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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
[X] Filed by the registrant
[_] Filed by a party other than the registrant
Check the appropriate box:
[X] Preliminary proxy statement
[_] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
EDAC TECHNOLOGIES CORPORATION
(Name of Registrant as Specified in Its Charter)
Registrant
(Name of Person(s) Filing Proxy Statement)
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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction: $6,369,389
(5) Total fee paid: $1,274.
[X] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid: $1,274
(2) Form, schedule or registration statement no.: Schedule 14A
(3) Filing party: EDAC Technologies Corporation
(4) Date filed: April 2, 2001
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EDAC TECHNOLOGIES CORPORATION
1806 NEW BRITAIN AVENUE
FARMINGTON, CONNECTICUT 06032
May 11, 2001
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Edac Technologies Corporation, to be held at the Farmington Country Club, 806
Farmington Avenue, Farmington, Connecticut 06032, on May 31, 2001, at 10:00 a.m.
Eastern Daylight Time.
At the annual meeting, you will be asked to consider and vote on a
proposal to approve and adopt an Asset Purchase Agreement, dated as of March 29,
2001, among Tomz Corporation, Gros-Ite Engineered Components Division of Tomz,
Inc., a wholly owned subsidiary of Tomz Corporation, EDAC and Gros-Ite
Industries, Inc., a wholly owned subsidiary of EDAC, which provides for the sale
by us of certain of the assets of our Engineered Precision Components division.
The purchase price to be paid to EDAC under the Asset Purchase
Agreement is approximately $6.4 million, subject to post-closing adjustment
based upon a valuation as of the closing date of the inventory to be
transferred. The Asset Purchase Agreement is described in the accompanying Proxy
Statement and is attached as ANNEX A to the Proxy Statement.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE ASSET
PURCHASE AGREEMENT IS ADVISABLE FOR, AND IN THE BEST INTERESTS OF, EDAC AND ITS
SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE ASSET PURCHASE AGREEMENT.
At the annual meeting, you will also be asked to consider and vote on
the election of seven directors, and to ratify the appointment of the accounting
firm of Arthur Andersen LLP as independent auditors of EDAC for its fiscal year
ending December 29, 2001. The Board of Directors recommends that shareholders
vote "FOR" each nominee for election to the Board of Directors and "FOR" the
ratification of the appointment of independent auditors of EDAC.
ATTACHED IS A NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS AND A PROXY
STATEMENT CONTAINING A DISCUSSION OF THE BACKGROUND OF, REASONS FOR AND TERMS OF
THE ASSET PURCHASE AGREEMENT. WE URGE YOU TO READ AND CAREFULLY CONSIDER THE
INFORMATION PRESENTED IN THE ACCOMPANYING PROXY STATEMENT. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF
SHARES OF COMMON STOCK YOU OWN, PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED
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PROXY CARD PROMPTLY. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE YOUR SHARES
OF COMMON STOCK PERSONALLY WHETHER OR NOT YOU HAVE PREVIOUSLY SUBMITTED A PROXY.
Very truly yours,
Richard A. Dandurand
President and Chief Executive Officer
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EDAC TECHNOLOGIES CORPORATION
1806 NEW BRITAIN AVENUE
FARMINGTON, CONNECTICUT 06032
(860) 677-2603
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 31, 2001
The Annual Meeting of Shareholders of EDAC Technologies Corporation, a
Wisconsin corporation, will be held at the Farmington Country Club, 806
Farmington Avenue, Farmington, Connecticut, on May 31, 2001 at 10:00 a.m.
Eastern Daylight Time, for the following purposes:
1. To approve and adopt an Asset Purchase Agreement, dated as of March 29,
2001, among Tomz Corporation, Gros-Ite Engineered Components Division of Tomz,
Inc., EDAC and Gros-Ite Industries, Inc., which provides for the sale by EDAC
and Gros-Ite Industries, Inc. of certain of the assets of EDAC's Engineered
Precision Components division;
2. To elect seven directors;
3. To ratify the appointment of Arthur Andersen LLP, independent public
accountants, as auditors of EDAC for its fiscal year ending December 29, 2001;
and
4. To take action with respect to any other matters that may be properly
brought before the meeting and that might be considered by the shareholders of a
Wisconsin corporation at their annual meeting.
By order of the Board of Directors
Farmington, Connecticut
May 11, 2001
EDAC TECHNOLOGIES CORPORATION
Ronald G. Popolizio,
Secretary
SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON APRIL 6, 2001 ARE
ENTITLED TO VOTE AT THE MEETING. YOUR VOTE IS IMPORTANT TO ENSURE THAT A
MAJORITY OF THE SHARES ARE REPRESENTED. PLEASE COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING. IF YOU LATER FIND THAT YOU MAY BE PRESENT AT THE
MEETING OR FOR ANY OTHER REASON DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT
ANY TIME BEFORE IT IS VOTED.
A copy of the 2000 Annual Report to Shareholders and a Proxy Statement
accompany this Notice.
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EDAC TECHNOLOGIES CORPORATION
1806 NEW BRITAIN AVENUE
FARMINGTON, CONNECTICUT 06032
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 31, 2001
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of EDAC Technologies Corporation ("EDAC" or the
"Company") of proxies, in the accompanying form, to be used at the Annual
Meeting of Shareholders of the Company to be held at the Farmington Country
Club, 806 Farmington Avenue, Farmington, Connecticut, on May 31, 2001, at 10:00
a.m. Eastern Daylight Time, and any adjournments thereof. This Proxy Statement
is being mailed on or about May 11, 2001 to shareholders of record at the close
of business on April 6, 2001.
At the annual meeting, shareholders of the Company will consider a proposal
to approve and adopt an Asset Purchase Agreement, dated as of March 29, 2001
(the "Asset Purchase Agreement"), among Tomz Corporation ("Tomz"), Gros-Ite
Engineered Components Division of Tomz, Inc., a wholly owned subsidiary of Tomz
(the "Purchaser"), the Company and Gros-Ite Industries, Inc., a wholly owned
subsidiary of the Company ("Gross-Ite"), which provides for the sale (the "Asset
Sale") by the Company and Gros-Ite to the Purchaser of certain of the assets of
the Company's Engineered Precision Components division (the "Division"). For
the year ended December 30, 2000, the Division had sales of approximately $16.6
million, or 35% of the Company's total sales of approximately $47.3 million. The
Asset Purchase Agreement is attached as ANNEX A to this Proxy Statement. A
majority of the outstanding shares of Common Stock must be voted in favor of the
Asset Purchase Agreement for the Asset Purchase Agreement to be approved.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE ASSET PURCHASE
AGREEMENT IS ADVISABLE FOR, AND IN THE BEST INTERESTS OF, EDAC AND ITS
SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE ASSET PURCHASE AGREEMENT.
At the annual meeting, you will also be asked to consider and vote on the
election of seven directors, and to ratify the appointment of the accounting
firm of Arthur Andersen LLP as independent auditors of the Company for its
fiscal year ending December 29, 2001. The Board of Directors recommends that
shareholders vote "FOR" each nominee for election to the Board of Directors and
"FOR" the ratification of the appointment of independent auditors of the
Company.
The shares represented by each valid proxy received in time will be voted
at the meeting and, if a choice is specified in the proxy, it will be voted in
accordance with that specification. If no instructions are specified in a signed
proxy returned to the Company, the shares represented thereby will be voted (1)
in FAVOR of the proposal to approve and adopt the Asset Purchase Agreement, (2)
in FAVOR of the election of the directors listed in the enclosed proxy, and (3)
in FAVOR of the ratification of the appointment of Arthur Andersen LLP as the
Company's auditors for fiscal 2001.
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Only shareholders of record at the close of business on April 6, 2001 will
be entitled to notice of and to vote at the annual meeting. On the record date,
the Company had outstanding _____________ shares of Common Stock, par value
$0.0025 per share (the "Common Stock"), entitled to one vote per share.
The Company's Common Stock trades on The OTC Bulletin Board under the
symbol "EDAC."
EITHER EDAC OR TOMZ MAY TERMINATE THE ASSET PURCHASE AGREEMENT IF THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK DO NOT VOTE TO
APPROVE THE ASSET PURCHASE AGREEMENT AT THE ANNUAL MEETING. SEE "PROPOSAL 1: THE
ASSET SALE -- THE ASSET PURCHASE AGREEMENT -- TERMINATION."
Since the proposed Asset Sale involves a sale of a portion of the Company's
assets, shareholders will retain their equity interest in EDAC following the
consummation of the sale, and EDAC will have received the proceeds from the
proposed Asset Sale. See "Proposal 1: The Asset Sale -- Use of Proceeds; Conduct
of Business Following the Asset Sale."
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TABLE OF CONTENTS
Page
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SUMMARY............................................................................... 5
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS......................................... 10
THE ANNUAL MEETING.................................................................... 11
Purpose.......................................................................... 11
Record Date; Voting Rights....................................................... 11
Required Vote.................................................................... 11
Proxies.......................................................................... 12
PROPOSAL 1: THE ASSET SALE........................................................... 13
PARTIES TO THE ASSET PURCHASE AGREEMENT.......................................... 13
The Company and Gros-Ite....................................................... 13
The Purchaser and Tomz......................................................... 13
THE ASSET SALE................................................................... 13
Background of the Asset Sale................................................... 13
Approval by the Board of Directors; Reasons for the Asset Sale................. 17
Opinion of Financial Advisor................................................... 18
Certain Federal Income Tax Consequences........................................ 24
Use of Proceeds; Conduct of Business Following the Asset Sale.................. 24
Dissenters' Rights............................................................. 24
THE ASSET PURCHASE AGREEMENT..................................................... 25
Assets to be Sold to the Purchaser............................................. 25
Liabilities to be Assumed by the Purchaser..................................... 26
Purchase Price................................................................. 26
Representations and Warranties................................................. 27
Certain Covenants.............................................................. 27
Deliveries at Closing.......................................................... 27
Indemnification................................................................ 28
Closing........................................................................ 29
Termination.................................................................... 29
SELECTED FINANCIAL DATA.......................................................... 31
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION.............................. 33
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS OF THE ENGINEERED PRECISION
COMPONENTS DIVISION........................................................... 37
SECURITY OWNERSHIP.................................................................... 38
PROPOSAL 2: ELECTION OF DIRECTORS.................................................... 40
Nominees......................................................................... 40
Directors' Meetings and Committees............................................... 41
Fees of Independent Auditors..................................................... 42
Report of the Audit Committee.................................................... 42
Directors' Fees.................................................................. 43
Executive Officers............................................................... 43
Section 16(a) Beneficial Ownership Reporting Compliance.......................... 44
Shareholder Return Performance Graph............................................. 44
Compensation Committee Report on Executive Compensation.......................... 44
Executive Compensation........................................................... 46
Employment Agreements............................................................ 48
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Page
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Change of Control Agreements..................................................... 48
Compensation Committee Interlocks and Insider Participation...................... 49
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF AUDITORS.................................. 49
AVAILABLE INFORMATION................................................................. 49
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K.................. 49
SHAREHOLDER PROPOSALS................................................................. 50
OTHER MATTERS......................................................................... 50
Annex A -- Asset Purchase Agreement
Annex B -- Opinion of Stifel, Nicolaus & Company, Incorporated
Annex C -- Audit Committee Charter
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SUMMARY
The following is a summary of some of the information in this Proxy
Statement. It is not meant to be comprehensive and does not contain all the
information that is important to you. We have included page references to direct
you to more complete information in this document. You should carefully read the
entire Proxy Statement to fully understand the Asset Purchase Agreement and its
consequences.
VOTE REQUIRED TO APPROVE -- Approval of the Asset Purchase
THE ASSET PURCHASE AGREEMENT Agreement requires the affirmative
(See pages 11 to 12) vote of the holders of a majority of
the outstanding shares of our common
stock at the annual meeting. The
directors and executive officers of
EDAC, who held a total of
approximately 2.2% of the outstanding
shares of our common stock as of
March 15, 2001, have indicated that
they intend to vote all such shares
in favor of the Asset Purchase
Agreement. In addition, EDAC's
Employee Stock Ownership Plan and
Trust held approximately 10.5% of the
outstanding shares of our common
stock as of March 15, 2001. The
Trustees of EDAC's Employee Stock
Ownership Plan and Trust, who consist
of one executive officer of EDAC and
two employees of EDAC, have the power
to vote all such shares except to the
extent that they receive instructions
from a participant for the shares
allocated to such participant's
account. IF YOU DO NOT VOTE YOUR
SHARES, THE EFFECT WILL BE A VOTE
AGAINST APPROVAL OF THE ASSET
PURCHASE AGREEMENT. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS
VOTING "FOR" THE APPROVAL OF THE
ASSET PURCHASE AGREEMENT.
THE COMPANY -- EDAC Technologies Corporation
(See page 13) 1806 New Britain Avenue
Farmington, Connecticut 06032
EDAC currently offers design and
manufacturing services for a
wide-range of industries in areas
such as special tooling, equipment
and gauges, and components used in
the manufacture, assembly and
inspection of jet engines. EDAC also
specializes in the design and repair
of precision spindles. Spindles are
an integral part of numerous machine
tools which are found in virtually
any type of manufacturing equipment.
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THE PURCHASER -- Gros-Ite Engineered Components
(See page 13) Division of Tomz, Inc.
c/o Tomz Corporation
47 Episcopal Road
Berlin, Connecticut 06037
Gros-Ite Engineered Components
Division of Tomz, Inc. is a wholly
owned subsidiary of Tomz Corporation.
Tomz Corporation is a manufacturer of
medical and scientific devices and of
high-tech fasteners and other
precision metal and plastic parts
sold worldwide.
THE PROPOSED ASSET SALE -- We have entered into an Asset
(See pages 13 to 30) Purchase Agreement, dated as of
March 29, 2001 with Tomz Corporation
and Gros-Ite Engineered Components
Division of Tomz, Inc. The Asset
Purchase Agreement provides that,
subject to the terms and conditions
of the Asset Purchase Agreement, EDAC
will sell certain of the assets of
its Engineered Precision Components
division. This division manufacturers
and sells machine components to the
aerospace industry.
WHY THE BOARD OF DIRECTORS -- The Board of Directors believes that
RECOMMENDS THAT YOU VOTE the proposed asset sale is in EDAC's
FOR THE ASSET PURCHASE best interests and has approved the
AGREEMENT proposed asset sale. The Board of
(See pages 17 to 18) Directors' approval of the proposed
asset sale is based upon a number of
factors described in this Proxy
Statement, including the opinion of
Stifel, Nicolaus & Company,
Incorporated, investment bankers.
OPINION OF FINANCIAL ADVISOR -- The Board of Directors received a
(See pages 18 to 24) written opinion of Stifel, Nicolaus &
Company, Incorporated. The written
opinion states that the consideration
to be received by EDAC in the
proposed asset sale, as of March 29,
2001, was fair to our shareholders
from a financial point of view.
U.S. FEDERAL INCOME TAX -- The proposed asset sale will be a
CONSEQUENCES OF THE taxable transaction to EDAC for
ASSET SALE United States Federal income tax
(See page 24) purposes. However, EDAC does not
expect that it will incur any tax
liability as a result of the proposed
asset sale because the tax basis of
the assets being sold is
approximately equal to the purchase
price in the Asset Purchase
Agreement and we anticipate incurring
a tax loss from the disposal of
obsolete inventory relating to the
division.
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USE OF PROCEEDS OF THE ASSET SALE -- We expect to receive net proceeds of
(See page 24) approximately $6.1 million from
the proposed asset sale, after
deducting estimated expenses payable
by us in connection with the asset
sale and assuming that the purchase
price is not adjusted as described
under the heading "Purchase Price" on
page 26. We expect to use a portion
of the net proceeds from the proposed
asset sale to repay approximately
$3.4 million of our outstanding bank
debt, and to use the remaining net
proceeds for working capital and
general corporate purposes. Until the
remaining net proceeds are used for
working capital or general corporate
purposes, we anticipate using the
remaining net proceeds to reduce
outstanding indebtedness under our
revolving credit facility.
CONDUCT OF BUSINESS AFTER THE -- Since the proposed asset sale
ASSET SALE involves a sale of only a portion of
(See page 24) our assets, our shareholders will
retain their equity interests in
EDAC. Our shareholders will not
receive any payments, whether as a
dividend or distribution in
liquidation, as a result of the asset
sale. After the asset sale, we will
continue to operate our business
through our three remaining major
product segments, Precision
Engineered Technologies, Precision
Large Machining and Apex Machine Tool
Company. As of March 22, 2001, we
had approximately 249 employees, with
approximately 52 of these employees
working in our Engineered Precision
Components division. Following the
asset sale, we anticipate having
approximately 200 employees in
connection with our continuing
operations.
DISSENTERS' APPRAISAL RIGHTS -- We do not believe that our
(See pages 24 to 25) shareholders will have dissenters'
rights in connection with the
proposed asset sale. Under the
Wisconsin Business Corporation Law,
dissenters' rights will apply to the
proposed asset sale only if it
constitutes the sale of all, or
substantially all, of our assets.
Although the Board of Directors has
decided to submit the Asset Purchase
Agreement for approval by
shareholders at the annual meeting,
we do not believe that the proposed
asset sale constitutes a sale of
substantially all of EDAC's assets.
The Wisconsin Business Corporation
Law also provides that holders of a
class of stock quoted on the National
Association of Securities Dealers,
Inc. automatic quotations system do
not have dissenters' rights except in
certain circumstances, none of which
are present with respect to the
proposed asset sale. We believe that
our common stock is included in this
public market exception because it is
traded on the OTC Bulletin Board.
However, we have not received an
opinion of counsel supporting our
belief that our shareholders will not
have dissenters' rights in connection
with the proposed asset sale.
ASSETS TO BE SOLD -- We have agreed to sell certain assets
(See pages 25 to 26) of our Engineered Precision
Components division, including
inventory, other tangible personal
property and purchase contracts and
purchase orders with customers of our
Engineered Precision Components
division. We will retain a number of
assets of the Engineered Precision
Components division, including
accounts receivable outstanding as of
the closing date, the building in
Farmington, Connecticut in which the
division has operated and certain
equipment that can be used in our
other businesses.
PURCHASE PRICE FOR THE ASSETS TO BE -- The purchase price for the assets to
SOLD be sold under the Asset Purchase
(See page 26) Agreement is $6,369,389, subject to a
post closing adjustment based upon a
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valuation as of the closing date of
the inventory being transferred. The
Asset Purchase Agreement provides for
the purchase price to be paid to us
in two installments:
o $4,613,898 on the closing date;
and
o $1,755, 491 on the 15th day of
the tenth month following the
closing date.
CLOSING DELIVERIES -- At closing, both EDAC and the
(See pages 27 to 28) purchaser will deliver a number of
customary closing documents,
including documents to effect the
transfer of the assets being sold,
third party consents for the
assignment of contracts and a legal
opinion from our counsel and from
counsel for the purchaser.
TERMINATION OF THE ASSET PURCHASE -- The Asset Purchase Agreement may be
AGREEMENT terminated by either party prior to
(See pages 29 to 30) the closing if any of the following
has not occurred on or before May 31,
2001:
o our shareholders do not approve
the Asset Purchase Agreement at
the annual meeting;
o we do not obtain the consent of
Pratt & Whitney, the largest
customer of the Engineered
Precision Components division, to
the assignment of its supply
agreement with us; or
o we do not obtain the consents of
our lenders to the proposed asset
sale.
FEES AND EXPENSES -- Each party has agreed to pay its own
expenses in connection with the Asset
Purchase Agreement.
COMPLETION OF THE ASSET SALE -- We are working toward completing the
(See page 29) proposed asset sale as quickly as
possible. If the Asset Purchase
Agreement is approved at the annual
meeting and the other conditions to
the asset sale are satisfied, we
expect to complete the asset sale
shortly after the annual meeting.
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LOCATION, DATE AND TIME OF ANNUAL -- The annual meeting will be held on
MEETING May 31, 2001, at the Farmington
Country Club, 806 Farmington Avenue,
Farmington, Connecticut, at
10:00 a.m. Eastern Daylight Time. If
the meeting is adjourned for any
reason,we will give you notice of the
new date and time.
OTHER MATTERS TO BE VOTED ON AT THE -- At the annual meeting, you will also
ANNUAL MEETING be asked to vote on the election of
(See page 11) seven directors, and to ratify the
appointment of Arthur Andersen LLP as
independent auditors for the fiscal
year ending December 29, 2001.
WHO MAY VOTE AT THE ANNUAL MEETING -- All shareholders of record as of the
(See page 11) close of business on April 6, 2001
will be entitled to notice of, and to
vote at, the annual meeting.
WHAT TO DO NOW -- Please mark your vote on, sign, date
and mail your proxy card in the
enclosed return envelope as soon as
possible, so that your shares may be
represented and voted at the annual
meeting.
SHARES HELD IN "STREET NAME" -- If your shares of EDAC common stock
are held in "street name" by your
broker, your broker will ONLY vote
your shares if you provide
instructions on how to vote. You
should follow the directions provided
by your broker regarding how to
instruct your broker to vote your
shares.
CHANGING YOUR VOTE -- If you have signed and mailed back
(See page 12) your proxy card and want to change
your vote, you may either send a
written revocation or another signed
proxy card with a later date to
EDAC's transfer agent before the
annual meeting or simply attend the
annual meeting and vote in person.
WHO CAN HELP ANSWER OTHER QUESTIONS -- If you have more questions about the
Asset Purchase Agreement or would
like additional copies of this Proxy
Statement, you should contact the
Corporate Secretary of EDAC
Technologies Corporation, 1806 New
Britain Avenue, Farmington,
Connecticut 06032 (telephone (860)
677-2603).
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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements contained in this Proxy Statement constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company
intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and is including this statement for purposes of
invoking these safe harbor provisions. You can identify these statements from
our use of the words "may," "will," "should," "expect," "plan," "intend,"
"anticipate," "could," "believe," "estimate," "predict," "objective,"
"potential," "projection," "forecast," "goal," "project," "anticipate," "target"
and similar expressions.
Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause our actual results,
performance or achievements, or industry results, to differ materially from the
Company's expectations of future results, performance or achievements expressed
or implied by such forward-looking statements. Although the Company believes
that the expectations reflected in any forward-looking statements are
reasonable, it cannot guarantee future events or results. Except as may be
required under federal law, the Company undertakes no obligation to update
publicly any forward-looking statements for any reason, even if new information
becomes available or other events occur. In addition, the Company's past results
of operations do not necessarily indicate its future results.
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THE ANNUAL MEETING
PURPOSE
This Proxy Statement is being furnished to holders of shares of Common
Stock in connection with the solicitation of proxies by the Board of Directors
for use at the annual meeting. At the annual meeting, shareholders of the
Company will consider a proposal to approve and adopt the Asset Purchase
Agreement. The Asset Purchase Agreement is attached as ANNEX A to this Proxy
Statement. In addition, at the annual meeting, shareholders of the Company will
be asked to consider and vote on the election of seven directors, and to ratify
the appointment of Arthur Andersen LLP as the independent auditors of the
Company.
THE BOARD OF DIRECTORS HAS APPROVED THE ASSET PURCHASE AGREEMENT, AND HAS
DETERMINED THAT THE ASSET PURCHASE AGREEMENT IS ADVISABLE FOR, AND IN THE BEST
INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE "FOR" THE APPROVAL AND
ADOPTION OF THE ASSET PURCHASE AGREEMENT. IN ADDITION, THE BOARD OF DIRECTORS
RECOMMENDS THAT SHAREHOLDERS OF THE COMPANY VOTE "FOR" EACH NOMINEE FOR ELECTION
TO THE BOARD OF DIRECTORS AND "FOR" RATIFICATION OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
RECORD DATE; VOTING RIGHTS
Only holders of shares of Common Stock at the close of business on April 6,
2001 (the "Record Date") will be entitled to notice of, and to vote at, the
annual meeting. 4,334,080 shares of Common Stock were outstanding on the Record
Date held by 257 holders of record. Each share of Common Stock entitles the
registered holder thereof to one vote.
REQUIRED VOTE
The Company's By-Laws provide that a majority of the shares entitled to
vote, represented either in person or by proxy, shall constitute a quorum at the
annual meeting.
The Wisconsin Business Corporation Law requires that a majority of the
issued and outstanding shares of Common Stock must be voted in favor of the
Asset Purchase Agreement for the Asset Purchase Agreement to be approved.
If a quorum exists, the election of each nominee for director requires the
affirmative vote of a plurality of the votes represented at the annual meeting.
The appointment of independent auditors is not required to be submitted to
a vote of shareholders; however, the Board of Directors believes it appropriate
as a matter of policy to request that shareholders ratify the appointment. If
shareholder ratification is not received, the Board of Directors will reconsider
the appointment. The ratification of
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independent auditors requires the affirmative vote of a majority of the votes
represented at the annual meeting at which a quorum is present.
Abstentions and broker non-votes (i.e., shares held by brokers in street
name, voting on certain matters due to discretionary authority or instructions
from the beneficial owners but not voting on other matters due to lack of
authority to vote on such matters without instructions from the beneficial
owner) will count toward the quorum requirement and will not count toward the
determination of whether the ratification of auditors is approved or directors
are elected. However, because the Asset Purchase Agreement must be approved by
the holders of a majority of the outstanding shares of Common Stock entitled to
vote thereon, abstentions and broker non-votes will act as a vote against the
proposed Asset Purchase Agreement. The Inspector of Election appointed by the
Board of Directors will count the votes and ballots.
PROXIES
All shares of Common Stock represented by properly executed proxies that
are received in time for the annual meeting and which have not been revoked will
be voted in accordance with the instructions indicated in such proxies. If no
such instructions are indicated, such shares of Common Stock will be voted "FOR"
the approval and adoption of the Asset Purchase Agreement, "FOR" each nominee
for election to the Board of Directors and "FOR" ratification of the Company's
independent auditors. In addition, the persons designated in such proxies will
have the discretion to vote on matters incident to the conduct of the annual
meeting. If the Company proposes to adjourn the annual meeting, the persons
named in the enclosed proxy card will vote all shares of Common Stock for which
they have authority, other than those that have been voted against the approval
and adoption of the Asset Purchase Agreement, in favor of such adjournment.
The grant of a proxy on the enclosed proxy card does not preclude a
shareholder from voting in person at the annual meeting. A shareholder may
revoke a proxy at any time prior to its exercise by delivering to the Secretary
of the Company, prior to the annual meeting, a written notice of revocation
bearing a later date or time than the proxy, delivering to the Secretary of the
Company a duly executed proxy bearing a later date or time than the revoked
proxy or attending the annual meeting and voting in person. Attendance at the
annual meeting will not in and of itself constitute the revocation of a proxy.
The Company will bear the cost of solicitation of proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and
employees of the Company and its subsidiaries may solicit proxies from
shareholders of the Company by telephone, facsimile or in person. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial owners
of shares of Common Stock held of record by such persons, and the Company will
reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses.
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PROPOSAL 1: THE ASSET SALE
PARTIES TO THE ASSET PURCHASE AGREEMENT
THE COMPANY AND GROS-ITE
EDAC was formed in 1985 for the purpose of acquiring Gros-Ite Industries,
Incorporated (which had three operating divisions: Time Engineering, Gros-Ite
and Spectrum). In 1988 and 1989, EDAC sold the assets of the Time Engineering
and Spectrum operations. On June 29, 1998, EDAC purchased certain assets and
liabilities of the Apex Machine Tool Company, Inc.
EDAC currently offers design and manufacturing services for a wide-range of
industries in areas such as special tooling, equipment and gauges, and
components used in the manufacture, assembly and inspection of jet engines. EDAC
also specializes in the design and repair of precision spindles. Spindles are an
integral part of numerous machine tools which are found in virtually any type of
manufacturing equipment.
EDAC's four major product segments are Engineered Precision Components,
Precision Engineered Technologies, Precision Large Machining and Apex Machine
Tool Company. The proposed Asset Sale involves the sale of substantially all of
the assets of the Company's Engineered Precision Components division.
Gros-Ite is a wholly owned subsidiary of the Company which has no assets
other than certain rights under a long-term supply agreement with Pratt &
Whitney, the Division's largest customer. Gros-Ite is a party to the Asset
Purchase Agreement to assign its rights under this supply agreement to the
Purchaser.
THE PURCHASER AND TOMZ
Tomz is a manufacturer of medical and scientific devices that are sold to
domestic and international major medical companies and of high-tech fasteners
and other precision metal and plastic parts sold worldwide. Tomz provides a
complete range of turning, milling and manufacturing services in its markets.
The Purchaser is a wholly owned subsidiary of Tomz formed for the purpose
of completing the Asset Sale with the Company and Gros-Ite.
THE ASSET SALE
BACKGROUND OF THE ASSET SALE
The terms of the proposed Asset Sale are the result of arm's-length
negotiations between Tomz and the Company.
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The chronology of events and Board actions leading to the proposed Asset
Sale is outlined below. Each meeting of the Board was attended by at least a
majority of Directors. Certain of the Board meetings were also attended by, as
requested by the Board, key executive officers of the Company and the Company's
outside advisors, including its legal counsel, financial advisors and outside
certified public accountants.
In 1999 and throughout 2000, the Company faced severe financial and
operational difficulties. A significant portion of these difficulties was caused
by ongoing losses in the Division. In 1999, the Company had a net loss of
approximately $4,000,000. In 1999, due largely to operational difficulties in
the Division, the Company increased its reserve on inventory and other reserves
by $1,875,000 and recorded impairment charges associated with equipment sold or
to be sold of $600,000.
On August 17, 1999, the Board of Directors accepted the resignation of
Edward J. McNerney as Chief Executive Officer and a Director of the Company.
John J. DiFrancesco, the Chairman of the Board, was elected as Chief Executive
Officer of the Company on an interim basis. Throughout 1999 the Company was in
violation of certain financial covenants contained in its credit arrangements
with Fleet National Bank, the Company's primary lender. Although the Company
negotiated forbearance agreements with Fleet National Bank in 1999 and 2000,
losses in the Division created pressure with respect to the financial covenants.
In the third quarter of 2000, the Company entered into a long-term supply
agreement with Pratt & Whitney, the largest customer of the Division, that
required, among other provisions, future price decreases.
On November 16, 1999, Jeffrey Galgano, a financial advisor to the Company,
made a presentation to the Board of Directors with respect to strategic
alternatives possibly available to the Company. Mr. Galgano reviewed operating
results for the Company in recent periods and financial forecasts prepared by
the Company. Mr. Galgano also reviewed key issues with respect to the strategic
alternatives for the Company. The Board and Mr. Galgano discussed various
alternatives and issues, including the current low market capitalization of the
Company, the low public float for the Common Stock, the excess debt of the
Company and the fact that the major aerospace market of the Company is cyclical.
It was uncertain at that time, but Mr. Galgano believed that the current cycle
was a declining one in the aerospace industry. The Company also faced capital
issues and outsourcing issues.
At the November 16, 1999 Board meeting, Mr. Galgano reviewed the
alternative of attempting to complete an equity financing. At the time, this
effort would have been very difficult in the public market. There were equity
alternatives in the private market, including private placement alternatives.
However, this would have been difficult in light of the operating results of the
Company. Mr. Galgano and the Board reviewed additional alternatives, including
seeking a merger with a strategic partner or sale and leaseback of
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the Company's real estate. Mr. Galgano and the Board also reviewed the potential
sale of all or a portion of the Company. After discussion, the Board decided to
defer a final decision with respect to the strategic alternatives. Mr. Galgano
subsequently joined Stifel, Nicolaus & Company, Incorporated, investment bankers
("Stifel"), in October 2000 as a managing director in its Denver offices. See
"-- Opinion of Financial Advisor" below.
In February 2000, Richard Lund was retained as a consultant to the Company.
Mr. Lund has significant experience in the aerospace industry. Mr. Lund reviewed
the industry with the Board of Directors at a meeting held on February 24, 2000.
Mr. Lund reviewed the financial condition of the aerospace industry, including
declining airline profits in 2000. He also advised the Board that the Pratt &
Whitney's production rates were down sharply in 2000. After this discussion, the
Board reviewed various strategic alternatives potentially available to the
Company. The Board authorized the retention of an investment banking firm to
assist the Company in analyzing its alternatives.
On May 24, 2000, Mr. DiFrancesco reported to the Board of Directors on the
search for an investment banking firm. Because the initial search had found no
investment banks interested in the Company in light of its current financial
situation, the Board authorized management to undertake its own attempt to
either sell the Division or seek one of the other alternatives that had been
previously outlined to the Board. On August 21, 2000, at a meeting of the Board
of Directors, the Directors reviewed all of the strategic alternatives,
including the difficulties faced by the Company in refinancing its senior debt.
The Board reviewed plans to sell assets, including the Division or other assets
in the event the refinancing of its senior debt did not occur. The Board
authorized management to continue its search for purchasers of the Division.
From May to December 2000, the Company directly or indirectly attempted to
contact approximately 15 potential financial and/or strategic buyers of the
Division. Management had direct contact with nine potential buyers. Due to the
financial condition of the Division, only two potential buyers were willing to
make an offer to purchase the Division. In May 2000, one of the strategic buyers
approached by the Company indicated an interest in purchasing the Division. The
Board of Directors authorized management to enter into preliminary discussions
with the potential strategic buyer. During these discussions, this potential
buyer indicated that it may be interested in purchasing the Division at a
purchase price that the Company considered to be inadequate because it was
significantly below the estimated liquidation value of the Division's assets.
The potential buyer declined to increase its proposed purchase price during the
course of the discussions and the discussions with this potential buyer ended in
August 2000. The second potential buyer was Tomz. In October 2000, the Company
contacted Tomz. Tomz made its initial offer to purchase the Division and
delivered a draft letter of intent in December 2000.
On September 29, 2000, the Company refinanced substantially all of its
outstanding Fleet National Bank credit facilities with replacement financing.
The Company negotiated terms that would allow for the potential sale of the
Division.
At a meeting of the Board of Directors on November 21, 2000, the then
manager of the Division reported on forecasted results for the Division in 2001.
The Directors requested that management intensify its efforts to sell the
Division.
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At a meeting of the Board of Directors on December 22, 2000, management
reported on the discussions with Tomz. The Board reviewed the details of oral
discussions with Tomz. The Directors inquired into the potential transaction,
including the financial capability of Tomz to purchase the Division. Management
and legal counsel undertook a discussion with respect to the possibility of
various methods to secure the purchase price. After a review of Tomz's
preliminary proposal, the Board directed management and legal counsel to
negotiate a letter of intent with Tomz. The Chief Financial Officer of the
Company reviewed the financial impact of the transaction. He reported that the
Company planned to use the proceeds to repay outstanding indebtedness and for
working capital needs and transaction costs.
On January 3, 2001, the Board of Directors reviewed the draft letter of
intent that had been delivered by Tomz. Legal counsel reviewed the draft letter
of intent with the Board of Directors. He also reviewed several concerns with
respect to the proposed transaction, including the deferred portion of the
purchase price, certain details with respect to inventory and the need to obtain
releases from the institutional lenders of the Company and a consent to transfer
the supply agreement with Pratt & Whitney. The Company's Chief Financial Officer
reviewed the financial condition of the Division. The Directors undertook a
discussion regarding the entire proposed transaction. The Directors reviewed the
financial condition of the Company in detail. Directors, management and legal
counsel reviewed all of the potential purchasers for the Division, and the fact
that Tomz was the only potential purchaser who had expressed a continuing
interest in the Division. The Board unanimously approved the draft of the letter
of intent presented at the meeting and authorized management to negotiate and
execute a final letter of intent. The Board also directed management to engage
an investment bank to render a fairness opinion with respect to the transaction.
On January 22, 2001, the Company and Tomz entered into a letter of intent
for the sale of the Division to the Purchaser. Between January 22 and March 29,
2001, the Company, Tomz and their respective legal counsel negotiated the terms
of the Asset Purchase Agreement. On January 30, 2001, the Company engaged Stifel
to deliver an opinion with respect to the fairness to the Company's
shareholders, from a financial point of view, of the Asset Sale.
On February 20, 2001, the Board of Directors reviewed a draft of the
proposed form of opinion from Stifel with respect to the fairness to the
Company's shareholders, from a financial point of view, of the Asset Sale.
On March 14, 2001, the Board convened a meeting to approve the proposed
Asset Purchase Agreement. At this meeting, the Company's legal counsel made an
extensive presentation regarding the terms and conditions of the proposed Asset
Purchase Agreement. After discussion and review of the terms of the fairness
opinion, the Board unanimously approved the terms of the proposed Asset Purchase
Agreement presented at the meeting and authorized management to negotiate and
execute a final Asset Purchase Agreement, subject to the receipt of the final
signed opinion from Stifel with respect to
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the fairness to the Company's shareholders, from a financial point of view, of
the Asset Sale.
On March 29, 2001, the Company, Gros-Ite, Tomz and the Purchaser executed
the Asset Purchase Agreement. On March 29, 2001, the Company issued a press
release announcing the execution of the Asset Purchase Agreement.
APPROVAL BY THE BOARD OF DIRECTORS; REASONS FOR THE ASSET SALE
The Board of Directors believes that the proposed Asset Sale is in the
Company's best interests. Accordingly, the Board of Directors has approved the
Asset Purchase Agreement and recommends that shareholders vote for the approval
and adoption of the Asset Purchase Agreement at the annual meeting. In reaching
its determination, the Board of Directors considered the following factors:
1. Current industry, economic and financial market conditions relating to
the business sector in which the Division operates, the financial condition of
the Division, and the status of the assets, liabilities, businesses and
operations of the Division and the Company, both on a historical and prospective
basis;
2. The proposed terms and structure of the proposed Asset Sale, including
the terms of the Asset Purchase Agreement;
3. The Board's consideration of other alternatives to the proposed Asset
Sale, including the Board's belief that it was unlikely that any alternative
proposal for a disposition of the Division or its assets would be on terms more
favorable to the Company and its shareholders than the proposed Asset Sale;
4. The opinion dated March 29, 2001 of Stifel that the Asset Sale is fair
to the Company's shareholders from a financial point of view. In this regard,
the Board considered the fact that Stifel's low range in its analysis of similar
merger and acquisition transactions was approximately $3.0 million more than the
proposed purchase price in the Asset Sale. However, the Board determined that
the proposed Asset Sale compared favorably to these similar merger and
acquisition transactions due to the operational difficulties of the Division,
including negative cash flows. See "-- Opinion of Financial Advisor";
5. The Board's belief that the business sector in which the Division
operates is highly competitive and declining;
6. The significant capital the Company's management predicted would be
required both to implement its business plan and to sustain its other corporate
operations, as well as the Company's historical and prospective difficulty in
raising sufficient financing on favorable terms; and
7. The potential alternative uses of the net cash proceeds expected to be
received from the proposed Asset Sale, including repayment of certain
indebtedness of the Company and the development and expansion of the Company's
businesses in both existing and new markets. See "Use of Proceeds; Conduct of
Business Following the Asset Sale."
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A disadvantage of the proposed Asset Sale is that the Company will lose the
revenue potential of the Division and the largest portion of its aerospace work.
However, the Board of Directors concluded after due consideration of the
proposed Asset Sale and alternatives to it, that this disadvantage is
substantially outweighed by opportunities that the disposition of assets and the
capital received therefrom will provide. Although revenue was generated by the
assets relating to the Division, continuing losses were substantial due to the
highly competitive nature of the business and the Company's unfavorable cost
structure for the business, and both the Board and management believe that the
proposed Asset Sale will better serve the Company and its shareholders both in
short and long-term prospects.
In view of the wide array of factors considered in connection with its
evaluation of the proposed Asset Sale, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination. In
considering the factors described above, individual members of the Board of
Directors may have given different weights to different factors.
OPINION OF FINANCIAL ADVISOR
On March 29, 2001, Stifel delivered to the Board of Directors Stifel's
written opinion, dated March 29, 2001, to the effect that, as of such date,
based upon and subject to the assumptions made, matters considered and limits on
review set forth in Stifel's opinion, the consideration to be received by EDAC
in the Asset Sale, is fair to EDAC's shareholders from a financial point of
view.
The full text of Stifel's opinion, dated March 29, 2001, is attached as
ANNEX B to this Proxy Statement and sets forth the assumptions made, matters
considered and limits on the review undertaken. Shareholders are urged to read
the opinion of Stifel in its entirety.
Stifel's opinion is directed only to the fairness, from a financial point
of view, of the consideration to be received by the Company in the Asset Sale,
whereby the Company will sell and the Purchaser will purchase certain assets of
the Division, as described in the Asset Purchase Agreement, in exchange for
approximately $6.4 million in cash, payable according to the terms, conditions
and adjustments described in the Asset Purchase Agreement. Except as set forth
below and in the full text of Stifel's opinion, no limitations were imposed by
the Board of Directors upon Stifel with respect to the investigations made or
procedures followed by it in rendering its opinion. In rendering its opinion,
Stifel did not opine as to any other transactions or contractual arrangements to
be entered into or payments to be made by or to the Company or any other person
concurrently or otherwise in connection with the Asset Sale, including without
limitation any real property lease or assignment of lease. In addition, Stifel
was not requested to opine as to, and its opinion did not address, the
underlying business decision of the Board of Directors to proceed with or to
effect the Asset Sale.
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The summary of the opinion of Stifel set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of such opinion set
forth as ANNEX B to this Proxy Statement and incorporated herein by reference.
STIFEL'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF
THE COMPANY AS TO HOW SUCH SHAREHOLDER SHOULD VOTE ON THE PROPOSALS AT THE
ANNUAL MEETING.
In arriving at its opinion, Stifel, among other things:
(i) reviewed EDAC's Annual Reports on Form 10-K for the fiscal years
ended December 30, 2000, January 1, 2000, January 2, 1999 and
December 31, 1997, and its Quarterly Report on Form 10-Q for the
period ended September 30, 2000;
(ii) reviewed certain operating and financial information, including
internal financial statements for the fiscal year ended December 30,
2000, and current estimates for fiscal 2001 through 2004 provided to
Stifel by EDAC's senior management, relating to EDAC's and the
Division's businesses and prospects;
(iii) reviewed the Asset Purchase Agreement;
(iv) reviewed the relevant portion of the appraisal report of KosterGroup
stating the orderly liquidation value of the equipment that is used
in the Division and is being sold in the Asset Sale;
(v) reviewed management's estimates of savings that will result from the
Asset Sale and of the use of the proceeds of the Asset Sale;
(vi) met with and had telephone conversations with certain members of
EDAC's senior management to discuss EDAC's and the Division's
businesses and operations, historical financial performance,
estimated financial performance for fiscal 2001 through 2004,
current financial condition and liquidity, expected capital
requirements and future prospects;
(vii) reviewed possible strategic alternatives available to EDAC;
(viii) reviewed the Long Term Purchase Agreement (the "LTA") between EDAC
and United Technologies Corporation, acting through its Pratt &
Whitney Division ("P&W");
(ix) determined EDAC's cost of capital based on its current borrowing
rates and risk profile and performed a discounted cash flow analysis
of EDAC's projections for the Division;
(x) reviewed publicly available financial data, stock market performance
data and valuation parameters of certain companies which Stifel
deemed reasonably comparable to EDAC, or otherwise relevant, and
based on such information
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performed analyses of the Division's value based on its revenues,
book value of assets and earnings before interest, taxes,
depreciation and amortization (EBITDA);
(xi) reviewed financial data regarding transactions where the target was
comparable to the Division based on size and industry, or otherwise
deemed relevant, and based on such information performed analyses of
the Division's value based on its revenues, book value of assets and
EBITDA;
(xii) analyzed the potential attractiveness of the Division to financial
buyers such as private equity funds;
(xiii) reviewed a draft of this Proxy Statement in substantially the form
in which it is being distributed to stockholders; and
(xiv) conducted such other studies, analyses, inquiries and investigations
as Stifel deemed appropriate.
In connection with the foregoing, Stifel relied upon and assumed the
accuracy and completeness of the financial and other information provided to it
by EDAC and representations of EDAC's senior management related thereto. With
respect to EDAC's current estimates for fiscal 2001 referred to in the
previous paragraph, Stifel assumed that they had been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
senior management of EDAC as to the expected performance of the Division for
fiscal 2001. Stifel did not assume any responsibility for the information or
current estimates provided to it and relied upon the assurances of the senior
management of EDAC that it was unaware of any facts that would make the
information provided to Stifel incomplete or misleading. In arriving at its
opinion, Stifel did not perform or obtain any independent appraisal of the
assets of EDAC. Stifel's opinion was necessarily based on economic, market and
other conditions, and the information made available to it, as of the date
thereof.
In rendering its opinion, Stifel took into account the following additional
considerations:
(i) Approximately 95% of the Division's sales are to P&W;
(ii) The LTA expires on December 31, 2002, and P&W has expressed its
expectation that, after that date, most or all of the items P&W
purchases from the Division will be open to competitive bids on a
global basis;
(iii) Management of EDAC believes that, absent substantial (unquantified)
capital investments and/or a joint venture with an Asian supplier,
the Division will be unable to effectively compete against many
Asian suppliers because such suppliers have much newer equipment and
much lower labor costs than EDAC;
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(iv) EDAC's independent public accountants issued a "going concern"
opinion dated February 11, 2000, expressing substantial doubt as to
EDAC's viability as a going concern, appearing in EDAC's Form 10-K
for the year ended January 1, 2000; and
(v) The assets being sold in the Asset Sale do not include the land and
improvements associated with the Division, which have been
independently appraised at $2 million.
The following is a summary of the principal financial and valuation
analyses performed by Stifel to arrive at its opinion. Based on these financial
and valuation analyses and the other factors discussed herein, Stifel determined
that, as of the date of its opinion, the consideration to be received by EDAC
pursuant to the Asset Sale is fair, from a financial point of view, to the
shareholders of EDAC.
Financial and Operating Performance of the Division. As part of its overall
analysis, Stifel examined the historical financial and operating performance of
EDAC and the Division for their last four full fiscal years and the estimated
financial and operating performance of EDAC and the Division for fiscal 2001
through 2004. The estimates for 2001 were furnished by senior management and
described above. The estimates for 2002 through 2004 were determined by Stifel
and accepted by management based on analysis and discussion of historical
results, management's estimates for 2001, and management's expectations for
the future of the Division and its industry. Stifel's analysis considered EDAC's
and the Division's revenues, gross profits, EBITDA and net income.
Stifel noted that for the fiscal year 2000, as well as management's
estimates for the fiscal year 2001, EBITDA and net income for the Division were
expected to be negative.
Discounted Cash Flow Analysis. A discounted cash flow analysis provides
insight into the intrinsic value of a business based on the net present value of
the cash flows anticipated to be generated by the assets of the business being
analyzed, in this case the Division. Stifel performed a discounted cash flow
analysis for fiscal 2001 through 2004 to estimate the present value of the
stand-alone cash flows of the Division. For purposes of this analysis, cash
flows were defined as EBITDA. Although ordinarily Stifel would determine a
terminal value of a business based on a range of enterprise value-to-EBITDA
multiples, Stifel did not do so for the Division because the Division's
projected cash flows are negative and the resulting terminal value would be a
very large negative number and would therefore not be meaningful. The cash flows
were discounted to the present using a range of discount rates of 15.0% to
25.0%, representing an estimated range of the weighted average cost of capital
of Division.
The discounted cash flow analysis resulted in a range of values for the
Division of negative $600,000 to negative $800,000. Because the resulting values
are negative, they are not meaningful on their own. However, the results are
meaningful within the context of Stifel's overall analysis. Stifel accords
significant weight to the fact that the Division's cash flows are negative
because it casts doubt on the Division's viability as a going concern.
Inherent in any discounted cash flow valuation is the use of a number of
assumptions and judgments, including the accuracy of projections, and the
subjective
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determination of an appropriate discount rate to apply to the projected cash
flows of the entity under examination. Variations in any of these assumptions or
judgments could significantly alter the results of a discounted cash flow
analysis.
Analysis of Selected Publicly Traded Companies. This analysis is generally
used to determine the market value of a company by comparing it to a group of
similar or relevant companies. Stifel used this analysis to determine if the
consideration to be received by EDAC in the Asset Sale values the Division at a
premium or a discount to a relevant group. Stifel compared certain operating and
financial information of the Division to certain publicly available operating,
financial and valuation information of 15 publicly traded companies which, in
Stifel's judgment, were reasonably comparable to the Division or otherwise
relevant (collectively, the "Comparable Companies") consisting of Aero Systems
Engineering, Inc., Aviation Sales Company, AVTEAM, Inc., CPI Aerostructures,
Inc., DONCASTERS plc, Ducommum Incorporated, Hawker Pacific Aerospace, Kellstrom
Industries, Inc., Kreisler Manufacturing Corp., LMI Aerospace, Inc., Pacific
Aerospace & Electronics, Inc., Pemco Aviation Group, Inc., SIFCO Industries,
Inc., The Fairchild Corporation and Triumph Group, Inc. Stifel's analysis of the
Comparable Companies included reviewing their enterprise values as multiples of
revenues, EBITDA and the book value of assets. Stifel's analysis of the
Comparable Companies indicated that the range of enterprise value-to-revenues
multiples was 0.6x to 0.9x, which is 20% above and below the arithmetic mean
(excluding the high and low values) of 0.7x. Stifel's analysis of the Comparable
Companies also indicated that the range of enterprise value-to-EBITDA multiples
was 5.6x to 8.4x, which is 20% above and below the arithmetic mean (excluding
the high and low values) of 7.0x. Stifel noted that, because of the Division's
negative EBITDA, the enterprise value-to-EBITDA analysis results in a negative
value for the Division, which, again, is meaningful only in the context of
Stifel's overall analysis because the fact that the Division's EBITDA is
negative casts doubt on the Division's viability as a going concern. In
addition, Stifel's analysis of the Comparable Companies indicated that the range
of enterprise value-to-book value of assets multiples was 0.6x to 0.9x, which is
20% above and below the arithmetic mean (excluding the high and low values) of
0.7x. Stifel noted that, although a valuation based on an enterprise
value-to-book value of assets multiple is not generally regarded as a highly
reliable method of valuing going concerns, it is highly relevant in this case
because of management's doubts about the Division's viability as a going
concern.
By applying these multiples to the Division's operating results for 2000,
Stifel valued the Division in a range from $4.3 million to $6.4 million.
Analysis of Selected Precedent Merger and Acquisition Transactions. Another
widely used method of valuation looks at a group of similar or relevant
transactions to determine how the selling companies are valued relative to their
operating results. When applied to the company under examination, the results
help determine how it could be valued by a buyer. Stifel reviewed and analyzed
the publicly available financial terms of 56 recent merger and acquisition
transactions ("Precedent M&A Transactions") involving companies that, in
Stifel's judgment, were reasonably comparable to the Division or otherwise
relevant for purposes of this analysis based primarily on industry and business
model, and secondarily on size.
Stifel reviewed the prices paid in the Precedent M&A Transactions and
analyzed various operating and financial information and imputed valuation
multiples and ratios. Stifel noted that none of the Precedent M&A Transactions
was identical to the Asset Sale and that, accordingly, any analysis of the
Precedent M&A Transactions necessarily
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involved complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that would necessarily
affect the value of the Division versus the acquisition values of the companies
to which the Division was being compared. Stifel's analysis of the Precedent M&A
Transactions included reviewing the target companies' enterprise values as
multiples of their revenues, EBITDA and book value of assets - the same metrics
that were used in Stifel's analysis of Comparable Companies. Stifel's analysis
of the Precedent M&A Transactions indicated that the range of enterprise
value-to-revenue multiples was 1.1x to 1.6x, which is 20% above and below the
arithmetic mean (excluding the high and low values) of 1.3x. Stifel's analysis
of the Precedent M&A Transactions also indicated that the range of enterprise
value-to-EBITDA multiples was 6.8x to 10.2x, which is 20% above and below the
arithmetic mean (excluding the high and low values) of 8.5x. Stifel noted that,
because of the Division's negative EBITDA, the enterprise value-to-EBITDA
analysis results in a negative value for the Division, which, again, is
meaningful only in the context of Stifel's overall analysis because the fact
that the Division's EBITDA is negative casts doubt on the Division's viability
as a going concern. In addition, Stifel's analysis of the Precedent M&A
Transactions indicated that the range of enterprise value-to-book value of
assets multiples was 1.8x to 2.7x, which is 20% above and below the arithmetic
mean (excluding the high and low values) of 2.2x. Stifel noted that, although a
valuation based on an enterprise value-to-book value of assets multiple is not
generally regarded as a highly reliable method of valuing going concerns, it is
highly relevant in this case because of management's doubts about the Division's
viability as a going concern.
By applying these multiples to the Division's operating results for 2000,
Stifel valued the Division in a range from $9.4 million to $14.1 million.
Conclusions. In order to determine the range of fair values for the
Division, Stifel applied equal weight to the results of each of the valuation
techniques described above -- discounted cash flows, comparison to selected
publicly traded companies, and comparison to selected precedent merger and
acquisition transactions. This resulted in a fair range of values for the
Division of $4.2 million to $6.6 million. Stifel applied equal weight to the
results of its discounted cash flow analysis despite resulting in a range of
negative numbers because the fact that the Division's cash flows are negative
casts doubt on the Division's viability as a going concern.
Stifel arrived at its opinion based on the foregoing analyses and factors.
However, the summary set forth above does not purport to be a complete
description of the analysis performed and factors considered by Stifel in
arriving at its opinion, although it does reflect all material factors
considered and analyses performed by Stifel. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Selecting portions of the analyses or of the
summary set forth above, without considering the analyses as a whole, could
create an incomplete view of the processes underlying Stifel's opinion. In
arriving at its opinion, Stifel considered the results of all such reviews,
calculations and analyses. The analyses were prepared solely for purposes of
providing its opinion as to the fairness of the consideration to be received by
EDAC pursuant to the Asset Sale, from a financial point of view, to the
shareholders of EDAC, and do not purport to be appraisals or to necessarily
reflect the prices at which securities of EDAC might actually be sold to other
parties. Analyses based upon future prospects are not necessarily indicative of
actual future results, which may be significantly more or less favorable than
suggested by such
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28
analyses. As described above, Stifel's opinion and presentation to the Board of
Directors was one of many factors taken into consideration by the Board of
Directors in making its determination to approve the Asset Sale and recommend
the Asset Sale to the shareholders of EDAC.
EDAC retained Stifel in connection with the Asset Sale based upon Stifel's
qualifications, expertise and reputation, including the fact that Stifel, as
part of its investment banking business, is continually engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
competitive biddings, distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. In the ordinary
course of its business, Stifel may actively trade securities of EDAC for its own
account and for the accounts of its customers and, accordingly, may, at any
time, hold a long or short position in such securities.
Pursuant to the terms of an engagement letter dated January 30, 2001, EDAC
has agreed to pay Stifel a total fee of $60,000, of which $10,000 was paid upon
execution of the engagement letter and an additional $50,000 was paid when
Stifel delivered its opinion. EDAC will also reimburse Stifel for its reasonable
out-of-pocket expenses, currently estimated at $11,656. In addition, EDAC has
agreed to indemnify Stifel against certain liabilities, including liabilities
under federal securities laws, in connection with such engagement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The proposed Asset Sale will be a taxable transaction to the Company for
United States Federal income tax purposes. However, the Company does not expect
to incur a liability for federal income tax as a result of the proposed Asset
Sale because the tax basis of the assets being sold is approximately equal to
the purchase price in the Asset Purchase Agreement and the Company anticipates
incurring a tax loss from the disposal of obsolete inventory relating to
the Division.
USE OF PROCEEDS; CONDUCT OF BUSINESS FOLLOWING THE ASSET SALE
The Company expects to receive net proceeds of approximately $6.1 million
from the proposed Asset Sale, after deducting estimated expenses payable by the
Company in connection with the Asset Sale and assuming that the purchase price
is not adjusted as described under the heading "Purchase Price" on page 26. The
Company expects to use a portion of the net proceeds from the proposed Asset
Sale to repay approximately $3.4 million of its outstanding bank debt. The
Company expects to use the remaining proceeds for other corporate purposes and
working capital. Until the remaining net proceeds are used for working capital
or general corporate purposes, the Company anticipates using the remaining net
proceeds to reduce outstanding indebtedness under its revolving credit facility.
Since the proposed Asset Sale involves a sale of only a portion of the
Company's assets, the Company's shareholders will retain their equity interests
in the Company. The Company's shareholders will not receive any payments,
whether as a dividend or distribution in liquidation, as a result of the Asset
Sale. After the Asset Sale, the Company will continue to offer design and
manufacturing services for a wide-range of industries in areas such as special
tooling, equipment and gauges, and components used in the manufacture, assembly
and inspection of jet engines, as well as the design and repair of precision
spindles. The Asset Sale involves the sale of substantially all of the assets of
the Company's Engineered Precision Components division, and after the Asset Sale
the Company will continue to operate its three remaining major product segments,
Precision Engineered Technologies, Precision Large Machining and Apex Machine
Tool Company. As of March 22, 2001, the Company had approximately 249 employees,
with approximately 52 of these employees working in the Engineered Precision
Components division. Following the Asset Sale, the Company anticipates having
approximately 200 employees in connection with the Company's continuing
operations.
DISSENTERS' RIGHTS
The Company does not believe that its shareholders will have dissenters'
rights under the Wisconsin Business Corporation Law in connection with the
proposed Asset Sale. However, the Company has not received an opinion of counsel
supporting its belief that its shareholders will not have dissenters' rights.
Under section 180.1302(1)(c) of the Wisconsin Business Corporation Law, a
shareholder of a Wisconsin corporation may dissent and obtain the fair value of
his or her shares in the event that the corporation sells or exchanges all, or
substantially all, of the property of the corporation. Although the Board of
Directors has decided to submit the Asset Purchase Agreement to shareholders for
approval at the annual meeting, the Company does not believe that the proposed
Asset Sale will constitute a sale of all, or substantially all, of the Company's
assets. This belief is based on the fact that the assets
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29
and sales attributable to the Division in fiscal 2000 were substantially less
than 50% of the Company's consolidated assets and sales in fiscal 2000 and the
Board's conclusion that the sale of the Division would not represent a
fundamental change in the Company's business.
Section 180.1302(4) of the Wisconsin Business Corporation Law also has an
exception providing that holders of a class of stock quoted on the National
Association of Securities Dealers, Inc. automated quotations system have no
dissenters' rights except in certain circumstances, none of which are present
with respect to the proposed Asset Sale. The Company's Common Stock is traded on
the OTC Bulletin Board, which is operated by the National Association Securities
Dealers, Inc. The Company believes that the term "National Association of
Securities Dealers, Inc. automated quotations system" as used in Section
180.1302(4) of the Wisconsin Business Corporation Law includes the OTC Bulletin
Board. As a result, even if the proposed Asset Sale were deemed to be a sale of
substantially all of the Company's assets, the Company believes that the public
market exception in Section 180.1302(4) of the Wisconsin Business Corporation
Law would preclude the Company's shareholders from having dissenters' rights.
THE ASSET PURCHASE AGREEMENT
Although the Company believes that the following summary describes the
material terms and conditions of the Asset Purchase Agreement, the summary is
qualified in its entirety by reference to the full text of the Asset Purchase
Agreement, a copy of which is attached as ANNEX A to this Proxy Statement and is
incorporated herein by reference. Terms which are not otherwise defined in this
summary have the meaning set forth in the Asset Purchase Agreement.
ASSETS TO BE SOLD TO THE PURCHASER
The Company and Gros-Ite have agreed to sell to the Purchaser substantially
all of the assets related to the Division. The assets to be sold or transferred
to the Purchaser pursuant to the Asset Purchase Agreement include the following:
1. tangible personal property relating to the Division;
2. work in process and finished goods inventory relating to the
Division;
3. purchase orders relating to the Division;
4. certain intellectual property exclusively used in the Division;
5. customers lists relating to the Division;
6. certain assigned contracts relating to the Division, including the
supply agreement with Pratt & Whitney; and
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30
7. certain records of the Division.
The Company will retain a number of assets of the Division, including
accounts receivable outstanding as of the closing date, the building in
Farmington, Connecticut in which the Division has operated and certain equipment
that can be used in the Company's other businesses.
LIABILITIES TO BE ASSUMED BY THE PURCHASER
At the Closing, the Purchaser will assume certain of the Division's
obligations arising after the Closing Date pursuant to the supply agreement with
Pratt & Whitney, current purchase orders and certain software agreements, to the
extent assignable. The Purchaser will not assume any obligations or liabilities
with respect to the operation of the Division prior to the Closing Date.
PURCHASE PRICE
The Asset Purchase Agreement provides for the payment by the Purchaser of a
purchase price of $6,369,389, consisting of:
1. $1,848,807 for finished goods inventory;
2. $3,510,982 for work in process inventory;
3. $1,009,500 for tangible personal property; and
4. $100 for the use of the name "Gros-ite Engineered Components
Division."
The Asset Purchase Agreement provides that the Purchaser will pay
$4,613,898 of the purchase price at Closing and the remaining $1,755,491 of the
purchase price on the 15th day of the tenth month following the Closing Date.
The portion of the purchase price relating to finished goods inventory and
work in process inventory will be subject to a post-closing adjustment based on
the value of these inventories as of the Closing Date. As a result of this
adjustment, the purchase price could either be increased or decreased. An
increase in the purchase price would result in an additional payment by the
Purchaser to the Company and a decrease in the purchase price would require the
Company to make a payment to the Purchaser.
Tomz, the parent of the Purchaser, will guarantee payment of the purchase
price and the representations and warranties of the Purchaser in the Asset
Purchase Agreement. To secure the obligations of Tomz under the Asset Purchase
Agreement, the principal owner of Tomz will pledge to the Company marketable
securities having a value as of the date of the Asset Purchase Agreement of at
least $400,000.
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REPRESENTATIONS AND WARRANTIES
The Asset Purchase Agreement contains various customary representations and
warranties by the Company, Gros-Ite, Tomz Corporation and the Purchaser. These
include representations and warranties by the Company and Gros-Ite as to (a)
corporate organization, good standing and authority; (b) authority to enter into
the Asset Purchase Agreement and the binding effect of the Asset Purchase
Agreement; (c) no conflicts or violations relating to the Asset Purchase
Agreement; (d) consents and approvals required in connection with the Asset
Purchase Agreement; (e) the absence of legal proceedings; (f) financial
statements; (g) tax matters; (h) title to the assets being sold; (i) the
condition of the tangible personal property being sold; (j) the absence of
terminations relating to the work in process inventory being sold; (k)
intellectual property matters; (l) regulatory filings; (m) product and field
warranties; (n) the absence of claims by creditors relating to the assets being
sold; (o) compliance with law, including environmental, health and safety
matters; (p) matters relating to employees; (q) matters relating to vendors and
customers; (r) matters relating to contracts; (s) employee benefit plans; (t)
absence of certain changes or events since December 30, 2000; (u) transactions
with affiliates; (v) no brokers; (w) the absence of material misstatements or
omissions; (x) insurance matters; (y) matters relating to Gros-Ite; and (z) the
condition of the inventory being sold.
The representations and warranties of Tomz Corporation and the Purchaser
include those as to: (a) corporate organization and good standing; (b) authority
to enter into the Asset Purchase Agreement and the binding effect of the Asset
Purchase Agreement; (c) no conflicts or violations relating to the Asset
Purchase Agreement; (d) the absence of legal proceedings; (e) no brokers; (f)
the absence of material misstatements or omissions; (g) licenses and permits;
and (h) insurance matters.
CERTAIN COVENANTS
Pursuant to the Asset Purchase Agreement, each of the parties has agreed,
among other things, to use its best efforts to facilitate the consummation of
the proposed Asset Sale. The Company has agreed, among other things, to use
reasonable efforts to obtain all required consents for the contracts being
assigned to the Purchaser, to maintain its insurance policies in full force and
effect, to continue to conduct its business in the ordinary course of business
and consistent with past practice, subject to certain exceptions, through the
Closing Date, to permit Tomz Corporation to make corporate examinations and
investigations, to refrain from entertaining any other offers for the assets
being sold, and to cooperate with Tomz Corporation to effect an orderly
transition of the administration of the assets being sold.
DELIVERIES AT CLOSING
Pursuant to the Asset Purchase Agreement, the Company and Gros-Ite are
required to deliver various documents at Closing, including the following:
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32
1. transfer documents, including a bill of sale and an assignment and
assumption agreement;
2. consents of third parties to assign certain contracts to the Purchaser,
including a consent by Pratt & Whitney to the assignment of its supply agreement
with the Company;
3. a lease agreement providing for the Purchaser's lease of certain real
property owned by the Company;
4. termination statements relating to security interests in the assets
being sold;
5. a noncompetition agreement from the Company and Gros-Ite; and
6. a legal opinion from counsel for the Company with respect to customary
corporate matters.
Pursuant to the Asset Purchase Agreement, Tomz and the Purchaser are
required to deliver various documents at Closing, including the following:
1. transfer documents, including an assignment and assumption agreement;
2. the lease agreement providing for the Purchaser's lease of certain real
property owned by the Company;
3. a guaranty by Tomz of the obligations of the Purchaser under the Asset
Purchase Agreement;
4. a pledge agreement from the principal owner of Tomz to secure the
obligations of Tomz and the Purchaser under the Asset Purchase Agreement; and
5. a legal opinion from counsel for Tomz with respect to customary
corporate matters.
INDEMNIFICATION
Subject to certain limitations, EDAC and Gros-Ite agree to indemnify the
Purchaser against all losses in respect of:
1. the breach of any representation or warranty by EDAC or Gros-Ite
contained in the Asset Purchase Agreement;
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2. the nonfulfillment of any covenant or agreement by EDAC or Gros-Ite
contained in the Asset Purchase Agreement;
3. the operation of the Division or the use or ownership of the assets
being sold by EDAC or Gros-Ite or any predecessor on or prior to the Closing
Date;
4. any repairs or replacements to the tangible personal property being sold
required as a result of a change in the condition of such assets (normal wear
and tear excepted) from the date of execution of the Asset Purchase Agreement
through the Closing Date; or
5. any tax liability of the Company or Gros-Ite.
Subject to certain limitations, the Purchaser, and Tomz in accordance with
its guaranty, agree to indemnify EDAC and Gros-Ite against all losses in respect
of:
1. the breach of any representation or warranty by the Purchaser or Tomz
contained in the Asset Purchase Agreement;
2. the nonfulfillment of any covenant or agreement by the Purchaser or Tomz
contained in the Asset Purchase Agreement; or
3. the operation of the Division after the Closing Date, excluding certain
warranty obligations and other obligations not assumed by the Purchaser.
Subject to certain exceptions, the indemnification obligations of the
Company and Gros-Ite and of the Purchaser and Tomz, respectively, are limited to
the purchase price payable in the Asset Sale and neither party may make a claim
for indemnification until its losses reach an aggregate amount of $50,000. The
Purchaser may not make an indemnification claim based on a breach of a
representation or warranty following the second anniversary of the Closing Date,
except for certain claims relating to warranty work, tax matters and the use of
the "Gros-Ite" name.
CLOSING
If the Asset Purchase Agreement is approved at the annual meeting and the
other conditions to Closing have been satisfied, the Company expects to complete
the Asset Sale shortly after the annual meeting.
TERMINATION
The Asset Purchase Agreement may be terminated prior to the Closing in the
event that on or before May 31, 2001:
1. the Company has not provided to the Purchaser written evidence of the
approval of the Asset Purchase Agreement by the Board of Directors of the
Company and by the shareholders of the Company at the annual meeting;
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2. the Company has not obtained the consent of Pratt & Whitney to the
assignment of its supply agreement with the Company; and
3. the Company has not obtained the consents of its lenders to the Asset
Purchase Agreement.
If termination occurs as a result of a default by the Purchaser, the
Company's sole remedy will be to retain a deposit of $50,000 and to receive the
payment of $400,000 as liquidated damages for all losses, damages and expenses.
If termination occurs as a result of the Company's failure to fulfill certain
conditions to closing or its willful breach or default, the Purchaser will be
entitled to all damages and remedies available to it under applicable law as a
result of the Company's default, including the return of the deposit and
reasonable attorneys' fees and expenses incurred by the Purchaser to enforce the
Asset Purchase Agreement.
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SELECTED FINANCIAL DATA
The following selected financial data for each of the years in the
five-year period ended December 30, 2000 have been derived from the financial
statements of the Company as audited by Arthur Andersen LLP, independent public
accountants, whose report with respect to fiscal 2000, 1999 and 1998 is
incorporated by reference herein. The following data are qualified by reference
to and should be read in conjunction with the consolidated financial statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" incorporated by reference herein. See
"Available Information."
SELECTED INCOME STATEMENT DATA
2000 1999 1998 1997 1996
---------- ---------- ---------- -------- --------
(In thousands, except per share data)
Sales $ 47,252 $ 52,395 $ 53,162 $ 38,229 $ 30,249
Loss (income) before cumulative
effect of adoption of Staff
Accounting Bulletin No. 101
(SAB 101) (428) (4,058) 2,276 1,696 7
Cumulative effect of adoption of
SAB 101 (224) -- -- -- --
Net (loss) income (652) (4,058) 2,276 1,696 7
Diluted per common share data:
(Loss) income before
cumulative effect of
adoption of SAB 101 (0.10) (0.95) 0.50 0.39 0.00
Cumulative effect of adoption
of SAB 101 (0.05) -- -- -- --
Net (loss) income (0.15) (0.95) 0.50 0.39 0.00
Pro forma amounts assuming
adoption of SAB 101 is applied
retroactively (unaudited)
Pro forma net (loss) income (428) (3,927) 1,920 (1) (1)
Pro forma basic net (loss)
income per common share (0.10) (0.92) (0.45) (1) (1)
Pro forma diluted net (loss)
income per common share (0.10) (0.92) (0.42) (1) (1)
(1) Information is not available to determine pro forma amounts prior to 1998.
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SELECTED BALANCE SHEET DATA
Pro Forma (1)
2000 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------
(Unaudited) (In thousands)
Current assets $15,870 $15,870 $15,460 $20,881 $15,196 $14,058
Total assets 41,663 41,926 44,755 52,608 23,850 19,917
Current Liabilities 12,403 14,335 35,053 20,245 10,695 9,402
Working capital (deficit) 3,467 1,535 (19,593) 636 4,501 4,656
Long-term liabilities 20,997 22,155 3,614 22,780 6,269 5,043
Shareholders' equity 8,263 5,436 6,088 9,583 6,886 5,473
(1) The pro forma amounts reflect of the effect of the February 2001
refinancing which resulted in a reduction in debt for accounting
purposes of $3.9 million and the elimination of accrued interest and
fees of $0.6 million, and a gain of approximately $4.2 million prior to
estimated income taxes payable of $1.4 million after the usage of
available net operating loss carryforwards.
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UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed financial information (the
"Unaudited Pro Forma Information") gives effect to (i) the Asset Sale, and (ii)
the debt restructuring completed by the Company in February 2001 (the "Debt
Restructuring"). The Unaudited Pro Forma Information is presented to reflect the
estimated effect of the Asset Sale and the Debt Restructuring as of the
beginning of the period presented. The Unaudited Pro Forma Information is not
necessarily indicative of the results of future operations of the Company or the
actual results of operations that would have occurred had the Asset Sale or the
Debt Restructuring been consummated as of the beginning of the period presented.
The Unaudited Financial Information should be read in conjunction with the
historical consolidated financial statements and notes thereto of the Company
incorporated by reference in this proxy statement. See "Available Information."
EDAC TECHNOLOGIES CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 30, 2001
(UNAUDITED)
Net Assets Pro Forma Debt
Consolidated to be Sold Adjustments Restructuring Pro Forma
------------ ---------- ----------- ------------- ---------
Cash $ 247 - $247
Accounts Receivable, Net 5,985 - 5,985
Inventories 7,008 (5,360)(1) 1,648
Other Current Assets 2,630 1,755 (1) 4,386
-------- ------- ------ ------- --------
Total Current Assets 15,870 (3,604) 12,265
Fixed Assets, Net 15,078 (1,010)(1) 250(2) 14,319
Goodwill, Net 10,666 10,666
Other Assets, Net 312 - (262)(3) 50
-------- ------- ------ ------- --------
Total Assets $ 41,926 $(4,614) $ 250 $ (262) $ 37,299
======== ======= ====== ======= ========
Revolving line of credit $ 6,037 $(2,764)(1) $ 250 $(2,727)(3) $ 796
Current portion of long-term
debt 1,772 - 1,772
Trade accounts payable 2,758 - 2,758
Employee compensation and
amounts withheld 1,225 - 1,225
Accrued expenses 2,542 - 250 (3) 2,793
-------- ------- ------ ------- --------
Total Current Liabilities 14,334 (2,764) 250(2) (2,476) 9,345
-------- ------- ------ ------- --------
Total Long-term Liabilities 22,154 (1,850)(1) (1,157)(3) 19,147
-------- ------- ------ ------- --------
Total Shareholders' Equity 5,436 - - 3,371 (3) 8,807
-------- ------- ------ ------- --------
Total Liabilities and
Shareholders' Equity $ 41,926 $(4,613) $ 250 $ (262) $ 37,299
======== ======= ====== ======= ========
Notes to Pro Forma Condensed Consolidated Balance Sheet:
(1) Reflects the net cash proceeds and uses of cash from the sale of the
Division.
Sale of Assets $6,369
Less note receivable from Purchaser (1,755)
-------
Net cash proceeds $4,614
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Uses of Cash
Repay line of credit $2,514
Repay long-term debt 1,850
Expense of sale 250
------
Net uses of cash $4,614
(2) Reflects the book gain on the sale of the Division.
Sale of Assets $6,369
Less book value of assets sold (6,199)
Less expenses of sale 250
------
Gain on sale of assets $ 0
(3) Reflects the impact of the Debt Restructuring which occurred on
February 5, 2001.
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EDAC TECHNOLOGIES CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 2000
(UNAUDITED)
Allocated
Historical Costs Adjusted Debt
Consolidated Division (1) to Remain Division Restructuring Pro Forma
------------ -------- --------- -------- ------------- ---------
Sales $ 46,429 $ (16,620) 0 (16,620)(2) 0 29,809
Cost of Sales 39,041 (15,747) 36 (15,711)(3) 0 23,330
--------- --------- ------- ------- -------- --------
Gross Profit 7,388 (873) (36) (909) 0 6,479
Selling, General and
Administrative Expenses 4,738 (1,362) 620 (742)(4) 0 3,996
--------- --------- ------- ------- -------- --------
Income From Operations 2,650 489 (656) (167) 0 2,483
Interest Expense 3,231 (492) (208) (700)(5) (213)(7) 2,318
Estimated Provision for
Income Taxes 33 (16) 0 (16) 0 17
Other 38 0 (159) (159)(6) 0 (121)
--------- --------- ------- ------- -------- --------
Net Income (Loss) $ (652) $ 997 $ (289) $ 708 $ 213 $ 269
========= ========= ======= ======= ======== ========
Notes to Pro Forma Condensed Consolidated Statement of Operations:
(1) The methodologies used for deriving costs and expense reductions
associated with the sale of the Division were reviewed by management
and deemed to be reasonable under the circumstances and are as follows:
A. Cost of sales: Actual costs were used for most items in the cost
of sales. Allocations were analyzed to determine which costs would
be eliminated and which costs would be absorbed by the remaining
divisions.
B. Selling, general and administrative expenses: All costs were
analyzed to determine which costs would be eliminated and which
would be absorbed by the remaining divisions.
C. Interest expense: Proceeds from the sale of the Division were used
to offset interest expense for the remaining company.
(2) Sales of $16,620 for the Division were eliminated in their entirety.
(3) Cost of sales of $15,747, with the exception of $36 for insurance and
maintenance allocations, were eliminated in their entirety.
(4) Selling general and administrative expenses of $1,362 were reduced by
$742 leaving $620 to be allocated to the remaining divisions. The
reduction of $742 are for costs associated with salaries for sales and
office personnel, automobile expenses, travel and entertainment
expenses, office supplies, telephone, employee benefits and a reduction
in professional costs.
(5) Interest expense were reduced by $700 per year as the proceeds from
the Asset Sale are used to reduce outstanding debt.
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(6) Other income of $159 relates to rental income from the Purchaser who
will rent the Company's facility at 1790 New Britain Avenue in
Farmington, CT.
(7) Reflects interest expense reduction of $213 due to the Debt
Restructuring which occurred on February 5, 2001.
Other Notes to Unaudited Pro Forma Condensed Financial Information:
(1) Assets that will not be sold in the Asset Sale and that are associated
with the Division include (a) the real estate at 1790 New Britain
Avenue in Farmington, CT, which will be leased to the Purchaser for one
year with an option to lease the property for an additional year, (b)
certain smaller pieces of machinery and equipment currently used in the
Division that have a fair value of approximately $250 to $300, and (c)
accounts receivable relating to the Division that are estimated to be
approximately $1,500 at closing. The Purchaser will not assume accounts
payable relating to the Division that are estimated to be approximately
$1,300 at closing. The Purchaser is expected to hire substantially all
of the employees of the Division. The Company will pay all employees
that are no longer employees due to the Asset Sale for any unused
earned vacation time and two weeks severance pay.
(2) The purchase price in the Asset Sale is subject to a post-closing
adjustment based on the value of the inventory as of the date of the
closing. The valuation of this inventory as of the closing will be
compared to what the Purchaser is paying for the inventory based on a
valuation as of December 30, 2000. If the valuation of the inventory as
of closing is greater than the valuation as of December 30, 2000, the
purchase price will be adjusted upwards, and if the valuation of the
inventory as of the closing is lower than the valuation as of December
30, 2000, the purchase price will be adjusted downward. The Company
estimates that the approximate range of inventory fluctuation could be
up to $1,000 based on historical performance.
(3) Proceeds from the sale of the Division are expected to reduce debt
obligations of Edac.
(4) The pro forma financial statements reflect the impact from Debt
Restructuring, which occurred on February 5, 2001. Each 1/4 percent
variation in interest rates effects the net interest expense by $58.
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UNAUDITED CONDENSED STATEMENTS OF OPERATIONS OF THE
ENGINEERED PRECISION COMPONENTS DIVISION
The following table includes unaudited condensed statements of
operations of the Division for the years ended December 30, 2000, January 1,
2000 and January 2, 1999. This information is presented in connection with the
proposed Asset Sale because the Asset Sale will constitute the sale of
substantially all of the assets of the Division and the Company has historically
reported such information regarding the Division as a separate reportable
segment (See Note I to the Company's consolidated financial statements
incorporated by reference in this proxy statement and "Available Information").
The Company will retain certain assets and liabilities relating to the Division
following the completion of the Asset Sale, but the Company does not believe
that such retained assets and liabilities are material with respect to the
unaudited condensed statements of operations of the Division. See "Unaudited Pro
Forma Condensed Financial Information" for additional information regarding the
assets and liabilities that the Company will retain following the completion of
the Asset Sale.
FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999
Fiscal Year Fiscal Year Fiscal Year
2000 1999 1998
----------- ----------- ----------
(In thousands)
Sales $ 16,620 $ 15,544 $ 18,554
Cost of Sales 15,787 16,606 16,652
----------- ----------- ----------
Gross Profit 833 (1,062) 1,902
Selling, General and Administrative Expenses 1,363 1,650 1,606
(Loss) income from Operations (530) (2,712) 296
Non-operating Income (Expense) 722 (298) 369
----------- ----------- ----------
Net (Loss) $ (1,252) $ (2,414) $ (73)
=========== =========== ==========
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SECURITY OWNERSHIP
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock as of March 15, 2001 by (i) each director
and named executive officer (as defined below), (ii) all directors and executive
officers as a group, and (iii) each person or other entity known by the Company
to beneficially own more than 5% of the outstanding Common Stock.
The Company has determined beneficial ownership in accordance with the
rules of the Securities and Exchange Commission. Unless otherwise indicated, the
persons and entities included in the table have sole voting and investment power
with respect to all shares beneficially owned, except to the extent authority is
shared with spouses under applicable law. Shares of Common Stock subject to
options that are either currently exercisable or exercisable within 60 days of
March 15, 2001 are deemed to be outstanding and to be beneficially owned by the
option holder for the purpose of computing the percentage ownership of the
option holder. However, these shares are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
NUMBER OF SHARES PERCENT
BENEFICIALLY OF
OWNED CLASS
NAME ---------------- -------
- ----
EDAC Technologies Corporation Employee
Stock Ownership Plan and Trust (1) 454,796 10.5%
Richard A. Dandurand -- --
John J. DiFrancesco (2) 176,805 4.0
George Fraher (2) 36,787 *
Robert J. Gilchrist (2) 54,512 1.3
John Kucharik (2) 10,000 *
Stephen J. Raffay (2) 10,000 *
Daniel C. Tracy (2) 33,022 *
John Moses 503,850 11.7
Francis W. Moskey (1) 528,629 12.2
Ronald G. Popolizio (1)(2) 534,200 12.2
Glenn L. Purple (1)(2) 482,386 11.2
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NUMBER OF SHARES PERCENT
BENEFICIALLY OF
OWNED CLASS
NAME ---------------- -------
- ----
All Directors and Executive Officers as a
group (8 persons) (1)(2)
855,326 18.5
- --------
* Represents beneficial ownership of less than 1%.
(1) Consists of 454,796 shares owned by the EDAC Technologies Corporation
Employee Stock Ownership Plan (the "ESOP"). Voting power is subject to the
direction of the ESOP participants for all allocated shares, and the
Trustees of the ESOP may only vote such shares if a participant fails to
direct the voting of the shares allocated to his or her account. As of
March 15, 2001, all of the 454,796 shares owned by the ESOP had been
allocated to participants. The Trustees of the ESOP do not have investment
power as to any of the shares owned by the ESOP. The Trustees of the ESOP
are as follows:
Ronald G. Popolizio Glenn L. Purple
Francis W. Moskey
(2) The number of shares shown includes the following shares which may be
acquired by exercise of options which are currently exercisable or
exercisable within 60 days of March 15, 2001: 132,000 as to Mr.
DiFrancesco; 35,000 as to Mr. Fraher; 36,000 as to Mr. Gilchrist; 10,000
each as to Messrs. Kucharik and Raffay; 20,000 as to Mr. Tracy; 62,500 as
to Mr. Popolizio; 5,558 as to Mr. Purple; and 305,500 as to all executive
officers and directors as a group.
The address of each of the current directors of the Company and the ESOP is
the principal business address of the Company. The address of Mr. Moses is 3616
North Albemarle Street, Arlington, VA 22207.
The above beneficial ownership information is based upon information
furnished by the specified persons and is determined in accordance with
Securities and Exchange Commission Rule 13d-3, as required for purposes of this
Proxy Statement. It is not necessarily to be construed as an admission of
beneficial ownership for other purposes and may include shares as to which
beneficial ownership is disclaimed.
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PROPOSAL 2: ELECTION OF DIRECTORS
NOMINEES
The Company's By-Laws provide for at least five and no more than nine
directors to be elected at each Annual Meeting of Shareholders, to hold office
until the next succeeding Annual Meeting and until their successors are duly
elected. In accordance with the By-Laws, the Company has set the number of
directors for the 2001 fiscal year at seven. As indicated below, the individuals
nominated by the Board of Directors are all incumbent directors. The Company
anticipates that all nominees listed in this Proxy Statement will be candidates
when the election is held. However, if for any reason any nominee is not a
candidate at that time, proxies will be voted for a substitute nominee
designated by the Company (except where a proxy withholds authority with respect
to the election of directors).
DIRECTOR PRINCIPAL
NAME (AND AGE) SINCE OCCUPATION (1)
- -------------- -------- --------------
Richard A. Dandurand (45) 2000 Chief Executive Officer of the Company
(4)
John J. DiFrancesco (75) 1989 Chairman of the Company
George Fraher (53) 2000 President, Apex Machine Tool Company
Robert J. Gilchrist (55) 1998 Managing Director, Horton International,
(2)(3) LLC (management consulting and executive
search firm)
John Kucharik (50) 2000 Chief Executive Officer,
(4) IPC, Inc. (custom powder coater, e-coater
and electro-plating company)
Stephen J. Raffay (73) 2000 Retired Vice-Chairman,
(2)(3)(4) Emhart Corporation (a manufacturer of
various machinery and consumer products)
Daniel C. Tracy (60) 1999 Business Consultant
(2)(3)(4)
(1) The principal occupation of each director during the past five years was
that shown in the table, except that: (1) Mr. Dandurand was President of
Stanley Access Technologies from 1997 to 2000 and President of Stanley Door
Systems from 1994 to 1997, both subsidiaries of The Stanley Works; (2) Mr.
DiFrancesco
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was Manager of the Sandusky, Ohio General Motors plant until his retirement
in 1986. During Mr. DiFrancesco's retirement he did consulting work for MPB
Corp. of Keene, New Hampshire (precision ball and roller bearing
manufacturer) prior to becoming Chairman of the Company in March 1996. From
August 1999 to November 2000, Mr. DiFrancesco served as Chief Executive
Officer of the Company on an interim basis; (3) Mr. Fraher was Vice
President of Manufacturing for Hoppe Tool, Inc. (tooling manufacturer) from
February 1981 to October 1997; (4) Mr. Gilchrist was General Manager at
Ensign-Bickford Industries (diversified manufacturing company with
principal operations in blast initiation for the aerospace and mining
industries) until 1995; (5) Mr. Kucharik was President and Chief Executive
Officer of MVE, Inc. (manufacturer of cryogenic holding tanks and
equipment) from 1997 to 2000. Prior to 1997, Mr. Kucharik was President of
General Signal Pump Group (manufacturer of water pumps) from 1995 to 1997;
(6) Mr. Raffay served as a senior executive and as a Director of Emhart
Corporation until his retirement as Vice Chairman in 1987. Since then he
has done consulting work and serves as a member of the boards of directors
for a number of companies; and (7) Mr. Tracy was a partner with Arthur
Andersen from 1963 until his retirement in 1998.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Strategic Planning Committee.
The Board of Directors recommends that shareholders vote FOR all of the
nominees.
DIRECTORS' MEETINGS AND COMMITTEES
The Board of Directors has an Audit Committee, a Compensation Committee and
a Strategic Planning Committee.
The Audit Committee held four meetings during 2000. The Audit Committee
meets annually to consider the report and recommendation of the Company's
independent public accountants and is available for additional meetings upon
request of such accountants. The Audit Committee's functions also include making
recommendations to the Board of Directors regarding the engagement or retention
of such accountants, adoption of accounting methods and procedures, public
disclosures required for compliance with securities laws and other matters
relating to the Company's financial accounting. For additional information
regarding the Audit Committee, see the "Report of the Audit Committee" below.
The Compensation Committee held one meeting during 2000. The Compensation
Committee sets the compensation for the executive officers of the Company.
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The Strategic Planning Committee held five meetings during 2000. The
Strategic Planning Committee reviews the Company's strategic direction and makes
recommendations to the Board of Directors.
The Board of Directors held 16 meetings during 2000. No director attended
fewer than 75% of the total number of meetings of the Board of Directors and
each Committee on which he served.
FEES OF INDEPENDENT AUDITORS
AUDIT FEES. Arthur Andersen LLP billed the Company $93,000 in fees for
professional services rendered for the audit of the Company's financial
statements for the fiscal year ended December 30, 2000, including reviews of the
interim financial statements in the Company's Quarterly Reports on Form 10-Q
during the fiscal year ended December 30, 2000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. Arthur
Andersen LLP did not render any professional services to the Company for
information technology advice during the fiscal year ended December 30, 2000.
ALL OTHER FEES. Arthur Andersen LLP billed the Company $63,400 in fees for
all other professional services rendered to the Company during the fiscal year
ended December 30, 2000. These services consisted of tax services and services
relating to employee benefit plans.
The Audit Committee of the Board of Directors of the Company considered
that the provision of the services and the payment of the fees described above
are compatible with maintaining the independence of Arthur Andersen LLP.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is comprised of three members of the Company's Board of
Directors. Because the Company's Common Stock is traded on the Over the Counter
Bulletin Board, the Company is not subject to the listing requirements of any
securities exchange or Nasdaq regarding the membership of the Company's Audit
Committee. However, each member of the Audit Committee is independent as defined
in Rule 4200(a)(15) for the listing standards of the Nasdaq Stock Market. The
duties and responsibilities of the Audit Committee are set forth in the Audit
Committee Charter, which the Board of Directors adopted on March 14, 2001. A
copy of the Audit Committee Charter is attached as ANNEX C to this Proxy
Statement.
The Audit Committee has:
o reviewed and discussed the Company's audited financial statements for
the fiscal year ended December 30, 2000, with the Company's management
and with the Company's independent auditors;
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o discussed with the Company's independent auditors the matters required
to be discussed by SAS 61 (Codification for Statements on Auditing
Standards); and
o received and discussed the written disclosures and the letter from the
Company's independent auditors required by Independence Standards Board
Statement No. 1 (Independence discussions with Audit Committees).
Based on such review and discussions with management and the independent
auditors, the Audit Committee recommended that the audited financial statements
be included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 2000, for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE:
Stephen J. Raffay, Chairman
Robert J. Gilchrist
Daniel C. Tracy
DIRECTORS' FEES
In 2000, the Company paid directors who are not employees of the Company a
$4,000 annual retainer and $1,000 for each non-telephonic Board of Directors or
Committee meeting attended. The Board Chairman and Committee Chairman were paid
an additional $500 for each meeting chaired.
EXECUTIVE OFFICERS
The following table sets forth, as of March 15, 2001, the name, age and
current position of each executive officer of the Company:
NAME AGE OFFICE
- ---- --- ------
Richard A. Dandurand 45 Chief Executive Officer
Ronald G. Popolizio 42 Executive Vice President, CFO and
Secretary
Mr. Dandurand joined the Company in December 2000. Mr. Dandurand was
President of Stanley Access Technologies from 1997 to 2000 and President of
Stanley Door Systems from 1994 to 1997, both subsidiaries of The Stanley Works.
Mr. Popolizio joined the Company in February 1997 as Vice President, Chief
Financial Officer and Secretary. He became Executive Vice President in June
1998. From 1994 until joining the Company, Mr. Popolizio was Controller for The
Connecticut Spring and Stamping Corporation. Prior to 1994, he was Chief
Financial Officer with MRMC, Inc., a Rostra holding company.
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48
Officers are elected annually by and serve at the discretion of the Board
of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission (the
"Commission") initial reports of beneficial ownership on Form 3 and reports of
changes in beneficial ownership of the Company's equity securities on Form 4 or
5. The rules promulgated by the Commission under section 16(a) of the Exchange
Act require those persons to furnish the Company with copies of all reports
filed with the Commission pursuant to section 16(a). Based solely upon a review
of such forms actually furnished to the Company, and written representations of
certain of the Company's directors and executive officers that no forms were
required to be filed, all directors, executive officers and 10% stockholders
have filed with the Commission on a timely basis all reports required to be
filed under section 16(a) of the Exchange Act.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following performance graph compares the five year cumulative return
from investing $100 on December 31, 1995 in the Company's common shares to the
Total Return Index for The Nasdaq Stock Market (U.S. Companies) and the Total
Return Index for Nasdaq Trucking and Transportation Stocks.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN OF
EDAC COMMON STOCK, TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET
AND TOTAL RETURN INDEX FOR NASDAQ TRUCKING AND TRANSPORTATION STOCKS
NASDAQ EDAC
NASDAQ (US) TRANSPORTATION TECHNOLOGIES
YEAR INDEX INDEX INDEX
---- ----------- -------------- ------------
1995 100.000 100.000 100.000
1996 121.977 110.387 160.000
1997 149.396 141.340 700.000
1998 210.680 127.073 423.540
1999 391.543 122.836 132.000
2000 235.630 111.644 71.500
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation:
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The Compensation Committee of the Board of Directors continues to monitor
existing compensation plans and initiates additional compensation policies as
necessary to enhance the financial performance of the Company.
The Compensation Committee and the entire Board strongly believe that the
shareholders' best interests are served by a motivated workforce that shares in
the rewards of achieving defined objectives that improve shareholder value.
The incentive compensation plan (bonus) for 2000 was established in
November 1998, based on attaining specific objectives relating to operation and
net profit, earnings per share and growth in sales. Other factors routinely
considered by the committee in evaluating executive performance include
organizational development, customer service, quality and adherence to the
Company's Mission Statement.
As reported in the 2000 Annual Report, the Company experienced continued
reductions in revenues resulting in an operating loss for the year ended
December 30, 2000. As a result, and in accordance with the incentive formula, no
cash bonuses were paid to Company's executives in 2000. The Compensation
Committee intends to resume paying bonuses at the end of 2001, if it believes
that the financial condition of the Company so warrants. The Company granted
stock options to officers and employees in 2000 in lieu of cash as part of a
strategy to motivate and retain key management personnel.
John DiFrancesco, Chairman of the Company, acted in the additional and
interim role of Chief Executive Officer during 2000 until Mr. Richard Dandurand
assumed that position on December 1, 2000. Mr. DiFrancesco was paid $144,575 in
salary and $24,750 as temporary living allowance. Pursuant to an employment
agreement with the Company, Mr. Dandurand is entitled to a minimum annual salary
of $250,000 plus an annual incentive bonus determined by the Compensation
Committee of the Board of Directors, a grant of options to purchase 150,000
shares of Common Stock and various other fringe benefits. Mr. Dandurand is also
entitled to receive a grant of options to purchase 50,000 shares of Common Stock
on December 1, 2001 contingent upon renewal of the employment agreement.
COMPENSATION COMMITTEE:
Robert J. Gilchrist, Chairman
Stephen J. Raffay
Daniel C. Tracy
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION. The following table sets forth certain
information for the years indicated below concerning compensation paid to,
earned by or awarded to the two individuals who served as the Company's Chief
Executive Officer during 2000 and the only other executive officer of the
Company whose total annual salary and bonus during 2000 exceeded $100,000
(collectively, the "named executive officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM
------------------- COMPENSATION
AWARDS
OTHER SECURITIES
ANNUAL UNDERLYING
COMPEN- OPTIONS/ ALL OTHER
NAME AND PRINCIPAL SALARY BONUS SATION SARS COMPENSATION
POSITION YEAR ($) ($) ($) (1) (#) ($) (2)
------------------ ---- --------- --------- -------- ------------ ------------
Richard A. Dandurand 2000 19,231 -- -- -- --
Chief Executive
Officer (3)
John DiFrancesco 2000 144,575 -- 24,750 -- --
Chief Executive 1999 92,500 -- -- -- --
Officer (4)
Ronald G. Popolizio 2000 165,000 -- -- -- 1,750
Executive Vice 1999 157,789 -- -- -- 3,736
President CFO 1998 137,500 65,000 -- 25,000 16,107
and Secretary
(1) The amount paid to Mr. DiFrancesco is for a living allowance.
(2) Represents payments to defined contribution plans.
(3) Mr. Dandurand became the Chief Executive Officer on December 1, 2000.
(4) Mr. DiFrancesco served as the Chief Executive Officer on an interim basis
from August 1999 through November 2000. Mr. DiFrancesco was also paid
$2,250 in December 2000 for consulting services.
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OPTION GRANTS. The following table provides certain information regarding stock
options granted to the named executive officers in 2000.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLING GRANTED TO EXERCISE FOR OPTION TERM ($) (2)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR (1) ($/SH) DATE 5% 10%
- ------------------------- ------------ --------------- -------- ---------- -----------------------
Richard A. Dandurand(3) 150,000 41.2% 0.9375 11/30/10 88,438 224,120
John DiFrancesco(4) 75,000 20.6 1.00 6/04/10 47,167 119,531
Ronald G. Popolizio(5) 25,000 6.9 1.00 6/04/10 15,722 39,844
(1) The percentage is based on options granted to employees. Options for
364,000 shares were granted to employees during the 2000 fiscal year.
(2) The dollar amounts under these columns are the result of theoretical
calculations at 5% and 10% rates set by the Commission, and therefore are
not intended to forecast possible future appreciation, if any, in the
Common Stock.
(3) Mr. Dandurand's options become exercisable as follows: 60,000 on November
30, 2001, 45,000 on November 30, 2002 and 45,000 on November 30, 2003.
(4) Mr. DiFrancesco's options were fully exercisable as of the date of grant.
(5) Mr. Popolizio's options were fully exercisable as of December 5, 2000. The
Company has agreed that Mr. Popolizio will receive annually a grant of
options for at least 5,000 shares.
FISCAL YEAR-END OPTION VALUES. The following table provides certain information
regarding options held by the named executive officers at December 30, 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS OPTIONS/SARS AT
AT FISCAL YEAR-END (#) FISCAL YEAR END ($)(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------- --------------- ------------ ------------------------- -------------------------
Richard A. Dandurand -- -- 0/150,000 $0/0
John DiFrancesco -- -- 122,000/0 $0/0
Ronald G. Popolizio -- -- 62,500/0 $0/0
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(1) Based on the last reported sale price of the common stock on December 29,
2000 less the option exercise price.
Options above reflect the 10% stock dividend paid by the Company to all
shareholders on July 1, 1998.
EMPLOYMENT AGREEMENTS
Pursuant to an employment agreement with the Company, Mr. Dandurand is
entitled to a minimum annual salary of $250,000 plus an annual incentive bonus
determined by the Compensation Committee of the Board of Directors, a grant of
options to purchase 150,000 shares of Common Stock and various other fringe
benefits. Mr. Dandurand is also entitled to receive a grant of options to
purchase 50,000 shares of Common Stock on December 1, 2001 contingent upon
renewal of the employment agreement. The employment agreement also provides
that, upon termination of employment by the Company for any reason other than
death, disability or cause, Mr. Dandurand will receive severance equal to 18
months of his then base salary and all previously granted stock options will
become immediately exercisable. If Mr. Dandurand's employment is terminated due
to death or disability, he will be entitled to receive a prorated cash bonus for
the year of termination. The original term of the employment agreement extends
to December 1, 2001, subject to automatic renewal for additional one-year terms
unless notice of termination is given within 45 days of the end of the then
current term.
Pursuant to an employment agreement with the Company, Mr. Popolizio is
entitled to a minimum annual salary of $150,000 plus an annual incentive bonus
determined by the Compensation Committee of the Board of Directors and various
other fringe benefits. The agreement also provides that, upon termination of
employment by the Company for any reason other than death, disability or cause,
Mr. Popolizio will receive severance equal to 24 months of his then base
compensation plus 2 times the average of the three highest annual bonus payments
received by him during the five fiscal years prior to termination. If Mr.
Popolizio's employment is terminated due to death or disability, he will receive
a prorated cash bonus for the year of termination.
CHANGE OF CONTROL AGREEMENTS
The Company entered into Change of Control Agreements with Richard A.
Dandurand, the Company's Chief Executive Officer in 2000 and with Ronald G.
Popolizio, the Company's Executive Vice President, Chief Financial Officer and
Secretary in 1999. These agreements essentially act as springing employment
agreements which provide that upon a change of control of the Company (as
defined in the agreement), the executive shall continue to be employed by the
Company for a period of two years for Mr. Dandurand and three years for Mr.
Popolizio in the same capacities and with the same compensation and benefits as
the executive was receiving prior to the change of control (all as specified in
the agreements). If the executive is terminated after the change of control
without cause or he quits for good reason (both as defined in the agreement),
the executive is generally entitled to receive a severance payment from the
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Company equal to the amount of compensation remaining to be paid to the
executive under the agreement for the balance of the term.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of outside directors. During the fiscal
year ended December 30, 2000, the following board and former board members
served on the Compensation Committee: William J. Gallagher (through May 2000),
Robert Gilchrist, Lee Morris (through September 2000), Stephen J. Raffay (from
November 2000) and Daniel C. Tracy.
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, has
selected Arthur Andersen LLP to be the Company's auditors for the 2001 fiscal
year. Although this appointment is not required to be submitted to a vote of
shareholders, the Company believes it appropriate as a matter of policy to
request that the shareholders ratify the appointment. If shareholder
ratification is not received, the Board of Directors may reconsider the
appointment. It is expected that a representative of Arthur Andersen LLP will be
present at the annual meeting and will have the opportunity to make a statement
if he desires to do so and will be available to respond to appropriate
questions.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE RATIFICATION OF ARTHUR ANDERSEN
LLP AS INDEPENDENT AUDITORS FOR THE PURPOSE OF AUDITING THE FINANCIAL STATEMENTS
OF THE COMPANY FOR FISCAL 2001.
AVAILABLE INFORMATION
EDAC is subject to the informational requirements of the Exchange Act, and
in accordance with the Exchange Act the Company files reports, proxy statements
and other information with the Commission. You may inspect and copy the reports,
proxy statements and other information filed by us with the Commission at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and as well as the Commission's Regional
Offices. You may also call the Commission at 1-800-SEC-0330 for more information
about the public reference room, how to obtain copies of documents by mail or
how to access documents electronically on the Commission's Web site at
(http://www.sec.gov).
The Company "incorporates by reference" into this proxy statement the
information in documents it has filed with the Commission, which means that the
Company can disclose important information to you through those documents. The
information incorporated by reference is an important part of this proxy
statement. The following document is incorporated by reference into this proxy
statement.
- The Company's Annual Report on Form 10-K for the year ended
December 30, 2000, filed with the SEC on March 30, 2001, as amended on
May 3, 2001.
A copy of the Company's 2000 Annual Report to Shareholders accompanies
this proxy statement. You may request, and the Company will provide, a copy of
the Company's other filings at no cost by contacting Ronald G. Popolizio,
Executive Vice President, Chief Financial Officer and Secretary of the Company,
at the following address and phone number:
EDAC Technologies Corporation
1806 New Britain Avenue
Farmington, Connecticut 06032
(860) 677-2603
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K
The Company is required to file an annual report, called a Form 10-K, with
the Commission. A copy of Form 10-K for the fiscal year ended December 30, 2000
will be made available, without charge, to any person entitled to vote at the
annual meeting.
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Written requests should be directed to Ronald G. Popolizio, Secretary, EDAC
Technologies Corporation, 1806 New Britain Avenue, Farmington, Connecticut
06032.
SHAREHOLDER PROPOSALS
Any shareholder who desires to submit a proposal for inclusion in the
Company's 2002 Proxy Statement should submit the proposal in writing to Ronald
G. Popolizio, Secretary, EDAC Technologies Corporation, 1806 New Britain Avenue,
Farmington, Connecticut 06032. The Company must receive a proposal no later
than January 11, 2002 in order to consider it for inclusion in the Company's
2002 Proxy Statement. For any proposal that is not submitted for inclusion in
next year's Proxy Statement, but is instead sought to be presented directly at
the 2002 Annual Meeting, management will be able to vote proxies in its
discretion if the Company: (1) receives notice of the proposal before the close
of business on March 27, 2002, and advises shareholders in the 2002 Proxy
Statement about the nature of the matter and how management intends to vote on
such matter; or (2) the Company does not receive notice of the proposal prior to
the close of business on March 27, 2002. Notices of intention to present
proposals at the 2002 Annual Meeting should be addressed to Ronald G. Popolizio,
Secretary, EDAC Technologies Corporation, 1806 New Britain Avenue, Farmington,
Connecticut 06032.
OTHER MATTERS
The Directors of the Company know of no other matters to be brought before
the meeting. If any other matters properly come before the meeting, including
any adjournment or adjournments thereof, it is intended that proxies received in
response to this solicitation will be voted on such matters in the discretion of
the person or persons named in the accompanying proxy form.
BY ORDER OF THE BOARD
OF DIRECTORS
EDAC Technologies Corporation
Ronald G. Popolizio, Secretary
Farmington, Connecticut
May 11, 2001
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ANNEX A
ASSET PURCHASE AGREEMENT
DATED MARCH 29, 2001
BY AND AMONG
GROS-ITE ENGINEERED COMPONENTS DIVISION OF TOMZ, INC.,
TOMZ CORPORATION,
GROS-ITE INDUSTRIES, INC.
AND
EDAC TECHNOLOGIES CORPORATION
56
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1 Defined Terms
1.2 Usage of Terms
1.3 References to Articles, Sections, Exhibits and Schedules
ARTICLE II
PURCHASE AND SALE OF ASSETS OF SELLER AND LEASE OF PREMISES
2.1 Transfer of Purchased Assets; Assumption of Assumed Liabilities
2.2 Purchase of Finished Goods Inventory
2.3 Purchase of Work In Process Inventory
2.4 Purchase of Tangible Personal Property
2.5 Purchase of Name
2.6 Assumed Contracts
2.7 Non-Assumption of Liabilities
2.8 Consents
2.9 Delivery of Purchased Assets
2.10 Limitation on Assumption of Warranty Obligations By Buyer and Seller
2.11 Lease of Premises
2.12 Seller's Storage at Premises
2.13 Noncompetition Agreement
2.14 INTENTIONALLY OMITTED
2.15 Delivery of Voting Agreement; Irrevocable Proxies
ARTICLE III
PURCHASE PRICE AND PAYMENT
3.1 Purchase Price
3.2 Post-Closing Adjustment
3.3 Allocation of Purchase Price
3.4 Payment of Purchase Price
3.5 Closing Adjustments
3.6 Taxes
3.7 Guaranty by TOMZ Corporation
3.8 Collateral
3.9 Pledge of Securities
3.10 Offset
- 2 -
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ARTICLE IV
CLOSING
4.1 Closing
4.2 Conveyances at Closing
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF EDAC AND GROS-ITE
5.1 EDAC's and Gros-ite's Representations
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER AND TOMZ CORPORATION
6.1 Buyer and TOMZ Corporation's Representations
ARTICLE VII
COVENANTS AND CONDUCT OF THE PARTIES PRIOR TO OR ON CLOSING
7.1 Pre-closing Covenants
7.2 Right of Entry
7.3 Conduct of Business
7.4 Lien Releases and Tax Clearance
ARTICLE VIII
COVENANTS AND CONDUCT OF THE PARTIES AFTER CLOSING
8.1 Survival and Indemnifications
8.2 Access to Retained Customer Records
8.3 Buyer's Defects
8.4 Covenant Not to Use Name
ARTICLE IX
MISCELLANEOUS
9.1 Expenses; Agreements Not to Market Assets
9.2 Casualty
9.3 Right of Termination and Procedure for Default
9.4 Further Assurances
9.5 Notices
9.6 Public Statements
9.7 Choice of Law
9.8 Titles
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9.9 Waiver
9.10 Effective; Binding
9.11 Entire Agreement
9.12 Modification
9.13 Counterpart
9.14 Consent to Jurisdiction
9.15 Confidential Information
9.16 Successors and Assigns
9.17 Arbitration Procedure
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SCHEDULES
Schedules Description
- --------- -----------
1.1 Assumed Contracts
1.1(ll)(7) Computer Software
2.1(a) Permitted Encumbrances
2.4 Tangible Personal Property
3.2 Cost Accounting Method
3.3 Allocation of Purchase Price
5.1(a) Tradenames
5.1(b) Form of Seller's Resolutions
5.1(c) Resulting Defaults
5.1(d) Consents and Approvals
5.1(e) Litigation
5.1(g) Tax Matters
5.1(h) Title Matters
5.1(i) Real Property
5.1(j) Location of Tangible Personal Property
5.1(k) Options
5.1(l) Terminations
5.1(o) Patents/Trademarks
5.1(q) Warranties
5.1(r) Creditors
5.1(v) Vendors/Customers
5.1(w) Contracts
5.1(x) Employee Benefit Plans
5.1(y) Changes/Disputes
5.1(aa) Noncompliance
5.1(bb) Licenses/Permits/Certifications
5.1(cc) Employee Data
5.1(dd) Payments
5.1(ee) Affiliated Transactions
5.1(hh) Seller's Insurance
5.1(ii) Environmental/Health/Safety Matters
6.1(b) Form of Buyer's and TOMZ Corporation's Resolutions
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EXHIBITS
Exhibit Description
- ------- -----------
A Lease of 1790 New Britain Avenue, Farmington, Connecticut
B Assignment of Peter Stanley Realty Company Lease of property
at 1838 New Britain Avenue, Farmington, Connecticut
C Noncompetition Agreement
D INTENTIONALLY OMITTED
E Guaranty Agreement of TOMZ Corporation
F Pledge Agreement of Zbigniew Matulaniec
G Warranty Bill of Sale
H Assignment Agreement
I Consent to Assignment
J Non-disturbance Agreements with Fleet Bank and Farmington
Savings Bank
K Closing Certificate
L Seller's Counsel's Opinion
M Buyer's Counsel's Opinion
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is by and between GROS-ITE
ENGINEERED COMPONENTS DIVISION OF TOMZ, INC., a Connecticut corporation with its
principal place of business at 47 Episcopal Road, Berlin, Connecticut 06037
("Buyer"), TOMZ CORPORATION, a Connecticut corporation with its principal place
of business at 47 Episcopal Road, Berlin, Connecticut 06037 ("TOMZ
Corporation"), EDAC TECHNOLOGIES CORPORATION, a publicly-held Wisconsin
corporation with its principal place of business at 1806 New Britain Avenue,
Farmington, Connecticut 06032 ("EDAC") and GROS-ITE INDUSTRIES, INC., a
Connecticut corporation with its principal place of business at 1806 New Britain
Avenue, Farmington, Connecticut ("Gros-ite") (EDAC and Gros-ite collectively,
"Seller").
STATEMENT OF FACTS
A. Seller is the owner and operator of, inter alia, a manufacturing
business known as "Gros-ite Engineered Components Division", which business is
located in Farmington, Connecticut ("Business").
B. Buyer desires to purchase from Seller and Seller desires to sell to
Buyer certain assets and contract rights relating to the Business upon the terms
and conditions contained in this Agreement.
C. In connection with the foregoing, Seller and Buyer desire to enter
into a lease for the premises located at 1790 New Britain Avenue, Farmington,
Connecticut.
In consideration of the foregoing premises, the mutual covenants and
agreements contained in this Agreement, and other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, Buyer and Seller agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. As used in this Agreement, the terms below
shall have the following meanings:
(a) "Closing Payment" shall mean the prepayment of One Million
Seven Hundred Fifty-Five Thousand Four Hundred Ninety-One
Dollars ($1,755,491) made by Buyer to Seller pursuant to
Section 3.4(b)(1).
(b) "Affiliate" shall mean, as to any Person, any other Person
which directly or indirectly controls, or is under common
control with, or is controlled by, such Person. As used in
this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to
direct or cause the direction of
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62
management or policies (whether through ownership of securities or
partnership or other ownership interest, by contract or otherwise).
(c) "Agreement" shall mean, unless the context otherwise requires,
this Asset Purchase Agreement together with the Schedules and
Exhibits attached hereto and the certificates and instruments
to be executed and delivered in connection herewith.
(d) "Assumed Contracts" shall mean the Contracts identified on
Schedule 1.1, which shall be assumed in writing by Buyer on
the Closing Date.
(e) "Assumed Liabilities" shall mean those liabilities of Seller
specifically assumed by Buyer in this Agreement.
(f) "Business" shall mean the business conducted by Seller through
its Gros-ite Engineered Components Division, and shall not
include any other business operations of Seller.
(g) "Business Employees" shall mean those employees of Seller
working in the Business.
(h) "Claims Period" shall mean the period beginning on the date of
this Agreement and ending on the second anniversary of the
Closing Date except: (1) with respect to warranty work and
Pratt & Whitney rework matters as to which the Claims Period
shall end on the third anniversary of the Closing Date; (2)
with respect to tax matters as to which the Claims Period
shall end on the sixth anniversary of the Closing Date; and
(3) with respect to Seller's and Buyer's covenant set forth in
Section 8.4, as to which the claims period shall survive
indefinitely.
(i) "Closing Date" is defined in Section 4.1.
(j) "COBRA" shall mean the provisions of Part 6 of Subtitle B of
Title I of ERISA and Section 4980B of the Code and all
regulations thereunder.
(k) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(l) "Contracts" are defined in Section 5.1(w).
(m) "Deposit" shall mean the deposit in the amount of Fifty
Thousand Dollars ($50,000) paid by Buyer on account of the
Purchase Price, which amount is being held by Seller's counsel
pursuant to the Escrow Letter.
(n) "Employee Welfare Benefit Plan" shall have the meaning set
forth in ERISA Section 3(1).
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63
(o) "Encumbrance" shall mean any claim, lien, pledge, option,
charge, easement, security interest, right-of-way,
encroachment, reservation, restriction, encumbrance, or other
right of any Person, affecting title to the Purchased Assets.
(p) "Environmental, Health and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations,
ordinances and other provisions having the force or effect of
law, all judicial and administrative orders and
determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety,
and pollution or protection of the environment, including
without limitation all those relating to the presence, use,
production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control,
or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or
radiation, each as amended and as now or at Closing in effect.
(q) "Environmental Report" shall mean:
(1) Correspondence dated November 8, 1982 (Anderson Oil &
Chemical Co. Kevin Delaney to Gros-ite Industries Bob
Chicoine);
(1) Minges Environmental Laboratory Reports:
(A) March 11 and 30, 1983 - Reports to Gros-ite
Industries; and
(B) March 11, 1983 - Report to American Research
Corporation;
(2) NUS Corporation Report #C-583-9-8-54 (September 26,
1988) Attached as "Appendix D" to the Rizzo
Associates Level 1 Environmental Site Assessment
report (copy provided appears incomplete);
(3) Correspondence dated April 3, 1989 (DEP Peter Ploch
to Gros-ite Industries Robert Chicoine) with
attachments:
(A) February 28, 1980 Form P-5 (1 page); and
(B) February 9, 1983 Hazardous Waste Inspection
Checklist (2 pages);
(4) Final Screening Site Inspection - #C-583-6-0-282 (NUS
Corporation, July 2, 1990) Attached as "Appendix D"
to the Rizzo Associates Level 1 Environmental Site
Assessment report (copy provided appears incomplete);
(5) Final Screening Site Inspection / Gros-ite
Industries, Inc. (NUS Corporation, July 16, 1990)
Correspondence Report to DEP (only partial report);
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64
(6) Underground Storage Tank Closure Plan (Aaron
Environmental, January 3, 1991) Underground Storage
Tank Closure Technical Specifications Checklist (2
pages), Table of Contents, Pages i, ii, iii, and
Pages 1 through 7, with attachments:
(A) Appendix A: Work Zone Illustration (Drawing
01);
(B) Appendix B: Site Specific Health and Safety
Plan (9 pages);
(C) Appendix C: Underground Tank Transfer of
Ownership Form, Typical;
(D) Appendix D: Spill Report Notification Form
(Page 2 only); and
(E) Appendix E: Regulatory Correspondence (1
page letter to DEP / January 2, 1990);
(7) Underground Storage Tank Removal Project (Aaron
Environmental, February 7, 1991) Table of Contents,
Pages i and ii, and Pages 1 through 8, with
attachments:
(2) Figure 1: Laboratory Analysis Results (Title page
only, laboratory reports not attached);
(A) Figure 2: Photographic Documentation (3
pages, 3 photographs on each / black & white
copy);
(B) Code of Federal Regulations (40 CFR Subparts
E, F, G) Pages 918-925;
(C) Appendix - 1 Page Sketch of UST Location
(dated 2/7/91);
(D) Northeast Tank Disposal Tank Pickup Receipt
and Transfer of Ownership form;
(E) January 28, 1991 Aaron Environmental Letter
to Scott Deshefy (DEP);
(F) January 29, 1991 Town of Farmington Building
Permit #20518; and
(G) July 31, 1989 State of Connecticut
Interdepartmental Message;
(8) Correspondence dated February 20, 1991 (Aaron
Environmental to Gros-ite Industries, Inc. Mr. Robert
Chicoine) - 1 Page with attachments:
(A) Connecticut Testing Laboratories Report
21-023-5 (February 6, 1991) 2 Pages for Oil
& Grease and PCB analyses only, no chain of
custody; and
(B) Connecticut Testing Laboratories Report
21-023-5 (Page 2, 3, 4, and 5) for Method
602 / 8020 analyses only, no chain of
custody;
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65
(9) Correspondence dated March 6, 1995 Interim Site
Investigation Report (Aaron Environmental Kevin
Bitjeman to Gros-ite Industries Bob Tasillo) with
attachment: Site Sketch March 6, 1995 - 1 Page;
(10) Results of Soil & Groundwater Samples / Vacant Parcel
Between American Research & Woods Electrical 3 Page
Letter (Aaron Environmental, March 9, 1995) with
attachments:
(A) Figure 1 (Site Sketch, March 6, 1995);
(B) Boring Logs (4 Sheets) for SB-1, SB-2, SB-3,
SB-4 (all 2/27/95);
(C) Phoenix Environmental Labs Sample Progress
Reports (31 Pages plus 1 Page Chain of
Custody for sample Ids: AA60951 (SB-1 1-3),
AA60952 (SB-1 30-32), AA60953 (SB-1),
AA60954 (SB-2 5-7), AA60955 (SB-2 30-32),
AA60956 (SB-2), AA60957 (SB-3 5-7), AA60958
(SB-3 30-32), AA60959 (SB-3), AA60960 (SB-4
5-7), AA60961 (SB-4 30-32), and AA60962
(SB-4);
(11) Correspondence dated June 22, 1995 Review of
Environmental Reports 2 page letter (Aaron
Environmental to Gros-ite Industries Frank Moskey)
with Attachment Level II Environmental Site
Assessment report (ERI, June 1995):
(A) 11 page Text, 5 Tables, 2 Figures, site
photographs (2 pages);
(B) Appendix A - Boring Logs and Well
Construction Diagrams;
(C) Appendix B - Spectrum Analytical Reports
(June 1, 1995) AA32853, AA32854, AA32855,
and AA32856 and (June 5, 1991) AA33244,
AA33245, AA33246, AA33247, and AA33250;
(D) Appendix C - Rizzo Associates Level I
Environmental Site Assessment (April 11,
1995), pages i, 1, 4, 5, 7, 11, 14, 16, 17,
19, 21, 23, 25, photo pages 1 to 13, 2 pages
of Appendix A, 2 pages of Appendix B, 2
pages of Appendix C, 11 pages of Appendix D,
6 pages of Appendix E, and 2 pages of
Appendix F; and
(E) Appendix D - Groundwater Technology Level II
Environmental Site Assessment report
(October 1994) for the north adjacent
property (Pages 13, 15, 16, Figures 2 and 3,
and Appendices A-F missing);
(12) Phase I Environmental Site Assessment (Aaron
Environmental, July 24, 2000) 2 page Cover Letter to
Gros-ite Ron Papolizio, Table of Contents (2 pages),
Preface (1 page), report text (pages 1 through 22),
with attachments:
(A) Site Locus Map and Site Plan (May 4, 1999);
(B) 22 pages of miscellaneous Town and DEP
documents;
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66
(C) Con-Test Analytical Laboratory Report (July 21, 2000)
LIMS-49761 (12 pages);
(D) EDR Radius Map with GeoCheck, July 3, 2000 (Executive
Summary pages 1-6, Table of Contents (page 1), report
(pages 2 to 44), pages EPA-1, GR-1 to GR-6, A-1 to
A-6, A-8 to A-17 (page A-7 missing); and
(E) EDR City Directory Abstract, July 7, 2000 (9 pages);
(13) Correspondence Report to Gros-ite Industries Ron Popolizio
Summary of Historical Groundwater Date and Recent Soil and
Groundwater Investigation 3 page letter (Aaron Environmental,
November 3, 2000), with attachments:
(A) Table (Summary of Groundwater Analytical Results);
(B) Table (Summary of Soil Analytical Results);
(C) Figure (Soil & Groundwater Sample Locations /
Collected 10/11/00) Sheet 1 of 1;
(D) Sample Collection Methods Summary (1 Sheet);
(E) Lab Reports and Chain of Custody (Con-Test Analytical
Laboratory LIMS-51564, 56 pages);
(F) Con-Test Analytical Laboratory QC Summary Report (17
Pages); and
(G) Environmental Assessment Limitations (3 pages);
(14) Miscellaneous Documents:
(A) EPA Potential Hazardous Waste Site Preliminary
Assessment (Part 1) 1 page;
(B) NPL Eligibility Checklist (3 pages);
(C) CERCLIS Database Form (September 26, 1988) 3 pages;
(D) Aaron Environmental Specialists Environmental
Assessment Report form (3 pages);
(E) State of Connecticut Form 1064 (1 page) July 6, 1965;
and
(F) State of Connecticut Form P-5 and site sketch (2
pages) December 10, 1970.
(r) "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
(s) "ERISA Affiliate" shall mean a trade or business, whether or not
incorporated, which is deemed to be in common control or affiliated
with Seller within the
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67
meaning of Section 4001 of ERISA or Sections 414(b), (c), (m), or (o)
of the Code.
(t) "Excluded Assets" shall mean:
(1) Cash and cash equivalents of the Business;
(2) Obsolete Inventory;
(3) Accounts receivable of the Business;
(4) All contracts and agreements of the Business other than the
Assumed Contracts;
(5) All assets and properties of Seller not used in the Business;
(6) Real property leases except rights to parking as set forth in
the Lease and the assignment of Seller's rights under its
lease with Peter Stanley Realty as more particularly described
in Section 2.11;
(7) Seller's corporate records and minute book;
(8) All motor vehicles owned by the Seller, except for the 1997
Ford E-350 Van bearing V.I.N. 1FDKE30F7VHA80191;
(9) Items of Seller's tangible personal property used in the
Business NOT set forth on Schedule 2.4.
(u) "Financial Statements" is defined in Section 5.1(f).
(v) "Finished Goods Inventory" shall mean Seller's good and saleable, in
the ordinary course of business, (as such terms are defined by GAAP)
items of finished goods inventory relating to the Business.
(w) "Finished Goods Inventory Purchase Price" is defined in Section 3.1(a).
(x) "Finished Goods Inventory Value" is defined in Section 3.2.
(y) "GAAP" shall mean, with respect to all accounting matters and issues,
generally accepted accounting principles as in effect from time to
time, applied consistent with the Financial Statements.
(z) "Governmental Authority" shall mean any federal, state, local or
foreign government, or any political subdivision of any of the
foregoing, or any court, agency or other entity, body, organization or
group, exercising any executive,
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68
legislative, judicial, quasi-judicial, regulatory or administrative
function of government.
(aa) "Governmental Requirement" shall mean any law, statue, ordinance, rule,
regulation, ordinance, code, order, judgment, writ, injunction or
decree of any Governmental Authority.
(bb) "Knowledge" shall mean (1) with respect to Seller or Gros-ite, actual
knowledge, information or belief, after reasonable inquiry as
appropriate to the context of the statement in which the term is used
of Richard Dandurand, Ronald G. Popolizio and John J. DiFrancesco, and
(2) with respect to Buyer and TOMZ Corporation, actual knowledge,
information or belief, after reasonable inquiry, as appropriate to the
context of the statement in which the term is used, of Zbigniew
Matulaniec, with respect to the matters which are relevant to the
representation, warranty, covenant or agreement being made or given.
(cc) "LTA" shall mean the Long Term Purchase Agreement by and between United
Technologies Corporation acting through its Pratt and Whitney Division
and Gros-ite Industries, Inc. having a commencement date of July 17,
2000.
(dd) "Lease" shall mean that certain lease agreement to be entered into by
Buyer and Seller for Buyer's lease of the Premises.
(ee) "MRP" shall mean the computer requisition system of the Pratt and
Whitney division of United Technologies Corporation.
(ff) "Multiemployer Plan" shall have the meaning set forth in Section 3(37)
of ERISA.
(gg) "Obsolete Inventory" shall mean any of Seller's Finished Goods
Inventory and Work In Process Inventory that are not good and saleable
in the ordinary course (as such terms are defined by GAAP).
(hh) "Person" shall mean any Governmental Authority, individual,
association, joint venture, partnership, corporation, limited liability
company, trust or other entity.
(ii) "Premises" shall mean the real property, with improvements, located at
1790 New Britain Avenue, Farmington, Connecticut, consisting of
approximately 45,5000 square feet of useable space as more particularly
described in the Lease.
(jj) "Pratt and Whitney" shall mean the Pratt and Whitney Division of United
Technologies Corporation.
(kk) "Purchase Orders" shall mean the written orders issued in connection
with the Business by each of Seller's customers constituting the
agreement by said customer to purchase certain goods or services from
Seller.
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69
(ll) "Purchased Assets" shall mean all right, title and interest of Seller
in and to the following assets and properties of Seller used in the
Business:
(1) the Tangible Personal Property;
(2) the Work In Process Inventory;
(3) the Finished Goods Inventory;
(4) all Purchase Orders relating to the Business;
(5) all drawings, designs, technology and intellectual property
exclusively used in the Business;
(6) all customer lists relating to the Business;
(7) the computer software embedded in the Purchased Assets or set
forth on Schedule 1.1(ll)(7), to the extent assignable;
(8) all customer records of the Business except the Retained
Customer Records;
(9) all rights and obligations (except as otherwise specifically
set forth in this Agreement) under the Assumed Contracts;
(10) all trade secrets and confidential business information,
customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals related exclusively
to the Business;
(11) all originals or true copies of all operating data and records
of the Business on whatever media except Retained Customer
Records;
(12) all of Seller's right, title and interest in and to the name
"Gros-ite Engineered Components Division;"
(13) all licenses relating to the Purchased Assets and the Business
to the extent they are transferable; and
(14) the 1997 Ford E-350 Van bearing V.I.N. 1FDKE30F7VHA80191.
(mm) "Purchase Price" shall mean the purchase price for the Purchased Assets
as set forth in Section 3.1.
(nn) "Representative" shall mean any officer, director, principal, attorney
or accountant or any employee designated by written notice to the other
party prior to the execution of this Agreement, of any Person.
(oo) "Reportable Event" shall have the meaning set forth in ERISA Section
4043.
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70
(pp) "Retained Customer Records" shall mean all customer records of
the Business retained by Seller pursuant to the requirements
of Pratt and Whitney or the Federal Aviation Administration.
(qq) INTENTIONALLY OMITTED.
(rr) "Tangible Personal Property" is defined in Section 2.4.
(ss) "Tangible Personal Property Purchase Price" is defined in
Section 3.1(c).
(tt) "Tax" shall mean any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code ss.59A), customs,
duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or
not.
(uu) "Tax Liability" shall mean any liability (whether known or
unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due) for Taxes.
(vv) "Tax Return" shall mean any return, declaration, report, claim
for refund, or information return or statement relating to
taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(ww) "WIP Purchase Price" is defined in Section 3.1(b).
(xx) "Work In Process Inventory" shall mean all items of Seller's
good and saleable in the ordinary course of business, (as such
terms are defined by GAAP) work in process relating to the
Business, including raw material inventory, detail inventory
and parts in production.
(yy) "Work In Process Inventory Value" is defined in Section 3.2.
Section 1.2 Usage of Terms. Except where the context otherwise
requires, words importing the singular number shall include the plural number
and vice versa.
Section 1.3 References to Articles, Sections, Exhibits and Schedules.
All references in this Agreement to Articles, Sections (and other subdivisions),
Exhibits and Schedules refer to the corresponding Articles, Sections (and other
subdivisions), Exhibits and Schedules of or attached to this Agreement, unless
the context expressly, or by necessary implication, otherwise requires.
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71
ARTICLE II
PURCHASE AND SALE OF ASSETS OF SELLER AND LEASE OF PREMISES
Section 2.1 Transfer of Purchased Assets; Assumption of Assumed
Liabilities. Subject to the terms and conditions contained in this Agreement, on
the Closing Date:
(a) Seller shall sell, convey, transfer, assign, and deliver to
Buyer, and Buyer shall acquire from Seller, the Purchased
Assets, free and clear of any Encumbrances other than Seller's
second priority interest in the Work In Process Inventory
pursuant to Section 3.8; and
(b) Buyer shall assume the Assumed Liabilities.
Section 2.2 Purchase of Finished Goods Inventory. At the Closing,
Seller shall sell and Buyer shall acquire Seller's Finished Goods Inventory.
Section 2.3 Purchase of Work In Process Inventory. At the Closing,
Seller shall sell and Buyer shall acquire Seller's Work In Process Inventory.
Section 2.4 Purchase of Tangible Personal Property. At the Closing,
Seller shall sell and Buyer shall acquire those assets set forth on Schedule 2.4
(collectively, "Tangible Personal Property"). It is understood and agreed by the
parties hereto that the following will be transferred to Buyer, at no additional
cost to Buyer, eleven (11) Vantage Seats, all Unigraphics Seats utilized in the
Business as more fully described on said Schedule 2.4, two (2) Surfcam Seats and
five (5) Cadkey Seats presently being utilized by the Business in its production
process, the transfer of which shall be subject to the approval of Vantage,
Unigraphics, Surfcam and Cadkey, respectively, as required. Buyer shall assume
the maintenance contracts relating to the foregoing.
Section 2.5 Purchase of Name. At the Closing, Seller shall transfer to
Buyer all of Seller's right, title and interest in and to the name "Gros-ite
Engineered Components Division."
Section 2.6 Assumed Contracts. At the Closing, Seller shall assign and
transfer to Buyer and Buyer shall assume Seller's obligations, EXCEPT SELLER'S
WARRANTY OBLIGATIONS WITH RESPECT TO GOODS PRODUCED BY SELLER, arising from the
Closing Date forward pursuant to the following:
(a) the LTA;
(b) current orders originated through the MRP;
(c) Agreement with Vantage, provided the Vantage Seats are
transferred pursuant to Section 2.4, to the extent assignable;
(d) Agreement with Unigraphics, provided the Unigraphics Seats are
transferred pursuant to Section 2.4, to the extent assignable;
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72
(e) Agreement with Surfcam, provided the Surfcam Seats
are transferred pursuant to Section 2.4, to the
extent assignable;
(f) Agreement with Cadkey, provided the Cadkey Seats are
transferred pursuant to Section 2.4, to the extent
assignable;
(g) the Purchase Orders.
Prior to the Closing Date, the Seller shall provide Buyer with copies
of all vendor contracts and third party contracts materially relating to the
Business. The Seller shall transfer all of its right, title to and interest in
such agreements to Buyer and such assumed agreements will be deemed "Assumed
Contracts."
Section 2.7 Non-Assumption of Liabilities.
(a) The Buyer shall not assume or be bound by any duties,
responsibilities, obligations or liabilities of the
Seller of any kind, known or unknown, contingent or
otherwise, other than those obligations and
liabilities expressly assumed by it pursuant to this
Agreement. Without limiting the foregoing, Buyer does
not assume, undertake or accept any duties,
responsibilities, obligations or liabilities of the
Seller (that exist now or at the Closing Date or that
may arise in the future with respect to any matter
occurring at or prior to the Closing Date):
(1) with respect to employees or former
employees of the Seller or any of their
beneficiaries, heirs or assignees,
including:
(A) any pension, accrued vacation or
other liabilities;
(B) any matter arising by virtue of any
collective bargaining relationship
or agreement or pursuant to the
National Labor Relations Act or any
other labor relations law; and
(C) any matter arising with respect to
workers' compensation, severance,
payroll and/or unemployment tax,
pension, profit-sharing, health
insurance, COBRA, accrued but
unused vacation or other employee
benefit liabilities in respect of
any employees of Seller in the
Business employed by Buyer prior to
the Closing.
(2) with respect to the Pension Benefit Guaranty
Corporation or any similar organization,
whether arising out of the employment by the
Seller of any employees or former employees,
the transactions contemplated by this
Agreement or otherwise;
(3) with respect to:
(A) Tax;
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(B) Any claims for personal injuries,
property damages or consequential
damages relating to Seller's
actions or inactions with respect
to defective products sold,
condition or operation of the
Business or Premises or otherwise;
(4) with respect to any matter arising under any
statute, rule or regulation, including but
not limited to antitrust, civil rights,
health, safety, labor, discrimination and
environmental laws, rules and regulations,
at or prior to the Closing Date; or
(5) arising out of or based upon any matters
disclosed by Seller on the Exhibits or
Schedules to this Agreement at or prior to
the Closing Date.
(b) The Seller shall not assume or be
bound by any duties,
responsibilities, obligations or
liabilities of the Buyer or TOMZ
Corporation of any kind known or
unknown, contingent or otherwise,
other than those obligations and
liabilities expressly assumed by
it pursuant to this Agreement.
Without limiting the foregoing,
Seller does not assume, undertake
or accept any duties,
responsibilities, obligations or
liabilities of the Buyer or TOMZ
Corporation (that exist now or at
the Closing Date or that may arise
in the future with respect to any
matter occurring at or after the
Closing Date):
(1) with respect to employees or former
employees of the Buyer or any of its
beneficiaries, heirs or assignees,
including:
(A) any pension, accrued vacation or
other liabilities;
(B) any matter arising by virtue of
any collective bargaining
relationship or agreement or
pursuant to the National Labor
Relations Act or any other labor
relations law; and
(C) any matter arising with respect to
workers' compensation, severance,
payroll and/or unemployment tax,
pension, profit-sharing, health
insurance, COBRA, accrued but
unused vacation or other employee
benefit liabilities in respect of
any employees of Seller in the
Business employed by Buyer at or
after the Closing.
(2) with respect to the Pension Benefit
Guaranty Corporation or any similar
organization, whether arising out of the
employment by the Seller of any employees
or former employees, the transactions
contemplated by this Agreement or
otherwise;
(3) with respect to:
(A) Tax;
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(B) Any claims for personal injuries,
property damages or consequential
damages relating to Buyer's
actions or inactions after the
Closing Date with respect to
defective products sold, condition
or operation of the Business or
Premises or otherwise;
(4) with respect to any matter arising under
any statute, rule or regulation, including
but not limited to antitrust, civil rights,
health, safety, labor, discrimination and
environmental laws, rules and regulations,
after the Closing Date.
Section 2.8 Consents. Except with respect to those agreements set forth
in Section 2.6(c), (d), (e), and (f), to the extent that the assignment of any
contract, commitment or other item to be assigned to Buyer as provided in this
Agreement shall require the consent of the other parties, Seller shall use its
best efforts to obtain all such consents and, at the request of Buyer to
continue such efforts after the Closing Date. If any such consent is not
obtained, Seller agrees to cooperate with Buyer in any reasonable arrangements
(such as subcontracting, sublicensing or subleasing) designed to provide for
Buyer all of the benefits of Seller under such contract, commitment, or sales
order, as the case may be, including enforcement for the benefit of Buyer and
any and all rights of Seller arising out of the breach or cancellation of such
contract, commitment or other item.
Section 2.9 Delivery of Purchased Assets. Simultaneously with the
Closing, Seller shall deliver to Purchaser physical possession of all the
Purchased Assets.
Section 2.10 Limitation on Assumption of Warranty Obligations by Buyer
and Seller.
(a) With respect to the Finished Goods
Inventory: Notwithstanding
anything in the Consent to
Assignment to the
contrary, Buyer shall not assume
any of Seller's warranty
obligations.
(b) With respect to Work In Process
Inventory: Notwithstanding anything
in the Consent to Assignment to the
contrary, Buyer shall not assume
Seller's warranty obligations
arising under the Purchase Orders,
the LTA or otherwise where the
warranty obligation arises due to
the fault of the Seller. Buyer,
however, will perform warranty work
required due to Seller's defects at
Seller's written request and in
exchange for payment by Seller to
Buyer of an amount equal to Buyer's
cost of any such work performed by
Buyer on Seller's behalf plus
fifteen percent (15%). With respect
to any warranty obligations arising
under Purchase Orders or the LTA in
connection with defects in Work In
Process Inventory caused by the
fault of Buyer, Buyer shall bear
full responsibility for any work
necessary to correct the defect.
Notwithstanding anything in the
Consent to Assignment to the
contrary, in the event that Buyer
and Seller are unable to agree as
to the apportionment of fault with
respect to defects in Work In
Process Inventory, any such dispute
shall be submitted to arbitration
in accordance with the provisions
of Section 9.17,
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with the nonprevailing party being responsible for
payment of all costs and expenses, including
reasonable attorney's fees, incurred in connection
therewith by the prevailing party and a penalty equal
to twenty-five percent (25%) of the amount awarded.
Section 2.11 Lease of Premises. At the Closing, Seller and Buyer shall
enter into a lease in the form attached as Exhibit A covering the Premises.
Seller and Buyer shall also enter an assignment of lease agreement in the form
attached as Exhibit B covering three thousand (3,000) square feet of space in
the premises located at 1838 New Britain Avenue, Farmington, Connecticut.
Section 2.12 Seller's Storage at the Premises. Buyer shall permit
Seller to store at the Premises for a period not to exceed ninety (90) days from
the Closing Date, equipment of Seller located at the Premises immediately prior
to the Closing which does not constitute Purchased Assets. Buyer shall permit
Seller's MIS and Design employees to remain at the Premises for a period of
ninety (90) days immediately following the Closing Date. All risk of loss with
respect to the Seller's storage of its equipment at the Premises and location of
its employees at the Premises as permitted in this Section 2.12 rests solely
with Seller. Seller shall maintain adequate insurance coverage with respect to
such equipment and employees and shall provide Buyer with evidence of such
coverage at the Closing. In the event that Seller does not remove its equipment
and assets prior to the expiration of said ninety (90)-day period, Seller shall
pay Buyer for use and occupancy Forty-Five Dollars ($45) per day for each day
Seller's employees and/or equipment remain on the Premises. Seller shall be
responsible for all obligations relating to such equipment. Risk of loss with
respect to such equipment shall remain entirely with Seller.
Section 2.13 Noncompetition Agreement. At the Closing, EDAC, Gros-ite
and Buyer shall enter into a noncompetition agreement in the form attached as
Exhibit C.
Section 2.14 INTENTIONALLY OMITTED.
Section 2.15 Delivery of Irrevocable Proxies. Upon filing of a proxy
solicitation in connection with the transactions contemplated by this Agreement
with the Securities and Exchange Commission, Seller shall deliver to Buyer,
subject to applicable Federal and Wisconsin securities law, copies of the
irrevocable proxies of all members of EDAC's Board of Directors affirmatively
voting to approve the transactions contemplated by this Agreement.
ARTICLE III
PURCHASE PRICE AND PAYMENT
Section 3.1 Purchase Price. As consideration for the sale, transfer,
assignment, conveyance and delivery of the Purchased Assets, Buyer shall assume
the Assumed Liabilities and shall pay to Seller the following (collectively
"Purchase Price"):
(a) Subject to the provisions of Section 3.2, for the
Finished Goods Inventory, One Million Eight Hundred
Forty-Eight Thousand Eight Hundred Seven Dollars
($1,848,807) ("Finished Goods Inventory Purchase
Price");
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(b) Subject to the provisions of Section 3.2, for the
Work In Process Inventory, Three Million Five Hundred
Ten Thousand Nine Hundred Eight-Two Dollars
($3,510,982) ("WIP Purchase Price").
(c) for the Tangible Personal Property and the 1997 Ford
E-350 Van bearing V.I.N. 1FDKE30F7VHA80191, One
Million Nine Thousand Five Hundred Dollars
($1,009,500) ("Tangible Personal Property Purchase
Price");
(d) for all right, title and interest in and to the name
"Gros-ite Engineered Components Division", One
Hundred Dollars ($100).
Section 3.2 Post-Closing Adjustment. The parties have determined the
value of the Finished Goods Inventory and the Work In Process Inventory as of
December 30, 2000 to be as set forth in Section 3.1(a) with respect to Finished
Goods Inventory and Section 3.1(b) with respect to Work In Process Inventory
(the "Initial Value"). As soon as reasonably practicable after the Closing, but
in no event later than thirty (30) calendar days after the Closing, Seller shall
(a) conduct a physical inventory and determine a tentative value of the Finished
Goods Inventory as of the Closing Date ("Finished Goods Inventory Value") and
(b) determine the value of Work In Process Inventory as of the Closing Date
("Work In Process Inventory Value"). Seller shall present such Finished Goods
Inventory Value and Work In Process Inventory Value to Buyer in writing
(collectively "Tentative Value"). Buyer and its Representatives may observe the
physical inventory and review all computations used in preparations of the
Tentative Value. If Buyer does not give written notice of dispute thereof to
Seller within ten (10) days after receipt of the Tentative Value and all
supporting computations, the Tentative Value shall become the "Final Value." If
Buyer notifies Seller of a dispute within the ten (10) day period, Seller and
Buyer shall negotiate in good faith to agree upon the Final Value. If Seller and
Buyer cannot resolve the dispute within thirty (30) days thereafter, the parties
shall submit the matter to Ernst & Young, LLP to be resolved pursuant to Section
9.17 hereof, except that Ernst & Young, LLP shall administer the arbitration and
act as the sole arbitrator, which resolution of the Final Value shall be
conclusive and binding on the parties. Determination of the Final Value shall be
made in accordance with the valuation procedures contained in this Section.
If the Final Value is less than the Initial Value, the Purchase Price
shall be reduced by the difference between the Initial Value and the Final
Value. If such adjustment is required with respect to Finished Goods Inventory,
Seller shall pay to Buyer, by check or wire transfer, the entire adjustment
amount within five (5) days of the determination of the Final Value for Finished
Goods Inventory or, if applicable, within five (5) days of receipt of a
determination in resolution of any dispute over the Final Value of Finished
Goods Inventory as provided in this Section. If such adjustment is required with
respect to Work In Process Inventory, Seller shall pay to Buyer, by check or
wire transfer, one-half of the adjustment amount within five (5) days of the
determination of the Final Value of Work In Process Inventory or, if applicable,
within five (5) days of receipt of a determination in resolution of any dispute
over the Final Value of Work In Process Inventory as provided in this Section,
and the balance to be paid to Seller by Buyer pursuant to Section 3.4(b)(2)
below shall be reduced by the other one-half of the adjustment amount. In the
event that the determination in resolution of any dispute over the Final Value
of Work In Process Inventory occurs after the payment date set forth in Section
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3.4(b)(2), the Seller shall pay to Buyer, by check or wire transfer, the other
one-half of the adjustment amount within five (5) days of receipt of the
determination. Notwithstanding the foregoing, if the parties are in agreement as
to a part of the Final Value of Finished Goods Inventory and/or Work In Process
Inventory, only the disputed portion of the Final Value shall be submitted to
dispute resolution and payment for the part of the Final Value to which the
parties have agreed shall be made as otherwise provided herein without regard to
receipt of a determination in resolution for the disputed portion.
If the Final Value is greater than the Initial Value, Buyer shall pay
Seller the difference between the Final Value and the Initial Value. If such
adjustment is required with respect to Finished Goods Inventory, Buyer shall pay
to Seller, by check or wire transfer, the entire adjustment amount within five
(5) days of the determination of the Final Value for Finished Goods Inventory,
or if applicable, within five (5) days of receipt of a determination in
resolution of any dispute of the Final Value of Finished Goods Inventory as
provided in this Section. If such adjustment is required with respect to Work In
Process Inventory, Buyer shall pay to Seller, by check or wire transfer,
one-half of the adjustment amount within five (5) days of the determination of
the Final Value of Work In Process Inventory or, if applicable, within five (5)
days of receipt of a determination in resolution of any dispute over the Final
Value of Work In Process Inventory as provided in this Section, and the balance
to be paid by Buyer to Seller pursuant to Section 3.4(b)(2) below shall be
increased by the other one-half of the adjustment amount. In the event that the
determination in resolution of any dispute over the Final value of Work In
Process Inventory occurs after the payment date set forth in Section 3.4(b)(2),
the Buyer shall pay to Seller, by check or wire transfer, the other one half of
the adjustment amount within five (5) days of receipt of the determination.
Notwithstanding the foregoing, if the parties are in agreement as to a part of
the Final Value of Finished Goods Inventory and/or Work In Process Inventory,
only the disputed portion of the Final Value shall be submitted to dispute
resolution and payment for the part of the Final Value to which the parties have
agreed shall be made as otherwise provided herein without regard to receipt of a
determination in resolution for the disputed portion.
Notwithstanding anything herein to the contrary, the value of an item
of inventory, whether Finished Goods Inventory or Work In Process Inventory,
shall be determined based upon the Book Value, as hereinafter defined, for each
such inventory item. "Book Value" shall mean the lesser of eighty-five percent
(85%) of the current selling price for such item as determined by reference to
the Purchase Order or other instrument pursuant to which such item is sold and
delivered to the customer, or Seller's actual cost, as determined by the cost
accounting method consistently applied set forth on Schedule 3.2 hereto.
Section 3.3 Allocation of Purchase Price. The Purchase Price shall be
allocated as set forth on Schedule 3.3 Unless otherwise agreed in writing by
Buyer and Seller, Buyer and Seller shall: (i) reflect the Purchased Assets in
each of Buyer and Seller's books and for federal, state, local and foreign tax
reporting purposes in accordance with such allocation; (ii) file all forms
required under Section 1060 of the Code and all other tax returns and reports in
accordance with and based upon such allocation; and (iii) unless required to do
so in accordance with a "determination" as defined in Section 1313(a)(1) of the
Code, take no position in any tax return, tax proceeding, tax audit or otherwise
which is inconsistent with such allocation.
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Section 3.4 Payment of Purchase Price. Buyer shall pay to Seller the
consideration set forth in Section 3.1 as follows:
(a) the Finished Goods Inventory Purchase Price shall be
paid in immediately available funds at the Closing;
(b) payment of the WIP Purchase Price shall be as
follows:
(1) Fifty percent (50%) shall be paid in
immediately available funds in advance at
the Closing ("Closing Payment"); and
(2) the balance shall be paid on the fifteenth
(15th) day of tenth (10th) month following
the Closing Date;
(c) the Tangible Personal Property Purchase Price shall
be paid at the Closing; and
(d) the $100.00 due pursuant to Section 2.5 shall be paid
at the Closing.
Section 3.5 Closing Adjustments. There shall be prorated and adjusted
between Seller and Buyer as of the close of business on the Closing Date
personal property taxes, personal property lease payments, and software
maintenance agreement payments.
Section 3.6 Taxes. Seller shall be responsible for the payment of any
transfer, excise, business and occupation, gross receipts or other similar taxes
(other than sales and use taxes) imposed by reason of the transfer of the
Purchased Assets pursuant to this Agreement and any deficiency, interest or
penalty with respect to such taxes. Buyer shall be responsible for the payment
of any sales and use tax imposed by reason of the transfer of the Purchased
Assets pursuant to this Agreement and any deficiency, interest or penalty with
respect to such taxes.
Section 3.7 Guaranty by TOMZ Corporation. TOMZ Corporation shall
guaranty payment of the Purchase Price and all obligations of Buyer under this
Agreement by executing a Guaranty Agreement in the form attached hereto as
Exhibit E, which Guaranty Agreement shall provide that Seller shall only proceed
against TOMZ Corporation after it has first made written demand of Buyer and
payment is not made within sixty (60) days of delivery of such written demand to
Buyer.
Section 3.8 Collateral. To further secure Buyer's obligations set forth
under Section 3.4(b)(2), Buyer shall grant Seller a second priority security
interest in the Work In Process Inventory, subordinate to the security interest
granted by Buyer to its lender pursuant to in the financing obtained by Buyer in
connection with its acquisition of the Purchased Assets. In connection
therewith, Seller shall deliver to Buyer at Closing, UCC-3 Termination
Statements executed by Seller. Seller hereby irrevocably appoints Buyer its
attorney-in-fact, coupled with an interest, to sign UCC-3 Termination Statements
on behalf of Seller in connection with the release of the security interests
hereby granted.
Section 3.9 Pledge of Securities. To secure all obligations of Buyer
under this Agreement, Buyer has caused Zbigniew Matulaniec to pledge to EDAC
marketable securities
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having a value, as of the date of this Agreement, of at least Four Hundred
Thousand Dollars ($400,000) pursuant to a Pledge Agreement in the form of
Exhibit F. Except as required to satisfy the Seller's liquidated damages claim
under Section 9.3(c) hereof, the Seller shall only proceed against the pledge of
marketable securities after it has made written demand of both Buyer and TOMZ
Corporation pursuant to its guaranty in Section 3.7 hereof and payment is not
made within sixty (60) days of delivery of such written demands to Buyer and
TOMZ Corporation.
Section 3.10 Offset. Notwithstanding any provisions in this Agreement
to the contrary, Buyer shall have the right to offset against any amounts due
Seller whether under this Agreement, the Lease or any other agreement or
document entered into with Seller any amounts due Buyer from Seller under this
Agreement including, but not by way of limitation, Seller's obligations arising
under Section 8.1. If Buyer withholds payments under this Section and the same
are determined in arbitration to have been wrongfully withheld, then interest
calculated per annum at the rate of prime as reported by The Wall Street Journal
effective as of the date of offset plus three percent (3%) will be added to such
balance due until paid in full and in addition thereto Buyer shall pay Seller a
penalty of twenty-five percent (25%) of the amount withheld.
ARTICLE IV
CLOSING
Section 4.1 Closing. The closing ("Closing") of the transactions
contemplated by this Agreement shall be held on or before the fifth (5th) day
following the meeting of the shareholders of EDAC scheduled for May 15, 2001
("Closing Date"). EDAC will not, unless required by law, reschedule this
shareholders meeting to a date later than May 30, 2001, or such other date as
mutually agreed upon by Buyer and Seller. The Closing shall occur at the offices
of Eisenberg, Anderson, Michalik & Lynch, 136 West Main Street, New Britain,
Connecticut 06052, or any other place as Buyer and Seller mutually agree. The
Closing shall be effective as of the close of business on the Closing Date.
Section 4.2 Conveyance at Closing.
(a) Seller's Delivery.
(1) Instruments and Possession. Upon the terms
and conditions contained in this Agreement,
on the Closing Date; Seller shall deliver to
Buyer:
(A) a Bill of Sale conveying clear
title to the Purchased Assets, in
the Form of Exhibit G;
(B) an Assignment Agreement assigning
all rights to the Assumed
Contracts, in the form of Exhibit
H;
(C) a consent to the assignment of
the LTA ("Consent to Assignment")
in the form of Exhibit I;
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(D) the executed Lease;
(E) the Non-Disturbance Agreements in
the form attached as Exhibit J;
(F) statement from the State of
Connecticut regarding corporation
income, unemployment and
withholding taxes in response to
Seller's request for a tax
clearance;
(G) a certificate of Status for each of
EDAC and Gros-ite updated to within
two (2) weeks of the Closing Date;
(H) a certificate in the form of
Exhibit K, executed by EDAC and
Gros-ite, dated the Closing Date,
to the effect that: (i) the
representations and warranties of
EDAC and Gros-ite contained herein
were true when made, and, as in
effect on the Closing Date, are
true on the Closing Date with the
same effect as though made on and
as of the Closing Date; and (ii)
each of EDAC and Gros-ite has
performed and complied with all of
the agreements and covenants to be
performed or complied with by it
under this Agreement prior to and
as of the Closing Date;
(I) the legal opinion of Seller's
counsel addressed to Buyer, dated
the Closing Date, in the form of
Exhibit L;
(J) the noncompetition agreement in the
form of Exhibit C;
(K) the UCC-3 Termination Statements
described in Section 3.8;
(L) certificate of title to the 1997
Ford E-350 Van bearing V.I.N.
1FDKE30F7VHA80191;
(M) all consents required in connection
with the Assumed Contracts, except
any consents required with respect
to the agreements set forth in
Section 2.6(c), (d), (e), and (f);
and
(N) an assignment of Seller's rights
and obligations under its lease
with Peter Stanley Realty regarding
1838 New Britain Avenue,
Farmington, Connecticut in the form
of Exhibit B.
(b) Buyer's Delivery.
(1) Instruments. Upon the terms and conditions
contained in this Agreement, on the Closing
Date, Buyer and/or TOMZ Corporation shall
deliver or shall cause to be delivered to
Seller:
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(A) an Assignment Agreement assuming all rights
to the Assumed Contracts in the form of
Exhibit H;
(B) a consent to the assignment of the LTA
in the form of Exhibit I;
(C) the executed Lease;
(D) the Non-Disturbance Agreements in the form
of Exhibit J;
(E) a certificate of Legal Existence for each of
Buyer and TOMZ Corporation updated to within
two (2) weeks of the Closing Date;
(F) a certificate in the form of Exhibit K,
executed by Buyer and TOMZ Corporation,
dated the Closing Date, to the effect that:
(i) the representation and warranties of
Buyer and TOMZ Corporation and Buyer
contained herein were true when made, and,
as in effect on the Closing Date, are true
on the Closing Date with the same effect as
though made on and as of the Closing Date;
and (ii) each of TOMZ Corporation and Buyer
have performed and complied with all of the
agreements and covenants to be performed or
complied with by it under this Agreement
prior to and as of the Closing Date;
(G) the legal opinion of Buyer's counsel
addressed to Seller, dated the Closing Date,
in the form of Exhibit M;
(H) the Noncompetition Agreement in the form of
Exhibit C;
(I) the Guaranty of TOMZ Corporation in the form
of Exhibit E;
(J) the UCC financing statements described in
Section 3.8; and
(K) the Pledge Agreement in the form of Exhibit
F.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF EDAC AND GROS-ITE
Section 5.1 EDAC's and Gros-ite's Representations. Each of EDAC and Gros-ite,
hereby, jointly and severally, represents and warrants to Buyer and TOMZ
Corporation as follows:
(a) Organization, Good Standing and Authority Seller to
Conduct Business. EDAC is a corporation, duly
incorporated, validly existing and in good standing
under the laws of the State of Wisconsin. Gros-ite is
a
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corporation, duly incorporated, validly existing and
in good standing under the laws of the State of
Connecticut. Schedule 5.1(a) sets forth each trade
name or assumed name used by Gros-ite and EDAC in the
conduct of the Business. Each of EDAC and Gros-ite
has full power and authority to conduct its business
as it is presently being conducted and to own and
lease its properties and assets. Except as set forth
on Schedule 5.1(a) Seller conducts the Business
directly and not through any other Person.
(b) Power and Authority; Authorization; Binding Effect.
Each of EDAC and Gros-ite has all necessary power and
authority and has taken all action necessary to
execute and deliver this Agreement, to consummate the
transactions contemplated by this Agreement, and to
perform its obligations under this Agreement. Copies
of all resolutions of the board of directors and
shareholders of each of EDAC and Gros-ite with
respect to the transactions contemplated by this
Agreement, certified by the Secretary or an Assistant
Secretary of EDAC and Gros-ite, respectively, in the
form attached as Schedule 5.1(b) will be delivered to
Buyer at Closing. This Agreement has been duly
executed and delivered by EDAC and Gros-ite and
constitutes a legal, valid and binding obligation of
each of EDAC and Gros-ite enforceable against EDAC
and Gros-ite in accordance with its terms, except as
such enforcement may be limited by (1) bankruptcy,
insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to
creditors' rights and (2) the discretion of the
appropriate court with respect to specific
performance, injunctive relief or other forms of
equitable remedies.
(c) No Conflict or Violation. The execution and delivery
of this Agreement, the consummation of the
transactions contemplated by this Agreement, and the
fulfillment of the terms of this Agreement do not and
will not result in or constitute (1) a material
violation of or conflict with any provision of the
certificate of incorporation or by-laws of EDAC or
Gros-ite, (2) except as set forth on Schedule 5.1(c),
a material breach of, a loss of rights under, or
constitute an event, occurrence, condition or act
which is or, with the giving or notice, the lapse of
time or the happening of any future event or
condition, would become, a material default under, or
result in the acceleration of any obligation under,
any term or provision of, any material contract,
agreement, indebtedness, encumbrance, commitment,
license, franchise, permit, authorization or
concession to which EDAC or Gros-ite is a party, (3)
a material violation by EDAC or Gros-ite of any
statute rule, regulation, ordinance, code, order,
judgment, writ, injunction, decree or award
applicable to EDAC or Gros-ite; (4) a material
violation of any state or federal securities laws or
regulations; or (5) an imposition of any Encumbrance
on the Purchased Assets other than as contemplated
pursuant to Section 3.8 and as provided by Buyer to
its lender.
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(d) Consents and Approvals. Except for any filings or
approvals set forth on Schedule 5.1(d) no consent,
approval or authorization of, or declaration, filing
or registration with, any Person is required to be
made or obtained by EDAC or Gros-ite in connection
with: the execution, delivery and performance of this
Agreement; the consummation of the transactions
contemplated by this Agreement; or Buyer's future
conduct of the Business.
(e) No Proceedings. Except as set forth on Schedule
5.1(e), there is no action, order, writ, injunction,
intellectual property infringement, judgment or
decree outstanding, or claim, suit, litigation,
proceeding, arbitrary action or investigation pending
or, to Seller's Knowledge, threatened against,
relating to or affect in any adverse manner,
Gros-ite, the Business, the Purchased Assets or the
transactions contemplated by this Agreement and
Seller is not in default under any judgment, order,
decree or stipulation affecting the Business.
(f) Financial Statements. Seller has delivered to Buyer
audited consolidated statements of operations,
balance sheets, statements of cash flows, and
statements of changes in shareholders' equity as of
and for the fiscal year ended December 30, 2000 for
Seller ("Financial Statements"). The Financial
Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered
thereby, present fairly the financial condition of
the Seller as of such dates and the results of
operations of the Seller for such periods, are
correct and complete, and are consistent with the
books and records of the Seller (which books and
records are correct and complete).
(g) Tax Matters. Except as set forth on Schedule 5.1(g)
with respect to the Business:
(1) Each of EDAC and Gros-ite has filed all Tax
Returns that it was required to file. All
such Tax Returns were correct and complete
in all material respects. All taxes owed by
EDAC and Gros-ite (whether or not shown on
any Tax Return) have been paid. Neither EDAC
nor Gros-ite is currently the beneficiary of
any extension of time within which to file
any Tax Return. No claim has ever been made
by an authority in a jurisdiction where the
EDAC or Gros-ite file Tax Returns that
either is or may be subject to taxation by
that jurisdiction. There are no security
interests on any of the assets of EDAC or
Gros-ite that arose in connection with any
failure (or alleged failure) to pay any Tax.
(2) Each of EDAC and Gros-ite has withheld and
paid all taxes required to have been
withheld and paid in connection with amounts
paid or owing to any employee, independent
contractor, creditor, stockholder, or other
third party.
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(3) To Seller's Knowledge, neither EDAC nor
Gros-ite expects any authority to assess any
additional taxes with respect to the EDAC or
Gros-ite for any period for which Tax
Returns have been filed. There is no dispute
or claim concerning any Tax Liability of
EDAC or Gros-ite either (A) claimed or
raised by any authority in writing or (B) as
to which either of EDAC or Gros-ite has
knowledge. Schedule 5.1(g), lists of all
federal, state, local and foreign income Tax
Returns filed with respect to EDAC and
Gros-ite for taxable periods that have been
audited, and indicates those Tax Returns
that currently are the subject of audit.
Neither EDAC nor Gros-ite has delivered to
the Buyer copies of any federal income Tax
Returns, examination reports, and statements
of deficiencies assessed against or agreed
to by EDAC and Gros-ite, respectively,
therefore the Buyer places absolute reliance
upon the representations made with respect
to Taxes, Tax Liabilities, and Tax Returns
on said Schedule 5.1(g) and otherwise
herein.
(4) Neither EDAC nor Gros-ite has waived any
statute of limitations in respect of Taxes
or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(5) Each of EDAC and Gros-ite has disclosed on
its federal income Tax Returns all positions
taken therein that could give rise to a
substantial understatement of federal income
Tax within the meaning of Codess.6662.
Neither EDAC nor Gros-ite is a party to any
Tax allocation or sharing agreement. Neither
EDAC nor Gros-ite has been a member of an
affiliated group filing a consolidated
federal income Tax Return (other than a
group the common parent of which was the
Seller) or (B) has any Tax Liability of any
Person (other than any of the Seller and its
subsidiaries) under Treasury
Regulations ss.1.1502-6 (or any similar
provision of state, local, or foreign law),
as a transferee or successor, by contract,
or otherwise.
(6) The unpaid taxes of EDAC and Gros-ite,
respectively, (A) did not, as of December
30, 2000, exceed the reserve for Tax
Liability (rather than any reserve for
deferred taxes established to reflect timing
differences between book and Tax income) set
forth on the face of the Financial
Statements (rather than in any notes
thereto) (B) do not exceed that reserve as
adjusted for the passage of time through the
Closing Date in accordance with the past
custom and practice of EDAC and Gros-ite,
respectively, in filing its Tax Returns.
(h) Title to Purchased Assets and Premises. Except as
disclosed on Schedule 5.1(h), each of EDAC and
Gros-ite, respectively, has such title to all of the
Purchased Assets and the Premises as is necessary to
permit the use and enjoyment of the Purchased Assets
and Premises substantially in the
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manner that the Purchased Assets and the Premises are
now utilized by EDAC and Gros-ite, and the Purchased
Assets and Premises are free and clear of any
Encumbrances, except as set forth on Schedule 2.1(a).
Each of Gros-ite and EDAC has full right, power and
authority to sell, convey and assign the Purchased
Assets and to enter into the Lease.
(i) Real Property. Schedule 5.1(i) sets forth a complete
list of all real property and interests in real
property leased or subleased by EDAC and Gros-ite and
used in the Business.
(j) Tangible Personal Property. Schedule 2.4 sets forth a
complete list of each item of tangible personal
property constituting Purchased Assets owned by EDAC
or Gros-ite having a value in excess of $3,000, and
is a complete list of each item of tangible personal
property constituting Purchased Assets leased by EDAC
or Gros-ite (other than individual leases of office
equipment having an annual rent of less than $3,000)
(inclusive of the tangible personal property not
required to be set forth in Schedule 2.4 because of
the foregoing dollar thresholds.) Except for the
Sutton Barrel Machine as set forth on Schedule
5.1(j), all of the Tangible Personal Property is
located at 1790 New Britain Avenue, Farmington,
Connecticut. Each item of Tangible Personal Property
is adequate for its intended use, free from defects
(patent and latent), has been maintained in
accordance with normal industry practice, is in good
operating condition and repair (subject to normal
wear and tear), and is suitable for the purposes for
which it is presently used.
(k) Options. Other than set forth on Schedule 5.1(k),
there are no outstanding options, calls, contracts,
leases or commitments of any character for the sale
or use of the Purchased Assets.
(l) Terminations. Other than as set forth on Schedule
5.1(l), no Work In Process Inventory has been
terminated by EDAC's or Gros-ite's customers as of
February 28, 2001.
(m) INTENTIONALLY OMITTED.
(n) INTENTIONALLY OMITTED.
(o) Patents and Trademarks. Schedule 5.1(o), sets forth a
true and complete list of all domestic and foreign
patents, copyrights, trademarks, trade names and all
registrations or applications with respect to the
Purchased Assets and the Business, and licenses or
rights under the same relating to the Purchased
Assets and the Business, owned or held by EDAC or
Gros-ite and there is not outstanding with respect
thereto any license or other permission granted by
EDAC or Gros-ite to any other person, firm or
corporation. The listing of patents and patent
applications on the attached Schedule 5.1(o) sets
forth for each entry the patent number, patent date,
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patent inventor, and patent title. There are no
outstanding claims which have been asserted in
writing against EDAC or Gros-ite alleging
infringement of any patent, copyright, trademark,
trade name or license of any other person, firm or
corporation, nor has EDAC or Gros-ite been advised by
its legal counsel that there is outstanding any
adversely held patent, copyright, trademark, trade
name or license on which such claim could reasonably
be based. There are no outstanding patent
applications by EDAC or Gros-ite. Except as set forth
on Schedule 5.1(a), neither EDAC nor Gros-ite has
used any tradenames during the past five (5) years.
(p) Regulatory Filings. All material reports and filings
required to be filed with, and fees to be paid to,
any Governmental Authority or federal regulatory
agency and state or federal public utility or service
commission by the EDAC and Gros-ite with respect to
the Purchased Assets have been timely filed, and from
the date hereof will be timely filed. All such
reports, filings and fees are and will be accurate
and complete in all material respects.
(q) Product and Field Warranties. Except as set forth in
Schedule 5.1(q), neither EDAC nor Gros-ite has any
product warranties or product guarantees (other than
implied warranties and field warranties and
warranties contained in the EDAC's or Gros-ite's
standard forms of invoices and standard customer
contracts, disclosed on Schedule 1.1) now in effect
or outstanding with respect to the Business.
(r) Creditors. The Business has no creditors (secured or
unsecured) having a material claim in connection with
the Purchased Assets other than (1) accounts payable
incurred in the ordinary course and (2) those
creditors listed on Schedule 5.1(r) for the amounts
owed as shown thereon.
(s) Nonconforming Use. The Business is not a
nonconforming use at the Premises and is not in
violation of any ordinance or statute.
(t) Matters Relating to Employees.
(i) Offers of Employment to Seller's Employees.
For the period commencing on the date of
execution of this Agreement and continuing
until the Closing Date, Buyer shall have the
absolute and unfettered right to solicit and
to hire and employ any Business Employees
effective as of the Closing Date. Buyer
shall offer employment to those Business
Employees who Buyer, in its sole discretion,
elects to solicit for hire. With respect to
employees of Seller who are hired by Buyer
as of the Closing, Buyer and Seller agree to
cooperate fully in the transition of any
such employees to employment with Buyer.
Nothing contained in this Section shall
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87
be construed to give rise to any obligation
of Buyer to any employee of Seller.
(ii) No Rights to Employment. After the Closing,
nothing herein expressed or implied shall
confer upon any former employee of Seller,
or any union, collective bargaining agent or
other person or entity any rights or
remedies (including, but not limited to, any
right to employment, or continued
employment, for any specified period) or any
right to any particular benefits in
connection with any employment of any nature
or kind whatsoever under or by reason of
this Agreement.
(u) INTENTIONALLY OMITTED.
(v) Vendors and Customers of EDAC and Gros-ite. Set forth
on Schedule 5.1(v) is a list of all customers of, and
vendors to, the Business which accounted for over 5%
each of the total consolidated sales and purchases of
the Business of Seller during the year ended December
30, 2000. Neither EDAC nor Gros-ite has received any
written communication indicating that there is a
substantial probability that any vendors or customers
of the Business will terminate their business
relationship with EDAC or Gros-ite.
(w) Contracts. Except as described in Schedule 5.1(w),
neither EDAC nor Gros-ite is, as of the date of this
Agreement with respect to the Business and the
Seller's employees, a party to or bound by any:
(1) employee collective bargaining agreement or
other contract with any labor union;
(2) employment agreements with any employee;
(3) employment or consulting agreements with any
director, officer, or consultant (excluding
any such contracts or arrangements
terminable on ninety (90) days notice or
less without penalty or premium);
(4) intellectual property agreements;
(5) long term agreements with customers;
(6) subcontractor agreements, except Purchase
Orders;
(7) distribution, agency or manufacturer's
representation agreements;
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(8) intercompany agreements, partnership
agreements, joint venture agreements or
subcontractor agreements;
(9) military or government contracts;
(10) (A) lease or similar agreement under which
Seller or Gros-ite is lessee of, or holds or
uses, any machinery, computer hardware or
software, equipment, vehicle or other
tangible personal property owned by a third
party; (B) license agreements; (C)
continuing contract for the future purchase
of materials, services, supplies or
equipment; (D) management, service,
consulting or other similar type of
contract; (E) computer maintenance
agreement;
(11) distribution or sales agency agreement or
arrangement;
(12) advertising agreement or arrangement
(excluding any such contracts or
arrangements terminable on ninety (90) days
notice or less without penalty or premium);
(13) warranty agreements;
(14) with respect to the Business, bonus,
incentive or deferred compensation, profit
sharing, stock option, retirement, pension,
group insurance, death benefit or other
fringe benefit plans, trust agreements,
vacation pay, severance pay, and other
personnel policies or arrangements of Seller
pertaining to any of Seller's current or
former employees or consultants under which
Seller is currently making or may in the
future make payments;
(15) contracts which purport to limit the freedom
of EDAC or Gros-ite to engage in any line of
business in any geographic area;
(16) employee invention assignment agreement;
(17) other contracts material to the Business,
operations, results of operations or
prospects of EDAC or Gros-ite (other than
contracts relating to tangible personal
property not constituting Purchased Assets);
(18) nondisclosure agreements or restrictive
covenants; or
(19) supplier agreements.
True and correct copies if in writing, and, to
Seller's Knowledge, if oral, accurate written
summaries, of each of the foregoing have been
delivered to Buyer. Schedule 5.1(w) sets forth a list
of all of the above enumerated
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89
contracts, agreements, commitments, leases and
instruments relating to the Business which involve
commitments in their individual capacity in excess of
$10,000, except purchase orders and invoices. Each
agreement, contract, lease, license, commitment or
instrument of EDAC and Gros-ite described on Schedule
5.1(w) (collectively, "Contracts") is in full force
and effect, and enforceable in accordance with its
terms except as disclosed on Schedule 5.1(w) and,
except as such enforcement may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to
creditors' rights and (ii) the discretion of the
appropriate court with respect to specific
performance, injunctive relief or other forms of
equitable remedies. Neither EDAC nor Gros-ite has
received notice that any party to any Contract
intends to terminate such Contract or to exercise or
not exercise any option under such Contract. Neither
EDAC nor Gros-ite is (with or without the lapse of
time or the giving of notice, or both) in material
breach or default under any of the Contracts and no
other party to any of the Contracts is (with or
without the lapse of time or the giving of notice, or
both) in breach or default thereunder. The
consummation of the transactions contemplated hereby
will not create a material default in or result in
the right of modification or termination of, any
Contract.
(x) Employee Benefit Plans. Except as disclosed in
Schedule 5.1(x),
(1) Neither Gros-ite, EDAC, nor any ERISA
Affiliate of Seller, contributes to, has
ever contributed to, or has ever been
required to contribute to, any
Multi-Employer Plan, and neither Seller, nor
any ERISA Affiliate of Seller, has any
liability (including withdrawal liability)
under any Multi-Employer Plan.
(2) The Employee Welfare Benefit Plans that are
group health plans (as defined in "COBRA")
have complied in all material respects with
requirements of COBRA to provide health care
continuation coverage to qualified
beneficiaries who have elected, or may elect
to have, such coverage. Seller or its agents
who administer any of the Employee Welfare
Benefit Plans have complied in all material
respects and will continue to comply in all
material respects through the date of
Closing, with the notification and written
notice requirements of COBRA. There are no
pending or, to Seller's Knowledge,
threatened claims, suits, or other
proceedings by any employee, former
employee, participants or by the
beneficiary, dependent or representative of
any such person, involving the failure of
any Employee Welfare Benefit Plan or of any
other group health plan ever maintained by
Seller to comply with the health care
continuation coverage requirements of COBRA.
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90
(y) Absence of Changes or Events. Except as set
forth in Schedule 5.1(y), since December 30,
2000, EDAC and Gros-ite have conducted the
Business only in the ordinary course
consistent with past practice, and there has
not been with respect to the Business: (1)
any change which, individually or in the
aggregate, has had a material adverse effect
on the Business, nor, to Seller's Knowledge,
are any such changes threatened, anticipated
or contemplated, (2) any actual or, to
Seller's Knowledge, threatened, anticipated
or contemplated damage, destruction, loss,
conversion, termination, cancellation,
default or taking by eminent domain or other
action by any governmental body or agency,
(3) any pending or, to Seller's Knowledge,
threatened, anticipated or contemplated
dispute of a material nature with any
customer, supplier, employee, landlord,
subtenant or licensee of EDAC or Gros-ite or
any pending or, to Seller's Knowledge,
threatened, anticipated or contemplated
occurrence or situation of any kind, nature
or description which is reasonably likely to
result in any reduction in the amount, or
any change in the terms or conditions which
has a material adverse effect, of business
with any substantial customer or supplier of
EDAC or Gros-ite which would reasonably be
expected, individually or in the aggregate,
to have a material adverse effect on the
Business, (4) any material increase in the
compensation payable or to become payable to
the Retained Employees, or agents or
consultants of Seller engaged in the
Business, other than any such increase in
the ordinary course of business, (5) any
material failure to comply with any
Governmental Requirement, or (6) any sale or
commitment to sell all or any portion of the
Purchased Assets.
(z) INTENTIONALLY OMITTED.
(aa) Compliance with Laws. Except as set forth on
Schedule 5.1(aa), each of EDAC and Gros-ite
is presently and since January 1, 1998 has
been in compliance in all material respects
with all Governmental Requirements with
respect to the Business. Without limiting
the generality of the foregoing, since
January 1, 1998 with respect to the
Business.
(1) To Seller's Knowledge, no
unresolved charge, complaint,
action, suit, proceeding, hearing,
investigation, claim, demand, or
notice has been filed or commenced
against EDAC or Gros-ite alleging
any failure to comply with any
material Governmental Requirement.
(2) Each of EDAC and Gros-ite has
complied in all material respects
with all applicable Governmental
Requirements relating to the
employment of labor, employee civil
rights, and equal employment
opportunities.
(3) To Seller's Knowledge, neither EDAC
nor Gros-ite has:
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91
(A) made or agreed to make any
contribution, payment, remuneration
or gift of funds or property to any
governmental official, employee, or
agent, customer or supplier where
either the contribution, payment or
gift or purpose thereof was illegal
under any Governmental Requirement
or which could reasonably be
expected to subject EDAC or
Gros-ite to any damage or penalty
in any civil, criminal or
governmental litigation or
proceeding;
(B) established or maintained or agreed
to establish or maintain any
unrecorded fund or asset for any
purpose, or made any false entries
on any books or records for any
reason; or
(C) made or agreed to make any
contribution, or reimbursed any
political gift or contribution made
by any other person, to any
candidate for federal, state,
local, or foreign public office
where such contribution or
reimbursement or the purpose
thereof was illegal under any
applicable law.
(4) Each of EDAC and Gros-ite has filed in a
timely manner all material reports,
documents and other materials that are or
were required to be filed (and the
information contained therein was correct
and complete in all respects) under all
applicable Governmental Requirements,
including Section 1877 of the Social
Security Act.
(5) To Seller's Knowledge, Seller has possession
of all records and documents with respect to
the Business that are or were required to be
retained under all applicable and material
Governmental Requirements.
(bb) Licenses; Permits; Certifications. Schedule 5.1(bb)
sets forth a complete list of all permits, consents,
vendor codes, quality assurance and related
certifications, approvals and other authorizations
held by Seller and Gros-ite and used in the Business.
(cc) Employee Data. Set forth on Schedule 5.1 (cc) is a
list of the employees working in the Business
("Business Employees"). Except as set forth in
Schedule 5.1(cc), with respect to the Business
Employees and the Business:
(1) Seller has no obligation to pay
post-retirement health or welfare benefits;
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92
(2) Seller has no employment agreement which is
not terminable at will by Seller without
notice and without an obligation to pay
severance pay;
(3) There is no labor strike, dispute, slowdown
or work stoppage or lockout actually pending
or, threatened against or affecting Seller,
and during the past year there has not been
any such action;
(4) No union organizational campaign is pending
or, to Seller's Knowledge, threatened;
(5) There is no unfair labor practice charge or
complaint against Seller pending or
threatened before the National Labor
Relations Board nor is there a reasonable
basis for any such charge or complaint;
(6) During the past three (3) years, no Business
Employee or former employee has filed any
claim nor, to Seller's Knowledge, does any
such employee have a reasonable basis for
any action or proceeding against Seller
arising out of any statute, ordinance or
regulation relating to discrimination in
employment or employment practices
(including, without limitation, applicable
workers' compensation laws, the Fair Labor
Standards Act, as amended, Title VII of the
Civil Rights Act of 1964, as amended, 42
U.S.C. Section 1981, the Rehabilitation Act
of 1973, as amended, the Age Discrimination
in Employment Act of 1973, as amended, the
Family and Medical Leave Act of 1993 or the
Americans with Disabilities Act).
(dd) Billing. With respect to the Business, all billing by
EDAC and Gros-ite has been true, fair and correct and
in compliance in all material respects with all
applicable Governmental Requirements and the policies
of its customers.
(ee) Affiliated Transactions. Except as described in
Schedule 5.1(ee), with respect to the Business,
neither Seller, Gros-ite, nor, to Seller's Knowledge,
any officer, director or Affiliate of Seller (i)
owns, directly or indirectly, any economic interest
in (excepting less than 5% stock holdings in
securities of publicly traded companies), or is an
officer, director, employee or consultant of, any
Person which is, or is engaged in business as, a
competitor, lessor, lessee, supplier, distributor,
sales agent or customer of Seller, (ii) owns, in
whole or in part, any property that Seller uses in
the conduct of the Business, (iii) has guaranteed any
indebtedness, obligation or contract of the Business
or provided any assistance with respect thereto, or
(iv) has any cause of action or other legal claim
whatsoever against or, except as set forth on the
Financial Statements, owes any amount to, the
Business. To Seller's Knowledge, set forth on
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93
Schedule 5.1(ee) is a true and complete list of all
transactions and services since January 1, 2000
between EDAC, Gros-ite or any of their Affiliates
relating to the Business.
(ff) No Brokers. Neither EDAC nor Gros-ite has entered
into any agreement, arrangement or understanding with
any Person which will result in the obligation to pay
any finder's fee, brokerage commission or similar
payment in connection with the transactions
contemplated by this Agreement.
(gg) Material Misstatements or Omissions. There is no
fact, transaction or development which EDAC and
Gros-ite have not disclosed to the Buyer in writing
which could, individually or in the aggregate,
reasonably be expected to have a material adverse
effect on the Business. None of the representations
or warranties by EDAC and Gros-ite in this Agreement
or in any document delivered to the Buyer pursuant to
this Agreement or in connection with the transactions
contemplated by this Agreement contains any untrue
statement of a material fact, or omits to state any
material fact necessary to make the statements or
facts contained therein not misleading.
(hh) Insurance.
(1) Schedule 5.1(hh) sets forth the policies of
insurance of the Business, for the Premises,
for the leased property at 1838 New Britain
Avenue, and for the property leased as a
parking area from the State of Connecticut
presently in force, specifying with respect
to each such policy the name of the insurer,
type of coverage, term of policy, limits of
liability and annual premium. Seller has
heretofore delivered to Buyer complete and
correct copies of the policies and
agreements set forth in Schedule 5.1(hh).
(2) The insurance policies set forth on Schedule
5.1(hh) are in full force and effect, all
premiums with respect thereto covering all
periods up to and including the Closing Date
have been paid (except to the extent
indicated in Schedule 5.1(hh) and no notice
of cancellation or termination has been
received with respect to any such policy.
Such policies are sufficient for material
compliance with all requirements of law and
all agreements to which the Business is a
party; are valid, outstanding and
enforceable policies; provide adequate
insurance coverage for the assets and
operations of the Business; will remain in
full force and effect through the respective
dates set forth in Schedule 5.1(hh) without
the payment of additional premiums; and will
not in any way be affected by, or terminate
or lapse by reason of, the transactions
contemplated by this Agreement or by all
other agreements incidental hereto.
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94
(ii) Environmental, Health, and Safety Matters. Except as
set forth in Schedule 5.1(ii),
(1) Each of EDAC, Gros-ite and their Affiliates
has complied and is in compliance, in all
material respects, with all Environmental,
Health, and Safety Requirements.
(2) Without limiting the generality of the
foregoing, each of EDAC, Gros-ite and their
Affiliates has obtained and complied with,
and is in compliance, in all material
respects, with, all permits, licenses and
other authorizations that are required
pursuant to Environmental, Health, and
Safety Requirements for the occupation of
the Premises, the leased premises at 1838
New Britain Avenue, and the operation of the
Business; a list of all such permits,
licenses and other authorizations is set
forth on the attached Schedule 5.1(ii).
(3) Neither Gros-ite, EDAC nor either of its
Affiliates has received any written or oral
notice, report or other information
regarding any actual or alleged material
violation of Environmental, Health, and
Safety Requirements, or any liabilities or
potential liabilities (whether accrued,
absolute, contingent, unliquidated or
otherwise), including any investigatory,
remedial or corrective obligations, relating
to the Business or the Premises arising
under Environmental, Health, and Safety
Requirements.
(4) None of the following exists at the Premises
in connection with the Business: (1)
underground storage tanks, (2)
asbestos-containing material in any form or
condition, (3) materials or equipment
containing polychlorinated biphenyls, or (4)
landfills, surface impoundments, or disposal
areas.
(5) Neither Gros-ite, EDAC nor any of its
Affiliates has treated, stored, disposed of,
arranged for or permitted the disposal of,
transported, handled, or released any
substance in or on the Premises, including
without limitation any hazardous substance
in a manner that has given or would give
rise to material liabilities, including any
liability for response costs, corrective
action costs, personal injury, property
damage, natural resources damages or
attorney fees, pursuant to the Comprehensive
Environmental Response, Compensation and
Liability Act of 1980, as amended,
("CERCLA"), the Solid Waste Disposal Act, as
amended, ("SWDA"), or any other
Environmental, Health, and Safety
Requirements.
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95
(6) Neither this Agreement nor the consummation
of the transactions that are the subject of
this Agreement will result in any
obligations for site investigation or
cleanup at the Premises, or notification to
or consent of government agencies or third
parties, pursuant to any of the so-called
"transaction-triggered" or "responsible
property transfer" Environmental, Health,
and Safety Requirements.
(7) Neither EDAC, Gros-ite nor any of their
affiliates has, either expressly or by
operation of law, assumed or undertaken any
liability with respect to the occupation of
the Premises or the operation of the
Business, including without limitation any
material obligation for corrective or
remedial action, of any other Person
relating to Environmental, Health, and
Safety Requirements.
(8) To Seller's Knowledge, no facts, events or
conditions relating to the Premises will
prevent, hinder or limit continued
compliance with Environmental, Health, and
Safety Requirements, give rise to any
investigatory, remedial or corrective
obligations pursuant to Environmental,
Health, and Safety Requirements, or give
rise to any other liabilities (whether
accrued, absolute, contingent, unliquidated
or otherwise) pursuant to Environmental,
Health and Safety Requirements, including
without limitation any relating to onsite or
offsite releases or threatened releases of
hazardous materials, substances or wastes,
personal injury, property damage or natural
resources damage.
(9) Seller hereby acknowledges receipt of a copy
of the Environmental Report describing the
condition of the Premises. Seller shall
indemnify Buyer in accordance with the
provisions of Section 8.1 from any liability
or expenses incurred by Buyer with respect
to the condition of the Premises as set
forth in the Environmental Report. Buyer
shall indemnify Seller from any liability or
expenses incurred by Seller with respect to
Buyer's violation with respect to the
Premises of CERCLA or SWDA (as each is
defined in Section 5.1(ii)) or any other
federal, state, local, or foreign statute,
regulation, ordinance or other provision
having the force or effect of law concerning
pollution or protection of the environment.
(jj) Gros-ite Industries, Inc.. Gros-ite has no tangible
assets other than its rights under the LTA and has no
employees. Gros-ite is wholly owned by EDAC.
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96
(kk) Inventory. All of Seller's inventory, and all
inventory of Seller reflected on the Most Recent
Financial Statements is good and saleable, in the
ordinary course of business, (as such terms are
defined by GAAP).
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER AND TOMZ CORPORATION
Section 6.1 Buyer and TOMZ Corporation's Representations
Each of Buyer and TOMZ Corporation hereby, jointly and severally,
represents and warrants to Seller as follows:
(a) Organization and Good Standing. Each of Buyer and
TOMZ Corporation is a Connecticut corporation, duly
organized, validly existing and in good standing
under the laws of the State of Connecticut. Each of
Buyer and TOMZ Corporation has full power and
authority to conduct its business as presently being
conducted and to own and lease its properties and
assets.
(b) Authority; Authorization; Binding Effect. Buyer and
TOMZ Corporation have all necessary power and
authority to execute and deliver this Agreement, to
consummate the transactions contemplated by this
Agreement and to perform its obligations under this
Agreement. Copies of resolutions of the members and
board of directors of Buyer and TOMZ Corporation,
respectively, in the form attached as Schedule 6.1(b)
with respect to the transactions contemplated by this
Agreement, will be delivered to Seller at the
Closing. This Agreement has been duly executed and
delivered by Buyer and TOMZ Corporation and
constitutes a legal, valid and binding obligation of
Buyer and TOMZ Corporation, enforceable against Buyer
and TOMZ Corporation in accordance with its terms,
except as such enforcement may be limited by (1)
bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to
creditors' rights and (2) the discretion of the
appropriate court with respect to specific
performance, injunctive relief or other forms of
equitable remedies.
(c) No Conflict or Violation. The execution and delivery
of this Agreement, the consummation of the
transactions contemplated by this Agreement and the
performance by Buyer and TOMZ Corporation of its
obligations under this Agreement, do not and will not
result in or constitute: (1) a violation of or a
conflict with any provision of the certificate of
corporation of Buyer or TOMZ Corporation; (2) a
breach of, a loss of rights under, or constitute an
event, occurrence, condition or act which is or, with
the giving of notice, the lapse of time or the
happening of any future event or condition, would
become, a material default under, any term or
provision of any contract, agreement, indebtedness,
lease, commitment, license, franchise, permit,
authorization or concession to which Buyer is a
party; or
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(3) a violation by Buyer or TOMZ Corporation of any
statute, rule, regulation, ordinance, code, order,
judgment, writ, injunction, decree or award.
(d) No Proceedings. There is no action, order, writ,
injunction, judgment or decree outstanding or claim,
suit, litigation, proceeding, arbitral action or
investigation pending or threatened against, relating
to or affecting in any adverse manner, Buyer, TOMZ
Corporation or the transactions contemplated by this
Agreement.
(e) No Brokers. Buyer and TOMZ Corporation have not
entered into any agreement, arrangement or
understanding with any Person which will result in
the obligation to pay any finder's fee, brokerage
commission or similar payment in connection with the
transaction contemplated hereby.
(f) Material Misstatements or Omissions. There is no
fact, transaction or development which Buyer or TOMZ
Corporation has not disclosed to Seller, in writing,
which could, individually or in the aggregate,
reasonably be expected to have a material adverse
effect on Seller in its conduct of the Business. None
of the representations or warranties by Buyer and
TOMZ Corporation in this Agreement or in any document
delivered to the Seller pursuant to this Agreement or
in connection with the transactions contemplated by
this Agreement contains any untrue statement of a
material fact, or omits to state any material fact
necessary to make the statements or facts contained
therein not misleading.
(g) Licenses; Permits. Buyer has all permits and
licenses, other than the Pratt and Whitney Vendor
Code referenced in Section 7.1(a), required in
connection with Buyer's use of the Purchased Assets
in the operation of its business.
(h) Insurance. As of the Closing Date Buyer shall have in
force and shall maintain in force and effect during
the Claims Period, a policy of products liability
insurance, including an aerospace rider, in the
amount of at least $10,000,000, which policy shall be
a "claims made" policy and which shall list Seller as
an additional insured.
ARTICLE VII
COVENANTS AND CONDUCT OF
THE PARTIES PRIOR TO OR ON CLOSING
Section 7.1 Pre-Closing Covenants. EDAC and Gros-ite, jointly and
severally, on the one hand, and Buyer on the other hand, each covenant with the
other as follows:
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(a) Contracts with Pratt and Whitney. On or prior to the
Closing Date, EDAC and Gros-ite shall have secured
the written consent of Pratt and Whitney to the
assignment to Buyer of the LTA and to the
assignment to Buyer of all of Seller's and
Gros-ite's right, title and interest in and to the
Purchase Orders and all orders which originated
pursuant to the MRP.
(b) Seller's Insurance. Seller shall maintain in full
force and effect during the Claims Period, a policy
of products liability insurance, including an
aerospace rider, in the amount of at least
$10,000,000, which policy shall be a "claims made"
policy and which shall list Buyer as an additional
insured.
Section 7.2 Right of Entry. Seller covenants that Buyer and its
Representatives shall have the right upon the signing of this Agreement to enter
the Premises and the premises at which the Business is operated at reasonable
times and shall have at all times, access to the Premises, at which the
Purchased Assets are located and to the books and records of the Seller, but
only as they relate to the Business, and that Seller shall furnish to Buyer and
its representatives such financial and operating data, and such other
information with respect to the Business and Purchased Assets as Buyer shall,
from time to time, reasonably request in connection therewith Buyer and its
representatives shall be privileged to contact and communicate with Seller's
management personnel, vendors, customers, manufacturers of its machinery and
equipment, and other persons having business dealings with the Business,
provided however that Buyer and its representatives shall first obtain the
written consent of Seller, which consent shall not be unreasonably withheld;
provided further, Buyer's access and inspection rights granted hereunder shall
not unreasonably interfere with the normal conduct of the Business.
Section 7.3. Conduct of Business. In addition to the other affirmative
covenants set forth in this Agreement and to induce Buyer to execute this
Agreement, Seller covenants that, from the date hereof until the Closing, except
as explicitly permitted otherwise by this Agreement or otherwise consented to in
writing by Buyer or otherwise affected by the review and advisory services
rendered by TOMZ Corporation to EDAC pursuant to the Consulting Services
Agreement between EDAC and TOMZ Corporation effective as of March 12, 2001, it
shall:
(a) Use its best efforts to conduct the Business in the
ordinary course and in the same manner as that in
which it has been conducting the Business in
accordance with all applicable and material laws,
rules, regulations and ordinances of all federal,
state and local governments; and maintain its books
of account in a manner that fairly and accurately
reflects in all material respects its income,
expenses and liabilities consistent with prior
practice;
(b) Use its best efforts to maintain and preserve the
organization of the Business intact and preserve its
relationships with employees, customers,
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vendors and others having business relations with it,
so that its business shall be unimpaired in every
material respect on the date of the Closing.
(c) Notify the Buyer of any material problem or
development with respect to its business and of any
other events or occurrences which would constitute a
material breach of warranty or violation of any
covenant hereunder;
(d) Maintain the Purchased Assets and the Premises in
normal operating condition, ordinary wear and tear
excepted, and make all customary repairs and
improvements thereto, PROVIDED, HOWEVER, that in the
event that such repairs and improvements necessary
for one or more of the Purchased Assets shall exceed
the purchase price established for such Purchased
Assets, then the Seller shall deliver the affected
Purchased Assets to the Buyer without making such
repairs and improvements and the Buyer shall pay
Seller for affected Purchased Assets their respective
residual scrap value;
(e) Maintain its corporate existence, good standing, and
qualifications to do business and to continue to
conduct its business;
(f) Use its best efforts to maintain and keep its
contract rights, vendor codes and quality assurances
certifications;
(g) Keep in full force and effect insurance comparable in
amount and scope of coverage to that now maintained
by it;
(h) Pay and discharge when due all Taxes and other
governmental charges lawfully imposed upon it, the
Acquired Assets, the Premises, or any of its
properties.
Section 7.4. Lien Releases and Tax Clearance. At the Closing, the
Seller shall deliver to the Buyer complete releases of all liens or security
interests in any of the Purchased Assets, or copies of such releases and written
evidence of the secured parties' commitment to deliver said releases in
connection with the Closing and written responses from the Connecticut tax
department or other appropriate authority to Seller's request for tax clearance
certificates regarding income, corporate and unemployment taxes and charges and
related taxes and charges due by Seller through the date of Closing.
ARTICLE VIII
COVENANTS AND CONDUCT OF
THE PARTIES AFTER CLOSING
Section 8.1 Survival and Indemnifications
(a) Survival of Representations, Warranties, Covenants
and Agreements.
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(1) All representations and warranties made by
Seller contained in this Agreement shall
survive the Closing Date for the duration of
the Claims Period; except that all
representations and warranties contained in
Section 5.1(h) shall survive the Closing
Date indefinitely. Any claim initiated by
Buyer with respect to such representations
and warranties must be made during the
Claims Period, except for claims relating to
the representations and warranties in
Section 5.1(h), as to which claims may be
made at any time after the Closing. Except
with respect to information disclosed by
Seller in this Agreement or otherwise known
to Buyer, all of said representations and
warranties shall in no respect be limited or
diminished by any past or future inspection,
investigation, examination or possession
(whether before or after the Closing) on the
part of Buyer or its Representatives, unless
waived in writing by Buyer. All covenants
and agreements made by Seller contained in
this Agreement (including, without
limitation, the indemnification obligations
set forth in this Section) shall survive the
Closing Date until fully performed or
discharged.
(2) All representations and warranties made by
Buyer contained in this Agreement shall
survive the Closing Date for the duration of
the Claims Period. Any claim initiated by
Seller with respect to such representations
and warranties must be made during the
Claims Period. All covenants and agreements
made by Buyer contained in this Agreement
(including, without limitation, the
indemnification obligations set forth in
this Section) shall survive the Closing Date
until fully performed or discharged.
(b) Indemnification by Seller. EDAC and Gros-ite, jointly
and severally, hereby indemnify and agree to defend
and hold harmless Buyer from and against any and all
loss, liability, deficiency, damage suffered or
incurred, actions, suits, proceedings, claims,
demands, investigations, assessments, judgments,
costs and expenses (including, but not limited to
reasonable legal and accounting fees and expenses)
(collectively "Losses"), in respect of the following:
(1) the breach of any representation or warranty
by EDAC or Gros-ite contained in this
Agreement, PROVIDED, HOWEVER, that no claim
for breach of any representation or warranty
shall be made with respect to any item
disclosed herein;
(2) the nonfulfillment of any covenant or
agreement by EDAC or Gros-ite contained in
this Agreement (including, without
limitation, the payment or performance by
EDAC or Gros-ite of any liability which is
not an Assumed Liability);
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(3) the operation of the Business or the use or
ownership of the Purchased Assets by EDAC or
Gros-ite or any predecessor of EDAC or
Gros-ite on or prior to the Closing Date
(except to the extent that such Losses
constitute an Assumed Liability);
(4) any repairs or replacements to the Tangible
Personal Property required as a result of a
change in the condition of the Purchased
Assets (normal wear and tear excepted) from
the date of execution of this Agreement
through the Closing Date, exceeding $2,000
in the aggregate for all Tangible Personal
Property or $1,000 for any single item of
Tangible Personal Property, PROVIDED,
HOWEVER, that in the event that such repairs
and replacements to any single item of the
Tangible Personal Property shall exceed the
purchase price established for such item of
Tangible Personal Property, then the Seller
shall deliver such item of Tangible Personal
Property to the Buyer without making such
repairs or replacements and Buyer shall pay
Seller for such item of Tangible Personal
Property its residual scrap value; and
(5) in respect of any Tax Liability of Seller
whether arising at any time prior to, at, or
after the Closing Date, without regard to
any limitation concerning the amount or
timing of indemnification contained in this
Agreement.
(c) Indemnification by Buyer and TOMZ Corporation. Buyer
and TOMZ Corporation in accordance with its Guaranty,
jointly and severally hereby indemnify and agree to
defend and hold harmless Seller from and against any
Losses and in respect of:
(1) the breach of any representation or warranty
by Buyer or TOMZ Corporation contained in
this Agreement;
(2) the nonfulfillment of any covenant or
agreement by Buyer or TOMZ Corporation
contained in this Agreement (including,
without limitation, the payment and
performance by Buyer of the Assumed
Liabilities); and
(3) the operation of the Business after the
Closing Date excluding Seller's warranty
obligations and other obligations not
assumed by Buyer.
(d) Notification and Defense of Claims or Actions.
(1) As used in this Section, any party seeking
indemnification pursuant to this Section is
referred to as an "indemnified party" and
any
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party from whom indemnification is sought
pursuant to this Section is referred to as
an "indemnifying party." An indemnified
party which proposes to assert the right to
be indemnified under this Section shall
submit a written demand for indemnification
setting forth in summary form the facts as
then known which form the basis for the
claim for indemnification. With respect to
claims based on actions by third parties, an
indemnified party shall, within twenty (20)
days after the receipt of notice of the
commencement of any claim, action, suit or
proceeding against it in respect of which a
claim for indemnification is to be made
against an indemnifying party, notify the
indemnifying party in writing of the
commencement of such claim, action, suit or
proceeding, enclosing a copy of all papers
served; provided, however, that the failure
to so notify the indemnifying party of any
such claim, action, suit or proceeding shall
not relieve the indemnifying party from any
liability which it may have to the
indemnified party, except to the extent that
the indemnifying party is prejudiced
thereby. Thereafter, the indemnified party
shall deliver to the indemnifying party,
within twenty (20) days after receipt by the
indemnified party, copies of all further
notices relating to such claim.
(2) If a third-party claim is made for which an
indemnified party is entitled to
indemnification pursuant to this Section,
the indemnifying party will be entitled to
participate in the defense of such claim
and, if the indemnifying party so chooses,
and provided that the indemnifying party
acknowledges the indemnifying party's
obligation to indemnify the indemnified
party, to assume primary responsibility for
the defense of such claim with counsel
selected by the indemnifying party and not
reasonably objected to by the indemnified
party.
(3) If the indemnifying party assumes the
defense of a third-party claim as set forth
in paragraph (2) of this Section, then (A)
in no event will an indemnified party admit
any liability with respect to, or settle,
compromise or discharge, any such claim
without the indemnifying party's prior
written consent and (B) each indemnified
party shall be entitled to participate in,
but not control, the defense of such claim
with its own counsel at its own expense. If
the indemnifying party does not assume the
defense of any such claim, an indemnified
party may defend such claim in a manner as
it may deem appropriate (including, but not
limited to, settling such claim, after
giving twenty (20) days prior written notice
of such settlement to the indemnifying
party, on such terms as the indemnified
party may deem appropriate); provided,
however, that if the indemnifying party has
acknowledged the indemnifying party's
obligation to indemnify the indemnified
party, the
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indemnified party may not settle such claim
without the consent of the indemnifying
party.
(c) Limitations on Indemnification.
(1) Basket and Cap. Except with respect to the
purchase price adjustment as set forth in
Section 3.2, a claim for breach of Section
5.1(kk), warranty work performed by Buyer on
behalf of Seller pursuant to Section 2.10,
and Losses of Buyer, if any, arising from
the claim of Ralph Bello and Vera Associates
Limited Partnership v. Gros-Ite Spindle, a
division of Gros-Ite Industries and Apex
Machine Tool Company, Inc., et al. Docket
No. CV01-72993-S, with respect to which
Seller's obligation to indemnify Buyer and
TOMZ Corporation shall not be limited in any
respect, Seller, on the one hand, and Buyer
and TOMZ Corporation, on the other hand,
shall indemnify the other party's
indemnified persons to the extent of all
Losses; provided, however, that no
obligation to indemnify shall arise until
the aggregate amount of the Losses equals or
exceeds Fifty Thousand Dollars ($50,000);
provided further, however, that neither
party's obligation to indemnify the other
party's indemnified persons shall exceed the
Purchase Price as set forth in Section 3.1
hereof.
(2) Claims Net of Certain Items. The amount of
any Losses for which indemnification is
provided under Sections 8.1(b) and 8.1(c)
above shall be net of (A) any amounts
recovered or recoverable by the indemnified
person pursuant to any indemnification by or
indemnification agreement with any third
party, and (B) any insurance proceeds or
other cash receipts or sources of
reimbursement available as an offset against
such Losses (and no right of subrogation
shall accrue to any insurer or third party
indemnitor hereunder).
(3) Exclusion of Certain Damages. No party shall
be responsible for any indirect, special,
punitive or consequential damages
whatsoever, including loss of profits or
goodwill, in connection with this Agreement.
This limitation shall not apply in the case
of damages caused by deliberate and/or
intentional acts or omissions of any party.
Section 8.2 Access to Retained Customer Records. For a period of up to
three (3) years following the Closing Date, Seller will provide Buyer with
access to the Retained Customer Records at all reasonable times.
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Section 8.3 Buyer's Defects. Buyer shall correct and be responsible for
any defect in the Work In Process Inventory which is attributable to the fault
of Buyer.
Section 8.4 Covenant Not To Use Name. Seller and Gros-ite each hereby
covenant and agree that except as required for reporting purposes, it will not,
from the Closing Date forward, use in any manner, the name "Gros-ite Engineered
Components Division." Buyer and TOMZ Corporation each hereby covenant and agree
that it will not, from the Closing Date forward, use in any manner, the name
"Gros-ite" except in connection with the name "Gros-ite Engineered Components
Division of TOMZ Corporation."
ARTICLE IX
MISCELLANEOUS
Section 9.1 Expenses; Agreements Not to Market Assets. Buyer and Seller
agree that each shall pay their own expenses incident to the negotiations of
this Agreement and other matters concerning the contemplated transactions,
including, without limitation, attorneys' fees, accountants' fees, and recording
and filing fees. Seller agrees that Seller shall not market, solicit offers for,
or enter into negotiations regarding, any of the Purchased Assets or the
Business or offer for sale (nor permit to be offered for sale) other than in the
ordinary course of business the Purchased Assets or the Business so long as
Seller shall be bound by this Agreement.
Section 9.2 Casualty. The risk of loss, destruction, casualty,
condemnation, eminent domain or damage to the Purchased Assets prior to the
Closing Date shall be borne by Seller. If prior to the Closing Date all or any
portion of the purchased Assets or the Premises is damaged by fire or other
casualty, then Seller shall, at its expense, repair the damaged property to
substantially the same condition as before the damage. In the event such damage
cannot be or is not repaired before the Closing Date or if such damage exceeds
Three Hundred Thousand Dollars ($300,000), Buyer shall proceed to Closing if the
insurance proceeds relating to such damage are adequate to cover replacement of
the property and are paid to Buyer at Closing. If such insurance proceeds are
not sufficient or not payable to Buyer at Closing, then Buyer may at its sole
option terminate this Agreement, in which event the parties shall be relieved of
all further liability hereunder and the Deposit shall be returned to Buyer.
Section 9.3
(a) Right of Termination and Procedure for Default. In the
event that on or before May 31, 2001:
(1) Seller has not provided to Buyer written
evidence of the consent of EDAC's and
Gros-ite's shareholders and Board of
Directors properly authorizing EDAC and
Gros-ite to enter into this Agreement and
consummate the transactions contemplated
hereby;
(2) The Consent to Assignment of the LTA in the
form attached as Exhibit I has not been
executed by all
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parties and Pratt & Whitney, PROVIDED,
HOWEVER, that the only contingency that
shall give rise to a right of termination
under this Section 9.3(a)(2) is the failure
for any reason whatsoever to obtain the
consent of Pratt & Whitney; and
(3) Seller has not obtained the consents of
General Electric Capital Corporation and
Fleet National Bank to this Agreement and
the consummation of the transactions
contemplated hereby.
then Buyer, by written notice to Seller, at its option, and Seller, by written
notice to Buyer with respect to failure to obtain Pratt & Whitney consent or
General Electric Capital Corporation and Fleet National Bank consents only, at
its option, may terminate this Agreement. Termination by either Buyer or Seller,
as the case may be, shall be effective upon the other party's receipt of such
notice of termination.
In the event of such termination of this Agreement all of the Seller's
and Buyer's obligations hereunder shall terminate without further loss, cost,
damage, claim, right or remedy in favor of any party, and none of the parties
hereto shall have any further liability or responsibility to the other without
the need to exchange releases to confirm same, except that the Deposit, shall be
returned within five (5) days to Buyer.
(b) Default by the Seller. In the event that all of the
conditions precedent set forth in this Agreement have
been satisfied or waived by the Buyer on or prior to
the Closing Date, and the Buyer is ready, willing and
able to proceed with the Closing, but the Seller is
unable, unwilling or refuses to consummate the
Closing in accordance with the terms and conditions
of this Agreement, or in the event that the Seller is
otherwise in breach of this Agreement, then the Buyer
may proceed to protect and enforce its rights by an
action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of
any agreement contained herein or in any other
documents, agreements or instruments from the Seller,
or for the injunction against a violation of any of
the terms hereof or thereof, or in and of the
exercise of any power granted hereby or thereby or by
law. The Seller recognizes that in such event, any
remedy at law may prove to be inadequate relief to
the Buyer and therefore the Buyer may obtain any such
equitable relief, including, without limitation,
temporary and permanent injunctive relief in any such
case without the necessity of posting a bond or
proving actual damages. No course of dealing and no
delay on the part of the Buyer in exercising any
right shall operate as a waiver thereof or otherwise
prejudice the Buyer's rights. No right conferred
hereby or by any other document, agreement or
instrument from the Seller upon the Buyer shall be
exclusive of any other right referred to herein or
therein or now or hereafter available at law, in
equity, by statute or otherwise. Without limiting the
generality of the foregoing, the Buyer shall be
entitled to all damages and remedies available to
Buyer under all applicable laws as a result of such
default, including, without limitation,
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the return of the deposit together with the interest
thereon, together with reasonable attorneys' fees and
expenses incurred by the Buyer to enforce this
Agreement; provided, however, that monetary damages
shall be limited in the aggregate to the Purchase
Price as set forth in Section 3.1 hereof.
(c) Default by Buyer. In the event that the Seller is
ready, willing and able to proceed with the Closing
and all conditions precedent set forth in this
Agreement have been satisfied but the Buyer fails to
complete the transactions contemplated in this
Agreement, which failure is due exclusively to the
unwillingness, inability or refusal of the Buyer to
fulfill its obligations at such Closing, then the
Seller may terminate this Agreement and retain the
Deposit, together with the sum of Four Hundred
Thousand Dollars ($400,000) to be paid by Buyer to
seller as liquidated damages for all losses, damages,
and expenses suffered by the Seller, and this shall
be the Seller's sole and exclusive remedy at law or
in equity. In such event, this Agreement shall
terminate without further loss, cost, damage, claim,
right or remedy in favor of any party against the
other, without the need for the exchange of releases.
Section 9.4 Further Assurances. Both before and after the Closing Date,
each party will cooperate in good faith with each other party and will take all
appropriate action and execute any agreement, instrument or other writing of any
kind which may be reasonable necessary or advisable to carry out and confirm the
transactions contemplated by this Agreement (including, but not limited to,
obtaining consents or approvals from any Person for the transfer of the
purchased Assets that are transferred subject to consent or approvals being
obtained).
Section 9.5 Notices. All written communications to parties required
hereunder shall be in writing and (i) delivered in person, (ii) mailed by
registered or certified mail, return receipt requested, (such mailed notice to
be effective four days after the date it is mailed) or (iii) sent by facsimile
transmission, with confirmation sent by way of one of the above methods, to the
party at the address given below for such party (or to such other address as
such party shall designate in a writing complying with this Section, delivered
to the other parties);
If to a Seller, addressed to:
EDAC Technologies Corporation
1806 New Britain Avenue
Farmington, CT 06032-3114
Attention: Chief Executive Officer
With a copy to:
Reinhart Boerner Van Deuren Norris & Rieselbach, S.C.
1000 North Water Street
P.O. Box 514000
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Milwaukee, Wisconsin 53203-3400
Attention: Daniel J. Brink, Esquire
Telephone: (414) 298-1000
Telecopier: (414) 298-8097
If Buyer, addressed to:
Gros-ite Engineered Components Division of TOMZ, Inc.
47 Episcopal Road
Berlin, Connecticut 06037-1522
Attention: Zbigniew Matulaniec
With a copy to:
Eisenberg, Anderson, Michalik & Lynch LLP
136 West Main Street
P.O. Box 2950
New Britain, Connecticut 06050-2950
Attention: Stephen J. Anderson, Esq.
Telephone: (860) 229-4855
Telecopier: (860) 223-4026
Section 9.6 Public Statements. The parties to this Agreement agree to
cooperate, both prior to and after the Closing, in issuing any press releases or
otherwise making public statements with respect to the transactions contemplated
by this Agreement, and no press release or other public statements shall be
issued without the joint consent of the parties to this Agreement, which consent
shall not be unreasonably withheld or delayed.
Section 9.7 Choice of Law. This Agreement shall be construed,
interpreted and the rights of the parties determined in accordance with the laws
of the State of Connecticut without regard to principles of conflicts of law,
except that, with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject of this
Agreement, the law of the jurisdiction under which the respective entity was
organized shall govern.
Section 9.8 Titles. The headings of the articles and sections of this
Agreement are inserted for convenience of reference only and shall not affect
the meaning or interpretation of this Agreement.
Section 9.9 Waiver. No failure of any party to this Agreement to
require, and no delay by any party to this Agreement in requiring, any other
party to this Agreement to comply with
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any provision of this Agreement shall constitute a waiver of the right to
require such compliance. No failure of any party to this Agreement to exercise,
and no delay by any party to this Agreement in exercising, any right or remedy
under this Agreement shall constitute a waiver of such right or remedy. No
waiver by any party to this Agreement of any right or remedy under this
Agreement shall be effective unless made in writing. Any waiver by any party to
this Agreement of any right or remedy under this Agreement shall be limited to
the specific instance and shall not constitute a waiver of such right or remedy
in the future.
Section 9.10 Effective; Binding. This Agreement shall be effective upon
the due execution hereof by all of the parties to this Agreement. Upon it
becoming effective, this Agreement shall be binding upon the parties to this
Agreement and upon each successor and assignee of the parties to this Agreement
and shall inure to the benefit of, and be enforceable by, the parties to this
Agreement and each successor and assignee of the parties to this Agreement;
provided, however, that, except as provided for in the following sentence, no
party shall assign any right or obligation arising pursuant to this Agreement
without first obtaining the written consent of the other parties.
Section 9.11 Entire Agreement. This Agreement contains the entire
agreement among the parties to this Agreement with respect to the subject of
this Agreement, and supersedes each course of conduct previously pursued,
accepted or acquiesced in, and each written and oral agreement and
representation previously made, by the parties to this Agreement with respect
thereto, including, without limitation, the certain letter agreement, dated
January 22, 2001, between Seller and Buyer.
Section 9.12 Modification. No course of performance or other conduct
hereafter pursued, accepted or acquiesced in, and no oral agreement or
representation made in the future, by any party to this Agreement, whether or
not relied or acted upon, and no usage of trade, whether or not relied or acted
upon, shall modify or terminate this Agreement, impair or otherwise affect any
obligation of any party to this Agreement pursuant to this Agreement or
otherwise operate as a waiver of any such right or remedy. No modification of
this Agreement or waiver of any such right or remedy shall be effective unless
made in writing duly executed by the parties to this Agreement.
Section 9.13 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
taken together shall constitute one and the same instrument. Any party may
execute this Agreement by facsimile signature and the other party shall be
entitled to rely on such facsimile signature as evidence that this Agreement has
been duly executed by such party. Any party executing this Agreement by
facsimile signature shall immediately forward to the other party an original
signature page by overnight mail.
Section 9.14 Consent to Jurisdiction. Each party to this Agreement
hereby (i) consents to the jurisdiction of the Untied States District Court for
the District of Connecticut or, if such court does not have jurisdiction over
such matter, the applicable state court in the State of Connecticut, and (ii)
irrevocably agrees that all actions or proceedings arising out of or relating to
this Agreement shall be litigated in such court. Each party to this Agreement
accepts for
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109
himself or itself and in connection with his or its properties, generally and
unconditionally, the exclusive jurisdiction and venue of the aforesaid courts
and waives any defense of forum non-conveniens or any similar defense, and
irrevocably agrees to be bound by any non-appealable judgment rendered thereby
in connection with this Agreement.
Section 9.15 Confidential Information. Seller and Buyer recognizes the
interest of each in maintaining the confidential nature of their businesses and
each agrees that it will not, directly or indirectly, at any time whatsoever,
disclose or in use in any manner any proprietary matter related to the business
of the other, knowledge of which, it has acquired as a result of the negotiation
of these transactions contemplated by this Agreement.
Section 9.16 Successors and Assigns. All of the terms of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
successors and permitted assigns of the parties hereto.
Section 9.17 Arbitration Procedure.
(a) Any dispute, controversy or claim arising out of or
relating to this Agreement, or to a breach hereof,
including, without limitation, its interpretation,
performance or termination, shall be finally resolved
by binding arbitration before three neutral
arbitrators. The arbitration shall be in accordance
with the Commercial Arbitration rules of the American
Arbitration Association which shall administer the
arbitration and act as appointing authority. The
arbitration including, without limitation, the
rendering of the award, shall take place in Hartford,
Connecticut and shall be the exclusive forum for
resolving such dispute, controversy or claim, subject
to Section 9.17(b). The award of the arbitrators
shall be final and binding upon the parties to this
Agreement but subject to the requirements of the
Connecticut Arbitration Act. The expense of the
arbitration (including, without limitation, the award
of reasonable attorneys' fees to the prevailing
party) shall be awarded as the arbitrators determine.
Judgment may be entered on the award by any court of
competent jurisdiction in Connecticut.
(b) Nothing in Section 9.17(a) shall prohibit a party
from instituting litigation in aid of the arbitration
proceeding and to obtain preliminary injunctive
relief to maintain the status quo or a prejudgment
remedy securing a claim for monetary damages.
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110
IN WITNESS WHEREOF, the parties have executed this Agreement on this
day and year indicated at the beginning of this Agreement.
SELLER: GROS-ITE INDUSTRIES, INC.
By: /s/ Richard Dandurand
---------------------------------------------
Its President
SELLER: EDAC TECHNOLOGIES CORPORATION
By: /s/ Richard Dandurand
---------------------------------------------
Richard Dandurand
Its President
BUYER: GROS-ITE ENGINEERED
COMPONENTS DIVISION OF TOMZ, INC.
By: /s/ Zbigniew Matulaniec
---------------------------------------------
Zbigniew Matulaniec
Its Chief Executive Officer
TOMZ CORPORATION: TOMZ CORPORATION
By: /s/ Zbigniew Matulaniec
---------------------------------------------
Zbigniew Matulaniec
Its Chief Executive Officer
- 56 -
111
ANNEX B
[STIFEL, NICOLAUS & COMPANY, INCORPORATED LOGO]
PRIVILEGED AND CONFIDENTIAL
March 29, 2001
The Board of Directors
EDAC Technologies Corporation
1806 New Britain Avenue
Farmington, CT 06032
To the Members of the Board of Directors:
You have requested our opinion to the effect that the Purchase and Sale
(as described below) is fair, from a financial point of view, to the
shareholders of EDAC Technologies Corporation ("EDAC"). Pursuant to the Asset
Purchase Agreement (the "Agreement") dated March 29, 2001, by and among Gros-ite
Engineered Components Division of Tomz, Inc. (the "Purchaser"), Tomz
Corporation, Gros-ite Industries, Inc. and EDAC, EDAC will sell to the Purchaser
the assets of EDAC's Precision Components division (the "Division") described in
the Agreement in exchange for approximately $6.4 million, subject to adjustments
as described in the Agreement (the "Purchase and Sale"). The Agreement,
inclusive of exhibits, is incorporated herein by reference. Unless otherwise
defined, all capitalized terms used herein have the meanings ascribed to them in
the Agreement.
Stifel, Nicolaus & Company, Incorporated ("Stifel"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, strategic
transactions, corporate restructurings, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. We will receive a fee in connection
with the rendering of this opinion.
In the ordinary course of business, Stifel may actively trade in the
equity and derivative securities of EDAC for its own account and/or for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities. Stifel may in the future provide additional
investment banking or other financial advisory services to EDAC.
In order to provide our fairness opinion, we relied on materials
provided from a variety of sources and considered a number of factors involving
the Company and the Division.
In rendering our opinion, we reviewed originals or copies represented
to us as true copies of the following materials:
1) The Agreement;
1125 17TH STREET, SUITE 1500 - DENVER, CO 80202
- (303) 296-2300 - FAX (303) 291-5318
- --------------------------------------------------------------------------------
MEMBER SIPC AND MEMBERS, NEW YORK STOCK EXCHANGE, INC.,
CHICAGO AND AMERICAN STOCK EXCHANGES
112
March 29, 2001
Page 2
2) Audited financial statements for EDAC for the years ended
December 30, 2000, January 1, 2000, January 2, 1999, and
December 31, 1997;
3) Unaudited financial statements for EDAC for the nine-month
interim period ended September 30, 2000;
4) Internal, historical financial information for the Division
for the years 1997, 1998, 1999 and 2000;
5) Management's projections of income and expenses for the
Division for 2001;
6) Relevant portion of the appraisal report of KosterGroup
stating the orderly liquidation value of the equipment that is
used in the Division and is being sold in the Purchase and
Sale;
7) Management's estimates of savings that will result from the
sale of the Assets;
8) Management's projections for use of the proceeds of the sale
of the Assets; and
9) The Long Term Purchase Agreement (the "LTA") between the
Company and United Technologies Corporation, acting through
its Pratt & Whitney Division ("P&W").
In addition to the above-listed documents, we analyzed and took into
account the following considerations:
a) Approximately 95% of the Divisions sales are to P & W;
b) The LTA expires on December 31, 2002, and P&W has expressed
its expectation that, after that date, most or all of the
items P&W purchases from the Division will be open to
competitive bids on a global basis;
c) Management of EDAC believes that, absent substantial
(unquantified) capital investments and/or a joint venture with
an Asian supplier, the Division will be unable to effectively
compete against many Asian suppliers because such suppliers
have much newer equipment and much lower labor costs than
EDAC;
d) EDAC's independent public accountants issued a "going concern"
opinion dated February 11, 2000, expressing substantial doubt
as to EDAC's viability as a going concern, appearing in EDAC's
Form 10-K for the year ended January 1, 2000; and
e) The purchased assets do not include the land and improvements
associated with the Division, which have been independently
appraised at $2 million.
113
March 29, 2001
Page 3
In rendering our opinion as to the fairness of the Purchase and Sale,
we did the following:
i) Reviewed the above-listed documents;
ii) Met with certain members of management from EDAC;
iii) Performed a discounted cash flow analysis on the Division;
iv) Reviewed financial data on comparable publicly-traded
companies;
a. performed a revenue multiple analysis on the
Division;
b. performed an EBITDA (earnings before interest, taxes,
depreciation and amortization) multiple analysis on
the Division;
c. performed a book value of assets multiple analysis on
the Division;
v) Reviewed financial data regarding transactions where the
target was comparable to the Division based on size and
industry or otherwise deemed relevant;
a. performed a revenue multiple analysis on the
Division;
b. performed an EBITDA multiple analysis on the
Division;
c. performed a book value of assets multiple analysis on
the Division;
vi) Analyzed the potential attractiveness of the Division to
financial buyers such as private equity funds; and
vii) Performed such additional review as we deemed appropriate.
In rendering our opinion, we have assumed and relied upon the accuracy
and completeness of all of the information concerning EDAC considered in
connection with our review of the Purchase and Sale, and we have not assumed any
responsibility for independent verification of such information. We have not
prepared any independent valuation or appraisal of any of the assets or
liabilities of EDAC. With respect to the financial forecasts and projections
made available to us and used in our analysis, we have assumed that they reflect
the best currently available estimates and judgments of the expected future
financial performance of EDAC. We have assumed that EDAC is not a party to any
pending transactions, including external financings, recapitalizations or
material merger discussions, other than the Purchase and Sale and those
activities undertaken in the ordinary course of conducting their respective
businesses. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date of the
Purchase and Sale and any change in such conditions would require a
re-evaluation of this opinion. We express no opinion as to the price at which
EDAC common stock will trade in the future. We have assumed the Purchase and
Sale will be consummated substantially on the terms discussed in the Agreement,
that all material conditions therein will be satisfied, and that there will be
no waiver of any material term or condition by any party thereto.
114
March 29, 2001
Page 4
It is understood that this letter is for the information of the Board
of Directors in connection with its evaluation of the Purchase and Sale. We
hereby consent to the inclusion of a copy of this letter as an exhibit to EDAC's
Schedule 14A to be filed with the Securities and Exchange Commission in
connection with the Purchase and Sale and in the related proxy statement to be
mailed to EDAC's shareholders.
Based upon and subject to the foregoing and after considering such
other matters as we deem relevant, we are of the opinion that as of March 29,
2001, the Purchase and Sale was fair, from a financial point of view, to EDAC's
shareholders.
Sincerely,
STIFEL, NICOLAUS & COMPANY, INC.
/s/ JEFFREY R. GALGANO
Jeffrey R. Galgano
Managing Director
Corporate Finance Department
115
ANNEX C
AUDIT COMMITTEE CHARTER
MISSION AND PURPOSE
The Audit Committee ("the Committee") is approved by the Board of
Directors ("the Board") of EDAC Technologies Corporation (the "Company") to
assist the Board in monitoring: (1) the integrity of the Company's financial
statements; (2) the compliance by the Company with legal and regulatory
requirements, and; (3) the performance and independence of the Company's
external auditors.
GENERAL GUIDELINES
RESPONSIBILITIES
The Committee shall be responsible for overseeing: the financial
reporting process, the system of internal controls, the audit process, and the
independent public accountants. Management of the company is responsible for the
preparation of financial statements, and ensuring that the statements are
complete, accurate and prepared in accordance with generally accepted accounting
principles. Management is also responsible for ensuring compliance with laws and
regulations. The independent public accountants are responsible for planning and
conducting audits in accordance with generally accepted auditing standards.
In carrying out its responsibilities, the Committee will maintain and
facilitate free and open communication between directors, the independent public
accountants and the management of the Company.
SIZE AND COMPOSITION
The Committee shall consist of no fewer than three directors, each of
whom shall meet the independence and experience requirements of the Nasdaq Stock
Market, Inc. ("Nasdaq"). The Board shall appoint the Committee's Chairperson and
members annually or until successors shall be qualified and elected.
CHARTER
The Committee shall maintain a written charter that is approved by the
Board. The charter will be reviewed and updated at least annually.
OVERSIGHT BY THE BOARD OF DIRECTORS
The Board will approve the Committee's charter and revisions, will
determine annually that the Committee's members meet the independence and
experience requirements of the Nasdaq, and that the Committee has fulfilled its
duties and responsibilities. The Committee acts on the Board's behalf in the
matters outlined in this charter and is hereby given all the resources and
authority necessary to properly discharge its duties and responsibilities.
The Committee will report its activities to the full Board on a regular
basis so the Board is kept informed of its activities on a current basis.
MEETINGS
The Committee will meet at least four times per year, or more
frequently as circumstances dictate. The Committee will review quarterly reports
of earnings prior to the release of earnings to the public and the filing of the
SEC Forms 10-K and 10-Q. The Committee shall meet when necessary but at least
once a year with the Chief Financial Officer and the independent public
accountants in private meetings.
Participation of External Auditors and Other Advisors. The Committee
will engage the Company's independent public accountants in discussions required
by their professional standards and other relevant regulatory requirements prior
to the filing of forms 10K and 10Q. The Committee shall have the authority to
retain special legal, accounting or other consultants to advise the Committee.
The Committee may request any officer or employee of the Company or the
Company's outside counsel (in addition to the independent public accountants) to
attend a meeting of the Committee or to meet with any members of, or consultants
to, the Committee.
116
EXTERNAL AUDITORS
Appointment and Termination. The Committee will recommend to the Board
the appointment of the independent public accountants, evaluate together with
the Board the performance of the independent public accountants and, if so
determined by the Committee, recommend that the Board replace the independent
public accountants. The Committee may consider management's recommendation for
the appointment of the independent public accountants, and may review with
management the performance and /or termination of the independent public
accountants. The Committee will approve the fees to be paid to the independent
public accountants.
Independence. The Committee will ensure that the independent public
accountants provide periodic reports to the Committee setting forth all
relationships between the independent public accountants and the Company,
consistent with the Independence Standards Board Standard No. 1. The Committee
will discuss with the independent public accountants any disclosed relationships
or services which may impact the objectivity and independence of the independent
public accountants. The Committee will take, or recommend that the full Board
take, appropriate action to ensure the independence of the independent public
accountants.
Review. The Committee will review with the independent public
accountants and, if it deems it appropriate, management:
- - Prior to the annual audit, the scope, approach, planning and staffing.
- - Significant accounting policies
- - Changes to the Company's auditing and accounting principles and practices
as suggested by the independent public accountants or management;
- - Audit conclusions regarding significant accounting estimates and reserves;
- - Proposed fee arrangements for ongoing and special projects;
- - Assessments of the adequacy of internal controls;
- - The resolution of identified material weakness and reportable conditions in
internal controls (including the prevention or detection of management
override or compromise of the internal control system);
- - The Company's compliance with laws and regulations having to do with
accounting and financial matters;
- - Any problems or difficulties the independent public accountants may have
encountered and any Management Letter comments provided by the independent
public accountants and management's responses thereto.
- - The matters described under "Financial Statements" below.
The independent public accountants shall provide assurance to the
Committee that their audit was conducted in accordance with generally accepted
auditing standards including provisions contained in Section 10A of the
Securities Exchange Act of 1934.
The Committee and the Board should consider whether the independent
public accountants should meet with the full Board to discuss any matters
relative to the financial statements and /or potentially relevant matters, and
to answer questions from other directors.
FINANCIAL STATEMENTS
Year-End Financial Statements. The Committee will review with
management and the independent public accountants the Company's interim and
year-end financial statements, including management's discussion and analysis
and audit findings (including any significant suggestions for improvements
provided to management by the independent public accountants). Such review will
include a discussion of significant adjustments recorded and other matters
required to be discussed by Statement on Auditing Standards No.61 relating to
the conduct of the audit. Following such review, the Committee will recommend to
the Board whether the audited financial statements should be included in the
Company's annual report on Form 10-K.
Quarterly Financial Statement. The Committee will review with
management and the independent public accountants the Company's quarterly
financial statements prior to the filing of its Form 10-Q. The Committee will
engage in discussions with the independent public accountants with respect to
the impact of significant events, transactions and changes in accounting
estimates considered by the independent public accountants in performing the
quarterly review.
117
Quality of Financial Reporting. The members of the Committee will
discuss among themselves and with management and the independent public
accountants, the quality (not just the acceptability) of the Company's
accounting principles and underlying estimates in the financial statements.
Briefings. The Committee will request from financial management and the
independent public accountants, a briefing on any significant accounting and
reporting issues, including any changes in accounting standards or rules
promulgated by the Financial Accounting Standards Board ("FASB"), the Securities
and Exchange Commission ("SEC") or other regulatory bodies, that have an effect
on the financial statements.
Inquiries. The Committee will inquire:
- - About the existence and substance of any significant accounting accruals,
reserves, or estimates made by management that had a material impact on the
financial statements: and
- - Of management and the independent public accountants if there were any
significant financial accounting or reporting issues and /or disagreements
discussed during the accounting period and, if so, how they were resolved.
LEGAL MATTERS
The Committee will discuss and review with management, company counsel,
and the independent public accountants the substance of any significant issues
raised by counsel concerning litigation, contingencies or claims, the Company's
compliance policies and any material reports or inquires received from
regulators or government agencies. The Committee should understand how such
matters are reflected in the Company's financial statements.
The Committee will discuss and review with management and advise the
Board with respect to the Company's policies and procedures regarding compliance
with applicable laws and regulations.
OTHER
Investigations. The Committee will initiate the investigation of any
matter brought to its attention within the scope of its duties, with the power
to retain outside counsel.
Proxy Statement Report. The Committee will prepare a report for
inclusion in the Company's proxy statement for its annual meeting of
stockholders describing the activities in which it has engaged during the prior
year pursuant to its charter. The report will address all issues required by the
rules of the SEC.
Financial Risk Exposures. The Committee will meet periodically with
management to review the Company's major financial risk exposures and steps
management has taken to monitor and control such exposures.
Internal Audit. The Committee will discuss the scope and staffing of an
internal audit function and if an internal audit function is formed, the
Committee will review the plans and findings of the internal audits and will
meet in executive sessions with the head of Internal Auditing.
Officer Expense Accounts. The Committee will direct that an annual
report of senior officer expense reports and perquisites be performed and
reported to the Committee.
118
EDAC TECHNOLOGIES CORPORATION
ANNUAL MEETING OF SHAREHOLDERS-MAY 31, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of Ronald G. Popolizio and Daniel J. Brink
the proxies (with full substitution) of the undersigned to attend the annual
meeting of shareholders of EDAC Technologies Corporation (the "Company") to be
held on May 31, 2001 at 10:00 a.m. Eastern Daylight Time, at the Farmington
Country Club, 806 Farmington Avenue, Farmington, Connecticut and any adjournment
thereof and to vote all shares of stock of the Company held by the undersigned
on April 6, 2001, as specified below and on any other matters that may properly
come before said meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY APPOINTMENT WILL BE
VOTED FOR ITEMS 1 THROUGH 3.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
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EDAC TECHNOLOGIES CORPORATION 2001 ANNUAL MEETING
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR ITEMS 1 through 3.
1. A proposal to approve and adopt the Asset Purchase Agreement, dated as of
March 29, 2001, among EDAC Technologies Corporation, Gros-Ite Industries, [ ] FOR [ ] AGAINST [ ] ABSTAIN
Inc., Tomz Corporation and Gros-Ite Engineered Components Division of Tomz,
Inc., and each of the transactions contemplated thereby.
2. ELECTION OF DIRECTORS: 1-RICHARD A. DANDURAND 5-JOHN KUCHARIK [ ] FOR all nominees [ ] WITHHOLD AUTHORITY
2-JOHN J. DIFRANCESCO 6-STEPHEN J. RAFFAY listed to the left to vote for all
3-GEORGE FRAHER 7-DANIEL C. TRACY (except as nominees listed to
4-ROBERT J. GILCHRIST specified below). the left.
(Instructions: To withhold authority to vote for any indicated ---------------------------------------------------
nominee, write the number(s) of the nominee(s) in the box provided | |
to the right.) ----------> | |
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3. To ratify the appointment of Arthur Andersen LLP as auditors of the Company [ ] FOR [ ] AGAINST [ ] ABSTAIN
for the fiscal year ending December 29, 2001.
Check appropriate box Date______________________________________ NO. OF SHARES __________
Indicate changes below:
Address Change? [ ] Name Change? [ ]
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Signature(s) in Box
Please sign exactly as your name appears on this
Proxy. When shares are held by joint tenants, both
should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in
full corporate name by President or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
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