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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: July 26, 1998 Commission file number: 0-25066
OWOSSO CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2756709
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
The Triad Building, 2200 Renaissance Boulevard
Suite 150, King of Prussia, PA 19406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 275-4500
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 [ ]
As of September 4, 1998, 5,815,742 shares of the Registrant's Common Stock, $.01
par value, were outstanding.
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OWOSSO CORPORATION
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION:
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Operations 3
for the Three and Nine Months Ended July 26, 1998 and
July 27, 1997 (unaudited)
Condensed Consolidated Balance Sheets at 4
July 26, 1998 (unaudited) and October 26, 1997
Condensed Consolidated Statements of Cash Flows 5
for the Nine Months Ended July 26, 1998 and
July 27, 1997 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 19
Market Risk
PART II - OTHER INFORMATION:
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
2
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OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
July 26, July 27, July 26, July 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 42,998,000 $ 38,290,000 $ 118,920,000 $ 106,019,000
Cost of products sold 34,503,000 29,662,000 92,705,000 81,760,000
------------- ------------- ------------- -------------
Gross profit 8,495,000 8,628,000 26,215,000 24,259,000
Expenses:
Selling, general and administrative 5,282,000 4,759,000 15,787,000 14,578,000
Corporate 1,396,000 1,129,000 4,420,000 3,682,000
Restructuring charge 909,000 -- 909,000 --
------------- ------------- ------------- -------------
Income from operations 908,000 2,740,000 5,099,000 5,999,000
Interest expense 1,272,000 1,049,000 3,668,000 3,024,000
Gain on sale of business -- -- 2,775,000 --
Other income 2,000 87,000 73,000 178,000
------------- ------------- ------------- -------------
Income (loss) before income taxes (362,000) 1,778,000 4,279,000 3,153,000
Income tax expense (benefit) (24,000) 844,000 2,674,000 1,455,000
------------- ------------- ------------- -------------
Net income (loss) (338,000) 934,000 1,605,000 1,698,000
Dividends and accretion on preferred stock (268,000) (262,000) (800,000) (783,000)
------------- ------------- ------------- -------------
Net income (loss) available
for common stockholders $ (606,000) $ 672,000 $ 805,000 $ 915,000
============= ============= ============= =============
Earnings (loss) per common share:
Basic $ (0.10) $ 0.12 $ 0.14 $ 0.16
============= ============= ============= =============
Diluted $ (0.10) $ 0.12 $ 0.14 $ 0.16
============= ============= ============= =============
Weighted average number of
common shares outstanding:
Basic 5,815,000 5,809,000 5,812,000 5,809,000
============= ============= ============= =============
Diluted 5,815,000 5,830,000 5,832,000 5,826,000
============= ============= ============= =============
</TABLE>
See notes to condensed consolidated financial statements.
3
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OWOSSO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
July 26, October 26,
1998 1997
ASSETS (Unaudited) (See Note)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 150,000 $ 840,000
Receivables, net 22,921,000 19,868,000
Inventories, net 24,507,000 23,084,000
Prepaid expenses and other 1,376,000 1,153,000
Deferred taxes 684,000 1,039,000
------------ ------------
Total current assets 49,638,000 45,984,000
PROPERTY, PLANT AND EQUIPMENT, NET 35,993,000 27,443,000
GOODWILL, NET 27,573,000 29,048,000
OTHER INTANGIBLE ASSETS, NET 8,902,000 8,054,000
OTHER ASSETS 1,507,000 1,152,000
------------ ------------
TOTAL ASSETS $123,613,000 $111,681,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 10,434,000 $ 8,821,000
Accrued expenses 7,553,000 6,323,000
Current portion of related party debt 2,843,000 3,750,000
Current portion of long-term debt 1,502,000 2,479,000
------------ ------------
Total current liabilities 22,332,000 21,373,000
LONG-TERM DEBT, LESS CURRENT PORTION 58,960,000 48,619,000
POSTRETIREMENT BENEFITS 2,663,000 1,812,000
DEFERRED TAXES 3,405,000 3,147,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY 36,253,000 36,730,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $123,613,000 $111,681,000
============ ============
</TABLE>
Note: the balance sheet at October 26, 1997 has been condensed from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
4
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OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------
July 26, July 27,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,605,000 $ 1,698,000
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation 3,432,000 3,003,000
Amortization 1,773,000 1,609,000
Gain on sale of business (2,775,000) --
Other 456,000 45,000
Changes in operating assets and liabilities (5,573,000) (3,338,000)
------------ ------------
Net cash (used in) provided by operating activities (1,082,000) 3,017,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of businesses 14,075,000 --
Acquisition of businesses, net of cash acquired (10,667,000) --
Purchases of property, plant and equipment (7,070,000) (3,986,000)
Other 747,000 82,000
------------ ------------
Net cash used in investing activities (2,915,000) (3,904,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreement 11,850,000 5,850,000
Proceeds from long-term debt 300,000 350,000
Payments on long-term debt (5,804,000) (1,245,000)
Payments on related party debt (907,000) (2,225,000)
Dividends paid (2,132,000) (2,131,000)
------------ ------------
Net cash provided by financing activities 3,307,000 599,000
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (690,000) (288,000)
CASH AND CASH EQUIVALENTS, BEGINNING 840,000 840,000
------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 150,000 $ 552,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 3,422,000 $ 3,012,000
============ ============
Taxes paid $ 3,211,000 $ 911,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
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OWOSSO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company - The consolidated financial statements represent the
consolidated financial position, results of operations and cash flows of
Owosso Corporation and subsidiaries (the "Company"). The subsidiaries
include:
o The "Motor Companies":
o Motor Products - Owosso Corporation ("Motor Products")
o Motor Products - Ohio Corporation ("MP-Ohio")
o Stature Electric, Inc. ("Stature")
o Owosso Motor Group, Inc. ("Motor Group")
o Cramer Company ("Cramer") - merged into M.H. Rhodes, Inc.
June 30, 1998
o M.H. Rhodes, Inc. ("Rhodes") - acquired June 30, 1998
o Snowmax, Incorporated ("Snowmax")
o Astro Air, Inc. ("Astro Air") - acquired April 26, 1998
o The Landover Company ("Dura-Bond")
o Sooner Trailer Manufacturing Co. ("Sooner")
o DewEze Manufacturing, Inc.("DewEze") - sold July 24, 1998
o Parker Industries ("Parker")
o Great Bend Manufacturing Company, Inc. ("Great Bend") - sold
April 26, 1998
The Company is a diversified manufacturer of products in narrowly defined
niche markets and currently operates in two business segments, Engineered
Component Products (the Motor Companies, Snowmax, Dura-Bond, and Astro Air)
and Specialized Equipment (Sooner, Parker, and DewEze and Great Bend prior
to their dispositions). In the Engineered Component Products segment, the
Company's products, primarily motors, heat transfer "fin and tube" coils
and replacement cam shaft bearings, are sold primarily to original
equipment manufacturers or service providers who use them in their end
products or services. The products sold in the Specialized Equipment
segment, primarily all-aluminum horse trailers and agricultural equipment,
are almost exclusively final products sold through dealers to their users.
Nearly all of the Company's customers are located in North America.
Financial Statements - The condensed consolidated balance sheet as of July
26, 1998 and the condensed consolidated statements of operations and cash
flows for the three- and nine-month periods ended July 26, 1998 and July
27, 1997 have been prepared by the Company, without audit. In the opinion
of management, all adjustments (which include only normal recurring
adjustments) considered necessary for a fair presentation have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's October 26, 1997 Annual Report
on Form 10-K.
Reclassifications - Certain reclassifications have been made to the 1997
consolidated financial statements to conform to the 1998 presentation.
6
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Seasonality - Sales of certain of the Company's specialized equipment tend
to be seasonal with lowest sales during the first quarter and higher sales
during the fourth fiscal quarter, corresponding with the fall harvest
season for farmers. Sales of the Company's engineered component products
experience less seasonality but generally are lowest during the first
fiscal quarter.
Cyclicality - The Company's Engineered Component Products segment is
subject to changes in the overall level of domestic economic activity. The
Specialized Equipment segment is subject to changes in certain sectors of
the agricultural economy, which may be influenced by climate changes and
government policy. The segment's horse trailer sales, which have not tended
to be affected by changes in the agricultural economy, have had a
moderating effect on the results of the entire Specialized Equipment
segment, but are subject to the overall domestic business cycle.
Earnings per share - Effective for the first quarter of fiscal 1998, the
Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share." In accordance with the provisions of this
statement, all prior periods presented have been restated. Basic earnings
per common share is computed by dividing net earnings (the numerator) by
the weighted average number of common shares outstanding during each period
(the denominator). The computation of diluted earnings per common share is
similar to that of basic earnings per common share, except that the
denominator is increased by the dilutive effect of stock options
outstanding, computed using the treasury stock method.
New Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which establishes standards for reporting and
disclosure of comprehensive income, is effective for fiscal years beginning
after December 15, 1997, although earlier adoption is permitted.
Reclassification of financial information for earlier periods presented for
comparative purposes is required under SFAS No. 130. As this statement only
requires additional disclosures in the Company's consolidated financial
statements, its adoption will not have any impact on the Company's
consolidated financial position or results of operations. The Company
expects to adopt SFAS No. 130 in the first quarter of fiscal 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement, which establishes
standards for reporting information about operating segments and requires
the reporting of selected information about operating segments in interim
financial statements, is effective for fiscal years beginning after
December 15, 1997, although earlier adoption is permitted. Reclassification
of segment information for earlier periods presented for comparative
purposes is required under SFAS No. 131. The Company has not yet completed
its analysis of the effects of adopting this statement on its presentation
of financial data by business segment. The Company expects to adopt SFAS
No. 131 in the first quarter of fiscal 1999.
In March 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement, which revises
the required disclosures for employee benefit plans, is effective for
fiscal years beginning after December 15, 1997, although earlier adoption
is permitted. Restatement of disclosures for earlier periods presented for
comparative purposes is required under SFAS No. 132. As this statement only
revises disclosures in the Company's consolidated financial statements, its
adoption will not have any impact on the Company's consolidated financial
position or results of operations. The Company expects to adopt SFAS No.
132 in fiscal 1999.
7
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2. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES
Sale of DewEze - Effective July 24, 1998, the Company sold substantially
all of the assets of DewEze to Harper Industries, Inc., a company formed by
the president of the subsidiary for cash proceeds of approximately
$4,200,000 and a note for $700,000, plus the assumption of approximately
$600,000 in liabilities. Quarterly principal payments are due on the note
beginning January 2001 through October 2005. Interest on the note is due
quarterly at 9% per annum beginning January 1999 through October 2001, at
which time the rate increases to 12% per annum, and further increases 1%
per year thereafter through maturity of the note. Gain on the sale of
DewEze of $101,000 has been deferred until maturity of the note. The
Company has no further commitments or contingencies related to the sale of
DewEze. The Company's results of operations for the nine months ended
July 26, 1998 include net sales and income from operations, before
allocation of corporate expenses, from DewEze of $5,800,000 and $223,000,
respectively.
Acquisition of Rhodes - Effective June 30, 1998, the Company acquired all
of the outstanding stock of M.H. Rhodes, Inc. ("Rhodes"), a publicly-held
manufacturer of mechanical timers and photoelectric controls, located in
Avon, Connecticut, for $2,900,000 in cash, plus the repayment, shortly
after closing, of approximately $425,000 of debt. The acquisition has been
accounted for by the purchase method of accounting. The purchase price has
been preliminarily allocated to the net assets acquired based on estimated
fair values at the date of acquisition. This resulted in excess of purchase
price over assets acquired of approximately $305,000, which is being
amortized on a straight-line basis over 20 years. The Company intends to
consolidate the operations of its Cramer subsidiary, located in Old
Saybrook, Connecticut, into Rhodes' manufacturing facility. See Note 3 -
Restructuring Charges.
Sale of Great Bend - Effective April 26, 1998, the Company sold
substantially all of the assets of Great Bend to Allied Products
Corporation, of Chicago, Illinois for cash proceeds of approximately
$9,900,000, plus the assumption of approximately $2,100,000 in liabilities.
The Company recorded a pre-tax gain on the sale of Great Bend of $2,775,000
($924,000, net of tax). The Company's results of operations for the six
months ended April 26, 1998 include net sales and income from operations,
before allocation of corporate expenses, from Great Bend of $7,251,000 and
$670,000, respectively.
Acquisition of Astro Air - Effective April 26, 1998, the Company acquired
substantially all of the assets of Astro Air, Inc. ("Astro Air"), a
Jacksonville, Texas manufacturer of "fin and tube" heat transfer coils, for
$8,000,000 in cash, plus the repayment, shortly after closing, of
approximately $2,700,000 of debt. In connection with the acquisition, the
Company has entered into a five-year consulting agreement with Dacus
Properties, Inc. ("DPI"), the former owner of Astro Air, under which DPI
will receive 3.4% of the net revenues generated by certain specified
customers. The acquisition has been accounted for by the purchase method of
accounting. The purchase price has been preliminarily allocated to the net
assets acquired based on estimated fair values at the date of acquisition.
This resulted in excess of purchase price over assets acquired of
approximately $950,000, which is being amortized on a straight-line basis
over 20 years.
The following unaudited pro forma financial information presents the
consolidated results of operations of the Company as if the acquisitions of
Rhodes and Astro Air and the dispositions of DewEze and Great Bend had
occurred at the beginning of fiscal year 1997 after giving effect to
certain adjustments, including depreciation expense related to the fair
market write-up of machinery and equipment, amortization of intangible
assets, including goodwill, the elimination of the gain on the disposition
of Great Bend and elimination of the restructuring charge and other
merger-related costs incurred in connection with the merger of Cramer into
Rhodes, including the termination of the lease on the Cramer facility. The
unaudited pro forma information is presented
8
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for comparative purposes only and does not purport to be indicative of the
results of operations of the Company had these transactions been made at
the beginning of fiscal year 1997.
Nine Months Ended
---------------------
July 26, July 27,
1998 1997
Net sales $ 124,409,000 $ 111,373,000
Net income 1,487,000 1,552,000
Net income available for common stockholders 687,000 769,000
Basic earnings per common share $ 0.12 $ 0.13
3. RESTRUCTURING CHARGE
In connection with the merger of the Company's Cramer subsidiary into
Rhodes and the consolidation of Cramer's manufacturing into Rhodes'
manufacturing facility, the Company recorded a restructuring charge of
$909,000. The restructuring charge includes $583,000 for the termination of
the lease on Cramer's current manufacturing facility, $102,000 for the
write-off of inventory for discontinued product lines, $174,000 for
employee severance and termination benefits for 74 employees, and $50,000
for the write-off of manufacturing equipment. The amount of actual
termination benefits subsequently paid and charged against the liability
and the actual number of employees terminated did not differ significantly
from the original estimates. The restructuring is expected to be completed
during the remainder of 1998 and the remaining charges will be paid during
the next twelve months.
4. INVENTORIES
July 26, October 26,
1998 1997
Raw materials and purchased parts $ 10,578,000 $ 9,325,000
Work in process 5,976,000 5,014,000
Finished goods 7,953,000 8,745,000
------------ ------------
Total $ 24,507,000 $ 23,084,000
============ ============
9
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5. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state and local environmental regulation
with respect to its operations. The Company believes that it is operating
in substantial compliance with applicable environmental regulations.
Manufacturing and other operations at the Company's various facilities may
result, and may have resulted, in the discharge and release of hazardous
substances and waste from time to time. The Company routinely responds to
such incidents as deemed appropriate pursuant to applicable federal, state
and local environmental regulations.
Cramer is a party to a consent decree with the State of Connecticut
pursuant to which it has agreed to complete its environmental investigation
of the site on which its facility is located and conduct any remedial
measures which may be required. Cramer is also in negotiations with the
former operator of the site concerning the reimbursement by the former
operator of any costs the Company has incurred or may incur in the future
in connection with this matter. The Company does not believe that the
resolution of this matter will have a material adverse effect on the
financial results of the Company.
The Company has been named as a potentially responsible party with respect
to two hazardous substance disposal sites currently under remediation by
the U.S. Environmental Protection Agency (the "EPA") under its "Superfund"
program. With respect to both sites, based on the minimal amount of waste
alleged to have been contributed to the site by the Company, the Company
expects to resolve the matter through the payment of de minimis amounts.
Rhodes has been named as a potentially responsible party with respect to a
hazardous disposal site currently under remediation by the EPA under its
"Superfund" program. Based on the minimal amount of waste alleged to have
been contributed to the site by Rhodes, the Company expects to resolve the
matter through the payment of a de minimis amount. Rhodes is also involved
in environmental remediation at its manufacturing site, which is not
subject to any Superfund law proceeding. The Company does not believe that
the resolution of this matter will have a material adverse effect on the
financial results of the Company.
Sooner has arrangements with a number of financial institutions to provide
floor plan financing for its dealers, which requires it to repurchase
repossessed products from the financial institutions in the event of a
default by the financed dealer. Its obligation is typically to repurchase
the equipment at 90% of the purchase price for the first 180 days, 80% for
the next 90 days and 70% for the next 90 days, after which the obligation
expires. In the event of a default by all of the financed dealers, the
Company would be required to repurchase approximately $10.4 million of
product as of July 26, 1998. The Company does not believe that its
obligation under these repurchase agreements will have a material adverse
effect on the financial results of the Company. Sooner has not taken
possession on any significant amount of equipment pursuant to the
repurchase obligations in these contracts.
In addition to the matters reported herein, the Company is involved in
litigation dealing with numerous aspects of its business operations. The
Company believes that settlement of such litigation will not have a
material effect on its consolidated financial position, results of
operations or cash flows.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion addresses the financial condition of the Company as of
July 26, 1998 and the results of operations for the three and nine-month periods
ended July 26, 1998 and July 27, 1997. This discussion should be read in
conjunction with the financial statements included elsewhere herein and the
Management's Discussion and Analysis and Financial Statement sections of the
Company's Annual Report on Form 10-K to which the reader is directed for
additional information.
Seasonality. Sales of certain of the Company's specialized equipment tend to be
seasonal, with lowest sales during the first fiscal quarter and higher sales
during the fourth fiscal quarter, corresponding with the fall harvest season for
farmers. Sales of the Company's engineered component products experience less
seasonality but generally are lowest during the first fiscal quarter.
General
During the second fiscal quarter of 1998, the Company announced its intention to
exit the three agricultural equipment businesses included in its Specialized
Equipment segment in order to focus its resources on expanding the Company's
Engineered Component Products businesses and improving the performance of its
trailer business.
As the first step in this process, the Company completed the sale of
substantially all of the assets of its Great Bend Manufacturing subsidiary to
Allied Products Corporation, effective April 26, 1998. Proceeds from the sale
were approximately $9.9 million, plus the assumption of approximately $2.1
million in liabilities. The Company recorded a gain on the sale of $2.8 million
($924,000, net of tax).
On July 24, 1998, the Company completed the sale of the assets of its DewEze
Manufacturing ("DewEze") business to Harper Industries, Inc., a company formed
by the president of the subsidiary. Proceeds from the sale were approximately
$4.2 million in cash and a note for $700,000, plus the assumption of
approximately $600,000 in liabilities. Gain on the sale of DewEze of $101,000
has been deferred until maturity of the note in October 2005. The Company has no
further commitments or contingencies related to the sale of DewEze.
The Company's previously announced non-binding letter of intent to sell the
assets of its Parker Industries ("Parker") grain handling equipment business has
expired, with no definitive agreement being reached. The Company is continuing
its efforts to sell Parker and has been in contact with a number of parties in
this regard. However, there can be no assurances as to whether or when such a
sale will be consummated.
Effective April 26, 1998, the Company acquired substantially all of the assets
of Astro Air, Inc. ("Astro Air"), a Jacksonville, Texas manufacturer of "fin and
tube" heat transfer coils, for $8.0 million in cash, plus the repayment, shortly
after closing, of approximately $2.7 million of debt. In connection with the
acquisition, the Company has entered into a five-year consulting agreement with
Dacus Properties, Inc. ("DPI"), the former owner of Astro Air, under which DPI
will receive 3.4% of the net revenues generated by certain specified customers.
The Company recorded $205,000 in connection with this agreement in the third
quarter of 1998 as goodwill.
On June 30, 1998, the Company completed the acquisition of all of the
outstanding stock of M.H. Rhodes, Inc. ("Rhodes"), a publicly held manufacturer
of mechanical timers and photoelectric controls, located in Avon, Connecticut.
The purchase price of $14.51 per Rhodes share aggregated $2.9 million, plus the
assumption or repayment of debt of approximately $1.2 million. The Company is
consolidating the operations of its Cramer subsidiary, located in Old Saybrook,
Connecticut, into Rhodes' manufacturing facility. See Restructuring Charge.
11
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Results of Operations
The following table sets forth for the periods indicated the percentage
relationship that certain items in the Company's Condensed Consolidated
Statements of Operations bear to net sales.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
July 26, July 27, July 26, July 27,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 80.2% 77.5% 78.0% 77.1%
--------- --------- --------- ---------
Gross profit 19.8% 22.5% 22.0% 22.9%
Expenses:
Selling, general and administrative 12.3% 12.4% 13.3% 13.8%
Corporate 3.2% 2.9% 3.7% 3.4%
Restructuring charge 2.1% 0.0% 0.8% 0.0%
--------- --------- --------- ---------
Income from operations 2.2% 7.2% 4.2% 5.7%
Interest expense 3.0% 2.7% 3.1% 2.9%
Gain on sale of business 0.0% 0.0% -2.4% 0.0%
Other income 0.0% -0.2% -0.1% -0.2%
--------- --------- --------- ---------
Income (loss) before income taxes -0.8% 4.7% 3.6% 3.0%
Income tax expense 0.0% 2.2% 2.2% 1.4%
--------- --------- --------- ---------
Net income (loss) -0.8% 2.5% 1.4% 1.6%
Dividends and accretion on preferred stock 0.6% 0.7% 0.7% 0.7%
--------- --------- --------- ---------
Net income (loss) available for common stockholders -1.4% 1.8% 0.7% 0.9%
========= ========= ========= =========
</TABLE>
Three months ended July 26, 1998 compared to three months ended July 27, 1997
Net sales. For the third quarter of 1998, net sales increased 12.3%, to $43.0
million, as compared to net sales of $38.3 million in the third quarter of 1997.
These results include both the effects of disposing of Great Bend and acquiring
Astro Air. Sales attributable to Great Bend included in 1997 results were $3.6
million. Sales attributable to Astro Air included in 1998 results were $6.5
million. Exclusive of the effects of Great Bend and Astro Air, sales increased
$1.8 million, or 5.2% as compared to the prior year quarter.
In the Company's Engineered Component Products segment, net sales increased $7.8
million, to $29.1 million in 1998 from $21.4 million in 1997. This increase
includes $6.5 million in net sales at Astro Air which was acquired April 26,
1998. Sales results at the Motor Companies were mixed resulting in an overall
increase of 5.6% over the prior year quarter, primarily attributable to
increased sales to existing customers and the addition of new customers. Sales
of heat transfer coils at Snowmax increased 6.3% over the prior year quarter,
primarily as a result of increased unit volume, while sales of replacement
camshaft bearings at Dura-Bond increased 5.7% as compared to the prior year
quarter.
Net sales in the Specialized Equipment segment decreased $3.0 million, to $13.9
million in the third quarter of 1998, as compared to $16.9 million in the prior
year quarter, reflecting an increase in sales of aluminum trailers, offset by
reduced sales of agricultural equipment, primarily as a result of the sale of
Great Bend. Sales of aluminum trailers were $9.3 million for the third quarter
of 1998, an increase of 18.2% over the prior year's quarterly net sales of $7.8
million. This increase was attributable to both a price increase effective
beginning in the second quarter of 1998 and increased volume. Net sales of
agricultural equipment decreased $4.5 million, reflecting the sale of Great Bend
on April 26, 1998. Net
12
<PAGE>
sales attributable to Great Bend were $3.6 million in the prior year quarter. In
addition, weak demand at Parker, which the Company is continuing its efforts to
sell, resulted in decreased sales of $1.1 million.
Gross profit. For the third quarter of 1998, gross profit was $8.5 million, or
19.8% of net sales, as compared to $8.7 million, or 22.5% of net sales in the
prior year quarter.
Gross profit in the Engineered Component Products segment increased 14.6%, to
$5.7 million, as compared to $5.0 million, in the third quarter of 1997. This
increase reflects gross profit of $702,000 attributable to Astro Air, a
$248,000, or 32.5%, increase in gross profit at Snowmax, resulting from
increased sales volume and changes in product mix and a $220,000, or 28.2%,
increase at Dura-Bond as a result of changes in customer mix. These increases
were partially offset by decreased gross profit at the Motor Companies as a
result of the write-off of approximately $327,000 of inventory in connection
with the merger of the Company's Cramer subsidiary into Rhodes. As a percentage
of sales, gross profit decreased to 19.7%, from 23.4% in the prior year quarter.
This decrease was primarily attributable to the inclusion of Astro Air, which
has lower margins as compared to the other companies in this segment and the
Cramer merger-related costs.
In the Specialized Equipment segment, gross profit decreased 23.7%, to $2.8
million, as compared to $3.6 million, in 1997. This decrease reflects the sale
of Great Bend, gross profit from which was $1.0 million in the prior year
quarter, increased warranty costs at DewEze and lower sales at Parker. The
decrease in gross profit at the agricultural equipment companies was partially
offset by improved operations at Sooner Trailer. In response to disappointing
operating results in the first quarter of 1998, the Company discontinued the
production of certain low-margin livestock trailers and instituted price
increases on certain other models. As a result, Sooner's gross profit increased
by $406,000, or 28.4%, as compared to the third quarter of 1997.
Selling, general and administrative expenses. As a percentage of net sales,
selling, general and administrative expenses decreased to 12.3%, or $5.3
million, in the third quarter of 1998, as compared to 12.4%, or $4.8 million in
the prior year quarter.
In the Engineered Component Products segment, selling general and administrative
expenses were $3.3 million, or 11.3% of net sales, as compared to $2.4 million
or 11.4% of net sales in the third quarter of 1997. The increase in selling,
general and administrative expenses in this segment was primarily the result of
approximately $380,000 of expenses related to the merger of the Company's Cramer
subsidiary into Rhodes. Such expenses consisted primarily of training costs,
consulting costs for enhancements to the management information systems,
temporary help and the cost of moving Cramer's facility. The Company estimates
that it will incur an additional $200,000 of merger-related costs in the fourth
quarter. The increase in selling, general and administrative costs was also a
result of the acquisition of Astro Air and increased sales and administrative
personnel costs at the Motor Companies.
In the Specialized Equipment segment, selling, general and administrative
expenses were $2.0 million, or 14.4% of net sales, in 1998, as compared to $2.3
million, or 13.8% of net sales, in the prior year quarter. The decrease in
selling, general and administrative expenses in this segment reflects the sale
of Great Bend, partially offset by an increase in sales personnel and increased
advertising and promotional costs at Sooner.
Corporate expenses. In the third quarter of 1998, corporate expenses were $1.4
million, or 3.2% of net sales, as compared to $1.1 million, or 2.9% of net sales
in 1997. Corporate expenses increased primarily as a result of higher personnel
costs and increased consulting and legal and professional costs.
13
<PAGE>
Restructuring charge. In connection with the merger of the Company's Cramer
subsidiary into Rhodes and the consolidation of Cramer's manufacturing into
Rhodes' manufacturing facility, the Company recorded a restructuring charge of
$909,000 in the third quarter of 1998. The restructuring charge includes
$583,000 for the termination of the lease on Cramer's current manufacturing
facility, $102,000 for the write-off of inventory for discontinued product
lines, $174,000 for employee severance and termination benefits for 74
employees, and $50,000 for the write-off of manufacturing equipment. The
restructuring is expected to be completed during the remainder of 1998 and the
remaining charges will be paid during the next twelve months.
Income from operations. For the third quarter of 1998, income from operations
decreased $1.8 million, to $908,000, as compared to $2.7 million, in 1997,
reflecting the restructuring charge of $909,000 and $707,000 of merger-related
expenses taken in the third quarter of 1998.
Among other measures, the Company evaluates the operating performance of its
business segments and its individual subsidiaries based on business unit income,
which is defined as income from operations before allocation of corporate
expenses and before the restructuring charge. The Company believes this
measurement most closely reflects the subsidiaries' individual contributions. On
this basis, business unit income for the Engineered Component Products segment
decreased to $2.4 million, in the third quarter of 1998, as compared to $2.6
million, in the prior year quarter. This decrease resulted from reduced business
unit income at the Motor Companies, primarily attributable to lower sales,
reduced margins and merger-related costs at the Company's Cramer subsidiary,
partially offset by the acquisition of Astro Air and improved margins at Snowmax
and Dura-Bond. As a percentage of net sales, business unit income for this
segment decreased to 8.4% in 1998 from 12.0% in 1997. This decrease was
primarily a result of decreased margins at the Motor Companies, primarily
related to Cramer merger costs, partially offset by improved margins at Snowmax
and Dura-Bond. This decrease was also attributable to the inclusion of Astro
Air, which has lower margins as compared to other companies in this segment.
Business unit income from the Specialized Equipment segment decreased $532,000,
to $773,000 in the third quarter of 1998, from $1.3 million in the prior year
quarter. This decrease reflects the sale of Great Bend, which contributed
business unit income of $423,000 in 1997 and reduced business unit income from
DewEze as a result of increased warranty costs, partially offset by improved
operations at Sooner Trailers.
Interest expense. For the third quarter of 1998, interest expense increased to
$1.3 million, as compared to $1.0 million in 1997, primarily as a result of
increased borrowings under the Company's revolving credit agreement.
Income tax expense. The Company's effective tax rate was adversely affected in
the third quarter of 1998 by a higher proportion of non-deductible expenses,
primarily non-cash amortization expenses related to acquisitions, as compared to
pretax income.
Net income (loss) available for common stockholders. Net loss available for
common stockholders was $606,000, or $.10 per share, in the third quarter of
1998, as compared to net income available for common stockholders of $672,000,
or $.12 per share, in the prior year quarter. Income (loss) available for common
stockholders is calculated by subtracting dividends on preferred stock of
$187,000 for both 1998 and 1997 and by deducting the non-cash accretion in book
value of preferred stock of $81,000 and $75,000 for 1998 and 1997, respectively.
As discussed above, the current quarter results include a restructuring charge
and other merger-related costs incurred in connection with the merger of Cramer
into Rhodes.
14
<PAGE>
Nine months ended July 26, 1998 compared to nine months ended July 27, 1997
Net sales. Net sales for the nine months ended July 26, 1998 increased 12.2%, to
$118.9 million, as compared to net sales of $106.0 million in the first nine
months of 1997. These results include both the effects of disposing of Great
Bend and acquiring Astro Air. Sales attributable to Great Bend were $7.3 million
in 1998 and $10.3 million in 1997. Sales attributable to Astro Air included in
1998 results were $6.5 million. Exclusive of the effects of Great Bend and Astro
Air, sales increased $9.5 million, or 9.9% as compared to the prior year period.
In the Company's Engineered Component Products segment, net sales increased
$11.3 million, or 18.9%, to $71.0 million in 1998 from $59.7 million in 1997.
This increase reflects $6.5 million in net sales at Astro Air, acquired at the
end of the second quarter of 1998. This increase also reflects a 9.5% increase
in sales at the Motor Companies as a result of increased sales volume to
existing customers and the addition of new customers and a 6.9% increase in
sales of heat transfer coils at Snowmax, primarily as a result of increased unit
volume.
Net sales in the Specialized Equipment segment increased 3.5%, to $47.9 million
in 1998, as compared to $46.3 million in the prior year period. This increase
reflects a 16.7%, or $3.7 million, increase in sales of aluminum trailers,
partially offset by an 8.3%, or $2.0 million, decrease in sales of agricultural
equipment, reflecting the sale of Great Bend. Sales attributable to Great Bend
were $7.3 million in 1998 and $10.3 million in 1997.
Gross profit. For the nine months ended July 26, 1998, gross profit increased
8.1%, to $26.2 million, or 22.0% of net sales, as compared to $24.3 million, or
22.9% of net sales in the prior year period.
Gross profit in the Engineered Component Products segment increased 15.2%, or
$2.2 million, to $16.3 million, as compared to $14.2 million in 1997. This
increase reflects gross profit of $702,000 attributable to Astro Air, a 31.2%,
or $671,000, increase in gross profit at Snowmax, resulting from increased sales
volume and changes in product mix, and an 11.5%, or $288,000, increase in gross
profit from Dura-bond. This increase was also attributable to an 5.2%, or
$492,000, increase in gross profit at the Motor Companies, as a whole. Gross
profit at the Motor Companies was adversely affected by the write-off of
approximately $327,000 of inventory in connection with the Cramer merger into
Rhodes. As a percentage of sales, gross profit decreased marginally to 23.0%,
from 23.7% in the prior year period. This decrease was primarily attributable to
the inclusion of Astro Air, which has lower margins as compared to the other
companies in this segment, and the Cramer merger-related costs.
In the Specialized Equipment segment, gross profit was $9.9 million in 1998, as
compared to $10.1 million, in 1997. Improved operating results at Sooner
resulted in a 17.2%, or $628,000 increase in gross profit. This increase was
offset by the effects of selling Great Bend. Gross profit attributable to Great
Bend was $2.0 million in 1998 and $3.1 million in the prior year period. As a
percentage of sales, gross profit decreased to 20.7%, from 21.8% in the prior
year period. This decrease was primarily attributable to the disposition of
Great Bend, which had higher margins as compared to the other companies in this
segment.
Selling, general and administrative expenses. As a percentage of net sales,
selling, general and administrative expenses decreased to 13.3%, or $15.8
million, in 1998, as compared to 13.8%, or $14.6 million in the prior year
period.
In the Engineered Component Products segment, selling general and administrative
expenses were $8.4 million, or 11.8% of net sales, in 1998, as compared to $7.3
million, or 12.3% of net sales, in 1997. The increase in selling, general and
administrative expenses in this segment was primarily the result of
15
<PAGE>
approximately $380,000 of expenses related to the merger of Cramer and the
inclusion of the results of Astro Air. The increase in selling, general and
administrative costs was also a result of increased sales and administrative
personnel costs and increased engineering costs in response to increased sales
at the Motor Companies.
In the Specialized Equipment segment, selling, general and administrative
expenses were $7.5 million, or 15.6% of net sales, in 1998, as compared to $7.2
million, or 15.6% of net sales, in the prior year period. The increase in
selling, general and administrative expenses in this segment was primarily the
result of an increase in sales personnel and increased advertising and
promotional costs at Sooner, partially offset by the effect of disposing of
Great Bend.
Corporate expenses. For the current nine-month period, corporate expenses were
$4.4 million, or 3.7% of net sales, as compared to $3.7 million, or 3.4% of net
sales in the prior year period. Corporate expenses increased primarily as a
result of higher personnel and related costs and increased consulting and legal
and professional expenses.
Restructuring charge. As discussed above, in connection with the merger of the
Company's Cramer subsidiary into Rhodes and the consolidation of Cramer's
manufacturing into Rhodes' manufacturing facility, the Company recorded a
restructuring charge of $909,000 in the third quarter of 1998.
Income from operations. For the nine months ended July 26, 1998, income from
operations was $5.1 million, as compared to $6.0 million, in 1997. This decrease
reflects $909,000 of restructuring charges and $707,000 of merger-related
expenses taken in the third quarter of 1998 in connection with the Cramer merger
into Rhodes, as discussed above.
Business unit income, defined as income from operations before allocation of
corporate expenses and before the restructuring charge, for the Engineered
Component Products segment increased 16.6%, to $7.9 million, or 11.2% of net
sales in the current period, as compared to $6.8 million, or 11.4% of net sales,
in 1997. This increase in business unit income was primarily a result of strong
sales and improved margins at Snowmax, improved results at Dura-bond and the
acquisition of Astro Air. This increase was partially offset by reduced business
unit income at the Motor Companies, primarily attributable to weak sales,
reduced margins and merger-related expenses at the Company's Cramer subsidiary.
Business unit income from the Specialized Equipment segment was $2.5 million in
1998, as compared to $2.9 million, in 1997. These results reflect a $472,000
decrease in business unit income from the agricultural equipment companies,
primarily as a result of the disposition of Great Bend, partially offset by
increased business unit income from Sooner Trailer in the second and third
fiscal quarters, primarily as a result of changes in product mix. Business unit
income attributable to Great Bend was $670,000 and $1.1 million in the 1998 and
1997 periods, respectively.
Interest expense. For the current nine-month period, interest expense increased
to $3.7 million, as compared to $3.6 million in 1997, primarily as a result of
increased borrowings under the Company's revolving credit agreement.
Income tax expense. The Company's effective income tax rate was 62.5% for the
nine months ended July 26, 1998, as compared to 46.1% in the prior year period.
The effective tax rate for 1998 has been adversely affected as a result of
non-deductible goodwill associated with the sale of Great Bend and by a higher
proportion of non-deductible expenses, primarily non-cash amortization expenses
related to acquisitions, as compared to pretax income. The Company expects its
effective tax rate to decline marginally for the remainder of the year.
16
<PAGE>
Net income available for common stockholders. Net income available for common
stockholders was $805,000, or $.14 per share, in the first nine months of 1998,
as compared to $915,000, or $.16 per share, in the prior year period. Income
available for common stockholders is calculated by subtracting dividends on
preferred stock of $563,000 for both 1998 and 1997 and by deducting the non-cash
accretion in book value of preferred stock of $237,000 and $220,000 for 1998 and
1997, respectively. The current period results include the gain on the sale of
Great Bend and a restructuring charge and other merger-related costs incurred in
connection with the merger of Cramer into Rhodes.
Liquidity and Capital Resources
At July 26, 1998, cash and cash equivalents were $150,000, as compared to cash
of $840,000 and $298,000 of cash that was restricted under industrial revenue
financings as of October 26, 1997. Working capital increased to $27.3 million at
July 26, 1998 from $24.6 million at October 26, 1997. This increase was
principally a result of additional investments in accounts receivable and
inventory of $3.1 million and $1.4 million, respectively, as well as a reduction
in the current portion of long-term debt of $1.9 million, partially offset by an
increase in accounts payable and accrued expenses of $2.8 million. Net cash used
in operating activities was $1.1 million, as compared to net cash provided by
operating activities of $3.0 million in the prior year period. The decrease in
cash from operations was principally the result of changes in inventory levels
and accounts payable and decreased operating results, reflecting the
restructuring charge recorded in the third quarter of 1998.
Investing activities included cash proceeds from the sale of DewEze of $4.2
million and from the sale of Great Bend of $9.9 million. Investing activities
included the acquisition of the assets of Astro Air for $7.8 million, net of
cash acquired and the acquisition of the stock of Rhodes for $2.7 million, net
of cash acquired. Investing activities also included $7.1 million for capital
expenditures for equipment. Of this amount, approximately $5.4 million was
invested in the Engineered Component Products segment, including $2.0 million
for the expansion of the Stature manufacturing facility and related machinery
and equipment, and $1.0 million in the Specialized Equipment segment. The
remainder, $652,000, was invested in computer equipment and software upgrades at
the corporate office. The Company currently plans to invest approximately $2.0
million during the remainder of fiscal 1998, including approximately $800,000
for the expansion of the Stature manufacturing facility and related machinery
and equipment, expected to be substantially completed in the fourth quarter of
1998. Funding for the Stature expansion is expected to be through the use of
industrial revenue financing. Management anticipates funding the other capital
expenditures with cash from operations and proceeds from the Company's revolving
credit facility.
Financing activities included net borrowings under the Company's $55.0 million
revolving credit agreement of $11.9 million, related to increased working
capital needs, debt repayments of $6.7 million and the payment of dividends of
$2.1 million.
The Company maintains a $55.0 million revolving credit agreement with two banks
with a termination date of March 31, 2000. At July 26, 1998, $46.5 million was
outstanding and $8.5 million was available for additional borrowing under the
agreement. Interest is payable, at the Company's option, at either the agent
bank's prime rate or at a spread over the London Interbank Offered Rate that
varies with the Company's ratio of total debt to EBITDA. The LIBOR spread was
1.75% at July 26, 1998. The agreement contains customary financial and other
covenants, including fixed charges, cash flow and net worth ratios, restrictions
on certain asset sales, mergers and other significant transactions and a
negative pledge on assets. The Company was in compliance with all such covenants
as of July 26, 1998. The Company is currently renegotiating its revolving credit
agreement prior to its expiration and anticipates that it will be in compliance
with its credit facilities for the foreseeable future.
17
<PAGE>
The Company has interest rate swap agreements with its two banks with notional
amounts totaling $15.0 million. The Company entered into these agreements to
change the fixed/variable interest rate mix of its debt portfolio, in order to
reduce the Company's aggregate risk from movements in interest rates. The
agreements require the Company to make quarterly fixed payments on the notional
amount at rates of 7.0675% and 7.09% through July 2002 in exchange for receiving
payments at the three-month London Interbank Offered Rate.
The Company believes anticipated funds to be generated from future operations
and available credit facilities will be sufficient to meet anticipated operating
and capital needs.
"Year 2000 Costs"
The Company's primary centralized manufacturing and accounting information
system is currently Year 2000 compliant (meaning that it can properly process
dates in the year 2000 and beyond). The Company is currently evaluating any
possible exposures related to other date-sensitive equipment. The financial
impact to the Company of bringing such equipment into Year 2000 compliance can
not presently be determined. Historical costs of remediation have not been
material. In addition, the Company has initiated formal communications with its
significant suppliers and large customers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate their own
Year 2000 compliance issues. There can be no assurance that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The following information is provided pursuant to the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Certain statements in
Management's Discussion and Analysis of this Form 10-Q, including those which
express "belief", "anticipation" or "expectation" as well as other statements
which are not historical fact, are "forward-looking statements" made pursuant to
these provisions. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. The Company undertakes no
obligation to republish revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The Company cautions readers that the following important factors, among others,
have in the past affected and could in the future affect the Company's actual
results of operations and cause the Company's actual results to differ
materially from the results expressed in any forward-looking statements made by
or on behalf of the Company:
o No definitive agreement or commitment exists with regard to the
sale of Parker. Accordingly, there can be no assurance as to
whether or when the sale will be completed. The results of
operations of Parker may continue to be adversely affected as a
result of the announced sale.
o The ultimate cost and timing of the consolidation of the Cramer
operations into Rhodes and realization of anticipated cost savings
in the merger may adversely affect the operating results of the
Company.
18
<PAGE>
o The Company's results have been and can be expected to continue
to be affected by the general economic conditions in the United
States and specific economic factors influencing the manufacturing
and agricultural sectors of the economy. Lower demand for the
Company's products can lower revenues as well as cause
underutilization of the Company's plants, leading to reduced gross
margins.
o Metal prices, particularly aluminum, copper and steel, can affect
the Company's costs as well as demand for the Company's products
and the value of inventory held at the end of a reporting period.
Lack of availability of certain commodities could also disrupt the
Company's production.
o Weather, which can affect the success of the grain harvest in the
United States, and commodity prices can affect demand for the
Company's grain handling equipment.
o Changes in demand that change product mix may reduce operating
margins by shifting demand toward less profitable products.
o Loss of a substantial customer may affect results of operations.
o The Company's results can be affected by engineering difficulties
in designing new products or applications for existing products to
meet the requirements of its customers.
o Obsolescence or quality problems leading to returned goods in
need of repair can affect the value of the Company's inventories
and its profitability.
o The Company has a substantial amount of floating rate debt.
Increases in short-term interest rates could be expected to
increase the Company's interest expense.
o Acquisitions are an important part of the Company's growth
strategy. Acquisitions may have a dilutive effect on the Company's
earnings and could affect the Company's available credit and
interest costs. Conversely, the Company may from time to time
divest of product lines or business units. Any such divestiture
may involve costs of disposition or loss on the disposition that
could reduce the Company's results. In addition, acquisitions or
dispositions could effect the Company's relative mix of operating
results from engineered component products and specialized
equipment, thereby effecting the seasonality and cyclicality of
such operating results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information not required.
19
<PAGE>
Part II. OTHER INFORMATION
Item 5. Other Information
Discretionary Proxy Voting Authority / Shareholder Proposals
- ------------------------------------------------------------
On May 21, 1998, the Securities and Exchange Commission adopted an amendment to
Rule 14a-4, as promulgated under the Securities Exchange Act of 1934. The
amendment to Rule 14-a-4(c)(1) governs the Company's use of its discretionary
proxy voting authority with respect to a shareholder proposal which the
shareholder has not sought to include in the Company's proxy statement. The new
amendment provides that if a proponent of a proposal fails to notify the Company
at least 45 days prior to the month and day of mailing of the prior year's proxy
statement, then the management proxies will be allowed to use their
discretionary voting authority when the proposal is raised at the meeting,
without any discussion of the matter in the proxy statement.
With respect to the Company's Annual Meeting of Shareholders to be held in 1999,
if the Company is not provided notice of a shareholder proposal, which the
shareholder has not previously sought to include in the Company's proxy
statement, by January 4, 1999, the management proxies will be allowed to use
their discretionary authority as outlined above.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10.1 Agreement and Plan of Merger among Owosso Corporation, Cramer
Company and M.H. Rhodes, Inc, dated April 3, 1998. (Certain
exhibits have been omitted in accordance with Item 601(b)(2)
of Regulation S-K. A copy of such exhibits shall be furnished
supplementally to the Securities and Exchange Commission upon
request.)
10.2 Asset Sale and Purchase Agreement dated June 22, 1998, by and
between Harper Industries, Inc. and DewEze Manufacturing, Inc.
11 Computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated July 24, 1998 was filed to announce
that it had completed the sale of substantially all of the assets of
DewEze Manufacturing, Inc.
A Current Report on Form 8-K, dated June 30, 1998, was filed to
announce that the Company had completed the acquisition of the
outstanding stock of M.H. Rhodes, Inc. and had signed a definitive
agreement to sell substantially all of the assets of DewEze
Manufacturing, Inc.
An Amendment No. 1 to Current Report on Form 8-K/A, dated April 26,
1998, was filed to file the financial statements of Astro Air, Inc. for
the three months ended March 31, 1998 and 1997 (unaudited) and the
years ended December 31, 1997 and 1996 and the related pro forma
financial information for the Company for the six months ended
April 26, 1998 and the year ended October 26, 1997.
20
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OWOSSO CORPORATION
Date: September 9, 1998 By: /s/ George B. Lemmon, Jr.
-----------------------------------
George B. Lemmon, Jr.
President, Chief Executive
Officer, and Director
By: /s/ John H. Wert, Jr.
------------------------------------
John H. Wert, Jr.
Senior Vice President - Finance,
Chief Financial Officer, and
Treasurer and Secretary
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
OWOSSO CORPORATION
CRAMER COMPANY
AND
M. H. RHODES, INC.
DATED: April 3, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-1-
<PAGE>
TABLE OF CONTENTS
Page
BACKGROUND.................................................................1
ARTICLE 1 - THE MERGER.....................................................1
1.1. The Merger..................................................1
1.2. Closing.....................................................1
1.3. Merger Filings..............................................2
1.4. Filing of Merger Documents; Effective Time..................2
1.5. The Articles of Incorporation...............................2
1.6. The Bylaws..................................................2
1.7. Resignations................................................2
ARTICLE 2 - CONVERSION OR CANCELLATION OF SHARES IN THE MERGER.............2
2.1. Conversion or Cancellation of Shares........................2
2.2. Payment for Shares..........................................3
2.3. Dissenters' Rights..........................................4
2.4. Transfer of Shares After the Effective Time.................4
ARTICLE 3 - REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE COMPANY...............................4
3.1. Organization, Power, Standing and Qualification.............4
3.2. Power and Authority.........................................5
3.3. Validity of Contemplated Transactions.......................5
3.4. Capitalization of Company...................................5
3.5. Governmental Filings; No Violations.........................6
3.6. Title to Properties.........................................6
3.7. Real Property...............................................6
3.8. Company Reports; Financial Statements.......................8
3.9. Absence of Undisclosed Liabilities..........................8
3.10. Certain Tax Matters.........................................9
3.11. Litigation; Compliance with Laws...........................10
3.12. Employee Benefits..........................................10
3.13. Insurance..................................................13
3.14. Proprietary Rights.........................................13
3.15. Labor Disputes.............................................13
3.16. Contracts..................................................13
3.17. Minute Books...............................................14
3.18. Product Liability Claims...................................15
-i-
<PAGE>
Page
3.19. Fairness Opinion..........................................15
3.20. Bank Accounts.............................................15
3.21. No Changes................................................15
3.22. Compensation Arrangements.................................16
3.23. Copies of Articles and Bylaws.............................16
3.24. Condition of Tangible Assets..............................16
3.25. Accounts Receivable.......................................16
3.26. Hazardous Substances......................................17
3.27. Inventory.................................................17
3.28. Relationship With Customers and Suppliers.................17
3.29. Transactions with Affiliates..............................18
3.30. Capital Expenditures......................................18
3.31. Discontinued Operations...................................18
3.32. Veracity of Statements....................................18
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF BUYER AND CRAMER............18
4.1. Power and Authority........................................18
4.2. Conflict With Authority, Bylaws, etc.......................19
4.3. Acquisition of Shares for Investment.......................19
4.4. Governmental Filings; No Violations........................19
4.5. Brokers and Finders........................................19
4.6. Proxy Statement............................................19
ARTICLE 5 - ACTIVITIES PRIOR TO CLOSING BY THE COMPANY....................19
5.1. Operation of Business....................................19
5.1.1. Organizational Documents........................20
5.1.2. Corporate Name..................................20
5.1.3. Compensation, Bonuses...........................20
5.1.4. Management......................................20
5.1.5. Mergers, Etc....................................20
5.1.6. Disposition of Assets...........................20
5.1.7. Indebtedness....................................20
5.1.8. Payables........................................20
5.1.9. Inventory.......................................20
5.1.10. Maintenance of Assets..........................20
5.1.11. Insurance......................................20
5.1.12. Contracts and Permits..........................21
5.1.13. Litigation, etc................................21
5.1.14. Dividends or Other Distributions...............21
5.1.15. Capital Stock..................................21
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Page
5.2. Acquisition Proposals....................................21
5.3. Meetings of the Company's Shareholders...................21
5.4. Filings; Other Action....................................22
5.5. Access to Information....................................22
5.6. Best Efforts.............................................23
5.7. Benefit Plans............................................23
5.7.1. Plan Changes....................................23
5.7.2. Contributions and Payments......................23
5.8. Notice of Change.........................................23
5.9. Publicity................................................23
5.10. Rhodes ESOP...............................................24
ARTICLE 6 - ACTIVITIES PRIOR TO CLOSING BY BUYER..........................24
6.1. Best Efforts...............................................24
6.2. Access to Information......................................24
6.3. Confidentiality............................................25
6.4. Purchase or Sale of Shares.................................25
ARTICLE 7 - CONDITIONS PRECEDENT TO CLOSING...............................25
7.1. Conditions to Obligation of Buyer to Close.................25
7.1.1. Representations and Warranties;
Compliance with Agreement...................25
7.1.2. Opinion of Counsel for the Company..............26
7.1.3. Litigation Affecting Closing....................26
7.1.4. Required Consents and Regulatory Approvals......26
7.1.5. No Material Damage to Business..................26
7.1.6. Approval of Buyer; Corporate Matters............26
7.1.7. Shareholder Approval............................26
7.1.8. Dissenter's Rights..............................26
7.1.9. Environmental Issues............................27
7.2. Conditions to Obligation of the Company to Close...........27
7.2.1. Representations and Warranties..................27
7.2.2. Opinion of Counsel of Buyer.....................27
7.2.3. Litigation Affecting Closing....................27
7.2.4. Approval of The Company; Corporate Matters......28
7.2.5. Shareholder Approval............................28
7.2.6. 401K Plan.......................................28
ARTICLE 8 - INDEMNIFICATION...............................................28
8.1. Officers and Directors Indemnification.....................28
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ARTICLE 9 - TERMINATION...................................................29
9.1. Termination................................................29
9.1.1. Termination by Mutual Consent...................29
9.1.2. Prior to Effective Time.........................29
9.1.3. By Buyer........................................30
9.1.4. By the Company..................................30
9.1.5. By Either Party.................................30
9.1.6. Withdrawal of Recommendation....................30
9.1.7. Higher Offer....................................30
9.2. Effect of Termination and Abandonment......................30
9.3. No Purchase of Company Stock...............................30
ARTICLE 10 - MISCELLANEOUS................................................31
10.1. Payment of Expenses......................................31
10.2. Entire Agreement; Amendments.............................31
10.3. Headings.................................................31
10.4. Gender; Number...........................................31
10.5. Exhibits and Schedules...................................31
10.6. Severability.............................................31
10.7. Notices..................................................32
10.8. Waiver...................................................33
10.9. Assignment...............................................33
10.10. Successors and Assigns...................................33
10.11. Governing Law............................................33
10.12. No Benefit to Others.....................................33
10.13. Counterparts.............................................33
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made
this 3rd day of April, 1998, by and among OWOSSO CORPORATION, a Pennsylvania
corporation ("Buyer"), CRAMER COMPANY, a Delaware corporation and wholly-owned
subsidiary of Buyer, ("Cramer") and M. H. RHODES, INC., a Delaware corporation
(the "Company") .
BACKGROUND
The Company is engaged in the business of manufacturing
mechanical timers, photo controls and parking meters (the "Business");
Each Board of Directors of Buyer, Cramer and the Company has
approved the acquisition of the Company by Buyer through the merger of Cramer
into the Company (the "Merger") pursuant to and subject to the terms and
conditions of this Agreement; and
The Board of Directors of the Company has determined that the
Merger is fair to and in the best interests of the holders of the Company's
common stock, par value $1.00 per share (the "Common Stock") and has resolved to
recommend the approval of the Merger by the shareholders of the Company.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual promises and covenants herein contained, and intending to be legally
bound, Buyer, Cramer and the Company hereby agree as follows:
ARTICLE 1
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.4), Cramer shall be merged with
and into the Company pursuant to the Merger and the separate corporate existence
of Cramer shall thereupon cease. The Company shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "Surviving Corporation")
and shall continue to be governed by the laws of the State of Delaware, and the
separate corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger,
except as set forth in Sections 1.5 and 1.6. The Merger shall have the effects
specified in the General Business Corporation Law of the State of Delaware (the
"DGCL").
1.2. Closing. The closing of the Merger (the "Closing") shall take
place (i) at the offices of the Company at 10:00 A.M. on the later of (A) June
30, 1998 or (B) the first business day on which the last to be fulfilled or
waived of the conditions set forth in Article 7 hereof shall be
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fulfilled or waived in accordance with this Agreement or (ii) at such other
place and time and/or on such other date as the Company and Buyer may agree.
1.3. Merger Filings. In connection with the Closing, the Company and
Cramer will cause the Certificate of Merger to be filed with the Secretary of
State of Delaware (the "Certificate of Merger").
1.4. Filing of Merger Documents; Effective Time. The Merger shall
become effective on the date on which the Certificate of Merger has been duly
filed with the Secretary of State of Delaware. The "Effective Time" refers to
the time at which the Delaware Certificate of Merger has been duly filed with
the Secretary of State of Delaware.
1.5. The Articles of Incorporation. The Articles of Incorporation of
the Surviving Corporation shall, at the Effective Time, be and read as set forth
on Exhibit A hereto and incorporated herein by this reference, until further
amended in accordance with the terms thereof and the DGCL.
1.6. The Bylaws. The Bylaws of the Surviving Corporation shall, at the
Effective Time, be and read as set forth on Exhibit B hereto, until further
amended in accordance with the terms thereof and the DGCL.
1.7. Resignations. On the Closing Date, the Company will make available
to Buyer the written resignations of all the directors and officers of the
Company effective as of the Effective Time, except for such officers and
directors as Buyer shall designate in writing. The Company shall use its best
efforts at or before the Effective Time to cause the nominees of Buyer to be
elected (effective the Effective Time) by the resigning directors in accordance
with the Bylaws of the Company.
ARTICLE 2
CONVERSION OR CANCELLATION OF SHARES IN THE MERGER
2.1. Conversion or Cancellation of Shares. The manner of converting or
canceling shares of stock of the Company and Cramer in the Merger shall be as
follows:
(a) At the Effective Time, each share of the Common
Stock issued and outstanding immediately prior to the Effective Time (a
"Share"), other than Common Stock held in the Company's treasury and Common
Stock which is held by shareholders perfecting dissenter's rights pursuant to
the DGCL ("Dissenting Shareholders"), by virtue of the Merger and without any
action on the part of the holder thereof, shall be converted into the right to
receive, without interest, an amount in cash equal to $14.51 (the "Merger
Consideration"). All such Shares, by virtue of the Merger and without any action
on the part of the holders thereof, shall no longer be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a
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certificate representing any such Shares shall thereafter cease to have any
rights with respect to such Shares, except the right to receive the Merger
Consideration for such Shares upon the surrender of such certificate in
accordance with Section 2.2.
(b) At the Effective Time, each Share issued and held
in the Company's treasury at the Effective Time, shall, by virtue of the Merger
and without any action on the part of the holder thereof, cease to be
outstanding, shall be canceled and retired without payment of any consideration
therefor and shall cease to exist.
(c) At the Effective Time, each share of common stock
and each share of preferred stock of Cramer issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of Cramer or the holders of such shares, be converted into,
respectively, one share of common stock or one share of preferred stock as the
case may be, of the Surviving Corporation.
(d) Shares that are held by Dissenting Shareholders
shall be entitled to such amount as is provided in the DGCL and shall not be
converted into or be exchangeable for the right to receive the Merger
Consideration, unless and until such holder shall have failed to perfect or
shall have effectively withdrawn or lost his dissenter's right to appraisal and
payment under the DGCL.
2.2. Payment for Shares. Prior to the Effective Time, Buyer or Cramer
shall designate bank or trust company reasonably acceptable to the Company, to
act as Paying Agent in connection with the Merger (the "Paying Agent") and to
receive and disburse the Merger Consideration to which holders of Shares become
entitled pursuant to Section 2.1. At the Effective Time, Buyer or Cramer will
provide the Paying Agent with sufficient cash to allow the Merger Consideration
to be paid by the Paying Agent for each Share then entitled to receive the
Merger Consideration. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each person who was, at the Effective
Time, a holder of record (other than Dissenting Shareholders) of issued and
outstanding Shares a form (mutually agreed to by Buyer and the Company) of
letter of transmittal and instructions for use in effecting the surrender of the
certificates which, immediately prior to the Effective Time, represented any of
such Shares in exchange for payment therefor. Upon surrender to the Paying Agent
of such certificates, together with such letter of transmittal, duly executed
and completed in accordance with the instructions thereto, the Surviving
Corporation shall promptly cause the Paying Agent to pay to the persons entitled
thereto a check in the amount to which such persons are entitled, after giving
effect to any required tax withholdings. No interest will be paid or will accrue
on the amount payable upon the surrender of any such certificate. If payment is
to be made to a person other than the registered holder of the certificate
surrendered, it shall be a condition of such payment that the certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the certificate surrendered or establish to the satisfaction of the
Surviving Corporation or the Paying Agent that such tax has been paid or is not
applicable. The Surviving Corporation shall pay all charges and expenses,
including those of
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the Paying Agent, in connection with the exchange of the Merger Consideration
for Shares. In the event any certificate representing Shares shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such certificate to be lost, stolen or destroyed, the Paying
Agent will issue in exchange for such lost, stolen or destroyed certificate the
Merger Consideration deliverable in respect thereof as determined in accordance
with this Article 2; provided, however, the person to whom the Merger
Consideration is paid shall, as a condition precedent to the payment thereof,
give the Surviving Corporation a bond in such sum as it may direct or otherwise
indemnify the Surviving Corporation in a manner satisfactory to it against any
claim that may be made against the Surviving Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed. Promptly following
the first anniversary of the Effective Time, the Paying Agent shall deliver to
the Surviving Corporation all cash held for payment as Merger Consideration and
all other documents in its possession relating to the transactions described in
this Agreement, and the Paying Agent's duties shall terminate. Thereafter each
holder of a certificate representing Shares may surrender such certificate to
the Surviving Corporation (subject to applicable abandoned property, escheat and
similar laws) and receive in exchange therefor the Merger Consideration in
respect thereof, without interest thereon.
2.3. Dissenters' Rights. If any Dissenting Shareholder shall be
entitled to be paid the "fair value" of his or her Shares, as provided in
Section 262 of the DGCL, the Company shall give Buyer notice thereof and Buyer
shall have the right to participate in all negotiations and proceedings with
respect to any such demands. Neither the Company nor the Surviving Corporation
shall, except with the prior written consent of Buyer, voluntarily make any
payment with respect to, or settle or offer to settle, any such demand for
payment. If any Dissenting Shareholder shall fail to perfect or shall have
effectively withdrawn or lost the right to dissent, the Shares held by such
Dissenting Shareholder shall thereupon be treated as though such Shares had been
converted into the Merger Consideration pursuant to Section 2.1.
2.4. Transfer of Shares After the Effective Time. No transfers of
Shares shall be made on the stock transfer books of the Surviving Corporation at
or after the Effective Time.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE COMPANY
The Company hereby represents and warrants to Buyer and Cramer that,
except as set forth in the numbered paragraph of the disclosure letter of even
date delivered by the Company to the Buyer in conjunction with execution of this
Agreement (the "Disclosure Letter") which paragraph corresponds to the
applicable section of this Article 3:
3.1. Organization, Power, Standing and Qualification. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware,
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and has full corporate power and authority to carry on its business as it is now
being conducted and to own and operate the properties and assets now owned and
operated by it. The Company is duly qualified to do business and is in good
standing in all jurisdictions where the failure to qualify or to be in good
standing would have a material adverse effect upon its financial condition, the
conduct of its business or the ownership of its property and assets (a "Material
Adverse Effect"), such jurisdictions being listed in Paragraph 3.1 of the
Disclosure Letter. The Company does not have any "subsidiaries" (which, for
purposes of this Agreement, shall mean all corporations in which the Company
owns more than 50% of the issued and outstanding capital stock). The Company
does not own (i) any equity interest in any corporation or other entity or (ii)
marketable securities where the Company's equity interest in any such entity
exceeds 5% of the outstanding equity of such entity on the date hereof.
3.2. Power and Authority. The Company has the power and authority to
execute, deliver and perform this Agreement and the other documents, instruments
and agreements contemplated herein (the "Collateral Documents") to which the
Company is a party and, subject only to approval of this Agreement by the
holders of sixty percent (60%) of the Shares, to consummate the transactions
contemplated by this Agreement and the Collateral Documents. Each of this
Agreement and the Collateral Documents is a valid and binding obligation of the
Company, enforceable in accordance with its terms, except as such enforcement
may be limited by applicable bankruptcy, insolvency, moratorium, or similar laws
affecting the enforcement of creditors' rights generally.
3.3. Validity of Contemplated Transactions. The execution, delivery and
performance of this Agreement and the Collateral Documents and the consummation
of the transactions contemplated hereby and thereby do not and will not
contravene any provision of the Certificate of Incorporation or Bylaws of the
Company; nor subject to receipt of the Consents (as defined below) violate, be
in conflict with, or constitute a default under, cause the acceleration of any
payments pursuant to, or otherwise impair the good standing, validity or
effectiveness of any agreement, contract, indenture, lease, or mortgage to which
the Company is a party or by which the Company or any of its assets is bound; or
violate any provision of law, rule, regulation, order, permit, or license to
which the Company is subject. Paragraph 3.3 of the Disclosure Letter attached
hereto sets forth an accurate and complete list of any consents required to be
obtained in connection with any items identified in the preceding sentence,
prior to consummation of the transactions contemplated by this Agreement (the
"Consents").
3.4. Capitalization of Company. The Company's total authorized capital
stock consists of 400,000 shares of common stock, $1.00 par value, of which
196,736 shares are currently outstanding, validly issued, fully paid and
non-assessable and have not been issued in violation of any preemptive or
similar right. Except as set forth above in this Section 3.4 and in Paragraph
3.4 of the Disclosure Letter, there are no shares of capital stock of the
Company authorized, issued or outstanding and, except for the rights of ESOP (as
defined in Section 5.10 hereof) participants to diversify under Section 401(a)28
of the Internal Revenue Code of 1986, as amended (the "Code") and to exercise
"put" options under Section 409(h) of the Code, there are no preemptive rights
or any outstanding subscriptions, options, warrants, rights, convertible or
exchangeable securities or
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other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of the Company (all such outstanding
subscriptions, options, warrants, rights, securities, agreements and commitments
being collectively called, the "Stock Rights"), and no Stock Rights have been
issued since 1987, except in connection with the ESOP.
3.5. Governmental Filings; No Violations. Other than the filings
provided for in Section 1.4 hereof, the filing identified on Section 7.1.9(b)
and the filings as required under the Securities Exchange Act of 1934 (as
amended) (the "Exchange Act" and such filings being called, collectively, the
"Regulatory Filings"), and except as set forth in Paragraph 3.5 of the
Disclosure Letter, no notices, reports or other filings are required to be made
by the Company with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by the Company from, any governmental or
regulatory authorities of the United States or the several States in connection
with the execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby.
3.6. Title to Properties. Except as set forth in Paragraph 3.6 of the
Disclosure Letter, the Company has good, valid and marketable title to all of
its properties and assets, real, personal and mixed, including all of the
properties and assets reflected on the most recent balance sheet which is part
of the Financial Statements (as defined in Section 3.8 hereof) and those
acquired since the Financial Statement Date (as defined in Section 3.9 hereof),
except in each case for properties and assets sold or otherwise disposed of in
the ordinary course of business, free and clear of all mortgages, liens,
pledges, security interests and other encumbrances (collectively "Liens"),
except (a) liens for current taxes not delinquent or being contested in good
faith by appropriate proceedings (which, in the latter case, are disclosed in
Paragraph 3.6 of the Disclosure Letter), (b) mechanics', workmen's,
materialmen's or other like liens arising in the ordinary course of business
with respect to obligations which are not due, and (c) liens securing the
repurchase of securities from ESOP participants under Section 409(h)(5) of the
Code (collectively, "Permitted Liens").
3.7. Real Property.
(a) Paragraph 3.7 of the Disclosure Letter accurately
lists all real property owned by the Company beneficially, or of record and
contains a brief description of all plants and structures located thereon.
Except as set forth in Paragraph 3.7 of the Disclosure Letter, (i) the Company
is lawfully seized and possessed of the real property, (ii) the Company has good
and marketable fee simple title to the real property, free and clear of all
Liens other than Permitted Liens (which Permitted Liens are disclosed in
Paragraph 3.7 of the Disclosure Letter), (iii) the Company is in possession of
the real property, and (iv) there are no options, licenses, leases, rights of
first refusal, conditional sales agreements, or similar arrangements respecting
any such real property or improvements. The Company has appropriate rights of
ingress and egress with respect to the real property and any improvements
located thereon. None of the real property, the improvements or the use thereof
contravenes or violates any material building, zoning, land use, administrative,
occupational or safety and health law in any respect (except as
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permitted on the basis of prior nonconforming use, waiver or variance, all of
which permitted uses that are known to the Company are set forth in Paragraph
3.7 of the Disclosure Letter).
(b) The Company has delivered to Buyer prior to the
execution of this Agreement true and complete copies of all deeds, leases,
mortgages, deeds of trust, certificates of occupancy, title insurance policies,
title reports, surveys and similar documents, and all amendments thereof, in the
Company's possession, with respect to the real property.
(c) There are no condemnation or appropriation
proceedings pending or, to the best knowledge of the Company, threatened against
any of the real property or the improvements.
(d) Except as disclosed in Paragraph 3.7 of the
Disclosure Letter, the improvements on any such real property are in good
operating condition (ordinary wear and tear excepted).
(e) Except as disclosed in Paragraph 3.7 of the
Disclosure Letter, since the Financial Statement Date, there has been no damage,
destruction or loss (whether or not covered by insurance), or any condemnation,
with respect to the real property.
(f) Except as disclosed in Paragraph 3.7 of the
Disclosure Letter, the Company has access to all utilities, including water and
sewage, necessary to operate its business in the normal course and there are no
unpaid assessments for the installation thereof or charges for making connection
thereto that have not been fully paid; and with respect to the real property,
all public utilities, including connection and permanent right to discharge
sanitary waste into the collector system of the appropriate sewer authority, are
installed and operating, and all installation and connection charges have been
paid in full.
(g) All curb cut and street opening licenses, permits
or other approvals required for vehicular access to and from the real property
to any adjoining public street have been obtained and paid for and are in full
force and effect.
(h) There are no outstanding notices of uncorrected
violations of the building, safety, plumbing, electrical, health, zoning or fire
ordinances of the city, county, state or municipality in which the real property
is located. The zoning and building laws and ordinances of the city, county,
state or municipality in which the real property is located are not violated in
any material respect by the existing structures.
(i) Paragraph 3.7 of the Disclosure Letter contains a
true and correct list of any and all management, service, supply, security,
maintenance, or similar contracts with respect to or affecting the real
property.
(j) No portion of the real property or the
improvements are affected by any special assessments, whether or not a Lien
thereon, which has not been paid in full and there are no
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current installments of such assessments which remain unpaid and no such real
property will be assessed for any street paving or curbing heretofore laid or
any other public improvements heretofore made. There are no pending, or to the
Company's knowledge threatened, assessments or similar charges that affect the
real property; and there is no proceeding pending or to the Company's knowledge,
threatened for any increase of the assessed valuation of any portion of the real
property. No ordinance authorizing improvements, the cost of which might be
assessed against Buyer or any real property, is pending or contemplated.
(k) Except as disclosed in Paragraph 3.7 of the
Disclosure Letter, the real property is not located within a special flood
hazard area as documented in the "Department of Housing and Urban Development,
Federal Insurance Administration Special Flood Hazard Area Maps."
3.8. Company Reports; Financial Statements. The Company has filed all
required forms, reports and documents with the Securities and Exchange
Commission ( the "SEC") with respect to all periods commencing on or after
January 1, 1992 (collectively, the "Company Reports"), all of which, when filed,
complied in all material respects with all applicable requirements of the
Securities Act of 1933 and the Exchange Act and the rules and regulations
thereunder. Accurate and complete copies of the Company Reports heretofore have
been made available to Buyer. As of their respective dates, the Company Reports
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances in which they were made, not
misleading. Each of the consolidated balance sheets included in or incorporated
by reference into the Company Reports (including any related notes and
schedules) fairly presents the consolidated financial position of the Company
and its subsidiaries as of its date, and each of the consolidated statements of
income, of changes in shareholder equity and of cash flows included in or
incorporated by reference into the Company Reports (including any related notes
and schedules) fairly presents the results of operations, retained earnings and
cash flows, as the case may be, of the Company and its subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements, to
normal year-end audit adjustments which will not, individually or in the
aggregate, have a Material Adverse Effect), in each case in accordance with
generally accepted accounting principles consistently applied during the periods
involved, except as may be noted therein (such balance sheets, income statements
and statements of change in financial condition, being referred to herein
collectively as the "Financial Statements").
3.9. Absence of Undisclosed Liabilities. Except as set forth in
Paragraph 3.9 of the Disclosure Letter, the Company has no material liabilities
or obligations except for (i) those reflected or reserved against (which
reserves are adequate) in the Financial Statements, (ii) those incurred,
consistent with past business practices, reasonably and in the ordinary course
of its business, since the last audited date of the Financial Statements (the
"Financial Statement Date") and (iii) those which are specifically disclosed in
this Agreement or in the Disclosure Letter. There is no reasonable basis for the
assertion against the Company as of the Financial Statement Date of any material
liability not reflected or reserved against in the Company's balance sheet as of
such date or as disclosed by this Agreement or in the Disclosure Letter.
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3.10. Certain Tax Matters.
(a) For any period ending on the date of or before
the Effective Time, the Company has duly and timely filed or will file all
federal, state, and local tax returns, declarations, and reports, estimates,
information returns and statements (collectively, "Returns") required to be
filed or sent by it or on its behalf and all such Returns are or will be true,
correct and complete, true, correct and complete copies of which Returns have
been delivered to Buyer prior to the date hereof. The Company has paid in full
all Taxes (as hereinafter defined) and any penalties entered with respect
thereto, due and payable for any period ending on or before the Effective Time.
All Taxes have been paid, withheld, or reserved for or, to the extent that they
relate to periods on or prior to the Financial Statement Date, are reflected as
a liability on the Financial Statements. For these purposes, "Taxes" means all
federal, state, territorial, local, foreign and other net income, gross income,
gross receipts, sales, use, value added, ad valorem, transfer, franchise,
profits, license lease, service, use, withholding, payroll, employment,
unemployment insurance, workers compensation, social security, excise,
severance, stamp, business license, occupation, premium, property,
environmental, windfall profits, customs, duties, alternative minimum, estimated
or other taxes, fees, premiums, assessments or charges of any kind whatever
imposed or collected by any governmental entity or political subdivision
thereof.
(b) The Company's federal income tax liabilities, if
any, have never been audited by the Internal Revenue Service and have been
satisfied for all taxable years up to and including the taxable year ended
December 31, 1997.
(c) There are no Liens for Taxes upon any of the
Company's assets, except Permitted Liens (provided that adequate reserves have
been provided therefor and are reflected in the Financial Statements) and no
event has occurred which with the passage of time or the giving of notice, or
both, could result in a Lien (other than Permitted Liens) for Taxes on any of
the Company's assets.
(d) Except as set forth in Paragraph 3.10 of the
Disclosure Letter, no deficiency for any Taxes has been proposed, asserted or
assessed against the Company which has not been resolved and paid in full.
(e) No waiver or comparable consent given by the
Company regarding the application of the statute of limitations with respect to
any Taxes or Returns is outstanding, nor, is any request for any such waiver or
consent pending. Except as set forth in Paragraph 3.10 of the Disclosure Letter
hereof (which shall set forth the nature of the proceeding, the type of return,
the deficiencies proposed or assessed and the amount thereof, and the taxable
year in question), no federal, state, local or foreign audit or other
administrative proceeding, inquiry or investigation or court proceeding is
presently pending or, to the best of the Company's knowledge, contemplated with
regard to any Taxes or Returns.
(f) The Company has not requested any extension of
time within which to file any Return, which Return has not since been filed.
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(g) The Company is not a United States real property
holding corporation and has not been a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during any period
specified in Section 897(c)(1)(A)(ii) of the Code.
(h) The Company is not a party to any agreement
providing for the allocation or sharing of Taxes.
(i) The Company has not agreed to make, nor is it
required to make, any adjustment under Section 481(a) of the Code for any period
ending after the Effective Time by reason of a change in its accounting method
or otherwise.
(j) None of the assets of the Company is required to
be treated as owned by any other person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Code.
(k) The Company is not a party to any venture,
partnership, contract or arrangement under which it could be treated as a
partner, for federal income tax purposes.
(l) The Company has no permanent establishment
located in any tax jurisdiction other than the United States and is not liable
for the payment of taxes levied by any such jurisdiction located outside the
United States.
(m) The Company is not currently and has never been a
member of an affiliated group of corporations, within the meaning of Section
1504 of the Code.
(n) The Company has not participated in (and shall
not participate in) an international boycott within the meaning of Section 999
of the Code.
3.11. Litigation; Compliance with Laws. Except as set forth in
Paragraph 3.11 of the Disclosure Letter, there is no suit, action, claim,
arbitration, administrative or legal or other proceeding, or governmental or
other investigation pending or, to the Company's knowledge, threatened, against
or affecting the Company, whether or not covered by insurance; nor does there
exist any failure to comply with, nor any default under, any law, ordinance,
requirement, regulation, or order applicable to the Company, nor any violation
of or default with respect to any order, writ, injunction, judgment, or decree
of any court or federal, state or local department, official, commission,
authority, board, bureau, agency, or other instrumentality issued or pending
against the Company which might have a Material Adverse Effect, or have a
material adverse effect on Buyer's purchase or ownership of the Shares. The
Company has obtained all permits, licenses, zoning variances, approvals, and
other authorization (collectively "Permits") necessary for the operation of its
business as presently operated. There have been no illegal kickbacks, bribes or
political contributions made by the Company.
3.12. Employee Benefits. Paragraph 3.12 of the Disclosure Letter lists
all deferred compensation, pension, profit sharing, stock option, stock
purchase, savings, group insurance and
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retirement plans, and all vacation pay, severance pay, incentive compensation,
consulting, bonus and other employee benefit or fringe benefit plans or
arrangement maintained by the Company (including health, life insurance and
other benefit plans maintained for retirees). Said plans, including but not
limited to all plans or programs that constitute "employee benefit plans" as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), are sometimes collectively referred to in this section as
"Benefit Plans." Access to true and complete copies of all Benefit Plans,
including any insurance contracts under which benefits are provided, as
currently in effect has been provided to Buyer. Buyer has also been provided
with access to a true and complete copy of the summary plan description, if any
was required by ERISA to be prepared and distributed to participants, for each
Benefit Plan. Except as set forth in Paragraph 3.12 of the Disclosure Letter :
(a) Except as set forth in Paragraph 3.12 of the
Disclosure Letter, the Company has no affiliates and has not at any time been a
party to or had any obligation under any pension plan or welfare benefit plan
that is a "Multiemployer Plan" within the meaning of section 4001(a)(3) of
ERISA. With respect to each such Multiemployer Plan identified in said Paragraph
3.12: neither the Company nor any affiliate has incurred any withdrawal
liability, failed to make any required contributions when due, or given or
received any notice of withdrawal or alleged withdrawal, or of any intention to
assert any withdrawal liability; there has been no complete or partial
withdrawal; there has been no material change in contribution or contribution
base units; and, if there were any complete or partial withdrawal by the Company
or any affiliate, as of the date of the Effective Time, there would be no
liability or obligation imposed on or incurred by the Company or any affiliate.
Paragraph 3.12 of the Disclosure Letter sets forth, with respect to each
multi-employer plan, for the 1997 plan year, the amount of any payment made and
the amount of any payment to be made or which is due; the number of contribution
base units for which the Company has an obligation to contribute; and any
conditions to such contribution.
(b) Each Benefit Plan that provides medical benefits
has been operated in compliance with all requirements of sections 601 through
608 of ERISA and either (i) sections 162(i)(2) and (k) of the Internal Revenue
Code of 1986 as amended (the "Code") and regulations thereunder (prior to 1989)
or (ii) section 4980B of the Code and regulations thereunder (after 1988),
relating to the continuation of coverage under certain circumstances in which
coverage would otherwise cease.
(c) Paragraph 3.12 of the Disclosure Letter
discloses, and separately indicates, each plan, fund or program maintained by
the Company that provides post-retirement medical benefits, post-retirement
death benefits or other post-retirement welfare benefits. A copy of any written
description of post-retirement welfare benefits that has been provided to
employees has been furnished to Buyer. A copy of each plan document, insurance
contract or other written instrument providing for post-retirement welfare
benefits has been provided to Buyer, together with a description of any advance
funding arrangement that has been established to fund post-retirement welfare
benefits.
(d) All contributions to, and payment from the
Benefit Plan which may have been required to be made in accordance with the
Benefit Plans and, when applicable, section 302 of
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ERISA or section 412 of the Code, have been timely made. All such contributions
to the Benefit Plans, and all payments under the Benefit Plans, except those to
form a trust qualified under section 401(a) of the Code, for any period ending
before the Effective Time that are not yet, but will be, required to be made are
properly accrued and reflected on the Financial Statements or are disclosed on
Paragraph 3.12 of the Disclosure Letter. Except as disclosed on Paragraph 3.12
of the Disclosure Letter, the Company has funded or will fund each Benefit Plan
in accordance with its terms through the Effective Time, including the payment
of applicable premiums on any insurance contract funding a Benefit Plan for
coverage provided through the Effective Time. Neither Company nor any affiliate
has sponsored, maintained or contributed to any defined benefit pension plan.
(e) Except for amendments to the written documents
governing the ESOP to comply with the requirements of the Uniformed Services
Employment and Reemployment Rights Act ("USERRA") and Small Business Job
Protection Act ("SBJPA"), each Benefit Plan is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code,
including but not limited to the satisfaction of all applicable reporting and
disclosure requirements under ERISA and the Code. The Company has filed or
caused to be filed with the Internal Revenue Service annual reports on Form 5500
or 5500C and 5500R, as applicable, for each Benefit Plan for all years and
periods for which such reports were required. Each of the Benefits Plans has
been administered at all times, and in all material respects, in accordance with
its terms except that in any case in which any Benefit Plan is currently
required to comply with a provision of ERISA or of the Code, but is not yet
required to be amended to reflect such provision, it has been administered in
accordance with such provision.
(f) No "prohibited transaction," as defined in
section 406 of ERISA and section 4975 of the Code, has occurred in respect of
any Benefit Plan which could give rise to any material liability or tax under
ERISA or the Code on the part of the Company, and no civil or criminal action
brought pursuant to part 5 of Title I of ERISA is pending or is threatened in
writing or orally against any fiduciary of any such plan.
(g) Except as disclosed in Paragraph 3.12 of the
Disclosure Letter, all of the Benefit Plans which are pension benefit plans have
received determination letters from the IRS to the effect that such plans are
qualified and exempt from federal income taxes under sections 401(a) and 501(a),
respectively, of the Code, as amended through December 31, 1984; and no
determination letter with respect to any Benefit Plan has been revoked nor, to
the knowledge of the Company, has revocation been threatened, nor to the
knowledge of the Company has any Benefit Plan been amended since the date of its
most recent determination letter or application therefor in any request which
would adversely affect its qualification or materially increase its cost and no
Benefit Plan has been amended in a manner that would require security to be
provided in accordance with section 401(a)(29) of the Code.
(h) There have been no statements or communications
made or materials provided to any employee or former employee of the Company by
any person (including any affiliate or any employee, officer or director of any
affiliate) which provide for or could be construed as a contract or promise by
the Company or any affiliate to provide for any pension, welfare, or other
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insurance-type benefits to any such employee or former employee, whether before
or after retirement, other than benefits under Benefit Plans set forth in
Paragraph 3.12 of the Disclosure Letter or otherwise disclosed in Paragraph 3.12
of the Disclosure Letter, nor under the form of employment contracts.
3.13. Insurance. All inventories, machinery, equipment, buildings,
improvements, and other tangible assets owned or leased by the Company are, and
between the date hereof and the Effective Time will be, insured against fire and
casualty under the policies and in the amounts and types of coverage set forth
in Paragraph 3.13 of the Disclosure Letter and such policies are, and between
the date hereof and the Effective Time will be, outstanding and duly in force
and the premiums thereon fully paid when and as the same are due and payable.
Paragraph 3.13 of the Disclosure Letter is a true and correct Schedule of all
policies of fire, liability, and other forms of insurance, excluding the Benefit
Plans listed in Paragraph 3.12 of the Disclosure Letter, pursuant to which the
Company or any of its assets are insured (whether or not held by the Company) or
with respect to which the Company directly or indirectly pays all or part of the
premium.
3.14. Proprietary Rights. The Company owns, possesses, or lawfully uses
all patents, patent applications, trademarks, trade applications, service marks,
trade names, franchises, permits, copyrights, and similar intangible rights used
in its business (collectively, the "Patents and Trademarks"), each of which is
listed in Paragraph 3.14 of the Disclosure Letter, and those Patents and
Trademarks designated on Paragraph 3.14 of the Disclosure Letter are owned
exclusively by the Company, are valid and enforceable, and none infringe (nor
has any claim been made that there is any such infringement) the patents,
trademarks, service marks, trade names, copyrights or similar intangible rights
of others. Such franchises, licenses, permits, easements, rights and other
authorizations will not be adversely affected by the transaction contemplated by
this Agreement. The Company does not know of any claim or reasonable basis for
any claim that the Company is or may be infringing on or otherwise acting
adversely to the rights of any person under or in respect, of any patent,
trademark, service mark, trade name, copyright, license, franchise, permit, or
other intangible right. Except as set forth in Paragraph 3.14 of the Disclosure
Letter, the Company is not obligated or under any liability whatever to make any
payments by way of royalties, fees, or otherwise to any owner or licensee of, or
other claimant to, any patent, trademark, trade name, copyright, or other
intangible asset with respect to the use thereof, in connection with the conduct
of its business, or otherwise.
3.15. Labor Disputes. Except as set forth in Paragraph 3.15 of the
Disclosure Letter, the Company is not a party to any contract or other agreement
with any labor union and the Company is not experiencing or the subject of or
threatened by, any union organization campaign or any strike, slowdown,
picketing, work stoppage, or other labor disturbance by any labor union or group
of employees.
3.16. Contracts. Listed in Paragraph 3.16 of the Disclosure Letter are
all contracts to which the Company is a party ("Contracts") and which fall into
the following categories:
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3.16.1. Contracts, separately or in aggregate, with any third
party, involving an amount in excess of $10,000;
3.16.2. Contracts for the purchase of goods from the Company;
3.16.3. Contracts for the purchase by the Company of materials
and supplies; or
3.16.4. Contracts with distributors, dealers, manufacturer's
representatives, sales agencies, other commissioned sales representatives of the
Company, or any advertising Contracts.
All such Contracts in the above categories have been made in the ordinary course
of business. Except for the Contracts listed in Paragraph 3.16 of the Disclosure
Letter, the Company is not party to (a) any Contract not made in the ordinary
course of business; (b) any Contract that cannot be terminated within 10 days
after giving notice of termination without resulting in any material cost or
penalty to the Company; or (c) any (i) Contract with any labor union, (ii)
Contract for the employment of any officer or individual employee, (iii) profit
sharing, bonus, commission, stock option, pension, vacation pay, employee's
insurance, retirement plan or agreement, or other welfare plans or agreements,
(iv) agreement or indenture relating to the borrowing of money or to the
mortgaging, pledging or otherwise placing of a lien on its assets, (v) lease or
agreement under which it is lessee of or holds or operates any material
property, real or personal, owned by any other party, (vi) agreement containing
any provision or covenant prohibiting or limiting the ability of the Company or
Buyer to operate the Business in the manner currently operated by the Company
or, (vii) lease or agreement under which it is lessor of, or permits any third
party to hold or operate, any material property, real or personal, owned by it.
The Company has delivered to Buyer prior to the execution of this Agreement,
true and complete copies of such Contracts. The Company and each other party to
any of the aforesaid agreements has in all material respects performed all the
material obligations required to be performed by it to date and is not in
default under any such Contract. All Contracts are legal, valid and binding and
in full force and effect, and, to the best knowledge of the Company, no other
party thereto is in default thereunder. The Company is not a party to any
Contracts, including agreements not to compete, which could restrict or prohibit
Buyer's operations or Buyer's ability to expand its business in any manner. The
consummation of the transactions contemplated hereby will not affect the
validity or enforceability of any of the Contracts, will not constitute a
default under any of the Contracts and will not give rise to any right to
terminate such Contracts under any provisions thereof. The Company will take
such steps as may be necessary or proper to renew or revalidate any such
Contracts and Permits, which may become void, expired, terminated, canceled, or
withdrawn between the date hereof and the Effective Time.
3.17. Minute Books. The minute books of the Company, as previously made
available to Buyer and its representatives (and as updated to reflect all
matters and transactions involving the Company, other than this Agreement and
the transactions contemplated hereby), contain, in all material respects,
accurate and complete records of all meetings of and corporate actions or
written consents by the shareholders and Boards of Directors of the Company
through the date hereof. The Company has previously delivered to Buyer an
accurate and complete copy of resolutions of the Company's board of directors
approving this Agreement, the Merger and the transactions
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contemplated hereby, and submitting this Agreement, the Merger and the
transactions contemplated hereby to the shareholders of the Company, along with
their recommendation that the shareholders of the Company approve the Merger.
3.18. Product Liability Claims. The Company has delivered to Buyer a
narrative of unresolved incidents, events and claims under all policies of
product liability insurance relating to the Company. The Company is an insured
under all policies of insurance relating to product liability listed in
Paragraph 3.18 of the Disclosure Letter for and against covered claims for
product liability based on events occurring prior to the Effective Time, which
insurance coverage will continue in effect after the Effective Time. The
above-described coverage is adequate considering the Company's claims history
and the industry taken as a whole.
3.19. Fairness Opinion. Valuation & Financial Strategies LLC ("VFS")
has delivered to the Board of Directors of the Company, and not withdrawn or
modified in any material respect, its opinion that the Merger Consideration is
fair to the holders of Common Stock from a financial point of view, subject to
the qualifications and assumptions set forth in such opinion.
3.20. Bank Accounts. Paragraph 3.20 of the Disclosure Letter hereto
lists the names and addresses of every bank and other financial institution in
which the Company maintains an account (whether checking, savings or otherwise),
lock box or safe deposit box, and the account numbers and names of persons
having signing authority or other access thereto.
3.21. No Changes. Since the Financial Statement Date, and except as
disclosed in Paragraph 3.21 of the Disclosure Letter, there has not been:
3.21.1. Any materially adverse change in the financial or
other condition, assets, liabilities or business of the Company;
3.21.2. Any damage, destruction or loss (whether or not
covered by insurance) or any condemnation by governmental authorities which has
or may adversely affect the business, prospects or any property of the Company;
3.21.3. Any strike, lockout, labor trouble or any event or
condition of similar character adversely affecting the business or prospects of
the Company;
3.21.4. Any declaration, setting aside or payment of any
dividend or other distribution in respect of any of the Company's shares of
stock, or any direct or indirect redemption, purchase or other acquisition of
any such shares (except as may be required under the terms of the ESOP); or
3.21.5. Any increase in the compensation payable or to become
payable by the Company to any of its officers, employees or agents, or any known
payment or arrangement made to or with any thereof, other than salary reviews
and increases taking effect between January 1, 1998 and April 30, 1998, all of
which were consistent with the Company's past practices.
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3.21.6. Any change by the Company in accounting principles,
practices or methods;
3.21.7. Any split, combination, reclassification, redemption,
purchase or other acquisition of any capital stock or other securities of the
Company; or any grant, or modification of any provision of any outstanding Stock
Right.
3.22. Compensation Arrangements. The Company has delivered to Buyer a
correct list showing the names (except for persons specifically excluded from
such list as stated thereon) and the employment commencement date of all
officers, employees and independent contractors performing services for the
Company in connection with its business and the rate of hourly, monthly or
annual compensation (as the case may be). Buyer has been provided access to
records reflecting amounts paid or to be paid to each such person in 1995, 1996
and 1997, any accrued sick leave or vacation and any bonus or similar
arrangement with any of them. Except as set forth in Paragraph 3.22 of the
Disclosure Letter, with respect to each employment, consulting, or independent
contractor agreement or arrangement between the Company and any other person;
(i) the Company is not obligated to pay any severance pay; (ii) no payments
under such agreement would be "parachute payments", within the meaning of
section 280G of the Code; (iii) no person is entitled to retiree health benefits
that have not been reflected on the Company's financial statements; (iv) no
person is entitled to any deferred compensation except for any benefit under a
tax-qualified retirement plan under Section 401(a) of the Code; and (v) there is
no other liability for any post-employment compensation or benefits. There are
no unresolved claims or disputes with respect to any person's compensation or
benefits, whether or not already paid.
3.23. Copies of Articles and Bylaws. The Company's Certificate of
Incorporation (certified by the Secretary of State of the jurisdiction of
incorporation) and Bylaws (certified by the Secretary of the Company) to which
Buyer has been provided copies, are correct and remain in effect on the date of
this Agreement. There are no other material books and records of Company to
which Buyer has not been provided access.
3.24. Condition of Tangible Assets. Except as set forth in Paragraph
3.24 of the Disclosure Letter, all of the assets of the Company, including the
real property, are in good operating condition as necessary for the operation of
the business of the Company, and the operation and use of such property in the
Company's business conform in all material respects to all applicable laws,
ordinances, regulations, permits, licenses and certificates.
3.25. Accounts Receivable. Except to the extent of the reserve for bad
debts shown on the consolidated balance sheet of the Company as of the Financial
Statement Date, all of the accounts receivable of the Company constitute valid
receivables, have been incurred in the ordinary course of business, are fully
collectible in the stated amount, subject to the term of payment as shall have
been agreed upon between Company and each customer and as have been disclosed by
the Company to Buyer (which terms are in no case greater than 30 days), and are
not subject to any set-off or counterclaim. No part of such accounts receivable
is contingent upon performance by the Company of any obligation and no
agreements for deductions or discounts have been made with respect to any part
of such receivables.
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3.26. Hazardous Substances. Except as listed in Paragraph 3.26 of the
Disclosure Letter: (i) none of the assets of the Company has been used for the
manufacture, storage, transportation, deposit, disposal, treatment, handling,
production, processing or recycling of toxic, dangerous or hazardous substances
nor is there any tank or facility for the storage of hazardous substances
located on or in the assets of the Company; (ii) there are no asbestos materials
on or in the assets of the Company creating, or likely to create, a hazardous
condition; (iii) there is not now nor has there been any activity on or in the
assets of the Company which would subject the Company or the Surviving
Corporation to liens, damages, penalties, injunctive relief or cleanup costs
under any federal, state or local law, or under any civil action respecting
hazardous substances; (iv) the Company has complied with each, and is not in
violation of any, federal, state or local law, statute, regulation, permit,
provision or ordinance, relating to the generation, handling, storage,
transportation, treatment or disposal of hazardous substances (the
"Environmental Laws"); and (v) the Company has obtained and complied with all
necessary permits and other approvals, including interim status under the
Reserve Conservation and Recovery Act, as amended ("RCRA"), necessary to store,
treat, dispose of and otherwise handle hazardous wastes and hazardous
substances. No portion of the assets of the Company constitutes any of the
following "environmentally sensitive areas": (1) a wetland or other "water of
the United States" for purposes of Section 404 of the Federal Clean Water Act,
33 U.S.C. ss.1344, or any similar area regulated under any state law; (2) a
100-year floodplain; or (3) a portion of the coastal zone for purposes of the
federal Coastal Zone Management Act, 16 U.S.C. ss.ss.1451-1464. The assets of
the Company are free from the presence of unacceptable levels of radon gas or
the presence of the radioactive decay products of radon. A "hazardous substance"
shall mean that term as defined in the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.9601, et seq., as amended, and
dangerous, regulated toxic or hazardous substances, including without
limitation, petroleum products, or similar terms under any other applicable
state, federal or local law and any regulations thereunder.
3.27. Inventory. Except as set forth in Paragraph 3.27 of the
Disclosure Letter, all items of inventory are of a quality usable or salable in
the ordinary course of business within one (1) year from the date hereof. The
value at which the inventory is carried on the books and records of the Company
reflects the normal inventory valuation policy utilized by Company and is in
accordance with generally accepted accounting principles, consistently applied,
and is stated at the lower of cost or market. The Company does not hold any
items of inventory on consignment or have title to any items of inventory in the
possession of others.
3.28. Relationship With Customers and Suppliers. Paragraph 3.28 of the
Disclosure Letter contains an accurate list of the Company's ten (10) largest
customers by dollar volume. None of such customers has given the Company notice
terminating, canceling or threatening to terminate or cancel any contract or
relationship with the Company and The Company is not aware of any material
deterioration of any such relationship. None of the Company's suppliers for the
past two fiscal years has given the Company notice terminating, canceling or
threatening to terminate or cancel any contract or relationship with the Company
and The Company is not aware of any material deterioration of any such
relationship.
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3.29. Transactions with Affiliates. No employee or affiliate of the
Company, nor any officer or director of the Company or any affiliate thereof,
(i) owns or has a material interest in any asset used by the Company in the
operation of the business of the Company, (ii) has any direct or indirect
interest of any nature whatsoever in any person which markets or provides the
same type of services as those which Buyer will provide by purchasing the
business of the Company, (iii) provides or causes to be provided any assets,
services or facilities used or held for use in connection with the business of
the Company.
3.30. Capital Expenditures. Except as set forth in Paragraph 3.30 of
the Disclosure Letter, no capital expenditures are required in connection with
the business of the Company or the assets owned by the Company in order for the
Company to operate the business of the Company in the manner in which it is
currently being operated.
3.31. Discontinued Operations. Except as set forth in Paragraph 3.31 of
the Disclosure Letter, the Company has terminated and disposed of all facilities
and/or operations formerly owned and/or conducted in any foreign country,
including without limitation Mexico and Canada (the "Former Foreign Operations")
and currently conducts its operations solely at and from its facilities in Avon,
Connecticut. The Company terminated the Former Foreign Operations in compliance
with all applicable foreign laws, statutes, rules and regulations, obtained in
connection therewith all required approvals, permits and authorities, and does
not have any unsatisfied liability or obligation of any nature in connection
with any such Former Foreign Operations.
3.32. Veracity of Statements. No representation or warranty by the
Company contained in this Agreement and no statement contained in any
certificate, Schedule or other instrument furnished to Buyer pursuant hereto or
in connection with the transactions contemplated hereby, contains any untrue
statement of a material fact or omits to state a material fact.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER AND CRAMER
Buyer and Cramer, jointly and severally, hereby represent and
warrant to the Company as follows:
4.1. Power and Authority. Each of Buyer and Cramer has full power and
authority to enter into this Agreement and the Collateral Documents to which
each is a party and to perform all of each's covenants and undertakings herein
and therein set forth; the execution and delivery of this Agreement and the
Collateral Documents to which Buyer and/or Cramer is a party, and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of Buyer and Cramer; and each of
this Agreement and the Collateral Documents to which Buyer and/or Cramer is a
party is a valid and binding obligation of Buyer and/or Cramer, enforceable in
accordance with their terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws affecting the
rights of creditors generally.
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4.2. Conflict With Authority, Bylaws, etc. Neither the execution and
delivery of this Agreement and the Collateral Documents to which Buyer and/or
Cramer is a party, nor the consummation of the transactions contemplated hereby
and thereby in the manner herein provided will violate, be in conflict with,
constitute a default under, cause the acceleration of any payments pursuant to,
or otherwise impair the good standing, validity, and effectiveness of the
Articles or Certificate of Incorporation or Bylaws of Buyer or Cramer, any
lease, license, permit, authorization, or approval applicable to Buyer or
Cramer; or violate any provision of law, rule, regulation, order, or permit to
which Buyer or Cramer is subject.
4.3. Acquisition of Shares for Investment. Buyer will be acquiring
ownership of the Company for investment for its own account and not with a view
to the resale or distribution of any Company securities in violation of any
federal or state securities laws.
4.4. Governmental Filings; No Violations. Other than Regulatory
Filings, no notices, reports or other filings are required to be made by Buyer
or Cramer with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by Buyer or Cramer from, any governmental
and regulatory authorities of the United States or the several States in
connection with the execution and delivery of this Agreement and Collateral
Documents by Buyer and Cramer and the consummation of the transactions
contemplated hereby by Buyer and Cramer.
4.5. Brokers and Finders. Neither Buyer nor Cramer, nor any of their
respective officers, directors or employees, has employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated herein.
4.6. Proxy Statement. None of the information supplied in writing by
Buyer or any subsidiary of Buyer specifically for inclusion in the Proxy
Statement (as defined in Section 5.3), including all amendments and supplements
thereto, shall, in the case of the Proxy Statement, at the date the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
shareholders and at the time of the meeting of shareholders to vote on the
matters covered thereby, contain any untrue statement of a material fact, or
omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they are made, not misleading.
ARTICLE 5
ACTIVITIES PRIOR TO CLOSING BY THE COMPANY
5.1. Operation of Business. Prior to the Effective Time, the Company
shall conduct its business only in the ordinary course and in connection
therewith and, to the extent consistent therewith, the Company shall use its
best efforts to preserve its business organization intact and maintain its
existing relations with customers, suppliers, employees and business associates.
Except as set forth in Paragraph 5.1 of the Disclosure Letter, the Company
shall:
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5.1.1. Organizational Documents. Not amend its
Certificate of Incorporation or Bylaws, except as may be necessary to carry out
this Agreement or as required by law;
5.1.2. Corporate Name. Not change its corporate name
or permit the use thereof by any other person or entity;
5.1.3. Compensation, Bonuses. Not pay or agree to pay
to any employee, officer, or director of the Company, without the consent of
Buyer, compensation that is in excess of the current compensation level of such
employee, officer, or director;
5.1.4. Management. Not make any changes in the
Company's management without the consent of Buyer;
5.1.5. Mergers, Etc. Not merge or consolidate the
Company with any other corporation or allow it to acquire or agree to acquire or
be acquired by any corporation, association, partnership, joint venture, or
other entity except pursuant to Section 5.2;
5.1.6. Disposition of Assets. Not sell, transfer, or
otherwise dispose of any assets of the Company without the prior written consent
of Buyer, except in the ordinary course of business or pursuant to Sections 5.2
and 5.10;
5.1.7. Indebtedness. Not create, incur, assume, or
guarantee any indebtedness for money borrowed arising out of or in connection
with the Company's business except in the ordinary course of business; create or
suffer to exist any Lien on any of the Company's assets, except those in
existence on the date hereof; or increase the amount of any indebtedness
outstanding under any loan agreement, mortgage, or other borrowing arrangement
in existence on the date hereof arising out of or in connection with the
Company's business;
5.1.8. Payables. Pay when due, in accordance with
past practices, all of its accounts payable and trade obligations;
5.1.9. Inventory. Maintain reasonable levels of
inventory in accordance with past practice;
5.1.10. Maintenance of Assets. Maintain its
facilities, assets, and properties in good operating repair, order, and
condition, reasonable wear and tear excepted, and notify Buyer immediately upon
any loss of, damage to, or destruction of any of the Company's assets;
5.1.11. Insurance. Maintain in full force and effect
insurance coverage of the types and in the amounts set forth in Paragraphs 3.13
and 3.18 of the Disclosure Letter and apply the proceeds received under any
insurance policy or as a result of any loss or destruction of or damage to any
of the Company's assets to the repair or replacement of such assets;
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5.1.12. Contracts and Permits. Maintain in full force
and effect all Contracts and Permits necessary for or related to the operation
of the Company's business in all material respects and in all places as such
business is now conducted and renew or revalidate any Permits which may become
void, expired, terminated, canceled or withdrawn between the date hereof and the
Effective Time;
5.1.13. Litigation, etc. Promptly advise Buyer in
writing of the commencement of, and of any known threat to commence any, suit,
claim, action, arbitration, legal or administrative proceeding, governmental
investigation, or tax audit against it; and
5.1.14. Dividends or Other Distributions. Not
declare, set aside or pay any dividend or other distribution in respect of its
shares of capital stock, or redeem, purchase or otherwise acquire any such
shares of capital stock, except for repurchases of securities from former
participants of the ESOP and to comply with the diversification exclusions under
the applicable provisions of the ESOP and the Code; and
5.1.15. Capital Stock. Not issue sell, pledge,
dispose of or encumber any additional shares of, or securities convertible or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any shares of its capital stock or split, combine or reclassify the
outstanding Share.
5.2. Acquisition Proposals. Neither the Company nor any of its officers
and directors shall, and the Company will cause its employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by the Company) not to, directly or indirectly,
encourage, initiate or solicit any inquiries or the making of any proposal with
respect to a merger, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets of, or any equity
interest in, the Company (an "Acquisition Proposal") or, except to the extent
required for the discharge by the Board of Directors of its fiduciary duties as
advised by counsel in writing, engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
person relating to an Acquisition Proposal, or otherwise assist or facilitate
any effort or attempt by any person or entity (other than Buyer, or their
officers, directors, representatives, agents, affiliates or associates) to make
or implement an Acquisition Proposal. The Company will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing. The
Company will notify Buyer promptly if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be instituted or continued with, the Company, such
notice to include the material terms communicated to the Company.
5.3. Meetings of the Company's Shareholders. If required to consummate
the Merger, the Company will take all action necessary in accordance with
applicable law and its Certificate of Incorporation and Bylaws to convene a
meeting of holders of Shares as promptly as practicable to consider and vote
upon the approval of this Agreement and the Merger. Subject to fiduciary
requirements of applicable law as advised by counsel in writing, the Board of
Directors of the
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Company shall recommend such approval and the Company shall take all lawful
action to solicit such approval. The Company hereby represents, warrants and
covenants that the proxy or information statement with respect to such meeting
of shareholders (the "Proxy Statement"), at the date thereof and at the date of
such meeting, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, the foregoing shall not apply to the extent
that any such untrue statement of a material fact or omission to state a
material fact was made by the Company in reliance upon and in conformity with
written information concerning Buyer and Cramer furnished to the Company by
Buyer specifically for use in the Proxy Statement. The Proxy Statement shall not
be filed, and no amendment or supplement to the Proxy Statement will be made by
the Company, without consultation with Buyer and its counsel.
5.4. Filings; Other Action.
(a) Subject to the terms and conditions herein
provided, the Company and Buyer shall: (a) promptly make their respective
filings and thereafter make any other required submissions under any Regulatory
Filings with respect to the Merger; and (b) use their best efforts to promptly
take, or cause to be taken, all other action and do, or cause to be done, all
other things necessary, proper or appropriate under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement as soon as practicable.
(b) Unless an exemption shall be expressly applicable
to the Company, or unless Buyer agree otherwise in writing, the Company will
file with the SEC all reports required to be filed by it pursuant to the rules
and regulations of the SEC. Such reports and other information shall comply in
all material respects with all of the requirements of the SEC rules and
regulations and, when filed, will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Buyer and its counsel, shall be given an opportunity
to review such filings prior to their being filed with the SEC.
(c) Prior to Closing, the Company agrees to deliver
to Buyer the financial statements of the Company which are required to be filed
by Buyer pursuant to Item 3-05 of Regulation S-X promulgated under the Exchange
Act. Such financial statements shall be accompanied by an unqualified opinion of
the Company's auditors, together with a consent of such auditors complying in
with Rule 436 under the Securities Act of 1933 permitting Buyer to file such
opinion with Buyer's Form 8-K under the Exchange Act.
5.5. Access to Information. As promptly as practical after the end of
each calendar month, the Company will deliver to Buyer a copy of The Company's
balance sheet and income and loss statements for each calendar month (the
"Monthly Statements"). Prior to the Effective Time, The Company will cooperate
fully with Buyer and shall provide Buyer and its accountants, counsel, and other
representatives, during normal business hours, full access to the books,
records, equipment, real estate, contracts, and other assets of the Company, and
full opportunity to discuss the Company's business, affairs, and assets with its
officers, employees, customers, suppliers and independent accountants, and
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furnish to Buyer and its representatives copies of such documents, records, and
information with respect to the affairs of the Company as Buyer or its
representatives may reasonably request. In addition to the foregoing right of
access and information, Buyer may designate on-site observers of the business
and operations of the Company, which observers shall be permitted such access to
the Company's business and operations as Buyer may reasonably request and shall
be fully informed by it concerning all of its assets, operation, and business
affairs at such observer's reasonable request for due diligence purposes.
5.6. Best Efforts. Subject to the other provisions of this Agreement,
The Company will use its best efforts to cause the conditions listed in Section
7.1 hereof to be satisfied on the Effective Time.
5.7. Benefit Plans. Between the date hereof and the Effective Time, the
Company shall maintain in full force and effect the Benefit Plans as they
pertain to the Company's employees or former employees and, in connection
therewith, except as set forth in Paragraph 5.7 of the Disclosure Letter:
5.7.1. Plan Changes. Except as may be required by law
or as may be necessary to continue the qualified status under Section 401 of the
Code or as required by Section 5.10 hereof, the Company shall not adopt,
terminate, amend, extend, or otherwise change any Benefit Plan without the prior
written consent of Buyer, and the Company shall give Buyer prior written notice
of the Company's intention to take any such action required by law or necessary
to continue the qualified status of any Benefit Plans as they pertain to the
Company's employees or its former employees; and
5.7.2. Contributions and Payments. The Company shall
not make, cause to be made, or agree to make any contribution, award, or payment
under any Benefit Plans as they pertain to the Company's employees or former
employees, except at the time and to the extent required by the written terms
thereof, or as required under Section 5.10 hereof, without the prior written
consent of Buyer.
5.8. Notice of Change. The Company will promptly notify Buyer of the
existence or happening of any fact, event or occurrence prior to the Effective
Time and of which the Company or any of the Company's employees, officers,
directors, stockholders, or other representatives has knowledge which may alter
the accuracy of completeness of any representation or warranty contained in
Article 3 of this Agreement.
5.9. Publicity. The initial press release relating to the transactions
contemplated hereby shall be a joint press release and thereafter the Company
and Buyer shall consult with each other in issuing any press releases or
otherwise making public statements with respect to the transactions contemplated
hereby and in making any filings with any federal or state governmental or
regulatory agency. The parties hereto shall not issue any such press release or
make any such public statement or filing prior to such consultation, except as
may be required by law.
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5.10. Rhodes ESOP.
(a) The Company maintains the M.H. Rhodes Company, Inc.
Employee Stock Ownership Plan ("the ESOP"). The ESOP owns 93,155 Shares (the
"ESOP Shares"). As of December 31, 1997, 83,916.53 of the ESOP Shares have been
allocated to ESOP participants' accounts. The balance of the ESOP Shares are
unallocated and held in the Unallocated Stock Account (as defined in the ESOP).
At the Effective Time, the ESOP Shares shall be converted into the right to
receive cash, as further set forth in Section 2.1(a).
(b) Prior to the Effective Time, the Company and the Trustee
of the Trust (the "ESOT") established under the ESOP will execute an Amended and
Restated Replacement Promissory Note dated as of January 1, 1998 (the
"Replacement ESOT Note") reducing the principal balance of the Promissory Note
dated December 19, 1985 (the "1985 ESOT Note") from the ESOT to the Company to
$188,000 and changing the maturity date of the 1985 ESOT Note to December 31,
1998. Prior to the Effective Time, the Company shall continue to pay (or accrue)
contributions to the ESOT to enable the ESOT to make the required monthly
payments under the Replacement Promissory Note. If not sooner paid, immediately
preceding the Effective Time, the Company shall contribute to the ESOP for the
1997 and/or 1998 plan years an amount sufficient to enable the ESOT to pay the
outstanding balance on the Replacement ESOT Note in full if, but only if, Buyer
and the Company conclude that such contribution (the "Tentative Contribution")
will be fully tax deductible under Section 404 of the Code for the year or years
with respect to which such contribution is made, and that the allocation of such
contribution to ESOP participants' accounts will not violate the limitations of
Section 415 of the Code for such year or years. If the Tentative Contribution
can be and is made without violating such limitations, the Company will
terminate the ESOP as of the Effective Time. If the Tentative Contribution can
not be made without violating one or both of such limitations, the ESOP shall
not be terminated and shall remain in effect after the Effective Time. In that
event, Buyer shall thereafter make such contributions to the ESOT in the maximum
amount permitted by law as shall allow Buyer to cause the ESOP to be terminated
as soon following the Effective Time as is permissible under the terms of the
ESOP Loan and practicable without violating the limits of Sections 404 and 415.
ARTICLE 6
ACTIVITIES PRIOR TO CLOSING BY BUYER
6.1. Best Efforts. Subject to the other conditions of this Agreement,
Buyer will use its best efforts to cause the conditions listed in Section 7.2
hereof to be satisfied on the Effective Time.
6.2. Access to Information. Buyer shall provide The Company with
information concerning Buyer's financing arrangements as well as other
information reasonably requested by The Company regarding Buyer's ability to
consummate the transactions contemplated herein, as may be. The Company shall
not disclose any such information to any other person or entity without the
prior written consent of Buyer.
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6.3. Confidentiality. Except as otherwise required by law, or as may be
necessary or appropriate to enforce Buyer's rights hereunder, Buyer shall retain
in confidence, and shall cause its advisors to retain in confidence, all
information obtained by it pursuant to investigations made by Buyer or its
advisors pursuant to Section 5.5 hereof (the "Confidential Information"). The
parties agree that the Confidential Information shall not include information
which (i) was or becomes generally available to the public other than as a
result of a disclosure by Buyer or its advisors, (ii) was or becomes available
to Buyer or its advisors on a non-confidential basis from a source other than
the Company or the Company's representatives, provided that such source is not
bound by a confidentiality agreement or (iii) was, or in the future is,
developed independently by Buyer or its advisors without reference to the
information furnished by the Company or the Company's representatives. The
parties understand and agree that all of the Confidential Information supplied
to Buyer or its advisors is provided on the understanding that such Confidential
Information remains the property of the Company and that all copies and
originals will be returned to the Company promptly upon its request after
termination of this Agreement pursuant to Article 14 hereof. This Section 6.3
shall terminate upon consummation of the transaction contemplated hereby.
6.4. Purchase or Sale of Shares. Neither Buyer nor Cramer or any
affiliate of either thereof shall make any open market purchase or sale of
Shares or privately negotiate a purchase or sale of Shares, or, except as
contemplated by this Agreement, otherwise in any manner agree or make any
proposal to acquire or dispose of, directly or indirectly, any Shares.
ARTICLE 7
CONDITIONS PRECEDENT TO CLOSING
7.1. Conditions to Obligation of Buyer to Close. The obligation of
Buyer to consummate the transaction contemplated under this Agreement on the
Effective Time shall be subject to the satisfaction or the waiver by Buyer of
the following conditions on or prior to the Effective Time:
7.1.1. Representations and Warranties; Compliance with
Agreement. The representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Effective Time as though made on and as of the
Effective Time, the Company shall have performed all covenants and agreements to
be performed by them under this Agreement on or prior to the Effective Time and
the Company shall have delivered to the Buyer a certificate to such effect,
dated the Effective Time, which certificate shall be in form and substance
satisfactory to Buyer and its counsel, it being agreed that inaccuracies in or
omissions from any representation or warranty of the Company (including any such
inaccuracies or omissions resulting from matters occurring or discovered between
the execution of this Agreement and the Effective Time), excluding the
representations and warranties contained in Section 3.26 hereof, shall be deemed
to be material only if such inaccuracies and omissions, in aggregate, have
resulted in or are reasonably likely to result in loss, damage, liability and
related expense of defense and remedy to the Company of more than $50,000;
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7.1.2. Opinion of Counsel for the Company. Messrs. Pepe &
Hazard LLP, counsel for the Company, shall have delivered to Buyer their
favorable opinion, dated as of the Effective Time and in the form set forth in
Exhibit C;
7.1.3. Litigation Affecting Closing. At the Effective Time, no
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby, and no investigation that might result in any
such suit, action or proceeding shall be pending or threatened;
7.1.4. Required Consents and Regulatory Approvals. The parties
(other than the Company) to any other contract, commitment or agreement to which
the Company is a party, any governmental agency or body or any other person,
firm or corporation which owns or has authority to grant any franchise, license,
permit, easement, right or other authorization necessary for the business or
operations of the Company, and any governmental body or regulatory agency having
jurisdiction over Buyer or the Company, to the extent that their consent or
approval is required under the pertinent debt, lease, contract, commitment or
agreement or other document or instrument or under applicable laws, rules or
regulations for the consummation of the transaction contemplated hereby in the
manner herein provided, shall have granted such consent or approval, which shall
include all Consents.
7.1.5. No Material Damage to Business. The assets, properties
and business of the Company shall not have been and shall not be threatened to
be materially adversely affected in any way as a result of fire, explosion,
earthquake, disaster, accident, labor dispute, any action by any governmental
authority, flood, drought, embargo, riot, civil disturbance, uprising, activity
of armed forces or act of God; and
7.1.6. Approval of Buyer; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall have
been approved by Buyer, in the exercise of its reasonable judgment, and Buyer or
its counsel shall have been furnished with certified copies, satisfactory in
form and substance to Buyer in the exercise of its reasonable judgment, of all
such corporate records of the Company, and of the proceedings of such persons
authorizing the execution, delivery and performance of this Agreement as Buyer
shall reasonably require.
7.1.7. Shareholder Approval. This Agreement shall have been
duly approved by the holders of 60% of the outstanding Shares in accordance with
applicable law and the Certificate of Incorporation and Bylaws of the Company.
7.1.8. Dissenter's Rights. Dissenting Shareholders shall hold
not more than seven and one-half percent (7.5%) of the Shares.
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7.1.9. Environmental Issues.
(a) The expenses reasonably anticipated to remediate
the environmental matters identified on Schedule 3.26 and any other matters
relating to Environmental Laws or Hazardous Substances, including any required
filings with federal or state agencies (including the Connecticut Transfer Act,
CHWETA Form III Filing and any investigation measures required in support
thereof) in respect of which the Company and/or the Surviving Corporation may be
liable shall not exceed $325,000.
(b) The parties agree and acknowledge that under the
Connecticut Hazardous Waste Establishment Transfer Act, Conn. Gen. Stat.
ss.ss.22a-134 et seq. ("CHWETA") the CHWETA Form III filing must be signed by a
"certifying party" prior to closing, and filed with the Connecticut Department
of Environmental Protection within ten days of the closing and that the
Surviving Corporation shall be the CHWETA "certifying party."
7.1.10. Employment Agreement.
The Company's existing employment agreement with Joseph L.
Morelli ("Morelli") shall have been terminated without for the liability to the
Company and the Surviving Corporation shall have entered into a new employment
agreement with Morelli in the form hereto attached as Exhibit D.
7.2. Conditions to Obligation of the Company to Close. The obligation
of the Company to consummate the Merger at the Effective Time shall be subject
to the satisfaction of the following conditions on or prior to the Effective
Time:
7.2.1. Representations and Warranties. The representations and
warranties of Buyer set forth in this Agreement shall be true and correct as of
the date of this Agreement and as of the Effective Time as though made on and as
of the Effective Time, Buyer and Cramer shall have performed all covenants and
agreements to be performed by each of them under this Agreement on or prior to
the Effective Time, and Buyer shall have delivered to the Company a certificate
to such effect, dated the Effective Time, which certificate shall be in form and
substance satisfactory to the Company and its counsel;
7.2.2. Opinion of Counsel of Buyer. Messrs. Pepper Hamilton
LLP, counsel for Buyer, shall have delivered to the Company their opinion, dated
as of the Effective Time and in the form set forth in Exhibit E;
7.2.3. Litigation Affecting Closing. On the Effective Time, no
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transaction contemplated hereby, and no investigation that might eventuate in
any such suit, action or proceeding shall be pending or threatened; and
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7.2.4. Approval of the Company; Corporate Matters. All
actions, proceedings, resolutions, instruments and documents required to carry
out this Agreement or incidental hereto and all other related legal matters
shall have been approved on the Effective Time by the Company, in the exercise
of its reasonable judgment, and the Company shall have been furnished with
certified copies, satisfactory in form and substance to the Company in the
exercise of its reasonable judgment, of all such records of Buyer and Cramer and
of the proceedings of Buyer and Cramer authorizing the execution, delivery and
performance of this Agreement as the Company shall reasonably require.
7.2.5. Shareholder Approval. This Agreement shall have been
duly approved by the holders of 60% of the outstanding Shares, in accordance
with applicable law and the Certificate of Incorporation and Bylaws of the
Company.
7.2.6. 401K Plan. Buyer shall have caused a 401K Plan to be
established for or to be extended to the Surviving Corporation employees to be
effective as of the Closing.
ARTICLE 8
INDEMNIFICATION
8.1. Officers and Directors Indemnification.
8.1.1. The Company and Cramer agree, and Buyer shall cause the
Surviving Corporation to agree that all rights to indemnification and
advancement of expenses by the Company now existing in favor of each present and
former director and officer of the Company and each fiduciary under the
Company's ESOP and other Benefit Plans (acting in their capacities as directors
and/or officers of the Company, and/or as such fiduciaries, the "Indemnified
Parties") as provided in the Company's Certificate of Incorporation or Bylaws,
the ESOP and other Benefit Plans as in effect on the date hereof with respect to
matters occurring at or prior to the Effective Time, shall, upon consummation of
the Merger, continue in full force and effect at all times prior to the
Effective Time and shall survive the Merger and shall continue in full force and
effect until the earlier of (A) their current expiration date and (B) the date
which is six (6) years from the Effective Time; provided, however, in the event
any claim or claims are asserted or threatened within such period, all rights to
indemnification in respect of any such claim or claims shall continue until
final disposition of any and all such claims.
8.1.2. Any Indemnified Party wishing to claim indemnification
under this Section 8.1, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify the Surviving Corporation
thereof, but the failure to so notify shall not relieve the Surviving
Corporation of any liability it may have to such Indemnified Party if such
failure does not materially prejudice the indemnifying party. In the event of
any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) the Surviving Corporation shall have
the right to assume the defense thereof and shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
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the defense thereof, except that if the Surviving Corporation fails to assume
such defense or counsel for the Surviving Corporation advises that there are
issues which raise conflicts of interest between the Surviving Corporation, on
the one hand, and the Indemnified Parties, on the other hand, the Indemnified
Parties may retain counsel satisfactory to them, and the Surviving Corporation
and shall pay all reasonable fees and expenses of one such counsel for the
Indemnified Parties promptly as statements therefor are received; provided,
however, that the Surviving Corporation shall be obligated pursuant to this
paragraph (b) to pay for only one firm of counsel for all Indemnified Parties in
any jurisdiction unless the use of one counsel for such Indemnified Parties
would present such counsel with a conflict of interest, in which case Purchaser
need only pay for separate counsel to the extent necessary to resolve such
conflict, (ii) the Indemnified Parties will cooperate in the defense of any such
matter and (iii) the Surviving Corporation shall not be liable for any
settlement effectuated without its prior written consent.
8.1.3. Notwithstanding anything contained in paragraph (b) of
this Section 8.1, the Surviving Corporation shall not have any obligation
hereunder to any Indemnified Party (w) if the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law (provided, however, that if such indemnification is limited by any law, such
indemnification obligation shall continue to the maximum extent permitted under
such laws, or (x) the conduct of the Indemnified Party relating to the matter
for which indemnification is sought involved bad faith or willful misconduct, or
(y) with respect to actions taken by any such Indemnified Party in its
individual capacity rather than in his capacity as an officer, director or
fiduciary including, without limitations, with respect to any matters relating,
directly or indirectly to the purchase, sale or trading of securities issued by
the Company, or (z) if such Indemnified Party shall have breached its obligation
to cooperate with the Surviving Corporation in the defense of any claim in
respect of which indemnification is sought. Each Indemnified Party's entitlement
to the indemnification provisions contained in this Section 8.1 shall be
contingent on such Indemnified Party acknowledging and agreeing in writing to
cooperate in the defense of any such claims in respect of which indemnification
is sought from the Surviving Corporation.
ARTICLE 9
TERMINATION
9.1. Termination. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, before or after the
approval by holders of Shares:
9.1.1. Termination by Mutual Consent. By the mutual consent of
Buyer and the Company by action of their respective Boards of Directors.
9.1.2. Prior to Effective Time. By the Company or Buyer if the
other shall have (a) materially misstated any representation or been in material
breach of any warranty contained herein or (b) been in material breach of any
covenant, undertaking or restriction contained herein and such misstatement or
breach has not been cured by the earlier of (i) thirty (30) days after the
giving of
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notice to such party of such misstatement or breach or (ii) the Effective Time,
and in any event such other party shall not be in breach of such other party's
obligations hereunder;
9.1.3. By Buyer. Provided that the Buyer is not in material
default hereunder, by Buyer if all of the conditions precedent set forth in
Section 7.1 hereof have not been met prior to July 31, 1998;
9.1.4. By the Company. Provided that the Company is not in
material default hereunder, by the Company if all of the conditions precedent
set forth in Section 7.2 hereof have not been met prior to July 31, 1998; or
9.1.5. By Either Party. Provided that such party is not in
material default hereunder, by either party if the Closing does not occur on or
before July 31, 1998.
9.1.6. Withdrawal of Recommendation. By Buyer, if the Board of
Directors of the Company shall have withdrawn or modified in a manner adverse to
Buyer or Cramer its approval or recommendation of this Agreement or the Merger,
or the Board of Directors of the Company, upon request by Buyer, shall fail to
reaffirm such approval or recommendation, or shall have resolved to do any of
the foregoing.
9.1.7. Higher Offer. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by holders of Shares, by action of the Board of Directors of the
Company, if the Board of Directors of the Company receives an unsolicited
written offer at a higher dollar value per Share with respect to a merger,
consolidation or sale of all or substantially all of the Company's assets, or if
an unsolicited tender or exchange offer for the Shares at a higher dollar value
per Share is commenced, and the Board of Directors of the Company determines to
accept such merger, consolidation or sale of all or substantially all of the
Company's assets or recommend that its stockholders accept such tender or
exchange offer, but only after receipt by the Board of Directors of (x) a
written opinion to such effect from VFS that such transaction is more favorable
to the shareholders from a financial point of view than the Merger and the
transactions contemplated hereby and (y) a written opinion of counsel that
approval, acceptance or recommendation of such transaction is required by
fiduciary obligations under applicable law.
9.2. Effect of Termination and Abandonment In the event of termination
of this Agreement and abandonment of the Merger pursuant to this Article 10, no
party hereto (or any of its directors or officers) shall have any liability or
further obligation to any other party to this Agreement, except as provided in
Sections 6.3 and 10.1 and except that nothing will relieve any party from
liability for any breach of this Agreement.
9.3. No Purchase of Company Stock Buyer agrees that of this Agreement
terminates for any reason other than pursuant to Section 9.1.6 or 9.1.7 hereof,
neither Buyer nor any affiliate of Buyer shall acquire any capital stock of the
Company or any interest therein for a period of twelve (12) months following the
date of such termination.
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ARTICLE 10
MISCELLANEOUS
10.1. Payment of Expenses.
(a) Except as set forth in subsection (b) below,
whether or not the Merger shall be consummated, each party hereto shall pay its
own expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the Merger.
(b) If (A) (x) any person, entity or group not
currently shareholders of the Company (other than Buyer or any subsidiary or
affiliate of Buyer or any group including Buyer or any subsidiary or affiliate
of Buyer) (i) shall have become the beneficial owner of 35% or more of the
outstanding Shares or (ii) shall have publicly proposed (1) any merger or
consolidation with or acquisition of all or substantially all of the assets of
the Company or other similar business combination involving the Company, (2)
that any change be made in the composition of the Board of Directors of the
Company and such person, entity or group shall file proxy materials with the SEC
in respect of such proposal or (3) the purchase of 50% or more of the total
voting power of the Company, including by tender or exchange offer, and (y) this
Agreement is terminated in accordance with its terms or (B) this Agreement is
terminated pursuant to Section 9.1.6 or 9.1.7, then the Company shall pay
Purchaser the sum of three hundred thousand dollars ($300,000) in immediately
available funds (the "Fee").
10.2. Entire Agreement; Amendments. This Agreement constitutes the
entire understanding among the parties hereto with respect to the subject matter
contained herein and supersedes any prior understandings and agreements among
them respecting such subject matter. This Agreement may be amended,
supplemented, and terminated only by a written instrument duly executed by the
Company, Buyer and Cramer.
10.3. Headings. The headings in this Agreement are for convenience of
reference only and shall not affect its interpretation.
10.4. Gender; Number. Words of gender may be read as masculine,
feminine, or neuter, as required by context. Words of number may be read as
singular or plural, as required by context.
10.5. Exhibits and Schedules. Each Exhibit and Schedule referred to
herein is incorporated into this Agreement by such reference.
10.6. Severability. If any provision of this Agreement is held illegal,
invalid, or unenforceable, such illegality, invalidity, or unenforceability will
not affect any other provision hereof. This Agreement shall, in such
circumstances, be deemed modified to the extent necessary to render enforceable
the provisions hereof.
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10.7. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given to the person if delivered personally or
upon sending a copy thereof by first class or express mail, postage prepaid, or
by telegram (with messenger service specified), or reputable courier services,
charges prepaid, or by telecopier, to such party's address (or to such party's
telecopier or telephone number).
If to Buyer or Cramer, to:
Owosso Corporation
The Triad Building
2200 Renaissance Boulevard
Suite 150
King of Prussia, PA 19406
Attention: George B. Lemmon, Jr., President
Telecopy No.: (610) 275-5122
With a copy to:
Pepper Hamilton LLP
3000 Two Logan Square
Philadelphia, PA 19103
Attention: Elam M. Hitchner, III, Esquire
Telecopy No.: (215) 981-4750
If to the Company to:
M. H. Rhodes, Inc.
99 Thompson Road
Avon, CT 06001
Attention: Joseph L. Morelli
Telecopy No.: (860) 673-8633
With a copy to:
Pepe & Hazard LLP
Goodwin Squire
Hartford, CT 06103
Attention: Walter W. Simmers
Telecopy No.: (860) 522-2796
Notice of any change in any such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party hereto entitled to receive such notice.
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10.8. Waiver. The failure of any party hereto to insist upon strict
performance of any of the terms or conditions of this Agreement will not
constitute a waiver of any of its rights hereunder.
10.9. Assignment. This Agreement is not assignable.
10.10. Successors and Assigns. This Agreement binds, inures to the
benefit of, and is enforceable by the successors and assigns of the parties
hereto, and does not confer any rights on any other persons or entities.
10.11. Governing Law. This Agreement shall be construed and enforced in
accordance with the law of the State of Delaware.
10.12. No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their successors and assigns, and they shall not be construed
as conferring and are not intended to confer any rights on any other persons.
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10.13. Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. The execution of this Agreement by any party hereto will not become
effective until counterparts hereof have been executed by all the parties
hereto. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
OWOSSO CORPORATION
By: /s/ John H. Wert, Jr.
------------------------------
Title: Sr. Vice-President Finance
CRAMER COMPANY
By: /s/ John H. Wert, Jr.
------------------------------
Title: Secretary/Treasurer
M. H. RHODES, INC.
By: /s/ Joseph Morelli
------------------------------
Title: President
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<PAGE>
ASSET SALE AND PURCHASE AGREEMENT
THIS ASSET SALE AND PURCHASE AGREEMENT ("Agreement") is made and
entered into as of the 22nd day of June, 1998,
BY AND BETWEEN HARPER INDUSTRIES, INC.,
a Kansas corporation,
hereinafter referred to as
"Buyer"
AND DEWEZE MANUFACTURING, INC.,
a Pennsylvania corporation,
hereinafter referred to as
"Seller"
WHEREAS, Seller owns and/or leases, as the case may be, all of the
tangible and intangible assets, including, inter alia, all of the accounts
receivable, inventories, lands and buildings, machinery and equipment, fixtures
and other operating assets used in the operation of the DewEze division of
Seller ("DewEze Division");
WHEREAS, Buyer desires to acquire substantially all of the tangible and
intangible assets pertaining to the DewEze Division of Seller and to assume only
those certain debts, liabilities and obligations pertaining to the DewEze
Division of Seller as specified herein, all in accordance with the terms and
conditions hereof; and
WHEREAS, Seller desires to sell substantially all of its tangible and
intangible assets and to transfer only those certain debts, liabilities and
obligations pertaining to the DewEze Division of Seller as specified herein, all
in accordance with the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Purpose. The purpose of this Agreement is to set forth the terms of
a sale and purchase of all of the assets of Seller relating to the conduct by
Seller of its equipment manufacturing business owned and currently operated by
Seller as the DewEze Division at 151 East Highway 160, Harper, Kansas 67058
("Premises").
2. Assets. Seller acknowledges and agrees that it owns certain personal
property comprising the DewEze Division of Seller located at the Premises.
Subject to the terms and conditions set forth herein, Seller agrees to sell, and
Buyer agrees to purchase, the following assets:
All machinery, inventory, vehicles, equipment, furniture,
fixtures, office equipment, office supplies, customer lists,
mailing lists, plans, specifications, drawings, designs,
know-how, marketing and production information, accounts,
accounts receivable, agreements, contracts, leases, tools,
licenses,
<PAGE>
patents, trademarks, service marks, trade names, approvals,
authorizations, consents, orders, permits, prepaid expenses,
deferred charges, deposits on real property leases, leasehold
improvements, computer equipment, telephone numbers, the
exclusive right of Buyer to represent itself as carrying on
the business of Seller in continuation thereof, all books and
records, and other personal property and intangible assets of
Seller relative to the business at the Premises or used in the
conduct of the business of Seller relative to the business at
the Premises but held nominally by a third party all or a part
of which are described in Exhibit "A" attached hereto and made
a part hereof.
All of the above described assets including those described in greater detail in
Exhibit "A" are hereinafter referred to as the "Assets." Anything contained in
this Agreement to the contrary notwithstanding, this Agreement shall not
constitute an agreement to assign any contract, license, lease, agreement,
commitment, sales order, purchase or any claim or right of any benefit arising
thereunder or resulting therefrom if an attempted assignment thereof, without
the consent of a third party thereto, would constitute a breach thereof or in
any way affect the rights of Seller or Buyer thereunder. Seller shall obtain, at
Seller's expense, the consent of the other party to any of the foregoing to the
assignment thereof to Buyer in all cases in which such consent is required for
assignment or transfer.
3. Excluded Assets. Notwithstanding anything contained in paragraph 2
herein or elsewhere in this Agreement to the contrary, the property listed in
Exhibit "B" hereto is excluded from the Assets being purchased by Buyer from
Seller ("Excluded Assets").
4. Purchase Price. The purchase price for the Assets shall be (i) the
sum of Two Hundred Thousand Dollars ($200,000) plus the Net Book Value as
defined herein at Closing, subject to adjustment as set forth in paragraph 4.2,
plus (ii) the assumption by Buyer of the Assumed Liabilities (as defined) (the
"Purchase Price"). For purposes of this Agreement, the term "Net Book Value"
shall mean the "net book value" of the Assets and the Assumed Liabilities,
determined in accordance with generally accepted accounting practices and
applied consistently in the manner historically calculated by Seller in its
financial reporting to Owosso Corporation, including, without limitation, those
items, principles, methodology and calculations presented in Schedule 4.1
attached hereto. Provided, for purposes of calculating Net Book Value, Assumed
Liabilities shall also include Employer payroll taxes payable on unpaid
vacation, holiday pay and commissions earned prior to the Closing.
4.1 Payment of Purchase Price. At Closing, Buyer shall pay to
Seller an amount equal to Two Hundred Thousand Dollars ($200,000), plus
the Net Book Value of the Assets as determined by Sellers' April 26,
1998, balance sheet ("April Balance Sheet") payable by wire transfer of
immediately available funds to an account designated by Sellers and by
delivery of a secured Promissory Note, attached hereto as Exhibit "C,"
in the principal amount of Seven Hundred Thousand Dollars
($700,000.00), collateralized by a second position subordinate to
NationsBank, N.A., in the inventory and accounts receivable of Buyer
("Promissory Note").
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<PAGE>
4.2 Adjustment to Purchase Price.
4.2.1 Closing Balance Sheet. Within thirty (30) days after the
Closing Date, Buyer shall prepare a balance sheet for the Seller as of
the Closing Date, excluding therefrom the Excluded Assets and/or
Excluded Liabilities, if any (the "Closing Balance Sheet"), prepared
on a basis consistent with the Seller's April Balance Sheet. Buyer
shall provide Seller with a copy of the Closing Balance Sheet and a
computation of the Net Book Value of the Seller as of the Closing
Date, together with copies of all work papers underlying such
computations of the Net Book Value, within such thirty (30) business
days after the Closing Date.
4.2.2 Post-Closing Adjustment of Purchase Price. Following the
Closing and subject to the provisions of paragraph 4.2.3 hereof, the
Purchase Price shall be increased or reduced, as the case may be, by
$1.00 for every $1.00 by which the Net Book Value, computed using the
Closing Balance Sheet, is more than or less than the Net Book Value,
computed using the April Balance Sheet. Reductions to the Purchase
Price pursuant to this paragraph 4.2.2, if any, shall be due and
payable from Seller (i) with respect to undisputed matters, within ten
(10) business days following the Seller's receipt of the Closing
Balance Sheet and (ii) if Seller disputes the information contained in
the Closing Balance Sheet or Buyer's calculations based thereon, with
respect to such disputed matters, ten (10) business days following the
final resolution of the dispute as provided in paragraph 4.2.3 below.
Increases to the Purchase Price pursuant to this paragraph 4.2.2, if
any, shall be due and payable by Buyer (i) with respect to undisputed
matters, within ten (10) business days following the Seller's receipt
of the Closing Balance Sheet and (ii) if Seller disputes the
information contained in the Closing Balance Sheet or Buyer's
calculations based thereon, with respect to such disputed matters, ten
(10) business days following the final resolution of the dispute as
provided in paragraph 4.2.3 below.
4.2.3 Resolution of Dispute.
---------------------
(i) As to any dispute, controversy or claim arising
out of the terms of paragraph 4.2.2 of this
Agreement, the parties shall, within 10 days of the
initial notice of dispute, attempt to resolve in good
faith any disputed item.
(ii) Any dispute, controversy or claim arising out of
the terms of paragraph 4.2.2 of this Agreement, after
the 10-day period set forth in (i) above, shall be
finally resolved by arbitration. Arbitration shall be
conducted by a nationally recognized firm of
certified public accountants, mutually acceptable to
Buyer and Seller. Arbitration under this paragraph
shall be initiated by a written demand for
arbitration specifying the controversy or claim on
which arbitration is sought, as well as the relief
requested. Service
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<PAGE>
of the arbitration demand shall be effective if made
pursuant to the notification provisions contained in
paragraph 36 of this Agreement.
The arbitration, including the rendering of the award, shall
take place in Harper, Kansas, and shall be the exclusive forum for
resolving such dispute, controversy or claim. For the purposes of this
Arbitration, this Agreement shall be governed by the governing law
described in paragraph 31. This arbitration agreement is intended by
the parties to be self- executing. The arbitrators shall have sole
jurisdiction to determine whether (i) a claim under this paragraph
4.2.3 is subject to arbitration, (ii) the arbitration may proceed even
if one of the parties refuses to attend or participate, and (iii) an
award against that part may be ordered pursuant to default or otherwise
by the arbitrators. The parties agree that they will arbitrate all
claims agreed to be arbitrated herein, regardless of the existence of
any related dispute, action or special proceeding between any or all of
the parties hereto and/or any third part. The decision of the
arbitrators shall be final and binding upon the parties hereto, and
judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. The prevailing party shall be
entitled to recover its reasonable attorneys' fees and its share of the
costs, as the arbitrators determine.
Notwithstanding anything to the contrary contained in this
paragraph 4.2.3, a party shall have the right to institute judicial
proceedings against another party or anyone acting by, through or under
such other party in order to enforce the instituting party's rights
hereunder through specific performance, injunction or similar equitable
relief. Each party, accordingly, submits to the exclusive jurisdiction
of the courts of the State of Kansas and the U. S. federal courts of
Kansas for purposes thereof, Harper County, Kansas, shall be the venue
for any such proceeding.
5. Assumed Liabilities. At Closing, Buyer shall assume the certain
debts, liabilities and obligations of Seller, if any, as described in Exhibit
"D" attached hereto and made a part hereof and only those certain debts,
liabilities and obligations to the extent and only in the amount the same shall
be outstanding at Closing and listed in Exhibit "D" hereto. All of the debts,
liabilities and obligations set forth in Exhibit "D" are hereinafter referred to
collectively as the "Assumed Liabilities."
6. Excluded Liabilities. Buyer shall not be obligated with respect to
any liabilities, except to the extent that it constitutes a valid and legally
enforceable claim against Seller. Except for the Assumed Liabilities
specifically assumed by Buyer as set forth in paragraph 5 herein, Buyer is not
assuming any other debts, liabilities or obligations of Seller including,
without limitation, the debts, liabilities or obligations set forth in Exhibit
"E" hereto. The debts, liabilities and obligations of Seller referred to in this
paragraph 6 and set forth in Exhibit "E" which are not being assumed by Buyer as
aforesaid are hereinafter referred to as the "Excluded Liabilities." Seller
shall pay the Excluded Liabilities when due.
7. Purchase Price Allocation. The Purchase Price shall be allocated as
negotiated by the parties and as set forth in Exhibit "F" hereto. The Assumed
Liabilities, if any, shall be allocated by Seller and Buyer based upon the
individual debt, liability or obligation as determined upon the date of Closing.
Seller and Buyer acknowledge that Exhibit "F" hereto is a proper allocation of
the Purchase Price and of the Assumed Liabilities and that Seller and Buyer each
agree that they will not
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<PAGE>
take any position inconsistent with this allocation in preparing financial
statements, tax returns, reports to stockholders, reports to general partners or
governmental authorities or otherwise which relate to the transactions evidenced
by this Agreement. Seller and Buyer shall agree to the allocations required
under Section 1060 of the Internal Revenue Code of 1986, as amended, and Seller
and Buyer will each file Internal Revenue Service Form 8594 reflecting the final
agreed upon Purchase Price allocation.
8. Bills of Sale/Assignments. At the Closing, Seller shall execute an
Assignment or Bill of Sale relating to the Assets. Seller shall likewise assign
to Buyer any necessary Certificates of Title, Certificates of Origin for the
Assets and such other documents or instruments that Buyer reasonably believes
are necessary to vest in Buyer good and marketable title in fee simple to the
Assets. Subsequent to the Closing, Seller shall execute such other documents as
may be reasonably required to vest in Buyer marketable title to the Assets and
to consummate the transactions contemplated herein.
9. Prorations. The prepaid expenses, deposits and other fees listed in
Schedule 9, relating to the business of Seller, shall be prorated as of the
Closing Date and paid or credited ten (10) days after the Closing. The amounts
of proration shall be set forth in the Post Closing Balance Sheet. Prorations
shall include any deposits under any contracts and other agreements not refunded
to Seller.
With respect to real estate and personal property taxes and assessments
accrued but unpaid on the Assets (other than those which are delinquent)
proration shall be made as of the Closing, based upon most recent tax bills.
Subsequent adjustment of such proration shall be made, if necessary, upon
receipt of the actual tax bill for the current period. Any other proratable
items that cannot be determined or estimated to the satisfaction of the parties
prior to or on the Closing shall be prorated and payment made by the appropriate
party as soon after the Closing as practicable.
10. Closing. The closing of transactions contemplated hereby (the
"Closing Date") shall be on July 24, 1998. Provided, the closing may be held at
such other time and on such other date as the parties may mutually agree to in
writing. Provided, further, the parties may mutually agree to extend the date
for Closing for not in excess of thirty (30) days. The closing shall be held at
the offices of Klenda, Mitchell, Austerman & Zuercher, L.L.C., 1600 Epic Center,
301 North Main, Wichita, Kansas 67202.
11. Representations and Warranties of Seller. As the basis upon which
this Agreement is made, Buyer hereby relies upon, and Seller hereby represents
and warrants to Buyer as of the date of this Agreement and as of the date of
Closing, as follows:
11.1 Organization Power; Standing and Qualification. Seller is
a corporation duly organized, validly existing, and in good standing
under the laws of the State of Pennsylvania, and has full corporate
power and authority to carry on its businesses as it is now being
conducted and to own and operate the Assets now owned and operated by
it. Seller is duly qualified to do business and is in good standing in
Pennsylvania and Kansas, the only jurisdictions where the failure to
qualify or to be in good standing would have a material adverse effect
upon its financial condition, the conduct of its business or the
ownership of its property or the Assets.
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<PAGE>
11.2 Power and Authority. Seller has the power and authority
to execute, deliver and perform this Agreement. This Agreement is a
valid and binding obligation of Seller, enforceable in accordance with
its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium, or similar laws affecting the
enforcement of creditors' rights generally.
11.3 Validity of Contemplated Transactions. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not contravene any
provision of the Articles of Incorporation or Bylaws of Seller; nor
violate, be in conflict with or constitute a default under, cause the
acceleration of any payments pursuant to, or otherwise impair the good
standing, validity or effectiveness of any agreement, contract,
indenture, lease, or mortgage; or subject any property or asset of
Seller to any indenture, mortgage, contract, commitment, or agreement,
other than this Agreement, to which Seller is a party or any of its
assets is bound; or violate any provision of law, rule, regulation,
order, permit or license to which Seller is subject.
11.4 Real Property. Except as set forth in Schedule 11.4,
there are no options, leases, conditional sales agreements, or similar
arrangements respecting any real property presently owned of record or
beneficially owned by Seller to be acquired hereunder.
11.5 Title to Assets. At the Closing, Seller has good,
marketable and indefeasible title to all of the Assets, with the
exception of (i) liens for taxes accrued but not yet payable; (ii)
liens arising as a matter of law in the ordinary course of business, as
to which there is no known default; and (iii) those certain security
interests held by all creditors who are listed on Schedule 11.5. Except
as set forth herein, none of the Assets, buildings, structures and
appurtenances of Seller or the operation or maintenance thereof, as now
operated and maintained, contravenes any applicable zoning ordinance or
other administrative regulation or violates any restrictive covenant or
any provision of law, the enforcement of which could in any respect
interfere with the continued operation of the businesses of Seller in
substantially the manner in which such business is presently being
conducted or could reasonably be expected to have a material adverse
effect on Buyer.
11.6 Absence of Undisclosed Liabilities. To the knowledge of
Seller, it has no material liabilities or obligations except for (i)
those reflected or reserved against (which reserves, to the knowledge
of Seller, are adequate in all material respects) in its April 1998
financial statements of the DewEze Division ("Financial Statements");
(ii) those incurred, consistent with past business practices,
reasonably and in the ordinary course of its business, since April 26,
1998 (the "Financial Statement Date"); and (iii) those which are
specifically disclosed in this Agreement or in a Schedule attached
hereto. Seller does not know of any basis for the assertion against it
as of the Financial Statement Date of any material liability not
reflected or reserved against in the Seller's balance sheet as of such
date or as disclosed by this Agreement.
11.7 Certain Tax Matters. To the knowledge of Seller, it has
duly filed all federal, state and local tax returns and reports
required to be filed by it and all taxes, including
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<PAGE>
income, gross receipt and other taxes and any penalties with respect
thereto, due and payable, have been paid, withheld or reserved for or,
to the extent that they relate to periods on or prior to the Financial
Statement Date, are reflected as a liability on the Financial
Statements. Seller has provided Buyer access to correct and complete
copies of all federal, state and local income tax returns for the
periods covered by the Financial Statements. Since the audit of the tax
returns for the fiscal period ended October 27, 1996, the Seller's
federal income tax liabilities have not been audited by the Internal
Revenue Service. To Seller's knowledge, its federal income tax
liabilities have been satisfied for all taxable years up to and
including the taxable year ended October 26, 1997. Neither the Internal
Revenue Service nor any state or local taxing authority has asserted
that additional taxes are owed by Seller.
11.8 Litigation: Compliance with Laws. Except as set forth in
Schedule 11.8 attached hereto, there is no suit, action, claim,
arbitration, administrative or legal or other proceeding; or
governmental or other investigation pending or, to Seller's knowledge,
threatened against or affecting it, whether or not covered by
insurance; nor, to the knowledge of Seller, does there exist any
failure to comply with, nor any default under, any law, ordinance,
requirement, regulation, or order applicable to Seller; nor any
violation of or default with respect to any order, writ, injunction,
judgment, or decree of any court or federal, state or local department,
official, commission, authority, board, bureau, agency; or other
instrumentality issued or pending against Seller which might have a
material adverse effect on the financial condition, business, results
of operations, properties, or assets of Seller or Buyer's purchase or
ownership of the Shares. To the knowledge of Seller, it has obtained
all permits, licenses, zoning variances approvals, and other
authorization necessary for the complete operation of its business as
presently operated, and there are none. To the knowledge of Seller, it
has not made any illegal kickbacks, bribes or political contributions.
11.9 Employee Benefits. Schedule 11.9 lists all deferred
compensation, pension, profit sharing, stock option, stock purchase,
savings, group insurance and retirement plans, and all vacation pay,
severance pay, incentive compensation, consulting, bonus and other
employee benefit or fringe benefit plans or arrangement maintained by
Seller (including health, life insurance and other benefit plans
maintained for retirees). Said plans, including but not limited to all
plans or programs that constitute "employee benefit plans" as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), are sometimes collectively referred to in this
paragraph as "Benefit Plans." Access to true and complete copies of all
Benefit Plans, including any insurance contracts under which benefits
are provided, as currently in effect has been provided to Buyer. Buyer
has also been provided with access to a true and complete copy of the
summary plan description, if any was required by ERISA to be prepared
and distributed to participants, for each Benefit Plan. Except as set
forth in Schedule 11.9:
11.9.1 Seller has no affiliates and has not at any time been
a party to any pension plan or welfare benefit plan
that is a "Multiemployer Plan" within the meaning of
Section 4001(a)(3) of ERISA.
11.9.2 To the knowledge of Seller, each Benefit Plan that
provides medical benefits has been operated in
compliance with all requirements of Sections 601
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through 608 of ERISA and either (i) Sections
162(i)(2) and (k) of the Code and regulations
thereunder (prior to 1989) or (ii) Section 4980B of
the Code and regulations thereunder (after 1988),
relating to the continuation of coverage under
certain circumstances in which coverage would
otherwise cease.
11.9.3 Schedule 11.9 discloses, and separately indicates,
each plan, fund or program maintained by Seller that
provides post retirement medical benefits, post
retirement death benefits or other post retirement
welfare benefits. A copy of any written description
of post retirement welfare benefits that has been
provided to employees has been furnished to Buyer. A
copy of each plan document, insurance contract or
other written instrument providing for post
retirement welfare benefits has been provided to
Buyer, together with a description of any advance
funding arrangement that has been established to fund
post retirement welfare benefits.
11.9.4 To the knowledge of Seller, all contributions to, and
payment from the Benefit Plans which may have been
required to be made in accordance with the Benefit
Plans and, when applicable, Section 302 of ERISA or
Section 412 of the Code, have been timely made. To
the knowledge of Seller, all such contributions to
the Benefit Plans, and all payments under the Benefit
Plans, except those to form a trust qualified under
Section 401(a) of the Code, for any period ending
before the Closing Date that are not yet, but will
be, required to be made are properly accrued and
reflected on the pre-Closing Balance Sheet or are
disclosed on Schedule 11.9. Except as disclosed on
Schedule 11.9, Seller has funded or will fund each
Benefit Plan in accordance with its terms through the
Closing, including the payment of applicable premiums
on any insurance contract funding a Benefit Plan for
coverage provided through the Closing.
11.9.5 To the knowledge of Seller, each Benefit Plan is in
compliance in all material respects with the
presently applicable provisions of ERISA and the
Code, including but not limited to the satisfaction
of all applicable reporting and disclosure
requirements under ERISA and the Code. Seller has
filed or caused to be filed with the Internal Revenue
Service annual reports on Form 5500 or 5500C and
5500R, as applicable, for each Benefit Plan for all
years and periods for which such reports were
required. To the knowledge of Seller, each of the
Benefits Plans has been administered at all times,
and in all material respects, in accordance with its
terms except that in any case in which any Benefit
Plan is currently required to comply with a provision
of ERISA or of the Code, but is not yet required to
be amended to reflect such provision, it has been
administered in accordance with such provision.
11.9.6 To the knowledge of Seller, no "prohibited
transaction," as defined in Section 406 of ERISA and
Section 4975 of the Code, has occurred in respect of
any Benefit Plan which could give rise to any
liability or tax under ERISA or the
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Code on the part of Seller, and no civil or criminal
action brought pursuant to part 5 of Title I of ERISA
is pending or is threatened in writing or orally
against any fiduciary of any such plan.
11.9.7 To the knowledge of Seller, all of the Benefit Plans
which are pension benefit plans have received
determination letters from the IRS to the effect that
such plans are qualified and exempt from federal
income taxes under Sections 401(a) and 501(a),
respectively, of the Code, as amended through
December 31, 1984; and no determination letter with
respect to any Benefit Plan has been revoked nor, to
the knowledge of Seller, has revocation been
threatened, nor to the knowledge of Seller has any
Benefit Plan been amended since the date of its most
recent determination letter or application therefor
in any request which would adversely affect its
qualification or materially increase its cost and no
Benefit Plan has been amended in a manner that would
require security to be provided in accordance with
Section 401(a)(29) of the Code.
11.9.8 To the knowledge of Seller, there have been no
statements or communications made or materials
provided to any employee or former employee of Seller
by any person (including any Affiliate or any
employee, officer or director of any Affiliate) which
provide for or could be construed as a contract or
promise by Seller or any Affiliate to provide for any
pension, welfare, or other insurance-type benefits to
any such employee or former employee, whether before
or after retirement, other than benefits under
Benefit Plans set forth on Schedule 11.9, nor under
the form of employment contracts.
11.10 Insurance. All inventories, machinery, equipment,
buildings, improvements, and other tangible assets of the DewEze
Division owned or leased by Seller are, and between the date hereof and
the Closing Date will be, insured against fire and casualty under the
policies and in the amounts and types of coverage set forth in Schedule
11.10 attached hereto and such policies are, and between the date
hereof and the Closing Date will be, outstanding and duly in force and
the premiums thereon fully paid when and as the same are due and
payable. Schedule 11.10 attached hereto is a true and correct schedule
of all policies of fire, liability, and other forms of insurance,
excluding the Benefit Plans listed in Schedule 11.10 attached hereto,
pursuant to which Seller or its Assets are insured (whether or not held
by Seller) or with respect to which Seller directly or indirectly pays
all or part of the premium.
11.11 Proprietary Rights. To the knowledge of Seller, it owns,
possesses, or lawfully uses all patents, patent applications,
trademarks, trade applications, service marks, trade names, franchises,
permits, copyrights, and similar intangible rights used in its business
(collectively, the "Patents and Trademarks"), each of which is listed
in Schedule 11.11 attached hereto, and those Patents and Trademarks
designated in Schedule 11.11 are owned exclusively by Seller, are valid
and enforceable, and, to the knowledge of Seller, none infringe (nor
have any claim been made that there is any such infringement) the
patents, trademarks, service marks, trade names, copyrights or similar
intangible rights of others. Such franchises, licenses, permits,
easements, rights and other authorizations will not be adversely
affected by the transaction contemplated by this Agreement. Seller has
no knowledge of any claim or
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basis for any claim that it is or may be infringing on or otherwise
acting adversely to the rights of any person under or in respect, of
any patent, trademark, service mark, trade name, copyright, license,
franchise, permit, or other intangible right. To the knowledge of
Seller, except as provided in Schedule 11.11, it is not obligated or
under any liability whatever to make any payments by way of royalties,
fees, or otherwise to any owner or licensee of, or other claimant to,
any patent, trademark, trade name, copyright, or other intangible asset
with respect to the use thereof, in connection with the conduct of its
business, or otherwise.
11.12 Labor Disputes. Seller is not a party to any contract or
other agreement with any labor union; and Seller is not experiencing or
the subject of or threatened by any union organization campaign or any
strike, slowdown, picketing, work stoppage, or other labor disturbance
by any labor union or group of employees.
11.13 Contracts. Except for sales orders, purchase
commitments, distributor agreements, marketing representative
agreements, or any agreements listed in Schedule 11.13 hereto, there
are no contracts applicable to the operation of the DewEze Division of
Seller and to which Seller is a party and which fall into any of the
following categories:
a) Contracts, separately or in aggregate, with any
third party, involving an amount in excess of
$100,000;
b) Contracts upon the same terms and conditions
or based upon the same contract form,
involving, in aggregate, an amount in excess
of $100,000; or
c) Other contracts the non-performance of which
could have a material, adverse effect on
Seller.
All such contracts in the above categories have been made in the ordinary course
of business. To the knowledge of Seller, it and each other party to any of the
aforesaid documents has performed all material obligations required to be
performed by it to date, and is not in default, under any such contract,
agreement, commitment, lease, plan or indenture in the above categories, nor has
an event occurred which with the passage of time or giving of notice or both
will result in the occurrence of a default under any of the aforesaid documents.
11.14 Other Transactions. Except as disclosed on Schedule
11.14 hereto, or otherwise disclosed to and approved by Buyer, Seller
has not, since the Financial Statement Date, (a) operated its business
except in the ordinary course of business, (b) incurred any debts,
liabilities or obligations except in the ordinary course, (c)
discharged or satisfied any liens or encumbrances, or paid any liens or
encumbrances, or paid any debts, liabilities or obligations, except in
the ordinary course of business, (d) mortgaged, pledged or subjected to
lien or other encumbrance any of its assets, tangible or intangible,
except in the ordinary course of business, (e) sold or transferred any
of its tangible assets, or canceled any debts or claims, except, in
each case, in the ordinary course of business, or (f) suffered any
extraordinary losses or waived any rights of substantial value.
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11.15 Product Liability Claims. Seller has delivered to Buyer
a narrative of incidents, events and claims under all policies of
product liability insurance relating to Seller. Seller is an insured
under all policies of insurance relating to product liability listed on
Schedule 11.15 for and against covered claims for product liability
based on events occurring prior to the Closing Date, which insurance
coverage Seller covenants to continue in effect, listing Buyer as an
additional insured thereunder, after the Closing Date for a period of
seven (7) years.
11.16 No Changes. Since April 26, 1998, and except as
disclosed to Buyer in writing as soon as any such events have occurred,
there has not been any materially adverse change in the financial or
other condition, assets, liabilities or business of Seller, except
changes described in Schedule 11.16 hereto, none of which individually
or in the aggregate has been materially adverse to Seller.
11.17 Veracity of Statements. No representation or warranty by
Seller contained in this Agreement and no statement contained in any
certificate or Schedule or other instrument furnished to Buyer pursuant
hereto or in connection with the transactions contemplated hereby,
contains any untrue statement of a material fact or omits to state a
material fact.
11.18 Accounts Receivable. Except to the extent of the reserve
for bad debts shown on the balance sheet of Seller as of the Financial
Statement Date, all of the accounts receivable of Seller constitute
valid receivables, have been incurred in the ordinary course of
business and, to the knowledge of Seller, are not subject to any setoff
or counterclaim. No part of such accounts receivable is contingent upon
performance by Seller of any obligation and no agreements for
deductions or discounts have been made with respect to any part of such
receivables.
11.19 Hazardous Substances. Except as listed on Schedule
11.19, to the knowledge of Seller: (i) none of the Assets has been used
for the manufacture, storage, transportation, deposit, disposal,
treatment, handling, production, processing or recycling of toxic,
dangerous or hazardous substances nor is there any tank or facility for
the storage of hazardous substances located on or in the Assets; (ii)
there are no asbestos materials on or in the Assets creating, or likely
to create, a hazardous condition; (iii) there is not now nor has there
been any activity on or in the Assets which would subject the Seller or
the Buyer to liens, damages, penalties, injunctive relief or cleanup
costs under any federal, state or local law, or under any civil action
respecting hazardous substances. To the knowledge of Seller, no portion
of the Assets constitutes any of the following "environmentally
sensitive areas": (1) a wetland or other "water of the United States"
for purposes of Section 404 of the Federal Clean Water Act, 33 U.S.C.
ss.1344, or any similar area regulated under any state law; (2) a
100-year floodplain; or (3) a portion of the coastal zone for purposes
of the federal Coastal Zone Management Act, 16 U.S.C. ss.ss.1451-1464.
To the knowledge of Seller, the Assets are free from the presence of
unacceptable levels of radon gas or the presence of the radioactive
decay products of radon. A "hazardous substance" shall mean that term
as defined in the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. ss.9601, et sea., as amended, and
dangerous, regulated toxic or hazardous substances or similar terms
under any other applicable state, federal or local law and any
regulations thereunder.
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12. Representations and Warranties of Buyer. As the basis upon which
this Agreement is made, Seller hereby relies upon, and Buyer hereby represents
and warrants to Seller, as of the date of this Agreement and as of the date of
Closing as follows:
12.1 Power and Authority. Buyer has full power and authority
to enter into this Agreement and to perform all of Buyer's covenants
and undertakings herein set forth. This Agreement is a valid and
binding obligation of Buyer, enforceable in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws affecting the rights of
creditors generally.
12.2 Conflict With Authority; Bylaws, Etc. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby in the manner herein provided will
violate, be in conflict with, constitute a default under, cause the
acceleration of any payments pursuant to, or otherwise impair the good
standing, validity, and effectiveness of any lease, license, permit,
authorization, or approval applicable to Buyer; or violate any
provision of law, rule, regulation, order, or permit to which Buyer is
subject.
12.3 Financing. Buyer has all funds or has preliminary
commitments from financing sources as to the provision of funds, as
necessary to pay the Purchase Price and related fees and expenses; and
Buyer will have the financial capacity to perform all of its other
obligations under this Agreement and the closing documents to be
executed hereunder at the Closing.
13. Seller's Activities Prior to Closing.
------------------------------------
13.1 Operation of Business. To the extent such matters are not
otherwise the responsibility of the local management of Seller, prior
to the Closing Date, Seller will make all reasonable effort to conduct
its business only in the ordinary course; to maintain the Assets in
good condition and repair and to use best efforts to preserve its
business organization intact; to keep available to Buyer the services
of Seller's employees and other representatives; and to preserve for
the benefit of Buyer the goodwill of Seller's suppliers, customers and
others having business relations with Seller.
13.2 Access to Information. To the extent that any information
is not located at the Premises, Seller will cooperate fully with Buyer;
and shall provide Buyer and its accountants, counsel and other
representatives, during normal business hours, full access to the
books, records, equipment, real estate, contracts and other assets of
Seller; and full opportunity to discuss Seller's business, affairs and
Assets with its officers, employees and independent accountants; and
furnish to Buyer and its representatives copies of such documents,
records and information with respect to the affairs of Seller as Buyer
or its representatives may reasonably request. In addition to the
foregoing right of access and information, Buyer may designate on-site
observers of the business and operations of Seller, which observers
shall be permitted such access to Seller's business and operations as
Buyer may reasonably request and shall be fully informed by it
concerning all of its assets, operation and business affairs. Buyer and
Seller shall hold, and shall cause their respective financing sources,
counsel, accountants and other agents and representatives to hold, all
such information and documents in confidence and shall not disclose any
such information to any
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person or entity, absent the prior written consent of the disclosing
party or as required by applicable law.
13.3 Best Efforts. Subject to the other provisions of this
Agreement, Seller will use its best efforts to cause the conditions
listed in paragraph 13 hereof to be satisfied on the Closing Date.
14. Conditions to Obligation of Buyer to Close. The obligation of Buyer
to consummate the transaction contemplated under this Agreement on the Closing
Date shall be subject to the satisfaction or the waiver by Buyer of the
following conditions on or prior to the Closing Date:
14.1 Financing. Buyer, at its own expense, shall have obtained
on terms satisfactory to it financing for its purchase of the Assets.
Buyer shall use its best efforts to obtain such funding for the
purchase of the Assets as expeditiously as possible.
14.2 Representations and Warranties; Compliance with
Agreement. The representations and warranties of Seller set forth in
this Agreement shall be true and correct in all material respects as of
the date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date, and Seller shall have performed all
covenants and agreements to be performed by it under this Agreement on
or prior to the Closing Date. Provided, Buyer shall not be excused from
consummating the transaction contemplated by this Agreement to the
extent Buyer knew any such representation or warranty was false at the
time of execution of this Agreement.
14.3 Opinion of Counsel for Seller. Pepper Hamilton LLP,
counsel for Seller, shall have delivered to Buyer their favorable
opinion, dated the Closing Date.
14.4 Warranty Deed/Title Policies. Seller shall have executed
and delivered to Buyer a warranty deed covering the facility located at
the Premises in the form and substance acceptable to Buyer and shall
have delivered to Buyer an Owner's Policy of title insurance, written
by a title insurance company acceptable to Buyer on ALTA Form
(10-17-92), which title insurance policy shall contain ALTA 3.1 zoning
endorsements and access endorsements and the costs of which shall be
borne equally by Seller and Buyer.
14.5 Litigation Affecting Closing. On the Closing Date, no
proceeding shall be pending or threatened before any court or
governmental agency in which it is sought to restrain or prohibit or to
obtain damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby, and no
investigation that might result in any such suit, action or proceeding
shall be pending or threatened.
14.6 Required Consents. The parties to any material contract,
commitment or agreement to which Seller is a party; any governmental
agency or body or any other person, firm or corporation which owns or
has authority to grant any franchise, license, permit, easement, right
or other authorization necessary for the business or operations of
Seller; and any governmental body or regulatory agency having
jurisdiction over Buyer or Seller, to the extent that their consent or
approval is required under the pertinent debt, lease, contract,
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commitment or agreement or other document or instrument or under
applicable laws, rules or regulations for the consummation of the
transaction contemplated hereby in the manner herein provided, shall
have granted such consent or approval. Seller does represent and Buyer
does acknowledge the accuracy of the same that all such parties,
agencies, bodies, persons, firms and corporations are set forth on the
attached Schedule 14.6.
14.7 No Material Damage to Business. The assets, properties
and business of Seller shall not have been and shall not be threatened
to be materially adversely affected in any way as a result of fire,
explosion, earthquake, disaster, accident, labor dispute, any action by
any governmental authority, flood, drought, embargo, riot, civil
disturbance, uprising, activity of armed forces or act of God or public
enemy;
14.8 Approval of Buyer; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry
out this Agreement or incidental hereto and all other related legal
matters shall have been approved by Buyer, in the exercise of its
reasonable judgment, and Buyer or its counsel shall have been furnished
with certified copies, satisfactory in form and substance to Buyer in
the exercise of its reasonable judgment, of all such corporate records
of Seller and of the proceedings of such persons authorizing its
execution, delivery and performance of this Agreement as Buyer shall
reasonably require.
14.9 Industrial Revenue Bonds. On the Closing Date, Seller
shall have provided for the defeasance of those certain $1,500,000 City
of Harper, Kansas, Industrial Revenue Bonds (DewEze Manufacturing,
Inc.) Series 1993, including the funding thereof, as provided for under
the terms of the applicable indenture, provided, that the City of
Harper shall have first delivered to Seller its waiver of the right to
call the bonds or otherwise exercise any other rights solely by virtue
of Seller having previously delivered its notice of intent to defease
such bonds and failed to do so by reason of the closing not occurring.
14.10 Bonuses. On or prior to the Closing Date, Seller shall
pay all accrued bonuses owed to its employees and timely deposit with
the appropriate taxing authority all applicable FICA and related
payroll taxes applicable to such bonuses.
14.11 Resolutions. On the Closing Date, Seller shall have
delivered to Buyer certified copies of resolutions of the board of
directors and stockholders of Seller, authorizing the transactions
contemplated herein.
14.12 Certificate. On the Closing Date, the president of
Seller shall have executed and delivered to Buyer a certificate dated
the Closing Date, certifying that the conditions set forth in
paragraphs 14.2 and 14.9 of this Agreement have been fulfilled.
14.13 MIS Agreement. On or prior to the Closing Date, Seller
and Buyer shall have entered into an agreement whereby Seller shall
provide Buyer with use of its management information and accounting
system for a period of not more than six (6) months following the
Closing.
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14.14 Subordination Agreement. On or prior to the Closing
Date, Seller and NationsBank, N.A., shall have executed a Subordination
Agreement, acceptable to both NationsBank, N.A., and Seller, with
respect to the obligations of Buyer as evidenced by the Promissory Note
and Buyer's obligations under the accounts receivable and inventory
financing to be provided by NationsBank, N.A.
14.15 Execution of Additional Documents. On or prior to the
Closing Date, Seller and Buyer shall have executed and delivered a
Security Agreement mutually acceptable to the parties, collateralizing
a second position in the inventory to accounts receivable of Seller,
along with the Promissory Note.
15. Conditions to Obligation of Seller to Close. The obligation of
Seller to consummate the transaction contemplated under this Agreement on the
Closing Date shall be subject to the satisfaction or the waiver by Seller of the
following conditions on or prior to the Closing Date.
15.1 Representations and Warranties. The representations and
warranties of Buyer set forth in this Agreement shall be true and
correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, and Buyer shall have
delivered to Seller a certificate to such effect, dated the Closing
Date, which certificate shall be in form and substance satisfactory to
Seller and its counsel.
15.2 Compliance with Agreement. Buyer shall have performed all
covenants and agreements to be performed by it under this Agreement on
or prior to the Closing Date and shall have delivered to Seller a
certificate dated the Closing Date and signed on behalf of Buyer to
such effect and to the effect that the transactions contemplated by
this Agreement were duly authorized by all necessary action on the part
of Buyer, which certificate shall be in form and substance satisfactory
to Seller.
15.3 Opinion of Counsel of Buyer. Klenda, Mitchell, Austerman
& Zuercher, L.L.C., counsel for Buyer, shall have delivered to Seller
their opinion, dated the Closing Date.
15.4 Litigation Affecting Closing. On the Closing Date, no
proceeding shall be pending or threatened before any court or
governmental agency in which it is sought to restrain or prohibit or to
obtain damages or other relief in connection with this Agreement or the
consummation of the transaction contemplated hereby, and no
investigation that might eventuate in any such suit, action or
proceeding shall be pending or threatened.
15.5 Approval of Seller: Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry
out this Agreement or incidental hereto and all other related legal
matters shall have been approved on the Closing Date by Seller, in the
exercise of their reasonable judgment, and Seller shall have been
furnished with certified copies, satisfactory in form and substance to
Seller in the exercise of their reasonable judgment, of all such
records of Buyer and Seller and of the proceedings of Buyer and Seller
authorizing their execution, delivery and performance of this Agreement
as Seller shall reasonably require.
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15.6 Resolutions. On the Closing Date, Buyer shall have
delivered to Seller certified copies of resolutions of the board of
directors and stockholders of Buyer, authorizing the transactions
contemplated herein.
16. Termination. Anything contained herein to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(a) by mutual written consent of Seller and Buyer;
(b) by Seller, if any of the conditions set forth in
paragraph 15 hereof shall have become incapable of
fulfillment and shall not have been waived by Seller;
(c) by Buyer, if any of the conditions set forth in
paragraph 14 hereof shall have become incapable of
fulfillment and shall not have been waived by Buyer;
or
(d) by either party hereto, if the Closing does not occur
on or prior to September 1, 1998.
17. Indemnification.
---------------
17.1 By Seller. To the extent and in the manner herein
provided, Seller shall indemnify and hold harmless Buyer from and
against any and all damages, losses, obligations, deficiencies,
liabilities, claims, encumbrances, penalties, costs, and expenses,
including reasonable attorneys' fees, which Buyer may suffer or incur,
resulting from, related to, or arising out of (i) any
misrepresentation, breach of warranty or nonfulfillment of any of the
covenants of Seller in this Agreement or from any misrepresentation in
or omission from any schedule to this Agreement, certificate, financial
statement, or from any other document furnished or to be furnished to
Buyer hereunder; (ii) any Excluded Liabilities; or (iii) any claims
based upon alleged injuries to persons, property or business by reason
of alleged defectiveness, improper design, or manufacture or
malfunction or otherwise of any product manufactured by Seller and any
and all actions, suits, investigations, proceedings, demands,
assessments, audits, judgments, and claims (including
employment-related claims) arising out of the foregoing even though
such proceeding or claim may not be filed until after the Closing Date.
Notwithstanding the foregoing, the parties acknowledge and agree that
Buyer shall not be entitled to indemnification for a breach of a
representation and/or warranty on the part of Seller which Buyer knows
to be false when made.
17.2 By Buyer. From and after the Closing Date, Buyer agrees
to indemnify and hold harmless Seller from and against any and all
damages, losses, obligations, deficiencies, liabilities, claims,
encumbrances, penalties, costs, and expenses, including reasonable
attorneys' fees, which Seller may suffer or incur, resulting from,
related to, or arising out of (i) any misrepresentation, breach of
warranty, or nonfulfillment of any of the covenants or agreements of
Buyer in this Agreement; (ii) from any misrepresentation in or omission
from any certificate or document furnished or to be furnished to Seller
hereunder; (iii) any Assumed
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Liabilities; or (iv) any and all suits, actions, investigations,
proceedings, demands, assessments, audits, judgments, and claims
arising out of any of the foregoing.
17.3 Notice. Promptly after acquiring knowledge of any damage,
loss, deficiency, liability, claim, encumbrance, penalty, cost,
expense, action, suit, investigation, proceeding, demand, assessment,
audit, judgment, or claim against which Seller has indemnified Buyer or
against which Buyer has indemnified Seller, or as to which either Buyer
or Seller (herein, a "Party") may be liable, Seller or Buyer, as the
case may be, shall give to the other Party written notice thereof. Each
indemnifying Party shall, at its own expense, promptly defend, contest
or otherwise protect against any damage, loss, deficiency, liability,
claim, encumbrance, penalty, cost, expense, action, suit,
investigation, proceeding, demand, assessment, audit, judgment, or
claim against which it has indemnified an indemnified Party, and each
indemnified Party shall receive from the other Party all necessary and
reasonable cooperation in said defense including, but not limited to,
the services of employees of the other Party who are familiar with the
transactions out of which any such damage, loss, deficiency, liability,
claim, encumbrance, penalty, cost, expense, action, suit,
investigation, proceeding, demand, assessment, audit, judgment, or
claim may have arisen. The indemnifying Party shall have the right to
control the defense of any such proceeding unless it is relieved of its
liability hereunder with respect to such defense by the indemnified
Party. The indemnifying Party shall have the right, at its option, and,
unless so relieved, to compromise or defend, at its own expense by its
own counsel, any such matter involving the asserted liability of the
indemnified Party. In the event that the indemnifying Party shall
undertake to compromise or defend any such asserted liability, it shall
promptly notify the indemnified Party of its intention to do so. In the
event that an indemnifying Party, after written notice from an
indemnified Party, fails to take timely action to defend the same, the
indemnified Party shall have the right to defend the same by counsel of
its own choosing, but at the cost and expense of the indemnifying
Party.
17.4 Limitation on Indemnification. Seller shall have no
liability with respect to paragraph 15.1, unless the aggregate amount
of the damages and losses to Buyer from all claims finally determined
to arise under this Agreement exceed an aggregate amount equal to
$25,000; and, in such event Seller shall be required to indemnify for
losses relating back to the first dollar in excess of $10,000. Provided
that, except for claims arising out of a breach of the representations
set forth in paragraph 11.9 and for claims based on an allegation of
fraud, the aggregate amount which Seller shall be obligated to expend
hereunder shall not exceed an amount equal to the Purchase Price.
18. Employee Matters. Notwithstanding anything to the contrary
contained herein, the following shall apply with respect to employment matters:
18.1 Termination of Seller's Employee Welfare Benefit Plans.
As of the Closing Date, all employees of Seller shall cease to be
covered by any employee welfare benefit plans maintained by Seller,
including, without limitation, plans, programs, policies and
arrangements which provide medical and dental coverage, life and
accident insurance, disability coverage and vacation and severance pay
(collectively, "Welfare Plans"). With respect to claims under Seller's
Welfare Plans, Seller shall retain responsibility for all Welfare Plan
claims, whenever
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made, by employees of Seller (i) under any medical, dental or health
plan with respect to an injury or occupational disease identifiably
sustained prior to the Closing Date, and (ii) incurred under any life
insurance plans with respect to deaths occurring on or after the
Closing Date. Buyer shall be responsible for any claims which occurred
on or after the Closing Date with respect to the employees, arising
under any welfare plan established or maintained by Buyer.
18.2 Workers' Compensation. With respect to claims under
workers' compensation coverage, Seller shall be responsible for
injuries and occupational diseases identifiably sustained by Seller's
employees prior to the Closing Date; and Buyer shall be responsible for
injuries and occupational diseases identifiably sustained by the
employees on and after the Closing Date.
18.3 Employment of Employees at Closing. On the Closing Date,
Buyer will offer to employ substantially all of the employees at
comparable compensation levels and on substantially the same terms and
conditions of employment in effect as of the Closing Date.
19. Products Liability. With respect to products liability claims,
other than warranty claims, Seller shall be responsible for all such claims with
respect to products manufactured by Seller prior to the Closing Date. Buyer
shall be responsible for all products liability claims for products manufactured
after the Closing Date.
20. Warranty Claims. With respect to "warranty claims," Buyer shall be
responsible for any claims made after the Closing Date. For purposes of this
Agreement the term "warranty claims" shall mean claims seeking return,
replacement and/or repair of products pursuant to express warranties extended by
Seller to its customers prior to the Closing, pursuant to either product
warranties extended by Seller or warranties implied by law.
21. Non-warranty Running Gear Repair Program. Purchaser agrees to
reimburse Seller, upon receipt of written invoice, in an aggregate amount of up
to One Hundred Sixty Two Thousand Dollars ($162,000) for all direct repair
expenses incurred by Seller in performing a non- warranty based running gear
repair program to reinforce and strengthen the front running gear by the use of
welded rectangular gussets of all running gear model numbers 1689, 2089, and
2589 produced prior to the Closing by Seller. Seller agrees to notify all
distributors who, in accordance with Seller's business records. have marketed
the products prior to the Closing and to use its best efforts to accomplish all
such repair work by no later than December 31, 1998.
22. Survival of Representations and Warranties. All representations and
warranties made by Seller and Buyer in this Agreement or pursuant hereto shall
survive the Closing hereunder for a period of five (5) years with respect to
representations and warranties concerning taxes, for a period of ten (10) years
with respect to representations and warranties concerning environmental matters
and for a period of one (1) year for all other representations and warranties.
23. Non-Competition. For a period of three (3) years from the date of
this Agreement, Seller shall not act, either individually or in partnership, or
jointly or in conjunction with any other
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person or business entity as principal, agent, stockholder, officer, director,
employee, consultant, independent contractor, owner, member, partner, holder,
advisor or in any other manner whatsoever, directly or indirectly, carry or be
engaged in or be concerned with or interested in or advise, manage, own,
participate in, encourage, support, lend money to, guarantee the debts or
obligations of or permit Seller's name to be used or employed by any person
engaged in or concerned with or interested in the business of manufacturing
commercial mowing, bale handling or turf maintenance equipment or vehicle
mounted hydraulic systems; provided, however, Seller may have a one percent (1%)
or less stock ownership in a publicly traded company engaged in the business of
Seller; provided, further, Seller may, nevertheless, sell components and
accessories to whomsoever.
24. Conduct of Seller and Buyer after Closing. Buyer and Seller will
cooperate upon and after the Closing Date in effecting the orderly transfer of
the operations of Seller to Buyer. Without limiting the generality of the
foregoing, Seller shall, if deemed necessary by Buyer, use its best efforts to
cause the United States government, and every agency and department and
instrumentality thereof, to agree with Seller to have contracts between each of
them and Seller novated in the name of Buyer, and to the execution of
appropriate documents thereto. In addition, after the Closing Date, at the
request of either Party and at the requesting Party's expense, but without
additional consideration, the other Party shall execute and deliver from time to
time such further instruments of assignment, conveyance and transfer, shall
cooperate in the conduct of litigation and the processing and collection of
insurance claims, and shall take such other actions as may reasonably be
required to convey and deliver more effectively to Buyer the Assets or to
confirm and perfect the Buyer's title to the Assets, and otherwise to accomplish
the orderly transfer of ownership of the Assets to Buyer and the business assets
and operations of Seller as contemplated by this Agreement.
25. Fees and Expenses. Seller and Buyer agree to bear their own
expenses for any and all attorneys' fees and other costs involved in the
preparation or negotiation of this Agreement and any other documents relating to
the implementation and consummation of this transaction.
26. Brokerage: Expenses. Neither of the Parties has employed or will
employ any broker, agent, finder, or consultant or has incurred or will incur
any liability for any brokerage fees, commissions, finders' fees, or other fees,
in connection with the negotiation or consummation of the transactions
contemplated by this Agreement.
27. Taxes. Seller shall pay any and all applicable local, city, county,
state and/or federal sales, documentary, use, filing, transfer and other taxes
payable as a result of the transfer of the Assets.
28. Entire Agreement; Amendments. This Agreement constitutes the entire
understanding among the Parties with respect to the subject matter contained
herein and supersedes any prior understandings and agreements among them
respecting such subject matter. This Agreement may be amended, supplemented, and
terminated only by a written instrument duly executed by all of the Parties.
29. Waiver. At any time prior to the Closing, the parties hereto may be
mutual agreement (i) extend the time for the performance of any of the
obligations or other acts of the other party
19
<PAGE>
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, and/or (iii)
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing, signed by both parties
hereto.
30. Counterparts and Facsimile Signatures. This Agreement may be
executed simultaneously in two (2) or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. Facsimile signatures of the parties hereto shall be binding.
31. Headings. The headings contained in this Agreement are for
convenience and reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
32. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Kansas. Any legal action brought to
enforce or construe this Agreement shall be brought in the courts located in
Harper County, Kansas; and Seller and Buyer hereby agree to the jurisdiction of
such courts and agree that they will not invoke the doctrine of forum non
conveniens or other similar defenses.
33. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
34. Gender; Number. Words of gender may be read as masculine, feminine,
or neuter, as required by context. Words of number may be read as singular or
plural, as required by context.
35. Exhibits and Schedules. Each Exhibit and Schedule referred to
herein is incorporated into this Agreement by such reference.
36. Severability. If any provision of this Agreement is held illegal,
invalid, or unenforceable, such illegality, invalidity, or unenforceability will
not affect any other provision hereof. This Agreement shall, in such
circumstances, be deemed modified to the extent necessary to render enforceable
the provisions hereof.
37. Notices. All notices hereunder shall be deemed giving if in
writing, delivered personally or sent by registered mail or certified mail,
return receipt requested, to the parties at the following addresses or at such
other addresses as shall be specified by like notice:
If to Buyer, to: Harper Industries, Inc.
151 East Highway 160
Harper, Kansas 67058
Attention: Tim Penner, President
Telecopy No.: (316) 896-7129
20
<PAGE>
With a copy to: Klenda, Mitchell, Austerman & Zuercher, L.L.C.
1600 Epic Center
301 North Main
Wichita, Kansas 67202
Attention: Michael R. Biggs, Esquire
Telecopy No.: (316) 267-0333
If to Seller to: DewEze Mfg., Inc.
2200 Renaissance Boulevard, Suite 150
King of Prussia, Pennsylvania
Attention: George B. Lemmon, Jr.
Telecopy No.: (610) 275-5122
With a copy to: Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, Pennsylvania 19103
Attention: Elam M. Hitchner, III
Telecopy No.: (215) 981-4750
Any notice given by mail shall be effective two days after deposit in the United
States mail. Any notice given by facsimile or overnight delivery shall be
effective upon the day after transmission or deposit.
38. Public Announcements. The parties agree that all statements and/or
public announcements, including those to the media, concerning this transaction
shall be subject to the parties mutual written approval.
39. No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their successors and assigns, and they shall not be construed
as conferring and are not intended to confer any rights on any other persons.
40. Definition of Knowledge. Wherever the representations and
warranties of paragraph 11 hereof are limited by knowledge, knowledge shall mean
actual knowledge, obtained after reasonable inquiry, consisting of the review of
records of Seller considered pertinent and discussions with key employees and
officers of Seller considered necessary in order to refresh the recollection of
Seller as to Seller and its affairs, and focus the attention of the Seller on
pertinent facts relevant to the representations and warranties. As to Buyer, it
is acknowledged that the actual knowledge of Mr. Tim Penner and/or Ms. Rita
Polsley shall be attributed to Buyer.
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
HARPER INDUSTRIES, INC.
By /s/ Tim Penner
--------------------------------------
Tim Penner, President
"Buyer"
DEWEZE MFG., INC.
By /s/ George B. Lemmon
--------------------------------------
George B. Lemmon, Jr., Vice President
"Seller"
22
<PAGE>
LISTS OF EXHIBITS AND SCHEDULES
-------------------------------
EXHIBITS
- --------
A Assets
B Excluded Assets
C Promissory Note
D Assumed Liabilities
E Excluded Liabilities
F Purchase Price Allocation
SCHEDULES
- ---------
4.1 Net Book Value Calculation Principles
9 Prepaid Expenses, Deposits and Other Fees
11.4 Real Property
11.5 Secured Creditors
11.8 Litigation
11.9 Employee Benefits
11.10 Insurance
11.11 Patents and Trademarks
11.13 Contracts
11.14 Other Transactions
11.15 Product Liability Insurance
11.16 Changes in Events
11.19 Hazardous Substances
14.6 Required Consents and Authorizations
23
<PAGE>
Exhibit A
ASSETS
Current Assets including but not limited to:
- --------------------------------------------
o Accounts Receivable Trade less reserve for Bad Debt
o Accounts Receivable - Other
o Inventory, which includes: Stock Room/Raw Material, Work in Process,
Finish Goods, Less Reserve for Obsolete Inventory
o Prepaid Expenses and Other
o An amount equal to one-half of the Deferred Bond Issuance Cost, less
amortization, in the approximate amount of $22,000.00
Other Assets including but not limited to:
- ------------------------------------------
o Patents, Designs, less Amortization
o Goodwill less Amortization Goodwill
Property, Plant and Equipment
- -----------------------------
o Land and Improvements
o Building and Improvements
o Machinery and Equipment
o Automobiles, Trucks and Trailers
o Tools, Dies and Fixtures
o Construction in Progress
o Less Accumulated Depreciation
<PAGE>
Exhibit B
EXCLUDED ASSETS
o Cash on Hand and Restricted Cash
o Accounts Receivable - Interco
o Deferred Tax Asset (short term and long term)
o Deferred Tax Valuation (short term and long term)
o Non-Compete less Amortization Non-Compete
o One-half of the Deferred Bond Issuance Cost, less amortization, in the
approximate amount of $22,000.00
o Investment Parker (a.k.a. Parker Industries), including U.S. Patent No.
5,538,388, issued July 23, 1996 and relating to a grain cart equipped with
independent hydraulically driven discharge augers.
<PAGE>
Exhibit C
PROMISSORY NOTE
---------------
$700,000.00 Harper, Kansas
July 24, 1998
FOR VALUE RECEIVED, HARPER INDUSTRIES, INC., a Kansas corporation,
("Maker") hereby promises to pay to OWOSSO CORPORATION, a Pennsylvania
corporation, ("Holder") the principal sum of Seven Hundred Thousand Dollars
($700,000.00) plus interest thereon until October 31, 2001 at the rate of nine
percent (9.0%) per annum; thereafter until October 31, 2002 at the rate of
twelve percent (12.0%) per annum; thereafter until October 31, 2003 at the rate
of thirteen percent (13.0%) per annum; thereafter until October 31, 2004 at the
rate of fourteen percent (14.0%) per annum; and thereafter until maturity at the
rate of fifteen percent (15.0%). Any overdue principal installment under this
Note shall bear interest, to the extent permitted by law, at a rate equal to
eighteen percent (18%). Principal shall be payable in quarterly installments as
follows:
2001 2002 2003 2004 2005
January 31 $25,000 $37,500 $37,500 $37,500 $37,500
April 30 $25,000 $37,500 $37,500 $37,500 $37,500
July 31 $25,000 $37,500 $37,500 $37,500 $37,500
October 31 $25,000 $37,500 $37,500 $37,500 $37,500
Interest shall be payable quarterly in arrears, commencing on January 31, 1999,
and thereafter on the 31st day of each succeeding January through October 31,
2005. (The above-described principal and interest payments are referred to as
the "Minimum Note Payments.")
In addition to the Minimum Note Payments, and provided that such
additional payments will not result in the breach of any financial covenants to
which Maker may be subject to with regard to any financing with NationsBank,
N.A., Maker shall remit to Holder by no later than January 31st of each year,
commencing January 31, 2000 ("Additional Note Payment Date") through the term of
the Note an additional payment of principal in an amount equal to one half (50%)
of the Excess Cash Flow of Maker. For purposes of this Note, the term "Excess
Cash Flow" shall mean an amount equal to the sum of: (i) the sum of (A) the net
income (exclusive of extraordinary items) of Maker for the fiscal year ending
the preceding October, as reflected on Maker's audited financial statements for
that fiscal year; plus (B) depreciation, amortization and other non-cash charges
which were deducted in computing Marker's net income for such fiscal year; plus
(C) an amount equal to any decrease in the amount of inventory and/or accounts
receivable in comparison to the then prior fiscal year less an amount equal to
(ii) the sum of (A) the Minimum Note Payments which were both payable and paid
during such fiscal year and any required principal payments of Maker which were
both payable and paid pursuant to its outstanding debt obligations, including,
without limitation, the payment required pursuant to the City of Harper, Kansas,
Industrial Revenue Bonds (Harper Industries, Inc.) Series A, 1998, ("Bonds")
during such fiscal year; plus (B) an amount, not to exceed One Hundred Thousand
Dollars ($100,000), equal to all capital expenditures during such fiscal year
not funded by the Bonds; plus (C) an amount equal to Two Hundred Fourteen
Thousand Two Hundred Eighty-Five Dollars ($214,285.00); plus (D) an amount equal
to any increase in the amount of Maker's inventory and/or accounts receivable at
the end of such fiscal year versus the corresponding amount for the prior fiscal
year. Additional Note Payments shall be applied to the prepayment of principal
hereunder in the inverse order of the maturities set forth above without
premium.
From time to time the maturity date of this Note may be extended or this
Note may be renewed, in whole or in part, and the Holder, from time to time, may
waive any guaranty given for the benefit
<PAGE>
of the Holder securing the payment of this Note; but no such occurrence shall in
any manner effect, limit, modify or otherwise impair any rights or guaranty of
the Holder not specifically waived, released or surrendered in writing, nor
shall any maker, guarantor, endorser or any person who is or might be liable
hereon, either primarily or contingently, be released from such liability by
reason of the occurrence of any such events.
If Maker shall fail to make any payment of principal of or interest due to
Holder under this Note as and when due, unless such failure to make payment is
not cured within five (5) days after Maker's receipt of written notice from
Holder of such default, the entire sum of the principal and accrued interest
payable hereunder, shall immediately become due and payable at the option of the
Holder, and the Holder shall have the right to proceed immediately to enforce
the rights of the Holder for the entire amount of this Note without any notice
to the Maker or any other act by the Holder and without presentment, demand,
protest, notice of intent to accelerate or any other notice of any kind, all of
which are hereby waived by Maker. Provided, enforcement of Holder's rights
hereunder is subject to the terms and conditions of a certain Subordination
Agreement in the favor of NationsBank, N.A., of even date herewith.
Holder shall be entitled to recover from Maker all costs of enforcement of
its rights under this Note, including, without limitation, costs of collection
and attorneys fees.
This Note shall be secured by a second priority security interest in all
now existing or hereafter acquired inventory and accounts receivable of Maker.
Each payment shall first be applied to interest and then principal. At any
time prepayment in full or in part may be made at any time without penalty or
fee, in which event such prepayment shall be applied to the payments last due.
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought. This Note shall extend to, and be binding upon the Maker
and the Holder, and their respective heirs, personal representatives, successors
and permitted assigns.
In the event that a voluntary case is commenced by, or an involuntary case
is commenced against the Maker seeking liquidation, reorganization or other
relief with respect to the Maker's debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect, this Note (together with accrued
interest thereon), without any notice to the Maker or any other act by the
Holder, shall become immediately due and payable without presentment, demand,
protest, notice of intent to accelerate or other notice of any kind, all of
which are hereby waived by the Maker.
This Note is governed by and shall be construed in accordance with the
laws of the State of Kansas.
The Maker, endorsers, and all parties to this Note and all who may become
liable for same, jointly and severally, waive presentment for payment, protest,
notice of protest, notice of non-payment of this Note, demand and all legal
diligence in enforcing collection, and hereby expressly agree that the lawful
owner or holder of this Note may defer or postpone collection of the whole or
any part thereof, either principal and/or interest, or may extend or renew the
whole or any part thereof, either principal and/or interest, or may accept
collateral for security for the payment of this Note, or may release the whole
or any part of any collateral security and/or liens given to secure the payment
of this Note or may release from liability on account of this Note the Maker,
endorsers and/or other parties thereto, all without notice to them or any of
them; and such deferment, postponement, renewal, extension, acceptance of
additional collateral or security and/or release shall not in any way affect or
change the obligation of any such maker, endorser, or other party to this Note,
or of anyone who may become liable for the payment thereof.
<PAGE>
No liability shall arise against any holder or holders hereof from any
act, or the omission of any act, pertaining to the collection of, or failure to
collect, any collateral which said holder or holders may hold to secure this
obligation of the undersigned.
THE PAYMENT AND PERFORMANCE OF THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS
OF THAT CERTAIN SUBORDINATION AGREEMENT ("AGREEMENT") DATED JULY 24, 1998, BY
HARPER INDUSTRIES, INC., OWOSSO CORPORATION AND NATIONSBANK, N.A. THE PAYMENT
AND PERFORMANCE OF THIS NOTE IS ALSO SUBORDINATE AND SUBJECT TO THE PAYMENT AND
PERFORMANCE OF ALL SECURED OBLIGATIONS AS DEFINED IN THE AGREEMENT. THIS
PROVISION IS SUPPORTED BY ADEQUATE CONSIDERATION, IS AN INTEGRAL PART OF THIS
NOTE AND IS INCORPORATED HEREIN.
HARPER INDUSTRIES, INC.
By
-----------------------------
Tim Penner, President
<PAGE>
Exhibit D
ASSUMED LIABILITIES
o Accounts Payable -Trade
o Accrued Vacation and Employer Payroll Taxes
o Accrued Holiday and Employer Payroll Taxes
o Accrued Property Tax
o Accrued Salary Wages and Employer Payroll Taxes
o Accrued Interest only for personal note to Dewey Hostetler and Howard
Hershberger
o Accrued Commissions and Employer Payroll Taxes
o Accrued other Liabilities and Employer Payroll Taxes
o Warranty Accrual
o Non-Warranty Running Gear Repair Program Accrual
o Garnishment Payable
o Note Payable to Howard Hershberger and Dewey Hostetler
o Royalty contract payable to Ray Forpahl
o Graham Services v. DewEze Manufacturing, Inc. et al, Case number 97-CV-1662
in the circuit court of Hamilton County, Tennessee.
<PAGE>
Exhibit E
EXCLUDED LIABILITIES
o Accounts Payable - Inter Company
o Accounts Payable - AHAB
o Accounts Payable - Inter Company Parker and Great Bend Mfg.
o Accrued Interest for IRB
o Accrued Interest Corporation
o Accrued Workers Compensation
o Accrued Interest AHAB and OWOSSO
o Accrued Insurance
o Accrued Bonus and Accrued FICA Employer
o Accrued 3% Supplement and 401k withholding and matching payable
o Any State or Federal Income Tax
o Industrial Revenue Bonds (long term and short term)
o Note Payable AHAB
o State and Federal withholding tax
o State and Federal unemployment tax
o FICA Tax Employer and Employee
o Sales Tax Payable
<PAGE>
Exhibit F
PURCHASE PRICE ALLOCATION
The Purchase Price shall be allocated based on the "net book value" of the
Assets and Liabilities as of Closing, except that any excess Purchase Price over
the "net book value" of the Assets shall be allocated to property, plant and
equipment; provided, a mutually acceptable schedule shall be prepared at Closing
in accordance with the terms of the Agreement.
<PAGE>
Schedule 4.1
NET BOOK VALUE CALCULATION PRINCIPLES
o Accounts Receivable - Trade booked at full value less reserve for bad debt
o Accounts Receivable - Other booked at value of advances to employees and
Danville Coop Stock value
o Inventory booked at standard cost less reserve for slow and/or non-moving
inventory
o Property, Plant and Equipment booked at cost less accumulated depreciation
o Other Assets to include patents and designs at cost less amortization
o Deposits for pressure cylinders booked at cost
o Remaining Balance of Notes Payable
o Accounts Payable booked at full value
o Accrued Expenses to include the following
Salary and Wages and Employer Payroll Taxes
Vacation Pay and Employer Payroll Taxes
Holiday Pay and Employer Payroll Taxes
Property Tax
Warranty Expense
Garnishments Payable
o Accrued Interest for Notes Payable
o Accrued Commission, Royalties and Employer Taxes
o Other Accrued Liabilities and Employer Taxes
<PAGE>
Schedule 9
PREPAID EXPENSES, DEPOSITS AND OTHER FEES
Deposit on Pressure Cylinders
<PAGE>
Schedule 11.4
REAL PROPERTY
None
<PAGE>
Scheduled 11.5
SECURED CREDITORS
None of Seller's Assets secure obligations of Owosso Corporation. Accordingly,
any security interests in the Assets (e.g., for the Industrial Revenue Bonds,
copy machine, and voice mail system) have been granted at the subsidiary level
by management, namely by Mr. Tim Penner and/or Ms. Rita Polsley.
<PAGE>
11.8
LITIGATION
Pending litigation:
Graham Services v. DewEze Manufacturing, Inc. et al, Case number 97-CV-1662 in
the circuit court of Hamilton County, Tennessee.
The parties have agreed to submit this case to mediation in an effort to avoid
the expense of preparing for and attending trial. The case will be mediated
before a neutral third party at 10:00 a.m. on Thursday, July 16, 1998, in
Chattanooga, Tennessee.
<PAGE>
Schedule 11.9
EMPLOYEE BENEFITS
o Accrued Vacation and FICA Employer
o Accrued Holiday and FICA Employer
o Accrued Commission and FICA Employer
o Accrued Bonus Hourly Employees and FICA Employer
o Hospital, Surgical, Medical, Dental and Prescription Drug Benefits
o Life and Long Term Disability Insurance
o 401k Pension Plan
o Safety Glasses and Safety Shoe Benefit Program
o Sick Leave, Bereavement and Jury Duty Compensation
o Uniforms
o Educational Assistance
o Service Awards
o Bonus for staff members of the DewEze Division
o Owosso Corporation Stock Options for certain employees of the DewEze Division
<PAGE>
Schedule 11.10
INSURANCE
Attached listing from Powers, Craft, Parker and Beard Inc.
<PAGE>
Schedule 11.11
PATENTS AND TRADEMARKS
<TABLE>
<CAPTION>
U.S. Patent # Patented Item Date of Issue
------------- ------------- -------------
<S> <C> <C>
5588325 Auxiliary power take off 12-31-96
assembly and method (for
Ford '94 - '98 model years)
5368238 Adjustable rotary drum bale 11-29-94
cutter apparatus and method
(Rotocut)
5340042 Reciprocating blade bale 8-23-94
cutter (Super Slicer)
5161353 Slope mower with improved 11-10-92
blade housing floatation
5085042 Slope mower with rear drive 2-4-92
assembly
5012631 Bale wrapper 05-07-91
4869054 Slope mower with side frames 9-26-89
4707971 Slope Mower 11-24-87
4594041 Truck bed bale lift (flatbed) 6-10-86
4519325 Grain drill suspension system 05-28-85
4411572 Bale transfer carrier 10-25-83
4044963 Round bale loader, unloader 08-30-77
and unroller
Foreign No. Foreign Patent Issue Date
----------- -------------- ----------
1452877 - Canada Auxiliary power take-off 05-23-96
assembly and method
(Serial No. 2,170,578)
1277500 - Canada Slope mower with side frames 12-11-90
1290153 - Canada Slope Mower 10-8-91
1923544 - Japan Slope mower with side frames 3-4-91
Registration No. Trademark Registration Date
---------------- --------- -----------------
1751014 ATM 2-9-93
1106606 DewEze 11-21-78
1104196 Bale Pikup 10-17-78
1105920 Bale Hugger 11-14-78
Application No. Patent Pending Filing Date
--------------- -------------- -----------
09/020,834 Rotary drum bale cutter with 02-09-98
reprocessing chamber
Docket No. 98,170 Auxiliary power take off Docket Date
assembly and method (for Ford 05-15-98
'99 model year and beyond)
Docket No. PTO-1449 Flatbed improvement; Docket Date
synchronized squeeze arms 04-16-98
(Improved large bale lift
#08/941,404)
</TABLE>
<PAGE>
Schedule 11.13
CONTRACTS
Royalty due to Ray Forpahl of 1% on the first $1,000,000 of ATM sales and 1/2%
on balance of ATM sales for a fiscal year.
<PAGE>
Schedule 11.14
OTHER TRANSACTIONS
o Non-warranty Running Gear Repair Program
<PAGE>
Schedule 11.15
PRODUCT LIABILITY INSURANCE
See Attached listing on Schedule 11.10
<PAGE>
Schedule 11.16
CHANGES IN EVENTS
None, except for any liability that might have accrued or might accrue
pursuant to Section 21 hereof.
<PAGE>
Schedule 11.19
HAZARDOUS SUBSTANCES
For the metal fabrication that the DewEze plant carries out in Harper, Kansas,
the following materials are monitored and/or stored on the premises:
Waste Water: DewEze is permitted to discharge its wash and rinse water/solution
(for paint preparation) through KDHE permit number M-AR40-0001. In this process
there are trace amounts of metals present in the waste water stream. The
following metals are monitored on a quarterly basis with a grab sample:
Cadmium Cyanide Chromium
Copper Lead Nickel
Selenium Silver Zinc
Mercury
Metals: This is primarily hot rolled and cold rolled steel. Some aluminum is
also present on the property. Both steel and aluminum are also used in castings.
In addition, we purchase switches for use in the leveling system for the mowers
that contain mercury.
Liquids: Various liquids are stored for use on the property:
1. Motor oil
2. Hydraulic oil
3. pH Plus: A pH adjuster for use when the Annihilate product is
used to clean metal.
Sodium Carbonate
4. Annihilate: A metal preparation solution used to remove rust.
Hydrochloric acid
Air Emissions: DewEze uses a high solids, low VOC alkyd, enamel paint and are
permitted under KDHE Source number 0770035. The paint solids are removed by
Safety Kleen, and they process the manifests for disposal. The paint MSDS list
the following SARA title 313 reportable chemicals:
1. Xylene
2. MIBK
3. Methyl Amyl Ketone MAK
4. Ektasolv EP (100% ethylene glycol ether)
5. Aromatic 100 (7% xylene)
6. Methyl Ethyl Keton MEK
7. Toluene
8. Isopropyl Alcohol, anhydrous
9. Barium Salfate
10. Zinc Phosphate
<PAGE>
Schedule 14.6
REQUIRED CONSENTS AND AUTHORIZATIONS
o Cannon Copier Lease
o Voice Mail Lease
o Warehouse Lease
o Transamerica Contract
<PAGE>
OWOSSO CORPORATION
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
July 26, July 27, July 26, July 27,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
BASIC:
Net income (loss) available for common stockholders $ (606,000) $ 672,000 $ 805,000 $ 915,000
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 5,815,000 5,809,000 5,812,000 5,809,000
=========== =========== =========== ===========
Basic earnings per common share $ (0.10) $ 0.12 $ 0.14 $ 0.16
=========== =========== =========== ===========
DILUTED:
Net income available for common stockholders $ (606,000) $ 672,000 $ 805,000 $ 915,000
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 5,815,000 5,809,000 5,812,000 5,809,000
Dilutive effect of stock options -- 21,000 20,000 17,000
----------- ----------- ----------- -----------
Weighted average number of shares outstanding 5,815,000 5,830,000 5,832,000 5,826,000
=========== =========== =========== ===========
Diluted earnings per common share $ (0.10) $ 0.12 $ 0.14 $ 0.16
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-25-1998
<PERIOD-END> JUL-26-1998
<CASH> 150
<SECURITIES> 0
<RECEIVABLES> 23,389
<ALLOWANCES> 468
<INVENTORY> 24,507
<CURRENT-ASSETS> 49,638
<PP&E> 64,286
<DEPRECIATION> 28,293
<TOTAL-ASSETS> 123,613
<CURRENT-LIABILITIES> 22,332
<BONDS> 63,305
0
14,121
<COMMON> 59
<OTHER-SE> 22,073
<TOTAL-LIABILITY-AND-EQUITY> 123,613
<SALES> 118,920
<TOTAL-REVENUES> 118,920
<CGS> 92,705
<TOTAL-COSTS> 92,705
<OTHER-EXPENSES> 20,207
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,668
<INCOME-PRETAX> 4,279
<INCOME-TAX> 2,674
<INCOME-CONTINUING> 1,605
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 805
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
