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 (AMENDMENT NO. ___________)
Filed by the Registrant - X
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement - X Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
Thermal Industries, Inc.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
X Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common
(2) Aggregate number of securities to which transaction applies:
1,958,512
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined):
$15.00
(4) Proposed maximum aggregate value of transaction:
$29,377,680
(5) Total fee paid:
$5,876
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
(1) Amount Previously Paid:
(2) Form Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
THERMAL INDUSTRIES, INC.
301 Brushton Avenue
Pittsburgh, Pa. 15221
Telephone: (412) 244-6400
February ___, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of
Shareholders (the "Special Meeting") of Thermal Industries, Inc.
("Thermal" or the "Company") which will be held at the offices of
Buchanan Ingersoll Professional Corporation, 20th Floor, One
Oxford Centre, 301 Grant Street, Pittsburgh, Pennsylvania at 9:00
a.m., Eastern Standard Time, on ______, 1997. At the Special
Meeting, you will be asked to vote on approval and adoption of
the Agreement and Plan of Merger (the "Merger Agreement") that
provides for the merger (the "Merger") of Heat Acquisition, Inc.,
a Delaware corporation ("Heat Acquisition") and wholly-owned
subsidiary of Heat, Inc., a Delaware corporation ("Heat"), with
and into Thermal. As a result of the Merger, Thermal would
continue as the surviving corporation, the separate existence of
Heat Acquisition would cease and Thermal would become a wholly-
owned subsidiary of Heat.
If the Merger Agreement is approved and adopted and the Merger
is consummated, the holders of Thermal common stock, $.01 par
value per share (the "Thermal Common Stock"), will be entitled to
receive, in exchange for each share of Thermal Common Stock held,
a cash payment of $15.00 per share.
Enclosed with this letter are a Notice of Special Meeting of
Shareholders and a Proxy Statement prepared by Thermal which
describes the Merger Agreement and the proposed Merger, its
background and other related information. Also enclosed is a
Proxy Card solicited by the Board of Directors of Thermal in
connection with the Special Meeting.
The Board of Directors has unanimously approved, and
unanimously recommends that shareholders vote FOR the approval
and adoption of the Merger Agreement. David H. Weis, Chairman
and Chief Executive Officer of Thermal and Eric Rascoe, Secretary
and Treasurer of Thermal, have informed the Company that they, as
individuals and owners of 57.9% and 6.6% of the issued and
outstanding Thermal Common Stock, respectively, intend to vote in
favor of the Merger. The affirmative vote of a majority of the
votes cast by all of the shareholders of the Thermal Common Stock
entitled to vote thereon at a meeting of the shareholders at
which a quorum is present is required to approve and adopt the
Merger Agreement.
It is important that your shares be represented and voted at
the meeting. Please complete, sign, date and promptly return the
enclosed Proxy Card even if you currently plan to attend the
meeting. You may revoke your proxy at any time before it is
voted by giving written notice to Thermal. If you attend the
special meeting and vote in person, your vote will supersede your
proxy.
Sincerely,
/s/ David H. Weis
David H. Weis
Chairman and Chief Executive
Officer
<PAGE>
THERMAL INDUSTRIES, INC.
301 Brushton Avenue
Pittsburgh, Pennsylvania 15221
Telephone (412) 244-6400
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A special meeting (the "Special Meeting") of the shareholders
of Thermal Industries, Inc., a Pennsylvania corporation
("Thermal"), will be held at the offices of Buchanan Ingersoll
Professional Corporation, 20th Floor, One Oxford Centre, 301
Grant Street, Pittsburgh, Pennsylvania at 9:00 a.m., Eastern
Standard Time, on ______, 1997, for the following purposes:
(i) To consider and vote upon a proposal to approve and
adopt the Agreement and Plan of Merger (the "Merger
Agreement") dated as of January 6, 1997, and the transactions
contemplated thereby, pursuant to which, among other things,
Thermal would merge (the "Merger") with and into Heat
Acquisition, Inc., a Delaware corporation ("Heat
Acquisition"). Upon consummation of the Merger, Thermal would
become a wholly-owned subsidiary of Heat, Inc., a Delaware
corporation ("Heat"). The record holders of Thermal common
stock, $.01 par value per share (the "Thermal Common Stock"),
issued and outstanding immediately prior to the effective time
of the Merger would be entitled to receive, in exchange for
each share of the Thermal Common Stock held, a cash payment of
$15.00 per share;
(ii) To transact such other business as may properly come
before the Special Meeting.
The Merger Agreement is attached as Appendix A to the enclosed
Proxy Statement.
All shareholders of record at the close of business on
February ___, 1997 (the "Record Date") are entitled to notice of
the meeting. Only holders of record of Thermal Common Stock at
the close of business on the record date are entitled to vote at
the meeting. Each share of Thermal Common Stock will entitle the
holder thereof to one vote at the meeting.
All shareholders who are entitled to vote, even if they plan
to attend the meeting, are requested to execute the enclosed
proxy card and return it without delay in the enclosed postage-
paid envelope. You may revoke your proxy at any time before it
is voted by giving written notice to Thermal. If you attend the
meeting and vote in person, your vote will supersede your proxy.
By Order of the Board of
Directors,
/s/ Eric Rascoe
Eric Rascoe, Secretary
Pittsburgh, Pennsylvania
February ___, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN
THE ENCLOSED POSTAGE-PAID ENVELOPE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
<PAGE>
THERMAL INDUSTRIES, INC.
301 Brushton Avenue
Pittsburgh, Pennsylvania 15221
(412) 244-6400
____________
PROXY STATEMENT
____________
SPECIAL MEETING OF SHAREHOLDERS
To Be Held on February ___, 1997
____________
INTRODUCTION
____________
This Proxy Statement is being furnished to the shareholders of
Thermal Industries, Inc. ("Thermal" or the "Company"), in
connection with the solicitation of proxies by the Board of
Directors (the "Board") of Thermal to be voted at a special
meeting of the shareholders of Thermal to be held at the offices
of Buchanan Ingersoll Professional Corporation, 20th Floor, One
Oxford Centre, 301 Grant Street, Pittsburgh, Pennsylvania at 9:00
a.m. Eastern Standard Time, on ______, 1997 (the "Special
Meeting"). Only the shareholders of record (the "Shareholders")
at the close of business on February ___, 1997 (the "Record
Date") are entitled to notice of and to vote at the Special
Meeting. On the Record Date, there were issued and outstanding
__________ shares of Thermal common stock, $.01 par value per
share (the "Thermal Common Stock"). This Proxy Statement and the
accompanying proxy card ("Proxy") are first being mailed to the
Shareholders on or about __________, 1997.
At the Special Meeting, Shareholders will be asked (i) to
consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of January 6, 1997 (the
"Merger Agreement"), and the transactions contemplated thereby,
pursuant to which, among other things, Thermal would merge (the
"Merger") with and into Heat Acquisition, Inc., a Delaware
corporation ("Heat Acquisition"). Upon consummation of the
Merger, Thermal would become a wholly-owned subsidiary of Heat,
Inc., a Delaware corporation ("Heat"). The record holders of
Thermal Common Stock issued and outstanding immediately prior to
the effective time of the Merger would be entitled to receive, in
exchange for each share of the Thermal Common Stock, a cash
payment of $15.00 per share; and (ii) to transact such other
business as may properly come before the Special Meeting or any
adjournment thereof.
Consummation of the Merger is subject to a number of
conditions, including approval and adoption of the Merger
Agreement by the holders of the majority of the outstanding
shares of Thermal Common Stock and expiration or termination of
the waiting period applicable to the Merger under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). The Merger would be consummated shortly after such
shareholder approval is obtained, such waiting period expires or
is terminated and the other conditions to the Merger are
satisfied or waived.
David H. Weis, Chairman and Chief Executive Officer of
Thermal, and Eric Rascoe, Secretary and Treasurer of Thermal,
have informed the Company that they, as individuals and owners of
57.9% and 6.6% of the issued and outstanding Thermal Common
Stock, respectively, intend to vote in favor of the Merger.
All information in this Proxy Statement concerning Heat
Acquisition and Heat has been supplied by Heat Acquisition and
Heat. Except as otherwise indicated, all other information in
this Proxy Statement has been supplied by Thermal. Similarly,
statements contained in this Proxy Statement as to the contents
of the Merger Agreement are qualified in their entirety by
reference to the copy of the Agreement and Plan of Merger
attached hereto as Appendix A.
<PAGE>
INTRODUCTION
SUMMARY 1
THE SPECIAL MEETING 1
RECORD DATE, VOTE REQUIRED AND VOTING RIGHTS 1
THE MERGER CONSIDERATION TO BE RECEIVED BY THE
SHAREHOLDERS 1
PAYMENT OF THE MERGER CONSIDERATION 2
RECOMMENDATION OF THE BOARD 2
INTERESTS OF CERTAIN PERSONS IN THE MERGER 2
CONDITIONS TO THE MERGER 2
PAYMENT FOR SHARES 2
SOURCE OF FUNDS 3
ACCOUNTING TREATMENT OF THE MERGER 3
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS 3
RIGHTS OF DISSENTING SHAREHOLDERS 3
THE SPECIAL MEETING 4
GENERAL 4
RECORD DATE, VOTE REQUIRED AND VOTING RIGHTS 4
THE MERGER 6
BACKGROUND OF THE MERGER 6
REGULATORY APPROVAL OF THE MERGER 7
RECOMMENDATION OF THE BOARD AND REASONS FOR THE MERGER 7
FAIRNESS OPINION 8
SOURCE OF FUNDS 9
ACCOUNTING TREATMENT OF THE MERGER 9
INTERESTS OF CERTAIN PERSONS IN THE MERGER 10
AGREEMENT AND PLAN OF MERGER 10
THE MERGER AGREEMENT 10
PAYMENT FOR SHARES OF THE THERMAL COMMON STOCK 14
CERTAIN TRANSACTIONS WITH MANAGEMENT 16
PRINCIPAL SHAREHOLDERS INDEMNITY AGREEMENT 16
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER 17
RIGHTS OF DISSENTING SHAREHOLDERS 18
GENERAL 18
FILING OF NOTICE OF INTENTION TO DEMAND FAIR VALUE 18
RECORD AND BENEFICIAL OWNERS 19
NOTICE TO DEMAND PAYMENT 19
RESTRICTIONS 19
PAYMENT OF FAIR VALUE 20
FAILURE TO MAKE PAYMENT 20
ESTIMATE BY DISSENTER OF FAIR VALUE 20
VALUATION PROCEEDINGS 20
COSTS AND EXPENSES OF VALUATION PROCEEDINGS 21
WITHDRAWAL OR LOSS OF DISSENTERS' RIGHTS 21
THERMAL COMMON STOCK 21
DESCRIPTION 21
MARKET PRICES 21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 23
CERTAIN INFORMATION CONCERNING THERMAL 24
BUSINESS 24
SELECTED HISTORICAL FINANCIAL DATA OF THERMAL 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THERMAL 26
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH
THREE MONTHS ENDED SEPTEMBER 30, 1995 26
YEAR ENDED JUNE 30, 1996 COMPARED WITH YEAR ENDED JUNE
30, 1995 27
YEAR ENDED JUNE 30, 1995 COMPARED WITH YEAR ENDED JUNE
30, 1994 28
CERTAIN INFORMATION CONCERNING HEAT AND HEAT ACQUISITION 30
INDEPENDENT PUBLIC ACCOUNTANTS 30
SECURITY HOLDER PROPOSALS 30
INDEX TO FINANCIAL STATEMENTS F-1
APPENDIX A_Merger Agreement
APPENDIX B_Subchapter D of Chapter 15 of the BCL
APPENDIX C_Opinion of Parker/Hunter Incorporated
<PAGE>
SUMMARY
The following summary is intended only to highlight certain
matters more fully discussed elsewhere in this Proxy Statement.
The summary is not intended to be a complete statement of all
material features of the Merger and is qualified in its entirety
by more detailed information contained elsewhere in this Proxy
Statement and the appendices hereto. Shareholders are urged to
read carefully this Proxy Statement and the appendices hereto in
their entirety.
The Special Meeting
The Special Meeting will be held at the offices of Buchanan
Ingersoll Professional Corporation, 20th Floor, One Oxford
Centre, 301 Grant Street, Pittsburgh, Pennsylvania at 9:00 a.m.
Eastern Standard Time, on ______, 1997, to consider and vote upon
a proposal to approve and adopt the Agreement and Plan of Merger
dated as of January 6, 1997 (the "Merger Agreement"), and the
transactions contemplated thereby, pursuant to which, among other
things, Heat Acquisition, Inc., a Delaware corporation ("Heat
Acquisition") and wholly-owned subsidiary of Heat, Inc., a
Delaware corporation ("Heat") would merge (the "Merger") with and
into Thermal. As a result of the Merger, Thermal would continue
as the surviving corporation and as a wholly-owned subsidiary of
Heat. See "THE SPECIAL MEETING."
Record Date, Vote Required and Voting Rights
Record Date. Each record holder of Thermal Common Stock at the
close of business on __________, 1997 (the "Record Date") shall
be entitled to notice of and to vote at the Special Meeting.
Votes Required. The affirmative vote of a majority of the
votes cast by all of the Shareholders entitled to vote thereon is
required for the approval and adoption of the Merger Agreement at
the Special Meeting. David H. Weis, Chairman and Chief Executive
Officer of Thermal, and Eric Rascoe, Secretary and Treasurer of
Thermal, have informed the Company that they, as individuals and
owners of 57.9% and 6.6% of the issued and outstanding Thermal
Common Stock, respectively, intend to vote in favor of the
Merger.
Voting Rights. Each holder of shares of the Thermal Common
Stock on the Record Date is entitled to cast one vote per share,
in person or by properly executed proxy, with respect to
approving and adopting the Merger Agreement at the Special
Meeting. As of the Record Date, there were issued and
outstanding __________ shares of Thermal Common Stock held by 212
shareholders of record. See "SPECIAL MEETING_Record Date, Vote
Required and Voting Rights."
The Merger Consideration to Be Received by the Shareholders
If the Merger is consummated, each share of Thermal Common
Stock (excluding Treasury Shares and Dissenting Shares, each as
defined herein) will be converted into the right to receive a
cash payment of $15.00 per share (the "Merger Consideration").
Payment of the Merger Consideration
The Merger Consideration will be distributed to the
Shareholders in exchange for each share of Thermal Common Stock
outstanding immediately prior to the effective time (the
"Effective Time") of the Merger (excluding Treasury Shares and
Dissenting Shares, each as defined herein). See "MERGER
AGREEMENT_Conversion of Common Shares" and "Payment of Shares."
Recommendation of the Board
THE BOARD HAS UNANIMOUSLY APPROVED THE AGREEMENT AND PLAN OF
MERGER AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
THE APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER.
See "THE MERGER_Background of the Merger,"
"THE MERGER_Recommendation of the Board and Reasons for the
Merger" and "THE MERGER_Interests of Certain Persons in the
Merger."
Interests of Certain Persons in the Merger
In considering the recommendation of the Board with respect to
the Merger Agreement, Shareholders should be aware that certain
members of Thermal's management and the Board have interests
which may present them with actual or potential conflicts of
interest in connection with the Merger. See "THE
MERGER_Recommendations of the Board and Reasons for the Merger."
Conditions to the Merger
The obligations of Heat, Heat Acquisition and Thermal to
consummate the Merger are subject to a number of conditions,
including (i) the approval of the Merger Agreement by the
affirmative vote of a majority of the votes cast by all of the
Shareholders entitled to vote thereon; (ii) compliance with
certain covenants and conditions contained in the Merger
Agreement; and (iii) governmental and regulatory approvals. See
"PLAN OF MERGER AND MERGER AGREEMENT_The Merger Agreement;
Conditions to Consummation of the Merger." It is also a
condition to Heat's and Heat Acquisition's obligation to
consummate the Merger that the holders of no more than 10 percent
of Thermal Common Stock have perfected any dissenters' rights
they may have under the Pennsylvania Business Corporation Law of
1988, as amended (the "BCL"); this condition is waivable by Heat
and Heat Acquisition in their sole discretion. See "RIGHTS OF
DISSENTING SHAREHOLDER."
Payment for Shares
As promptly as practicable after the Effective Time, notice of
the consummation of the Merger, together with instructions
regarding procedures for the surrender of certificates
representing shares of Thermal Common Stock (except Dissenting
Shares and Treasury Shares, as defined herein), will be mailed to
the Shareholders. See "AGREEMENT AND PLAN OF MERGER_Payment for
Shares of the Thermal Common Stock."
Source of Funds
As a condition to closing the Merger, Heat and Heat
Acquisition must deposit cash in an amount equal to the Merger
Consideration with NationsCredit, the paying agent for the Merger
(the "Paying Agent"). Heat 's source of funds for the Merger
will be debt financing to be provided by a commercial bank and
equity financing to be provided by its affiliate, H.I.G.
Investment Group, L.P. ("HIG"). See "THE MERGER_Source of
Funds."
Accounting Treatment of the Merger
The Merger is expected to be accounted for under the purchase
method of accounting in accordance with generally accepted
accounting principles. See "THE MERGER_Accounting Treatment of
the Merger."
Certain Federal Income Tax Consequences to Shareholders
The Merger will be a taxable transaction for federal income
tax purposes for the Shareholders. See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER."
Rights of Dissenting Shareholders
Shareholders who comply with the requirements of Subchapter D
of Chapter 15 of the BCL will be entitled, upon consummation of
the Merger, to dissent from the Merger and to have the "fair
value" of his, her or its shares paid to him, her or it by the
Surviving Corporation. Any Shareholder who desires to exercise
dissenters' rights should carefully review the requirements of
Subchapter D of Chapter 15 of the BCL attached hereto as
Appendix B and is urged to consult his, her or its legal advisor
before exercising or attempting to exercise such rights. See
"RIGHTS OF DISSENTING SHAREHOLDERS."
<PAGE>
THE SPECIAL MEETING
General
This Proxy Statement is furnished to the Shareholders in
connection with the solicitation of proxies by the Board for use
at the Special Meeting to be held at the offices of Buchanan
Ingersoll Professional Corporation, 20th Floor, One Oxford
Centre, 301 Grant Street, Pittsburgh, Pennsylvania at 9:00 a.m.,
Eastern Standard Time, on ______, 1997, and at any and all
adjournments thereof.
At the Special Meeting, Thermal's shareholders will be asked:
(i) To consider and vote upon a proposal to approve and
adopt the Merger Agreement and the transactions contemplated
thereby, pursuant to which, among other things, Thermal would
merge with and into Heat Acquisition. Upon consummation of
the Merger, Thermal would become a wholly-owned subsidiary of
Heat. The record holders of Thermal Common Stock, issued and
outstanding immediately prior to the effective time of the
Merger, would be entitled to receive, in exchange for each
share of the Thermal Common Stock held, a cash payment of
$15.00 per share; and
(ii) To transact such other business as may properly come
before the Special Meeting.
A copy of the Merger Agreement is attached as Appendix A to this
Proxy Statement.
For a discussion of the reasons for the Merger, see "THE
MERGER_Recommendation of the Board and Reasons for the Merger."
For a discussion of certain potential conflicts of interest with
regard to the Merger, see "THE MERGER_Interests of Certain
Persons in the Merger." Shares of Thermal Common Stock with
respect to which a demand for dissenters' rights has been
perfected pursuant to Subchapter D of Chapter 15 of the
Pennsylvania Business Corporation Law of 1988, as amended (the
"BCL") are sometimes referred to in this Proxy Statement as
"Dissenting Shares." See "RIGHTS OF DISSENTING SHAREHOLDERS."
Record Date, Vote Required and Voting Rights
Record Date. Each record holder of Thermal Common Stock at
the close of business on __________, 1997 shall be entitled to
notice of and to vote at the Special Meeting. As of the Record
Date, there were issued and outstanding __________ shares of
Thermal Common Stock held by 212 shareholders of record.
Vote Required. Under the BCL, the affirmative vote of a
majority of the votes cast by all of the shareholders of Thermal
entitled to vote thereon, at a shareholder meeting at which a
quorum is present, is required for the approval and adoption of
the Merger Agreement. The BCL requires the presence, in person
or by properly executed proxy, of the Shareholders entitled to
cast at least a majority of the votes that all the Shareholders
are entitled to cast in the vote on the approval and adoption of
the Merger Agreement in order to establish a quorum at the
Special Meeting.
David H. Weis, Chairman and Chief Executive Officer of
Thermal, and Eric Rascoe, Secretary and Treasurer of Thermal
(collectively the "Principal Shareholders"), have informed the
Company that they, as individuals and owners of 57.9% and 6.6% of
the outstanding Thermal Common Stock, respectively, intend to
vote in favor of the Merger.
Because there are no matters on the agenda for the Special
Meeting as to which brokers would have discretionary vote, there
will be no brokers' shares present at the Special Meeting voting
with discretionary authority, and thus there will be no broker
non-votes with regard to non-discretionary matters. However,
even if such brokers were present with discretionary voting
authority, broker non-votes, as well as abstentions, would and
will have no effect on the approval and adoption of the Merger
Agreement because Pennsylvania law accounts only for votes cast
in determining whether shareholders have taken action. Thus,
because Thermal's Articles of Incorporation (the "Articles") and
By-Laws (the "By-Laws") do not modify such Pennsylvania law in
this regard and because broker non-votes and abstentions would
and will not in fact be cast for such purposes, broker non-votes
and abstentions would and will not be counted either for or
against approval and adoption by the Shareholders of the Merger
Agreement. On the other hand, because shares recorded as a
broker non-vote or an abstention have the ability to be cast as a
vote under Pennsylvania law (versus rules restricting the
broker's authority to cast a vote or a shareholder's decision to
abstain versus casting a vote), shares with respect to broker non-
votes and abstentions would or will be deemed to be present at
the Special Meeting and thus would or will be counted for
purposes of establishing a quorum.
Voting Rights. Each holder of shares of Thermal Common Stock
on the Record Date is entitled to cast one vote per share, in
person or by properly executed proxy, with respect to each matter
to be considered at the Special Meeting. All shares of the
Thermal Common Stock represented at the Special Meeting by
properly executed proxies received prior to or at the Special
Meeting, and not revoked, will be voted at the Special Meeting in
accordance with the instructions specified in such proxies. If
no instructions are indicated, properly executed proxies will be
voted FOR the approval and adoption of the Merger Agreement.
Thermal does not know of any matters, other than as described
in the accompanying Notice of Special Meeting of Shareholders,
that may come before the Special Meeting. If any other matters
are properly presented for action at the Special Meeting,
including matters relative to the conduct of the meeting, the
persons named in and acting under the enclosed proxy will have
the discretion to vote on such matters in accordance with their
best judgment.
A proxy given pursuant to this solicitation may be revoked at
any time before it is voted. Proxies may be revoked by (i)
written notice of revocation bearing a date later than the proxy
delivered before the Special Meeting to Eric Rascoe, Secretary,
Thermal Industries, Inc., 301 Brushton Avenue, Pittsburgh,
Pennsylvania 15221 (the "Secretary"), (ii) duly executing a
subsequent proxy bearing a later date relating to the same
shares, and delivering it to the Secretary at or before the
Special Meeting, or (iii) attending the Special Meeting and
voting in person. Attendance at the Special Meeting will not in
and of itself constitute revocation of a previously executed
proxy.
Thermal will pay the cost of soliciting proxies in the
accompanying form. In addition to solicitation by the use of the
mails, certain officers and regular employees of Thermal may
solicit the return of proxies by telephone, telegram or personal
interview and may request brokerage houses and custodians,
nominees and fiduciaries to forward soliciting material to their
principals, and Thermal will reimburse such persons and entities
for their reasonable out-of-pocket expenses.
THE MERGER
Background of the Merger
From time to time the Company has received inquiries from
persons expressing an interest in acquiring the Company and the
Company, upon execution of a confidentiality agreement has
permitted certain of these persons to receive nonpublic
information about the Company. In the summer of 1996,
representatives of H.I.G. Capital Management ("H.I.G. Capital")
contacted the Company's Chairman and indicated an interest in
making a proposal to acquire the Company. Following execution on
September 24, 1996 of a confidentiality agreement, the Company
commenced providing nonpublic information about the Company to
H.I.G. Capital. On September 9, 1996, H.I.G. Capital made an
acquisition proposal to the Company which, among other matters,
would have resulted in the shareholders of the Company receiving
$12.50 per share in cash, but was subject to a variety of
conditions including the execution of employment contracts with
members of key management of the Company and David H. Weis,
Chairman and Chief Executive Officer of Thermal, and Eric Rascoe,
Secretary and Treasurer of Thermal (the "Principal
Shareholders"), agreeing to indemnify the buyer. The Chairman of
the Company informed the representatives of H.I.G. Capital that
this proposal was inadequate and indicated that he would accept a
price of $15 per share.
Subsequently, H.I.G. Capital informed the Chairman of the
Company that H.I.G. Capital was willing to revise its proposal to
provide for a price of $15 per share. Negotiations occurred
between the Chairman and H.I.G. Capital with respect to the
revised proposal. The Board of Directors then considered this
matter and determined to retain Parker/Hunter Incorporated to
provide investment banking advice to the Board. The Board also
informed H.I.G. Capital that it should provide its proposal in
definitive form for the Board's consideration.
On November 12, 1996, H.I.G. Capital submitted to the Company
a draft agreement and plan of merger, a draft stock option, proxy
and indemnity agreement with the Principal Shareholders and draft
employment agreements for the Company's principal operating
management. On November 27, 1996, the Board of Directors
reviewed the definitive proposal of H.I.G. Capital, but
determined to await the receipt of investment banking advice from
Parker/Hunter Incorporated before taking any action with respect
to the proposal.
At a meeting of the Board of Directors held on December 9,
1996, the Board of Directors received advice from Parker/Hunter
Incorporated that based on their review of certain matters and
subject to certain limitations, a price of $15 per share was fair
from a financial point of view to the holders of the Company's
stock. See "THE MERGER - Fairness Opinion." The Board
determined that several material terms of the definitive H.I.G.
Capital proposal were unacceptable and was informed by the
Principal Shareholders that they would not agree to the terms set
forth in the draft agreement presented to them. Negotiations
occurred thereafter among the Company, H.I.G. Capital and the
Principal Shareholders.
On January 3, 1997, the Board of Directors met to review the
status of negotiations with H.I.G. Capital. Parker/Hunter
Incorporated also confirmed its prior opinion to the Board with
respect to the proposed price of $15 per share. See "THE MERGER
- - Fairness Opinion." On the evening of January 6, 1997,
negotiations concluded with H.I.G. Capital, the Board of
Directors met and authorized the Agreement and Plan of Merger,
the Company and Heat and its subsidiary executed the Agreement
and Plan of Merger and the Principal Shareholders and H.I.G.
Capital's subsidiary executed the Indemnity Agreement.
Regulatory Approval of the Merger
Under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended ("HSR Act") and the rules that have been
promulgated thereunder by the Federal Trade Commission (the
"FTC"), certain affiliation transactions may not be consummated
unless certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division")
and the FTC and certain waiting period requirements have been
satisfied. The acquisition of Thermal Common Stock by Heat in
connection with the Merger is subject to such requirements.
Thermal, Heat and Heat Acquisition filed Pre-Merger Notification
Reports with the Antitrust Division and the FTC. The waiting
period will expire on February 28, 1997, unless extended by a
request for additional information or documentary material or
unless it is terminated early. The Merger would be consummated
shortly after shareholder approval is obtained, and such HSR
waiting period expires or is terminated.
At any time before or after Heat acquisition of Thermal Common
Stock, either the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin
Heat Acquisition's merger with and into Thermal and the related
purchase of Thermal Common Stock or otherwise seeking divestiture
of Thermal Common Stock acquired by Heat or divestiture of
substantial assets of Thermal or its subsidiaries. Private
parties and state attorney generals may also bring legal action
under the antitrust laws under certain circumstances. There can
be no assurance that a challenge to the Merger or the acquisition
of Thermal Common Stock by Heat on antitrust grounds will not be
made, or, if such a challenge is made, of the result.
Recommendation of the Board and Reasons for the Merger
THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
The Board believes that the sale of the Company is the best
way to maximize the value of Thermal's stock for its
shareholders. The trading market for Thermal Common Stock is
thin, and the volume of trading has been light throughout its
history as a public company. See "THERMAL COMMON STOCK_Market
Prices." As a result, the Board believes that the trading market
for Thermal shares has not adequately reflected the fair value of
Thermal Common Stock. For all of the above reasons, the Board
believes that the sale of the Company to Heat, at a price
reflecting the fair value of the Common Stock of Thermal, is in
the best interests of the Company and its shareholders.
In evaluating the Merger Agreement as proposed by Heat
Acquisition and Heat, the Board considered a number of factors in
determining the fairness of the Merger Agreement to the
shareholders of Thermal. These factors included, among other
things, (i) the factors discussed in the preceding paragraph;
(ii) Parker/Hunter Incorporated's opinion as to the fairness from
a financial point of view with respect to the Merger
Consideration; (iii) the absence of any firm offers or
indications of interest to purchase Thermal from third parties at
a price equal to or exceeding the Merger Consideration; (iv) the
historical trading range of Thermal Common Stock; (v) the fact
that the Merger Agreement is not conditioned upon obtaining third-
party financing, Heat has obtained commitments for financing and
has been initially capitalized with $1,000,000 and Heat is liable
to reimburse Thermal for up to $500,000 of expenses in the event
it breaches the Merger Agreement; (vi) the willingness of Heat to
proceed with a definitive Merger Agreement following extensive
due diligence on the Company; and (vii) the fact that the Merger
Consideration and terms of the Merger were arrived at in arm's-
length negotiations with Heat.
On the basis of this analysis, the Board determined that the
terms of the Merger are fair to and in the best interests of the
shareholders of Thermal. As a result, the Board has unanimously
approved the terms of the Merger Agreement, and the Board
unanimously recommends that the shareholders vote FOR the
approval and adoption of the Merger Agreement.
Fairness Opinion
Parker/Hunter Incorporated ("Parker/Hunter") has delivered to
the Board its written opinion dated January 3, 1997 (attached
hereto as Appendix C) to the effect that a price of $15.00 per
share is fair from a financial point of view to the shareholders
of Thermal (the "Fairness Opinion"). Parker/Hunter is regularly
engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated
underwritings, the purchase and sale of listed and unlisted
securities, private placements and valuations for estate,
corporate and other purposes.
In connection with the Fairness Opinion, Parker/Hunter
reviewed, among other things, the following: (i) the Merger
Agreement; (ii) the Company's audited financial statements as of
June 30, 1996 and for the five fiscal years then ended, and the
Company's unaudited financial statements as of September 30, 1996
and for the three-month period then ended; (iii) certain other
publicly available business and financial information concerning
the Company; (iv) certain publicly available information
concerning the trading of, and the trading markets for, the
Common Stock; (v) certain other internal Company information,
primarily financial in nature, including financial projections
for the Company prepared by the Company's management; (vi) the
nature and financial terms of certain recent business
combinations which Parker/Hunter believed to be relevant; and
(vii) certain publicly available information regarding companies
that Parker/Hunter believed to be comparable to the Company, as
well as trading market information for such comparable companies.
Parker/Hunter also had meetings with certain senior officers and
directors of the Company, but was not requested to and did not
solicit third-party indications of interest in acquiring all or
part of the Company.
In rendering this Opinion, Parker/Hunter relied, without
independant verification, on the accuracy and completeness of all
financial and other information that was publically available or
furnished or otherwise communicated to it by the Company.
Parker/Hunter did not independently evaluate or appraise the
value of any of the Company's assets or liabilities and was not
furnished with any such evaluations or appraisals. Parker/Hunter
relied on the Company's financial projections and assumed that
they were reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the
Company's management, and Parker/Hunter expressed no opinion with
respect to such projections or the assumptions which they are
based.
In connection with Parker/Hunter's services as financial
advisor to the Company, the Company has agreed to pay a fee of
$150,000. The Company also agreed to reimburse Parker/Hunter for
its out-of-pocket expenses, including, but not limited to, the
fees of counsel, and to indemnify Parker/Hunter and certain
related parties against certain liabilities, including
liabilities ensuing under the federal securities laws.
Timothy M. Slevin, a Senior Vice President of Parker/Hunter,
is a member of the Board of Directors of the Company, but did not
participate in Parker/Hunter's determination of fairness.
Source of Funds
As a condition to Thermal's obligation to effect the Merger,
Heat or Heat Acquisition is required to deposit the aggregate
Merger Price in cash with the Paying Agent in order to consummate
the Merger. Heat is wholly-owned by HIG, a private equity fund
which currently has under management in excess of $150 million in
equity including sufficient funds to cause Heat to satisfy its
payment obligations in respect of the Merger Consideration in
accordance with the terms of the Merger Agreement. In connection
with the transactions contemplated in the Merger Agreement, Heat
has received commitment letters from HIG for equity financing and
NationsCredit for debt financing to provide funds sufficient to
pay the Merger Consideration. HIG has contributed $1,000,000 in
immediately available funds to Heat, which funds Heat is
obligated to hold and to have available to satisfy amounts which
may be owed to Thermal by Heat or Heat Acquisition. See "CERTAIN
INFORMATION CONCERNING HEAT AND HEAT ACQUISITION."
Accounting Treatment of the Merger
The Merger is expected to be accounted for under the purchase
method of accounting in accordance with generally accepted
accounting principles. Under the purchase method, Heat will
record at its cost the acquired assets less liabilities assumed.
Any difference between the cost of acquiring Thermal and the fair
values of Thermal's tangible and intangible assets less
liabilities will be recorded as goodwill.
Interests of Certain Persons in the Merger
In connection with the Merger, certain officers and a director
of Thermal will enter into certain relationships with Heat
Acquisition and Heat.
Effective upon the consummation of the Merger, the Surviving
Corporation will enter into employment agreements with David
Rascoe, the current President and a director of the Company, and
Todd Rascoe, a current Executive Vice President of the Company.
Under his employment agreement, David Rascoe will be paid his
current salary of $112,476 for fiscal year 1997, $150,000 for
1998, $160,000 for 1999, and $175,000 for the year 2000. Under
his employment agreement, Todd Rascoe will be paid his current
salary of $91,000 for fiscal year 1997, $112,500 for 1998,
$120,000 for 1999, and $131,250 for the year 2000. Both
employment agreements will also provide for the payment of
incentive compensation in the form of cash bonuses and the
issuance of stock options. At a minimum, David and Todd Rascoe's
first-year bonuses will be $74,500 and $71,500, respectively. In
addition, the employment agreements provide that, at closing,
David Rascoe and Todd Rascoe will purchase 25,000 and 12,500
shares, respectively, of the 1,000,000 shares of common stock
authorized for issuance of Heat. David Rascoe and Todd Rascoe
are both sons of Eric Rascoe, the Secretary and Treasurer of
Thermal.
AGREEMENT AND PLAN OF MERGER
All references to the terms and conditions of the Agreement
and Plan of Merger (the "Merger Agreement") in this Proxy
Statement are qualified in their entirety by reference to the
Merger Agreement, a copy of which is attached as Appendix A.
The Merger Agreement
General. The Merger Agreement provides that, subject to
satisfaction of certain conditions described below, Heat
Acquisition will be merged with and into Thermal. Thermal will
be the Surviving Corporation in the Merger, and the Surviving
Corporation will continue under the name "Thermal Industries,
Inc." Following the Merger, the separate existence of Heat
Acquisition will cease, and control of the Surviving Corporation
will shift from the current owners of the Thermal Common Stock to
Heat, which is the current owner of all of the outstanding Heat
Acquisition common stock.
The Merger Agreement provides that the Merger will become
effective at the date and time of the filing of the articles of
merger (the "Articles of Merger") with the Department of State of
the Commonwealth of Pennsylvania in the manner required by the
BCL and at the date and time of the filing of the Certificate of
Merger with the Delaware Secretary of State in the manner
required by the Delaware General Corporation Law ("DGCL") (the
"Effective Time"). At the Effective Time, (i) each share of
Thermal Common Stock issued and outstanding immediately prior to
the Merger (except as described in (ii) below) shall be canceled
and converted into the right to receive an amount equal to a cash
payment of the Merger Consideration, without interest; (ii) each
share of Thermal Common Stock the holders of which have dissented
from the proposed Merger pursuant to Subchapter D of Chapter 15
of the BCL and as discussed below in this Proxy Statement shall
be canceled and converted into the right to receive payment from
the Surviving Corporation in accordance with such subchapter of
the BCL; (iii) each share of Thermal Common Stock held in the
treasury of Thermal shall be canceled; and (iv) each share of the
Heat Acquisition Common Stock shall be converted into and become
one validly issued, fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation.
Determination of the Merger Consideration. The Merger
Agreement provides that at the Effective Time, each share of the
Thermal Common Stock as to which no effective notice of intention
to dissent was filed (See "RIGHTS OF DISSENTING SHAREHOLDERS")
will be converted into, and deemed for all corporate purposes to
evidence, the right to receive an amount equal to the Merger
Consideration in cash, without interest, upon surrender of the
certificate formerly representing such Thermal Common Stock. The
Merger Consideration is equal to an amount per share of Thermal
Common Stock equal to: (i) $15.00, minus (ii) the quotient
determined by dividing the amount by which the Closing Invoice
Amount (as defined below) exceeds $275,000 by the number of
Shares of Thermal Common Stock outstanding on a fully diluted
basis as of the Effective Time. The Merger Agreement defines
"Closing Invoice Amount" to mean the aggregate face amount of all
invoices payable by the Company in connection with fees of legal
counsel or investment bankers incurred in connection with the
Merger Agreement and the Indemnity and Fee Agreement. The
Principal Shareholders have agreed to pay the amount, if any, by
which the Closing Invoice Amount exceeds $275,000 so that the
Shareholders will receive a cash payment of $15.00 per share.
Payment of Expenses. Thermal is responsible for the payment
of certain costs (the "Transaction Costs") relating to the
transaction, including the following: proxy solicitation fees,
merger filing fees, investment banking fees, paying agent fees,
attorneys fees, accounting fees, break-up fees due or paid to
third parties and other fees resulting from the Merger and the
winding up of the business of Thermal and its subsidiaries to be
identified prior to the closing of the Merger. Thermal estimates
that the aggregate amount of the Transaction Costs will be
approximately $325,000. See "AGREEMENT AND PLAN OF MERGER - The
Merger Agreement; Determination of the Merger Consideration."
Heat and Heat Acquisition will pay their own expenses in
connection with the Merger.
Representations and Warranties. The Merger Agreement contains
various customary representations and warranties of each of the
parties thereto, including representations by Thermal as to the
following: the organization; good standing; authority to carry
on its business as it is now being conducted and authority to
effect the Merger; the absence of certain material changes in
Thermal's business; the compliance with and the absence of
governmental action concerning environmental laws; the absence of
certain litigation; no employee benefit plans require Thermal to
pay benefits as a result of the Merger; the compliance with
certain SEC filing requirements; good title to all personal
property material to the operation of its business; the absence
of labor disputes and unfair labor practices; and good and
marketable title in fee simple to its real properties set forth
on the disclosure statement attached to the Merger Agreement.
Restrictions Prior to the Merger. The Merger Agreement
provides that until the Effective Time, Thermal and its
subsidiaries will not, without the prior written consent of Heat,
or as otherwise provided in the Merger Agreement, engage in any
practice, take any action, commit or enter into any transaction
outside the ordinary course of business. The Merger Agreement
also provides that prior to the Effective Time, Thermal will not,
among other things, take any of the following actions: (i)
authorize or effect any change in its articles of incorporation
or bylaws; (ii) except for issuances of capital stock of the
subsidiaries of Thermal to Thermal or a wholly-owned subsidiary
or the exercise of existing options, grant, issue, redeem, sell
or otherwise dispose of any security relating to the Thermal
Common Stock or the Thermal Common Stock itself; (iii) declare,
set aside or pay a dividend, other than between any of the
Company and its wholly-owned subsidiaries; (iv) purchase or
otherwise acquire any shares of its capital stock; (v) incur any
indebtedness except in the ordinary course of business; (vi)
cancel or forgive any indebtedness owed to Thermal; (vii) settle
or compromise any suit or claim; (viii) change the existing
employment terms of any of its directors, officers or employees;
(iv) purchase, sell, lease or otherwise acquire or dispose of any
material asset; (x) settle or compromise any tax liability that
is material to the Company; or (xi) solicit, initiate or
encourage a proposal or offer concerning the acquisition of
Thermal by another person.
Effect of Termination. The Merger Agreement provides that in
the event (i) on or before May 30, 1997, a third party becomes a
beneficial owner of 50% or more of the outstanding voting
securities of Thermal, including a transaction involving the
Principal Shareholders, or (ii) the Merger is not consummated as
a result of any of the following reasons: (A) Thermal's Board
authorizes or recommends, or the Company enters into an
agreement, agreement in principal or closes an Acquisition
Transaction (defined below) with a third party (other than the
Merger Agreement), (B) Thermal's Board fails to recommend or
adversely changes its recommendation to Thermal's shareholders to
approve the adoption of the Merger Agreement, (C) the Company or
a Principal Shareholder fails to call the Special Shareholder's
Meeting to consider the Merger Agreement, or (D) the Company's
shareholders approve an Acquisition Transaction with a third
party (other than the Merger), then Thermal will be obligated to
pay to Heat a break-up fee in the amount of $5,000,000 plus an
amount not to exceed $500,000 for reasonable out-of-pocket
transaction expenses incurred by Heat and Heat Acquisition in
connection with its efforts to negotiate and document the Merger
Agreement and consummate the Merger. An Acquisition Transaction
is any merger, consolidation or other business combination
involving the Company or the Subsidiaries or acquisition of any
capital stock or any material portion of the assets (except for
acquisitions of assets in the ordinary course of business
consistent with past practice) of the Company or any of the
Subsidiaries.
The Merger Agreement also provides that a $1,000,000 break-up
fee will be paid by Thermal to Heat in the event the shares held
or hereafter acquired by the Principal Shareholders are not voted
in favor of the Merger at the Special Meeting and the break-up
fee and expense reimbursement described immediately above is not
owed by the Company to Heat.
The Merger Agreement also provides that if Heat or Heat
Acquisition breaches the Merger Agreement and Thermal is not in
breach, Heat or Heat Acquisition shall reimburse Thermal for all
Transaction Expenses incurred by Thermal up to an amount not to
exceed $500,000. See "CERTAIN TRANSACTIONS WITH MANAGEMENT -
Principal Shareholders Indemnity Agreement."
Conditions to Consummation of the Merger. The obligations of
Heat, Heat Acquisition and Thermal to effect the Merger are
conditioned on the Merger Agreement receiving, at a shareholder
meeting at which a quorum is present, the approval of a majority
of the votes cast by all of the Shareholders entitled to vote
thereon at the Special Meeting. See "THE SPECIAL MEETING -
Record Date, Vote Required and Voting Rights."
Heat's and Heat Acquisition's obligation to consummate the
Merger is also conditioned on, among other things: (i) any
waiting period applicable to the Merger under the HSR Act;
(ii) no governmental order shall be in effect or proceeding
pending that would prevent consummation of the Merger; (iii) the
accuracy in all material respects of the representations and
warranties of Thermal at and as of the Merger closing date and
Thermal's performance and compliance in all material respects of
its covenants through the closing of the Merger; (iv) receiving
from Thermal a certificate dated as of the Effective Time to
which Thermal certifies that it has no reason to believe that the
conditions referenced in (iii) have not been fulfilled; and (v)
the holders of not more than ten percent (10%) of the outstanding
Thermal Common Stock electing to assert dissenters' rights.
Thermal's obligations to consummate the Merger are also
conditioned on, among other things, (i) the accuracy in all
material respects of the representations and warranties of Heat
and Heat Acquisition at and as of the Merger closing date; (ii)
Heat's and Heat Acquisition's performance and compliance in all
material respects of their covenants through the Closing of the
Merger; and (iii) entering into employment agreements with David
and Todd Rascoe. See "THE MERGER - Interests of Certain Persons
in the Merger."
All of the conditions to closing contained in the Merger
Agreement may be waived by the party to whose benefit they
accrue, except the condition that the Merger Agreement receive,
at a shareholder meeting at which a quorum is present, the
approval of the majority of the votes cast by all of the
Shareholders entitled to vote thereon at the Special Meeting.
At the present time, none of Heat Acquisition, Heat or Thermal
is aware of any state of facts or conditions that would prevent
the consummation of the Merger.
Termination of the Merger Agreement. The Merger Agreement may
be terminated and the Merger may be abandoned at any time prior
to the Effective Time, notwithstanding approval thereof by the
Shareholders of the Company, by: (i) the mutual written consent
of the boards of directors (or duly authorized committees
thereof) of Heat, Heat Acquisition, and the Company; (ii) any
party if (a) the Company's Shareholders fail to approve the
Merger Agreement at the Shareholders' Meeting, or (b) the Merger
shall not have been consummated on or before May 30, 1997 (the
"Deadline Date"), provided that if any condition to the Merger
Agreement shall fail to be satisfied by reason of the existence
of an injunction or order of any court or governmental or
regulatory body, then at the request of any party the Deadline
Date shall be extended for a reasonable period of time, not in
excess of 30 days, to permit the parties to have such injunction
vacated or order reversed; (iii) the Company, in the event of a
material breach by Heat or Heat Acquisition of any
representation, warranty or agreement of Heat or Heat Acquisition
contained in the Merger Agreement, in each case which has not
been timely cured; (iv) the Company, if the Company receives a
firm proposal with respect to an acquisition transaction by a
third party which the Company's Board of Directors determines, in
the exercise of its fiduciary duties as advised by counsel,
contains terms that are more favorable to the Company and its
constituents, taken as a whole, than the Merger; (v) Heat, in the
event of a material breach by the Company of any representation,
warranty or agreement of the Company contained in the Merger
Agreement which has not been timely cured; or (vi) Heat, upon the
occurrence of any event that would require the Company to pay the
Termination Fee. See "AGREEMENT AND PLAN OF MERGER-The Merger
Agreement; Effect of Termination."
Nonsolicitation. The Merger Agreement provides that Thermal
and its respective subsidiaries will not, directly or indirectly,
authorize or permit any of its officers, directors, employees,
representatives and agents to solicit or encourage, or take any
other action to facilitate, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead
to, any takeover proposal, or agree to or endorse any takeover
proposal or participate in any discussions or negotiations, or
provide third parties with any nonpublic information, relating to
any such inquiry or proposal, except to the extent Thermal's
Board may provide such information as may be required by its
fiduciary duties and Thermal is not prohibited from making public
disclosures as required by law. The Merger Agreement provides
that Thermal must promptly advise Heat in writing of any such
inquiry or proposal.
Dissenting Shares. Pursuant to the Merger Agreement,
Dissenting Shares will not be converted at the Effective Time
into the right to receive payment of the Merger Consideration
from the Surviving Corporation with respect thereto, but will be
entitled to payment of the "fair value" of their shares only in
accordance with the provisions of Subchapter D of Chapter 15 of
the BCL. A holder of Dissenting Shares will have only such
rights and remedies with respect to such shares as are provided
in the Merger Agreement and under Subchapter D of Chapter 15 of
the BCL unless and until the holder of such shares withdraws his
or her demand for or otherwise loses his or her right to the
payment of fair value. If such holder properly withdraws his or
her demand for or otherwise loses his or her right to the payment
of fair value, then as of the Effective Time or the occurrence of
such event, whichever last occurs, such holder's Dissenting
Shares will cease to be Dissenting Shares and each will be
converted into and represent the right to receive the Merger
Consideration. Thermal has agreed to give Heat notice of any
written demands for or withdrawals of demands for the payment of
fair value which it receives. It is a condition to Heat's and
Heat Acquisition's obligation to consummate the Merger that
holders of not more than 10% of the Thermal Common Stock exercise
their statutory dissenters' rights; this condition may be waived
by Heat and Heat Acquisition in Heat's and Heat Acquisition's
sole discretion. See "RIGHTS OF DISSENTING SHAREHOLDERS."
Payment for Shares of the Thermal Common Stock
Amount of Consideration. In connection with the closing of
the Merger, Heat or Heat Acquisition is required to pay to the
Paying Agent, in cash, an aggregate amount equal to $15.00 per
share of Thermal Common Stock multiplied by the number of shares
outstanding immediately prior to the Effective Time.
Letter of Transmittal. After the Effective Time, each
certificate formerly representing the Thermal Common Stock as to
which an effective notice of intention to dissent was not filed
(see "Rights of Dissenting Shareholders") will be deemed for all
corporate purposes to evidence the right to receive the Merger
Consideration in cash, without interest, but the holder thereof
will not be entitled to receive such consideration until such
certificate has been surrendered to the Paying Agent in
accordance with the procedure specified in a letter of
transmittal (the "Letter of Transmittal"). As promptly as
practicable after the Effective Time, a Letter of Transmittal
will be mailed or made available to each Shareholder who has not
dissented to the Merger pursuant to Subchapter D of Chapter 15 of
the BCL. The Letter of Transmittal will specify the procedure
for surrendering the Thermal Common Stock certificates to the
Paying Agent.
Surrender of Certificate. Upon a shareholder's surrender to
the Paying Agent of a Thermal Common Stock certificate (in
accordance with the terms of delivery specified in the Letter of
Transmittal), the Paying Agent will promptly deliver in exchange
therefor checks representing cash payments in the amount per
share equal to the Merger Consideration, without interest,
multiplied by the number of shares of Thermal Common Stock
represented by the properly surrendered certificate. If such
payment is to be made to a person other than the person in whose
name Thermal Common Stock is registered, then such Thermal Common
Stock certificate must be endorsed appropriately.
In the event a Shareholder of Thermal Common Stock does not
surrender a certificate representing ownership of Thermal Common
Stock within 180 days after the Effective Time, the Paying Agent
shall return to the Surviving Corporation the Merger
Consideration previously paid by Heat or Heat Acquisition with
respect to such shares, and such Shareholder thereafter must look
exclusively to the Surviving Corporation (subject to applicable
abandoned property, escheat and similar laws) for payment of the
Merger Consideration, without interest or dividend, in exchange
for the surrender of such certificates.
Following the Merger, the Paying Agent shall mail to each
record holder of certificates that immediately prior to the
Effective Time represented Thermal Common Stock ("Certificates")
a form of Letter of Transmittal which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the
Paying Agent, and instructions for use in surrendering such
Certificates and receiving the Merger Consideration in respect
thereof. Until so surrendered, each such Certificate shall
represent solely the right to receive the aggregate Merger
Consideration relating thereto. If the Merger Consideration is
to be delivered to any person other than the person in whose name
the Certificate formerly representing Thermal Common Stock
surrendered therefor is registered, it shall be a condition to
such right to receive such Merger Consideration that the
Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person
surrendering such Thermal Common Stock shall pay to the Paying
Agent any transfer or other taxes required by reason of the
payment of the Merger Consideration to a person other than the
registered holder of the Certificate surrendered, or shall
establish to the satisfaction of the Paying Agent that such tax
has been paid or is not applicable.
Beneficial owners of Thermal Common Stock held of record by
others should contact the record owners to provide appropriate
instructions for completion of the Letter of Transmittal.
Treatment of Stock Options. In connection with the Merger,
holders of options for Thermal Common Stock (the "Optionees")
will be given the opportunity to automatically receive an Option
Price (defined below) for their outstanding vested and nonvested
options in the event that the Merger is consummated. As a result
of this opportunity, upon consummation of the Merger, the
Optionees would automatically be entitled to an amount determined
by multiplying the excess, if any, of the Merger Price over the
applicable exercise price of such Option by the number of shares
of Thermal Common Stock such holder could have purchased if such
holder had exercised such Option in full immediately prior to
such time ("Option Price").
CERTAIN TRANSACTIONS WITH MANAGEMENT
The Company is a party to a lease for 30,000 square feet of
factory and warehouse space with Mr. David Weis and Mr. Eric
Rascoe for the Company's main extrusion facility. The lease
provides for an 18-year term beginning on September 1, 1984, at a
base annual rental of $44,400, plus increases based upon the cost-
of-living index. During the last fiscal year, the Company paid
$54,600 pursuant to the terms of the lease. The terms of the
lease provide for additional rental payments due to increased
real estate taxes and insurance. The Company is also a party to
a lease with Messrs. Weis and Rascoe for 38,000 square feet of
warehouse and factory facilities. The lease provides for a 14-
year term commencing on December 31, 1986, at a base annual
rental of $60,000 for the first two years, with periodic
increases to $78,000 annually for the last four years of the
lease term. During the last fiscal year, $72,000 was paid by the
Company pursuant to the terms of the lease. These amounts are
exclusive of payments for taxes, insurance and other escalation
clauses required under the lease agreement. In the opinion of
management, the leases are on arm's-length terms that are as
favorable to the Company as would be the case had Mr. Weis and
Mr. Rascoe been unaffiliated third parties.
During the past fiscal year, the Company has continued to
retain Buchanan Ingersoll Professional Corporation to provide
legal services to the Company. Mr. Carl A. Cohen, a director of
Thermal, is a shareholder of Buchanan Ingersoll Professional
Corporation. In addition, the Company has continued to retain
Parker/Hunter Incorporated to provide investment banking services
to the Company. Mr. Timothy M. Slevin, a director of Thermal, is
a Senior Vice President of Parker/Hunter Incorporated.
Pursuant to the terms of the Merger Agreement, and upon
consummation of the Merger, Thermal's existing indemnification
obligation to each current and former director and officer of
Thermal with respect to acts or omissions occurring prior to the
consummation of the Merger will continue in full force and effect
for a period of up to six years following the effective date of
the Merger. Further, the Surviving Corporation shall cause to be
maintained in effect for not less than three years from the
effective date of the Merger the current policies of the
directors' and officers' liability insurance maintained by the
Company.
Principal Shareholders Indemnity Agreement
Each of David H. Weis, Chairman and CEO of Thermal, and Eric
Rascoe, Secretary and Treasurer of Thermal, as a condition to
closing, have executed an Indemnity and Fee Agreement (the
"Indemnity Agreement") in favor of Heat. Under the Indemnity
Agreement, Messrs. Weis and Rascoe are to deposit a total of $1
million into an escrow account to be used to satisfy certain of
the Company's obligations to Heat for certain breaches of
representations and warranties contained in the Merger Agreement,
and for certain potential Thermal liability under certain pending
litigation. The Indemnity Agreement also contains certain non-
competition and confidentiality provisions which will bind
Messrs. Rascoe and Weis.
If during the nine-month period following a termination of the
Merger Agreement, the result of which is that the Company is
obligated to pay to Heat the Break-Up Fee described in "AGREEMENT
AND PLAN OF MERGER - The Merger Agreement; Effect of
Termination," the Company's Board of Directors authorizes or
recommends, or the Company enters into an agreement to consummate
or closes, an Acquisition Transaction (other than the Merger),
then the Principal Shareholders shall pay to Heat a fee equal to
(i) the difference between the price per Share paid in connection
with the closing of such Acquisition Transaction and $15.00,
multiplied by (ii) the number of Shares owned by the Principal
Shareholders immediately prior to such closing (the "Special
Indemnity Fee").
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Set forth below is a description of certain federal income tax
aspects of the Merger to the holders of shares of the Thermal
Common Stock surrendered in the Merger under current law and
regulations. The discussion is based on the Internal Revenue
Code of 1986, as amended (the "Code"). Thermal will not seek any
rulings from the Internal Revenue Service or an opinion of
counsel with respect to the transaction contemplated hereby.
The receipt of cash for shares of Thermal Common Stock
pursuant to the Merger will be a taxable transaction for federal
income tax purposes and may also be a taxable transaction under
applicable state, local, foreign or other tax laws. In general,
a Shareholder will recognize gain or loss for federal income tax
purposes equal to the difference between the amount of cash
received in exchange for his, her or their shares of Thermal
Common Stock and his, her or their adjusted tax basis in such
shares. Assuming that the shares of Thermal Common Stock
constitute a capital asset in the hands of the Shareholder, such
gain or loss will be capital gain or loss and will be long-term
capital gain or loss if the shares were held for more than one
year. Under present law, long-term capital gains recognized by
an individual Shareholder will generally be taxed at a maximum
Federal marginal tax rate of 28%, and long-term capital gains
recognized by a corporate Shareholder will be taxed at a minimum
Federal marginal tax rate of 35%.
Unless an exemption applies under the applicable law and
regulations concerning "backup withholding" of federal income
tax, the Paying Agent will be required to withhold, and will
withhold, 31 percent of the gross Merger Consideration otherwise
payable to a Shareholder (or his designee) pursuant to the Merger
unless the Shareholder provides his taxpayer identification
number (social security number or employer identification number)
and certifies that such number is correct. Each Shareholder will
be requested to complete and sign the main signature form and the
Substitute Form W-9 included as part of the Letter of
Transmittal, so as to provide the information and certification
necessary to avoid backup withholding, unless an applicable
exemption exists and is proved in a manner satisfactory to Heat
and the Paying Agent.
The foregoing discussion may not be applicable to certain
types of Shareholders, including Shareholders who acquired shares
of Thermal Common Stock pursuant to the exercise of employee
stock options or otherwise as compensation, individuals who are
not citizens or residents of the United States, or foreign
corporations.
The federal income tax discussion set forth above is included
for general information only and is based upon present law.
Shareholders are urged to consult their tax advisors with respect
to the specific tax consequences of the Merger to them, including
the application and effect of the alternative minimum tax and
state, local and foreign tax laws.
RIGHTS OF DISSENTING SHAREHOLDERS
All references in Subchapter D of Chapter 15 of the BCL and in
this summary to a shareholder are to the record holder of shares
of Thermal Common Stock as to which dissenters' rights are
asserted. The following is a summary of the provisions of
Subchapter D of Chapter 15 of the BCL, but it is not intended to
be a complete statement of such and is qualified in its entirety
by reference thereto, the full text of which is attached hereto
on Appendix B.
General
Under Pennsylvania Law, the Shareholders may object to the
Merger and elect to exercise dissenters' rights pursuant to
Subchapter D of Chapter 15 of the BCL, and in such case the
Shareholders of Thermal who follow the procedures in Subchapter D
of Chapter 15 of the BCL will be entitled to receive payment of
the "fair value" of their shares of Thermal Common Stock, as
defined in Subchapter D of Chapter 15 of the BCL. Pursuant to
the BCL, the "fair value" of Thermal Common Stock is the value
thereof immediately before the consummation of the Merger, taking
into account all relevant factors, but excluding any appreciation
or depreciation in anticipation of the Merger.
Filing of Notice of Intention to Demand Fair Value
Prior to the Shareholder vote on the Merger Agreement, any
Shareholder who wishes to dissent and obtain payment of the fair
value of his shares must file with Thermal a written notice of
his intention to demand that he be paid the fair value of his
shares of Thermal Common Stock if the proposed Merger is
consummated. Such written notice should be sent to the Secretary
of Thermal at the address of Thermal set forth on the first page
of this Proxy Statement. In addition, any Shareholder who wishes
to dissent must effect no change in the beneficial ownership of
his shares of Thermal Common Stock from the date of the filing of
his written notice continuously through the Effective Date of the
Merger, and he must refrain from voting his shares of Thermal
Common Stock in approval of the Merger Agreement. A dissenter
who fails to comply with any of the foregoing requirements shall
not acquire any right to payment of the fair value of his shares
of Thermal Common Stock.
Please note that a written notice of an intention to dissent
must be filed in addition to and separate from any proxy or vote
against or abstaining from voting for the Merger Agreement.
Stated another way, neither a vote against the Merger Agreement
(or a proxy directing such) nor an abstention from the vote
concerning the Merger Agreement (or a proxy directing such) will
satisfy the requirement that a written notice of intention to
dissent be delivered to Thermal before the vote upon the
Agreement and Merger Agreement. Please also note that because a
proxy left blank will, unless revoked, be voted "FOR" adoption of
the Merger Agreement, a Shareholder electing to exercise
dissenters' rights who votes by proxy must not leave the proxy
blank, but must: (i) vote "AGAINST" adoption of the Merger
Agreement, or (ii) "ABSTAIN" from voting for or against adoption
of the Merger Agreement.
Record and Beneficial Owners
A record holder of Thermal Common Stock may assert dissenters'
rights as to fewer than all of the shares registered in his name
only if he dissents with respect to all the shares of the same
Class or Series beneficially owned by any one person and
discloses the name and address of the person or persons on whose
behalf he dissents. In that event, his rights shall be
determined as if the shares as to which he has dissented and his
other shares were registered in the names of different
shareholders. A beneficial owner of shares of Thermal Common
Stock who is not the record holder may assert dissenters' rights
with respect to shares held on his behalf and shall be treated as
a dissenting shareholder if he submits to Thermal the written
consent of the record holder not later than the time of assertion
of dissenters' rights. A beneficial owner may not dissent with
respect to some, but less than all, shares of Thermal Common
Stock of the same class or series owned by the owner, whether or
not the shares so owned by him are registered in his name.
Notice to Demand Payment
If the Merger Agreement is approved by the majority of the
votes cast at the Special Meeting, the Surviving Corporation
shall mail a further notice to all dissenters who gave due notice
of their intention to demand payment of the fair value of their
shares of Thermal Common Stock and who refrained from voting in
favor of the Agreement and Merger Agreement. The notice will
state where and when a demand for payment must be sent and
certificates for shares must be deposited in order to obtain
payment. Accompanying this notice will be a form for demanding
payment that will include a request for certification of the date
on which the Shareholder, or the person on whose behalf the
Shareholder dissents, acquired beneficial ownership of the shares
and a copy of Subchapter D of Chapter 15 of the BCL. The time
set for receipt of the demand and deposit of certificates shall
not be less than thirty days from the mailing of the notice. A
Shareholder who fails to timely demand payment, or fails to
timely deposit certificates, as required by the notice to demand
payment sent by the Surviving Corporation to such Shareholders,
shall not have any right to receive payment of the fair value of
his shares of Thermal Common Stock.
Restrictions
The dissenter shall retain all other rights of a Shareholder
until those rights are modified by the proposed Merger. Within
sixty days after the date set for demanding payment and
depositing certificates, if the Merger has not been effectuated,
Thermal shall return any certificates that have been deposited.
However, Thermal may at any later time send a new notice
regarding demand for payment and deposit of certificates with
like effect.
Payment of Fair Value
Promptly after the Effective Time or upon timely receipt of
demand for payment, if the Merger has been effectuated, the
Surviving Corporation shall either remit to dissenters who have
made demand and have deposited their certificates the amount that
the Surviving Corporation estimates to be the fair value of the
shares, or give written notice that no remittance will be made.
Failure to Make Payment
If the Surviving Corporation does not remit the amount of its
estimate of the fair value of the shares, it shall return any
certificates that have been deposited. The Surviving Corporation
may make a notation on any such certificate that such demand has
been made.
Estimate by Dissenter of Fair Value
If the Surviving Corporation gives notice of its estimate of
the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's
shares and the dissenter believes that the amount stated or
remitted is less than the fair value of his shares, he may send
to the Surviving Corporation his own estimate of the fair value
of the shares, which shall be deemed a demand for payment of the
amount or the deficiency. In the event that the Surviving
Corporation has remitted payment of its estimated value of a
dissenter's shares, and the dissenter does not file his own
estimate within thirty days after the mailing by the Surviving
Corporation of its remittance, the dissenter shall be entitled to
no more than the amount remitted to him by the Surviving
Corporation.
Valuation Proceedings
Within sixty days after the latest of: (i) the Effective Time;
(ii) timely receipt of any demands for payment; or (iii) timely
receipt of any Shareholder estimates of fair value, if any demand
for payment remains unsettled, the Surviving Corporation may file
in court an application for relief requesting that the fair value
of the shares be determined by the Court of Common Pleas of
Allegheny County. All dissenters, wherever residing, whose
demands have not been settled shall be made parties to the
proceedings as in an action against their shares. A copy of the
application shall be served on each such dissenter. If a
dissenter is a non-resident, the copy must be served on him in
the manner provided or prescribed or pursuant to 42 Pa. C.S. Ch.
53. Each dissenter who is made a party shall be entitled to
recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
Interest shall be payable from the Effective Date until the date
of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors,
including the average rate currently paid by the Surviving
Corporation on its principal bank loans. If the Surviving
Corporation fails to file an application within the applicable
sixty-day period, any dissenter who made a demand and who has not
already settled his claim against the Surviving Corporation may
do so in the name of the Surviving Corporation at any time within
thirty days after the expiration of the sixty-day period. If a
dissenter does not file an application within the thirty-day
period, each dissenter entitled to file an application shall be
paid the estimate by the Surviving Corporation of the fair value
of the shares and no more, and may bring an action to recover any
amount not previously remitted.
Costs and Expenses of Valuation Proceedings
The costs and expenses of any valuation proceeding, including
the reasonable compensation and expenses of the appraiser (if
appointed by the court), shall be determined by the court and
assessed against the Surviving Corporation, except that any part
of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who
are parties and whose action in demanding supplemental payment
the court funds to be dilatory, obdurate, arbitrary, vexations or
in bad faith. Fees and expenses of counsel and of experts for
the respective parties may be assessed as the court deems
appropriate against the Surviving Corporation and in favor of any
or all dissenters if the Surviving Corporation failed to comply
substantially with the requirements of Subchapter D of Chapter 15
of the BCL and may be assessed against either the Surviving
Corporation or a dissenter, in favor of any other party, if the
court finds that the party against whom the fees and expenses are
assessed acted in bad faith or in a dilatory, obdurate, arbitrary
or vexatious manner in respect to the rights provided by
Subchapter D of Chapter 15 of the BCL. If the court finds that
the services of counsel for any dissenter were of substantial
benefit to other dissenters similarly situated and should not be
assessed against the Surviving Corporation, it may award to such
counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
Withdrawal or Loss of Dissenters' Rights
If any Shareholder who demands payment for the Thermal Common
Stock under Subchapter D of Chapter 15 of the BCL effectively
withdraws or loses his or her right to dissent at any time, all
of such holder's Thermal Common Stock will be converted into the
right to receive the Merger Consideration. Failure to follow all
of the steps required by Subchapter D of Chapter 15 of the BCL
for perfecting dissenters' rights may result is the loss of such
rights. Thermal's approval or consent is not necessary for any
Shareholder, who previously demanded payment for the Thermal
Common Stock under Subchapter D of Chapter 15 of the BCL, to
withdraw such dissent.
THERMAL COMMON STOCK
Description
The holders of the Thermal Common Stock are entitled to one
vote per share on all matters voted on by the Shareholders,
including the election of directors. Holders of Thermal Common
Stock do not have pre-emptive or preferential rights to receive,
purchase or subscribe for any securities of Thermal. Each share
of Thermal Common Stock is entitled to participate equally in
dividends as declared by the Board.
Market Prices
Thermal Common Stock is traded on the over-the-counter market
under the symbol "THMP." On the Record Date, Thermal had 212
shareholders of record. The market for the Thermal Common Stock
is relatively thin. For example, during each of the calendar
quarters ended December 31, 1996, September 30, 1996, June 30,
1996 and March 31, 1996, the total volume of shares of the
Thermal Common Stock traded was 137,727, 76,482, 40,759 and
146,789, respectively.
High and low stock bid quotations, as reported by the National
Association of Securities Dealers (the "NASD") through the NASD
Over-the-Counter Bulletin Board for each calendar quarter of the
fiscal years ended June 30, 1995 and June 30, 1996 and the first
and second calendar quarters of fiscal year 1997 are presented
below. The high and low stock bid quotations set forth below
reflect interdealer prices, without retail markup, markdown or
commission, and may not necessarily represent actual
transactions.
Fiscal 1995
Quarter Low High
9/30/94 $7 1/4 $7 3/4
12/31/94 8 3/4 9 1/4
3/31/95 9 9 3/4
6/30/95 9 1/2 9 1/2
Fiscal 1996
Quarter Low High
9/30/95 $9 1/2 $ 9 1/2
12/31/95 9 9 1/2
3/31/96 8 9 1/2
6/30/96 8 1/4 9 1/2
Fiscal 1997
Quarter Low High
9/30/96 $8 3/8 $ 9 7/8
12/31/96 8 7/8 12 1/2
Dividends paid per share during the current fiscal year ending
June 30, 1997 and the fiscal year ended June 30, 1996 were as
follows:
Dividend Total
Date Paid Per Share Amount Paid Frequency
January 1996 $0.10 $194,720 Special
Dividend
Fiscal Year $0.06 $115,727 Dividend
Ended June 30,
1995
Thermal is not in arrears as to the payment of any dividends and
is not in default as to the payment of principal or interest as
to any of its securities.
On January 6, 1997, the last trading day prior to public
announcement of Thermal's execution of the Merger Agreement with
Heat and Heat Acquisition, the closing bid price of Thermal
Common Stock was $______. See "THE MERGER_Background of the
Merger." On _________________, the date of the latest bid price
available prior to the mailing of this Proxy Statement, the
closing bid price was $_______.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 30, 1996
(unless otherwise indicated) regarding the stock ownership of (i)
each person known to the Company to beneficially own more than
five percent of its Common Stock, (ii) each of the Company's
directors (and nominees), (iii) by the named executive officers,
and (iv) the Company's executive officers and directors as a
group. Except as otherwise noted below, in each instance the
nature of beneficial ownership consists of sole voting and
investment power.
Name of Beneficial Owner Beneficial Percentage
Ownership(1)
David H. Weis 1,133,500(2) 57.9
301 Brushton Avenue
Pittsburgh, PA 15221
Quest Advisory Corporation 173,686(2,3) 8.9
1414 Avenue of the Americas
New York, NY 10019
Eric Rascoe 129,000(2) 6.6
301 Brushton Avenue
Pittsburgh, PA 15221
Thomas Andres 38,000 1.9
Carl A. Cohen 12,000 (4)
Arthur Poland 47,000(5) 2.4
David Rascoe 38,000 1.9
Timothy M. Slevin 10,000 (4)
Quest Management Company, 12,400(2,3) 0.6
a General Partnership
1414 Avenue of the Americas
New York, NY 10019
Directors and Executive 1,407,500 65.1
Officers as a Group (7
persons)
_________________________
1.The amounts shown include shares covered by options granted by
the Company in the following amounts: (Andres - 1,000 shares;
Poland - 1,000 shares; David Rascoe -1000 shares; Cohen -
10,000 shares; Slevin - 10,000 shares). Mr. Weis' shares
include 120,000 shares with respect to which he has granted
options to purchase to Arthur Poland (35,000 shares), Thomas
Andres (35,000 shares), David Rascoe (35,000 shares) and one
other employee (15,000 shares). The amounts shown for Messrs.
Poland, Andres and David Rascoe include the shares covered by
the options granted by Mr. Weis.
2.These parties may be deemed to have beneficial ownership of
more than 5% of the outstanding class or series of voting
stock of the Company based upon information furnished to the
Company and based upon the 1,958,512 shares of Common Stock
that were outstanding on October 9, 1996. The business
address of Messrs. Weis and E. Rascoe is 301 Brushton Avenue,
Pittsburgh, PA 15221.
3.These entities have elected to file as a group pursuant to
Rule 13d-1(b) or 13d-2(b) of the Securities Exchange Act of
1934.
4.The named individual's share ownership represents less than
1.0% of all outstanding Company shares.
5.All shares owned jointly with wife.
CERTAIN INFORMATION CONCERNING THERMAL
Business
General. Thermal was incorporated in Pennsylvania in 1964 as
Modern White Manufacturing Co. In February 1968, Modern White
Manufacturing Co. changed its name to Thermal Industries, Inc.
and has since that time been primarily been engaged in the
manufacture and distribution of vinyl-framed, made-to-order
windows. These windows include double and triple-paned
replacement windows in a variety of styles, bow or bay window
units, and garden units. Thermal has also developed and
currently markets a line of replacement sliding doors and patio
enclosure systems. Vinylium Corporation, a wholly-owned
subsidiary of Thermal, develops rigid and dual-durometer PVC
profile extrusions which are used solely in Thermal's
manufacturing operations. Thermal is also marketing a line of
vinyl planking and railing extrusions for use in porch decks and
boat docks.
The complete mailing address of the principal executive office
of Thermal is 301 Brushton Avenue, Pittsburgh, Pennsylvania
15221, and its telephone number at such address is (412) 244-
6400.
Distribution. Thermal's windows are primarily sold to
remodeling or home-improvement contractors for use in residential
retrofit remodeling. These contractors are contacted by 51 sales
employees working out of Thermal's headquarters in Pittsburgh,
Pennsylvania and 19 warehouse-sales offices located primarily
within the northeast quarter of the United States. Deck and dock
products are sold across the continental United States by
existing Thermal sales people and by three manufacturers'
representatives. Thermal also has several distributors in the
north-central states and a commercial sales department for direct
sales to rental or commercial property owners. All manufacturing
is done at the Murrysville, Pennsylvania factory and finished
windows are shipped to Thermal warehouses and to distributors in
Company-owned or leased trucks and by commercial carrier. There
are no sales outside the United States.
Competition. Competition in the window industry is intense,
and Thermal has numerous competitors who make vinyl and/or
aluminum replacement windows. Some competitors are substantially
larger than Thermal and some offer broad building-product lines,
besides windows. Thermal generally does not compete with prime
window manufacturers, who sell primarily to the new construction
market. Thermal has a large customer base and no single customer
or group of related customers accounts for as much as five per
cent of sales. Price, quality, service and delivery are the
chief competitive factors involved in this industry. Thermal
believes that it competes effectively in all four areas.
The raw materials and fabricated parts required for its
manufacturing operations are purchased by Thermal under contract
or in the open market. Generally, such materials are available
from a number of sources and supplies have been adequate.
Electricity is used in all manufacturing operations and it also
is in adequate supply.
Properties. Thermal's operations are performed at the
locations indicated below.
Lease
Location Use Space Expires
301 Brushton Avenue Warehouse and 30,000 sq. ft. 8/31/2002
Pittsburgh, PA Factory leased
300 N. Braddock Warehouse, 38,000 sq. ft. 8/31/2002
Avenue Offices and leased
Pittsburgh, PA Factory
3700 Haney Drive Warehouse and 165,000 sq. ft.
Murrysville, PA Factory purchased
9/13/89
400 N. Lexington Warehouse and 33,788 sq. ft. 12/31/2000
Avenue Factory leased
Pittsburgh, PA
Thermal also owns or leases space in 19 cities for sales and
warehouse facilities.
Directors and Executive Officers. The information below sets
forth the name, age and positions and offices with Thermal of
each of its directors and executive officers. Each individual
listed below is a United States citizen.
Name Age Positions
David H. Weis 65 Chairman of the Board and Chief
Executive Officer
David Rascoe 36 President and Director
Eric Rascoe 65 Secretary-Treasurer and Director
Arthur Poland 52 Vice President
Todd Rascoe 35 Executive Vice President
Carl A. Cohen 43 Director
Timothy Slevin 36 Director
Thomas Andres 58 Vice President of Manufacturing
<TABLE>
SELECTED HISTORICAL FINANCIAL DATA OF THERMAL
The following table summarizes certain financial information
relating to Thermal and should be read in conjunction with
Thermal's financial statements included elsewhere herein. See
"INDEX TO FINANCIAL STATEMENTS."
<CAPTION>
Three Months
Ended September 30, Year Ended June 30,
------------------------ ------------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Income Data:
Sales $13,476,929 $10,509,632 $41,357,061 $38,071,578 $32,941,750 $29,512,440 $28,560,473
Income before Taxes $ 2,158,084 $ 1,141,528 $ 3,187,568 $ 3,342,152 $ 2,873,014 $ 2,139,076 $ 2,657,642
Net Income $ 1,298,384 $ 690,028 $1,980,281 $ 2,050,393 $ 1,755,728 $ 1,240,104 $ 1,575,326
Per Share of
Common Stock: $0.66 $0.35 $1.01 $1.05 $0.90 $0.64 $0.81
At September 30, At June 30,
------------------------- -------------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
Consolidated Balance
Sheet Data:
Total Assets $26,129,697 $22,776,529 $23,963,867 $21,671,631 $20,099,862 $17,923,199 $16,976,483
Total Liabilities $ 5,825,818 $ 4,867,768 $ 4,958,372 $ 4,470,847 $ 4,856,519 $ 4,361,181 $ 4,580,697
Shareholders Equity $20,303,879 $17,908,761 $19,005,495 $17,200,784 $15,243,343 $13,562,018 $12,395,786
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THERMAL
The following discussion relates to the historical financial
condition and result of operations of Thermal for the three
months ended September 30, 1996 compared with the three months
ended September 30, 1995, fiscal year ended June, 1996 (the
"Fiscal Year" or "Fiscal 1996"), compared with the fiscal year
ended June 30, 1995, ("Fiscal 1995") and Fiscal 1995 compared
with the fiscal year ended June 30, 1994, ("Fiscal 1994").
Three Months Ended September 30, 1996 Compared With Three
Months Ended September 30, 1995
Sales for the first quarter of fiscal 1997 were $13.5 million,
a 28% increase over the $10.5 million reported in the first
quarter of fiscal 1996. Billings for windows and doors
represented approximately 2/3 of the increase, with other
products contributing the rest. Incoming unit orders were up 12%
for the quarter. This trend is continuing into the second
quarter, with both incoming unit orders and billings up
approximately 20% for the month of October 1996 as compared to
October 1995.
Manufacturing costs which include depreciation and interest
were 58.9% of sales, compared to 58.7% of sales for the
corresponding year period. Material costs increased from 27.7%
to 29.7% of sales. Manufacturing labor as a percentage of sales
decreased from 18.7% to 17.4%. Overhead costs also decreased
from 12.3% to 11.9% of sales for the comparative first quarters.
Material costs increased primarily due to price increases and
changes in product mix. Labor and overhead increased in dollar
amounts, but decreased as a percentage of sales due to higher
sales volume.
Selling and administrative expenses as a percentage of sales
decreased from 31.6% to 25.9% of sales. Contributing primarily
to this decrease were payroll and related costs (payroll taxes
and insurance), which decreased from 19.3% to 15.8% of sales for
the respective first quarters.
Investment income, comprised of interest, dividends, and gains
from sales of marketable securities were the same for the
corresponding first quarters.
Net income after taxes for the current year's first quarter
was $1.3 million, an increase of 88% over last year's net income
of $690,000.
Liquidity and Capital Resources. Net cash flow showed
approximately a $2 million increase for the Company's first
quarter, an increase of $980,000 over last year. Cash provided
by operating activities was primarily due to a positive cash flow
generated from earnings, decreases in inventories and increases
in accrued income taxes which were partially offset by increases
in accounts receivable and prepaid expenses.
Investing activities used cash in the amount of $440,505
primarily from acquisition of property and equipment in the
amount of $205,759 and an increase in long-term trade account
receivable of $133,899. Capital expenditures for the current
quarter were $205,759, compared to $123,078 for last year's first
quarter. Total expenditures for equipment are expected to be
approximately $2 million for fiscal 1997.
The Company believes that the cash flows provided from
operating and investing activities will be sufficient to meet all
of its anticipated fiscal 1997 needs for capital expenditures,
debt retirement and operating activities.
Year Ended June 30, 1996 Compared With Year Ended June 30,
1995
Net sales for fiscal 1996 were $41.4 million, up approximately
8.6% over 1995 sales of $38 million. The primary sources for the
increase were a $2 million increase in sales of windows and doors
and $1 million in sales of vinyl porch deck and boat dock
materials.
Sales in the final quarter of the current year were
$12.3 million, compared to $10.2 million for last year's fourth
quarter. The Company anticipates a substantial increase in sales
for the first quarter of fiscal 1997 over last year's first-
quarter volume of $10.5 million. Incoming orders for July and
August of fiscal 1997 are 16% higher than those of last year.
Manufacturing costs as a percentage of sales, 58.2%, were
identical for both fiscal years. Material costs decreased from
28% of sales in fiscal 1995 to 26.8% of sales for fiscal 1996.
Manufacturing labor as a percentage of sales rose slightly from
18.1% to 18.5% for the current year.
Overhead costs increased from 12.1% of sales in fiscal 1995 to
12.9% of sales in fiscal 1996. Production-line costs decreased
slightly from 5.1% of sales to 4.8% and factory depreciation rose
from 2.2% to 3.3% of sales for the comparative years.
Selling and administrative expenses increased $1.5 million to
$14.4 million from $12.9 million and increased as a percentage of
sales to 34.9% from 34% a year ago. Payroll and payroll taxes
increased from $6.3 million to $6.7 million, but as a percentage
of sales, decreased from 16.4% to 16.2%. Sales and marketing
payroll increased approximately $360,000 due to introduction of
new products, mainly vinyl decks and docks, on a nationwide
basis.
Profit-sharing expenses increased approximately $175,000 as
the result of an increase in qualified participants as well as
the Company's matching contributions to the newly implemented
401(k) plan.
Insurance costs rose from $1.2 million to $1.4 million
primarily due to increased sales and payroll. Rent and utilities
increase approximately $205,000 due to additional space for
warehousing, fabrication and distribution.
Investment income, comprised of interest, dividends and gains
or losses from the sales of marketable securities, was $414,233
and $451,751, respectively, for the comparative fiscal years.
The Company's effective tax rate for fiscal 1996 was 37.9%
compared to 38.7% for the prior fiscal year, due primarily to
reductions in state income taxes resulting from favorable rates
and allocations in various states. Temporary differences which
require a deferred tax calculation are immaterial.
Net earnings for fiscal 1996 were $1.98 million or $1.01 per
share, compared to $2.05 million or $1.05 per share for fiscal
1995.
The Company has introduced new products into the market during
the last five years, such as patio enclosures, solid vinyl
windows with natural wood interior facing, vinyl porch decks and
boat docks. This has resulted in an increase in volume, as well
as increased selling and administrative expenses and capital
expenditures. The Company's operating results and capital
spending may be subject to considerable fluctuations due to
volume, product mix and general economic conditions.
Year Ended June 30, 1995 Compared With Year Ended June 30,
1994
Net sales for fiscal 1995 were $38 million, up approximately
$15.6% over 1994 sales of $32.9 million. Unit sales increased
approximately 6.2% over the previous year, and there was a 4%
price increase in October 1994.
Sales in the final quarter of 1995 were $10.2 million,
compared to $9.3 million for fourth quarter sales. The Company
anticipated a minimal increase in sales for the first quarter of
fiscal 1995 over 1994's first-quarter volume of $10.5 million.
Incoming orders for July and August 1995 were approximately equal
to those of 1994.
Manufacturing costs as a percentage of sales were 58.2% for
fiscal 1995, compared to 55.2% for fiscal 1994. Material costs
increased slightly from 27.4% of sales in fiscal 1994 to 28.0% of
sales in fiscal 1995. Manufacturing labor as a percentage of
sales rose from 17.8% to 18.1% for 1995.
Overhead costs increased from 10% of sales in fiscal 1994 to
12.1% of sales in fiscal 1995. Production-line costs rose from
4.1% of sales to 5.1% of sales, and factory depreciation
increased from 1.3% of sales to 2.2% of sales for the comparative
years.
Selling and administrative expenses increased $895,000 to
$12.9 million from $12 million, but decreased as a percentage of
sales to 34% from 36.6% in 1994. Payroll and payroll taxes
increased from $5.8 million to $6.3 million, but as a percentage
of sales, decreased from 17.6% to 16.4%. Primarily as the result
of a self-insured workmen's compensation plan, total insurance
costs decreased approximately $97,000.
Advertising and dealer promotion costs increased approximately
$151,000, which helped fuel sales volume and profit growth.
Bad debt expense of $108,343 increased approximately $176,000
as the result of a negative bad debt amount of $67,334 in the
previous year stemming from an adjustment in charge-offs in
fiscal 1993. Without this adjustment, bad debt expense for
fiscal 1994 would have been $83,000.
Investment income, comprised of interest, dividends and gains
or losses from the sale of marketable securities, was $451,751
and $297,266, respectively, for the comparative fiscal years.
Interest from municipal bonds increased approximately $122,000
over 1994.
The Company's effective tax rate for fiscal 1995 was 38.7%,
compared to 38.9% for the prior fiscal year, due primarily to non-
taxable municipal bond interest. Temporary differences which
require a deferred tax calculation are immaterial.
Net earnings for fiscal 1995 were $2.1 million, or $1.05 per
share compared to $1.8 million or $.90 per share for fiscal 1994.
Liquidity and Capital Resources. This discussion and analysis
of the Company's liquidity and capital resources should be read
together with the consolidated balance sheets and statements of
cash flows.
During 1995, cash and cash equivalents increased from $1.9
million to $2.1 million. Net cash from operating activities
increased from $2.2 million to $2.3 million. The primary factors
contributing to this increase were increases in depreciation and
accounts payable offset by increases to accounts receivable and
inventories.
During fiscal 1996, the Company used $1.7 million for
investing activities. Investments in property, plant and
equipment approximated $2 million, compared to $2.6 million in
the previous year.
The Company continues its modernization and upgrading of
production equipment. New computerized manufacturing systems
have been installed to improve the manufacturing process. With
the introduction of new products into the market, new extrusion
equipment in the vinyl production department for porch decks and
boat decks will be needed.
The company expects to continue its equipment modernization
program and is currently planning expansion of its Murrysville
plant for anticipated increase in volume.
Investing activities also include a net increase from the sale
of temporary investments over the purchase of securities netting
$350,902. Temporary investments consist mostly of short-term
municipal bonds, some of which were used to collaterlize self-
funding of workmen's compensation insurance as required by the
Pennsylvania insurance department.
Financing activities produced a net decrease in cash of
$346,000. This resulted from reduction in notes payable of
$170,000 plus cash dividends paid out in the amount of $195,000
offset by proceeds of $19,000 from the sale of treasury stock for
stock options exercised by employees.
The Company's current ratio (comparison of current assets with
current liabilities) was 5.9 at June 30, 1996, compared to 6.8 at
June 30, 1995. Shareholders' equity totaled $19 million or $9.70
per share at June 30, 1996, compared to $17.2 million or $8.81
per share at June 30, 1995.
The Company's financial position continues to remain strong,
enabling it to meet cash requirements for operations, capital
expansion programs and dividends to shareholders.
CERTAIN INFORMATION CONCERNING HEAT AND HEAT ACQUISITION
Heat Acquisition is a wholly-owned subsidiary of Heat, which
is wholly-owned by HIG. Heat was formed for the purpose of
consummating the Merger and is not engaged in any other business
activities. Heat is a wholly-owned subsidiary of HIG. Heat's
address is 1001 S. Bayshore Drive, Suite 2708, Miami, Florida
33131.
INDEPENDENT PUBLIC ACCOUNTANTS
Thermal's independent public account, Sydney Heisler, or his
representative (the "Accountant"), is not expected to be present
at the Special Meeting. The Accountant has been Thermal's
independent accountant since 1967.
SECURITY HOLDER PROPOSALS
Security holders who intend to submit a proposal for
presentation and consideration at the next annual meeting of the
Shareholders of Thermal and who would like to have such proposal
included in Thermal's proxy statement and form of proxy relating
to that meeting must ensure the receipt of such at the principal
executive offices of Thermal no later than June 18, 1997.
However, if the Merger Agreement is approved by the Shareholders
and the Merger is consummated, then the Shareholders will no
longer be the owners of Thermal and will not be entitled to
submit such a proposal for presentation and consideration at the
next annual shareholders meeting.
<PAGE>
February 4, 1997
INDEX TO FINANCIAL STATEMENTS
THERMAL INDUSTRIES, INC.
Report of Independent Accountant....................................... F-2
Balance Sheets as of June 30, 1996 and 1995............................ F-3
Statements of Income for the years ended June 30, 1996,
1995 and 1994........................................................ F-5
Statements of Changes in Shareholders' Equity for the years
ended June 30, 1996, 1995 and 1994................................... F-6
Statements of Cash Flows for the years ended June 30, 1996,
1995 and 1994........................................................ F-7
Notes to Financial Statements.......................................... F-8
Unaudited Condensed Consolidated Balance Sheets -
September 30, 1996 and June 30, 1996................................. F-14
Unaudited Condensed Consolidated Statements of Income -
Three Months Ended September 30, 1996 and 1995....................... F-16
Unaudited Condensed Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1996 and 1995....................... F-17
Notes to Unaudited Condensed Consolidated Financial Statements......... F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANT
Board of Directors and Shareholders
Thermal Industries, Inc.
301 Brushton Avenue
Pittsburgh, PA 15221
I have audited the accompanying consolidated balance sheets of Thermal
Industries, Inc., and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the three fiscal years in the period ended June
30, 1996. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audits provide a
reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Thermal Industries, Inc., and subsidiaries at June 30, 1996 and
1995, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended June 30, 1996, in conformity
with generally accepted accounting principles.
/s/ Sydney Heisler
Sydney Heisler
Certified Public Accountant
Pittsburgh, Pennsylvania
August 30, 1996
F-2
<PAGE>
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
ASSETS
1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 2,083,260 $ 1,873,405
Temporary investments (Note 2) - cost
approximates market value 5,153,783 5,489,920
Accounts receivable - trade (net of
allowances for doubtful accounts at
June 30, 1996 - $172,631; 1995 - $117,202) 4,252,434 3,167,191
Inventories (Notes 2 and 6) 5,083,556 4,451,615
Prepaid expenses 333,791 132,481
Prepaid taxes 64,955
Other receivables - Officers and employees 59,357 55,787
TOTAL CURRENT ASSETS 17,031,136 15,170,399
PROPERTY AND EQUIPMENT (Note 2)
Land 334,403 334,403
Buildings 2,488,276 2,484,440
Machinery, equipment and autos 10,596,471 8,731,205
Leasehold improvements 459,594 416,045
13,878,744 11,966,093
Less accumulated depreciation 7,891,308 6,319,405
NET PROPERTY AND EQUIPMENT 5,987,436 5,646,688
OTHER ASSETS
Accounts receivable - long term (Note 4) 862,931 762,297
Loan acquisition fees, net of amortization
at June 30, 1996 - $65,356; 1995 - $55,472 82,364 92,247
TOTAL OTHER ASSETS 945,295 854,544
TOTAL ASSETS $23,963,867 $21,671,631
See notes to consolidated financial statements.
F-3
<PAGE>
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
CURRENT LIABILITIES
Current portion of long term debt (Note 3) $ 172,452 $ 170,313
Accounts payable - trade 993,344 365,603
Accrued payroll and commissions 567,236 659,366
Accrued profit sharing contributions (Note 5) 614,800 443,060
Accrued and withheld payroll and sales taxes 260,844 275,505
Customer's deposits (Note 2) 285,222 275,364
Corporate taxes payable 40,579
Other current liabilities 4,757 8,888
TOTAL CURRENT LIABILITIES 2,898,655 2,238,678
LONG TERM DEBT (Note 3) 2,059,717 2,232,169
CONTINGENT LIABILITIES (Note 12)
SHAREHOLDERS' EQUITY
Common stock - authorized 5,000,000 shares
at $.01 par value; issued 2,011,088 shares 41,205 41,205
Capital paid in excess of par value 420,509 403,691
Retained earnings 18,566,747 16,781,186
Treasury stock - (at cost) 1996 - 52,576 shares;
1995 - 57,876 shares (22,966) (25,298)
TOTAL SHAREHOLDERS' EQUITY 19,005,495 17,200,784
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $23,963,867 $21,671,631
See notes to consolidated financial statements.
F-4
<PAGE>
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
Sales $41,357,061 $38,071,578 $32,941,750
Operating costs and expenses
Manufacturing costs of
products sold 24,065,752 22,141,792 18,193,860
Selling and administrative
expenses 14,440,799 12,933,640 12,041,091
38,506,551 35,075,432 30,234,951
Income from operations 2,850,510 2,996,146 2,706,799
Interest expense (89,853) (112,261) (97,554)
Investment income 414,233 451,751 297,266
Gain (loss) on sale of tangible
property 12,678 6,516 (33,497)
Income before income taxes 3,187,568 3,342,152 2,873,014
Provision for income taxes
Federal 979,808 961,000 843,153
State 227,479 330,759 274,133
1,207,287 1,291,759 1,117,286
Net income $ 1,980,281 $ 2,050,393 $1,755,728
Average number of shares
outstanding 1,956,920 1,946,012 1,940,312
Earnings per share based on average
number of shares outstanding
(Note 9) $ 1.01 $ 1.05 $ .90
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<CAPTION>
Common Capital
Stock Paid In Total
$.01 Par Excess Retained Treasury Shareholders'
Value of Par Earnings Stock Equity
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1993 $41,205 $384,256 $13,167,795 $(31,238) $13,562,018
Net income 1,755,728 1,755,728
Cash dividends
($.04 per share) (77,003) (77,003)
Stock options exercised 2,072 528 2,600
Balance, June 30, 1994 41,205 386,328 14,846,520 (30,710) 15,243,343
Net income 2,050,393 2,050,393
Cash dividends
($.06 per share) (115,727) (115,727)
Stock options exercised 17,363 5,412 22,775
Balance, June 30, 1995 41,205 403,691 16,781,186 (25,298) 17,200,784
Net income 1,980,281 1,980,281
Cash dividends
($.10 per share) (194,720) (194,720)
Stock options exercised 16,818 2,332 19,150
Balance, June 30, 1996 $41,205 $420,509 $18,566,747 $(22,966) $19,005,495
</TABLE>
F-6
<PAGE>
<TABLE>
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995, AND 1994
<CAPTION>
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $1,980,281 $2,050,393 $1,755,728
Depreciation and amortization 1,637,781 1,106,217 657,155
Loss (Gain) on disposal of assets (27,443) (7,039) 30,285
CHANGES IN OPERATING ASSETS AND
LIABILITIES - (INCREASE) DECREASE IN:
Accounts receivable (1,085,243) 384,964 (807,860)
Inventory (631,941) (1,114,348) (28,055)
Prepaid and other (269,835) (52,486) 279,627
Increase (Decrease) in accounts
payable and accrued expenses 657,838 (217,433) 470,433
NET CASH PROVIDED BY OPERATING
ACTIVITIES 2,261,438 2,150,268 2,357,313
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in accounts receivable -
long term (100,634) (762,297)
Proceeds from sale of temporary
investments 982,679 555,000 35,047
Proceeds from disposal of tangible
property 12,678 8,050 10,911
Additions to property, plant and
equipment (1,968,646) (2,640,834) (720,428)
Additions to temporary investments (631,777) (960,302) (4,195,053)
NET CASH USED IN INVESTING ACTIVITIES (1,705,700) (3,800,383) (4,869,523)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of notes payable (170,313) (168,238) (169,829)
Proceeds from sale of treasury
stock 19,150 22,775 2,600
Dividends paid (194,720) (115,727) (77,003)
Proceeds from long term financing 194,734
NET CASH USED IN FINANCING ACTIVITIES (345,883) (261,190) (49,498)
Net increase (decrease) in cash and
cash equivalents 209,855 (1,911,305) (2,561,708)
Cash and cash equivalents at the
beginning of the year 1,873,405 3,784,710 6,346,418
Cash and cash equivalents at the
end of the year $2,083,260 $1,873,405 $3,784,710
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 89,853 $ 112,261 $ 97,554
Income taxes $1,312,821 $1,345,162 $ 726,955
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Nature of Operations
Thermal Industries, Inc. (the Company) is a Pennsylvania
corporation. The Company is engaged in the manufacture of vinyl-framed,
made-to-order windows,replacement sliding doors, patio enclosures, vinyl
porch decks and boat docks.
The Company's offices as well as its manufacturing facilities are
located in the Pittsburgh area. The products are primarily sold to
remodeling or home improvement contractors for use in residential
remodeling.
The Company markets and distributes its products through 20
warehouse-sales offices located primarily within the northeast quarter of
the United States. Deck and dock products are sold across the continental
United States.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Thermal Industries, Inc. and subsidiaries, all of which are
wholly owned. All material intercompany accounts and transactions have been
eliminated.
Estimates
Preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires the use of
management's estimates primarily related to collectibility of receivables
and depreciable lives of property and equipment. Accordingly, actual
results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity
of 90 days or less when purchased to be cash and cash equivalents. Cash
equivalents consist primarily of money market accounts issued by large
commercial banks and are readily convertible to cash. They are stated at
cost which approximates market value.
Temporary investments
Temporary investments, consisting principally of municipal bonds
with maturities of less than one year and variable rate municipals with
seven-day put options which are guaranteed by bank letters of credit,
preferred stock and Government bond funds are stated at cost, which
approximates market value. Investments approximating $1,000,000 were used to
collateralize self-funding of workmen's compensation insurance.
Effective July l, 1994, the Company adopted FAS #115, "Accounting
for Certain Investments in Debt and Equity Securities". The Company's
investments are considered to be "available for sale" securities with
maturities generally less than one year. The adoption of FAS #115 had no
effect on the Company's financial position or results of operations.
Concentrations of Credit Risk
Two unsecured trade accounts (see Note 4) representing 21.9% of the
outstanding accounts receivables as of June 30, 1996 are considered by the
Company to be of minimum credit risk. Concentrations of credit risk with
respect to other accounts receivable are limited due to the large number of
customers, generally short payment terms and their dispersion across
geographic areas. The Company performs ongoing credit evaluations of its
customers' financial condition and manages its exposure to losses from bad
debts by limiting the amount of credit extended whenever deemed necessary
and generally does not require collateral. The Company places its temporary
cash investments with high credit quality financial institutions. At times
such investments may be in excess of the FDIC insurance limit.
F-8
<PAGE>
Note 2 - Continued
Inventories
Inventories are stated at cost which is lower than market; cost is
determined substantially by the first-in, first-out method of inventory
valuation.
Property and depreciation
Property and equipment are recorded at cost. Depreciation is
provided using the modified accelerated cost recovery method or straight-
line where required, over the estimated useful lives of the assets.
Depreciation on buildings and leasehold improvements is computed on
a straight line method using lives from 10 to 31 1/2 years. Depreciation on
machinery and equipment is computed under accelerated methods using lives
ranging from 3 to 7 years. Total depreciation expense for the fiscal years
ended June 30, 1996, 1995 and 1994, were $1,637,781, $1,106,217, and
$657,155, respectively.
Major additions and betterments are capitalized while expenditure
for maintenance, repairs and minor renewals are expensed when incurred.
Research and Development
Research and development costs are expensed when incurred. Such
costs for the fiscal years ended June 30, 1996, 1995 and 1994, were
$564,150, $291,410, and $363,283, respectively.
Customers' Deposits
The Company manufactures and provides installation of windows for
its customers under sales contracts which require cash deposits.
Recognition of income on these advances is deferred until the jobs are
completed, which usually ccurs within four to eight weeks.
<TABLE>
Note 3 - Long Term Debt
Long term debt consisted of:
<CAPTION>
June 30, 1996 June 30, 1995
<S> <C> <C>
1989 Pennsylvania Economic Development Financing
Authority (PEDFA) bonds, variable interest rate
(recent interest rates ranging from 3.45 to 3.95
percent), principal payable $100,000 per year plus
interest for fifteen years beginning in November
1990 and a balloon payment of $500,000 at the end
of the fifteen year term $1,400,000 $1,500,000
Pennsylvania Industrial Development Authority (PIDA)
mortgage note, payable in monthly installments of
$8,035.50, including interest at 3% through July 832,169 902,482
2006
2,232,169 2,402,482
Less current portion 172,452 170,313
$2,059,717 $2,232,169
</TABLE>
Approximate maturities of long term debt following June 30, 1996
are as follows:
Fiscal year ending June 30, 1997 $ 172,452
Fiscal year ending June 30, 1998 174,655
Fiscal year ending June 30, 1999 176,926
Fiscal year ending June 30, 2000 179,266
Fiscal year ending June 30, 2001 181,677
Thereafter 1,347,193
TOTAL $2,232,169
F-9
<PAGE>
Note 3 - The Company's manufacturing and office facilities collateralize
the various debt agreements. The Company is required to meet certain
financial covenants in connection with the above obligations, including
those related to current ratio, ratio of total liabilities to tangible net
worth, minimum tangible net worth and net income. At June 30, 1996, the
Company was in compliance with all such covenants.
Note 4 - Accounts receivable - long term
Accounts receivable - long term consists of two unsecured trade
accounts, receivable in monthly installments of $15,000 and $20,000
respectively, which includes interest at 8%, commencing January 1995 and
July 1996 respectively. Total account balance as of June 30, 1996 is
$1,148,019, of which $862,931 is long term.
Note 5 - Profit Sharing and 401(k) Plans
The Company has a qualified noncontributory profit sharing plan
for eligible employees of the Company and participating subsidiaries. The
Company's contribution to the plan, as determined by the Board of Directors,
is discretionary, but may not exceed 15% of the annual aggregate ompensation
paid to all participating employees. For the current and each of the two
preceding years, the Company made provisions for contributions of 5% of the
qualifying wages of its participating employees. On July 1, 1995, the
Company adopted an IRC 401(k) plan covering substantially all eligible
employees. Under the provisions of the plan, eligible employees may defer
up to 15% of their compensation. The plan provides for matching Company
contributions of not more than 25% of the first 8% of employee
contributions. Employees must complete 12 months of service and attain age
21 before they are eligible to participate. Participants may enter the plan
on January 1 or July 1 immediately following the completion of the age and
service requirements.
Total Company contributions to all plans were $618,506, $443,060,
and $433,760, respectively, for the fiscal years ended June 30, 1996, 1995
and 1994.
Note 6 - Inventories
Inventories at June 30, 1996 and 1995, were as follows:
1996 1995
Finished Goods $2,398,771 $1,093,739
Work in Process 51,976 22,544
Raw Materials and Supplies 2,632,809 3,335,332
$5,083,556 $4,451,615
Note 7 - Income Taxes
Following is a reconciliation between the statutory federal income
tax expense and the accounting income tax expense for the years ended June
30, 1996, 1995 and 1994. The Company has no deferred tax expense or
liability since timing differences which require a deferred tax calculation
are immaterial.
Years ended June 30 1996 1995 1994
Federal statutory income
tax expense $1,083,977 $1,136,332 $976,825
Increase (decrease)
State income taxes (77,548) (112,150) (95,605)
Dividends received deduction (12,984) (14,470) (14,428)
Municipal bond interest (61,057) (64,169) (22,752)
Other - includes non-deductible
officers' life insurance, meals
and entertainment, capital loss
deductions, miscellaneous 47,420 15,457 (887)
Accounting income tax expense $ 979,808 $ 961,000 $843,153
F-10
<PAGE>
Note 8 - Stock Option Plans
In October 1984, the Company adopted an incentive stock option
plan for its key employees. The option plan provides for the sale of 50,000
shares of common stock (adjusted to 100,000 shares after 2 for 1 stock split
May 1, 1986). The option price was the fair market value on the date of the
grant with certain modifications for persons owning more than 10% of the
voting power of the Corporation's stock. In the case of options granted to
any person owning more than 10% of the voting power of the Corporation's
stock, the purchase price per share of the stock subject to option was not
less than 110% of the fair market value of the stock on the date of grant of
the option, and in no event was any option exercisable after the expiration
of ten years from the date of the grant.
Ten years from the date the Plan was adopted, it terminated and no
options were granted thereafter. However, all rights created under options
issued and outstanding on June 30, 1996 shall continue until they are
exercised or, by their terms, expire. In no case shall the options extend
beyond ten years from their issue date.
A summary of activity of the Incentive Stock Option Plan is as
follows:
SHARES PRICE PER
RESERVED OUTSTANDING SHARE
Balance, June 30, 1993 81,600 35,300
Exercised (400) (400) $3.00
Exercised (800) (800) $1.75
Canceled NONE NONE
Balance, June 30, 1994 80,400 34,100
Exercised (1,000) (1,000) $3.00
Exercised (11,300) (11,300) $1.75
Cancelled NONE NONE
Balance, June 30, 1995 68,100 21,800
Exercised (800) (800) $6.125
Exercised (2,000) (2,000) $3.00
Exercised (2,500) (2,500) $3.30
Cancelled (1,800) (1,800)
Balance, June 30, 1996 61,000 14,700
On January 31, 1996 the Board of Directors authorized a grant of
nonstatutory stock options for 10,000 shares to each of the two non-employee
directors who were elected in October 1995. The exercise price is $8.75 per
share, which corresponds to the market price on January 31, 1996. Vesting
is one third of the grant on the date of election to the Board and one third
on each of the next two anniversary dates of such election. Therefore, as
of June 30, 1996, a total of 6,666 of these optioned shares are vested and
13,334 are not vested. None of these shares have been purchased by the
option grantees.
Note 9 - Earnings Per Share
Computations of earnings per common share are based on the
weighted average number of such shares outstanding during the year.
Note 10 - Segments
The Company operates principally in one industry, the manufacture
of vinyl windows and other vinyl building products and has no other
segments.
F-11
<PAGE>
Note 11 - Lease Arrangements and Related Party Transactions
In addition to the owned property in Murrysville, Pennsylvania,
the Company leases facilities in Pittsburgh, Pennsylvania for extrusion and
administrative offices from two of the principal stockholders of the
company. No amounts were owed to related parties as of June 30, 1996.
Other sales and warehouse facilities are leased from unrelated
parties in various locations. All of the leases are operating leases.
The following is a schedule of minimum lease commitments
outstanding at June 30, 1996 that have initial or remaining lese terms in
excess of one year.
Fiscal Year
Ended June 30
1997 $ 793,913
1998 632,017
1999 454,578
2000 417,622
2001 296,126
After 2001 197,190
Total minimum lease payments $2,791,446
Rental expenses for all operating leases totalled $812,385,
$694,836, and $603,291 for fiscal years ended June 30, 1996, 1995, and 1994,
respectively, of which $132,150, $126,600, and $125,400, respectively, were
paid to principal stockholders.
Note 12 - Contingent Liabilities
Legal matters, various claims, and complaints arising in the
ordinary course of business are, in the opinion of management, adequately
covered by insurance, or if not so covered, are without merit or are of such
kind, or involve such amounts that unfavorable disposition would not have a
material effect on the financial position of the Company.
<TABLE>
Note 13 - Allowance for Doubtful Accounts
The allowance for doubtful accounts and related bad debt expense
were as follows for the years ended June 30, 1996, 1995, and 1994:
<CAPTION>
Additions or Deductions
Balance (Subtractions) From
at Charged or Reserves Balance
Beginning (Credited) to (Uncollectible at
of Cost and Accounts End of
Classification Period__ Expenses___ Written Off) Period
<S> <C> <C> <C> <C>
Year ended June 30, 1996:
Allowance for doubtful accounts $117,202 $112,192 ($ 56,763) $172,631
Year ended June 30, 1995:
Allowance for doubtful accounts $112,432 $122,827 ($118,057) $117,202
Year ended June 30, 1994:
Allowance for doubtful accounts $240,569 $(54,203) ($ 73,934) $112,432
</TABLE>
F-12
<TABLE>
Note 14 - Quarterly Financial Information
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The table below summarizes the Company's results of operations by quarter for
fiscal 1996, 1995 and 1994.
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
1996
<S> <C> <C> <C> <C> <C>
Sales $10,509,632 $11,637,165 $6,945,518 $12,264,746 41,357,061
Gross Margin 4,368,510 4,897,125 2,985,965 5,039,709 17,291,309
Income (Loss)
from operations 1,025,916 1,783,455 (890,095) 931,234 2,850,510
Net income (loss) 690,028 1,148,893 (452,489) 593,849 1,980,281
Cash dividends 194,720 194,720
Market Price:
High Bid 9 1/2 9 1/2 9 1/2 9 1/2
Low Bid 9 1/2 9 8 8 1/4
1995
Sales $10,497,298 $10,479,773 $6,883,146 $10,211,361 $38,071,578
Gross Margin 4,865,774 4,705,223 2,452,525 3,906,624 15,929,786
Income (Loss)
from operations 1,748,120 1,497,838 (883,531) 633,719 2,996,146
Net income (loss) 1,102,803 957,673 (426,488) 416,405 2,050,393
Cash dividends 115,727 115,727
Market Price
High Bid 7 3/4 9 1/4 9 3/4 9 1/2
Low Bid 7 1/4 8 3/4 9 9 1/2
1994
Sales $ 8,872,136 $ 9,553,168 $5,227,751 $ 9,288,695 $32,941,750
Gross Margin 4,353,593 4,752,624 1,975,296 3,666,377 14,747,890
Income (Loss)
from operations 1,327,023 1,442,827 (1,074,484) 1,011,433 2,706,799
Net income (loss) 831,533 863,385 (609,081) 669,891 1,755,728
Cash dividends 77,003 77,003
Market Price
High Bid 6 1/2 6 3/4 8 1/4 7 3/4
Low Bid 6 6 6 1/8 7 1/4
</TABLE>
F-13
<PAGE>
PART I - FINANCIAL INFORMATION
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
1996 1996
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 4,083,627 $ 2,083,260
Temporary investments 5,255,507 5,153,783
Accounts receivable - net 4,421,394 4,252,434
Inventories 4,919,232 5,083,556
Prepaid expenses 497,688 333,791
Prepaid taxes 64,955
Other receivables 62,990 59,357
TOTAL CURRENT ASSETS 19,240,438 17,031,136
PROPERTY AND EQUIPMENT - NET 5,812,536 5,987,436
OTHER ASSETS
Trade accounts receivable -
long term 996,830 862,931
Miscellaneous 79,893 82,364
TOTAL OTHER ASSETS 1,076,723 945,295
TOTAL ASSETS $26,129,697 $23,963,867
F-14
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt 172,997 172,452
Accounts payable 869,593 993,344
Accrued wages 740,030 567,236
Accrued profit sharing contribution 764,800 614,800
Accrued payroll and sales taxes 207,647 260,844
Customers' deposits 263,645 285,222
Accrued income taxes 761,182
Other payables 4,662 4,757
TOTAL CURRENT LIABILITIES 3,784,556 2,898,655
LONG TERM DEBT 2,041,262 2,059,717
SHAREHOLDERS' EQUITY
Common stock - par value $.01 per share 41,205 41,205
Paid in capital 420,509 420,509
Retained earnings 19,842,165 18,543,781
TOTAL SHAREHOLDERS' EQUITY 20,303,879 19,005,495
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $26,129,697 $23,963,867
See notes to condensed consolidated financial statements.
F-15
<PAGE>
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
SALES $13,476,929 $10,509,632
COSTS AND EXPENSES
Manufacturing costs of product sold 7,612,710 5,907,042
Selling and administrative expenses 3,413,641 3,257,561
Depreciation and amortization 383,130 294,640
Interest expense 21,648 24,473
TOTAL COSTS AND EXPENSES 11,431,129 9,483,716
2,045,800 1,025,916
OTHER INCOME
Investment income 111,407 111,677
Gain on disposal of assets 877 3,935
112,284 115,612
Income before income taxes 2,158,084 1,141,528
Provision for income taxes 859,700 451,500
NET INCOME $ 1,298,384 $ 690,028
Average number of shares outstanding 1,958,512 1,954,512
Earnings per share of common stock $ .66 $ .35
See notes to condensed consolidated financial statements.
F-16
<PAGE>
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
NET CASH PROVIDED
______BY OPERATING ACTIVITIES $2,458,782 $ 603,168
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant
and equipment (205,759) (123,078)
Proceeds from sale of temporary
investments 460,000 505,432
Additions to temporary investments (561,724)
(Increase) Decrease in accounts
receivable - long term (133,899) 29,953
Other 877 3,935
NET CASH PROVIDED (USED) IN
INVESTING ACTIVITIES (440,505) 416,242
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in notes payable (17,910) (17,381)
Proceeds from sale of treasury stock __________ 17,950
NET CASH PROVIDED (USED) IN
FINANCING ACTIVITIES (17,910) 569
Net increase in cash and cash equivalents 2,000,367 1,019,979
Cash and cash equivalents at beginning
of period 2,083,260 1,873,405
Cash and cash equivalents at end
of period $4,083,627 $2,893,384
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 21,648 $ 24,473
Income taxes $ 60,114 $ 129,347
See notes to condensed consolidated financial statements.
F-17
<PAGE>
THERMAL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - In the opinion of management, all adjustments, consisting
only of normal recurring adjustments necessary for a fair
presentation of (a) the condensed consolidated results
of operations for the three months ended September 30,
1996 and 1995, (b) the condensed consolidated financial
position at September 30, 1996 and June 30, l996, and
(c) the condensed consolidated statements of cash flows
for the three months ended September 30, 1996 and 1995,
have been made. For further information, refer to the
consolidated financial statements and notes thereto
included in the Company's Annual Report and its report on
Form 10-K for the year ended June 30, 1996. The results
for the three months ended September 30, 1996 are not
necessarily indicative of the results that may be expected
for the year ended June 30, 1997.
Note 2 - Inventories consisted of the following:
September 30, June 30,
_____1996____ __1996__
Finished Goods $2,295,261 $2,398,771
Work in Process 46,842 51,976
Raw Materials and Supplies 2,577,129 2,632,809
$4,919,232 $5,083,556
Inventories are stated at actual cost which is lower than
market. Cost is determined substantially by the first-in,
first-out method of inventory valuation.
Note 3 - Accounts receivable - long term
Trade accounts receivable - long term consists of two
unsecured trade accounts, receivable in monthly installments
of $15,000 and $20,000 respectively, which includes interest
at 8%, commencing January 1995 and July 1996 respectively.
Total account balance as of September 30, 1996 is $1,284,421,
of which $996,830 is long term.
F-18
<PAGE>
Note 4 - Long Term Debt
Long term debt consists of:
1989 Pennsylvania Economic Development Financing
Authority (PEDFA) bonds, variable interest rate
(recent interest rates ranging from 3.60 to 4.0
percent), principal payable $100,000 per year
plus interest for fifteen years beginning in
November 1990 and a balloon payment of $500,000
at the end of the fifteen year term $1,400,000
Pennsylvania Industrial Development Authority
(PIDA) mortgage note, payable in monthly
installments of $8,035.50, including interest
at 3% through July 2006. 814,259
2,214,259
Less current portion 172,997
$2,041,262
Note 5 - The calculation of earnings per share is based upon the
average number of shares outstanding during the period.
F-19
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
HEAT, INC.,
HEAT ACQUISITION, INC.
AND
THERMAL INDUSTRIES, INC.
January 6, 1997
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER. . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.01 The Merger . . . . . . . . . . . . . . . . .1
SECTION 1.02 Effective Time; Closing. . . . . . . . . . .2
SECTION 1.03 Effects of the Merger. . . . . . . . . . . .2
SECTION 1.04 Articles of Incorporation and By-Laws of the
Surviving Corporation. . . . . . . . . . . .2
SECTION 1.05 Directors. . . . . . . . . . . . . . . . . .2
SECTION 1.06 Officers . . . . . . . . . . . . . . . . . .2
SECTION 1.07 Conversion of Common Shares. . . . . . . . .2
SECTION 1.08 Conversion of the Merger Sub Common Stock. .3
SECTION 1.09 Company Option Plans . . . . . . . . . . . .3
SECTION 1.10 Stockholders' Meeting; Proxy Statement . . .3
ARTICLE II DISSENTING SHARES; PAYMENT FOR SHARES. . . . . . . .4
SECTION 2.01 Dissenting Shares. . . . . . . . . . . . . .4
SECTION 2.02 Payment for Common Shares. . . . . . . . . .4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . .6
SECTION 3.01 Organization and Qualification; Subsidiaries6
SECTION 3.02 Charter and By-Laws. . . . . . . . . . . . .6
SECTION 3.03 Capitalization . . . . . . . . . . . . . . .6
SECTION 3.04 Authority Relative to this Agreement . . . .7
SECTION 3.05 No Conflict; Required Filings and Consents .7
SECTION 3.06 SEC Reports and Financial Statements . . . .8
SECTION 3.07 Information. . . . . . . . . . . . . . . . .8
SECTION 3.08 [Intentionally Omitted]. . . . . . . . . . .9
SECTION 3.09 Brokers. . . . . . . . . . . . . . . . . . .9
SECTION 3.10 Material Adverse Effect. . . . . . . . . . .9
SECTION 3.11 Litigation . . . . . . . . . . . . . . . . .9
SECTION 3.12 Absence of Certain Changes or Events . . . .9
SECTION 3.13 Employee Benefit Plans . . . . . . . . . . 10
SECTION 3.14 Material Contracts and Other Agreements. . 12
SECTION 3.15 Real Estate Leases . . . . . . . . . . . . 13
SECTION 3.16 Real Property. . . . . . . . . . . . . . . 13
SECTION 3.17 Compliance with Laws . . . . . . . . . . . 14
SECTION 3.18 Proprietary Rights . . . . . . . . . . . . 14
SECTION 3.19 No Undisclosed Liabilities . . . . . . . . 14
SECTION 3.20 Title to Personal Property . . . . . . . . 15
SECTION 3.21 Labor Relations. . . . . . . . . . . . . . 15
SECTION 3.22 Taxes and Tax Returns. . . . . . . . . . . 15
SECTION 3.23 Environmental Matters. . . . . . . . . . . 16
(a) Compliance Generally. . . . . . . . . . . . . . 16
(b) Permits . . . . . . . . . . . . . . . . . . . . 16
(c) Claims. . . . . . . . . . . . . . . . . . . . . 16
(d) Storage Tanks, Asbestos, PCBs . . . . . . . . . 16
(e) Certain Environmental Liabilities . . . . . . . 16
(f) Operations. . . . . . . . . . . . . . . . . . . 17
(g) Transaction-Triggered Requirements. . . . . . . 17
(h) Liability for Others. . . . . . . . . . . . . . 17
(i) Environmental Liens . . . . . . . . . . . . . . 17
SECTION 3.24 Accounts Receivable. . . . . . . . . . . . 17
SECTION 3.25 Inventory. . . . . . . . . . . . . . . . . 18
SECTION 3.26 Product and Service Warranty . . . . . . . 18
SECTION 3.27 Effective Time . . . . . . . . . . . . . . 18
ARTICLE IV REPRESENTATIONS AND WARRANTIESOF PARENT AND THE MERGER SUB18
SECTION 4.01 Organization and Qualification . . . . . . 18
SECTION 4.02 Authority Relative to this Agreement . . . 19
SECTION 4.03 No Conflict; Required Filings and Consents 19
SECTION 4.04 Information. . . . . . . . . . . . . . . . 20
SECTION 4.05 Financing. . . . . . . . . . . . . . . . . 20
ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5.01 Conduct of Business of the Company . . . . 20
SECTION 5.02 Access to Information. . . . . . . . . . . 22
SECTION 5.03 Reasonable Best Efforts. . . . . . . . . . 22
SECTION 5.04 Consents . . . . . . . . . . . . . . . . . 23
SECTION 5.05 Public Announcements . . . . . . . . . . . 24
SECTION 5.06 Indemnification. . . . . . . . . . . . . . 24
SECTION 5.07 Notification of Certain Matters. . . . . . 25
SECTION 5.09 No Solicitation. . . . . . . . . . . . . . 25
SECTION 5.10 Break-Up Fee; Expense Reimbursement. . . . 26
ARTICLE VI CONDITIONS TO CONSUMMATION OF THE MERGER . . . . . 27
SECTION 6.01 Conditions to Parties' Obligations . . . . 27
SECTION 6.02 Conditions to Parent's and the Merger Sub's
Obligation to Effect the Merger. . . . . . 27
SECTION 6.03 Conditions to the Company's Obligation to
Effect the
Merger28 . . . . . . . . . . . . . . . . . .
SECTION 6.04 Satisfaction or Waiver of Conditions . . . 29
ARTICLE VII TERMINATION; AMENDMENTS; WAIVER . . . . . . . . . 29
SECTION 7.01 Termination. . . . . . . . . . . . . . . . 29
SECTION 7.02 Effect of Termination. . . . . . . . . . . 30
SECTION 7.03 Amendment. . . . . . . . . . . . . . . . . 30
SECTION 7.04 Extension; Waiver. . . . . . . . . . . . . 30
ARTICLE VIII DEFINITIONS. . . . . . . . . . . . . . . . . . . 31
ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . 34
SECTION 9.01 Non-Survival of Representations and Warranties34
SECTION 9.02 Entire Agreement; Assignment . . . . . . . 34
SECTION 9.03 Validity . . . . . . . . . . . . . . . . . 34
SECTION 9.04 Notices. . . . . . . . . . . . . . . . . . 34
SECTION 9.05 Governing Law. . . . . . . . . . . . . . . 35
SECTION 9.06 Descriptive Headings . . . . . . . . . . . 35
SECTION 9.07 Counterparts . . . . . . . . . . . . . . . 35
SECTION 9.08 Parties in Interest. . . . . . . . . . . . 35
SECTION 9.09 Certain Definitions. . . . . . . . . . . . 36
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as
of January 6, 1997, by and among Heat, Inc., a Delaware corporation
("Parent"), Heat Acquisition, Inc., a Delaware corporation and a
subsidiary of Parent (the "Merger Sub"), and Thermal Industries,
Inc. (the "Company"). Cross-references to the defined terms used
in this Agreement are set forth in Article VIII.
WHEREAS, Merger Sub is a corporation duly organized and
validly existing under the laws of the Commonwealth of Delaware
having authorized capital shares consisting of 100 shares of common
stock, $.01 par value per share ("Merger Sub Shares"), all of which
are of one class and all of which are entitled to vote, and all of
which are issued and outstanding and owned by Parent.
WHEREAS, the Company is a corporation duly organized and
validly existing under the laws of the Commonwealth of Pennsylvania
and having authorized capital shares consisting of 5,000,000 shares
of common stock, $.01 par value per share ("Common Shares"), all of
which are of one class and all of which are entitled to vote, and
of which 1,961,312 shares are issued and outstanding.
WHEREAS, Parent desires to purchase all outstanding
Common Shares through the merger of the Merger Sub with and into
the Company (the "Merger"), with the Company surviving the Merger
and the Merger Sub ceasing to exist (the Company and the Merger Sub
being hereinafter sometimes referred to as the "Constituent
Corporations" and the Company, following the effectiveness of the
Merger, being hereinafter sometimes referred to as the "Surviving
Corporation"), all upon the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements
set forth herein, Parent, the Merger Sub and the Company agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms and subject to the
satisfaction or waiver of the conditions hereof, and in accordance
with the applicable provisions of this Agreement and the
Pennsylvania Business Corporation Law (the "BCL") and the Delaware
General Corporation Law (the "DGCL"), at the Effective Time (as
defined in Section 1.02) the Merger Sub shall be merged with and
into the Company. Following the Merger, the separate corporate
existence of the Merger Sub shall cease and the Company shall con-
tinue as the Surviving Corporation.
SECTION 1.02 Effective Time; Closing. As soon as
practicable after the satisfaction or waiver of the conditions set
forth in Article VI, the Company and the Merger Sub shall execute
in the manner required by the BCL and deliver to the Department of
State of the Commonwealth of Pennsylvania a duly executed and
verified articles of merger and shall execute in the manner
required by the DGCL and deliver to the Delaware Secretary of State
duly executed and verified Certificate of Merger, and the parties
shall take such other and further actions as may be required by law
to make the Merger effective. The time the Merger becomes
effective in accordance with applicable law is referred to as the
"Effective Time."
SECTION 1.03 Effects of the Merger. The Merger shall have
the effects set forth in Section 1929 of the BCL and Section 252 of
the DGCL.
SECTION 1.04 Articles of Incorporation and By-Laws of the
Surviving Corporation.
(a) The Articles of Incorporation of the Company, as in
effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation, until
thereafter amended in accordance with the provisions thereof and
hereof and applicable law.
(b) Subject to the provisions of Section 5.06 of this
Agreement, the By-Laws of the Merger Sub in effect at the Effective
Time shall be the By-Laws of the Surviving Corporation until
amended in accordance with the provisions thereof and applicable
law.
SECTION 1.05 Directors. Subject to applicable law, the
directors of the Merger Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation and
shall hold office until their respective successors are duly
elected and qualified, or their earlier death, resignation or
removal.
SECTION 1.06 Officers. To the extent permitted under
applicable law, the officers of the Company immediately prior to
the Effective Time shall be the initial officers of the Surviving
Corporation and shall hold office until their respective successors
are duly elected and qualified, or their earlier death, resignation
or removal.
SECTION 1.07 Conversion of Common Shares. At the Effective
Time, by virtue of the Merger and without any action on the part of
the holders thereof, each Common Share issued and outstanding
immediately prior to the Effective Time (other than any Common
Shares held by Parent, the Merger Sub, any wholly-owned subsidiary
of Parent or the Merger Sub, in the treasury of the Company or by
any wholly-owned subsidiary of the Company, which Common Shares, by
virtue of the Merger and without any action on the part of the
holder thereof, shall be cancelled and retired and shall cease to
exist with no payment being made with respect thereto, and other
than Dissenting Shares (as defined in Section 2.01)) shall be
converted into the right to receive in cash an amount equal to the
Merger Price (as defined below), payable to the holder thereof,
without interest thereon, upon surrender of the certificate
formerly representing such Common Share. The "Merger Price" shall
be an amount per Common Share equal to the result of (i) $15.00
minus (ii) the quotient determined by dividing (A) the amount by
which the Closing Invoice Amount (as defined below) exceeds
$275,000 by (B) the number of Common Shares outstanding on a fully-diluted basis
as of Effective Time.
The term "Closing Invoice Amount" means the aggregate face amount
of all invoices payable in connection with fees of legal counsel or investment
bankers (including any representatives of legal counsel or investment bankers)
incurred in connection with this Agreement, the Indemnity and Fee Agreement
dated as of the date hereof between Parent and the Controlling Stockholders
(as defined in Section 5.10) (the "Indemnity and Fee Agreement") and the
consummation of the transactions contemplated hereby and thereby (collectively,
the "Transaction Expenses") incurred by (or on behalf of) the selling
stockholders (including the Controlling Stockholders)
and the Company; provided, that such invoices are marked final and
delivered to Parent no later than two days prior to the Effective
Time; provided, further, than the face amount of each such invoice
shall be deemed to be conclusive evidence of the amounts owing
thereunder.
SECTION 1.08 Conversion of the Merger Sub Common Stock. At
the Effective Time, each share of common stock, par value $.01 per
share, of the Merger Sub issued and outstanding immediately prior
to the Effective Time shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into and
become one validly issued, fully paid and non-assessable share of
common stock, par value $.01 per share, of the Surviving
Corporation.
SECTION 1.09 Company Option Plans. The Company shall cause
each outstanding option to purchase Common Shares (an "Option") to
be cancelled, as of the Effective Time, at which time the Company
will pay each holder of an Option (whether or not such Option is
then vested or exercisable) an amount determined by multiplying (i)
the excess, if any, of the Merger Price over the applicable
exercise price of such Option by (ii) the number of Common Shares
such holder could have purchased if such holder had exercised such
Option in full immediately prior to such time (without giving
effect to any antidilutive changes in the number of such Common
Shares arising from the Merger and assuming any unvested Options
have vested). Prior to the Effective Time, the Company shall
obtain all consents necessary to give effect to the transaction
described in the foregoing sentence.
SECTION 1.10 Stockholders' Meeting; Proxy Statement.
(a) If required by applicable law in order to consummate
the Merger, the Company, acting through the Board, shall, in
accordance with applicable law:
(i) duly call, give notice of, convene and hold a
special meeting of its stockholders (a "Stockholders'
Meeting") as soon as practicable following the date hereof for
the purpose of considering and taking action upon this
Agreement;
(ii) prepare and file with the Securities and
Exchange Commission (the "SEC") a preliminary proxy statement
relating to the Merger and this Agreement and use its best
efforts (x) to obtain and furnish the information required to
be included by the SEC in the Proxy Statement (as hereinafter
defined) and, after consultation with Parent, to respond
promptly to any comments made by the SEC with respect to the
preliminary proxy statement and cause a definitive proxy
statement (the "Proxy Statement") to be mailed to its
stockholders and (y) to obtain the necessary approvals of the
Merger and this Agreement by its stockholders; and
(iii) include in the Proxy Statement the recommenda-
tion of the Board that stockholders of the Company vote in
favor of the approval of the Merger and the adoption of this
Agreement.
(b) Parent agrees that it will vote, or cause to be
voted, all of the Common Shares then owned by it, the Merger Sub or
any of its other subsidiaries in favor of the approval of the
Merger and the adoption of this Agreement.
ARTICLE II
DISSENTING SHARES; PAYMENT FOR SHARES
SECTION 2.01 Dissenting Shares. Notwithstanding anything in
this Agreement to the contrary, Common Shares outstanding
immediately prior to the Effective Time and held by a holder who
has not voted in favor of the Merger or consented thereto in
writing and who has demanded appraisal for such Common Shares in
accordance with Section 1930 of the BCL, if such Section 1930
provides for dissenters' rights for such Common Shares in the
Merger ("Dissenting Shares"), shall not be converted into the right
to receive the Merger Price as provided in Section 1.07, unless and
until such holder fails to perfect or withdraws or otherwise loses
his right to appraisal and payment under the BCL. If, after the
Effective Time, any such holder fails to perfect or withdraws or
loses his right to dissent, such Dissenting Shares shall thereupon
be treated as if they had been converted as of the Effective Time
into the right to receive the Merger Price, if any, to which such
holder is entitled, without interest or dividends thereon. The
Company shall give Parent prompt notice of any demands received by
the Company for appraisal of Common Shares and, prior to the
Effective Time, Parent shall have the right to participate in all
negotiations and proceedings with respect to such demands. Prior
to the Effective Time, the Company shall not, except with the prior
written consent of Parent, make any payment with respect to, or
settle or offer to settle, any such demands.
SECTION 2.02 Payment for Common Shares.
(a) From and after the Effective Time, NationsCredit or
such other bank or trust company as shall be mutually acceptable to
Parent and the Company shall act as paying agent (the "Paying
Agent") in effecting the payment of the Merger Price in respect of
certificates (the "Certificates") that, prior to the Effective
Time, represented Common Shares entitled to payment of the Merger
Price pursuant to Section 1.07. At the Effective Time, Parent or
the Merger Sub shall deposit, or cause to be deposited, in trust
with the Paying Agent the aggregate Merger Price to which holders
of Common Shares shall be entitled at the Effective Time pursuant
to Section 1.07.
(b) Promptly after the Effective Time, the Paying Agent
shall mail to each record holder of Certificates that immediately
prior to the Effective Time represented Common Shares (other than
Certificates representing Dissenting Shares and Certificates
representing Common Shares held by Parent or the Merger Sub, any
wholly-owned subsidiary of Parent or the Merger Sub, in the
treasury of the Company or by any wholly-owned subsidiary of the
Company) a form of letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent and instructions for use in
surrendering such Certificates and receiving the Merger Price in
respect thereof. Upon the surrender of each such Certificate, the
Paying Agent shall pay the holder of such Certificate the Merger
Price multiplied by the number of Common Shares formerly rep-
resented by such Certificate, in consideration therefor, and such
Certificate shall forthwith be cancelled. Until so surrendered,
each such Certificate (other than Certificates representing
Dissenting Shares and Certificates representing Common Shares held
by Parent or the Merger Sub, any wholly owned subsidiary of Parent
or the Merger Sub, in the treasury of the Company or by any wholly-owned
subsidiary of the Company) shall represent solely the right
to receive the aggregate Merger Price relating thereto. No
interest or dividends shall be paid or accrued on the Merger Price.
If the Merger Price (or any portion thereof) is to be delivered to
any person other than the person in whose name the Certificate
formerly representing Common Shares surrendered therefor is
registered, it shall be a condition to such right to receive such
Merger Price that the Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the
person surrendering such Common Shares shall pay to the Paying
Agent any transfer or other taxes required by reason of the payment
of the Merger Price to a person other than the registered holder of
the Certificate surrendered, or shall establish to the satisfaction
of the Paying Agent that such tax has been paid or is not applica-
ble.
(c) Promptly following the date which is 180 days after
the Effective Time, the Paying Agent shall deliver to the Surviving
Corporation all cash, Certificates and other documents in its
possession relating to the transactions described in this
Agreement, and the Paying Agent's duties shall terminate.
Thereafter, each holder of a Certificate formerly representing a
Common Share may surrender such Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat
and similar laws) receive in consideration therefor the aggregate
Merger Price relating thereto, without any interest or dividends
thereon.
(d) After the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corporation
of any Common Shares which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates
formerly representing Common Shares are presented to the Surviving
Corporation or the Paying Agent, they shall be surrendered and
cancelled in return for the payment of the aggregate Merger Price
relating thereto, as provided in this Article II, subject to
applicable law in the case of Dissenting Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Merger
Sub that except as set forth in the Company Disclosure Statement
which it has delivered to Parent and the Merger Sub simultaneous
with its execution of this Agreement (the "Company Disclosure
Statement"):
SECTION 3.01 Organization and Qualification; Subsidiaries.
The Company is a corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of
Pennsylvania. Each of the Company's subsidiaries (the
"Subsidiaries") is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation. The Company and each of the Subsidiaries has the
requisite corporate power and authority to own, operate or lease
its properties and to carry on its business as it is now being
conducted, and is duly qualified or licensed to do business, and is
in good standing, in each jurisdiction in which the nature of its
business or the properties owned, operated or leased by it makes
such qualification, licensing or good standing necessary.
SECTION 3.02 Charter and By-Laws. The Company has hereto-
fore made available to Parent and the Merger Sub a complete and
correct copy of the charter and the by-laws or comparable
organizational documents, each as amended to the date hereof, of
the Company and each of the Subsidiaries.
SECTION 3.03 Capitalization. The authorized capital stock
of the Company consists of 5,000,000 Common Shares. As of the
close of business on September 8, 1996, the Company had issued and
outstanding 1,958,512 Common Shares and 34,700 options to purchase
Common Shares. Since September 8, 1996, the Company has not issued
any shares of capital stock except pursuant to the exercise of
Options outstanding as of such date. All the outstanding Common
Shares are, and all Common Shares which may be issued pursuant to
the exercise of outstanding Options will be, when issued in
accordance with the respective terms thereof, duly authorized,
validly issued, fully paid and nonassessable. There are no bonds,
debentures, notes or other indebtedness having general voting
rights (or convertible into securities having such rights) ("Voting
Debt") of the Company or any of its Subsidiaries issued and
outstanding. Except as set forth above and except for the
transactions contemplated by this Agreement, there are no existing
options, warrants, calls, subscriptions or other rights,
agreements, arrangements or commitments of any character, relating
to the issued or unissued capital stock of the Company or any of
its Subsidiaries, obligating the Company or any of its Subsidiaries
to issue, transfer or sell or cause to be issued, transferred or
sold any shares of capital stock or Voting Debt of, or other equity
interest in, the Company or any of its Subsidiaries or securities
convertible into or exchangeable for such shares or equity
interests, and neither the Company nor any of its Subsidiaries is
obligated to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement, arrangement or
commitment. Except as contemplated by this Agreement and except
for the Company's obligations in respect of the Options under the
Thermal Industries, Inc. Stock Option and Incentive Plan of 1996
(the "Option Plan"), there are no outstanding contractual
obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any Common Shares or the
capital stock of the Company or any of its Subsidiaries. Each of
the outstanding shares of capital stock of each of the Subsidiaries
is duly authorized, validly issued, fully paid and nonassessable,
and such shares of the Subsidiaries as are owned by the Company or
any of its Subsidiaries are owned in each case free and clear of
any lien, claim, option, charge, security interest, limitation,
encumbrance and restriction of any kind (any of the foregoing being
a "Lien").
SECTION 3.04 Authority Relative to this Agreement. The
Company has all necessary corporate power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly
authorized and approved by the Board and no other corporate
proceedings on the part of the Company are necessary to authorize
or approve this Agreement or to consummate the transactions
contemplated hereby (other than, with respect to the Merger, the
approval and adoption of the Merger and this Agreement by the
affirmative vote of the holders of a majority of the Common Shares
then outstanding, to the extent required by applicable law). This
Agreement has been duly and validly executed and delivered by the
Company and, assuming the due and valid authorization, execution
and delivery of this Agreement by Parent and the Merger Sub,
constitutes a valid and binding obligation of the Company en-
forceable against the Company in accordance with its terms, except
that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally and (ii) is
subject to general principles of equity.
SECTION 3.05 No Conflict; Required Filings and Consents.
(a) None of the execution and delivery of this Agreement
by the Company, the consummation by the Company of the transactions
contemplated hereby or compliance by the Company with any of the
provisions hereof will (i) conflict with or violate the Certificate
of Incorporation or By-Laws of the Company or comparable
organizational documents of any of the Subsidiaries, (ii) conflict
with or violate any statute, ordinance, rule, regulation, order,
judgment or decree applicable to the Company or any of the
Subsidiaries, or by which any of them or any of their respective
properties or assets may be bound or affected, or (iii) result in
a violation or breach of or constitute a default (or an event which
with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in any loss of any
material benefit, or the creation of any Lien on any of the
properties or assets of the Company or any of the Subsidiaries (any
of the foregoing referred to in clause (ii) or this clause (iii)
being a "Violation") pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which the Company or any of
the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties may be bound or
affected.
(b) None of the execution and delivery of this Agreement
by the Company, the consummation by the Company of the transactions
contemplated hereby or compliance by the Company with any of the
provisions hereof will require any consent, waiver, approval,
authorization or permit of, or registration or filing with or
notification to (any of the foregoing being a "Consent"), any
government or subdivision thereof, domestic, foreign or supra-
national or any administrative, governmental or regulatory
authority, agency, commission, tribunal or body, domestic, foreign
or supranational (a "Governmental Entity"), except for (i) com-
pliance with any applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (ii) the filing of a
certificate of merger, or, if permitted, a certificate of ownership
and merger, pursuant to the BCL and the DGCL, (iii) certain state
takeover and environmental statutes, and (iv) compliance with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") and any requirements of any foreign or
supranational Antitrust Laws (as hereinafter defined).
SECTION 3.06 SEC Reports and Financial Statements.
(a) The Company has filed with the SEC all forms,
reports, schedules, registration statements and definitive proxy
statements required to be filed by the Company with the SEC since
June 30, 1996 (the "SEC Reports"). As of their respective dates,
the SEC Reports complied in all material respects with the
requirements of the Exchange Act or the Securities Act of 1933, as
amended (the "Securities Act") and the rules and regulations of the
SEC promulgated thereunder applicable, as the case may be, to such
SEC Reports, and none of the SEC Reports contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were
made, not misleading.
(b) The consolidated balance sheets as of June 30, 1996,
1995 and 1994 and the related consolidated statements of income,
common stockholder's equity and cash flows for each of the five
years in the period ended June 30, 1996 (including the related
notes and schedules thereto) of the Company contained in the Form
10-Ks for the years ended June 30, 1996 (the "1996 Form 10-K"),
1995 and 1994 included in the SEC Reports present fairly the
consolidated financial position and the consolidated results of
operations and cash flows of the Company and its consolidated
subsidiaries as of the dates or for the periods presented therein
in conformity with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the
periods involved except as otherwise noted therein, including the
related notes.
(c) The consolidated balance sheets and the related
statements of income and cash flows (including in each case the
related notes thereto) of the Company contained in the Forms 10-Q
for the period ended September 30, 1996 included in the SEC Reports
(collectively, the "Quarterly Financial Statements") have been
prepared in accordance with the requirements for interim financial
statements contained in Regulation S-X, which do not require all
the information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. The
Quarterly Financial Statements reflect all adjustments, which
include only normal recurring adjustments, necessary to present
fairly the consolidated financial position, results of operations
and cash flows of the Company for all periods presented.
SECTION 3.07 Information. None of the information set forth
in the Company Disclosure Statement or supplied by the Company in
writing specifically for inclusion or incorporation by reference in
(i) the Proxy Statement or (ii) any other document to be filed with
the SEC or any other Governmental Entity in connection with the
transactions contemplated by this Agreement (the "Other Filings")
will, at the respective times filed with the SEC or other
Governmental Entity and, in addition, in the case of the Proxy
Statement, at the date it or any amendment or supplement is mailed
to stockholders, at the time of the Stockholders' Meeting and at
the Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading. The
Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and
regulations thereunder, except that no representation is made by
the Company with respect to statements made therein based on
information supplied by Parent or the Merger Sub in writing
specifically for inclusion in the Proxy Statement.
SECTION 3.08 [Intentionally Omitted].
SECTION 3.09 Brokers. None of the Company, any of the
Subsidiaries, or any of their respective officers, directors or
employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated by this Agreement.
SECTION 3.10 Material Adverse Effect. There have been no
events, conditions, developments or states of fact which singly or
in the aggregate since June 30, 1996 have had or threaten to have
a Material Adverse Effect on the Company that were not disclosed in
the Company Disclosure Statement or in any of the reports filed
with the SEC as described in Section 3.06. Since June 30, 1996,
the Company has not taken any action or agreed to take any action
that the Company is prohibited from taking after the date hereof by
Section 5.01. The term "Material Adverse Effect on the Company", as used in
this Agreement, means any change in or effect on the business, assets,
operations, financial condition or results of operations of the Company or
any of the Subsidiaries that is materially adverse to the Company and the
Subsidiaries taken as a whole.
SECTION 3.11 Litigation. Except as may be disclosed in the
SEC Reports (as defined in Section 3.06(a) hereof), there are no
actions, proceedings or investigations pending or, to the best of
the Company's knowledge, threatened against the Company or the
Subsidiaries before any court or governmental or regulatory
authority or body. Neither the Company nor the Subsidiaries nor
any of their assets is subject to any order, judgment, injunction
or decree.
SECTION 3.12 Absence of Certain Changes or Events. Since
June 30, 1996 (a) there has been no event or occurrence which has
or could reasonably be expected to have a Material Adverse Effect
on the Company; (b) neither the Company nor any Subsidiary has
incurred any indebtedness for money borrowed; (c) neither the
Company nor any Subsidiary has assumed, guaranteed, endorsed or
otherwise became responsible for the obligations of any other
individual, firm or corporation, other than any obligation relating
to existing co-insurance programs and the endorsement of checks for
collection in the ordinary and usual course of business; (d) there
has been no creation or assumption by the Company or any Subsidiary
of any Lien on any asset; (e) there has been no loan, advance or
capital contribution to or investment in any person by the Company
or any Subsidiary; (f) neither the Company nor any Subsidiary has
entered into any contract, lease, commitment or transaction with
any officer, director or any affiliate (as defined in Rule 405 of
the SEC promulgated under the Securities Act) of the Company or any
Subsidiary (other than pursuant to consulting or employment
agreements or other employee benefit arrangements disclosed on the
Company Disclosure Statement); (g) there has been no transaction or
commitment made, or any contract or agreement entered into, by the
Company or any Subsidiary relating to its assets or business
(including the acquisition or disposition of any assets) or any
relinquishment by the Company or any Subsidiary of any contract or
other right, which in either case is material to the Company and
the Subsidiaries taken as a whole (other than transactions,
commitments and relinquishments contemplated by this Agreement and
other than sales of inventory in the ordinary and usual course of
business and other than investments of a capital nature in the
ordinary and usual course of business); (h) neither the Company nor
any Subsidiary has purchased or leased any real property; (i)
neither the Company nor any Subsidiary has leased any equipment or
property other than in the ordinary and usual course of business;
(j) there has been no change in any method of accounting or
accounting practice by the Company or the Subsidiaries; (k) there
has been no grant (whether or not in writing and whether formal or
informal) of any severance or termination pay to any current or
former officer or employee of the Company or any Subsidiary, any
employment, bonus, profit sharing, pension, retirement, deferred
compensation, fringe benefit, or other similar agreement with or
plan or program for (or, except as required by law, any amendment,
formal or informal, to any such existing agreement with or plan or
program for) any current or former officer, director, employee or
consultant of the Company or any Subsidiary, any increase in
benefits payable under any existing severance or termination pay
policies, employment agreements, or deferred compensation or fringe
benefit plan or program or any increase in compensation, bonus or
other benefits payable, or to become payable, to officers,
directors, employees or consultants of the Company or any
Subsidiary other than increases in benefits to non-officer
employees of the Company in the ordinary course of business in
accordance with past practices; (l) there has been no repurchase,
redemption or other acquisition by the Company or any Subsidiary of
any outstanding shares of capital stock or other ownership interest
of the Company or any Subsidiary; (m) there has been no declaration
or payment of any dividend on, or other distribution with respect
to, any capital stock of the Company or any Subsidiary; and (n)
neither the Company nor any Subsidiary has entered into any other
transaction other than in the ordinary course of business.
SECTION 3.13 Employee Benefit Plans.
(a) The Company Disclosure Statement sets forth a true
and complete list of all Plans (as defined below) maintained or
sponsored by the Company or any Subsidiary, contributed to by the
Company or any Subsidiary, to which the Company or any Subsidiary
is obligated to contribute or with respect to which the Company or
any Subsidiary has any liability or potential liability, whether
direct or indirect, including all Plans contributed to, maintained
or sponsored by any member of the controlled group of companies,
within the meaning of Sections 414(b) and 414(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), of which the Company
and/or any Subsidiary is or ever was a member (the "Company
Controlled Group") (to the extent that the Company or any
Subsidiary has any liability or potential liability with respect to
such Plans). For purposes of this Agreement, the term "Plans"
shall mean: (i) employee benefit plans as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not funded and whether or not terminated,
(ii) employment agreements, and (iii) personnel policies or fringe
benefit plans, policies, programs and arrangements, whether or not
subject to ERISA, whether or not funded, whether or not terminated,
and whether or not covering employees residing in the United
States, including without limitation, stock bonus, stock option,
stock appreciation right, stock purchase, "phantom stock," deferred
compensation, pension, profit sharing, savings, severance, bonus,
vacation, incentive, travel, and health, disability and welfare
plans. Neither the Company nor any Subsidiary has any commitment,
whether formal or informal, to create any additional employee
benefit plans, or to modify any existing Plan except as may be
required to conform to changes in applicable law.
(b) Neither the Company nor any Subsidiary has within
the last five years participated in, contributed to or been
obligated to contribute to any "multiemployer plan", as such term
is defined in Section 3(37) of ERISA ("Multiemployer Plan"), nor
does the Company or any Subsidiary have any other liability or
potential liability with respect to any Multiemployer Plan or with
respect to any employee benefit plan of the type described in
Section 4063 and 4064 of ERISA or in Section 413(c) of the Code
(and regulations promulgated thereunder).
(c) Neither the Company nor any Subsidiary maintains,
contributes to, has any obligation to contribute to or has any
other liability or potential liability with respect to any Plan
that is a defined benefit pension plan or that is subject to the
funding requirements of Section 412 of the Code and Section 302 of
ERISA, whether or not such Plan has been terminated. There has
been no complete or partial termination of any Plan which could
result in any liability to the Company or any Subsidiary.
(d) Neither the Company nor any Subsidiary maintains or
has any obligation to contribute to (or has any other liability or
potential liability with respect to) any Plan which provides
health, life insurance, accident or other "welfare-type" benefits
to current or future retirees, current or future former employees,
current or future former independent contractors, or the spouses,
dependents or beneficiaries thereof, other than in accordance with
Section 4980B of the Code, Sections 601 et seq. of ERISA, and/or
other applicable continuation coverage law.
(e) None of the Plans obligates the Company or the
Subsidiaries to pay separation, severance, termination or similar-type benefits
solely as a result of any transaction contemplated by
this Agreement or solely as a result of a "change in control", as
such term is defined in Section 280G of the Code.
(f) With respect to each Plan, all required or
recommended (in accordance with historical practices) payments,
premiums, contributions, reimbursements or accruals for all periods
ending prior to or as of the Effective Time shall have been made or
properly accrued. No Plan has any unfunded liabilities.
(g) 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.
Neither the Company nor any Subsidiary has incurred, or expects to
incur, any liability to the Internal Revenue Service ("IRS"), the
Department of Labor, any other governmental (whether of the United
States or otherwise) agency, or any person with respect to any Plan
currently or previously maintained by members of the Company
Controlled Group that has not been satisfied in full, and no
condition exists that presents a risk to the Company and/or the
Subsidiaries or any other member of the Company Controlled Group of
incurring such a liability (other than liability for routine
benefit claims). None of the Company, any Subsidiary, any trustee
or administrator of any Plan, or other person has engaged in any
transaction with respect to the Plans which could subject the
Company, any Subsidiary, or any trustee or administrator of the
Plans, or any party dealing with any Plan, to any tax or penalty
(civil or otherwise) imposed by ERISA, the Code or other applicable
law. No actions, investigations, suits or claims with respect to
the Plans (other than routine claims for benefits) or any fiduciary
or other person dealing with such Plans are pending or threatened
and the Company has no knowledge of any facts which could give rise
to or be expected to give rise to any such actions, investigations,
suits or claims.
(h) No prohibited transaction within the meaning of
Section 4975 of the Code or Section 406 of ERISA has occurred with
respect to any Plan.
(i) No Plan is intended to be qualified under Section
401(a) of the Code.
(j) No underfunded defined benefit plan has been, during
the five years preceding the Effective Time, transferred out of the
Company Controlled Group.
(k) With respect to each Plan, the Company has provided
Parent with true, complete and correct copies, to the extent
applicable, of all documents pursuant to which the Plans are
maintained, funded and administered.
SECTION 3.14 Material Contracts and Other Agreements. The
Company Disclosure Statement sets forth a complete and accurate
list of the following contracts and commitments to which the
Company or any Subsidiary is a party or by which any of their
respective properties are bound: (a) collective bargaining
agreements and contracts with any labor union; (b) employment or
consulting agreements or any agreements providing for severance,
termination or similar payments; (c) leases, whether as lessor or
lessee, involving personal property with annual rental payments in
excess of $25,000; (d) loan agreements, mortgages, indentures,
instruments or other evidence of indebtedness or commitments (other
than letters of credit issued in the ordinary course of business
pursuant to existing credit agreements in respect of inventory
purchases) in each case involving indebtedness (or available
credit) for borrowed money or money lent to others; (e) guaranty or
suretyship, performance bond, indemnification or contribution
agreements; (f) written contracts with customers or suppliers that
require aggregate payments to or from the Company or its
Subsidiaries of more than $50,000 in any one-year period, other
than contracts issued in the ordinary and usual course of business
or terminable with 30 days or less notice without premium or
penalty; (g) joint venture, partnership, or other agreements
evidencing an ownership interest or a participation in or sharing
of profits; (h) agreements, contracts or commitments limiting the
freedom of the Company or any of the Subsidiaries to engage in any
line of business or compete with any other corporation,
partnership, joint venture, company or individual, (i) contracts
that are terminable, or under which payments by the Company or any
Subsidiary may be accelerated, upon a change in control of the
Company, (j) written contracts with distributors of the Company's
or any of the Subsidiaries' products, and (k) any other agreements
material to the Company and its Subsidiaries taken as a whole. The
Company has furnished or made available accurate and complete
copies of the foregoing contracts and agreements to Parent. The
termination of any oral agreement or understanding to which the
Company or a Subsidiary is a party of the type described in
Sections 3.14(f) and 3.14(j) above would not, to the Company's
knowledge, have a Material Adverse Effect on the Company. Each
such oral agreement or understanding is terminable by the Company
or a Subsidiary, as the case may be, without premium or penalty.
As to each contract and commitment referred to above (i) there
exists no breach or default, and no event has occurred which with
notice or passage of time would constitute such a breach or default
or permit termination, notification or acceleration, on the part of
the Company or any Subsidiary or, to the best knowledge of the
Company, on the part of any third party and (ii) as of the
Effective Time, no third party consent, approval or authorization
shall be required for the consummation of the Transactions. This
Section 3.14 does not relate to real property, such items being the
subject of Section 3.15.
SECTION 3.15 Real Estate Leases. The Company Disclosure
Statement sets forth a list of (a) all leases and subleases under
which the Company or the Subsidiaries is lessor or lessee of any
real property together with all amendments, supplements,
nondisturbance agreements and other agreements pertaining thereto;
(b) all options held by the Company or the Subsidiaries or
contractual obligations on the part of the Company or the Subsid-
iaries to purchase or acquire any interest in real property; and
(c) all options granted by the Company or the Subsidiaries or
contractual obligations on the part of the Company or the Subsid-
iaries to sell or dispose of any interest in real property. Except
as set forth in the Company Disclosure Statement, as to such
leases, subleases and other agreements referred to above, (i) there
exists no breach or default, and no event has occurred which with
notice or passage of time would constitute such a breach or default
or permit termination, notification or acceleration, on the part of
the Company or any Subsidiary, or on the part of any other party
thereto, and (ii) as of the Effective Time, no material third party
consent, approval or authorization shall be required for the
consummation of the Merger. To the Company's knowledge, there are
no Liens on any of the leasehold interests set forth on the Company
Disclosure Statement hereof except for (i) Liens reflected in the
balance sheet included in the 1996 Form 10-K, (ii) Liens of record
consisting of zoning or planning restrictions, easements, permits
and other restrictions or limitations on the use of real property
which do not materially detract from the value of, or materially
impair the use of, such property by the Company or the Subsidiaries
in the operation of their respective businesses, (iii) Liens for
current Taxes (as defined in Section 3.22(a)), assessments or
governmental charges or levies on property not yet delinquent or
being contested in good faith and for which appropriate reserves
have been established in accordance with GAAP (which contested
levies are described on the Company Disclosure Statement), and
(iv) Liens imposed by law, such as materialman's, mechanic's,
carrier's, workers' and repairmen's Liens securing obligations not
yet delinquent or being contested in good faith and for which
appropriate reserves have been established in accordance with GAAP
or securing obligations not being paid in the ordinary course of
business in accordance with customary and commercially reasonable
practice. (collectively, "Permitted Liens").
SECTION 3.16 Real Property. The Company Disclosure
Statement lists all real property owned by the Company and the
Subsidiaries. Each of the Company and the Subsidiaries has good
and marketable title in fee simple to its respective real
properties set forth on the Company Disclosure Statement, in each
case, to the Company's knowledge, free and clear of all Liens,
except for Permitted Liens.
SECTION 3.17 Compliance with Laws. The Company and the
Subsidiaries have complied and, to the Company's knowledge, are in
compliance with applicable federal, state or local statutes, laws
and regulations including, without limitation, any applicable
building, zoning, health, sanitation, safety, labor relations or
other law, ordinance or regulation. Neither the Company nor any
Subsidiary has (a) failed to obtain any license, permit, franchise
or other governmental authorization which is necessary to the
operations of the business of the Company and the Subsidiaries,
taken as a whole, or (b) received any notice of any alleged
violation or breach of any law or regulation or of any license,
permit, franchise or authorization.
SECTION 3.18 Proprietary Rights. The Company Disclosure
Statement contains a complete and accurate list of all patents and
patent applications; all trademarks, service marks, trade dress,
trade names, internet domain names and corporate names; all
registered copyrights and all material unregistered copyrights; all
registrations, applications and renewals for any of the foregoing;
owned by the Company or the Subsidiaries or in which any of them
has any rights and all contracts, agreements and licenses relating to any of
the foregoing. All right, title and interest in and to each of the foregoing is
owned by the party identified on the Company Disclosure Schedule,
free and clear of any Liens or royalty obligations. The Company
and each Subsidiary owns all right, title and interest in and to,
or has a valid and enforceable license to use, free and clear of
all Liens, all patents, patent applications, patent disclosures and
inventions (whether or not patentable and whether or not reduced to
practice), trademarks, trade names, service marks, internet domain
names, copyrights, mask works, and registrations, applications and
renewals for any of the foregoing, trade secrets and confidential
information (including, but not limited to know-how and formulas),
computer software and other intellectual property rights necessary
for the conduct of their respective businesses as now being
conducted (collectively, the "Proprietary Rights"). To the
Company's knowledge, neither the Company nor any Subsidiary has
infringed or is infringing on any Proprietary Rights belonging to
any other person, firm or corporation. Neither the Company nor any
of the Subsidiaries has granted any licenses with respect to any of
their respective Proprietary Rights. Neither the Company nor any
of the Subsidiaries has received any notice, nor does the Company
or any of the Subsidiaries have any knowledge of any infringement
or misappropriation by or misuse or conflict with respect to the
use of its corporate name or any of its Proprietary Rights or of
any facts which indicate a likelihood of any of the foregoing. The
validity of the Proprietary Rights and the Company's or any
Subsidiary's title thereto is not being questioned in any suit,
action, investigation, legal, administrative or other proceeding to
which the Company or any Subsidiary is a party or, to the Company's
knowledge, to which any other person is a party nor, to the
Company's knowledge, is any such suit, action, investigation,
legal, administrative or other proceeding threatened. The
consummation of the Merger will not adversely affect the Company's
or any Subsidiary's title and interest in and to the Proprietary
Rights.
SECTION 3.19 No Undisclosed Liabilities. There is no
liability or obligation of the Company or any Subsidiary of any
nature, whether absolute, accrued, contingent or otherwise other
than: (a) the liabilities and obligations reflected on the June
30, 1996 consolidated balance sheet contained in the Quarterly
Financial Statements (the "June Balance Sheet"); (b) all
liabilities and obligations of the Company and the Subsidiaries
incurred since June 30, 1996 in the ordinary and usual course of
business; and (c) any liabilities and obligations relating to
contracts not yet required to be performed.
SECTION 3.20 Title to Personal Property. Each of the
Company and the Subsidiaries has good title to or a valid and
enforceable leasehold interest in all personal property material to
the operation of its business, free and clear of all Liens other
than Permitted Liens.
SECTION 3.21 Labor Relations. There is (a) no unfair labor
practice complaint, grievance or arbitration pending or, to the
best knowledge of the Company, threatened against the Company or
any Subsidiary, (b) no strike, labor dispute, slowdown or stoppage
pending or, to the best knowledge of the Company, threatened
against the Company or any Subsidiary and (c) to the best knowledge
of the Company, no labor union organizing campaign in progress with
respect to any employees of the Company or the Subsidiaries or no
intention of any labor organization to initiate any such campaign.
SECTION 3.22 Taxes and Tax Returns.
(a) All United States federal and state income and other
Tax returns and reports required to be filed by the Company and the
Subsidiaries on or before the Effective Time (including extensions
to the due date for such returns) with respect to the business or
assets of the Company and the Subsidiaries have been or will be
duly filed and all federal, state, local and foreign taxes of any
kind ("Taxes") shown to be due on such returns and all other
returns filed by the Company and the Subsidiaries have been paid or
will be paid when due, except such Taxes as are being contested in
good faith by appropriate proceedings and for which adequate
reserves have been established;
(b) neither the Company nor the Subsidiaries has been
notified in writing by any taxing authority, or otherwise has any
knowledge, of any pending actions, suits, claims or assessments for
any tax deficiency for which the Company or the Subsidiaries might
have any liability for Taxes in excess of $25,000;
(c) all U.S. federal and state income tax returns
referred to in (a) above filed through the year ended June 30, 1993
have been examined and closed, or the periods during which any tax
due with respect to such returns may be assessed have expired
without extension or waiver;
(d) no consent has been or will be filed with respect to
the Company or the Subsidiaries relating to Section 341(f) of the
Internal Revenue Code;
(e) neither the Company nor the Subsidiaries is a party
to any Tax indemnity or Tax sharing agreement;
(f) there are no liens for Taxes (other than for Taxes
not yet due) on any assets of the Company or the Subsidiaries;
(g) neither the Company nor any of the Subsidiaries will
be required (i) as a result of a change in method of accounting or
a taxable period ending on or prior to the Effective Time, to
include any adjustment under Section 481(c) of the Code (or any
similar or corresponding provision of federal, state, local or
foreign income Tax law) in taxable income for any taxable period
ending after the Effective Time or (ii) as a result of any "closing
agreement," as described in Section 7121 of the Code (or any
corresponding provision of state, local or foreign income Tax law),
to include any item of income in or exclude any item of deduction
from any taxable period ending after the Effective Time;
(h) neither the Company nor any of the Subsidiaries has
been a member of an affiliated group (as defined in Section 1504 of
the Code) other than one of which the Company was the common
parent, or filed or been included in a combined, consolidated or
unitary income Tax Return, other than one filed by the Company; and
(i) neither the Company nor any of the Subsidiaries has
made any payments, or is or will become obligated (under any
contract entered into on or before the Effective Time) to make any
payments, that will be non-deductible under Section 280G of the
Code (or any corresponding provision of state, local or foreign
income Tax law).
SECTION 3.23 Environmental Matters.
(a) Compliance Generally. The Company and the
Subsidiaries have complied and are in compliance with all
Environmental and Safety Requirements (as defined in Section
3.23(j)).
(b) Permits. The Company and the Subsidiaries have
obtained and complied with, and are 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 their business,
and such permits, licenses and other authorizations may be relied
upon for continued lawful conduct of the business and operations of
the Company and its Subsidiaries immediately after the Effective
Time without transfer, reissuance, or other approval or action by
any governmental entity or other person.
(c) Claims. The Company and the Subsidiaries have not
received any claim, complaint, citation, report or other notice
regarding any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective obligations,
arising under Environmental and Safety Requirements.
(d) Storage Tanks, Asbestos, PCBs. No above-ground or
underground storage tank, asbestos in any form or condition, or
polychlorinated biphenyls(PCBs) exists at any property owned,
used, leased or occupied or formerly owned, used, leased or
occupied in connection with the business or operation of the
Company and its Subsidiaries.
(e) Certain Environmental Liabilities. The Company and
the Subsidiaries have not stored, disposed of, arranged for or
permitted the disposal of, transported, handled or released any
substance, including without limitation any hazardous substance,
pollutant, contaminant or waste, or owned or operated any facility
or property, so as to give rise to liabilities of the Company and
its Subsidiaries pursuant to the Environmental and Safety
Requirements, including without limitation any liability for
response costs, corrective action, natural resources damages,
personal injury, property damage or attorneys fees.
(f) Operations. No facts, events or conditions relating
to the past or present facilities, properties or operations of the
Company and the Subsidiaries will prevent, hinder or limit
continued compliance with Environmental and Safety Requirements,
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 any Environmental and Safety Requirement
relating to onsite or offsite releases or threatened releases of
hazardous or otherwise regulated materials, substances or wastes,
personal injury, property damage or natural resources damage.
(g) Transaction-Triggered Requirements. Neither the
execution and delivery of this Agreement nor the consummation of
the transactions contemplated herein imposes any obligations for
site investigation or cleanup, or notification to or consent of
governmental entity or any other person, pursuant to any
"transaction-triggered" Environmental and Safety Requirement.
(h) Liability for Others. The Company and the
Subsidiaries have not, either expressly or by operation of law,
assumed or undertaken any liability or corrective or remedial
obligation of any other person relating to Environmental and Safety
Requirements.
(i) Environmental Liens. No Environmental Lien (as
defined below) has attached to any property owned, leased or
operated by the Company and the Subsidiaries arising out of any
action or omission of the Company and the Subsidiaries or, to the
Company's knowledge, any other person.
(j) "Environmental and Safety Requirements" means all
legal requirements, and all obligations under any contract,
concerning public health and safety, worker health and safety, or
pollution or protection of the environment, including all those
relating to the presence, use, production, 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.
(k) "Environmental Lien" means any Lien, either recorded
or unrecorded, in favor of any governmental entity and relating to
any liability arising under Environmental and Safety Requirements.
SECTION 3.24 Accounts Receivable. All of the notes and
accounts receivable of the Company and the Subsidiaries reflected
on the face of the June Balance Sheet are, and all notes and
accounts receivable of the Company and the Subsidiaries as of the
Effective Time will be, good and valid receivables and, to the best
knowledge of the Company, collectible after the Effective Time at
the aggregate amount recorded therefor on the books and records of
the Company as of the Effective Time (net of allowance for doubtful
accounts in an amount not to exceed $100,000).
SECTION 3.25 Inventory. All inventory of the Company and the
Subsidiaries reflected on the face of the June Balance Sheet is,
and all inventory of the Company and the Subsidiaries as of the
Effective Time will be, in accordance with the Company's past
custom and practice, merchantable and fit for the purpose for which
it was procured or manufactured and is and as of the Effective Time
will be, to the best knowledge of the Company, useable for the
purpose for which such inventory was acquired or produced by the
Company.
SECTION 3.26 Product and Service Warranty. Each product
sold or delivered and each service rendered by the Company and the
Subsidiaries with respect to any such product has been in
conformity with all applicable contractual commitments and all
express and implied warranties of the Company and the Subsidiaries.
No product sold or delivered or service rendered by the Company or
the Subsidiaries with respect to any such product is subject to any
guaranty, warranty or other indemnity beyond the applicable
standard terms and conditions with respect thereto. Prior to the
date hereof, the Company and the Subsidiaries have delivered to
Parent copies of the standard terms and conditions of sale for
products delivered and services rendered by the Company and the
Subsidiaries with respect thereto (containing all applicable
guaranty, warranty and indemnity provisions).
SECTION 3.27 Effective Time. The representations and
warranties of the Company and the Subsidiaries contained in this
Article 3 and elsewhere in this Agreement and all information
contained in any exhibit, schedule, or attachment hereto or in any
certificate or other writing delivered by, or on behalf of the
Company to Parent shall be true and correct on the date of the
Closing as though then made, except as affected by the transactions
expressly disclosed in writing to Parent by the Company prior to
the Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND THE MERGER SUB
Parent and the Merger Sub represent and warrant to the Company
as follows:
SECTION 4.01 Organization and Qualification. Parent is a
corporation duly organized, validly existing and in good standing
under the laws of Delaware and each material subsidiary of Parent
is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization.
The Merger Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
Parent and each of its subsidiaries (including the Merger Sub) has
the requisite corporate power and authority to own, operate or
lease its properties and to carry on its business as it is now
being conducted, and is duly qualified or licensed to do business,
and is in good standing, in each jurisdiction in which the nature
of its business or the properties owned, operated or leased by it
makes such qualification, licensing or good standing necessary.
The term "Material Adverse Effect on Parent", as used in this
Agreement, means any change in or effect on the business, assets,
operations, financial condition or results of operations of Parent
or any of its subsidiaries that would be materially adverse to
Parent and its subsidiaries taken as a whole.
SECTION 4.02 Authority Relative to this Agreement. Each of
Parent and the Merger Sub has all necessary corporate power and
authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery
of this Agreement by Parent and the Merger Sub and the consummation
by Parent and the Merger Sub of the transactions contemplated
hereby have been duly and validly authorized and approved by the
Boards of Directors of Parent and the Merger Sub and by Parent as
stockholder of the Merger Sub and no other corporate proceedings on
the part of Parent or the Merger Sub are necessary to authorize or
approve this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and
delivered by each of Parent and the Merger Sub and, assuming the
due and valid authorization, execution and delivery by the Company,
constitutes a valid and binding obligation of each of Parent and
the Merger Sub enforceable against each of them in accordance with
its terms, except that such enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting
or relating to the enforcement of creditor's rights generally and
(ii) is subject to general principles of equity.
SECTION 4.03 No Conflict; Required Filings and Consents.
(a) None of the execution and delivery of this Agreement
by Parent or the Merger Sub, the consummation by Parent or the
Merger Sub of the transactions contemplated hereby or compliance by
Parent or the Merger Sub with any of the provisions hereof will (i)
conflict with or violate the organizational documents of Parent or
the Merger Sub, (ii) conflict with or violate any statute,
ordinance, rule, regulation, order, judgment or decree applicable
to Parent or the Merger Sub, or any of their subsidiaries, or by
which any of them or any of their respective properties or assets
may be bound or affected, or (iii) result in a Violation pursuant
to any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to
which Parent or the Merger Sub, or any of their subsidiaries, is a
party or by which any of their respective properties or assets may
be bound or affected, except in the case of the foregoing clauses
(ii) and (iii) for any such Violations which would not have a
Material Adverse Effect on Parent or materially adversely affect
the ability of Parent or the Merger Sub to consummate the
transactions contemplated hereby.
(b) None of the execution and delivery of this Agreement
by Parent and the Merger Sub, the consummation by Parent and the
Merger Sub of the transactions contemplated hereby or compliance by
Parent and the Merger Sub with any of the provisions hereof will
require any Consent of any Governmental Entity, except for (i) com-
pliance with any applicable requirements of the Exchange Act,
(ii) the filing of a certificate of merger, or, if permitted, a
certificate of ownership and merger, pursuant to the BCL and the
DGCL, (iii) notifications required by certain state takeover and
environmental statutes and (iv) Consents the failure of which to
obtain or make would not have a Material Adverse Effect on Parent
or materially adversely affect the ability of Parent or the Merger
Sub to consummate the transactions contemplated hereby.
SECTION 4.04 Information. None of the information supplied
or to be supplied by Parent and the Merger Sub in writing
specifically for inclusion in (i) the Proxy Statement or (ii) the
Other Filings will, at the respective times filed with the SEC or
such other Governmental Entity and, in addition, in the case of the
Proxy Statement, at the date it or any amendment or supplement is
mailed to stockholders, at the time of the Stockholders' Meeting
and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made,
not misleading.
SECTION 4.05 Financing. Parent is wholly-owned by H.I.G.
Investment Group, L.P. ("HIG"), a private equity fund which
currently has under management in excess of $150 million in equity
including sufficient funds to cause Parent to satisfy its payment
obligations in respect of the Merger Price in accordance with the
terms hereof. In connection with the transactions contemplated in
this Agreement, HIG and NationsCredit have issued commitment
letters to Parent to provide funds sufficient to pay the Merger
Price, true and correct copies of which have been delivered to the
Company simultaneous with execution of this Agreement. HIG has
contributed not less than $1,000,000 in immediately available funds
to Parent, which funds Parent shall hold and shall be available to
satisfy amounts (if any) which may be owed to the Company by Parent
or the Merger Sub pursuant to Section 7.02; it being understood
that, other than the $1,000,000 contribution to Parent made
pursuant to this Section 4.05, HIG and its affiliates (other than
Parent) shall have no liability in the event of any termination of
this Agreement pursuant to Section 7.01 and none of the Company nor
any of its affiliates, stockholders, directors or representatives
shall assert any claims, proceedings or action against HIG or any
of its affiliates (other than Parent) in connection with such
termination.
ARTICLE V
COVENANTS
SECTION 5.01 Conduct of Business of the Company. Except as
contemplated by this Agreement or with the prior written consent of
Parent, during the period from the date of this Agreement to the
Effective Time, the Company will, and will cause each of the
Subsidiaries to, conduct its operations only in the ordinary and
usual course of business consistent with past practice and will use
its reasonable efforts, and will cause each of the Subsidiaries to
use its reasonable efforts, to preserve intact the business
organization of the Company and each of the Subsidiaries, to keep
available the services of its and their present officers and key
employees, and to preserve the good will of those having business
relationships with it. Without limiting the generality of the
foregoing, and except as otherwise contemplated by this Agreement,
the Company will not, and will not permit any of the Subsidiaries
to, prior to the Effective Time, without the prior written consent
of Parent:
(a) adopt any amendment to its charter or By-Laws or
comparable organizational documents;
(b) except for issuances of capital stock of the
Subsidiaries to the Company or a wholly-owned Subsidiary, issue,
reissue, pledge or sell, or authorize the issuance, reissuance,
pledge or sale of (i) additional shares of capital stock of any
class, or securities convertible into capital stock of any class,
or any rights, warrants or options to acquire any convertible
securities or capital stock, other than the issuance of Common
Shares, in accordance with the terms of the instruments governing
such issuance on the date hereof, pursuant to the exercise of
options outstanding on the date hereof, or (ii) any other
securities in respect of, in lieu of, or in substitution for,
Common Shares outstanding on the date hereof;
(c) declare, set aside or pay any dividend or other
distribution (whether in cash, securities or property or any
combination thereof) in respect of any class or series of its
capital stock other than between any of the Company and any of its
wholly-owned Subsidiaries;
(d) split, combine, subdivide, reclassify or redeem,
purchase or otherwise acquire, or propose to redeem or purchase or
otherwise acquire, any shares of its capital stock, or any of its
other securities;
(e) except for increases in salary and wages granted to
officers and hourly employees of the Company or the Subsidiaries in
conjunction with promotions or other changes in job status or
normal compensation reviews in the ordinary course of business
consistent with past practice, increase the compensation or fringe
benefits payable or to become payable to its directors, officers or
employees (whether from the Company or any of the Subsidiaries), or
pay or award any benefit not required by any existing plan or
arrangement (including, without limitation, the granting of stock
options, stock appreciation rights, shares of restricted stock or
performance units pursuant to the Option Plan or otherwise) or
grant any additional severance or termination pay to (other than as
required by existing agreements or policies described in the
Company Disclosure Statement), or enter into any employment or
severance agreement with, any director, officer or other employee
of the Company or any of the Subsidiaries or establish, adopt,
enter into, amend or waive any performance or vesting criteria
under any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement,
savings, welfare, deferred compensation, employment, termination,
severance or other employee benefit plan, agreement, trust, fund,
policy or arrangement for the benefit or welfare of any directors,
officers or current or former employees (any of the foregoing being
an "Employee Benefit Arrangement"), except in each case to the
extent required by applicable law or regulation; provided, however,
that nothing herein will be deemed to prohibit the payment of
benefits as they become payable;
(f) except as set forth in the Company Disclosure
Schedule, acquire, sell, lease or dispose of any assets or
securities which are material to the Company and the Subsidiaries,
or enter into any commitment to do any of the foregoing or enter
into any material commitment or transaction outside the ordinary
course of business consistent with past practice other than
transactions between a wholly owned Subsidiary and the Company or
another wholly owned Subsidiary;
(g) except as set forth in the Company Disclosure
Schedule (i) incur, assume or pre-pay any long-term debt or incur
or assume any short-term debt, except that the Company and the
Subsidiaries may incur or pre-pay debt in the ordinary course of
business in amounts and for purposes consistent with past practice
under existing lines of credit, (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person
except in the ordinary course of business consistent with past
practice, or (iii) make any loans, advances or capital
contributions to, or investments in, any other person except in the
ordinary course of business consistent with past practice and
except for loans, advances, capital contributions or investments
between any wholly owned subsidiary of the Company and the Company
or another wholly owned Subsidiary; or
(h) settle or compromise any suit or claim or threatened
suit or claim;
(i) other than in the ordinary course of business
consistent with past practice, (i) modify, amend or terminate any
contract, (ii) waive, release, relinquish or assign any contract
(or any of the Company's rights thereunder), right or claim, or
(iii) cancel or forgive any indebtedness owed to the Company or any
of the Subsidiaries; provided, however, that the Company may not
under any circumstance waive or release any of its rights under any
confidentiality agreement to which it is a party;
(j) make any Tax election not required by law or settle
or compromise any Tax liability, in either case that is material to
the Company and the Subsidiaries; or
(k) agree in writing or otherwise to take any of the
foregoing actions prohibited under Section 5.01 or any action which
would cause any representation or warranty in this Agreement to be
or become untrue or incorrect in any material respect.
SECTION 5.02 Access to Information. From the date of this
Agreement until the Effective Time, the Company will, and will
cause the Subsidiaries, and each of their respective officers,
directors, employees, counsel, advisors and representatives
(collectively, the "Company Representatives") to, give Parent and
the Merger Sub and their respective officers, employees, counsel,
advisors and representatives (collectively, the "Parent
Representatives") full access, during normal business hours, to the
offices and other facilities and to the books and records of the
Company and the Subsidiaries and will cause the Company
Representatives and the Subsidiaries to furnish Parent, the Merger
Sub and the Parent Representatives to the extent available with
such financial and operating data and such other information with
respect to the business and operations of the Company and the
Subsidiaries as Parent and the Merger Sub may from time to time -
request. In addition, Parent will comply with the terms of the
Confidentiality Agreement (as hereinafter defined).
SECTION 5.03 Reasonable Best Efforts. Subject to the terms
and conditions herein provided and to applicable legal
requirements, each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all action,
and to do, or cause to be done, and to assist and cooperate with
the other parties hereto in doing, as promptly as practicable, all
things necessary, proper or advisable under applicable laws and
regulations to ensure that the conditions set forth in Article VI
are satisfied and to consummate and make effective the transactions
contemplated by this Agreement.
In addition, if at any time prior to the Effective Time
any event or circumstance relating to either the Company or Parent
or the Merger Sub or any of their respective subsidiaries, should
be discovered by the Company or Parent, as the case may be, the
discovering party will promptly inform the other party of such
event or circumstance. If at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes
of this Agreement, including the execution of additional
instruments, the proper officers and directors of each party to
this Agreement shall take all such necessary action.
SECTION 5.04 Consents.
(a) Each of the parties will use its reasonable best
efforts to obtain as promptly as practicable all Consents of any
Governmental Entity or any other person required in connection
with, and waivers of any Violations that may be caused by, the
consummation of the transactions contemplated by this Agreement.
(b) In furtherance and not in limitation of the
foregoing, Parent shall use its best efforts to resolve such
objections, if any, as may be asserted with respect to the
transactions contemplated by this Agreement under any antitrust,
competition or trade regulatory laws, rules or regulations of any
domestic or foreign government or governmental authority
("Antitrust Laws"). If any suit is instituted challenging any of
the transactions contemplated by this Agreement as violative of any
Antitrust Law, Parent shall take such action (including, without
limitation, agreeing to hold separate or to divest any of the
businesses, product lines or assets of Parent or any of its
affiliates or of any of the Company, the Subsidiaries or
affiliates) as may be required (i) by the applicable government or
governmental (including, without limitation, the Antitrust Division
of the United States Department of Justice or the Federal Trade
Commission) in order to resolve such objections as such government
or authority may have to such transactions under such Antitrust
Law, or (ii) by any domestic or foreign court or similar tribunal,
in any suit brought by a private party or governmental or
multinational authority challenging the transactions contemplated
by this Agreement as violative of any Antitrust Law, in order to
avoid the entry of, or to effect the dissolution of, any in-
junction, temporary restraining order or other order that has the
effect of preventing the consummation of any of such transactions.
The entry by a court, in any suit brought by a private party or
governmental or multinational authority challenging the
transactions contemplated by this Agreement as violative of any
Antitrust Law, of an order or decree permitting the transactions
contemplated by this Agreement, but requiring that any of the
businesses, product lines or assets of any of Parent or its
affiliates, the Company or the Subsidiaries or affiliates be
divested or held separate by Parent, or that would otherwise limit
Parent's freedom of action with respect to, or its ability to
retain, the Company and the Subsidiaries or any portion thereof or
any of Parent's or its affiliates' other assets or businesses,
shall not be deemed a failure to satisfy the conditions specified
in Section 6.01(c) hereof.
(c) Any party hereto shall promptly inform the others of
any material communication from the United States Federal Trade
Commission, the Department of Justice or any other domestic or
foreign government or governmental or multinational authority re-
garding any of the transactions contemplated by this Agreement. If
any party or any affiliate thereof receives a request for
additional information or documentary material from any such
government or authority with respect to the transactions
contemplated by this Agreement, then such party will endeavor in
good faith to make, or cause to be made, as soon as reasonably
practicable and after consultation with the other party, an
appropriate response in compliance with such request. Parent will
advise the Company promptly in respect of any understandings,
undertakings or agreements (oral or written) which Parent proposes
to make or enter into with the Federal Trade Commission, the
Department of Justice or any other domestic or foreign government
or governmental or multinational authority in connection with the
transactions contemplated by this Agreement.
SECTION 5.05 Public Announcements. So long as this Agree-
ment is in effect, but only until the Effective Time, Parent, the
Merger Sub and the Company agree to use reasonable efforts to
consult with each other before issuing any press release or
otherwise making any public statement with respect to the
transactions contemplated by this Agreement.
SECTION 5.06 Indemnification.
(a) Parent agrees that all rights to indemnification now
existing in favor of any director or officer of the Company and the
Subsidiaries (the "Indemnified Parties"), as provided in their
respective charters or by-laws or, to the extent set forth in the
Company Disclosure Statement, as provided in an agreement between
an Indemnified Party and the Company or one of its Subsidiaries,
shall survive the Merger and shall continue in full force and
effect for a period of not less than six years from the Effective
Time; provided that in the event any claim or claims are asserted
or made within such six-year period, all rights to indemnification
in respect of any such claim or claims shall continue until final
disposition of any and all such claims. Without limitation of the
foregoing, in the event any such Indemnified Party is or becomes
involved in any capacity in any action, proceeding or investigation
in connection with any matter, including, without limitation, the
transactions contemplated by this Agreement, occurring prior to,
and including, the Effective Time, Parent will pay as incurred such
Indemnified Party's legal and other expenses (including the cost of
any investigation and preparation) incurred in connection
therewith. Parent shall pay all expenses, including attorney's
fees, that may be incurred by any Indemnified Party in enforcing
the indemnity and other obligations provided for in this Section
5.06 subject to the limitations of the BCL.
(b) Parent agrees that the Company, and from and after
the Effective Time, the Surviving Corporation shall cause to be
maintained in effect for not less than three years from the
Effective Time the current policies of the director's and officer's
liability insurance maintained by the Company and during such
three-year period shall notify the directors in writing covered
thereby of payment by the Surviving Corporation of the premiums
associated with such liability insurance 10 business days prior to
the date such premium payments are due; provided that the Surviving
Corporation may substitute therefor other policies not materially
less advantageous to the beneficiaries of the current policies and
provided that such substitution shall not result in any gaps or
lapses in coverage with respect to matters occurring prior to the
Effective Time; and provided, further, that the Surviving
Corporation shall not be required to pay an annual premium in
excess of 120% of the last annual premium paid by the Company prior
to the date hereof and if the Surviving Corporation is unable to
obtain the insurance required by this Section 5.06(b) it shall
obtain as much comparable insurance as possible for an annual
premium equal to such maximum amount.
SECTION 5.07 Notification of Certain Matters. Parent and
the Company shall promptly notify each other of (a) the occurrence
or non-occurrence of any fact or event which would be reasonably
likely (i) to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Effective Time or (ii) to
cause any material covenant, condition or agreement under this
Agreement not to be complied with or satisfied in all material
respects and (b) any failure of the Company or Parent, as the case
may be, to comply with or satisfy any covenant, condition or agree-
ment to be complied with or satisfied by it hereunder in any
material respect; provided, however, that no such notification
shall affect the representations or warranties of any party or the
conditions to the obligations of any party hereunder. Prior to the
Effective Time, Parent shall promptly notify the Company of (i) any
material developments which are likely to result in Parent not
having sufficient funds to pay the Merger Price and (ii) any
material changes agreed to by Parent to the commitment letters
described in Section 4.05.
SECTION 5.08 State Takeover Laws. The Company shall, upon the
request of Parent, take all reasonable steps to assist in any
challenge by Parent to the validity or applicability to the
transactions contemplated by this Agreement, including the Merger,
of any state takeover law.
SECTION 5.09 No Solicitation. (a) The Company agrees that,
prior to the Effective Time, it shall not, and shall not authorize
or permit any of the Subsidiaries or any of its or the
Subsidiaries' directors, officers, employees, agents or
representatives, directly or indirectly, to solicit, initiate,
facilitate, encourage (including by way of furnishing or disclosing
non-public information) or permit (to the extent the Company has
such right) any inquiries or the making of any proposal with
respect to any merger, consolidation or other business combination
involving the Company or the Subsidiaries or acquisition of any
capital stock or any material portion of the assets (except for
acquisitions of assets in the ordinary course of business
consistent with past practice) of the Company or any of the
Subsidiaries (an "Acquisition Transaction") or negotiate, explore
or otherwise engage in substantive discussions with any person
(other than the Merger Sub, Parent or their respective directors,
officers, employees, agents and representatives) with respect to
any Acquisition Transaction or enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or
fail to consummate the Merger or any other transactions
contemplated by this Agreement; provided that the Company may, in
response to a Favorable Third Party Proposal (as defined below)
furnish information to, and negotiate or otherwise engage in
substantive discussions with, the party making such Favorable Third
Party Proposal if the Board or Directors of the Company determines
in good faith by a majority vote, based upon advice from its
outside legal counsel, that failing to take such action would
constitute a breach of the fiduciary duties of the Board.
For purposes of this Agreement a "Favorable Third Party
Proposal" shall mean a written proposal from a credible third party
regarding the acquisition of substantially all the capital stock of
the Company, a merger, consolidation or other business combination
with the Company or a sale of substantially all the assets of the
Company, which proposal (i) is not subject to any material
financing or regulatory uncertainty, (ii) is, in the written
opinion of a nationally recognized investment bank or
Parker/Hunter, Inc., more favorable to the Company or the Company's
constituents from a financial point of view than the transactions
contemplated hereby and (iii) was not solicited by or on behalf of
the Company in violation of this Section 5.09.
(b) The Company shall immediately advise Parent in
writing of the receipt, directly or indirectly, of any inquiries or
proposals relating to an Acquisition Transaction and any actions
taken pursuant to Section 5.09(a) and furnish to Parent either a
copy of any such proposal or a written summary of any such
proposal.
SECTION 5.10 Break-Up Fee; Expense Reimbursement.
(a) If (i) on or before May 30, 1997 (the "Termination
Date"), a third party or group of related third parties become the
beneficial owners of 50% or more of the outstanding voting
securities of the Company (by a tender offer, exchange offer, stock
issuance or otherwise), including any such transaction in which
either David H. Weis and Eric Rascoe (each, a "Controlling
Stockholder") or their affiliates participate, or (ii) the Merger
is not consummated for any of the following reasons: (A) the
Company's Board of Directors authorizes or recommends, or the
Company enters into an agreement or agreement in principle or
closes, an Acquisition Transaction (other than the Merger) or the
Company's Board of Directors fails to recommend, or adversely
modifies or withdraws its recommendation, to the Company's
stockholders that they vote to approve the Merger as a result of
Section 7.01(d), or takes any action to abandon or terminate this
Agreement in accordance with Section 7.01(d), (B) a Controlling
Stockholder or the Company fails to call a Stockholders' Meeting,
or (C) the stockholders of the Company approve an Acquisition
Transaction (other than the Merger), then the Company will
promptly, but in no event later than three business days after the
first of such events to occur, pay $5,000,000 to Parent, plus an
amount not to exceed $500,000 for the reasonable out-of-pocket
Transaction Expenses incurred by the Merger Sub and Parent.
(b) If the Merger is not consummated due to the Common
Shares presently held or hereafter acquired by the Controlling
Stockholders not being voted in favor of the Merger at the
Stockholders Meeting and if the break-up fee and expense
reimbursement described in Section 5.10(a) is not owed by the
Company to the Parent, then the Company will promptly, but in no
event later than three business days after the date of the
Stockholders Meeting, pay to the Parent $1,000,000.
(c) The parties agree that the payment of the fees and
expenses required pursuant to and in the manner set forth in this
Section 5.10 is a material inducement to Parent and the Merger Sub
to enter into this Agreement and is intended to compensate Parent
and the Merger Sub for the opportunity costs and risks of entering
into this Agreement.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.01 Conditions to Parties' Obligations. The
respective obligations of each party to effect the Transactions
shall be subject to the fulfillment at or prior to the Effective
Time of the following conditions:
(a) This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the holders of the
outstanding Common Shares of the Company entitled to vote thereon.
(b) Any waiting period applicable to the Merger under
the HSR Act shall have expired or been terminated.
(c) No (i) order issued by any United States federal or
state or foreign governmental or regulatory authority or body and
no statute, rule, regulation or executive order promulgated or
enacted by any United States federal or state or foreign government
or governmental authority shall be in effect which, or (ii) action,
suit, or proceeding shall be pending before any court or quasi
judicial or administrative agency of any federal, state, local, or
foreign jurisdiction wherein an unfavorable judgment, order,
decree, stipulation, injunction, or charge which, would (A) prevent
consummation of any of the Transactions or (B) cause any of the
Transactions to be rescinded following consummation (and no such
judgment, order, decree, stipulation, injunction, or charge shall
be in effect).
SECTION 6.02 Conditions to Parent's and the Merger Sub's
Obligation to Effect the Merger. The obligations of Parent and the
Merger Sub to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the following additional
conditions:
(a) The representations and warranties of the Company
set forth in this Agreement shall be true and correct in all
material respects as if made on and as of the Effective Time.
(b) The Company shall have performed in all material
respects each covenant and complied with each agreement to be
performed and complied with by them hereunder.
(c) The Company shall not have received appraisal
demands pursuant to Section 1930 of the BCL in respect of 10% or
more of the outstanding Common Shares.
(d) The Company shall have furnished to Parent a
certificate dated as of the Effective Time in which the Company
shall certify that an appropriate inquiry has been made of the
principal executive officers of the Company having principal
responsibilities for the matters as to which representations and
warranties have been made by the Company in this Agreement and for
the performance of the covenants of the Company set forth in this
Agreement, and after completion of such inquiry, the Company has no
reason to believe that the conditions set forth in Section 6.02(a)
and Section 6.02(b) have not been fulfilled. The parties hereto
acknowledge and agree that, absent fraud, the officer(s) of the
Company executing the certificate described above on behalf of the
Company shall have no personal liability in respect of such
certificate.
(e) Parent shall have received from the Company's
counsel, Buchanan Ingersoll Professional Corporation, an opinion,
addressed to Parent, dated as of the Effective Time, subject to
customary qualifications and exceptions, to the effect that (i)
this Agreement and all other agreements entered into by the Company
or Controlling Stockholders in connection with the Transactions
(other than the enforceability of Section 6 of the Indemnity and
Fee Agreement) have been duly authorized by the Board of Directors
of the Company (in case of the Company) and are valid, binding and
enforceable in accordance with their respective terms and (ii) the
Articles of Merger have been filed in accordance with applicable
law and upon filing of the Articles of Merger in Pennsylvania and
the filing of the Certificate of Merger in Delaware, the Merger has
been duly consummated and is effective under Pennsylvania law.
SECTION 6.03 Conditions to the Company's Obligation to
Effect the Merger. The obligation of the Company to effect the
Merger shall be subject to the fulfillment at or prior to the
Effective Time of the following additional conditions:
(a) All representations and warranties of Parent and the
Merger Sub in this Agreement shall be true and correct in all
material respects as if made on and as of the Effective Time.
(b) Each of Parent and the Merger Sub shall have
performed in all material respects each covenant and complied with
each agreement to be performed and complied with by it hereunder
(including, without limitation, deposit of the aggregate Merger
Price with the Paying Agent).
(c) The Company will have received from Parent's
counsel, Kirkland & Ellis, an opinion, addressed to the Company,
dated as of the Effective Time, in form and substance reasonably
satisfactory to the Company.
(d) Each of Parent and the Merger Sub shall have
furnished to the Company a certificate dated as of the Effective
Time in which Parent or the Merger Sub, as the case may be, shall
certify that an appropriate inquiry has been made of its executive
officers having principal responsibilities for the matters as to
which representations and warranties have been made by Parent or
the Merger Sub, as the case may be, in this Agreement and for the
performance of the covenants of Parent or the Merger Sub, as the
case may be, set forth in this Agreement, and after completion of
such inquiry, Parent or the Merger Sub, as the case may be, has no
reason to believe that the conditions set forth in Section 6.03(a)
and Section 6.03(b) have not been fulfilled. The parties hereto
acknowledge and agree that, absent fraud, the officer(s) of Parent
or the Merger Sub, as the case may be, executing the certificate
described above on behalf of Parent or the Merger Sub, as the case
may be, shall have no personal liability in respect of such
certificate.
(e) Parent and Merger Sub (on behalf of the Surviving
Corporation) shall have entered into arrangements reasonably
satisfactory to the Company in the manner contemplated by and on
terms consistent with the terms set forth in the outline of the
Compensation Package for Todd Rascoe and the outline of the
Compensation Package for David Rascoe, in each case dated as of the
date hereof and delivered simultaneously to the Company with the
execution of this Agreement (together, the "Compensation Term
Sheet").
(f) Parent and HIG shall have entered into a stockholder
agreement consistent with the terms set forth in the Compensation
Term Sheet.
SECTION 6.04 Satisfaction or Waiver of Conditions. The
conditions set forth in this Article VI shall be deemed to have
been satisfied for purposes of this Agreement if, as and when (a)
the conditions in Section 6.01 have been satisfied or waived by
Parent, the Merger Sub and the Company in writing; (b) the
conditions in Section 6.02 shall have been satisfied or waived by
Parent and the Merger Sub in writing; and (c) the conditions in
Section 6.03 shall have been satisfied or waived by the Company in
writing.
ARTICLE VII
TERMINATION; AMENDMENTS; WAIVER
SECTION 7.01 Termination. This Agreement may be terminated
and the Merger contemplated hereby may be abandoned at any time
prior to the Effective Time, notwithstanding approval thereof by
the stockholders of the Company (with any termination by Parent
also being an effective termination by the Merger Sub):
(a) by the mutual written consent of the Boards of
Directors (or duly authorized committees thereof) of Parent, the
Merger Sub and the Company;
(b) by any party if (i) the Company's stockholders fail
to approve this Agreement at the Stockholders' Meeting or (ii) the
Merger shall not have been consummated on or before the Termination
Date; provided that if any condition to this Agreement shall fail
to be satisfied by reason of the existence of an injunction or
order of any court or governmental or regulatory body, then at the
request of any party the deadline date referred to above shall be
extended for a reasonable period of time, not in excess of 30 days,
to permit the parties to have such injunction vacated or order
reversed;
(c) by the Company, in the event of a material breach by
Parent or the Merger Sub of any representation, warranty or
agreement of Parent or the Merger Sub contained in this Agreement,
in each case which has not been cured or is not curable by the
earlier of (i) the Termination Date or (ii) the thirtieth day after
notice of such breach was given to Parent or the Merger Sub (as the
case may be);
(d) by the Company, if the Company receives a firm
proposal with respect to an Acquisition Transaction which its
Board of Directors determines, in the exercise of its fiduciary
duties as advised by counsel, contains terms that are more
favorable to the Company and its constituents, taken as a whole,
than the Merger;
(e) by Parent, in the event of a material breach by the
Company of any representation, warranty or agreement of the Company
contained in this Agreement which has not been cured or is not
curable by the earlier of (i) the Termination Date or (ii) the
thirtieth day after notice of such breach was given to the Company;
or
(f) by Parent upon the occurrence of any event described
in 5.10(a)(i) or 5.10(a)(ii).
SECTION 7.02 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 7.01, this
Agreement shall forthwith become void and have no effect, without
any liability on the part of any party or its directors, officers
or stockholders, other than the provisions of Section 5.10 (other
than clause (i) of Section 5.10(a) in the event of a termination
pursuant to Section 7.01(c)) with respect to the payment of the
breakup fee and expense reimbursement as described therein, the
last sentence of Section 5.02, Section 4 of the Indemnity and Fee
Agreement with respect to the special indemnity fee described
therein, which in each case shall survive any such termination;
provided that, notwithstanding the foregoing, in the event of a
termination pursuant to Section 7.01(c) or Section 7.01(e), the
party in breach (except Company in the case where Company is in
breach and has paid the break-up fee in accordance with Section
5.10(b)) shall reimburse the nonbreaching party for all Transaction
Expenses incurred by the nonbreaching party up to an amount not to
exceed $500,000. Nothing contained in this Section 7.02 shall
relieve any party from liability for any breach of the
Confidentiality Agreement.
SECTION 7.03 Amendment. This Agreement may be amended by
the Company, Parent and the Merger Sub at any time before or after
any approval of this Agreement by the stockholders of the Company
but, after any such approval, no amendment shall be made which
decreases the Merger Price or which adversely affects the rights of
the Company's stockholders hereunder without the approval of such
stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
SECTION 7.04 Extension; Waiver. At any time prior to the
Effective Time, the parties hereto may (i) extend the time for the
performance of any of the obligations or other acts of any other
party hereto, (ii) waive any inaccuracies in the representations
and warranties contained herein by any other party or in any
document, certificate or writing delivered pursuant hereto by any
other party or (iii) waive compliance with any of the agreements of
any other party or with any conditions to its own obligations. Any
agreement on the part of any party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed
on behalf of such party.
ARTICLE VIII
DEFINITIONS
"1996 Form 10-K" has the meaning set forth in Section 3.06(b)
"Acquisition Transaction" has the meaning set forth in Section 5.09.
"Affiliate" has the meaning set forth in Section 9.09(a).
"Agreement" has the meaning set forth in the preamble.
"Antitrust Laws" has the meaning set forth in Section 5.04(b).
"BCL" has the meaning set forth in Section 1.01.
"Certificates" has the meaning set forth in Section 2.02(a).
"Closing Invoice Amount" has the meaning set forth in Section 1.07.
"Code" has the meaning set forth in Section 3.13(a).
"Common Shares" has the meaning set forth in the preamble.
"Company" has the meaning set forth in the preamble.
"Company Controlled Group" has the meaning set forth in
Section 3.13(a).
"Company Disclosure Statement" has the meaning set forth
in Article III.
"Company Representatives" has the meaning set forth in
Section 5.02.
"Compensation Term Sheet" has the meaning set forth in
Section 6.03(e).
"Confidentiality Agreement" has the meaning set forth in
Section 9.02(a).
"Consent" has the meaning set forth in Section 3.05(b).
"Constituent Corporations" has the meaning set forth in
the preamble.
"Control" has the meaning set forth in Section 9.09(a).
"Controlling Stockholder" has the meaning set forth in
Section 5.10(a).
"DGCL" has the meaning set forth in Section 1.01.
"Dissenting Shares" has the meaning set forth in Section 2.01.
"Effective Time" has the meaning set forth in Section 1.02.
"Employee Benefit Arrangement" has the meaning set forth
in Section 5.01(e).
"Environment and Safety Requirements" has the meaning set
forth in Section 3.23(j).
"Environmental Lien" has the meaning set forth in Section 3.23(k).
"ERISA" has the meaning set forth in Section 3.13(a).
"Exchange Act" has the meaning set forth in Section 3.05(b).
"Favorable Third Party Proposal" has the meaning set
forth in Section 5.09(a).
"GAAP" has the meaning set forth in Section 3.06(b).
"Governmental Entity" has the meaning set forth in
Section 3.05(b).
"HIG" has the meaning set forth on Section 4.05.
"HSR" has the meaning set forth in Section 3.05(b).
"Indemnified Parties" has the meaning set forth in
Section 5.06(a).
"Indemnity and Fee Agreement" has the meaning set forth
in Section 1.07.
"IRS" has the meaning set forth in Section 3.13(g).
"June Balance Sheet" has the meaning set forth in Section 3.19.
"Lien" has the meaning set forth in Section 3.03.
"Material Adverse Effect on the Company" has the meaning
set forth in Section 3.10.
"Material Adverse Effect on Parent" has the meaning set
forth in Section 4.01.
"Merger" has the meaning set forth in the preamble.
"Merger Price" has the meaning set forth in Section 1.07.
"Merger Sub" has the meaning set forth in the preamble.
"Merger Sub Shares" has the meaning set forth in the preamble.
"Multiemployer Plan" has the meaning set forth in Section 3.13(b).
"Option" has the meaning set forth in Section 1.09.
"Option Plan" has the meaning set forth in Section 3.03.
"Other Filings" has the meaning set forth in Section 3.07.
"Parent" has the meaning set forth in the preamble.
"Parent Representatives" has the meaning set forth in Section 5.02.
"Paying Agent" has the meaning set forth in Section 2.02(a).
"Permitted Liens" has the meaning set forth in Section 3.15.
"Person" has the meaning set forth in Section 9.09(b).
"Plans" has the meaning set forth in Section 3.13(a).
"Proprietary Rights" has the meaning set forth in Section 3.18.
"Proxy Statement" has the meaning set forth in Section 1.10(a)(ii).
"Quarterly Financial Statements" has the meaning set
forth in Section 3.06(c).
"SEC" has the meaning set forth in Section 1.10(a)(ii).
"SEC Reports" has the meaning set forth in Section 3.06(a).
"Securities Act" has the meaning set forth in Section 3.06(a).
"Stockholders' Meeting" has the meaning set forth in
Section 1.10(a)(i).
"Subsidiaries" has the meaning set forth in Section 3.01.
"Surviving Corporation" has the meaning set forth in the preamble.
"Taxes" has the meaning set forth in Section 3.22(a).
"Termination Date" has the meaning set forth in Section 5.10(a).
"Transaction Expenses" has the meaning set forth in Section 1.07.
"Violation" has the meaning set forth in Section 3.05(a).
"Voting Debt" has the meaning set forth in Section 3.03.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Non-Survival of Representations and Warranties.
The representations and warranties made in this Agreement shall not
survive beyond the Effective Time. Notwithstanding the foregoing,
the agreements set forth in Section 2.02, the last sentence of
Section 5.03, Section 5.06 and the last sentence Section 5.02 shall
survive the Effective Time indefinitely (except to the extent a
shorter period of time is explicitly specified therein).
SECTION 9.02 Entire Agreement; Assignment.
(a) This Agreement (including the documents and the
instruments referred to herein) and the letter agreement dated
September 25, 1996 (the "Confidentiality Agreement"), constitute
the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with
respect to the subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the
parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other party (except that Parent
may assign its rights and the Merger Sub may assign its rights,
interest and obligations to any affiliate or direct or indirect
subsidiary of Parent without the consent of the Company). Subject
to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
SECTION 9.03 Validity. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, each of
which shall remain in full force and effect.
SECTION 9.04 Notices. All notices, requests, claims,
demands and other communications hereunder shall be in writing and
shall be deemed to have been duly given when delivered in person,
by overnight courier or facsimile to the respective parties as
follows:
If to Parent or the Merger Sub:
HIG Capital Management, Inc.
1001 S. Bayshore Drive
Suite 2708
Miami, FL 33131
Attention: Brian D. Schwartz
with a copy to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Attention: James L. Learner
If to the Company:
Thermal Industries, Inc.
301 Brushton Avenue
Pittsburgh, PA 15221-2168
Attention: President
with a copy to:
Buchanan Ingersoll Professional Corporation
301 Grant Street, 20th Floor
Pittsburgh, PA 15219
Attention: Lewis U. Davis, Jr.
or to such other address as the person to whom notice is given may
have previously furnished to the other in writing in the manner set
forth above (provided that notice of any change of address shall be
effective only upon receipt thereof).
SECTION 9.05 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws
thereof.
SECTION 9.06 Descriptive Headings. The descriptive headings
herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation
of this Agreement.
SECTION 9.07 Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same
agreement.
SECTION 9.08 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto,
and, except with respect to Sections 1.09, 5.06 and 5.07, nothing
in this Agreement, express or implied, is intended to confer upon
any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
SECTION 9.09 Certain Definitions. As used in this
Agreement:
(a) the term "affiliate", as applied to any person,
shall mean any other person directly or indirectly controlling,
controlled by, or under common control with, that person. For the
purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under
common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that person,
whether through the ownership of voting securities, by contract or
otherwise;
(b) the term "Person" shall include individuals,
corporations, partnerships, trusts, other entities and groups
(which term shall include a "group" as such term is defined in
Section 13(d)(3) of the Exchange Act); and
(c) the term "Subsidiary" or "subsidiaries" means, with
respect to Parent, the Company or any other person, any
corporation, partnership, joint venture or other legal entity of
which Parent, the Company or such other person, as the case may be
(either alone or through or together with any other subsidiary),
owns, directly or indirectly, stock or other equity interests the
holders of which are generally entitled to more than 50% of the
vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
* * * *
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its respective officer
thereunto duly authorized, all as of the day and year first above
written.
HEAT, INC.
By: /s/ Anthony Tamer
Anthony Tamer
Vice President
HEAT ACQUISITION, INC.
By: /s/ Anthony Tamer
Anthony Tamer
Vice President
THERMAL INDUSTRIES, INC.
By: /s/ David H. Weis
David H. Weis
Chairman and Chief Executive Officer
By: /s/ Eric Rascoe
Eric Rascoe
Secretary-Treasurer
<PAGE>
INDEMNITY AND FEE AGREEMENT
BETWEEN
HEAT, INC.
AND
THE PRINCIPAL SHAREHOLDERS OF THERMAL INDUSTRIES, INC.
January 6, 1997
TABLE OF CONTENTS
Page
Section 1. Representations and Warranties of Seller. . . . .1
Section 2. Representations and Warranties of Parent. . . . .1
Section 3. Indemnity and Escrow. . . . . . . . . . . . . . .2
(a) Escrow . . . . . . . . . . . . . . . . . . . . . . . .2
(b) Indemnification of Parent by Sellers . . . . . . . . .2
(c) Limitations. . . . . . . . . . . . . . . . . . . . . .2
(d) Indemnification Procedures . . . . . . . . . . . . . .3
(e) Treatment of Indemnification Payments. . . . . . . . .5
(f) Other Indemnification Provisions . . . . . . . . . . .5
(g) Arbitration Procedure. . . . . . . . . . . . . . . . .6
Section 4. Special Indemnity Fee.. . . . . . . . . . . . . .7
Section 5. Remedies. . . . . . . . . . . . . . . . . . . . .7
Section 6. Non-Competition; Non-Solicitation.. . . . . . . .8
Section 7. Definitions . . . . . . . . . . . . . . . . . . .9
Section 8. Miscellaneous . . . . . . . . . . . . . . . . . 10
<PAGE>
INDEMNITY AND FEE AGREEMENT
INDEMNITY AND FEE AGREEMENT (this "Agreement"), dated as
of January 6, 1997 by and between Heat, Inc., a Delaware
corporation ("Parent"), and the undersigned shareholders
("Sellers") of Thermal Industries, Inc., a Pennsylvania corporation
(the "Company"). Cross-references to the defined terms used in
this Agreement are set forth in Section 7.
The Company, Parent and Heat Acquisition, Inc., a
Delaware corporation and a wholly-owned subsidiary of Parent
("Merger Sub"), propose to enter into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement") which
provides, among other things, upon the terms and subject to the
conditions thereof, for the merger of Merger Sub with and into the
Company (the "Merger").
As a condition to its willingness to enter into the
Merger Agreement, Parent has requested that each of the Sellers
agree, and each has agreed to grant Parent certain fee and
indemnification obligations.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Merger
Agreement, the parties hereto agree as follows:
Section 1. Representations and Warranties of Seller.
Sellers hereby represent and warrant to Parent as follows:
(a) This Agreement is the legal, valid and binding
agreement of each Seller, enforceable against each Seller in
accordance with its terms, except to the extent such enforceability
is limited by bankruptcy, insolvency, moratorium or other similar
laws affecting or relating to the enforcement of creditor's rights
generally or general principles of equity.
(b) The execution of this Agreement by Sellers does not,
and the performance by Sellers of the obligations of Sellers
hereunder will not, constitute a violation of, conflict with or
result in a default under any contract, commitment, agreement,
understanding, arrangement or restriction of any kind to which
either Seller is a party or by which either Seller is bound or any
judgment, decree or order applicable to either Seller.
(c) Neither the execution and delivery of this
Agreement, nor the performance by Sellers of Sellers' obligations
hereunder will (i) assuming satisfaction of the requirements set
forth in clause (ii) below, violate any provision of law applicable
to either Seller; or (ii) except for the requirements of the
Federal and state securities laws, require any consent or approval
of, or filing with or notice to, any public body or authority under
any provision of law applicable to either Seller.
Section 2. Representations and Warranties of Parent.
Parent hereby represents and warrants to Sellers that this
Agreement is the legal, valid and binding agreement of Parent,
enforceable in accordance with its terms, except to the extent such
enforceability is limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to the enforcement of
creditor's rights generally or general principles of equity.
Section 3. Indemnity and Escrow.
(a) Escrow. Upon the effective date of the Merger (the
"Effective Date") and receipt of the consideration for the shares
of the Company's common stock, par value $.01 per share (the
"Shares"), owned by Sellers immediately prior to the Effective
Date, Sellers agree that they will deposit, and hereby direct the
Paying Agent (as defined in the Merger Agreement) to deposit,
$1,000,000 in cash into an escrow account (the "Escrow")
established pursuant to the terms of that certain Escrow Agreement
by and among Parent, Sellers and an escrow agent (the "Escrow
Agent") substantially in the form of Exhibit A attached hereto.
The Escrow will be available to satisfy any amounts owing to Parent
pursuant to Section 3(b), and, other than pursuant to this Section
3, Parent and its affiliates shall not assert, directly or
indirectly, any claim, proceeding or action against the Sellers
with respect to the Merger Agreement, this Agreement (other than to
enforce Sections 3, 4 and 6 hereof) or any action or inaction of
the Sellers acting in their capacity as officers, directors,
shareholders or employees of the Company occurring prior to the
Merger (except claims relating to or arising out of the fraudulent
acts or failure to act by any of David Weis, Eric Rascoe or David
Rascoe). Except as otherwise permitted under the Escrow Agreement,
assuming consummation of the transactions contemplated herein and
in the Merger Agreement, after the Effective Date, Sellers shall
not assert, directly or indirectly, any claim, proceeding or action
against Parent, HIG or their affiliates with respect to this
Agreement (other than to enforce Section 3), the Merger Agreement
or any action or inaction of Parent, HIG or any of their affiliates
relating to or in connection with the Company, the Merger Agreement
or this Agreement (except claims relating to or arising out of the
fraudulent acts or failure to act by Parent, HIG or its
affiliates).
(b) Indemnification of Parent by Sellers. Subject to
the limitations set forth in Section 3(c), after the Effective
Date, Sellers, jointly and severally, will indemnify Parent, its
subsidiaries and its respective officers and directors (each, a
"Parent Indemnitee") and hold each Parent Indemnitee harmless from
and against any loss, liability, deficiency, damage or expense
(including reasonable legal expenses and costs and any cost or
expense arising from or incurred in connection with any action,
suit, proceeding, claim or judgement relating to any matter
described below, or in enforcing the indemnity provided by this
Section 3(b)) (any such amount being a "Loss"), which such Parent
Indemnitee may suffer, sustain or become subject to, as a result of
(i) any breach by the Company of any representation or warranty set
forth in this Agreement or in Article III of the Merger Agreement
(it being understood that the representations and warranties of the
Company contained in the Merger Agreement shall survive for
purposes of this Section 3) and (ii) any claim arising from or
related to Geneva National Condominium Master Association v.
Thermal Industries, Inc., et al., Case No. 96-CV-81, or any appeals
thereof (the "Geneva Litigation").
(c) Limitations. Sellers' indemnification obligation
set forth in Section 3(b) is subject to the following limitations:
(i) Notice. A Parent Indemnitee must give Sellers
written notice of any indemnification claim in
respect of such Losses within 18 months after the
Closing Date which notice specifies in reasonable
detail the basis for such claim.
(ii) Dollar Cap. Sellers shall not be obligated
to indemnify the Parent Indemnities for Losses
covered by Section 3(b) in excess of
$1,000,000 in the aggregate.
(iii) Per Claim Dollar Basket. Sellers shall not be
obligated to indemnify the Parent Indemnities
for any single Loss covered by clause (i) of
Section 3(b) (consolidating into any single
Loss any series of related events, factors or
circumstances giving rise to liability on the
same or a substantially related basis) unless
such Loss exceeds $100,000 in which case
Sellers shall be obligated to indemnify the
Parent Indemnities for the full amount of such
Loss (subject to the other limitations set
forth in clauses (i) and (ii) of this Section
3).
(iv) Special Dollar Threshold. Sellers shall not be
obligated to indemnify the Parent Indemnitees for
Losses covered by clause (ii) of Section 3(b)
unless the aggregate amount of such Losses (other
than attorney's fees, costs and expenses) exceed
$200,000 (without taking into account any such
Losses with respect to which the Parent Indemnities
receive insurance proceeds or which are paid
directly through insurance coverage) in which case
Sellers shall be obligated to indemnify the Parent
Indemnitees for all of such Losses (other than
attorney's fees, costs and expenses and any such
Losses with respect to which the Parent Indemnities
receive insurance proceeds or which are paid
directly through insurance coverage) in excess of
$200,000 (subject to the other limitations set
forth in clauses (i) and (ii) of this Section 3).
In addition, a Parent Indemnitee's remedy for any indemnification
claim pursuant to Section 3(b) shall be limited to and satisfied
solely from the Escrow.
(d) Indemnification Procedures.
(i) Notice of Claim. Any Party making a claim for
indemnification under Section 3(b) (the "Indemnified Party") will
notify the Party from whom indemnification is claimed (the
"Indemnifying Party") of the claim in writing promptly after
receiving written notice of any action, lawsuit, proceeding,
investigation or other claim (a "Proceeding") against it (if by a
third party) or discovering the liability, obligation or facts
giving rise to such claim for indemnification. Such notice will
describe the claim, the amount thereof (to the extent then known
and quantifiable), and the basis therefor, in each case to the
extent known to the Indemnified Party. Subject to the provisions
of Section 3(c)(i), the failure to so notify the Indemnifying Party
will not relieve the Indemnifying Party of its obligations under
Section 3(b) except to the extent that (and only to the extent
that) such failure shall have caused the damages for which the
Indemnifying Party is obligated to be greater than such damages
would have been had the Indemnified Party given the Indemnifying
Party prompt notice hereunder.
(ii) Assumption of Defense. Any Indemnifying Party shall
be entitled to participate in the defense of such action, lawsuit,
proceeding, investigation or other claim giving rise to an
Indemnified Party's claim for indemnification at such Indemnifying
Party's expense, and at its option (subject to the limitations set
forth below) and its expense shall be entitled to appoint a
nationally recognized and reputable counsel acceptable to the
Indemnified Party to be the lead counsel in connection with such
defense; provided that prior to the Indemnifying Party assuming
control of such defense it shall first verify to the Indemnified
Party in writing that such Indemnifying Party shall be fully
responsible (with no reservation of any rights) for all liabilities
and obligations relating to the entire matter which gives rise to
such claim for indemnification and that it will provide full
indemnification (whether or not otherwise required hereunder), to
the extent of the Escrow, to the Indemnified Party with respect to
such matter, action, lawsuit, proceeding, investigation, or other
claim giving rise to such claim for indemnification hereunder; and
provided, further, that:
(1) the Indemnified Party shall be entitled to
participate in the defense of such claim and to employ
counsel of its choice for such purpose; provided that the
fees and expenses of such separate counsel shall be borne
by the Indemnified Party (other than any fees and
expenses of such separate counsel that are incurred prior
to the date the Indemnifying Party effectively assumes
control of such defense which, notwithstanding the
foregoing, shall be borne by the Indemnifying Party);
(2) the Indemnifying Party shall not be entitled to
assume control of such defense and shall pay the fees and
expenses of counsel retained by the Indemnified Party if
(v) the claim for indemnification relates to or arises in
connection with any criminal proceeding, action, indict-
ment, allegation or investigation; (w) the Indemnified
Party reasonably believes that an adverse determination
with respect to the action, lawsuit, investigation,
proceeding or other claim giving rise to such claim for
indemnification would be detrimental to or injure the
Indemnified Party's reputation or future business
prospects; (x) the claim seeks an injunction or equitable
relief against the Indemnified Party; (y) the claim
involves intellectual property matters in which case the
Indemnified Party shall have sole control and management
authority over the resolution of such claim, including
hiring legal counsel and intellectual property -
consultants, negotiating with the U.S. Patent Office and
other governmental authorities and third parties and
defending or settling claims and actions; or (z) upon
petition by the Indemnified Party, an appropriate court
rules that the Indemnifying Party failed or is failing to
vigorously prosecute or defend such claim;
(3) if the Indemnifying Party does not assume
control of the defense of any such claim within ten
business days after the Indemnified Party provides notice
of such claim pursuant to Section 3(d)(i), then the
Indemnified Party may enter into any settlement of such
claims and such settlement will be binding upon the
Indemnifying Party for purposes of determining whether
any amount of indemnification is payable pursuant to
Section 3(b); provided that so long as the Indemnifying
Party is not prohibited under clause (2) of this Section
3(d)(ii) from assuming control of the defense of such
claim (except in the event that such prohibition is
solely the result of clause (2)(w) of this Section or
solely the result of clause (2)(x) of this Section), the
Indemnified Party will obtain the prior consent (which
consent shall not be unreasonably withheld) of the
Indemnifying Party prior to entering into any such
settlement; and
(4) if the Indemnifying Party assumes control of
the defense of any such claim, then the Indemnifying
Party will obtain the prior written consent of the
Indemnified Party before entering into any settlement of
such claim or ceasing to defend such claim if, pursuant
to or as a result of such settlement or cessation,
injunctive or other equitable relief will be imposed
against the Indemnified Party or if such settlement does
not expressly and unconditionally release the Indemnified
Party from all liabilities and obligations with respect
to such claim, without prejudice. Notwithstanding the
foregoing, if the Indemnified Party is controlling the
defense of such claim, the Indemnifying Party shall not
be liable for any settlement effected without its prior
written consent (which shall not be unreasonably
withheld).
As used in this Section 3, the term "settlement" refers to any
settlement, compromise, consent or similar decree, or election to
permit default judgment to be entered in respect of any claim.
(e) Treatment of Indemnification Payments. Each Party
will treat all payments made pursuant to Section 3(b) as
adjustments to the purchase price paid for the Sellers' Shares in
connection with consummation of the Merger for all purposes. Each
Party agrees to use reasonable efforts to seek recovery under any
insurance coverage which such Party may have in respect of any
Loss; provided that, to the extent not already taken into account,
a Party's Loss will include any increased premium which results
from seeking such recovery or the occurrence or existence of any
fact or circumstance giving rise to such Loss.
(f) Other Indemnification Provisions. Each Seller
hereby agrees that he will not make any claim for indemnification
hereunder against the Company by reason of the fact that he was a
stockholder, director, officer, employee, or agent of the Company
or was serving at the request of the Company as a partner, trustee,
director, officer, employee, or other agent of another entity
(whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses or expenses) with respect
to any action, suit, proceeding, complaint, claim, or demand
brought by the Company against such Seller if such action, suit,
proceeding, complaint, claim or demand is pursuant to this
Agreement; it being understood that the foregoing limitation is not
intended to apply to any indemnification obligations owed to
Sellers with respect to any action, suit, proceeding, complaint,
claim or demand unrelated to this Agreement and the transactions
contemplated hereby. Each Seller hereby acknowledges that he will
have no claims or right to contribution or indemnity from the
Company with respect to amounts paid by such Seller pursuant to
Section 3(b).
(g) Arbitration Procedure.
(i) Parent and Sellers agree that the arbitration
procedure set forth below shall be the sole and exclusive method
for resolving and remedying claims for money damages arising out of
the provisions of Section 3(b) (the "Disputes"). Nothing in this
Section 3(g) shall prohibit a party hereto from instituting
litigation to enforce any Final Determination. The parties hereby
agree and acknowledge that, except as otherwise provided in this
Section 3(g) and in the Commercial Arbitration Rules of the
American Arbitration Association as in effect from time to time,
the arbitration procedures and any Final Determination hereunder
shall be governed by, and shall be enforced pursuant to the Uniform
Arbitration Act and applicable provisions of Pennsylvania law.
(ii) In the event that any party asserts that there
exists a Dispute, such party shall deliver a written notice to each
other party involved therein specifying the nature of the asserted
Dispute and requesting a meeting to attempt to resolve the same.
If no such resolution is reached within ten business days after
such delivery of such notice, the party delivering such notice of
Dispute (the "Disputing Person") may, within 45 business days after
delivery of such notice, commence arbitration hereunder by
delivering to each other party involved therein a written notice of
arbitration (a "Notice of Arbitration") and by filing a copy of
such Notice of Arbitration with the City of Pittsburgh office of
the American Arbitration Association. Such Notice of Arbitration
shall specify the matters as to which arbitration is sought, the
nature of any Dispute, the claims of each party to the arbitration
and shall specify the amount and nature of any damages, if any,
sought to be recovered as a result of any alleged claim, and any
other matters required by the Commercial Arbitration Rules of the
American Arbitration Association as in effect from time to time to
be included herein, if any.
(iii) Sellers and Parent each shall select an
independent arbitrator expert in the subject matter of the Dispute
(the arbitrators so selected shall be referred to herein as
"Sellers' Arbitrator" and "Parent's Arbitrator", respectively). In
the event that either party fails to select an independent
arbitrator as set forth herein within 20 days from delivery of a
Notice of Arbitration, then the matter shall be resolved by the
arbitrator selected by the other party. Sellers' Arbitrator and
Parent's Arbitrator shall select a third independent arbitrator
expert in the subject matter of the dispute, and the three
arbitrators so selected shall resolve the matter according to the
procedures set forth in this Section 3(g). If Sellers' Arbitrator
and Parent's Arbitrator are unable to agree on a third arbitrator
within 20 days after their selection, Sellers' Arbitrator and
Parent's Arbitrator shall each prepare a list of three independent
arbitrators. Sellers' Arbitrator and Parent's Arbitrator shall
each have the opportunity to designate as objectionable and
eliminate one arbitrator from the other arbitrator's list within 7
days after submission thereof, and the third arbitrator shall then
be selected by lot from the arbitrators remaining on the lists
submitted by Sellers' Arbitrator and Parent's Arbitrator.
(iv) The arbitrator(s) selected pursuant to paragraph
(iii) will determine the allocation of the costs and expenses of
arbitration based upon the percentage which the portion of the
contested amount not awarded to each party bears to the amount
actually contested by such party. For example, if Parent submits
a claim for $1,000 and if Sellers contest only $500 of the amount
claimed by Parent, and if the arbitrator(s) ultimately resolves the
dispute by awarding $300 of the $500 contested, then the costs and
expenses of arbitration will be allocated 60% (i.e. 300 divided by 500) to
Sellers and 40% (i.e. 200 divided by 500) to Parent.
(v) The arbitration shall be conducted under the
Commercial Arbitration Rules of the American Arbitration
Association as in effect from time to time, except as otherwise set
forth herein or as modified by the agreement of all of the parties
to this Agreement. The arbitrator(s) shall so conduct the
arbitration that a final result, determination, finding, judgment
and/or award (the "Final Determination") is made or rendered as
soon as practicable, but in no event later than 90 business days
after the delivery of the Notice of Arbitration nor later than 10
days following completion of the arbitration. The Final
Determination must be agreed upon and signed by the sole arbitrator
or by at least two of the three arbitrators (as the case may be).
The Final Determination shall be final and binding on all parties
and there shall be no appeal from or examination of the Final
Determination, except for fraud, perjury, evident partiality or
misconduct by an arbitrator prejudicing the rights of any party and
to correct manifest clerical errors.
(vi) Parent and Sellers may enforce any Final
Determination in any state or federal court having jurisdiction
over the dispute; provided that any amounts owed to Parent pursuant
to Section 3(b) in accordance with Final Determination shall be
satisfied solely from the Escrow. For the purpose of any action or
proceeding instituted with respect to any Final Determination, each
party hereto hereby irrevocably submits to the jurisdiction of such
courts, irrevocably consents to the service of process by
registered mail or personal service and hereby irrevocably waives,
to the fullest extent permitted by law, any objection which it may
have or hereafter have as to personal jurisdiction, the laying of
the venue of any such action or proceeding brought in any such
court and any claim that any such action or proceeding brought in
such court has been brought in an inconvenient forum.
Section 4. Special Indemnity Fee. If during the
nine-month period following a termination of the Merger Agreement
the result of which is that the Company is obligated to pay to
Parent the Break-Up Fee described in Section 5.10 of the Merger
Agreement, the Company's Board of Directors authorizes or
recommends, or the Company enters into an agreement to consummate
or closes, an Acquisition Transaction (other than the Merger), then
the Sellers shall pay to Parent a fee equal to (i) the difference
between the price per Share paid in connection with the closing of
such Acquisition Transaction and $15.00, multiplied by (ii) the
number of Shares owned by Sellers immediately prior to such closing
(the "Special Indemnity Fee"). Sellers acknowledge that the
payment of the Special Indemnity Fee in accordance with this
Section 4 is a material inducement to Parent and the Merger Sub to
enter into the Merger Agreement and is intended to compensate
Parent and the Merger Sub for the opportunity costs and risks of
entering into the Merger Agreement.
Section 5. Remedies. The parties hereto agree that
if for any reason Parent or either Seller shall have failed to
perform its obligations under this Agreement, then any party hereto
seeking to enforce this Agreement against such nonperforming party
shall be entitled to apply for specific performance and injunctive
and other equitable relief, and the parties hereto further agree to
waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other
equitable relief and also agree to stipulate that there has been
irreparable harm. This provision is without prejudice to any other
rights that any party hereto may have against any other party
hereto for any failure to perform its obligations under this
Agreement.
Section 6. Non-Competition; Non-Solicitation. As a
condition precedent to Parent's obligation to enter into and
perform its obligations under the Merger Agreement, each Seller
agrees that:
(a) For a period of five (5) years after the Closing
Date (the "Non-Competition Period"), such Seller shall not,
directly or indirectly, either for himself or for any other person,
"participate" anywhere in the world in the business as currently
conducted by or as proposed to be conducted by the Company and its
Subsidiaries (the "Business"); provided that Sellers shall not be
prohibited by the provisions of this Section 6 from engaging in the
business of selling in the retail market in the State of Florida
products manufactured and sold by Parent or the Company to Sellers.
For purposes of this Agreement, the term "participate" includes any
direct or indirect interest in any enterprise, whether as an
officer, director, employee, partner, sole proprietor, agent,
representative, independent contractor, consultant, franchisor,
franchisee, creditor, owner or otherwise; provided, that the term
"participate" shall not include ownership of less than 2% of the
stock of a publicly-held corporation whose stock is traded on a
national securities exchange or in the over-the-counter market.
(b) During the Non-Competition Period, such Seller will
not divulge or appropriate for his own use, or for the use of any
third party, any secret or confidential information or knowledge
obtained by such Seller concerning the Business. This obligation
of secrecy shall not apply to information which (i) is or becomes
part of the public domain other than through breach of this
Agreement or through the fault of such Seller from an unaffiliated
source, which source has no obligation of secrecy to Parent, (ii)
is required to be disclosed by law or government order (but only to
the extent so required), or (iii) is used by such Seller in any
other lines of business (but only to the extent so used).
(c) During the two-year period following the Closing
Date, such Seller shall not solicit the employment (in any
capacity) of or hire directly or through another entity any
employee of the Business or any person who was an employee of the
Business during the six-month period immediately preceding the
date of such solicitation or hire without the prior written consent
of Parent.
(d) If, at the time of enforcement of this Section 6, a
court holds that the duration, scope, geographic area or other
restrictions stated herein are unreasonable under circumstances
then existing, the parties agree that the maximum duration, scope,
geographic area or other restrictions deemed reasonable under such
circumstances by such court shall be substituted for the stated
duration, scope, geographic area or other restrictions.
(e) Such Seller recognizes and affirms that in the event
of breach of any of the provisions of this Section 6, money damages
would be inadequate and Parent and its affiliates would have no
adequate remedy at law. Accordingly, such Seller agrees that
Parent and its affiliates shall have the right, in addition to any
other rights and remedies existing in their favor, to enforce their
rights and such Seller's obligations under this Section 6 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 in order to enforce or prevent any violations (whether
anticipatory, continuing or future) of the provisions of Section 6
(including, without limitation, the extension of the
Non-Competition Period by a period equal to (i) the length of the
violation of this Section 6 plus (ii) the length of any court
proceedings necessary to stop such violation). In the event of a
breach or violation by such Seller of any of the provisions of this
Section 6 the running of the Non-Competition Period (but not of
such Seller's obligations under this Section 6) shall be tolled
with respect to such Seller during the continuance of any actual
breach or violation.
Section 7. Definitions.
"Acquisition Transaction" has the meaning set forth in
the Merger Agreement.
"Agreement" has the meaning set forth in the preamble.
"Business" has the meaning set forth in Section 6(a).
"Company" has the meaning set forth in the preamble.
"Disputes" has the meaning set forth in Section 3(g)(i).
"Disputing Person" has the meaning set forth in Section 3(g)(ii).
"Effective Date" has the meaning set forth in Section 3(a).
"Escrow" has the meaning set forth in Section 3(a).
"Escrow Agent" has the meaning set forth in Section 3(a).
"Final Determination" has the meaning set forth in Section 3(g)(v).
"Geneva Litigation" has the meaning set forth in Section 3(b).
"Indemnified Party" has the meaning set forth in Section 3(d)(i).
"Indemnifying Party" has the meaning set forth in Section 3(d)(i).
"Loss" has the meaning set forth in Section 3(b).
"Merger" has the meaning set forth in the preamble.
"Merger Agreement" has the meaning set forth in the preamble.
"Merger Sub" has the meaning set forth in the preamble.
"Non-Competition Period" has the meaning set forth in Section 6(a).
"Notice of Arbitration" has the meaning set forth in Section 3(g)(ii).
"Parent" has the meaning set forth in the preamble.
"Parent Indemnitee" has the meaning set forth in Section 3(b).
"Parent's Arbitrator" has the meaning set forth in Section 3(g)(iii).
"Participate" has the meaning set forth in Section 6(a).
"Proceeding" has the meaning set forth in Section 3(d)(i).
"Seller's Arbitrator" has the meaning set forth in Section 3(g)(iii).
"Sellers" has the meaning set forth in the preamble.
"settlement" has the meaning set forth in Section 3(d)(ii).
"Shares" has the meaning set forth in Section 3(a).
"Special Indemnity Fee" has the meaning set forth in Section 4.
Section 8. Miscellaneous.
(a) Assignment. This Agreement shall not be assignable
by the parties hereto, except that Parent may assign this Agreement
to a wholly owned subsidiary of Parent. This Agreement shall be
binding upon Sellers and Sellers' heirs, successors and assigns by
will or by the laws of descent.
(b) Amendments. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
(c) Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if
delivered personally or mailed by registered or certified mail
(return receipt requested) to Sellers and to Parent as follows (or
at such other address for a party as shall be specified by like
notice):
If to Parent:
HIG Capital Management, Inc.
1001 S. Bayshore Drive
Suite 2708
Miami, FL 33131
Attn: Brian D. Schwartz
with a copy to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Attn: James L. Learner
If to Sellers:
Eric Rascoe
524 Sandrae Dr.
Pittsburgh, PA 15243
David Weis
144 Thornberry Dr.
Pittsburgh, PA 15235
with a copy to:
Buchanan Ingersoll
Professional Corporation
One Oxford Center
301 Grant Street
Pittsburgh, PA 15129-1410
Attn: Lewis U. Davis, Jr.
(d) Governing Law. This Agreement shall be governed in
all respects, including validity, interpretation and effects, by
the laws of the Commonwealth of Pennsylvania, without regard to the
principles of conflicts of laws thereof.
(e) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court or a governmental
agency of competent jurisdiction to be invalid, void or
unenforceable, or cause any party hereto to be in violation of any
applicable provision of law, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected
impaired or invalidated.
(f) Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original but all of
which together shall constitute one and the same agreement.
(g) Effect of Headings. The headings contained herein
are for convenience of reference only and shall not affect the
meaning or interpretation hereof.
* * * * *
IN WITNESS WHEREOF, Parent and Sellers have caused this
Agreement to be signed as of the date first above written.
HEAT, INC.
By: __/s/ Anthony Tamer______________________
ANTHONY TAMER
SELLERS:
By: __/s/ David H. Weis______________________
DAVID H. WEIS
By: __/s/ Eric Rascoe_________________________
ERIC RASCOE
EXHIBIT A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Escrow Agreement") is made
as of ______________ __, 1997 by and among Heat Inc., a Delaware
corporation ("Parent"), David H. Weis and Eric Rascoe (each, a
"Seller", and together referred to as the "Sellers"), and
__________________, as escrow agent (the "Escrow Agent"). Parent
and the Sellers sometimes are referred to herein individually as
a "Party" and collectively as the "Parties."
The Parties have entered into an Indemnity and Fee
Agreement dated as of January 6, 1997 (the "Indemnity Agreement"),
to which the Escrow Agent is not a party, pursuant to which the
Sellers have certain fee and indemnification obligations to Parent.
Capitalized terms used but not defined herein have the meanings
assigned such terms in the Indemnity Agreement.
Under Section 3 of the Indemnity Agreement, the Sellers
have agreed to indemnify Parent for certain Losses incurred by
Parent in connection with consummation of the Merger. To implement
the foregoing, Section 3(a) of the Indemnity Agreement provides
that the Sellers shall deliver to the Escrow Agent for deposit into
the Escrow $1,000,000 to be used for payment of such indemnity
claims.
The Parties and the Escrow Agent have agreed upon and
wish to set forth in this Escrow Agreement the terms and conditions
with respect to the amounts to be placed in the Escrow and held by
the Escrow Agent hereunder.
NOW THEREFORE, the Parties and the Escrow Agent agree as
follows:
(i) Escrow Agent. The Parties hereby designate and
appoint the Escrow Agent to serve in accordance with the terms,
conditions and provisions of this Escrow Agreement, and the Escrow
Agent hereby agrees to act as such, upon the terms, conditions and
provisions provided in this Escrow Agreement.
(ii) Establishment of the Escrow. Concurrently with the
execution of this Escrow Agreement, subject to the terms and
provisions herein contained, the Sellers have delivered $1,000,000
(the "Escrow Amount") by wire transfer of immediately available
funds to the Escrow Agent for deposit into the Escrow. Subject to
the right of the Escrow Agent to resign as provided in Section 10
hereof, the Escrow Agent shall hold the Escrow Amount and shall not
disburse the Escrow Amount except as provided in Sections 4, 5 and
6 hereof.
(iii) Investment of Escrow Amount. Until termination
of this Escrow Agreement, the Escrow Agent shall invest and
reinvest the Escrow Amount in U.S. treasury bills or treasury
notes, and upon and in accordance with the written instructions of
the Sellers, in any other direct obligation issued by or guaranteed
in full as to principal and interest by the United States of
America or in certificates of deposit issued by one or more
commercial banks having capital, surplus and undivided profits of
not less than $100,000,000 (including the Escrow Agent, if
applicable), in each case with a maturity of less than 180 days.
None of the Escrow Agent, the Sellers or Parent shall be liable or
responsible in any manner for any loss or depreciation resulting
from any such investment or liquidation, or for any costs in
connection therewith, and all of said losses and costs shall be
borne by the Escrow.
(iv) Indemnification Claims and Indemnification Escrow
Amount. If Parent requests a payment from the Escrow Amount in
connection with a claim for indemnification (an "Indemnification
Claim") pursuant to Section 3(b) of the Indemnity Agreement, then
Parent shall notify the Escrow Agent and the Sellers in writing of
such request, describing in such notice (an "Indemnification
Notice") the nature of the claim and the amount thereof if then
ascertainable or, if not ascertainable, the estimated maximum
amount thereof. On the 10th business day (the "Indemnification
Disbursement Date") following the Escrow Agent's receipt of the
Indemnification Notice, the Escrow Agent shall disburse to Parent
from the Escrow Amount the amount of funds requested by Parent in
such Indemnification Notice unless prior to the Indemnification
Disbursement Date the Sellers deliver to each of the Escrow Agent
and Parent a written notice disputing (a "Dispute Notice") Parent's
right to all or part of the amount of funds set forth in the
Indemnification Notice (a "Disputed Amount"). If prior to the
Indemnification Disbursement Date, the Escrow Agent receives a
Dispute Notice, then the disputed portion of such Indemnification
Claim shall be an "Open Indemnification Claim" and the Escrow Agent
shall reserve (an "Indemnification Claim Reserve") a portion of the
Escrow Amount equal to the Open Indemnification Claim. Thereafter,
the Indemnification Claim Reserve shall be disbursed by the Escrow
Agent from the Escrow Amount to Parent in accordance with either
(a) joint written instructions by each of Parent and the Sellers or
(b) a Final Determination with respect to such Indemnification
Claim signed by the sole arbitrator or by at least two of the three
arbitrators (as the case may be) in accordance with Section 3(g) of
the Indemnity Agreement. The Indemnification Claim Reserve shall
not be disbursed by the Escrow Agent except in the manner set forth
in the preceding sentence.
(v) Release and Application of Escrow Amount. The
Escrow Agent shall hold the Escrow Amount under the provisions of
this Escrow Agreement until authorized hereunder to deliver such
funds or any specified portion thereof as follows:
(1) Payments of the Escrow Amount shall be made to
Parent in satisfaction of Indemnification Claims made by Parent, in
the manner and to the extent authorized under Section 4 hereof.
(2) The entire balance of the Escrow Amount
remaining, minus the aggregate amount of the then existing
Indemnification Claim Reserves for Open Indemnification Claims,
minus amounts then payable (and not yet paid) by the Sellers to the
Escrow Agent under Section 11 hereof, shall be paid to the Sellers
on a date which is five (5) days after the end of the 18-month
period following the date of this Agreement (the "Escrow
Disbursement Date").
(3) After the Escrow Disbursement Date, at such
time when a final determination is made for each Open
Indemnification Claim, (i) the amount payable to Parent under the
Final Determination for such Open Indemnification Claim shall be
paid to Parent from the Indemnification Claim Reserve for such Open
Indemnification Claim and (ii) the balance of such Indemnification
Claim Reserve, minus amounts then payable (and not yet paid) by the
Sellers to the Escrow Agent pursuant to Section 11 hereof, shall
then be paid to the Sellers.
(4) Notwithstanding any provision herein to the
contrary, if at any time the Parties (other than the Escrow Agent)
jointly execute a written notice to the Escrow Agent providing the
Escrow Agent with disbursement instructions for all or part of the
Escrow Amount then remaining, the Escrow Agent shall disburse all
or a part of such Escrow Amount in accordance with the instructions
contained in such notice.
(vi) Investment Income. Income, interest, increments and
realized gains paid upon the Escrow Amount held in the Escrow shall
be paid to Sellers upon their demand therefor and not become part
of the Escrow Amount.
(vii) Responsibilities of the Escrow Agent. The
Escrow Agent shall have no duties or responsibilities except those
expressly set forth herein. The Escrow Agent shall have no
responsibility for the validity of any agreements referred to in
this Escrow Agreement, or for the performance of any such
agreements by any party thereto or for interpretation of any of the
provisions of any of such agreements. The liability of the Escrow
Agent hereunder shall be limited solely to bad faith, willful
misconduct or negligence on its part. The Escrow Agent shall be
protected in acting upon any certificate, notice or other
instrument whatsoever received by the Escrow Agent under this
Escrow Agreement, not only as to its due execution and the validity
and effectiveness of its provisions, but also as to the truth and
accuracy of any information therein contained, which the Escrow
Agent in good faith believes to be genuine and to have been signed
or presented by a proper person or persons. The Escrow Agent shall
have no responsibility as to the validity, collectibility or value
of any property held by it in the Escrow pursuant to this Escrow
Agreement and the Escrow Agent may rely on any notice, instruction,
certificate, statement, request, consent, confirmation, agreement
or other instrument which it believes to be genuine and to have
been signed or presented by a proper person or persons. In the
event that the Escrow Agent shall be uncertain as to its duties or
rights hereunder or shall receive instructions from any of the
undersigned with respect to any property held by it in the Escrow
pursuant to this Escrow Agreement which, in the opinion of the
Escrow Agent, are in conflict with any of the provisions of this
Escrow Agreement, the Escrow Agent shall be entitled to refrain
from taking any action until it shall be directed otherwise in
writing by all of the other Parties or by an order of a court of
competent jurisdiction. The Escrow Agent shall be deemed to have
no notice of, or duties with respect to, any agreement or
agreements with respect to any property held by it in the Escrow
pursuant to this Escrow Agreement other than this Escrow Agreement
or except as otherwise provided herein. This Escrow Agreement sets
forth the entire agreement between the Parties and the Escrow Agent
as escrow agent. Notwithstanding any provision to the contrary
contained in any other agreement (excluding any amendment to this
Escrow Agreement) between any of the Parties, the Escrow Agent
shall have no interest in the property held by it in escrow
pursuant to this Escrow Agreement except as provided in this Escrow
Agreement. In the event that any of the terms and provisions of
any other agreement (excluding any amendment to this Escrow
Agreement) between any of the Parties conflict or are inconsistent
with any of the terms and provisions of this Escrow Agreement, the
terms and provisions of this Escrow Agreement shall govern and
control in all respects.
(viii) Amendment and Cancellation. The Escrow Agent
shall not be bound by any cancellation, waiver, modification or
amendment of this Escrow Agreement, including the transfer of any
interest hereunder, unless such modification is in writing and
signed by Parent and the Sellers and, if the duties of the Escrow
Agent hereunder are affected in any way, the Escrow Agent.
(ix) Legal Counsel. The Escrow Agent may consult with,
and obtain advice from, legal counsel in the event of any question
as to any of the provisions hereof or its duties hereunder, and it
shall incur no liability and shall be fully protected in acting in
good faith in accordance with the opinion and instructions of such
counsel. The reasonable cost of such services shall be added to
and be a part of the Escrow Agent's fee hereunder.
(x) Resignation. The Escrow Agent shall have the right,
in its discretion, to resign as agent at any time, by giving at
least thirty (30) days' prior written notice of such resignation to
Parent and the Sellers. In such event Parent will promptly select
a bank with capital, surplus and undivided profits of not less than
$100,000,000, which will be appointed as successor Escrow Agent,
and the Company, Parent and the Sellers will enter into an
agreement with such bank in substantially the form of this Escrow
Agreement. Resignation by the Escrow Agent shall relieve the
Escrow Agent of any responsibility or duty thereafter arising
hereunder, but shall not relieve the Escrow Agent of responsibility
to account to any other party hereto for funds received by the
Escrow Agent prior to the effective date of such resignation. If
a substitute for the Escrow Agent hereunder shall not have been
selected, as aforesaid, the Escrow Agent shall be entitled to
petition any court for the appointment of a substitute for it
hereunder or, in the alternative, it may (i) transfer and deliver
the funds deposited in the Escrow to or upon the order of such
court or (ii) keep safely all funds in the Escrow until it receives
joint notice from Parent and the Sellers of a substitute
appointment. The Escrow Agent shall be discharged from all further
duties hereunder upon acceptance by the substitute of its duties
hereunder or upon transfer and delivery of the said funds in said
Escrow to or upon the order of any court.
(xi) Fees. Parent, on the one hand, and the Sellers (on
the other hand) each are liable for one-half of the Escrow Agent's
fees and expenses for its services hereunder including inception
fees, which Parent and the Seller, respectively, will pay on the
Effective Date before the deposit of the Escrow Amount into the
Escrow pursuant to Section 3 of the Indemnity Agreement. The
Escrow Agent does not have and will not have any interest in the
funds deposited hereunder but is serving only as escrow holder and
having only possession thereof.
(xii) Payments. At any time the Escrow Agent is
required to distribute or pay over any amounts held by or received
by it under any of the provisions of this Escrow Agreement Parent
or the Sellers, such distribution and payment shall be effected by
issuance of the Escrow Agent's check in the appropriate amount
payable to Parent or each of the Sellers, as the case may be, and
by mailing of such check to Parent or the Sellers, as the case may
be, at the address of the Company, Parent or the Sellers,
respectively, set forth in Section 14 hereof; provided that:
(1) any Party may, by written notice delivered to
the Escrow Agent, direct that payment of cash required to be
distributed to such Party be effected (i) by deposit or wire
transfer of such amounts to one or more accounts designated by such
Party, or (ii) by mailing the Escrow Agent's check for such amounts
to any other or changed address specified in such notice, and
payments after such notice is received shall be made in accordance
with such notice (until changed by subsequent notice delivered by
such Party to the Escrow Agent); and
(2) subject to compliance by any Party with the
provisions of this Escrow Agreement, in the event of any transfer
or assignment or otherwise by operation of law, or by sale,
assignment, contract, security agreement or otherwise, of any right
to receive payment of any part of any amounts held by the Escrow
Agent (notice of which sale, transfer or assignment shall be given
by the Company to the Escrow Agent prior thereto) by such Party,
the Escrow Agent shall nevertheless be entitled to withhold payment
of any amounts to such assignee, transferee or successor in
interest until written instructions from such assignee, transferee
or successor in interest are delivered to the Escrow Agent
specifying the mailing address or account of such assignee,
transferee or successor in interest pursuant to the foregoing
provisions of this Section 12.
(xiii) Taxation of Interest Earned on Investment of
Escrow Amount. The Sellers hereby acknowledge that, for federal
and state income tax reporting purposes, the interest earned on the
investment of the Escrow Amount shall be income of the Sellers.
The Escrow Agent shall be responsible for reporting any interest
earned to the Internal Revenue Service.
(xiv) Notices. All notices, requests, demands,
claims, and other communications hereunder will be in writing. Any
notice, request, demand, claim, or other communication hereunder
shall be deemed duly given (i) when delivered, if personally
delivered, (ii) when receipt is electronically confirmed, if faxed
(with hard copy to follow via first class mail, postage prepaid),
(iii) one day after deposit with a reputable overnight courier, or
(iv) three days after deposit into first class mail, in each case
addressed to the intended recipient as set forth below:
If to the Escrow Agent:
___________________________
___________________________
___________________________
___________________________
Attention: __________________
Telecopy #: _________________
If to Parent:
H.I.G. Capital Management
1001 South Bayshore Drive
Suite 2310
Miami, Florida 33131
Attn: Brian D. Schwartz
Telecopy #: (305) 379-2013
with a copy (which shall not constitute notice) to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: James L. Learner, Esq.
Telecopy #: (312) 861-2200
If to the Sellers:
Eric Rascoe
524 Sandrae Drive
Pittsburgh, PA 15243
David H. Weis
144 Thornberry Drive
Pittsburgh, PA 15235
with a copy (which shall not constitute notice) to:
_____________________________
_____________________________
_____________________________
_____________________________
Any Party may change the address and/or telecopier number to which
notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Party notice in
the manner herein set forth. Notwithstanding any of the foregoing,
no notice or instructions to the Escrow Agent shall be deemed to
have been received by the Escrow Agent prior to actual receipt by
the Escrow Agent, and any computation of a time period which is to
begin after receipt of a notice by the Escrow Agent shall run from
the date of such receipt by the Escrow Agent.
(xv) Captions. The section captions used herein are for
reference purposes only, and shall not in any way affect the
meaning or interpretation of this Escrow Agreement.
(xvi) Execution by Escrow Agent. The execution of
this Escrow Agreement by the Escrow Agent shall constitute a
receipt for the Escrow Amount.
(xvii) Indemnification of Escrow Agent. Parent and
the Sellers agree, jointly and severally, to hold the Escrow Agent
harmless and to indemnify the Escrow Agent against any loss,
liability, claim or demand arising out of or in connection with the
performance of its obligations in accordance with the provisions of
this Escrow Agreement, except for bad faith, negligence or willful
misconduct of the Escrow Agent. The foregoing indemnities in this
Section 17 shall survive termination of this Escrow Agreement.
(xviii) Escrow Agreement as Security Only. The escrow
arrangement under this Escrow Agreement serves only as security for
the Sellers' obligations pursuant to Section 3 of the Indemnity
Agreement to the extent and in the manner provided herein and in no
way shall limit the amount of liability which may be incurred by
Parent pursuant to such obligations.
(xix) Disagreements. If any disagreement or dispute
arises between the Parties concerning the meaning or validity of
any provision under this Escrow Agreement or concerning any other
matter relating to this Escrow Agreement, the Escrow Agent (a)
shall be under no obligation to act, except under process or order
of court, or until it has been adequately indemnified to its full
satisfaction, and shall sustain no liability for its failure to act
pending such process or court order or indemnification, and (b) may
deposit, in its sole and absolute discretion, the Escrow Amount or
that portion of the Escrow Amount it then holds with any court of
competent jurisdiction and interplead the Parties. Upon such
deposit and filing of interpleader, the Escrow Agent shall be
relieved of all liability as to the Escrow Amount and shall be
entitled to recover from the Parties its reasonable attorneys' fees
and other costs incurred in commencing and maintaining such action.
(xx) Governing Law. This Escrow Agreement shall be
governed by and construed in accordance with the domestic laws of
the Commonwealth of Pennsylvania without giving effect to any
choice of law or conflict of law provision or rule (whether of the
Commonwealth of Pennsylvania or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than
the Commonwealth of Pennsylvania.
(xxi) Counterparts. This Escrow Agreement may be
executed in two or more counterparts, all of which taken together
shall constitute one instrument.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the Parties hereunto have duly
caused this Escrow Agreement to be executed as of the first day
above written.
HEAT, INC.
By: ______________________
Anthony Tamer
By: ______________________
David H. Weis
By: ______________________
Eric Rascoe
ESCROW AGENT:
____________________________________________
By: ______________________________________
Its: _________________________________________
<PAGE>
Appendix B
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES
ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Section 1571. Application and effect of subchapter
(a) General rule.--Except as otherwise provided in subsection
(b), any shareholder of a business corporation shall have the
right to dissent from, and to obtain payment of the fair value of
his shares in the event of, any corporate action, or to otherwise
obtain fair value for his shares, where this part expressly
provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share
exchanges).
Section 1932(c) (relating to dissenters rights in asset
transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a
restriction on transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--
(1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of shares that,
at the record date fixed to determine the shareholders
entitled to notice of and to vote at the meeting at which a
plan specified in any of section 1930, 1931(d), 1932(c) or
1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of
any such shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights
shall be available without regard to the exception provided in
that paragraph in the case of:
*8459 (i) Shares converted by a plan if the shares are
not converted solely into shares of the acquiring,
surviving, new or other corporation or solely into such
shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles,
the plan or the terms of the transaction entitle all
shareholders of the class to vote thereon and require for the
adoption of the plan or the effectuation of the transaction the
affirmative vote of a majority of the votes cast by all
shareholders of the class.
(iii) Shares entitled to dissenters rights under section
1906(c) (relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by
purchase, lease, exchange or other disposition all or
substantially all of the shares, property or assets of another
corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the
other corporation and with or without the intervention of
another corporation or other person, shall not be entitled to
the rights and remedies of dissenting shareholders provided in
this subchapter regardless of the fact, if it be the case,
that the acquisition was accomplished by the issuance of
voting shares of the corporation to be outstanding immediately
after the acquisition sufficient to elect a majority or more
of the directors of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a
resolution of the board of directors may direct that all or a
part of the shareholders shall have dissenters rights in
connection with any corporate action or other transaction that
would otherwise not entitle such shareholders to dissenters
rights.
(d) Notice of dissenters rights.--Unless otherwise provided by
statute, if a proposed corporate action that would give rise to
dissenters rights under this subpart is submitted to a vote at a
meeting of shareholders, there shall be included in or enclosed
with the notice of meeting:
(1) a statement of the proposed action and a statement that
the shareholders have a right to dissent and obtain payment of
the fair value of their shares by complying with the terms of
this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter shall
also be applicable to any transaction described in any statute
other than this part that makes reference to this subchapter for
the purpose of granting dissenters rights.
(f) Certain provisions of articles ineffective.--This
subchapter may not be relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to
restriction on equitable relief), 1904 (relating to de facto
transaction doctrine abolished) and 2512 (relating to dissenters
rights procedure).
Section 1572. Definitions
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Corporation." The issuer of the shares held or owned by the
dissenter before the corporate action or the successor by merger,
consolidation, division, conversion or otherwise of that issuer.
A plan of division may designate which of the resulting
corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall
have sole responsibility for payments to dissenters and other
liabilities under this subchapter except as otherwise provided in
the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled
to and does assert dissenters rights under this subchapter and
who has performed every act required up to the time involved for
the assertion of those rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter
objects, taking into account all relevant factors, but excluding
any appreciation or depreciation in anticipation of the corporate
action.
"Interest." Interest from the effective date of the corporate
action until the date of payment at such rate as is fair and
equitable under all the circumstances, taking into account all
relevant factors, including the average rate currently paid by
the corporation on its principal bank loans.
Section 1573. Record and beneficial holders and owners
(a) Record holders of shares.--A record holder of shares of a
business corporation may assert dissenters rights as to fewer
than all of the shares registered in his name only if he dissents
with respect to all the shares of the same class or series
beneficially owned by any one person and discloses the name and
address of the person or persons on whose behalf he dissents. In
that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in
the names of different shareholders.
(b) Beneficial owners of shares.--A beneficial owner of shares
of a business corporation who is not the record holder may assert
dissenters rights with respect to shares held on his behalf and
shall be treated as a dissenting shareholder under the terms of
this subchapter if he submits to the corporation not later than
the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with
respect to some but less than all shares of the same class or
series owned by the owner, whether or not the shares so owned by
him are registered in his name.
Section 1574. Notice of intention to dissent
If the proposed corporate action is submitted to a vote at a
meeting of shareholders of a business corporation, any person who
wishes to dissent and obtain payment of the fair value of his
shares must file with the corporation, prior to the vote, a
written notice of intention to demand that he be paid the fair
value for his shares if the proposed action is effectuated, must
effect no change in the beneficial ownership of his shares from
the date of such filing continuously through the effective date
of the proposed action and must refrain from voting his shares in
approval of such action. A dissenter who fails in any respect
shall not acquire any right to payment of the fair value of his
shares under this subchapter. Neither a proxy nor a vote against
the proposed corporate action shall constitute the written notice
required by this section.
Section 1575. Notice to demand payment
(a) General rule.--If the proposed corporate action is approved
by the required vote at a meeting of shareholders of a business
corporation, the corporation shall mail a further notice to all
dissenters who gave due notice of intention to demand payment of
the fair value of their shares and who refrained from voting in
favor of the proposed action. If the proposed corporate action
is to be taken without a vote of shareholders, the corporation
shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the
adoption of the plan or other corporate action. In either case,
the notice shall:
(1) State where and when a demand for payment must be sent
and certificates for certificated shares must be deposited in
order to obtain payment.
(2) Inform holders of uncertificated shares to what extent
transfer of shares will be restricted from the time that demand
for payment is received.
(3) Supply a form for demanding payment that includes a request
for certification of the date on which the shareholder, or the
person on whose behalf the shareholder dissents, acquired
beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set for
receipt of the demand and deposit of certificated shares shall be
not less than 30 days from the mailing of the notice.
Section 1576. Failure to comply with notice to demand payment,
etc.
(a) Effect of failure of shareholder to act.--A shareholder who
fails to timely demand payment, or fails (in the case of
certificated shares) to timely deposit certificates, as required
by a notice pursuant to section 1575 (relating to notice to
demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares are
not represented by certificates, the business corporation may
restrict their transfer from the time of receipt of demand for
payment until effectuation of the proposed corporate action or
the release of restrictions under the terms of section 1577(a)
(relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall retain
all other rights of a shareholder until those rights are modified
by effectuation of the proposed corporate action.
Section 1577. Release of restrictions or payment for shares
(a) Failure to effectuate corporate action.--Within 60 days
after the date set for demanding payment and depositing
certificates, if the business corporation has not effectuated the
proposed corporate action, it shall return any certificates that
have been deposited and release uncertificated shares from any
transfer restrictions imposed by reason of the demand for
payment.
(b) Renewal of notice to demand payment.--When uncertificated
shares have been released from transfer restrictions and
deposited certificates have been returned, the corporation may at
any later time send a new notice conforming to the requirements
of section 1575 (relating to notice to demand payment), with like
effect.
(c) Payment of fair value of shares.--Promptly after
effectuation of the proposed corporate action, or upon timely
receipt of demand for payment if the corporate action has already
been effectuated, the corporation shall either remit to
dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that
the corporation estimates to be the fair value of the shares, or
give written notice that no remittance under this section will be
made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the
issuer of the shares held or owned by the dissenter for a
fiscal year ending not more than 16 months before the date of
remittance or notice together with the latest available
interim financial statements.
(2) A statement of the corporation's estimate of the fair value
of the shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy
of this subchapter.
(d) Failure to make payment.--If the corporation does not remit
the amount of its estimate of the fair value of the shares as
provided by subsection (c), it shall return any certificates that
have been deposited and release uncertificated shares from any
transfer restrictions imposed by reason of the demand for
payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to any
such uncertificated shares that such demand has been made. If
shares with respect to which notation has been so made shall be
transferred, each new certificate issued therefor or the records
relating to any transferred uncertificated shares shall bear a
similar notation, together with the name of the original
dissenting holder or owner of such shares. A transferee of such
shares shall not acquire by such transfer any rights in the
corporation other than those that the original dissenter had
after making demand for payment of their fair value.
Section 1578. Estimate by dissenter of fair value of shares
(a) General rule.--If the business corporation gives notice of
its estimate of the fair value of the shares, without remitting
such amount, or remits payment of its estimate of the fair value
of a dissenter's shares as permitted by section 1577(c) (relating
to payment of fair value of shares) and the dissenter believes
that the amount stated or remitted is less than the fair value of
his shares, he may send to the corporation his own estimate of
the fair value of the shares, which shall be deemed a demand for
payment of the amount or the deficiency.
(b) Effect of failure to file estimate.--Where the dissenter
does not file his own estimate under subsection (a) within 30
days after the mailing by the corporation of its remittance or
notice, the dissenter shall be entitled to no more than the
amount stated in the notice or remitted to him by the
corporation.
Section 1579. Valuation proceedings generally
(a) General rule.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section
1575 (relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business
corporation may file in court an application for relief
requesting that the fair value of the shares be determined by the
court.
(b) Mandatory joinder of dissenters.--All dissenters, wherever
residing, whose demands have not been settled shall be made
parties to the proceeding as in an action against their shares.
A copy of the application shall be served on each such dissenter.
If a dissenter is a nonresident, the copy may be served on him in
the manner provided or prescribed by or pursuant to 42 Pa.C.S.
Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure). [FN1]
(c) Jurisdiction of the court.--The jurisdiction of the court
shall be plenary and exclusive. The court may appoint an
appraiser to receive evidence and recommend a decision on the
issue of fair value. The appraiser shall have such power and
authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a party
shall be entitled to recover the amount by which the fair value
of his shares is found to exceed the amount, if any, previously
remitted, plus interest.
(e) Effect of corporation's failure to file application.--If
the corporation fails to file an application as provided in
subsection (a), any dissenter who made a demand and who has not
already settled his claim against the corporation may do so in
the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to
file an application shall be paid the corporation's estimate of
the fair value of the shares and no more, and may bring an action
to recover any amount not previously remitted.
Section 1580. Costs and expenses of valuation proceedings
(a) General rule.--The costs and expenses of any proceeding
under section 1579 (relating to valuation proceedings generally),
including the reasonable compensation and expenses of the
appraiser appointed by the court, shall be determined by the
court and assessed against the business corporation except that
any part of the costs and expenses may be apportioned and
assessed as the court deems appropriate against all or some of
the dissenters who are parties and whose action in demanding
supplemental payment under section 1578 (relating to estimate by
dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of
good faith appears.--Fees and expenses of counsel and of experts
for the respective parties may be assessed as the court deems
appropriate against the corporation and in favor of any or all
dissenters if the corporation failed to comply substantially with
the requirements of this subchapter and may be assessed against
either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees
and expenses are assessed acted in bad faith or in a dilatory,
obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the
court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and
should not be assessed against the corporation, it may award to
those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
<PAGE>
APPENDIX C
PARKER/HUNTER
INVESTMENT BANKERS
Craig A. Wolfanger
Senior Vice President
Head of Investment Banking
Parker/Hunter Incorporated
600 Grant Street
Pittsburgh, PA 15219-2784
412/562-8050
800/441-1514
January 3, 1997
The Board of Directors
Thermal Industries, Inc.
301 Brushton Avenue
Pittsburgh, PA 15221
Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of common stock
(other than Heat, Acquisition Sub and their respective
affiliates, as hereinafter defined), par value $0.01 per
share (the "Common Stock"), of Thermal Industries, Inc. (the
"Company") of the consideration to be received by such
holders in connection with the proposed offer (the "Offer")
by Heat Acquisition, Inc. ("Acquisition Sub"), a Delaware
corporation and wholly-owned subsidiary of Heat, Inc.
("Heat"), a Delaware corporation, pursuant to which all
outstanding shares of Common Stock will be purchased at a
price equal to $15.00 per share in cash (the "Offer
Price"), through the proposed merger of Acquisition Sub with
and into the Company (the "Merger"; together with the Offer,
the "Transaction"), pursuant to which all shares of Common
Stock remaining outstanding at the time of Merger (other
than the shares of Common Stock whose holders exercise their
dissenters' rights) will be converted into the right to
receive an amount equal to the Offer Price, all pursuant to
the Agreement and Plan of Merger dated as of January 6, 1997
(the "Merger Agreement") among the Company, Heat and
Acquisition Sub.
Parker/Hunter Incorporated, as part of its investment
banking business, is regularly engaged in the valuation of
businesses and their securities in connection with, mergers
and acquisitions, negotiated underwritings, the purchase and
sale of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
In connection with our opinion, we have reviewed, among
other things, the following: (i) the Merger Agreement; (ii)
the Company's audited financial statements as of June 30,
1996 and for the five fiscal years then ended and the
Company's unaudited financial statements as of September 30,
1996 and for the three month period then ended; (iii)
certain other publicly available business and financial
information concerning the Company; (iv) certain publicly
available information concerning the trading of, and the
trading markets for, the Common Stock; (v) certain other
internal Company information, primarily financial in nature,
including financial projections for the Company prepared by
the management of the Company; (vi) the nature and financial
terms of certain recent business combinations which we
believe to be relevant; and (vii) certain publicly available
information regarding companies that we believe to be
comparable to the Company as well as trading market
information for certain of such other companies' securities.
We have also met with certain senior officers and directors
of the Company to discuss the foregoing as well as the
operations, financial condition, history and prospects of
the Company and other matters we believe relevant. We have
taken into account our assessment of general economic,
market and financial conditions and our experience in
securities valuation generally. We have also considered
such other information, financial studies, analyses,
investigations and financial, economic, market and trading
criteria which we deemed relevant. We have not been
requested to and did not solicit third party indications of
interest in acquiring all or any part of the Company.
In rendering this opinion, we relied, without independent
verification, on the accuracy and completeness of all
financial and other information that was publicly available
or furnished or otherwise communicated to us by the Company.
We have not made an independent evaluation or appraisal of
the assets or liabilities of the Company, nor have we been
furnished with any such evaluations or appraisals. With
respect to the Company's financial projections, we have
assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and good
faith judgments of the Company's management and we express
no opinion with respect to such projections or the
assumptions on which they are based. Our opinion is
necessarily based upon the business, market, monetary,
economic, and other conditions as they exist on, and can be
evaluated as of, the date of this letter and does not
predict or take into account any changes which may occur, or
information which may become available, after the date
hereof. Further, our opinion does not address the relative
merits of the merger and any other potential transactions or
business strategies considered by the Company's Board of
Directors, and does not constitute a recommendation to any
holder of Common Stock as to how such holder should vote
with respect to the Merger. In the past, we have provided
investment banking services to the Company for which we have
received our customary compensation. Timothy M. Slevin, a
Senior Vice President of Parker/Hunter Incorporated, is a
member of the Board of Directors of the Company. In our
determination of the fairness of the consideration to be
received in the Transaction by the holders of common stock,
Mr. Slevin did not participate.
In the ordinary course of our business, we may actively
trade the equity securities of the Company for our own
account and for the accounts of customers and, accordingly,
may at any time hold along or short position in such
securities.
Based upon and subject to the foregoing, it is our opinion
that, as of the date hereof, the offer price is fair, from a
financial point of view, to the holders of Company Common
Stock (other than Heat, Acquisition Sub and their respective
affiliates).
Very truly yours,
PARKER/HUNTER INCORPORATED
By: /s/Craig A. Wolfanger
Craig A. Wolfanger
Senior Vice President
<PAGE>
Appendix D - Form of Proxy Card
Please mark your votes
as indicated in this example. - X
The Board of Directors recommends that shareholders vote FOR
Proposal 1.
(1) Approval and adoption of the (2) In their discretion, the
Agreement and Plan of Merger (the proxies are authorized to
"Agreement") dated as of January vote upon such other
6, 1997, and the transactions businesses as may properly
contemplated thereby, pursuant to come before the Special
which, among other things, Meeting or any adjournment
Thermal Industries, Inc. would thereof.
merge with and into Heat
Acquisition, Inc., and become a
wholly-owned subsidiary of Heat,
Inc. Each share of Thermal
common stock issued and
outstanding immediately prior to
the effective time of the merger
will be entitled to receive, in
exchange for each share of
Thermal common stock held, a cash
payment of $15.00 per share as
determined in the manner
specified in the Proxy Statement
and the Agreement.
The undersigned acknowledge
receipt prior to the
execution of this proxy of a
Notice of Special Meeting of
Shareholders dated February
__, 1997.
FOR ___ AGAINST ___ ABSTAIN ___
Please sign exactly as your
name appears on this card.
When signing as attorney,
executor, administrator,
trustee or guardian, please
give your full title. If
shares are held jointly,
each holder may sign, but
only one signature is
required.
Dated:____________________________, 1997
__________________________________
(Signature)
__________________________________
(Signature)
Please Mark, Sign, Date and
Return the Proxy Card
Promptly Using the Enclosed
Envelope
