<PAGE> 1
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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SPARTON CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
SPARTON CORPORATION
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Not Applicable
(2) Aggregate number of securities to which transaction applies:
Not Applicable
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
Not Applicable
(4) Proposed maximum aggregate value of transaction:
Not Applicable
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
Not Applicable
(2) Form, schedule or registration statement no.:
Not Applicable
(3) Filing party:
Not Applicable
(4) Date filed:
Not Applicable
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<PAGE> 2
SPARTON CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of SPARTON
CORPORATION will be held at the offices of the Corporation, 2400 East Ganson
Street, Jackson, Michigan 49202, on Wednesday, December 4, 1996, at 10 o'clock
a.m., local time, for the following purposes:
1. To elect three directors each for a term of three years as set
forth in the Proxy Statement.
2. To consider and vote upon the approval of the Stock and Asset
Purchase Agreement, dated October 3, 1996, which provides for the sale of a
majority of the Corporation's automotive operations.
3. To transact such other business as may properly come before the
meeting.
Only holders of Common Stock of record at the close of business on October
29, 1996, are entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
LAWSON K. SMITH
Secretary
November 1, 1996
<PAGE> 3
SPARTON CORPORATION
2400 East Ganson Street
Jackson, Michigan 49202
------------------
PROXY STATEMENT
------------------
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON DECEMBER 4, 1996
SOLICITATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of SPARTON CORPORATION, an Ohio corporation (the
"Company"), of proxies for use at the 1996 Annual Meeting of Shareholders of the
Company (the "Annual Meeting") to be held at the offices of the Company, 2400
East Ganson Street, Jackson, Michigan 49202, on December 4, 1996 at 10 a.m.,
local time, and at any and all adjournments thereof. The cost of solicitation
will be paid by the Company. The Company has engaged Georgeson and Company,
specialists in proxy solicitation, to solicit proxies on its behalf from
brokers, bank nominees, and other institutional holders of its Common Stock at
an anticipated cost of $5,000, plus certain out-of-pocket expenses. In addition,
officers and employees of the Company and its subsidiaries may solicit proxies
personally, by telephone, facsimile or other means, without additional
compensation. This Proxy Statement and the form of Proxy are being mailed to
shareholders on or about November 1, 1996.
At the Annual Meeting, the Company's shareholders will consider and vote
upon a proposal to approve the sale (the "Sale") by the Company of all shares of
two wholly owned subsidiaries; Sparton Engineered Products, Inc., KPI Group, a
Michigan corporation, and Sparton Engineered Products, Inc., KPI Group, an
Indiana corporation, and the sale of substantially all of the assets of a third
wholly owned subsidiary, Sparton Engineered Products, Inc., Lake Odessa Group, a
Michigan corporation (collectively the three subsidiaries are referred to herein
as the "Subsidiaries"), to Dura Automotive Systems, Inc., of 4508 IDS Center,
Minneapolis, Minnesota 55402 ("Dura"), for consideration equal to Eighty Million
Five Hundred Thousand Dollars ($80,500,000). The Company's Board of Directors
has unanimously approved and recommends that the Company's shareholders approve
the Sale.
The terms and conditions of the Sale are set forth in the Stock and Asset
Purchase Agreement dated October 3, 1996, among the Company, Sparton Engineered
Products, Inc., Lake Odessa Group, and Dura (the "Purchase Agreement"), a copy
of which is attached hereto as Appendix A. This Proxy Statement includes an
explanation and summary of those terms and conditions, which are qualified by
and subject to, the information set forth in the Purchase Agreement. The Sale
will be a disposition of a substantial portion of the Company's business and is
important to the Company's shareholders. You are therefore urged to read this
Proxy Statement in its entirety and give the Sale your careful consideration.
At the meeting, the Company's shareholders will also act upon the election
of three (3) directors to serve until the 1999 annual meeting or until their
successors are elected and qualified, as described in more detail below.
1
<PAGE> 4
OUTSTANDING STOCK AND VOTING RIGHTS
In accordance with the Bylaws of the Company, the Board of Directors has
fixed the close of business on October 29,1996, as the record date for
determination of shareholders entitled to notice of, and to vote at, the Annual
Meeting. Only shareholders of record on that date, will be entitled to vote.
As of October 29, 1996, the record date for the Annual Meeting, the Company
had outstanding 7,818,370 shares of Common Stock, each entitled to one vote at
the Annual Meeting. Votes cast at the meeting and submitted by proxy are counted
by the inspectors of the meeting, who are appointed by the Company. As of
September 1, 1996, the persons named in the following table were known by the
management to be the beneficial owners of more than 5% of the Company's
outstanding Common Stock:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ---------------------------------------- ------------- ---------
<S> <C> <C>
John J. Smith(1)
1839 S. Walmont
Jackson, Michigan 49203 2,100,000(2) 26.88%(2)
Lawson K. Smith(1)
717 Fourth Street
Lake Odessa, Michigan 48849 777,256(3) 9.95(3)
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Fl.
Santa Monica, California 90401 410,400(4) 5.25(4)
- ---------------
<FN>
(1) Mr. John J. Smith and Mr. Lawson K. Smith are brothers.
(2) Includes 1,920,000 shares owned by Mr. John J. Smith jointly with his wife.
An additional 180,000 shares are held by a trust over which Mr. Smith has
voting control. The amount does not include 433,600 shares held by several
of the Company's retirement plans as to which Mr. Smith holds voting and
investment power in his capacity as chief executive officer of the Company.
Mr. Smith has no pecuniary interest in these shares and disclaims any
beneficial interest.
(3) Includes 358,966 shares and 418,290 shares held by the Lawson K. Smith Trust
and Margaret E. Smith Trust, respectively. Lawson K. Smith and his wife,
Margaret E. Smith, have voting and investment control over the shares held
in the trusts bearing their respective names.
(4) According to information included in the Form 13G Report filed by
Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, it is deemed to have beneficial ownership of 410,400 shares of
Common Stock, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business trust, or
the DFA Group Trust and DFA Participation Group Trust, investment vehicles
for qualified employee benefit plans, all of which Dimensional serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares.
</TABLE>
2
<PAGE> 5
As of September 1, 1996, the following table shows the shares of the
Company's Common Stock beneficially owned by the Named Executives identified in
the Compensation Table shown later in this Proxy Statement and all officers and
directors of the Company as a group (16 persons):
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME BENEFICIAL OWNERSHIP CLASS(6)
- ----------------------------------- -------------------- ----------------
<S> <C> <C>
John J. Smith 2,100,000(1) 26.88%
David W. Hockenbrocht 77,535(2) .99
Richard D. Mico 17,000(3) .22
Jerry R. Gause 8,700(4) .11
Douglas E. Johnson 5,000 .06
All Officers and Directors 3,098,727(5) 39.48
- ---------------
<FN>
(1) Reference is made to note (2) of the previous table.
(2) Includes 21,333 shares which Mr. Hockenbrocht has the right to acquire
pursuant to options exercisable within 60 days.
(3) Includes 5,000 shares which Mr. Mico has the right to acquire pursuant to
options exercisable within 60 days.
(4) Includes 5,000 shares which Mr. Gause has the right to acquire pursuant to
options exercisable within 60 days.
(5) Includes 38,333 shares under options held by officers and directors
exercisable within 60 days.
(6) Calculated based on total shares outstanding plus the shares subject to
options exercisable within 60 days as described in this Proxy Statement.
</TABLE>
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing a
written notice of revocation with the Chairman or Secretary of the Company, at
or before the Annual Meeting, (ii) duly executing a subsequent proxy relating to
the same shares and delivering it to the Chairman or Secretary of the Company at
or before the Annual Meeting or (iii) attending the Annual Meeting and voting in
person (although attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy). Unless revoked, the shares represented by
the enclosed Proxy will be voted at the meeting in accordance with any
specification made thereon, if the Proxy is returned properly executed and
delivered in time for voting. Unless otherwise specified, the Proxy will be
voted "FOR" approval of the Sale and "FOR" the election of the three (3)
director nominees.
Management does not intend to present, and does not know of anyone who
intends to present any matters at the meeting to be acted upon by the
shareholders not referred to in the Notice and this Proxy Statement. If any
other matters should properly come before the meeting, it is the intention of
the persons named in the Proxy to vote in accordance with their judgment on such
matters.
The shareholders of the Company have cumulative voting rights in the
election of directors at the Annual Meeting if written notice is given by any
shareholder to the Chairman, President, a Vice President or the Secretary of the
Company not less than 48 hours before the time fixed for holding the Annual
Meeting that the shareholder desires that the voting at such election shall be
cumulative, provided that an announcement of the giving of such notice is made
upon the convening of the Annual Meeting by the Chairman or Secretary or by or
on behalf of the shareholder giving such notice. In addition, each shareholder
has the right to vote cumulatively his or her own shares in the election of
directors by satisfying the above-described notice
3
<PAGE> 6
requirement, irrespective of whether an announcement of the notice by a
shareholder is given upon the convening of the Annual Meeting.
If voting at the Annual Meeting is cumulative, each shareholder will have
the right to cast that number of votes which equals the number of shares owned
by the shareholder multiplied by the number of directors to be elected, and the
shareholder may cast all such votes for one candidate or distribute such votes
among any number of candidates as the shareholder elects. The actual number of
shares required for election of a candidate will vary depending upon the total
number of shares voted. However, shareholders owning 1,954,594 shares, or
approximately 25% of the Company's outstanding shares, could elect at least one
director to the class to be elected at the 1996 annual meeting for a term
expiring in 1999.
ELECTION OF DIRECTORS
The following directors, previously elected by the Company's shareholders
and whose terms of office expire at the Annual Meeting, Messrs. Robert J. Kirk,
Marshall V. Noecker and David B. Schoon, are nominees for election to a three
(3) year term expiring in 1999. The following portion of this Proxy Statement
contains additional information about these nominees.
A plurality of the votes cast at the meeting is required to elect the
nominees as directors of the Company. As such, the three (3) individuals who
receive the greatest number of votes cast by the holders of Common Stock will be
elected as directors. Shares not voted at the Annual Meeting, whether by
abstention, broker nonvote, or otherwise, will not be treated as votes cast at
the meeting.
It is believed that all three (3) nominees are, and will be at the time of
the Annual Meeting, available for election; and, if elected, will serve.
However, in the event one or more of them is or should become unavailable, or
should decline to serve, it is intended that the proxies will be voted for such
substitute nominee or nominees as the persons named in the proxy may in their
discretion select.
In the following table, the column "Amount and Nature of Beneficial
Ownership" relates to common shares of the Company beneficially owned by the
directors and nominees as of September 1, 1996, and is based upon information
furnished by them.
<TABLE>
<CAPTION>
AMOUNT
HAS AND
SERVED NATURE OF
AS A BENEFICIAL
DIRECTOR OWNER- PERCENT OF
NAME AGE PRINCIPAL OCCUPATION SINCE SHIP(1) CLASS(1)
- ------------------------- --- ------------------------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 1999
Robert J. Kirk 83 Financial Consultant, Toledo, Ohio 1978 6,000 .08%
Marshall V. Noecker 81 President and substantial owner of 1963 30,000 .38
the Marshall Noecker Group Companies
(aluminum fabrication and man-
ufacturing companies and investment
companies), Garden City, Michigan.
David B. Schoon.......... 45 President, Stock Portfolio Manage- 1994 -0- -0-
ment, Inc., Grand Rapids, Michigan, a
financial consulting services com-
pany, since 1992. Senior Stock Ana-
lyst for other financial consulting
services companies, 1986-1992.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
AMOUNT
HAS AND
SERVED NATURE OF
AS A BENEFICIAL
DIRECTOR OWNER- PERCENT OF
NAME AGE PRINCIPAL OCCUPATION SINCE SHIP(1) CLASS(1)
- ------------------------- --- ------------------------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 1998
John J. Smith(2)......... 84 Chairman of the Board and Chief Ex- 1950 2,100,000(3) 26.88
ecutive Officer of Sparton Corpora-
tion, Jackson, Michigan.
Blair H. Thompson........ 71 Formerly Vice President and Trea- 1972 57,024 .73
surer of Sparton Corporation, Jack-
son, Michigan (Retired in 1990).
DIRECTORS WHOSE TERMS EXPIRE IN 1997
James N. DeBoer.......... 71 Partner, law firm of Varnum, Ridder- 1971 4,370 .06
ing, Schmidt & Howlett, LLP, Grand
Rapids, Michigan.
David W. Hockenbrocht.... 61 President and Chief Operating Officer 1978 77,535(4) .99
of Sparton Corporation, Jackson,
Michigan.
Lawson K. Smith(2)....... 81 Vice President and Secretary of Spar- 1971 777,256(5) 9.95
ton Corporation, President of Sparton
Engineered Products, Inc. -- Lake
Odessa Group, a wholly owned sub-
sidiary of the Company (manufacturer
of automotive parts and accessories),
Lake Odessa, Michigan.
Rory B. Riggs............ 43 President of Biomatrix, Inc., Rich- 1994 -0- -0-
field, New Jersey, a medical biotech-
nology company since 1996, and
President, ITIM Corporation, New
York, New York, an investment advi-
sory and venture capital firm since
1991. Mr. Riggs was President and
Chief Executive Officer of RF&P Cor-
poration, Richmond, Virginia, a real
estate investment company, from 1991
to 1994.
- ---------------
<FN>
(1) Unless otherwise indicated by footnote, each director or nominee has sole
voting power and owns the shares directly, or shares voting and investment
power with his spouse or other family members under joint ownership.
(2) John J. Smith and Lawson K. Smith are "associates" of each other as defined
in Rule 14a-1 of Regulation 14A of the Securities and Exchange Commission.
(3) Reference is made to note (2) on page 2.
(4) Reference is made to note (2) on page 3.
(5) Reference is made to note (3) on page 2.
</TABLE>
Mr. John J. Smith and Mr. Lawson K. Smith are brothers. There are no other
family relationships between the nominees and the directors. Except as noted,
the principal occupations referred to have been held by the foregoing nominees
and directors for at least five years.
Mr. Rory B. Riggs is a director of Biomatrix, Inc. Mr. David B. Schoon is a
director of California Micro Devices Corporation.
The Board of Directors, which had five (5) meetings during the past year,
has standing audit and compensation committees. There is no nominating
committee. The responsibilities of
5
<PAGE> 8
the audit committee, which met two (2) times last year and consists of Robert J.
Kirk and Marshall V. Noecker, include reviewing the general scope of the audit
of the Company's financial statements and the results of the audit with the
auditors and management. The compensation committee, which met once last year
and consists of John J. Smith, Robert J. Kirk, Marshall V. Noecker, James N.
DeBoer and Blair H. Thompson, establishes the remuneration, including stock
options, to be paid or offered to the Company's executive officers. All
Directors attended at least 75% of the meetings of the Board and committees on
which they serve.
Directors who are not employees of the Company are compensated at the rate
of $350 per month and $500 for each directors' meeting attended. Members of the
audit committee receive $500 for each audit committee meeting attended.
Directors who are employees of the Company receive $350 for each directors'
meeting attended.
PROPOSAL TO APPROVE
THE SALE OF THE SUBSIDIARIES
DISPOSITION OF THE COMPANY'S AUTOMOTIVE BUSINESS; REASONS FOR THE SALE
The Company's automotive operations are comprised of two management units;
Sparton Engineered Products--KPI Group ("KPI") and Sparton Engineered Products,
Inc.--Flora Group ("Flora"). The principal components of what is now the KPI
unit were acquired in 1986. The KPI unit is comprised of the three operating
Subsidiaries defined above, described in more detail below. Flora consists of
one operating subsidiary, incorporated in Illinois in 1959 to continue the
design and manufacture of automotive and other horn products which have been
produced by the Company for many years. For the year ended June 30, 1996,
revenues from the Company's automotive operations were approximately $121.3
million or 54% of the Company's total revenues for the year. The Company
reported after-tax losses attributable to its automotive operations of
$1,269,000 for the year ended June 30, 1996.
KPI manufactures a number of products, principally for the North American
original equipment manufacturer ("OEM") automotive markets. These include
automotive transmission shifters, undercarriage spare tire carriers, parking
brakes, lever assemblies, metal air bag components, and brake/accelerator pedal
assemblies. Major customers include the Ford Motor Company, General Motors
Corporation, Chrysler Corp., and TRW. Sales attributable to the operations of
KPI for the year ended June 30, 1996, were $94,700,000, 42% of the Company's
total sales. Total assets at June 30, 1996, of the KPI unit accounted for
approximately 29% of the Company's total assets. Flora's principal product is
OEM horns, and its major customers are Chrysler Corp. and Toyota Motor Corp.
Sales attributable to Flora for the year ended June 30, 1996, were $26,600,000
or 12% of the Company's total sales, and Flora's total assets accounted for
approximately 11% of the Company's total assets at June 30, 1996.
The decision of the Board of Directors to offer KPI and Flora for sale
followed months of deliberations in which the Board reviewed strategic
alternatives available to the Company. The Board concluded that the disposition
of KPI and Flora was in the best interests of its shareholders, and in December
of 1995 authorized Slusser Associates, Inc. ("Slusser") to prepare confidential
offering materials and solicit bids for the purchase of KPI and Flora. Separate
informational materials were prepared and distributed for KPI and Flora. With
respect to the sale of KPI, over 45 parties were contacted by Slusser, including
automotive suppliers, financial buyers, and foreign entities during the period
beginning in April 1996 and ending in July 1996. With respect to the sale of
Flora, over 65 parties were contacted by Slusser, beginning in February 1996. In
response to these contacts, the Company received four preliminary offers for the
purchase of KPI, two of which included the purchase of Flora. From these offers,
the Board of Directors selected the three parties who had submitted the highest
proposed purchase prices for KPI (two of which included an offer for Flora). In
late July and early August of 1996, management of the Company met with the three
interested parties to discuss
6
<PAGE> 9
the disposition of KPI and Flora and allowed each of them to perform additional
due diligence. Management was directed to pursue the transaction that would
achieve the highest value for the Company's shareholders.
Following discussions with the interested parties, on August 23, 1996, the
Board instructed management and Slusser to negotiate the highest sale price for
KPI and Flora, but in an amount not less than $70 million. Thereafter,
discussions with two of the interested parties continued until August 29, 1996,
at the time when Dura submitted a formal offer to acquire KPI (but not Flora)
for $80,500,000. Dura was selected by the Company after submitting the highest
offer for KPI. In response to Dura's offer, the Company granted Dura the
exclusive right, until September 27, 1996, to complete its due diligence.
Negotiations for the sale of KPI to Dura were completed on October 3, 1996, when
the Purchase Agreement was signed. Management and Slusser are continuing to have
discussions with interested parties concerning the possible sale of Flora,
although no assurance can be given that such sale will occur.
The disposition of the Company's automotive operations reflects the Board's
determination that the continuation of these operations is not in the best
interest of the Company's shareholders. In making this determination, the Board
analyzed the long term impact on the Company of the globalization of the supply
base demanded by substantially all worldwide automotive OEM manufacturers. The
nature of this customer demand has brought with it added competitive pressures
on already low profit margins, as well as creating the necessity for substantial
new capital investments to provide the required global base of supply. In light
of existing margins and perceived new business opportunities, the Board has
determined that such additional capital investments are not justified. The Board
has also determined that there are more attractive opportunities in the
Company's electronic contract manufacturing business and intends to direct a
substantial portion of future capital investments to this part of the Company's
business. As a result, the Board elected to dispose of the Company's automotive
operations and use the capital from the disposition of those assets, after the
payment of bank indebtedness, to enhance the expansion of its electronic
contract manufacturing business.
DESCRIPTION OF THE SALE; TERMS
The Company has agreed, subject to shareholder approval, to sell all of its
shares of two of its operating subsidiaries to Dura Automotive Systems, Inc., a
Delaware corporation, unaffiliated with the Company ("Dura"). The two
subsidiaries are Sparton Engineered Products, Inc., KPI Group, a Michigan
corporation and Sparton Engineered Products, Inc., KPI Group, an Indiana
corporation. The Company has also agreed, subject to shareholder approval, to
sell substantially all of the assets of a third subsidiary, Sparton Engineered
Products, Inc., Lake Odessa Group, a Michigan corporation, to Dura.
Collectively, the Subsidiaries comprise approximately 80% of the automotive
operations of the Company. The first two subsidiaries listed above are sometimes
referred to collectively in this Proxy Statement as "SEPI-KPI" and the third
subsidiary is sometimes referred to as "LAKO." The Sale does not include the
stock or assets of Flora, which will be held by the Company as a discontinued
operation until its disposition. The Company has no binding commitments or other
agreements relating to the sale of Flora. Subject to certain adjustments, the
sale price for the stock and assets of all three Subsidiaries is $80,500,000,
all of which is payable in cash at the closing of the transaction. Consummation
of the transaction would result in an estimated after-tax gain of approximately
$34 million. See attached Appendix B.
Dura is a leading designer and manufacturer of mechanical assemblies and
integrated systems for the global automotive industry. With revenues of
approximately $127 million for the six month period ended June 30, 1996, and
revenues of approximately $240 million for the 12 month period ended December
31, 1995, Dura is a major supplier of both parking brake mechanisms and parking
brake cables to original equipment manufacturers in North America.
7
<PAGE> 10
The Purchase Agreement among the Company, LAKO, and Dura is set forth in
attached Appendix A, and the description of the terms thereof contained herein
is qualified in its entirety by reference to Appendix A. The terms of the
Purchase Agreement were negotiated by representatives of the Company and of Dura
on an arm's length basis. The Board of Directors did not obtain the opinion of
an investment banking firm as to the fairness of the Sale, and no appraisal or
other valuation of the shares or assets of the Subsidiaries was, or will be,
obtained in determining the sale price. It is the Board's judgment that the
process pursued in the sale of the Subsidiaries, including the breadth of the
solicitation of potential buyers, the resulting competitive offers by unrelated
financially capable companies, three of which were above $70 million, and the
subsequent negotiations with these parties, provided a reliable assessment of
the market value of the Subsidiaries.
CERTAIN COVENANTS AND CONDITIONS TO CONSUMMATION OF THE SALE
The Purchase Agreement obligates the Company, among other things, to cause
each of the Subsidiaries to conduct their respective businesses and maintain
their respective properties in the ordinary course of business through the date
of closing, and to cooperate with Dura in connection with its due diligence
review of the Company and in obtaining all required governmental and third party
consents and approvals necessary to consummate the Sale. In addition, the
Company is required to discontinue the Lake Odessa plant operations of LAKO. In
connection with the discontinuance of those operations, the Company is obligated
to resource all jobs, for which it has active purchase orders, to other plants
of the Subsidiaries and to terminate purchase orders for customer jobs which
have not been resourced. In connection with the resourcing, the Company is
required to transfer and deliver to those plants all inventories, machinery,
equipment, and all other assets (excluding real estate) which are required to
produce the customer jobs. The remaining machinery and equipment and the real
estate of the Lake Odessa plant will remain in LAKO and will not be conveyed to
Dura.
In connection with the Sale, Dura has agreed to lease two parcels of real
estate previously leased by the Company from John J. Smith and his wife (the
"Grand Haven Facility") and John J. Smith and his wife, and Lawson Smith (the
"White Cloud Facility"). See "Certain Relationships and Transactions" below for
a description of the terms of the current leases with the Company. The
consummation of the sale is conditioned upon the execution of lease agreements
for the Grand Haven and White Cloud Facilities (collectively the "Real Estate")
between LAKO and Dura. See "Management Interest in the Sale."
The Company has agreed, as part of the Sale, that it will not, for a period
of four consecutive years after closing (1) directly or indirectly engage in any
business which is the same or substantially similar to the business now
conducted by any of the Subsidiaries (excluding an investment of up to 5 percent
of any outstanding voting securities of a public entity), (2) induce or attempt
to induce any employee of any of the Subsidiaries to accept employment by the
Company or one of its affiliated corporations, or (3) induce or attempt to
induce any customer or supplier of any of the Subsidiaries to cease doing
business with any of them, or to otherwise interfere with the business
relationship between any of the Subsidiaries, its customers and suppliers.
The obligations of both parties to proceed with the Sale are subject, among
other things, to (1) the concurrent lease of the Real Estate to Dura, (2) the
absence of any litigation or other proceedings which seek to prevent or delay
the Sale, (3) the receipt of customary closing certificates and legal opinions,
and (4) Dura's receipt of financing pursuant to its bank commitment letter. The
obligations of Dura under the Purchase Agreement are subject, among other
things, to the Company's compliance with its obligations and covenants under the
Purchase Agreement (including but not limited to those described above),
satisfaction of all intercompany indebtedness between the Company and the
Subsidiaries at or prior to the closing date, approval of the Sale by the
Company's shareholders, and to the Company's representations and warranties
being true and correct as of the closing. The obligations of the Company
8
<PAGE> 11
under the Purchase Agreement are subject to the approval of the Sale by the
shareholders of the Company, compliance by Dura with its obligations under the
Purchase Agreement and to Dura's representations and warranties being true and
correct as of the closing.
The sale of the stock of the Subsidiaries is subject to the requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Hart-Scott-Rodino
Act") and the rules promulgated thereunder by the Federal Trade Commission
("FTC"). This Act and its related regulations require the Company and Dura to
provide certain information to the Antitrust Division of the Department of
Justice and the FTC as a condition to consummation of the transaction. The
Company and Dura have filed the required reports under the Hart-Scott-Rodino Act
with the Antitrust Division and the FTC with respect to the proposed Sale and
the applicable waiting period is expected to expire on November 8, 1996.
Notwithstanding the expiration of the applicable waiting period, at any time
before or after the date of closing, the Antitrust Division, the FTC or any
third party can seek to delay, enjoin, or rescind the Sale on antitrust or any
related grounds. The Company and Dura believe that the Sale will be in
compliance with the antitrust laws; however, there can be no assurance that such
a challenge, if made, would not be successful. It is a condition to consummation
of the Sale that no action be pending or threatened whereby an unfavorable
result would prevent consummation of the transaction or might adversely effect
the right of Dura to own and operate or control the Subsidiaries.
MANAGEMENT INTEREST IN THE SALE
As a condition to the Sale, (i) LAKO is required to purchase the
Subsidiaries' Grand Haven Facility from John J. Smith (the Company's CEO and a
director) and his wife, and the White Cloud Facility from Mr. and Mrs. John
Smith and Lawson Smith, an officer and director of the Company, and (ii) LAKO is
required to lease both of these facilities to Dura. The purchase price of the
White Cloud Facility is Three Hundred Fifty-two Thousand Dollars Four Hundred
($352,400), and the purchase price of the Grand Haven Facility is Three Hundred
Twenty-three Thousand Two Hundred Dollars ($323,200). As part of the sale of the
Real Estate to LAKO, the selling parties are obligated, among other things, to
indemnify LAKO and the Company for all costs and expenses relating to the
remediation of any existing environmental conditions. As part of the Sale, the
Board has reviewed, considered and approved the purchase of the Real Estate by
LAKO.
The leases for both of these facilities (the "Leases") by LAKO continue for
five (5) year terms, with an aggregate annual rental equal to One Hundred
Thirty-five Thousand Dollars ($135,000). The Leases grant Dura the option to
purchase both (but not less than both) the Grand Haven Facility and White Cloud
Facility for a combined option price equal to Fifty Thousand Dollars ($50,000)
at the end of the original term of the Leases. The aggregate annual rental under
the lease agreements currently in place between the Smiths and KPI for the White
Cloud Facility and Grand Haven Facility equals Ninety-four Thousand Four Hundred
Dollars ($94,400), with options to purchase during the lease term for Two
Hundred Fifty-two Thousand Four Hundred Dollars ($252,400) and Two Hundred
Twenty-three Thousand Two Hundred Dollars ($223,200), respectively, for the
White Cloud Facility and Grand Haven Facility. Under the terms of the options to
purchase the Real Estate by KPI, the selling parties would not be obligated to
indemnify KPI, LAKO, or the Company for, among other things, the costs and
expenses relating to the remediation of any existing environmental conditions.
The existing lease agreements are discussed in more detail below in the section
entitled "Certain Relationships and Transactions."
CLOSING; TERMINATION AND WAIVER
The closing of the Sale is scheduled to take place within five business
days following the date on which all conditions to the Sale have been satisfied
or waived, including shareholder approval of the Sale, but in no event later
than December 31, 1996. Either party may waive any
9
<PAGE> 12
conditions to its obligations under the Purchase Agreement. Although the Company
does not presently anticipate waiving any such condition, it will not seek
further shareholder approval if, in the judgment of the Company, any such waiver
is in the best interest of the Company and its shareholders and such waiver does
not constitute a material adverse change of the terms or conditions of the Sale.
INDEMNIFICATION
Under the Purchase Agreement, the Company and Dura each agreed to indemnify
the other against any losses, liabilities, deficiencies, damages or expenses
(collectively referred to as "Losses") arising out of the breach of any
representation, warranty, covenant or agreement contained in the Purchase
Agreement by the indemnifying party. In addition, Dura has agreed to indemnify
the Company against any losses, liabilities, damages or expenses incurred by the
Company arising out of its guarantee of certain obligations of the Subsidiaries.
In general, the obligations to indemnify the other party will not arise
unless the aggregate amount of all such Losses exceeds $1 million (the
"Threshold Amount"). If the Threshold Amount is reached, indemnification is
limited to the amount by which the Losses exceed the Threshold Amount. The
Company's maximum indemnification obligation is limited to $15 million, except
that this cap on liability is increased to the amount of the purchase price for
the stock and assets of the Subsidiaries in the event the Losses arise out of
certain specified representations. In general, the Company's obligation to
indemnify Dura is conditioned upon its receipt of a notice of claim for
indemnification within 12 months after the date of closing. This period is
extended to (1) 24 months in the event of a breach of the Company's
representations as to undisclosed liabilities, litigation, and employee benefit
matters, (2) 42 months in the event of a breach of its representations as to
environmental matters, and (3) the applicable statute of limitations period for
a breach of its representations as to taxes and certain other specified
representations. There is no time limitation on any claims that arise out of any
breach of the Company's representation as to the ownership and capitalization of
the Subsidiaries. Dura's indemnification obligation is also subject to
achievement of the Threshold Amount.
CONDUCT OF THE COMPANY'S BUSINESS AFTER THE SALE
Other than the repayment of all of the Company's outstanding bank debt, the
Board of Directors of the Company has not determined the specific application of
the proceeds from the Sale and does not intend to do so until the Sale has been
consummated. As stated above, the Board believes that a substantial part of
future capital investments will be to support the growth of the Company's
electronic contract manufacturing business. Other uses of the proceeds from the
Sale, if consummated, that may be considered by the Board include the
development, acquisition and/or investment in new products or businesses,
distributions to the Company's shareholders, repurchases of the Company's
securities and general business purposes. Such activities could include the
acquisition of an entire company or companies, or divisions thereof, either
through a merger or a purchase of assets, as well as investment in the
securities of a company or companies, or alternatively a combination with
another business in which the Company would not be the surviving corporation.
The Company has not entered into any negotiations concerning such acquisitions
or investments. There can be no assurance that the Company will be successful in
such efforts, and redeployment of the Company's assets into new businesses
accordingly entails an element of risk to the shareholders. While the Company
does not presently intend to spend in excess of the net cash proceeds available
to it for such acquisitions or investments, it is possible that such a
transaction in the future could require additional funds. Sources of such
capital could include bank borrowings or the sale of debt or equity securities;
however, there can be no assurance that the Company would be successful in
obtaining such additional funds, if required.
10
<PAGE> 13
ADDITIONAL COMPANY INFORMATION
Appendix B to this Proxy Statement includes certain financial information
relevant to the proposed Sale. Included in such information is the Company's
historical and pro forma selected financial data, historical and pro forma per
share data and pro forma financial statements of the Company giving effect to
the proposed Sale.
This Proxy Statement is accompanied or preceded by the Company's Annual
Report to Shareholders for the fiscal year ended June 30, 1996. The Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1996, is
incorporated by reference in this Proxy Statement. Also incorporated by
reference in this Proxy Statement is the Company's Annual Report to
Shareholders, which accompanies or precedes this Proxy Statement, excluding the
information set forth under the captions Shareowners' Letter, Electronics,
Automotive & Industrial Products, and Financial Trends at a Glance, appearing on
pages 2 through 7, and those portions of pages 8, 9 and 10, which are not deemed
to be filed with the Securities and Exchange Commission under the Securities Act
of 1933 or the Securities Exchange Act of 1934 or incorporated by reference in
this Proxy Statement or any document so filed. All documents filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, subsequent to the date of this Proxy Statement and prior
to the date on which the annual meeting of shareholders is held, shall be deemed
to be incorporated by reference in this Proxy Statement and to be a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that statement contained
herein or any other subsequently filed document which is also incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as modified or superseded, to
constitute any part of this Proxy Statement.
The Company will furnish without charge to each person whose proxy is being
solicited, upon the written request of such person, a copy of the Company's
Annual Report on Form 10-K for the fiscal year ended June 1996, as filed with
the Securities and Exchange Commission, including the financial statements and
schedules thereto. Requests for copies of such report shall be directed to
Richard Langley, Vice President-Treasurer, Sparton Corporation, 2400 East Ganson
Street, Jackson, Michigan 49202.
On October 2, 1996, the day preceding the public announcement of the
proposed Sale, the high and low bid prices of the Company's Common Stock were
$8.00 and $7.875, as reported by the New York Stock Exchange.
FEDERAL INCOME TAX CONSEQUENCES
The Sale will result in a taxable disposition for federal income tax
purposes. The Company expects to realize a gain on the Sale for federal income
tax purposes, the amount of which has not yet been fully determined. The federal
income tax consequences of a sale of the Subsidiaries other than pursuant to the
Purchase Agreement will depend upon the form of the transaction. Neither the
Sale nor any other sale by the Company involving any Subsidiaries should by
itself result in the imposition of federal income taxes upon the Company's
shareholders.
DISSENTER'S RIGHTS OF APPRAISAL
Ohio law governs the rights of the Company's shareholders in connection
with the Sale. Pursuant to Ohio law each record holder of shares of the Company
as of October 29, 1996, is entitled to the rights of a dissenting shareholder
pursuant to the provisions of section 1701.85 of the Ohio General Corporation
Law. Any dissenting shareholder must not have voted in favor of the Sale. Not
later than ten (10) days after the date of the Annual Meeting, a dissenting
shareholder must deliver to the Company a written demand for payment of the fair
cash value of the shares as to which he or she seeks relief. The demand must
state the dissenting
11
<PAGE> 14
shareholder's address, the number and class of such shares, and the amount
claimed as the fair cash value of the shares. Shareholders will not receive
further notification of the date such written demand is to be received by the
Company. Although a shareholder voting against the Sale will not be deemed to
have waived his or her appraisal rights, such a vote against the Sale will not
satisfy the foregoing notification requirements and a shareholder voting against
the Sale will be required to notify the Company of his exercise of appraisal
rights.
The Company may send to each dissenting shareholder, at the address
specified in the demand, a request for certificate(s) representing the shares as
to which relief is sought and the dissenting shareholder, within fifteen (15)
days from the date of the sending of such request, must deliver to the Company
the certificate(s) requested so that the Company may endorse on them a ledger to
the effect that demand for the fair cash value of such shares has been made. The
Company will promptly return such endorsed certificates to the dissenting
shareholder. A dissenting shareholder's failure to deliver certificate(s)
terminates his or her right as a dissenting shareholder, at the option of the
Company, exercised by written notice sent to the dissenting shareholder within
twenty (20) days after the lapse of fifteen (15) day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them will bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is a record holder of uncertificated
securities, the Company will make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities. A transferee
of shares so endorsed, or of uncertificated shares where such notation has been
made acquires only such rights in the Company as the original dissenting holder
of such shares had immediately after the service of demand for payment of the
fair cash value of the shares. A request for share certificates by the Company
hereunder is not an admission by the Company that the shareholder is entitled to
relief under Ohio law.
Unless the Company or the dissenting shareholder come to an agreement on
the fair cash value per share of the shares as to which the dissenting
shareholder seeks relief, the dissenting shareholder or the Company, within
three (3) months after the service of the demand of the dissenting shareholder,
may file a complaint in the Court of Common Pleas of the county of which the
principal office of the Company is located. Other dissenting shareholders,
within that three (3) month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint must contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such complaint is required. Upon the filing of
such a complaint the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring a copy of the
complaint and the notice of the filing and of the date for hearing be given to
the respondent or defendant in the matter in which summons is required to be
served or substituted service is required to be made in other cases. On the day
fixed for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint such evidence as submitted by either party whether
the dissenting shareholder is entitled to be paid the fair cash value of any
shares, and, if so, the number in class of such shares. If the court finds the
dissenting shareholder is so entitled, the court may appoint one or more persons
as appraisers to receive evidence to recommend a decision of them all on a fair
cash value. The cost of the proceeding, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed and apportioned as the
court considers equitable. If, during the pendency of any proceeding instituted
under these provisions of Ohio law, suit or proceeding is or has been instituted
to enjoin or otherwise to prevent of the carrying out of the action as to which
the shareholder has dissented, the proceeding instituted under these provisions
of Ohio law shall be stayed until the final determination of the other suit or
12
<PAGE> 15
proceeding. The fair cash value of the shares that is agreed upon by the parties
or fixed by the court shall be paid within thirty (30) days after the date of
final determination of such value, or the commencement of any other action
involved, whichever occurs last. Upon the occurrence of the last such event,
payment shall be made immediately to a holder of uncertificated securities
entitled to such payment. In the case of holders of shares represented by
certificates, payment shall be made only upon and simultaneously with the
surrender to the corporation of the certificates representing the shares for
which the payment is made.
Fair cash value as to those shareholders who have dissented shall be
determined as of the day prior to the day on which the vote of the shareholders
was taken. The fair cash value of a share for the purposes hereof is the amount
that a willing seller that is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the shareholders shall be excluded.
From the time the dissenting shareholders giving of the demand until the
determination of the rights and obligations arising from it or the purchase of
the shares by the Company, all of the rights accruing from such shares,
including voting and dividend or distributions rights, are suspended. If during
the suspension, any dividend or distribution is paid in money upon shares of
such class or any dividend, distribution, or interest is paid in money upon any
securities issued in extinguishment of or in substitution for such shares, and
won't be equal to the dividend, distribution, or interest which, except for the
suspension, would have been payable upon such shares of securities, shall be
paid to the holder of record as a credit upon the fair cash value of the shares.
If the right to receive fair cash value is terminated other than by the purchase
of the shares by the Company, all rights of the holder shall be restored and all
distributions which, except for the suspension, would have been made shall be
made to the holder of record of shares at the time of termination.
The affirmative vote of two-thirds ( 2/3) of the holders of the outstanding
shares of Common Stock entitled to vote thereon is required to approve the Sale.
Unless otherwise directed by shareholder's proxy, the persons named as proxy
voters in the accompanying proxies will vote for approval of the Sale. THE
COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THE SALE.
Directors and executive officers of the Company who beneficially own
approximately 40% of the outstanding shares of the Company's Common Stock have
entered into an Agreement with Buyer, dated October 3, 1996, pursuant to which
they have each agreed to vote such shares in favor of the Sale and have
appointed David R. Bovee, Vice President and Chief Financial Officer of Buyer,
to vote all of those shares in favor of the Sale. A more detailed description of
the stock ownership by these persons is set forth above in the section entitled
"Outstanding Stock and Voting Rights."
------------------------------------------------
The Executive Compensation Committee Report and Performance Graph set forth
below are not deemed to be soliciting material or to be filed with the
Securities and Exchange Commission under the Securities Act of 1933 or the
Securities Exchange Act of 1934 or incorporated by reference in any document so
filed.
------------------------------------------------
COMPENSATION OF EXECUTIVE OFFICERS
The following tables provide certain data and information on the
compensation of the Company's Chief Executive Officer and its four most highly
compensated executive officers (other than the CEO) whose annual salary and
bonus exceeded $100,000 (collectively referred
13
<PAGE> 16
to as the "Named Executives"). This report addresses the Company's compensation
policies and programs for the year ended June 30, 1996, the details of which are
reflected in the tables set forth in the following pages of this Proxy
Statement. The Company's and the Board's policies and practices pertaining to
the compensation of executive officers and management have been in effect for a
number of years.
EXECUTIVE COMPENSATION COMMITTEE REPORT
Decisions on the compensation of the Company's executive officers are made
by the Board's Compensation Committee. This Committee is composed of Mr. John J.
Smith, Chairman of the Board and Chief Executive Officer and four non-employee
directors: Messrs. Noecker, Kirk, DeBoer and Thompson.
The Company has long-established policies and practices intended to
compensate its salaried employees in a manner that will enable the Company to
attract, retain and motivate them to accomplish corporate goals and objectives.
These policies and practices encourage management to remain dedicated to the
maximization of shareholder value. The Compensation Committee establishes
compensation for its key executives through a comparison of its salary levels
with companies of comparable size, sales and profitability.
The Company's compensation program is comprised of several elements: cash
compensation (including salary and incentive bonus), incentive stock options and
defined benefit or defined contribution retirement plans. Reflective of the
Company's goal of relating compensation to corporate performance, the incentive
bonus compensation plan permits certain executive officers to earn additional
compensation if the pretax earnings of their operating unit is in excess of an
established goal. The bonus for all other key executives is a subjective
determination by the Compensation Committee based upon an evaluation of the
employees' individual performance, level of responsibility and experience.
The Company's Chief Executive Officer is compensated pursuant to employment
agreements that have been in existence since 1950. A description of the current
employment agreement and related compensation of the Company's Chief Executive
Officer is set forth below under the caption "Employment Agreement and Related
Compensation."
<TABLE>
<S> <C>
Marshall V. Noecker Robert J. Kirk
James N. DeBoer John J. Smith
Blair H. Thompson
</TABLE>
EMPLOYMENT AGREEMENT AND RELATED COMPENSATION
The current agreement for Mr. John J. Smith, the Company's CEO, expires on
June 30, 1997. Under the terms of this contract, Mr. Smith's annual salary for
fiscal 1996 was to be $288,542. The contract also provides for an annual cash
bonus equal to 5% of the Company's pretax earnings in excess of $5,000,000 with
the bonus limited to $150,000 for the fiscal year ended June 30, 1996. For the
year ended June 30, 1996, Mr. Smith voluntarily reduced his compensation to a
rate of $178,200 per annum. No bonus was payable under the terms of the contract
for fiscal year 1996.
Pursuant to prior employment agreements with Mr. Smith, a deferred
compensation account was established. Mr. Smith is entitled to receive payments
in monthly installments following termination of employment; or, subject to
prior approval of the Company's Board of Directors, from time to time in lump
sums upon Mr. Smith's request. No payments were made to Mr. Smith during fiscal
year 1996. The balance in Mr. Smith's deferred compensation account will be paid
in a lump sum upon his death. Beginning July 1, 1976, the Company agreed to
credit interest to Mr. Smith's deferred compensation account at the rate of
1 1/2% above the prime rate, but not exceeding 10%. However, if the prime rate
exceeds 10% then interest will be credited at the
14
<PAGE> 17
prime rate, but in no event at a rate exceeding 14%. At June 30, 1996, the
balance in Mr. Smith's deferred compensation account was $2,180,903.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. John J. Smith and Mr. Blair H. Thompson (a former officer of the
Company) are members of the Compensation Committee and as such participate in
establishing compensation for executives of the Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
the Named Executives for services rendered in all capacities during the fiscal
years ended June 30, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
ALL OTHER
FISCAL COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION
- ------------------------------ ------ -------- -------- -----------
<S> <C> <C> <C> <C>
John J. Smith 1996 $178,200 $ -0- $ 1,750(1)
Chairman of the Board 1995 120,000 -0- 121,750(1)
and Chief Executive Officer 1994 206,287 -0- 163,272(1)
David W. Hockenbrocht 1996 178,200 -0- 1,750(2)
President and Chief 1995 178,200 -0- 1,750(2)
Operating Officer 1994 196,350 -0- 2,100(2)
Richard D. Mico 1996 106,294 11,034 3,304(3)
Vice President and General 1995 103,125 -0- 2,510(3)
Manager 1994 98,405 -0- 1,971(3)
Jerry R. Gause 1996 94,577 24,000 4,256(3)
Vice President and General 1995 88,723 21,000 3,553(3)
Manager 1994 80,884 21,000 3,378(3)
Douglas E. Johnson 1996 100,000 -0- -0-
Vice President and General 1995 93,572 -0- -0-
Manager 1994 88,054 -0- -0-
- ---------------
<FN>
(1) Represents directors fees of $1,750 paid in 1996 and 1995, and $2,100 in
1994. The balance represents payments made pursuant to deferred compensation
arrangement discussed under the caption Employment Agreement and Related
Compensation above.
(2) Represents directors fees.
(3) Represents Company contributions to its employees' defined contribution
benefit plan.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
There were no options granted to any Company officers or other employees
for the fiscal year ended June 30, 1996.
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information, with respect to the Named
Executives, concerning the unexercised options and SARs held at June 30, 1996.
None of the Named Executives exercised any options for the purchase of Company
Common Stock during the past fiscal year.
15
<PAGE> 18
AGGREGATED OPTION/SARS EXERCISED IN
LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN THE MONEY OPTIONS/SARS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
John J. Smith -0- -0- $ -0- $ -0-
David W. Hockenbrocht 16,000 16,000 -0- -0-
Richard D. Mico 3,750 1,250 -0- -0-
Jerry R. Gause 3,750 1,250 -0- -0-
Douglas E. Johnson -0- -0- -0- -0-
- ---------------
<FN>
(1) The closing price of the Company's Common Stock was $4.25 at June 28, 1996,
which price was less than the exercise price on outstanding stock options.
</TABLE>
RETIREMENT PROGRAMS
The Company maintains a defined benefit retirement plan for employees of
the Company and one subsidiary which provides for monthly pensions following
retirement. During the past year, no cash contributions were made by the Company
to the plan as in the judgment of the Company's independent actuaries, the
pension plan was fully funded. The plan provides a basic benefit of $2.25 per
month for each year of credited service up to a maximum of $90 per month. In
addition, for those participants who contribute 5% of their monthly compensation
(excluding bonuses) per month, the plan provides for an additional monthly
pension amount equal to 1 1/2% of the participant's final 10-year average
monthly compensation (excluding bonuses) times the participant's years of
contributory and credited service to a maximum of 30 years. The following table
shows the estimated annual retirement benefits in specified remuneration and
service classifications upon normal retirement at age 65. The benefits shown are
not subject to any deduction for Social Security or other offset amounts. (For
fiscal years beginning after June 30, 1993, the maximum amount of annual
compensation allowed to be included in determining final average compensation
has been limited by statute to $150,000. This amount is subject to future
adjustment by the Internal Revenue Service.)
<TABLE>
<CAPTION>
FINAL 10-YEAR
AVERAGE ANNUAL YEARS OF CONTRIBUTORY AND CREDITED SERVICE AT AGE 65
EARNINGS (EXCLUDES ------------------------------------------------------------
BONUSES) 10 15 20 25 30
- -------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 60,000 $ 9,270 $ 13,905 $ 18,540 $ 23,175 $ 27,810
80,000 12,270 18,405 24,540 30,675 36,810
100,000 15,270 22,905 30,540 38,175 45,810
120,000 18,270 27,405 36,540 45,675 54,810
140,000 21,270 31,905 42,540 53,175 63,810
160,000 24,270 36,405 48,540 60,675 72,810
180,000 27,270 40,905 54,540 68,175 81,810
</TABLE>
The following Named Executives have years of contributory credited service
under the plan and current annual earnings as of June 30, 1996:
<TABLE>
<CAPTION>
CURRENT ANNUAL
YEARS OF CONTRIBUTORY EARNINGS (EXCLUDING
OFFICER CREDITED SERVICE BONUS)
- ------------------------------ --------------------- --------------------
<S> <C> <C>
David W. Hockenbrocht 18.50 $178,200
Douglas E. Johnson 8.00 100,000
</TABLE>
16
<PAGE> 19
Mr. John J. Smith, Mr. Richard D. Mico and Mr. Jerry R. Gause do not participate
in the Company's defined benefit retirement plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Securities Exchange Act of 1934, the
Company's directors and executive officers, as well as any person holding more
than ten percent of a registered class of the Company's equity securities, are
required to report any changes in their ownership of the Company's securities to
the Securities and Exchange Commission and the New York Stock Exchange. To the
Company's knowledge, all required reports were properly filed by such persons
during the fiscal year ended June 30, 1996.
PERFORMANCE GRAPH
The following is a line-graph presentation comparing cumulative, five-year
shareholder return, on an indexed basis, of the Company's Common Stock with that
of a broad market index (the S&P 500 Composite Index) and a weighted index made
up of selected S&P 500 indices including Electronics Defense (50%), Automobiles
(25%) and Industrials (25%). The Company selected this weighted index because
the companies included therein are engaged in operations similar to the
Company's operations. The comparison assumes a $100 investment on June 30, 1991,
and the reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
SPARTON CORPORATION, S&P 500 COMPOSITE INDEX AND AN INDUSTRY INDEX
(INDEX JUNE 30, 1991 = 100)
[GRAPHIC]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD SPARTON S&P 500 IN- S&P WEIGHTED
(FISCAL YEAR COVERED) CORPORATION DEX INDEX
<S> <C> <C> <C>
1991 100 100 100
1992 123 113 109
1993 88 129 142
1994 96 131 150
1995 85 165 196
1996 71 208 299
</TABLE>
17
<PAGE> 20
CERTAIN RELATIONSHIPS AND TRANSACTIONS
John J. Smith and his wife and Lawson K. Smith lease a manufacturing
facility located in White Cloud, Michigan to KPI. John J. Smith and his wife
also lease a facility located in Grand Haven, Michigan to this subsidiary. Both
the facilities are occupied under lease agreements that allow termination by
either party upon ninety (90) days notice. These two lease agreements, the
result of arms-length type negotiations, grant the Company the option to acquire
the properties during the lease term for $252,400 and $223,200, respectively.
The original leases of these facilities were in existence prior to the Company's
acquisition of this subsidiary.
INDEPENDENT AUDITORS
Representatives of Ernst & Young LLP, the Company's independent auditors
for many years, are expected to be present at the Annual Meeting. They will have
an opportunity to make a statement if they desire to do so and are expected to
be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS -- 1997 ANNUAL MEETING
Shareholder proposals intended to be presented at the 1997 Annual Meeting
of Shareholders of the Company must be received by the Company not later than
July 7, 1997, at its principal executive offices, 2400 East Ganson Street,
Jackson, Michigan 49202, Attention: Secretary, for inclusion in the Proxy
Statement and Proxy relating to the 1997 Annual Meeting of Shareholders.
By Order of the Board of Directors
LAWSON K. SMITH
Secretary
Dated: November 1, 1996
18
<PAGE> 21
APPENDIX A
STOCK AND ASSET PURCHASE AGREEMENT
AMONG
SPARTON CORPORATION,
AS SHAREHOLDER OF ITS
KPI GROUP OF SUBSIDIARIES,
SPARTON ENGINEERED PRODUCTS, INC. --
LAKE ODESSA GROUP
AND
DURA AUTOMOTIVE SYSTEMS, INC.
DATED OCTOBER 3, 1996
<PAGE> 22
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Article I -- Purchase and Sale of Stock
1.1 Stock Purchase......................................................... 1
1.2 Asset Purchase; Assumption of Liabilities.............................. 1
1.3 Purchase Price......................................................... 2
1.4 Adjustment in Purchase Price........................................... 2
Article II -- Lease of Leased Real Estate
2.1 Lease of Leased Real Estate............................................ 3
Article III -- Closing
3.1 Closing................................................................ 3
3.2 Concurrent Closing..................................................... 3
3.3 Release of Liens at Closing............................................ 3
Article IV -- Conditions to Closing
4.1 Conditions to Buyer's Obligations...................................... 4
4.2 Conditions to Obligations of Sparton................................... 5
Article V -- Covenants Prior to Closing
5.1 Operation of KPI Subsidiaries Since June 30, 1996...................... 6
5.2 Affirmative Covenants of Sparton....................................... 6
5.3 Covenants of Buyer..................................................... 7
5.4 Title Insurance........................................................ 7
5.5 Surveys................................................................ 7
5.6 Closing of Lake Odessa Plant........................................... 8
5.7 Negative Covenants of Lako and Sparton................................. 8
5.8 Proxy; shareholders' Vote.............................................. 8
Article VI -- Representations and Warranties Concerning Sparton and the KPI
Subsidiaries
6.1 Organization and Corporate Power....................................... 9
6.2 Authorization of Transactions.......................................... 9
6.3 Capitalization......................................................... 9
6.4 Subsidiaries........................................................... 9
6.5 Absence of Conflicts................................................... 9
6.6 Financial Statements................................................... 10
6.7 Absence of Undisclosed Liabilities..................................... 10
6.8 Absence of Certain Developments........................................ 10
6.9 Real Property.......................................................... 11
6.10 Tangible Assets........................................................ 12
6.11 Title to Personal Property............................................. 12
6.12 Environmental Matters.................................................. 12
6.13 Accounts Receivable.................................................... 14
6.14 Inventory.............................................................. 14
6.15 Taxes.................................................................. 14
6.16 Contracts and Commitments.............................................. 16
6.17 Intellectual Property Rights........................................... 17
6.18 Litigation; Proceedings................................................ 18
6.19 Brokerage.............................................................. 18
6.20 Governmental Licenses and Permits...................................... 18
6.21 Employees.............................................................. 18
6.22 Employee Benefit Plans................................................. 18
6.23 Insurance.............................................................. 19
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.24 Officers and Directors; Bank Accounts.................................. 19
6.25 Affiliate Transactions................................................. 19
6.26 Compliance with Laws................................................... 19
6.27 Disclosure............................................................. 20
6.28 Closing Date........................................................... 20
6.29 Product Warranties..................................................... 20
6.30 Tooling Invoices....................................................... 20
Article VII -- Representations and Warranties of Buyer
7.1 Organization and Corporate Power....................................... 20
7.2 Authorization.......................................................... 20
7.3 No Violation........................................................... 20
7.4 Governmental Authorities and Consents.................................. 20
7.5 Brokerage.............................................................. 20
7.6 Litigation............................................................. 21
7.7 Buyer's Investment Representations..................................... 21
7.8 Disclosure............................................................. 21
7.9 Closing Date........................................................... 21
Article VIII -- Termination
8.1 Termination............................................................ 21
8.2 Effect of Termination.................................................. 21
Article IX -- Additional Agreements
9.1 Survival............................................................... 21
9.2 Sparton's Guaranty; Buyer's Indemnification............................ 22
9.3 General Indemnification................................................ 22
9.4 Investigation and Confidentiality...................................... 23
9.5 Expenses............................................................... 24
9.6 Noncompete............................................................. 24
9.7 Tax Claims............................................................. 24
9.8 Sparton's Access to Records............................................ 27
9.9 Sparton Shares in Retirement Trusts.................................... 27
9.10 Product Warranty Claims................................................ 27
9.11 Change of Corporate Name............................................... 27
9.12 Assignment of Kostecki Judgment........................................ 28
9.13 Environmental Matters.................................................. 28
9.14 Exclusivity............................................................ 29
Article X -- Miscellaneous
10.1 Press Releases and Announcements....................................... 29
10.2 Further Transfers...................................................... 29
10.3 Specific Performance................................................... 29
10.4 Amendment and Waiver................................................... 29
10.5 Notices................................................................ 29
10.6 Binding Agreement; Assignment.......................................... 30
10.7 Severability........................................................... 30
10.8 Captions............................................................... 30
10.9 Entire Agreement....................................................... 31
10.10 Counterparts........................................................... 31
10.11 Governing Law.......................................................... 31
10.12 Parties in Interest.................................................... 31
</TABLE>
ii
<PAGE> 24
EXHIBITS
<TABLE>
<S> <C>
A. List of KPI Subsidiaries
B. Opinion of Sparton's Counsel
C. Certificate of Officer of Sparton
D. Opinion of Buyer's Counsel
E. Certificate of Officer of Buyer
</TABLE>
iii
<PAGE> 25
LIST OF SCHEDULES
<TABLE>
<S> <C>
6.5 Restrictions Schedule
6.7 Liability Schedule
6.8 Developments Schedule
6.9(a) Real Property Lease Schedule
6.9(b) Real Property Schedule
6.11 Encumbrances Schedule
6.12 Environmental Schedule
6.15 Taxes Schedule
6.16 Contracts Schedule
6.17 and Intellectual Property Rights Schedules
6.17(c) and Intellectual Property Rights Schedules
6.17(d) Intellectual Property Rights Schedules
6.18 Litigation Schedule
6.20 Licenses Schedule
6.22 Employee Benefit Plans Schedule
6.23 Insurance Schedule
6.24 Officers and Directors Schedule
6.25 Affiliate Transactions Schedule
9.2 Guarantied Obligations Schedule
</TABLE>
iv
<PAGE> 26
STOCK AND ASSET PURCHASE AGREEMENT
STOCK AND ASSET PURCHASE AGREEMENT DATED AS OF OCTOBER 3, 1996, AMONG
SPARTON CORPORATION, AN OHIO CORPORATION ("SPARTON"), SPARTON ENGINEERED
PRODUCTS, INC., LAKE ODESSA GROUP, A MICHIGAN CORPORATION ("LAKO"), AND DURA
AUTOMOTIVE SYSTEMS, INC., A DELAWARE CORPORATION ("BUYER").
RECITALS
Sparton owns 100 percent of the issued and outstanding capital stock of
each of the corporations listed on Exhibit A attached hereto (collectively, the
"KPI Subsidiaries"), consisting of the number of shares of common stock set
opposite the name of each (together, "Common Stock"). Upon the terms and
conditions set forth in this Agreement, Buyer desires to acquire from Sparton,
and Sparton desires to sell to Buyer, all of the Common Stock.
Sparton also owns 100 percent of the outstanding capital stock of Lako.
Upon the terms and conditions set forth in this Agreement, Buyer desires to
acquire from Lako, and Lako and Sparton desire that Lako sell to Buyer, the
business and certain of the assets of Lako which are operating as a going
concern, subject to certain liabilities.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 STOCK PURCHASE. Upon the terms and conditions set forth in this
Agreement, at the Closing (as defined in Article III), Buyer agrees to purchase
from Sparton and Sparton agrees to sell and transfer to Buyer all of the Common
Stock, free and clear of all liens, charges, security interests, claims,
pledges, taxes, options, warrants, rights, proxies, voting trusts, voting
agreements, and other encumbrances and restrictions ("Liens"). As provided in
Section 3.3, at the Closing the existing lien on the Common Stock shall be
released.
1.2 ASSET PURCHASE; ASSUMPTION OF LIABILITIES.
(a) Upon the terms and conditions set forth in this Agreement, at the
Closing (as defined in Article III), Buyer agrees to purchase from Lako,
and Lako agrees to sell, transfer, convey, and deliver to Buyer, all right,
title, and interest in and to the following assets of Lako (collectively,
the "Acquired Assets"), but excluding the "Excluded Assets" defined below:
(i) all cash, cash equivalents, accounts receivable, and notes
receivable;
(ii) all inventories of raw materials and supplies, purchased and
service parts, work-in-process, finished goods, tooling, and all other
items of inventory;
(iii) the land, building, and improvements located at 3741 Weber
road, Gladwin, Michigan (the "Gladwin Plant") and all licences, rights
of way, permits, and appurtenances thereon;
(iv) all machinery, equipment, furniture, fixtures, vehicles,
tooling, molds, dies, and other tangible personal property located at or
used in the operations of the Gladwin Plant;
(v) all Lako agreements, contracts, and purchase orders related to
or connected with operations at the Gladwin Plant, including those
listed on attached Schedule 6.16;
(vi) all prepayments and deposits made with respect to operations
at the Gladwin Plant to the extent any will inure to the benefit of
Buyer after Closing.
(vii) any permits, licenses, or other rights obtained from
governments or government agencies including those listed on attached
Schedule 6.20;
<PAGE> 27
(viii) all books, records, files, documents, drawings,
specifications, and other written materials, including copies of
financial and accounting books and records;
(ix) all other property, including all Intellectual Property, in
which Lako has an interest and which is connected with the operations at
the Gladwin Plant.
(b) The following assets of Lako ("Excluded Assets") shall be excluded
from the sale to Buyer of the Acquired Assets:
(i) all insurance policies;
(ii) charter documents, minute books, stock transfer records,
corporate seal;
(iii) the land, building, and improvements comprising Lako's plant
located in Lake Odessa, Michigan (the "Lake Odessa Plant"), and a parcel
of unimproved land in the vicinity of Lake Odessa;
(iv) all machinery, equipment, furniture, fixtures, vehicles,
tooling, molds, dies, and inventories located at the Lake Odessa Plant
(which are not to be transferred to the KPI Subsidiaries pursuant to
Section 5.6), a list of which has been furnished to Buyer, and all other
tangible personal property located at the Lake Odessa Plant.
(c) Subject to the terms and conditions of this Agreement, Buyer
agrees to assume the following obligations of Lako connected with the
operations of the Gladwin Plant ("Assumed Liabilities"):
(i) all current liabilities, except "Excluded Liabilities," defined
below, recorded on the books and records of Lako as of the Closing Date
to the extent such current liabilities have been incurred in the
Ordinary Course of Business, consistent with past custom and practice;
(d) Buyer does not assume and is not liable for the following
liabilities and obligations of Lako ("Excluded Liabilities"):
(i) except for obligations and liabilities incurred in the Ordinary
Course of Business with respect to operations at the Gladwin Plant
(other than cash advances which are dealt with in Section 1.4),
obligations or liabilities due to corporations affiliated with Lako,
including obligations or liabilities to Sparton for funds advanced to
Lako prior to the Closing Date;
(ii) obligations or liabilities connected with the operations of
the Lake Odessa Plant;
(iii) any other obligations or liabilities which are not "Assumed
Liabilities".
1.3 PURCHASE PRICE. The total purchase price for the Common Stock and the
Acquired Assets shall be Eighty Million Five Hundred Thousand Dollars
($80,500,000) (the "Purchase Price"), subject to adjustment as provided in
Section 1.4, payable in cash at the Closing in immediately available funds, plus
or minus any adjustments to the Purchase Price provided for in this Agreement.
The Purchase Price shall be allocated between the Common Stock and the Acquired
Assets as provided as mutually agreed upon by Buyer and Sparton.
1.4 ADJUSTMENT IN PURCHASE PRICE. The purchase price shall be increased
dollar for dollar to the extent the sum of all cash advances by Sparton to the
KPI Subsidiaries and Lako exceeds the sum of all cash advances by the KPI
Subsidiaries and Lako to Sparton during the period beginning July 1, 1996, to
the Closing Date, or shall be decreased dollar for dollar to the extent the sum
of all cash advances by Sparton to the KPI Subsidiaries and Lako is less than
the sum of all cash advances by the KPI Subsidiaries and Lako to Sparton during
the same period.
2
<PAGE> 28
Such adjustment shall be determined and paid by Buyer to Sparton or by Sparton
to Buyer at the Closing. The purchase price will be reduced to the extent that
cash generated by the Gladwin Plant, or any other KPI Subsidiary, was used to
fund the operations of the Lake Odessa Plant since July 1, 1996, to the Closing
Date. From time to time as reasonably requested by Buyer following the date of
this Agreement and as of and at the Closing, Sparton shall furnish to Buyer a
detailed accounting of all such cash advances and a computation of the amount of
such adjustment. If Buyer disputes the adjustment calculated by Sparton as of
Closing, then Deloitte & Touche shall determine the amount of such adjustment
and its determination shall be final and binding upon Sparton and Buyer.
ARTICLE II
LEASE OF LEASED REAL ESTATE
2.1 LEASE OF LEASED REAL ESTATE. KPI has leased from John J. Smith and
wife a parcel of real estate in Grand Haven, Michigan, and from Lawson K. Smith
and John J. Smith and wife a parcel of real estate in White Cloud, Michigan (the
"Leased Real Estate"). At or before the Closing, Lako will purchase the Leased
Real Estate. By separate customary agreements consistent with the terms of this
Agreement and to be mutually agreed upon by Buyer and Lako, the Buyer and Lako
will enter into leases providing for the lease of the Leased Real Estate by
Buyer from Lako. John J. Smith and wife and Lawson K. Smith are collectively
referred to herein as the "Smiths." The lease agreements shall be "triple net"
leases and shall provide for an aggregate annual rental equal to One Hundred
Thirty-five Thousand Dollars ($135,000). The leases shall also provide for a
purchase option to be exercised at the end of their five-year terms upon payment
of an aggregate option price equal to Fifty Thousand Dollars ($50,000). The
purchase option shall provide that both parcels of Leased Real Estate must be
purchased if the purchase option is exercised. The parties shall negotiate the
definitive lease agreements in good faith.
ARTICLE III
CLOSING
3.1 CLOSING. The closing of the purchase and sale of the Common Stock and
Acquired Assets and Buyer's lease of the Leased Real Estate (the "Closing") will
be held at the offices of Varnum, Riddering, Schmidt & Howlett, Grand Rapids,
Michigan, at 10 a.m. on a date which is no later than five (5) business days
following the date on which all the conditions set forth in Article IV hereof
have been fully satisfied or waived, or at such other place or on such other
date as may be mutually agreeable to the Buyer and Sparton. The date of closing
is referred to herein as the Closing Date. Subject to fulfillment of the
conditions set forth in this Agreement, at the Closing:
(a) Sparton will deliver stock certificates representing all the
shares of Common Stock, duly endorsed for transfer or accompanied by duly
executed stock powers, and Lako will deliver instruments of transfer and
conveyance of the Acquired Assets;
(b) Buyer will pay the Purchase Price as provided in Section 1.2
hereof, and deliver an instrument assuming the Assumed Liabilities;
3.2 CONCURRENT CLOSING. The closing of the purchase and sale of Common
Stock and Acquired Assets is conditioned upon the concurrent closing of the
lease of the Leased Real Estate and vice versa. The closing of each of the
transactions shall be effective simultaneously, and the closing of one shall not
be effective except upon the simultaneous closing of the others.
3.3 RELEASE OF LIENS AT CLOSING. At the Closing, Sparton agrees to use a
portion of the Purchase Price to obtain from lenders the release and discharge
of all security interests and
3
<PAGE> 29
liens then existing on the Common Stock, the assets of the KPI Subsidiaries, and
the Acquired Assets.
ARTICLE IV
CONDITIONS TO CLOSING
4.1 CONDITIONS TO BUYER'S OBLIGATIONS. The obligations of Buyer to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) The representations and warranties of Sparton in Article VI hereof
will be true and correct in all material respects at and as of the Closing
Date as though then made.
(b) Sparton will have performed and complied in all material respects
with all of the covenants and agreements required to be performed by it
under this Agreement prior to the Closing.
(c) All third-party consents, waivers, and approvals which are
required for the sale and transfer of the Common Stock, the Acquired
Assets, and the consummation of the transactions contemplated hereby will
have been obtained upon terms reasonably satisfactory to Buyer, including
the waiver of any right to terminate any contracts to which any KPI
Subsidiaries or Lako is a party to or is bound. Consents to the assignment
of customer purchase orders are waived by Buyer and will not be required.
(d) All governmental filings, authorizations, and approvals which are
required for the sale and transfer of the Common Stock, the Acquired
Assets, and the consummation of the transactions contemplated hereby will
have been duly made and obtained on terms reasonably satisfactory to Buyer.
(e) No action or proceeding before any court or government body will
be pending or threatened wherein an unfavorable judgment, decree,
injunction, or order would prevent the performance of this Agreement or any
of the transactions contemplated hereby, or which might adversely affect
the right of Buyer to own, operate, or control the KPI Subsidiaries and the
Acquired Assets.
(f) All intercompany indebtedness reflected in the advance account
between Sparton and the KPI Subsidiaries shall have been satisfied at or
prior to the Closing Date.
(g) The shareholders of Sparton shall have authorized the sale of the
Common Stock and Acquired Assets to the Buyer upon the terms and conditions
of this Agreement, as required by the applicable provisions of the General
Corporation Law of the state of Ohio.
(h) Buyer will have received the opinion addressed to Buyer, dated the
Closing Date, of Varnum, Riddering, Schmidt & Howlett LLP, counsel for
Sparton, with respect to the matters set forth in Exhibit B attached hereto
and in form and substance reasonably satisfactory to Buyer and its counsel.
(i) On or prior to the Closing Date, Sparton will have delivered, or
caused to be delivered, to Buyer all of the following:
(i) a certificate in the form set forth in Exhibit C attached
hereto, dated the Closing Date, stating that the conditions specified in
Sections 4.1(a) through (g) above, inclusive, have been satisfied;
(ii) copies of all third-party and governmental consents,
approvals, and filings required in connection with the consummation of
the transactions contemplated herein;
4
<PAGE> 30
(iii) certificates representing the Common Stock and instruments of
Lako's transfer and conveyance of the Acquired Assets as required by
Section 3.1(a);
(iv) the minute books, stock transfer records, and corporate seals
of the KPI Subsidiaries;
(v) resignations of the directors of the KPI Subsidiaries,
effective as of the Closing Date;
(vi) a good standing certificate for each of the KPI Subsidiaries
in their respective states of incorporation and good standing
certificates for each jurisdiction in which each is required to be
qualified to do business, dated as of a date within ten (10) business
days prior to the Closing Date;
(vii) the articles of incorporation of each of the KPI Subsidiaries
certified by its state of incorporation and bylaws of each certified by
its secretary;
(viii) the documents required by Sections 5.4 and 5.5; and, if
required by Buyer's lenders, an estoppel letter from each of the
landlords of Leased Real Property and each other parcel of real property
leased by the KPI Subsidiaries or Lako, in form and content reasonably
satisfactory to Buyer and its lenders;
(ix) such other documents or instruments as Buyer reasonably
requests to effect the transactions contemplated hereby.
(j) The closing of Buyer's lease of the Leased Real Estate shall be
completed concurrently as contemplated by Section 3.2.
(k) The $100 million loan commitment issued to Buyer by Bank of
America, a copy of which has been furnished to Sparton, shall have been
funded at or before the Closing, or Buyer shall have obtained other
financing satisfactory to it needed to consummate the purchase of the
Common Stock and the Acquired Assets.
Any condition specified in this Section 4.1 may be waived in writing by
Buyer.
4.2 CONDITIONS TO THE OBLIGATIONS OF SPARTON. The respective obligations
of Sparton to consummate the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions on or before the Closing
Date:
(a) The representations and warranties of Buyer in Article VII hereof
will be true and correct in all material respects at and as of the Closing
Date.
(b) Buyer will have performed and complied in all material respects
with all of the covenants and agreements required to be performed by it
under this Agreement prior to the Closing.
(c) All governmental filings, authorizations, and approvals which are
required for the sale and transfer of the Common Stock and Acquired Assets
and the consummation of the transactions contemplated hereby will have been
duly made and obtained on terms reasonably satisfactory to Sparton.
(d) All intercompany indebtedness reflected in the advance account
between Sparton and the KPI Subsidiaries shall have been satisfied at or
prior to the Closing Date.
(e) The shareholders of Sparton shall have authorized the sale of the
Common Stock and Acquired Assets to the Buyer upon the terms and conditions
of this Agreement, as required by the applicable provisions of the General
Corporation Law of the state of Ohio.
(f) Sparton shall have received an opinion, dated the Closing Date, of
Kirkland & Ellis, counsel to Buyer, with respect to the matters set forth
in Exhibit D attached hereto, and in form and substance reasonably
satisfactory to Sparton and its counsel.
5
<PAGE> 31
(g) On or prior to the Closing Date, Buyer will have delivered to
Sparton all of the following:
(i) a certificate from Buyer in the form set forth in Exhibit E
attached hereto, dated the Closing Date, stating that the preconditions
specified in Sections 4.2(a) through (c) above have been satisfied;
(ii) certified copies of the resolutions of Buyer's Board of
Directors approving the transactions contemplated by this Agreement;
(iii) an instrument assuming the Assumed Liabilities;
(iv) such other documents or instruments as Sparton may reasonably
request to effect the transactions contemplated hereby; and
(v) the Purchase Price.
(h) The closing of Buyer's lease of the Leased Real Estate shall be
completed concurrently as contemplated by Section 3.2.
Any condition specified in this Section 4.2 may be waived in writing by
Sparton.
ARTICLE V
COVENANTS PRIOR TO CLOSING
5.1 OPERATION OF KPI SUBSIDIARIES SINCE JUNE 30, 1996. Since June 30,
1996, neither Lako nor the KPI Subsidiaries have, without Buyer's written
consent, changed any officer's compensation, incentive arrangements, or other
benefits, except for customary annual increases in compensation.
5.2 AFFIRMATIVE COVENANTS OF SPARTON. Prior to the Closing, Sparton
covenants and agrees as follows:
(a) Sparton will cause Lako and each of the KPI Subsidiaries to
conduct its business and maintain its properties in the ordinary course in
accordance with past custom and practice, other than the winding down of
the affairs and relocation of jobs and assets of the plant at Lake Odessa,
Michigan.
(b) Sparton will, and will cause Lako and the KPI Subsidiaries to,
permit Buyer and its employees, agents, accounting and legal
representatives to have reasonable access at reasonable times and in a
manner so as not to interfere with the normal business operations of Lako
or the KPI Subsidiaries to their books, records, invoices, contracts,
leases, personnel, facilities, equipment, and other things reasonably
related to the business and assets of Lako and the KPI Subsidiaries.
(c) Promptly after Sparton acquires knowledge thereof, it will inform
Buyer in writing if any representation or warranty contained in Article VI
hereof was when made, or has subsequently become, untrue in any material
respect, or if any covenant of Sparton has been breached in any material
respect.
(d) Sparton will, and will cause Lako and the KPI Subsidiaries to,
cooperate with Buyer and use their reasonable best efforts to obtain all
governmental, third-party, or other consents and approvals necessary for
the consummation of the transactions contemplated hereby and to cause the
other conditions to Buyer's obligation to close to be satisfied;
(e) As requested by Buyer from time to time, Sparton will confer on a
regular and reasonably frequent basis with representatives of Buyer to
report on operational matters and the general status of ongoing operations;
6
<PAGE> 32
(f) Sparton will maintain in effect until the Closing Date current
insurance policies providing coverage for the KPI Subsidiaries and the
Acquired Assets, or to replace such policies with coverage equal to or
greater than the coverage under the cancelled, terminated, or lapsed
policies; and
(g) Sparton will cause each of the KPI Subsidiaries and Lako to:
(i) use its best efforts to preserve intact its business
organization and goodwill, keep available the services of its officers
and employees as a group and maintain satisfactory relationships with
suppliers, distributors, customers, and others having business
relationships with it;
(ii) not take any action which would render, or which reasonably
may be expected to render, any representation or warranty made by
Sparton in this Agreement untrue at, or prior to, the Closing Date; and
(iii) notify Buyer of any emergency or other change in the normal
course of its business or in the operation of its properties, or of any
governmental or third-party complaints, investigations, or hearings, if
material to the operations or financial condition of Lako and the KPI
Subsidiaries as a whole, or to Sparton's or Buyer's ability to
consummate the transactions contemplated by this Agreement.
(h) Sparton will, and will cause the KPI Subsidiaries and Lako to,
maintain the assets of the KPI Subsidiaries and the Acquired Assets in good
repair, order, and condition consistent with current needs, replace in
accordance with prudent practices its inoperable, worn out, or obsolete
assets with assets of good quality consistent with prudent practices and
current needs and, in the event of a casualty, loss, or damage to any of
such assets or properties prior to the Closing Date, whether or not the KPI
Subsidiaries or Acquired Assets are insured, either repair or replace such
damaged property or use the proceeds of such insurance in such other manner
as mutually agreed upon by Sparton and Buyer.
5.3 COVENANTS OF BUYER. Prior to the Closing, Buyer will:
(a) Promptly (once it has knowledge thereof) inform Sparton in writing
of any material variances from the representations and warranties contained
in Article VII hereof or any material breach of any covenant hereunder by
Buyer; and
(b) Cooperate with Sparton and use its reasonable best efforts to
obtain all governmental, third-party, or other consents and approvals
necessary for the consummation of the transactions contemplated hereby and
to cause the other conditions to Sparton's obligation to close to be
satisfied.
5.4 TITLE INSURANCE. At Sparton's and Buyer's equal expense, Sparton
shall, with respect to real estate constituting the Gladwin Plant and to each
parcel of real estate owned by the KPI Subsidiaries at Closing, procure prior to
the Closing and furnish to Buyer an Owner's Policy of Title Insurance issued by
a title insurer satisfactory to the Buyer, insuring title to each such parcel to
be, respectively, in Lako or in the KPI Subsidiaries as of the Closing Date
(subject only to the title exceptions described in Schedule 6.9(b)). The real
estate constituting the Gladwin Plant and each parcel of real estate owned by
the KPI Subsidiaries at the Closing Date are also described in Schedule 6.9(b).
5.5 SURVEYS. With respect to the Gladwin Plant and each parcel of real
property owned by the KPI Subsidiaries and as to which a title insurance policy
is to be procured pursuant to Section 5.4 above, at Buyer's request Sparton
shall furnish to Buyer, prior to the Closing, a survey of the real property,
prepared by a licensed surveyor, disclosing the location of all improvements,
easements, roadways, utility lines and other matters shown customarily on such
surveys, and showing access to public streets and roads (the "Survey"). The
Survey shall not disclose any encroachment from or onto the real property which
has not been cured or insured
7
<PAGE> 33
over prior to the Closing. The expense of such surveys shall be borne equally by
Buyer and Sparton.
5.6 CLOSING OF LAKE ODESSA PLANT. Prior to the Closing Date, Sparton will
cause Lako, at Sparton's expense, to:
(a) Discontinue operations at its plant in Lake Odessa, Michigan.
(b) Resource all customer jobs for which Lako has active purchase
orders, either to the Gladwin Plant or to other plants operated by the KPI
Subsidiaries, and terminate purchase orders for customer jobs which are not
resourced.
(c) Transfer and deliver to such plants all inventories, machinery,
equipment, and other assets (excluding real estate) owned by Lako which are
required to produce the customer jobs resourced to such plants.
Prior to the Closing, Sparton will offer to sell and transfer to Buyer
any of the machinery and equipment or other personal properties remaining
in the plant at Lake Odessa after the transfer of assets contemplated by
Section 5.6(b) has been completed. The cost of removing, transporting, and
reinstalling the machinery, equipment, or other properties purchased by
Buyer shall be borne by Buyer.
5.7 NEGATIVE COVENANTS OF LAKO AND SPARTON. Prior to the Closing, without
Buyer's prior written consent, Sparton shall cause Lako and the KPI Subsidiaries
not to, and Lako and the KPI Subsidiaries shall not, except as expressly
contemplated by this Agreement:
(a) Terminate, modify, enter into any new, or amend any existing,
material contracts, agreements, commitments, or licenses to which Lako or
either of the KPI Subsidiaries is a party, except (i) in the ordinary
course of business consistent with past custom and practice (including, as
applicable, with respect to quantity and frequency) ("Ordinary Course of
Business"), and (ii) at arm's length with unaffiliated persons;
(b) Make any loans, enter into any transaction with any stockholders,
officers, directors, or affiliates of Sparton or the KPI Subsidiaries other
than intercompany transactions in the Ordinary Course of Business among
affiliates of Sparton and the KPI Subsidiaries, or make, other than in the
Ordinary Course of Business, or grant any increase in any employee's or
officer's compensation, or make or grant any increase in any employee
benefit plan, incentive arrangement or other benefit covering any of the
employees of Lako or the KPI Subsidiaries;
(c) Establish or, except in accordance with past practice, contribute
to any pension, retirement, profit sharing or stock bonus plan or
multiemployer plan covering the employees of Lako or the KPI Subsidiaries;
(d) Sell, transfer, contribute, distribute, or otherwise dispose of
any securities or assets of the KPI Subsidiaries or connected with the
Gladwin Plant, or agree to do any of the foregoing to any person, or
negotiate or have any discussions with any person with respect to any of
the foregoing, other than transactions in the Ordinary Course of Business
and except as contemplated by this Agreement.
5.8 PROXY; SHAREHOLDERS' VOTE. Promptly upon executive of this Agreement,
Sparton shall file with the Securities Exchange Commission a preliminary proxy
statement which shall include a statement to the effect that the Board of
Directors of Sparton unanimously recommends that the shareholders of Sparton
vote in favor of and adopt and approve this Agreement and the sale of the Common
Stock and the sale of the Acquired Assets pursuant to this Agreement, which
unanimous recommendation shall not be withdrawn. Sparton shall take all actions
necessary in accordance with applicable law to call and convene a meeting of the
shareholders of Sparton to consider, act upon, and vote upon the adoption and
approval of this
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Agreement, the sale of the Common Stock of the KPI Subsidiaries, and the sale of
the Acquired Assets. Sparton's shareholders' meeting shall be held as promptly
as practicable. Sparton shall ensure that the shareholders' meeting is called,
held, and conducted, and that all proxies solicited in connection therewith are
solicited in compliance with applicable law.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
CONCERNING SPARTON AND THE KPI SUBSIDIARIES
As a material inducement to Buyer to enter into this Agreement, Sparton
represents and warrants to Buyer:
6.1 ORGANIZATION AND CORPORATE POWER. Lako and each of the KPI
Subsidiaries is a corporation duly organized, validly existing, and in good
standing under the laws of the state of its incorporation and is qualified to do
business in every jurisdiction in which the nature of its business or its
ownership of property requires it to be qualified. Each has full corporate power
and authority and all licenses, permits, and authorizations necessary to own and
operate its properties and to carry on its business as now conducted. All such
authorizations and licenses are in full force and effect and shall remain in
full force and effect until the consummation of the transactions provided for in
this Agreement. The copies of the articles of incorporation and bylaws of each
which have been furnished to Buyer are correct and complete. The stock
certificate books and the stock record books of the KPI Subsidiaries are correct
and complete. None of the KPI Subsidiaries or Lako is in default under or in
violation of its respective articles of incorporation or bylaws.
6.2 AUTHORIZATION OF TRANSACTIONS. Sparton and Lako have full power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, subject to approval by Sparton's shareholders
as contemplated by Sections 4.1(g) and 4.2(e). This Agreement has been duly
executed and delivered by Sparton and Lako and constitutes the valid and binding
agreement of Sparton and Lako, enforceable in accordance with its terms, except
as enforceability hereof may be limited by bankruptcy or other laws affecting
creditors' rights generally and limitations on the availability of equitable
remedies.
6.3 CAPITALIZATION. The authorized and issued capital stock of the KPI
Subsidiaries is accurately described in Exhibit A. All of the issued shares
described therein are issued and outstanding and are owned of record by Sparton
in the number of shares set forth opposite their names, and at the Closing Date
will be free and clear of any security interests, claims, liens, pledges,
options, encumbrances, charges, voting trusts, proxies, or other arrangements or
restrictions whatsoever. All of the outstanding Common Stock has been duly
authorized by all necessary corporate action and is validly issued, fully paid,
and nonassessable. There are no outstanding or authorized stock appreciation
rights, phantom stock rights, or similar rights with respect to any of the KPI
Subsidiaries. There are no rights, subscriptions, warrants, options, conversion
rights or agreements of any kind outstanding to purchase or otherwise acquire
any shares of Common Stock or securities or obligations of any kind convertible
into or exchangeable or exercisable for any shares of Common Stock, except
pursuant to this Agreement. No shares of the Common Stock are reserved for any
purpose.
6.4 SUBSIDIARIES. Neither of the KPI Subsidiaries has any subsidiaries.
6.5 ABSENCE OF CONFLICTS. The consummation of the transactions
contemplated hereby will not:
(a) Violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, or other restriction of any government,
governmental agency, regulatory body, or court to which Sparton, Lako, or
any of the KPI Subsidiaries is subject;
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(b) Violate any provision of the articles of incorporation or bylaws
of Sparton, Lako, or any of the KPI Subsidiaries;
(c) Conflict with, result in a breach of, or constitute a default
under, any agreement, contract, lease, license, instrument, or other
arrangement to which Sparton, Lako, or any of the KPI Subsidiaries is a
party or by which any of them is bound or to which any of their respective
assets is subject; or
(d) Result in the imposition of any Liens upon any of the Acquired
Assets or any assets or the capital stock of any of the KPI Subsidiaries.
Except as set forth on Schedule 6.5 (the "Restrictions Schedule"), neither
Sparton, Lako, nor any KPI Subsidiary is required to give any notice, or obtain
the approval of any government or governmental agency in order for Lako to
transfer the Acquired Assets or for Sparton to transfer the Common Stock or
otherwise consummate the transactions contemplated by this Agreement.
6.6 FINANCIAL STATEMENTS. Sparton has furnished or prior to the Closing
Date will furnish Buyer with copies of the consolidated balance sheets and
statements of income and cash flow of Lako and the KPI Subsidiaries, unaudited
for the fiscal year ended June 30, 1995, and unaudited for the fiscal year ended
June 30, 1996, except for the KPI Subsidiaries, which are audited for the fiscal
year ended June 30, 1996. Each of the foregoing financial statements (including
the notes thereto) (the "Financial Statements") presents fairly the financial
condition and results of operations of Lako and the KPI Subsidiaries as of the
times and for the periods referred to therein, and has been prepared in
accordance with generally accepted accounting principles consistently applied
(except as noted therein). The balance sheet as of June 30, 1996, is referred to
herein as the "Latest Balance Sheet," and June 30, 1996, as the "Balance Sheet
Date."
6.7 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Lako, with respect to the
Assumed Liabilities, nor either of the KPI Subsidiaries has any obligation or
liability in excess of $50,000 (whether accrued or unaccrued, whether absolute
or contingent, whether liquidated or unliquidated, whether known or unknown,
whether due or to become due) except:
(a) Obligations under contracts or commitments, other than breaches
thereof, described in Schedule 6.7 ("Liability Schedule"), or under
contracts and commitments which are not required to be disclosed thereon
due solely to the specific dollar thresholds and other requirements
contained in Schedule 6.7;
(b) Liabilities reflected on the Latest Balance Sheet;
(c) Liabilities which have arisen after the date of the Latest Balance
Sheet in the Ordinary Course of Business or otherwise in accordance with
the terms and conditions of this Agreement, none of which is a liability
for breach of contract, breach of warranty, tort, or environmental
liability; and
(d) Liabilities otherwise expressly disclosed in Schedule 6.7 attached
hereto.
With respect to product warranty claims, Sparton's liability under this
Section 6.7 is limited as provided in Section 9.10.
6.8 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth in Schedule 6.8
(the "Developments Schedule"), and except as expressly contemplated by this
Agreement, since June 30, 1996, neither Lako nor either of the KPI Subsidiaries
has:
(a) Redeemed or repurchased, directly or indirectly, any shares of
capital stock or declared, set aside, or paid any dividends or made any
other distributions with respect to any shares of its capital stock, except
as contemplated by Sections 4.1(f) and 4.2(d);
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(b) Issued or sold any notes, bonds, or other debt securities or any
equity securities, securities convertible, exchangeable, or exercisable
into equity securities, or warrants, options, or other rights to acquire
equity securities;
(c) Mortgaged, pledged, or subjected to any lien, charge, or any other
encumbrance, any portion of its properties or assets;
(d) Entered into, amended, or terminated any lease, license,
agreement, or commitment involving more than $500,000 in the aggregate,
other than in the Ordinary Course of Business;
(e) Made or granted any bonus or any wage, salary, or compensation
increase in excess of $10,000 per year to any director, officer, or
employee, or modified or terminated any Plan (as defined in Section 6.22),
other than in the usual and Ordinary Course of Business, including bonuses
paid or payable to employees for the fiscal year ended June 30, 1996, in an
aggregate of not more than $130,000 (including $24,000 to Mr. Gause);
(f) Made any capital expenditures or commitments therefor other than
capital expenditures in the Ordinary Course of Business, not exceeding
$500,000 in the aggregate.
(g) Suffered an adverse change to its business, assets, operations,
financial conditions, or operating results, or casualty loss or damage or
thefts of assets in excess of $50,000 (whether or not covered by insurance)
other than in the Ordinary Course of Business;
(h) Incurred or become subject to any liabilities, except liabilities
incurred in the Ordinary Course of Business;
(i) Discharged or satisfied any encumbrance or paid any obligation or
liability other than liabilities paid in the Ordinary Course of Business,
or prepaid any amount of indebtedness for borrowed money other than
adjustments of intercompany debt contemplated by this Agreement;
(j) Sold, leased, assigned, or transferred a portion of its tangible
assets, except in the Ordinary Course of Business, or cancelled without
fair consideration any debts or claims owing to or held by it; or
(k) Entered into any other material transaction or made any new
material investments, other than in the Ordinary Course of Business, or
materially changed any business practice.
6.9 REAL PROPERTY.
(a) Except as set forth in Schedule 6.9(a), neither Lako nor either of
the KPI Subsidiaries is a party to any real estate lease or sublease, other
than the leases of the Leased Real Estate.
(b) Schedule 6.9(b) attached hereto (the "Real Property Schedule")
lists and describes the Leased Real Estate, the Gladwin Plant, and all real
property which will be owned by the KPI Subsidiaries at the Closing Date.
With respect to each parcel of real property listed on Schedule 6.9(b) as
owned by Lako or the KPI Subsidiaries:
(i) except as disclosed on Schedule 6.9(b), each owner has good and
marketable title to the parcel of real property owned by it, free and
clear of all mortgages, pledges, security interests, encumbrances,
charges or other liens, easements and other restrictions, other than
easements, covenants, and restrictions which do not materially or
unreasonably impair the current use or marketability of title of the
property subject thereto;
(ii) the legal description for the parcel contained in the deed
thereof describes such parcel fully and adequately and, except as
described in Schedule 6.9(b), the
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buildings and improvements are located within the boundary lines of the
described parcels of land and are not in violation of applicable zoning
laws and ordinances;
(iii) all facilities have received all approvals of governmental
authorities (including licenses and permits) required in connection with
the ownership or operation thereof and have been operated and maintained
in accordance with applicable laws, rules, and regulations;
(iv) there are no leases, subleases, licenses, concessions, or
other agreements, written or oral, granting to any party the right of
use or occupancy of any portion of the parcels of real property, except
for the leases of the Leased Real Estate;
(v) there are no outstanding options or rights of first refusal to
purchase any parcel of real property, or any portion thereof or interest
therein;
(vi) there are no parties (other than Lako or the KPI Subsidiaries)
in possession of any parcel of real property;
(vii) all facilities located on the parcel of real property are
supplied with utilities and other services necessary for the operation
of such facilities as currently operated by Lako or the KPI
Subsidiaries, including gas, electricity, water, telephone, and sanitary
sewer;
(viii) each parcel of real property abuts on and has direct
vehicular access to a public road or access to a public road via a
permanent, irrevocable, appurtenant easement benefiting the parcel of
real property.
The representations in subsections (iii), (vii), and (viii) shall also
apply to the Leased Real Estate.
(c) There are no pending or, to Sparton's knowledge, threatened
condemnation proceedings, litigation, or administrative actions relating to
real property owned or leased by Lako or the KPI Subsidiaries.
6.10 TANGIBLE ASSETS. The Acquired Assets and assets owned or leased by
the KPI Subsidiaries include all buildings, machinery, equipment, and other
tangible assets that are sufficient for the conduct of their businesses as
presently conducted, and such assets are, subject to normal wear and tear, in
good operating condition and repair.
6.11 TITLE TO PERSONAL PROPERTY. As of the Closing Date, Lako, with
respect to the Gladwin Plant, and each of the KPI Subsidiaries will have good
title to, or a valid leasehold interest in, all personal property used in
connection with the operation of its business. All personal property owned by
them will be free and clear of all Liens, except (a) as set forth in Schedule
6.11 attached hereto (the "Encumbrances Schedule"), and (b) liens for Taxes not
yet due and payable or being contested in good faith by appropriate proceedings
and in respect of which adequate reserves have been established.
6.12 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 6.12
("Environmental Schedule"):
(a) Lako (with respect to the Gladwin Plant) and each of the KPI
Subsidiaries has complied and is in compliance with all Environmental and
Safety Requirements (as defined in subsection (j) below).
(b) Lako (with respect to the Gladwin Plant) and each of the KPI
Subsidiaries has obtained and is in compliance with all permits, licenses,
and other authorizations that are required pursuant to Environmental and
Safety Requirements for the occupation of its facilities and the operation
of its business, a list of which is set forth on Schedule 6.12.
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(c) Neither Lako nor either of the KPI Subsidiaries (nor any of their
respective predecessors) has received any written or oral notice, report,
or information regarding actual or alleged violations of Environmental and
Safety Requirements or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial, or corrective obligations relating to it or its
facilities arising under Environmental and Safety Requirements, the subject
of which has not been fully resolved or settled.
(d) None of the following exists at any property or facility owned or
operated by Lako or the KPI Subsidiaries: (i) underground storage tanks, or
(ii) landfills, surface impoundments, or disposal areas.
(e) None of the KPI Subsidiaries, Lako, or their respective
predecessors has treated, stored, disposed of, arranged for or permitted
the disposal of, transported, handled, or released any substance, including
without limitation any hazardous substance, or owned or operated any
property or facility (and no such property or facility is contaminated by
any such substance) in a manner that has given or would give rise to
liabilities, including any liability for response costs, corrective action
costs, personal injury, property damage, natural resources damages, or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), the Solid
Waste Disposal Act, as amended ("SWDA"), or any other Environmental and
Safety Requirements.
(f) Neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for
site investigation or cleanup, or notification to or consent of government
agencies, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental and Safety Requirements.
(g) Neither Lako (with respect to the Gladwin Plant) nor either of the
KPI Subsidiaries nor their respective predecessors or affiliates, either
expressly or by operation of law, has assumed or undertaken any liability,
including without limitation any corrective or remedial obligations of any
other person or entity relating to Environmental and Safety Requirements.
(h) No Environmental Lien has attached to any of the Acquired Assets
or any property owned, leased, or operated by any of the KPI Subsidiaries.
(i) No facts, events, or conditions prior to Closing relating to the
past or present facilities, properties, or operations of the KPI
subsidiaries or any of their respective predecessors or affiliates will
prevent, hinder, or limit continued compliance with Environmental and
Safety Requirements in effect at the time of Closing, give rise to any
investigatory, remedial, or corrective obligations pursuant to
Environmental and Safety Requirements, or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated, or
otherwise) pursuant to Environmental and Safety Requirements, including
without limitation any relating to onsite or offsite releases or threatened
releases of hazardous materials, substances or wastes, personal injury,
property damage, or natural resources damage.
(j) As used in this Agreement, the following terms shall have the
following respective meanings:
(i) "Environmental and Safety Requirements" shall mean all
federal, state, and local statutes, regulations, ordinances, and similar
provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations,
and all common law concerning public health and safety, worker health
and safety, and pollution or protection of the environment in effect at
or prior to the Closing Date, including without limitation all those
relating to the presence, use, production,
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generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous or otherwise
regulated materials, substances, or wastes, chemical substances or
mixtures, pesticides, pollutants, contaminants, toxic chemicals,
petroleum products or byproducts, asbestos, polychlorinated biphenyls,
noise, or radiation,
(ii) "Environmental Lien" shall mean a lien, either recorded or
unrecorded, in favor of any governmental entity relating to any
liability of Lako or either of the KPI Subsidiaries arising under
Environmental and Safety Requirements.
6.13 ACCOUNTS RECEIVABLE. Except as provided by Section 4.2(d), all of the
accounts receivable of Lako (of the kind to be included in the Acquired Assets)
and of the KPI Subsidiaries reflected on the Latest Balance Sheet and to be
reflected on their books and records as of the Closing Date have been collected
or will be collectible (net of the allowance for doubtful accounts and for
customary credits and allowances in the ordinary course consistent with past
practice) in the Ordinary Course of Business after the Closing Date at the
aggregate net amount recorded therefor on the books and records of Lako or the
KPI Subsidiaries as of the Closing Date. As of the Closing Date, no person or
entity will have any lien on such receivables or any part thereof.
At the Balance Sheet Date there were, and at the Closing Date Sparton
anticipates there will be, claims by Lako and the KPI Subsidiaries against
customers or others, and other receivables owed to them, relating to
transactions prior to the Closing Date which are not recorded or which are
underrecorded on their books and records at the Closing Date ("Unbooked and
Underbooked Receivables"). If, after the Closing Date, any Unbooked or
Underbooked Receivables are collected by the KPI Subsidiaries or the Buyer, the
Threshold Loss Amount stated in Section 9.3(b) shall be increased dollar for
dollar by the amount collected in excess of the amount recorded at the Closing
Date.
6.14 INVENTORY. The inventories of the KPI Subsidiaries reflected on the
Latest Balance Sheet Date on the Closing Date will be, stated at the lower of
original cost or market value in accordance with generally accepted accounting
principles consistently applied. The inventories reflected on the Latest Balance
Sheet, net of reserves applicable thereto, have been or will be utilized in the
Ordinary Course of Business.
6.15 TAXES.
(a) Sparton has timely filed consolidated income Tax Returns for
itself and members of the Affiliated Group of which Sparton is the common
parent (the "Sparton Affiliated Group"), including Lako and the KPI
Subsidiaries, required to be filed under the Internal Revenue Code of 1986,
as amended ("Code"). All material federal income Taxes due and payable by
the Sparton Affiliated Group with respect to each taxable period during
which Lako and either of the KPI Subsidiaries was a member of the Sparton
Affiliated Group have been paid. The KPI Subsidiaries have timely filed all
Tax Returns required to be filed by them. Each such Tax Return has been
prepared in compliance with all applicable laws and regulations, and all
such Tax Returns are true and accurate in all respects. All state Taxes due
and payable by Lako and the KPI Subsidiaries have been paid, and all such
Taxes accrued but not yet due as of June 30, 1996, are accrued on the
Latest Balance Sheet. Since June 30, 1996, neither Lako nor either of the
KPI Subsidiaries has incurred any liability for Taxes other than in the
Ordinary Course of Business.
The following Section 6.15(b) relates to the Michigan SBT returns and
income Tax Returns required to be filed by the KPI Subsidiaries.
(b) Except as set forth in Schedule 6.15 (the "Taxes Schedule"):
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(i) neither Lako nor either of the KPI Subsidiaries has waived any
statute of limitations in respect of Taxes or requested or been granted
an extension of the time for filing any Tax Return which has not yet
been filed;
(ii) there is no action, suit, taxing authority proceeding or audit
now in progress, pending or, to Sparton's knowledge, threatened against
Lako or either of the KPI Subsidiaries with respect to their Tax
Returns;
(iii) there is no unresolved claim by a taxing authority that Lako
or either of the KPI Subsidiaries may be subject to Taxes in a
jurisdiction where Tax Returns are not filed;
(iv) neither Lako nor either of the KPI Subsidiaries is a party to
or bound by any Tax allocation or Tax sharing agreement or has any
current or potential contractual obligation to indemnify any other
person with respect to Taxes;
(v) no deficiency or proposed adjustment which has not been settled
or otherwise resolved for (A) any amount of Tax has been proposed,
asserted, or assessed by any taxing authority against Lako or either of
the KPI Subsidiaries, or (B) any material amount of federal income Tax
has been proposed, asserted, or assessed against the Sparton Affiliated
Group with respect to any taxable period during which Lako or either of
the KPI Subsidiaries was a member of such Affiliated Group;
(vi) neither Lako nor either of the KPI Subsidiaries will be
required (A) as a result of a change in method of accounting for a
taxable period ending on or prior to the Closing Date, to include any
adjustment in taxable income for any taxable period (or portion thereof)
ending after the Closing Date, (B) as a result of any "closing
agreement" as described in Code Section 7121 (or any corresponding
provision of state, local, or foreign law), to include any item of
income in, or exclude any item of deduction from, taxable income for any
period (or portion thereof) ending after the Closing Date, or (C) as a
result of any deferred intercompany gain described in Treasury
Regulations Section 1.1502-13 (or any corresponding or similar provision
of state, local, or foreign law), to include any item of income in
taxable income for any period (or portion thereof) ending after the
Closing Date; and
(vii) since January 1, 1987, neither Lako nor either of the KPI
Subsidiaries has been a member of an Affiliated Group other than Sparton
Affiliated Group.
(c) The Buyer will not be required to deduct and withhold any amount
pursuant to Section 1445(a) of the Code upon the transfer of the Common
Stock to the Buyer.
(d) Schedule 6.15 contains a list of states, territories, and
jurisdictions (whether foreign or domestic) in which each of the KPI
Subsidiaries is required to file Tax Returns relating to its income Taxes.
(e) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Affiliated Group" means an affiliated group as defined in
Section 1504 of the Code (or any analogous combined, consolidated, or
unitary group defined under state, local or foreign income Tax law).
(ii) "Tax" or "Taxes" means any federal, state, provincial, local,
foreign, or other income, gross receipts, ad valorem, franchise,
profits, single business, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal property,
capital stock, license, payroll, wage or other withholding, employment,
social security, severance, stamp, occupation, alternative, or add-on
minimum, estimated, or other Taxes of any kind whatsoever (including,
without limitation, deficiencies, penalties, additions to Tax, and
interest attributable thereto), whether disputed or not.
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(iii) "Tax Return" means any return, information report, or filing
with respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
(iv) "Treasury Regulations" means the United States Treasury
Regulations promulgated under the Code, and any reference to any
particular Treasury Regulation section shall be interpreted to include
any final or temporary revision of or successor to that section
regardless of how numbered or classified.
6.16 CONTRACTS AND COMMITMENTS.
(a) Except as specifically contemplated by this Agreement and except
as set forth or referred to in Schedule 6.16 (the "Contracts Schedule"),
neither Lako nor either of the KPI Subsidiaries is a party to nor bound by,
whether written or oral, any:
(i) collective bargaining agreement or contract with any labor
union;
(ii) contract for the employment of any officer, individual
employee, or other person, or any severance termination agreements
(other than at-will employment agreements with its employees);
(iii) agreement under which Lako or either of the KPI Subsidiaries
has incurred, assumed, or guarantied any indebtedness for borrowed money
or any capitalized lease obligation, or created or suffered to exist a
security interest, pledge, or other lien on any of its assets;
(iv) contract which prohibits it from freely engaging in business
anywhere in the world;
(v) agreement pursuant to which Lako or either of the KPI
Subsidiaries subcontracts work to third parties;
(vi) other agreement material to it whether or not entered into in
the Ordinary Course of Business.
(vii) license or royalty agreements;
(viii) lease or agreement under which it is lessee of, or holds or
operates, any personal property owned by any other party calling for
payments in excess of $100,000 annually;
(ix) except for customer purchase orders, contract or group of
related contracts with the same party for the purchase of supplies,
products, or other personal property, or for the receipt of services
which either calls for performance over a period of more than six (6)
months or involves a sum of more than $100,000, provided that the list
of such contracts in this Section 6.16(a)(ix) shall be delivered to
Buyer after the date hereof but prior to the date of Closing;
(x) take or pay contracts; or
(xi) contracts or agreements with any officers, stockholder, or
affiliate of Sparton, Lako, or the KPI Subsidiaries.
(b) With respect to each agreement and contract required to be
disclosed on Schedule 6.16:
(i) such agreement or contract is legal, valid, binding, and
enforceable in accordance with its terms, and is in full force and
effect;
(ii) neither Lako nor either of the KPI Subsidiaries is in breach
or default of any such contract or agreement to which it is a party and
no event has occurred which with notice or lapse of time would
constitute a breach or default; or
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(iii) to the best of Sparton's knowledge, no third party is in
breach or default of any such contract or agreement, and no event has
occurred which with notice or lapse of time would constitute a breach or
default by such third party.
(c) Sparton, Lako, or the KPI Subsidiaries have provided Buyer with a
true and correct copy of all written contracts which are referred to on
Schedule 6.16, together with all amendments thereto.
6.17 INTELLECTUAL PROPERTY RIGHTS.
(a) "Intellectual Property Rights" shall mean all of the following
items owned by, issued to, or licensed to each of Lako and the KPI
Subsidiaries, along with all income, royalties, and payments due or payable
at the Closing or thereafter; patents, patent applications, patent
disclosures and inventions (whether or not patentable and whether or not
reduced to practice) and any reissues, continuations, continuations in
part, revisions, extensions, or reexaminations thereof, trademarks, service
marks, logos, trade names, (but not corporate names), together with all
goodwill associated therewith, copyrights and copyrightable works, Internet
domain names, and all registrations, applications, and renewals of any of
the foregoing; trade secrets and confidential business information;
computer software; and any other intellectual property rights, including
without limitation those listed on Schedule 6.17 (the "Intellectual
Property Rights Schedule"). "Intellectual Property Rights" expressly do not
include the right or license to use the name "Sparton" in any trade name or
otherwise, or to use any other intellectual property rights owned by or
licensed to Sparton. The right of use of the name "Sparton" by the KPI
Subsidiaries shall terminate as of the Closing Date. The right to use the
name "Sparton" is not included in the Acquired Assets.
(b) The Intellectual Property Rights comprise all of the intellectual
property rights necessary for the operation of the business of Lako and
each of the KPI Subsidiaries as currently conducted or as currently
proposed to be conducted.
(c) Except as set forth in Schedule 6.17(c):
(i) as a group, Lako and the KPI Subsidiaries own and at the
Closing will own all right, title, and interest in and to, or have a
valid and enforceable license to use, the Intellectual Property Rights,
and no written claim by any third party contesting the validity,
enforceability, use, or ownership of any of the Intellectual Property
Rights has been made to an officer or director of Lako or any of the KPI
Subsidiaries;
(ii) neither Lako nor either of the KPI Subsidiaries has received
any written notice of, nor, to the knowledge of their respective
directors and officers, is aware of any facts which indicate the
likelihood of, any infringement or misappropriation by or conflict with
any third party with respect to the Intellectual Property Rights.
All of the Intellectual Property Rights are or will be owned by, or
properly assigned or licensed to, Lako or the KPI Subsidiaries at the time of
the Closing, as set forth in the Intellectual Property Rights Schedule. Except
as set forth in the Intellectual Property Rights Schedule, the transactions
contemplated by this Agreement will have no material adverse effect on the
right, title, and interest in and to the Intellectual Property Rights or the
validity and enforceability thereof. Lako and the KPI Subsidiaries have taken
all necessary and desirable action to maintain and protect the Intellectual
Property Rights and will continue to maintain and protect the Intellectual
Property Rights prior to the Closing so as to not materially adversely affect
the validity or enforceability of the Intellectual Property Rights. To the best
knowledge of Lako and the KPI Subsidiaries, the owners of any Intellectual
Property Rights licensed to them have taken all necessary and desirable action
to maintain and protect the Intellectual Property Rights subject to such
licenses.
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6.18 LITIGATION; PROCEEDINGS. Except as set forth on Schedule 6.18 (the
"Litigation Schedule"), there are no actions, suits, proceedings, orders, or
investigations pending or, to the best of Sparton's knowledge, threatened
against Lako or either of the KPI Subsidiaries before any federal, state,
municipal, or other governmental department, commission, board, bureau, agency,
or instrumentality, domestic or foreign, and neither Lako nor the KPI
Subsidiaries is subject to any judicial orders, judgments, or decrees.
6.19 BROKERAGE. Except for claims under Sparton's agreement with Slusser
Associates, Inc., there are no claims for brokerage commissions, finder's fees,
or similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of Sparton,
Lako, or the KPI Subsidiaries.
6.20 GOVERNMENTAL LICENSES AND PERMITS. Schedule 6.20 (the "Licenses
Schedule") sets forth permits, licenses, approvals, and other authorizations of
federal, state, and local governments, or other similar rights (collectively,
the "Government Licenses") owned by Lako or the KPI Subsidiaries or used in the
conduct of their respective businesses. Except as indicated on Schedule 6.20,
Lako and each of the KPI Subsidiaries owns or possesses all right, title, and
interest in and to all of the government licenses which are necessary to conduct
its business as presently constituted. No loss or expiration of any government
license is pending or, to Sparton's knowledge, threatened, other than expiration
in accordance with the terms thereof.
6.21 EMPLOYEES. To Sparton's knowledge, no key executive employee and no
group of employees of Lako or either of the KPI Subsidiaries has any plans to
terminate employment. Lako and each of the KPI Subsidiaries has complied in all
material respects with all applicable laws relating to the employment of
personnel and labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining, and the payment of social security and
other taxes.
Lako and each of the KPI Subsidiaries has complied with the requirements of
the Workers Adjustment and Retraining Notification Act (WARN) and all similar
state laws, and the closing of Lako's plant at Lake Odessa, Michigan, will not
result in any obligation to any of the KPI Subsidiaries under WARN or similar
state law.
6.22 EMPLOYEE BENEFIT PLANS.
(a) Schedule 6.22 (the "Employee Benefit Plans Schedule") contains an
accurate and complete list of all Plans, as defined below, maintained by
Lako or each of the KPI Subsidiaries. For purposes of this Agreement, the
term "Plans" shall mean:
(i) employee benefit plans as defined in the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); and
(ii) fringe benefit plans, policies, programs, and arrangements,
including without limitation stock bonus, deferred compensation,
pension, severance, bonus, vacation, incentive, and health and welfare
plans.
Except as set forth on Schedule 6.22, neither Lako nor either of the KPI
Subsidiaries has any obligation to contribute to any "multiemployer pension
plan," as such term is defined in Section 3(37) of ERISA, or with respect
to any employee benefit plan of the type described in Sections 4063 and
4064 of ERISA or in Section 413(c) of the Code.
(b) Neither Lako nor either of the KPI Subsidiaries contributes to any
Plan which provides health, life insurance, accident, or other
"welfare-type" benefits to current or future retirees, their spouses or
dependents, other than in accordance with applicable federal or state
continuation coverage law.
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(c) Each Plan and all related trusts, insurance contracts and funds
have been maintained, funded, and administered in compliance in all
respects with all applicable laws and regulations, including but not
limited to ERISA and the Code.
(d) Each Plan that is intended to be qualified under Section 401(a) of
the Code, and each trust (if any) forming a part thereof, has received a
favorable determination letter from the Internal Revenue Service ("IRS") as
to the qualification under the Code of such Plan and the tax-exempt status
of such related trust, and nothing has occurred since the date of such
determination letter that could adversely affect the qualification of such
Plan or the tax-exempt status of such related trust.
(e) With respect to each Plan, Sparton has provided Buyer with true,
complete and correct copies, to the extent applicable, of:
(i) all documents pursuant to which the Plans are maintained,
funded, and administered;
(ii) the June 30, 1995, annual report (Form 5500 series) filed with
the IRS;
(iii) the June 30, 1995, financial statements;
(iv) all governmental rulings, determinations, and opinions (and
pending requests for governmental rulings, determinations, and
opinions); and
(f) None of the KPI Subsidiaries nor any member of the controlled
group of companies (within the meaning of Section 414 of the Code), which
includes the KPI Subsidiaries, has incurred any liability to the PBGC
(other than PBGC premiums) or otherwise under Title IV of ERISA, and no
event exists which would reasonably be expected to result in any such
liability.
6.23 INSURANCE. Schedule 6.23 attached hereto (the "Insurance Schedule")
sets forth the following information with respect to each insurance policy
insuring the properties, business, or assets of Lako and each of the KPI
Subsidiaries:
(a) The name of the insurer, the name of the policyholder, and the
name of each covered insured;
(b) The scope, period, and amount of coverage; and
(c) A description of any retroactive premium adjustments or other
loss-sharing arrangements.
6.24 OFFICERS AND DIRECTORS; BANK ACCOUNTS. Schedule 6.24 attached hereto
(the "Officers and Directors Schedule") lists all officers and directors of each
of the KPI Subsidiaries and all of the bank accounts of Lako and the KPI
Subsidiaries (designating each authorized signatory).
6.25 AFFILIATE TRANSACTIONS. Except for the sale of the Leased Real
Property by the Smiths to Lako and except as disclosed on Schedule 6.25 attached
hereto (the "Affiliate Transactions Schedule"), no officer or director of
Sparton or Lako or any of the KPI Subsidiaries, or any person related by blood
or marriage to any such person or any entity in which any such person owns any
beneficial interest (collectively, the "insiders"), is a party to any agreement,
contract, commitment, or transaction with Lako or either of the KPI Subsidiaries
or has any interest in any property, real or personal or mixed, tangible or
intangible, used in or pertaining to the business of Lako or any of the KPI
Subsidiaries.
6.26 COMPLIANCE WITH LAWS. Lako and each of the KPI Subsidiaries and its
officers, directors, agents, and employees have complied in all material
respects with all applicable laws and regulations of federal, state, and local
governments and all agencies thereof (other than Environmental and Safety
Requirements which are covered by Section 6.12) which affect their
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business, and no claims have been filed against any of them alleging a violation
of any such laws or regulations.
6.27 DISCLOSURE. Neither this Agreement, nor any of the schedules,
attachments, or exhibits hereto prepared by Sparton, contain any untrue
statement of a material fact with respect to Lako or the KPI Subsidiaries, or
omit a material fact necessary to make the statement contained herein or
therein, in light of the circumstances in which they were made, misleading.
6.28 CLOSING DATE. All of the representations and warranties contained in
this Article VI and elsewhere in this Agreement and all information delivered to
Buyer in any schedule, attachment or exhibit hereto are true and correct on the
date of this Agreement and will be true and correct on the Closing Date, except
to the extent that Sparton has otherwise advised Buyer in writing prior to the
Closing.
6.29 PRODUCT WARRANTIES. Lako and the KPI Subsidiaries have not made any
warranties with respect to the products manufactured and/or sold by them other
than those warranties expressly made in the literature accompanying such
products, the purchase orders for such products, and warranties implied by law.
6.30 TOOLING INVOICES. All invoices issued by the KPI Subsidiaries prior
to June 30, 1996, to customers for tooling costs correctly reflect the amount
owed for such tooling.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to Sparton to enter into this Agreement, Buyer
hereby represents and warrants to Sparton that:
7.1 ORGANIZATION AND CORPORATE POWER. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the state of
Delaware, with full corporate power and authority to enter into this Agreement.
7.2 AUTHORIZATION. The execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all requisite corporate action on the part of
Buyer, and no other corporate proceedings on its part are necessary to authorize
the execution, delivery, or performance of this Agreement. This Agreement
constitutes a valid and binding obligation of Buyer, enforceable in accordance
with its terms, except as enforceability hereof may be limited by bankruptcy or
other laws affecting creditor's rights generally and limitations on the
availability of equitable remedies.
7.3 NO VIOLATION. Buyer is not subject to or obligated under its articles
of incorporation, its bylaws, any applicable law, or rule or regulation of any
governmental authority, or any agreement or instrument, or any license,
franchise, or permit, or subject to any order, writ, injunction, or decree,
which would be breached or violated by its execution, delivery, or performance
of this Agreement.
7.4 GOVERNMENTAL AUTHORITIES AND CONSENTS. Except for its filing under the
Hart-Scott-Rodino Act, Buyer is not required to submit any notice, report or
other filing with any governmental authority in connection with the execution or
delivery by it of this Agreement or the consummation of the transactions
contemplated hereby or thereby. No consent, approval, or authorization of any
governmental or regulatory authority or any other party or person is required to
be obtained by Buyer in connection with its execution, delivery, and performance
of this Agreement or the transactions contemplated hereby or thereby.
7.5 BROKERAGE. There are no claims for brokerage commissions, finders'
fees, or similar compensation in connection with the transactions contemplated
by this Agreement based on any arrangement or agreement made by or on behalf of
Buyer.
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7.6 LITIGATION. There are no actions, suits, proceedings, orders, or
investigations pending or, to the best of Buyer's knowledge, threatened against
Buyer before any federal, state, municipal, or other governmental department,
commission, board, bureau, agency, or instrumentality, domestic or foreign,
which would adversely affect Buyer's performance under this Agreement or the
consummation of the transactions contemplated hereby.
7.7 BUYER'S INVESTMENT REPRESENTATIONS. Buyer represents that it is
acquiring the Common Stock purchased hereunder with the present intention of
holding such securities for investment purposes and that it has no intention of
selling such securities in a public distribution in violation of federal or
state securities laws; provided that nothing contained herein will prevent Buyer
from transferring such securities pursuant to:
(a) Public offerings registered under the Securities Act of 1933, as
amended;
(b) Rule 144 of the Securities and Exchange Commission (or any similar
rule then in force) if such rule is available; or
(c) Any other legally available means of transfer.
7.8 DISCLOSURE. Neither this Agreement, nor any of the schedules,
attachments, or exhibits hereto prepared by Buyer, contain any untrue statement
of a material fact with respect to the Buyer or, omit a material fact necessary
to make the statements contained herein or therein, in light of the
circumstances in which they were made, misleading.
7.9 CLOSING DATE. All of the representations and warranties contained in
this Article VII and elsewhere in this Agreement, and all information delivered
to Sparton in any schedule, attachment or exhibit hereto are true and correct in
all material respects on the date of this Agreement and will be true and correct
in all material respects on the Closing Date, except to the extent that Buyer
has advised Sparton otherwise in writing prior to the Closing.
ARTICLE VIII
TERMINATION
8.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing:
(a) By mutual written consent of Buyer and Sparton; or
(b) By either Buyer or Sparton if the Closing has not occurred on or
prior to December 31, 1996, provided that neither Buyer nor Sparton will be
entitled to terminate this Agreement pursuant to this Section 8.1(b) if
such person's willful breach of this Agreement has prevented satisfaction
of the conditions or the consummation of the transactions contemplated
hereby at or prior to such time.
8.2 EFFECT OF TERMINATION. If this Agreement is terminated as provided
above, this Agreement will forthwith become void and there will be no liability
on the part of any party hereto to any other party hereto, except for the
obligations of the parties hereto in Sections 9.4, 9.5, and 10.1, and except
that nothing herein will relieve any party from any breach of this Agreement
prior to such termination.
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1 SURVIVAL. Subject to the limitations set forth in Section 9.3 below,
all representations, warranties, covenants, and agreements set forth in this
Agreement or in any writing delivered in connection with this Agreement will
survive the Closing Date and the consummation of the transactions contemplated
hereby.
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9.2 SPARTON'S GUARANTY; BUYER'S INDEMNIFICATION. Schedule 9.2 sets forth
the obligations of any of the KPI Subsidiaries which are guarantied by Sparton
("Guarantied Obligations"). Buyer agrees to indemnify Sparton and hold it
harmless against any loss, liability, damage, or expense (including reasonable
legal fees and costs) which Sparton may suffer, sustain, or become subject to by
reason of any claim, suit, action, or liability brought or asserted against
Sparton for payment of all or any part of the Guarantied Obligations. The
provisions in Section 9.3(d) relating to the defense of the claim by Buyer, as
the Indemnifying Party, and the rights of Sparton, as the Indemnified Party,
shall apply to claims, suits, actions, and liabilities brought or asserted
against Sparton relating to Guarantied Obligations.
9.3 GENERAL INDEMNIFICATION.
(a) Subject to the limitations set forth in (b) below, Sparton agrees
to indemnify Buyer, its officers, directors, and stockholders (the "Buyer
Parties") and hold them harmless against any loss, liability, deficiency,
damage, or expense (including reasonable legal expenses and costs) which
Buyer Parties may suffer, sustain or become subject to, as a result of (i)
the breach of any representation or warranty made by Sparton in Article VI
of this Agreement, provided that, for purposes of determining whether a
breach of any representation or warranty set forth in Section 6.12 of this
Agreement has occurred, such representation and warranty shall be read
without any exception for disclosed matters, and, in particular, any
reference to the matters set forth on Schedule 6.12 shall be disregarded
and ignored, (ii) the breach of any other representation, warranty,
covenant, or agreement made by Sparton in this Agreement, and (iii) the
Excluded Liabilities.
(b) The indemnification provided for by Sparton in Section 9.3(a)(i)
above is subject to the following limitations:
(i) Sparton will be liable to Buyer Parties only if Buyer gives
Sparton written notice thereof within twelve (12) months after the
Closing Date; except for claims arising from breaches of the
representations and warranties; (A) set forth in Section 6.12 as to
which claims must be made within forty-two (42) months after the Closing
Date; (B) set forth in Sections 6.7, 6.18, and 6.22 as to which claims
must be made within twenty-four (24) months after the Closing Date; (C)
set forth in Section 6.15 as to which claims must be made prior to the
expiration of the applicable statute of limitation with respect thereto;
and (D) set forth in Sections 6.1, 6.2, 6.3, 6.5 and 6.19 as to which
claims may be made at any time.
(ii) except for those matters set forth in Sections 6.15 and 6.18,
Sparton will not be liable to Buyer Parties for any such loss,
liability, damage, or expense unless the aggregate amount of all such
losses, liabilities, damages, and expenses relating to all such breaches
exceeds $1,000,000 (the "Threshold Loss Amount") and, in the event that
the aggregate amount of all such losses, liabilities, damages, and
expenses exceeds the Threshold Loss Amount, Sparton shall be liable only
for the excess over the Threshold Loss Amount and, in any event,
Sparton's liability for such losses, liabilities, damages, and expenses
shall not exceed $15 million (except that the limitation on Sparton's
liability to Buyer with respect to losses, liabilities, damages, and
expenses resulting from a breach of Sections 6.1, 6.2, 6.3, 6.5, and
6.19 shall not exceed the Purchase Price and shall not be subject to the
condition of the Threshold Loss Amount). The Threshold Loss Amount shall
be increased dollar for dollar, both as provided in Section 6.13, and,
if after the Closing Date, any liability recorded on the books and
records of a KPI Subsidiary at the Closing Date or included in the
Acquired Assets is satisfied for an amount less than the recorded
amount.
(iii) If Sparton becomes liable to Buyer after the aggregate amount
of losses ($1,000,000) set forth in subparagraph (ii) is exceeded,
Sparton nevertheless shall not be liable for any losses, liabilities,
damages, or expenses the Buyer Parties may suffer,
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sustain, or become subject to, if such losses, liabilities, damages, or
expenses resulting from a claim with respect to any particular breach
are less than $10,000; provided that (A) if the losses, liabilities,
damages, or expenses related to such claim equals or exceeds $10,000,
Sparton shall be liable for the entire amount of the losses,
liabilities, damages, or expenses related thereto, and (B) for purposes
of this provision, any claim or series of claims arising out of or
relating to the same, similar, or related facts, circumstances,
occurrences, transactions, or conditions shall constitute one claim with
respect to any particular breach.
(iv) Sparton's agreement to indemnify Buyer against losses,
liabilities, deficiencies, damages, or expenses arising from customer
product liability claims shall be governed by and limited as provided in
Section 9.10.
(c) Buyer agrees to indemnity Sparton and hold it harmless against any
loss, liability, damage, or expense (including reasonable legal expenses
and costs) which Sparton may suffer, sustain, or become subject to, as the
result of a breach of any representation, warranty, covenant, or agreement
by Buyer contained in this Agreement; provided, however, that Buyer will
not be liable to Sparton for any such loss, liability, deficiency, damage,
or expense relating to breaches of Buyer's representations and warranties
contained in Article VII hereof unless the aggregate amount of such losses,
liabilities, deficiencies, damages, or expenses resulting to Sparton from
all breaches or claims exceeds $1,000,000, and in the event that the
aggregate amount of all such losses, liabilities, damages, and expenses
exceeds $1,000,000, Buyer shall be liable only for the excess over
$1,000,000; provided further, that Buyer will not be liable for any loss,
liability, deficiency, damage, or expense relating to breaches of Buyer's
representations and warranties contained in Article VII (except Sections
7.1, 7.2, and 7.3) hereof unless written notice of such breach is given by
Sparton to Buyer within two (2) years of the Closing Date.
(d) If a party hereto seeks indemnification under this Section 9.3 or
Section 9.10, such party (the "Indemnified Party") shall give written
notice to the other party (the "Indemnifying Party") of the facts and
circumstances giving rise to the claim. If any suit, action, claim,
liability, or obligation shall be brought or asserted by any third party
which, if adversely determined, would entitle the Indemnified Party to
indemnity pursuant to this Section 9.3 or Section 9.10, the Indemnified
Party shall promptly notify the Indemnifying Party of the same in writing,
specifying in detail the basis of such claim and the facts pertaining
thereto and the Indemnifying Party, if it so elects, shall assume and
control the defense thereof (and shall consult with the Indemnified Party
with respect thereto), including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of expense. If the
Indemnifying Party elects to assume and control the defense, the
Indemnified Party shall have the right to employ counsel separate from
counsel employed by the Indemnifying Party in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel employed by the Indemnified Party shall be at the expense of the
Indemnified party unless the Indemnifying Party has failed to assume the
defense or employ counsel reasonably acceptable to the Indemnified Party.
The Indemnifying Party shall not be liable for any settlement of any such
action or proceeding effected without the written consent of the
Indemnifying Party, provided that, if there shall be a final judgment for
the plaintiff in any such action, the Indemnifying Party agrees to
indemnify and hold harmless the Indemnified Party from and against any loss
or liability by reason of such judgment.
(e) The foregoing indemnification provisions are in addition to, and
not in derogation of, any statutory or common law remedy any party may have
for misrepresentation, breach of warranty, or breach of covenant.
9.4 INVESTIGATION AND CONFIDENTIALITY.
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(a) Prior to the Closing Date, Buyer may make or cause to be made such
investigation of the business and properties of the KPI Subsidiaries and
the Acquired Assets as it deems necessary or advisable to familiarize
itself therewith. Sparton agrees to permit Buyer, its representatives and
representatives of the financial institutions which are considering
participation in the financing of this transaction to (i) have full access
to the premises, books, and records of Lako and the KPI Subsidiaries at
reasonable hours, (ii) visit and inspect any of their properties, and (iii)
discuss their affairs, finances, and accounts with the directors, officers,
key employees, key customers, key suppliers, and independent accountants.
(b) If the transactions contemplated by this Agreement are not
consummated, Buyer will not disclose or use at any time any information and
materials obtained during its investigation, and Buyer and its
representatives will return to Sparton originals of and destroy copies of
all memoranda, notes, plans, records, documentation, and other materials
obtained in connection with the transactions contemplated by this Agreement
no matter where such material is located and no matter what form the
material may be in, which Buyer may then possess or have under its control.
In the event of the breach of any of the provisions of this Section 9.4,
Sparton may apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunctive or other relief (without the
posting of bond or other security) in order to enforce or prevent any
violations of the provisions hereof.
9.5 EXPENSES. Except as otherwise provided herein, Buyer will pay all of
its, and Sparton will pay all of its, expenses (including fees and expenses of
legal counsel, investment bankers, brokers, or other representatives and
consultants, and appraisal fees and expenses) incurred in connection with the
negotiation of this Agreement, the performance of its obligations hereunder, and
the consummation of the transactions contemplated hereby.
9.6 NONCOMPETE. Sparton and Lako agree that for a period of four (4) years
after the Closing Date, (a) they will not, directly or indirectly, engage in any
business which is the same or substantially similar to the business now
conducted at the Gladwin Plant or by any of the KPI Subsidiaries, provided that
Sparton may purchase up to an aggregate of 5 percent of the outstanding voting
securities of any entity whose securities are listed on a national securities
exchange or traded in the NASDAQ national market system, (b) it will not induce
or attempt to induce any employee at the Gladwin Plant or of the KPI
Subsidiaries to accept employment by Sparton or one of its affiliated
corporations, (c) induce or attempt to induce any customer or supplier of Buyer
as owner of the Acquired Assets or any of the KPI Subsidiaries to cease doing
business with any of them, or otherwise to interfere with the business
relationship between any of the customers and suppliers of the KPI Subsidiaries
or the Gladwin Plant, or (d) disclose to any third party any confidential or
proprietary information about the businesses or operations of the KPI
Subsidiaries.
9.7 TAX MATTERS.
(a) Tax Claims. Sparton is responsible for payment of all federal and
state income Taxes and state of Michigan SBT taxes owed for all periods
through June 30, 1996, and shall indemnify Buyers for any such income Taxes
which are not accrued on the Latest Balance Sheet, and for any income Taxes
with respect to any consolidated Tax Return for any period ending on or
prior to the Closing Date, subject to Buyer's obligation to indemnify
Sparton for certain of such income Taxes and state of Michigan SBT taxes as
set forth in Section 9.7(c). Buyer agrees that Sparton shall have the right
and authority in its own name and in the name of the KPI Subsidiaries both
to defend claims by any taxing authorities for additional Taxes with
respect to such taxable periods, and to pursue claims for refunds of Taxes
paid or payable with respect to such fiscal years. With respect to claims
for refunds, Sparton shall retain all amounts collected in pursuit of such
claims. Sparton shall also have
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the right to settle claims by taxing authorities for additional Taxes, and
to settle its claims for refunds, upon such terms and conditions as it
shall see fit in its discretion, provided that, Sparton shall not, without
Buyer's consent, agree to any settlement with respect to any Tax if such
settlement could adversely affect the past, present, or future Tax
liability of Buyer, any of its affiliates or, upon the Closing, any of the
KPI Subsidiaries. Sparton shall be responsible for all costs and expenses
incurred in connection with the defense of or in pursuit of such Tax
claims, including legal fees and expenses, litigation costs, and the cost
of filing amended Tax Returns. Buyer agrees to cause the KPI Subsidiaries,
their officers, agents, and employees to cooperate with and assist Sparton,
as reasonably requested, in Sparton's defense of or pursuit of such Tax
claims.
(b) Section 338(h)(10) Elections.
(i) Sparton agrees, if so directed by Buyer, to join with Buyer in
making an election under Code Section 338(h)(10) with respect to the
sale and purchase of any of the KPI Subsidiaries and to make any
analogous elections under applicable state law provisions (including
such state elections, the "Section 338(h)(10) Elections"). Sparton and
Buyer shall jointly prepare Internal Revenue Service Form 8023-A, and
such other forms and schedules as are necessary or required to make the
Section 338(h)(10) Elections, and each covenants and agrees with the
other that it shall execute such forms and schedules and shall take all
such other acts as are necessary to make or perfect such Section
338(h)(10) Elections. Sparton shall pay all Taxes payable by reason of
such Section 338(h)(10) Elections, subject to Buyer's obligation to
reimburse Sparton for any net increase in Taxes, other than income
Taxes, incurred by Sparton as a result of such Section 338(h)(10)
Election.
(ii) With respect to the Acquired Assets and each KPI Subsidiary
for which a Section 338(h)(10) Election is made pursuant to Section
9.7(a)(i) hereof, Buyer and Sparton shall allocate the portion of the
Purchase Price (including the amount of liabilities) among the Acquired
Assets and the assets of each KPI Subsidiary as set forth on the
Allocation Schedule attached hereto, and such Allocation Schedule shall
be used by the parties and their affiliates in preparing (A) all Tax
Returns, and (B) Form 8023-A (and such other forms and schedules
required to make the Section 338(h)(10) Elections) for Sparton and the
Buyer. All allocations made pursuant to this Section 9.7(b)(ii) shall be
binding upon the parties, their affiliates, and upon each of their
successors and assigns, and the parties shall report the transactions
contemplated by this Agreement in accordance with such allocations for
all Tax purposes.
(iii) Buyer agrees to indemnify and hold Sparton harmless from and
against any and all Taxes, other than income Taxes, paid by Sparton or
any affiliated entity as a result of the Section 338(h)(10) Elections or
the sale of the Acquired Assets, to the extent such Taxes would not have
been incurred had such Elections or sale not been made, including,
without limitation, real estate transfer taxes, vehicle transfer taxes,
and recapture of Michigan Single Business Tax capital acquisition
deductions, but excluding taxes paid by Sparton on the gains resulting
from such Elections and from the sale of the Acquired Assets, but only
to the extent of the net excess of such Taxes over the amount of such
Taxes that would have been incurred had such Elections or sale not been
made.
(c) Short Tax Year.
(i) Sparton and Buyer acknowledge that Sparton will prepare and
file consolidated Tax Returns for the period July 1, 1996, through the
Closing Date and include each of the KPI Subsidiaries in such Tax
Returns and shall report all items with respect to the KPI Subsidiaries
consistent with past practice. Sparton and Buyer agree that Sparton
shall be liable for payment of all Taxes to which such Tax Returns
relate for the period
25
<PAGE> 51
covered by such Tax Returns, provided that, Buyer shall be responsible
for, and shall reimburse Sparton within ten (10) business days after
request therefor, for the amount by which Sparton's liability (excluding
the effect of any tax credits or tax loss carryforwards) for Taxes
attributable to the taxable income of the KPI Subsidiaries for the
period July 1, 1996, through the Closing Date (including income Taxes
attributable to the gains resulting from the transactions contemplated
by this Agreement) exceeds the liability that Sparton would have
incurred for income Taxes attributable to the gains resulting from the
transactions contemplated by this Agreement if such transactions had
been consummated on July 1, 1996.
(ii) Sparton shall prepare all state of Michigan SBT Tax Returns
required to be filed with respect to any of the KPI Subsidiaries for the
period beginning July 1, 1996, and ending on the Closing Date in
accordance with past practice, and shall submit such Tax Returns to
Buyer at least fifteen (15) days prior to the due date for filing such
Tax Returns for Buyer's approval, which approval shall not be
unreasonably withheld. Buyer shall cooperate as reasonably requested in
assisting Sparton in the preparation of such state of Michigan SBT Tax
Returns. Sparton shall pay all state of Michigan SBT taxes due with
respect to any of the KPI Subsidiaries for the period beginning on July
1, 1996, and ending on the Closing Date, and Buyer shall be responsible
for, and shall reimburse Sparton within ten (10) days after request
therefor, for the amount of such SBT taxes to the extent such SBT taxes
are not attributable to any Section 338(h)(10) Elections, provided that
Buyer shall reimburse Sparton for such SBT taxes to the extent such
state of Michigan SBT taxes are incurred as the result of the recapture
of capital acquisition deductions attributable to any Section 338(h)(10)
Elections.
(d) Taxes of Other Persons. Sparton agrees to, and hereby does,
indemnify and hold harmless Buyer from and against any liability of each
KPI Subsidiary for Taxes of any person other than such KPI Subsidiary (i)
under Treasury Regulations Section 1.1502-6 (or any successor provision or
any similar provision of state, local, or foreign law), (ii) as a
transferee or successor, (iii) by contract, or (iv) otherwise.
(e) Cooperation on Tax Matters. Buyer, Sparton, and each KPI
Subsidiary shall cooperate fully, as and to the extent reasonably requested
by the other party, in connection with the filing of Tax Returns pursuant
to this Section 9.7 and any audit, litigation, or other proceeding with
respect to Taxes. Such cooperation shall include the retention and (upon
the other party's request) the provision of records and information which
are reasonably relevant to any such audit, litigation, or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
Buyer, Sparton, and the KPI Subsidiaries agree (i) to retain all books and
records with respect to Tax matters and pertinent to the KPI Subsidiaries
relating to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by
Buyer or Sparton, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with
any taxing authority, and (ii) to give the other party reasonable written
notice prior to transferring, destroying, or discarding any such books and
records and, if the other party so requests, the KPI Subsidiaries or
Sparton, as the case may be, shall allow the other party to take possession
of such books and records. Buyer and Sparton further agree, upon request,
to use their best efforts to obtain any certificate or other document from
any governmental authority or any other person as may be necessary to
mitigate, reduce, or eliminate any Tax that could be imposed (including,
but not limited to, with respect to the transactions contemplated hereby).
(f) Tax Sharing Agreements. All Tax sharing agreements or similar
agreements with respect to or involving any KPI Subsidiary shall be
terminated as of the Closing Date and,
26
<PAGE> 52
after the Closing Date, no KPI Subsidiary shall be bound thereby or have
any liability thereunder.
9.8 SPARTON'S ACCESS TO RECORDS. After the Closing, Buyer will, and will
cause the KPI Subsidiaries and their respective successors and assigns to,
permit Sparton, its employees, agents, accounting and legal representatives, to
have reasonable access at reasonable times in a manner so as not to interfere
with the normal business operations of the KPI Subsidiaries, to their books and
records for periods prior to the Closing Date as required by Sparton for the
prosecution of the claims referred to in Section 9.7 and for all other proper
purposes.
9.9 SPARTON SHARES IN RETIREMENT TRUSTS. Certain profit sharing retirement
trusts, maintained by Lako and the KPI Subsidiaries for the benefit of their
employees, own shares of common stock of Sparton among the assets of the plan.
Following the Closing, Buyer agrees to use its best efforts to cause the
trustees of such trusts, should they decide to sell any of the Sparton common
stock, to offer the same for sale to Sparton at the then current market price.
9.10 PRODUCT WARRANTY AND LIABILITY CLAIMS. This Section 9.10 applies to
products, assemblies, and components of assemblies which are (a) produced by the
Gladwin Plant or by a KPI Subsidiary prior to the Closing Date, and (b) which
either have been designed by the customer or with respect to which the customer
has approved or retained the right to approve the design thereof. Such products,
assemblies, and components, collectively, are referred to in this Section 9.10
as "Products." This Section 9.10 applies notwithstanding any warranty,
representation, covenant, agreement, understanding, or indemnification made by
Sparton in this Agreement or otherwise.
If, after the date of this Agreement, a customer claims that a KPI
Subsidiary has breached a warranty to the customer with respect to a Product or
otherwise is liable to reimburse the customer for damages, losses, or expenses
incurred or to be incurred by the customer in connection with a recall, repair,
or replacement program involving a Product, Sparton's liability to Buyer under
this Agreement shall be limited to and shall not exceed the reasonable cost to
repair or replace such Product, provided, however, that in the event the
customer makes claim for damages, losses, or expenses in excess of the
reasonable cost to repair or replace such Product, Sparton shall either (i)
agree to reimburse Buyer's payment of an amount necessary to settle the claim of
the customer, or (ii) assume defense of and liability for such customer claims,
in which event the "basket" provisions set forth in Section 9.3(b)(ii) shall not
apply to such excess and shall pay all such claims.
If, after the date of this Agreement, a person claims (a "Product Liability
Claim") that a KPI Subsidiary or the Buyer as owner of the Acquired Assets is
liable for injuries or death caused by a Product, Sparton shall be liable with
respect to such claim only to the extent such claim is covered by insurance
maintained by Sparton and Sparton shall pay any deductible payable under such
insurance. Any such product liability in excess of Sparton's insurance coverage+
shall be the responsibility of Buyer.
The provisions of Section 9.3(b) and (d) shall apply to Sparton's
indemnification rights and responsibilities under this Section 9.10.
As of the date of this Agreement, neither Sparton, Lako, nor any KPI
Subsidiary has received notice from a customer seeking reimbursement for
damages, losses, or expenses of the kind covered by this Section 9.10.
9.11 CHANGE OF CORPORATE NAME. Promptly following the Closing, Buyer will
cause the charters of each of the KPI Subsidiaries to be amended to change the
corporate name of each to a name which does not include "Sparton" or any other
name which is confusingly similar to "Sparton."
27
<PAGE> 53
9.12 ASSIGNMENT OF KOSTECKI JUDGMENT AND KPI V CLAYTON DEWINDT. Sparton
Engineered Products, Inc. -- KPI Group has assigned, or prior to the Closing
will assign, to Sparton a judgment in its favor in the amount of $206,000
entered in the Michigan Circuit Court for the County of Ottawa, Case No.
91-15782-CB, entitled Sparton Engineered Products, Inc. -- KPI Group v Stanley
V. Kostecki, et al.
Sparton shall have the right and obligation at its expense to conduct in
the name of Sparton Engineered Products, Inc. -- KPI Group, as plaintiff, its
pending case against Clayton deWindt et al., defendant. Sparton shall bear all
expenses, including legal fees and expenses, shall have the right to collect and
retain any settlement or judgment in plaintiff's favor obtained in such case,
and shall be liable for any judgment or settlement amount in favor of defendant
in such case.
9.13 ENVIRONMENTAL MATTERS.
(a) In addition to any and all other indemnities Sparton has provided
to Buyer, Sparton shall be responsible for, indemnify, and hold harmless
the Buyer Parties from and against, any loss, liability, damage,
obligation, or expense (including reasonable legal and consultant fees and
costs, and any damages or expenses associated with any investigation,
abatement, remediation, corrective action, personal injury, or natural
resource damage) related to (i) the underground storage tanks located at
the Gladwin Plant, and (ii) any asbestos-containing materials ("ACM") at
the White Cloud facility. Such indemnification shall not be subject to the
limitations set forth in Section 9.3(b) of this Agreement.
(b) To the extent not completed prior to the Closing, Sparton shall,
at Sparton's sole cost and expense, conduct the following actions to remove
the underground storage tanks at the Gladwin Plant through Clayton
Environmental or another nationally Qualified Underground Storage Tank
Consultant (as defined in Michigan Statute Section 324.21542) reasonably
satisfactory to Buyer:
(i) within thirty (30) days after the Closing Date, submit all
necessary notifications to governmental agencies in order to obtain the
required approvals to remove the tanks;
(ii) within sixty (60) days after receiving all approvals requested
pursuant to subsection (b)(i), remove and properly dispose of the tanks
and sample for the presence of a release where contamination is most
likely to be present;
(iii) promptly conduct such remedial actions and other actions
required by the Michigan Fire Marshal and the Michigan Department of
Environmental Quality ("DEQ") or any other governmental agency, fill and
regrade the areas, and return the areas around the tanks to their prior
condition;
(iv) promptly upon the completion of all field work, prepare and
submit to DEQ a closure report documenting in reasonable detail the
actions taken to address the tanks and remediate any releases;
(v) within sixty (60) days after the submission of the closure
report, provide Buyer with DEQ confirmation of receipt of such report
and a letter from DEQ or a Qualified Underground Storage tank Consultant
indicating that no further action is required in connection with the
tanks.
(c) All actions of Sparton required by or relating to subsection
9.13(b) of this Agreement shall be conducted in compliance with all
applicable Environmental and Safety Requirements and in a manner that does
not unreasonably interfere with Buyer's operations at the Gladwin Plant or
the White Cloud facility. All such actions shall be subject to Buyer's
approval, provided that such approval shall not be unreasonably withheld.
Sparton shall, at its expense, promptly restore to its prior condition any
property that is altered or damaged as a result of such actions. Sparton
shall, at its expense, promptly and properly dispose of
28
<PAGE> 54
all soil, groundwater, decontamination water, samples, waste, ACM, or other
material generated in connection with such actions. Sparton shall keep
Buyer reasonably apprised of material facts and events related to the
removal of the tank or the ACM. In particular, Sparton shall: (i) provide
Buyer with reasonable advance notice regarding any meetings between Sparton
and DEQ or any other governmental agency and allow Buyer to attend, at
Buyer's expense, such meetings; (ii) provide Buyer with copies of letters
and notices it receives from DEQ or any other governmental agency; and
(iii) provide Buyer with copies of any material submittals to DEQ or any
other governmental agency, including reports, analytical data, letters, or
other documents.
9.14 EXCLUSIVITY. Sparton, on behalf of itself and its affiliated
entities, agrees that neither it nor any of its representatives, directors,
officers, agents, or affiliates will entertain or discuss a possible sale or
other disposition of the Common Stock, the Acquired Assets, or the capital stock
of Lako, or the assets of the KPI Subsidiaries (other than inventory in the
Ordinary Course of Business) or any interest therein with any other party, or
provide any information to any other party in connection therewith.
ARTICLE X
MISCELLANEOUS
10.1 PRESS RELEASES AND ANNOUNCEMENTS. No press releases related to this
Agreement or the transactions contemplated herein, or other announcements to the
employees, customers, or suppliers of Sparton, Lako, or the KPI Subsidiaries
will be issued without the mutual approval of all parties hereto, except any
public disclosure which any party in good faith believes is required by law or
regulation.
10.2 FURTHER TRANSFERS. Sparton and Lako will execute and deliver such
further instruments of conveyance and transfer and take such additional action
as Buyer may reasonably request to effect, consummate, confirm, or evidence the
transfer to Buyer of the Common Stock and the Acquired Assets and any other
transactions contemplated hereby.
10.3 SPECIFIC PERFORMANCE. Sparton acknowledges that, in the event of a
breach by Sparton of this Agreement, money damages may be inadequate and Buyer
may have no adequate remedy at law. Accordingly, Sparton agrees that Buyer shall
have the right, in addition to any other rights and remedies existing in its
favor, to enforce its rights and the obligations of Sparton and Lako, not only
by an action or actions for damages, but also by an action or actions for
specific performance, injunctive, and/or other equitable relief.
10.4 AMENDMENT AND WAIVER. This Agreement may be amended and any provision
of this Agreement may be waived, provided that any such amendment or waiver will
be binding upon a party only if such amendment or waiver is set forth in a
writing executed by Buyer, Lako, and Sparton. No course of dealing between or
among any persons having any interest in this Agreement will be deemed effective
to modify, amend, or discharge any part of this Agreement or any rights or
obligations of any party under or by reason of this Agreement.
10.5 NOTICES. All notices, demands, and other communications given or
delivered under this Agreement will be in writing and will be deemed to have
been given when personally delivered, mailed by first class mail, return receipt
requested, or delivered by express courier service or facsimile transmissions.
Notices, demands, and communications to the parties will, unless another address
is specified in writing, be sent to the address indicated below:
<TABLE>
<S> <C>
To Sparton or Lako: Sparton Corporation
2400 East Ganson Street
Jackson, Michigan 49202
Attention: Chairman
Fax: 517-787-1822
</TABLE>
29
<PAGE> 55
<TABLE>
<S> <C>
With copies to: Mr. R. Jan Appel
Vice President and General Counsel
Sparton Corporation
2400 East Ganson Street
Jackson, Michigan 49202
Fax: 517-787-1822
and Varnum, Riddering, Schmidt & Howlett LLP
P.O. Box 352
Grand Rapids, Michigan 49501-0352
Attention: Mr. James N. DeBoer
Fax: 616-336-7000
To Buyer: Dura Automotive Systems, Inc.
2791 Research Drive
Rochester Hills, Michigan 48309-3579
Attention: David R. Bovee
Fax: 810-299-7501
With a copy to: Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Jeffrey C. Hammes
Fax: 312-861-2200
and to: Dura Automotive Systems, Inc.
4508 IDS Center
Minneapolis, Minnesota 55402
Attention: Scott D. Rued, Vice President
Fax: 612-332-2021
</TABLE>
10.6 BINDING AGREEMENT; ASSIGNMENT.
(a) This Agreement and all of the provisions hereof will be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests, or obligations hereunder may be assigned by Sparton or
Lako without the prior written consent of Buyer or by Buyer (except as
provided in (b) or (c) below) without the prior written consent of Sparton.
(b) Buyer may (at any time prior to the Closing), at its sole
discretion, assign, in whole or in part, its rights and obligations
pursuant to this Agreement to one or more of its wholly owned subsidiaries;
provided that, in the event of any such assignment, Buyer will guaranty the
obligations of any such assignee under this Agreement (such guaranty to be
in form and substance reasonably satisfactory to Sparton).
(c) Buyer may assign its rights under this Agreement for collateral
security purposes to the lenders providing financing for the transactions
contemplated hereby and all extensions, renewals, replacements,
refinancings, and refundings thereof, in whole or in part.
10.7 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity without invalidating the remainder of
such provisions or the remaining provisions of this Agreement.
10.8 CAPTIONS. The captions used in this Agreement are for convenience of
reference only and do not constitute a part of this Agreement and will not be
deemed to limit, characterize, or in any way affect any provision of this
Agreement, and all provisions of this Agreement will be enforced and construed
as if no caption had been used in this Agreement.
30
<PAGE> 56
10.9 ENTIRE AGREEMENT. This Agreement and the documents referred to herein
contain the entire agreement between the parties and supersede any prior
understandings, agreements, or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
10.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which taken
together will constitute one and the same instrument.
10.11 GOVERNING LAW. All questions concerning the construction, validity,
and interpretation of this Agreement and the Exhibits and Schedules hereto and
the performance of the obligations imposed by the transactions contemplated
hereby shall be governed by and construed in accordance with the domestic laws
of the state of Michigan, except that wherever applicable the Ohio General
Corporation Law shall govern issues relating to Sparton's corporate power and
authority.
10.12 PARTIES IN INTEREST. Nothing in this Agreement, express or implied,
is intended to confer on any person other than the parties and their respective
successors and assigns any rights or remedies under or by virtue of this
Agreement.
(Signatures on separate page 50 attached)
31
<PAGE> 57
(Signature page deliberately separated from Agreement
between the undersigned dated October 3, 1996.
Body of Agreement terminated on page 46 with Section 10.12)
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SPARTON CORPORATION DURA AUTOMOTIVE SYSTEMS, INC.
By /s/ John J. Smith By /s/ David Bovee
- ------------------------- --------------------------
John J. Smith David Bovee
Its Chairman Its Vice President and Chief Financial
Officer
32
<PAGE> 58
EXHIBIT A
LIST OF KPI SUBSIDIARIES
<TABLE>
<CAPTION>
AUTHORIZED SHARES OUTSTANDING SHARES
NAME OF COMMON STOCK OF COMMON STOCK
- --------------------------------------------------- ----------------- ------------------
<S> <C> <C>
Sparton Engineered Products, Inc.,
KPI Group, a Michigan corporation 5,000 1,050
Sparton Engineered Products, Inc.,
KPI Group, an Indiana corporation 1,000 10
</TABLE>
A-1
<PAGE> 59
EXHIBIT B
FORM OF OPINION OF SPARTON'S COUNSEL
1. Sparton, Lako, and the KPI Subsidiaries are validly existing and in good
standing under the laws of their respective jurisdictions of incorporation.
2. Lako and the KPI Subsidiaries have the necessary corporate power and
authority to own their respective properties and to conduct their respective
businesses in the manner and in the locations presently owned and conducted.
3. The Stock and Asset Purchase Agreement is a valid and binding obligation
of Sparton and Lako, enforceable in accordance with its terms.
4. The execution and delivery by Sparton and Lako of the Stock and Asset
Purchase Agreement, the sale of the Common Stock and the Acquired Assets, and
the fulfillment of and the compliance with the respective terms thereof by
Sparton, do not result in a breach of, or default under, or result in any
violation of, or give any third party the right to accelerate any obligation
under, or result in the creation of any lien upon any of the capital stock or
assets of the KPI Subsidiaries, pursuant to (a) the articles of incorporation or
bylaws of Sparton or the KPI Subsidiaries, or (b) any order, judgment, or decree
to which they are subject, and which has been identified to us by them.
The execution and delivery by Sparton and Lako of the Stock and Asset
Purchase Agreement, the sale of the Common Stock and the Acquired Assets, and
the fulfillment of and the compliance with the terms thereof by Sparton do not
violate any provision of statutory law to which Sparton or Lako is subject which
are generally applicable to transactions of the nature contemplated by the Stock
and Asset Purchase Agreement.
5. The Schedule of KPI Subsidiaries attached to this opinion correctly sets
forth the number of shares of each class of the authorized capital stock of each
of the KPI Subsidiaries and the number of outstanding shares of each such class.
All of the outstanding shares of capital stock of each of the KPI Subsidiaries
have been duly authorized, validly issued, and are fully paid and nonassessable.
All outstanding shares are owned by Sparton free and clear of any lien,
mortgage, security interest, charge, or encumbrance.
6. There are no securities issued by the KPI Subsidiaries convertible into
or exchangeable or exercisable for shares of their capital stock. There are no
outstanding options for the purchase of, or any agreements providing for the
issuance (contingent or otherwise) of, any of the capital stock of the KPI
Subsidiaries, or any shares of stock or securities convertible into or
exchangeable or exercisable for any such capital stock. There are no obligations
(contingent or otherwise) of the KPI Subsidiaries to repurchase, exchange, or
otherwise acquire or retire any of their capital stock or any shares of stock or
securities convertible into or exchangeable or exercisable for any such capital
stock.
7. The certificates and instruments delivered by Sparton to Buyer are
sufficient to convey to Buyer all of Sparton's right, title, and interest in the
outstanding Common Stock of the KPI Subsidiaries. The instruments of conveyance
delivered by Lako to Buyer are sufficient to convey to Buyer all of Lako's
right, title, and interest in the Acquired Assets.
8. We confirm to you that there are no actions or proceedings against the
KPI Subsidiaries pending before any court, government agency or arbitrator,
except as disclosed in Schedule 6.18 of the Stock and Asset Purchase Agreement.
B-1
<PAGE> 60
9. Except as set forth on Exhibit A attached to this opinion, no
declaration to, filing with, or approval of any government or regulatory
authority is required in connection with the execution of the Stock and Asset
Purchase Agreement by Sparton or Lako or by their consummation of the
transactions contemplated thereby.
------------------------
Opinion to cover Michigan law and federal law.
ABA Legal Opinion Accord to apply, except the opinion will address Michigan and
federal securities law with respect to the transaction being exempt from
registration under such laws.
B-2
<PAGE> 61
EXHIBIT C
CERTIFICATE OF SPARTON CORPORATION
Sparton Corporation, an Ohio corporation ("Sparton"), is a party to a Stock
and Asset Purchase Agreement dated as of , 1996, with Dura
Automotive Systems, Inc. ("Buyer") (the "Stock and Asset Purchase Agreement").
This Certificate is being delivered to Buyer to satisfy the conditions to the
Closing set forth in Section 4.1(i)(i) of the Stock and Asset Purchase
Agreement.
Sparton hereby certifies that the conditions specified in subsections (a)
through (g) of Section 4.1 of the Stock and Asset Purchase Agreement have been
satisfied.
This Certificate is executed on , 1996.
SPARTON CORPORATION
By
-----------------------------
Its
C-1
<PAGE> 62
EXHIBIT D
FORM OF OPINION OF BUYER'S COUNSEL
1. Buyer is a corporation validly existing and in good standing under the
laws of the state of Delaware.
2. Buyer has all necessary corporate power and authority to enter into the
Stock and Asset Purchase Agreement and perform its obligations thereunder.
3. The Stock and Asset Purchase Agreement has been duly authorized,
executed, and delivered by Buyer, and such agreement is a valid and binding
obligation of Buyer, enforceable in accordance with its terms.
4. To our knowledge, Buyer is not subject to or obligated under its
certificate of incorporation, its bylaws, or any applicable law or rule or
regulation of any governmental authority applicable to transactions similar to
those transactions contemplated by the Stock and Asset Purchase Agreement, or
subject to any order, writ, injunction, or decree which would be breached or
violated by its execution, delivery, or performance of the Stock Purchase
Agreement.
5. To our knowledge, Buyer is not required to submit any notice, report, or
other filing with any governmental authority in connection with the execution or
delivery by it of the Stock and Asset Purchase Agreement or the consummation of
the transactions contemplated thereby, except as set forth on Exhibit A attached
to this opinion. To our knowledge, no consent, approval, or authorization of any
governmental or regulatory authority or any other party or person is required to
be obtained by Buyer in connection with its execution, delivery, and performance
of the Stock and Asset Purchase Agreement or the transactions contemplated
thereby, except as set forth on Exhibit A.
6. To our knowledge, there are no actions, suits, proceedings, orders, or
investigations pending or threatened against Buyer at law or in equity, or
before or by any federal, state, municipal, or other governmental department,
commission, board, bureau, agency, or instrumentality, domestic or foreign,
which would adversely affect Buyer's performance under the Stock and Asset
Purchase Agreement or the consummation of the transactions contemplated thereby.
D-1
<PAGE> 63
EXHIBIT E
CERTIFICATE OF BUYER
Dura Automotive Systems, Inc. a Delaware corporation ("Buyer") is a party
to a Stock and Asset Purchase Agreement dated , 1996,
with Sparton Corporation ("Sparton") and Sparton Engineered Products, Inc.--Lake
Odessa Group. This Certificate is being delivered to Sparton to satisfy the
conditions to the Closing set forth in Section 4.2(g)(i) of the Stock and Asset
Purchase Agreement.
Buyer hereby certifies that the conditions specified in subsections (a)
through (c) of Section 4.2 of the Stock and Asset Purchase Agreement have been
satisfied.
This Certificate is executed on , 1996.
DURA AUTOMOTIVE SYSTEMS, INC.
By
-----------------------------
Its
E-1
<PAGE> 64
APPENDIX B
SPARTON CORPORATION AND SUBSIDIARIES
PROFORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) (A)
JUNE 30, 1996
<TABLE>
<CAPTION>
PROFORMA
HISTORICAL ADJUSTMENTS PROFORMA
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................... $ 718,363 $ 78,340,000(B) $ 718,363
(33,594,225)(C)
(44,745,775)(C)
Short-term investments.................. 44,745,775(C) 44,070,775
(675,000)(C)
Income taxes recoverable................ 2,300,000 2,300,000
Accounts receivable..................... 18,805,122 18,805,122
Inventories............................. 34,217,538 34,217,538
Prepaid expenses........................ 2,840,189 2,840,189
Current assets of discontinued
operations............................ 34,351,930 (25,471,400)(B) 9,225,495
344,965(B)
------------ --------------- ------------
Total current assets.................. 93,233,142 18,944,340 112,177,482
Other assets.............................. 3,587,835 3,587,835
Property, plant and equipment -- net...... 9,402,283 9,402,283
Non-current assets, principally property
plant and equipment, of discontinued
operations -- net....................... 13,047,403 (8,523,921)(B) 5,198,482
675,000(C)
------------ --------------- ------------
Total assets.......................... $119,270,663 $ 11,095,419 $130,366,082
============ =============== ============
LIABILITIES AND
SHAREOWNERS' EQUITY
Current liabilities:
Notes payable........................... $ 33,594,225 ($33,594,225)(C) $ --
Accounts payable........................ 11,289,716 11,289,716
Income taxes............................ 279,676 20,069,000(B)(D) 20,348,676
Accrued liabilities..................... 6,127,877 6,127,877
Current liabilities of discontinued
operations............................ 12,000,855 (10,300,705)(B) 2,450,150
750,000(B)
------------ --------------- ------------
Total current liabilities............. 63,292,349 (23,075,930) 40,216,419
Non current liabilities................... 4,217,403 4,217,403
Non current liabilities -- discontinued
operations.............................. 231,032 --(B) 231,032
Shareowners' equity:
Common stock -- $1.25 par value;
8,500,000 shares authorized,
7,811,370, shares outstanding after
deducting 123,342 shares in Treasury.. 9,764,213 9,764,213
Capital in excess of par value.......... 403,067 403,067
Retained earnings....................... 41,362,599 34,171,349(B) 75,533,948
------------ --------------- ------------
Total Shareowners' equity............... 51,529,879 34,171,349 85,701,228
------------ --------------- ------------
Total liabilities and Shareowners'
equity.................................. $119,270,663 $ 11,095,419 $130,366,082
============ =============== ============
</TABLE>
See accompanying notes to proforma financial information.
B-1
<PAGE> 65
SPARTON CORPORATION AND SUBSIDIARIES
PROFORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATION (UNAUDITED) (A)
FOR THE FISCAL YEAR ENDED JUNE 30,1996
<TABLE>
<CAPTION>
PROFORMA
HISTORICAL ADJUSTMENTS PROFORMA
------------ ----------- ------------
<S> <C> <C> <C>
Net sales.................................. $102,824,946 $102,824,946
Costs and expenses......................... 104,926,455 104,926,455
------------ ------------
(2,101,509) (2,101,509)
Other income (expense):
Interest................................. (1,202,143) $1,202,143 (E) --
Other -- net............................. (16,142) -- (F) (16,142)
------------ --------------- ------------
Income (loss) from continuing operations
before income taxes...................... (3,319,794) 1,202,143 (2,117,651)
Provision (credit) for income taxes........ (509,000) 445,000 (D) (64,000)
------------ --------------- ------------
Income (loss) from continuing operations... ($ 2,810,794) $ 757,143 ($ 2,053,651)
============ =============== ============
Income (loss) per share of common
stock -- continuing operations........... $(.36) $(.26)
============ ============
Weighted average common shares
outstanding.............................. 7,811,370 7,811,370
============ ============
</TABLE>
See accompanying notes to proforma financial information.
B-2
<PAGE> 66
SPARTON CORPORATION AND SUBSIDIARIES
NOTES TO PROFORMA FINANCIAL INFORMATION
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
(A) The Proforma Consolidated Condensed Statement of Operations for the
fiscal year ended June 30, 1996 presents the results of operations of Sparton
Corporation (Sparton), assuming that the sale of three wholly-owned
subsidiaries, Sparton Engineered Products, Inc.-KPI Group, a Michigan
Corporation, Sparton Engineered Products, Inc.-KPI Group, an Indiana
Corporation, and Sparton Engineered Products, Inc.-Lake Odessa Group, A Michigan
Corporation (collectively referred to herein as the "Subsidiaries") had taken
place as of the beginning of the fiscal year. The statement includes all
material adjustments necessary to present the historical results to reflect
these assumptions. The Subsidiaries had been classified as part of discontinued
automotive operations in Sparton's historical statement of operations for the
fiscal year ended June 30, 1996; accordingly, the Subsidiaries' operating
results had already been excluded from results of continuing operations.
The Proforma Consolidated Condensed Balance Sheet as of June 30, 1996
presents Sparton's financial position assuming the sale of the Subsidiaries had
taken place at June 30, 1996.
The proforma information is not necessarily indicative of the results of
operations or the financial position which may have actually been obtained if
the sale transaction had been consummated on the dates indicated. In addition,
the proforma financial information does not purport to be indicative of results
of operations or financial position which may be obtained in the future. The
Company has prepared these proforma financial statements based upon assumptions
deemed appropriate by management. The proforma financial information should be
read in conjunction with Sparton's historical consolidated financial statements
and notes thereto contained in the 1996 Annual Report on Form 10-K.
(B) The sale of the Subsidiaries was recorded as having taken place on June
30, 1996. Included in this adjustment was the cash selling price less certain
purchase price adjustments and related sales commissions and expenses to net
$78,340,000 to cash, the net assets sold and the liabilities assumed of the
Subsidiaries by the Buyer of $23,695,000, the assets retained of $345,000, and
the liabilities assumed of $750,000 of the Subsidiaries by Sparton, estimated
income taxes of $20,069,000 from the gain on sale, and the estimated after tax
gain on sale of $34,171,000. The Subsidiaries' assets assumed retained by
Sparton include various machinery and equipment, the Lake Odessa, Michigan
production facility and vacant land in Lake Odessa, Michigan originally
purchased for a plant expansion. The Subsidiaries' liabilities assumed by
Sparton include certain contingent trade payables, estimated accruals related to
employee benefits, and estimated accruals concerning ongoing litigation.
No gain or loss was recorded for the disposition of Sparton Engineered
Products, Inc.-Flora Group (Flora), the remaining discontinued automotive
operation currently offered for sale and not part of the Subsidiaries' sale
transaction. Through September 1996, the entire discontinued automotive
operations were expected to be sold in a single transaction to one buyer. With
the proposed sale of the Subsidiaries, Flora will be offered for sale
separately. While the Company is actively pursuing the sale of Flora at the
present time, information is not presently available to reliably estimate its
ultimate selling price. The potential exists that the Company may incur a loss
on the sale of Flora.
(C) The cash proceeds from the sale of the Subsidiaries were assumed to be
used to eliminate outstanding borrowings under Sparton's revolving credit
facilities with the remaining cash proceeds invested in short-term U.S. Treasury
instruments. The cash proceeds were also reduced by $675,000 for the purchase of
the Grand Haven and White Cloud, Michigan real estate from Mr. and Mrs. John J.
Smith and Lawson K. Smith.
B-3
<PAGE> 67
(D) The income tax effects of the proforma adjustments referred to in Notes
(A) through (C), and (E) and (F), were recorded assuming an estimated combined
Federal and State income tax rate of 37% as substantially all of the proforma
adjustments affected U.S. operations only. For the fiscal year ended June 30,
1996, the adjustments resulted in a proforma loss before income taxes from U.S.
continuing operations of $386,603 and a proforma loss before income taxes from
Canadian continuing operations of $1,731,048. As the Canadian operations are in
an income tax loss carryforward position, no income tax benefits were available
with respect to the Canadian loss.
(E) Interest expense was eliminated under the assumption that the cash
proceeds from the sale of the Subsidiaries were used to eliminate outstanding
borrowings under the existing credit facilities.
(F) Interest income from the investment of sales proceeds, after the
elimination of outstanding borrowings and the payment of applicable income
taxes, was not included in the proforma consolidated condensed statement of
operations as such a use of sale proceeds was not considered to be a certainty.
Under the assumption, however, that the remaining sales proceeds were invested
in short-term U.S. Treasury instruments at an estimated one-year Treasury yield
of 6.0%, approximately $2,301,000 of interest income would have been earned by
the Company for the fiscal year ended June 30, 1996.
B-4
<PAGE> 68
SPARTON CORPORATION
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD DECEMBER 4, 1996
P THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
R
O John J. Smith, Lawson K. Smith, and R. Jan Appel, and each of them,
X are hereby appointed proxies of the undersigned with full power of
Y substitution, to represent the undersigned at the Annual Meeting of
Shareholders of SPARTON CORPORATION on December 4, 1996, at 10
o'clock a.m., local time, and any and all adjournments thereof, and
to vote thereat as designated below, all the shares of said
Corporation which the undersigned would be entitled to vote if
personally present.
<TABLE>
<S> <C>
(change of address)
Change / / __________________________________
of __________________________________
Address __________________________________
__________________________________
Attend / / (If you have written in the above
Meeting space, please mark the
corresponding box on the reverse
side of this card.)
</TABLE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF ALL DIRECTORS
AS PROVIDED IN ITEM 1, AND "FOR" THE APPROVAL OF THE AGREEMENT AS
PROVIDED IN ITEM 2 AS SET FORTH ON THE REVERSE SIDE OF THIS PROXY.
SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
DETACH CARD
November 1, 1996
Dear Shareholder,
The Annual Meeting of your company will be held on December 4, 1996. In addition
to the election of directors, we are also seeking your approval on the sale of
Sparton Engineered Products, Inc.-KPI Group.
In order to minimize additional expenses in connection with this meeting, we ask
that you please give us your support by SIGNING, DATING and RETURNING the
attached proxy card in the postage paid envelope AS SOON AS POSSIBLE. Your vote
is important, regardless of the number of shares that you own.
If your shares are held in the name of a bank or brokerage firm, only that firm
can execute a proxy on your behalf. PLEASE CONTACT THE PERSON RESPONSIBLE FOR
YOUR ACCOUNT WITH YOUR VOTING INSTRUCTIONS.
Very truly yours,
John J. Smith, Chairman
<PAGE> 69
<TABLE>
<S> <C>
/X/ PLEASE MARK YOUR SHARES IN YOUR NAME
VOTES AS IN THIS
EXAMPLE.
</TABLE>
<TABLE>
<CAPTION>
FOR WITHHELD Nominees: FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C> <C>
1. Election of / / / / Robert J. Kirk, Marshall V. Noecker, 2. Approval of the Stock and / / / / / /
Directors and David B. Schoon. Asset Purchase Agreement,
dated October 3, 1996 (the
"Agreement"), contained and
described in the accompanying
Proxy Statement, dated
November 1, 1996.
</TABLE>
For, except vote withheld from the following nominee(s):
___________________________________________________________
SIGNATURE(S) _____________________________________________ DATE ____________
SIGNATURE(S) _____________________________________________ DATE ____________
Please date and sign this Proxy exactly as your name appears herein and return
in the enclosed envelope which requires no postage. If executing on behalf of a
corporation, minor, etc., sign that name and add signature and capacity of
authorized signer.
- --------------------------------------------------------------------------------
DETACH CARD
