representations, warranties, and covenants
in this Agreement are joint and several obligations. This means that each
Seller will be responsible to the extent provided in Section 8 above for
the entirety of any Adverse Consequences the Buyer may suffer as a result
of any breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the Buyer and the Requisite
Sellers; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other
Parties prior to making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
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<PAGE>
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Requisite Sellers; provided, however, that the
Buyer may (i) assign any or all of its rights and interests hereunder to one or
more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given upon personal
delivery or five (5) business days after delivery with the United States Post
Office, if by registered or certified mail, return receipt requested, postage
prepaid, and addressed to the intended recipient as set forth below:
If to the Sellers: Copy to:
Mr. William Franklin, Jr. Stephen C. Myers, Esq.
B&B Electronics Manufacturing Company Myers, Daugherty, Berry
707 Dayton Road, P.O. Box 1040 & O'Conor
Ottawa, IL 61350 7 Northpoint Drive
Streator, IL 61364
If to the Buyer: Copy to:
Mr. Ralph R. Papitto Douglas N. Ellis, Esq.
AFC Cable Systems, Inc. Ropes & Gray
50 Kennedy Plaza, Suite 1250 One International Place
Providence, RI 02903-2360 Boston, MA 02110
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including expedited courier, messenger service, telecopy, telex,
ordinary mail, or electronic mail), but no such notice, request, demand, claim,
or other communication shall be deemed to have been duly given unless and until
it actually is received by the intended recipient. Any Party may change the
address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Parties notice in the manner
herein set forth.
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<PAGE>
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of The Commonwealth of Massachusetts without
giving effect to any choice or conflict of law provision or rule (whether of The
Commonwealth of Massachusetts or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than The Commonwealth of
Massachusetts.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Requisite Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties and the Target will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Sellers agree
that the Target has not borne and will not bear any of the Sellers' costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
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<PAGE>
(o) Specific Performance. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in
any action instituted in any court of the United States or any state thereof
having jurisdiction over the Parties and the matter (subject to the
provisions set forth in Section 10(p) below), in addition to any other remedy
to which they may be entitled, at law or in equity.
(p) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Boston, Massachusetts,
in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard
and determined in any such court. Each Party also agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any
other court. Each of the Parties waives any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waives any bond,
surety, or other security that might be required of any other Party with
respect thereto. Any Party may make service on any other Party by sending or
delivering a copy of the process (i) to the Party to be served at the address
and in the manner provided for the giving of notices in Section 10(h) above.
Nothing in this Section 10(p), however, shall affect the right of any Party to
serve legal process in any other manner permitted by law or at equity. Each
Party agrees that a final judgment in any action or proceeding so brought
shall be conclusive and may be enforced by suit on the judgment or in any
other manner provided by law or at equity.
*****
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
BUYER AFC CABLE SYSTEMS, INC.
/s/ Raymond H. Keller
----------------------------
By: Raymond H. Keller
Title:
/s/ William H. Franklin, Jr.
SELLERS ----------------------------
William H. Franklin, Jr.
/s/ Gloria J. Franklin
----------------------------
Gloria J. Franklin
/s/ William H. Franklin, III
----------------------------
William H. Franklin, III
/s/ David D. Ross
----------------------------
David D. Ross
/s/ Paul A. Boeing
----------------------------
Paul A. Boeing
/s/ Thomas J. Hinkey
----------------------------
Thomas J. Hinkey
/s/ J. Richard Wheeler
----------------------------
J. Richard Wheeler
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<PAGE>
Annex II
to
Stock Purchase Agreement
3(b)(ii) Buyer must obtain consent of the NASDAQ Stock Market for the listing of
the additional 75,000 shares to be issued in connection with the Stock
Purchase Agreement.
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<PAGE>
EXHIBIT 10.27
ASSET PURCHASE AGREEMENT
by and among
AFC CABLE SYSTEMS, INC.
AFC ACQUISITION, INC.
AREA LIGHTING RESEARCH, INC.
DANIEL M. DICARLO JR.,
GILMAN J. HALLENBECK, AND
GEORGE DUVE
Dated January 31, 1997
<PAGE>
TABLE OF CONTENTS
1. PURCHASE AND SALE OF ASSETS ........................................ -1-
1.1 Description of Assets ......................................... -1-
1.2 Excluded Assets ............................................... -2-
1.3 Assumption of Certain Liabilities ............................. -3-
1.4 Liabilities Not Assumed ....................................... -3-
1.5 Purchase Price ................................................ -4-
1.6 Allocation of the Purchase Price .............................. -4-
1.7 Purchase Price Adjustment ..................................... -5-
2. CLOSING ............................................................ -6-
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE
STOCKHOLDERS ....................................................... -6-
3.1 Due Organization .............................................. -6-
3.2 Authorization ................................................. -6-
3.3 No Conflicts; Approvals ....................................... -7-
3.4 Financial Statements .......................................... -7-
3.5 Undisclosed Liabilities and Obligations ....................... -8-
3.6 Accounts Receivable ........................................... -8-
3.7 Inventory ..................................................... -8-
3.8 Customers and Sales ........................................... -8-
3.9 Permits; Intellectual Property ................................ -9-
3.10 Real and Personal Property; Leases ............................ -9-
3.11 Title, Sufficiency of Assets .................................. -10-
3.12 Contracts ..................................................... -10-
3.13 Labor Matters ................................................. -11-
3.14 Insurance ..................................................... -11-
3.15 Employees ..................................................... -11-
3.16 Employee Benefit Plans ........................................ -11-
3.17 Qualified Plans ............................................... -12-
3.18 Litigation .................................................... -12-
3.19 Conformity with Law ........................................... -13-
3.20 Taxes ......................................................... -13-
3.21 Absence of Changes ............................................ -14-
3.22 Environmental Matters ......................................... -15-
3.23 Certain Transactions .......................................... -16-
3.24 Brokers and Finders ........................................... -16-
3.25 Completeness .................................................. -16-
3.26 Disclosure .................................................... -16-
4. REPRESENTATIONS OF AFC AND THE BUYER ............................... -16-
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4.1 Due Organization .............................................. -16-
4.2 Authorization ................................................ -17-
4.3 No Conflicts; Approvals ...................................... -17-
4.4 The Shares ................................................... -17-
4.5 Brokers and Finders .......................................... -17-
5. COVENANTS ......................................................... -18-
5.1 Access and Cooperation ....................................... -18-
5.2 Conduct of Business Pending Closing .......................... -18-
5.3 Prohibited Activities ........................................ -18-
5.4 No Shop ...................................................... -19-
5.5 Key Employees ................................................ -19-
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER ................. -19-
6.1 Representations and Warranties; Performance of Obligations ... -19-
6.2 Proceedings Satisfactory ..................................... -20-
6.3 No Litigation ................................................ -20-
6.4 Lease ........................................................ -20-
6.5 Escrow Agreement ............................................. -20-
6.6 Employment and Consulting Agreements ......................... -20-
6.7 Opinion of Counsel ........................................... -20-
6.8 Registration Rights Agreement ................................ -20-
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF AFC ........................ -20-
7.1 Representations and Warranties; Performance of Obligations ... -20-
7.2 Proceedings Satisfactory ..................................... -21-
7.3 No Litigation ................................................ -21-
7.4 No Material Adverse Change ................................... -21-
7.5 The Lease .................................................... -21-
7.6 Escrow Agreement ............................................. -21-
7.7 Employment Agreement ......................................... -21-
7.8 Release of Liens ............................................. -21-
7.9 Consents ..................................................... -21-
7.10 Key Employees ................................................ -21-
7.11 Purchase of Leased Equipment ................................. -21-
7.12 Opinion of Counsel ........................................... -22-
7.13 COMPLETE REMAINDER OF SECTION
8. COVENANTS AFTER THE CLOSING ....................................... -22-
8.1 Change of Name ............................................... -22-
8.2 Further Assurances ........................................... -22-
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8.3 Books and Records ............................................ -22-
9. INDEMNIFICATION ................................................... -22-
9.1 Survival of Representations and Warranties ................... -22-
9.2 General Indemnification by the Seller and the Stockholders ... -23-
9.3 Indemnification by AFC and the Buyer ......................... -24-
9.4 Limitation on Liability ...................................... -25-
9.5 Third Person Claims .......................................... -25-
9.6 Method of Payment ............................................ -25-
10. TERMINATION OF AGREEMENT .......................................... -25-
10.1 Termination .................................................. -25-
10.2 Liabilities in Event of Termination .......................... -26-
11. NONCOMPETITION .................................................... -26-
11.1 Prohibited Activities ........................................ -26-
11.2 Reasonable Restraint ......................................... -27-
11.3 Severability; Reformation .................................... -27-
11.4 Remedies ..................................................... -27-
11.5 Independent Covenant ......................................... -28-
12. FEDERAL SECURITIES ACT AND RESTRICTIONS ON THE SHARES ............. -28-
12.1 Shares Not Registered ........................................ -28-
12.2 Investment Representation, etc. .............................. -28-
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION ......................... -29-
13.1 The Seller and the Stockholders .............................. -29-
13.2 AFC and the Buyer ............................................ -29-
13.3 Remedies ..................................................... -29-
14. GENERAL ........................................................... -29-
14.1 Bulk Sales Laws .............................................. -29-
14.2 Effect of Investigation; Best Knowledge ...................... -30-
14.3 Successors and Assigns ....................................... -30-
14.4 Entire Agreement ............................................. -30-
14.5 Amendment .................................................... -30-
14.6 Counterparts ................................................. -30-
14.7 Expenses ..................................................... -30-
14.8 Notices ...................................................... -30-
14.9 Governing Law ................................................ -31-
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14.10 No Waiver .................................................. -31-
14.11 No Third-party Beneficiaries ............................... -32-
14.12 Severability ............................................... -32-
14.13 Attorneys' Fees and Costs .................................. -32-
iv
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made effective as of
January 31, 1997 among AFC Cable Systems, Inc., a Delaware corporation
("AFC"), AFC Acquisition, Inc., a Delaware corporation and a wholly-owned
subsidiary of AFC (the "Buyer"), Area Lighting Research, Inc., a New Jersey
corporation (the "Seller"), and Daniel M. DiCarlo Jr. (individually,
"DiCarlo"), Gilman J. Hallenbeck (individually, "Hallenbeck") and George Duve
(individually, "Duve"), the owners of all of the outstanding shares of
capital stock of the Seller (collectively, the "Stockholders" and
individually, a "Stockholder"). Unless the text clearly indicates to the
contrary, all capitalized terms used herein shall have the meanings assigned
such terms in this Agreement, as further described on Annex 1, or in Annex 1.
WHEREAS, the Seller desires to sell to the Buyer, and the Buyer desires
to purchase from the Seller, upon the terms and conditions set forth herein,
substantially all of the assets of the Seller including, without limitation,
those assets that relate to the Seller's photocontrols business (the
"Business").
NOW, THEREFORE, in consideration of the respective covenants and
representations and warranties contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which re hereby
acknowledged, the parties hereto hereby agree, and, with respect to the
obligations of the Buyer, AFC and the Buyer hereby jointly and severally
agree, as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 Description of Assets. The Seller agrees to sell and transfer to
the Buyer, and the Buyer agrees to purchase from the Seller, at the Closing,
subject to and upon the terms and conditions contained herein, free and clear
of any pledge, lien, option, security interest, mortgage, claim, charge or
other encumbrance of any kind whatsoever, all of its assets (other than the
Excluded Assets), including without limitation the following properties and
assets of the Seller (collectively, the "Assets"):
(a) all assets of the Seller reflected on the balance sheet of the
Seller (the "Balance Sheet") dated as of December 31, 1996 (the "Balance
Sheet Date") and all assets of the Seller of the same nature as those
reflected on the Balance Sheet that have been acquired in the ordinary
course of business since the Balance Sheet Date (other than the Excluded
Assets and other than assets reflected on the Balance Sheet that have been
disposed of in the ordinary course of business since the Balance Sheet
Date) (collectively, the "Balance Sheet Assets"), including without
limitation:
(i) all inventory and supplies of the Seller;
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(ii) all cash, cash equivalents, bank accounts, investments,
and other similar assets ("Cash") and all accounts receivable, notes
receivable, loans receivable, prepaid expenses, security and other deposits,
and other current assets of the Seller;
(iii) all furniture, fixtures and leasehold improvements of the
Seller; and
(iv) all equipment, machinery, tools, personal property and other
physical assets of the Seller of any nature or kind (including
without limitation all spare parts);
(b) all rights of the Seller with respect to leasehold interests
relating to the real and personal property used in the Business as listed
on Schedule 1.1(b) (the "Leases");
(c) all rights of the Seller under all licenses, approvals, consents
and franchises and, to the extent transferable, permits and authorizations,
used or useful in connection with the operation of the Business or any
pending applications relating to any of the foregoing;
(d) all patents, patent rights, inventions, processes, designs and
applications for patents used or useful in connection with the Business,
and all trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, trade names, registered
designs and unregistered design rights used or useful in the operation of
the Business;
(e) all trade secrets, processes, know-how, procedures, formulae and
confidential information used or useful in the operation of the Business;
(f) all rights of the Seller under any licenses for Intellectual
Property used or useful in the operation of the Business;
(g) all customer, supplier and mailing lists relating to the
Business;
(h) all rights of the Seller under any contracts or agreements
relating to the Business as listed on Schedule 1.1(h), including without
limitation, to the extent transferable, all insurance policies carried by
the Seller with regard to the Business (the "Contracts");
(i) all equipment repair, maintenance or service records relating to
the Assets or necessary or material to the continued operation of the
Business (which does not include the corporate records of Seller such as
the corporate minute book, stock register, articles of incorporation,
bylaws and similar items); and
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(j) all other assets of the Seller of every kind and description,
tangible or intangible, pertaining to or used in the Business (other than
the Excluded Assets), including without limitation its good will.
1.2 Excluded Assets. The following assets of the Seller shall be excluded
from the assets to be sold to the Buyer hereunder (the "Excluded Assets"):
(a) any insurance claims pending or awarded relating to environmental
losses incurred by the Seller prior to the Closing Date;
(b) all business and financial books and records (provided that the
Seller complies with its obligations to provide access thereto to the Buyer in
accordance with the terms of Section 8.3 and further provided that the Seller
hereby agrees not to remove any of its business and financial books and records
(other than corporate records such as minute books and its share transfer books)
from the Asbury Road Facility for 3 years following the Closing Date without the
prior written consent of the Buyer);
(c) all tax refund claims with respect to any period prior to the
Closing Date, and any cause of action related thereto with respect to any period
prior to the Closing Date;
(d) all claims, rights, demands, and causes of action against NUJA
Realty Corp., Bolt Electric, WOJO and Asbury Leasing; and
(e) any medical insurance refund due under the Seller's group
self-insured medical program as referred to in a letter to the Seller from
Corporate Benefit Services, Inc. dated January 8, 1997, a copy of which has been
provided to the Buyer.
1.3 Assumption of Certain Liabilities.
(a) On the terms and subject to the conditions set forth herein, and
subject to Section 1.4 hereof, from and after the Closing, the Buyer will assume
and satisfy or perform when due only (i) those liabilities and obligations of
the Seller arising after the Closing Date under the Leases and the Contracts
(other than under those Contracts referred to in subsection (iii) below), (ii)
subject to Section 9.2(g) and 9.5, any obligations of the Seller under product
warranties for products sold prior to the Closing Date, (iii) those liabilities
and obligations of the Seller arising after the Closing Date under The Area
Lighting Research 401(k) Savings Plan, The Area Lighting Research Employee
Health and Prescription Drug Plan, Area Lighting Research, Inc. Dental Plan with
Allmerica Financial December 16, 1996, and the Area Lighting Research, Inc.
Christmas Club and The Area Lighting Research, Inc. Dependent Care and Flexible
Spending Account Plan (the "Assumed Plans"), subject to the terms and conditions
set forth in subparagraph (c) below, and (iv) any and all trade payable
liabilities and accrued expenses of the Seller incurred in the ordinary course
of the Seller's business and not in violation of any of the terms of this
Agreements and outstanding on the Closing Date (the "Assumed Payables")
(collectively, the "Assumed Obligations").
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(b) The Buyer shall deduct the amount the amount of the Assumed
Payables from the cash portion of the Purchase Price. The Seller shall
calculate the amount of the Assumed Payables between January 31, 1997 and
February 2, 1997 and shall certify to the Buyer as to the amount thereof on
February 3, 1997. Notwithstanding anything to the contrary set forth in this
Agreement, the Buyer shall not assume and shall not be liable for any Assumed
Payables in excess of the amount of Assumed Payables certified to by the Seller.
(c) Effective as of the Closing Date, the Buyer will assume
sponsorship of the Assumed Plans.
The Seller and Buyer agree to cooperate to transfer the sponsorship of
the Assumed Plans as soon as practical and effective as of the Closing. In
connection therewith, the Seller shall use its best efforts to cause to be
assigned to the Purchaser such policies of insurance or other contracts as
the Buyer designates in writing as pertained to the funding of benefits under
any of the Assumed Plans, or in case where such assignment is commercially
impractical, the Seller shall cooperate in arranging for the issuance of new
or modified policies or contracts.
The Seller and the Buyer agree to provide assistance and cooperation to
each other in the administration of the Assumed Plans and their respective
responsibilities with respect to obligations or liabilities under the Assumed
Plans before and after the Closing Date. Notwithstanding the assumption of
Assumed Plans by the Buyer, the Seller shall (i) prepare, file and/or
distribute to the appropriate government agencies and plan participants all
Annual Reports (Form 5500 series, including audited financial statements if
required), summary annual reports, summary of material modifications, benefit
statements and any other reports or disclosures required to made by
applicable law with respect to any plan year ending on or before the Closing
Date, and (ii) account for and remit to the Purchaser or the trustee in the
event any benefits under the Assumed Plans are held in trust all
contributions, including any employer contributions required to be
contributed under the Assumed Plan and any employee contributions (whether by
virtue of salary reduction agreements or otherwise) with respect to any
period ending on or prior to the Closing Date.
1.4 Liabilities Not Assumed. Notwithstanding anything in this Agreement
to the contrary, the Buyer will not assume or perform any liabilities or
obligations not specifically contemplated by Section 1.3 hereof nor any of the
following obligations and liabilities (whether or not contemplated by
Section 1.3):
(a) any liability or obligation of the Seller for federal, state,
local or foreign Taxes, whether or not incurred prior to the Closing;
(b) any liability or obligation of the Seller for or in respect of
any loan, account payable or indebtedness (other than the Assumed Obligations);
4
<PAGE>
(c) any liability or obligation of the Seller arising as a result
of any legal or equitable action or judicial or administrative proceeding
initiated at any time in respect of anything done, suffered to be done or
omitted to be done by the Seller or any of its directors, officers, employees
or agents;
(d) any liability or obligation of the Seller incurred in connection
with the making or performance of this Agreement;
(e) any liability or obligation of the Seller for Taxes based on or
measured by any income or gain realized upon the transfer of the Assets
hereunder;
(f) any liability or obligation of the Seller accruing on or prior
to the Closing Date arising out of any "employee benefit plan" (as such term
is defined by the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), established or maintained by the Seller or to which the Seller
contributes or any liability with respect to any pension or benefit plan of
the Seller or the termination of any such plan;
(g) any liability or obligation of the Seller accruing on or prior
to the Closing Date for making payments of any kind (including without
limitation as a result of the sale of Assets or as a result of the
termination of employment by the Seller of employees, or other labor claims)
to employees of the Seller or in respect of payroll taxes for employees of
the Seller, including without limitation any liabilities or obligations of
the Seller arising under or with respect to the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA");
(h) any liability or obligation of the Seller with respect to any
claims or actions arising under or relating to any Environmental Laws, or
related common law theories, including without limitation third party claims
and any liability or obligation for any penalties, fines, expenses, costs,
losses, claims or damages arising out of or resulting from any generation,
storage, treatment, handling, disposal, discharge or release of Hazardous
Materials prior to the closing, including without limitation any liability or
obligation relating to the contamination of ground water beneath, or which
has migrated or may in the future migrate from, any facility owned, leased or
otherwise operated by the Seller, including without limitation that certain
facility located at 60 Asbury Road, Hackettstown, New Jersey (the
"Hackettstown Facility"; collectively, the "Facilities"), and including
without limitation any and all debts, liabilities and obligations of the
Seller or any of its Affiliates under the Environmental Settlement
Agreements;
(i) any liability or obligation of the Seller under any license or
any leases, contracts or agreements not listed on Schedules 1.1(b) or 1.1(h);
and
(j) any liability or obligation of the Seller with respect to any
of the Seller's subsidiaries or affiliates, including without limitation NUJA
Realty Corp. Bolt Electric, WOJO and Asbury Leasing.
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1.5 Purchase Price. The total purchase price (the "Purchase Price")
which the Buyer shall pay for the Assets and in consideration of the other
covenants and agreements of the Seller and the Stockholders contained herein
is a cash purchase price of (a) $8,200,000 less (plus) (b) the amount, if
any, by which the book value (calculated in accordance with GAAP in a manner
consistent with the manner used in preparing the Balance Sheet and without
giving effect to any write-up or write-down of assets or liabilities, or to
any reserve in any amount which is not reflected in such amount on the
Balance Sheet other than for transactions occurring in the ordinary course of
business since December 31, 1996 but including scheduled depreciation) of the
Closing Assets as of the Closing Date is less than (is greater than)
$4,860,000 (the "Assets Adjustment") plus (c) the amount of the Earnout
provided for under Section 1.8. For the purposes of this Agreement, the term
Closing Assets shall be deemed to mean the Seller's current assets (excluding
its insurance claim receivable), property, plant and equipment, net and other
assets (excluding its insurance claim receivable). The amount, if any, of
the Assets Adjustment shall be determined in the following manner: (i) within
30 days after the Closing Date, the independent public accountant of the
Seller shall prepare and deliver to the Buyer a calculation of the amount of
the Closing Assets as of the Closing Date and a calculation of the Assets
Adjustment, if any, (ii) if the Buyer has any objection to the determination
of the Seller's accountant, it shall notify the Seller thereof within 10 days
after its receipt of such calculations, and if the Buyer and Seller are
unable to resolve such dispute within 20 days thereafter, such dispute shall
be submitted to a nationally recognized firm of independent certified public
accountants not performing services for either party who shall determine the
amount of any Assets Adjustment within 30 days thereafter and whose
determination shall be conclusive and binding on the parties hereto. The
fees of such firm shall be borne equally by the Seller and the Buyer. The
Purchase Price (exclusive of the Earnout, without regard to the Assets
Adjustment and less the amount of the Assumed Payables) shall be paid by the
Buyer in cash at the Closing to the Seller, the Seller's lender in repayment
of outstanding secured indebtedness as specified in a payoff letter from
such lender dated January __, 1997, the New Jersey Economic Development
Authority in repayment of outstanding secured indebtedness as specified in a
payoff letter from such Authority dated January 30, 1997 and the Escrow Agent
as hereinafter provided.. An amount equal to $1,610,000 will be deposited by
the Buyer in cash (the "Escrow Deposit") with State Street Bank and Trust
Company, N.A., as agent (the "Escrow Agent") at the Closing to be held in
escrow pursuant to the Escrow Agreement substantially in the form of Exhibit
I (the "Escrow Agreement"). The Escrow Deposit shall be held for the
following purposes: (A) an amount equal to $310,000 shall be held in escrow
pending the purchase of uncollected accounts receivable and the Assets
Adjustment, (B) an amount equal to $1,200,000 shall be held in escrow to
secure the payment of the obligations of the Seller and its Affiliates under
the Environmental Settlement Agreements, and (C) an amount equal to
$100,000.00 shall be held in escrow to secure the Seller's obligations
pursuant to Section 9.2(g). The Purchase Price less the Escrow Deposit, less
the amounts paid to the Seller's secured creditors as set forth above and
less the amount, if any, of the Assumed Payables will be paid by the Buyer to
the Seller at the Closing in accordance with subsection 2(c). In addition to
the foregoing, it is anticipated that payment of the Purchase Price will
occur on February 3, 1997 and, accordingly, the Buyer agrees to pay interest
to the Seller at a rate
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per annum equal to 6% on the amount of cash payable
to or for the account of the Seller at the Closing for February 1, 1997 and
February 2, 1997. If, in connection with the determination of the Assets
Adjustment, it is determined that the amount of the Assumed Payables is
greater than (or less than) the amount of the Assumed Payables certified by
the Seller on February 3, 1997, the Buyer and the Seller will correct such
difference by a cash payment within 5 days after the determination of the
Assets Adjustment, without interest.
1.6 Allocation of the Purchase Price. The parties hereto agree that the
Purchase Price shall be allocated as set forth in Schedule 1.6 and agree that
such allocation is based upon the fair market value of the Assets and is an
appropriate allocation. Such allocation shall be binding upon the parties
hereto and the parties hereto shall file their respective tax returns in
accordance with such allocation and shall not take any position or action
inconsistent with such allocation in connection with their respective taxes.
1.7 Purchase Price Adjustment.
(a) The only adjustment to the Purchase Price following the Closing
shall be to reflect the Assets Adjustment determination. If the amount of
the Assets Adjustment increases the Purchase Price, the Buyer shall pay the
amount thereof to the Seller within 5 days after the final determination of
the amount thereof pursuant to Section 1.5 hereof. If the amount of the
Assets Adjustment decreases the Purchase Price, the Seller shall pay the
amount thereof to the Buyer within 2 days after the final determination of
the amount thereof pursuant to Section 1.5 hereof, provided that, to the
extent there are funds available under the Escrow Agreement to pay the same,
the amount thereof shall be payable from the Escrow Deposit in accordance
with the terms of the Escrow Agreement. If either Buyer or Seller fails to
pay the Assets Adjustment in full when due, the unpaid amount thereof shall
bear interest from its due date at a rate per annum equal to ten percent
(10%).
(b) The Buyer shall use its best efforts to collect all accounts
receivable included within the Assets. If, as of 120 days after the Closing
Date, the Buyer has collected less than the full amount of the accounts
receivable of the Seller as of the Closing Date, the Buyer shall sell to the
Seller, and the Seller shall purchase from the Buyer, without recourse,
warranty or representation of any kind, any and all such uncollected accounts
receivable and all documents, instruments and correspondence relating
thereto, and any collateral therefor, for an aggregate purchase price equal
to the uncollected amount of such accounts receivable of the Seller, less any
reserve for doubtful accounts recorded on the Balance Sheet. Such amount
shall be paid to the Buyer by the Escrow Agent from the amounts on deposit in
the Escrow Account for such purpose and any amount in excess thereof shall be
promptly paid by the Seller in cash to the Buyer. If the Seller makes a
payment to the Buyer due to an account receivable not being collected and the
Buyer subsequently receives payment on such account receivable, the Buyer
shall promptly remit such payment, without interest, to the Seller, whether
or not the Seller or any of the Stockholders are, or are claimed by Buyer to
be, in breach of any obligation hereunder.
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(c) If, any time during the period that is 18 months after the
Closing Date, the Buyer pays any amount to any Person in respect of a
warranty on a product sold prior to the Closing Date, the Buyer shall be
entitled to reimbursement for such amount from the amounts on deposit in
the Escrow Account for such purpose to the extent that the amount thereof
exceeds the indemnification limits provided for under Section 9.2(g)
hereof.
1.8 Earnout. As a part of the Purchase Price, the Buyer shall pay to
the Seller an amount equal to the excess of the EBIT of the Buyer for the
period from February 1, 1997 through December 31, 1997 over $1,100,000 (the
"Earnout"). The Buyer shall have the option to pay the Earnout in cash or 50%
in cash and to deliver to the Seller such number of shares of AFC Common
Stock as shall have a value equal to 50% of the amount of the Earnout, all as
hereinafter provided. In no event shall the amount of the Earnout exceed an
amount equal to $734,000. For purposes of the foregoing, EBIT shall be
defined as the earnings of the Buyer before taxes on income and interest
expense and interest income determined in accordance with GAAP (after
applying a corporate management charge of $75,000 payable to AFC), provided,
however, that in calculating EBIT no deduction shall be made to reflect any
amortization of goodwill in connection with the Purchase Price paid for the
Assets or depreciation of capital assets acquired during 1997, no deduction
shall be made to reflect the costs incurred by the Buyer in connection with
the negotiation or consummation of the transactions contemplated hereby, no
deduction shall be made to reflect any allocation of costs associated with
employees of AFC or any of its subsidiaries (other than employees of the
Buyer and except to the extent of the $75,000 corporate management fee),
intercompany transactions shall be reflected solely on an arm's length basis
and, if the Buyer purchases or succeeds to any business other than the
Business, no amounts shall be reflected with respect to the operations of
such business if such business on a stand-alone basis would incur a loss.
The $75,000 corporate management fee shall include the fees of the Buyer's
accountants, which shall be selected by the Buyer in its sole discretion.
The amount, if any, of the Earnout shall be determined in the following
manner: (i) on or before March 31, 1998, the Buyer shall prepare and deliver
to the Seller a calculation of the amount of the Earnout, (ii) if the Seller
has any objection to the determination of the Buyer, it shall notify the
Buyer thereof within 10 days after its receipt of such calculations, and if
the Buyer and Seller are unable to resolve such dispute within 20 days
thereafter, such dispute shall be submitted to a nationally recognized firm
of independent certified public accountants not performing services for
either party who shall determine the amount of any Earnout within 30 days
thereafter and whose determination shall be conclusive and binding on the
parties hereto. The fees of such firm shall be borne equally by the Seller
and the Buyer. Within 10 days following the determination of the amount of
the Earnout pursuant to the foregoing, the Buyer shall notify the Seller
whether it chooses to pay the Earnout in cash or in cash and AFC Common
Stock. If the Buyer chooses to make such payment solely in cash, such notice
shall be accompanied by payment thereof. If the Buyer chooses to make such
payment in cash and AFC Common Stock, the delivery of said shares shall occur
5 days following such notice from the Buyer. The number of shares of AFC
Common Stock to be delivered shall be determined by dividing 50% of the
Earnout amount by the arithmetic average of the mean of the closing bid and
asked prices for AFC Common Stock on the NASDAQ Market, or such other
nationally recognized market in which such Common Stock trades if such Common
Stock is no longer listed on the NASDAQ market, for the 20 trading days
immediately preceding the date of such notice from the Buyer.
Notwithstanding the foregoing, if the number of shares of AFC Common Stock
deliverable pursuant to the foregoing would exceed the aggregate trading
volume of AFC Common Stock for the month preceding the delivery thereof, the
Buyer shall only be able to pay for the Earnout in shares of AFC Common Stock
to the extent of such aggregate trading volume and shall pay cash for the
portion of the Earnout not paid in such shares.
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1.9 Registration of Common Stock of AFC. AFC agrees that if the Buyer
delivers shares of AFC Common Stock to the Seller as set forth in Section
1.8, above, then the Buyer shall cause to be filed with the SEC a
registration statement on Form S-3 covering such shares in such a manner that
such shares shall be tradable without restriction under the Securities
Exchange Act of 1934 upon the issuance thereof. All fees and expenses
incident to the filing of such registration statement, including without
limitation, fees and expenses incurred in connection with the preparation,
filing, amending and supplementing of the registration statement (whether or
not the registration statement is filed or becomes effective), including the
fees and expenses of the AFC's legal counsel and accountants related thereto,
registration and filing fees and fees and expenses of compliance with state
securities or blue sky laws, will be borne by and paid by AFC.
2. CLOSING.
The closing of the purchase and sale of the Assets and the other
transactions contemplated hereby (the "Closing") shall take place at the
offices of McCarter & English, Newark, New Jersey, or at such other place as
may be agreed to by the Buyer and the Seller, at 10:00 a.m. on January 31,
1997 or on such date, not later than January 31, 1997 except as otherwise
agreed to in accordance with subsection 10.1(b)(i), as may be agreed to by
the Buyer and the Seller (the "Closing Date"). At the Closing:
(a) the Seller shall execute and deliver to the Buyer a Bill of
Sale substantially in the form of Exhibit II and shall execute and deliver to
the Buyer all such other instruments and documents of conveyance and
assignment (including without limitation assignments of patents, trademarks
and other intellectual property) as are reasonably requested by the Buyer to
vest in the Buyer title to the Assets;
(b) AFC and the Buyer shall execute and deliver to the Seller an
Assumption Agreement substantially in the form of Exhibit III; and
(c) the Buyer shall pay to the Seller the portion of the Purchase
Price payable to the Seller at the Closing by wire transfer in accordance
with the following wire instructions: First Union National Bank, Newark, NJ
Routing No. 031201467, CAP Account "Area Lighting Research, Inc.
#8880609649"; shall make the Escrow Deposit with the Escrow Agent by wire
transfer in accordance with the following wire instructions: ABA #011000028,
DBA #99039430, Attn: John Corrigan, for account of Area Lighting Research,
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and shall pay the amounts payable to the Seller's secured lender and the New
Jersey Economic Development Authority as provided above.
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDERS.
The Seller and each of the Stockholders jointly and severally make the
following representations and warranties to the Buyer:
3.1 Due Organization. The Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of New
Jersey, and is duly authorized, qualified and licensed under all applicable
laws, regulations, ordinances and orders of public authorities to carry on
its business in the places and in the manner as now conducted, except where
the failure to be so authorized, qualified or licensed would not have a
material adverse effect on the business, operations, assets, properties or
condition, financial or otherwise, of the Seller. The Seller has delivered
to AFC and the Buyer complete and correct copies of the Articles of
Incorporation and By-laws of the Seller. Schedule 3.1 sets forth each name,
including without limitation any trade name, under which the Seller conducts
its business and identifies each jurisdiction in which the Seller is
qualified to do business as a foreign corporation. Schedule 3.1 also lists
each Subsidiary and Affiliate of the Seller and its relationship to the
Seller.
3.2 Authorization. The Seller has all corporate power and authority,
and each of the Stockholders has all power and authority, to enter into and
perform this Agreement and the other documents and instruments to be
delivered pursuant to this Agreement and to consummate the transactions
contemplated hereby or thereby. The execution and delivery by the Seller of
this Agreement and the consummation by the Seller of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of the Seller. This Agreement has been duly executed and
delivered by the Seller and each of the Stockholders and constitutes the
legal, valid and binding obligation of the Seller and each of the
Stockholders and is enforceable against each of them in accordance with its
terms.
3.3 No Conflicts; Approvals.
(a) Neither the execution, delivery and performance of this
Agreement by the Seller nor the consummation of the transactions contemplated
hereby will (i) conflict with or result in a breach of any provision of the
Articles of Incorporation or By-laws of the Seller, (ii) result in any
conflict with, breach of, or default (or give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit)
under or require any consent or approval which has not been, or prior to
Closing will not be, obtained with respect to any of the terms, conditions or
provisions of any indenture, lease, agreement, permit, license, judgment or
other instrument to which the Seller or any of the Stockholders is or are a
party or by which the Seller or any of the Stockholders or any of their
properties or assets may be bound except for agreements to which the Seller
is a party with sales representatives and other agreements which are not,
individually or in the aggregate, material to the Assets or
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the conduct of the Business, (iii) violate any order, law, rule or regulation
applicable to the Seller or any of the Stockholders or by which the Seller or
any of the Stockholders or any of their respective properties or assets may
be bound, or (iv) result in the creation of any pledge, lien, security
interest, mortgage, charge or other encumbrance of any kind upon any of the
assets or properties of the Seller.
(b) No action, consent or approval by, or filing by the Seller or
any of the Stockholders with, any federal, state, municipal, foreign or other
court or governmental body or agency, or any other regulatory body, or any
other person is required in connection with the execution, delivery or
performance by the Seller and any of the Stockholders of this Agreement or
the consummation of the transactions contemplated hereby, except any filing,
consent or approval that has been made or obtained prior to the Closing.
3.4 Financial Statements. The Seller has previously furnished AFC and
the Buyer with copies of the following financial statements of the Seller
(the "Financial Statements"):
(a) the audited balance sheets of the Seller as at December 31,
1994 and as at December 31, 1995 and the audited statements of income and
retained earnings and of cash flows of the Seller for the fiscal years of the
Seller then ended.
(b) The unaudited balance sheets and statements of income, retained
earnings and cash flows of the Seller for the 12-month period ending December
31, 1996, including, without limitation, the Balance Sheet.
The Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except for inventory adjustments to reflect obsolescence,
a write-down of work in process inventory and a write-down of the overhead
burden from the prior year booked in the preparation of the Balance Sheet)
and present fairly the financial condition of the Seller at the respective
dates thereof and the results of its operations for the periods covered
thereby, subject in the case of the Balance Sheet and other unaudited
Financial Statements to normal year-end audit adjustments and to the addition
of footnotes.
3.5 Undisclosed Liabilities and Obligations. The Seller has no
liabilities or obligations of any kind, whether accrued, absolute, secured or
unsecured, contingent or otherwise which under generally accepted accounting
principles would be required to be shown on the financial statements of the
Seller, except for those liabilities and obligations shown on the Balance
Sheet and except for liabilities and obligations incurred in the ordinary
course of the Seller's business between the date of the Balance Sheet and the
Closing Date.
3.6 Accounts Receivable. Schedule 3.6 sets forth a complete and
accurate list of all accounts receivable of the Business as of December 31,
1996 and contains a complete and accurate aging schedule of such accounts
receivable on a 30-, 60-, 90-, and more than
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90-day basis. These accounts receivable, and all accounts receivable of the
Business arising after such date, arose from valid sales in the ordinary
course of business and have been collected in full since such date or are
collectible in full within 120 days of their respective due dates.
3.7 Inventory. Schedule 3.7 sets forth a complete and accurate list of
all inventories, including finished goods, work-in-process and raw materials
of the Business as of December 31, 1996. Since December 31, 1996, there has
been no change in such inventories except changes resulting from purchases
and sales in the ordinary course of business. In valuing its inventory for
the purposes of preparing its Financial Statements as of December 31, 1996,
the Seller employed the following methodology which is consistent with
generally accepted accounting principles and its past practice: (i) Seller
only included inventories which it reasonably deemed to be of a quality and
quantity usable or salable in the ordinary course of business and Seller
excluded all inventories which it reasonably deemed to be slow-moving,
discontinued or damaged except to the extent the same have been fully
reserved for on such Financial Statements, and (ii) Seller only included
items of inventory which it owned and now owns except for subsequent valid
sales made in the ordinary course of business, for which sales either (i) the
purchaser thereof has made full payment, or (ii) the purchaser's liability to
make payment is reflected as an account receivable on the Seller's books.
Except as disclosed on Schedule 3.7, no items included in the inventories
have been pledged as collateral or are held by the Seller on consignment from
another. All inventories are valued at the lower of cost or market, and cost
is determined using the first in, first out ("FIFO") method, applied on a
basis consistent with that of prior years and in accordance with generally
accepted accounting principles. The foregoing provisions of this Section 3.7
shall not be deemed to be a guarantee, and the Seller does not guarantee,
that any inventory will be sold.
3.8 Customers and Sales. Schedule 3.8 is a complete and correct list of
the top ten customers (by purchases from the Seller) of the Business for
1994, 1995 and 1996. The Seller has provided the Buyer with a complete and
correct list of all customers of the Business that have made purchases from
the Seller aggregating more than $5,000 in any year since December 31, 1994,
together with summaries of the sales made to each customer for the year
ending December 31, 1995 and 1996. To the best knowledge of the Seller and
each of the Stockholders, no such customer of the Seller intends to cease
doing business with the Seller, or materially decrease the amount of the
business that it is presently doing with the Seller, where the effect of such
customer's ceasing to do business with the Seller or materially decreasing
the amount of its business with the Seller could have a material adverse
effect on the Business.
3.9 Permits; Intellectual Property. Schedule 3.9 sets forth an accurate
list of all permits, licenses, franchises and certificates owned, held,
licensed or otherwise used by the Seller in the Business (collectively, the
"Permits") and all trademarks, trade names, service marks, patents, patent
applications and copyrights owned, held or used by the Seller (collectively,
the "Intellectual Property").
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Such Permits and Intellectual Property are valid and in full force and
effect. The Seller owns or possesses adequate rights to use (without making
any payment or granting any right to any person in exchange) all Intellectual
Property. There are no claims or proceedings pending or, to the best
knowledge of the Seller and each of the Stockholders, threatened against the
Seller asserting the infringement by the Seller of, and, to the best
knowledge of the Seller and each of the Stockholders, the Seller has not
infringed on, any trademark, service mark, copyright, patent, patent right or
other proprietary right of any other person. Neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will cause a default under or alter or impair any rights
under, or with respect to, any Permit or Intellectual Property.
3.10 Real and Personal Property; Lease.
(a) Schedule 1.1(b) sets forth:
(i) a complete and correct list and a substantially complete
description of all the real property owned or leased by the Seller; and
(ii) a complete and correct list of all tangible personal property
leased by the Seller.
(b) All tangible personal property used in the Business, whether
owned or leased, is in good working order and condition, subject to ordinary
wear and tear.
(c) The Leases constitute all leases for real or personal property
used in the Business. The Seller is not in default under any Lease and has
not received or given any notice of default thereunder, and, to the best
knowledge of the Seller and each of the Stockholders, no other party to any
Lease is in default thereunder. The Seller has delivered to the Buyer
complete and correct copies of all Leases. Each of the Leases is the legal,
valid and binding obligation of the Seller and, to the best knowledge of the
Seller and each of the Stockholders, the other parties thereto.
3.11 Title, Sufficiency of Assets.
(a) The Seller has good and marketable title to, or in the case of
leased property, has valid leases under which it enjoys peaceful and
undisturbed possession of, all of its properties and assets, including
without limitation all those reflected in the Balance Sheet (except for
properties or assets sold or otherwise disposed of in the ordinary course of
business since the Balance Sheet Date), free and clear of all mortgages,
liens, pledges, charges or other encumbrances, except for mortgages, liens,
pledges, charges or other encumbrances disclosed on Schedule 3.11.
(b) The Assets, together with the property covered by the Asbury
Road Lease and personal property leased by the Seller and listed on Schedule
1.1(b), are sufficient to enable the Buyer to operate and conduct the
Business immediately after the Closing in substantially the same manner as
the Business has heretofore been conducted by the Seller.
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3.12 Contracts.
(a) The Contracts constitute all material contracts, commitments
and similar agreements or arrangements, whether written or oral, relating to
the Business to which the Seller is a party or by which it or its properties
is bound (including without limitation employment agreements, joint venture
or partnership agreements, contracts with any labor organizations, loan
agreements, indemnity or guaranty agreements, noncompetition agreements,
bonds, mortgages, options to purchase land, liens, pledges or other security
agreements).
(b) The Seller has delivered to AFC and the Buyer complete and
correct copies (including all amendments and other supplements thereto) of
all written Contracts and an accurate and complete description of all oral
Contracts.
(c) The Seller has complied with all material commitments and
obligations pertaining to the Contracts, the Seller is in not in material
default under any Contract and has not received or given any notice of
default thereunder, and, to the best knowledge of the Seller and each of the
Stockholders, no other party to any Contract is in default thereunder.
(d) Each of the Contracts is the legal, valid and binding
obligation of the Seller and, to the best knowledge of the Seller and each of
the Stockholders, the other parties thereto.
(e) No Contract, singly or in the aggregate with one or more other
Contracts, materially and adversely affects the business, operations,
properties, assets or condition, financial or otherwise, of the Business.
3.13 Labor Matters. The Seller is not bound by or subject to any
agreement or arrangement with any labor union. None of the Seller's
employees are represented by any labor union or covered by any collective
bargaining agreement nor, to the best knowledge of the Seller and each of the
Stockholders, is any organization campaign to establish such representation
contemplated. Except as set forth on Schedule 3.13, there is no pending or,
to the best knowledge of the Seller and each of the Stockholders, threatened,
labor dispute involving the Business and the Business has not experienced any
labor interruptions over the past three years. There are no unfair labor
practice or other administrative or court proceedings pending or, to the best
knowledge of the Seller and each of the Stockholders, threatened between the
Seller, on the one hand, and the employees of the Business, on the other
hand, nor, to the best knowledge of the Seller and each of the Stockholders,
is there any basis for any such proceeding.
3.14 Insurance. Schedule 3.14 sets forth an accurate description of all
insurance policies carried by the Seller with respect to the Business. Such
insurance is in full force and effect and shall remain in full force and
effect through the Closing.
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3.15 Employees. Schedule 3.15.1 sets forth an accurate list of all
employees of the Business, the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation) of each such person as of
the date hereof and any increase therein since the Balance Sheet Date. The
employees listed in Schedule 3.15.2 constitute, in the Seller's opinion, all of
the individuals that have significant management or supervisory responsibilities
with respect to the Business and its affairs and operations.
3.16 Employee Benefit Plans. Schedule 3.16 sets forth an accurate schedule
listing all employee benefit plans of the Seller, including without limitation
any employment agreement and any pension, retirement, profit-sharing, bonus,
stock option, incentive, deferred compensation, or welfare plan, contract,
arrangement or practice, whether or not reduced to writing, in which one or more
of the employees (including without limitation former employees and
beneficiaries of employees or former employees) participates or is eligible to
participate, together with a description of such plans, contracts, arrangements
or practices, the classification of employees covered thereby and copies of such
plans, arrangements and contracts and any trusts related thereto. Such plans
include without limitation any employee benefit plan (as such term is described
in Section 3(3) of ERISA) or any plan, practice or arrangement (whether or not
reduced to writing) that constitutes a "fringe benefit" plan, vacation plan or
policy, sick leave program, medical, disability or life insurance plan,
agreement to pay severance or comparable benefits to any employee whose
employment with the Seller is terminated (including without limitation those
employment or other agreements that contain "golden parachute" provisions). The
Seller has not established nor does it maintain any plan, program or arrangement
to provide post-retirement medical benefits to any employee, former employee or
beneficiary of an employee or former employee. All employee benefit plans
listed on Schedule 3.16 which are subject to ERISA are in substantial compliance
with ERISA and the regulations promulgated thereunder, as well as with, to the
best of the knowledge of the Seller or each of the Stockholders, all other
applicable federal, state and local statutes, ordinances and regulations.
3.17 Qualified Plans. All plans listed on Schedule 3.16 that are intended
to qualify (the "Qualified Plans") under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
included as part of Schedule 3.16. Except as disclosed on Schedule 3.16, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including without limitation
actuarial reports, audits and tax returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 3.16. Neither
the Seller nor any of the Stockholders nor such plan listed in Schedule 3.16 has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA. No such plan listed in Schedule 3.16 has
incurred an "accumulated funding deficiency" (as such term is defined in
Section 412(a) of the Code and Section 302(1) of ERISA); and the Seller has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service and has not incurred any liability to the Pension Benefit Guaranty
Corporation. The Seller and each of the Stockholders further represents that:
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(a) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(b) no plan listed in Schedule 3.16 subject to the
provisions of Title IV of ERISA has been terminated;
(c) there have been no "reportable events" (as such term is defined
in Section 4043 of ERISA) with respect to any plan listed in Schedule 3.16; and
(d) the Seller has incurred no liability under Section 4062 of ERISA
or with respect to any "multi-employer plan" (as such term is defined in
Section 4001(a)(3) of ERISA).
3.18 Litigation. Other than as set forth in Schedule 3.18, there are no
claims, actions, suits, proceedings or investigations pending or, to the best
knowledge of the Seller and each of the Stockholders, threatened against or
affecting the Seller. Except as disclosed on Schedule 3.22, there have been no
citations, fines or penalties assessed against the Seller relating to or
affecting the Business under any Environmental Law that remain unpaid, and no
such citations, fines or penalties have been assessed or threatened within the
five-year period prior to the date hereof, or, to the best knowledge of the
Seller and each of the Stockholders, are now being threatened, nor are there any
administrative actions, suits, proceedings or investigations with respect to
such matters pending or, to the best knowledge of the Seller and each of the
Stockholders, threatened, nor, to the best knowledge of the Seller and each of
the Stockholders, is there any basis therefor. The Seller is and has not been
subject to any ruling, order, decree, judgment or writ entered into by any
court, agency or other authority relating to or affecting the Business.
3.19 Conformity with Law. The Seller has conducted and is conducting the
Business in substantial compliance with all applicable federal, state and local
statutes, ordinances, permits, licenses, orders, approvals, rules and
regulations, and is not in violation of any of the foregoing, which violation
could reasonably be expected to materially and adversely affect the Business.
3.20 Taxes. [Intentionally omitted]
3.21 Absence of Changes. Since the Balance Sheet Date, the Seller has
carried on the Business in the ordinary course, and, without limiting the
generality of the foregoing, there has not been:
(a) any material adverse change in the financial condition or
results of operations of the Business or any dividend, distribution or other
payment or transfer of assets to or for the benefit of, directly or
indirectly, any of the shareholders of the Seller (other than distributions
in the ordinary course of business to enable the shareholders to pay income
taxes attributable to them for the 1996 fiscal year of the Seller as a result
of the Seller's S-corporation status and other than salary and
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employee benefits paid to or for the benefit of the Stockholders in the
ordinary course of the Seller's business and consistent with Seller's past
practices);
(b) any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the Assets or the Business;
(c) any increase in compensation in any form (including without
limitation any increase in value of any benefits) payable or to become
payable to any officer, director, employee, consultant or agent of the
Seller, other than regularly scheduled pay increases in the ordinary course
of business;
(d) any work interruptions, labor grievances or claims filed,
proposed law or regulation or any event or condition of any character
materially adversely affecting the Business;
(e) except in the ordinary course of business, either (i) any
acquisition or disposition by the Seller of any assets or properties in a
transaction with any officer, director or stockholder or any affiliate of
any such person, or (ii) any acquisition or disposition by the Seller of
any assets or properties in any other transaction with any other person;
(f) any waiver by the Seller of any material rights or claims under
any Contract;
(g) any pledge, mortgage or other encumbrance with respect to any of
the Assets, except for liens disclosed on Schedule 3.11 and other
encumbrances which are discharged at or before Closing;
(h) any amendment or termination of any Contract or Permit, or any
breach by Seller of any Contract or Permit, in each case which amendment,
termination or breach has or could reasonably be expected to have a
material adverse effect of the Business;
(i) any agreement or commitment by the Seller to do any of the
foregoing; or.
(j) a material change in the overall relationship or course of
dealing between the Seller or any of its subsidiaries and their suppliers
or customers, or action taken by the Seller or the Shareholders (including
without limitation announcement, notice or otherwise) with respect to the
Seller's or any of its subsidiaries' suppliers and customers, or action
taken by suppliers and customers, which has had, or will likely have, a
result which will render improbable or generally defeat the Buyer's ability
to transact business with such customer or supplier in a manner which
could, in the aggregate, have a material adverse effect on the Business.
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3.22 Environmental Matters.
(a) Except as disclosed in Schedule 3.22, to the knowledge of the
Seller or any of the Stockholders:
(i) The Seller does not generate, manufacture, use, store,
transport or have transported or dispose of, and has not in the past
generated, manufactured, used, stored, transported or had transported or
disposed of, Hazardous Materials, except in compliance with Environmental
Laws.
(ii) there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans which may
interfere with or prevent continued compliance with Environmental Laws, or
which may give rise to any common or legal liability or penalty, or otherwise
form the basis of any claim, action, event, proceeding, hearing or
investigation under or pursuant to Environmental Laws, based on or related to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, handling, release or threatened release of any Hazardous Materials;
(iii) no underground storage tank (as such term is defined in
Subchapter Nine of the Solid Waste Disposal Act) exists or has
existed on or about the Facilities or the Assets; and
(iv) the Seller is in material compliance with all
Environmental Laws and no notice, request, investigation, administrative
order, consent order, agreement, litigation or settlement is proposed,
threatened, anticipated or in existence with respect to the violation of any
federal, state, or local environmental law or regulation, the presence,
suspected presence or potential presence of any Hazardous Material on or
about the Facilities or the Assets from any source.
(b) Notwithstanding any provision in this Agreement to the contrary,
the representations and warranties set forth in this Paragraph 3.22 shall be
the sole and exclusive representations given by the Seller and the
Stockholders with respect to environmental matters, compliance with
Environmental Laws, and environmental conditions on, at, under, emanating
from or affecting the Facilities, the Assets or the Business.
(c) For the purposes of this Agreement, the following terms shall
have the meanings set forth below:
"Environmental Laws" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 USC Section 9601, et
seq., the Solid Waste Disposal Act as amended by the Resource Conversation
and Recovery Act ("RCRA"), 42 USC Section 6901, et seq., the Federal Water
Pollution Control Act
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("FWPCA"), 33 USC Section 1251 et seq.,
the Clean Air Act ("CAA"), 42 U.S.C. Section 7401 et seq., the Toxic
Substances Control Act (TSCA"), 15 USC Section 2601, et seq., the
Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq. ("ISRA"), the Spill
Compensation Control Act, N.J.S.A. 58:10-23.11a et seq., the Solid Waste
Management Act 13:1E-1 et seq., the New Jersey Underground Storage of
Hazardous Substances Act, as amended, N.J.S.A. 58:10A-21 et seq., the New
Jersey Water Pollution Control Act, as amended, N.J.S.A. 58:10A-1 et seq.,
the Air Pollution Control Act, as amended, N.J.S.A. 26:2C-1 et seq., the
Hazardous Discharge Site Remediation Act, N.J.S.A. 58:10B-1 et seq., as the
same are in effect at the time of the Closing. Solely for the purposes of
Sections 8.4, 8.5 and 9.3(c) of this Agreement, Environmental Laws pursuant
to the preceding sentence shall mean such laws defined as Environmental
Laws pursuant to the preceding sentence, together with any amendments to
the same adopted, enacted or promulgated after the Closing.
"Hazardous Materials" shall mean asbestos, asbestos-containing
materials, polychlorinated biphenyls, oil and other petroleum hydrocarbons or
other substances which, as of the Closing, shall be listed or defined as
hazardous substances or hazardous wastes pursuant to Environmental Laws.
"to the knowledge of the Seller or any of the Stockholders" (or
terms or similar import) shall mean the actual personal knowledge of Daniel
M. DiCarlo, Gilman J. Hallenbeck or George Duve.
3.23 Certain Transactions. Except for that certain lease for the use of
the Seller's facility located at 60 Asbury Road, Hackettstown, New Jersey
(the "Asbury Road Facility") between NUJA Realty Corp. and the Seller, none
of the directors, officers or salaried employees of the Seller, or any
relative by blood or marriage or affiliate of any of the foregoing, is
currently a party to any material transaction with the Seller (other than for
services as employees, officers and directors), including without limitation
any contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from, any such person, or any
corporation, partnership, trust or other entity in which such personal has a
substantial interest or is an officer, director, trustee or partner, or any
officer, director or employee of such an entity.
3.24 Brokers and Finders. Neither the Seller nor any of the Stockholders
nor any officer, director or employee of the Seller has incurred any liability
for any brokerage fees, commissions or finders' fees in connection with this
Agreement or the transactions contemplated hereby.
3.25 Completeness. The copies of all leases, instruments, agreements,
licenses, permits, certificates or other documents which are included on
schedules attached hereto or have been delivered to AFC or the Buyer in
connection with the transactions contemplated hereby are complete and correct.
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3.26 Disclosure. This Agreement and the schedules hereto and all other
documents and information furnished to AFC and the Buyer and their
representatives pursuant hereto do not and will not include any untrue
statement of material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
3.27 Flood Hazards. Except as described on Schedule 3.27, no portion of
any of the Facilities is located within a flood plain, flood prone area,
special or moderate flood or mudslide hazard area or the like, as so
designated by any applicable flood hazard boundary map, flood insurance rate
map, or any similar map or plat issued or controlled by the U.S. Department
of Housing & Urban Development under the Federal Flood Disaster Protection
Act of 1973, as amended, National Flood Insurance Act of 1968, as amended, or
pursuant to any other national, state or local flood insurance program.
3.28 Warranty Claims. The schedule of warranty expenses as described in
Schedule 3.28 is true and correct.
3.29 Products Liability. Except as disclosed on Schedule 3.29, neither the
Seller nor any subsidiary thereof nor anyone acting for or on their behalf
has, in the preceding five years, paid any amount or damages to any third
party for deaths of or injuries to persons or damage to property, or for
breach of warranty in excess of $25,000.00 arising out of any alleged defect
in quality, materials, workmanship or design of any of their products sold or
services performed.
3.30 UL Listed. The Seller has currently effective Underwriters
Laboratories Listings and CSA Listings for certain of its inventory and has
supplied the Buyer with copies of all certificates related thereto.
3.31 Minimum Value of Assets. [Intentionally omitted.]
3.32 Schedules. Any information set forth in any Schedule and attached to
this Agreement or incorporated in any Section of this Article 3 or any other
Article shall be considered to have been set forth in each other Schedule to
this Agreement.
3.33 Limitation of Warranties. OTHER THAN THOSE REPRESENTATIONS AND
WARRANTIES EXPRESSLY MADE BY THE SELLER IN THIS ARTICLE 3 OR IN ANY
COLLATERAL AGREEMENT, THE SELLER MAKES NO REPRESENTATIONS AND WARRANTIES,
WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, REPRESENTATIONS OR
WARRANTIES OF MERCHANTABILITY OR FITNESS.
4. REPRESENTATIONS OF AFC AND THE BUYER.
AFC and the Buyer jointly and severally make the following representations
and warranties.
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4.1 Due Organization. Each of AFC and the Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and is duly authorized, qualified and
licensed under all applicable laws, regulations and ordinances of public
authorities to carry on its business in the places and in the manner as now
conducted except for where the failure to be so authorized, qualified or
licensed would not have a material adverse effect on the business,
operations, assets, properties or condition, financial or otherwise, of AFC
on a consolidated basis. AFC has delivered to the Seller complete and
correct copies of the Certificates of Incorporation and By-laws of AFC and
the Buyer.
4.2 Authorization. Each of AFC and the Buyer has all corporate power and
authority to execute and deliver this Agreement and the other documents and
instruments to be delivered pursuant to this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by AFC and the
Buyer of this Agreement and the consummation of the transactions contemplated
hereby by AFC and the Buyer have been duly and validly authorized by all
necessary corporate action on the part of AFC and the Buyer. This Agreement
has been duly executed and delivered by each of AFC and the Buyer and
constitutes the valid and binding obligation of each of them, enforceable in
accordance with its terms.
4.3 No Conflicts; Approvals.
(a) Neither the execution, delivery and performance of this
Agreement nor the consummation of the transactions contemplated hereby by AFC
and the Buyer will (i) conflict with or result in a breach of any provision
of the certificate of incorporation or by-laws of AFC or the Buyer, (ii)
result in any conflict with, breach of, or default (or give rise to any right
to termination, cancellation or acceleration or loss of any right or benefit)
under or require any consent or approval which has not been waived or
obtained prior to the Closing with respect to any of the terms, conditions or
provisions of any indenture, lease, agreement, permit, license, judgment or
other instrument to which AFC or the Buyer is a party or by which AFC or the
Buyer or any of their respective properties may be bound, or (iii) violate
any order, law, rule or regulation applicable to AFC or the Buyer or by which
AFC or the Buyer or any of their respective properties is bound.
(b) No action, consent or approval by, or filing by AFC or the Buyer
with, any federal, state, municipal, foreign or other court or governmental
body or agency, or any other regulatory body or any other person, is required
in connection with the execution and delivery by AFC or the Buyer of this
Agreement or the consummation by AFC and the Buyer of the transactions
contemplated hereby, except any filing, consent or approval that has been
made or obtained prior to the Closing.
4.4 Brokers and Finders. Neither AFC nor the Buyer nor any of their
respective officers, directors or employees has employed any broker, agent or
finder or incurred any liability for any brokerage fees, commissions or
finders' fees in connection with this Agreement or the transactions
contemplated hereby.
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5. COVENANTS.
The Seller and each of the Stockholders make the following covenants.
5.1 Access and Cooperation. During the period from the date hereof
through the Closing, the Seller will afford to AFC and the Buyer and their
authorized representatives reasonable access to all of the Seller's sites,
properties, books and records, will furnish AFC and the Buyer with such
additional financial and operating data and other information as to the
Business as AFC and the Buyer may from time to time reasonably request and
will make available, upon the reasonable request of AFC and the Buyer, the
officers and employees of the Seller to confer with AFC and the Buyer about
the Business.
5.2 Conduct of Business Pending Closing. During the period from the date
hereof through to Closing, the Seller will, and each of the Stockholders will
cause the Seller to:
(a) carry on the Business in substantially the same manner as it has
heretofore been carried on and, without limiting the generality of the
foregoing, not introduce any material new method of management, operation or
accounting;
(b) maintain its properties, facilities and equipment, including
without limitation those held under leases, in good working order and
condition, ordinary wear and tear excepted;
(c) perform all of its material obligations under leases and
greements relating to or affecting the Business;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage with comparable insurers;
(e) use its reasonable efforts to maintain and preserve its business
organization intact, retain its present employees and maintain its
relationships with suppliers, customers and others with whom it has
business relationships;
(f) use its reasonable efforts to maintain compliance with all
permits, laws, rules and regulations, consent orders, and similar
requirements; and
(g) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments and not make any payments of
principal, interest, fees or other charges in respect of its indebtedness
for borrowed money or with respect to any environmental liabilities after
December 31, 1996.
5.3 Prohibited Activities. During the period from the date hereof to the
Closing, the Seller will not, and each of the Stockholders will cause the
Seller not to:
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(a) except as provided in Section 5.8 below, take, or permit or
suffer to be taken, any action which is represented and warranted in Section
3.21 (c), (e), (f), (g), (h) (I) or (j) not to have occurred since the
Balance Sheet Date; or
(b) enter into any contract or commitment or incur or agree to incur
any liability except in the normal course of business or make capital
xpenditures in excess of $10,000 in the aggregate (other than its ommitment
to purchase a 16-cavity mold as to which the Seller has reviously provided
the Buyer with a description of the nature of its ommitment).
5.4 No Shop. Neither the Seller nor any of the Stockholders will, and
neither will they permit, any agent, officer, director or any representative
of any of the foregoing to, during the period commencing on the date of this
Agreement and ending with the earlier to occur of the Closing or the
termination of this Agreement in accordance with the terms hereof, directly
or indirectly, (i) solicit or initiate the submission of proposals or offers
from any person for, (ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than AFC or the Buyer
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Seller or a merger, consolidation
or business combination of the Seller.
5.5 Key Employees. The Seller shall cooperate with the Buyer in, and will
not interfere with the Buyer's efforts to employ those employees of the
Business listed on Schedule 3.15.2 following the Closing.
5.6 Schedules. The Seller may revise or supplement any one or more
Schedules to this Agreement (any such revision or supplement being herein
called a "New Schedule") at any time at or prior to the Closing Date to
reflect information that either (i) existed on the date hereof and should
have been included on one or more Schedules but was not, or (ii) came into
existence after the date hereof and would have been required to be disclosed
on one or more Schedules if such information was in existence on the date
hereof.
5.7 Public Announcements. Except as required by applicable law, neither
the Seller, AFC nor the Buyer shall make any disclosure or public
announcement in respect of this Agreement or the transactions contemplated
hereby until after the Closing Date, except for announcements by the Seller
to its employees. If AFC is required by applicable law to make a public
announcement in respect of this Agreement or the transactions contemplated
hereby, it will consult with the Seller concerning the content of the
announcement and will give the Seller at least one (1) day prior notice of
such announcement.
5.8 Tax Dividends. Anything in this Agreement to the contrary
notwithstanding, prior to the Closing the Seller shall have the right to
declare and pay cash dividends on its common stock in an aggregate amount
which does not exceed the product of the Company's net income for 1996 and
the period between January 1, 1997 and the Closing Date multiplied by the
combined highest federal and state marginal tax rate applicable to any
Stockholder (less the aggregate amount of any distributions previously made
to the Stockholders with respect thereto).
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6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER.
The obligation of the Seller to consummate the transactions
contemplated hereby is subject to the satisfaction, prior to or at the
Closing, of each of the following conditions, any of which may be waived by
the Seller.
6.1 Representations and Warranties; Performance of Obligations. All
representations and warranties of AFC and the Buyer contained in this
Agreement shall be true and correct at and as of the Closing with the same
force and effect as though made at and as of the Closing; all of the terms,
covenants and conditions of this Agreement to be complied with, performed and
satisfied by AFC and the Buyer at or before the Closing shall have been
complied with, performed and satisfied; and a certificate to the foregoing
effect dated the Closing Date and signed by a duly authorized officer of AFC
shall have been delivered to the Seller.
6.2 Proceedings Satisfactory. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to the Seller, the Stockholders and their counsel.
6.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated hereby
or to impose any remedy, condition or restriction unacceptable to the Seller
and the Stockholders in their reasonable judgment.
6.4 Asbury Road Lease. The Buyer and AFC shall have executed and
delivered to NUJA Realty Corp. a lease with respect to the property located
at the Asbury Road Facility substantially in the form of Exhibit IV, which
lease is for a period of 2 years following the Closing Date with two
subsequent options of two years each (triple net) and an annual lease amount
of $120,000.00, and which lease or a summary thereof shall be recorded within
10 days after the Closing (the "Asbury Road Lease").
6.5 Escrow Agreement. AFC, the Buyer and the Escrow Agent shall have
executed and delivered to the Seller the Escrow Agreement.
6.6 Employment Agreement. The Buyer shall have executed and delivered to
each of DiCarlo and Duve an employment agreement on terms and conditions
reasonably satisfactory to the parties thereto.
6.7 Assumption Agreement. AFC and the Buyer shall have executed and
delivered to the Seller the Assumption Agreement.
6.8 Opinion of Counsel. The Seller shall have received a favorable
opinion from Hinckley, Allen & Snyder, counsel to AFC and the Buyer, dated the
Closing Date, substantially in the form of Exhibit V.
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6.9 Incumbency Certificate. The Buyer shall deliver to the Seller
Certificates of Incumbency for the officers of the Buyer.
6.10 Good Standing. AFC and the Buyer shall deliver to the Seller a
Certificate of Existence and Good Standing of AFC and the Buyer from the
Secretary of State of the State of their organization, dated the most recent
practical date prior to Closing Date but in any event at most 30 days prior to
the Closing Date.
6.11 Compliance with ISRA
The Seller shall have received from the NJDEP pursuant to ISRA any of the
following: (i) written approval of Seller's Remedial Action Workplan for the
Hackettstown Facility (ii) a no further action letter as such term is defined
under ISRA, advising that the Seller has satisfied the requirements of ISRA
with respect to the Hackettstown Facility and the transaction contemplated by
this Agreement; or (iii) a Remediation Agreement, as such term is defined
under ISRA, authorizing the completion of the transaction contemplated by
this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF AFC AND THE BUYER.
The obligation of AFC and the Buyer to consummate the transactions
contemplated hereby is subject to the satisfaction, prior to or at the
Closing, of each of the following conditions, any of which may be waived by
AFC and the Buyer.
7.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Seller and each of the Stockholders
contained in this Agreement shall be true and correct at and as of the Closing
with the same force and effect as though made at and as of the Closing; all of
the terms, covenants and conditions of this Agreement to be complied with,
performed and satisfied by the Seller or the Stockholders at or before the
Closing shall have been complied with, performed and satisfied; and a
certificate to the foregoing effect dated the Closing Date and signed by the
Seller and each of the Stockholders shall have been delivered to AFC and the
Buyer.
7.2 Proceedings Satisfactory. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto shall be
reasonably satisfactory to AFC, the Buyer and their counsel.
7.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated hereby
or to impose any remedy, condition or restriction unacceptable to AFC and the
Buyer in their reasonable judgment.
7.4 No Material Adverse Change. Since the Balance Sheet Date, no
material adverse change in the results of operations or the financial
condition of the Business shall have occurred, and there shall not have been
any material loss or damage to any property
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or assets of the Business, whether or not covered by insurance; and a
certificate to the foregoing effect dated the Closing Date and executed by
the Seller and each of the Stockholders shall have been delivered to AFC and
the Buyer.
7.5 The Bill of Sale. The Seller shall have executed and delivered to
the Buyer the Bill of Sale.
7.6 Assumption Agreement. [Intentionally omitted.]
7.7 The Asbury Road Lease. NUJA Realty Corp. shall have executed and
delivered to the Buyer the Asbury Road Lease.
7.8 Escrow Agreement. The Seller and the Escrow Agent shall have
executed and delivered to AFC and the Buyer the Escrow Agreement.
7.9 Employment Agreement. DiCarlo and Duve shall have executed and
delivered to the Buyer their respective employment agreements.
7.10 Lien Search. The Seller shall have delivered to the Buyer a lien
search of all Assets of the Seller and each of its subsidiaries showing the
names and addresses of all persons holding liens, mortgages or other
encumbrances against the Assets and describing such interests, to be delivered
not later than 20 days prior to the Closing Date.
7.11 Release of Liens. All liens encumbering the Assets shall have been
released and discharged and financing statement terminations, or other
appropriate instruments evidencing such release and discharge, shall have been
provided to Buyer in form suitable for filing.
7.12 Consents. The Seller shall have obtained all required consents of,
and made all required filings with, any governmental authority or agency and
any other person or entity relating to sale of the Assets to the Buyer and
the consummation of the transactions contemplated hereby.
7.13 Key Employees. [Intentionally omitted.]
7.14 Purchase of Leased Equipment. The Seller shall have purchased or
shall have a commitment from the lessor thereof to transfer to the Buyer as
part of the Assets, free and clear of any liens, pledges, security interests
or other encumbrances, the equipment referenced in Schedule 1.1(b), currently
leased and capitalized by the Seller, at no cost or expense to the Buyer.
With respect to leased equipment not capitalized by the Seller, the Seller
shall have obtained the consent of the lessor thereof to the transfer of the
rights of the Seller to the Buyer under any such leases, together with an
estoppel certificate satisfactory in form and substance to the Buyer with
respect to the validity of each such lease and the non-existence of any
defaults thereunder.
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7.15 Opinion of Counsel, AFC and the Buyer shall have received a
favorable opinion of McCarter & English, counsel to the Seller and the
Stockholders, substantially in the form of Exhibit V.
7.16 Resolutions. The Seller shall deliver to the Buyer a copy of
resolutions duly adopted by the Seller's stockholders and directors
authorizing and approving the performance of the transactions contemplated
herein and the execution and delivery of the documents described herein, and
appointing a representative of the Seller to act on the Seller's behalf,
certified as true and of full force as of the Closing Date by an officer of
the Seller.
7.17 Certificate as to Representations and Warranties. [Intentionally
omitted.]
7.18 Incumbency Certificate. The Seller shall deliver to the Buyer
Certificates of Incumbency for the officers of the Seller and for the
Stockholders making certifications as of the Closing Date.
7.19 Good Standing. The Seller shall deliver to the Buyer a Certificate
of Existence and Good Standing of the Seller and any subsidiaries from the
Secretary of State of the State of their organization, dated the most recent
practical date prior to Closing Date but in any event at most 30 days prior
to the Closing Date.
7.20 Use of Name and Marks. The Seller shall execute and deliver to the
Buyer an appropriate instrument granting to the Buyer all of the Seller's and
its subsidiaries' right to use those names and marks as described in
subsections 1.1(d) and Section 8.1.
7.21 Required Consents. The Seller shall deliver to the Buyer any
consents required by any third parties which are material to the transactions
contemplated herein.
7.22 Environmental Audits. [Intentionally omitted]
7.23 Insurance Certificates. The Seller shall deliver to the Buyer a
certificate of insurance evidencing the existence and continuing existence of
products liability insurance covering claims for products sold by the Seller
and its subsidiaries prior to the Closing Date.
7.24 Insurance Endorsements. [Intentionally omitted.]
7.25 Benefit Plans. The Seller shall deliver to the Buyer appropriate
adoption, transfer and policy documents with respect to any plan, trust, or
policy related to any employee 401(k) or health and welfare plan which the
Buyer assumes, adopts or continues.
7.26 Other Documents. The Seller shall deliver to the Buyer such other
instruments and documents as are reasonably necessary or reasonably requested
by the Buyer to transfer the Assets and to effect the transactions
contemplated herein.
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7.27 New Schedules. No New Schedule shall have been provided by Seller
containing information which the Buyer, in its sole discretion, deems
material to its decision as to whether the consummate the transactions
contemplated hereby.
7.28 Compliance with ISRA.
The Seller shall have received from the NJDEP pursuant to ISRA any of the
following: (i) written approval of Seller's Remedial Action Workplan for the
Hackettstown Facility (ii) a no further action letter as such term is defined
under ISRA, advising that the Seller has satisfied the requirements of ISRA with
respect to the Hackettstown Facility and the transaction contemplated by this
Agreement; or (iii) a Remediation Agreement, as such term is defined under ISRA,
authorizing the completion of the transaction contemplated by this Agreement,
and Buyer shall be satisfied, in its sole discretion, with the terms and
conditions thereof.
8. COVENANTS AFTER THE CLOSING.
8.1 Change of Name. The Seller shall, effective immediately following the
Closing, change its name to a name not using "Area Lighting Research" and
otherwise reasonably satisfactory to AFC and the Buyer. The Seller shall
cooperate with the Buyer to allow the Buyer to change its name to "Area Lighting
Research, Inc." immediately following the Closing. The Seller and each of the
Stockholders acknowledge and agree that the Buyer will acquire as part of the
Assets the exclusive use of the name "Area Lighting Research, Inc." and that
neither the Seller nor any of the Stockholders will use that name or any similar
name subsequent to the Closing.
8.2 Further Assurances. From time to time after the Closing, at the
request of the Buyer or the Seller and without further consideration, the
Seller, each of the Stockholders and the Buyer shall execute and deliver any
further instruments and take such other action as may be reasonably requested to
vest or confirm in the Buyer title to the Assets or otherwise carry out the
transact ions contemplated hereby.
8.3 Books and Records.
(a) Access by Buyer. The Seller shall maintain all of its books and
records not transferred to the Buyer as part of the Assets for the period of
time required by law and shall provide the Buyer with access to, or copies of,
such books and records as the Buyer may from time to time reasonably request and
shall further comply with its obligations with respect thereto set forth in
Section 1.2(b) hereof.
(b) Access by Seller. The Buyer shall maintain all books and records
transferred to the Buyer as part of the Assets for the period time required by
law and shall provide the Seller with access to, or copies of, such books and
records as the Seller may from time to time reasonably request. Reasonable
access during normal business hours to books and records relating to the Assets
that are transferred by the Seller to the Buyer shall be given to the Seller as
may be reasonably necessary for financial reporting and
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accounting purposes, the
preparation and filing of tax returns or the defense of any tax claim or
assessment by the Seller.
8.4 Environmental Matters
(a) Subject to Section 9.3 of this Agreement, the Seller shall take
all actions at its sole and cost and expense that are required by the NJDEP to
satisfy the Seller's obligations pursuant to the Environmental Settlement
Agreements and to achieve full Compliance with ISRA, including, without
limitation, the maintenance of any Institutional Controls and/or Engineering
Controls required or approved by the NJDEP pursuant to the Environmental
Settlement Agreements or ISRA.
(b) The Seller shall have the sole and exclusive right to prepare,
submit to the NJDEP or other Governmental Authority, and negotiate any
investigative or remedial activities proposed to be undertaken by the Seller
pursuant to this Section 8.4, the Environmental Settlement Agreements or ISRA,
it being agreed that the scope, extent and method of any such activities are
matters to be agreed upon by and between the Seller and the NJDEP or other
Governmental Authority exercising jurisdiction over the matter. AFC and the
Buyer hereby authorize the Seller at Seller's sole cost and expense (and its
employees, representatives, contractors or consultants) to take any and all
actions at, on or under the Hackettstown Facility that, in the Seller's
judgment, are necessary or advisable to comply with the requirements of the
NJDEP pursuant to the Environmental Settlement Agreements or ISRA at the lowest
cost to the Seller, provided that such actions are approved by the NJDEP and
such actions do not unreasonably interfere with the Buyer's day-to-day operation
of the Business. Without in any way limiting the scope or generality of the
foregoing, AFC and the Buyer hereby specifically authorize the Seller at
Seller's sole cost and expense (and its employees, representatives, contractors
or consultants) to (i) install wells or systems for monitoring or remediation of
soil or groundwater at the Hackettstown Facility, including, without limitation,
above-ground or underground wells, pipes, hoses or other equipment for the
transfer or treatment of groundwater at or emanating from such facility; (ii)
employ in-situ chemical oxidation technology to remediate groundwater at or
emanating from such facility; (iii) use any alternative soil or groundwater
cleanup standard or criteria (including non-residential cleanup criteria,
natural remediation criteria or Classification Exception Areas) in determining
the extent of the remediation of soil or goundwater at or emanating from such
facility; and (iv) use engineering or institutional controls (as such terms are
defined under ISRA) to address any environmental conditions on, at, under,
emanating from or effecting such facility. Neither AFC nor the Buyer shall
propose, recommend or otherwise seek to secure the agreement of the NJDEP or any
other Governmental authority to any investigative or remedial activities other
than measures approved in writing by the Seller unless AFC and the Buyer shall
have agreed in a writing satisfactory in form and substance to the Seller or the
Stockholders that the Buyer shall be responsible for all material incremental
costs (including, without limitation, capital, operation and maintenance,
design, engineering, consulting or treatment, storage or disposal fees or costs)
associated with such measure.
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(c) Following the Closing, AFC and the Buyer shall provide the
Seller (and its employees, representatives, contractors and consultants) with
access to the Hackettstown Facility as reasonably necessary to enable the
Seller to conduct any action undertaken by the Seller or required by the
NJDEP under this Section 8.4, the Environmental Settlement Agreements or
ISRA. To the extent consistent with the requirements of the NJDEP, the
Seller shall schedule the performance of investigative or remedial activities
at the Hackettstown Facility so as not to unreasonably interfere with the
Buyer's day-to-day operations at such facility. The Seller shall give the
Buyer at least five (5) days' prior notice (or such shorter notice as shall
be necessary for the Seller to comply with any order or directive of the
NJDEP or any other applicable Governmental authority) of the Seller's
initiation of any investigative or remedial activities at the facility. AFC
or the Buyer (or their employees, representatives, contractors or
consultants) may, at their expense, observe all environmental tests, studies,
and remedial work performed at the Hackettstown Facility by the Seller and
take split samples of the Seller's soil and groundwater sampling.
(d) Neither AFC nor the Buyer shall unreasonably interfere with any
investigative or remedial activities undertaken by the Seller in accordance with
this Section 8.4, the Environmental Settlement Agreements or ISRA. Without
limiting in any way the generality of the foregoing, neither AFC nor the Buyer
shall remove or disturb any structure or equipment required as part of any
remedial action employed or installed by the Seller at the Hackettstown Facility
in accordance with this Section 8.4, the Environmental Settlement Agreements or
ISRA, including, without limitation, the existing monitoring wells at such
facility. AFC and the Buyer shall permit the storage at the Hackettstown
Facility of equipment and materials necessary to perform such investigative or
remedial activities or of excavated soils and groundwater extracted in the
course of sampling, monitoring, well development, hydraulic testing or
remediation activities until the proper and lawful disposal of such material or
until such soil is re-used at the Hackettstown Facility, provided that such
storage or reuse is in accordance with applicable Environmental Laws and that
such material shall be located as reasonably directed by the Buyer so as not to
unreasonably interfere with the Buyer's use of such facility.
(e) During the period in which the Buyer occupies the Hackettstown
Facility, the Seller shall deliver to the Buyer copies of any analytical data,
environmental reports, correspondence, directives, orders, and other documents
submitted by the Seller to or received by the Seller from the NJDEP or other
applicable Governmental Authority in connection with any action undertaken by
the Seller pursuant to this Section 8.4, the Environmental Settlement Agreements
or ISRA within ten (10) days after the receipt or submission of the same by the
Seller. If the Buyer at any time prior to Seller's satisfaction of its
obligations under Section 8.4(a) hereof with respect to the Environmental
Settlement Agreements or ISRA reasonably believes on the basis of such documents
that the Seller is failing or unreasonably refusing to perform a material
obligation required by the NJDEP under the Environmental Settlement Agreement or
ISRA, the Buyer may notify the Seller thereof in writing, which notice shall
identify with specificity such obligation and the basis for the Buyer's belief
that the Seller is failing or unreasonably refusing to satisfy the same. The
Seller shall respond to the Buyer's notice in writing within ten (10) days of
Seller's receipt of the same. If the Buyer is not satisfied with Seller's
response, the Buyer shall so notify the
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Seller in writing within ten (10) days of Buyer's receipt of such response
and the parties shall negotiate in good faith for a period of ten days
following Seller's receipt of Buyer's written notice (or for such longer
period as the parties may mutually agree upon in writing) to attempt to
resolve such dispute. If the parties are unable to resolve such dispute, or
the Seller is unable to secure a written statement from the NJDEP that the
Seller is in compliance with the obligation identified by the Buyer or that
the NJDEP has waived the requirement for the Seller to comply with such
obligation, the Buyer shall have the right, within ten (10) days of the
termination of the negotiation period, to notify the NJDEP in writing (with
a copy to the Seller) of such dispute. In the event the NJDEP in response to
such notice issues a written determination that Seller has not complied with
such obligation, the Buyer shall have the right to perform the actions
required by the NJDEP to satisfy such obligation unless the Seller (i)
performs such actions within the time period specified by the NJDEP, or (ii)
successfully contests such NJDEP determination. If the Buyer performs any
such actions required by the NJDEP pursuant to the preceding sentence, the
Seller shall promptly reimburse the Buyer for the reasonable costs incurred
by the Buyer to perform such actions upon the Seller's receipt of a written
statement from the Buyer specifying in reasonable detail the actions
performed by the Buyer and itemizing the costs incurred by the Buyer to
perform the same.
(f) Unless otherwise disclosed on Schedule 3.22, the Seller and
each of the Stockholders shall: (i) provide immediate written notice to the
Buyer if any Hazardous Material is, to their knowledge, incident on or about
the Facilities or the Assets; (ii) provide immediate written notice to the
Buyer along with a photocopy thereof of any action, orders, requests,
notifications or other written or verbal communication from any agency
relating to the presence, suspected presence or potential presence or the
discharge, release or threatened release of any Hazardous Material on or
about the Facilities or the Assets from any source of which they have
knowledge; and (iii) provide immediate written notice to the Buyer in the
event that, to the knowledge of the Seller or any of the Stockholders, the
Facilities or Assets (A) are not in full compliance with the requirements of
any of the Environmental Laws, (B) are subject to a federal or state
investigation evaluating whether any remedial action is needed to respond to
the discharge, release or threatened release of any Hazardous Material on or
about the Facilities or the Assets, (C) are subject to a federal, state or
local lien in connection with remedial action needed or taken to respond to
any Hazardous Material, or (D) are subject of claims made or threatened by
any third party pursuant to Environmental Laws against the Seller, any
subsidiary thereof, any of the Stockholders, the Facilities or the Assets
relating to damage, contribution, cost recovery compensation, loss or injury
resulting from any Hazardous Material on or about the Facilities or Assets.
8.5 Compliance with Environmental Laws
AFC and the Buyer shall take all actions at their sole cost and
expense required to comply with all Environmental Laws applicable to the use
by the Buyer of the Hackettstown Facility or the Buyer's operations at such
facility. Without limiting in any way the generality of the foregoing, in the
event of (i) the termination of the Asbury Road Lease or other cessation of
operations by the Buyer at the Hackettstown Facility; or (ii) any transfer
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of ownership or operations (as such term is defined under ISRA) effected by AFC
or the Buyer prior to the termination of the Asbury Road Lease, AFC and the
Buyer shall take all actions that are required to achieve Compliance with
ISRA.
8.6 Employees of Seller.
Immediately following the Closing, the Buyer shall offer at will
employment to all of the employees of Seller on substantially the same terms
and conditions as those provided by Seller prior to the Closing except to the
extent that any term or condition has not been disclosed to Buyer pursuant to
the terms hereof. The foregoing commitment is provided to Seller solely for
its benefit and shall not be deemed to create a third party beneficiary
relationship with any such employee.
9. INDEMNIFICATION.
9.1 Survival of Covenants, Representations and Warranties.
(a) The covenants, representations and warranties of the Seller
and each of the Stockholders contained herein (including this Section 9) and
in the certificates and other documents delivered in connection herewith,
including, without limitation, any information provided in any New Schedule
provided pursuant to Section 5.5, shall survive the Closing for a period of
18 months from the Closing Date, provided that the indemnity relating to
Taxes set forth in Section 9.2 (d) shall survive until the expiration of the
applicable statutes of limitations for such Taxes (including any extensions
thereof), provided further that the covenants of the Seller set forth in
Section 8.4 (a), (b), (c) and (d) of this Agreement, shall survive forever,
and the covenants of the Seller set forth in Section 8.4 (e) and (f) of this
Agreement shall survive until the expiration or termination of the Asbury
Road Lease, and provided further that the representations and warranties of
the Seller and the Stockholders set forth in Section 3.22 of this Agreement
shall survive the Closing for a period of 36 months from the Closing Date and
provided further that covenants, representations and warranties with respect
to which a claim is made within the applicable survival period shall survive
until such claim is finally determined and paid.
(b) The covenants of AFC and the Buyer set forth in Section 8.4
(b), (c) and (d) of this Agreement shall survive until Seller has satisfied
its obligations under Section 8.4 (a) hereof. The covenants of AFC and the
Buyer set forth in Section 8.5 of this Agreement shall survive for a period
of 36 months following the expiration or termination of the Asbury Road
Lease, provided, however, that the covenant of AFC and the Buyer to comply
with ISRA pursuant to Section 8.5 shall survive for a period of 36 months
following the expiration or termination of the Asbury Road Lease or until AFC
and the Buyer achieve Compliance with ISRA (to the extent such compliance is
required under Section 8.5), whichever is later. The representations,
warranties and all other covenants of AFC and the Buyer made in this
Agreement and in the documents and certificates delivered in connection
herewith shall survive the Closing for a period of 18 months following the
Closing Date; provided however,
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that claims for indemnification under Section 9.3(c) with respect to such
covenants, representations and warranties may be brought for a period of 36
months following the expiration of the Asbury Road Lease and provided,
however, that such covenants, representations and warranties with respect to
which a claim is made within such period shall survive until such claim is
finally determined and paid.
(c) No claim for indemnification may be made with respect to a
covenant, representation or warranty after the expiration of the applicable
survival period, other than claims based on intentional fraud.
9.2 General Indemnification by the Seller and the Stockholders.
The Seller and each of the Stockholders (each in the capacity as an
indemnifying party pursuant to this Section 9.2 and Sections 9.4 and 9.5, a
"Seller Indemnifying Party") covenant and agree that they will jointly and
severally indemnify, defend, protect and hold harmless each of AFC and the
Buyer (each in the capacity as an indemnified party pursuant to this Section
9.2 and Sections 9.4 and 9.5, a "Buyer Indemnitee" from and against all
losses, claims, damages, actions, suits proceedings, demands, assessments,
adjustments, costs and expenses (including without limitation reasonable
attorneys' fees and expenses of litigation and investigation) (collectively
"Damages"), from and after the date of this Agreement until the expiration of
the period of limitations applicable thereto and provided for herein as a
result of or incident to:
(a) any breach of any representation or warranty of the Seller or any
of the Stockholders set forth herein or in any certificate or other
document delivered in connection herewith (except for any breach of the
representations made in Section 3.6, for which a remedy is provided in
Section 1.7(b)), after giving effect to any information provided in any New
Schedule provided pursuant to Section 5.5;
(b) any breach or nonfulfillment of, or noncompliance by the Seller
or any of the Stockholders with, any covenant, agreement or obligation
contained herein or in any certificate or other document delivered in
connection herewith;
(c) the ownership of the Assets and the operation of the Business
prior to the Closing;
(d) any Taxes of any kind to which the Seller has been, is or may be
subject, including, without limitation, those Taxes relating to or arising
in connection with the transfer of the Assets to the Buyer;
(e) any liability or obligation of, or any claim against, the Seller
not expressly assumed by the Buyer pursuant to the terms hereof, including
without limitation the liabilities and obligations described in
Section 1.4;
(f) any failure to comply with any so-called "bulk sales law" or
other similar law in any jurisdiction in respect of the transactions
contemplated hereby;
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(g) any (i) product liability claim with respect to any products sold
or manufactured in connection with the operation of the Business by the
Seller on or before the Closing Date, and (ii) any product warranty claim
with respect to products sold by the Seller prior to the Closing Date if,
after giving effect thereto, the aggregate of all such product warranty
claims paid by Buyer would exceed $20,000 per calendar year; and
(h) without limiting the foregoing provisions, any failure by the
Seller, the Stockholders or any predecessor of the Seller to comply with
the provisions of Section 8.4 or any breach by the Seller or the
Stockholders of the representations and warranties set forth in Section
3.22 of this Agreement.
9.3 Indemnification by AFC and the Buyer. AFC and the Buyer (each in the
capacity as an indemnifying party pursuant to this Section 9.3 and Sections 9.4
and 9.5, a "Buyer Indemnifying Party"; each Buyer Indemnify Party and each
Seller Indemnifying Party being sometimes herein collectively referred to as an
"Indemnifying Party") covenant and agree that they will jointly and severally
indemnify, defend, protect and hold harmless the Seller and each of the
Stockholders (each in the capacity as an indemnified party pursuant to this
Section 9.3 and Sections 9.4 and 9.5, a "Seller Indemnitee; each Seller
Indemnitee and each Buyer Indemnitee being sometimes herein collectively
referred to as an "Indemnitee") at all times from and after the date of this
Agreement from and against all Damages as a result of or incident to:
(a) any breach of any representation or warranty of AFC or the Buyer
set forth herein or in any certificate or other document delivered in
connection herewith (as if such representation or warranty would read if
all qualifications as to materiality and knowledge were deleted from it);
(b) any breach or nonfulfillment by Buyer or AFC of, or noncompliance
by Buyer or AFC with, any covenant, agreement or obligation contained
herein or in any certificate or other document delivered in connection
herewith;
(c) any failure by the Buyer or AFC to comply with all Environmental
Laws with respect to the operation of the Business at the Hackettstown
Facility during the period in which it occupies the Hackettstown Facility
under the Asbury Road Lease or any failure by the Buyer or AFC to comply
with their obligations pursuant to Sections 8.4 and 8.5 of this Agreement;
(d) any product liability claim or product warranty claim made with
respect to any products sold by the Buyer after the Closing Date;
(e) any product warranty claim made after the Closing Date with
respect to any products sold or manufactured by the Buyer or the Seller
before, on or after the Closing Date;
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(f) any liability to which the Seller becomes subject for
severance claims of former employees of the Seller whose employment with the
Buyer is terminated; and
(g) the ownership of the Assets and the operation of the Business
after the Closing; and
(h) any Assumed Obligations.
9.4 Adjustment to Indemnification Payments. Any payment made by a Seller
Indemnifying Party to the buyer Indemnitees, on the one hand, or by a Buyer
Indemnifying Party to the Seller Indemnitees, on the other hand, pursuant to
this Article 9 or in respect of any claim (i) shall be net of any insurance
proceeds realized by and paid to the Buyer Indemnitees or the Seller
Indemnitees, as the case may be, in respect of such claim and (ii) shall be
reduced by an amount equal to any Tax benefits attributable to such claim. The
Buyer Indemnitees or the Seller Indemnitees, as the case may be, shall use their
respective reasonable efforts to make insurance claims relating to any claim for
which either is seeking indemnification pursuant to Section 9.
9.5 Limitation on Liability. Neither any Seller Indemnifying Party nor any
Buyer Indemnifying Party shall have any obligation under this Section 9 to
indemnify the Buyer Indemnitees or the Seller Indemnitees, as the case may be,
with respect to any item of Damage (a) unless the aggregate combined total of
all such Damages incurred by the Buyer Indemnitees or the Seller Indemnitees,
respectively, exceeds, in the case of product warranty claims, $20,000 per
calendar year, and, in the case of all other claims, $80,000, and then only for
the amount of such excess, and (b) in excess of the Purchase Price.
9.6 Third Person Claims. (a) Promptly after an Indemnitee has received
notice of or has knowledge of any claim by a person not a party to this
Agreement (a "Third Person") or the commencement of any action or proceeding by
a Third Person, the Indemnitee shall give the Seller Indemnifying Party or the
Buyer Indemnifying Party, as the case may be, written notice of such claim or
the commencement of such action or proceeding. The failure to so notify the
Indemnifying Party will relieve the Indemnifying Party from liability under this
Section 9 with respect to such claim, suit or proceeding, but only if and to the
extent that such failure adversely affects the ability of the Indemnifying Party
to defend its interest in such claim, action or proceedings.
(b) The Indemnitee shall permit the Indemnifying Party (at the
expense of such Indemnifying Party) to assume control of the investigation
and defense of any claim by a Third Person or any litigation resulting
therefrom, provided that (i) the counsel for the Indemnifying Party who shall
conduct the defense of such claim or litigation shall be reasonably
satisfactory to the Indemnitee and (ii) the Indemnitee may participate in
such defense at such Indemnitee's expense.
(c) The Indemnifying Party may make any settlement with respect to
any such claim by a Third Person or any litigation resulting therefrom,
without the prior consent of the
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Indemnitee, provided that without the prior written consent
of the Indemnitee, which consent shall not be unreasonably withheld, no
Indemnifying Party, in the defense of any such claim or litigation, shall
consent to entry of any judgment or enter into any settlement that provides for
injunctive or other nonmonetary relief affecting the Indemnitee or that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to the Indemnitee release of all liability in respect such claim or litigation.
9.7 Method of Payment. All claims for indemnification shall be paid in
cash without interest.
9.8 Exclusive Remedy. The indemnifications under this Article IX shall be
the Buyer's and the Seller's sole and exclusive remedies with respect to money
damages, each against the other, with respect to matters arising under this
Agreement, of any kind or nature including, without limitation, matters arising
under Environmental Laws or relating to the Business, the Assets, the Assumed
Liabilities or the Excluded Assets.
10. TERMINATION OF AGREEMENT.
10.1 Termination. This Agreement may be terminated at any time
prior to Closing:
(a) by mutual written consent of AFC and the Seller;
(b) by either AFC or the Seller upon written notice to the other if:
(i) the Closing shall not have occurred on or before January
31, 1997 or such later date, if any, as AFC and the Seller may agree upon
writing; provided, however, that the right to terminate this Agreement
pursuant to this subsection 10.1(b)(i) shall not be available to any party
whose breach of any representation or warranty or failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the
failure of the Closing to occur on or before such date;
(ii) any court or governmental or regulatory agency, authority
or body shall have enacted, promulgated or issued any statute, rule,
regulation, ruling, writ or injunction, or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and all appeals and means of appeal there from have been exhausted;
(c) by AFC if (i) there shall have been a breach of any of the
covenants or agreements of the Seller or any of the Stockholders hereunder
which cannot be or has not been cured within 10 days (but not later than
one business day before closing) after written notice to the breaching
party, or (ii) there shall have been any breach of any representation or
warranty of the Seller or any of the Stockholders contained herein or in
any instrument or other document delivered by or on behalf of the Seller or
any of the Stockholders in connection herewith, which cannot be or has
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not been cured within 10 days (but not later than one business day before
closing) after written notice to the breaching party; or
(d) by the Seller if (i) there shall have been a breach
of any of the covenants or agreements of AFC or the Buyer hereunder which
cannot be or has not been cured within 10 days (but not later than one
business day before closing) after written notice to the breaching party, or
(ii) there shall have been any breach of any representation or warranty of
AFC or the Buyer contained herein or in any instrument or other document
delivered by or on behalf of AFC or the Buyer in connection herewith.
10.2 Liabilities in Event of Termination. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach by such party with respect to any of its
representations, warranties or agreements contained in this Agreement. The
provisions of this Section 10.2 shall survive the termination of this Agreement.
11. NONCOMPETITION.
11.1 Prohibited Activities. The Seller and each of the Stockholders agree
that for a period of (i) in the case of the Seller, DiCarlo and Duve, five years
following the Closing Date, and (ii) in the case of Hallenbeck, three years
following the Closing Date (and, with respect to each of DiCarlo and Duve
specifically, five years following his employment termination with the Buyer or
its successor or assign) (the "Noncompete Period"), neither the Seller nor any
of the Stockholders will:
(a) establish, enter into, be employed by, advise,
consult with, become an owner in or a part of or in any way participate in,
any company, partnership, corporation or other entity or venture (other than
AFC, the Buyer or its subsidiaries) that competes with, or in any way engages
in any business or venture (for itself or himself or others and whether as an
officer, director, stockholder, owner, partner, joint venturer, employee,
independent contractor, consultant, advisor or representative) that competes
with, the Business as it may exist from time to time, or with respect to
Hallenbeck only, as it exists on the Closing Date;
(b) directly or indirectly hire, or solicit for hire, any present or
future employee of AFC or the Buyer, including without limitation any
employee of the Seller who becomes an employee of the Buyer (provided that
the Seller may continue to employ the Stockholders for the sole purpose of
assisting in the winding up of the affairs of the Seller following the
Closing); or
(c) directly or indirectly solicit any present, potential or past
customer of the Business or of the Buyer.
Ownership of not more than one percent of the voting stock of a corporation
whose stock is traded on a national securities exchange or over-the-counter
shall not of itself
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constitute a violation of this Section 11.1 nor shall it be
a violation of this Section 11.1 for Hallenbeck to own or operate a business
which incorporates photocontrol products purchased from companies other than the
Buyer into other products provided that such photocontrol products do not
constitute a majority of the value of the product into which they are
incorporated.
11.2 Reasonable Restraint. The parties agree that the covenants contained
in this Section 11 impose a reasonable restraint on the Seller and each of the
Stockholders in light of the activities and business of the Business and the
future plans of the Buyer.
11.3 Severability; Reformation. The covenants in this Section 11 are
severable, and in the event that any one or more of such covenants are deemed
illegal or unenforceable, the remaining covenants shall remain in full force and
effect, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. In the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth in this Section 11 are unreasonable, then it is the intention of the
parties that such restrictions be enforced to the fullest extent which the court
deems reasonable, and the provision of this Section 11 shall thereby be
reformed.
11.4 Remedies. The Seller and each of the Stockholders acknowledge and
agree that, because the legal remedies of AFC and the Buyer may be inadequate in
the event of a breach of any of the covenants set forth in Section 11, AFC and
the Buyer may, at their option, in addition to obtaining any other remedy or
relief available to it (including without limitation damages at law), enforce
the provisions of this Section 11 by injunction and other equitable relief.
11.5 Independent Covenant.
(a) Each of the covenants contained in this Section 11 shall be
construed as a covenant independent of any other provision of this
Agreement, and the existence of any claim or cause of action of the Seller
or any of the Stockholders against AFC, the Buyer or any of their
respective subsidiaries, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by AFC or the Buyer of
any such covenant.
(b) The Noncompete Period shall be computed by excluding from such
computation any time during which the Seller or any of the Stockholders is
in violation of any provision of this Section 11 and any time during which
there is pending in any court of competent jurisdiction any action
(including any appeal from any judgment) brought by any person, whether or
not a party to this Agreement, in which AFC or the Buyer seeks to enforce
the covenants of contained in Section 11 or in which any person contests
the validity or enforceability of any such covenant or seeks to avoid the
performance or enforcement of any such covenant.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
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<PAGE>
12.1 The Seller and the Stockholders. The Seller and each of the
Stockholders recognize and acknowledge that they have in the past, currently
have, and in the future may possibly have, access to certain confidential
information about the Business, such as lists of customers, operational
policies, and pricing and cost policies. The Seller agrees that it will not,
and each of the Stockholders agrees that he will not, use any such
confidential information for its own benefit or disclose such confidential
information to any person or entity for any purpose whatsoever, except to AFC
and the Buyer, unless such information becomes known to the public generally
through no fault of the Seller or any of the Stockholders or unless the
Seller or any of the Stockholders is required by law or subpoena to disclose
such information. If the Seller or any of the Stockholders is requested to
provide such information pursuant to requirements of applicable law or by
subpoena, it shall notify AFC as promptly as possible and shall allow AFC the
opportunity to oppose such request or to seek an appropriate protective order.
12.2 AFC and the Buyer. AFC and the Buyer recognize and acknowledge that
prior to the Closing they will have access to certain confidential
information about the Business, such as lists of customers, operational
policies, pricing and cost policies, which has been provided to AFC and the
Buyer for the purpose of evaluating the transactions contemplated by this
Agreement. AFC and the Buyer agree, that, without the prior written consent
of the Seller, prior to the Closing and following any termination of this
Agreement if the Closing should not occur, it will not use such confidential
information other than for the purposes for which it has been provided and
will not disclose such confidential information to any person or entity for
any purpose whatsoever, unless such information becomes known to the public
generally through no fault of AFC or the Buyer or unless AFC is required by
law or subpoena to disclose such information. If the Buyer or AFC is
requested to provide such information pursuant to requirements of applicable
law or by subpoena, it shall notify the Seller and each of the Stockholders
as promptly as possible and shall allow the Seller and/or each of the
Stockholders the opportunity to oppose such request or to seek an appropriate
protective order.
12.3 Remedies. The parties acknowledge and agree that, because legal
remedies may be inadequate in the event of a breach of any of the covenants
set forth in this Section 12, in addition to any other remedy or relief
available (including without limitation damages at law), the provisions of
this Section 12 may be enforced by injunction and other equitable relief.
12.4 Survival of Termination. The provisions of this Section 12 shall
survive the termination of this Agreement.
13. GENERAL.
13.1 Bulk Sales Laws. Each of the Seller and the Buyer hereby waives
compliance by each other with the so-called "bulk sales law" and other
similar law in any jurisdiction in respect of the transactions contemplated
by this Agreement.
13.2 Effect of Investigation; Best Knowledge.
39
<PAGE>
(a) No investigation by the parties hereto shall affect the
representations and warranties of the parties contained herein or in any
certificate or other document delivered in connection herewith and each such
representation and warranty shall survive such investigation.
(b) When a representation or warranty contained herein or in any
certificate or other document delivered in connection herewith is made to the
"best knowledge" of a party, unless otherwise indicated herein or therein,
such party shall be deemed to know all facts and circumstances that a
reasonable investigation of the subject matter of such representation or
warranty would have revealed.
13.3 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that neither this Agreement nor
the rights or the obligations of any party hereto may be assigned without the
prior written consent of the other parties hereto.
13.4 Entire Agreement. This Agreement (including the schedules and
exhibits hereto) constitute the entire agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings, whether written or
oral, with respect to the subject matter hereof.
13.5 Amendment. This Agreement may be modified or amended only by a
written instrument executed by each of AFC, the Buyer, the Seller and the
Stockholders.
13.6 Counterparts; Facsimilies. This Agreement may be executed in any
number of counterparts which together shall constitute one instrument. This
Agreement and any other Agreement delivered hereunder may be executed and
delivered by facsimile transmission, and any such transmission may be
considered an original by its recipient party unless otherwise specified by
the delivering party at the time of the transmission.
13.7 Costs and Expenses. Whether or not the transactions contemplated
hereby are consummated, each of the parties hereto shall bear all expenses,
costs and fees incurred by it in connection with the preparation of this
Agreement, the consummation of the Closing and compliance by it with the
terms and provisions hereof, including without limitation the fees and
expenses of any attorneys, accountants, brokers or other persons engaged by
it, except as may be permitted by Sections 9 or 13.13.
13.8 Notices. All notices or communications required or permitted
hereunder shall be in writing. Any notice, demand or other communication
given under this Agreement shall be deemed to be given if given in writing
(including facsimile, telex, telecopy or similar transmission) addressed as
provided below (or at such other address as the addressee shall have
specified by notice actually received by the addressor) and if either (a)
actually delivered in fully legible form, to such address (evidenced in the
case of a telex by receipt of the correct answer back) or (b) in the case of
a letter, five days shall have elapsed after the
40
<PAGE>
same shall have been deposited in the United States mail, with first-class
postage prepaid and registered or certified.
If to AFC or the Buyer, addressed to them as follows:
AFC Cable Systems, Inc.
50 Kennedy Plaza
Suite 1250
Providence, Rhode Island 02903
Attention: Ralph R. Papitto, Chairman
Telephone: (401) 453-2000
Facsimile: (401) 453-2009
with a copy to:
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
Attention: Jonathan Bell, Esq.
Telephone: (401) 274-2000
Facsimile: (401) 277-9600
If to the Seller or the Stockholders, addressed to it as
follows:
Daniel M. DiCarlo Jr.
300 Fifth Avenue
Hackettstown, New Jersey 07840
with a copy to:
Attention: Todd Poland, Esq.
McCarter & English
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Telephone: 201-622-4444
Fascimile: 201-624-7070
13.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts
without regard to principles of conflict of laws. Each of the parties hereto
irrevocably submits to the nonexclusive jurisdiction of the courts of the
Commonwealth of Massachusetts for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement or the subject matter
hereof and agrees that process may be served upon it if it cannot otherwise
be served in such state by registered or certified mail addressed as provided
in Section 13.8.
41
<PAGE>
13.10 No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available
in respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or practice
of the parties at variance with the terms hereof, shall not constitute a
waiver by such party of its right to exercise any such or other right, power
or remedy or to demand such compliance.
13.11 No Third-party Beneficiaries. This Agreement is not intended
to be for the benefit of and shall not be enforceable by any person or entity
who or which is not a party hereto (or a permitted assign or successor to
such party).
13.12 Severability. The provisions of this Agreement, are severable,
and in the event that any one or more provisions are deemed illegal or
unenforceable, the remaining provisions shall remain in full force and
effect, and the unenforceability of any specific provision shall not affect
any other provision. In the event any court of competent jurisdiction shall
determine that any provision of this Agreement is unreasonable, then it is
the intention of the parties that such provision be enforced to the fullest
extent that the court deems reasonable, and the relevant provision shall
thereby be reformed..
13.13 Attorneys' Fees and Costs. If litigation is brought to enforce
provisions of this Agreement, the reasonable attorneys' fees and costs
incurred by the prevailing party shall be paid by the non-prevailing party.
14. Guaranty by AFC.
14.1 Guaranty. For valuable consideration, the receipt of which is
hereby acknowledged, AFC unconditionally guarantees to Seller and each of the
Stockholders (collectively, the "Beneficiaries") full and prompt performance
by Buyer of all of its obligations arising out of or related to the foregoing
Asset Purchase Agreement (collectively, the "Obligations").
14.2 Certain Waivers. Notice of acceptance of this Guaranty and of any
action to be taken by the Beneficiaries from time to time under this Guaranty
or the Obligations is hereby waived, and this Guaranty shall operate as a
continuing and absolute Guaranty covering all obligations of Buyer to the
Beneficiaries arising under the Obligations. Failure of the Beneficiaries to
make any demand or otherwise to proceed against AFC in respect to any default
by the Buyer shall not constitute a waiver of the Beneficiaries' right to
proceed in respect to any or all other defaults by the Buyer.
14.3 Liability Not Affected; Successors. The liability of AFC shall not
be terminated or otherwise affected or impaired by the Beneficiaries from
time to time granting one or more extensions of time, renewals or other
indulgence(s) to the Buyer, or by the Beneficiaries heretofore, now, or
hereafter acquiring, releasing or agreeing to amend or modify the
Obligations, whether or not notice thereof shall have been or be given to
AFC. This Guaranty shall be binding upon the successors and assigns of AFC.
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
AFC CABLE SYSTEMS, INC.
By: /s/ Raymond H. Keller
----------------------------
Name: Raymond H. Keller
----------------------------
Title: VP & CFO
----------------------------
AFC ACQUISITION, INC.
By: /s/ Raymond H. Keller
------------------------------
Name: Raymond H. Keller
------------------------------
Title: Vice President
------------------------------
AREA LIGHTING RESEARCH, INC.
By: /s/ Daniel M. DiCarlo Jr.
------------------------------
Name: Daniel M. D. Carlo Jr.
------------------------------
Title: President
------------------------------
/s/ Gilman J. Hallenbeck
---------------------------------
Gilman J. Hallenbeck
/s/ George Duve
---------------------------------
George Duve
/s/ Daniel M. DiCarlo Jr.
---------------------------------
Daniel M. DiCarlo Jr.
43
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Exhibit No. Description
- ---------- -----------
Exhibit I Form of Escrow Agreement
Exhibit II Form of Bill of Sale
Exhibit III Form of Assumption Agreement
Exhibit IV Form of Asbury Road Lease
Exhibit V Form of Opinion of Counsel to AFC and the Buyer
Exhibit VI Form of Opinion of Counsel to the Seller and the Stockholders
Schedule No. Description
Schedule 1.1(b) Leases
Schedule 1.1(h) Contracts
Schedule 1.3 Assumed Obligations
Schedule 1.6 Purchase Price Allocation
Schedule 3.1 Names and Trade Names; Foreign Qualification
Schedule 3.6 Accounts Receivable
Schedule 3.7 Inventory
Schedule 3.8 Customers
Schedule 3.9 Permits and Intellectual Property
Schedule 3.10 Real and Personal Property
Schedule 3.11 Permitted Liens
Schedule 3.14 Insurance
Schedule 3.15.1 Employees
Schedule 3.15.2 Key Employees
Schedule 3.16 Employee Benefit Plans
Schedule 3.18 Litigation
Schedule 3.22 Environmental Matters
Schedule 3.27 Flood Hazards
Schedule 3.28 Warranty Claims
Schedule 3.29 Products Liability
44
<PAGE>
ANNEX 1
Asset Purchase Agreement
As used in the Agreement, the following capitalized terms have
the following meanings or are as defined in the following Sections of the
Agreement:
"AFC" is defined in the Preamble.
"Affiliate" means, singly and collectively, with respect to
any Person, any other entity or Person (including without limitation any
subsidiary of such Person) which, directly or indirectly, is in control of,
is controlled by or is under common control with such Person. For purposes
of this definition, an entity or other Person shall be deemed to be
"controlled by" the such Person if such Person possesses, directly or
indirectly, power either to (i) vote 10% or more of the securities having
ordinary voting power for the election of directors of such Person, or (ii)
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise, and the legal representative, successor or
assign of any such Person.
"Agreement" is defined in the Preamble.
"Asbury Road Lease" is defined in Section 6.4.
"Assets" is defined in Section 1.1.
"Assumed Obligations" is defined in Section 1.3.
"Balance Sheet Assets" is defined in subsection 1.1(a).
"Balance Sheet" is defined in subsection 1.1(a).
"Balance Sheet Date" is defined in subsection 1.1(a).
"Business" is defined in the Preamble.
"Buyer" is defined in the Preamble.
"CAA" is defined in subsection 3.22(c).
"CERCLA" is defined in subsection 3.22)c).
"Closing" is defined in Section 2.
"Closing Date" is defined in Section 2.
45
<PAGE>
"COBRA" is defined in subsection 1.4(g).
"Code" is defined in Section 3.17.
"Contracts" is defined in subsection 1.1(h).
"Compliance with ISRA" shall mean, in relation to the
Hackettstown Facility and the transaction contemplated by this Agreement, the
receipt by the Seller from the NJDEP of a no further action letter, or
approval of a Negative Declaration, as such terms are defined in ISRA, or
other comparable written determination by the NJDEP that the Seller has
satisfied the requirements of ISRA. In relation to (i) the termination of
the Asbury Road Lease or other cessation of operations by the Buyer at the
Hackettstown Facility, or (ii) any transfer of ownership or operations (as
such term is defined in ISRA) effected by AFC or the Buyer prior to the
termination of the Asbury Road Lease, the receipt by AFC or the Buyer from
the NJDEP and the delivery to the Seller of a no further action letter, or
approval of a Negative Declaration, as such terms are defined in ISRA, or
other comparable written determination by the NJDEP that AFC or the Buyer
have satisfied the requirements of ISRA.
"Damages" is defined in Section 9.2.
"DiCarlo" is defined in the Preamble.
"Duve" is defined in the Preamble.
"Environmental Laws" is defined in subsection 3.22(c).
"Environmental Settlement Agreements" means the Settlement
Agreement by and among the State of New Jersey, the New Jersey Department of
Environmental Protection and the Seller and NUJA Realty Corporation, executed
by the parties in January, 1995 and the Stipulation of Settlement Between
Plaintiffs and Area Lighting Research, Inc. nd NUJA Realty Corporation,
Superior Court of New Jersey, Docket No. WRN-L-000708-92, each as it may be
amended, supplemented or otherwise modified and in effect from time to time.
"ERISA" is defined in subsection 1.4(f).
"Escrow Agent" is defined in Section 1.5.
"Escrow Agreement" is defined in Section 1.5.
"Escrow Deposit" is defined in Section 1.5.
"Excluded Assets" is defined in Section 1.2.
"Facilities" is defined in subsection 1.4(h).
46
<PAGE>
"FIFO" is defined in Section 3.7.
"Final Balance Sheet" is defined in Section 1.5.
"Financial Statements" is defined in Section 3.4.
"FWPCA" is defined in subsection 3.22(a)(i).
"Governmental Authorities" shall mean all agencies, bureaus,
departments and officials of federal, state, county, municipal and local
governments and public authorities having or claiming jurisdiction over the
Facilities or any part thereof, or over the Seller or the Buyer.
"Hackettstown Facility" if defined in subsection 1.4(h).
"Hallenbeck" is defined in the Preamble.
"Hazardous Materials" is defined in subsection 3.22(c).
"Indemnifying Party" is defined in Sections 9.2 and 9.3.
"Indemnitee" is defined in Sections 9.2 and 9.3.
ISRA" shall mean the New Jersey Industrial Site Recovery Act,
P.L. 1993, c.139, c.139, N.J.S.A. 13:1K-6, et seq.
"Intellectual Property" is defined in Section 3.9.
"Leases" is defined in subsection 1.1(b).
"Liabilities Adjustment" is defined in Section 1.5.
"NJDEP" shall mean the New Jersey Department of Environmental
Protection or any successor thereof.
"Noncompete Period" is defined in Section 11.1.
"Proceeding" is defined in subsection 3.20(b).
"Permits" is defined in Section 3.9.
"Person" means an individual, corporation, partnership, joint
venture, trust or unincorporated organization, or a government or any agency
or political subdivision thereof.
"Purchase Price" is defined in Section 1.5.
47
<PAGE>
"Qualified Persons" is defined in Section 3.17.
"RCRA" is defined in subsection 3.22(c).
"Seller" is defined in the Preamble.
"Stockholder" is defined in the Preamble.
"Tax" and "Taxes" shall mean any federal, state, local,
foreign, or other tax, fee, levy, assessment or other governmental charge,
including without limitation any income, franchise, gross receipts, property,
sales, use, services, value added, withholding, social security, estimated,
accumulated earnings, alternative or add-on minimum, transfer, license,
privilege, payroll, profits, capital stock, employment, unemployment, excise,
severance, stamp, occupancy, customs or occupation tax and any interest,
additions to tax and penalties in connection therewith.
"Third Person" is defined in Section 9.5.
"to the knowledge of the Seller or any of the Stockholders" is
defined in subsection 3.22(c)
"TSCA" is defined in subsection 3.22(c).
48
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant
STATE OF OTHER
SUBSIDIARY ORGANIZATION TRADE NAME
---------- ------------ ----------
AFC FITTING, INC. DELAWARE NONE
AFC INVESTMENTS, INC. MASSACHUSETTS NONE
KAF-TECH, INC. DELAWARE NONE
TKN, INC. RHODE ISLAND NONE
WPFY, INC. DELAWARE NONE
AREA LIGHTING RESEARCH, INC. DELAWARE NONE
B&B ELECTRONICS ILLINOIS NONE
MANUFACTURING COMPANY
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-23779) of AFC Cable Systems, Inc. and the related
Prospectus, Registration Statement (Form S-8 No. 33-76298) pertaining to the
1993 Equity Incentive Plan and the 1993 Stock Option Plan for Non-Employee
Directors of AFC Cable Systems, Inc. and the Registration Statement (Form S-8
No. 33-83420) pertaining to the 401(k) Savings and Profit Sharing Plans of
AFC Cable Systems, Inc. of our reports dated February 14, 1997, with respect
to the consolidated financial statements and schedule of AFC Cable Systems,
Inc. included in the Annual Report (Form 10-K) for the year ended December
31, 1996.
ERNST & YOUNG LLP
Providence, Rhode Island
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 980
<SECURITIES> 30,508
<RECEIVABLES> 27,059
<ALLOWANCES> 3,140
<INVENTORY> 20,926
<CURRENT-ASSETS> 78,091
<PP&E> 27,188
<DEPRECIATION> 9,482
<TOTAL-ASSETS> 97,923
<CURRENT-LIABILITIES> 19,132
<BONDS> 0
0
0
<COMMON> 73
<OTHER-SE> 72,917
<TOTAL-LIABILITY-AND-EQUITY> 97,923
<SALES> 161,868
<TOTAL-REVENUES> 161,868
<CGS> 118,487
<TOTAL-COSTS> 118,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 263
<INTEREST-EXPENSE> 728
<INCOME-PRETAX> 18,560
<INCOME-TAX> 7,100
<INCOME-CONTINUING> 11,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,460
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 0
</TABLE>
