-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EqBea/B0UhIiPZaGyDldNgUMl1ngcEzBXwI0JHLG2WQPUnBBy83Cksz7o5JJ3/xF n63QC+mHcTM325Qc057kPg== 0000912057-00-014097.txt : 20000329 0000912057-00-014097.hdr.sgml : 20000329 ACCESSION NUMBER: 0000912057-00-014097 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 42 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRECISION PARTNERS INC CENTRAL INDEX KEY: 0001086478 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 752783285 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-33438 FILM NUMBER: 581507 BUSINESS ADDRESS: STREET 1: 5605 N MACARTHUR BLVD STREET 2: SUITE 760 CITY: IRVING STATE: TX ZIP: 73038 BUSINESS PHONE: 9726801550 MAIL ADDRESS: STREET 1: 5605 N MACARTHUR BLVD STREET 2: SUITE 760 CITY: IRVING STATE: TX ZIP: 73038 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GALAXY INDUSTRIES INC CENTRAL INDEX KEY: 0000039744 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-33438-01 FILM NUMBER: 581508 BUSINESS ADDRESS: STREET 1: 41150 JOY ROAD CITY: PLYMOUTH STATE: MI ZIP: 48170 BUSINESS PHONE: 7344595600 MAIL ADDRESS: STREET 1: PRECISION PARTNERS INC STREET 2: 5605 N MACARTHUR BLVD STE 760 CITY: IRVING STATE: TX ZIP: 75038 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GILLETTE MACHINE & TOOL CO INC CENTRAL INDEX KEY: 0001109225 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 160786135 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-33438-02 FILM NUMBER: 581509 BUSINESS ADDRESS: STREET 1: 955 MILSTEAD WAY CITY: ROCHESTER STATE: NY ZIP: 14624 BUSINESS PHONE: 7164360058 MAIL ADDRESS: STREET 1: 955 MILSTEAD WAY CITY: ROCHESTER STATE: NY ZIP: 14624 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERTIFIED FABRICATORS INC CENTRAL INDEX KEY: 0001109231 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-33438-03 FILM NUMBER: 581510 BUSINESS ADDRESS: STREET 1: 6351 BURNHAM AVENUE CITY: BUENA PARK STATE: CA ZIP: 90621 BUSINESS PHONE: 7146701491 MAIL ADDRESS: STREET 1: 6351 BURNHAM AVENUE CITY: BUENA PARK STATE: CA ZIP: 90621 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MID STATE MACHINE PRODUCTS INC CENTRAL INDEX KEY: 0001109232 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-33438-04 FILM NUMBER: 581511 BUSINESS ADDRESS: STREET 1: 150 VERRI DRIVE CITY: WINSLOW STATE: ME ZIP: 04901 BUSINESS PHONE: 2078736136 MAIL ADDRESS: STREET 1: 150 VERRI DRIVE CITY: WINSLOW STATE: ME ZIP: 04901 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONWIDE PRECISION PRODUCTS CORP CENTRAL INDEX KEY: 0001109233 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-33438-05 FILM NUMBER: 581512 BUSINESS ADDRESS: STREET 1: 200 TECH PARK DRIVE CITY: ROCHESTER STATE: NY ZIP: 14623 BUSINESS PHONE: 7162727100 MAIL ADDRESS: STREET 1: 200 TECH PARK DRIVE CITY: ROCHESTER STATE: NY ZIP: 14623 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL AUTOMATION INC/IL CENTRAL INDEX KEY: 0001109234 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 752808932 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-33438-06 FILM NUMBER: 581513 BUSINESS ADDRESS: STREET 1: 3300 OAKTON CITY: SKOKIE STATE: IL ZIP: 60076 BUSINESS PHONE: 8476764004 MAIL ADDRESS: STREET 1: 3300 OAKTON CITY: SKOKIE STATE: IL ZIP: 60076 S-4 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 2000 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ PRECISION PARTNERS, INC. (Exact name of registrant as specified in its charter) DELAWARE 6719 22-3639336 (State or other jurisdiction of (Primary Standard (I.R.S. Employer incorporation or organization) Industrial Classification Identification No.) Code Number)
------------------------ 5605 N. MACARTHUR BOULEVARD SUITE 760 IRVING, TEXAS 75038 (972) 580-1550 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------ SEE TABLE OF ADDITIONAL REGISTRANTS ------------------------ RONALD M. MILLER CHIEF FINANCIAL OFFICER PRECISION PARTNERS, INC. 5605 N. MACARTHUR BOULEVARD SUITE 760 IRVING, TEXAS 75038 (972) 580-1550 (Name, address, including zip code, and telephone number, including area code of agent for service) ------------------------------ Copies to: CHRISTOPHER M. KELLY, ESQ. JONES, DAY, REAVIS & POGUE NORTH POINT 901 LAKESIDE AVENUE CLEVELAND, OHIO 44114-1190 (216) 586-3939 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / ------------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) PRICE(1) REGISTRATION FEE 12% Senior Subordinated Notes due 2009...... $100,000,000 100% $100,000,000 $26,400 Guarantees of 12% Senior Subordinated Notes due 2009.................................. -- -- -- --(2) Total Registration Fee...................... $26,400
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f) under the Securities Act. (2) Pursuant to Rule 457(n), no registration fee is required with respect to the guarantees. ------------------------------ The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF ADDITIONAL REGISTRANTS The address of the principal executive offices of each of the additional registrants listed below, and the name and address of the agent for service, is the same as is set forth for Precision Partners, Inc. on the facing page of this registration statement.
PRIMARY STANDARD JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYER NAME INCORPORATION CLASSIFICATION NUMBER IDENTIFICATION NUMBER - ---- --------------- --------------------- --------------------- Mid State Machine Products................. Maine 3545 01-0280525 Galaxy Industries Corporation.............. Michigan 3545 38-1881019 Certified Fabricators, Inc................. California 3545 95-3316654 General Automation, Inc.................... Illinois 3545 75-2808932 Nationwide Precision Products Corp......... New York 3545 22-3639335 Gillette Machine & Tool Co., Inc........... New York 3545 16-0786135
SUBJECT TO COMPLETION, DATED MARCH 28, 2000 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS PRECISION PARTNERS, INC. OFFER TO EXCHANGE OUR 12% SENIOR SUBORDINATED NOTES DUE 2009, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR OUR OUTSTANDING 12% SENIOR SUBORDINATED NOTES DUE 2009 THESE NOTES ARE GUARANTEED ON A SENIOR SUBORDINATED BASIS BY: MID STATE MACHINE PRODUCTS GALAXY INDUSTRIES CORPORATION CERTIFIED FABRICATORS, INC. GENERAL AUTOMATION, INC. NATIONWIDE PRECISION PRODUCTS CORP. GILLETTE MACHINE & TOOL CO., INC. --------------------- THE EXCHANGE OFFER - - Precision Partners will exchange all outstanding notes that are validly tendered and not validly withdrawn for an equal principal amount of exchange notes that are freely tradeable. - - You may withdraw tenders of outstanding notes at any time prior to the expiration of the exchange offer. - - The exchange offer expires at 5:00 p.m., New York City time, on , 2000, unless extended. We do not currently intend to extend the expiration date. RESALES OF THE EXCHANGE NOTES - - We do not intend to list the exchange notes on any securities exchange or to seek approval through any automated quotation system, and no active public market for the exchange notes is anticipated. ------------------------ You should carefully consider the risk factors beginning on page 9 of this prospectus before deciding to participate in the exchange offer. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this prospectus is , 2000 TABLE OF CONTENTS Forward-Looking Statements........... i Where You Can Find More Information.. ii Summary.............................. 1 Risk Factors......................... 9 The Exchange Offer................... 19 Use of Proceeds...................... 27 Capitalization....................... 28 Pro Forma Financial Information...... 29 Selected Historical Financial Information........................ 31 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 33 Business............................. 39 Management........................... 49 Security Ownership................... 52 Related Party Transactions........... 53 Description of Credit Facilities..... 54 Description of Exchange Notes........ 56 Book-Entry; Delivery And Form........ 94 Registration Rights For Outstanding Notes.............................. 97 Plan of Distribution................. 99 Certain U.S. Federal Income Tax Considerations..................... 101 Legal Matters........................ 103 Experts.............................. 103 Index to Financial Statements........ F-1
------------------------ FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, including those described under "Risk Factors," many of which are beyond our control. Forward-looking statements are typically identified by words such as "believe," "expect," "anticipate," "intend," "estimate" and similar expressions, and include, among others, statements concerning: - our strategy; - our liquidity and capital expenditures; - our debt levels and ability to obtain financing and service debt; - competitive pressures and trends in the precision machining industry; - cyclicality and economic condition of the industries we currently serve; - prevailing levels of interest rates; - legal proceedings and regulatory matters; and - general economic conditions. Actual results could differ materially from those contemplated by the forward-looking statements as a result of factors such as those described in "Risk Factors." In light of these risks and uncertainties, we cannot assure you that the results and events contemplated by the forward-looking statements contained in this prospectus will in fact transpire. You are cautioned not to place undue reliance on these forward-looking statements. We do not undertake any obligation to update or revise any forward-looking statements. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements. i ------------------------ WHERE YOU CAN FIND MORE INFORMATION Precision Partners and the subsidiary guarantors have filed a registration statement on Form S-4 to register with the SEC the exchange notes to be issued in exchange for the outstanding notes. This prospectus is part of that registration statement. As allowed by the SEC's rules, this prospectus does not contain all of the information you can find in the registration statement or the exhibits to the registration statement. For further information about us and about the exchange offer and the exchange notes, you should consult the registration statement, including the exhibits and schedules. A copy of the registration statement and any exhibits may be obtained from the SEC or by writing or telephoning us at the following address and telephone number: Precision Partners, Inc. 5605 N. MacArthur Boulevard Suite 760 Irving, Texas 75038 (972) 580-1550 Attention: Chief Financial Officer Upon effectiveness of the registration statement, we will file reports, proxy statements and other documents with the SEC in accordance with the requirements of the Securities Exchange Act of 1934. You may read and copy the registration statement and, when filed, such reports, proxy statements and other documents at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information regarding the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site, located at http://www.sec.gov., that contains reports, proxy statements and other documents regarding registrants, including us, that file electronically with the SEC. In addition, we are required by the terms of the indenture to furnish the trustee and the holders of exchange and outstanding notes with quarterly and annual reports and other information within 15 days of filing the reports or other information with the SEC. You may also find further information about us and the subsidiary guarantors at our website http://www.precisionpartnersinc.com. The information contained on our website is not a part of this prospectus. ------------------------ This exchange offer is not being made to, nor will tenders of outstanding notes be accepted for exchange from holders of outstanding notes in any jurisdiction in which this exchange offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of that jurisdiction. ii SUMMARY The following summary details the most important features of this offering. THE COMPANY GENERAL Precision Partners is a leading contract mechanical manufacturing services supplier of complex precision metal parts, tooling and assemblies for original equipment manufacturers. Our flexible manufacturing facilities and operating processes enable us to service customers across a wide range of industries and aggressively pursue new customers in industries where we see the potential for strong growth. Our customers include industry leaders such as General Electric, New Venture Gear (a joint venture of General Motors and DaimlerChrysler), Xerox, LucasVarity (Kelsey Hayes), Boeing, Caterpillar and Dana. We have earned "Preferred" or "Qualified" supplier status with most of our customers and are predominantly the sole-source supplier to our customers of the parts we manufacture. Our pro forma revenues and EBITDA for the year ended December 31, 1999 were $149.8 million and $26.1 million, respectively, representing a 17.5% EBITDA margin. Our broad manufacturing capabilities and highly engineered processes allow us to meet the critical specifications of our customers. We manufacture parts, ranging in size from approximately 1 ounce to over 100,000 pounds, to extremely close tolerances. We are also able to maintain tight tolerances across flat sheets and surfaces with multiple contours. We work with traditional materials such as steel, aluminum, iron, copper, magnesium and bronze, as well as exotic and difficult to machine materials such as titanium, inconel, invar and hastelloy. In addition, we provide our customers with design assistance, process and product engineering support and quality testing. Our manufacturing expertise includes precision machining such as milling, turning, boring, drilling, broaching and grinding, as well as value-added services such as prototyping, assembly, forming, welding, heat treating and plating. The industries we serve and the related precision parts, assemblies and tooling we machine and manufacture include: - Power Generation Industry - specialty alloy turbine wheels and spacers, shrouds and nozzles; - Automotive Industry - piston valves used primarily for automatic braking systems in light trucks and sport utility vehicles and machined engine blocks; - Business Machines Industry - bases and internal components for high-end scanners, digital imaging machines and copiers; - Space and Satellite Industries - adapter rings, thrust rings, casting chambers and handling and transport aids; - Aerospace Industry, Commercial and Military - precision tooling including bond jigs, assembly jigs and mill fixtures; - Agriculture and Construction Equipment Industries - high tolerance bearing caps, transmission housings and diesel and gas pump housings; and - Transportation Industry - class eight heavy truck axles, engine blocks and related parts. INDUSTRY The U.S. precision custom manufacturing industry is highly fragmented and, excluding precision manufacturing operations owned directly by original equipment manufacturers, is estimated to be comprised of approximately 7,500 companies representing, over the last several years, annual revenues 1 in excess of $20 billion. Within this market, precision machine shops and specialty tool manufacturers represent in excess of $13 billion of these revenues. As a result of high fragmentation and a large number of captive original equipment manufacturer operations, we believe there has been and will continue to be significant consolidation opportunities among industry participants. We believe that there are two main trends in the U.S. precision machining industry: - an increased amount of outsourced manufacturing by original equipment manufacturers; and - increased reliance by original equipment manufacturers on a few "Preferred" or "Qualified" suppliers that can provide a full line of high quality manufacturing and sub-assembly services, as well as process engineering and design assistance. We intend to continue to capitalize on these industry trends by providing our customers with a broad array of precision machining capabilities and by leveraging our competitive strengths. See "Business--Industry." COMPETITIVE STRENGTHS We believe that we have the following competitive strengths: - Leading supplier of high quality, difficult-to-produce parts; - Broad manufacturing capabilities serving diverse end markets; - Strong customer relationships; - Modern, high quality operations; and - An experienced management team. BUSINESS STRATEGY Our business strategies are as follows: - Capitalize on the industry trends among leading original equipment manufacturers to increase manufacturing outsourcing and concentrate on fewer, more reliable suppliers; - Pursue cross-selling opportunities and broaden our customer base across the diverse manufacturing capabilities and complementary customer bases of our operating subsidiaries; - Implement the best operating practices of each of our operations and utilize production resources to maximize manufacturing efficiency; and - Pursue strategic acquisitions. ------------------------ The principal executive offices of Precision Partners and the subsidiary guarantors are located at 5605 N. MacArthur Boulevard, Suite 760, Irving, Texas 75038 and our telephone number is (972) 580-1550. 2 THE EXCHANGE OFFER The Exchange Offer................... We are offering to exchange up to $100,000,000 aggregate principal amount of our registered 12% Senior Subordinated Notes due 2009 for an equal principal amount of our outstanding 12% Senior Subordinated Notes due 2009. The terms of the exchange notes are identical in all material respects to those of the outstanding notes, except for transfer restrictions and registration rights relating to the outstanding notes. Purpose of the Exchange Offer.............................. The exchange notes are being offered to satisfy our obligations under a registration rights agreement. Expiration Date; Withdrawal of Tender............................. The exchange offer will expire at 5:00 p.m., New York City time, on , 2000, or on a later date and time to which we extend it. The tender of outstanding notes in the exchange offer may be withdrawn at any time prior to the expiration date. Any outstanding notes not accepted for exchange for any reason will be returned without expense to the tendering holder as promptly as practicable after the expiration or termination of the exchange offer. Procedures for Tendering Outstanding Notes.............................. Each holder of outstanding notes wishing to accept the exchange offer must complete, sign and date the letter of transmittal, in accordance with its instructions, and mail or otherwise deliver it, together with the outstanding notes and any other required documentation to the exchange agent at the address listed in the letter of transmittal. Outstanding notes may be physically delivered, but physical delivery is not required if a confirmation of a book-entry transfer of the outstanding notes to the exchange agent's account at Depository Trust Company, or DTC, is delivered in a timely fashion. See "The Exchange Offer--Procedures for Tendering Outstanding Notes." Conditions to the Exchange Offer..... The exchange offer is not conditioned upon any minimum aggregate principal amount of outstanding notes being tendered for exchange. The exchange offer is subject to certain customary conditions, which may be waived by us. We currently expect that each of the conditions will be satisfied and that no waivers will be necessary. See "The Exchange Offer--Conditions to the Exchange Offer." Exchange Agent....................... The Bank of New York. U.S. Federal Income Tax Considerations..................... Your exchange of an outstanding note for an exchange note will not constitute a taxable exchange. The exchange will not result in taxable income, gain or loss being recognized by you or by us. Immediately after the exchange, you will have the same adjusted basis and holding period in each exchange note received as you had immediately prior to the exchange in the corresponding outstanding note surrendered. See "Income Tax Considerations."
3 THE EXCHANGE NOTES The terms of the exchange notes are identical in all material respects to those of the outstanding notes, except for the transfer restrictions and registration rights relating to the oustanding notes that do not apply to the exchange notes. Issuer............................... Precision Partners, Inc. Securities Offered................... $100,000,000 aggregate principal amount of 12% Senior Subordinated Notes due 2009. The exchange notes will each be represented by one or more global certificates registered in the name of DTC. Transfer of exchange notes will be limited to transfers of book-entry interests within DTC and its participants. Maturity............................. March 15, 2009. Interest............................. The exchange notes will accrue interest from the last interest payment date. Interest on the notes will be payable semi-annually in arrears on each March 15 and September 15. Sinking Fund......................... None. Optional Redemption.................. We can redeem the exchange notes at any time on or after March 15, 2004, in whole or in part, at the redemption prices described under "Description of Exchange Notes--Optional Redemption," plus accrued and unpaid interest. Optional Redemption after Certain Equity Offerings................... At any time and from time to time on or prior to March 15, 2002, we can redeem up to 35% of the exchange notes and the outstanding notes with the net cash proceeds of certain equity offerings, as long as: - we pay 112% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest; - we redeem the notes within 180 days of the completion of the equity offering; and - at least 65% of exchange notes and the outstanding notes remains outstanding afterwards. Change of Control.................... If we undergo a change of control, you will have the right, as a holder of exchange notes, to require us to repurchase all of your exchange notes at a repurchase price equal to 101% of their face amount, plus accrued and unpaid interest. We might not be able to pay you the required price for exchange notes you request us to purchase at the time of a change of control because we may not have enough funds at that time or the terms of our other indebtedness may prevent us from doing so.
4 Ranking.............................. The exchange notes will be unsecured and will be subordinated in right of payment to all of our existing and future senior debt, including debt under our credit facilities. Because the exchange notes are subordinated, in the event of our bankruptcy, liquidation or dissolution, holders of notes will not be entitled to receive any payment until all holders of our senior debt have been paid in full. As of December 31, 1999, we had approximately $134.5 million of senior debt outstanding (excluding the $13.8 million of availability under our new revolving credit facility). Guarantees........................... All of our existing and certain of our future subsidiaries will fully and unconditionally guarantee the exchange notes on a joint and several basis. The subsidiary guarantees will each be unsecured and will each be subordinated in right of payment to each subsidiary guarantor's existing and future senior debt. Key Indenture Covenants.............. The indenture governing the exchange notes will contain covenants that, among other things, limit our and some of our subsidiaries' ability to: - incur additional debt; - pay dividends on or redeem or repurchase capital stock; - issue or allow any person to own preferred stock of subsidiaries; - incur or permit to exist indebtedness senior to the notes, but subordinated to any of our other indebtedness; - in the case of certain subsidiaries, guarantee debt without also guaranteeing the notes; - in the case of certain subsidiaries, create or permit to exist dividend or payment restrictions with respect to us; - make certain investments; - incur or permit to exist certain liens; - enter into transactions with affiliates; - merge, consolidate or amalgamate with another company; and - transfer or sell assets. These covenants are subject to a number of important exceptions and limitations, which are described under the heading "Description of Exchange Notes." All of our subsidiaries on the issue date will be restricted for purposes of the indenture.
RISK FACTORS An investment in the notes involves a high degree of risk. We urge you to review carefully the Risk Factors beginning on page 9 for a discussion of factors you should consider before making an investment in the exchange notes. 5 THE ACQUISITIONS On September 30, 1998 our indirect parent, Precision Partners L.L.C., acquired all of the outstanding capital stock of Mid Sate Machine Products and Galaxy Industries Corporation for an aggregate purchase price of approximately $54.5 million. On March 19, 1999, we underwent a corporate reorganization under which we acquired all of the issued and outstanding capital stock of Mid State and Galaxy. Also on March 19, 1999, we acquired all of the issued and outstanding capital stock of Certified Fabricators, Inc. and its sister company, Calbrit Design, Inc. and purchased substantially all of the assets and assumed some liabilities of General Automation, Inc. and Nationwide Precision Products Corp. for an aggregate purchase price of approximately $100.7 million, excluding fees and expenses and an additional conditional payment which may be payable by our parent, Precision Partners Holding Company. In July 1999, we merged Calbrit into Certified. On September 1, 1999, we acquired all of the issued and outstanding stock of Gillette Machine & Tool Co., Inc. for $11.4 million. The purchase price for one of the companies acquired in March included a $4.0 million escrow to be paid out upon the company meeting specified EBITDA targets through April 30, 1999. Since these targets were not met, the $4.0 million was returned to us, effectively reducing the purchase price by $4.0 million. In connection with the March acquisitions, we entered into new credit facilities. See "Description of Credit Facilities." 6 SUMMARY FINANCIAL INFORMATION Prior to the acquisitions of Mid State and Galaxy in September 1998, Precision Partners, L.L.C. had substantially no operations and, prior to the completion of the reorganization and acquisitions of Certified, Calbrit, Nationwide and General Automation in March 1999, we had substantially no operations. As a result, we believe historical financial information for our company prior to March 1999 and for our predecessor for accounting purposes, Mid State, is of limited relevance in understanding what our actual results of operations, financial position or cash flows would have been for historical periods had we in fact been organized and owned all of our current subsidiaries for such periods. For this reason, the following table sets forth summary historical financial information and summary unaudited pro forma financial information for our company only as of and for the year ended December 31, 1999. In addition, for financial statement presentation purposes, the reorganization is accounted for as if it occurred in September 1998 and we are treated as having commenced operations at that time in a manner similar to a pooling of interests. See Note 1 to our consolidated financial statements. The summary unaudited pro forma financial information gives effect to the following transactions as if each had occurred on January 1, 1999: - the acquisitions of Certified, Calbrit, Nationwide, General Automation and Gillette; - the reorganization under which we received the capital stock of Mid State and Galaxy as a capital contribution from Precision Partners, L.L.C.; and - the new credit facilities we entered into in March 1999 and the related prepayment of an existing term loan. The summary unaudited pro forma financial information is for illustrative purposes only and does not purport to be indicative of what the actual results of operations and financial position of our company would have been as of and for the periods presented, nor does it purport to represent our future financial position or results of operations. In addition, the fair value of the net assets at the actual closing date of the acquisitions could be significantly different than the fair value of the net assets used for purposes of the unaudited pro forma financial information. The following summary unaudited pro forma financial information should be read in conjunction with "Unaudited Pro Forma Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical audited financial statements of our company, Precision Partners, L.L.C., Mid State, Certified, Nationwide, General Automation and Gillette including the notes thereto, included elsewhere in this prospectus.
YEAR ENDED DECEMBER 31, 1999 --------------------------------- HISTORICAL PRO FORMA ------------- ----------------- (IN THOUSANDS, EXCEPT RATIO DATA) INCOME STATEMENT DATA: Net sales................................................... $123,188 $149,749 Gross profit................................................ 29,754 36,240 Operating income............................................ 4,914 10,724 Interest expense(1)......................................... 12,567 15,671 Net loss.................................................... (5,515) (3,738) OTHER FINANCIAL DATA: EBITDA(2)(3)................................................ 16,820 26,144 EBITDA margin(4)............................................ 13.7% 17.5% Depreciation and amortization............................... 11,906 15,420 Capital expenditures........................................ 10,260 11,677 Ratio of earnings to fixed charges(5)....................... -- -- Ratio of EBITDA to interest expense(1)...................... 1.3x 1.7x Ratio of net debt to EBITDA(3)(6)........................... 8.0x 5.1x
7
AS OF DECEMBER 31, 1999 HISTORICAL ----------------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................... $ 313 Working capital............................................. 3,844 Total assets................................................ 206,391 Total debt.................................................. 134,548 Stockholders' equity........................................ 36,132
- ------------------------ (1) Interest expense is shown net of historical and pro forma interest income of $245 and $298, respectively. Both historical and pro forma interest expense include $1,051 of amortization of deferred financing fees. (2) Historical EBITDA is defined as operating income plus depreciation and amortization of $11,906. Pro forma EBITDA is defined as pro forma operating income plus depreciation and amortization of $15,420. EBITDA is not a measure of performance under generally accepted accounting principles. While EBITDA should not be used in isolation or as a substitute for net income, cash flows from operating activities or other income or cash flow statement data prepared in accordance with generally accepted accounting principles, or as a measure of profitability or liquidity, management believes that it may be used by certain investors as supplemental information to evaluate a company's financial performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, the definition of EBITDA used in this prospectus may not be comparable to the definition of EBITDA used by other companies. (3) EBITDA includes a jet aircraft lease expense of $186. This lease was terminated at closing in connection with our acquisition of General Automation pursuant to the terms of the purchase agreement. Excluding the effects of this lease for the entire period, EBITDA would have been $17,006 and $26,330, respectively, for historical 1999 and pro forma 1999 and the ratio of net debt to EBITDA would have been 7.9x and 5.1x, respectively, for historical 1999 and pro forma 1999. (4) EBITDA margin is calculated by dividing EBITDA for the period by net sales for the period, expressed as a percentage. (5) Earnings is defined as pre-tax income plus fixed charges, excluding capitalized interest and preferred stock dividend requirements. Fixed charges are defined as the sum of all interest expense (whether capitalized or expensed), the amortization of debt issue costs and discount or premium relating to any indebtedness (whether expensed or capitalized), the interest portion of rental expense, and preferred stock dividend requirements for majority-owned subsidiaries. For historical and pro forma 1999, earnings were insufficient to cover fixed charges by $7,645 and $4,811, respectively. (6) Net debt is defined as total debt less cash and cash equivalents. (FOOTNOTES ON NEXT PAGE) 8 RISK FACTORS YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET FORTH BELOW AS WELL AS OTHER INFORMATION CONTAINED IN THIS PROSPECTUS PRIOR TO ACCEPTING THE EXCHANGE OFFER. RISK FACTORS ASSOCIATED WITH THE NOTES IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES FOR EXCHANGE NOTES IN THE EXCHANGE OFFER, YOUR EXCHANGE NOTES WILL CONTINUE TO BE SUBJECT TO SIGNIFICANT RESTRICTIONS ON TRANSFER, AND MAY BE SUBJECT TO A LIMITED TRADING MARKET AND A SIGNIFICANT DIMINUTION IN VALUE. If you do not exchange your outstanding notes for the exchange notes in the exchange offer, you will continue to be subject to the restrictions on transfer described in the legend on your outstanding notes. In general, you may only offer or sell the outstanding notes if they are registered under the Securities Act and applicable state securities laws, or offered or sold pursuant to an exemption from such requirements. We do not intend to register the outstanding notes under the Securities Act. To the extent other outstanding notes are tendered and accepted in the exchange offer, the trading market, if any, for the remaining outstanding notes would be adversely affected and there could be a significant diminution in the value of the outstanding notes as compared to the value of the exchange notes. See "The Exchange Offer--Consequences of the Failure to Exchange." AN ACTIVE PUBLIC MARKET MAY NOT DEVELOP FOR THE EXCHANGE NOTES, WHICH COULD ADVERSELY AFFECT THE MARKET PRICE AND LIQUIDITY OF THE EXCHANGE NOTES. The exchange notes constitute securities for which there is no established trading market. We do not intend to list the exchange notes on any securities exchange or to seek approval for quotation through any automated quotation system, and no active public market for the exchange notes is currently anticipated. If a market for the exchange notes should develop, the exchange notes could trade at a discount from their principal amount and they may be difficult to sell. Future trading prices of the exchange notes will depend on many factors, including prevailing interest rates, our operating results and the market for similar securities. As a result, we can not give you any assurance that you will be able to resell any exchange notes or, if you are able to resell the price at which you will be able to do so. IF YOU PARTICIPATE IN THE EXCHANGE OFFER FOR THE PURPOSE OF PARTICIPATING IN A DISTRIBUTION OF THE EXCHANGE NOTES YOU COULD BE DEEMED AN UNDERWRITER UNDER THE SECURITIES ACT. If you exchange your outstanding notes in the exchange offer for the purpose of participating in a distribution of the exchange notes, you may be deemed an underwriter under the Securities Act. If so, you will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the exchange notes. OUR INABILITY TO GENERATE SUFFICIENT CASH COULD RESULT IN A FAILURE TO MAKE REQUIRED REPURCHASES OF TENDERED NOTES FOR A CHANGE OF CONTROL. Upon a change of control, we will be required to make an offer to purchase all outstanding notes and exchange notes. We would be required to purchase all of the notes at 101% of their principal amount plus accrued and unpaid interest up to, but not including, the date of repurchase. The source of funds for any such purchase would be our available cash or cash generated from other sources. However, we can not assure you that we will have or will be able to borrow sufficient funds at the time of any change of control to make any required repurchases of tendered notes. We also can not assure you that restrictions in our credit facilities or other senior debt we may incur in the future would permit us to make such required repurchases. See "Description of Exchange Notes--Change of Control." 9 RISK FACTORS ASSOCIATED WITH OUR INDEBTEDNESS OUR SUBSTANTIAL DEBT AND THE SIGNIFICANT DEMANDS ON OUR CASH RESOURCES COULD AFFECT OUR ABILITY TO MAKE PAYMENTS ON THE EXCHANGE NOTES AND ACHIEVE OUR BUSINESS PLAN. SUBSTANTIAL DEBT. We have incurred a substantial amount of indebtedness which requires significant interest payments. As of December 31, 1999, we had total consolidated debt of $134.5 million and net interest expense of approximately $12.6 million for the year then ended. Subject to the limits contained in the indenture governing the notes and the new credit facilities, we and our subsidiaries may incur additional indebtedness from time to time to finance capital expenditures, investments or acquisitions or for other general corporate purposes. DEMANDS ON CASH RESOURCES. We have substantial demands on our cash resources in addition to operating expenses and interest expense on the notes, including, among others, interest and amortization payments under our credit facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." EFFECTS ON YOUR INVESTMENTS AND OUR BUSINESS STRATEGY. Our level of indebtedness and these significant demands on our cash resources could have important effects on your investment in the notes. For example they could: - make it more difficult for us to satisfy our obligations with respect to the notes and our secured indebtedness; - require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the amount of our availability of our cash flow available for working capital, capital expenditures, acquisitions and other general corporate purposes; - limit our flexibility in planning for, or reacting to, changes in our industry (including the pursuit of our growth strategy); - place us at a competitive disadvantage compared to our competitors that have fewer debts and significantly greater operating and financing flexibility than we do; - limit, along with the financial and other restrictive covenants applicable to our indebtedness, among other things, our ability to borrow additional funds even when necessary to maintain adequate liquidity; - increase our vulnerability to general adverse economic and industry conditions; and - result in an event of default upon a failure to comply with these covenants which, if not cured or waived, could have a material adverse effect on our business, financial condition or results of operations. Our ability to pay interest on the notes, to repay portions of our long-term indebtedness including under the notes and the credit facilities, and to satisfy our other debt obligations will depend upon our future operating performance and the availability of refinancing indebtedness, which will be affected by the instruments governing our indebtedness, including the indenture and the credit facilities, prevailing economic conditions and financial, business and other factors, certain of which are beyond our control. If we are unable to service our indebtedness and fund our business, we will be forced to adopt an alternative strategy that may include: - reducing or delaying capital expenditures; - seeking additional debt financing or equity capital; - selling assets; or - restructuring or refinancing our indebtedness. 10 We cannot assure you that any such strategy could be effected on terms satisfactory to us or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." EFFECT OF ADDITIONAL DEBT. Subject to the limits of our debt instruments, we may incur additional indebtedness from time to time to finance capital expenditures, investments or acquisitions for other purposes, including the borrowing of amounts repaid under our credit facilities. This could further exacerbate the risks described below. THE INDENTURE AND OUR CREDIT FACILITIES RESTRICT OUR ABILITY AND THE ABILITY OF SOME OF OUR SUBSIDIARIES TO ENGAGE IN SOME BUSINESS TRANSACTIONS. INDENTURE. The indenture restricts our ability and the ability of some of our subsidiaries to, among other things: - incur additional debt; - pay dividends on or redeem or repurchase capital stock; - issue or allow any person to own preferred stock of subsidiaries; - incur or permit to exist indebtedness senior to the notes, but subordinated to any of our other indebtedness; - in the case of non-guarantor subsidiaries, guarantee debt without also guaranteeing the notes; - in the case of restricted subsidiaries, create or permit to exist dividend or payment restrictions with respect to us; - make investments; - incur or permit to exist liens; - enter into transactions with affiliates; - merge, consolidate or amalgamate with another company; and - transfer or sell assets. CREDIT FACILITIES. The credit facilities also contain similar covenants, as well as a number of financial covenants requiring us to meet financial ratios and financial condition tests. Our ability to borrow under our revolving credit facility depends upon satisfaction of these covenants and our borrowing base requirements. Our ability to meet these covenants and requirements can be affected by events beyond our control. There can be no assurance that we will meet these requirements. EFFECT OF BREACH. Our failure to comply with the obligations and covenants in the credit facilities or the indenture could result in an event of default under the credit facilities or the indenture that, if not cured or waived, could terminate our ability to borrow under the revolving credit facility, could permit acceleration of the relevant debt and acceleration of debt under other instruments and, in the case of the credit facilities, could permit foreclosure on any collateral granted. THE EXCHANGE NOTES AND SUBSIDIARY GUARANTEES ARE JUNIOR IN RIGHT OF PAYMENT TO ALL OF OUR AND OUR SUBSIDIARY GUARANTOR'S INDEBTEDNESS, WHICH COULD ADVERSELY AFFECT YOUR INVESTMENT. The payment of principal, premium, if any, interest and additional interest, if any, on the exchange notes and the subsidiary guarantees will, to the extent set forth in the indenture, be subordinated in right of payment to all of our and the subsidiary guarantors' indebtedness, including under the credit 11 facilities, except any future indebtedness that expressly provides that it ranks equal with, or junior in right of payment to, the exchange notes and the subsidiary guarantees. SUBSTANTIALLY ALL OF OUR ASSETS AND THOSE OF OUR SUBSIDIARIES SECURE OTHER LONG TERM DEBT WHICH COULD REQUIRE US TO SATISFY THOSE OBLIGATIONS BEFORE THE EXCHANGE NOTES IN THE EVENT OF BANKRUPTCY, LIQUIDATION OR REORGANIZATION. The credit facilities are secured by, among other things, substantially all of our assets and those of our subsidiaries. Consequently, upon any distribution to our creditors or the creditors of a subsidiary guarantor in a bankruptcy, liquidation or reorganization or similar proceeding relating to us or such subsidiary guarantor or our or its property, the holders of our and its senior debt, including the lenders under our credit facilities, will be entitled to be paid in full in cash before any payment may be made with respect to the exchange notes. Because we and such subsidiary guarantor may not have sufficient funds or assets to pay all of our or its creditors, holders of exchange notes may receive less, ratably, than the holders of senior debt. In addition, the payment of principal, premium, if any, interest and additional interest, if any, on the exchange notes will be prohibited in the event of a payment default on any of our or a subsidiary guarantor's senior debt and may be blocked, at the option of the holders of such senior debt, for up to 179 of 180 consecutive days in the event of specified non-payment defaults. As of March 21, 2000, we had approximately $144.6 million of consolidated senior debt outstanding, excluding $3.7 million of availability under our revolving credit facility. In addition, subject to the terms of the indenture and the credit facilities, we will be permitted to borrow substantial additional indebtedness, including senior debt, in the future. RISK FACTORS ASSOCIATED WITH PRECISION PARTNERS, INC. WE ARE STRUCTURED AS A HOLDING COMPANY AND WE DEPEND ON OUR SUBSIDIARIES IN ORDER TO SERVICE OUR DEBT. We are now, and continue to be, structured as a holding company. Our only significant asset is the capital stock or other equity interests of our operating subsidiaries. As a holding company, we conduct all of our business through our subsidiaries. Consequently, our cash flow and ability to service our debt obligations, including the exchange notes, are dependent upon the earnings of our operating subsidiaries and the distribution of those earnings to us, or upon loans, advances or other payments made by these subsidiaries to us. The ability of our subsidiaries to pay dividends or make other payments or advances to us will depend upon their operating results and will be subject to applicable laws and contractual restrictions contained in the instruments governing their indebtedness, including our credit facilities and the indenture. Although the indenture will limit the ability of these subsidiaries to enter into consensual restrictions on their ability to pay dividends and make other payments to us, these limitations will be subject to a number of significant qualifications. See "Description of Exchange Notes--Certain Covenants--Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries." There can be no assurance that the earnings of our operating subsidiaries will be adequate for us to service our debt obligations, including the exchange notes. BECAUSE OF OUR LIMITED OPERATING HISTORY, AND THE NUMBER OF ACQUISITIONS WE HAVE MADE, WE BELIEVE THAT HISTORICAL INFORMATION REGARDING OUR COMPANY PRIOR TO MARCH 1999 AND FOR OUR PREDECESSOR FOR ACCOUNTING PURPOSES, MID STATE, IS OF LITTLE RELEVANCE IN UNDERSTANDING OUR BUSINESS AS CURRENTLY CONDUCTED. Precision Partners, L.L.C. was incorporated in September 1998 and we were incorporated in February 1999 for the sole purpose of completing acquisitions. Until the acquisitions of Mid State and 12 Galaxy in September 1998, Precision Partners, L.L.C. had substantially no operations and, until the consummation of the reorganization and the acquisitions of Certified, Calbrit, Nationwide and General Automation in March 1999, we had substantially no operations. As a result, we believe the historical financial information presented in this prospectus, other than for 1999, is of limited relevance in understanding what our results of operations, financial position or cash flows would have been for the historical periods presented had we in fact been organized and owned all of our current subsidiaries. See "Pro Forma Financial Information," "Selected Historical Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." THE SUCCESS OF OUR ACQUISITION STRATEGY DEPENDS ON THE AVAILABILITY OF SUITABLE ACQUISITION CANDIDATES, DIVERSION OF MANAGEMENT TIME AND RISK OF UNDISCLOSED LIABILITIES. A significant aspect of our strategy is to continue to pursue select strategic acquisitions of companies that we believe can benefit from our operations, management and access to capital and enhance our relationships with existing customers or augment our manufacturing capabilities. Our ability to grow by acquisition is dependent upon, and may be limited by, the availability of suitable acquisition candidates and capital, and the restrictions contained in the new credit facilities, the indenture and any future financing arrangements. In addition, growth by acquisition involves risks that could adversely affect our operating results, including the substantial amount of management time that may be diverted from operations in order to pursue and complete such acquisitions, difficulties in managing the additional operations and personnel of acquired companies and the potential loss of key employees of acquired companies. There can be no assurance that we will be able to obtain the capital necessary to pursue our growth strategy or consummate acquisitions on satisfactory terms, if at all. Possible future acquisitions could result in the incurrence of additional debt, costs, contingent liabilities and amortization expenses related to goodwill and other intangible assets, all of which could materially adversely affect our business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Although we perform a due diligence investigation of each business that we acquire, there may be liabilities of the acquired companies, including Mid State, Galaxy, Certified, General Automation, Nationwide and Gillette, that we fail or are unable to discover during our due diligence investigation and for which we, as a successor owner, may be responsible. In connection with acquisitions, we generally seek to minimize the impact of these liabilities by obtaining indemnities and warranties from the seller which may be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities due to their limited scope, amount, or duration, the financial limitations of the indemnitor or warrantor, or other reasons. OUR SUCCESS DEPENDS ON OUR ABILITY TO SUCCESSFULLY OPERATE OUR SUBSIDIARIES ON A COMBINED BASIS. Mid State, Galaxy, Certified, Nationwide, General Automation and Gillette previously operated independently of one another and there can be no assurance that we will be able to effectively manage these six operating companies on a combined basis. In addition, to the extent management time may be diverted to any one or more of the companies, the other operating companies may be adversely affected. A failure by us to operate these businesses profitably or to manage them effectively on a combined basis could have a material adverse effect on our results of operations and financial condition. THE SUCCESS OF OUR BUSINESS STRATEGY TO REALIZE A NUMBER OF CROSS SELLING OPPORTUNITIES COULD BE AFFECTED BY A NUMBER OF FACTORS BEYOND OUR CONTROL. As part of our business strategy, we intend to capitalize on a number of cross-selling opportunities we believe exist as a result the complementary customer bases and manufacturing capabilities of the 13 acquired companies and to implement certain operating improvements. Our ability to implement and realize the benefits of this strategy could be affected by a number of factors beyond our control, such as operating difficulties, increased operating costs, regulatory developments, general economic conditions, increased competition, or the inability to obtain adequate financing for our operations on suitable terms. In addition, after gaining experience with our operations under this strategy, we may decide to alter or discontinue certain aspects of it. Any failure to implement aspects of our strategy may adversely affect our results of operations, financial condition and ability to service debt, including our ability to make principal and interest payments on the notes. See "Business--Business Strategy." OUR INABILITY TO ACCESS ADDITIONAL CAPITAL COULD HAVE A NEGATIVE IMPACT ON OUR GROWTH STRATEGY. Our growth strategy will require additional capital investment. Capital will be required for, among other purposes, completing acquisitions, managing acquired companies, acquiring new equipment and maintaining the condition of our existing equipment. We intend to pay for future acquisitions using cash, capital stock, debt financings and/or assumption of indebtedness. However, our ability to make acquisitions and the manner in which they are financed will be limited by the covenants contained in the indenture and our credit facilities. To the extent that cash generated internally and cash available under our credit facilities is not sufficient to fund capital requirements, we will require additional debt and/or equity financing. There can be no assurance, however, such financing will be available or, if available, will be available on terms satisfactory to us. Future debt financings, if available, may result in increased interest and amortization expense, increased leverage and decreased income available to fund further acquisitions and expansion, and may limit our ability to withstand competitive pressures and render us more vulnerable to economic downturns. If we fail to obtain sufficient additional capital in the future, we could be forced to curtail our growth strategy by reducing or delaying capital expenditures and acquisitions, selling assets or restructuring or refinancing our indebtedness. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." A LOSS OF KEY EMPLOYEES AND HIGHLY SKILLED WORKERS COULD ADVERSELY AFFECT OUR BUSINESS. Some of our executive officers are key to our management and direction. Our future success will depend on our ability to retain capable management. To assist with the integration of the operations of our subsidiaries, we have retained the services of key personnel of these companies. The success of our operations may depend, in part, on the successful retention, at least initially, of these key personnel, as well as our ability to attract and retain additional talented personnel. Although we believe we will be able to attract and retain talented personnel and that we could replace key personnel should the need arise, the inability to attract or retain such personnel could have a material adverse effect on our business. In addition, because our products and processes are complex and require a high level of precision, we are generally dependent on an educated and trained workforce. We would be adversely affected by a shortage of skilled employees. See "Management--Directors and Executive Officers." FAILURE TO MAINTAIN RELATIONSHIPS WITH OUR LARGER CUSTOMERS AND FAILURE BY OUR CUSTOMERS TO CONTINUE TO PURCHASE EXPECTED QUANTITIES DUE TO CHANGES IN MARKET CONDITIONS COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS. Our largest customer, General Electric, accounted for approximately 26.5% of our 1999 net sales and our top ten customers accounted for approximately 67% of our 1999 net sales. The termination by General Electric or any one or more of our other top 10 customers of its relationship with us could have a material adverse effect upon our business, financial condition and results of operations. In addition, we have recently been awarded long-term contracts with Caterpillar and Dana. We currently anticipate that we will need to enter into up to approximately $35 million of new operating leases in connection with financing the new equipment necessary to meet the production requirements 14 for these contracts. To the extent we are unable to purchase, integrate and make operational this equipment on a cost-effective or timely basis, or to the extent the costs associated with purchasing, integrating or making operational this equipment are higher than we currently anticipate, our relationship with these customers and our business and results of operations could be negatively impacted. OUR REVENUES AND OPERATING RESULTS MAY BE SUBJECT TO SIGNIFICANT FLUCTUATION. A significant portion of our revenues is derived from new projects and contracts, the timing of which is subject to a variety of factors beyond our control, including customer budgets and modifications in customer products. We cannot predict the degree to which, on a consolidated basis, these trends will continue. A portion of our operating expenses are relatively fixed. Because we typically do not enter into long-term contracts or have volume commitments with our customers, we must anticipate the future volume of orders based upon the historic purchasing patterns of our customers and upon discussions with our customers as to their future requirements. Cancellations, reductions or delays in orders by a customer or group of customers could have a material adverse effect on our business, financial condition or results of operations. Additionally, we may periodically incur cost increases due to hiring and training of new employees in anticipation of future growth. The size, timing and integration of possible future acquisitions may also cause substantial fluctuations in operating results from quarter to quarter. As a result, operating results for any fiscal quarter may not be indicative of the results that may be achieved for any subsequent fiscal quarter or for a full fiscal year. THERE MAY BE CIRCUMSTANCES IN WHICH THE INTERESTS OF OUR INVESTORS COULD BE IN CONFLICT WITH YOUR INTERESTS AS A HOLDER OF EXCHANGE NOTES. Saunders, Karp & Megrue, L.P., a private equity firm, and its co-investors, including Carlisle Enterprises L.P. and, Harvey Equity Partners, L.L.C., also private equity firms, members of our management team, employees and some of the selling stockholders of companies we have acquired or will acquire in the acquisitions, indirectly own all of our equity securities. In addition, funds sponsored by Saunders, Karp & Megrue own indirectly 66.8% of our outstanding equity securities and, pursuant to our bylaws, Saunders, Karp & Megrue has the right to appoint three of our six directors and the right to have one of its appointees exercise two votes when all other directors have the right to only one vote. Carlisle, Harvey and the members of our management team who have invested in our company each have the right to appoint one of the remaining three directors. As a result, circumstances may occur in which the interests of Saunders, Karp & Megrue and/or the other investors could be in conflict with your interests as a holder of exchange notes. In addition, Saunders, Karp & Megrue and/or the other investors may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to the holders of exchange notes. We may from time to time engage in transactions with related parties and affiliates which include, among other things, business arrangements, lease arrangements for certain manufacturing facilities and offices and the payment of fees or commissions for the transfer of manufacturing by one operating company to another. Although the indenture will require that these types of transactions be on terms no less favorable to us or the applicable subsidiary than those which could be obtained on an arms' length basis from third parties, there can be no assurance that these transactions will not adversely affect our business, financial condition or results of operations. See "Related Party Transactions." 15 SIGNIFICANT COMPETITION FOR PRECISION PART MANUFACTURING OUTSOURCED BY ORIGINAL EQUIPMENT MANUFACTURERS MAY AFFECT OUR ABILITY TO SUCCEED. We operate in an industry which is highly fragmented and competitive. A variety of suppliers with different subsets of our manufacturing capabilities compete to supply the stringent demands of large original equipment manufacturers. In addition, our customers are continually seeking to consolidate their business among one or more "Preferred" or "Qualified" suppliers. If any customer becomes dissatisfied with our prices, quality or timeliness of delivery, among other things, it could award future business or, in an extreme case, move existing business to our competitors. We cannot assure you that our products will continue to compete successfully with the products of our competitors, including original equipment manufacturers themselves, many of which are significantly larger and have greater financial and other resources than we do. See "Business--Competition." THE CYCLICAL NATURE OF THE INDUSTRIES WE CURRENTLY SERVE COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR COMPANY. A majority of our revenues are derived from customers which are in industries and businesses that are cyclical in nature and subject to changes in general economic conditions, such as the construction, aerospace and automotive industries. General economic or industry specific downturns could have a material adverse effect on our company and our business, results of operations and financial condition. OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO OBTAIN RAW MATERIALS AND COMPONENTS FROM OUR SUPPLIERS ON FAVORABLE TERMS. Generally, our major raw materials consist of traditional materials such as steel, aluminum, iron, copper, magnesium and bronze, as well as exotic and difficult to machine materials such as titanium, inconel, invar and hastelloy. A majority of our raw materials are supplied by our customers on consignment. Raw materials not supplied by our customers are purchased from several suppliers. Although all of these materials were available in adequate quantities to meet our production demands in 1998 and 1999, we can give you no assurance that such materials will be available in adequate quantities in the future. We do not presently anticipate any raw material shortages which would significantly affect production. However, the lead times between the placement of orders for certain raw materials and actual delivery to us may vary significantly and we may from time to time be required to order raw materials in quantities and at prices less than optimal to compensate for the variability of lead times of delivery. Because we maintain a relatively small inventory of raw materials and component parts, our business could be adversely affected if we are unable to obtain these raw materials and components from our suppliers on favorable terms. OUR BUSINESS COULD BE ADVERSELY AFFECTED TO THE EXTENT THE U.S. GOVERNMENT TERMINATED OR MODIFIED A CONTRACT WITH US OR ONE OF OUR CUSTOMERS. We are generally not a direct party to any contracts with the U.S. Government. However, a portion of our sales are to customers who use the parts, assemblies or tooling we supply to them to fill orders under U.S. government contracts to which they are a party. U.S. government contracts have significant inherent risks, including: - the ability of the U.S. government to terminate a contract for convenience, in which case the other party could be limited to receiving only costs already incurred or committed; - modification of U.S. government contracts due to lack of Congressional funding or changes in such funds; and 16 - an extensive and complex regulatory structure, which could subject the other party to contract termination, civil and criminal penalties and in some cases, suspension or disbarment from future U.S. government contracts. To the extent the U.S. government terminates or modifies a contract with one of our customers, we could be adversely affected if the affected customer reduced its purchases from us as a result. In addition, in the few instances where we are a direct party to a U.S. government contract, the inherent risks described above, as well as risks associated with the competitive bidding atmosphere under which U.S. government contracts are awarded and unreimbursed cost overruns in fixed-price contracts, could have a material adverse effect on our results of operations and financial condition. OUR EQUIPMENT, FACILITIES AND OPERATIONS ARE SUBJECT TO NUMEROUS ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS WHICH MAY BECOME MORE STRINGENT IN THE FUTURE AND MAY RESULT IN INCREASED LIABILITY AND INCREASED CAPTIAL EXPENDITURES. Our equipment, facilities and operations are subject to increasingly complex and stringent federal, state and local laws and regulations pertaining to protection of human health and the environment. These include, among other things, the discharge of contaminants into the environment and the handling and disposition of wastes (including industrial, solid and hazardous wastes). In addition, we are required to obtain and maintain regulatory approvals in the United States in connection with our operations. Many environmental laws and regulations provide for substantial fines and criminal sanctions for violations. It is difficult to predict the future development of such laws and regulations or their impact on future earnings and operations, but we anticipate that these laws and regulations will continue to require increased capital expenditures because environmental standards will become more stringent. We cannot assure you that material costs or liabilities will not be incurred. Certain environmental laws provide for strict, joint and several liability for investigation and remediation of spills and other releases of hazardous materials. These laws typically impose liability whether or not the owner or operator knew of, or was responsible for, the presence of any hazardous materials. Persons who "arrange", as defined under these laws, for the disposal or treatment of hazardous materials also may be liable for the costs of investigation, removal or remediation of such materials at the disposal or treatment site, regardless of whether the affected site is owned or operated by them. Such liability is strict, and may be joint and several. Because we own and operate a number of facilities, and because we arrange for the disposal of hazardous materials at many disposal sites, we may incur costs for investigation, removal and remediation, as well as capital costs associated with compliance with environmental laws and regulations. Although such environmental costs have not been material in the past and are not expected to be material in the future, changes in environmental laws and regulations or unexpected investigations and clean-up costs could have a material adverse effect on our business, financial condition or results of operations. See "Business--Environmental and Safety Regulation." A GUARANTEE COULD BE VOIDED IF THE GUARANTOR FRAUDULENTLY TRANSFERRED THE GUARANTEE AT THE TIME IT INCURRED THE INDEBTEDNESS, WHICH COULD RESULT IN NOTEHOLDERS BEING ABLE TO RELY ONLY UPON US TO SATISFY CLAIMS. Under the U.S. bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee can be voided, or claims in respect of a guarantee may be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee: - intended to hinder, delay or defraud any present or future creditor; or 17 - received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee; and - was insolvent or rendered insolvent by reason of such incurrence; or - was engaged in a business or transaction for which the guarantor's remaining assets constituted unreasonably small capital; or - intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature. In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor or to a fund for the benefit of the creditors of the guarantor. The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the governing law. Generally, however, a guarantor would be considered insolvent if: - the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets, or - if the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature, or - it could not pay its debts as they become due. On the basis of historical financial information, recent operating history and other factors, we believe that the subsidiary guarantees are being incurred for proper purposes and in good faith and that each subsidiary guarantor, after giving effect to its guarantee of the notes, will not be insolvent, will not have unreasonably small capital for the business in which it is engaged and will not have incurred debts beyond its ability to pay such debts as they mature. There can be no assurance, however, as to what standard a court would apply in making such determinations or that a court would agree with our conclusions in this regard. 18 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER In connection with the offering of the outstanding notes, we entered into a registration rights agreement with the initial purchasers of the outstanding notes. We are making this exchange offer to satisfy our obligations under the registration rights agreement. TERMS OF THE EXCHANGE We are offering to exchange, upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, exchange notes for an equal principal amount of outstanding notes. The terms of the exchange notes are identical in all material respects to those of the outstanding notes, except for the transfer restrictions and registration rights relating to the outstanding notes. The exchange notes will be entitled to the benefits of the indenture. See "Description of the Notes." The exchange offer is not conditioned upon any minimum aggregate principal amount of outstanding notes being tendered or accepted for exchange. As of the date of this prospectus, $100 million aggregate principal amount of the outstanding notes is outstanding. Outstanding notes tendered in the exchange offer must be in denominations of a minimum principal amount of $1,000 or any integral multiple thereof. Based on certain interpretive letters issued by the staff of the SEC to third parties in unrelated transactions, holders of outstanding notes, except any holder who is an "affiliate" of ours within the meaning of Rule 405 under the Securities Act, who exchange their outstanding notes for exchange notes pursuant to the exchange offer generally may offer the exchange notes for resale, resell the exchange notes and otherwise transfer the exchange notes without compliance with the registration and prospectus delivery provisions of the Securities Act, PROVIDED that the exchange notes are acquired in the ordinary course of the holders' business and such holders are not participating in, and have no arrangement or understanding with any person to participate in, a distribution of the exchange notes. Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where the outstanding notes were acquired by the broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. See "Plan of Distribution." In addition, to comply with the securities laws of individual jurisdictions, if applicable, the exchange notes may not be offered or sold unless they have been registered or qualified for sale in the jurisdiction or an exemption from registration or qualification is available and complied with. We have agreed, pursuant to our registration rights agreement to register or qualify the exchange notes for offer or sale under the securities or blue sky laws of the jurisdictions you request in writing. If you do not exchange such outstanding notes for exchange notes pursuant to the exchange offer, your outstanding notes will continue to be subject to the restrictions on transfer contained in the legend. If any holder of the outstanding notes is an affiliate of ours, is engaged in or intends to engage in or has any arrangement or understanding with any person to participate in the distribution of the exchange notes to be acquired in the exchange offer, the holder could not rely on the applicable interpretations of the SEC and must comply with the registration requirements of the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the registration requirement of the Securities Act and applicable state securities laws. 19 EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS The exchange offer expires on the expiration date, which is 5:00 p.m., New York City time, on , 2000 unless we in our sole discretion extend the period during which the exchange offer is open. We reserve the right to extend the exchange offer at any time and from time to time prior to the expiration date by giving written notice to The Bank of New York, the exchange agent, and by public announcement communicated by no later than 9:00 a.m. on the next business day following the previously scheduled expiration date, unless otherwise required by applicable law or regulation, by making a release to the Dow Jones News Service. During any extension of the exchange offer, all outstanding notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. The exchange date will be the second business day following the expiration date. We expressly reserve the right to: - terminate the exchange offer and not accept for exchange any outstanding notes for any reason, including if any of the events set forth below under "--Conditions to the Exchange Offer" shall have occurred and shall not have been waived by us; and - amend the terms of the exchange offer in any manner, whether before or after any tender of the outstanding notes. If any termination or amendment occurs, we will notify the exchange agent in writing and will either issue a press release or give written notice to the holders of the outstanding notes as promptly as practicable. Unless we terminate the exchange offer prior to 5:00 p.m., New York City time, on the expiration date, we will exchange the exchange notes for the tendered outstanding notes on the exchange date. Any outstanding notes not accepted for exchange for any reason will be returned without expense to the tendering holder as promptly as practicable after expiration or termination of the exchange offer. See "--Acceptance of Outstanding Notes for Exchange; Delivery of Exchange Notes." This prospectus and the related letter of transmittal and other relevant materials will be mailed by us to record holders of outstanding notes and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the lists of holders for subsequent transmittal to beneficial owners of outstanding notes. PROCEDURES FOR TENDERING OUTSTANDING NOTES The tender of outstanding notes by you pursuant to any one of the procedures set forth below will constitute an agreement between you and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. GENERAL PROCEDURES. You may tender the notes by: - properly completing and signing the letter of transmittal or a facsimile and delivering the letter of transmittal together with -- the certificate or certificates representing the outstanding notes being tendered and any required signature guarantees, to the exchange agent at its address set forth in the letter of transmittal on or prior to the expiration date, or -- a timely confirmation of a book-entry transfer of the outstanding notes being tendered, if the procedure is available, into the exchange agent's account at DTC pursuant to the procedure for book-entry transfer described below, 20 - or complying with the guaranteed delivery procedures described below. If tendered outstanding notes are registered in the name of the signer of the letter of transmittal and the exchange notes to be issued in exchange therefor are to be issued, and any untendered outstanding notes are to be reissued, in the name of the registered holder, the signature of the signer need not be guaranteed. In any other case, the tendered outstanding notes must be endorsed or accompanied by written instruments of transfer in form satisfactory to us and duly executed by the registered holder and the signature on the endorsement or instrument of transfer must be guaranteed by a commercial bank or trust company located or having an office or correspondent in the United States or by a member firm of a national securities exchange or of the National Association of Securities Dealers, Inc. or by a member of a signature medallion program such as "STAMP." If the exchange notes and/or outstanding notes not exchanged are to be delivered to an address other than that of the registered holder appearing on the note register for the outstanding notes, the signature on the letter of transmittal must be guaranteed by an eligible institution. Any beneficial owner whose outstanding notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender outstanding notes should contact the holder promptly and instruct the holder to tender outstanding notes on the beneficial owner's behalf. If the beneficial owner wishes to tender the outstanding notes itself, the beneficial owner must, prior to completing and executing the letter of transmittal and delivering the outstanding notes, either make appropriate arrangements to register ownership of the outstanding notes in the beneficial owner's name or follow the procedures described in the immediately preceding paragraph. The transfer of record ownership may take considerable time. A tender will be deemed to have been received as of the date when: - the tendering holder's properly completed and duly signed letter of transmittal accompanied by the outstanding notes is received by the exchange agent, - the tendering holder's properly completed and duly signed letter of transmittal accompanied by a book-entry confirmation is received by the exchange agent, or - a notice of guaranteed delivery or letter or facsimile transmission to similar effect from an eligible institution is received by the exchange agent. Issuances of exchange notes in exchange for outstanding notes tendered pursuant to a notice of guaranteed delivery or letter or facsimile transmission to similar effect by an eligible institution will be made only against deposit of the letter of transmittal, the tendered outstanding notes, or book-entry confirmation, if applicable and any other required documents. All questions as to the validity, form, eligibility, including time of receipt, and acceptance for exchange of any tender of outstanding notes will be determined by us, and will be final and binding. We reserve the absolute right to reject any or all tenders not in proper form or the acceptances for exchange of which may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any of the conditions of the exchange offer or any defects or irregularities in tenders of any particular holder whether or not similar defects or irregularities are waived in the case of other holders. Neither we, the exchange agent nor any other person will be under any duty to give notification of any defects or irregularities in tenders or will incur any liability for failure to give any such notification. Our interpretation of the terms and conditions of the exchange offer, including the letter of transmittal and its instructions, will be final and binding. The method of delivery of outstanding notes and all other documents is at the election and risk of the tendering holders, and delivery will be deemed made only when actually received and confirmed by the exchange agent. If the delivery is by mail, it is recommended that registered mail properly insured with return receipt requested be used and that the mailing be made sufficiently in advance of the 21 expiration date to permit delivery to the exchange agent prior to 5:00 p.m., New York City time, on the expiration date. As an alternative to delivery by mail, holders may wish to consider overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the exchange agent prior to 5:00 p.m., New York City time, on the expiration date. No letter of transmittal or outstanding notes should be sent to us. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions for the holders. BOOK-ENTRY TRANSFER. The exchange agent will make a request to establish an account with respect to the outstanding notes at the book-entry transfer facility for purposes of the exchange offer within two business days after the date of the prospectus, and any financial institution that is a participant in the book-entry transfer facility's systems may make book-entry delivery of outstanding notes by causing the book-entry transfer facility to transfer the outstanding notes into the exchange agent's account at the book-entry transfer facility in accordance with the book-entry transfer facility's procedures for transfer. GUARANTEED DELIVERY PROCEDURES. If you desire to tender outstanding notes pursuant to the exchange offer, but time will not permit a letter of transmittal, the outstanding notes or other required documents to reach the exchange agent on or before the expiration date, or if the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if the exchange agent has received at its office a letter or facsimile transmission from an eligible institution setting forth the name and address of the tendering holder, the names in which the outstanding notes are registered, the principal amount of the outstanding notes being tendered and, if possible, the certificate numbers of the outstanding notes to be tendered, and stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange trading days after the expiration date, the outstanding notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal and any other required documents, will be delivered by the eligible institution to the exchange agent in accordance with the procedures outlined above. Unless outstanding notes being tendered by the above-described method are deposited with the exchange agent, including through a book-entry confirmation, within the time period set forth above and accompanied or preceded by a properly completed letter of transmittal and any other required documents, we may, at our option, reject the tender. Copies of a notice of guaranteed delivery which may be used by eligible institutions for the purposes described in this paragraph are available from the exchange agent. TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL The letter of transmittal contains, among other things, the following terms and conditions, which are part of the exchange offer. The transferring party tendering outstanding notes for exchange thereby exchanges, assigns and transfers the outstanding notes to us and irrevocably constitutes and appoints the exchange agent as the transferor's agent and attorney-in-fact to cause the outstanding notes to be assigned, transferred and exchanged. The transferor represents and warrants that it has full power and authority to tender, exchange, assign and transfer the outstanding notes and to acquire exchange notes issuable upon the exchange of the tendered outstanding notes and that, when the same are accepted for exchange, we will acquire good and unencumbered title to the tendered outstanding notes, free and clear of all liens, restrictions except restrictions on transfer, charges and encumbrances and not subject to any adverse claim. The transferor also warrants that it will, upon request, execute and deliver any additional documents deemed by the exchange agent or us to be necessary or desirable to complete the exchange, assignment and transfer of tendered outstanding notes. The transferor further agrees that acceptance of any tendered outstanding notes by us and the issuance of exchange notes in exchange therefor will constitute performance in full by us of our obligations under the registration rights agreement and that we will have no further obligations or liabilities under the registration rights agreement, except in 22 certain limited circumstances. All authority conferred by the transferor will survive the death, bankruptcy or incapacity of the transferor and every obligation of the transferor will be binding upon the heirs, legal representatives, successors, assigns, executors, administrators and trustees in bankruptcy of the transferor. By tendering outstanding notes and executing the letter of transmittal, the transferor certifies that: - it is not an affiliate of Precision Partners, the subsidiary guarantors or any of our affiliates or, if the transferor is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable; - the exchange notes are being acquired in the ordinary course of business of the person receiving the exchange notes, whether or not the person is the holder; - the transferor has not entered into an arrangement or understanding with any other person to participate in the distribution, within the meaning of the Securities Act, of the exchange notes; - the transferor is not a broker-dealer who purchased the outstanding notes for resale pursuant to an exemption under the Securities Act; and - the transferor will be able to trade the exchange notes acquired in the exchange offer without restriction under the Securities Act. Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See "Plan of Distribution." WITHDRAWAL RIGHTS Outstanding notes tendered pursuant to the exchange offer may be withdrawn at any time prior to the expiration date. For a withdrawal to be effective, a written letter or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth in the letter of transmittal not later than the close of business on the expiration date. Any notice of withdrawal must specify the person named in the letter of transmittal as having tendered outstanding notes to be withdrawn, the certificate numbers and principal amount of outstanding notes to be withdrawn, that the holder is withdrawing its election to have such outstanding notes exchanged and the name of the registered holder of the outstanding notes, and must be signed by the holder in the same manner as the original signature on the letter of transmittal, including any required signature guarantees, or be accompanied by evidence satisfactory to us that the person withdrawing the tender has succeeded to the beneficial ownership of the outstanding notes being withdrawn. The exchange agent will return the properly withdrawn outstanding notes promptly following receipt of notice of withdrawal. Properly withdrawn outstanding notes may be retendered by following one of the procedures described under "--Procedures for Tendering Outstanding Notes" above at any time on or prior to the expiration date. If outstanding notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn outstanding notes and otherwise comply with the procedures of such facility. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by us, and will be final and binding on all parties. ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Upon the terms and subject to the conditions of the exchange offer, the acceptance for exchange of outstanding notes validly tendered and not withdrawn and the issuance of the exchange notes will be 23 made on the exchange date. For purposes of the exchange offer, we will be deemed to have accepted for exchange validly tendered outstanding notes when, and if we have given written notice to the exchange agent. The exchange agent will act as agent for the tendering holders of outstanding notes for the purposes of receiving exchange notes from us and causing the outstanding notes to be assigned, transferred and exchanged. Upon the terms and subject to the conditions of the exchange offer, delivery of exchange notes to be issued in exchange for accepted outstanding notes will be made by the exchange agent promptly after acceptance of the tendered outstanding notes. Any outstanding notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder without cost to the holder, or, in the case of outstanding notes tendered by book-entry transfer into the exchange agent's account at the book-entry transfer facility pursuant to the book-entry procedures described above, the outstanding notes will be credited to an account maintained by the holder with the book-entry transfer facility for the outstanding notes, as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the exchange offer, or any extension of the exchange offer, we will not be required to issue exchange notes in exchange for any properly tendered outstanding notes not previously accepted and may terminate the exchange offer, by oral or written notice to the exchange agent and by timely public announcement communicated, unless otherwise required by applicable law or regulation, by making a release to the Dow Jones News Service, or, at its option, modify or otherwise amend the exchange offer, if: - there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order or decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission -- seeking to restrain or prohibit the making or consummation of the exchange offer or any other transaction contemplated by the exchange offer, -- assessing or seeking any damages as a result thereof, or -- resulting in a material delay in our ability to accept for exchange or exchange some or all of the outstanding notes pursuant to the exchange offer; or - the exchange offer shall violate any applicable law or any applicable interpretation of the staff of the SEC. The foregoing conditions are for our sole benefit and may be asserted by us with respect to all or any portion of the exchange offer regardless of the circumstances, including any action or inaction by us, giving rise to the condition or may be waived by us in whole or in part at any time or from time to time in its sole discretion. The failure by us at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right, and each right will be deemed an ongoing right which may be asserted at any time or from time to time. In addition, we have reserved the right, notwithstanding the satisfaction of each of the foregoing conditions, to terminate or amend the exchange offer. Any determination by us concerning the fulfillment or non-fulfillment of any conditions will be final and binding upon all parties. In addition, we will not accept for exchange any outstanding notes tendered, and no exchange notes will be issued in exchange for any outstanding notes, if at such time any stop order shall be threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or qualification of the indenture under the Trust Indenture Act of 1939. 24 EXCHANGE AGENT The Bank of New York has been appointed as the exchange agent for the exchange offer. Questions relating to the procedure for tendering, as well as requests for additional copies of this prospectus or the letter of transmittal and requests for notices of guaranteed delivery, should be directed to the exchange agent addressed as follows: BY REGISTERED OR CERTIFIED FACSIMILE TRANSMISSION BY HAND/OVERNIGHT DELIVERY: MAIL: NUMBER: The Bank of New York (FOR ELIGIBLE INSTITUTIONS The Bank of New York 101 Barclay Street, 7E ONLY) 101 Barclay Street New York, New York 10286 (212) 815-6339 Corporate Trust Services Attention: Reorganization Window, Ground Level Section TO CONFIRM BY TELEPHONE OR New York, New York 10286 FOR Attention: Reorganization INFORMATION CALL: Section (212) 815-6337
Delivery of the letter of transmittal to an address other than as set forth above, or transmission of instructions via facsimile other than as set forth above, will not constitute a valid delivery. The Bank of New York also acts as trustee under the indenture. SOLICITATION OF TENDERS; EXPENSES We have not retained any dealer-manager or similar agent in connection with the exchange offer and we will not make any payments to brokers, dealers or others for soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse it for reasonable out-of-pocket expenses in connection therewith. The expenses to be incurred in connection with the exchange offer, including the fees and expenses of the exchange agent and printing, accounting and legal fees, will be paid by us and are estimated at approximately $0.5 million. No person has been authorized to give any information or to make any representations in connection with the exchange offer other than those contained in this prospectus. If given or made, the information or representations should not be relied upon as having been authorized by us. Neither the delivery of this prospectus nor any exchange made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs since the respective dates as of which information is given in this prospectus. The exchange offer is not being made to, nor will tenders be accepted from or on behalf of, holders of outstanding notes in any jurisdiction in which the making of the exchange offer or the acceptance would not be in compliance with the laws of the jurisdiction. However, we may, at our discretion, take any action as we may deem necessary to make the exchange offer in any jurisdiction and extend the exchange offer to holders of outstanding notes in the jurisdiction. In any jurisdiction the securities laws or blue sky laws of which require the exchange offer to be made by a licensed broker or dealer, the exchange offer is being made on behalf of us by one or more registered brokers or dealers which are licensed under the laws of the jurisdiction. APPRAISAL RIGHTS You will not have dissenters' rights or appraisal rights in connection with the exchange offer. ACCOUNTING TREATMENT The exchange notes will be recorded at the carrying value of the outstanding notes as reflected in the issuer's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting 25 purposes will be recognized by the issuer upon the exchange of exchange notes for outstanding notes. Expenses incurred in connection with the issuance of the exchange notes will be amortized over the term of the exchange notes. TRANSFER TAXES If you tender your outstanding notes, you will not be obligated to pay any transfer taxes in connection therewith except that unless you instruct us to register exchange notes in the name of, or request outstanding notes not tendered or not accepted in the exchange offer be returned to, a person other than the registered holder, you will be responsible for the payment of any applicable transfer tax. INCOME TAX CONSIDERATIONS You should consult your own tax advisers with respect to your particular circumstances and with respect to the effects of state, local or foreign tax laws to which you may be subject. The following discussion is based upon the provisions of the Internal Revenue Code of 1986, regulations, rulings and judicial decisions, in each case as in effect on the date of this prospectus, all of which are subject to change. The exchange of an outstanding note for an exchange note will not constitute a taxable exchange. Such an exchange will not result in taxable income, gain or loss being recognized by you or by us. Immediately after the exchange, you will have the same adjusted basis and holding period in each exchange note received as you had immediately prior to the exchange in the corresponding outstanding note surrendered. See "Income Tax Considerations." CONSEQUENCES OF FAILURE TO EXCHANGE As consequence of the offer or sale of the outstanding notes pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws, holders of outstanding notes who do not exchange outstanding notes for exchange notes pursuant to the exchange offer will continue to be subject to the restrictions on transfer of the outstanding notes as set forth in the legend. In general, the outstanding notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not currently anticipate that we will register the outstanding notes under the Securities Act. Upon consummation of the exchange offer, due to the restrictions on transfer of the outstanding notes and the absence of such restrictions applicable to the exchange notes, it is likely that the market, if any, for outstanding notes will be relatively less liquid than the market for exchange notes. Consequently, holders of outstanding notes who do not participate in the exchange offer could experience significant diminution in the value of their outstanding notes, compared to the value of the exchange notes. 26 USE OF PROCEEDS We will not receive any proceeds from the exchange offer. The net proceeds from the sale of the outstanding notes were approximately $95.3 million, after deducting discounts, commissions and expenses of the offering. We used these proceeds, together with borrowings under our credit facilities, an equity contribution of $10.0 million from our investors and available cash, to finance the Certified, Calbrit, Nationwide and General Automation acquisitions and to prepay a term loan. The following table illustrates the sources and uses of proceeds in connection with the March acquisitions and the sale of the outstanding notes (in millions):
- ------------------------------------ - ------------------------------------ Term loan........................... $ 23.0 Cash purchase price for the Outstanding notes................... $100.0 acquisitions(1)................... 100.7 Equity contribution................. 10.0 Prepayment of indebtedness(2)....... 23.0 Available cash...................... 0.3 Fees and expenses................... 9.6 ------ ------ Total sources of funds............ $133.3 Total uses of funds............... $133.3 ====== ======
- ------------------------ (1) Includes the prepayment of approximately $11.1 of outstanding indebtedness of Certified plus approximately $0.4 million of related prepayment penalties. (2) Consisted of a $23.0 million floating rate term loan with an interest rate of 7.6% as of February 15, 1999. Amortization payments in respect of this loan were scheduled to begin December 31, 1999 and continue through September 30, 2004. 27 CAPITALIZATION The following table sets forth our cash and temporary investments and our consolidated capitalization as at December 31, 1999.
DECEMBER 31, 1999 ----------------- (IN MILLIONS) Cash and temporary investments.............................. $ 0.3 Debt: Term loan................................................. 23.0 Revolving credit facility(1).............................. 11.2 12% Senior Subordinated Notes due 2009.................... 100.0 Other long-term debt...................................... 0.3 Total debt.............................................. 134.5 Stockholders equity......................................... 36.1 ------ Total capitalization.................................... $170.9 ======
- ------------------------ (1) As at December 31, 1999, $11.2 million of our $25.0 million revolving credit facility was outstanding. As of the closing date for the sale of the outstanding notes, no indebtedness was outstanding under this facility. As of March 21, 2000, $21.3 million was outstanding. 28 PRO FORMA FINANCIAL INFORMATION The unaudited pro forma consolidated statement of operations for the year ended December 31, 1999 gives effect to: - the acquisitions of Certified, Nationwide, General Automation and Gillette; - the reorganization under which we received the capital stock of Mid State and Galaxy as a capital contribution from Precision Partners, L.L.C.; and - the new credit facilities we entered into in March 1999 and the related prepayment of an existing term loan, as if each such transaction had occurred on January 1, 1999. For purposes of the unaudited pro forma consolidated statement of operations, the historical financial information of General Automation and Nationwide has been adjusted to eliminate the effect of assets not acquired and liabilities not assumed in the relevant acquisition, in each case in accordance with the terms of the purchase agreement relating to such acquisition. The unaudited pro forma consolidated statement of operations should be read in conjunction with our historical financial statements and those of Mid State, Certified, Nationwide, General Automation and Gillette, including the notes thereto, in each case included elsewhere in this prospectus, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The adjustments necessary to fairly present this pro forma consolidated financial information have been made based on available information and in the opinion of management are reasonable and are described in the accompanying notes. The pro forma consolidated financial information should not be considered indicative of actual results that would have been achieved had the transactions been consummated on the date indicated and do not purport to indicate results of operations as of any future date or for any future period. We cannot assure you that the assumptions used in the preparation of the pro forma consolidated financial information will prove to be correct. The acquisitions of Mid State, Galaxy, Certified, Nationwide, General Automation and Gillette were accounted for using the purchase method of accounting, pursuant to which the purchase price was allocated among the assets acquired and liabilities assumed in accordance with estimates of fair value as of the date of acquisition. However, the unaudited pro forma consolidated statement of operations reflects management's estimates of fair value as of January 1, 1999 and not at the actual date of acquisition. In addition, the pro forma adjustments are based upon available information and certain assumptions that management considers reasonable under the circumstances. Consequently, the amounts reflected in the unaudited pro forma consolidated statement of operations are subject to change, which could be significant. 29 PRECISION PARTNERS, INC. UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS)
HISTORICAL (HISTORICAL) ------------------------------------------------------------------ CONSOLIDATED CERTIFIED NATIONWIDE GENERAL GILETTE PRECISION FOR THE THREE FOR THE THREE FOR THE THREE FOR THE EIGHT PARTNERS, INC. MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED PRO FORMA DECEMBER 31, 1999 MARCH 19, 1999 MARCH 19, 1999 MARCH 19, 1999 AUGUST 31, 1999 ADJUSTMENTS ----------------- -------------- -------------- -------------- --------------- ----------- Net sales................... $123,188 $ 5,739 $6,214 $4,464 $10,144 $ -- Cost of sales............... 93,434 5,110 4,940 2,270 6,810 945 (1) Selling, general and administrative expenses... 24,840 1,080 554 509 2,796 (4,263)(2) Operating income (loss)..... 4,914 (451) 720 1,685 538 3,318 Other income (expense): Net interest expense...... (12,567) (647) (166) 18 (112) (2,197)(3) Other, net................ 8 4 (4) -- 128 -- Income (loss) before income taxes..................... (7,645) (1,094) 550 1,703 554 1,121 Provision (benefit) for income taxes.............. (2,130) -- -- 18 272 767 (4) Net income (loss)........... (5,515) (1,094) 550 1,685 282 354 Depreciation................ 8,525 634 453 274 603 831 Amortization................ 3,381 -- -- -- -- 719 EBITDA (5),(6).............. 16,820 183 1,173 1,959 1,141 4,868 PRO FORMA -------- Net sales................... $149,749 Cost of sales............... 113,509 Selling, general and administrative expenses... 25,516 Operating income (loss)..... 10,724 Other income (expense): Net interest expense...... (15,671) Other, net................ 136 Income (loss) before income taxes..................... (4,811) Provision (benefit) for income taxes.............. (1,073) Net income (loss)........... (3,738) Depreciation................ 11,320 Amortization................ 4,100 EBITDA (5),(6).............. 26,144
- ------------------------ (1) The pro forma adjustments for cost of sales reflect the following: Adjustment for additional depreciation for step-up in fair market value of fixed assets related to the purchase transactions.............................................. $ 831 Adjustment for new lease terms of facilities renegotiated in connection with the purchase transaction.................. 114 ------- $ 945 ======= (2) The pro forma adjustments for selling, general and administrative expenses reflect the following: Adjustments for termination of executive positions held by shareholders and related parties as part of the purchase contract whose positions will not be replaced............. $(4,769) Adjustment for additional amortization of goodwill related to the purchase transaction which is being amortized over twenty years.............................................. 719 Adjustments for professional fees expensed by one of the acquisitions to negotiate and consummate the purchase transaction............................................... (213) ------- $(4,263) ======= (3) Adjustment to record additional interest expense associated with the notes offered for exchange herein (net of the elimination of historical interest expense related to debt not assumed or refinanced), and amortization of the related debt issue costs over the ten year term of the notes totaling $1,051..................................... $(2,197) ======= (4) Adjustment to record the income tax benefit on pro forma income before income taxes. (5) Pro forma EBITDA is defined as operating income plus depreciation and amortization of $15,420. EBITDA is not a measure of performance under generally accepted accounting principles. While EBITDA should not be used in isolation or as a substitute for net income, cash flows from operating activities or other income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity, management believes that it may be used by certain investors as supplemental information to evaluate a company's financial performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, the definition of EBITDA used in this prospectus may not be comparable to the definition of EBITDA used by other companies. (6) EBITDA includes the effect of a jet aircraft lease expense of $186. This lease was terminated at closing in connection with the acquisition of General Automation pursuant to the terms of the purchase agreement. Excluding the effects of this lease for the entire period, EBITDA would have been $26,330.
30 SELECTED HISTORICAL FINANCIAL INFORMATION Prior to the acquisitions of Mid State and Galaxy in September 1998, Precision Partners, L.L.C. had substantially no operations and, prior to the completion of the reorganization and acquisitions of Certified, Calbrit, Nationwide and General Automation in March 1999, we had substantially no operations. As a result, we believe historical financial information for our company prior to March 1999 and for Precision Partners, L.L.C. and our predecessor for accounting purposes, Mid State, is of limited relevance in understanding what our actual results of operations, financial position or cash flows would have been for historical periods had we in fact been organized and owned all five subsidiaries for such periods. In addition, for financial statement presentation purposes, the reorganization is accounted for as if it had occurred in September 1998 and we are treated as having commenced operations at that time in a manner similar to a pooling of interests. See Note 1 to our consolidated financial statements. The selected historical financial information should be read in conjunction with our consolidated financial statements and Mid State, including the notes thereto, included elsewhere in this prospectus, and with "Management's Discussion and Analysis of Financial Condition and Results of Operations."
PRECISION MID STATE (PREDECESSOR) PARTNERS, INC. --------------------------------------------------- -------------------------------- JANUARY 1, 1998 SEPTEMBER 9, 1998 THROUGH THROUGH 1995 1996 1997 SEPTEMBER 30, 1998 DECEMBER 31, 1998 1999 -------- -------- -------- ------------------ ----------------- ------------ (IN THOUSANDS, EXCEPT RATIO AND DATA) OPERATING DATA: Net sales...................... $29,824 $28,462 $33,870 $24,106 $12,602 $123,188 Cost of sales.................. 24,206 20,290 24,581 16,326 9,090 93,434 ------- ------- ------- ------- ------- -------- Gross profit................... 5,618 8,172 9,289 7,780 3,512 29,754 Selling, general and administrative expenses...... 4,141 4,322 4,571 3,374 3,134 24,840 ------- ------- ------- ------- ------- -------- Operating income............... 1,477 3,850 4,718 4,406 378 4,914 Interest expense, net.......... 108 69 85 37 526 12,567 Other income (expense), net.... 475 1,157 1,220 12 (138) 8 ------- ------- ------- ------- ------- -------- Income (loss) before provision for income taxes............. 1,844 4,938 5,853 4,381 (286) (7,645) Provision (benefit) for income taxes........................ 671 1,818 2,310 1,677 109 (2,130) ------- ------- ------- ------- ------- -------- Net income (loss).............. $ 1,173 $ 3,120 $ 3,543 $ 2,704 $ (395) $ (5,515) ======= ======= ======= ======= ======= ========
PRECISION MID STATE (PREDECESSOR) PARTNERS, INC. --------------------------------------------------- -------------------------------- JANUARY 1, 1998 SEPTEMBER 9, 1998 THROUGH THROUGH 1995 1996 1997 SEPTEMBER 30, 1998 DECEMBER 31, 1998 1999 -------- -------- -------- ------------------ ----------------- ------------ (IN THOUSANDS, EXCEPT RATIO DATA) OTHER FINANCIAL DATA: EBITDA(1)...................... $ 2,287 $ 4,734 $ 5,770 $ 5,212 $ 1,483 $ 16,820 Depreciation and amortization................. $ 810 $ 884 $ 1,052 $ 806 $ 1,105 $ 11,906 Ratio of earnings to fixed charges(2)................... 7.2x 20.2x 22.4x 25.6x -- -- BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents...... $ 2,638 $ 40 $ 963 $ 313 Working capital................ 14,019 5,769 5,748 3,844 Total assets................... 20,119 11,574 63,321 206,391 Total debt..................... 686 403 23,000 134,548 Stockholders' equity........... 17,094 8,265 31,605 36,132
- ------------------------ (1) EBITDA is defined as operating income plus depreciation and amortization. EBITDA is not a measure of performance under generally accepted accounting principles. While EBITDA should 31 not be used in isolation or as a substitute for net income, cash flows from operating activities or other income or cash flow statement data prepared in accordance with generally accepted accounting principles, or as a measure of profitability or liquidity, management believes that it may be used by certain investors as supplemental information to evaluate a company's financial performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, the definition of EBITDA used in this prospectus may not be comparable to the definition of EBITDA used by other companies. (2) Earnings are defined as pre-tax income plus fixed charges, excluding capitalized interest and preferred stock dividend requirements. Fixed charges are defined as the sum of all interest (whether capitalized or expensed), the amortization of debt issue costs and discount or premium relating to any indebtedness (whether expensed or capitalized), the interest portion of rental expense, and preferred stock dividend requirements for majority-owned subsidiaries. For the period from September 9, 1998 through December 31, 1998 and for 1999, earnings were insufficient to cover fixed charges by $286 and $7,645, respectively. 32 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL We are a leading contract mechanical manufacturing services supplier of complex precision metal parts, tooling and assemblies for original equipment manufacturers. Our broad manufacturing capabilities and highly engineered processes allow us to meet the critical specifications of our customers across a wide range of industries. We have earned "Preferred or "Qualified" supplier status with most of our customers and are predominately the sole-source supplier to our customers of the parts we manufacture. Precision Partners, L.L.C. was formed in September 1998 and we were formed in February 1999 for the sole purpose of consummating acquisitions in the business of manufacturing and supplying complex precision metal parts, tooling and assembles for original equipment manufacturers. On September 30, 1998, Precision Partners, L.L.C. acquired all of the outstanding capital stock of Mid State and Galaxy. In March 1999, we underwent a corporate reorganization under which we acuired all of the issued and outstanding capital stock of Mid State and Galaxy. At the same time, we also purchased all of the issued and outstanding capital stock of Certified and Calbrit and we purchased substantially all of the assets and assumed some liabilities of General Automation and Nationwide. The aggregate purchase price for the March acquisitions was approximately $100.7 million, excluding fees and expenses, and was financed through the net proceeds from the sale of the outstanding notes, borrowings under our credit facilities, an equity contribution and available cash. In July 1999, we merged Calbrit into Certified and in September 1999 we acquired Gillette. The purchase price for the Gillette acquisition was approximately $14.4 million and was financed using existing cash and borrowings under our revolving credit facility. Prior to the acquisitions of Mid State and Galaxy, Precision Partners, L.L.C. had substantially no operations and, prior to the consummation of the reorganization and the acquisitions of Certified, Calbrit, Nationwide and General Automation, we had substantially no operations. For financial statement presentation purposes, and for purposes of the following discussion, the reorganization is accounted for as if it occurred on September 9, 1998 and we are treated as having commenced operations at that time. See Note 1 to our consolidated financial statements. For this reason, the following management's discussion and analysis relates to the financial condition and results of operations of: - a combination of Mid State, as predecessor, for the period from January 1, 1998 through September 30, 1998 and our company for the period from September 9, 1998 (inception) through December 31, 1998 on a consolidated basis, including Mid State and Galaxy for the period from October 1, 1998 through December 31, 1998 and LLC for the period from September 9, 1998 through December 31, 1998; and - a combination of our company for the period from February 9, 1999 (inception) through December 31, 1999 on a consolidated basis, including Certified, Nationwide and General Automation from March 19, 1999 through December 31, 1999, Precision Partners, L.L.C. from January 1, 1999 to March 19, 1999 and Gillette from September 1, 1999 to December 31, 1999. This discussion and analysis should be read in conjunction with our historical audited financial statements and those of Mid State, and the Unaudited Pro Forma Consolidated Statement of Operations, including the notes thereto, included elsewhere in this prospectus. As a result, we believe the historical financial information presented in this prospectus for periods prior to 1999 is of limited relevance in understanding what our results of operations, financial position or cash flows would have been for the historical periods presented had we in fact been organized and owned all of our current subsidiaries for such periods. 33 A change in the senior management at Galaxy occurred during the third quarter of 1999, and in connection with this change, we engaged in a review of the operations (including customer and vendor relations) and accounting practices and procedures at Galaxy. This review was performed by a team consisting of internal management and outside professionals and has revealed administration and accounting practices inconsistent with our policies and procedures. These inconsistencies include the failure to execute proper cut-off procedures at month-end and the failure to recognize certain expenses in the period in which those expenses were incurred. We believe our 1999 financial results accurately reflect the excess costs associated with these matters, and after a review, we do not believe that our financial results for 1999 or any previously reported period have been materially misstated as a result of past practices at Galaxy. The following table sets forth, for the periods indicated, information derived from our audited consolidated statement of operations and the audited consolidated statements of operations of Mid State, in each case, for the periods indicated, both in dollars and expressed as a percentage of net sales (dollars in thousands):
MID STATE (HISTORICAL) --------------------------------------------------------------- JANUARY 1, 1998 YEAR ENDED DECEMBER 31, THROUGH ----------------------------------------- SEPTEMBER 30, 1996 1997 1998 ------------------- ------------------- ------------------- (IN THOUSANDS) Net sales............ $28,462 100.0% $33,870 100.0% $24,106 100.0% Cost of sales........ 20,290 71.3 24,581 72.6 16,326 67.7 Gross profit......... 8,172 28.7 9,289 27.4 7,780 32.3 Selling, general and administrative expenses........... 4,322 15.2 4,571 13.5 3,374 14.0 Operating income..... 3,850 13.5 4,718 13.9 4,406 18.3 Net income (loss).... 3,120 11.0 3,543 10.5 2,704 11.2 ======= ======= ======= ======= ======= ======= Depreciation and amortization....... $ 884 3.1% $ 1,052 3.1% $ 806 3.3% EBITDA(1)............ 4,734 16.6 5,770 17.0 5,212 21.6 PRECISION PARTNERS, INC. (HISTORICAL) --------------------------------------------------------------- SEPTEMBER 9, 1998 THROUGH YEAR ENDED DECEMBER 31, COMBINED DECEMBER 31, 1998 1998(2) 1999(3) ------------------- ------------------- ------------------- (IN THOUSANDS) Net sales............ $12,602 100.0% $36,708 100.0% $123,188 100.0% Cost of sales........ 9,090 72.1 25,416 69.2 93,434 75.8 Gross profit......... 3,512 27.9 11,292 30.8 29,754 24.2 Selling, general and administrative expenses........... 3,134 24.9 6,508 17.7 24,840 20.2 Operating income..... 378 3.0 4,784 13.0 4,914 4.0 Net income (loss).... (395) (3.1) 2,309 6.3 (5,515) (4.5) ======= ======= ======= ======= ======== ======= Depreciation and amortization....... $ 1,105 8.8% $ 1,911 5.2% $ 11,906 9.7% EBITDA(1)............ 1,483 11.8 6,695 18.2 16,820 13.7
- --------------- (1) For historical financial information purposes, EBITDA is defined as operating income plus depreciation and amortization. EBITDA is not a measure of performance under generally accepted accounting principles. While EBITDA should not be used in isolation or as a substitute for net income, cash flows from operating activities or other income or cash flow statements data prepared in accordance with generally accepted accounting principles, or as a measure of profitability or liquidity, management believes that it may be used by certain investors as supplemental information to evaluate a company's financial performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, the definition of EBITDA used in this prospectus may not be comparable to the definition of EBITDA used by other companies. (2) Precision Partners combined consists of our results of operations from September 9, 1998 (inception) through December 31, 1998 and of Mid State (predecessor) for the nine months ended September 30, 1998. (3) Our results for the period from February 9, 1999 (inception) through December 31, 1999, include Certified, Nationwide and General Automation, Precision Partners, L.L.C.'s results from January 1, 1999 to March 19, 1999 and Gillette's results from September 1, 1999 to December 31, 1999. HISTORICAL RESULTS OF OPERATIONS 1999 COMPARED TO 1998 COMBINED NET SALES. Net sales increased 235.6% to $123.2 million in 1999 compared to $36.7 million in 1998. The increase is due to the March acquisitions of Certified, General Automation, and Nationwide and the September acquisition of Gillette with aggregate sales for all of the acquired companies totaling $58.8 million for the nine months ended December 31, 1999. Sales at Mid State and Galaxy 34 increased 40.8% and 24.4%, respectively, to $64.4 million due to increased orders for gas turbine parts and engine and transmission components for large construction equipment. GROSS PROFIT. Gross profit for 1999 increased 163.5% to $29.8 million from $11.3 million in 1998. Gross margin decreased to 24.2% from 30.8% in 1998. The increase in gross profit is primarily attributable to the acquisitions of Certified, General Automation, Nationwide, and Gillette. The decrease in gross margin results from the lower margin products manufactured by the acquisitions as well as changes in product mix at Mid State that reduced its gross margin by 1.5% from 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 281.7% to $24.8 million from $6.5 million in 1998. This increase is mainly due to $7.2 million in general and administrative expense at Precision Partners, including the recognition of $3.0 million in bonus compensation paid to a selling shareholder of one of the acquired companies, $0.6 million in aborted acquisition costs, $6.5 million of selling, general and administrative expenses at Certified, General Automation, Nationwide, and Gillette expenses, and $4.5 million of goodwill amortization and additional depreciation expense resulting from a step-up in basis of the property, plant, and equipment of Certified, General Automation, Nationwide, and Gillette in connection with their acquisition by us. OPERATING INCOME. As a result of the foregoing, operating income increased 2.7% to $4.9 million in 1999 from $4.8 million in 1998. INCOME TAX EXPENSE. We realized an income tax benefit of $2.1 million in 1999 compared to income tax expense of $1.8 million in 1998. Our effective tax benefit rate was 27.9% in 1999 compared to an effective tax expense rate of 43.6% for 1998. The decrease in income tax expense is primarily due to interest expense in 1999 of $12.8 million related to the issuance of the outstanding notes resulting in a loss before taxes. The decrease in the effective benefit rate is primarily due to the impact of non-deductible goodwill generated from the 1999 acquisitions of Certified and Gillette and the 1998 acquisitions of Mid State and Galaxy. NET INCOME (LOSS). Net income decreased 338.8% to a loss of $5.5 million in 1999 from income of $2.3 million in 1998 for the aforementioned reasons. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1999 was $11.9 million, which includes $3.4 million of amortization of $77.0 million of goodwill resulting from the acquisitions of Mid State, Galaxy, Certified, Nationwide, General Automation, and Gillette. The $8.5 million of depreciation expense is mainly attributable to the additional depreciation expense associated with the step-up in basis resulting from the acquisitions of these six companies. 1998 COMPARED TO 1997 NET SALES. Net sales increased 8.4% to $36.7 million in 1998 compared to $33.9 million in 1997. The increase is due to the acquisition of Galaxy in September 1998 with sales of $2.8 million in the fourth quarter of 1998. Sales at Mid State remained essentially flat. Increased orders for North American gas turbine parts substantially offset the effect of delayed delivery dates for hydroelectric turbine parts, which resulted from the downturn in the Asian economy. GROSS PROFIT. Gross profit for 1998 increased 21.6% to $11.3 million from $9.3 million in 1997. Gross margin increased to 30.8% in 1998 from 27.4% in 1997. The increase is primarily attributable to the acquisition of Galaxy in September 1998, which contributed fourth quarter gross profit of $0.7 million and Mid State's product mix. Mid State also reduced costs through improved production processes, increased operating efficiencies and the elimination of large discretionary management bonuses paid in 1997. 35 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for 1998 increased 42.4% to $6.5 million from $4.6 million in 1997. This increase is mainly due to $1.1 million in general and administrative expense at Precision Partners, L.L.C. from September 9, 1998 (inception) to December 31, 1998, as well as additional Galaxy expenses totaling $0.5 million in the last quarter of 1998. OPERATING INCOME. As a result of the foregoing, operating income increased slightly to $4.8 million in 1998 from $4.7 million in 1997. INCOME TAX EXPENSE. Income tax expense was $1.8 million in 1998 compared to $2.3 million in 1997. Our effective tax rate was 43.6% for 1998 compared to 39.5% for Mid State in 1997. The increase in the effective rate for 1998 is primarily due to non-deductible goodwill generated in the acquisitions of Mid State and Galaxy. NET INCOME. Net income decreased 34.8% to $2.3 million for 1998 from $3.5 million in 1997 for the aforementioned reasons. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 81.7% to $1.9 million in 1998 from $1.1 million in 1997. The increase includes $0.4 million in amortization of $35.0 million of goodwill resulting from the acquisitions of Mid State and Galaxy in September 1998, additional depreciation on the step-up in basis of property, plant and equipment and the inclusion of $0.3 million of depreciation expense recorded by Galaxy in the three months ended December 31, 1998. LIQUIDITY AND CAPITAL RESOURCES Our principal sources of liquidity are available borrowings under our revolving credit facility and cash flow from operations. We expect that our principal uses of liquidity will continue to be working capital, capital expenditures, debt service requirements and permitted acquisitions. Our credit facilities consist of a $23.0 million term loan facility and a $25.0 million revolving credit facility, including a $2.0 million sublimit for letters of credit, each maturing on March 31, 2005, unless terminated sooner upon an event of default. As of December 31, 1999, we have total debt of approximately $134.5 million, consisting of our $23.0 million term loan, the outstanding aggregate principal amount of the notes and $11.2 million of outstanding borrowings under our revolving credit facility. See "Capitalization." Our ability to borrow under the revolving credit facility is subject to our compliance with the financial covenants described below and a borrowing base based on our eligible accounts receivables and inventory. See "Description of Credit Facilities." The indenture and our credit facilities impose limitations on our ability to, among other things, incur additional indebtedness (including capital leases), incur liens, pay dividends or make other restricted payments, consummate asset sales, enter into transactions with affiliates, issue preferred stock, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets. In addition, the credit facilities limit our ability to enter into sale and leaseback transactions and to make capital expenditures. The credit facilities also require that we meet and maintain certain financial ratios and tests, including (i) a minimum interest coverage ratio, EBITDA to interest expense, (ii) a maximum leverage ratio, total debt to EBITDA, and (iii) a minimum fixed charge coverage ratio, EBITDA to interest expense plus other fixed charges. Our ability to comply with these covenants and to meet and maintain these financial ratios and tests may be affected by events beyond our control, such as those described under "Risk Factors." As a result of the failure to have an exchange offer registration statement filed by September 15, 1999, to have it declared effective by September 16, 1999 and to complete the exchange offer by October 15, 1999, we are paying additional interest on the outstanding notes. The amount of additional interest has ranged from 0.5% per annum for the period from September 15, 1999 through 36 December 14, 1999 to 0.75% per annum for the period December 15, 1999 through March 14, 2000. Beginning March 15, 2000, the amount of additional interest increased to 1.0% per annum and will continue at that rate until effectiveness of the registration statement and completion of the exchange offer. The additional interest is expected to be nonrecurring with no impact on our continuing operations. We have limited amortization requirements under our credit facilities over the next two years. Our other debt service requirements over the next two years consist primarily of interest expense on the notes. Our short-term cash requirements for our operations are expected to consist mainly of capital expenditures to continue to maintain and expand our manufacturing capabilities and working capital requirements. We currently expect that our capital expenditures will be approximately $10.6 million in 2000, including maintenance capital expenditures of approximately $5.0 million. However, our capital expenditures will be affected by, and may be greater than currently anticipated depending upon, the size and nature of new business opportunities. We also expect to have to enter into approximately $35 million of operating leases in 2000 primarily for new equipment related to our recent contracts with Caterpillar and Dana and increased unit delivery requirements from General Electric. The aggregate purchase price for the acquisitions of Certified, Calbrit, Nationwide and General Automation of $100.7 million does not include fees and expenses or the potential effects of certain contingent purchase arrangements. The purchase price for one of the companies acquired included a $4.0 million escrow to be paid out upon the company meeting specified EBITDA targets through April 30, 1999. The targets were not met and the escrow has been returned to us, effectively reducing the purchase price and the resulting goodwill by $4.0 million. A contingent payment may be payable by our parent, Precision Partners Holdings Company, in the form of cash or a note payable-in-kind maturing September 30, 2009, based on one of the companies we acquired in March 1999 achieving specified EBITDA targets in 2000. Payment by Precision Partners Holding Company of this additional contingent payment, assuming the maximum amount is earned, would result in an annual increase in our goodwill amortization of approximately $0.5 million. Additional contingent payments, which were payable by Precision Partners Holding Company, based on this company and another company acquired in March 1999 meeting certain EBITDA targets in 1999 were not earned. In addition, a bonus payment of $3.0 million, based on one of the acquired companies achieving certain 1999 EBITDA targets, is payable in 2000 to the former stockholder of this company who is now an employee of our company. This bonus payment was accrued in December 1999 as compensation expense and will be paid no later than April 2000. We plan to continue our acquisition strategy and expect to finance future acquisitions using cash, capital stock, notes and/or assumption of indebtedness. However, the restrictions imposed on us by our long-term debt instruments may affect this strategy. In addition, to fully implement our growth strategy and meet the resulting capital requirements, we may be required to request increases in amounts available under our credit facilities, issue future debt securities or raise additional capital through equity financings. There can be no assurance that any such increase to our credit facilities will be available or, if available, will be on terms satisfactory to us, or that we will be able to successfully complete any future debt or equity financings on satisfactory terms, if at all. As a result, we could be placed at a competitive disadvantage in pursuing acquisitions. Based upon current operations and the historical results of our subsidiaries, we believe that our cash flow from operations, together with available borrowings under our new revolving credit facility, will be adequate to meet our anticipated requirements for working capital, capital expenditures, lease payments, and scheduled interest payments over the next 12 months. However, there can be no assurance that we will continue to generate cash flow above current levels or that the acquired companies will repeat their historical performance. In addition, our ability to pay the notes at maturity will depend on the availability of refinancing. See "Risk Factors--Risks Associated With Our Indebtedness." 37 BACKLOG Firm backlog for 1999 increased 36.1% to $107.7 million from $79.1 million at December 31, 1998. Firm backlog represents the sales price of all undelivered products for which we have customer purchase orders or contractual coverage that will be delivered within the next 12 months. All of our firm backlog is subject to price renegotiations, terminations or rescheduling at the customer's convenience. Firm backlog for December 31, 1998 has been restated to be consistent with the current method of calculating backlog. DISCLOSURE ABOUT MARKET RISK Our term loan facility provides for interest to be charged at either the Eurodollar rate or a base rate determined in accordance with the credit agreement. Based on our current level of borrowings from our term loan facility, a 1.0% change in interest rate would result in a $0.2 million annual change in interest expense. Our revolving line of credit provides for interest to be charged at either the Eurodollar rate or a base rate determined in accordance with the credit agreement. Based on our current level of outstanding revolving line of credit, a 1.0% change in interest rate would result in a $0.1 million annual change in interest expense. The remainder of our debt is at fixed interest rates that are not subject to changes in interest rates. We do not own nor are we obligated for other significant debt or equity securities that would be affected by fluctuations in market risk. INFLATION We do not believe that inflation has had a significant impact on our cost of operations. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued the FASB Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is effective for fiscal periods beginning after June 15, 2000. We adopted this statement during 1999 and such adoption had no material effect on our financial statements. YEAR 2000 We did not experience any significant malfunctions or errors in our operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, we do not expect any significant impact to our on-going business as a result of the "Year 2000 issue." However, it is possible that the full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, has not been fully recognized. For example, it is possible that Year 2000 or similar issues such as leap year-related problems may occur with billing, payroll, or finanical closings at month, quarterly or year end. We believe that any such problems are likely to be minor and correctable. In addition, we could still be negatively impacted if our customers or suppliers are adversely affected by the Year 2000 or similar issues. We currently are not aware of any significant Year 2000 or similar problems that have arisen for our customers and suppliers. We expended $0.9 million on Year 2000 readiness efforts from 1997 to 1999. These efforts included replacing some outdated, noncompliant hardware and noncompliant software as well as indentifying and remediating Year 2000 problems. 38 BUSINESS THE COMPANY We are a leading contract mechanical manufacturing services supplier of complex precision metal parts, tooling and assemblies for original equipment manufacturers. Our flexible manufacturing facilities and operating processes enable us to service customers across a wide range of industries and aggressively pursue new customers in industries where we see the potential for strong growth. Our customers include industry leaders such as General Electric, New Venture Gear, a joint venture of General Motors and DaimlerChrysler, Xerox, Boeing, Caterpillar and Dana. We have earned "Preferred" or "Qualified" supplier status with most of our customers and are predominantly the sole-source supplier to our customers of the parts we manufacture. Our pro forma revenues and EBITDA for the fiscal year ended December 31, 1999 were $149.8 million and $26.1 million, respectively, representing a 17.5% EBITDA margin. Our broad manufacturing capabilities and highly engineered processes allow us to meet the critical specifications of our customers. We manufacture parts, ranging in size from approximately 1 ounce to over 100,000 pounds, to extremely close tolerances. We are also able to maintain tight tolerances, across flat sheets and surfaces with multiple contours. We work with traditional materials such as steel, aluminum, iron, copper, magnesium and bronze, as well as exotic and difficult to machine materials such as titanium, inconel, invar and hastelloy. In addition, we provide our customers with design assistance, process and product engineering support and quality testing. Our manufacturing expertise includes precision machining such as milling, turning, boring, drilling, broaching and grinding, as well as value-added services such as prototyping, assembly, forming, welding, heat treating and plating. The industries we serve and the related precision parts, assemblies and tooling we machine and manufacture include: - Power Generation Industry - specialty alloy turbine wheels and spacers, shrouds and nozzles; - Automotive Industry - piston valves used primarily for automatic braking systems in light trucks and sport utility vehicles and machined engine blocks; - Business Machines Industry - bases and internal components for high-end scanners, digital imaging machines and copiers; - Space and Satellite Industries - adapter rings, thrust rings, casting chambers and handling and transport aids; - Aerospace Industry; Commercial and Military - precision tooling including bond jigs, assembly jigs and mill fixtures; - Agriculture and Construction Equipment Industries - high tolerance bearing caps, transmission housings and diesel and gas pump housings; and - Transportation Industry - class eight heavy truck axles and related parts and engine blocks. INDUSTRY The U.S. precision custom manufacturing industry is highly fragmented and, excluding precision manufacturing operations owned directly by original equipment manufacturers, is estimated to be comprised of approximately 7,500 companies representing, over the last several years, annual revenues in excess of $20 billion. Within this market, precision machine shops and specialty tool manufacturers represent in excess of $13 billion of these revenues. As a result of high fragmentation and a large number of captive original equipment manufacturer operations, we believe there has been and will 39 continue to be significant consolidation opportunities among industry participants. According to industry sources, since 1992, the U.S. precision machining industry has grown at a rate of approximately 10% per year. We believe that a significant component of this growth has been and will continue to be attributable to an increase in outsourcing by original equipment manufacturers. Historically, many of the large original equipment manufacturers were vertically integrated with large in-house component machining capabilities. They primarily utilized precision machining companies only for short term over-flow production of parts during periods of great demand. During the past several years, however, original equipment manufacturers have been increasingly outsourcing component manufacturing functions and, in many cases, eliminating their in-house machining capabilities. This outsourcing has been driven by the original equipment manufacturers' desire to: - reduce costs; - increase efficiency; - improve quality; - shorten product development cycles; and - increase their focus on core capabilities. Furthermore, while original equipment manufacturers continue to increase the amount of outsourced manufacturing, they have also begun to consolidate their supplier bases to ensure quality, decrease administrative costs and improve service, design and assembly coordination. Leading original equipment manufacturers are increasingly relying on their "Preferred" or "Qualified" suppliers to provide a full line of high quality manufacturing and sub-assembly services, as well as manufacturing engineering and design assistance. We intend to continue to capitalize on these industry trends by providing our customers with a broad array of precision machining capabilities and by leveraging our competitive strengths. COMPETITIVE STRENGTHS LEADING SUPPLIER OF HIGH QUALITY, DIFFICULT-TO-PRODUCE PARTS. We focus on manufacturing and supplying precision metal parts and assemblies which require exceptionally close tolerances and involve complex processes. Many of our parts also involve microfine surface finishes and exotic, difficult to machine materials. We manufacture parts ranging in size from approximately 1 ounce to over 100,000 pounds and from less than 1 inch to over 20 feet in diameter. These parts are manufactured to tolerances as tight as 50 millionths of an inch. We are also able to maintain tolerances across flat sheets and surfaces with multiple contours to within 1/1000 of an inch to produce three-dimensional sculptured contouring and precise geometric shaping of parts. By focusing primarily on more complex parts and assemblies with exacting dimensional and cosmetic requirements, we believe we distinguish ourselves as a unique contract manufacturer of a variety of high quality, difficult-to-produce parts. BROAD MANUFACTURING CAPABILITIES SERVING DIVERSE END MARKETS. Our broad range of manufacturing capabilities allows us to meet the exacting requirements of customers serving a variety of end markets and reduces the need for our customers to rely on multiple suppliers. Most of our manufacturing processes and equipment can, with certain adjustments, produce a variety of parts and assemblies. We therefore have the flexibility to serve customers in a wide range of industries. We currently serve such diverse industries as power generation, automotive, business machines, space and satellites, agriculture and construction equipment, commercial and military aerospace and surgical supplies. We believe that our manufacturing adaptability, coupled with our diverse range of end markets, allows us to mitigate volatility or downturns in any one particular sector. Additionally, through our ability to produce a wide range of parts and assemblies we are able to capitalize on the increasing trend among our customers to focus on a fewer number of "Preferred" or "Qualified" suppliers capable of servicing their multiple needs. 40 STRONG CUSTOMER RELATIONSHIPS. We have built strong relationships with our customers by focusing on delivering high-quality complex precision parts and by consistently offering on-time delivery, quick product turnaround and value-added services. We have earned "Preferred" or "Qualified" supplier status with most of our customers and we are predominantly the sole-source supplier to our customers of the parts we manufacture. Our customer base consists of industry leaders such as General Electric, New Venture Gear, Xerox, Mannesmann (Rexroth), LucasVarity (Kelsey Hayes), Raytheon, Boeing, DaimlerChrysler, Robert Bosch, Caterpillar, Johnson & Johnson, Kodak and Dana. We proactively work with customers and their engineers to improve the design and manufacturing specifications of the product material, the part to be produced and the tooling required to produce the customer's finished product. These initiatives often lead to improved quality and part performance, increased operating efficiency and reduced manufacturing costs. We believe that the strong relationships and "Preferred" or "Qualified" supplier status we have established with our customers present a significant barrier to entry for our competitors on the parts we manufacture and give us a competitive advantage procuring additional work. MODERN, HIGH QUALITY OPERATIONS. We believe that our modern facilities, diverse manufacturing capabilities and commitment to continuous operational improvements enable us to consistently meet the demanding quality, tolerance and cosmetic requirements of our customers. Over the last two years, we have invested a substantial amount to ensure that our facilities are state-of-the-art and will remain so for years to come without substantial additional expenditures. Our modern manufacturing operations utilize advanced computer numerically controlled machines with automatic tool changers and on-machine gauging, as well as laser inspection machines. Our facilities and processes meet demanding customer certification and quality requirements. We participate in General Electric's Six Sigma program, are a D-1 supplier for Boeing and have received NASA's coveted Silver Snoopy award for outstanding effort in contributing to the success of space flight missions based on quality, safety and cost efficiency. Currently, five of our manufacturing facilities are ISO 9000, DI 9000, and/or QS 9000 certified, with the remaining facility expected to be certified by August 2000. Management believes that our commitment to modern, high-quality manufacturing processes has been and will continue to be a key reason for our strong growth and improvements in operating profitability. EXPERIENCED MANAGEMENT TEAM. Our management team is comprised of executives and plant managers who have, on average, over 25 years of manufacturing, engineering and operational experience. We believe this management team has demonstrated an ability to attract new customers, adapt to changing industry trends and continuously improve manufacturing operations and efficiency. We also believe that this management team will be able to continue to grow our company and to manage even larger operations as we grow. BUSINESS STRATEGY CAPITALIZE ON INDUSTRY TRENDS. We intend to capture additional business from existing customers and actively pursue new customers by capitalizing on recent trends among leading original equipment manufacturers to increase manufacturing outsourcing and concentrate on fewer, more reliable suppliers. By leveraging our competitive strengths, we believe we can offer customers the significant competitive advantages that can be obtained from manufacturing outsourcing, including reduced costs, increased efficiency, improved quality and shortened product development cycles. By continuing to focus on customer needs and aggressively marketing our diverse manufacturing capabilities, we believe we can capture incremental and new business from existing customers as well as become the supplier of choice and sole-source for a variety of key complex precision machine parts for new customers with outsourcing needs. PURSUE CROSS-SELLING OPPORTUNITIES AND BROADEN CUSTOMER BASE. Our operating subsidiaries' diverse manufacturing capabilities and complementary customer bases create a number of cross-selling 41 opportunities which we intend to aggressively pursue. We intend to proactively market to both current and new customers our full range of process capabilities. By doing so, we expect to further penetrate certain of the industries we currently serve, as well as to expand into other industries where we see the potential for strong growth. IMPLEMENT OPERATING BEST PRACTICES AND MAXIMIZE EFFICIENCIES. We intend to continue to focus and capitalize on the best practices of each of our operations including manufacturing processes, capacity utilization, inventory management and cycle and flow times from customer order to delivery. Management plans to utilize production resources to maximize manufacturing efficiency across our operating subsidiaries. Our operating philosophy is based on increasingly lean production systems supported by excellence in customer service, as measured by quality, on-time delivery, quick turnaround and low manufacturing cost. We have a comprehensive company-wide management system that includes site visits and periodic operating management meetings to leverage our market and manufacturing expertise, focus on innovation and benchmarking and solve problems using a team oriented approach. We believe implementing these best practices and maximizing operating efficiencies will lead to continuing improvements in labor productivity, reductions in overhead and scrap rates, decreased manufacturing flow time and increased working capital turnover. PURSUE STRATEGIC ACQUISITIONS. We believe we are well-positioned to take advantage of the high fragmentation in the precision custom manufacturing industry to continue to build a world class contract manufacturer of precision parts, assemblies and tooling. We intend to do this by pursuing strategic acquisitions which will expand, diversify our existing customer base, end markets served and our portfolio of processing capabilities. We will continue to focus on acquisitions of financially sound companies that manufacture high quality, difficult to produce parts, tooling and assemblies and that are the leading suppliers of those products to their customers. CUSTOMERS We currently service customers across a wide range of industries including the power generation, automotive, business machines, space and satellite, agriculture and construction equipment, commercial and military aerospace, surgical supply and transportation industries. We have focused on developing solid relationships with customers that are leaders in their respective industries such as General Electric, New Venture Gear, Xerox, Mannesmann (Rexroth), LucasVarity (Kelsey Hayes), Raytheon, Boeing, DaimlerChrysler, Robert Bosch, Caterpillar, Johnson & Johnson, Kodak and Dana. Our largest customer, General Electric, accounted for approximately 26.5% of our 1999 net sales and our top ten customers represented approximately 67% of our 1999 net sales. We have earned "Preferred" or "Qualified" supplier status with most of our customers and we are predominantly the sole-source supplier to our customers of the parts we manufacture. We believe that we have developed strong and loyal customer relationships with leading original equipment manufacturer's based on our ability to reliably deliver high-precision, high-quality metal parts and our focus on providing the highest level of service. We believe that the strong relationships and the "Preferred" and "Qualified" supplier status we have established with our customers present a significant barrier to entry for our competitors. We obtain most of our orders for new precision parts, tooling or assemblies through a presourcing process by which the customer invites one or more "Preferred" or "Qualified" suppliers to bid on the design and/or manufacture of a part or assembly that meets certain price, timing and functional parameters. We then typically receive a blanket purchase order that covers parts and/or assemblies to be supplied for the particular end-product. These supply arrangements normally extend over the life of the particular part or assembly. In addition, we compete to supply parts and assemblies for successor models of a customer's product, even though we may currently be a preferred supplier of parts or assemblies on a current or predecessor model. Our customer relationships, coupled with the essential 42 nature of many of the complex, close tolerance products we manufacture, have enabled us to participate with our customers in the development of products and to receive contracts that range in duration from annual blanket purchase orders to six years. Bids for new business are based on a target sale price, based on our experience with making parts or assemblies of a similar nature. Prior to our commitment for full production, we and the customer generally agree on a final price, which, in some instances, may be subject to negotiated price reductions over the life of the project. MARKETING AND DISTRIBUTION We market our parts and manufacturing capabilities either through an internal sales force or an outside agency. We believe that our stable and experienced sales force, coupled with senior management communication with key customers, has been a key reason for our success in maintaining customer loyalty and building new customer relationships. Most of our sales personnel have worked with the same customers for many years. Prior to their acquisition by our company, the sales forces at each of our subsidiaries operated independently of one another. While maintaining the decentralized focus to promote customer service and expertise, we expect to introduce an additional focus on marketing our broad operating capabilities to pursue a number of cross-selling opportunities which we believe exist between the complementary customer bases of our subsidiaries. We compensate our sales force based on a base salary and/or commissions. Our parts either are shipped by common carrier, picked up by customers at our facilities or delivered to customers by our own truck fleet. PARTS AND END USES Many of the parts we manufacture require innovative technical production solutions to customer-specific requirements, as well as considerable manufacturing expertise. The following table sets forth a sample of the complex, precision parts or assembles that we manufacture for our customers, together with the industry and end-use for such part.
INDUSTRY CUSTOMER PART/ASSEMBLY END USE - --------------------------- -------------------- --------------------------- --------------------------- Power Generation General Electric Turbine Wheel Hot section of land-based power turbine Automotive LucasVarity (Kelsey Piston/Pump Assembly Anti-lock braking systems Hayes) Engine Blocks for light trucks Business Machines Xerox Internal Components and High volume copiers, Bases digital imaging copiers, scanners Agriculture and Caterpillar Bearing Caps Stabilizes engine shaft Construction Equipment Transmission Housings and Casings Automotive New Venture Gear Transmission Housings Transmissions for light trucks Surgical Supplies Johnson & Johnson Surgical Saw Shaft Lapthroscopic and endoscopic disposable instruments Military and Commercial Boeing Bond Jig Tooling Tooling for manufacture of Aerospace nacelle frame Space Thiokol Assembly Mold Tooling Tooling for Space Shuttle rocket Automotive Mannesmann (Rexroth) Diesel Engine Pump Housings Diesel gas pumps
43
INDUSTRY CUSTOMER PART/ASSEMBLY END USE - --------------------------- -------------------- --------------------------- --------------------------- Business Machines Kodak Internal Components and High and low volume copiers Bases and thermal printers Commercial Satellites Northrop Grumman Cure Fixtures Tooling Molds for commercial satellite rocket components Specialty Automotive DaimlerChrysler High Performance Engine Holds moving engine parts Blocks for racing cars Transportation Dana, Alstom Truck Axles, Switching Class eight trucks and Signaling and Gears and Engine Blocks railroad switch gears Caterpillar Medical Ortho Clinical Base plate Blood analyzer Diagnostics
A majority of our parts are manufactured by us in their final configuration with no additional processing, including brake piston plungers for LucasVarity, bearing caps and engine blocks for Caterpillar and bond jigs for Boeing. In concert with our customers, we routinely develop prototype parts. For example, we have produced prototype parts for Johnson & Johnson's lapthroscopic and endoscopic disposable instruments, for the joint strike fighter, for General Electric's land-based power generation systems, for the Delta IV rocket and for the assembly which links the modules of the International Space Station. DESIGN, DEVELOPMENT AND ENGINEERING Our customer-focused approach fosters a close working relationship with our customers' engineers to improve the design and manufacturing specifications of the parts we produce. We are able to develop our own tools, processes and prototypes to test design parameters for minimization of variability and lead-times. We apply engineering techniques such as computer aided design, computer aided manufacturing and failure mode and effects analyses to optimize part functionality and manufacturability. We believe our in-house capability to develop and produce prototypes using standard and customized manufacturing equipment and processes is a competitive advantage. We provide our customers with full systems support to control product timing and ensure part quality and reliability through all phases of design, launch and production manufacturing. As a result, we are able to take an innovative, leadership role in the development, design and assembly of parts, machines and systems to meet or exceed customer requirements. Through our computer aided manufacturing and computer aided design systems we are able to provide virtual prototyping. This process enables hundreds of design solutions to be visualized quickly and easily and facilitates product design and manufacturing. Our computer systems are capable of finite element analyses and simulation, as well as design for manufacturing and assembly. These processes allow many aspects of a design to be evaluated prior to production, resulting in lower tooling costs, reduced testing requirements and quicker time to market. Our reputation for quality, reliability and design improvement has led to numerous requests for participation on customer engineering teams. Our understanding of cutting tool technology and difficult to machine materials makes our employees value-adding members of these teams. Through this participation we are able to work with our customers to identify the most cost effective process, materials and manufacturing methods for any specific application. Once the design phase of the engineering process is completed, our expertise and experience allow us to engineer and customize our tooling, machines and systems to achieve the highest quality path to the customer's requirements. The parts we manufacture often have sophisticated tooling requirements which we internally build or customize. The development costs are either billed to the customer or amortized over the life of the parts. The tooling development typically begins early in the engineering cycle and is quickly completed after being selected as the supplier of choice. 44 MANUFACTURING Our manufacturing expertise includes precision machining capabilities such as turning, milling, boring, drilling, broaching and grinding, as well as value-added services such as prototyping, forming, fabrication, welding, heat treating, plating, painting, tapping and assembly. We believe that the breadth of our in-house process capability provides us with a significant competitive advantage in being a sole-source supplier for our customers' multiple needs. To produce many of our components, we develop innovative solutions to customer-specific requirements by customizing either the process, the tooling or the machines. By highly engineering the process, we are able to utilize general-purpose machines with computer numerically controlled capabilities to manufacture very complex and difficult to machine parts in many different configurations with a high degree of accuracy. Through data feedback, we systematically test for quality throughout the entire manufacturing process. Our advanced computer numerically controlled equipment includes machines with automatic tool changers and on-machine gauging, as well as laser inspection machines. With computer numerically controlled equipment, we are able to increase efficiency and turn-around times by identifying, documenting and correcting potential defects and irregularities and by more accurately shaping or cutting parts, while at the same time, allowing the parts we are manufacturing to be run quickly and in small lot sizes. We are also able to manufacture complex and difficult to machine parts by customizing our tooling and equipment. We are able to do this by capitalizing on our substantial expertise and experience with a wide variety of part styles and sizes, our knowledge of various cutting tools and our highly skilled workforce. As a result, we are able to design and develop our own tooling, customize conventional tooling and create customized machinery. Based on our innovative approach to tooling and fixturing, we are able to tailor-make fixtures that help hold tolerances and improve repeatability and consistency. We can also reengineer conventional machines and cutting tools by changing heads, adding computer numerically controlled capability or combining the most appropriate aspects of different apparatus to create a better-designed machine to improve manufacturability of parts. We also utilize functional gauging for quality inspections to ensure accuracy and precision, thereby also improving repeatability and consistency. We emphasize a cellular approach to manufacturing. This approach allows our processes to utilize such technology as optical measuring devices and robotics. Further, we utilize a pelletized manufacturing approach which is easily converted from one product application to another, and has lower reprogramming costs than the traditional hard automation approach. Cellular manufacturing also helps promote our team approach for optimizing the manufacturability of a part by reducing inventory and increasing our through-put rate by better process control, minimization of set-up times and improved traceability and correctibility of errors at all stages of the manufacturing process. We also utilize just-in-time manufacturing and sourcing systems which help us to meet our customer requirements for faster deliveries while also minimizing inventory levels. Our operating philosophy emphasizes delivering a quality product, on time, at the lowest achievable cost. Continuous improvement on these operating parameters is achieved by driving our operations toward shorter and shorter lead and cycle times, which in turn requires increasingly higher standards of quality. We believe our disciplined approach to our manufacturing operations, including monthly operations reviews and meetings, facilitates employee participation and motivates management and employees to strive for better operational performance. Through this process, we are also able to leverage market and manufacturing expertise, put a focus on innovation and benchmarking and solve problems using a team oriented approach. As a result, we can improve productivity, quality and employee commitment while reducing inventory, floor space requirements and lead times. 45 QUALITY Product quality is among the most important factors in maintaining "Preferred" and "Qualified" supplier status with original equipment manufacturers. In order to meet the exacting requirements of our customers, we maintain the most stringent standards of quality control. We routinely employ in-process inspection by using testing equipment as a process aid during all stages of design, launch and the machining process to assess compliance. These include state-of-the-art computer assisted design and computer assisted manufacturing equipment, statistical process control systems, laser tracking devices, failure mode and effect analysis and coordinate measuring machines. We are also able to extract numerical control quality control data from our computer numerically controlled machines, a statistical measurement of the quality of the parts being manufactured. Our customers use this information in place of inspections to determine quality assurance. In some cases, we have installed testing equipment identical to that of our customers, again eliminating the need for reinspection by our customers. We also perform quality control tests on all parts we outsource to small machine shops. As a result, we are able to significantly reduce defective parts and therefore improve efficiency, quality and reliability. Currently, five of our manufacturing facilities are ISO 9000, DI 9000, and/or QS 9000 certified, with the remaining facility expected to be certified by August 2000. Original equipment manufacturers are increasingly requiring these standards in lieu of individual certification procedures and as a condition to awarding business. We participate in General Electric's Six Sigma program, are a D-1 9000 supplier for Boeing and have received NASA's coveted Silver Snoopy award for outstanding effort in contributing to the success of space flight missions based on quality, safety and cost efficiency. We believe that our commitment to modern, high-quality manufacturing processes has been and will continue to be a key reason for our strong customer loyalty and growth and that the expense required to institute and maintain quality control procedures comparable to ours represents a barrier to entry for other companies. COMPETITION We operate in an industry which is highly fragmented and competitive. A variety of suppliers with different subsets of our manufacturing capabilities compete to supply the stringent demands of large original equipment manufacturers. Competition is generally based on price, quality, timeliness of delivery, design and engineering support and service and, in some instances, on our ability to deliver assemblies or sub-assemblies rather than individual parts. To an extent, the original equipment manufacturers are able to compete with their suppliers, since they can produce their own components and assemblies if they so choose. However, during the past several years, original equipment manufacturers have been increasingly outsourcing component manufacturing functions and, in many cases, eliminating their in-house machining capabilities, in an effort to reduce costs, increase efficiency, improve quality and shorten product development cycles. A large number of actual or potential competitors exist, including the internal component operations of the original equipment manufacturers as well as independent suppliers, some of which are larger and have greater financial and other resources than we do. However, we believe that none of these competitors competes with us along all of our manufacturing capabilities. In addition, our business is increasingly competitive due to the supplier consolidation resulting from increased outsourcing by original equipment manufacturers and supplier management policies designed to strengthen their supply base. These policies include designating a limited number of suppliers as "Preferred" or "Qualified" suppliers and, in some cases, encouraging new suppliers to begin to supply selected product groups. We principally compete for new business both at the beginning of the development of new products and upon the redesign of existing products by our major customers. Because of the large investment by original equipment manufacturers in tooling and the long lead time required to commence production, original equipment manufacturers generally do not change a 46 supplier during a program. If, however, a customer becomes dissatisfied with our prices, quality or timeliness of delivery, it could award future business or, in an extreme case, move existing business to another supplier. SUPPLIERS, SUBCONTRACTORS AND RAW MATERIALS Generally, our raw materials consist of traditional materials such as steel, aluminum, iron, copper, magnesium and bronze, as well as exotic and difficult to machine materials such as titanium, inconel, invar and hastelloy. These materials are typically delivered in the form of bar stock, precision forgings, castings and flat sheets. A majority of our raw materials are supplied by our customers on consignment. Raw materials not supplied by our customers are purchased from several suppliers, and we do not believe that we are dependent on one or very few of them. All of these materials were available in adequate quantities to meet our production demands in 1998 and 1999. We may subcontract certain of our manufacturing or services such as plating or painting, among others, to third parties. We have an active subcontractor program that, among other things, assesses subcontractor capabilities and quality on an on-going basis. We use a limited number of subcontractors based on their ability to deliver high quality parts or services on a cost effective basis. We have not experienced any difficulty obtaining necessary raw materials or subcontractor services. FACILITIES In addition to our corporate office, we operate ten manufacturing facilities, two of which we own and the remainder of which we lease. Leases expire at various times through April 2007 and we generally have extension options. The following table summarizes the location of our manufacturing facilities and their general size:
LOCATION SQUARE FOOTAGE TYPE OF INTEREST - -------- -------------- ---------------- FACILITIES: Buena Park, California (Altura)................ 32,000 Leased Buena Park, California (Burnham)............... 41,000 Leased Cerritos, California........................... 28,000 Leased Plymouth, Michigan............................. 52,000 Owned Canton, Michigan............................... 29,000 Leased Canton, Michigan............................... 66,000 Leased Skokie, Illinois............................... 82,000 Owned Winslow, Maine................................. 92,000 Leased Rochester, New York............................ 140,000 Leased Rochester, New York............................ 73,000 Leased CORPORATE OFFICE: Irving, Texas.................................. 3,000 Leased
BACKLOG Firm backlog for 1999, increased 36.1% to $107.7 million from $79.1 million at December 31, 1998. Firm backlog represents the sales price of all undelivered products for which we have customer purchase orders or contractual coverage that will be delivered within the next 12 months. All of our firm backlog is subject to price renegotiations, termination or rescheduling or the customer's convenience. Firm backlog for December 31, 1998, has been restated to be consistent with the current method of calculating backlog. 47 ENVIRONMENTAL AND SAFETY REGULATION Our equipment, facilities and operations are subject to increasingly complex and stringent federal, state and local laws and regulations pertaining to the protection of human health and the environment. These include, among other things, the discharge of contaminants into the environment and the handling and disposition of wastes (including industrial, solid and hazardous wastes). In addition, we are required to obtain and maintain regulatory approvals in the United States in connection with our operations. Many environmental laws and regulations provide for substantial fines and criminal sanctions for violations. Based on the results of Phase I environmental site assessments which were performed at each of our facilities in 1998 and 1999, we believe that we are in material compliance with applicable environmental laws and regulations. We continue to incur capital expenditures to ensure compliance with applicable environmental laws and regulations. However, in 1998 and 1999, capital expenditures for environmental control projects were not material. Based on current information, we estimate that capital expenditures for environmental control projects in 2000 will also not be material. It is difficult to predict the future development of such laws and regulations or their impact on future earnings and operations. The timing and magnitude of costs related to environmental compliance may vary and we cannot assure you that material costs or liabilities will not be incurred. Certain environmental laws provide for strict, joint and several liability for investigation and remediation of spills and other releases of hazardous materials. These laws typically impose liability whether or not the owner or operator knew of, or was responsible for, the presence of any hazardous materials. Persons who arrange (as defined under these laws) for the disposal or treatment of hazardous materials also may be liable for the costs of investigation, removal or remediation of such materials at the disposal or treatment site, regardless of whether the affected site is owned or operated by them. Such liability is strict, and may be joint and several. Because we own and operate a number of facilities, and because we arrange for the disposal of hazardous materials at many disposal sites, we may incur costs for investigation, removal and remediation, as well as capital costs associated with compliance with environmental laws and regulations. Although such environmental costs have not been material in the past and are not expected to be material in the future, changes in environmental laws and regulations or unexpected investigations and clean-up costs could have a material adverse effect on our business, financial condition or results of operations. EMPLOYEES As of December 31, 1999, we had over 1,000 employees, approximately 87.5% of whom were employed in manufacturing and the remainder of whom were office and managerial employees. None of our employees is represented by a union or covered by a collective bargaining agreement. We believe our relations with our employees are satisfactory. LEGAL PROCEEDINGS We are a party to various litigation matters that are incidental to our business. We do not believe that the outcome of any of these legal proceedings will have a material adverse effect on our business, financial condition or results of operations. 48 MANAGEMENT OUR DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information with respect to our directors and executive officers as of December 31, 1999:
NAME AGE POSITION - ---- -------- -------- James E. Ashton...................... Chairman of the Board and Chief Executive 57 Officer Ronald M. Miller..................... 55 Chief Financial Officer and Secretary Melvin D. Johnson.................... 53 Executive Vice-President for Operations John F. Megrue....................... 41 Director William J. Gumina.................... 29 Director Richard W. Detweiler................. 58 Director David W.M. Harvey.................... 35 Director
Effective as of February 24, 2000, Mr. John Clark resigned as a director. The vacancy has not yet been filled. As Mr. Clark was an appointee of Saunders, Karp & Megrue, we expect Saunders, Karp & Megrue to either appoint a replacement or we may amend our bylaws to allocate an extra vote to one of the other Saunders, Karp & Megrue director appointees. DR. JAMES E. ASHTON has been our Chairman of the Board of Directors and Chief Executive Officer since our formation. He has over 30 years of experience in the aerospace, defense, oil service, medical products and composite materials industries. Prior to joining our company, Dr. Ashton served as Chairman and CEO of Fiberite, Inc. ("Fiberite"), a manufacturer of composite materials. From April 1989 to June 1994, he served as Vice President and General Manager of the Armament Systems division of FMC Corp. (now United Defense, L.P.), a defense contractor ("FMC"). Prior to 1989, Dr. Ashton served in various management positions at Rockwell International Corporation, Schlumberger Ltd., Healthdyne, Inc. and General Dynamics Corporation. RONALD M. MILLER has been our Chief Financial Officer since our formation. Prior to joining our company, he served as the Chief Financial Officer and Vice President, Finance and Treasurer of Fiberite. Before joining Fiberite in April 1996, Mr. Miller served in various management positions at Rohr, Inc., an aerospace manufacturing company, including as its Vice President, Finance & Treasurer. MELVIN D. JOHNSON has been our Executive Vice-President for Operations since our formation. He has over 28 years of experience in the aerospace/defense, transportation, oilfield services, computer peripherals and photocopying industries. Prior to joining our company, Mr. Johnson was a member of the executive team of Fiberite, and served as general manager of Fiberite's Winona, Minnesota division. From 1970 until 1996, Mr. Johnson held management positions with Xerox Corporation, CalComp Technology Inc., a manufacturer of computer graphic peripherals and a subsidiary of Lockheed Martin Corp., Schlumberger Ltd., FMC and Trailmobile Trailer Corporation, a manufacturer of platform trailers. JOHN F. MEGRUE has been a director since our formation. He also serves as Chairman of the Board and a director of Hibbett Sporting Goods, Inc., as Vice Chairman of the Board and a director of Dollar Tree Stores, Inc., and as a director of The Children's Place Retail Stores, Inc. Mr. Megrue has been a partner of Saunders, Karp & Megrue since 1992. WILLIAM J. GUMINA has been a director since our formation. Mr. Gumina has been a Vice President with Saunders, Karp & Megrue since January 1999 and was an associate with Saunders, Karp & Megrue from March 1998 until he became a Vice President. Prior to his association with Saunders, Karp & Megrue, Mr. Gumina was an associate with Donaldson, Lufkin & Jenrette Merchant Banking Partners. 49 RICHARD W. DETWEILER has been a director since our formation. He also serves on the Board of Directors of TreeSource Industries, Inc. Mr. Detweiler has been a Managing Director with Carlisle since November 1996. Prior thereto he was Chairman and CEO of Precision Aerotech, Inc., a publicly traded, diversified manufacturing company. Mr. Detweiler has also held senior general management, financial and manufacturing positions with Caterpillar, Inc., Sundstrand Corporation and International Harvester (Navistar). DAVID W. M. HARVEY has been a director since our formation in September 1998. Mr. Harvey is the President of Harvey & Company LLC, a merchant banking and advisory services firm, he founded in 1998. Prior thereto, he was a managing director of W.E. Myers & Co. BOARD OF DIRECTORS BOARD CONSTITUTION. Our bylaws provide that our Board of Directors consist of six directors, four of whom are to be nominated by the Precision Fund, one by Harvey and one collectively by Messrs. Ashton, Miller and Johnson. Currently, all directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. Officers are elected by and serve at the discretion of our board of directors. DIRECTOR COMPENSATION. Members of our Board appointed by Harvey, Saunders, Karp & Megrue and Carlisle are reimbursed for expenses pursuant to certain advisory agreements. See "Related Party Transactions." Dr. Ashton is reimbursed by us for travel expenses incurred in connection with attending meetings. We have established one standing committee of the board of directors, a compensation committee. The compensation committee reviews and approves executive salaries and administers our bonus, stock option and incentive compensation plans. The compensation committee advises and consults with management regarding significant employee benefit and compensation policies and practices. Currently, the only member of the committee is Mr. Detweiler. A replacement has not yet been appointed for Mr. Clark, who had been a member of the compensation committee until his resignation. EMPLOYMENT AGREEMENTS We intend to enter into employment agreements with our senior management but have not yet done so. EXECUTIVE COMPENSATION The following table provides information relating to compensation for our chief executive officer and our two other most highly compensated executive officers whose compensation is required to be disclosed by the rules and regulations of the Securities Act. The compensation information for all of 50 the named executive officers for 1999 and 1998 is based on their compensation from us and has been annualized to reflect what their compensation would have been had we been operating for all of 1998:
LONG TERM COMPENSATION/AWARD ------------------ ANNUAL COMPENSATION OTHER SHARES OF COMMON ------------------- ANNUAL STOCK UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION - --------------------------- -------- -------- ------------ ------------------ ------------ James E. Ashton........... 1999 $178,000 -- $ 7,868 -- -- Chief Executive Officer 1998 $130,000 $32,500 $ 2,368 -- -- Ronald M. Miller.......... 1999 $107,000 -- 22,809 -- -- Chief Financial Officer 1998 $ 78,000 $ 9,750 2,368 -- -- Melvin D. Johnson......... 1999 $100,000 -- 17,056 -- -- Executive Vice-President 1998 $ 73,000 $ 9,125 2,368 -- -- for Operations
OPTION GRANTS None of the executive officers named in the summary compensation table have options to purchase common stock under Precision Partners Holding Company's 1999 Stock Option Plan. PRECISION PARTNERS HOLDING COMPANY 1999 STOCK OPTION PLAN Precision Partners Holding Company adopted its 1999 Stock Option Plan to provide an incentive to attract, retain and reward certain individuals performing services for Precision Partners Holding Company, its subsidiaries or affiliates. The plan provides for the granting of options to purchase shares of Class B common stock of Precision Partners Holding Company to employees, directors or consultants. The board of directors of Precision Partners Holding Company, the members of which are the same as the members of our board of directors, currently administers the plan. Under the plan the board of the directors has the power to: - determine the persons eligible to receive options and the number of shares subject to each option; - designate the options as incentive stock options or nonstatutory stock options; - determine the fair market value of shares of stock; - determine the terms and conditions applicable to each option; - approve one or more forms of option agreements; - amend, modify or otherwise adjust the exercise price of an option; - accelerate, continue, extend to defer the exercisability of any option; and - otherwise administer and interpret the plan. As of the date of this prospectus, eligible individuals have been granted options to purchase 2,669,000, net of forfeitures, under the 1999 plan pursuant to option agreements. An additional 1,000 shares of common stock are reserved for issuance under the plan. All of the options were granted at fair market value. Precision Partners Holdings Company intends that any additional options granted under the plan will be exercisable at a price per share not less than the fair market value of the common shares at the date of the grant. The option agreements provide that the options can vest based upon the period of services provided to the Precision Partners Holding Company, the attainment of specified performance objectives, and/or the passage of a specified period of time. 51 SECURITY OWNERSHIP The following table sets forth information regarding beneficial ownership of our common stock as of March 1, 2000 held by: - each person or group believed by us to beneficially own more than 5% of our common stock; - our directors, chief executive officer and two other most highly compensated executive officers; and - all our directors and executive officers as a group. Virtually all of our outstanding common stock is owned indirectly by Precision Partners, L.L.C. through Precision Partners Holding Company. The applicable percentage ownership for our common stock set forth below is based on 43,683,612 membership units of Precision Partners, L.L.C. outstanding as of March 1, 2000. Under the rules and regulations of Regulation S-K under the Securities Act, beneficial ownership is calculated in accordance with Rule 13d-1 under the Exchange Act. Under these rules, the term includes not only shares owned by a person or group, but also shares over which the person or group exercises voting and/or investment power. These rules also treat common stock subject to options, warrants or other securities that are currently, or within 60 days will be, convertible into or exchangeable for common stock, including preferred stock, as outstanding for purposes of calculating the beneficial ownership of the person owning such option warrant or other convertible or exchangeable security but not outstanding for purposes of computing the total number of outstanding shares or the beneficial ownership of any other person. Except as otherwise noted, we believe that each of the holders listed below has sole voting and investment power over the shares beneficially owned by them.
PERCENT OF NAME AND ADDRESS OF NUMBER OF SHARES COMMON BENEFICIAL OWNER BENEFICIALLY OWNED STOCK OUTSTANDING - ------------------------------------------------------------ ------------------ ----------------- DIRECTORS AND EXECUTIVE OFFICERS(1): James E. Ashton............................................. 2,552,184 5.8% Ronald M. Miller............................................ 419,494 1.0% Melvin D. Johnson........................................... 251,697 0.6% John F. Megrue(2)........................................... -- -- William J. Gumina(2)........................................ -- -- Richard W. Detweiler(2)..................................... -- -- David W.M. Harvey(3)........................................ -- -- All directors and executive officers as a group, 7 persons................................................... 3,223,375 7.4% 5% STOCKHOLDERS: Precision Partners Investment Fund, L.L.C.(2)............... 36,367,236 83.2%
- ------------------------ (1) All addresses are in care our company, except for Precision Partners Investment Fund, L.L.C. whose address is 262 Harbor Drive, Stamford, CT 06902. (2) Precision Partners Investment Fund, L.L.C. is owned by two private equity funds sponsored by Saunders, Karp & Megrue, which collectively beneficially own approximately 66.8% of our outstanding common stock, and by three private equity funds sponsored by Carlisle, which collectively own approximately 16.4% of our outstanding common stock. Messrs. Megrue and Gumina are principals of Saunders, Karp and Megrue and may be deemed to be beneficially own the shares owned by the two Saunders, Karp & Megrue sponsored funds. Mr. Detweiler is a Managing Director with Carlisle and may be deemed to beneficially own the shares owned by the 52 three Carlisle funds. Each of Messrs. Megrue, Gumina and Detweiler disclaim beneficial ownership of such shares. (3) Harvey Equity Partners, L.L.C., which owns approximately 3.3% of our outstanding common stock, is a private equity fund sponsored by Harvey & Company LLC, a merchant banking and advisory services firm, of which Mr. Harvey is President and a founder. Mr. Harvey may be deemed to beneficially own the shares owned by Harvey Equity Partners, L.L.C. Mr. Harvey disclaims beneficial ownership of such shares. Founded in 1990, Saunders, Karp & Megrue is a private equity investment firm currently managing over $800 million of private equity capital. Since its inception, Saunders, Karp & Megrue has focused on investing in recapitalizations and buyouts of high-growth, middle market companies in the U.S. and on executing consolidation strategies of fragmented U.S. industry segments. Saunders, Karp & Megrue, through its private equity funds, has invested over $475 million in 27 companies concentrated in basic manufacturing, consumer products, restaurant, retail, financial services and distribution industries. Thomas A. Saunders, III and Allan W. Karp founded Saunders, Karp & Megrue in 1990 and in 1992 were joined by John F. Megrue (together, the "Saunders, Karp & Megrue Founders"). Since that time, the Saunders, Karp & Megrue Founders have invested the Saunders, Karp & Megrue equity funds and actively managed their respective portfolio investments. The Saunders, Karp & Megrue Founders are joined by other senior investment professionals and collectively they have significant experience in both the formation, management and investment of equity capital pools, and in the global capital markets, including financial advisory and mergers and acquisitions activity. RELATED PARTY TRANSACTIONS A majority of our directors are also principals of Saunders, Karp & Megrue, Carlisle and Harvey and are therefore in positions involving possible conflicts of interest. However, our directors and officers and those of our subsidiaries are subject to fiduciary obligations to act in our and our subsidiaries' best interests, as the case may be. We maintain with a third party insurer, for the benefit of our and our subsidiaries' directors and officers, liability insurance against certain liabilities incurred by these directors and officers in such capacity. We may from time to time engage in certain transactions with related parties and affiliates which include, among other things: - business arrangements; - lease arrangements for certain manufacturing facilities and offices; and - the payment of fees or commissions for the transfer of manufacturing by one operating company to another. The indenture governing the outstanding notes and which will govern the exchange notes generally requires that these types of transactions be on terms no less favorable to us or the applicable subsidiary than those which could be obtained on an arms' length basis from third parties. However, we can not provide you with any assurance that such transactions will not adversely affect our business, financial condition or results of operations. Certain consulting and advisory fees were payable to Harvey in connection with the financial performance of one of the companies acquired in March. In addition, similar fees may be payable if that company achieves specific financial performance targets in 2000 in connection with future acquisitions. From time to time, Saunders, Karp & Megrue, Carlisle and Harvey may also receive other customary fees in connection with divestitures, acquisitions and other transactions involving us or our subsidiaries. In addition, Precision Partners Holding Company has agreed to pay Saunders, Karp & Megrue and Carlisle an annual monitoring fee. 53 DESCRIPTION OF CREDIT FACILITIES GENERAL. We have a $23.0 million term loan facility and a $25.0 million revolving credit facility, including a $2.0 million sublimit for letters of credit. Each matures on March 31, 2005, unless terminated sooner upon an event of default. If terminated upon an event of default, all outstanding advances under the credit facilities may be required to be immediately repaid. The credit facilities can be used to complete permitted acquisitions, pay fees and expenses, or for working capital and other general corporate purposes. Borrowings under the credit facilities bear interest, at our option, at either a fixed rate equal to the higher of the overnight federal funds rate plus 50 basis points and the prime rate announced from time to time by Citibank, N.A. plus a margin of 100 to 200 basis points, based on our leverage ratio, or a floating rate equal to LIBOR plus a margin of 200 to 300 basis points, also based on our leverage ratio. Our ability to borrow under the credit facilities is subject to our compliance with the covenants described below and a borrowing base based on eligible accounts receivable and eligible inventory. At March 21, 2000, approximately $44.3 million of borrowings were outstanding under the credit facilities, consisting of the $23.0 million term loan and $21.3 million outstanding under our revolver. GUARANTEES AND SECURITY. All of our obligations under the credit facilities are guaranteed, jointly and severally, by our existing and future domestic subsidiaries and by Precision Partners Holding Company. In addition, our obligations under the credit facilities are secured by a first priority pledge of and security interest in all of the outstanding capital stock of our existing subsidiaries and future domestic subsidiaries, 65% of the outstanding capital stock of any future foreign subsidiary and substantially all of our assets and the assets of our existing and future domestic subsidiaries, including inventory, accounts receivable and all of our property, plants and equipment. Our obligations under the credit facilities are also secured by a pledge by Precision Partners Holding Company of all of our outstanding capital stock. CERTAIN FINANCIAL COVENANTS. The credit facilities require that we meet and maintain certain financial ratios and tests, including: - a maximum consolidated leverage ratio, total debt to EBITDA; - a minimum consolidated interest coverage ratio, EBITDA to interest expense; and - a minimum consolidated fixed charge coverage ratio, EBITDA to interest expense plus other fixed charges. CERTAIN OTHER COVENANTS. The credit facilities also contain covenants that limit our ability and that of our operating subsidiaries to take various actions, including: - incurring additional indebtedness and liens; - fundamentally changing corporate structure, including mergers, consolidations and liquidations; - disposing of property; - making certain payments, including on indebtedness prior to maturity, dividends and capital stock purchases; - making investments; - making capital expenditures; - modifying certain instruments; - changing fiscal periods; - entering into sale and leaseback transactions; - entering into affiliate transactions; - entering into agreements restricting distributions; - amending the acquisition documents; - granting negative pledges; and - entering into unrelated lines of business. 54 EVENTS OF DEFAULT. The credit facilities contain customary events of default with respect to us and our operating subsidiaries, including: - nonpayment of principal, interest or fees when due; - defaults with respect to other indebtedness; - noncompliance with covenants and other agreements contained in the new credit facilities; - breaches of representations or warranties; - events of bankruptcy; - failure to satisfy or stay execution of judgments in excess of $1,500,000; - incurrence of certain employee benefit liabilities; - invalidity of any guarantee; - failure of any new subsidiary to deliver documents necessary to create valid, preferred security interests in collateral; - invalidity or non-perfection of security interests in collateral; - failure of the notes or guarantees thereof to be subordinated; and - changes of control. 55 DESCRIPTION OF EXCHANGE NOTES The outstanding notes were, and the exchange notes will be issued under an indenture among us, the subsidiary guarantors and The Bank of New York, as trustee, as amended by the First and Second Supplemental Indentures thereto. The following is a summary of the material provisions of the indenture as so amended. It does not include all of the provisions of the indenture. We urge you to read the indenture because it defines your rights. The terms of the exchange notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended (the "TIA"). Copies of the indenture and of the first and second supplemental indentures have been filed as exhibits to the registration statement of which this prospectus is a part and may be obtained from the SEC or from us as described under "Where to Find More Information." You can find definitions of certain capitalized terms used in this description under "--Certain Definitions." For purposes of this section, references to the "Company" include only Precision Partners, Inc. and not our subsidiaries. BRIEF DESCRIPTION OF THE NOTES The exchange notes will be unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Debt of the Company. The exchange notes will be obligations of the Company evidencing the same indebtedness as the outstanding notes. Except as otherwise indicated, the following description relates to both the outstanding notes and the exchange notes. The form and terms of the exchange notes are the same as the form and terms of the outstanding notes in all material respects, except that: - The exchange notes have been registered under the Securities Act and therefore will not bear legends restricting their transfer and will not contain provisions relating to an increase in the interest rate which were included in the terms of the outstanding notes in circumstances relating to the timing of the exchange offer, and - the holders of the exchange notes will not be entitled to all of the rights of the holders of the outstanding notes under the registration rights agreement, which rights shall terminate upon the consummation of the exchange offer. The indenture provides that the exchange notes may be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the exchange notes will be issued in the form of one or more global notes and the trustee will act as Paying Agent and Registrar for the notes. See "Book Entry; Delivery and Form." The exchange notes may be presented for registration or transfer and exchange at the offices of the Registrar, which initially will be the trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to holders of the exchange notes ("Holders"). The Company will pay principal (and premium, if any) on the exchange notes at the trustee's corporate office in New York, New York. At the Company's option, interest may be paid at the trustee's corporate trust office or by check mailed to the registered address of the Holders. Any outstanding notes that remain outstanding after the completion of the exchange offer, together with the exchange notes issued in the exchange offer, will be treated as a single class of securities under the indenture. PRINCIPAL, MATURITY AND INTEREST Notes issued under the indenture are limited in aggregate principal amount to $150 million, of which $100 million was issued in the offer and sale of the outstanding notes. For each outstanding note accepted for exchange, the Holder will receive an exchange not having a principal amount equal to that of the surrendered outstanding note. The exchange notes will mature on March 15, 2009. Additional notes may be issued from time to time subject to the limitations set forth under "Certain Covenants--Limitation on Incurrence of Additional Indebtedness." Holders of such additional notes will have the right to vote together with Holders of exchange notes and of outstanding notes as a single class. 56 Interest on the exchange notes will accrue at the rate of 12% per annum and will be payable semiannually in cash on each March 15 and September 15 to the persons who are registered Holders at the close of business on the March 1 and September 1 immediately preceding the applicable interest payment date. Interest on the exchange notes will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from and including March 19, 1999, the date of issuance of the outstanding notes. The interest rate on the exchange notes is subject to increase in the circumstances described under "Exchange Offer and Registration Rights." Such additional interest will be payable on the same interest payment dates. As a result of the failure to have an exchange offer registration statement filed by September 15, 1999, to have it declared effective by September 16, 1999 and to complete the exchange offer by October 15, 1999, we are paying additional interest. The amount of additional interest has ranged from 0.5% per annum on September 15, 1999 to 0.75% per annum currently. Unless the registration statement is declared effective and the exchange offer completed by March 14, 2000, the amount of additional interest will increase to 1.0% per annum beginning on March 15, 2000 until effectiveness of the registration statement and completion of the exchange offer. SINKING FUND The exchange notes will not be entitled to the benefit of any mandatory sinking fund. REDEMPTION OPTIONAL REDEMPTION. Except as described below, the exchange notes are not redeemable before March 15, 2004. Thereafter, the Company may redeem the exchange notes at its option, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on March 15 of the year set forth below:
YEAR PERCENTAGE - ---- ---------- 2004..................................... 106.000% 2005..................................... 104.000% 2006..................................... 102.000% 2007 and thereafter...................... 100.000%
In addition, the Company must pay accrued and unpaid interest on the exchange notes redeemed. OPTIONAL REDEMPTION UPON QUALIFIED EQUITY OFFERINGS. At any time, or from time to time, on or prior to March 15, 2002, the Company may, at its option, use the net cash proceeds of one or more Qualified Equity Offerings (as defined below) to redeem up to 35% of all notes issued under the indenture at a redemption price equal to 112% of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the date of redemption; provided that: (1) at least 65% of the principal amount of notes issued under the indenture remains outstanding immediately after any such redemption; and (2) the Company makes such redemption not more than 180 days after the consummation of any such Qualified Equity Offering. As used in the preceding paragraph, "Qualified Equity Offering" means a primary offering of Qualified Capital Stock, or rights, warrants or options to acquire Qualified Capital Stock, of Precision Partners Holding Company or Precision Partners, L.L.C. in the United States of at least $25 million to Persons who are not Affiliates of Precision Partners or Precision Partners Holding Company provided that, in the case of any such offering of Qualified Capital Stock of Precision Partners Holdings or Precision Partners, L.L.C., all the net proceeds thereof necessary to pay the aggregate redemption price (plus accrued interest to the redemption date) of the notes to be redeemed pursuant to the preceding paragraph are contributed to the Company. 57 SELECTION AND NOTICE OF REDEMPTION In the event that less than all of the notes are to be redeemed at any time, selection of such notes for redemption will be made by the trustee either: (1) in compliance with the requirements of the principal national securities exchange, if any, on which such notes are listed; or (2) if such notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the trustee shall deem fair and appropriate. No notes of a principal amount of $1,000 or less shall be redeemed in part. If a partial redemption is made with the proceeds of a Qualified Equity Offering, selection of the notes or portions thereof for redemption shall be made by the trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of notes to be redeemed at its registered address. If any note is to be redeemed in part only, the notice of redemption that relates to such note shall state the portion of the principal amount thereof to be redeemed. A new note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original note. On and after the redemption date, interest will cease to accrue on notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the indenture. SUBORDINATION The payment of all Obligations on the notes is subordinated in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on Senior Debt. Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due upon all Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the notes or for the acquisition of any of the notes for cash or property or otherwise. If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by declaration or otherwise, of any principal of, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Senior Debt, no payment of any kind or character shall be made by or on behalf of the Company or any other Person on its behalf with respect to any Obligations on the notes or to acquire any of the notes for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt, permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for such Designated Senior Debt gives written notice of the event of default to the trustee (a "Default Notice"),then, unless and until all events of default with respect to such Designated Senior Debt have been cured or waived or have ceased to exist or the trustee receives notice from the Representative for such Designated Senior Debt terminating the Blockage Period (as defined below), during the 180 days after the delivery of such Default Notice (the "Blockage Period"), neither the Company nor any other Person on its behalf shall (x) make any payment of any kind or character with respect to any Obligations on the notes or (y) acquire any of the notes for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 180 days from the date the Default Notice was delivered to the trustee and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default 58 which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Debt shall be, or be made, the basis for commencement of a second Blockage Period by the Representative of such Designated Senior Debt whether or not after a period of 360 consecutive days, unless such event of default shall have been cured or waived or ceased to exist for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions of the Designated Senior Debt under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). By reason of such subordination, in the event of the insolvency of the Company, creditors of the Company who are not holders of Senior Debt, including the Holders, may recover less, ratably, than holders of Senior Debt. GUARANTEES The Guarantors, jointly and severally, will fully and unconditionally guarantee the Company's obligations under the indenture and the notes. Each Guarantee will be subordinated to Guarantor Senior Debt on the same basis as the notes are subordinated to Senior Debt. The obligations of each Guarantor under its Guarantee will be limited as necessary to prevent the Guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law. Each Guarantor may consolidate with or merge into or sell its assets to the Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company without limitation, or with other Persons upon the terms and conditions set forth in the indenture. See "Certain Covenants--Merger, Consolidation and Sale of Assets." In the event all of the Capital Stock of a Guarantor owned by the Company or a Restricted Subsidiary is sold by the Company and/or a Restricted Subsidiary or all or substantially all of the assets of a Guarantor are sold by such Guarantor and the sale complies with the provisions set forth in "Certain Covenants--Limitation on Asset Sales," such Guarantor's Guarantee will be released at the time of such sale. Separate financial statements of the Guarantors are not included herein because such Guarantors are jointly and severally liable with respect to the Company's obligations pursuant to the notes, and the aggregate net assets, earnings and equity of the Guarantors and the Company are substantially equivalent to the net assets, earnings and equity of the Company on a consolidated basis. CHANGE OF CONTROL Upon the occurrence of a Change of Control, each Holder will have the right to require that the Company purchase all or a portion of such Holder's notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, thereon to the date of purchase. Prior to the mailing of the notice referred to below, but in any event within 30 days following any Change of Control, the Company will be required to use its reasonable efforts to: (i) repay in full and terminate all commitments under all Indebtedness under the Credit Agreement and all other Senior Debt the terms of which require repayment upon a Change of Control or offer to repay in full and terminate all commitments under all Indebtedness under the Credit Agreement and all other such Senior Debt and to repay the Indebtedness owed to each lender which has accepted such offer; or (ii) obtain the requisite consents under the Credit Agreement and all other Senior Debt to permit the repurchase of the notes as provided below. The Company shall first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase notes pursuant to the provisions described below. 59 Within 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each Holder, with a copy to the trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a note purchased pursuant to a Change of Control Offer will be required to surrender the note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third business day prior to the Change of Control Payment Date. If a Change of Control Offer is required to be made, there can be no assurance that the Company will be permitted by the terms of its Senior Debt to make such a Change of Control Offer or that it will have available funds sufficient to pay the Change of Control purchase price for all the notes that might be delivered by Holders seeking to accept the Change of Control Offer. In addition, the exercise by the holders of notes of their right to require the Company to repurchase the notes upon a Change of Control could cause a default under such Senior Debt, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company, which could cause an acceleration of such Senior Debt and a foreclosure with respect to any collateral securing it in the event such Senior Debt was not paid. In the event the Company is required to purchase outstanding notes pursuant to a Change of Control Offer, the Company expects that it would seek third party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing. Neither the Board of Directors of the Company nor the trustee (without the consent of a majority in principal amount of the notes then outstanding) may waive the covenant relating to a Holder's right to require the purchase of notes upon a Change of Control. This right and other restrictions in the indenture described herein on the ability of the Company and the Restricted Subsidiaries to incur additional Indebtedness, to grant liens on its property, to make Restricted Payments and to make Asset Sales may also make more difficult or discourage a sale or takeover of the Company and, as a result, the removal of incumbent management, whether such sale or takeover is favored or opposed by such management. This right of the holders to require a repurchase of notes upon a Change of Control, however, is not part of a plan by management to adopt a series of anti-takeover provisions. Instead, the Change of Control purchase feature is a result of negotiations between the Company and the Initial Purchasers. Management has no present intention to engage in a transaction involving a Change of Control, although it is possible that the Company may decide to do so in the future. Subject to the restrictions contained in the indenture described herein on the ability of the Company to incur additional Indebtedness, grant liens on its property, make Restricted Payments and make Asset Sales, the Company could, in the future, enter into certain highly leveraged transactions, including acquisitions, mergers, refinancings, restructurings or other recapitalizations, that would not constitute a Change of Control under the indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect the Company's capital structure or credit ratings and the holders of the notes. Except for limitations contained in such covenants, however, the indenture will not contain any covenants or provisions that would afford the holders of the notes protection in the event of any such highly leveraged transaction that does not constitute a Change of Control. The Company's obligation to make a Change of Control Offer may be discharged if a third party makes the Change of Control Offer in the manner and at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer to be made by the Company and such third party purchases all notes properly tendered under such Change of Control Offer. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the indenture, the Company shall 60 comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the indenture by virtue thereof. CERTAIN COVENANTS The indenture will contain, among others, the following covenants: LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company or any Guarantor may incur Indebtedness (including, without limitation, Acquired Indebtedness) and the Restricted Subsidiaries that are not Guarantors may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0 if such date of incurrence is on or prior to March 15, 2002 and 2.25 to 1 thereafter. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness or is entitled to be incurred pursuant to the prior sentence, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been incurred pursuant to only one of such categories of Permitted Indebtedness (or divided and classified in more than one of such categories of Permitted Indebtedness) or pursuant to the prior sentence. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly: (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company or in options, warrants or other rights to purchase Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock; (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock; or (c) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b) and (c) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto: (i) a Default or an Event of Default shall have occurred and be continuing; or (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the covenant described under "--Limitation on Incurrence of Additional Indebtedness"; or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purpose, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company) shall exceed the sum of: (A) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company 61 earned during the period beginning on the first day of the fiscal quarter commencing prior to the Issue Date and through the end of the most recent fiscal quarter for which financial statements are available prior to the date such Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (B) 100% of the aggregate net cash proceeds and the fair market value of property other than cash (as determined in good faith by the Company) received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date of Qualified Capital Stock of the Company or of other Indebtedness or securities converted to or exchanged for Qualified Capital Stock of the Company; plus (C) without duplication of any amounts included in clause (iii)(B) above, 100% of the aggregate net cash proceeds of any contribution to the equity capital of the Company (other than the Disqualified Capital Stock) received by the Company (excluding, in the case of clauses (iii)(B) and (C), any net proceeds from a Qualified Equity Offering to the extent used to redeem the notes); plus (D) an amount equal to the lesser of: (a) the sum of the fair market value of the Capital Stock of an Unrestricted Subsidiary owned by the Company and/or a Restricted Subsidiary and the aggregate amount of all Indebtedness of such Unrestricted Subsidiary owed to the Company and each Restricted Subsidiary on the date of Revocation of such Unrestricted Subsidiary as an Unrestricted Subsidiary in accordance with the covenant described under "--Limitation on Designations of Unrestricted Subsidiaries;" and (b) the Designation Amount with respect to such Unrestricted Subsidiary on the date of the Designation of such Subsidiary as an Unrestricted Subsidiary in accordance with the covenant described under "--Limitation on Designations of Unrestricted Subsidiaries;" plus (E) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the Issue Date, an amount equal to the lesser of the return of capital with respect to such Investment and the initial amount of such Investment which was treated as a Restricted Payment, less, in either case, the cost of the disposition of such Investment and net of taxes. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend or distribution within 60 days after the date of declaration of such dividend if the dividend or distribution would have been permitted on the date of declaration; (2) any dividend or distribution in respect of or the repurchase, redemption, retirement or other acquisition of any shares of Capital Stock of the Company, either (i) solely by conversion into or in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of shares of Qualified Capital Stock of the Company; (3) so long as no Default or Event of Default shall have occurred and be continuing, repurchases of Capital Stock (or options therefor) of the Company from current or former officers, directors, employees or consultants pursuant to equity ownership or compensation plans or stockholders agreements not to exceed $1.0 million in any year (with unused amounts in any calendar year being carried over to succeeding calendar years, but not to exceed $1.5 million in any one year); 62 (4) payments pursuant to any tax sharing arrangement between the Company or any of its Restricted Subsidiaries and any other Person with which the Company or such Restricted Subsidiary files a consolidated tax return or with which the Company or such Restricted Subsidiary is part of a consolidated group for tax purposes not to exceed the amount the Company would be required to pay on a stand-alone basis; (5) the purchase or redemption of notes following a Change of Control after the Company shall have complied with the provisions under "--Change of Control," including payment of the purchase price pursuant to a Change of Control Offer; (6) the payment to Holdings of up to $800,000 in the aggregate in any fiscal year for Holdings to pay annual monitoring fees to Saunders, Karp & Megrue and Carlisle; (7) the payment of consulting and advisory fees to Harvey in connection with the 1999 Acquisitions or any future acquisition and related expenses; (8) the declaration and payment of dividends to holders of any class or series of Disqualified Capital Stock of the Company issued in accordance with the covenant entitled "--Limitation on Incurrence of Additional Indebtedness;" and (9) so long as no Default or Event of Default shall have occurred and be continuing, other Restricted Payments in an aggregate amount not to exceed $5 million. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the immediately preceding paragraph, amounts expended pursuant to clauses (1) and (2(ii)) shall be included in such calculation. LIMITATION ON ASSET SALES. The Company will not, and will not permit any of the Restricted Subsidiaries to, consummate an Asset Sale unless: (i) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Board of Directors of the Company); (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents or Replacement Assets and is received at the time of such disposition (provided that the amount of (x) any Indebtedness of the Company or any Guarantor that is actually assumed by the transferee in such Asset Sale and from which the Company and the Guarantors are fully and unconditionally released, (y) Indebtedness of a Restricted Subsidiary that is no longer such as a result of such Asset Sale (to the extent the Company and each other Restricted Subsidiary us released from any guarantee thereof) and (z) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash shall each be deemed to be cash for purposes of clause (i) above); and (iii) upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 360 days of receipt thereof either: (A) to prepay any Senior Debt or Guarantor Senior Debt and, in the case of any Senior Debt or Guarantor Senior Debt under any revolving credit facility, effect a permanent reduction in the availability under such revolving credit facility; (B) to acquire Replacement Assets; or (C) a combination of prepayment and investment permitted by the foregoing clauses (iii)(A) and (iii) (B). 63 On the 361st day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds that have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date, all outstanding notes up to a maximum principal amount of notes equal to the Note Pro Rata Share, at a purchase price in cash equal to 100% of the principal amount of notes, plus accrued and unpaid interest (including additional interest, if any) thereon, if any, to the date of purchase; PROVIDED, HOWEVER, that if at any time any non-cash consideration received by the Company or any Restricted Subsidiary, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration) or Cash Equivalents, then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10 million resulting from one or more Asset Sales or deemed Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $10 million, shall be applied as required pursuant to this paragraph). In the event that any other Indebtedness of the Company that ranks equally to in right of payment with the notes requires that such Indebtedness be repaid or repurchased upon the consummation of any Asset Sale (the "Other Indebtedness"), the Company may use the Net Proceeds Offer Amount otherwise required to be used to repay or repurchase such Other Indebtedness and to make a Net Proceeds Offer so long as the amount of such Net Proceeds Offer Amount available to be applied to purchase the notes is not less than the Note Pro Rata Share. With respect to any Net Proceeds Offer Amount, the Company shall make the Net Proceeds Offer in respect thereof at the same time as the analogous repayment or repurchase is made under any Other Indebtedness and the date of purchase in respect thereof shall be the same under the indenture as the repayment or purchase of any Other Indebtedness. With respect to any Net Proceeds Offer effected pursuant to this covenant, to the extent that the principal amount of the notes tendered pursuant to such Net Proceeds Offer exceeds the Note Pro Rata Share to be applied to the purchase thereof, such notes shall be purchased PRO RATA based on the principal amount of such notes tendered by each holder. In the event of the transfer of substantially all (but not all) of the property and assets of the Company and the Restricted Subsidiaries as an entirety to a Person in a transaction permitted under "--Merger, Consolidation and Sale of Assets," which transaction does not constitute a Change of Control, the successor corporation shall be deemed to have sold the properties and assets of the Company and the Restricted Subsidiaries not so transferred for purposes of this covenant and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value (as determined in good faith by the Board of Directors of the Company) of such properties and assets of the Company or the Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 30 days following the Net Proceeds Offer Trigger Date, with a copy to the trustee, and shall comply with the procedures set forth in the indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender notes in an amount exceeding the Net 64 Proceeds Offer Amount, notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law. If not fully subscribed, the Company may retain and use the remaining Net Cash Proceeds for any purpose not otherwise prohibited by the indenture. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the indenture by virtue thereof. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to: (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary; or (c) transfer any of its property or assets to the Company or any other Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reasons of: (1) applicable law; (2) the indenture, the notes or the Guarantees; (3) customary non-assignment provisions of any contract or any lease governing a leasehold interest of any Restricted Subsidiary; (4) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired; (5) the Credit Agreement; (6) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; (7) any other agreement entered into after the Issue Date that contains encumbrances and restrictions that are not materially more restrictive with respect to any Restricted Subsidiary than those in effect with respect to such Restricted Subsidiary pursuant to agreements as in effect on the Issue Date; (8) agreements governing Permitted Indebtedness; (9) customary bank credit agreements Incurred pursuant to clause (xv) of the definition of Permitted Indebtedness; (10) customary restrictions on the transfer of any property or assets arising under a security agreement governing a Lien permitted under the indenture; (11) customary restrictions with respect to a Restricted Subsidiary pursuant to an agreement that has been entered into in connection with the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary; (12) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature discussed in clause (c) above on the property so acquired; 65 (13) secured Indebtedness otherwise permitted to be incurred pursuant to the covenants described under "--Limitations on Incurrence of Additional Indebtedness" and "--Limitation on Liens" that limit the right of the debtor to dispose of the assets securing such Indebtedness; (14) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and (15) any agreement governing Refinancing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2), (4), (5), (6), (8) or (13) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such Refinancing Indebtedness are not materially more restrictive than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2), (4), (5), (6), (8) or (13) above. LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will not permit any of the Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a Restricted Subsidiary) or permit any Person (other than the Company or a Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary. LIMITATION ON LIENS. The Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens of any kind against or upon any property or assets of the Company or any of the Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless: (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the notes, the notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens; and (ii) in all other cases, the notes are equally and ratably secured with the obligations so secured until such obligations are no longer secured by a Lien, except for: (A) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date; (B) Liens securing Senior Debt, Guarantor Senior Debt or Indebtedness of a Restricted Subsidiary that is not a Guarantor that is permitted to be incurred under the indenture; (C) Liens securing the notes and any Guarantees; (D) Liens in favor of the Company or a Restricted Subsidiary; (E) Liens securing Refinancing Indebtedness incurred to Refinance any Indebtedness which has been secured by a Lien permitted under the indenture and which has been incurred in accordance with the provisions of the indenture; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any of the Restricted Subsidiaries not securing the Indebtedness so Refinanced (other than improvements, additions or accessions thereto); and (F) Permitted Liens. 66 PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. The Company will not, and will not permit any Guarantor to, incur or suffer to exist Indebtedness that is senior in right of payment to the notes or the Guarantee of such Guarantor and subordinate in right of payment to any other Indebtedness of the Company or such Guarantor, as the case may be. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, and will not cause or permit any Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and indenture in connection with any transaction complying with the provisions of the covenant described under "--Limitation on Asset Sales") to, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (i) either: (1) the Company or such Guarantor shall be the surviving or continuing corporation; or (2) the Person (if other than the Company or such Guarantor) formed by such consolidation or into which the Company or such Guarantor is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and the Restricted Subsidiaries substantially as an entirety (the "Surviving Entity"): (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia; and (y) shall expressly assume, by supplemental indenture (in form and substance reasonably satisfactory to the trustee), executed and delivered to the trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the notes and the performance of every covenant of the notes, the Guarantee, if applicable, the indenture and, if then effect, the Registration Rights Agreement on the part of the Company or such Guarantor to be performed or observed; PROVIDED that a Guarantor may merge with or into the Company or another Guarantor without complying with this clause (i). (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction) on a pro forma basis, the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "--Limitation on Incurrence of Additional Indebtedness;" PROVIDED that a Guarantor may merge into the Company or another Guarantor without complying with this clause (ii); (iii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity shall have delivered to the trustee an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is 67 required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the indenture and that all conditions precedent in the indenture relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. The indenture will provide that upon any consolidation, combination or merger of the Company or a Guarantor or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company or such Guarantor is not the continuing corporation, the Surviving Entity formed by such consolidation or into which the Company or such Guarantor is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Guarantor under the indenture, the notes and the Guarantees with the same effect as if such Surviving Entity had been named as such and, except in the case of a conveyance, transfer or lease, the Company or such Guarantor, as the case may be, shall be released from the obligation to pay the principal of and interest on the notes or in respect of its guarantee, as the case may be, and all of the Company's or such Guarantor's other obligations and covenants under the notes, the indenture and its Guarantee, if applicable. LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate Transactions on terms that are not materially less favorable than those that would have reasonably been expected in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $5.0 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary enters into an Affiliate Transaction (or series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $10.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the trustee. (b) The restrictions set forth in clause (a) shall not apply to: (i) employment, consulting and compensation arrangements and agreements of the Company or any Restricted Subsidiary consistent with past practice or approved by a majority of the disinterested members of the Board of Directors of the Company (or a committee comprised of disinterested directors); (ii) reasonable fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees, consultants or agents of the Company or any Restricted Subsidiary as determined in good faith by the Company's Board of Directors or senior management, including, without limitation, any issuance or grant of stock options, bonuses or similar rights to such employees, officers and directors; 68 (iii) transactions exclusively between or among the Company and any of the Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries, provided such transactions are not otherwise prohibited by the indenture; (iv) Restricted Payments permitted to be made pursuant to the "--Limitation on Restricted Payments" covenant; (v) the payment to Holdings of up to $800,000 in the aggregate in any fiscal year for Holdings to pay annual monitoring fees to Saunders, Karp & Megrue and Carlisle; (vi) the payment of consulting and advisory fees to Harvey in connection with the 1999 Acquisitions or any future acquisition and related expenses; (vii) payments to the selling stockholders of Mid State, Galaxy and Certified pursuant to the relevant acquisition agreements or documents delivered in connection therewith (whether in cash or in the form of bonus compensation, a note or other security); (viii) Permitted Investments, (ix) in connection with a public offering of Common Stock of the Company, Holdings or any Restricted Subsidiary, loans or advances, having a maturity of one year or less after the date first made, to employees to finance the purchase by such employees of such Common Stock; (x) the issuance or sale of any Qualified Capital Stock of the Company or of any Guarantor; and (xi) the payment of all fees and expenses related to the 1999 Acquisitions, the new credit facilities and this offering (whether paid at or subsequent to the closing of such transactions). ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any Restricted Subsidiary transfers or causes to be transferred, in one transaction or a series of related transactions, any property with a book value in excess of $500,000 to any Domestic Restricted Subsidiary that is not a Guarantor, or if the Company or any of its Restricted Subsidiaries shall organize, acquire or otherwise invest in another Domestic Restricted Subsidiary having total assets with a book value in excess of $500,000, then such transferee or acquired or other Restricted Subsidiary shall: (1) execute and deliver to the trustee a supplemental indenture in form reasonably satisfactory to the trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of the Company's obligations under the notes and the indenture on the terms set forth in the indenture; and (2) deliver to the trustee an opinion of counsel that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a Guarantor for all purposes of the indenture. The Indebtedness evidenced by any Guarantee (including the payment of principal of, premium, if any, and interest on the notes) will be subordinated to Guarantor Senior Debt on terms analogous to those applicable to the notes. See "--Subordination." The obligations of each Guarantor under its Guarantee will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor (including, without limitation, any guarantees under the Credit Agreement) and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the indenture, result in 69 the obligations of the Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment for distribution under a Guarantee is entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each Guarantor. CONDUCT OF BUSINESS. The Company will not, and will not permit any Restricted Subsidiary to, engage in any businesses which are not either: (i) the same, similar or related to the businesses in which the Company or any of the Restricted Subsidiaries are engaged on the Issue Date, (ii) businesses acquired through an acquisition after the Issue Date which are not material to the Company and the Restricted Subsidiaries, taken as a whole, or (iii) Permitted Investments. LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. The Company may designate any Subsidiary of the Company (other than a Subsidiary of the Company that owns Capital Stock of a Restricted Subsidiary) as an "Unrestricted Subsidiary" under the indenture (a "Designation") only if: (i) the Subsidiary to be so designated has total assets of $1,000 or less or (ii) such Subsidiary has total assets greater than $1,000 and (a) no Default shall have occurred and be continuing after giving effect to such Designation; and (b) the Company would be permitted under the indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to the sum of (i) the fair market value of the Capital Stock of such Subsidiary owned by the Company and/or any of the Restricted Subsidiaries on such date and (ii) the aggregate amount of Indebtedness of such Subsidiary owed to the Company and the Restricted Subsidiaries on such date; and (c) after giving effect to such designation, the Company would be permitted to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "--Limitation on Incurrence of Additional Indebtedness" at the time of Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment in the Designation Amount pursuant to the covenant described under "-- Limitation on Restricted Payments" for all purposes of the indenture. The indenture will further provide that the Company shall not, and shall not permit any Restricted Subsidiary to, at any time (x) provide direct or indirect credit support for or a guarantee of any Indebtedness of any Unrestricted Subsidiary (including of any undertaking agreement or instrument evidencing such Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly liable for any Indebtedness that provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the extent permitted under the covenant described under "--Limitation on Restricted Payments." The indenture will further provide that the Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary ("Revocation"), whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if: (a) no Default shall have occurred and be continuing at the time and after giving effect to such Revocation; and 70 (b) all Liens and Indebtedness of such Unrestricted Subsidiaries outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of the indenture. All Designations and Revocations must be evidenced by an officers' certificate of the Company delivered to the trustee certifying compliance with the foregoing provisions. REPORTS TO HOLDERS. The indenture will provide that the Company will deliver to the trustee within 15 days after the filing of the same with the Commission, copies of the quarterly and annual reports and of the information, documents and other reports, if any, that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The indenture further provides that, notwithstanding that the Company may not be subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act, the Company will file with the Commission, to the extent permitted, and provide the trustee and Holders with such annual and quarterly reports and such information, documents and other reports specified in Section 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of TIA Section314(a). EVENTS OF DEFAULT The following events are defined in the indenture as "Events of Default:" (i) the failure to pay interest on any notes when the same becomes due and payable and the default continues for a period of 30 days (whether or not such payment shall be prohibited by the subordination provisions of the indenture); (ii) the failure to pay the principal on any notes, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or not such payment shall be prohibited by the subordination provisions of the indenture); (iii) a default in the observance or performance of any other covenant or agreement contained in the indenture which default continues for a period of 45 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the trustee or the Holders of at least 25% of the outstanding principal amount of the notes (except in the case of a default with respect to the covenant described under "--Certain Covenants--Merger, Consolidation and Sale of Assets," which will constitute an Event of Default with such notice requirement but without such passage of time requirement); (iv) a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or of any Restricted Subsidiary (or the payment of which is guaranteed by the Company or any Restricted Subsidiary), whether such Indebtedness now exists or is created after the Issue Date, which default (a) is caused by a failure to pay principal of such Indebtedness after notice and the lapse of any applicable grace period provided in such Indebtedness on the date of such default (a "payment default") or (b) results in the acceleration of such Indebtedness prior to its express maturity (and such acceleration is not rescinded, or such Indebtedness is not repaid, within 30 days) and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated (and such acceleration is not rescinded, or such Indebtedness is not repaid, within 30 days), aggregates $7.5 million; (v) one or more judgments in an aggregate amount in excess of $7.5 million not covered by adequate insurance shall have been rendered against the Company or any of the Restricted Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and nonappealable; 71 (vi) certain events of bankruptcy affecting the Company or any of the Significant Subsidiaries; or (vii) any Guarantee of a Significant Subsidiary ceases to be in full force and effect or any Guarantee of a Significant Subsidiary declared to be null and void and unenforceable or any Guarantee of a Significant Subsidiary is found to be invalid or any of the Guarantors that is a Significant Subsidiary denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of the indenture). If an Event of Default (other than an Event of Default specified in clause (vi) above shall occur and be continuing, the trustee or the Holders of at least 25% in principal amount of outstanding notes may declare the principal of, premium, if any, and accrued interest on all the notes to be due and payable by notice in writing to the Company and (if given by the Holders) the trustee specifying the respective Events of Default and that it is a "notice of acceleration," and the same shall become immediately due and payable. If an Event of Default specified in clause (vi) above occurs and is continuing, then all unpaid principal of, premium, if any, and accrued and unpaid interest on all of the outstanding notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the trustee or any Holder. The indenture will provide that, at any time after a declaration of acceleration with respect to the notes as described in the preceding paragraph, the Holders of a majority in principal amount of the then outstanding notes may rescind and cancel such declaration and its consequences: (i) if the rescission would not conflict with any judgment or decree; (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration; (iii) to the extent the payment of such interest is lawful, if interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid; (iv) if the Company has paid the trustee its reasonable compensation and reimbursed the trustee for its expenses, disbursements and advances; and (v) in the event of the cure or waiver of an Event of Default of the type described in clause (vi) of the description above of Events of Default, the trustee shall have received an officers' certificate and an opinion of counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The Holders of a majority in principal amount of the then outstanding notes may waive any existing Default or Event of Default under the indenture, and its consequences, except a default in the payment of the principal of or interest on any notes. Holders of the notes may not enforce the indenture or the notes or institute any proceeding with respect thereto or for any remedy thereunder except as provided in the indenture and under the TIA. Subject to the provisions of the indenture relating to the duties of the trustee, the trustee is under no obligation to exercise any of its rights or powers under the indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the trustee reasonable indemnity. Subject to all provisions of the indenture and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee. Under the indenture, the Company is required to provide an officers' certificate to the trustee promptly upon the Company obtaining knowledge of any Default or Event of Default (provided that the Company shall provide such certification at least annually whether or not it knows of any Default 72 or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have its obligations and the obligations of any Guarantors discharged with respect to the outstanding notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding notes, except for: (i) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the notes when such payments are due; (ii) the Company's obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payments; (iii) the rights, powers, trust, duties and immunities of the trustee and the Company's obligations in connection therewith; and (iv) the Legal Defeasance provisions of the indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the indenture ("Covenant Defeasance") and thereafter any omission or failure to comply with such obligations shall not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "--Events of Default" will no longer constitute an Event of Default with respect to the notes. In order to exercise Legal Defeasance or Covenant Defeasance: (i) the Company must irrevocably deposit with the trustee, in trust, for the benefit of the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient (through the payment of principal and interest), to pay the principal of, premium, if any, and interest on the notes on the stated date of payment thereof or on the applicable redemption date, as the case may be; (ii) in the case of Legal Defeasance, the Company shall have delivered to the trustee an opinion of counsel in the United States reasonably acceptable to the trustee confirming that: (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or (B) since the date of the indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the trustee an opinion of counsel in the United States reasonably acceptable to the trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; 73 (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company shall have delivered to the trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (vii) the Company shall have delivered to the trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; (viii) the Company shall have delivered to the trustee an opinion of counsel to the effect that: (A) the trust funds will not be subject to any rights of holders of Senior Debt, including, without limitation, those arising under the indenture; and (B) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (ix) certain other customary conditions precedent are satisfied. Notwithstanding the foregoing, the opinion of counsel required by clause (ii) above with respect to a Legal Defeasance need not be delivered if all notes not theretofore delivered to the trustee for cancellation (1) have become due and payable or (2) will become due and payable on the maturity date within one year under arrangements satisfactory to the trustee for the giving of notice of redemption by the trustee in the name, and at the expense, of the Company. SATISFACTION AND DISCHARGE The indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the notes, as expressly provided for in the indenture) as to all outstanding notes when: (i) either: (a) all the notes theretofore authenticated and delivered (except lost, stolen or destroyed notes which have been replaced or paid and notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the trustee for cancellation; or (b) all notes not theretofore delivered to the trustee for cancellation have become due and payable and the Company has irrevocably deposited or caused to be deposited with the trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the notes not theretofore delivered to the trustee for cancellation, for principal of, premium, if any, and interest on the notes to the date of deposit together with irrevocable instructions from the Company directing the trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under the indenture by the Company; and 74 (iii) the Company has delivered to the trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the indenture relating to the satisfaction and discharge of the indenture have been complied with. MODIFICATION OF THE INDENTURE From time to time, the Company, the Guarantors and the trustee, without the consent of the Holders, may amend the indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies, so long as such change does not, in the opinion of the trustee, adversely affect the rights of any of the Holders in any material respect. In formulating its opinion on such matters, the trustee will be entitled to rely on such evidence as it deems appropriate, including, without limitation, solely on an opinion of counsel. Other modifications and amendments of the indenture may be made with the consent of the Holders of a majority in principal amount of the then outstanding notes issued under the indenture, except that, without the consent of each Holder affected thereby, no amendment may: (i) reduce the amount of notes whose holders must consent to an amendment; (ii) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any notes; (iii) reduce the principal of or change or have the effect of changing the fixed maturity of any notes, or change the date on which any notes may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (iv) make any notes payable in money other than that stated in the notes; (v) make any change in provisions of the indenture protecting the right of each Holder to receive payment of principal of and interest on such notes on or after the stated due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of the then outstanding notes to waive Defaults or Events of Default; (vi) amend, change or modify in any material respect the obligation of the Company to make and consummate a Change of Control Offer after the occurrence of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto; (vii) modify or change any provision of the indenture or the related definitions affecting the subordination or ranking of the notes or any Guarantee in a manner which adversely affects the Holders; or (viii) release any Guarantor from any of its obligations under its Guarantee or the indenture otherwise than in accordance with the terms of the indenture. GOVERNING LAW The indenture will provide that it, the notes and any Guarantees will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. THE TRUSTEE The indenture will provide that, except during the continuance of an Event of Default, the trustee will perform only such duties as are specifically set forth in the indenture. During the existence of an Event of Default, the trustee will exercise such rights and powers vested in it by the indenture, and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. 75 The indenture and the provisions of the TIA contain certain limitations on the rights of the trustee, should it become a creditor of the Company, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the trustee will be permitted to engage in other transactions; provided that if the trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the indenture. Reference is made to the indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. "ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or at the time it merges or consolidates with the Company or any of the Restricted Subsidiaries or assumed by the Company or any Restricted Subsidiary in connection with the acquisition of assets from such Person and in each case whether or not such Indebtedness is incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such acquisition, merger or consolidation. "ADJUSTED NET ASSETS" of a Guarantor at any date means the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of its liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under the Guarantee of such Guarantor at such date, and (y) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any Subsidiary of such Guarantor in respect of the obligations of such Subsidiary under such Guarantor's Guarantee), excluding debt in respect of the Guarantee, as they become absolute and matured. "AFFILIATE" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "AFFILIATE TRANSACTION" has the meaning set forth under "--Certain Covenants--Limitation on Transactions with Affiliates." "ASSET ACQUISITION" means (a) an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged with or into the Company or any Restricted Subsidiary, or (b) the acquisition by the Company or any Restricted Subsidiary of the assets of any Person (other than a Restricted Subsidiary) that constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. 76 "ASSET SALE" means any direct or indirect sale, issuance, conveyance, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer (other than the granting of a Lien in accordance with the indenture) for value by the Company or any of the Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Restricted Subsidiary of (a) any Capital Stock of any Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary); or (b) any other property or assets of the Company or any Restricted Subsidiary other than in the ordinary course of business; provided, however, that Asset Sales shall not include (i) a transaction or series of related transactions for which the Company or the Restricted Subsidiaries receive aggregate consideration of less than $1.0 million, (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted by the covenant described under "--Certain Covenants--Merger, Consolidation and Sale of Assets," (iii) any Restricted Payment made in accordance with the covenant described under "--Certain Covenants--Limitation on Restricted Payments," (iv) the sale, lease, conveyance, disposition or other transfer of property or equipment that has become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any Restricted Subsidiary, (v) the creation or realization of any Permitted Lien, (vi) the sale of receivables or other assets pursuant to a receivables or asset securitization or similar program, (vii) any disposition the making of which is a Permitted Investment, (viii) the sale of any Cash Equivalents owned by the Company or any of its Subsidiaries and (ix) any exchange of like property pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended. "BLOCKAGE PERIOD" has the meaning set forth under "--Subordination." "BOARD OF DIRECTORS" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the trustee. "CAPITAL STOCK" means: (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person; and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "CARLISLE" means Carlisle Enterprises, LLC. "CASH EQUIVALENTS" means: (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one 77 year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds that invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "CHANGE OF CONTROL" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of the indenture); (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of the indenture); or (iii) any Person or Group, other than the Permitted Holders, becomes the beneficial owner, directly or indirectly, of more than 50% of the total voting power of the Capital Stock of the Company, and the Permitted Holders beneficially own, directly or indirectly in the aggregate, a lesser percentage of the total voting power of the Capital Stock of the Company than such Person or Group and do not have the right or ability by voting power, contract, or otherwise to elect or designate for election a majority of the Board of Directors (or any analogous governing body) of the Company; or (iv) following the consummation of an initial public offering of the Company, the replacement of a majority of the Board of Directors of the Company or Holdings over a two-year period from the directors who constituted the Board of Directors of the Company or Holdings, as the case may be, at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of the Company or Holdings, as the case may be, then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved. "CHANGE OF CONTROL OFFER" has the meaning set forth under "--Change of Control." "CHANGE OF CONTROL PAYMENT DATE" has the meaning set forth under "--Change of Control." "COMMON STOCK" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. 78 "CONSOLIDATED EBITDA" means, with respect to the Company, for any period, the sum (without duplication) of: (i) Consolidated Net Income; and (ii) to the extent Consolidated Net Income has been reduced thereby: (A) all income taxes of the Company and the Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary or nonrecurring gains or taxes attributable to Asset Sales outside the ordinary course of business); (B) Consolidated Interest Expense; (C) Consolidated Non-cash Charges, less any non-cash items increasing Consolidated Net Income for such period, (D) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary or is merged or consolidated with the Company or any Restricted Subsidiary but after the first day of the relevant Four Quarter Period as used in the definition of "Consolidated Fixed Charge Coverage Ratio," (E) the aggregate amount of any earn-out payments or bonuses paid to the selling stockholders of Mid State and Galaxy during the relevant Four Quarter Period; (F) in the case of a successor to the Company by consolidation or merger or as a transferee of the Company's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets but after the first day of the relevant Four Quarter Period as used in the definition of "Consolidated Fixed Charge Coverage Ratio," and (G) monitoring fees paid by Holdings to Saunders, Karp & Megrue and Carlisle in an amount not to exceed $350,000 in the aggregate during the Four-Quarter Period all as determined on a consolidated basis for the Company and the Restricted Subsidiaries in accordance with GAAP. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to the Company, the ratio of Consolidated EBITDA of the Company during the four most recent full consecutive fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of the Company for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to: (i) the incurrence or repayment of any Indebtedness of the Company or any of the Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period; and (ii) any Asset Sales or other dispositions or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the Company 79 or one of the Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Exchange Act) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date as if such Asset Sale or Asset Acquisition or other disposition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If the Company or any of the Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if the Company or any Restricted Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio": (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period; and (3) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. For purposes of this definition, whenever pro forma effect is to be given to an Asset Acquisition, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness incurred in connection therewith, the pro forma calculations shall be determined on a basis consistent with Regulation S-X under the Exchange Act, which determination shall be made in good faith by a responsible financial or accounting officer of the Company and such pro forma calculations may include such pro forma adjustments for nonrecurring non-cash items that the Company considers reasonable and quantifiable in order to reflect the ongoing impact of any such transaction on the Company's results of operations. "CONSOLIDATED FIXED CHARGES" means, with respect to the Company for any period, the sum, without duplication, of: (i) Consolidated Interest Expense; plus (ii) the product of (x) the amount of all dividend payments on any series of Preferred Stock of the Company (other than dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local income tax rate of the Company, expressed as a decimal. "CONSOLIDATED INTEREST EXPENSE" means, with respect to the Company for any period, the sum of, without duplication: (i) the aggregate of the interest expense of the Company and the Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP (excluding fees and expenses incurred in connection with the offer and sale of the notes), including without limitation, 80 (a) any amortization of debt discount, (b) the net costs under Interest Swap Obligations, (c) all capitalized interest and (d) the interest portion of any deferred payment obligation; and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and the Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED NET INCOME" means, with respect to the Company, for any period, the aggregate net income (or loss) of the Company and the Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom: (a) after-tax gains and losses from Asset Sales or abandonments or reserves relating thereto other than in the ordinary course of business; (b) after tax items classified as extraordinary or nonrecurring gains or losses; (c) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary or is merged or consolidated with the Company or any Restricted Subsidiary; (d) the net income (but not loss) of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise (except for restrictions existing pursuant to clause (9) of the covenant described under "--Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries"); (e) the net income of any Person, other than a Restricted Subsidiary, except to the extent of cash dividends or distributions paid to the Company or to a Restricted Subsidiary by such Person; (f) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); and (g) in the case of a successor to the Company by consolidation or merger or as a transferee of the Company's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. "CONSOLIDATED NON-CASH CHARGES" means, with respect to the Company, for any period, the aggregate depreciation, amortization and other non-cash expenses of the Company and the Restricted Subsidiaries reducing Consolidated Net Income of the Company for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charge that requires an accrual of or a reserve for cash charges for any future period). "COVENANT DEFEASANCE" has the meaning set forth under "--Legal Defeasance and Covenant Defeasance." "CREDIT AGREEMENT" means the Credit Agreement dated as of the Issue Date by and among the Company, the guarantors named therein, the lenders named therein, Citibank, N.A., as administrative agent, Bank of America National Trust and Savings Association, as syndication agent, and Sun Trust Bank, Atlanta, as documentation agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder (provided that such increase in borrowings is permitted by the covenant described under "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness" (including the definition of Permitted Indebtedness)) or adding Restricted Subsidiaries as additional borrowers or guarantors thereunder) all 81 or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in currency values. "DEFAULT" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice of both would be, an Event of Default. "DEFAULT NOTICE" has the meaning set forth under "--Subordination." "DESIGNATED SENIOR DEBT" means (i) Indebtedness under or in respect of the Credit Agreement and (ii) any other Indebtedness constituting Senior Debt that, at the time of determination, has an aggregate principal amount of at least $25,000,000 and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the Company. "DESIGNATION" has the meaning set forth under "--Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries." "DESIGNATION AMOUNT" has the meaning set forth under "--Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries." "DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (other than a Change of Control), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is mandatorily exchangeable for Indebtedness, or is redeemable, or exchangeable for Indebtedness, at the sole option of the holder thereof (except upon the occurrence of a Change of Control) on or prior to the final maturity date of the notes. "DOMESTIC RESTRICTED SUBSIDIARY" means a Restricted Subsidiary incorporated or otherwise organized or existing under the laws of the United States, any state thereof or any territory or possession of the United States. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto, and the rules and regulations of the Commission promulgated thereunder. "FAIR MARKET VALUE" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the trustee. "FOREIGN RESTRICTED SUBSIDIARY" means any Restricted Subsidiary that is organized and existing under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accounts and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "GUARANTEE" means as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or 82 payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. A guarantee will include, without limitation, any agreement to maintain or preserve any other Person's financial condition or to cause any other Person to achieve certain levels of operating results. "GUARANTEE" has the meaning set forth under "--Certain Covenants--Additional Subsidiary Guarantees." "GUARANTOR" means (i) each Subsidiary of the Company guaranteeing the notes as of the Issue Date and (ii) each other Person that in the future executes a Guarantee pursuant to the covenant described under "--Certain Covenants--Additional Subsidiary Guarantees" or otherwise; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its Guarantee is released in accordance with the terms of the indenture. "GUARANTOR SENIOR DEBT" means, with respect to any Guarantor, (i) the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of such Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Guarantee of such Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of: (x) all monetary obligations of every nature of the Company or any Guarantor with respect to the Credit Agreement, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities; (y) all Interest Swap Obligations; and (z) all obligations under Currency Agreements; in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include: (i) any Indebtedness of such Guarantor owing to a Subsidiary of such Guarantor or any Affiliate of such Guarantor or any of such Affiliate's Subsidiaries; (ii) Indebtedness to, or guaranteed on behalf of, any stockholder, director, officer or employee of such Guarantor or any Subsidiary of such Guarantor (including, without limitation, amounts owed for compensation); (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services; (iv) Indebtedness represented by Disqualified Capital Stock; (v) any liability for federal, state, local or other taxes owed or owing by such Guarantor; (vi) Indebtedness incurred in violation of the covenant described under "--Certain Covenants--Limitation on Incurrence of Additional Indebtedness"; (vii) Indebtedness that, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to such Guarantor; and 83 (viii) any Indebtedness that is, by its express terms, subordinated in right of payment to any other Indebtedness of such Guarantor. "HARVEY" means Harvey Equity Partners, L.L.C. "HOLDINGS" means Precision Partners Holding Company or any successor or assign thereof that owns 100% of the Qualified Capital Stock of the Company. "INCUR" has the meaning set forth under "--Certain Covenants--Limitation on Incurrence of Additional Indebtedness." "INDEBTEDNESS" means, with respect to any Person, without duplication: (i) all Obligations of such Person for borrowed money; (ii) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all Capitalized Lease Obligations of such Person; (iv) all Obligations of such Person issued or assumed as the deferred purchase price of property or services, all conditional sale obligations and all Obligations under any title retention agreement (but excluding trade or other accounts payable and other accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted); (v) all Obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; (vi) guarantees and other contingent obligations in respect of Indebtedness of any other Person referred to in clauses (i) through (v) above and clause (viii) below; (vii) all Obligations of any other Person of the type referred to in clauses (i) through (vi) that are secured by any Lien on any property or asset of such first Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the Obligation so secured; (viii) all Obligations under currency agreements and all interest swap obligations of such Person; and (xi) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. "INDEPENDENT FINANCIAL ADVISOR" means a firm (i) that does not, and whose directors, officers and employees and Affiliates do not, have a direct or indirect financial interest in the Company and (ii) that, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. 84 "INITIAL PURCHASERS" means Salomon Smith Barney Inc. and NationsBanc Montgomery Securities LLC. "INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "INVESTMENT" means, with respect to any Person, (i) any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or (ii) any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude extensions of trade credit by the Company and the Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. If the Company or any Restricted Subsidiary sells or otherwise disposes of less than all of the Capital Stock of any Restricted Subsidiary (the "Referent Subsidiary") such that, after giving effect to any such sale or disposition the Referent Subsidiary shall cease to be a Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Capital Stock of the Referent Subsidiary not sold or disposed of. "ISSUE DATE" means March 19, 1999. "LEGAL DEFEASANCE" has the meaning set forth under "--Legal Defeasance and Covenant Defeasance." "LIEN" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "LLC" means Precision Partners, L.L.C. "NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest), received by the Company or any of the Restricted Subsidiaries from such Asset Sale net of: (a) actual expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, sales commissions and relocation expenses); (b) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements; (c) repayments of Indebtedness secured by the property or assets subject to such Asset Sale that is required to be repaid in connection with such Asset Sale; (d) provision for minority interest holders in any Restricted Subsidiary as a result of such Asset Sale; (e) payments of unassumed liabilities (not constituting Indebtedness) relating to the assets sold at the time of, or within 30 days after, the date of such Asset Sale; and (f) appropriate amounts to be determined by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such 85 Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "NET PROCEEDS OFFER" has the meaning set forth under "--Certain Covenants--Limitation on Asset Sales." "NET PROCEEDS OFFER AMOUNT" has the meaning set forth under "--Certain Covenants--Limitation on Asset Sales." "NET PROCEEDS OFFER PAYMENT DATE" had the meaning set forth under "--Certain Covenants--Limitation on Asset Sales." "NET PROCEEDS OFFER TRIGGER DATE" has the meaning set forth under "--Certain Covenants--Limitation on Asset Sales." "NOTE PRO RATA SHARE" means the amount of the applicable Net Proceeds Offer Amount obtained by multiplying the amount of such Net Proceeds Offer Amount by a fraction, (i) the numerator of which is the aggregate principal amount of notes outstanding at the time of the applicable Asset Sale with respect to which the Company is required to use the Net Proceeds Offer Amount to repay or make a Net Proceeds Offer or repay and (ii) the demoninator of which is the sum of (a) the aggregate accreted value and/or principal amount, as the case may be, of all Other Indebtedness outstanding at the time of the applicable Asset Sale and (b) the aggregate principal amount of all notes outstanding at the time of the applicable Net Proceeds Offer with respect to which the Company is required to use the applicable Net Proceeds Offer Amount to offer to repay or make a Net Proceeds Offer or repay. "OBLIGATIONS" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "PERMITTED HOLDERS" means (i) Saunders, Karp & Megrue and (ii) any Person "controlled" (as defined in the definition of "Affiliate") by one or more Persons identified in clause (i) of this definition. "PERMITTED INDEBTEDNESS" means, without duplication, each of the following: (i) Indebtedness under the notes, the indenture and any Guarantees issued in respect thereto, outstanding on the Issue Date, not to exceed an aggregate principal amount of $100 million; (ii) Indebtedness incurred pursuant to the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed the greater of (a) $50 million and (b) the sum of (x) 85% of the book value of the accounts receivable of the Company and its Restricted Subsidiaries on a consolidated basis plus (y) 50% of the book value of the inventory of the Company and its Restricted Subsidiaries on a consolidated basis plus (z) $25 million; (iii) other Indebtedness of the Company and the Restricted Subsidiaries outstanding on the Issue Date reduced by the amount of any proceeds from Asset Sales used to repay such Indebtedness pursuant to the covenant "--Limitation on Asset Sales;" (iv) Interest Swap Obligations of the Company covering Indebtedness of the Company or any Guarantor and Interest Swap Obligations of any Restricted Subsidiary covering Indebtedness of such Restricted Subsidiary; provided, however, that such Interest Swap Obligations are entered into to protect the Company and the Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with the indenture to the extent the notional principal amount of such Interest Swap Obligations does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligations relates; 86 (v) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and the Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (vi) Indebtedness of a Restricted Subsidiary to the Company or another Restricted Subsidiary for so long as such Indebtedness is held by the Company or a Restricted Subsidiary, in each case subject to no Lien held by a Person other than the Company or a Restricted Subsidiary; provided that if as of any date any Person other than the Company or a Restricted Subsidiary owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (vii) Indebtedness of the Company to a Restricted Subsidiary for so long as such Indebtedness is held by a Restricted Subsidiary, in each case subject to no Lien; provided that if as of any date any Person other than a Restricted Subsidiary owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company; (viii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five business days of incurrence; (ix) Indebtedness of the Company or any of the Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance, performance or surety bonds entered into in the ordinary cause of business or similar requirements in the ordinary course of business; (x) Refinancing Indebtedness; (xi) Purchase Money Indebtedness and Capitalized Lease Obligations (and any Indebtedness incurred to Refinance such Purchase Money Indebtedness or Capitalized Lease Obligations) not to exceed $10.0 million at any one time outstanding; (xii) guarantees of the obligations of Restricted Subsidiaries; (xiii) Indebtedness of the Company or any of its Restricted Subsidiaries arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees, letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries, incurred or assumed in connection with the disposition of any business, any Asset Sale or any disposition of the Capital Stock of a Restricted Subsidiary other than guarantees or similar credit support by the Company or any of its Restricted Subsidiaries of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Capital Stock for the purpose of financing such acquisition; provided that the maximum aggregate liability in respect of all such Indebtedness in the nature of such guarantees shall at no time exceed the gross proceeds actually received by the Company from the sale of such business, assets or Capital Stock; (xiv) reimbursement obligations relating to undrawn standby letters of credit (other than under the Credit Agreement) issued in the ordinary course of business; (xv) Indebtedness of Foreign Restricted Subsidiaries in an aggregate amount not to exceed $7.5 million; and 87 (xvi) additional Indebtedness of the Company and the Guarantors in an aggregate principal amount not to exceed $12.5 million at any one time outstanding (which amount may, but need not, be incurred under the Credit Agreement). "PERMITTED INVESTMENTS" means: (i) Investments by the Company or any Restricted Subsidiary in any Person that is or will become immediately after such Investment a Restricted Subsidiary or that will merge or consolidate into the Company or a Restricted Subsidiary; (ii) Investments in the Company or any Restricted Subsidiary by any Restricted Subsidiary; provided that any Indebtedness evidencing such Investment is unsecured and subordinate to the notes; (iii) Investments in cash and Cash Equivalents; (iv) loans and advances to employees, officers and directors of the Company and the Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of 1.0 million at any time outstanding; (v) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or a Restricted Subsidiary's businesses and otherwise in compliance with the indenture; (vi) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (vii) Investments made by the Company or the Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales"; (viii) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms, provided that such trade terms may include such concessionary trade terms as the Company or such Restricted Subsidiary deems reasonable under the circumstances; (ix) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (x) lease, utility and other similar deposits in the ordinary course of business; (xi) Investments paid for solely in Qualified Capital Stock of the Company; (xii) Investments acquired by the Company or a Restricted Subsidiary as a result of a foreclosure by, or other transfer of title to, the Company or such Restricted Subsidiary with respect to any secured Investment; (xiii) loans and advances to employees, officers and directors of the Company and the Restricted Subsidiaries in the ordinary course of business to purchase Capital Stock (or options therefor) of the Company in an amount not to exceed $1.5 million in the aggregate outstanding at any one time; and (xiv) additional Investments not to exceed $10.0 million at any one time outstanding. 88 "PERMITTED LIENS" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or any Restricted Subsidiary shall have set aside on its books such reserves as may be required pursuant to GAAP; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (v) easements, rights-of-way, zoning restrictions and other similar charges, restrictions or encumbrances in respect of real property or minor imperfections of title which do not, in the aggregate, impair in any material respect the ordinary conduct of the business of the Company and the Restricted Subsidiaries taken as a whole; (vi) any interest or title of a lessor under any Capitalized Lease Obligation; provided that such Liens do not extend to any property or assets which is not leased property subject to such Capitalized Lease Obligation; (vii) purchase money Liens securing Indebtedness incurred to finance property or assets of the Company or any Restricted Subsidiary acquired in the ordinary course of business, and Liens securing Indebtedness which Refinances any such Indebtedness; provided, however, that (A) the related purchase money Indebtedness (or Refinancing Indebtedness) shall not exceed the lesser of the fair market value and the cost of such property or assets plus the aggregate amount of fees and expenses incurred in connection therewith and shall not be secured by any property or assets of the Company or any Restricted Subsidiary other than the property and assets so acquired and (B) the Lien securing the purchase money Indebtedness shall be created within 90 days of such acquisition; (viii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (ix) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (x) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of the Restricted Subsidiaries, including rights of offset and set-off; 89 (xi) Liens securing Interest Swap Obligations, which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under the indenture; (xii) Liens securing Indebtedness under Currency Agreements; (xiii) Liens securing Acquired Indebtedness (and any Indebtedness which Refinances such Acquired Indebtedness) incurred in accordance with the covenant described under "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness"; provided that (A) such Liens secured the Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary and were not granted in connection with, or in anticipation of the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary and (B) such Liens do not extend to or cover any property or assets of the Company or of any of the Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted Subsidiary; (xiv) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xv) Liens arising pursuant to Sale and Leaseback Transactions entered into in compliance with the indenture; (xvi) Liens on the Capital Stock or other securities of an Unrestricted Subsidiary that secures indebtedness or other obligations of such Unrestricted Subsidiary; (xvii) any encumbrance or restriction (including put and call arrangements) with respect to the Capital Stock of any joint venture, partnership or similar arrangement pursuant to any joint venture, partnership or similar agreement; and (xviii) Liens securing Indebtedness that otherwise may be incurred under the indenture in an aggregate amount not to exceed $5 million. "PERSON" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "PREFERRED STOCK" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company or any Restricted Subsidiary incurred for the purpose of financing all or any part of the purchase price or the cost of construction or improvement of any property, provided that the aggregate principal amount of such Indebtedness does not exceed the lesser of the fair market value of such property or such purchase price or cost. "QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified Capital Stock. "QUALIFIED EQUITY OFFERING" has the meaning set forth under " - --Redemption--Optional Redemption upon Qualified Equity Offerings." "REFERENCE DATE" has the meaning set forth under "--Certain Covenants--Limitation on Restricted Payments." "REFINANCE" means in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any Restricted Subsidiary of Indebtedness incurred in accordance with the covenant described under "--Certain Covenants-- 90 Limitation on Incurrence of Additional Indebtedness" (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix) and (xi) through (xvi) inclusive of the definition of Permitted Indebtedness), in each case that does not: (1) result in an increase in the aggregate principal amount of any Indebtedness provided that the amount of any premium reasonably necessary to Refinance such Indebtedness and the amount of reasonable expenses incurred by the Company in connection with such Refinancing shall not be deemed an increase in the aggregate principal amount of the Indebtedness to be Refinanced; (2) create Indebtedness (A) the portion of which is scheduled to mature prior to the notes with a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or (B) with a final maturity earlier than the final maturity of the Indebtedness being Refinanced or the notes, whichever is later; provided that if such Indebtedness being Refinanced is Indebtedness of the Company or a Guarantor, then such Refinancing Indebtedness shall be Indebtedness solely of the Company and/or Guarantors. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated the Issue Date by and among the Company, the Guarantors and the Initial Purchasers. "REPLACEMENT ASSETS" means assets and property that will be used in the business of the Company and/or its Restricted Subsidiaries as existing on the Issue Date or in a business the same, similar or reasonably related thereto (including Capital Stock of a Person that becomes a Restricted Subsidiary if such Person is engaged in businesses that comply with the covenant described under "--Certain Covenants--Conduct of Business"). "REPRESENTATIVE" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt: provided that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt in respect of any Designated Senior Debt. "RESTRICTED PAYMENT" has the meaning set forth under "--Certain Covenants--Limitation on Restricted Payments." "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that has not been designated by the Board of Directors of the Company, by a Board Resolution delivered to the trustee, as an Unrestricted Subsidiary pursuant to and in compliance with the covenant described under "--Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries." Any such Designation may be revoked by a Board Resolution of the Company delivered to the trustee, subject to the provisions of such covenant. "REVOCATION" has the meaning set forth under "--Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries." "SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property other than between the Company and a Restricted Subsidiary or between Restricted Subsidiaries. "SEC" means the U.S. Securities and Exchange Commission, as from time to time constituted, or if at any time after the execution of the indenture the SEC is not existing and performing the applicable duties now assigned to it, then the body or bodies performing such duties at such time. 91 "SECURITIES ACT" means the Securities Act of 1933, as amended, or any successor statute or statutes thereto, and the rules and regulations of the Commission promulgated thereunder. "SENIOR DEBT" means: (i) the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the notes. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of: (x) all monetary obligations of every nature of the Company, under the Credit Agreement, including, without limitation, obligations to pay principal and interest reimbursement obligations under letters of credit, fees, expenses and indemnities; (y) all Interest Swap Obligations; and (z) all obligations under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not include: (i) any Indebtedness of the Company to a Restricted Subsidiary or any Affiliate of the Company or any of such Affiliate's Subsidiaries; (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Restricted Subsidiary (including without limitation, amounts owed for compensation); (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services; (iv) Indebtedness represented by Disqualified Capital Stock; (v) Indebtedness incurred in violation of the covenant described under "--Certain Covenants--Limitation on Incurrence of Additional Indebtedness"; and (vi) any Indebtedness that is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company or a Restricted Subsidiary and senior in right of payment to the notes. "SIGNIFICANT SUBSIDIARY" means, with respect to any Person, any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities Act. "SKM" means Saunders Karp & Megrue, L.P. "SUBSIDIARY," with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. 92 "SURVIVING ENTITY" has the meaning set forth under "--Certain Covenants--Merger, Consolidation and Sale of Assets." "UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company designated as such pursuant to and in compliance with the covenant described under "--Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries." Any such designation may be revoked by a Board Resolution of the Company delivered to the trustee, subject to the provisions of such covenant. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date the making of such payment. 93 BOOK-ENTRY; DELIVERY AND FORM The outstanding notes were issued in the form of two global certificates, one representing the outstanding notes issued under Rule 144A and the other representing the notes issued under Regulation S. The exchange notes will be issued in the form of one or more global certificates. The outstanding global notes were deposited on the date of closing of the sale of the outstanding notes, and the exchange global notes will be deposited on the exchange date, with the trustee as custodian for The Depository Trust Company, or DTC, and registered in the name of DTC or its nominee for credit to the account of a direct or indirect participant in DTC, as described below. The term "global notes" means the outstanding global notes or the exchange global notes, as the context may require. Except as set forth below, the global notes may be transferred, in whole, and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the global notes may not be exchanged for notes in certificated form except in the limited circumstances described below. See "--Exchange of Book-Entry Notes for Certificated Notes." Except in the limited circumstances described below, owners of beneficial interests in the global notes will not be entitled to receive physical delivery of certificated notes. Transfers of beneficial interests in the global notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants including, if applicable, those of Euroclear and Cedel, which may change from time to time. Initially, the trustee will act as paying agent and registrar. The exchange notes may be presented for registration of transfer and exchange at the offices of the registrar. DEPOSITORY PROCEDURES The following information regarding the operations and procedures of DTC, Euroclear and Cedel has been provided by such organizations and is provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to change by them from time to time. We take no responsibility for these operations and procedures (or the description thereof) and urge investors to contact the system or their participants directly to discuss these matters. DTC has advised us that it is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised the company that, pursuant to procedures established by it, (i) upon deposit of the global notes, DTC will credit the accounts of Participants designated by the trustee with portions of the principal amount of the global notes and (ii) ownership of such interests in the global notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the global notes). Investors in the exchange notes may hold their interests therein directly through DTC, if they are Participants in such system, or indirectly through organizations, including Euroclear and Cedel, which are Participants in such system. Euroclear and Cedel will hold interests in the global notes on behalf of 94 their participants through customers' securities accounts in their respective names on the books of their respective depositories, which are Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear, and Citibank, N.A., as operator of Cedel. All interests in a global note, including those held through Euroclear or Cedel, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Cedel may also be subject to the procedures and requirements of such systems. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a global note to such persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having beneficial interests in a global note to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE. Payments in respect of the principal of, and premium, if any, and interest on a global note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered Holder under the indenture. Under the terms of the indenture, both we and the trustee will treat the persons in whose names the exchange notes, including the global notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither we, the trustee nor any agent of ours or of the trustee has or will have any responsibility or liability for (i) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interest in the global notes, or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the global notes or (ii) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised the company that its current practice, upon receipt of any payment in respect of securities such as the exchange notes, including principal and interest, is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in the principal amount of beneficial interest in the relevant security as shown on the records of DTC, unless DTC has reason to believe it will not receive payment on such payment date. Payments by the Participants and the Indirect Participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants, as the case may be, and will not be the responsibility of DTC, the trustee or us. Neither we nor the trustee will be liable for any delay by DTC or any of its Participants or Indirect Participants in identifying the beneficial owners of the exchange notes, and both we and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes. Except for trades involving only Euroclear and Cedel participants, interests in the global notes are expected to be eligible to trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will, therefore, settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its Participants. See "--Same Day Settlement and Payment." Transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same day funds, and transfers between participants in Euroclear and Cedel will be effected in the ordinary way in accordance with their respective rules and operating procedures. Cross-market transfers between the Participants in DTC, on the one hand, and Euroclear or Cedel participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case may be, by its respective depositary; however, such cross- 95 market transactions will require delivery of instructions to Euroclear or Cedel, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Cedel, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the global note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Cedel participants may not deliver instructions directly to the depositories for Euroclear or Cedel. DTC has advised us that it will take any action permitted to be taken by a Holder of exchange notes only at the direction of one or more Participants to whose account DTC has credited the interests in the global notes and only in respect of such portion of the aggregate principal amount of the notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default with respect to the notes, DTC reserves the right to exchange the global notes for legended notes in certificated form, and to distribute such notes to its Participants. Neither we nor the trustee nor any of our respective agents will have any responsibility for the performance by DTC, Euroclear or Cedel or our respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES A global note is exchangeable for definitive notes in registered certificated form only if (i) DTC (x) notifies us that it is unwilling or unable to continue as depositary for the global notes and fails to appoint a successor depositary within 90 days or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) we, at our option, notify the trustee in writing that we elect to cause the issuance of the notes or (iii) there shall have occurred and be continuing an event of default with respect to the notes. In addition, beneficial interests in a global note may be exchanged for certificated notes upon request but only upon prior written notice given to the trustee by or on behalf of DTC in accordance with the indenture. In all cases, certificated notes delivered in exchange for any global note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary, in accordance with its customary procedures. SAME-DAY SETTLEMENT AND PAYMENT The indenture requires that payments in respect of the exchange notes represented by the global notes, including principal, premium, if any, and interest, be made by wire transfer of immediately available funds to the accounts specified by the Holder of the global notes. With respect to exchange notes in certificated form, we will make all payments of principal, premium, if any, and interest on the exchange notes at the office or agency maintained by us for such purpose within the City and State of New York, initially the office of the paying agent maintained for such purpose, or, at our option, by check mailed to the Holders thereof at their respective addresses set forth in the register of Holders of exchange notes; PROVIDED that all payments of principal, premium, if any, and interest on exchange notes in certificated form the Holders of which have given wire transfer instructions to us will be required to be made by wire transfer of immediately available funds to the accounts specified by such Holders. The exchange notes represented by the global notes are expected to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such exchange notes will, therefore, be required by DTC to be settled in immediately available funds. We expect that secondary trading in any certificated notes will also be settled in immediately available funds. Because of time zone differences, the securities account of a Euroclear or Cedel participant purchasing an interest in a global note from a Participant or Indirect Participant in DTC will be 96 credited, and any such crediting will be reported to the relevant Euroclear or Cedel participant, during the securities settlement processing day, which must be a business day for Euroclear and Cedel, immediately following the settlement date of DTC. DTC has advised us that cash received in Euroclear or Cedel as a result of sales of interests in a global note by or through a Euroclear or Cedel participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Cedel cash account only as of the business day for Euroclear or Cedel following DTC's settlement date. REGISTRATION RIGHTS FOR OUTSTANDING NOTES The following is a summary of the material terms of the registration rights agreement. Under the registration rights agreement, we were required to: - by September 15, 1999, file a registration statement relating to the exchange offer with the SEC; - by September 16, 1999, use our best efforts to have the registration statement declared effective; and - by October 15, 1999, use our best efforts to consummate the exchange offer. Under existing SEC interpretations contained in several no-action letters to unrelated third parties, the exchange notes will be freely transferable by holders which are not our affiliates after the exchange offer without further registration under the Securities Act if the holder of the exchange notes can make the representations described under "Exchange Offer--Terms and Conditions of the Letter of Transmittal." Broker-dealers receiving exchange notes in the exchange offer will, however, have a prospectus delivery requirement with respect to resales of such exchange notes, as described in "Plan of Distribution." In the no-action letters, the SEC has taken the position that broker-dealers receiving exchange notes in the exchange offer may fulfill their prospectus delivery requirements with respect to exchange notes, other than a resale of an unsold allotment from the original sale of the outstanding notes, with this prospectus. We have agreed for a period of 180 days after completion of the exchange offer to make available a prospectus meeting the requirements of the Securities Act to these broker-dealers and other persons, if any, with similar prospectus delivery requirements for use in connection with any resale of exchange notes. If we are not permitted to consummate the exchange offer because it is not permitted by applicable law or SEC policy or any holder of outstanding notes notifies us prior to the 60th day following completion of the exchange offer that: - it is prohibited by law or SEC policy from participating in the exchange offer, - that it may not resell the exchange notes acquired by it in the exchange offer to the public without delivering a prospectus and this prospectus is not appropriate or available for such resale, or - that it is a broker-dealer and owns outstanding notes acquired directly from us or one of our affiliates, we and the subsidiary guarantors have agreed to file with the SEC a shelf registration statement to cover resales of outstanding notes by holders who satisfy specified conditions relating to the provision of information in connection with the shelf registration statement. We have agreed to use our best efforts to cause the shelf registration statement to be declared effective as promptly as possible by the SEC. Upon the occurrence of events which would require an amendment or supplement to the prospectus, public resales will not be permitted under a shelf registration statement or this prospectus until the amendment or supplement is provided to holders, including a period of up to 120 days in any 97 calendar year during which we are entitled under the registration rights agreement to suspend use of the shelf registration statement or this prospectus to avoid public disclosure of an event that would have a material adverse effect on us or require public disclosure of a pending material transaction not previously disclosed. If we fail to meet any of the deadlines described above for the exchange offer or a shelf registration statement, additional interest will accrue on the outstanding notes over and above the stated interest rate of 12% at a rate of 0.50% per annum for the first 90 days after the default and increasing by an additional 0.25% per annum at the beginning of each subsequent 90-day period. However, the additional interest rate on the outstanding notes may not exceed in the aggregate 1.0% per annum. Upon curing the registration default, additional interest on the outstanding notes as a result of such registration default shall cease to accrue. If, after curing all registration defaults, there is a subsequent registration default, the rate of additional interest will initially be 0.50%, regardless of the additional interest rate in effect with respect to any prior registration default. As a result of the failure to have an exchange offer registration statement filed by September 15, 1999, to have it declared effective by September 16, 1999 and to complete the exchange offer by October 15, 1999, we are paying additional interest on the outstanding notes. The amount of additional interest has ranged from 0.5% per annum on September 15, 1999 to 1.0% per annum currently. Additional interest will continue to accrue at that rate until effectiveness of the registration statement and completion of the exchange offer. Any amount of additional interest that becomes due is payable in cash, on the same dates as interest payments are made on the outstanding notes. The amount of additional interest is determined by multiplying the applicable additional interest rate by the principal amount of the outstanding notes multiplied by a fraction, the numerator of which is the number of days the additional interest rate was applicable during such period, determined on the basis of a 360-day year comprised of twelve 30-day months, and the denominator of which is 360. 98 PLAN OF DISTRIBUTION Except as provided below, this prospectus may not be used for an offer to resell, resale or other retransfer of the exchange notes. Each broker-dealer receiving exchange notes for its own account from the exchange offer must acknowledge that it will deliver a prospectus if it resells the exchange notes. This prospectus may be used by a broker-dealer who resells exchange notes received in exchange for outstanding notes, but only if the broker-dealer acquired the outstanding notes from its market-making activities or other trading activities. We have agreed that for 180 days after the exchange date, we will make this prospectus available to any broker-dealer to use in a resale of the exchange notes. In addition, until , 2000, 90 days after the date of this prospectus, all dealers effecting transactions in the exchange notes may be required to deliver a prospectus. We acknowledge and each holder, except a broker-dealer, must acknowledge, that it is not engaged in, does not intend to engage in, and does not have an arrangement or understanding with any person to participate in any distribution of exchange notes. We will not receive any proceeds from the exchange of outstanding notes for exchange notes or from any resale of exchange notes by broker-dealers. Broker-dealers who receive exchange notes for their own accounts through the exchange offer may sell using the following resale methods, alone or in combination: - resale in the over-the-counter market; - resale in negotiated transactions; or - resale by writing options on the exchange notes Any resale by the preceding methods must be at the prevailing market price at the time of resale, at some price related to the prevailing market price, or at negotiated prices. Resales may be made directly to purchasers or to or through brokers or dealers. Broker-dealers may receive compensation in the form of commissions or concessions from any other broker-dealer or from the purchasers of exchange notes. A broker-dealer that resells exchange notes received for its own account through the exchange offer, and a broker or dealer that participates in a distribution of the exchange notes, may be deemed an underwriter within the meaning of the Securities Act. Consequently, any profit on the resale of exchange notes and any commission or concessions the broker or dealer receives may be considered underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. By tendering outstanding notes and executing the letter of transmittal, holders tendering outstanding notes for exchange notes certifies that: - it is not an affiliate of ours or of our subsidiaries or affiliates or, if the tendering party is an affiliate of ours or of our subsidiaries or affiliates, it will comply with the registration and prospectus requirements of the Securities Act if applicable; - the exchange notes are being acquired in the ordinary course of business of the person receiving the exchange notes, whether or not that person is the holder of the exchange notes; - the tendering party has not entered into any arrangement or understanding with any person to participate in the distribution of exchange notes; - the tendering party is not a broker-dealer who purchased the outstanding notes for resale through an exemption under the Securities Act; and - the tendering party will be able to trade the exchange notes acquired in the exchange offer without restriction under the Securities Act. 99 In addition, any broker-dealer who acquired the outstanding notes for its own account by its market-making activities or other trading activities must deliver a prospectus that complies with the Securities Act. Except in the case where a broker-dealer resells an unsold allotment from the original sale of the outstanding notes, the SEC has indicated that a participating broker-dealer may fulfill its prospectus delivery requirements with this prospectus. For 180 days after the expiration date, we will promptly send additional copies of this prospectus, and any amendments or supplements, to any participating broker-dealer that requests the prospectus in the letter of transmittal. We will pay all expenses incident to the exchange offer. This does not include, however, any commissions or concessions of any brokers or dealers. Additionally, we will indemnify the holders of the notes, including participating broker-dealers, against liabilities, including liabilities under the Securities Act. By accepting this exchange offer, each participating broker-dealer agrees that it will discontinue its use of this prospectus if the we should notify it that an event has occurred that makes a statement in the prospectus materially false or misleading. Once we provide the participating broker-dealer with an amendment or supplement to the prospectus correcting any misstatement or omission, then the broker-dealer may resume using the prospectus with the amendment or supplement, as the case may be. If we give notice to the broker-dealer to suspend use of the prospectus, then the 180-day period referred to above will be extended by the number of days from the date the broker-dealer received notice until the date the broker-dealer received the amended or supplemented prospectus. For our part, we agree to promptly notify participating broker-dealers of material changes that render any statement in the prospectus false or misleading. 100 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of certain United States federal income and estate tax consequences of the acquisition, ownership and disposition of notes by an initial beneficial owner of notes that, for United States federal income tax purposes, is not a "United States person" (a "Non-United States Holder"). This discussion is based upon the United States federal tax law now in effect, which is subject to change, possibly retroactively. When we use the term "United States person," we generally mean a holder of notes who (for United States Federal income tax purposes): - is a citizen or resident of the United States; - is a corporation (including an entity treated as a corporation for federal income tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia; - is an estate, the income of which is subject to United States Federal income taxation regardless of its source; or - is a trust whose administration is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust (or, is a trust that was a "United States person" under the law in effect on August 20, 1996 and elected to continue to be so treated). The tax treatment applicable to each holder of the notes may vary depending upon the particular situation of such holder. United States persons acquiring the notes are subject to different rules than those discussed below. In addition, certain other holders (including, but not limited to, insurance companies, tax exempt organizations, financial institutions, persons who own notes through partnerships or other pass-through entities, broker-dealers and individuals who are United States expatriates) may be subject to special rules not discussed below. WE ADVISE YOU TO CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES TO YOU OF THE ACQUISITION, OWNERSHIP AND SALE OF THE NOTES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS. INTEREST Interest paid by the company to a Non-United States Holder will not be subject to United States federal income or withholding tax if such interest is not "effectively connected with the conduct of a trade or business within the United States" (within the meaning of the United States Internal Revenue Code of 1986, as amended (the "Code") carried on by such Non-United States Holder and such Non-United States Holder: - does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the company; - is not a "controlled foreign corporation" (within the meaning of the Code) with respect to which the company is a "related person" (within the meaning of the Code); and - certifies, under penalties of perjury, that it is not a United States person and provides its name and address (on Internal Revenue Service Form W-8 or W-8BEN, as appropriate) to the company or an agent appointed by the company (or, a securities clearing organization, bank or other financial institution that holds the notes on behalf of the Non-United States Holder in the ordinary course of its trade or business certifies on behalf of such holder that it has received such certification from the holder and provides a copy to the company or its agent). 101 If you are not qualified for exemption under these rules, interest paid to you may be subject to withholding tax at the rate of 30% (or any lower applicable treaty rate). The payment of interest effectively connected with your United States trade or business, however, would not be subject to a 30% withholding tax so long as you provide the company or its paying agent an adequate certification (on Internal Revenue Service Form W-8ECI or 4224, as appropriate), but such interest would be subject to United States federal income tax on a net basis at the rates applicable to United States persons generally (and, if you are a corporation, you may also be subject to branch profits tax at a rate of 30% or a lower treaty rate). GAIN ON DISPOSITION If you are a Non-United States Holder, you will generally not be subject to United States federal income tax on gain recognized on a sale, exchange, (other than pursuant to this exchange offer), redemption or other disposition of a note, unless any of the following is true: - your investment in the notes is effectively connected with a United States trade or business that is carried on by you; or - if you are a nonresident alien individual and you hold the note as a capital asset or you are present in the United States for 183 or more days in the taxable year within which such sale, exchange, redemption or other disposition takes place and, in each case, certain other requirements are met. If you have a United States trade or business and the investment in the notes is effectively connected with such United States trade or business, any gain recognized on a sale, redemption or other disposition of notes may be subject to United States federal income tax on a net basis at the rates applicable to United States persons generally (and, if you are a corporation, you may also be subject to branch profits tax at a rate of 30% or a lower treaty rate). If you exchange our outstanding notes for our exchange notes pursuant to this exchange offer, you wil not recognize any taxable gain or loss because of that exchange. Your tax basis in the exchange notes you receive in the exchange will be the same as your tax basis (immediately before the exchange) in the outstanding notes you surrended in the exchange. Your holding period for the exchange notes you receive in the exchange will include your holding period for the outstanding notes you surrendered in the exchange. FEDERAL ESTATE TAXES If interest on the notes is not effectively connected with a United States trade or business, and is exempt from withholding of United States federal income tax under the rules described above (other than by treaty), the notes will not be included in the estate of a deceased Non-United States Holder for United States federal estate tax purposes. INFORMATION REPORTING AND BACKUP WITHHOLDING The company will, where required, report to the holders of notes and the Internal Revenue Service the amount of any interest paid on the notes in each calendar year and the amounts of tax withheld, if any, from those payments. In the case of payments of interest to Non-United States Holders, temporary Treasury regulations provide that the 31% backup withholding tax and certain information reporting requirements will not apply to payments for which the requisite certification, as described above, has been received or an exemption has otherwise been established, provided that neither the company nor its payment agent has actual knowledge that the holder is a United States person or that the conditions of any other exemption are not in fact satisfied. Under temporary Treasury regulations, these information reporting 102 and backup withholding requirements will apply, however, to the gross proceeds paid to a Non-United States Holder on the disposition of the notes by or through a United States office of a United States or foreign broker, unless the holder certifies to the broker under penalties of perjury as to its name, address and status as a foreign person or the holder otherwise establishes an exemption. As a general matter, information reporting and backup withholding will not apply to a payment of the proceeds of a disposition of the notes by or through a foreign office of a foreign broker. Information reporting (but not backup withholding) will apply, however, to a payment of the proceeds of a sale of notes by a foreign office of a broker that: - is a United States person; - derives 50% or more of its gross income for certain periods from activities that are effectively connected with the conduct of a trade or business in the United States; or - is a "controlled foreign corporation." Even if a broker meets one of these three conditions, information reporting will not apply if the broker has documentary evidence in its records that the holder is not a United States person and certain other conditions are met. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the Non-United States Holder's United States federal income tax liability, provided that the required information is furnished to the Internal Revenue Service. You should be aware that the Treasury Department promulgated revised final regulations regarding the withholding and information reporting rules discussed above. In general, the final regulations do not significantly change the substantive withholding and information reporting requirements, but unify current certification procedures and forms. The final regulations are generally effective for payments made after December 31, 2000, subject to certain transition rules. WE STRONGLY URGE PROSPECTIVE NON-UNITED STATES HOLDERS TO CONSULT THEIR OWN TAX ADVISORS FOR INFORMATION ON THE IMPACT, IF ANY, OF THE NEW FINAL REGULATIONS. LEGAL MATTERS The validity of the exchange notes will be passed upon for us by Jones Day Reavis & Pogue, New York, New York. EXPERTS Our consolidated financial statements as of December 31, 1999 and 1998 and the year ended December 31, 1999, and for the period from September 9, 1998 (inception) to December 31, 1998 (Precision), and of Mid State (Predecessor) for the nine month period ended September 30, 1998, appearing in this prospectus and registration statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Mid State (Predecessor) for the year ended December 31, 1997, appearing in this prospectus and registration statement, have been audited by Baker Newman & Noyes, independent auditors, as indicated in their report thereon appearing elsewhere herein and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The financial statements of General Automation as of March 19, 1999 and December 31, 1998 and for the period from January 1, 1999 to March 19, 1999 and the years ended December 31, 1998 and 1997, appearing in this prospectus and registration statement, have been audited by 103 Ernst & Young, LLP independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firms as experts in accounting and auditing. The combined financial statements of Certified and Calbrit as of March 19, 1999 and October 31, 1998 and for the period from November 1, 1998 to March 19, 1999 and the years ended October 31, 1998 and 1997, appearing in this prospectus and registration statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The financial statements of Nationwide as of March 19, 1999 and for the period from June 1, 1998 to March 19, 1999, included in this prospectus and registration statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The financial statements of Nationwide for years ended May 31, 1998 and 1997, included in this prospectus, have been audited by Insero, Kasperski, Ciaccia & Co., P.C., independent auditors, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The financial statements of Gillette as of August 31, 1999 and for the period from March 1, 1999 to August 31, 1999, included in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The financial statements of Gillette as of February 28, 1999 and for the year then ended, included in this Prospectus and Registration Statement, have been audited by Bonadio & Co., LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. 104 INDEX TO FINANCIAL STATEMENTS
PAGE NO. -------- CONSOLIDATED FINANCIAL STATEMENTS OF PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) Report of Independent Auditors, Ernst & Young LLP........... F-3 Report of Independent Auditors, Ernst & Young LLP........... F-4 Report of Independent Auditors, Baker Newman & Noyes........ F-5 Consolidated Balance Sheets as of December 31, 1999 and December 31, 1998 (Precision)............................. F-6 Consolidated Statements of Operations for the year ended December 31, 1999 and the period from September 9, 1998 (Inception) to December 31, 1998 (Precision), and the nine months ended September 30, 1998 and year ended December 31, 1997 (Predecessor)........................... F-7 Consolidated Statements of Stockholders' Equity for the year ended December 31, 1999 and the period from September 9, 1998 (Inception) to December 31, 1998 (Precision), and the nine months ended September 30, 1998 and year ended December 31, 1997 (Predecessor)........................... F-8 Consolidated Statements of Cash Flows for the year ended December 31, 1999 and the period from September 9, 1998 (Inception) to December 31, 1998 (Precision), and the nine months ended September 30, 1998 and year ended December 31, 1997 (Predecessor)........................... F-9 Notes to Consolidated Financial Statements.................. F-11 FINANCIAL STATEMENTS OF GENERAL AUTOMATION, INC. Report of Independent Auditors, Ernst &Young LLP............ F-22 Balance Sheets as of March 19, 1999 and December 31, 1998... F-23 Statements of Income for the period from January 1, 1999 to March 19, 1999, and the years ended December 31, 1998 and 1997...................................................... F-24 Statements of Stockholders' Equity for the period from January 1, 1999 to March 19, 1999, and the years ended December 31, 1998 and 1997................................ F-25 Statements of Cash Flows for the period from January 1, 1999 to March 19, 1999, and the years ended December 31, 1998 and 1997.................................................. F-26 Notes to Financial Statements............................... F-27 COMBINED FINANCIAL STATEMENTS OF CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. Report of Independent Auditors, Ernst & Young LLP........... F-31 Combined Balance Sheets as of March 19, 1999 and October 31, 1998.......................................... F-32 Combined Statements of Operations for the period from November 1, 1998 to March 19, 1999, and for the years ended October 31, 1998 and 1997........................... F-33 Combined Statements of Stockholders' Equity for the period from November 1, 1998 to March 19, 1999, and the years ended October 31, 1998 and 1997........................... F-34 Combined Statements of Cash Flows for the period from November 1, 1998 to March 19, 1999, and for the years ended October 31, 1998 and 1997........................... F-35 Notes to Combined Financial Statements...................... F-36
F-1
PAGE NO. -------- FINANCIAL STATEMENTS OF NATIONWIDE PRECISION PRODUCTS CORP. Report of Independent Auditors, Ernst & Young LLP........... F-46 Report of Independent Auditors, Insero, Kasperski, Ciaccia & Co., P.C.................................................. F-47 Balance Sheets as of March 19, 1999 and May 31, 1998........ F-48 Statements of Income for the period from June 1, 1999 to March 19, 1999, and the years ended May 31, 1998 and 1997...................................................... F-49 Statements of Stockholders' Equity for the period from June 1, 1999 to March 19, 1999, and the years ended May 31, 1998 and 1997..................................... F-50 Statements of Cash Flows for the period from June 1, 1999 to March 19, 1999, and the years ended May 31, 1998 and 1997...................................................... F-51 Notes to Financial Statements............................... F-52 FINANCIAL STATEMENTS OF GILLETTE MACHINE & TOOL CO., INC. Report of Independent Auditors, Ernst & Young LLP........... F-59 Report of Independent Auditors, Bonadio & Co., LLP.......... F-60 Balance Sheets as of August 31, 1999 and February 28, 1999...................................................... F-61 Statements of Income and Retained Earnings for the period from March 1, 1999 to August 31, 1999, and the year ended February 28, 1999......................................... F-62 Statements of Cash Flows for the period from March 1, 1999 to August 31, 1999, and the year ended February 28, 1999...................................................... F-63 Notes to Financial Statements............................... F-64
F-2 REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP The Board of Directors Precision Partners, Inc. We have audited the consolidated balance sheets of Precision Partners, Inc. ("Precision") as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1999 and the period from September 9, 1998 (inception) through December 31, 1998. These financial statements are the responsibility of Precision's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Precision Partners, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for the year ended December 31, 1999 and the period from September 9, 1998 (inception) through December 31, 1998, in conformity with accounting principles generally accepted in the United States. March 17, 2000 /s/ Ernst & Young LLP Dallas, Texas F-3 REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP The Management Committee Precision Partners, Inc. We have audited the consolidated statements of operations, stockholders' equity and cash flows of Mid State Machine Products (the "Predecessor") for the nine month period ended September 30, 1998. These financial statements are the responsibility of the Predecessor's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements of Mid State Machine Products referred to above present fairly, in all material respects, the consolidated results of its operations and its cash flows for the nine month period ended September 30, 1998 in conformity with accounting principles generally accepted in the United States. January 19, 1999 /s/ Ernst & Young LLP Boston, Massachusetts F-4 REPORT OF INDEPENDENT AUDITORS, BAKER NEWMAN & NOYES The Board of Directors Mid State Machine Products We have audited the consolidated statements of operations, stockholders' equity and cash flows of Mid State Machine Products for the year ended December 31, 1997. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements of Mid State Machine Products referred to above present fairly, in all material respects, the consolidated results of its operations and its cash flows for the year ended December 31, 1997 in conformity with generally accepted accounting principles. February 2, 1998 /s/ Baker Newman & Noyes LLC Portland, Maine F-5 PRECISION PARTNERS, INC. (PRECISION) CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents $ 313 $ 963 Trade accounts receivable, less allowance for doubtful accounts of $260,838 and $85,000 at December 31, 1999 and 1998, respectively 23,613 5,719 Inventories 18,404 4,340 Current deferred income taxes 1,303 37 Other current assets 1,916 499 -------- ------- Total current assets 45,549 11,558 Property, plant and equipment, at cost, net 71,611 15,224 Goodwill, net 77,429 34,589 Non-compete agreement, net 933 1,000 Other assets 10,869 950 -------- ------- Total assets $206,391 $63,321 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 11,200 $ -- Accounts payable 7,703 3,215 Accrued expenses 11,406 1,613 Income taxes payable 1,014 232 Deferred revenue 4,700 -- Current installments of long-term debt 2,611 750 Other current liabilities 3,071 -- -------- ------- Total current liabilities 41,705 5,810 Long-term debt, less current portion 120,737 22,250 Non-current deferred taxes 7,817 3,656 Stockholders' equity: Common stock, Class A, $.01 par value, 100 shares authorized, issued and outstanding -- -- Additional paid-in capital 42,042 32,000 Accumulated deficit (5,910) (395) -------- ------- Total stockholders' equity 36,132 31,605 -------- ------- Total liabilities and stockholders' equity $206,391 $63,321 ======== =======
SEE ACCOMPANYING NOTES. F-6 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) CONSOLIDATED STATEMENTS OF OPERATIONS
PRECISION --------------------------------- PERIOD FROM PREDECESSOR SEPTEMBER 9, ---------------------------------- YEAR ENDED 1998 (INCEPTION) NINE MONTH PERIOD YEAR ENDED DECEMBER 31, THROUGH ENDED SEPTEMBER 30, DECEMBER 31, 1999 DECEMBER 31, 1998 1998 1997 ------------- ----------------- ------------------- ------------ (IN THOUSANDS) Net sales $123,188 $12,602 $24,106 $33,870 Cost of sales 93,434 9,090 16,326 24,581 -------- ------- ------- ------- Gross profit 29,754 3,512 7,780 9,289 Selling, general and administrative expenses 24,840 3,134 3,374 4,571 -------- ------- ------- ------- Operating income 4,914 378 4,406 4,718 Other income (expense): Investment income 245 -- 103 1,197 Interest expense (12,812) (526) (37) (85) Gain on sale of property and equipment -- -- -- 29 Other 8 (138) (91) (6) -------- ------- ------- ------- (Loss) income before income taxes (7,645) (286) 4,381 5,853 (Benefit) provision for income taxes (2,130) 109 1,677 2,310 -------- ------- ------- ------- Net (loss) income $ (5,515) $ (395) $ 2,704 $ 3,543 ======== ======= ======= =======
SEE ACCOMPANYING NOTES. F-7 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS A CLASS B COMMON COMMON RETAINED STOCK STOCK EARNINGS TOTAL -------- -------- -------- -------- (IN THOUSANDS) PREDECESSOR: Balance at January 1, 1997 $25 $25 $13,701 $13,751 Net income -- -- 3,543 3,543 Dividend paid -- -- (200) (200) --- --- ------- ------- Balance at December 31, 1997 25 25 17,044 17,094 Net income -- -- 2,704 2,704 Redemption of shares (6) (6) (11,521) (11,533) --- --- ------- ------- Balance at September 30, 1998 $19 $19 $ 8,227 $ 8,265 === === ======= =======
CLASS A ADDITIONAL COMMON PAID-IN ACCUMULATED STOCK CAPITAL DEFICIT TOTAL -------- ---------- ----------- -------- PRECISION: Initial capitalization at September 9, 1998.......... $ -- $32,000 $ -- $32,000 Net loss............................................. -- -- (395) (395) ------- ------- ------- ------- Balance at December 31, 1998......................... -- 32,000 (395) $31,605 Additional capitalization at time of reorganization..................................... -- 10,035 -- 10,035 Capital contributions................................ -- 7 -- 7 Net loss............................................. -- -- (5,515) (5,515) ------- ------- ------- ------- Balance at December 31, 1999......................... $ -- $42,042 $(5,910) $36,132 ======= ======= ======= =======
SEE ACCOMPANYING NOTES. F-8 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) CONSOLIDATED STATEMENTS OF CASH FLOWS
PRECISION --------------------------------------- PREDECESSOR PERIOD FROM SEPTEMBER 9, ---------------------------------- YEAR ENDED 1998 (INCEPTION) NINE MONTH PERIOD YEAR ENDED DECEMBER 31, THROUGH DECEMBER 31, ENDED SEPTEMBER 30, DECEMBER 31, 1999 1998 1998 1997 ------------ ------------------------ ------------------- ------------ (IN THOUSANDS) OPERATING ACTIVITIES Net (loss) income $ (5,515) $ (395) $ 2,704 $ 3,543 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 8,525 658 806 1,052 Amortization 4,432 447 -- -- Gain on sale of fixed assets -- -- -- (29) Loss (gain) on trading securities -- -- 200 (836) Purchase of trading securities -- -- (3,382) (4,826) Proceeds from the sale of trading securities -- -- 9,564 3,197 Deferred income taxes (1,510) (22) (315) 115 Changes in operating assets and liabilities, net of acquisitions: Trade accounts receivable (5,531) 772 (805) (1,277) Inventories (4,345) 1,413 (1,623) (471) Income taxes receivable -- -- 364 -- Other current assets (7,190) (267) 4 57 Accounts payable 1,551 385 87 (184) Accrued expenses 7,553 (130) 97 142 Income taxes payable (192) (107) 354 (674) Deferred revenue -- -- 183 (53) Other current liabilities 7,620 -- -- -- -------- -------- -------- ------- Net cash provided by (used in) operating activities 5,398 2,754 8,238 (244) INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment -- -- -- 30 Proceeds from sale of Sukee Arena -- -- 260 -- Purchase of property, plant and equipment (10,260) (751) (623) (928) Payment of deferred acquisition costs -- (342) -- -- Acquisition of subsidiaries, net of cash (111,277) (53,483) -- -- Payment for non-compete agreement -- (1,000) -- -- Proceeds from available-for-sale securities -- -- 500 (500) Proceeds from maturities of held-to- maturity securities -- -- 808 1,382 Proceeds from note receivable, stockholder 90 -- 175 100 -------- -------- -------- ------- Net cash (used in) provided by investing activities (121,447) (55,576) 1,120 84 FINANCING ACTIVITIES Proceeds from revolving line of credit 11,200 Repayment of long-term debt (250) (595) (283) (305) Proceeds from long-term debt 100,000 23,000 -- 400
F-9 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
PRECISION --------------------------------------- PREDECESSOR PERIOD FROM SEPTEMBER 9, ---------------------------------- YEAR ENDED 1998 (INCEPTION) NINE MONTH PERIOD YEAR ENDED DECEMBER 31, THROUGH DECEMBER 31, ENDED SEPTEMBER 30, DECEMBER 31, 1999 1998 1998 1997 ------------ ------------------------ ------------------- ------------ (IN THOUSANDS) Contribution of capital $ 10,042 $ 32,000 $ -- $ -- Payment of debt issue costs (5,593) (660) -- -- Common stock redemption -- -- (11,673) -- Dividends paid -- -- -- (200) -------- -------- -------- ------- Net cash provided by (used in) financing activities 115,399 53,745 (11,956) (105) -------- -------- -------- ------- Net increase (decrease) in cash and cash equivalents (650) 923 (2,598) (265) Cash and cash equivalents, beginning of period 963 40 2,638 2,903 -------- -------- -------- ------- Cash and cash equivalents, end of period $ 313 $ 963 $ 40 $ 2,638 ======== ======== ======== ======= SUPPLEMENTARY INFORMATION FOR THE STATEMENT OF CASH FLOWS: Interest payments $ 7,897 $ 548 $ 34 $ 84 Income tax payments $ 547 $ 253 $ 1,276 $ 2,868 Non-cash investing and financing activities - purchase of software under financing agreements $ 344 $ -- $ -- $ --
SEE ACCOMPANYING NOTES. F-10 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Precision Partners, L.L.C. (LLC) was incorporated on September 9, 1998 for the purpose of acquiring and operating companies in the business of manufacturing and supplying complex precision metal parts, toolings and assemblies for original equipment manufacturers ("OEMS"). On September 30, 1998, investors contributed approximately $32 million of capital to LLC which was then contributed by LLC to two wholly-owned subsidiaries, Mid State Acquisition Corp. and Galaxy Acquisition Corp., established to acquire on September 30, 1998 all of the outstanding capital stock of Mid State Machine Products ("Mid State") and Galaxy Industries Corporation ("Galaxy") (the "1998 Acquisitions"). The total purchase price including transaction expenses was approximately $54,483,000 and was financed by the proceeds of the contributed capital and borrowings under the Company's credit facility. The purchase price was allocated to the estimated fair value of the assets acquired and liabilities assumed in accordance with the purchase method of accounting as follows: Current assets $12,472,000 Property, plant and equipment 15,131,000 Goodwill 35,036,000 Other assets 1,007,000 Current liabilities (5,553,000) Deferred taxes, non-current (3,610,000)
In February, 1999 Precision Partners, Inc. ("Precision" or "Company") was formed as a wholly-owned subsidiary of Precision Partners Holdings, Inc. (Holdings) which is a wholly-owned subsidiary of LLC. On March 19, 1999 as part of a reorganization, LLC contributed through Holdings to Precision its investments and related equity in Galaxy, Mid State and Precision Partners Management Corporation ("Management Corporation"), which comprised substantially all of the equity of LLC. Simultaneous with this reorganization, Precision issued $100,000,000 of 12% Senior Subordinated Notes (the "Notes") in order to purchase all of the issued and outstanding capital stock of Certified Fabricators, Inc. and its sister company Calbrit Design, Inc. (together, "Certified") and to purchase substantially all of the assets and assume certain liabilities of General Automation, Inc. ("General Automation") and Nationwide Precision Products Corp. ("Nationwide"). Also, on September 1, 1999, Precision purchased all of the issued and outstanding capital stock of Gillette Machine & Tool, Inc. ("Gillette") using existing cash and borrowings under Precision's credit facility. The acquisitions of Certified, General Automation, Nationwide, and Gillette are referred to collectively as the "1999 Acquisitions." Subsequent to this reorganization, capital totaling approximately $42 million had been contributed to LLC by investors; this capital has been contributed through Holdings to Precision. F-11 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The 1999 Acquisitions were financed through the net proceeds of the issuance of the Notes, together with borrowings under our credit facilities, an equity contribution of approximately $10,000,000 and available cash. The total purchase price, including transaction expenses, was approximately $116,388,000, and the purchase price was allocated to estimated fair value of the assets acquired and liabilities assumed in accordance with the purchase method of accounting as follows: Current assets $27,848,000 Property, plant, and equipment 54,658,000 Goodwill 45,641,000 Other assets 309,000 Current liabilities (6,466,000) Deferred taxes, non-current (5,602,000)
The excess of the purchase price over the net fair value of the assets acquired was allocated to goodwill, which is being amortized over 20 years. We are still in the process of obtaining appraisals for certain assets and there are also contingent payments which may subject the purchase price to future refinements. The purchase price for one company acquired in 1999 included a $4 million escrow to be paid out upon the company meeting certain operating targets through April 30, 1999. Such targets were not met and, accordingly, the escrow has been returned to Precision, thereby reducing the purchase price and the resulting goodwill by $4 million. The acquisitions which have been accounted for under the purchase method of accounting have been included in results of operations since the date of the acquisitions. The Company's unaudited pro forma revenues and net loss, after giving effect to the 1999 and 1998 Acquisitions, as if each such acquisition had occurred on January 1, 1998, were $149,749,000 and $3,738,000 and $147,078,000 and $488,000 for 1999 and 1998, respectively. Prior to the 1998 Acquisitions, LLC had substantially no operations and prior to the 1999 Acquisitions, Precision had substantially no operations. For financial statement presentation purposes, the reorganization is being accounted for as if it had occurred on September 9, 1998 in a manner similar to a pooling of interests. Therefore, operations for the period from September 9, 1998 through December 31, 1998 are shown only for Precision and consist of the operations of Mid State and Galaxy from the date of acquisition through December 31, 1998 and of LLC from inception (September 9, 1998) through December 31, 1998. Similarly, 1999 operations are shown for Precision and consist of the operations of Mid State and Galaxy for the entire year, of LLC from January 1, 1999 through March 19, 1999 and the 1999 Acquisitions from the date of acquisition through December 31, 1999. Since Precision is treated as having commenced operations in September 1998, Mid State is considered the predecessor for financial reporting purposes. The predecessor financial statements include the operations of Mid State and its wholly-owned subsidiaries for the periods reported. All significant intercompany balances and transactions for both the Company's financial statements and the Predecessor's financial statements have been eliminated in consolidation. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the actual amounts reported in the financial statement and accompanying notes. Actual results could differ from those estimates. F-12 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONCENTRATION OF CREDIT RISK The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash in bank demand deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk with respect to cash. The Company is materially dependent on a small group of customers. During the year ended December 31, 1999, 26.5%, 7.4%, and 6.8% of the Company's sales were to three customers. As of December 31, 1999, the Company's receivables from these three customers were approximately $4,674,000, $4,717,000 and $1,125,000. During the period from September 9, 1998 through December 31, 1998, 60.5%, 14.8%, and 11.2% of the Company's sales were to three customers. As of December 31, 1998, the Company's receivables from these three customers were approximately $1,906,000, $782,000, and $686,000. The Predecessor was materially dependent on a single customer representing 74% and 72% of sales for the nine month period ended September 30, 1998 and year ended December 31, 1997, respectively. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable credit risk exposure is limited. The Company does not require collateral or security for these receivables. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of short-term, highly liquid investments which are readily convertible into cash with original maturities of 90 days or less. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of financial instruments consisting of cash and cash equivalents, trade accounts receivable, accounts payable and accrued liabilities are stated at expected settlement amounts which approximate fair value. The carrying amounts of the note payable to the bank and the line of credit approximate fair value due to the variable rate interest feature on the related debt. Management believes the carrying amount of the subodinated notes is not materially different from the estimated fair value based on prevailing interest rates for similar notes. INVENTORIES Inventories are stated at the lower of cost or market. The Predecessor used the first-in, first out (FIFO) method for pricing material and the last-in, first-out (LIFO) method for labor and overhead. At the acquisition date, the Company valued the inventories at fair value which approximated the FIFO method and will account for inventories on a FIFO basis. DEBT ISSUE COSTS The Company incurred costs related to obtaining financing. These costs are being amortized on a straight line basis over the term of the related debt. The difference between the straight line method and interest method for amortizing debt issue costs is not significant. F-13 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DEFERRED ACQUISITION AND OFFERING COSTS The Company has deferred $6,261,617 of costs related to issuance of the Notes. The costs related to the Notes will be amortized over the term of the Notes and the accumulated amortization of those costs totaled $1,077,137 as of December 31, 1999. DEPRECIATION AND AMORTIZATION Buildings, machinery and equipment, and furniture and fixtures are depreciated using both straight line and declining balance methods over the estimated useful lives of the individual assets. The lives are five to seven years on furniture and fixtures, five to ten years for machinery and equipment, twenty years for land improvements and forty years for building and improvements. Leasehold improvements are amortized on a straight line basis over the lesser of the estimated service lives or the terms of the leases. LONG-LIVED ASSETS The Company accounts for its long-lived assets under FASB No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. INTANGIBLES The excess of cost over the fair market value of net assets acquired (goodwill) is amortized on a straight-line basis over 20 years. Accumulated amortization was $3,831,100 and $450,000 as of December 31, 1999 and 1998, respectively. In connection with the acquisition of one of its subsidiaries, the Company entered into a non-compete agreement with the seller for $1,000,000. The $1,000,000 is amortized on a straight line basis over the non-compete period. Accumulated amortization at December 31, 1999 is approximately $67,000. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued FASB Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION which is effective for fiscal years beginning after December 15, 1997. This statement changes the way that companies report information about operating segments in financial statements. The Company adopted this statement during 1998 and determined that it is one reportable segment and such adoption had no material effect on the financial statements. In June 1998, the Financial Accounting Standards Board issued FASB Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is effective for fiscal periods beginning after June 15, 2000. The adoption of this statement is not expected to have a material effect on the financial statements. F-14 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ADVERTISING COSTS Advertising costs are expensed as incurred and amounted to approximately $214,408 for the year ended December 31, 1999, $61,188 for the period from September 9, 1998 through December 31, 1998 and $222,738 and $230,115 for the nine month period ended September 30, 1998 and the year ended December 31, 1997, respectively. INCOME TAXES The Company accounts for taxes under the liability method where deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. REVENUE RECOGNITION Sales are recorded when products are shipped to customers. Revenues from long-term contracts are recognized on the percentage-of-completion method, measured by the percentage of total costs incurred to date to estimated total costs of the contract. Total costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Selling, general and administrative costs are charged to expense as incurred. Contract revisions are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. STOCK COMPENSATION Precision has elected to account for stock-based compensation to employees using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25) and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair market value of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. EARNINGS PER SHARE Earnings per share is not presented for either Precision or the Predecessor since such amounts are not considered meaningful. RECLASSIFICATION Certain prior year amounts have been reclassified to conform to current year presentation. F-15 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. INVENTORIES AND COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Inventories consist of the following at December 31:
1999 1998 ---------- ---------- (IN THOUSANDS) Raw material $ 2,575 $1,122 Work in process 13,978 2,968 Finished goods 2,365 300 ------- ------ 18,918 4,390 Less reserves for obsolescence 514 50 ------- ------ $18,404 $4,340 ======= ======
Information regarding contract costs, estimating earnings, and progress billings consists of the following at:
DECEMBER 31, 1999 ------------ Costs incurred on uncompleted contracts $ 9,510 Estimated earnings 1,187 ------- 10,697 Less net progress billings 7,893 ------- Costs and estimated earnings on uncompleted contracts included in work in process inventory $ 2,804 =======
There were no significant billings in excess of net costs and estimated earnings on uncompleted contracts. 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, which are valued at cost, consists of the following at December 31:
1999 1998 ---------- ---------- (IN THOUSANDS) Building and improvements $ 4,799 $ 2,034 Leasehold improvements 2,079 749 Machinery and equipment 72,868 12,935 Furniture, fixtures and other 2,567 164 ------- ------- 82,313 15,882 Less accumulated depreciation and amortization 10,702 658 ------- ------- $71,611 $15,224 ======= =======
4. INVESTMENT SECURITIES Gross unrealized holding gains for investments categorized as held to maturity were $0 and $3,615 for the nine month period ended September 30, 1998, and for the year ended December 31, 1997, respectively. F-16 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INVESTMENT SECURITIES (CONTINUED) Net income includes gross realized gains (losses) of approximately ($200,000) and $652,000 for the nine month period ended September 30, 1998 and the year ended December 31, 1997, respectively. 5. DEBT Precision maintains a line of credit of $25,000,000, which matures on March 31, 2005, under which it can borrow funds or secure letters of credit at prevailing market rates. As of December 31, 1999, we had outstanding draws on the line of credit totaling $11,200,000 (9.85% at December 31, 1999). The revolving line of credit is secured by accounts receivable and inventory of Precision. Advances under the line are available to us based upon 85% of outstanding eligible accounts receivable and 50% of eligible inventories. Associated with the line of credit is a commitment fee of 0.5% per annum payable in arrears on the last day of each quarter. The fee is calculated from the closing date, March 19, 1999, to the date the revolving commitments have been terminated, computed at the committment fee rate on the actual daily amount of available revolving commitment of such lending during the period. As of December 31, 1999, the Company had approximately $12,600,000 available under the revolving credit facility. Long-term debt consists of the following at December 31:
1999 1998 ------------ ------------ (IN THOUSANDS) Precision Partners, Inc. 12% Senior Subordinated Notes due 2009, interest paid semiannually on March 15 and September 15 commencing on September 15, 1999. $100,000 $ -- Note payable to a bank, due in quarterly principal installments plus interest at a variable rate (8.44% as of December 31, 1999), maturing March 31, 2005. Quarterly principal installments of $805,000 begin on June 30, 2000, increasing to $920,000 on June 30, 2001, $1,150,000 on June 30, 2002, $1,380,000 on June 30, 2003, and $1,495,000 on June 30, 2004, secured by all assets of Precision Partners and its subsidiaries. 23,000 -- Financial software financing agreement, due in twelve quarterly installments of $32,471, including interest at 7.8%. 265 -- Director and officer insurance premium financing agreement due in six quarterly installments of $28,997, including interest at 7.15%. 83 -- Note payable to a bank, due in quarterly principal installments plus interest at a variable rate (9.00% at December 31, 1998), refinanced on March 19, 1999. -- 23,000 -------- ------- 123,348 23,000 Less current installments 2,611 750 -------- ------- $120,737 $22,250 ======== =======
Pursuant to the terms entered into in conjunction with the March 19, 1999 issuance of the Notes, the interest payable on the Notes increased from 12.00% to 12.50% on September 16, 1999 and from 12.50% to 12.75% on December 16, 1999. This increase in the interest rate is a contractual obligation which has arisen because the Notes were not registered with the SEC within 180 days of their initial issuance. Until the registration of the Notes is complete and effective, the interest rate will increase by an additional 0.25% per annum for each 90-day period subsequent to December 16, 1999, but the additional interest shall not exceed 1.0% per annum regardless of the effective date of the registration. F-17 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. DEBT (CONTINUED) The company has unamortized deferred costs of $5,184,480 related to the Notes and the $23,000,000 term loan and credit facility. The costs are being amortized over the life of the related Notes, term loan and credit facility. Aggregate future maturities of long-term debt are as follows: 2000--$2,611,000; 2001--$3,686,000; 2002--$4,402,000; 2003--$5,290,000; 2004--$5,865,000; thereafter--$101,494,000. Under the terms of the note payable to the bank, the Company is required to maintain certain leverage, interest coverage, and fixed charge coverage ratios on a consolidated basis. The company was in compliance with all of the restrictive covenants at December 31, 1999. The indenture governing the Notes contains covenants that limit our and some of our subsidiaries' ability to incur additional debt, pay dividends on or redeem or repurchase capital stock, enter into transactions with affiliates and transfer or sell assets, among other things. 6. INCOME TAXES The income tax provision (benefit) is as follows:
PRECISION ------------------------------- PERIOD FROM PREDECESSOR SEPTEMBER 9, ---------------------------- 1998 (INCEPTION) NINE MONTH YEAR ENDED THROUGH PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, 1999 1998 1998 1997 ------------ ---------------- ------------- ------------ (IN THOUSANDS) Current federal $ -- $ 40 $1,553 $1,723 Current state 303 91 439 472 ------- ---- ------ ------ Total current tax provision 303 131 1,992 2,195 ------- ---- ------ ------ Deferred federal (1,917) (28) (237) 46 Deferred state (516) 6 (78) 69 ------- ---- ------ ------ Total deferred tax provision (benefit) (2,433) (22) (315) 115 ------- ---- ------ ------ Total tax provision $(2,130) $109 $1,677 $2,310 ======= ==== ====== ======
The difference between the effective rate reflected in the income tax expense (benefit) and the amount determined by applying the statutory U.S. rate of 34% to income (loss) before income tax F-18 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. INCOME TAXES (CONTINUED) expense (benefit) for the period September 9, 1998 through December 31, 1998, the nine month period ended September 30, 1998 and the year ended December 31, 1997 is analyzed below:
PRECISION ------------------------------- PERIOD FROM PREDECESSOR SEPTEMBER 9, ---------------------------- 1998 (INCEPTION) NINE MONTH YEAR ENDED THROUGH PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, 1999 1998 1998 1997 ------------ ---------------- ------------- ------------ (IN THOUSANDS) Income tax expense (benefit) at statutory rate $(2,599) $(97) $1,489 $1,990 Permanent differences, primarily goodwill 672 159 (46) (56) State income tax, net of federal income tax benefit (203) 47 239 376 Other -- -- (5) -- ------- ---- ------ ------ Total tax provision $(2,130) $109 $1,677 $2,310 ======= ==== ====== ======
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax assets and (liabilities) are as follows:
PRECISION --------------------------- DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ (IN THOUSANDS) Net operating losses $ 1,097 $ 5 Tax credit carryforwards 576 243 Other accruals and reserves 1,806 217 Property, plant and equipment (9,041) (3,708) Inventories (176) (176) Goodwill amortization (433) -- Deferred tax asset valuation allowance (343) (200) ------- ------- Net deferred tax liability $(6,514) $(3,619) ======= ======= Net non-current deferred tax liability $(7,817) $(3,656) Net current deferred tax asset 1,303 37 ------- ------- Net deferred tax liability $(6,514) $(3,619) ======= =======
7. PROFIT SHARING/401K PLANS The Company's subsidiaries sponsor defined contribution plans covering all their employees. Pension expense related to these plans, which are generally based on partial matching of employee contributions, amounted to $672,643 for the year ended December 31, 1999, $123,447 for the period from September 9, 1998 (inception) to December 31, 1998 and $335,950 and $407,426 for the nine month period ended September 30, 1998 and the year ended December 31, 1997, respectively. F-19 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. COMMITMENTS AND CONTINGENCIES The Company leases certain property and equipment under operating leases. Rent expense totaled approximately $2,407,000 and $276,898 for the year ended December 31, 1999 and the period from September 9, 1998 (inception) to December 31, 1998, respectively. Rent expense for the nine month period ended September 30, 1998 and year ended December 31, 1997, was $369,378 and $564,500, respectively. Minimum rental commitments under noncancellable operating leases are as follows: 2000--$3,441,181; 2001--$3,499,464; 2002--$3,242,202; 2003--$2,330,696; 2004--$2,054,525; thereafter--$3,219,614. 9. STOCK OPTION PLAN In April 1999 Holdings approved an Incentive Stock Option Plan (Plan) for certain employees including employees of Precision and Precision's wholly-owned subsidiaries for the issuance of up to 2,700,000 shares of Holdings common stock. During 1999, 2,454,000 options were granted with an exercise price of $.1875, which was the market value of Holdings common stock at the date of grant as determined by management and the Board of Directors. At December 31, 1999, 74,343 options had been exercised and 645,000 options had been forfeited leaving 1,734,657 options outstanding at December 31, 1999. These options vest up to a period of four years. The impact of accounting for the employee stock options under the fair value method provided for under Financial Accounting Standards Board Statement No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION is immaterial to the Company's financial statements. 10. LITIGATION Precision or its subsidiaries are defendants from time to time in lawsuits and disputes arising in the normal course of business. Management believes that the ultimate outcome of those matters will not have a materially adverse effect on the consolidated financial position, results of operations, or cash flows. 11. YEAR 2000 (UNAUDITED) We did not experience any significant malfunctions or errors in our operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, we do not expect any significant impact to our on-going business as a result of the "Year 2000 issue." However, it is possible that the full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, has not been fully recognized. For example, it is possible that Year 2000 or similar issues such as leap year-related problems may occur with billing, payroll, or financial closings at month, quarterly, or year end. We believe that any such problems are likely to be minor and correctable. In addition, we could still be negatively impacted if our customers or suppliers are adversely affected by the Year 2000 or similar issues. We currently are not aware of any significant Year 2000 or similar problems that have arisen for our customers and suppliers. We expended $0.9 million on Year 2000 readiness efforts in 1999. These efforts including replacing some outdated, non-compliant hardware and noncompliant software, as well as identifying and remediating Year 2000 problems. F-20 PRECISION PARTNERS, INC. (PRECISION) AND MID STATE MACHINE PRODUCTS (PREDECESSOR) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. SUBSEQUENT EVENTS To support recently signed sales contracts, which will require new facilities, machinery, and equipment of approximately $35,000,000, the Company plans to enter into operating lease agreements to meet those requirements. F-21 REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP To the Board of Directors of Precision Partners, Inc. We have audited the accompanying balance sheets of General Automation, Inc. as of March 19, 1999 and December 31, 1998, and the related statements of income, stockholder's equity, and cash flows for the period from January 1, 1999 to March 19, 1999 and each of the two years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of General Automation, Inc. at March 19, 1999 and December 31, 1998, and the results of its operations and its cash flows for the period from January 1 to March 19, 1999 and for each of the two years in the period ended December 31, 1998, in conformity with accounting principles generally accepted in the United States. March 10, 2000 /s/ Ernst & Young LLP Dallas, Texas F-22 GENERAL AUTOMATION, INC. BALANCE SHEETS
MARCH 19, DECEMBER 31, 1999 1998 ---------- ------------ (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents $ 464 $ 678 Trade accounts receivable, net of allowance for doubtful accounts of $65,000 at March 19, 1999 and December 31, 1998 2,952 2,734 Inventories 870 694 Prepaid expenses and other 20 31 ------- ------- Total current assets 4,306 4,137 Property, plant and equipment, at cost, net 8,731 9,046 Receivables from employees 131 135 ------- ------- Total assets $13,168 $13,318 ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current portion of long-term debt $ 89 $ 89 Accounts payable 471 631 Accrued state income taxes 27 141 Accrued real estate tax 211 272 Other accrued expenses 244 153 ------- ------- Total current liabilities 1,042 1,286 Long-term debt, less current portion 50 57 Stockholder's equity: Common stock, $100 par value; 1,000 authorized shares; 900 issued shares (including 616 shares in treasury stock); and 284 shares outstanding 90 90 Retained earnings 12,841 12,740 Less: Cost of common stock in treasury (855) (855) ------- ------- Total stockholder's equity 12,076 11,975 ------- ------- Total liabilities and stockholder's equity $13,168 $13,318 ======= =======
SEE ACCOMPANYING NOTES. F-23 GENERAL AUTOMATION, INC. STATEMENTS OF INCOME
PERIOD FROM YEAR ENDED DECEMBER 31, JANUARY 1 TO ------------------------- MARCH 19, 1999 1998 1997 --------------- -------- -------- (IN THOUSANDS) Sales $ 4,464 $19,776 $16,520 Cost of sales 2,270 11,080 10,388 ------- ------- ------- Gross profit 2,194 8,696 6,132 Selling, general and administrative expenses 525 2,055 1,855 Special recovery -- (70) (720) Other operating (income) expenses (16) 23 35 ------- ------- ------- Operating income 1,685 6,688 4,962 Other income (expense): Interest income 19 86 97 Interest expense (1) (16) (32) ------- ------- ------- Income before income taxes 1,703 6,758 5,027 Provision for state income taxes 18 102 76 ------- ------- ------- Net income $ 1,685 $ 6,656 $ 4,951 ======= ======= =======
SEE ACCOMPANYING NOTES. F-24 GENERAL AUTOMATION, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON TREASURY RETAINED STOCK STOCK EARNINGS TOTAL -------- -------- -------- -------- (IN THOUSANDS) Balance at December 31, 1996 $90 $ (855) $ 8,238 $ 7,473 Net income -- -- 4,951 4,951 Distributions -- -- (2,329) (2,329) --- ------ ------- ------- Balance at December 31, 1997 90 (855) 10,860 10,095 Net income -- -- 6,656 6,656 Distributions -- -- (4,776) (4,776) --- ------ ------- ------- Balance at December 31, 1998 90 (855) 12,740 11,975 Net income -- -- 1,685 1,685 Distributions -- -- (1,584) (1,584) --- ------ ------- ------- Balance at March 19, 1999 $90 $ (855) $12,841 $12,076 === ====== ======= =======
SEE ACCOMPANYING NOTES. F-25 GENERAL AUTOMATION, INC. STATEMENTS OF CASH FLOWS
PERIOD FROM YEAR ENDED JANUARY 1 TO DECEMBER 31, MARCH 19, ------------------- 1999 1998 1997 ------------ -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES Net income $ 1,685 $6,656 $4,951 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 340 1,427 1,178 (Gain) loss on sale of property, plant and equipment -- (9) 13 Changes in operating assets and liabilities: Trade accounts receivable (218) (578) (945) Inventories (176) (6) (144) Receivables from employees 4 80 44 Prepaid expenses and other 11 (10) 1 Accounts payable (160) (415) (132) Accrued expenses and taxes (83) 124 99 ------- ------ ------ Net cash provided by operating activities 1,403 7,269 5,065 INVESTING ACTIVITIES Purchase of property, plant and equipment, net of deposit on machinery (26) (3,612) (1,907) Proceeds from sale of property, plant and equipment -- 153 9 Proceeds from (payments on) cash surrender value stockholder's life insurance -- 197 (17) ------- ------ ------ Net cash used in investing activities (26) (3,262) (1,915) FINANCING ACTIVITIES Distributions to stockholder (1,584) (4,776) (2,329) Payment of long-term debt (7) (81) (79) Payment on note payable to bank -- -- (487) ------- ------ ------ Net cash used in financing activities (1,591) (4,857) (2,895) ------- ------ ------ Net (decrease) increase in cash and cash equivalents (214) (850) 255 Cash and cash equivalents, beginning of period 678 1,528 1,273 ------- ------ ------ Cash and cash equivalents, end of period $ 464 $ 678 $1,528 ======= ====== ====== Supplementary information for the statement of cash flows: Interest payments $ 1 $ 16 $ 32 State income tax payments $ 21 -- 35
SEE ACCOMPANYING NOTES. F-26 GENERAL AUTOMATION, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS General Automation, Inc. (the Company) machines and sells precision screw machine and other products to serve as component parts to a wide variety of manufacturers (e.g., automotive, surgical equipment, and aerospace). BASIS OF PRESENTATION The financial statements include all accounts of General Automation, Inc. Pursuant to a contract with Precision Partners Holdings, Inc. ("Holdings") that was signed on February 5, 1999, the Company agreed to sell substantially all of the Company's assets and Holdings agreed to assume substantially all of the Company's liabilities. The contract was assigned by Holdings to its wholly-owned subsidiary, Precision Partners, Inc., and the transaction was closed on March 19, 1999. The financial statements are presented on a historical cost basis and do not include any adjustments related to the purchase transaction. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of short-term, highly liquid investments which are readily convertible into cash with original maturities of 90 days or less. INVENTORIES Inventories are stated at the lower of cost or market. The Company uses the first in, first out (FIFO) method of determining cost for its inventories. CONCENTRATION OF CREDIT RISK The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash in bank demand deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk with respect to cash. The Company is materially dependent on a small group of customers. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable credit risk exposure is limited. DEPRECIATION Buildings, machinery and equipment, and furniture and fixtures are depreciated using the straight-line method over the estimated useful lives of the individual assets. The general range of estimated lives is 15 to 39 years for buildings and improvements, five to seven years for machinery and equipment, five years for automobiles, and five to seven years for office furniture and equipment. F-27 GENERAL AUTOMATION, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The Company elected by consent of its stockholder to be taxed under the provisions of subchapter S of the Internal Revenue Code. Under these provisions, the taxable income of the Company is reported directly in the sole stockholder's individual tax returns. LONG-LIVED ASSETS The Company evaluates the carrying value of its long-lived assets under Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. REVENUE RECOGNITION Sales are recorded when products are shipped to a customer. 2. INVENTORIES Inventories consist of the following:
MARCH 19, DECEMBER 31, 1999 1998 --------- ------------ (IN THOUSANDS) Raw materials $234 $205 Work in process 432 318 Finished goods 204 171 ---- ---- $870 $694 ==== ====
3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
MARCH 19, DECEMBER 31, 1999 1998 --------- ------------ (IN THOUSANDS) Land $ 480 $ 480 Buildings 4,099 4,099 Machinery and equipment 12,761 12,741 Furniture, fixtures and other 728 723 ------- ------ 18,068 18,043 Less accumulated depreciation 9,337 8,997 ------- ------ Property, plant and equipment, net $ 8,731 $9,046 ======= ======
F-28 GENERAL AUTOMATION, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. DEBT As of March 19, 1999 and December 31, 1998, the Company had no outstanding bank borrowings. The Company has a note payable to a former stockholder (a party related to the current stockholder) related to the purchase of the former stockholder's interest in the Company. The note payable requires a monthly payment of $8,333, which includes annual interest at 10.0%. Aggregate future maturities as of March 19, 1999 of the note payable are as follows, remainder of 1999--$89,477 and 2000--$49,414. As of March 19, 1999 and December 31, 1998 the Company was technically in default on its note payable to a former stockholder because the Company terminated an insurance policy that served as collateral for the note payable, and the proceeds from the policy were distributed to the sole stockholder. No actions have been taken by the former stockholder and the note payable obligation was current at March 19, 1999. 5. BENEFIT PLAN 401(K) The Company sponsors a 401(k) plan covering substantially all full-time employees who meet age and service requirements. Discretionary contributions to the 401(k) plan amounted to $70,000 and $78,000 for the years ended December 31, 1998 and 1997, respectively. The contribution for the period ended March 19, 1999 has not yet been determined. 6. RELATED PARTY TRANSACTIONS, LEASE OBLIGATIONS, AND CONTINGENCIES The Company leases certain warehouse space from a limited liability company whose owners are the sole stockholder and his children. The lease is for a term of one year through May 1999 and requires payments of $10,000 per month plus the payment of all insurance, real estate tax, and maintenance costs. The Company paid and expensed $24,000, $131,970, and $0 related to such lease for the period ended March 19, 1999 and the years ended December 31, 1998 and 1997, respectively. Also, in conjunction with such arrangement, the Company guaranteed a mortgage loan related to the warehouse. The guaranteed mortgage was originally $275,000 and as of March 19, 1999, was approximately $233,000. The Company leases a jet aircraft from a business owned by the sole stockholder. The jet aircraft lease was for a term of three years through December 31, 1999, and requires payments of $10,000 per month, plus $60 per engine hour operated, and plus all operating expenses. In conjunction with the jet aircraft lease, the Company has a sublease obligation for a hangar that houses the jet aircraft. The current hangar lease was renewed on March 31, 1998, for a term of three years and requires payments of $5,650 per month. The Company recorded expenses of $186,928, $528,962 and $576,339; for the jet aircraft and hangar leases in the period ended March 19, 1999 and the years ended December 31, 1998 and 1997, respectively. Future minimum lease commitments for the jet aircraft, hangar and warehouse amount to $140,850 for 1999; $67,800 for 2000; and $16,950 for 2001. 7. SPECIAL CHARGE (RECOVERY) The Company incurred a $1,315,000 loss due to the embezzlement of funds by a former contracted (i.e., not an employee of the Company) accountant. The loss was discovered and expensed in 1996. F-29 GENERAL AUTOMATION, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. SPECIAL CHARGE (RECOVERY) (CONTINUED) Recoveries of amounts from the accountant and insurance company were received and recorded as income in 1997 and 1998. 8. MAJOR CUSTOMERS The Company has two major customers which accounted for 57.2%, 48.1% and 54.4% of the Company's sales for the period ended March 19, 1999 and the years ended December 31, 1998 and 1997, respectively. As of March 19, 1999 and December 31, 1998, the Company's receivables from these two customers were $1,849,780 and $1,651,905, respectively. 9. YEAR 2000 (UNAUDITED) We did not experience any significant malfunctions or errors in our operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, we do not expect any significant impact to our on-going business as a result of the "Year 2000 issue." However, it is possible that the full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, has not been fully recognized. For example, it is possible that Year 2000 or similar issues such as leap year-related problems may occur with billing, payroll, or financial closings at month, quarterly, or year end. We believe that any such problems are likely to be minor and correctable. In addition, we could still be negatively impacted if our customers or suppliers are adversely affected by the Year 2000 or similar issues. We currently are not aware of any significant Year 2000 or similar problems that have arisen for our customers and suppliers. F-30 REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP The Board of Directors Precision Partners, Inc. We have audited the accompanying combined balance sheets as of March 19, 1999 and October 31, 1998, of the companies listed in Note 1, and the related combined statements of operations, stockholders' equity, and cash flows for the period from November 1, 1998 to March 19, 1999, and for each of the two years in the period ended October 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position at March 19, 1999 and October 31, 1998, of the companies listed in Note 1, and the combined results of their operations and their cash flows for the period from November 1, 1998 to March 19, 1999, and for each of the two years in the period ended October 31, 1998, in conformity with accounting principles generally accepted in the United States. March 10, 2000 /s/ Ernst & Young LLP Dallas, Texas F-31 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. COMBINED BALANCE SHEETS
MARCH 19, OCTOBER 31, 1999 1998 --------- ----------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents $ 2,859 $ 2,890 Trade accounts receivable 2,889 4,086 Net costs and estimated earnings in excess of billings on uncompleted contracts 4,131 4,641 Other current assets 153 7 ------- ------- Total current assets 10,032 11,624 Property and equipment, net 10,785 11,338 Due from related parties 760 795 Notes receivable from stockholders 768 727 Deposits and other assets 35 210 ------- ------- Total assets $22,380 $24,694 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit $ 1,400 $ 1,400 Accounts payable 906 1,520 Accrued expenses 1,042 1,304 Current portion of notes payable and capital lease obligations 1,949 2,042 Billings in excess of net costs and estimated earnings on uncompleted contracts 225 185 Notes payable to stockholders 95 25 Income taxes payable 977 1,795 ------- ------- Total current liabilities 6,594 8,271 Notes payable and capital lease obligations, less current portion 6,879 7,354 Deferred income taxes 943 896 Commitments Stockholders' equity: Common stock, no par value: Authorized shares - 25,000 Certified; 1,000,000 Calbrit Issued and outstanding shares at March 19, 1999 and October 31, 1998 - 9,305 Certified; 2,041 Calbrit 93 93 Retained earnings 7,871 8,080 ------- ------- Total stockholders' equity 7,964 8,173 ------- ------- Total liabilities and stockholders' equity $22,380 $24,694 ======= =======
SEE ACCOMPANYING NOTES. F-32 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER PERIOD FROM 31, NOVEMBER 1, 1998 ------------------- TO MARCH 19, 1999 1998 1997 ------------------ -------- -------- (IN THOUSANDS) Sales $ 9,465 $37,433 $30,377 Cost of sales 7,712 27,209 21,136 ------- ------- ------- Gross profit 1,753 10,224 9,241 Selling, general and administrative expenses 1,347 4,813 4,999 Related party rent expense 268 460 352 ------- ------- ------- Operating income 138 4,951 3,890 Other income (expense): Interest income 43 126 80 Interest expense (362) (1,092) (651) Miscellaneous income 2 7 79 ------- ------- ------- (317) (959) (492) ------- ------- ------- (Loss) income before income taxes (179) 3,992 3,398 Provision for income taxes 30 1,689 1,315 ------- ------- ------- Net income (loss) $ (209) $ 2,303 $ 2,083 ======= ======= =======
SEE ACCOMPANYING NOTES. F-33 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK RETAINED EARNINGS TOTAL ------------ ----------------- -------- (IN THOUSANDS) Balance at October 31, 1996 $93 $3,694 $3,787 Net income -- 2,083 2,083 --- ------ ------ Balance at October 31, 1997 93 5,777 5,870 Net income -- 2,303 2,303 --- ------ ------ Balance at October 31, 1998 93 8,080 8,173 Net loss -- (209) (209) --- ------ ------ Balance at March 19, 1999 $93 $7,871 $7,964 === ====== ======
SEE ACCOMPANYING NOTES. F-34 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31, PERIOD FROM NOVEMBER 1, ----------------------- 1998 TO MARCH 19, 1999 1998 1997 ----------------------- -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES Net income (loss) $ (209) $ 2,303 $ 2,083 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 821 2,027 1,242 Provision for deferred income taxes 47 378 205 Changes in operating assets and liabilities: Trade accounts receivable 1,197 118 (1,605) Net costs and estimated earnings in excess of billings on uncompleted contracts 510 (426) (974) Other current assets (146) (4) 1 Deposits and other assets 175 47 (2) Due from stockholders (41) (436) (16) Accounts payable (614) 308 280 Accrued expenses (262) (259) 388 Billings in excess of net costs and estimated earnings on uncompleted contracts 40 52 7 Income taxes payable (818) (54) 112 ------ ------- ------- Net cash provided by operating activities 700 4,054 1,721 INVESTING ACTIVITIES Purchases of property and equipment (14) (724) (447) ------ ------- ------- Net cash used in investing activities (14) (724) (447) FINANCING ACTIVITIES Proceeds from stockholders' notes payable 117 125 420 Repayments of stockholders' notes payable (47) (170) (350) Payments on line of credit -- -- 218 Repayments of notes payable and capital lease obligations (822) (2,096) (1,202) Repayments (advances) from related parties 35 (163) (546) ------ ------- ------- Net cash used in financing activities (717) (2,304) (1,460) ------ ------- ------- Net increase (decrease) in cash and cash equivalents (31) 1,026 (186) Cash and cash equivalents, beginning of period 2,890 1,864 2,050 ------ ------- ------- Cash and cash equivalents, end of period $2,859 $ 2,890 $ 1,864 ====== ======= =======
SEE ACCOMPANYING NOTES. F-35 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Certified Fabricators, Inc.'s principal activities relate to the manufacture and assembly of highly sophisticated structural steel components. Calbrit Design, Inc.'s principal activity is the technical design and drawings of parts used in the aerospace industry. BASIS OF PRESENTATION The combined financial statements include all accounts of Certified Fabricators, Inc. and Calbrit Design, Inc. ("the Company") which are under common control. All significant intercompany balances and transactions have been eliminated in the combination. On November 6, 1998, the Company entered into an agreement with Precision Partners, L.L.C. ("LLC") to sell all of the outstanding common stock of the Company. The agreement was assigned by LLC to a wholly-owned subsidiary, Precision Partners Holdings, Inc. ("Holdings") which was in turn assigned to Holdings' wholly-owned subsidiary, Precision Partners, Inc. The transaction was completed on March 19, 1999. The combined financial statements are presented on a historical cost basis and do not include any adjustments related to the purchase transaction. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. STATEMENTS OF CASH FLOWS For purposes of the statements of cash flows, the Company considers highly liquid investments with original maturities of 90 days or less to be cash equivalents. The following table sets forth certain non-cash transactions excluded from the statements of cash flows:
YEAR ENDED PERIOD FROM OCTOBER 31, NOVEMBER 1, 1998 --------------- TO MARCH 19, 1999 1998 1997 ---------------------- ------ ------ (IN THOUSANDS) Acquisition of equipment through notes payable and capital leases $254 $3,678 $5,807 Forgiveness of advances to former stockholder -- -- 21
REVENUE RECOGNITION Revenues from contracts are recognized on the percentage-of-completion method, measured by the percentage of total costs incurred to date to estimated total costs of the contract. Total costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Selling, general and administrative costs are charged to expense as incurred. Contract revisions are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. F-36 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Profit incentives are included in revenues when their realization is reasonably assured. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reasonably estimated. The asset, "Net costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The liability, "Billings in excess of net costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. CONCENTRATION OF CREDIT RISK The Company sells to customers throughout the United States. The Company is materially dependent on a small group of customers. During the period ended March 19, 1999 and the years ended October 31, 1998 and 1997, the Company had a total of four customers whose sales represented 10% or more of sales in certain or all years. Sales to these customers were approximately 79%, 81% and 79% of total sales for the period ended March 19, 1999 and the years ended October 31, 1998 and 1997, respectively. These customers also represented 71% and 72% of the accounts receivable balance at March 19, 1999 and October 31, 1998, respectively. Sales to customers are subject to cancellation which can occur due to cancellation clauses given by the manufacturer to its customer. The Company has, nevertheless, maintained a strong relationship with these customers and, providing it continues to meet shipment schedules and quality standards, management believes that its trade accounts receivable credit risk exposure is limited. No other customer represented more than 10% of the Company's annual total sales. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Credit losses have been within management's expectations and amounts have been provided for doubtful accounts as deemed necessary. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization expenses are calculated using the straight-line method. The depreciation and amortization methods are designed to amortize the cost of the assets over their estimated useful lives, in years, of the respective assets as follows: Machinery and equipment 3 to 20 Furniture, fixtures and other 3 to 14 Leasehold improvements 5 to 39
Leasehold improvements are amortized over the shorter of the term of the lease or the life of the improvements. Maintenance and repairs are charged to expense as incurred. Renewals and improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gains or losses are reflected in income. LONG-LIVED ASSETS The Company accounts for its long-lived assets under FASB No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires F-37 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. ADVERTISING COSTS Advertising costs are expensed as incurred and were approximately $12,000, $191,000 and $66,000 for the period ended March 19, 1999 and years ended October 31, 1998 and 1997, respectively. INCOME TAXES The Company utilizes the liability method of accounting for income taxes as set forth in FASB Statement No. 109, ACCOUNTING FOR INCOME TAXES. Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist principally of cash and cash equivalents, receivables, net costs and estimated earnings in excess of billings on uncompleted contracts, payables, and billings in excess of net costs and estimated earnings on uncompleted contracts. The Company believes all of the financial instruments' recorded values approximate current values. 2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Information regarding contract costs, estimated earnings, and progress billings consisted of the following at:
MARCH 19, OCTOBER 31, 1999 1998 --------- ----------- (IN THOUSANDS) Costs incurred on uncompleted contracts $ 11,867 $11,077 Estimated earnings 2,197 1,552 -------- ------- 14,064 12,629 Less net progress billings 10,158 8,173 -------- ------- $ 3,906 $ 4,456 ======== =======
F-38 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (CONTINUED) The above amounts are included in the Company's balance sheets under the following captions at:
MARCH 19, OCTOBER 31, 1999 1998 --------- ----------- (IN THOUSANDS) Net costs and estimated earnings in excess of billings on uncompleted contracts $ 4,131 $ 4,641 Billings in excess of net costs and estimated earnings on uncompleted contracts (225) (185) -------- ------- $ 3,906 $ 4,456 ======== =======
3. DUE FROM RELATED PARTIES The Company has advanced monies to a partnership for use in financing various properties. The partnership is 100% owned by the stockholders of the Company. At March 19, 1999 and October 31, 1998, the Company has advanced $760,000 and $795,000, respectively. 4. NOTES RECEIVABLE FROM STOCKHOLDERS Notes receivable from stockholders consisted of the following at:
MARCH 19, OCTOBER 31, 1999 1998 --------- ----------- (IN THOUSANDS) 6% note receivable, interest accrues monthly, due on demand $220 $215 6% note receivable, interest accrues monthly, due on demand 91 89 10% note receivable, interest accrues monthly, with principal and interest due November 2002 85 82 10% note receivable, interest accrues monthly, with principal and interest due November 2002 28 27 Note receivable, interest and payment terms undetermined 172 157 Note receivable, interest and payment terms undetermined 172 157 ---- ---- $768 $727 ==== ====
F-39 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 5. PROPERTY AND EQUIPMENT Property and equipment consisted of the following at:
OCTOBER MARCH 19, 31, 1999 1998 --------- -------- (IN THOUSANDS) Machinery and equipment $17,416 $17,152 Furniture, fixtures and other 1,877 1,876 Leasehold improvements 1,117 1,114 ------- ------- 20,410 20,142 Less accumulated depreciation and amortization 9,625 8,804 ------- ------- $10,785 $11,338 ======= =======
6. LINE OF CREDIT, NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS The Company maintains a $3,000,000 credit line under which it can borrow funds or secure letters of credit at prevailing market rates. The credit line is renewable each year on April 30. As of March 19, 1999, $1,400,000 was outstanding. The revolving line of credit is secured by accounts receivable and all other assets of the Company. Interest accrues beginning at the date of advance at the bank's base rate plus .25% (the bank's base rate at March 31, 1999 was 8.00%). Advances under the line are available to the Company based upon 80% of outstanding eligible accounts receivable. Eligible accounts receivable consist of those accounts which are less than ninety days from the date of invoice. The unused portion of the credit line is subject to withdrawal at the discretion of the Company. Under the terms of the line of credit, the Company is required to maintain minimum levels of tangible net worth, current ratio, working capital and maximum level of debt to tangible net worth. Subsequent to the balance sheet date, the Company sold all of the outstanding common stock to Precision Partners, Inc. The outstanding draws on the credit line were paid off as a result of that transaction. Notes payable, including capital lease obligations, consisted of the following at (in thousands):
MARCH 19, OCTOBER 31, 1999 1998 --------- ----------- (IN THOUSANDS) Notes payable to stockholders, interest of 8.5%, monthly installments range from $2 to $3, due 12/31/97 to 1/31/98 $ -- $ 25 Notes payable to stockholders, interest of 8.5%, monthly installments, $2, due 1/5/00 95 -- ------ ------ $ 95 $ 25 ====== ====== Installment contracts with vendors, interest ranging from 10.1% to 25.7%, monthly installments totaling from $1 to $14, due 1/31/98 to 3/31/00, secured by equipment $ 93 $ 238 Term loans with finance companies, interest ranging from 4.7% to 10.8%, monthly installments totaling from $1 to $71, due 2/28/00 to 7/31/01, secured by equipment 8,402 8,726
F-40 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 6. LINE OF CREDIT, NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
MARCH 19, OCTOBER 31, 1999 1998 --------- ----------- (IN THOUSANDS) Installment loans with finance companies, interest ranging from 6.2% to 10.3%, monthly installments totaling from $1 to $6, secured by equipment $ 333 $ 294 Interim loan with finance companies, bearing 11.3% interest, fixed interest paid monthly, due on demand, secured by equipment -- 138 ------ ------ 8,828 9,396 Less current portion 1,949 2,042 ------ ------ $6,879 $7,354 ====== ======
Aggregate future maturities of notes payables at March 19, 1999 are as follows, in thousands: 1999 $1,527 2000 1,924 2001 1,873 2002 1,994 2003 1,510
Interest paid to third parties was $362,000, $1,092,000 and $651,000, for the period from November 1, 1998 to March 19, 1999, and for the years ended October 31, 1998, and 1997, respectively. Pursuant to the purchase transaction completed on March 19, 1999, the Company's debt was paid by Precision Partners, Inc. 7. INCOME TAXES The income tax provision (benefit) is as follows:
PERIOD FROM NOVEMBER 1, 1998 TO OCTOBER 31, MARCH 19, ------------------- 1999 1998 1997 ------------------------------- -------- -------- (IN THOUSANDS) Current federal $ 31 $1,256 $1,084 Current state 12 55 26 ---- ------ ------ Total current tax provision 43 1,311 1,110 Deferred federal (12) 274 257 Deferred state (1) 104 (52) ---- ------ ------ Total deferred tax provision (benefit) (13) 378 205 ---- ------ ------ Total tax provision $ 30 $1,689 $1,315 ==== ====== ======
The difference between the effective rate reflected in the income tax provision for income taxes and the amount determined by applying the statutory U.S. rate to income before income taxes for the F-41 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (CONTINUED) period from November 1, 1998 to March 19, 1999 and the years ended October 31, 1998 and 1997 is analyzed below:
PERIOD FROM NOVEMBER 1, YEAR ENDED 1998 TO OCTOBER 31, MARCH 19, ------------------- 1999 1998 1997 ----------- -------- -------- (IN THOUSANDS) Tax provision (benefit) at statutory rate $(61) $1,357 $1,155 Valuation allowance 65 -- -- State income tax, net of federal income tax benefit 8 104 (17) Permanent differences 12 44 27 Other 6 184 150 ---- ------ ------ Total income tax provision $ 30 $1,689 $1,315 ==== ====== ======
The Company reported deferred tax liabilities and assets as follows at:
MARCH 19, OCTOBER 31, 1999 1998 --------- ----------- (IN THOUSANDS) Deferred tax liabilities: Tax over book depreciation $(1,096) $(1,013) ------- ------- Total deferred tax liabilities (1,096) (1,013) Deferred tax assets: Accrued expenses 18 11 Tax credit carryforwards 90 60 Other 45 46 ------- ------- Total deferred tax assets 153 117 ------- ------- Net deferred tax liabilities $ (943) $ (896) ======= =======
At March 19, 1999, the Company has approximately $60,000 of California manufacturing investment credits and $30,000 of federal alternative minimum tax credits, which do not expire. In addition, the Company has approximately $190,000 of net operating loss carryforwards which expire in 2020. Income taxes paid in the period 1999, 1998 and 1997 were approximately $100,000, $1,365,000 and $943,000, respectively. 8. COMMITMENTS WITH RELATED AND UNRELATED PARTIES The Company's operations are conducted in four buildings, all of which are owned by a partnership that includes the Company's principal stockholders (the Partnership). The principal stockholders own a 100% interest in the Partnership at March 31, 1999. One building is leased from the Partnership under a noncancellable ten year lease agreement with a monthly rent of $15,000. The lease agreement dated February 1, 1993 expires February 1, 2003. Under the leasing agreement, the F-42 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 8. COMMITMENTS WITH RELATED AND UNRELATED PARTIES (CONTINUED) Company is required to pay property taxes and common area charges (maintenance, utilities and property insurance) attributable to the lease. Total rent expense for the related party operating lease for the period from November 1, 1998 to March 19, 1999 and the years ended October 31, 1998, and 1997 was $75,000, $180,000 and $180,000, respectively. The second building is leased from the Partnership under a noncancellable ten year lease agreement with varying monthly rents starting at $25,000 on May 1, 1997 and increasing to $30,000 on May 1, 1999. The lease agreement dated May 1, 1997 expires April 30, 2007. Total rent expense for the related party operating lease for the period from November 1, 1998 to March 19, 1999 and the years ended October 31, 1998 and 1997 was $125,000, $269,000 and $184,000, respectively. The Company subleases a portion of this space under a non-cancelable two year agreement with monthly rental income of approximately $11,000. The sublease is dated May 1, 1997 and expires on April 30, 2000. Total rent expense, net of sublease income, for the period from November 1, 1998 to March 19, 1999 and the years ended October 31, 1998 and 1997 was $70,000, $135,000 and $117,000, respectively. The third building was previously leased from an unrelated party under a noncancellable lease agreement expiring December 31, 1998 with an option to purchase the property. The lease provided for monthly rents of $10,000 through December 31, 1997 and $10,000 through December 31, 1998. The Partnership exercised the option to purchase the property in May 1997. The Company now leases from the Partnership under a noncancellable five year lease agreement with a monthly rent of $10,000. The agreement, dated May 16, 1997 expires May 16, 2002. Total rent expense for this related party operating lease for the period from November 1, 1998 to March 19, 1999 and the years ended October 31, 1998, and 1997 was $50,000, $120,000, and $118,000, respectively. The fourth building is leased from the Partnership under a noncancellable ten year lease agreement with a monthly rent of $2,500. The lease agreement dated January 1, 1998 expires on December 31, 2003. Total rent expense for the related party operating lease for the period from November 1, 1998 to March 19, 1999 and the year ended October 31, 1998 was $12,500 and $25,000, respectively. The Company leased an additional warehouse facility under a noncancellable lease agreement with an unrelated party. The monthly rent on the aforementioned lease was $10,000 and expired on August 31, 1998. The Company subsequently entered into a new lease agreement with the same monthly rent of $11,000 that will expire on August 31, 2001. Total rent expense for the operating lease for the period from November 1, 1998 to March 19, 1999 and the years ended October 31, 1998, and 1997 was $56,000, $121,000 and $118,000, respectively. Total rent expense for all of the Company's facilities under noncancellable operating lease agreements, net of sublease income, for the period from November 1, 1998 to March 19, 1999 and the years ended October 31, 1998, and 1997 was $264,000, $632,000, and $586,000, respectively. The Company leases machinery and equipment from a related party under a month to month lease agreement with monthly rents of $4,000. The Company has assisted two affiliated entities in obtaining financing. The affiliated entities have recorded the assets and liabilities on their books. The Company, however, has guaranteed the indebtedness outstanding of $3,395,000 and $3,490,000 at March 31, 1999 and October 31, 1998, respectively. F-43 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 8. COMMITMENTS WITH RELATED AND UNRELATED PARTIES (CONTINUED) Future rental commitments for the remaining years of all noncancellable operating leases are as follows:
UNRELATED RELATED PARTIES-- SUBLEASE TOTAL PARTIES FACILITIES INCOME COMMITMENTS -------- ---------- -------- ----------- (IN THOUSANDS) Years ending October 31: 1999 $ 357 $240 $ (78) $ 519 2000 713 270 (134) 849 2001 738 194 (45) 887 2002 700 32 -- 732 2003 550 5 -- 555 Thereafter 1,648 -- -- 1,648 ------ ---- ----- ------ $4,706 $741 $(257) $5,190 ====== ==== ===== ======
9. CAPITAL LEASES The following is an analysis of leased property under capital leases included in property and equipment (Note 5) at:
MARCH 19, OCTOBER 31, 1999 1998 --------- ----------- (IN THOUSANDS) Machinery and equipment $ 1,507 $ 1,507 Furniture, fixtures and other 714 714 Leasehold improvements 10 10 ------- ------- 2,231 2,231 Less accumulated amortization 1,388 1,268 ------- ------- $ 843 $ 963 ======= =======
Amortization of equipment under capital leases is included in depreciation and amortization in the accompanying Combined Statements of Cash Flows. F-44 CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 9. CAPITAL LEASES (CONTINUED) The following is a schedule of future minimum lease payments under capital lease agreements together with the present value of the net minimum lease payments included in notes payable (Note 6) as of March 19, 1999, in thousands: Years ending October 31: 1999 $163 2000 137 2001 27 ---- 327 Less amount representing interest at rates from 6.2% to 16.5% 26 ---- Present value of net minimum lease payments $301 ====
10. PROFIT SHARING/401K PLANS The Company sponsors a profit sharing plan covering all eligible employees whereby the Company may contribute the lesser of $30,000 or 15% of annual compensation. The Company may make discretionary contributions to the profit sharing plan annually in amounts determined by management. Profit sharing contributions for the period from November 1, 1998 to March 19, 1999 and the years ended October 31, 1998, and 1997 were $0, $150,000, and $500,000, respectively. The Company also sponsors a 401K plan (the Plan) covering all eligible employees whereby the Company may make matching contributions on the first 6% of employee contributions in an amount or percentage determined by the Company, if any. Matching contributions vest over a seven year period or 100% at normal retirement as defined by the Plan. No matching contributions have been made through March 19, 1999. 11. YEAR 2000 (UNAUDITED) We did not experience any significant malfunctions or errors in our operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, we do not expect any significant impact to our on-going business as a result of the "Year 2000 issue." However, it is possible that the full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, has not been fully recognized. For example, it is possible that Year 2000 or similar issues such as leap year-related problems may occur with billing, payroll, or financial closings at month, quarterly, or year end. We believe that any such problems are likely to be minor and correctable. In addition, we could still be negatively impacted if our customers or suppliers are adveresly affected by the Year 2000 or similar issues. We currently are not aware of any significant Year 2000 or similar problems that have arisen for our customers and suppliers. F-45 REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP The Board of Directors Precision Partners, Inc. We have audited the balance sheet of Nationwide Precision Products Corp. as of March 19, 1999, and the related statements of income, stockholders' equity and cash flows for the period from June 1, 1998 to March 19, 1999. These financial statements are the responsibility of the management of Nationwide Precision Products Corp. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Parlec, Inc. (a corporation in which Nationwide Precision Products Corp. has a 44% interest), have been audited by other auditors whose report has been furnished to us; insofar as our opinion on the financial statements relates to data included for Parlec, it is based solely on their report. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Precision Products Corp. as of March 19, 1999, and the results of its operations and its cash flows for the period from June 1, 1998 to March 19, 1999 in conformity with accounting principles generally accepted in the United States. February 25, 2000 /s/ Ernst & Young LLP Dallas, Texas F-46 REPORT OF INDEPENDENT AUDITORS, INSERO, KASPERSKI, CIACCIA & CO., P.C. The Board of Directors Nationwide Precision Products Corp. We have audited the balance sheet of Nationwide Precision Products Corp., as of May 31, 1998, and the related statements of income, stockholders' equity and cash flows for each of the two years in the period ended May 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Precision Products Corp. at May 31, 1998, and the results of its operations and its cash flows for each of the two years in the period ended May 31, 1998, in conformity with generally accepted accounting principles. June 29, 1998 /s/ Insero, Kasperski, Ciaccia & Co., P.C. Rochester, New York F-47 NATIONWIDE PRECISION PRODUCTS CORP. BALANCE SHEETS
MARCH 19, MAY 31, 1999 1998 --------- -------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents $ 442 $ 183 Accounts receivable, net of allowance for doubtful accounts of $30,838 at March 19, 1999 and May 31, 1998 3,522 3,590 Accounts receivable from affiliate -- 592 Inventories 2,683 3,301 Prepaid expenses and other current assets 98 133 ------- ------- Total current assets 6,745 7,799 Property, plant and equipment, at cost, net 17,580 17,008 Investment in Parlec, Inc. 4,821 2,598 Notes receivable from officers -- 295 Notes receivable from employee -- 105 Cash surrender value of officers' life insurance, net of loans of $0 at March 19, 1999 and $769,523, at May 31, 1998 -- 297 Debt issue costs, net 82 100 Federal tax deposit 273 274 ------- ------- Total assets $29,501 $28,476 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit $ 1,109 $ -- Accounts payable and accrued expenses 1,329 4,258 Current maturities of long-term debt and capital lease obligations 2,564 2,065 ------- ------- Total current liabilities 5,002 6,323 Long-term debt and capital lease obligations, less current portion 9,370 8,842 Stockholders' equity: Common stock, no par value; 700 shares authorized, 600 issued and outstanding 3 3 Additional paid-in capital 275 275 Retained earnings 14,851 13,033 ------- ------- Total stockholders' equity 15,129 13,311 ------- ------- Total liabilities and stockholders' equity $29,501 $28,476 ======= =======
SEE ACCOMPANYING NOTES. F-48 NATIONWIDE PRECISION PRODUCTS CORP. STATEMENTS OF INCOME
PERIOD FROM YEAR ENDED MAY 31, JUNE 1, 1998 ------------------- TO MARCH 19, 1999 1998 1997 ------------------ -------- -------- (IN THOUSANDS) Sales $22,141 $28,440 $23,251 Cost of sales 17,056 22,239 18,549 ------- ------- ------- Gross profit 5,085 6,201 4,702 Bonuses 773 895 640 Selling, general and administrative expenses 1,880 2,113 1,938 ------- ------- ------- Operating income 2,432 3,193 2,124 Interest expense, net 529 682 646 ------- ------- ------- Income before equity in net (loss) income of investee 1,903 2,511 1,478 Equity in net (loss) income of investee (85) 373 284 ------- ------- ------- Net income $ 1,818 $ 2,884 $ 1,762 ======= ======= =======
SEE ACCOMPANYING NOTES. F-49 NATIONWIDE PRECISION PRODUCTS CORP. STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL PAID-IN RETAINED COMMON STOCK CAPITAL EARNINGS TOTAL ------------ ------------------ -------- -------- (IN THOUSANDS) Balance at June 1, 1996 $3 $275 $ 9,767 $10,045 Net income -- -- 1,762 1,762 Distributions -- -- (800) (800) -- ---- ------- ------- Balance at May 31, 1997 3 275 10,729 11,007 Net income -- -- 2,884 2,884 Distributions -- -- (580) (580) -- ---- ------- ------- Balance at May 31, 1998 3 275 13,033 13,311 Net income -- -- 1,818 1,818 -- ---- ------- ------- Balance at March 19, 1999 $3 $275 $14,851 $15,129 == ==== ======= =======
SEE ACCOMPANYING NOTES. F-50 NATIONWIDE PRECISION PRODUCTS CORP. STATEMENTS OF CASH FLOWS
PERIOD FROM YEAR ENDED MAY 31, JUNE 1, 1998 ------------------- TO MARCH 19, 1999 1998 1997 ------------------ -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES Net income $ 1,818 $ 2,884 $ 1,762 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,469 1,662 1,532 Equity in net loss (income) of investee 85 (373) (284) Changes in operating assets and liabilities: Accounts receivable 68 (1,287) 867 Accounts receivable from affiliate 592 (424) 49 Inventories (650) (634) (766) Prepaid expenses 35 (35) 14 Federal tax deposit 1 197 87 Accounts payable and accrued expenses (2,929) 2,136 267 ------- ------- ------- Net cash provided by operating activities 489 4,126 3,528 INVESTING ACTIVITIES Purchase of property, plant and equipment (2,023) (4,945) (557) Increase in investment in minority interest of investee (1,040) -- -- Cash surrender value of officers' life insurance 297 (14) (41) Repayments from officers and employees 400 135 175 ------- ------- ------- Net cash used in investing activities (2,366) (4,824) (423) FINANCING ACTIVITIES Borrowings of long-term debt 3,000 3,500 -- Repayments of long-term debt (1,973) (2,228) (2,207) Borrowings under line of credit 1,109 -- -- Distributions -- (580) (800) ------- ------- ------- Net cash provided by (used in) financing activities 2,136 692 (3,007) ------- ------- ------- Net increase (decrease) in cash and cash equivalents 259 (6) 98 Cash and cash equivalents, beginning of period 183 189 91 ------- ------- ------- Cash and cash equivalents, end of period $ 442 $ 183 $ 189 ======= ======= ======= Supplementary information for the statement of cash flows: Interest payments $ 600 $ 748 $ 750 Note receivable and inventory converted to equity in investee $ 1,618 -- --
SEE ACCOMPANYING NOTES. F-51 NATIONWIDE PRECISION PRODUCTS CORP. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Nationwide Precision Products Corp. ("the Company"), located in Rochester, New York, manufactures precision machined parts, extrusions and castings for a customer base primarily in the United States. The Company has a 44% interest in Parlec, Inc., a producer of tooling and tool measuring equipment utilized by manufacturing companies primarily in the United States, Canada and Western Europe, located in Rochester, New York. On December 4, 1998, the Company entered into an agreement with Precision Partners, L.L.C. ("LLC") to sell substantially all of its assets exclusive of its investment in Parlec and certain other assets, and for LLC to assume certain liabilities. The agreement was assigned by LLC to a wholly-owned subsidiary, Precision Partners Holdings, Inc. ("Holdings") which was in turn assigned to Holdings' wholly-owned subsidiary, Precision Partners, Inc. The acquistion was completed on March 19, 1999. The financial statements are presented on a historical cost basis and do not include any adjustments related to the purchase transaction. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the actual amounts reported in the financial statement and accompanying notes. Actual results could differ from those estimates. CONCENTRATION OF CREDIT RISK The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash in bank demand deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk with respect to cash. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable credit risk exposure is limited. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of short-term, highly liquid investments which are readily convertible into cash with original maturities of 90 days or less. INVENTORIES Inventories are stated at the lower of cost or market. The Company uses the first-in, first-out (FIFO) method of determining cost for the majority of its inventories. REVENUE RECOGNITION Sales are recorded when products are shipped to a customer. DEPRECIATION Buildings, machinery and equipment, and furniture and fixtures are depreciated using both straight-line and declining balance methods over the estimated useful lives of the individual assets. The F-52 NATIONWIDE PRECISION PRODUCTS CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) lives are five to ten years for equipment, twenty years for land improvements and forty years for building and improvements. INCOME TAXES The Company has elected to be treated as an S Corporation for Federal and New York State income tax purposes under the provisions of subchapter S of the Internal Revenue Code. Under these provisions, the taxable income of the Company is reported directly on the stockholders' individual tax returns. LONG-LIVED ASSETS The Company accounts for its long-lived assets under Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. RECLASSIFICATION Certain prior year amounts have been reclassified to conform to current year presentation. 2. INVENTORIES Inventories consist of the following:
MARCH 19, MAY 31, 1999 1998 --------- -------- (IN THOUSANDS) Raw materials $1,353 $2,416 Work-in-process 206 449 Finished goods 1,357 686 ------ ------ 2,916 3,551 Reserve for obsolescence (233) (250) ------ ------ $2,683 $3,301 ====== ======
F-53 NATIONWIDE PRECISION PRODUCTS CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are valued at cost and consist of the following:
MARCH 19, MAY 31, 1999 1998 --------- -------- (IN THOUSANDS) Land and improvements $ 980 $ 980 Buildings and improvements 5,343 5,187 Machinery and equipment 26,585 24,778 Furniture, fixtures and other 670 610 ------- ------- 33,578 31,555 Less accumulated depreciation 15,998 14,547 ------- ------- Property, plant and equipment, net $17,580 $17,008 ======= =======
4. DEBT At March 19, 1999, the Company has $4,862,219 of unused letters-of-credit with a bank to guarantee payment of the Industrial Revenue Bonds. A letter-of-credit fee is charged at approximately 1% of the outstanding balance. The Company has available a $2,000,000 working capital line-of-credit. Borrowings on the line bear interest at the Bank's prime rate (7.75% at March 31, 1999). The outstanding balance on this line is $1,109,000 at March 19, 1999. There was no outstanding balance at May 31, 1998. The Company has available a $600,000 equipment line-of-credit to fund future equipment purchases for specific contracts. Borrowings on this line bear interest at the Bank's prime rate (7.75% at March 19, 1999). There were no outstanding balances on this line at March 19, 1999 and May 31, 1998. F-54 NATIONWIDE PRECISION PRODUCTS CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. DEBT (CONTINUED) Long-term debt consists of the following:
MARCH 31, MAY 31, 1999 1998 --------- -------- (IN THOUSANDS) Capital lease obligation consisting of a Tax Exempt Industrial Revenue Bond, variable interest on outstanding balance (3.10% at March 31, 1999), maturing 2004. No principal payments are required until 2003. $ 3,325 $ 3,325 Capital lease obligation consisting of a Taxable Industrial Revenue Bond, variable interest rate on outstanding balance (5.20% at March 31, 1999), maturing 2003. Principal installment of $180,000 began in fiscal 1996 and increase by $20,000 per year through maturity. 1,435 1,675 Note payable to bank, $68,750 monthly plus 7.67% interest, matured July, 1998. -- 138 Note payable to bank, $25,000 monthly plus 8.25% interest, maturing December, 1999. 225 475 Note payable to bank, $31,250 monthly plus 8.035% interest, maturing April, 2000. 406 719 Note payable to bank, $41,667 monthly plus 7.74% interest, maturing May, 2000. 583 1,000 Note payable to bank, $71,445 monthly, including interest at 7.7%, maturing July, 2003. 3,101 3,500 Note payable to bank, $58,698 monthly, including interest at 6.5%, maturing September, 2003. 2,792 -- Deferred compensation payable to a former employee requiring yearly payments of $15,000, including imputed interest at 9%, maturing 2005. 67 75 ------- ------- 11,934 10,907 Less current portion 2,564 2,065 ------- ------- $ 9,370 $ 8,842 ======= =======
The Company's debt is collateralized by substantially all of the Company's assets. Aggregate future maturities of long-term debt are as follows: 2000--$2,564,000; 2001--$1,686,000; 2002--$1,680,000; 2003--$1,792,000; 2004--$4,194,000; thereafter--$18,000. CAPITAL LEASE OBLIGATION On December 1, 1994, the Company entered into an agreement to purchase land, construct an addition to its facility in Henrietta, New York and to extend the County of Monroe Industrial Development Agency (COMIDA) lease term of the 1986 bonds which related to the original building construction. The new bonds are ten-year Industrial Development Revenue Bonds (IRB) issued through the COMIDA and originally totaled $5,600,000. The Company leases the building under a ten-year agreement with COMIDA. At the end of the lease term, the Company has an option to purchase the property for one dollar, thus the lease has been capitalized for financial reporting purposes. F-55 NATIONWIDE PRECISION PRODUCTS CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. DEBT (CONTINUED) The present value of future minimum lease payments based on current prevailing interest rates as of March 31, 1999, is as follows, in thousands: Years ending March 31, 2000 $ 470 2001 477 2002 481 2003 485 2004 488 Thereafter 3,381 ------- 5,782 Less amount representing interest 1,022 ------- Present value of future minimum lease payments $ 4,760 =======
5. PROFIT SHARING/401(K) PLANS The Company, along with Parlec, Inc., sponsors a profit sharing and 401(k) plan covering their employees. The Plan is a discretionary profit sharing plan where contributions are determined annually by the Board of Directors. No contributions were made during the periods presented. In addition, the Company makes matching contributions equal to 50% of the employee's elective deferrals up to a maximum of $250 per year. Matching contributions totaled approximately $28,000, $27,400, and $16,500 for the period from June 1, 1998 to March 19, 1999, and the years ended May 31, 1998 and 1997, respectively. 6. RELATED PARTIES NOTES RECEIVABLE FROM OFFICERS During 1991 and 1993, the President of the Company (Michael Nuccitelli) borrowed various monies to purchase interests in Parlec, Inc. (Parlec), a manufacturing company related through common management and the real estate partnership that owns the Parlec facility. Interest accrues at rates that approximate market rates (6.25% at March 19, 1999) and is payable annually. The balance outstanding on these notes was $0 and $295,000 at March 19, 1999 and May 31, 1998, respectively. INVESTMENT IN PARLEC, INC. In May 1994, the Company purchased 30% of the outstanding shares of Parlec, Inc. The aggregate purchase price for these share was $1,200,000. The investment has been accounted for using the equity method of accounting. At the date of acquisition, the investment in Parlec exceeded the Company's share of the underlying net assets by $1,055,400. This amount is being amortized as goodwill on a straight-line basis over 40 years. In December 1998, the Company purchased 200,000 shares, or an additional 14% of the outstanding shares of Parlec. The aggregate purchase price for the shares was $2,658,000, which consisted of cash and inventory of $1,040,000 and $1,268,000, respectively, and the "forgiveness" of a 1993 loan due to the Company from Parlec of $350,000 which was included in the Investment in F-56 NATIONWIDE PRECISION PRODUCTS CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. RELATED PARTIES (CONTINUED) Parlec, Inc. On the date of the transaction, the additional investment in Parlec exceeded the Company's share of the underlying net assets by approximately $1,576,000. This amount will be amortized over 40 years beginning in 1999. The following summarized balance sheet is presented for Parlec, Inc. as of March 19, 1999 and May 31, 1998:
MARCH 19, MAY 31, 1999 1998 --------- -------- (IN THOUSANDS) Assets Current assets $ 9,554 $ 8,564 Fixed and other assets 7,194 7,323 ------- ------- $16,748 $15,887 ======= ======= Liabilities Current liabilities $ 6,663 $ 7,086 Long-term debt 3,452 4,149 Other long-term debt (Nationwide) -- 350 ------- ------- 10,115 11,585 Stockholders' Equity 6,633 4,302 ------- ------- Total $16,748 $15,887 ======= =======
The following summarized statements of operations is presented for Parlec, Inc. for the period from June 1, 1998 to March 19, 1999 and the years ended May 31, 1998 and 1997:
PERIOD FROM YEAR ENDED MAY 31, JUNE 1, 1998 TO ------------------- MARCH 19, 1999 1998 1997 ---------------- -------- -------- (IN THOUSANDS) Sales $20,133 $24,541 $17,381 Cost of sales 15,819 16,650 11,053 ------- ------- ------- Gross profit $ 4,314 $ 7,891 $ 6,328 ======= ======= ======= Net (loss) income, before tax $ (327) $ 1,329 $ 1,033 ======= ======= =======
SALES During the period from June 1, 1998 to March 19, 1999 and the years ended May 31, 1998 and 1997 the Company had sales to Parlec, Inc. of approximately $1,617,550, $2,672,000 and $2,559,000 respectively. As of March 19, 1999 and May 31, 1998, amounts due from Parlec, Inc. were approximately $309,000 and $572,000, respectively. F-57 NATIONWIDE PRECISION PRODUCTS CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. MAJOR CUSTOMERS During the period from June 1, 1998 to March 19, 1999 and the years ended May 31, 1998 and 1997, 68%, 70% and 71%, respectively, of the Company's sales were to three customers. As of March 19, 1999 and May 31, 1998, the Company's receivables from these three customers were approximately $1,734,541 and $2,701,000, respectively. 8. YEAR 2000 (UNAUDITED) We did not experience any significant malfunctions or errors in our operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, we do not expect any significant impact to our on-going business as a result of the "Year 2000 issue." However, it is possible that the full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, has not been fully recognized. For example, it is possible that Year 2000 or similar issues such as leap year-related problems may occur with billing, payroll, or financial closings at month, quarterly, or year end. We believe that any such problems are likely to be minor and correctable. In addition, we could still be negatively impacted if our customers or suppliers are adversely affected by the year 2000 or similar issues. We currently are not aware of any significant Year 2000 or similar problems that have arisen for our customers and suppliers. F-58 REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP The Board of Directors Precision Partners, Inc. We have audited the balance sheet of Gillette Machine & Tool Co., Inc. ("Gillette") as of August 31, 1999, and the related statements of income and retained earnings and cash flows for the period from March 1, 1999 to August 31, 1999. These financial statements are the responsibility of Gillette's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gillette at August 31, 1999, and the results of its operations and its cash flows for the period from March 1, 1999 to August 31, 1999 in conformity with accounting principles generally accepted in the United States. March 10, 2000 /s/ Ernst & Young LLP Dallas, Texas F-59 REPORT OF INDEPENDENT AUDITORS, BONADIO & CO., LLP The Board of Directors Precision Partners, Inc. We have audited the combined balance sheet of Gillette Machine & Tool Co., Inc. ("Gillette") as of February 28, 1999, and the related statements of income and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of Gillette's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gillette at February 28, 1999, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. August 27, 1999 /s/ Bonadio & Co., LLP Rochester, New York F-60 GILLETTE MACHINE & TOOL CO., INC. BALANCE SHEETS
AUGUST 31, 1999 FEBRUARY 28, 1999 --------------- ----------------- (IN THOUSANDS) ASSETS Current assets: Cash $ -- $ 68 Accounts receivable 1,948 1,742 Due from related party -- 87 Inventories 3,159 3,489 Prepaid expenses 142 50 ---------- ---------- Total current assets 5,249 5,436 Property, plant and equipment, net 1,698 1,890 Deferred tax asset, net 97 163 ---------- ---------- Total assets $ 7,044 $ 7,489 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Cash overdraft $ 224 $ -- Demand note payable 267 300 Current portion of long-term debt 170 164 Accounts payable 832 906 Accrued expenses 290 363 Accrued income taxes 43 171 Due to related party 57 134 Due to stockholders -- 323 ---------- ---------- Total current liabilities 1,883 2,361 Long-term debt, net of current portion 480 640 Stockholders' equity: Common stock, Class A, voting, par value $2, 5,000 shares authorized, 375 shares issued and outstanding 1 1 Common stock, Class B, non-voting, par value $2, 45,000 shares authorized, 3,375 shares issued and outstanding 7 7 Retained earnings 4,673 4,480 ---------- ---------- Total stockholders' equity 4,681 4,488 ---------- ---------- Total liabilities and stockholders' equity $ 7,044 $ 7,489 ========== ==========
SEE ACCOMPANYING NOTES. F-61 GILLETTE MACHINE & TOOL CO., INC. STATEMENTS OF INCOME AND RETAINED EARNINGS
PERIOD FROM MARCH 1, 1999 TO YEAR ENDED AUGUST 31, 1999 FEBRUARY 28, 1999 ------------------------- ----------------- (IN THOUSANDS) Sales $ 7,977 $ 13,469 Cost of goods sold 5,387 10,195 -------- -------- Gross profit 2,590 3,274 Selling, general and administrative expenses 2,345 2,724 -------- -------- Income from operations 245 550 Other income (expense): Miscellaneous income 46 62 Interest expense (50) (94) Gain on sale of equipment 62 38 -------- -------- Other income, net 58 6 -------- -------- Income before income taxes 303 556 Income tax expense 110 199 -------- -------- Net income 193 357 Retained earnings, beginning of period 4,480 4,123 -------- -------- Retained earnings, end of period $ 4,673 $ 4,480 ======== ========
SEE ACCOMPANYING NOTES. F-62 GILLETTE MACHINE & TOOL CO., INC. STATEMENTS OF CASH FLOWS
PERIOD FROM MARCH 1, 1999 TO AUGUST 31, YEAR ENDED 1999 FEBRUARY 28, 1999 ------------- ----------------- (IN THOUSANDS) Operating activities: Net income $ 193 $ 357 Adjustments to reconcile net income to net cash provided by operating activities: Deferred tax expense (benefit) 66 (30) Depreciation and amortization 247 620 Gain on sale of equipment (62) (38) Changes in operating assets and liabilities: Accounts receivable (206) (1) Due to/from related party 10 67 Inventories 330 (1,074) Prepaid expenses (92) (6) Prepaid income taxes -- 16 Accounts payable and cash overdraft 150 175 Accrued expenses (73) 80 Accrued income taxes (128) 171 Customer advances -- (69) ----- ------- Net cash provided by operating activities 435 268 Investing activities: Purchases of property, plant and equipment (58) (357) Proceeds from the sale of equipment 65 38 ----- ------- Net cash provided by (used in) investing activities 7 (319) Financing activities: Payments on demand note payable (33) (116) Borrowings on long-term debt -- 115 Payments on long-term debt (154) (126) (Decrease) increase in due to stockholders (323) 203 ----- ------- Net cash (used in) provided by financing activities (510) 76 ----- ------- (Decrease) increase in cash (68) 25 Cash at beginning of period 68 43 ----- ------- Cash at end of period $ -- $ 68 ===== =======
SEE ACCOMPANYING NOTES. F-63 GILLETTE MACHINE & TOOL CO., INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY Gillette Machine & Tool Co., Inc. (the "Company") is a manufacturer of precision machined components for customers located primarily in the northeast United States operating in a variety of industries. BASIS OF PRESENTATION On June 17, 1999 the Company entered into an agreement with Precision Partners, Inc. to sell all of the outstanding common stock of the Company. The transaction was completed on September 1, 1999. The financial statements are presented on a historical cost basis and do not include any adjustments related to the purchase. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of short-term, highly liquid investments which are readily convertible into cash with original maturities of 90 days or less. CONCENTRATION OF CREDIT RISK The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash in bank demand deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk with respect to cash. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable credit risk exposure is limited. REVENUE RECOGNITION Sales are recorded when products are shipped to a customer. INVENTORIES Inventories are stated at the lower of cost or market. The Company uses the first-in, first-out (FIFO) method of determining cost. DEPRECIATION AND AMORTIZATION Property, plant and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to twenty-four years. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. F-64 GILLETTE MACHINE & TOOL CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) LONG-LIVED ASSETS The company accounts for its long-lived assets under Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing to the fair value of the asset to its carrying amount. INCOME TAXES The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. 2. INVENTORIES Inventories consist of the following at:
AUGUST 31, FEBRUARY 28, 1999 1999 ----------- ------------ (IN THOUSANDS) Raw materials $ 74 $ 71 Work-in-process 2,607 2,596 Finished goods 528 872 ----------- ----------- 3,209 3,539 Less reserve for obsolescence 50 50 ----------- ----------- $ 3,159 $ 3,489 =========== ===========
3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following at:
AUGUST 31, FEBRUARY 28, 1999 1999 ----------- ------------ (IN THOUSANDS) Machinery and equipment $ 7,922 $ 8,207 Leasehold improvements 1,187 1,184 Office equipment 460 437 Vehicles 181 170 ----------- ----------- 9,750 9,998 Less accumulated depreciation and amortization 8,052 8,108 ----------- ----------- $ 1,698 $ 1,890 =========== ===========
F-65 GILLETTE MACHINE & TOOL CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. FINANCING ARRANGEMENTS The Company may borrow up to $3,500,000 under the terms of an annually renewable line-of-credit agreement with a bank. Amounts borrowed bear interest at the bank's prime rate, are collateralized by substantially all assets of the Company, and are guaranteed by the estate of Frank P. Gillette. There were no amounts outstanding at August 31, 1999. Long term debt consists of the following at:
FEBRUARY 28, AUGUST 31, 1999 1999 ---------------- ------------ (IN THOUSANDS) Note payable to bank in monthly installments of $7,397, including interest at 7.94% through November 2001 $ 194 $ 223 Note payable to the estate of Frank P. Gillette in monthly installments of $3,029, including interest at 9.5% through February 2007 197 206 Note payable to the estate of Frank P. Gillette in monthly installments of $500, including interest at 9.5% through May 2025 155 158 Note payable to bank in monthly installments of $2,282, including interest at 7.25% through February 2004 104 115 Note payable to bank in monthly installments of $4,437, including interest at 7.55% through February 2001 -- 102 ---------- -------- 650 804 Less current portion 170 164 ---------- -------- $ 480 $ 640 ========== ========
The notes payable to bank are collateralized by substantially all assets of the Company and are guaranteed by the stockholders of the Company and the estate of Frank P. Gillette. All debt was subsequently paid at September 1, 1999 pursuant to the terms of the Stock Purchase Agreement between the former stockholders of Gillette and Precision Partners, Inc. (See Note 1). Interest paid for the period ended August 31, 1999 and year ended February 28, 1999 was approximately $50,000 and $91,000, respectively. 5. INCOME TAXES Deferred taxes are provided in the financial statements for significant temporary differences arising from assets and liabilities whose bases are different for financial reporting and income tax purposes. The primary differences are attributable to inventory, depreciation, alternative minimum tax credit carryforwards and investment tax credit carryforwards. F-66 GILLETTE MACHINE & TOOL CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES (CONTINUED) The benefit (provision) for income taxes consists of the following:
YEAR ENDED PERIOD FROM MARCH 1, 1999 FEBRUARY 28, TO AUGUST 31, 1999 1999 ------------------------- ------------ (IN THOUSANDS) Current $ 46 $ 229 Deferred 64 (30) --------- --------- $ 110 $ 199 ========= =========
The tax effect of temporary differences that give rise to the net deferred tax asset are as follows:
AUGUST 31, FEBRUARY 28, 1999 1999 ---------- ------------ (IN THOUSANDS) Deferred tax asset: Inventory reserve $ 19 $ 20 Accrued expenses 22 20 Alternative minimum tax credit 157 192 Net operating loss carryforward--New York -- 10 New York State investment tax credit 187 187 --------- --------- 385 429 Deferred tax liability: Accelerated depreciation (288) (266) --------- --------- Net deferred tax asset $ 97 $ 163 ========= =========
At August 31, 1999, the Company has investment tax credits of approximately $290,000 available to reduce future New York State tax liabilities. These credits will begin to expire in 2005. The provision for income taxes differs from the "expected" provision for the periods (computed by applying the U.S. Federal corporate income tax rate of 34% to income before income taxes) as follows:
YEAR ENDED PERIOD FROM MARCH 1, 1999 FEBRUARY 28, TO AUGUST 31, 1999 1999 ------------------------- ------------ (IN THOUSANDS) Computed "expected" tax expense $ 105 $ 189 State income taxes, net of Federal income tax benefit 7 33 Other, net (2) (23) --------- --------- $ 110 $ 199 ========= =========
F-67 GILLETTE MACHINE & TOOL CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. RELATED PARTY TRANSACTIONS LEASING The Company has a lease for its facilities with the estate of Frank P. Gillette through 2001. This lease is renewable for additional five year periods. Rent expense was approximately $87,667 and $158,200 for the period March 1, 1999 to August 31, 1999 and the year ended February 28, 1999, respectively. Pursuant to the terms of the Stock Purchase Agreement between Precision Partners and the former stockholders, a new lease was executed as of September 1, 1999 with two five year terms plus two additional five year options to renew. Future minimum annual lease payments for the years ending August 31 are: 2000 $ 282,438 2001 282,438 2002 282,438 2003 282,438 2004 282,438 Thereafter 1,412,190
MANUFACTURING SERVICES The Company purchases machining services at agreed upon rates from a partnership in which the Company's stockholders are the partners. The Company also sells labor to the partnership at agreed upon rates. The Company sold labor totaling $193,662 and $400,577 to the partnership and purchased machining services totaling $401,349 and $817,540 from the partnership for the six months ended August 31, 1999 and the year ended February 28, 1999, respectively. Pursuant to the terms of the Stock Purchase Agreement between Precision Partners and the former shareholders of the Company, the Partnership was dissolved effective September 1, 1999. 7. PROFIT-SHARING PLAN The Company contributes to a profit sharing and 401(k) plan. The Company matched employee contributions up to 3% of their eligible compensation in 1999. Profit-sharing contributions to the plan are at the discretion of the Board of Directors and are allocated to eligible employees based on wages. The Company accrued approximately $106,000 for the six months ended August 31, 1999 and contributed approximately $182,000 to the Plan for the year ended February 28, 1999. 8. MAJOR CUSTOMERS During the period from March 1, 1999 to August 31, 1999, 68% of the Company's sales were to two customers. As of August 31, 1999, the Company's receivables from these two customers were approximately $1,421,000. During the year ended February 28, 1999, 78% of the Company's sales were to four customers. As of February 28, 1999, the Company's receivables from these four customers were approximately $1,399,000. F-68 GILLETTE MACHINE & TOOL CO., INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. YEAR 2000 (UNAUDITED) We did not experience any significant malfunctions or errors in our operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, we do not expect any significant impact to our on-going business as a result of the "Year 2000 issue." However, it is possible that the full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, has not been fully recognized. For example, it is possible that Year 2000 or similar issues such as leap year-related problems may occur with billing, payroll, or financial closings at month, quarterly, or year end. We believe that any such problems are likely to be minor and correctable. In addition, we could still be negatively impacted if our customers or suppliers are adversely affected by the Year 2000 or similar issues. We currently are not aware of any significant Year 2000 or similar problems that have arisen for our customers and suppliers. F-69 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PRECISION PARTNERS, INC. OFFER TO EXCHANGE 12% SENIOR SUBORDINATED NOTES DUE 2009 FOR ITS OUTSTANDING 12% SENIOR SUBORDINATED NOTES DUE 2009 [LOGO] -------- PROSPECTUS , 2000 -------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. DELAWARE GENERAL CORPORATION LAW The Delaware General Corporation Law ("DGCL") permits a corporation to indemnify any person made or threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation), whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding. Such expenses may be paid by the corporation in advance in accordance with the provisions of the DGCL. To be indemnified, such person must have acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, that the person had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, does not of itself create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The DGCL also permits a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under the DGCL. CERTIFICATE OF INCORPORATION Article Seven of the Certificate of Incorporation (the "Certificate of Incorporation") for Precision Partners, Inc. (the "Company") provides that the Company will, to the fullest extent permitted or required by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons to whom it will have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein will not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and will continue as to a person who has ceased to be a director, officer, employee or agent and will inure to the benefit of the heirs, executors and administrators of such person. Any repeal or modification of Article Seven will not adversely affect any right or protection existing thereunder immediately prior to such repeal or modification. BY-LAWS Article Four of the Company's By-laws ("Article Four") provides that the Company (1) shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he or she is or was II-1 a director or an officer of the Company and (2) except as otherwise required by Section 3 of Article Four, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he or she is or was an employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent of or participant in another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts actually and reasonably incurred by such person in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. The By-laws further provide that the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent of or participant in another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the Company unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. To the extent that a person who is or was a director, officer, employee or agent of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 or Section 2 of Article Four, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. Any indemnification under Section 1 or Section 2 of Article Four (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in said Sections 1 and 2. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. Expenses incurred by any person who may have a right of indemnification under Article Four in defending a civil or criminal action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the. Company pursuant to Article Four. II-2 The indemnification provided by Article Four shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of or participant in another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of such person's status as such, whether or not the Company would have the power to indemnify him or her against such liability under the provisions of Article Four, Section 145 of the General Company Law of the State of Delaware or otherwise. NATIONWIDE NEW YORK BUSINESS CORPORATION LAW The New York Business Corporation Law ("NYBCL") permits a corporation to indemnify any person made or threatened to be made a party to an action or proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor), including an action by or in the right of another corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director of officer of the corporation served in any capacity at the request of the corporation, by reason of the fact that the person, the person's testator or intestate, was a director or officer of the corporation, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or any appeal therein. To be indemnified, such person must have acted in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the corporation, and in criminal action or proceedings, in addition, had no reasonable cause to believe that such person's conduct was unlawful. The termination of any such civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent, does not of itself create a presumption that the person did not act in good faith, for a purpose which such person reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the corporation, or that such person had reasonable cause to believe such person's conduct was unlawful. Where indemnification is sought by judicial action, the court may allow a person such reasonable expenses, including attorneys' fees, during the pendency of the litigation as are necessary in connection with such person's defense therein, if the court shall find that such person has, by such person's pleadings or during the course of the litigation, raised genuine issues of fact or law. The NYBCL also permits a corporation to purchase and maintain insurance (1) to indemnify the corporation for any obligation which it incurs as a result of the indemnification of directors and officers under the NYBCL, (2) to indemnify directors and officers in instances in which they may be indemnified by the corporation under the NYBCL, and (3) to indemnify directors and officers in instances in which they may not otherwise be indemnified by the corporation under the NYBCL. AMENDED CERTIFICATE OF INCORPORATION AND BYLAWS Nationwide's Certificate of Incorporation, as amended, and its Bylaws, provide for indemnification of all persons to the fullest extent permitted by the NYBCL, and also authorize Nationwide to II-3 purchase and maintain insurance to indemnify such persons, whether or not such persons can be indemnified under the NYBCL; except that Nationwide's bylaws do not extend indemnification to persons who were or are serving at Nationwide's request as an agent of or participant in an employee benefit plan. Nationwide's bylaws also permit the advancement of expenses under certain circumstances. MID STATE MAINE BUSINESS CORPORATION ACT The Maine Business Corporation Act (the "MBCA") permits a corporation to indemnify any person made or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that such person was or is a director, officer, employee or agent of the corporation, or was or is serving at the request of the corporation as a director, officer, trustee, partner, fiduciary, employee or agent of another corporation, partnership, joint venture, trust, pension or other employee benefit plan, or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. Such expenses may be paid by the corporation in advance in accordance with the provisions of the MBCA. To be indemnified, such person must have acted (i) honestly or (ii) in the reasonable belief that his or her action was in or not opposed to the best interests of the corporation or its shareholders or, in the case of a person serving as a fiduciary of an employee benefit plan or trust, in or not opposed to the best interests of that plan or trust, or its participants or beneficiaries, or, in the case of any criminal action or proceeding, such person must have acted without reasonable cause to believe that such person's conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order or conviction adverse to convict that person, or by settlement or pleas of NOLO CONTENDERE or its equivalent, does not of itself create a presumption that the person did not act honestly or in the reasonable belief that his or her action was in or not opposed to the best interests of the corporation or its shareholders or, in the case of a person serving as a fiduciary of an employee benefit plan or trust, in or not opposed to the best interests of that plan or trust or its participants or beneficiaries and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful. The MBCA also permits a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, trustee, partner, fiduciary, employee or agent of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify such person against such liability under the MBCA. CERTIFICATE OF ORGANIZATION AND AMENDED AND RESTATED BYLAWS Mid State's Certificate of Organization contains no provision for indemnification. However, its Amended and Restated Bylaws provide that Mid State shall indemnify persons to the extent permitted by the MBCA, including the advancement of expenses, except that such indemnification does not extend to trustees, partners, fiduciaries, or employees or agents of a pension or other employee benefit plan. The Amended and Restated Bylaws of Mid State also provide that Mid State may purchase and maintain insurance on behalf of such persons to the extent permitted by the MBCA, whether or not such persons can be indemnified under its bylaws; except that Mid State may not purchase or maintain such insurance to indemnify trustees, partners, fiduciaries, or employees or agents of a pension or other employee benefit plan. II-4 GENERAL AUTOMATION ILLINOIS BUSINESS CORPORATION ACT The Illinois Business Corporation Act ("IBCA") permits a corporation to indemnify any person made or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred or paid by such person in connection with such action, suit or proceeding. Such expenses may be paid by the corporation in advance in accordance with the provisions of the IBCA. To be indemnified, such person must have acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, does not of itself create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of General Automation, and, with respect to any criminal action or proceeding, that the person had no reasonable cause to believe that his or her conduct was unlawful. The IBCA also permits a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under the IBCA. ARTICLES OF INCORPORATION AND BYLAWS General Automation's Articles of Incorporation contain no provision for indemnification. However, its Bylaws provide that General Automation will indemnify persons to the extent permitted by the IBCA; except that such indemnification does not extend to persons who were or are serving at General Automation's request as an agent of or participant in an employee benefit plan. The bylaws also permit General Automation to purchase and maintain insurance to indemnify such persons, whether or not such persons can be indemnified under its bylaws. CERTIFIED CALIFORNIA GENERAL CORPORATION LAW The California General Corporation Law (the "CGCL") permits a corporation to indemnify any person who was or is a director, officer, employee or other agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or who was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation, (other than an action by or in right of the corporation), against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred by such person in connection with any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative. To be indemnified, such person must have acted (i) in good faith and (ii) in a manner he or she reasonably believed to be in the best interests of the corporation; and, in the case of a criminal II-5 proceeding, such person must have acted without reasonable cause to believe that his or her conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent does not of itself create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of the corporation or that the person had reasonable cause to believe that the person's conduct was unlawful. In respect of any action by or in right of the corporation, a corporation may indemnify any person who was or is an agent of the corporation against expenses actually and reasonably incurred by such person in connection with the defense or settlement of the action if he or she acted (i) in good faith and (ii) in a manner he or she believed to be in the best interests of the corporation and its shareholders. The CGCL also permits a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation , or is or was serving at the request of the corporation as a director, officer, employee or agent of or participant in another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him or her against such liability under its bylaws, the CGCL, or otherwise. ARTICLES OF INCORPORATION AND AMENDED AND RESTATED BYLAWS Certified's Articles of Incorporation contain no provision for indemnification. However, its Amended and Restated Bylaws provide that Certified will indemnify all persons to the extent permitted by the CGCL and may purchase and maintain insurance to indemnify such persons, whether or not such persons can be indemnified under its bylaws, the CGCL, or otherwise. Certified's bylaws also permit the advancement of expenses. GILLETTE NEW YORK GENERAL CORPORATION LAW See the discussion of applicable provisions of the NYBCL above under "--Nationwide." RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS Gillette's Restated Certificate of Incorporation and its Bylaws provide for indemnification of all persons to the fullest extent permitted by the NYBCL, and also authorize Gillette to purchase and maintain insurance to indemnify such persons, whether or not such persons can be indemnified under the NYBCL. Gillette's bylaws also permit the advancement of expenses under certain circumstances. GALAXY MICHIGAN BUSINESS CORPORATION ACT The Michigan Business Corporation Act (the "Michigan BCA") permits a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (other than an action by or in the right of the corporation), by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, against expenses (including attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if the person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders, and with respect to any II-6 criminal action or proceeding, if the person had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, does not of itself create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. The Michigan BCA also permits a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the corporation would have power to indemnify him or her against liability under the Michigan BCA. ARTICLES OF INCORPORATION AND AMENDED AND RESTATED BYLAWS Galaxy's Articles of Incorporation contain no provision for indemnification. However, its Amended and Restated Bylaws provide that Galaxy will indemnify all persons to the fullest extent authorized or by the Michigan BCA and also authorize Galaxy to purchase and maintain insurance to indemnify such persons, whether or not such persons can be indemnified under the Michigan BCA. Galaxy's bylaws also permit the advancement of expenses under certain circumstances. ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES. (a) Exhibits
EXHIBIT NUMBER ITEM - --------------------- ---- 2.1 Merger Agreement dated September 30, 1998 by and among Galaxy Industries Corporation, Kenneth Smith, Galaxy Holding Co., Inc., Robert H. Leidel Revocable Living Trust, Betty A. Leidel Revocable Living Trust, Michael Leidel, Cheryl Brooks, and Galaxy Acquisition, Inc. 2.2 Redemption and Merger Agreement dated September 17, 1998 by and among Mid State Machine Products, S. Douglas Sukeforth, Mid State Holdings Co., Inc. and Mid State Acquisition Inc. 2.3 Asset Purchase Agreement dated February 5, 1999 by and among General Automation, Inc., Max Starr, and Precision Partners Holding Company 2.4 Asset Purchase Agreement dated February 11, 1999 by and among Nationwide Precision Products Corp., certain of its stockholders and Nationwide Acquisition Delaware, Inc. 2.5 Stock Purchase Agreement dated February 19, 1999 by and among Certified Fabricators Inc., Calbrit Design, Inc., certain of their selling shareholders and Precision Partners, Inc. 2.6 Stock Purchase Agreement dated August 27, 1999 by and among Gillette Machine & Tool Co., Inc., Gillette Machine & Equipment Company, certain of their selling shareholders and and Precision Partners, Inc. 2.7 Agreement of Merger dated as of May 28, 1999 by and among Certified Fabricators Inc., Calbrit Design, Inc. and Precision Partners, Inc. and filed with the Secretary of State of the State of California on July 7, 1999
II-7
EXHIBIT NUMBER ITEM - --------------------- ---- 3.1 Amended & Restated Certificate of Incorporation of Precision Partners, Inc. 3.2 Bylaws of Precision Partners, Inc. 3.3 Certificate of Incorporation of Nationwide (together with all amendments thereto) 3.4 By-laws of Nationwide 3.5 Certificate of Incorporation of Mid State (together with all amendments thereto) 3.6 Amended and Restated By-laws of Mid State 3.7 Articles of Incorporation of General Automation (together with all amendments thereto) 3.8 By-laws of General Automation 3.9 Articles of Incorporation of Certified (together with all amendments thereto) 3.10 Amended and Restated By-laws of Certified 3.11 Restated Certificate of Incorporation of Gillette 3.12 By-laws of Gillette 3.13 Articles of Incorporation of Galaxy 3.14 Amended and Restated By-laws of Galaxy *4.1 Indenture dated as of March 19, 1999 among Precision Partners, Inc., as Company, the Guarantors named therein and The Bank of New York, as trustee 4.2 First Supplemental Indenture dated October 15, 1999, among Precision Partners, Inc. and The Bank of New York, as trustee. 4.3 Second Supplemental Indenture dated October 29, 1999, among Precision Partners, Inc. and The Bank of New York, as trustee. *4.4 Form of Initial Notes (included in Exhibit 4.1) *4.5 Form of Exchange Notes (included in Exhibit 4.1) 4.6 Registration Rights Agreement dated as of March 19, 1999 among Precision Partners, Inc., Salomon Smith Barney and NationsBanc Montgomery Securities LLC *5.1 Opinion of Jones, Day, Reavis & Pogue, counsel to Precision Partners, Inc. *10.1 Credit Agreement (the "Credit Agreement") dated as of March 19, 1999 among Precision Partners, Inc., the guarantors and lenders named therein, Citibank, N.A., as Administrative Agent, Bank of America National Trust and Savings Association, as Syndication Agent, and Sun Trust Bank, Atlanta, as Documentation Agent 10.2 Waiver and Amendment to the Credit Agreement dated August 9, 1999 among Precision Partners, Inc., the guarantors and lenders named therein, and Citicorp U.S.A., Inc. 10.3+ General Electric Gas Turbine Systems Source Operation Agreement dated December 1, 1998 by and between General Electric and Mid State 10.4+ Purchase Agreement dated October 26, 1999 between Caterpillar Inc. and Galaxy. 10.5+ Purchase Agreement dated February 1, 2000 between Dana Corporation--Spicer Heavy Axle & Brake Division and Nationwide.
II-8
EXHIBIT NUMBER ITEM - --------------------- ---- 12.1 Statement re: computation of ratios 21.1 List of subsidiaries of the Company 23.1 Consent of Ernst & Young LLP 23.2 Consent of Baker Newman & Noyes 23.3 Consent of Insero, Kasperski Ciaccia & Co., P.C. 23.4 Consent of Bonadio & Co., LLP *23.5 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1) 24.1 Powers of Attorney *25.1 Statement on Form T-1 of the eligibility of the trustee 27.1 Financial Data Schedule of the Company 99.1 Form of Letter of Transmittal 99.2 Form of Notice of Guaranteed Delivery 99.3 Form of Letter to DTC Participants 99.4 Form of Letter to Clients 99.5 Form of Instruction to Book-Entry Transfer Participants
- ------------------------ * To be filed by amendment. All other exhibits are filed herewith. + Portions of this agreement have been omitted and filed separately with the Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. ITEM 22. UNDERTAKINGS. The Registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission (the "Commission") pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. II-9 (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. (5) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, the Registrants have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrants of expenses incurred or paid by a director, officer or controlling person of the Registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities registered, the Registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-10 SIGNATURES Pursuant to the requirements of the Securities Act, Precision Partners, Inc. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irving, in the State of Texas, on March 28, 2000. PRECISION PARTNERS, INC. By: /s/ RONALD M. MILLER ----------------------------------------- Ronald M. Miller VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities indicated on March 28, 2000.
SIGNATURE TITLE --------- ----- * Chairman, Chief Executive Officer and Director ------------------------------------------- (Principal Executive Officer) Dr. James E. Ashton * Vice President and Chief Financial Officer ------------------------------------------- (Principal Financial and Accounting Officer) Ronald M. Miller * Vice President--Operations ------------------------------------------- Melvin Johnson * Director ------------------------------------------- David W.M. Harvey * Director ------------------------------------------- Richard Detweiler * Director ------------------------------------------- John F. Megrue * Director ------------------------------------------- William J. Gumina
* By: /s/ RONALD M. MILLER ---------------------------------------- Ronald M. Miller Pursuant to Powers of Attorney filed herewith or previously with the Securities and Exchange Commission
II-11 SIGNATURES Pursuant to the requirements of the Securities Act, Certified Fabricators, Inc. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irving, in the State of Texas, on March 28, 2000. CERTIFIED FABRICATORS, INC. By: /s/ RONALD M. MILLER ----------------------------------------- Ronald M. Miller VICE PRESIDENT, TREASURER AND SECRETARY
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities indicated on March 28, 2000.
SIGNATURE TITLE --------- ----- * President and Chief Executive Officer ------------------------------------------- (Principal Executive Officer) Richard Fagan * Vice President, Treasurer, ------------------------------------------- Secretary and Director Ronald M. Miller (Principal Financial and Accounting Officer) * Chairman and Director ------------------------------------------- Dr. James E. Ashton * Director ------------------------------------------- William J. Gumina
* By: /s/ RONALD M. MILLER ---------------------------------------- Ronald M. Miller Pursuant to Powers of Attorney filed herewith or previously with the Securities and Exchange Commission
II-12 SIGNATURES Pursuant to the requirements of the Securities Act, Galaxy Industries Corporation has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irving, in the State of Texas, on March 28, 2000. GALAXY INDUSTRIES CORPORATION By: /s/ RONALD M. MILLER ----------------------------------------- Ronald M. Miller VICE PRESIDENT, TREASURER AND SECRETARY
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities indicated on March 28, 2000.
SIGNATURE TITLE --------- ----- * President and Chief Executive Officer ------------------------------------------- (Principal Executive Officer) Byrdell C. Goldsmith * Vice President, Treasurer, ------------------------------------------- Secretary and Director Ronald M. Miller (Principal Financial and Accounting Officer) * Chairman and Director ------------------------------------------- Dr. James E. Ashton * Director ------------------------------------------- William J. Gumina
* By: /s/ RONALD M. MILLER ---------------------------------------- Ronald M. Miller Pursuant to Powers of Attorney filed herewith or previously with the Securities and Exchange Commission
II-13 SIGNATURES Pursuant to the requirements of the Securities Act, Mid State Machine Products. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irving, in the State of Texas, on March 28, 2000. MID STATE MACHINE PRODUCTS By: /s/ RONALD M. MILLER ----------------------------------------- Ronald M. Miller VICE PRESIDENT, TREASURER AND SECRETARY
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities indicated on March 28, 2000.
SIGNATURE TITLE --------- ----- * President and Chief Executive Officer ------------------------------------------- (Principal Executive Officer) S. Douglas Sukeforth * Vice President, Treasurer, ------------------------------------------- Secretary and Director Ronald M. Miller (Principal Financial and Accounting Officer) * Chairman and Director ------------------------------------------- Dr. James E. Ashton * Director ------------------------------------------- William J. Gumina
* By: /s/ RONALD M. MILLER ---------------------------------------- Ronald M. Miller Pursuant to Powers of Attorney filed herewith or previously with the Securities and Exchange Commission
II-14 SIGNATURES Pursuant to the requirements of the Securities Act, General Automation, Inc. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irving, in the State of Texas, on March 28, 2000. GENERAL AUTOMATION, INC. By: /s/ RONALD M. MILLER ----------------------------------------- Ronald M. Miller VICE PRESIDENT, TREASURER AND SECRETARY
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities indicated on March 28, 2000.
SIGNATURE TITLE --------- ----- * President and Chief Executive Officer ------------------------------------------- (Principal Executive Officer) Edward R. Gajewski * Vice President, Treasurer, ------------------------------------------- Secretary and Director Ronald M. Miller (Principal Financial and Accounting Officer) * Chairman and Director ------------------------------------------- Dr. James E. Ashton * Director ------------------------------------------- William J. Gumina
* By: /s/ RONALD M. MILLER ---------------------------------------- Ronald M. Miller Pursuant to Powers of Attorney filed herewith or previously with the Securities and Exchange Commission
II-15 SIGNATURES Pursuant to the requirements of the Securities Act, Nationwide Precision Products Corp. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irving, in the State of Texas, on March 28, 2000. NATIONWIDE PRECISION PRODUCTS CORP. By: /s/ RONALD M. MILLER ----------------------------------------- Ronald M. Miller VICE PRESIDENT, TREASURER AND SECRETARY
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities indicated on March 28, 2000.
SIGNATURE TITLE --------- ----- * President and Chief Executive Officer ------------------------------------------- (Principal Executive Officer) Ronald S. Ricotta * Vice President, Treasurer, ------------------------------------------- Secretary and Director Ronald M. Miller (Principal Financial and Accounting Officer) * Chairman and Director ------------------------------------------- Dr. James E. Ashton * Director ------------------------------------------- William J. Gumina
* By: /s/ RONALD M. MILLER ---------------------------------------- Ronald M. Miller Pursuant to Powers of Attorney filed herewith or previously with the Securities and Exchange Commission
II-16 SIGNATURES Pursuant to the requirements of the Securities Act, Gillette Machine & Tool Co., Inc. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irving, in the State of Texas, on March 28, 2000. GILLETTE MACHINE & TOOL CO., INC. By: /s/ RONALD M. MILLER ----------------------------------------- Ronald M. Miller VICE PRESIDENT, TREASURER AND SECRETARY
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities indicated on March 28, 2000.
SIGNATURE TITLE --------- ----- * President ------------------------------------------- (Principal Executive Officer) Darren J. Gillette * Vice President, Treasurer, ------------------------------------------- Secretary and Director Ronald M. Miller (Principal Financial and Accounting Officer) * Chairman and Director ------------------------------------------- Dr. James E. Ashton * Director ------------------------------------------- William J. Gumina
* By: /s/ RONALD M. MILLER ---------------------------------------- Ronald M. Miller Pursuant to Powers of Attorney filed herewith or previously with the Securities and Exchange Commission
II-17 INDEX TO EXHIBITS
EXHIBIT NUMBER ITEM - --------------------- ---- 2.1 Merger Agreement dated September 30, 1998 by and among Galaxy Industries Corporation, Kenneth Smith, Galaxy Holding Co., Inc., Robert H. Leidel Revocable Living Trust, Betty A. Leidel Revocable Living Trust, Michael Leidel, Cheryl Brooks, and Galaxy Acquisition, Inc. 2.2 Redemption and Merger Agreement dated September 17, 1998 by and among Mid State Machine Products, S. Douglas Sukeforth, Mid State Holdings Co., Inc. and Mid State Acquisition Inc. 2.3 Asset Purchase Agreement dated February 5, 1999 by and among General Automation, Inc., Max Starr, and Precision Partners Holding Company 2.4 Asset Purchase Agreement dated February 11, 1999 by and among Nationwide Precision Products Corp., certain of its stockholders and Nationwide Acquisition Delaware, Inc. 2.5 Stock Purchase Agreement dated February 19, 1999 by and among Certified Fabricators Inc., Calbrit Design, Inc., certain of their selling shareholders and Precision Partners, Inc. 2.6 Stock Purchase Agreement dated August 27, 1999 by and among Gillette Machine & Tool Co., Inc., Gillette Machine & Equipment Company, certain of their selling shareholders and and Precision Partners, Inc. 2.7 Agreement of Merger dated as of May 28, 1999 by and among Certified Fabricators Inc., Calbrit Design, Inc. and Precision Partners, Inc. and filed with the Secretary of State of the State of California on July 7, 1999 3.1 Amended and Restated Certificate of Incorporation of Precision Partners, Inc. 3.2 Bylaws of Precision Partners, Inc. 3.3 Certificate of Incorporation of Nationwide (together with all amendments thereto) 3.4 By-laws of Nationwide 3.5 Certificate of Incorporation of Mid State (together with all amendments thereto) 3.6 Amended and Restated By-laws of Mid State 3.7 Articles of Incorporation of General Automation (together with all amendments thereto) 3.8 By-laws of General Automation 3.9 Articles of Incorporation of Certified (together with all amendments thereto) 3.10 Amended and Restated By-laws of Certified 3.11 Restated Certificate of Incorporation of Gillette 3.12 By-laws of Gillette 3.13 Articles of Incorporation of Galaxy 3.14 Amended and Restated By-laws of Galaxy *4.1 Indenture dated as of March 19, 1999 among Precision Partners, Inc., as Company, the Guarantors named therein and The Bank of New York, as trustee 4.2 First Supplemental Indenture dated October 15, 1999, among Precision Partners, Inc. and The Bank of New York, as trustee.
EXHIBIT NUMBER ITEM - --------------------- ---- 4.3 Second Supplemental Indenture dated October 29, 1999, among Precision Partners, Inc. and The Bank of New York, as trustee. *4.4 Form of Initial Notes (included in Exhibit 4.1) *4.5 Form of Exchange Notes (included in Exhibit 4.1) 4.6 Registration Rights Agreement dated as of March 19, 1999 among Precision Partners, Inc., Salomon Smith Barney and NationsBanc Montgomery Securities LLC *5.1 Opinion of Jones, Day, Reavis & Pogue, counsel to Precision Partners, Inc. *10.1 Credit Agreement (the "Credit Agreement") dated as of March 19, 1999 among Precision Partners, Inc., the guarantors and lenders named therein, Citibank, N.A., as Administrative Agent, Bank of America National Trust and Savings Association, as Syndication Agent, and Sun Trust Bank, Atlanta, as Documentation Agent 10.2 Waiver and Amendment to the Credit Agreement dated August 9, 1999 among Precision Partners, Inc., the guarantors and lenders named therein, and Citicorp U.S.A., Inc. 10.3+ General Electric Gas Turbine Systems Source Operation Agreement dated December 1, 1998 by and between General Electric and Mid State 10.4+ Purchase Agreement dated October 26, 1999 between Caterpillar Inc. and Galaxy. 10.5+ Purchase Agreement dated February 1, 2000 between Dana Corporation--Spicer Heavy Axle & Brake Division and Nationwide. 12.1 Statement re: computation of ratios 21.1 List of subsidiaries of the Company 23.1 Consent of Ernst & Young LLP 23.2 Consent of Baker Newman & Noyes 23.3 Consent of Insero, Kasperski Ciaccia & Co., P.C. 23.4 Consent of Bonadio & Co., LLP *23.5 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1) 24.1 Powers of Attorney *25.1 Statement on Form T-1 of the eligibility of the trustee 27.1 Financial Data Schedule of the Company 99.1 Form of Letter of Transmittal 99.2 Form of Notice of Guaranteed Delivery 99.3 Form of Letter to DTC Participants 99.4 Form of Letter to Clients 99.5 Form of Instruction to Book-Entry Transfer Participants
- ------------------------ * To be filed by amendment. All other exhibits are filed herewith. + Portions of this agreement have been omitted and filed separately with the Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. EX-2.1 2 MERGER AGREEMENT (SEPT. 30, 1998) EXHIBIT 2.1 CONFORMED COPY MERGER AGREEMENT MERGER AGREEMENT (this "AGREEMENT"), dated as of September 30, 1998, by and among GALAXY INDUSTRIES CORPORATION, a Michigan corporation (the "COMPANY"), the Persons listed on SCHEDULE 1 attached hereto (the "STOCKHOLDERS"), GALAXY HOLD CO., INC., a Delaware corporation ("PARENT"), and GALAXY ACQUISITION, INC., a Delaware corporation and a wholly owned subsidiary of Parent ("MERGER SUB"). RECITALS A. Parent has formed Merger Sub solely for the purpose of facilitating an efficient exchange by stockholders of the Company of their shares of common stock of the Company, no par value per share ("COMPANY STOCK"), for the Aggregate Closing Merger Consideration pursuant to the terms of this Agreement, and Merger Sub will not conduct any separate business activity nor serve any function other than to effect for the benefit of Parent and the Stockholders the conversion of Company Stock into the Aggregate Closing Merger Consideration. B. The respective Boards of Directors of the Company, Parent and Merger Sub have each determined that it is in the best interests of their respective shareholders for Merger Sub to merge with and into the Company (the "MERGER"), on the terms and subject to the conditions set forth herein. C. Immediately prior to the consummation of the transactions contemplated hereby, Kenneth Smith has contributed 7,192 shares of Company Stock to Precision Partners, L.L.C. in exchange for Membership Units (as defined in the Members Agreement of Precision Partners, L.L.C.). SCHEDULE 1 to this Agreement reflects the contribution of such shares of Company Stock, which have been contributed by Precision Partners, L.L.C. to Parent and will continue as shares of common stock of the Surviving Corporation as described in Section 2.6(e) hereof. D. The parties desire to make certain representations, warranties and covenants in connection with the Merger and to prescribe various conditions to the Merger. Accordingly, the parties hereto agree as follows: I. DEFINITIONS 1.1. DEFINITIONS. In addition to the terms defined elsewhere herein, the following terms, as used herein, have the following meanings when used herein with initial capital letters: "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with the first Person. For the 1 purposes of this definition, "CONTROL," when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing. "AGGREGATE CLOSING MERGER CONSIDERATION" has the meaning ascribed to such term in Section 2.6(a). "AGREEMENT" has the meaning ascribed to such term in the introductory paragraph of this Agreement as the same may be amended from time to time in accordance with the terms hereof. "BALANCE SHEET DATE" means August 31, 1997. "BONUSES" have the meaning ascribed to such term in Section 3.1.21(b). "BUSINESS DAY" means a day other than a Saturday or Sunday or a day on which banks located in New York City are authorized or required to close. "CAPITAL STOCK" means (a) with respect to any Person that is a corporation, any and all shares, interests, participation or other equivalents (however designated and whether or not voting) of corporate stock, including the common stock of such Person and (b) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "CLOSING" has the meaning ascribed to such term in Section 2.9. "CLOSING DATE" has the meaning ascribed to such term in Section 2.9. "CODE" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "COMPANY" has the meaning ascribed to such term in the introductory paragraph of this Agreement, provided that references to the Company shall be deemed to include references to former Subsidiaries of the Company that have been directly or indirectly merged into or otherwise combined with the Company. "COMPANY PROPERTY" means any real property and improvements and any personal property at any time owned, leased, used, operated or occupied (whether for storage, disposal or otherwise) by the Company or any Subsidiary. "COMPANY SECURITIES" has the meaning ascribed to such term in Section 3.1.5(b). "COMPANY STOCK" has the meaning ascribed to such term in Recital A. "COMPUTER SYSTEMS" has the meaning ascribed to such term in Section 3.1.25. 2 "CONSTITUENT OF CONCERN" means any substance defined as a hazardous substance, hazardous waste, hazardous material, pollutant, or contaminant by any Environmental Law, any petroleum hydrocarbon and any degradation product of a petroleum hydrocarbon, asbestos, PCB or similar substance, the handling, storage, treatment or exposure of or to which is subject to regulation under any Environmental Law. "DAMAGES" has the meaning ascribed to such term in Section 6.2(a). "DGCL" has the meaning ascribed to such term in Section 2.1. "DIRECT CLAIM" has the meaning ascribed to such term in Section 6.4(c). "DISPUTE NOTICE" has the meaning ascribed to such term in Section 5.1. "EFFECTIVE TIME" has the meaning ascribed to such term in Section 2.2. "ENVIRONMENTAL CLAIMS" means administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, citations, summonses, notices of non-compliance or violation, requests for information, investigations or proceedings relating to any Environmental Law or any permit issued under any such Law, including (a) Environmental Claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) Environmental Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Constituents of Concern or arising from alleged injury or threat of injury to human health and safety or the environment. "ENVIRONMENTAL CONDITION" means a condition with respect to the environment which has resulted or could result in a material loss, liability, cost or expense to the Company . "ENVIRONMENTAL LAW" means any Law in effect or to the Company's and the Shareholders' knowledge, any Law reasonably expected to be adopted or made effective, in each case as amended as of the Closing Date, and any judicial or administrative interpretation thereof as of the Closing Date, including any judicial or administrative order, consent decree or judgment, relating to the environment, human health and safety, including, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601, ET SEQ. ("CERCLA") and any state and local counterparts or equivalents. "ENVIRONMENTAL PERMITS" means all permits, licenses, authorizations, certificates and approvals of Governmental Authorities relating to or required by Environmental Laws and necessary for the business of the Company as currently conducted. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" means any entity that, together with the Company, would be considered a single employer within the meaning of Section 4001 of ERISA or Section 414 of the Code. 3 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "FISCAL YEAR" means the twelve months ended August 31 or any other annual period as determined from time to time by the board of directors of the Company. "GAAP" means U.S. generally accepted accounting principles, consistently applied. "GOVERNMENTAL AUTHORITY" means any domestic or foreign governmental or regulatory authority. "INDEBTEDNESS" means with respect to any Person, at any date, without duplication, (i) all obligations of such Person for borrowed money, including, without limitation, all principal, interest, premiums, fees, expenses, overdrafts and penalties with respect thereto, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of the property or services, except trade payables incurred in the ordinary course of business, (iv) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (v) all obligations of such Person as lessee which are required to be capitalized in accordance with GAAP and (vi) all Indebtedness of any other Person of the type referred to in clauses (i) to (v) above directly or indirectly guaranteed by such Person or secured by any assets of such Person. "INDEMNIFIED PARTY" has the meaning ascribed to such term in Section 6.4(a). "INDEMNIFYING PARTY" has the meaning ascribed to such term in Section 6.4(a). "INTELLECTUAL PROPERTY RIGHT" means any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how (including any registrations or applications for registration of any of the foregoing) or any other similar type of proprietary intellectual property right, in each case which is used or held for use or otherwise necessary in connection with the conduct of the business of the Company as now conducted or proposed to be conducted. "INTERIM FINANCIAL STATEMENTS" means the unaudited consolidated balance sheet of the Company and its Subsidiaries as of July 31, 1998 and the related consolidated statements of earnings and retained earnings, stockholders' equity and cash flows. "IRS" means the Internal Revenue Service. "LAW" means any federal, state or local statute, law, rule, regulation, ordinance, code, permit, license, policy or rule of common law. "LEIDAL FAMILY STOCKHOLDERS" means the Robert H. Leidal Revocable Living Trust, the Betty A. Leidal Revocable Living Trust, Michael R. Leidal and Cheryl Brooks. "LIEN" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such 4 property or asset. For the purposes of this Agreement, a Person will be deemed to own, subject to a Lien, any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, assets, liabilities, condition (financial and other), results of operations or prospects of the Company and the Subsidiaries. "MBCA" has the meaning ascribed to such term in Section 2.1. "MERGER" has the meaning ascribed to such term in Recital B. "MERGER SUB" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "MILLENNIUM COMPLIANCE" means that the Computer Systems are capable of the following, during and/or after January 1, 2000: (a) handling date information involving all and any dates, including accepting input, providing output and performing date calculations in whole or in part; (b) operating accurately without interruption on and in respect of any and all dates and without any change in performance; (c) responding to and processing two digit year input without creating any ambiguity as to the century; and (d) storing and providing date input information without creating any ambiguity as to the century. "1998 TAX RESERVES" means an amount equal to $194,000 representing agreed upon reserves for Taxes with respect to the Company for the fiscal year ended 1998. "1998 TAX YEAR" means the fiscal year ending August 31, 1998. "OPERATING COMPANY" means an "operating company" within the meaning of Department of Labor Regulation Section 2510.3-101(c) or successor rule or regulation, as from time to time amended and in effect. "ORDER" means any judgment, injunction, judicial or administrative order or decree. "PARENT" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "PARENT INDEMNIFIED PARTIES" has the meaning ascribed to such term in Section 6.2. "PERMITTED LIEN" means (i) mechanics', workmen's, repairmen's or other like Liens arising or incurred in the ordinary course of business in respect of obligations that are not overdue or (ii) other imperfections of title or encumbrances, which do not materially affect the value or marketability of the property subject thereto. 5 "PER SHARE CLOSING MERGER CONSIDERATION" has the meaning ascribed to such term in Section 2.6(a). "PERSON" means an individual, corporation, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLANS" has the meaning ascribed to such term in Section 3.1.19(a). "POST-CLOSING TAX PERIOD" means any Tax period (or portion thereof) ending after the Closing Date. "PRE-CLOSING TAX PERIOD" means any Tax period (or portion thereof) that actually ends on or before the Closing Date or that would have ended on or before the Closing Date if Parent were a C corporation filing a consolidated return. "REAL PROPERTY" has the meaning ascribed to such term in Section 3.1.16(b). "RETURNS" has the meaning ascribed to such term in Section 3.1.10(a)(i). "REVIEWED BALANCE SHEET" means the reviewed balance sheet of the Company as of August 31, 1997. "REVIEWED STATEMENTS" means the reviewed consolidated balance sheets of the Company and its Subsidiaries, as of August 31, 1997, 1996 and 1995, together with the related consolidated statements of earnings and retained earnings, stockholders' equity and cash flows for the fiscal years then ended, together with the notes thereto. "SELECTED REPRESENTATIONS AND WARRANTIES" has the meaning ascribed to such term in Section 6.1. "SHAREHOLDER AGREEMENT" means the Shareholder, Restriction and Governance Agreement among the Stockholders and the Company, dated September 12, 1997. "STOCKHOLDER" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "SUBSIDIARY" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by the Company. "SURVIVING CORPORATION" has the meaning ascribed to such term in Section 2.1. "TAX" means (a) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, license, withholding on amounts paid to or by the Company or any Subsidiary, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty, levy, or other tax, governmental fee or other like assessment or charge of any kind 6 whatsoever, together with any interest, penalty, addition to tax or additional amount imposed by any Taxing Authority (as hereinafter defined), (b) any liability of the Company or any Subsidiary for the payment of any amounts of any of the foregoing types as a result of being a member of an affiliated, consolidated, combined or unitary group, or being a party to any agreement or arrangement whereby liability of the Company or any Subsidiary for payment of such amounts was determined or taken into account with reference to the liability of any other Person, and (c) liability of the Company or any Subsidiary for the payment of any amounts as a result of being a party to any Tax Sharing Agreements or with respect to the payment of any amounts of any of the foregoing types as a result of any express or implied obligation to indemnify any other Person. "TAX MATTER" has the meaning ascribed to such term in Section 5.4. "TAX SHARING AGREEMENTS" means all existing Tax sharing agreements or arrangements (whether or not written) binding the Company or any Subsidiary. "TAXING AUTHORITY" means any Governmental Authority responsible for the imposition of any Tax. "THIRD PARTY CLAIM" means any claim, demand, action, suit or proceeding made or brought by any Person who or which is not a party to this Agreement. II. THE MERGER; CLOSING 2.1. THE MERGER. Subject to and in accordance with the terms and conditions of this Agreement and in accordance with the Delaware General Corporation Law (the "DGCL") and the Michigan Business Corporation Act (the "MBCA") at the Effective Time, Merger Sub will be merged with and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub will cease and the Company will continue as the surviving corporation (sometimes referred to herein as the "SURVIVING CORPORATION") and will succeed to and assume all of the rights and obligations of Merger Sub in accordance with the DGCL and the MBCA. 2.2. CONSUMMATION OF THE MERGER. As soon as practicable on the Closing Date, the parties will cause the Merger to be consummated by filing with the Delaware Secretary of State and the Michigan Secretary of State a certificate of merger or articles of merger, in form reasonably satisfactory to the Company, Parent and Merger Sub, executed in accordance with the relevant provisions of the DGCL and MBCA and will make all other filings or recordings required under the DGCL and MBCA to effect the Merger. The "EFFECTIVE TIME" as that term is used in this Agreement will mean the effective time set forth in the certified copy of the certificate of merger or articles of merger issued by the Michigan Secretary of State and the Delaware Secretary of State with respect to the Merger. 2.3. EFFECTS OF THE MERGER. The Merger will have the effects set forth in the DGCL and the MBCA. 2.4. ARTICLES OF INCORPORATION; BY-LAWS. The Articles of Incorporation and Bylaws of the Company, as in effect immediately prior to the Effective Time, will be the Articles of 7 Incorporation and By-laws of the Surviving Corporation and thereafter will continue to be its Articles of Incorporation and By-Laws until amended as provided therein and under the MBCA. 2.5. DIRECTORS AND OFFICERS. The director of Merger Sub immediately prior to the Effective Time will be the initial director of the Surviving Corporation, to hold office in accordance with the Articles of Incorporation and By-Laws of the Surviving Corporation until his successor is duly elected or appointed and qualified. The officers of the Company immediately prior to the Effective Time will be the initial officers of the Surviving Corporation, each to hold office until their respective successors are duly elected or appointed and qualified. 2.6. CONVERSION OF SECURITIES; MERGER CONSIDERATION. Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of the Company, Parent, Merger Sub or their respective shareholders (including, without limitation, the Stockholders): (a) Each share of Company Stock issued and outstanding immediately prior to the Effective Time as set forth on SCHEDULE 1 opposite each Person's name thereon, except for Company Stock owned by Parent, will be converted into the right to receive, in cash, an amount per share of Company Stock equal to (i) $8.0 million (the "AGGREGATE CLOSING MERGER CONSIDERATION") DIVIDED BY (ii) the number of issued and outstanding shares of Company Stock immediately prior to the Effective Time (the quotient of (i) DIVIDED BY (ii), the "PER SHARE CLOSING MERGER CONSIDERATION"). (b) As of the Effective Time, all Company Stock, except for Company Stock owned by Parent, will no longer be outstanding and will automatically be canceled and retired and will cease to exist, and each holder of a certificate representing any shares of Company Stock will cease to have any rights with respect thereto, except the right to receive such holder's appropriate portion of the Aggregate Closing Merger Consideration as set forth in Section 2.6(a), upon surrender of such certificate in accordance with Section 2.6(d). (c) Each share of Company Stock held in the treasury of the Company immediately prior to the Effective Time will be canceled and extinguished at the Effective Time without any conversion thereof and no payment will be made with respect thereto. (d) At the Effective Time, each Stockholder will be entitled, upon surrender to Parent of such Stockholder's certificates representing shares of Company Stock, to receive in exchange therefor an amount equal to the Per Share Closing Merger Consideration MULTIPLIED BY the number of shares of Company Stock set forth opposite such Stockholder's name on SCHEDULE 1. (e) Each share of Company Stock owned by Parent shall continue to be issued and outstanding upon the Effective Time as validly issued, fully paid and nonassessable shares of common stock of the Surviving Corporation. (f) Each share of common stock, par value $.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time will automatically without any action on the part of the holder thereof, be converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation which as of the Effective 8 Time will, together with the stock of the Surviving Corporation described in paragraph (e) above, constitute all of the issued and outstanding shares of the Surviving Corporation. 2.7. CLOSING OF TRANSFER RECORDS. After the close of business on the Closing Date, transfers of Company Stock outstanding prior to the Effective Time will not be made on the stock transfer books of the Surviving Corporation. 2.8. PAYMENT OF AGGREGATE CLOSING MERGER CONSIDERATION. Payment of the Aggregate Closing Merger Consideration will be made in immediately available funds by wire transfer at Closing to the account designated in writing by each Stockholder as set forth in SCHEDULE 2.8 attached hereto, for the benefit of such Stockholder. 2.9. CLOSING. The closing of the Merger (the "CLOSING") will take place at the offices of Jones, Day, Reavis & Pogue located at 599 Lexington Avenue, New York, New York, at 10:00 a.m., New York time, on the date hereof (the date on which the Closing occurs is herein referred to as the "CLOSING DATE"). 2.10. CLOSING DELIVERIES. In addition to such other deliveries as may be contemplated hereby, at the Closing, the following deliveries shall be made: (a) Each Stockholder shall deliver to parent a spousal consent of such Stockholder's spouse, if any, dated the Closing Date in substantially the form attached hereto as EXHIBIT A. (b) The Company shall deliver to Parent a non-foreign person affidavit required by Section 1445 of the Code. (c) The Company shall deliver to Parent a letter of resignation from each Director of the Company. (d) The Company shall deliver to Parent the opinion of counsel to the Company and the Stockholders, dated the Closing Date, substantially in the form attached hereto as EXHIBIT B. (e) Parent shall deliver to the Stockholders the opinion of counsel to Parent, dated the Closing Date, substantially in the form attached hereto as EXHIBIT C. 2.11. PROCEEDINGS. (a) Except as otherwise specifically provided for herein, all proceedings that will be taken and all documents that will be executed and delivered by the parties hereto on the Closing Date will be deemed to have been taken and executed simultaneously, and no proceeding will be deemed taken nor any document executed and delivered until all have been taken, executed and delivered. (b) The Stockholders agree that, upon execution and delivery of this Agreement and the closing of the transactions contemplated hereby, the Shareholder Agreement will be terminated and of no further force and effect. 9 III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS 3.1. The Stockholders and the Company represent and warrant to Parent and Merger Sub as of the Closing Date as follows: 3.1.1. CORPORATE EXISTENCE AND POWER. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company has all corporate power and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. The Company has heretofore delivered to Parent true and complete copies of the articles of incorporation and by-laws of the Company. 3.1.2. CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by the Company of this Agreement are within the Company's corporate powers and have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 3.1.3. GOVERNMENTAL AUTHORIZATION. Except for the filing of the certificates of merger, the execution, delivery and performance by the Company of this Agreement require no action by or in respect of, or filing with, any Governmental Authorities. 3.1.4. NON-CONTRAVENTION; CONSENTS. Except as disclosed on SCHEDULE 3.1.4, the execution, delivery and performance by the Company of this Agreement will not (a) violate the articles of incorporation or by-laws or comparable organizational documents of the Company or any Subsidiary, (b) violate any applicable Law or Order, (c) require any filing with or permit, consent or approval of, or the giving of any notice to, any Person (including filings, consents or approvals required under any permits of the Company or any licenses to which the Company is a party), (d) result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of, the Company or any Subsidiary or to a loss of any benefit to which the Company or any Subsidiary is entitled under any agreement or other instrument binding upon, the Company or such Subsidiary or any license, franchise, permit or other similar authorization held by the Company or such Subsidiary, or (e) result in the creation or imposition of any Lien on any asset of the Company or any Subsidiary, except in the case of clauses (c), (d) and (e) for such filings, permits, consents, approvals or notices and violations, breaches, conflicts and Liens which, individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. 3.1.5. CAPITALIZATION. (a) The authorized, issued and outstanding capital of the Company is as set forth on SCHEDULE 3.1.5(a). The Company Stock to be acquired by Parent is duly authorized, validly issued, fully-paid, nonassessable and free and clear of any Lien or other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such shares, subject to applicable securities laws). 10 (b) Except as disclosed in SCHEDULE 3.1.5(b), there are no outstanding (i) shares of capital stock or other securities of the Company, (ii) securities of the Company convertible into or exchangeable for shares of capital stock or other securities of the Company, or (iii) options or other rights to acquire from the Company, or other obligation of the Company to issue, any capital stock, other securities or securities convertible into or exchangeable for capital stock or other securities of the Company (the items in clauses (i), (ii) and (iii) being referred to collectively as the "COMPANY SECURITIES"). Except as disclosed in SCHEDULE 3.1.5(b), there are no outstanding obligations of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any Company Securities. 3.1.6. SUBSIDIARIES. The Company has no Subsidiaries. Except as disclosed in SCHEDULE 3.1.6(c), the Company does not own any capital stock or other equity or ownership or proprietary interest in any corporation, partnership, association, trust, joint venture or other entity. 3.1.7. FINANCIAL STATEMENTS; BOOKS AND RECORDS. (a) The Company has heretofore furnished Parent the Reviewed Statements. The Reviewed Statements, including the footnotes thereto, have been prepared from the Company's general ledger and fairly and accurately present in all material respects the Company's general ledger and the financial position of the Company at the respective dates thereof and the results of the operations and cash flows of the Company and the Subsidiaries for the periods indicated. (b) The Company has also heretofore furnished Parent the Interim Financial Statements. The Interim Financial Statements have been prepared from the Company's general ledger and on a basis consistent with the Reviewed Statements. The Interim Financial Statements fairly and accurately present in all material respects the Company's general ledger and the financial position of the Company at the date thereof and the results of the operations of the Company for the period indicated. (c) Except as set forth on Schedule 3.1.7(c), there have been no changes in the Company's reserve or accrual amounts or policies from the Balance Sheet Date. (d) The books of account, minute books, stock record books, and other records of the Company, all of which have been made available to Parent, are complete and correct and have been maintained in accordance with sound business practices. 3.1.8. NO UNDISCLOSED LIABILITIES. (a) There are no liabilities of the Company or any facts or circumstances which could give rise to liabilities of the Company, whether accrued, contingent, absolute, determined, determinable or otherwise, other than (a) liabilities fully provided for in the Interim Financial Statements; (b) liabilities specifically disclosed on SCHEDULE 3.1.8 or SCHEDULE 3.1.10; and (c) other undisclosed liabilities incurred since the date of the Interim Financial Statements in the ordinary course of business which, individually or in the aggregate, could not have a Material Adverse Effect. 3.1.9. INTERCOMPANY ACCOUNTS. SCHEDULE 3.1.9 contains a complete list of all intercompany balances as of the date hereof between any Stockholder and such Stockholder's Affiliates, on the one hand, and the Company, on the other hand. Other than as disclosed on SCHEDULE 3.1.9, there has not been any accrual of liability by the Company to any Stockholder or 11 such Stockholder's Affiliates or other transaction between the Company and any Stockholder and such Stockholder's Affiliates or any action taken (other than this Agreement) which could reasonably be expected to result in any such accrual or the incurrence of any legal or financial obligation to any such Person. 3.1.10. TAX MATTERS. (a) Except as disclosed in SCHEDULE 3.1.10(a): (i) All Tax returns, statements, reports and forms (including estimated tax or information returns and reports) required to be filed with any Taxing Authority with respect to any Pre-Closing Tax Period by or on behalf of the Company (collectively, the "RETURNS") have, to the extent required to be filed on or before the date hereof, been filed when due in accordance with all applicable laws; (ii) The Returns correctly reflected in all material respects, the facts regarding the income, business, assets, operations, and activities and status of the Company; (iii) All Taxes owed by the Company (whether or not shown as due and payable on the Returns that have been filed) have been timely paid, or withheld and remitted to the appropriate Taxing Authority; (iv) Any reserves established for Taxes, with respect to the Company for any Pre-Closing Tax Period (including any Pre-Closing Tax Period for which no Return has yet been filed) reflected on the books of the Company or Schedule 3.1.7(c) (excluding any provision for deferred income taxes) fairly and accurately reflect the Tax liability of the Company in all material respects for such Pre-Closing Tax Period(s); (v) The Company is not delinquent in the payment of any Tax and has not requested any extension of time within which to file any Return except for extensions granted as a matter of right; (vi) The Company (or any member of any affiliated, consolidated, combined or unitary group of which the Company is or has been a member) has not granted any extension or waiver of the statute of limitations period applicable to any Return, which period (after giving effect to such extension or waiver) has not yet expired; (vii) There is no action, suit or proceeding now pending and no claim, audit or investigation now pending of which the Company is aware or, to the knowledge of the Company, any action, suit, claim, audit or investigation threatened against or with respect to the Company in respect of any Tax; (viii) The Company does not own any interest in real property in any jurisdiction in which a Tax is imposed on the transfer of a controlling interest in an entity that owns any interest in real property; (ix) Neither the Company nor any other Person on behalf of the Company has entered into any agreement or consent pursuant to Section 341(f) of the Code; 12 (x) There are no Liens for Taxes upon the assets of the Company, except Liens for current Taxes not yet due; (xi) Except as may be required as a result of the disclosure in item 2 of Schedule 3.1.11(b) and Schedule 3.1.24, the Company will not be required to include any adjustment in taxable income for any Post-Closing Tax Period under Section 481(c) of the Code (or any similar provision of the Tax laws of any jurisdiction) as a result of a change in method of accounting for a Pre-Closing Tax Period or pursuant to the provisions of any agreement entered into with any Taxing Authority with regard to the Tax liability of the Company for any Pre-Closing Tax Period; and (xii) The Company has not been a member of an affiliated, consolidated, combined or unitary group or participated in any other arrangement whereby any income, revenues, receipts, gain or loss of the Company was determined or taken into account for Tax purposes with reference to or in conjunction with any income, revenues, receipts, gain, loss, asset or liability of any other Person. (b) SCHEDULE 3.1.10(b) contains a list of all jurisdictions (whether foreign or domestic) to which any Tax imposed on overall net income is properly payable by the Company. 3.1.11. ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE 3.1.11(b), since the Balance Sheet Date, the business of the Company has been conducted in the ordinary course consistent with past practice and the Company has not otherwise: (i) Amended or modified its articles of incorporation, bylaws or any other organizational document; (ii) Changed any salaries or other compensation of, or paid any bonuses to any director, officer, employee or stockholder of the Company, or entered into any employment, severance, or similar agreement with any director, officer, stockholder or employee of the Company, PROVIDED, HOWEVER, that the compensation of employees of the Company receiving annual compensation of less than $50,000 may have been changed in the ordinary course of business consistent with past practice; (iii) Adopted or increased any benefits under any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any of its employees; (iv) Entered into any contract or commitment except contracts and commitments (for capital expenditures or otherwise) in the ordinary course of business consistent with past practice; (v) Incurred, assumed or guaranteed Indebtedness; (vi) Entered into any transaction or commitment relating to the assets of the business of the Company which, individually or in the aggregate, could reasonably be expected to be material to the Company, or canceled or waived any claim or right of substantial value 13 which, individually or in the aggregate, could reasonably be expected to be material to the Company, or amended any term of any Company Securities; (vii) Set aside or paid any dividend or made any other distribution with respect to any shares of capital stock of the Company or repurchased, redeemed or otherwise acquired directly or indirectly, any outstanding shares of capital stock or other securities of, or other ownership interests in, the Company; (viii) Made any change in accounting methods or practices (including changes in accruals or reserve amounts or policies); (ix) Issued or sold any Company Securities or made any other changes in its capital structure, including the grant of any stock option or other right to purchase shares of capital stock of the Company; (x) Sold, leased or otherwise disposed of any material asset or property; (xi) Except as expressly permitted under this Agreement, written off as uncollectible any notes or accounts receivable, except write-offs in the ordinary course of business charged to applicable reserves, none of which individually or in the aggregate is material; written off, written up or written down any other material asset of Company; or altered its customary time periods for collection of accounts receivable or payments of accounts payable; (xii) Created or assumed any Lien other than a Permitted Lien; (xiii) Made any loan, advance or capital contributions to or investment in any Person; (xiv) Terminated or closed any material facility, business or operation of the Company; (xv) Caused or suffered any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of the Company which, individually or in the aggregate, had or could reasonably be expected to have a Material Adverse Effect; (xvi) Caused any other event, occurrence, development or state of circumstances or facts which individually or together with other matters, had or could reasonably be expected to have a Material Adverse Effect; or (xvii) Agreed to do any of the foregoing. 3.1.12. CONTRACTS. (a) Except as specifically disclosed in SCHEDULE 3.1.12(a), the Company is not a party to nor bound by any of the following (whether written or oral): (i) any lease (whether of real or personal property) providing for annual rentals of $10,000 or more; 14 (ii) any agreement for the purchase of materials, supplies, goods, services, equipment or other assets (including in terms of quantity and dollar amount) that provides for either (A) annual payments by the Company of $10,000 or more or (B) aggregate payments by the Company of $20,000 or more; (iii) any sales, distribution or other similar agreement providing for the sale by the Company of materials, supplies, goods, services, equipment or other assets that provides for either (A) annual payments to the Company of $10,000 or more or (B) aggregate payments to the Company of $20,000 or more; (iv) any partnership, joint venture or other similar agreement or arrangement; (v) any agreement relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise); (vi) any agreement relating to Indebtedness (in any case, whether incurred, assumed, guaranteed or secured by any asset); (vii) any license, franchise or similar agreement; (viii) any agency, dealer, sales representative, marketing or other similar agreement; (ix) any agreement that substantially limits the freedom of the Company to compete in any line of business, geographic area or with any Person or which would so limit the freedom of the Company after the Closing Date; (x) any agreement with (A) any Stockholder or any of such Stockholder's Affiliates, (B) any Person directly or indirectly owning, controlling or holding with power to vote, 5% or more of the outstanding voting securities of any Stockholder's Affiliates, (C) any Person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by a Stockholder or any of such Stockholder's Affiliates, (D) any director or officer of a Stockholder's Affiliates or any "associates" or members of the "immediate family" (as such terms are respectively defined in Rule 12b-2 and Rule 16a-1 of the Exchange Act) of any such director or officer, or (E) any director or officer of the Company or with any "associate" or any member of the "immediate family" (as such terms are respectively defined in Rules 12b-2 and 16a-1 of the Exchange Act) of any such director or officer; (xi) any agreement, indenture or other instrument which contains restrictions with respect to payment of dividends or any other distribution in respect of capital stock of the Company; (xii) any management service, consulting or any other similar type of contract; 15 (xiii) any warranty, guaranty or other similar undertaking with respect to a contractual performance extended by the Company other than in the ordinary course of business consistent with past practice; (xiv) any employment, deferred compensation, severance, bonus, retirement or other similar agreement or plan in effect as of the date hereof and entered into or adopted by the Company, on the one hand, and any director or officer of the Company or any other employee of the Company receiving annual compensation of $80,000 or more, on the other hand; or (xv) any other agreement, commitment, arrangement or plan not made in the ordinary course of business that is material to the Company. (b) Each agreement, contract, plan, lease, arrangement or commitment disclosed in SCHEDULE 3.1.12(a) or any other Schedule to this Agreement or required to be disclosed pursuant to this Section is a valid and binding agreement of the Company, as the case may be, and is in full force and effect, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles, and none of the Company or the Stockholders, or, to the knowledge of the Company or any Stockholder, any other party thereto is in default or breach in any material respect under the terms of any such agreement, contract, plan, lease, arrangement or commitment. To the knowledge of the Company or any Stockholder, there is no event, occurrence, condition or act (including the consummation of the transactions contemplated hereby) which, with the giving of notice or the passage of time, or the happening of any other event or condition, could become a material default or event of default thereunder. (c) SCHEDULE 3.1.12(c) sets forth every grant by the Company in the past three years of any severance or termination pay to any employee of the Company receiving annual compensation of $80,000 or more, or any director or officer of the Company. 3.1.13. INSURANCE COVERAGE. The Company has furnished to Parent a list of, and true and complete copies of, all insurance policies and fidelity bonds covering the assets, business, operations, employees, officers and directors of the Company. There is no material claim by the Company pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and the Company has complied in all material respects with the terms and conditions of all such policies and bonds. Such policies of insurance and bonds (or other policies and bonds providing substantially similar insurance coverage) are in full force and effect and are disclosed in SCHEDULE 3.1.13. Such policies of insurance and bonds are of the type and in amounts deemed by the management of the Company to be sufficient. The Company does not know of any threatened termination of, or premium increase with respect to, any of such policies or bonds. Since the last renewal date of any insurance policy, there has not been any material adverse change in the relationship of the Company with its insurers or the premiums payable pursuant to such policies. 3.1.14. LITIGATION. Except as disclosed in SCHEDULE 3.1.14, there is no action, suit, investigation, arbitration or administrative or other proceeding pending or, to the knowledge 16 of the Company or any Stockholder, threatened against or affecting the Company or any Stockholder or any of their respective properties before any court or arbitrator or any Governmental Authorities which, if determined or resolved adversely to the Company, could reasonably be expected to, individually or when considered together with all other such matters, (a) materially and adversely affect the right or ability of the Company to carry on its business as now conducted, (b) have a Material Adverse Effect, or (c) which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement; and neither the Company nor any Stockholder knows of any valid basis for any such action, proceeding or investigation. 3.1.15. COMPLIANCE WITH LAWS; PERMITS. (a) Except as disclosed in SCHEDULE 3.1.15(a), the Company is not and has not been since the Balance Sheet Date in violation of any applicable Law or Order, except for such violations that have not had and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. (b) SCHEDULE 3.1.15(b) sets forth a list of each material government or regulatory license, authorization, permit, consent and approval held by the Company, issued and held in respect of the Company or required to be so issued and held to carry on the business of the Company as currently conducted. Except as disclosed in SCHEDULE 3.1.15(b), to the knowledge of the Company or any Stockholder, each such license, authorization, permit, consent and approval is valid and in full force and effect and will not be terminated or impaired (or become terminated or impaired) as a result of the transactions contemplated hereby. To the knowledge of the Company or any Stockholder, the Company is not in default under, and no condition exists that with notice or lapse of time or both would constitute a default under, any material license, franchise, permit, consent or approval or similar authorization held by the Company. 3.1.16. PROPERTIES; SUFFICIENCY OF ASSETS. (a) Except as disclosed in SCHEDULE 3.1.16(a) and except for inventory disposed of in the ordinary course of business, the Company has good title to, or in the case of leased property has valid leasehold interests in, all property and assets (whether real or personal, tangible or intangible) reflected in the Reviewed Balance Sheet or acquired after the Balance Sheet Date. None of such property or assets is subject to any Liens, except for (i) Liens disclosed in the Reviewed Balance Sheet; (ii) Liens for Taxes not yet due or being contested in good faith (and for which adequate accruals or reserves have been established on the Reviewed Balance Sheet); and (iii) Permitted Liens. (b) SCHEDULE 3.1.16(b) sets forth a list of all real property assets owned or leased by the Company ("REAL PROPERTY"). Each such lease of real property is a valid and binding obligation of the Company, and is in full force and effect, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles, and the Company is a tenant or possessor in good standing thereunder and all rents due under such leases have been paid. There does not exist under any such lease any default or any event which with notice or lapse of time or both would constitute a default, except for such defaults that have not and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company is in peaceful and undisturbed possession of the space and/or estate under each lease of which it is a tenant and, to the knowledge of the Company or any Stockholder, has good and valid rights of ingress and egress to and from all the 17 Real Property from and to the public street systems for all usual street, road and utility purposes. Neither the Company nor any Stockholder has received any notice of any appropriation, condemnation or like proceeding, or of any violation of any applicable zoning Law or Order relating to or affecting the Real Property, and to the Company's and each Stockholder's knowledge, no such proceeding has been threatened or commenced. (c) Except as disclosed in SCHEDULE 3.1.16(c), to the knowledge of the Company or any Stockholder, the assets owned or leased by the Company (including, real, personal, tangible and intangible property), or which they otherwise have the right to use (including, real, personal, tangible and intangible property), constitute all of the assets held for use or used in connection with the businesses of the Company and are generally in good operating condition and repair (normal wear and tear excepted) and are adequate to conduct such businesses as currently conducted. 3.1.17. INTELLECTUAL PROPERTY. (a) SCHEDULE 3.1.17(a) sets forth a list of all Intellectual Property Rights and all material licenses, sublicenses and other written agreements as to which the Company or any of its Affiliates is a party and pursuant to which any Person is authorized to use such Intellectual Property Right, including the identity of all parties thereto. (b) Except as disclosed in SCHEDULE 3.1.17(b): (i) The Company has not since January 1, 1993, been sued or charged in writing with or been a defendant in any claim, suit, action or proceeding relating to its business that is either pending or, to the knowledge of the Company or any Stockholder, threatened that, in either case, has not been finally terminated prior to the date hereof and that involves a claim of infringement by the Company of any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how or any other similar type of proprietary intellectual property right of any other Person or continuing infringement by any other Person of any Intellectual Property Rights and the Company has no knowledge of any basis for such claim of infringement, and no knowledge of any continuing infringement by any other Person of any Intellectual Property Rights; (ii) No Intellectual Property Right is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by the Company or restricting the licensing thereof by the Company to any Person; (iii) The Company has not entered into any agreement to indemnify any other Person against any charge of infringement of any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how or any other similar type of proprietary intellectual property right; and (iv) There are no processes or formulae, research or development results or other know-how of the Company, the value of which to the Company is contingent upon maintenance of the confidentiality thereof. 3.1.18. ENVIRONMENTAL MATTERS. (a) Except as disclosed in SCHEDULE 3.1.18: 18 (i) Constituents of Concern have not been generated, recycled, used, treated or stored on, transported to or from, or released or disposed on, the Company Property or, to the knowledge of the Company and the Stockholders, any property adjoining or adjacent except in compliance with Environmental Laws; (ii) Except as could not individually, or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Company is in compliance with Environmental Laws and the requirements of permits issued under such Environmental Laws with respect to the Company Property; (iii) There are no pending or, to the knowledge of the Company, threatened Environmental Claims against the Company or any Company Property; (iv) There are no facts, circumstances, conditions or occurrences regarding the Company's or any Subsidiary's past or present business or operations or any Company Property, or to the knowledge of the Company and the Stockholders, any property adjoining any Company Property, that could reasonably be expected (i) to form the basis of an Environmental Claim against the Company, or any of the Company Property or assets, or (ii) to cause any such current Company Property or assets to be subject to any restrictions on its ownership, occupancy, use or transferability under any Environmental Law; (v) There are not now and, to the knowledge of the Company and the Stockholders, there have never been any underground storage tanks or sumps located on any Company Property or, to the knowledge of the Company and the Stockholders, located on any property that adjoins or is adjacent to any Company Property; (vi) Neither the Company nor any Company Property is listed or proposed for listing on the National Priorities List under CERCLA, or CERCLIS (as defined in CERCLA) or on any similar federal, state or foreign list of sites requiring investigation or clean-up; (vii) There are no Environmental Permits that are nontransferable or require consent, notification or other action to remain in full force and effect following the consummation of the transactions contemplated hereby; and (viii) The Company has no liability under any Environmental Law (including an obligation to remediate any Environmental Condition whether caused by the Company or any other Person) which could reasonably be expected to have a Material Adverse Effect. (b) There has been no environmental investigation, study, audit, test, review or other analysis commenced or conducted by or on behalf of the Company (or by a third party of which the Company or any Stockholder has knowledge) in relation to the current or prior business of the Company or any Subsidiary, or any property or facility currently or, to the 19 knowledge of the Company or any Stockholder, previously owned or leased by the Company or any Subsidiary, which has not been disclosed or delivered to Parent prior to the date hereof. (c) Neither the Company nor any Subsidiary owns or leases or has owned or leased any property, and does not conduct and has not conducted any operations, in New Jersey or Connecticut. (d) For purposes of this Section, the terms "Company" (including the use of such terms in the term "Company Property") will include any entity which is, in whole or in part, a predecessor of the Company. 3.1.19. PLANS AND MATERIAL DOCUMENTS. (a) SCHEDULE 3.1.19(a) sets forth a list of all employee benefit plans (as defined in Section 3(3) of ERISA), and all other employee benefit plans, programs, arrangements, contracts or schemes, written or oral, statutory or contractual, with respect to which the Company, a Subsidiary or any ERISA Affiliate has or has had in the six years preceding the date hereof any obligation or liability or which are or were in the six years preceding the date hereof maintained, contributed to or sponsored by the Company or any ERISA Affiliate for the benefit of any current or former employee, officer or director of the Company or any ERISA Affiliate (collectively, the "PLANS"). With respect to each employee pension benefit plan subject to ERISA, the Company has delivered to Parent a true and complete copy of each such Plan (including all amendments thereto) and a true and complete copy of each material document (including all amendments thereto) prepared in connection with each such Plan including, without limitation, (i) a copy of each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, and (iii) the most recently filed IRS Form 5500 for each such Plan, if any. The Company has no express or implied commitment, whether legally enforceable or not, to create, incur liability with respect to or cause to exist any employee benefit plan or to modify any Plan, other than as required by law. (b) Except as disclosed in SCHEDULE 3.1.19(b), none of the Plans is a plan that is or has ever been subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code. None of the Plans is (i) a "multiemployer plan" as defined in Section 3(37) of ERISA, (ii) a plan or arrangement described under Section 4(b)(5) or 401(a)(1) of ERISA, or (iii) a plan maintained in connection with a trust described in Section 501(c)(9) of the Code. Except as disclosed in SCHEDULE 3.1.19(b), (A) none of the Plans provides for the payment of separation, severance, termination or similar-type benefits to any person, and (B) none of the Plans provides for or promises retiree medical or life insurance benefits to any current or former employee, officer or director of the Company. Except as disclosed in SCHEDULE 3.1.19(b), each of the Plans is subject only to the laws of the United States or a political subdivision thereof. (c) Except as disclosed in SCHEDULE 3.1.19(c), each Plan is in compliance in all material respects with, and has always been operated in all material respects in accordance with, its terms and the requirements of all applicable law, foreign and domestic, and the Company and the ERISA Affiliates have satisfied in all material respects all of their statutory, regulatory and contractual obligations with respect to each such Plan. No legal action, suit or claim is pending or, to the knowledge of the Company and any Stockholder, threatened with respect to any Plan (other than claims for benefits in the ordinary course) and no fact or event exists that could give rise to any such action, suit or claim. 20 (d) Except as disclosed in SCHEDULE 3.1.19(d), each Plan or trust which is intended to be qualified or exempt from taxation under Section 401(a), 401(k) or 501(a) of the Code has received a favorable determination letter from the IRS that it is so qualified or exempt, and no fact or event has occurred since the date of such determination letter to adversely affect the qualified or exempt status of any Plan or trust. (e) There has been no non-exempt prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan. Neither the Company nor any ERISA Affiliate has incurred any material liability for any excise tax arising under Section 4971, 4972, 4975, 4980 or 4980B of the Code and no fact or event exists which could give rise to such liability. Neither the Company nor any ERISA Affiliate has incurred any material liability relating to Title IV of ERISA (other than for the payment of premiums to the Pension Benefit Guaranty Corporation), and no fact or event exists which could give rise to such liability. (f) All material contributions, premiums or payments required to be made with respect to any Plan have been made on or before their due dates. All such contributions have been fully deducted for income tax purposes and no such deduction has been challenged or disallowed by any Government Authorities, and no fact or event exists which could give rise to any such challenge or disallowance. (g) There has been no amendment to, written interpretation of or announcement (whether or not written) by the Company or any ERISA Affiliate thereof relating to, or change in employee participation or coverage under, any Plan that would increase materially the expense of maintaining such Plan above the level of the expense incurred in respect thereto for the most recent fiscal year ended prior to the date hereof. (h) Except as disclosed in SCHEDULE 3.1.19(h) or in this Agreement, no employee or former employee of the Company or any ERISA Affiliate thereof will become entitled to any bonus, retirement, severance, job security or similar benefit or enhanced such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transactions contemplated hereby. (i) Except as disclosed in SCHEDULE 3.1.19(i), no current or former employee of the Company or any ERISA Affiliate thereof holds any option to purchase shares of the Company. (j) None of the Plans promises or provides retiree health or life insurance benefits. 3.1.20. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in SCHEDULE 3.1.20, to the knowledge of the Company, no Stockholder, nor any other officer or director of the Company possesses, directly or indirectly, any ownership interest in, or is a director, officer or employee of, any Person which is a supplier, customer, lessor, lessee, licensor, developer, competitor or potential competitor of the Company. Ownership of securities of a company whose securities are registered under the Exchange Act of 2% or less of any class of such securities will not be deemed to be a financial interest for purposes of this Section 3.1.20. 21 3.1.21. CUSTOMER, SUPPLIER AND EMPLOYEE RELATIONS; EMPLOYEE COMPENSATION; BONUSES. To the knowledge of the Company or any Stockholder: (a) The relationships of the Company with its customers, suppliers and employees are good commercial working relationships and, except as disclosed in SCHEDULE 3.1.21(a), none of the Company's material customers or material suppliers or employees receiving annual compensation in excess of $50,000 has canceled, terminated or otherwise materially altered or notified the Company of any intention or otherwise threatened to cancel, terminate or materially alter its relationship with the Company effective prior to, as of, or within one year after, the Closing. As of the date hereof, there has not been, and the Company has no reason to believe that there will be, any change in relations with material customers, suppliers or employees of the Company as a result of the transactions contemplated by this Agreement. (b) SCHEDULE 3.1.21(b) lists (i) all employees of the Company who receive annual compensation in excess of $60,000 and (ii) all bonuses and any other amounts to be paid by the Company to employees of the Company at or in connection with the Closing ("BONUSES"). 3.1.22. OTHER EMPLOYMENT MATTERS. (a) The Company is in material compliance with all Federal, state or other applicable laws, domestic or foreign, respecting employment and employment practices, terms and conditions of employment and wages and hours, and has not, and is not, engaged in any unfair labor practice which could reasonably be expected to have a Material Adverse Effect; no unfair labor practice complaint against the Company is pending before the National Labor Relations Board; there is no labor strike, dispute, slowdown or stoppage actually pending, or, to the knowledge of the Company or any Stockholder, threatened against, or involving, the Company; the Company is not a party to any collective bargaining agreement and no collective bargaining agreement is currently being negotiated by the Company; to the knowledge of the Company and Stockholders, no representation question exists respecting employees of the Company; and, except as specifically set forth on SCHEDULE 3.1.22, no claim in respect of the employment of any employee has been asserted and is currently pending or, to the knowledge of the Company or any Stockholder threatened, against the Company. (b) SCHEDULE 3.1.22 contains a complete and accurate list of the following information for each employee or director of the Company, including each employee on leave of absence or layoff status: employer; name; job title; current compensation paid or payable and any change in compensation since the Balance Sheet Date: vacation accrued; and service credited for purposes of vesting and eligibility to participate under any pension, retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus, stock option, cash bonus, employee stock ownership (including investment credit or payroll stock ownership), severance pay, insurance, medical, welfare, or vacation plan, other Plan of the Company. (c) No former or current employee or current or former director of the Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, non-competition, or proprietary rights agreement, between such employee or director and any other Person that in any way adversely affected, affects, or will affect (i) the performance of his duties as an employee or director of the Company, or (ii) the ability of the Company to conduct its business. 22 (d) SCHEDULE 3.1.22 also contains a complete and accurate list of the following information for each retired employee or director of the Company, or their dependents, receiving benefits or scheduled to receive benefits in the future: name, pension benefits, pension option election, retiree medical insurance coverage, retiree life insurance coverage, and other benefits. 3.1.23. ACCOUNTS RECEIVABLE. Except as set forth on SCHEDULE 3.1.23, all of the accounts receivable reflected on the Reviewed Balance Sheet (net of the reserves set forth on the Reviewed Balance Sheet) and all accounts receivable which have arisen since the Balance Sheet Date (net of any additional reserves established since the Balance Sheet Date in accordance with past practice, none of which is material) are valid and enforceable claims, and the goods and services sold and delivered which gave rise to such accounts receivable were sold and delivered in conformity with the applicable purchase orders, agreements and specifications. Such accounts receivable are subject to no defenses, offsets or recovery in whole or in part by the Persons whose purchase gave rise to such accounts receivable or by third parties and are fully collectible in the ordinary course of business without resort to legal proceedings, except to the extent of the amount of the reserve for doubtful accounts reflected in the Reviewed Balance Sheet. 3.1.24. INVENTORY. Except as set forth in SCHEDULE 3.1.24, all inventories reflected on the Reviewed Balance Sheet (net of the reserves set forth on the Reviewed Balance Sheet) and all inventories which have been acquired or produced since the Balance Sheet Date (net of any additional reserves established since the Balance Sheet Date in accordance with past practice, none of which is material) are in good condition, are not obsolete, and are useable or saleable in the ordinary course of business, as is consistent with the past business practice of the Company. Past practice includes the continued inclusion of inventory requiring re-work and material subsequently determined after machining to be scrapped due to perocity, as well as excess quantity purchases over specific order requirements due to minimum purchase requirements imposed by vendors. Except as set forth in the immediately preceding sentence and Schedule 3.1.24, to the Company's and the Stockholders' knowledge, the values at which such inventories are carried are in accordance with GAAP consistently applied. The amount and mix of items in the inventories of supplies, in-process and finished products are consistent with the past business practices of the Company. The Company has not written down or written off any inventory acquired by it after September 1, 1997, except for the generation of scrap in the ordinary course of manufacturing, none of which in the aggregate is material. 3.1.25. MILLENNIUM COMPLIANCE. SCHEDULE 3.1.25 describes the measures that have been implemented to determine the extent to which the computer systems used by the Company in its business (the "COMPUTER SYSTEMS") are not in Millennium Compliance, and the material details of any program undertaken with a view towards causing the Computer Systems to achieve Millennium Compliance. 3.1.26 FINDERS' FEES. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Stockholders or the Company who might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement. 3.2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each Stockholder represents and warrants, severally and not jointly and with respect to such Stockholder only, to Parent as of the Closing Date as follows: 23 3.2.1. AUTHORITY; ENFORCEABILITY. Such Stockholder has all requisite power and authority, and has taken all action necessary, to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform his or its obligations hereunder. This Agreement has been duly executed and delivered by such Stockholder and is a legal, valid and binding obligation of such Stockholder enforceable against such Stockholder in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 3.2.2. NO CONFLICTS. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby and compliance with the terms hereof do not, violate or conflict with in any respect or result in a breach under any contract, license, Order or Law applicable to such Stockholder. 3.2.3. NO CONSENTS. Except for the filing of the certificates of merger, no consent of, approval or filing with, any court or other Person is required to be obtained or made by or with respect to such Stockholder in connection with the execution and delivery of this Agreement or the consummation by such Stockholder of the transactions contemplated hereby. 3.2.4. OWNERSHIP OF SHARES; TITLE. All of the issued and outstanding shares of Company Stock set forth opposite such Stockholder's name on SCHEDULE 1 are lawfully owned of record and beneficially by such Stockholder, free and clear of any Liens. Such Stockholder has the full legal right, power and authority to vote, sell, assign, transfer and convey such shares of Company Stock. Such shares are not subject to any voting trust agreement or other contract, agreement, arrangement, commitment, option, proxy, right of first refusal or understanding, including without limitation any contract restricting or otherwise relating to the voting, dividend rights or disposition of such shares. 3.2.5. LITIGATION. Except as disclosed in SCHEDULE 3.2.5, there is no action, suit, investigation, arbitration or administrative or other proceeding pending or, to the knowledge of such Stockholder, threatened against or affecting such Stockholder before any court or arbitrator or any Governmental Authorities which, individually or in the aggregate, if determined or resolved adversely to such Stockholder could, individually or when considered together with all other such matters, adversely affect the right or ability of such Stockholder to consummate the transactions contemplated by this Agreement; and such Stockholder knows of no valid basis for any such action, proceeding or investigation. 3.2.6. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in SCHEDULE 3.2.6, neither such Stockholder, nor, to the knowledge of such Stockholder, any other officer or director of the Company, possesses, directly or indirectly, any ownership interest in, or is a director, officer or employee of, any Person which is a supplier, customer, lessor, lessee, licensor, developer, competitor or potential competitor of the Company. Ownership of securities of a company whose securities are registered under the Exchange Act of 2% or less of any class of such securities will not be deemed to be an ownership interest for purposes of this Section 3.2.6. 24 IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Each of Parent and Merger Sub represents and warrants to the Company and the Stockholders as of the Closing Date as follows: 4.1. CORPORATE EXISTENCE AND POWER. Each of Parent and Merger Sub is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of organization. Each of Parent and Merger Sub has all power and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. 4.2. CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by each of Parent and Merger Sub of this Agreement are within each of Parent's and Merger Sub's respective corporate powers and have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub. This Agreement has been duly executed and delivered by Parent or Merger Sub and constitutes a valid and binding agreement of Parent or Merger Sub, as applicable, enforceable against Parent or Merger Sub in accordance with its terms, except to the extent that enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 4.3. GOVERNMENTAL AUTHORIZATION. Except for the filing of the certificates of merger, the execution, delivery and performance by Parent and Merger Sub of this Agreement require no action by or in respect of, or filing with, any Governmental Authorities. 4.4. NON-CONTRAVENTION. The execution, delivery and performance by each of Parent and Merger Sub of this Agreement will not (a) violate the certificate of incorporation or bylaws of Parent or Merger Sub, or (b) violate any applicable Law or Order. 4.5. LITIGATION. Except as disclosed in SCHEDULE 4.5, there is no action, suit, investigation, arbitration or administrative or other proceeding pending or, to the knowledge of Parent, threatened against or affecting Parent or Merger Sub, or any of Parent's or Merger Sub's properties before any court or arbitrator or any Governmental Authorities which, individually or in the aggregate, if determined or resolved adversely to Parent or Merger Sub, could reasonably be expected to materially and adversely affect the right or ability of Parent or Merger Sub to consummate the transactions contemplated by this Agreement. 4.6. FINDERS' FEES. Except for Saunders Karp & Megrue, L.P. and Carlisle Group, L.P., whose fees and expenses (including transaction fees) will be paid by the Surviving Corporation, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Parent who might be entitled to any fee or commission from the Stockholders or the Company upon consummation of the transactions contemplated by this Agreement. 25 V. TAX MATTERS 5.1. TAX RETURNS. The Stockholders will have the exclusive authority and obligation to prepare and timely file, or cause to be prepared and timely filed, all Returns of the Company that are due with respect to any taxable year or other taxable period ending on or prior to the Closing Date. Such authority will include, but not be limited to, the determination of the manner in which any items of income, gain, deduction, loss or credit arising out of the income, properties and operations of the Company will be reported or disclosed in such Returns; PROVIDED, HOWEVER, that such Returns will be prepared by treating items on such Returns in a manner consistent with the past practice with respect to such items, unless otherwise required by law. The Stockholders will provide to Parent drafts of all Returns of the Company required to be prepared and filed by the Stockholders under this Section 5.1 at least 30 days prior to the due date for the filing of such Returns (including any extensions). At least 15 days prior to the due date for the filing of such Returns (including any extensions), Parent will notify the Stockholders of the existence of any objection (specifying in reasonable detail the nature and basis of such objection) Parent may have to any items set forth on such draft Returns (a "DISPUTE NOTICE"). Parent and the Stockholders agree to consult and resolve in good faith any such objection. The Stockholders will not file any return without the prior written consent of Parent, which consent will not be unreasonably withheld or delayed; PROVIDED, HOWEVER, that no such consent will be required if Parent shall not have timely delivered a Dispute Notice or the objections contained in such Dispute Notice shall have been finally resolved. 5.2. APPORTIONMENT OF TAXES. All Taxes and Tax liabilities with respect to the income, property or operations of the Company that relate to a taxable year or other taxable period beginning before and ending after the Closing Date will be apportioned between the Pre-Closing Tax Period and the Post-Closing Tax Period as determined from the books and records of the Company, between Pre-Closing and Post-Closing Tax Periods as though the taxable year of the Company terminated at the close of business on the Closing Date, and based on accounting methods, elections and conventions that do not have the effect of distorting income and expenses. The Stockholders will be liable for the payment of all Taxes of the Company which are attributable to any Pre-Closing Tax Period, whether shown on any original return or amended return for the period referred to therein, to the extent, only in the case of Taxes attributable to the Company's 1998 Tax Year, such amounts exceed in the aggregate the 1998 Tax Reserves. The Company will be liable for the payment of all Taxes which are attributable to any Post-Closing Tax Period. All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest), imposed on the Parent or the Company which are incurred in connection with this Agreement will be borne and paid by the Stockholders when due, and the Stockholders will, at their own expense, cause to be filed all necessary Returns and other documentation with respect to all such Taxes and fees. Notwithstanding the foregoing: (i) there shall be no apportionment of Federal 1120 income taxes or State of Michigan Single Business Tax for the tax year beginning September 1, 1998; and (ii) there shall be no apportionment of personal or real property taxes due after June 30, 1998. 5.3. COOPERATION; AUDITS. In connection with the preparation of Returns, audit examinations and any administrative or judicial proceedings relating to the Tax liabilities imposed on the Company for all Pre-Closing Tax Periods, Parent and the Company on the one hand, and the Stockholders on the other hand, will cooperate fully with each other, including, but not limited to, the furnishing or making available during normal business hours of records, 26 personnel (as reasonably required), books of account, powers of attorney or other materials necessary or helpful for the preparation of such Returns, the conduct of audit examinations or the defense of claims by Tax authorities as to the imposition of Taxes. 5.4. CONTROVERSIES. Parent will promptly notify each of the Stockholders in writing upon receipt by Parent or any Affiliate of Parent (including the Company after the Closing Date) of written notice of any inquiries, claims, assessments, audits or similar events with respect to Taxes relating to a Pre-Closing Tax Period for which the Stockholders may be liable under this Agreement (any such inquiry, claim, assessment, audit or similar event, a "TAX MATTER"). The Stockholders, at their sole expense, will have the exclusive authority to represent the interests of the Company with respect to any Tax Matter before the IRS, any other Taxing Authority, any other governmental agency or authority or any court and will have the sole right to extend or waive the statute of limitations, with respect to a Tax Matter and to control the defense, compromise or other resolution of any Tax Matter, including responding to inquiries, filing Tax returns and settling audits; PROVIDED, HOWEVER, that the Stockholders will not enter jointly and/or severally into any settlement of or otherwise compromise any Tax Matter that affects or may affect the Tax liability of Parent or the Company or any affiliate of the foregoing for any Post-Closing Tax Period, including the portion of a period beginning before the Closing Date and ending after the Closing Date, without the prior written consent of Parent, which consent will not be unreasonably withheld. The Stockholders will keep Parent fully and timely informed with respect to the commencement, status and nature of any Tax Matter. The Stockholders will, in good faith, allow Parent to consult with the Stockholders regarding the conduct of or positions taken in any such proceeding. 5.5. AMENDED RETURNS. The Stockholders will not file or cause or permit to be filed jointly and/or severally any amended Return without the prior written consent of Parent, which consent will not be unreasonably withheld or delayed. Parent will not file or cause to be filed any amended return covering any period or adjusting any Taxes for a period which includes any period prior to the Closing Date without the prior written consent of the Stockholders, which consent will not be unreasonably withheld or delayed. VI. SURVIVAL; INDEMNIFICATION 6.1. SURVIVAL. The representations and warranties of the parties contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith will survive the Closing for two years thereafter; PROVIDED, HOWEVER, that the representations and warranties contained in Sections 3.1.10 and 3.1.18 will survive the Closing until the expiration of the statute of limitations applicable to the matters covered thereby (after giving effect to any waiver, mitigation or extension thereof granted by the Company after the Closing) and the representations and warranties contained in Sections 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5 and 3.1.6, (collectively, the "SELECTED REPRESENTATIONS AND WARRANTIES"), 3.2.1, 3.2.2, 3.2.3, 3.2.4, 4.1, 4.2, 4.3 and 4.4 will survive the Closing indefinitely. Notwithstanding the preceding sentence, any representation or warranty in respect of which indemnity may be sought under this Agreement will survive the time at which it would otherwise terminate pursuant to the preceding sentence if written notice of the inaccuracy or breach thereof giving rise to such right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time; PROVIDED, HOWEVER, that the applicable representation or warranty will survive only with respect to the particular inaccuracy or breach specified in such written notice. All 27 covenants and agreements of the parties contained in this Agreement will survive the Closing indefinitely. 6.2. INDEMNIFICATION. (a) Kenneth Smith hereby agrees to indemnify, defend and hold harmless Parent and its officers, directors, employees, members, managing directors, Affiliates (including the Company) and agents, and the successors to the foregoing (and their respective officers, directors, employees, members, managing directors, Affiliates and agents) (collectively, the "PARENT INDEMNIFIED PARTIES"), against any and all liabilities, damages and losses, including, without limitation, diminution in value of the Company, Company Stock, lost profits and, only to the extent asserted in a Third Party Claim, punitive damages, and all costs or expenses, including, without limitation, attorneys' and consultants' fees and expenses ("DAMAGES"), incurred or suffered as a result of or arising out of the failure of any representation or warranty in any subsection of Section 3.1 to be true and correct as of the Closing Date (other than a breach of Section 3.1.10 with respect to Taxes, which will be governed by Section 6.3) as a result of an event, fact or circumstance occurring on or after, and not otherwise existing prior to, January 1, 1997. Kenneth Smith will not be liable under this Section 6.2(a) (other than with respect to breaches of any of the Selected Representations and Warranties) unless the aggregate amount of Damages exceeds $100,000 and then from the first dollar to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that Kenneth Smith's liability under this Section 6.2(a) (other than with respect to breaches of any of the Selected Representations and Warranties) will not exceed, in the aggregate, $3.0 million. (b) Each of the Leidal Family Stockholders hereby agrees to indemnify, defend and hold harmless, jointly and severally, the Parent Indemnified Parties against any and all Damages incurred or suffered as a result of or arising out of the failure of any representation or warranty in any subsection of Section 3.1 to be true and correct as of the Closing Date (other than a breach of Section 3.1.10 with respect to Taxes, which will be governed by Section 6.3) as a result of an event, fact or circumstance occurring or existing prior to, but not first occurring on or after, January 1, 1997; PROVIDED, HOWEVER, that the Leidal Family Stockholders will not be liable under this Section 6.2(b) (other than with respect to breaches of any of the Selected Representations and Warranties) unless the aggregate amount of Damages exceeds $100,000 and then from the first dollar to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that the Leidal Family Stockholders' liability under this Section 6.2(b) (other than with respect to breaches of any of the Selected Representations and Warranties) will not exceed, in the aggregate, $3.0 million. (c) Each of the Stockholders severally and not jointly, hereby agree to indemnify, defend and hold harmless the Parent Indemnified Parties against any and all Damages incurred or suffered as a result of or arising out of the failure of any representation or warranty made by such Stockholder in any subsection of Section 3.2 of this Agreement to be true and correct as of the Closing Date. (d) Parent and the Company, jointly and severally, hereby agree to indemnify, defend and hold harmless the Stockholders against Damages incurred or suffered as a result of or arising out of the failure of any representation or warranty made by Parent or Merger Sub in this Agreement to be true and correct as of the Closing Date; PROVIDED, HOWEVER, that Parent will not be liable under this Section 6.2(d) unless the aggregate amount of Damages exceeds $100,000 28 and then from the first dollar to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that Parent's liability under this Section 6.2(d) will not exceed, in the aggregate, $6.0 million. 6.3. TAX INDEMNIFICATION. (a) Kenneth Smith hereby agrees to indemnify, defend and hold harmless the Parent Indemnified Parties against (i) all Taxes (and losses, claims and expenses related thereto) resulting from, arising out of, or incurred with respect to, any claims that may be asserted by any party based upon, attributable to, or resulting from the failure of any representation or warranty made pursuant to Section 3.1.10 to be true and correct as of the Closing Date as a result of an event, fact or circumstance occurring on or after, and not otherwise existing prior to, January 1, 1997, to the extent, only in the case of Taxes attributable to the Company's 1998 Tax Year, such amounts exceed in the aggregate the 1998 Tax Reserves, (ii) all Taxes imposed on or asserted against the Company or for which the Company may be liable in respect of the properties, income or operations of the Company for all Pre-Closing Tax Periods ending on or after January 1, 1997, to the extent, only in the case of Taxes attributable to the Company's 1998 Tax Year, such amounts exceed in the aggregate the 1998 Tax Reserves, and (iii) all Taxes imposed on or asserted against the Company, or for which the Company may be liable, as a result of any transaction contemplated by this Agreement, but excluding (i) any Federal 1120 income taxes or State of Michigan Single Business Tax for the tax year beginning September 1, 1998, and (ii) any real and personal property taxes of the Company due after June 30, 1998. (b) Each of the Leidal Family Stockholders hereby agrees to indemnify, defend and hold harmless, jointly and severally, the Parent Indemnified Parties against (i) all Taxes (and losses, claims and expenses related thereto) resulting from, arising out of, or incurred with respect to, any claims that may be asserted by any party based upon, attributable to, or resulting from the failure of any representation or warranty made pursuant to Section 3.1.10 to be true and correct as of the Closing Date as a result of an event, fact or circumstance occurring or existing prior to, but not first occurring on or after, January 1, 1997, and (ii) all Taxes imposed on or asserted against the Company or for which the Company may be liable in respect of the properties, income or operations of the Company for all Pre-Closing Tax Periods ending prior to January 1, 1997. 6.4. PROCEDURES. (a) If any Person who or which is entitled to seek indemnification under Section 6.2 or Section 6.3 (an "INDEMNIFIED PARTY") receives notice of the assertion or commencement of any Third Party Claim against such Indemnified Party with respect to which the Person against whom or which such indemnification is being sought (an "INDEMNIFYING PARTY") is obligated to provide indemnification under this Agreement, the Indemnified Party will give such Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 20 days after receipt of such written notice of such Third Party Claim. Such notice by the Indemnified Party will describe the Third Party Claim in reasonable detail, will include copies of all available material written evidence thereof and will indicate the estimated amount, if reasonably practicable, of the Damages that has been or may be sustained by the Indemnified Party. The Indemnifying Party will have the right to participate in, or, by giving written notice to the Indemnified Party, to assume, the defense of any Third Party Claim at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel (reasonably satisfactory to the Indemnified Party), and the Indemnified Party will cooperate in good faith in such defense. 29 (b) If, within ten days after giving notice of a Third Party Claim to an Indemnifying Party pursuant to Section 6.4(a), an Indemnified Party receives written notice from the Indemnifying Party that the Indemnifying Party has elected to assume the defense of such Third Party Claim as provided in the last sentence of Section 6.4(a), the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof; PROVIDED, HOWEVER, that if the Indemnifying Party fails to take reasonable steps necessary to defend diligently such Third Party Claim within ten days after receiving written notice from the Indemnified Party that the Indemnified Party reasonably believes the Indemnifying Party has failed to take such steps or if the Indemnifying Party has not undertaken fully to indemnify the Indemnified Party in respect of all damages relating to the matter, the Indemnified Party may assume its own defense, and the Indemnifying Party will be liable for all reasonable costs and expenses paid or incurred in connection therewith. Without the prior written consent of the Indemnified Party, the Indemnifying Party will not enter into any settlement of any Third Party Claim which would lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder, or which provides for injunctive or other non-monetary relief applicable to the Indemnified Party, or, as to matters other than Tax Matters, does not include an unconditional release of all Indemnified Parties. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party will give written notice to the Indemnified Party to that effect. If the Indemnified Party fails to consent to such firm offer within ten days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and, in such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will not exceed the amount of such settlement offer. The Indemnified Party will provide the Indemnifying Party with reasonable access during normal business hours to books, records, and employees of the Indemnified Party necessary in connection with the Indemnifying Party's defense of any Third Party Claim which is the subject of a claim for indemnification by an Indemnified Party hereunder. (c) Any claim by an Indemnified Party on account of Damages which does not result from a Third Party Claim (a "DIRECT CLAIM") will be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 20 days after the Indemnified Party becomes aware of such Direct Claim. Such notice by the Indemnified Party will describe the Direct Claim in reasonable detail, will include copies of all available material written evidence thereof and will indicate the estimated amount, if reasonably practicable, of Damages that has been or may be sustained by the Indemnified Party. The Indemnifying Party will have a period of ten days within which to respond in writing to such Direct Claim. If the Indemnifying Party does not so respond within such ten day period, the Indemnifying Party will be deemed to have rejected such claim, in which event the Indemnified Party will be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement. (d) A failure to give timely notice or to include any specified information in any notice as provided in Section 6.4(a), 6.4(b) or 6.4(c) will not affect the rights or obligations of any party hereunder, except and only to the extent that, as a result of such failure, any party which was entitled to receive such notice was deprived of its right to recover any payment under 30 its applicable insurance coverage or was otherwise materially prejudiced as a result of such failure. (e) All indemnifiable Damages under this Agreement will be paid in cash in immediately available funds. 6.5. TREATMENT OF INDEMNIFICATION PAYMENTS. Any amount paid by any Stockholder or Parent under Section 6.2 or 6.3 will be treated as a capital contribution, on the one hand, or an adjustment to the Aggregate Closing Merger Consideration, on the other hand. 6.6. INDEMNIFICATION AMOUNTS NET OF BENEFITS RECEIVED. The amount of Damages for which indemnification is provided under Sections 6.2 and 6.3 will be computed net of any insurance proceeds received by the Indemnified Party in connection with such Damages, reduced by all costs and expenses related thereto and any premium increase or expense resulting therefrom. If the amount with respect to which any claim is made under this Section 6.6 gives rise to a currently realizable Tax benefit, the indemnity payment will be reduced by the amount of such currently realizable benefit then available to the party making the claim if and to the extent actually realized by such party in the fiscal year in which such indemnity payment is made to such party or in the next succeeding fiscal year. VII. MISCELLANEOUS 7.1. NOTICES. All notices, requests and other communications to any party hereunder will be in writing (including facsimile transmission) and will be given to such party at its address set forth in SCHEDULE 7.1. All such notices, requests and other communications will be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication will be deemed not to have been received until the next succeeding business day in the place of receipt. 7.2. AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided will be cumulative and not exclusive of any rights or remedies provided by law. 7.3. EXPENSES. Except as otherwise expressly provided for herein, the parties will pay or cause to be paid all of their own fees and expenses incident to this Agreement and in preparing to consummate and consummating the transactions contemplated hereby, including the fees and expenses of any broker, finder, financial advisor, legal advisor or similar person engaged by such party. It is agreed that the Company shall pay, at or prior to the Closing, the reasonable legal fees of Thav, Gross, Steinway & Bennett, P.C. for services rendered in 31 connection with this transaction, provided that a reasonably detailed invoice therefor shall have been delivered to Parent at the Closing. 7.4. SUCCESSORS AND ASSIGNS. The provisions of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto. 7.5. NO THIRD PARTY BENEFICIARIES. Except as provided in Article VI, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied will give or be construed to give to any Person, other than the parties hereto and such permitted assigns any legal or equitable rights hereunder. 7.6. GOVERNING LAW. This Agreement will be governed by, and construed in accordance with, the law of the State of New York, without regard to the conflict of laws rules of such state. 7.7. JURISDICTION. Except as otherwise expressly provided in this Agreement, any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any court of competent jurisdiction in the Borough of Manhattan or the United States District Court for the Southern District of New York and each of the parties hereby consents to the non-exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 7.1 will be deemed effective service of process on such party. 7.8. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 7.9. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which will be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 7.10. HEADINGS. The headings in this Agreement are for convenience of reference only and will not control or affect the meaning or construction of any provisions hereof. 7.11. ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits hereto) constitutes the entire agreement among the parties with respect to the subject matter of this Agreement. This Agreement (including the Schedules and Exhibits hereto) supersedes all 32 prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof of this Agreement. 7.12. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any person or circumstance is held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision hereof. 7.13. NO WAIVER. No action or inaction taken or omitted pursuant to this Agreement will be deemed to constitute a waiver of compliance with any representations, warranties or covenants contained in this Agreement and will not operate or be construed as a waiver of any subsequent breach, whether of a similar or dissimilar nature. 7.14. CERTAIN INTERPRETIVE MATTERS. (a) Unless the context otherwise requires, (a) all references to Sections, Articles, Exhibits or Schedules are to Sections, Articles, Exhibits, or Schedules of or to this Agreement, (b) each of the Schedules will apply only to the corresponding Section or subsection of this Agreement, (c) each term defined in this Agreement has the meaning assigned to it, (d) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP, (e) words in the singular include the plural and VICE VERSA, and (f) the term "INCLUDING" means "including without limitation." All references to $ or dollar amounts will be to lawful currency of the United States. To the extent the term "day" or "days" is used, it shall mean calendar days. (b) No provision of this Agreement will be interpreted in favor of, or against, any of the parties hereto by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof. (c) (i) All references to the "KNOWLEDGE OF THE COMPANY" or to words of similar import will be deemed to be references to the actual knowledge of one or more of the executive officers or directors of the Company whose names are listed on SCHEDULE 7.14(c)(i), and will include such knowledge as such executive officers or directors would have had after due inquiry of the responsible individuals of the Company whose names are listed separately on SCHEDULE 7.14(c)(i) and its counsel and accountants. (ii) All references to the "KNOWLEDGE OF PARENT" or to words of similar import will be deemed to be references to the actual knowledge of one or more of the executive officers, directors or members of the management committee of Parent whose names are listed on SCHEDULE 7.14(c)(ii) and, will include such knowledge as such executive officers, directors or management committee members would have had after due inquiry of the responsible individuals of Parent whose names are listed separately on SCHEDULE 7.14(c)(ii) and its counsel and accountants. (iii) All references to the "KNOWLEDGE OF STOCKHOLDER" or to words of similar import will be deemed to be references to the actual knowledge of such Stockholder, as applicable. 33 7.15. FURTHER ASSURANCES. From time to time, as and when requested by any party hereto, the other parties will execute and deliver, or cause to be executed and delivered, all such documents and instruments and will take, or cause to be taken, all such further or other actions, as the requesting party may reasonably deem necessary or desirable to consummate the transactions contemplated by this Agreement. 34 The parties hereto have caused this Agreement to be duly executed by their respective authorized officers or in their individual capacity, if applicable, as of the day and year first above written. GALAXY INDUSTRIES CORPORATION By: /s/ Kenneth Smith ------------------------ Name: Kenneth Smith Title: President GALAXY HOLD CO., INC. By: /s/ William Gumina ------------------------ Name: William Gumina Title: Vice President GALAXY ACQUISITION, INC. By: /s/ William Gumina ------------------------ Name: William Gumina Title: Vice President /s/ Kenneth Smith ------------------------------ Kenneth Smith /s/ Robert H. Leidal ------------------------------ Robert H. Leidal /s/ Betty A. Leidal ------------------------------ Betty A. Leidal /s/ Michael R. Leidal ------------------------------ Michael R. Leidal /s/ Cheryl Brooks ------------------------------ Cheryl Brooks 35 Robert H. Leidal Revocable Living Trust By: /s/ Robert H. Leidal ---------------------- Robert H. Leidal Trustee Betty A. Leidal Revocable Living Trust By: /s/ Betty A. Leidal ---------------------- Betty A. Leidal Trustee 36 EX-2.2 3 REDEMPTION & MERGER AGMNT (SEPT. 17, 1998) EXHIBIT 2.2 CONFORMED COPY - -------------------------------------------------------------------------------- REDEMPTION AND MERGER AGREEMENT AMONG MID STATE MACHINE PRODUCTS, S. DOUGLAS SUKEFORTH, MID STATE HOLDING CO., INC. AND MID STATE ACQUISITION, INC. DATED AS OF SEPTEMBER 17, 1998 - -------------------------------------------------------------------------------- (Not a part of this Agreement) TABLE OF CONTENTS
PAGE ---- I. DEFINITIONS...................................................................................................1 1.1. DEFINITIONS.....................................................................................1 II. THE REDEMPTION; THE MERGER; CLOSING.........................................................................11 2.1. THE REDEMPTION.................................................................................11 2.2. THE MERGER.....................................................................................11 2.3. CONSUMMATION OF THE MERGER.....................................................................11 2.4. EFFECTS OF THE MERGER..........................................................................11 2.5. ARTICLES OF INCORPORATION; BY-LAWS.............................................................12 2.6. DIRECTORS AND OFFICERS.........................................................................12 2.7. PAYMENT OF REDEMPTION AMOUNT; DELIVERY OF REDEEMED SHARES......................................12 2.8. CONVERSION OF SECURITIES; MERGER CONSIDERATION......................................12 2.9. CLOSING OF TRANSFER RECORDS....................................................................13 2.10. PAYMENT OF AGGREGATE CLOSING MERGER CONSIDERATION..............................................13 2.11. INDEMNIFICATION................................................................................14 2.12. ESTIMATED CLOSING WORKING CAPITAL BALANCE......................................................14 2.13. CLOSING........................................................................................14 2.14. MBCA SECTION 909.4.............................................................................14 2.15. PROCEEDINGS....................................................................................14 2.16. POST-CLOSING ADJUSTMENT........................................................................14 2.17. 1998 FISCAL YEAR-END ADJUSTMENT................................................................16 2.18. ADJUSTMENTS TO CLOSING PAYMENTS................................................................17 III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL STOCKHOLDER............................................................18 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL STOCKHOLDER......................................................................18 3.1.1. CORPORATE EXISTENCE AND POWER.......................................................19 3.1.2. CORPORATE AUTHORIZATION; ENFORCEABILITY.............................................19 3.1.3. GOVERNMENTAL AUTHORIZATION..........................................................19 3.1.4. NON-CONTRAVENTION; CONSENTS.........................................................19 3.1.5. CAPITALIZATION; OWNERSHIP OF COMPANY STOCK..........................................20 3.1.6. SUBSIDIARIES........................................................................20 3.1.7. FINANCIAL STATEMENTS; BOOKS AND RECORDS.............................................21 3.1.8. NO UNDISCLOSED LIABILITIES..........................................................22 3.1.9. INTERCOMPANY ACCOUNTS...............................................................22 3.1.10. TAX MATTERS.........................................................................22 3.1.11. ABSENCE OF CERTAIN CHANGES..........................................................23 3.1.12. CONTRACTS...........................................................................24 3.1.13. INSURANCE COVERAGE..................................................................26 ii (Not a part of this Agreement) 3.1.14. LITIGATION..........................................................................26 3.1.15. COMPLIANCE WITH LAWS; PERMITS.......................................................26 3.1.16. PROPERTIES; SUFFICIENCY OF ASSETS...................................................27 3.1.17. INTELLECTUAL PROPERTY...............................................................27 3.1.18. ENVIRONMENTAL MATTERS...............................................................28 3.1.19. PLANS AND MATERIAL DOCUMENTS........................................................30 3.1.20. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC..............................................31 3.1.21. CUSTOMER, SUPPLIER AND EMPLOYEE RELATIONS; EMPLOYEE COMPENSATION; BONUSES.............................................................................32 3.1.22. OTHER EMPLOYMENT MATTERS............................................................32 3.1.23. ACCOUNTS RECEIVABLE.................................................................33 3.1.24. INVENTORY...........................................................................33 3.1.25. MILLENNIUM COMPLIANCE...............................................................33 3.1.26. FINDERS' FEES.......................................................................33 3.2. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDER....................................33 3.2.1. AUTHORITY; ENFORCEABILITY...........................................................34 3.2.2. NO CONFLICTS........................................................................34 3.2.3. NO CONSENTS.........................................................................34 3.2.4. OWNERSHIP OF SHARES; TITLE..........................................................34 3.2.5. LITIGATION..........................................................................35 3.2.6. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC..............................................35 IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.....................................................35 4.1. CORPORATE EXISTENCE AND POWER..................................................................35 4.2. CORPORATE AUTHORIZATION; ENFORCEABILITY........................................................35 4.3. GOVERNMENTAL AUTHORIZATION.....................................................................36 4.4. NON-CONTRAVENTION..............................................................................36 4.5. LITIGATION.....................................................................................36 4.6. FINDERS' FEES..................................................................................36 V. CERTAIN COVENANTS............................................................................................36 5.1. CONDUCT OF BUSINESS OF THE COMPANY.............................................................36 5.2. EXCLUSIVE DEALING..............................................................................38 5.3. REVIEW OF THE COMPANY; CONFIDENTIALITY.........................................................38 5.4. BEST EFFORTS...................................................................................39 5.5. SATISFACTION AND TERMINATION OF EQUITY ARRANGEMENTS............................................39 5.6. PLAN ASSETS....................................................................................39 5.7. NET WORTH......................................................................................40 5.8. REORGANIZATIONAL TRANSACTIONS..................................................................40 5.9. APPRAISAL......................................................................................40 5.10. FURTHER ASSURANCES.............................................................................40 VI. TAX MATTERS.................................................................................................40 6.1. TAX RETURNS....................................................................................40 6.2. APPORTIONMENT OF TAXES.........................................................................41 iii (Not a part of this Agreement) 6.3. COOPERATION; AUDITS............................................................................41 6.4. CONTROVERSIES..................................................................................42 6.5. AMENDED RETURNS................................................................................42 6.6. NON-FOREIGN PERSON AFFIDAVIT...................................................................42 VII. CONDITIONS TO CLOSING......................................................................................42 7.1. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB.............................................42 7.1.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY............................42 7.1.2. COMPANY'S CERTIFICATE...............................................................43 7.1.3. STOCKHOLDER APPROVAL................................................................43 7.1.4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PRINCIPAL STOCKHOLDER. .............................................................43 7.1.5. NO INJUNCTION, ETC..................................................................43 7.1.6. NO PROCEEDINGS......................................................................43 7.1.7. REQUIRED FILINGS....................................................................43 7.1.8. OPINION OF COUNSEL..................................................................43 7.1.9. DUE DILIGENCE.......................................................................44 7.1.10. ANCILLARY AGREEMENTS................................................................44 7.1.11. RESIGNATION OF DIRECTORS............................................................44 7.1.12. THIRD PARTY CONSENTS; GOVERNMENTAL APPROVALS........................................44 7.1.13. FIRPTA..............................................................................44 7.1.14. HSR ACT.............................................................................44 7.1.15. NO MATERIAL ADVERSE CHANGE..........................................................44 7.1.16. FINANCING...........................................................................44 7.1.17. LIQUIDATION OF INVESTMENT SECURITIES................................................44 7.1.18. STOCKHOLDER INDEBTEDNESS............................................................44 7.1.19. PRINCIPAL STOCKHOLDER OWNERSHIP.....................................................44 7.1.20. DISSENTERS RIGHTS...................................................................44 7.2. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE PRINCIPAL STOCKHOLDER.........................45 7.2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PARENT AND MERGER SUB......................................................................45 7.2.2. PARENT'S AND MERGER SUB'S CERTIFICATE...............................................45 7.2.3. NO INJUNCTION, ETC..................................................................45 7.2.4. OPINION OF COUNSEL..................................................................45 7.2.5. ESCROW AGREEMENT....................................................................45 7.2.6. HSR ACT.............................................................................45 7.2.7. MANAGEMENT BONUS PLAN...............................................................45 VIII. SURVIVAL INDEMNIFICATION..................................................................................46 8.1. SURVIVAL.......................................................................................46 8.2. INDEMNIFICATION................................................................................46 8.3. TAX INDEMNIFICATION............................................................................47 8.4. PROCEDURES.....................................................................................47 8.5. TREATMENT OF INDEMNIFICATION PAYMENTS..........................................................49 8.6. INDEMNIFICATION AMOUNTS NET OF BENEFITS RECEIVED...............................................49 iv (Not a part of this Agreement) IX. MISCELLANEOUS...............................................................................................49 9.1. TERMINATION....................................................................................49 9.2. NOTICES........................................................................................50 9.3. AMENDMENTS AND WAIVERS.........................................................................50 9.4. EXPENSES.......................................................................................51 9.5. SUCCESSORS AND ASSIGNS.........................................................................51 9.6. NO THIRD PARTY BENEFICIARIES...................................................................51 9.7. GOVERNING LAW..................................................................................51 9.8. JURISDICTION...................................................................................51 9.9. WAIVER OF JURY TRIAL...........................................................................51 9.10. COUNTERPARTS...................................................................................52 9.11. HEADINGS.......................................................................................52 9.12. ENTIRE AGREEMENT...............................................................................52 9.13. SEVERABILITY...................................................................................52 9.14. NO WAIVER......................................................................................52 9.15. CERTAIN INTERPRETIVE MATTERS...................................................................52 9.16. TRANSFER OF PROCEEDS...........................................................................53 9.17. STOCKHOLDERS' REPRESENTATIVE...................................................................53
v (Not a part of this Agreement) EXHIBIT AND SCHEDULE INDEX Exhibit A Form of Escrow Agreement Exhibit B Form of Financial Advisory Services Letter Exhibit C Form of Lease Agreement Exhibit D Form of Non-Competition Agreement Exhibit E Form of Working Capital Methodology Exhibit F Form of Company Counsel Opinion Exhibit G Form of Parent Counsel Opinion Schedule 1 Family Stockholders Schedule 2 New Capital Equipment Schedule 3 Stockholders Schedule 2.15 Proceedings Schedule 3.1.4 Non-Contravention; Consents Schedule 3.1.5(a)(i) Capitalization Schedule 3.1.5(a)(ii) Capitalization Schedule 3.1.5(a)(iii) Capitalization Schedule 3.1.5(b) Capitalization Schedule 3.1.6(a) Subsidiaries Schedule 3.1.6(b) Subsidiaries Schedule 3.1.6(c) Subsidiaries Schedule 3.1.8 No Undisclosed Liabilities Schedule 3.1.9 Intercompany Accounts Schedule 3.1.10(a) Tax Matters Schedule 3.1.10(b) Tax Matters Schedule 3.1.11 Absence of Certain Changes Schedule 3.1.12(a) Contracts Schedule 3.1.12(c) Contracts Schedule 3.1.13 Insurance Coverage Schedule 3.1.14 Litigation Schedule 3.1.15(a) Compliance with Laws; Permits Schedule 3.1.15(b) Compliance with Laws; Permits Schedule 3.1.16(a) Properties; Sufficiency of Assets Schedule 3.1.16(b) Properties; Sufficiency of Assets Schedule 3.1.17(a) Intellectual Property Schedule 3.1.17(b) Intellectual Property Schedule 3.1.18 Environmental Matters Schedule 3.1.19(a) Material Plans and Documents Schedule 3.1.19(b) Material Plans and Documents Schedule 3.1.19(c) Material Plans and Documents Schedule 3.1.19(d) Material Plans and Documents Schedule 3.1.19(h) Material Plans and Documents Schedule 3.1.19(i) Material Plans and Documents Schedule 3.1.20 Interests in Customers and Suppliers, Etc. vi (Not a part of this Agreement) Schedule 3.1.21(a) Customers, Suppliers and Employee Relations; Compensation; Bonuses Schedule 3.1.21(b) Customers, Suppliers and Employee Relations; Compensation; Bonuses Schedule 3.1.22 Other Employment Matters Schedule 3.1.23 Accounts Receivables Schedule 3.1.24 Inventory Schedule 3.1.25 Millennium Compliance Schedule 3.2.4(i) Ownership of Shares; Title Schedule 3.2.4(ii) Ownership of Shares; Title Schedule 3.2.4(iii) Ownership of Shares; Title Schedule 3.2.5 Litigation Schedule 3.2.6 Interests in Customers; Suppliers, Etc. Schedule 4.5 Litigation Schedule 9.2 Notices Schedule 9.15(c)(i) Knowledge Schedule 9.15(c)(ii) Knowledge vii REDEMPTION AND MERGER AGREEMENT (this "AGREEMENT"), dated as of September 17, 1998, among MID STATE MACHINE PRODUCTS, a Maine corporation (the "COMPANY"), S. DOUGLAS SUKEFORTH (the "PRINCIPAL STOCKHOLDER"), MID STATE HOLDING CO., INC., a Delaware corporation ("PARENT") and MID STATE ACQUISITION, INC., a Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"). RECITALS A. Parent has formed Merger Sub solely for the purpose of facilitating an efficient exchange by stockholders of the Company of their shares of Class A common stock of the Company, no par value per share, and Class B common stock of the Company, no par value per share (collectively, "COMPANY STOCK") for the Aggregate Closing Merger Consideration pursuant to the terms of this Agreement, and Merger Sub will not conduct any separate business activity nor serve any function other than to effect for the benefit of Parent and the Stockholders the conversion of Company Stock into the Aggregate Closing Merger Consideration. B. The respective Boards of Directors of the Company, Parent and Merger Sub have each determined that it is in the best interests of their respective shareholders for the Company to redeem the Redeemed Shares and for Merger Sub to merge with and into the Company (the "MERGER"), in each case, on the terms and subject to the conditions set forth herein. C. The parties desire to make certain representations, warranties and covenants in connection with the Redemption and Merger and to prescribe various conditions to Redemption and the Merger. Accordingly, the parties hereto agree as follows: I. DEFINITIONS 1.1. DEFINITIONS. In addition to the terms defined elsewhere herein, the following terms, as used herein, have the following meanings when used herein with initial capital letters: "ACCOUNTANTS" has the meaning ascribed to such term in Section 2.16(b). "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with the first Person. For the purposes of this definition, "CONTROL," when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing. "AGGREGATE CLOSING MERGER CONSIDERATION" has the meaning ascribed to such term in Section 2.8(a). The Aggregate Closing Merger Consolidation will be subject to adjustment pursuant to Sections 2.16, 2.17 and 2.18. 1 AGGREGATE CONSIDERATION" means the sum of the Aggregate Closing Merger Consideration and the Redemption Amount. "AGREEMENT" has the meaning ascribed to such term in the introductory paragraph of this Agreement as the same may be amended from time to time in accordance with the terms hereof. "ANCILLARY AGREEMENTS" means the Lease, the Non-Competition Agreement, the Financial Advisory Services Letter and the Escrow Agreement. "APPRAISAL" has the meaning ascribed to such term in Section 5.9 "ASSET SALE" means any direct or indirect issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of the Subsidiaries of the Company to any Person other than the Company or a Subsidiary of the Company of (a) any Capital Stock of any Subsidiary of the Company or (b) any other property or assets of the Company or any Subsidiary of the Company other than in the ordinary course of business. "AUDITED BALANCE SHEET" means the audited consolidated balance sheet of the Company and its Subsidiaries as of December 31, 1997. "AUDITED STATEMENTS" means the audited consolidated balance sheets of the Company and its Subsidiaries, as of December 31, 1997, 1996 and 1995, together with the related audited consolidated statements of earnings and retained earnings, stockholders' equity and cash flows for the fiscal years then ended, together with the notes thereto and reports thereon of Baker Newman & Noyes. "BALANCE SHEET DATE" means December 31, 1997. "1997 BALANCE SHEET PRINCIPLES" has the meaning ascribed to such term in Section 2.16(a). "BONUSES" have the meaning ascribed to such term in Section 3.1.21(b). "BUSINESS DAY" means a day other than a Saturday or Sunday or a day on which banks located in New York City are authorized or required to close. "CAPITAL STOCK" means (a) with respect to any Person that is a corporation, any and all shares, interests, participation or other equivalents (however designated and whether or not voting) of corporate stock, including the common stock of such Person and (b) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "CAPITALIZED LEASE OBLIGATIONS" means, with respect to the Company, for any applicable period, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP, and the amount of such obligations 2 at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "CASH" means cash and cash equivalents as would be shown on a balance sheet of the Company prepared in accordance with GAAP and on a basis consistent with the 1997 Balance Sheet Principles. "CLOSING" has the meaning ascribed to such term in Section 2.13. "CLOSING DATE" has the meaning ascribed to such term in Section 2.13. "CLOSING DATE BALANCE SHEET" has the meaning ascribed to such term in Section 2.16(a). "CLOSING WORKING CAPITAL BALANCE" has the meaning ascribed to such term in Section 2.16(a). "CLOSING WORKING CAPITAL BALANCE STATEMENT" has the meaning ascribed to such term in Section 2.16(a). "CODE" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "COMPANY" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "COMPANY PROPERTY" means any real property and improvements at any time owned, leased, used, operated or occupied (whether for storage, disposal or otherwise) by the Company or any Subsidiary. "COMPANY SECURITIES" has the meaning ascribed to such term in Section 3.1.5(b). "COMPANY STOCK" has the meaning ascribed to such term in Recital A. "COMPUTER SYSTEMS" has the meaning ascribed to such term in Section 3.1.25. "CONSOLIDATED EBITDA" means, with respect to the Company the sum (without duplication) of (a) Consolidated Net Income and (b) to the extent Consolidated Net Income has been reduced thereby, (i) all income Taxes of the Company and the Subsidiaries of the Company recorded as a Tax provision in accordance with GAAP for such period (other than income Taxes attributable to extraordinary, unusual or nonrecurring gains or losses or Taxes attributable to sales or dispositions outside the ordinary course of business), (ii) Consolidated Interest Expense and (iii) Consolidated Non-cash Charges, all as determined on a consolidated basis for the Company and the Subsidiaries of the Company in accordance with GAAP. "CONSOLIDATED INTEREST EXPENSE" means, with respect to the Company, for any applicable period, the sum of, without duplication: (a) the aggregate of the interest expense of 3 the Company and the Subsidiaries of the Company during such period determined on a consolidated basis in accordance with GAAP and (b) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and Subsidiaries of the Company during such period as determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED NET INCOME" means, with respect to the Company for any applicable period, the aggregate net income (or loss) of the Company and the Subsidiaries of the Company for such period on a consolidated basis, determined in accordance with GAAP, provided that there shall be excluded from the calculation thereof (a) after-tax gains and losses from Asset Sales or abandonments or reserves relating thereto, (b) after-tax items classified as extraordinary or nonrecurring gains or losses, (c) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Subsidiary of the Company or is merged or consolidated with the Company or any Subsidiary of the Company, (d) the net income of any Subsidiary of the Company to the extent that the declaration of dividends or similar distributions by that Subsidiary of that income is restricted by a contract, operation of law or otherwise, (e) the net income of any other Person, other than a Subsidiary of the Company, except to the extent of cash dividends or distributions paid to the Company or to a Subsidiary of the Company by such other Person, (f) in the case of a successor to the Company by consolidation or merger or as a transferee of the Company's assets, any net income (or loss) of the successor corporation prior to such consolidation, merger or transfer of assets, (g) the aggregate of gross interest income of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP, and (h) Transaction Fees and Expenses expensed during any such period. "CONSOLIDATED NON-CASH CHARGES" means, with respect to the Company for any applicable period, the aggregate depreciation and amortization of the Company and the Subsidiaries of the Company reducing Consolidated Net Income of the Company for such period. "CONSTITUENT OF CONCERN" means any substance defined as a hazardous substance, hazardous waste, hazardous material, pollutant, or contaminant by any Environmental Law, any petroleum hydrocarbon and any degradation product of a petroleum hydrocarbon, asbestos, PCB or similar substance, the handling, storage, treatment or exposure of or to which is subject to regulation under any Environmental Law. "DAMAGES" has the meaning ascribed to such term in Section 8.2(a). "DGCL" has the meaning ascribed to such term in Section 2.2. "DIRECT CLAIM" has the meaning ascribed to such term in Section 8.4(c). "DISPUTE NOTICE" has the meaning ascribed to such term in Section 6.1. "EBITDA ADJUSTMENT" has the meaning ascribed to such term in Section 2.18(b). "EBITDA STATEMENT" has the meaning ascribed to such term in Section 2.17(a). 4 "EFFECTIVE TIME" has the meaning ascribed to such term in Section 2.3. "ENVIRONMENTAL CLAIMS" means administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, citations, summonses, notices of non-compliance or violation, requests for information, investigations or proceedings relating to any Environmental Law or any permit issued under any such Law, including (a) Environmental Claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) Environmental Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Constituents of Concern or arising from alleged injury or threat of injury to human health and safety or the environment. "ENVIRONMENTAL CONDITION" means a condition with respect to the environment which has resulted or could result in a material loss, liability, cost or expense to the Company . "ENVIRONMENTAL LAW" means any Law in effect or to the Company's and the Shareholders' knowledge, any Law reasonably expected to be adopted or made effective, in each case as amended as of the Closing Date, and any judicial or administrative interpretation thereof as of the Closing Date, including any judicial or administrative order, consent decree or judgment, relating to the environment, human health and safety, including, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601, ET SEQ. ("CERCLA") and any state and local counterparts or equivalents. "ENVIRONMENTAL PERMITS" means all permits, licenses, authorizations, certificates and approvals of Governmental Authorities relating to or required by Environmental Laws and necessary for the business of the Company as currently conducted. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" means any entity that, together with the Company, would be considered a single employer within the meaning of Section 4001 of ERISA or Section 414 of the Code. "ESCROW ACCOUNT" has the meaning ascribed to such term in Section 2.7(a)(ii). "ESCROW AGENT" has the meaning ascribed to such term in Section 2.7(a)(ii). "ESCROW AGREEMENT" means the Escrow Agreement between the Parent, Escrow Agent and the Stockholders' Representative, substantially in the form attached hereto as EXHIBIT A. "ESCROW AMOUNT" means an amount equal to $3.0 million. "ESTIMATED CLOSING WORKING CAPITAL BALANCE" has the meaning ascribed to such term in Section 2.12. 5 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "FAMILY STOCKHOLDERS" means the holders of Company Stock listed on SCHEDULE 1 attached hereto. "FINANCIAL ADVISORY SERVICES LETTER" means the Financial Advisory Services Letter Agreement between the Company and Saunders Karp & Megrue, L.P. (or its designee(s)) on the other hand, in respect of advisory and monitoring services to be provided to the Company, substantially in the form attached hereto as EXHIBIT B. "FISCAL YEAR" means the calendar year or any other annual period as determined from time to time by the board of directors of the Company. "GAAP" means U.S. generally accepted accounting principles, consistently applied. "GOVERNMENTAL AUTHORITY" means any domestic or foreign governmental or regulatory authority. "HSR ACT" has the meaning ascribed to such term in Section 3.1.3. "INDEBTEDNESS" means with respect to any Person, at any date, without duplication, (i) all obligations of such Person for borrowed money, including, without limitation, all principal, interest, premiums, fees, expenses, overdrafts and penalties with respect thereto, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of the property or services, except trade payables incurred in the ordinary course of business, (iv) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (v) all obligations of such Person as lessee which are required to be capitalized in accordance with GAAP and (vi) all Indebtedness of any other Person of the type referred to in clauses (i) to (v) above directly or indirectly guaranteed by such Person or secured by any assets of such Person. "INDEMNIFIED PARTY" has the meaning ascribed to such term in Section 8.4(a). "INDEMNIFYING PARTY" has the meaning ascribed to such term in Section 8.4(a). "INTELLECTUAL PROPERTY RIGHT" means any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how (including any registrations or applications for registration of any of the foregoing) or any other similar type of proprietary intellectual property right, in each case which is used or held for use or otherwise necessary in connection with the conduct of the business of the Company as now conducted or proposed to be conducted. "INTERIM FINANCIAL STATEMENTS" means the unaudited consolidated balance sheet of the Company and its Subsidiaries as of July 31, 1998 and the related consolidated summary income statement and cost allocation income statement. 6 "INVESTMENT SECURITIES" means all available Cash of the Company and securities held by or for the benefit of the Company or its Subsidiaries by the Company (excluding securities issued by Subsidiaries and notes payable to stockholders or employees of the Company or any Subsidiary), including, but not limited to, "held-to-maturity securities," "trading securities" and "available-for-sale securities." "IRS" means the Internal Revenue Service. "LAST OFFER" has the meaning ascribed to such term in Section 2.16(b). "LAW" means any federal, state or local statute, law, rule, regulation, ordinance, code, permit, license, policy or rule of common law. "LEASE" means the Amended and Restated Lease Agreement between the Principal Stockholder, Rita Sukeforth and the Surviving Corporation, substantially in the form attached hereto as EXHIBIT C. "LIEN" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For the purposes of this Agreement, a Person will be deemed to own, subject to a Lien, any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, assets, liabilities, condition (financial and other), results of operations or prospects of the Company and the Subsidiaries. "MBCA" has the meaning ascribed to such term in Section 2.1. "MERGER" has the meaning ascribed to such term in Recital B. "MERGER ESCROW AMOUNT" has the meaning ascribed to such term in Section 2.10. "MERGER SUB" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "MILLENNIUM COMPLIANCE" means that the Computer Systems are capable of the following, during and/or after January 1, 2000: (a) handling date information involving all and any dates, including accepting input, providing output and performing date calculations in whole or in part; (b) operating accurately without interruption on and in respect of any and all dates and without any change in performance; (c) responding to and processing two digit year input without creating any ambiguity as to the century; and (d) storing and providing date input information without creating any ambiguity as to the century. "NEW CAPITAL EQUIPMENT" means the growth-oriented capital equipment described on SCHEDULE 2 attached hereto. 7 "NEW CAPITAL EQUIPMENT AGGREGATE PURCHASE PRICE" means the purchase price paid by the Company during the period commencing May 26, 1998 and ending immediately prior to the Closing of up to $1,027,680 million in the aggregate in consideration for the New Capital Equipment described on SCHEDULE 2 attached hereto. "NON-COMPETITION AGREEMENT" means the Non-Competition Agreement between the Company, Parent and the Principal Stockholder substantially in the form attached hereto as EXHIBIT D. "OPERATING COMPANY" means an "operating company" within the meaning of Department of Labor Regulation Section 2510.3-101(c) or successor rule or regulation, as from time to time amended and in effect. "ORDER" means any judgment, injunction, judicial or administrative order or decree. "PARENT" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "PERCENTAGE INTEREST" has the meaning ascribed to such term in Section 8.5(a)(ii). "PERMITTED LIEN" means (i) mechanics', workmen's, repairmen's or other like Liens arising or incurred in the ordinary course of business in respect of obligations that are not overdue or (ii) other imperfections of title or encumbrances, which do not materially affect the value or marketability of the property subject thereto. "PER SHARE CLOSING MERGER CONSIDERATION" means (i)(A) $31.8 million PLUS (B) the Estimated Closing Working Capital Balance PLUS (C) the New Capital Equipment Purchase Price PLUS (D) the after-Tax proceeds of the liquidation of Investment Securities provided for in Section 7.1.17 DIVIDED BY (ii) the number of issued and outstanding shares of Company Stock immediately prior to the consummation of the Redemption. The Per Share Closing Merger Consideration will be subject to adjustment pursuant to Sections 2.16, 2.17 and 2.18. "PERSON" means an individual, corporation, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLAN ASSETS" means "plan assets" within the meaning of Department of Labor Regulation Section 2510.3-101(c) or successor rule or regulation, as from time to time amended and in effect. "1999 PLAN EBITDA" means $7.5 million. "2000 PLAN EBITDA" means $9.0 million. "PLANS" has the meaning ascribed to such term in Section 3.1.19(a). 8 "POST-CLOSING TAX PERIOD" means any Tax period (or portion thereof) ending after the Closing. "PRE-CLOSING TAX PERIOD" means any Tax period (or portion thereof) that actually ends on or before the Closing. "PREMISES" has the meaning ascribed to such term in Section 5.9. "PRINCIPAL STOCKHOLDER" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "REAL PROPERTY" has the meaning ascribed to such term in Section 3.1.16(b). "REDEEMED SHARES" has the meaning ascribed to such term in Section 2.1. "REDEEMED STOCKHOLDERS" has the meaning ascribed to such term in Section 2.1. "REDEMPTION" has the meaning ascribed to such term in Section 2.1. "REDEMPTION AMOUNT" has the meaning ascribed to such term in Section 2.7(a). The Redemption Amount will be subject to adjustment pursuant to Sections 2.16, 2.17 and 2.18. "REDEMPTION ESCROW AMOUNT" has the meaning ascribed to such term in Section 2.7(a)(i). "REFERENCE WORKING CAPITAL STATEMENT" has the meaning ascribed to such term in Section 2.16(a). "REORGANIZATIONAL TRANSACTIONS" has the meaning ascribed to such term in Section 5.8. "RETURNS" has the meaning ascribed to such term in Section 3.1.10(a)(i). "SELECTED REPRESENTATIONS AND WARRANTIES" has the meaning ascribed to such term in Section 8.1. "STOCKHOLDER" means any holder of issued and outstanding Company Stock on the Closing Date and prior to the Effective Time. "STOCKHOLDERS' REPRESENTATIVE" has the meaning ascribed to such term in Section 9.17(a). "SUBSIDIARY" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by the Company. "SUBSIDIARY SECURITIES" has the meaning ascribed to such term in Section 3.1.6(b). 9 "SURVIVING CORPORATION" has the meaning ascribed to such term in Section 2.2. "TAX" means (a) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, license, withholding on amounts paid to or by the Company or any Subsidiary, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest, penalty, addition to tax or additional amount imposed by any Taxing Authority (as hereinafter defined), (b) any liability of the Company or any Subsidiary for the payment of any amounts of any of the foregoing types as a result of being a member of an affiliated, consolidated, combined or unitary group, or being a party to any agreement or arrangement whereby liability of the Company or any Subsidiary for payment of such amounts was determined or taken into account with reference to the liability of any other Person, and (c) liability of the Company or any Subsidiary for the payment of any amounts as a result of being a party to any Tax Sharing Agreements or with respect to the payment of any amounts of any of the foregoing types as a result of any express or implied obligation to indemnify any other Person. "TAX MATTER" has the meaning ascribed to such term in Section 6.4. "TAX SHARING AGREEMENTS" means all existing Tax sharing agreements or arrangements (whether or not written) binding the Company or any Subsidiary. "TAXING AUTHORITY" means any Governmental Authority responsible for the imposition of any Tax. "THIRD PARTY CLAIM" means any claim, demand, action, suit or proceeding made or brought by any Person who or which is not a party to this Agreement. "TRANSACTION FEES AND EXPENSES" means (i) the reasonable fees and expenses of legal counsel, accountants and other advisors for Parent incurred in connection with the transactions contemplated hereby, (ii) the fees and expenses contemplated by Section 4.6 and (iii) the ongoing fees and expenses referred to in the Financial Advisory Services Letter (excluding indemnification payments contemplated by SCHEDULE 1 attached thereto). "UNAFFILIATED STOCKHOLDER" means any Stockholder other than the Principal Stockholder or a Family Stockholder. II. THE REDEMPTION; THE MERGER; CLOSING 2.1. THE REDEMPTION. Subject to and in accordance with the terms and conditions of this Agreement and in accordance with the Maine Business Corporation Act (the "MBCA"), on the Closing Date and prior to the Effective Time, the Principal Stockholder will cause the Company to, and the Company will, redeem (the "REDEMPTION") from all or certain of the Stockholders whose names are listed on SCHEDULE 3 attached hereto under the heading "Redeemed Stockholders" (the "REDEEMED STOCKHOLDERS") an aggregate number of issued and outstanding shares of Company Stock then held by such Redeemed Stockholders equal to (i) the after-Tax proceeds of the liquidation of Investment Securities provided for in Section 7.1.17 10 divided by (ii) the Per Share Closing Merger Consideration (the quotient of clause (i) divided by clause (ii), the "REDEEMED SHARES"). The allocation of the Redeemed Shares among the Redeemed Stockholders will be determined by the Stockholders' Representative with the consent of Parent (which will not be unreasonably withheld), on or before the date immediately preceding the Closing Date, and SCHEDULE 3 will be updated prior to the Closing upon such determination to reflect such allocation. 2.2. THE MERGER. Subject to and in accordance with the terms and conditions of this Agreement and in accordance with the Delaware General Corporation Law (the "DGCL") and the MBCA, at the Effective Time, Merger Sub will be merged with and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub will cease and the Company will continue as the surviving corporation (sometimes referred to herein as the "SURVIVING CORPORATION") and will succeed to and assume all of the rights and obligations of Merger Sub in accordance with the DGCL and the MBCA. 2.3. CONSUMMATION OF THE MERGER. As soon as practicable on the Closing Date, the parties will cause the Merger to be consummated by filing with the Delaware Secretary of State and the Maine Secretary of State a certificate of merger or articles of merger, in form reasonably satisfactory to the Company, Parent and Merger Sub, executed in accordance with the relevant provisions of the DGCL and MBCA and will make all other filings or recordings required under the DGCL and MBCA to effect the Merger. The "EFFECTIVE TIME" as that term is used in this Agreement will mean the effective time set forth in the certified copy of the certificate of merger or articles of merger issued by the Maine Secretary of State and the Delaware Secretary of State with respect to the Merger. 2.4. EFFECTS OF THE MERGER. The Merger will have the effects set forth in the DGCL and the MBCA. 2.5. ARTICLES OF INCORPORATION; BY-LAWS. The Articles of Incorporation and By-laws of the Company, as in effect immediately prior to the Effective Time, will be the Articles of Incorporation and By-laws of the Surviving Corporation and thereafter will continue to be its Articles of Incorporation and By-Laws until amended as provided therein and under the MBCA. 2.6. DIRECTORS AND OFFICERS. The director of Merger Sub immediately prior to the Effective Time will be the initial director of the Surviving Corporation, to hold office in accordance with the Articles of Incorporation and By-Laws of the Surviving Corporation until his successor is duly elected or appointed and qualified. The officers of the Company immediately prior to the Effective Time will be the initial officers of the Surviving Corporation, each to hold office until their respective successors are duly elected or appointed and qualified. 2.7. PAYMENT OF REDEMPTION AMOUNT; DELIVERY OF REDEEMED SHARES. (a) Subject to adjustment in accordance with Sections 2.16, 2.17 and 2.18, on the Closing Date and prior to the Effective Time, in consideration of the Redemption (including the delivery of the Redeemed Shares pursuant to Section 2.7(b)), the Principal Stockholder will cause the Company to, and the Company will, pay to the Stockholders' Representative (for the benefit of the Redeemed Stockholders), by wire transfer in immediately available funds, an amount equal to the product of the aggregate number of Redeemed Shares and the Per Share Closing Merger 11 Consideration (such product, the "REDEMPTION AMOUNT") as follows: (i) an amount equal to the Redemption Amount less the percentage of the Escrow Amount equal to the percentage that the number of Redeemed Shares bears to the aggregate number of shares of Company Stock issued and outstanding immediately prior to the consummation of the Redemption (the "REDEMPTION ESCROW AMOUNT") to one account designated in writing by the Stockholders' Representative for the benefit of the Redeemed Stockholders and (ii) the Redemption Escrow Amount to one account (the "ESCROW ACCOUNT") designated in writing by the escrow agent (the "ESCROW AGENT") appointed pursuant to the terms and conditions of the Escrow Agreement to be held in escrow pursuant to the terms and conditions of such Escrow Agreement. (b) Simultaneously with payment of the Redemption Amount pursuant to Section 2.7(a), the Stockholders' Representative will cause the Redeemed Stockholders to deliver to Parent stock certificates representing an aggregate number shares of Company Stock equal to the Redeemed Shares. Such stock certificates will be duly endorsed (or accompanied by stock powers duly endorsed) for transfer to the Company with all necessary transfer Tax and other revenue stamps, acquired at the Redeemed Stockholders' expense, affixed and canceled. The Redeemed Stockholders will cover any deficiencies with respect to the endorsement of the certificates representing the Redeemed Shares and with respect to the stock powers accompanying such certificates. The Redeemed Shares will be retired upon the redemption thereof. 2.8. CONVERSION OF SECURITIES; MERGER CONSIDERATION. Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of the Company, Parent, Merger Sub or their respective shareholders (including, without limitation, the Stockholders): (a) Each share of Company Stock issued and outstanding after consummation of the Redemption and immediately prior to the Effective Time as set forth on SCHEDULE 3 attached hereto under the heading "Other Stockholders" opposite each Person's name thereon will be converted into the right to receive, in cash, an amount per share of Company Stock equal to (i)(A) $31.8 million PLUS (B) the Estimated Closing Working Capital Balance PLUS (C) the New Capital Equipment Aggregate Purchase Price (the aggregate of (A) PLUS (B), PLUS (C), the "AGGREGATE CLOSING MERGER CONSIDERATION") DIVIDED BY (ii) the number of shares of Company Stock issued and outstanding after consummation of the Redemption and immediately prior to the Effective Time. (b) As of the Effective Time, all Company Stock will no longer be outstanding and will automatically be canceled and retired and will cease to exist, and each holder of a certificate representing any shares of Company Stock will cease to have any rights with respect thereto, except the right to receive such holder's appropriate portion of the Aggregate Closing Merger Consideration as set forth in Section 2.8(a), upon surrender of such certificate in accordance with Section 2.8(d). (c) Each share of Company Stock held in the treasury of the Company immediately prior to the Effective Time will be canceled and extinguished at the Effective Time without any conversion thereof and no payment will be made with respect thereto. 12 (d) At the Effective Time, each Stockholder will be entitled, upon surrender to Parent of such Stockholder's certificates representing shares of Company Stock, to receive in exchange therefor an amount equal to the Per Share Closing Merger Consideration (as adjusted in accordance with Sections 2.16, 2.17 and 2.18) MULTIPLIED BY the number of shares of Company Stock set forth opposite such Stockholder's name on SCHEDULE 3 under the heading "Other Stockholders". (e) Each share of common stock, par value $.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time will automatically without any action on the part of the holder thereof, be converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation which as of the Effective Time will constitute all of the issued and outstanding shares of the Surviving Corporation. 2.9. CLOSING OF TRANSFER RECORDS. After the close of business on the Closing Date, transfers of Company Stock outstanding prior to the Effective Time will not be made on the stock transfer books of the Surviving Corporation. 2.10. PAYMENT OF AGGREGATE CLOSING MERGER CONSIDERATION. Subject to adjustment in accordance with Sections 2.16, 2.17 and 2.18, payment of the Aggregate Closing Merger Consideration will be made in immediately available funds by wire transfer at Closing as follows: (a) an amount equal to the Aggregate Closing Merger Consideration less the excess of the Escrow Amount over the Redemption Escrow Amount (the "MERGER ESCROW AMOUNT") to the account designated pursuant to Section 2.7(a)(i) and (b) the Merger Escrow Amount to the account designated pursuant to the terms of Section 2.7(a)(ii) to be held in escrow pursuant to the terms and conditions of such Escrow Agreement. 2.11. INDEMNIFICATION. The Stockholders' Representative will indemnify and hold Parent harmless from any claim of any Stockholder arising out of the alleged misapplication of any sums paid by Parent to the Stockholders' Representative under this Agreement. 2.12. ESTIMATED CLOSING WORKING CAPITAL BALANCE. Not less than two Business Days prior to the Closing Date, the Company and Parent will prepare and agree on, an estimate of the Closing Working Capital Balance (the "ESTIMATED CLOSING WORKING CAPITAL BALANCE") determined in accordance with the second sentence of Section 2.16(a), as if it were the actual Closing Working Capital Balance, but based upon the Company's and Parent's review of monthly financial information then available and inquiries of personnel responsible for the preparation of the financial information relating to the Company in the ordinary course. 2.13. CLOSING. The closing of the Merger (the "CLOSING") will take place at the offices of Jones, Day, Reavis & Pogue located at 599 Lexington Avenue, New York, New York, at 10:00 a.m., New York time as soon as possible after the date hereof but in no event later than ten Business Days after the satisfaction or waiver of the conditions to Closing (the date on which the Closing occurs is herein referred to as the "CLOSING DATE"). The Closing will be effective at 11:59 p.m. on the Closing Date. The Principal Stockholder and the Company will also deliver or cause to be delivered the other agreements, instruments and certificates provided for in Article VII. 13 2.14. MBCA SECTION 909.4. The parties agree and acknowledge that Section 909.4 of the MBCA will not be construed to impose liability on any Stockholder other than the Principal Stockholder for the failure of any representation and warranty made hereunder to be true and correct on the date hereof and at the Closing. 2.15. PROCEEDINGS. Except as otherwise specifically provided for herein or in SCHEDULE 2.15, all proceedings that will be taken and all documents that will be executed and delivered by the parties hereto on the Closing Date will be deemed to have been taken and executed simultaneously, and no proceeding will be deemed taken nor any document executed and delivered until all have been taken, executed and delivered. 2.16. POST-CLOSING ADJUSTMENT. (a) As soon as practicable (and in no event later than 60 days after the Closing), Parent will prepare and deliver or cause to be prepared and delivered to the Stockholders' Representative a balance sheet of the Company as of the close of business on the Closing Date (the "CLOSING DATE BALANCE SHEET") without giving effect to the transactions described in this Agreement to be consummated at the Closing and a proposed statement of net working capital of the Company as of the Closing Date (the "CLOSING WORKING CAPITAL BALANCE STATEMENT"). The Closing Date Balance Sheet and the Closing Working Capital Balance Statement (i) will reflect, respectively, the financial position of the Company and the components and calculation of net working capital of the Company in each case as of the Closing Date; (ii) will be prepared and determined in accordance with GAAP, on a basis consistent with the policies, principles and methodology used in connection with the preparation of the Audited Balance Sheet (the "1997 BALANCE SHEET PRINCIPLES"); and (iii) will be adjusted in accordance with the methodology set forth in EXHIBIT E attached hereto (the "REFERENCE WORKING CAPITAL STATEMENT"). The net working capital of the Company as of the Closing Date determined in accordance with this Section 2.16, including the adjustments set forth in the Reference Working Capital Statement, is referred to herein as the "CLOSING WORKING CAPITAL BALANCE." To the extent of any inconsistency between the methodology disclosed in the Reference Working Capital Statement and the 1997 Balance Sheet Principles, the terms of the Reference Working Capital Statement will govern. (b) If, within 30 days after the date of Parent's delivery of the Closing Date Balance Sheet and the Closing Working Capital Balance Statement, the Stockholders' Representative determines in good faith that the Closing Date Balance Sheet and the Closing Working Capital Balance Statement have not been prepared and determined in accordance with this Agreement, the Stockholders' Representative will give written notice to Parent within such 30 day period (i) setting forth the Stockholders' Representative's proposed changes to the Closing Date Balance Sheet as prepared by Parent and the determination by the Stockholders' Representative of the Closing Working Capital Balance and (ii) specifying in detail the Stockholders' Representative's basis for disagreement with Parent's preparation and determination of the Closing Date Balance Sheet and the Closing Working Capital Balance. The failure by the Stockholders' Representative to so express disagreement and provide such specification within such 30 day period will constitute the acceptance of Parent's preparation of the Closing Date Balance Sheet and the computation of the Closing Working Capital Balance. If Parent and the Stockholders' Representative are unable to resolve any disagreement between them with respect to the preparation of the Closing Date Balance Sheet and the determination of the Closing Working Capital Balance within 30 days after the giving of notice by the Stockholders' Representative to Parent of such disagreement, the items in dispute will be referred 14 for determination to Price Waterhouse Coopers, L.L.P. (the "ACCOUNTANTS") as promptly as practicable, but not later than five days after the expiration of such 30 day period. Parent and the Stockholders' Representative will use reasonable efforts to cause the Accountants to render their decision as soon as practicable thereafter (but in no event later than 30 days after the submission to the Accountants of the notice of disagreement referred to in the immediately preceding sentence), including without limitation by promptly complying with all reasonable requests by the Accountants for information, books, records and similar items. The Accountants will make a determination as to each of the items in dispute (but only those items in dispute), which determination will be (A) in writing, (B) furnished to each of the parties hereto as promptly as practicable after the items in dispute have been referred to the Accountants (but in no event later than 30 days thereafter), (C) made in accordance with this Agreement (including the Reference Working Capital Statement), and (D) conclusive and binding upon each of the parties hereto. Nothing herein will be construed to authorize or permit the Accountants to determine (i) any question or matter whatsoever under or in connection with this Agreement, except the determination of what adjustments, if any, must be made in one or more disputed items reflected in the Closing Date Balance Sheet and the Closing Working Capital Balance Statement delivered by Parent in order for the Closing Working Capital Balance to be determined in accordance with the provisions of this Agreement (including the Reference Working Capital Statement), or (ii) a Closing Working Capital Balance that is not equal to one of, or between, the Closing Working Capital Balance as determined by the Stockholders' Representative and as determined by Parent. The fees and expenses of the Accountants will be paid by the party whose last written settlement offer related to all items in dispute, in the aggregate, submitted to the Accountants upon the referral of the matter to the Accountants in accordance with this Section 2.16(b) (each, a "LAST OFFER") varies by the greatest absolute amount from the determination by the Accountants of all such disputed items. No party will disclose to the Accountants, and the Accountants will not consider for any purpose, any settlement discussions or settlement offer (other than the Last Offer) made by any party. (c) During the period that the Stockholders' Representative's advisors and personnel are conducting their review of Parent's preparation of the Closing Date Balance Sheet and determination of the Closing Working Capital Balance, the Stockholders' Representative and his representatives will have reasonable access during normal business hours to the work papers, prepared by or on behalf of Parent and its representatives in connection with Parent's preparation of the Closing Working Capital Balance Statement and determination of the Closing Working Capital Balance; PROVIDED, HOWEVER, that the Stockholders' Representative will conduct such review in a manner that does not unreasonably interfere with the conduct of the business of the Company or result in substantial out-of-pocket costs to Parent. To the extent any such work papers are in the control of the Stockholders' Representative after the Closing, the Stockholders' Representative will grant Parent and its representatives reciprocal access rights for the purpose of finalizing the preparation of the Closing Date Balance Sheet and the determination of the Closing Working Capital Balance. The Stockholders' Representative and Parent agree in good faith to use all reasonable efforts to provide such information and access described in this Section 2.16(c). 2.17. 1998 FISCAL YEAR-END ADJUSTMENT. (a) As soon as practicable (and in no event later than 90 days after the end of the Surviving Corporation's Fiscal Year ended 1998), Parent shall prepare and deliver to the Stockholders' Representative a statement of the Surviving 15 Corporation's Consolidated EBITDA for the Fiscal Year ended 1998 (the "EBITDA STATEMENT"), prepared in accordance with GAAP and the 1997 Balance Sheet Principles. (b) If within 30 days after the date of the Parent's delivery of the EBITDA Statement, the Stockholders' Representative determines in good faith that the EBITDA Statement and Consolidated EBITDA for the Fiscal Year ended 1998 has not been prepared and determined in accordance with this Agreement, the Stockholders' Representative will give written notice to Parent within such 30 day period (i) setting forth the Stockholders' Representative's proposed changes to the EBITDA Statement and (ii) specifying in detail the Stockholders' Representative's basis for disagreement with the preparation of the EBITDA Statement and the determination of Consolidated EBITDA for the Fiscal Year ended 1998. The failure by the Stockholders' Representative to so express disagreement and provide such specification within such 30 day period will constitute the acceptance of the preparation of the EBITDA Statement and the determination of Consolidated EBITDA for the Fiscal Year ended 1998. If Parent and the Stockholders' Representative are unable to resolve any disagreement between them with respect to the preparation of the EBITDA Statement and the determination of Consolidated EBITDA for the Fiscal Year ended 1998 within 30 days after the giving of notice by the Stockholders' Representative to Parent of such disagreement, the items in dispute will be referred for determination to the Accountants as promptly as practicable, but not later than five days after the expiration of such 30 day period. Parent and the Stockholders' Representative will use reasonable efforts to cause the Accountants to render their decision as soon as practicable thereafter (but in no event later than 30 days after the submission to the Accountants of the notice of disagreement referred to in the immediately preceding sentence), including without limitation by promptly complying with all reasonable requests by the Accountants for information, books, records and similar items. The Accountants will make a determination as to each of the items in dispute (but only those items in dispute), which determination will be (A) in writing, (B) furnished to each of the parties hereto as promptly as practicable after the items in dispute have been referred to the Accountants (but in no event later than 30 days thereafter), (C) made in accordance with this Agreement, and (D) conclusive and binding upon each of the parties hereto. Nothing herein will be construed to authorize or permit the Accountants to determine (i) any question or matter whatsoever under or in connection with this Agreement, except the determination of what adjustments, if any, must be made in one or more disputed items reflected in the EBITDA Statement delivered by Parent in order for the Consolidated EBITDA for the Fiscal Year ended 1998 to be determined in accordance with the provisions of this Agreement, or (ii) a Consolidated EBITDA for the Fiscal Year ended 1998 that is not equal to one of, or between, the Consolidated EBITDA for the Fiscal Year ended 1998 as determined by the Stockholders' Representative and as determined by Parent. The fees and expenses of the Accountants will be paid by the party whose Last Offer varies by the greatest absolute amount from the determination by the Accountants of all such disputed items. No party will disclose to the Accountants, and the Accountants will not consider for any purpose, any settlement discussions or settlement offer (other than the Last Offer) made by any party. (c) During the period that the Stockholders' Representative's advisors and personnel are conducting their review of Parent's preparation of the EBITDA Statement, the Stockholders' Representative and his representatives will have reasonable access during normal business hours to the work papers, prepared by or on behalf of Parent and its representatives in connection with Parent's preparation of the EBITDA Statement; PROVIDED, HOWEVER, that the Stockholders' Representative will conduct such review in a manner that does not unreasonably 16 interfere with the conduct of the business of Parent or the Surviving Corporation or result in substantial out-of-pocket costs to the Surviving Corporation. The Stockholders' Representative and Parent agree in good faith to use all reasonable efforts to provide such information and access described in this Section 2.17(c). 2.18. ADJUSTMENTS TO CLOSING PAYMENTS. (a) Upon the final determination of the Closing Working Capital Balance, the parties shall make the following adjustments: (i) If the Closing Working Capital Balance exceeds the Estimated Closing Working Capital Balance, then the Aggregate Consideration will be increased (and the Per Share Closing Merger Consideration will be increased accordingly) by, and Parent shall pay to the Stockholders' Representative (for the benefit of the Stockholders) the amount of such difference. (ii) If the Closing Working Capital Balance is less than the Estimated Closing Working Capital Balance, then the Aggregate Consideration will be decreased (and the Per Share Closing Merger Consideration will be decreased accordingly) by, and Parent will be entitled to receive from the Escrow Agent in accordance with the terms of the Escrow Agreement, the amount of such difference, up to the then available Escrow Amount. In the event the sum of the Closing Working Capital Balance and the then available Escrow Amount is less than the Estimated Closing Working Capital Balance, the Aggregate Consideration will be further decreased (and the Per Share Closing Merger Consideration will be decreased accordingly) by, and the Principal Stockholder will pay to Parent, the amount of such difference. (b) Upon the final determination of Consolidated EBITDA for the Fiscal Year ended 1998, the parties will make the following adjustment: if the Consolidated EBITDA for the Fiscal Year ended 1998 is less than $7.0 million, then the Aggregate Consideration will be decreased (and the Per Share Closing Merger Consideration will be decreased accordingly) by, and Parent will be entitled to receive from the Escrow Agent in accordance with the terms of the Escrow Agreement, an amount (the "EBITDA ADJUSTMENT") equal to (A) 5.2 MULTIPLIED BY (B) the difference between (i) Consolidated EBITDA for the Fiscal Year ended 1998 and (ii) $7.0 million, up to a maximum of $3.0 million. In the event the EBITDA Adjustment exceeds the amount then available in the Escrow Account, then the Aggregate Consideration will be further decreased (and the Per Share Closing Merger Consideration will be decreased accordingly) by, and the Principal Stockholder will pay to Parent, the amount of such difference. (c) Any payment in respect of an adjustment required to be made under Paragraph (a) or Paragraph (b) of this Section 2.18 will be made by Parent or, the Principal Stockholder, as applicable, in cash by wire transfer in immediately available funds to one account specified by Parent or the Stockholders' Representative (for the benefit of the Stockholders), as applicable, in writing, prior to the date such payment is required to be made hereunder. Such payment will be made on such of the following dates as may be applicable: (i) if the Stockholders' Representative shall have not objected to the preparation of the Closing Date Balance Sheet, the determination of the Closing Working Capital Balance or the determination of Consolidated EBITDA for the Fiscal Year ended 1998, as applicable, the earlier of (A) 30 days after delivery to the Stockholders' Representative of the Closing Date Balance Sheet, the Closing Working Capital Balance Statement or the EBITDA Statement or (B) five days after the Stockholders' Representative has indicated that he has no objections to the preparation of the Closing Date Balance Sheet, the determination of the Closing Working Capital Balance or the 17 determination of Consolidated EBITDA for the Fiscal Year ended 1998, as applicable, or (ii) if the Stockholders' Representative shall have objected to the preparation of the Closing Date Balance Sheet, the determination of the Closing Working Capital Balance by Parent or the determination of Consolidated EBITDA for the Fiscal Year ended 1998, as applicable, within five days following final agreement or decision with respect to the Closing Date Balance Sheet, the Closing Working Capital Balance or the determination of Consolidated EBITDA for the Fiscal Year ended 1998, as applicable, as provided in Section 2.16, Section 2.17 and this Section 2.18. III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL STOCKHOLDER 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL STOCKHOLDER. The Principal Stockholder and the Company jointly and severally represent and warrant to Parent and Merger Sub as of the date hereof and the Closing as follows: 3.1.1. CORPORATE EXISTENCE AND POWER. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company has all corporate power and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. The Company is duly qualified to conduct business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary except for those jurisdictions where the failure to be so qualified or in good standing could not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect. The Company has heretofore delivered to Parent true and complete copies of the articles of incorporation and by-laws of the Company. 3.1.2. CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by the Company of this Agreement and each of the Ancillary Agreements to which it will be a party at the Closing or thereafter in accordance with the terms hereof are within the Company's corporate powers and have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been and each of the Ancillary Agreements to which the Company will be a party at the Closing or thereafter in accordance with the terms hereof will have been duly executed and delivered by the Company and constitute and will constitute at the Closing or when executed and delivered thereafter valid and binding agreements of the Company, enforceable against the Company in accordance with their terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 3.1.3. GOVERNMENTAL AUTHORIZATION. Except for the filing of the certificates of merger and except as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), the execution, delivery and performance by the Company of this Agreement and each Ancillary Agreement to which the Company will be a party at the Closing require no action by or in respect of, or filing with, any Governmental Authorities. 18 3.1.4. NON-CONTRAVENTION; CONSENTS. Except as disclosed on SCHEDULE 3.1.4, the execution, delivery and performance by the Company of this Agreement and each Ancillary Agreement to which the Company will be a party at the Closing will not (a) violate the articles of incorporation or by-laws or comparable organizational documents of the Company or any Subsidiary, (b) violate any applicable Law or Order, (c) require any filing with or permit, consent or approval of, or the giving of any notice to, any Person (including filings, consents or approvals required under any permits of the Company or any licenses to which the Company is a party), (d) result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of, the Company or any Subsidiary or to a loss of any benefit to which the Company or any Subsidiary is entitled under any agreement or other instrument binding upon, the Company or such Subsidiary or any license, franchise, permit or other similar authorization held by the Company or such Subsidiary, or (e) result in the creation or imposition of any Lien on any asset of the Company or any Subsidiary, except in the case of clauses (c), (d) and (e) for such filings, permits, consents, approvals or notices and violations, breaches, conflicts and Liens which, individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. 3.1.5. CAPITALIZATION; OWNERSHIP OF COMPANY STOCK. (a) Immediately prior to the date hereof, the authorized, issued and outstanding capital of the Company will be as set forth on SCHEDULE 3.1.5(a)(i); immediately prior to the consummation of the Redemption, the authorized, issued and outstanding capital of the Company will be as set forth on SCHEDULE 3.1.5(a)(ii); and after consummation of the Redemption and immediately prior to the Effective Time, the authorized, issued and outstanding capital of the Company will be as set forth on SCHEDULE 3.1.5(a)(iii). The Company Stock to be redeemed by the Company hereunder and acquired by Parent in the Merger is on the date hereof, and will be at the Closing, duly authorized, validly issued, fully-paid, nonassessable and free and clear of any Lien or other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of, such shares, subject to applicable securities laws). The number of such shares of Company Stock set forth opposite each such Stockholder's name on SCHEDULES 3.1.5(a), 3.1.5(a)(ii) and 3.1.5(a)(iii) are, and will be at the times set forth on such Schedules, owned beneficially and of record by each such Stockholder. Each such Stockholder has on the date hereof, and will have at the times set forth on SCHEDULES 3.1.5(a)(i), 3.1.5(a)(ii) and 3.1.5(a)(iii) the full legal right, power and authority to vote, sell, assign, transfer and convey the shares of the Company Stock set forth opposite such Stockholder's name on such Schedules. (b) Except as disclosed in SCHEDULE 3.1.5(b), there are no outstanding (i) shares of capital stock or other securities of the Company, (ii) securities of the Company convertible into or exchangeable for shares of capital stock or other securities of the Company, or (iii) options or other rights to acquire from the Company, or other obligation of the Company to issue, any capital stock, other securities or securities convertible into or exchangeable for capital stock or other securities of the Company (the items in clauses (i), (ii) and (iii) being referred to collectively as the "COMPANY SECURITIES"). Except as disclosed in SCHEDULE 3.1.5(b), there are no outstanding obligations of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any Company Securities. 3.1.6. SUBSIDIARIES. (a) Each Subsidiary is a corporation duly incorporated or otherwise formed, validly existing and in good standing under the laws of its jurisdiction of 19 incorporation, has all requisite corporate power to carry on its business as now conducted, is duly qualified to conduct business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has heretofore delivered to Parent true and complete copies of the articles of incorporation and by-laws of each Subsidiary, or, in the case of Subsidiaries which are not corporations, other formation documents of each of the Subsidiaries as currently in effect. All Subsidiaries, their respective jurisdictions of incorporation and their respective numbers of authorized and outstanding shares of capital stock or other ownership interests are disclosed in SCHEDULE 3.1.6(a). (b) Except as disclosed in SCHEDULE 3.1.6(b), all of the outstanding capital stock of, or other securities or ownership interests in, each Subsidiary, is owned by the Company, directly or indirectly, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other securities or ownership interests). Except as disclosed in SCHEDULE 3.1.6(b), there are no outstanding (i) securities of the Company or any Subsidiary convertible into or exchangeable for shares of capital stock or other securities or ownership interests in any Subsidiary or (ii) options or other rights to acquire from the Company or any Subsidiary, or other obligation of the Company or any Subsidiary to issue, any capital stock or other securities or ownership interests in, or any securities convertible into or exchangeable for any capital stock or other voting securities or ownership interests in, any Subsidiary (the items in clauses (i) and (ii) being referred to collectively as the "SUBSIDIARY SECURITIES"). Except as disclosed in SCHEDULE 3.1.6(b), there are no outstanding obligations of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any Subsidiary Securities. (c) Except as disclosed in SCHEDULE 3.1.6(c) and except for the interests of the Company in the Subsidiaries and investments reflected in the Interim Financial Statements, neither the Company nor any Subsidiary owns any capital stock or other equity or ownership or proprietary interest in any corporation, partnership, association, trust, joint venture or other entity. 3.1.7. FINANCIAL STATEMENTS; BOOKS AND RECORDS. (a) The Company has heretofore furnished Parent the Audited Statements. The Audited Statements, including the footnotes thereto, have been prepared in accordance with GAAP and fairly present in all material respects the financial position of the Company and the Subsidiaries at the respective dates thereof and the consolidated results of operations and cash flows of the Company and the Subsidiaries for the periods indicated. (b) The Company has also heretofore furnished Parent the Interim Financial Statements. The Interim Financial Statements have been prepared in accordance with GAAP (except for normal year-end adjustments and the absence of notes to such financial statements, which, in each case, would not be material) and on a basis consistent with the 1997 Balance Sheet Principles. The Interim Financial Statements fairly represent in all material respects the financial position of the Company and the Subsidiaries at the date thereof and the results of the operations of the Company and the Subsidiaries for the period indicated. 20 (c) There have been no changes in the Company's or any Subsidiary's reserve or accrual amounts or policies from March 31, 1998. (d) The books of account, minute books, stock record books, and other records of the Company and the Subsidiaries, all of which have been made available to Parent, are complete and correct and have been maintained in accordance with sound business practices and the requirements of Section 13(b)(2) of the Exchange Act (regardless of whether or not the Company and the Subsidiaries are subject to that Section), including the maintenance of an adequate system of internal controls. The minute books of the Company and the Subsidiaries contain accurate and complete records of all meetings held of, and corporate action taken by, the stockholders, the Board of Directors, and committees of the Boards of Directors of the Company and the Subsidiaries, and no meeting of any such stockholders, Board of Directors, or committee has been held for which minutes have not been prepared and are not contained in such minute books. 3.1.8. NO UNDISCLOSED LIABILITIES. There are no liabilities of the Company or any Subsidiary or any facts or circumstances which could give rise to liabilities of the Company, whether accrued, contingent, absolute, determined, determinable or otherwise, other than (a) liabilities fully provided for in the Interim Financial Statements; (b) liabilities specifically disclosed on SCHEDULE 3.1.8 or SCHEDULE 3.1.10; and (c) other undisclosed liabilities incurred since the Balance Sheet Date in the ordinary course of business which, individually or in the aggregate, could not have a Material Adverse Effect. 3.1.9. INTERCOMPANY ACCOUNTS. SCHEDULE 3.1.9 contains a complete list of all intercompany balances as of August 31, 1998 between any Family Stockholder or, to the knowledge of the Company and the Principal Stockholder, any Unaffiliated Stockholder, or an Affiliate of any such Stockholder, on the one hand, and the Company and the Subsidiaries, on the other hand. Other than (a) as disclosed on SCHEDULE 3.1.9 and (b) compensation paid in the ordinary course consistent with past practice, since such date, there has not been any accrual of liability by the Company or any Subsidiary to any Family Stockholder or, to the knowledge of the Company and the Principal Stockholder, any Unaffiliated Stockholder, or any such Stockholder's Affiliates or other transaction between the Company or any Subsidiary and any such Stockholder and such Stockholder's Affiliates or any action taken (other than this Agreement) which could reasonably be expected to result in any such accrual, or the incurrence of any legal or financial obligation to any such Person, after August 31, 1998. 3.1.10. TAX MATTERS. (a) Except as disclosed in SCHEDULE 3.1.10(a): (i) All Tax returns, statements, reports and forms (including estimated tax or information returns and reports) required to be filed with any Taxing Authority with respect to any Pre-Closing Tax Period by or on behalf of the Company or any Subsidiary (collectively, the "RETURNS") have, to the extent required to be filed on or before the date hereof, been filed when due in accordance with all applicable laws; (ii) The Returns correctly reflected in all material respects, the facts regarding the income, business, assets, operations, and activities and status of the Company and its Subsidiaries; 21 (iii) All Taxes owed by the Company and the Subsidiaries (whether or not shown as due and payable on the Returns that have been filed) have been timely paid, or withheld and remitted to the appropriate Taxing Authority; (iv) Any reserves established for Taxes with respect to the Company and its Subsidiaries for any Pre-Closing Tax Period (including any Pre-Closing Tax Period for which no Return has yet been filed) reflected on the books of the Company and its Subsidiaries (excluding any provision for deferred income taxes) are adequate in accordance with GAAP; (v) Neither the Company nor any Subsidiary is delinquent in the payment of any Tax and neither the Company nor any Subsidiary has requested any extension of time within which to file any Return except for extensions granted as a matter of right; (vi) The Company (or any member of any affiliated, consolidated, combined or unitary group of which the Company is or has been a member) has not granted any extension or waiver of the statute of limitations period applicable to any Return, which period (after giving effect to such extension or waiver) has not yet expired; (vii) There is no action, suit or proceeding now pending and no claim, audit or investigation now pending of which the Company is aware or, to the knowledge of the Company, any action, suit, claim, audit or investigation threatened against or with respect to the Company or any Subsidiary in respect of any Tax; (viii) The Company does not own any interest in real property in any jurisdiction in which a Tax is imposed on the transfer of a controlling interest in an entity that owns any interest in real property; (ix) Neither the Company, the Subsidiaries nor any other Person on behalf of the Company has entered into any agreement or consent pursuant to Section 341(f) of the Code; (x) There are no Liens for Taxes upon the assets of the Company or any Subsidiary, except Liens for current Taxes not yet due; (xi) Neither the Company nor any Subsidiary will be required to include any adjustment in taxable income for any Post-Closing Tax Period under Section 481(c) of the Code (or any similar provision of the Tax laws of any jurisdiction) as a result of a change in method of accounting for a Pre-Closing Tax Period or pursuant to the provisions of any agreement entered into with any Taxing Authority with regard to the Tax liability of the Company or any Subsidiary for any Pre-Closing Tax Period; and (xii) Neither the Company nor any Subsidiary has been a member of an affiliated, consolidated, combined or unitary group or participated in any other arrangement whereby any income, revenues, receipts, gain or loss of the Company or any Subsidiary was determined or taken into account for Tax purposes with reference to or in conjunction with any income, revenues, receipts, gain, loss, asset or liability of any other Person. 22 (b) SCHEDULE 3.1.10(b) contains a list of all jurisdictions (whether foreign or domestic) to which any Tax imposed on overall net income is properly payable by the Company and any Subsidiary. 3.1.11. ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE 3.1.11, since the Balance Sheet Date, there has not been any event, occurrence, development, circumstances or state of facts which (a) has had or which could reasonably be expected to have a Material Adverse Effect or (b) would have constituted a violation of any covenant of the Principal Stockholder or the Company hereunder (including Section 5.1) had such covenant applied to either of them since the Balance Sheet Date. 3.1.12. CONTRACTS. (a) Except as specifically disclosed in SCHEDULE 3.1.12(a), neither the Company nor any Subsidiary is a party to or bound by any of the following (whether written or oral): (i) any lease (whether of real or personal property) providing for annual rentals of $25,000 or more; (ii) any agreement for the purchase of materials, supplies, goods, services, equipment or other assets (including in terms of quantity and dollar amount) that provides for either (A) annual payments by the Company or any Subsidiary of $25,000 or more or (B) aggregate payments by the Company or any Subsidiary of $50,000 or more; (iii) any sales, distribution or other similar agreement providing for the sale by the Company or any Subsidiary of materials, supplies, goods, services, equipment or other assets that provides for either (A) annual payments to the Company or any Subsidiary of $25,000 or more or (B) aggregate payments to the Company or any Subsidiary of $50,000 or more; (iv) any partnership, joint venture or other similar agreement or arrangement; (v) any agreement relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise); (vi) any agreement relating to Indebtedness (in any case, whether incurred, assumed, guaranteed or secured by any asset); (vii) any license, franchise or similar agreement; (viii) any agency, dealer, sales representative, marketing or other similar agreement; (ix) any agreement that substantially limits the freedom of the Company or any Subsidiary to compete in any line of business, geographic area or with any Person or which would so limit the freedom of the Company or any Subsidiary after the Closing Date; 23 (x) any agreement with (A) any Stockholder or any of such Stockholder's Affiliates, (B) any Person directly or indirectly owning, controlling or holding with power to vote, 5% or more of the outstanding voting securities of any Stockholder's Affiliates, (C) any Person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by any Stockholder or any of such Stockholder's Affiliates, (D) any director or officer of a Stockholder's Affiliates or any "associates" or members of the "immediate family" (as such terms are respectively defined in Rule 12b-2 and Rule 16a-1 of the Exchange Act) of any such director or officer, or (E) any director or officer of the Company or with any "associate" or any member of the "immediate family" (as such terms are respectively defined in Rules 12b-2 and 16a-1 of the Exchange Act) of any such director or officer; (xi) any agreement, indenture or other instrument which contains restrictions with respect to payment of dividends or any other distribution in respect of capital stock of the Company or any Subsidiary; (xii) any management service, consulting or any other similar type of contract; (xiii) any warranty, guaranty or other similar undertaking with respect to a contractual performance extended by the Company other than in the ordinary course of business consistent with past practice; (xiv) any employment, deferred compensation, severance, bonus, retirement or other similar agreement or plan in effect as of the date hereof and entered into or adopted by the Company or any Subsidiary, on the one hand, and any director or officer of the Company or any Subsidiary or any other employee of the Company or any Subsidiary receiving annual compensation of $50,000 or more, on the other hand; or (xv) any other agreement, commitment, arrangement or plan not made in the ordinary course of business that is material to the Company or any Subsidiary. (b) Each agreement, contract, plan, lease, arrangement or commitment disclosed in SCHEDULE 3.1.12(a) or any other Schedule to this Agreement or required to be disclosed pursuant to this Section is a valid and binding agreement of the Company or a Subsidiary, as the case may be, and is in full force and effect, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles, and none of the Company or the Principal Stockholder, the Family Stockholders, or, to the knowledge of the Principal Stockholder, any Unaffiliated Stockholders or any other party thereto, is in default or breach in any material respect under the terms of any such agreement, contract, plan, lease, arrangement or commitment. To the knowledge of the Company and the Principal Stockholder, there is no event, occurrence, condition or act (including the consummation of the transactions contemplated hereby) which, with the giving of notice or the passage of time, or the happening of any other event or condition, could become a material default or event of default thereunder. 24 (c) SCHEDULE 3.1.12(c) sets forth every grant by the Company in the past three years of any severance or termination pay to any employee of the Company or any Subsidiary receiving annual compensation of $50,000 or more, or any director or officer of the Company or any Subsidiary. 3.1.13. INSURANCE COVERAGE. The Company has furnished to Parent a list of, and true and complete copies of, all insurance policies and fidelity bonds covering the assets, business, operations, employees, officers and directors of the Company and its Subsidiaries. There is no material claim by the Company or any Subsidiary pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and the Company and its Subsidiaries have complied in all material respects with the terms and conditions of all such policies and bonds. Such policies of insurance and bonds (or other policies and bonds providing substantially similar insurance coverage) are in full force and effect and are disclosed in SCHEDULE 3.1.13. Such policies of insurance and bonds are of the type and in amounts deemed by the management of the Company to be sufficient. The Company does not know of any threatened termination of, or premium increase with respect to, any of such policies or bonds. Since the last renewal date of any insurance policy, there has not been any material adverse change in the relationship of the Company with its insurers or the premiums payable pursuant to such policies. 3.1.14. LITIGATION. Except as disclosed in SCHEDULE 3.1.14, there is no action, suit, investigation, arbitration or administrative or other proceeding pending or, to the knowledge of the Company and the Principal Stockholder, threatened, against or affecting the Company, any Subsidiary, the Principal Stockholder, the Family Stockholders or, to the knowledge of the Company and the Principal Stockholder, any Unaffiliated Stockholders, or any of their respective properties before any court or arbitrator or any Governmental Authorities which, if determined or resolved adversely to any of them, could reasonably be expected to, individually or when considered together with all other such matters, (a) materially and adversely affect the right or ability of the Company or any Subsidiary to carry on its business as now conducted, (b) have a Material Adverse Effect, or (c) which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement and the Ancillary Agreements to which it will be party at Closing; and none of the Company, the Subsidiaries or the Principal Stockholder knows of any valid basis for any such action, proceeding or investigation. 3.1.15. COMPLIANCE WITH LAWS; PERMITS. (a) Except as disclosed in SCHEDULE 3.1.15(a), neither the Company nor any Subsidiary is and neither the Company nor any Subsidiary has been since the Balance Sheet Date in violation of any applicable Law or Order, except for such violations that have not had and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. (b) SCHEDULE 3.1.15(b) sets forth a list of each government or regulatory license, authorization, permit, consent and approval held by the Company and its Subsidiaries, issued and held in respect of the Company and its Subsidiaries or required to be so issued and held to carry on the business of the Company and its Subsidiaries as currently conducted. Except as disclosed in SCHEDULE 3.1.15(b), each such license, authorization, permit, consent and approval is valid and in full force and effect and will not be terminated or impaired (or become terminated 25 or impaired) as a result of the transactions contemplated hereby. Neither the Company nor any Subsidiary is in default under, and no condition exists that with notice or lapse of time or both would constitute a default under, any material license, franchise, permit, consent or approval or similar authorization held by the Company and its Subsidiaries. 3.1.16. PROPERTIES; SUFFICIENCY OF ASSETS. (a) Except as disclosed in SCHEDULE 3.1.16(a) and except for inventory disposed of in the ordinary course of business, the Company and its Subsidiaries have good title to, or in the case of leased property have valid leasehold interests in, all property and assets (whether real or personal, tangible or intangible) reflected in the Audited Balance Sheet or acquired after the Balance Sheet Date, including the New Capital Equipment. None of such property or assets is subject to any Liens, except for (i) Liens disclosed in the Audited Balance Sheet; (ii) Liens for Taxes not yet due or being contested in good faith (and for which adequate accruals or reserves have been established on the Audited Balance Sheet); (iii) and Permitted Liens. (b) SCHEDULE 3.1.16(b) sets forth a list of all real property assets owned or leased by the Company and its Subsidiaries ("REAL PROPERTY"). All such leases of real property are valid, binding and enforceable in accordance with their respective terms and the Company and its Subsidiaries is a tenant or possessor in good standing thereunder and all rents due under such leases have been paid. There does not exist under any such lease any default or any event which with notice or lapse of time or both would constitute a default, except for such defaults that have not and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company and its Subsidiaries are in peaceful and undisturbed possession of the space and/or estate under each lease of which they are a tenant and have good and valid rights of ingress and egress to and from all the Real Property from and to the public street systems for all usual street, road and utility purposes. Neither the Company, any Subsidiary nor the Principal Stockholder has received any notice of any appropriation, condemnation or like proceeding, or of any violation of any applicable zoning Law or Order relating to or affecting the Real Property, and to the Company's, each Subsidiary's and the Principal Stockholder's knowledge, no such proceeding has been threatened or commenced. (c) The assets owned or leased by the Company or any Subsidiary (including, real, personal, tangible and intangible property), or which they otherwise have the right to use (including, real, personal, tangible and intangible property), constitute all of the assets held for use or used in connection with the businesses of the Company and its Subsidiaries and are, generally in good operating condition and repair (normal wear and tear excepted) and are adequate to conduct such businesses as currently conducted. 3.1.17. INTELLECTUAL PROPERTY. (a) SCHEDULE 3.1.17(a) sets forth a list of all Intellectual Property Rights and all material licenses, sublicenses and other written agreements as to which the Company, its Subsidiaries or any of their Affiliates is a party and pursuant to which any Person is authorized to use such Intellectual Property Right, including the identity of all parties thereto. 26 (b) Except as disclosed in SCHEDULE 3.1.17(b): (i) Neither the Company nor any Subsidiary has since January 1, 1993, been sued or charged in writing with or been a defendant in any claim, suit, action or proceeding relating to its business that is either pending or, to the knowledge of the Company, the Subsidiaries or the Principal Stockholder, threatened that, in either case, has not been finally terminated prior to the date hereof and that involves a claim of infringement by the Company or any Subsidiary of any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how or any other similar type of proprietary intellectual property right of any other Person or continuing infringement by any other Person of any Intellectual Property Rights and the Company has no knowledge of any basis for such claim of infringement, and no knowledge of any continuing infringement by any other Person of any Intellectual Property Rights; (ii) No Intellectual Property Right is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by the Company or any Subsidiary or restricting the licensing thereof by the Company or any Subsidiary to any Person; (iii) Neither the Company nor any Subsidiary has entered into any agreement to indemnify any other Person against any charge of infringement of any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how or any other similar type of proprietary intellectual property right; and (iv) There are no processes or formulae, research or development results or other know-how of the Company or Subsidiary, the value of which to the Company or any Subsidiary is contingent upon maintenance of the confidentiality thereof. 3.1.18. ENVIRONMENTAL MATTERS. (a) Except as disclosed in SCHEDULE 3.1.18: (i) Constituents of Concern have not been generated, recycled, used, treated or stored on, transported to or from, or released or disposed on, the Company Property or, to the knowledge of the Company and the Principal Stockholder, any property adjoining or adjacent except in compliance with Environmental Laws; (ii) Except as could not individually, or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Company and the Subsidiaries are in compliance with Environmental Laws and the requirements of permits issued under such Environmental Laws with respect to the Company Property; (iii) There are no pending or, to the knowledge of the Company, threatened Environmental Claims against the Company, the Subsidiaries or any Company Property; 27 (iv) There are no facts, circumstances, conditions or occurrences regarding the Company's or any Subsidiary's past or present business or operations or any Company Property, or to the knowledge of the Company, the Subsidiaries and the Principal Stockholder, any property adjoining any Company Property, that could reasonably be expected (i) to form the basis of an Environmental Claim against the Company, or any of the Company Property or assets, or (ii) to cause any such current Company Property or assets to be subject to any restrictions on its ownership, occupancy, use or transferability under any Environmental Law; (v) There are not now and, to the knowledge of the Company, the Subsidiaries and the Principal Stockholder, there have never been any underground storage tanks or sumps located on any Company Property or, to the knowledge of the Company and the Principal Stockholder, located on any property that adjoins or is adjacent to any Company Property; (vi) Neither the Company, any Subsidiary nor any Company Property is listed or proposed for listing on the National Priorities List under CERCLA, or CERCLIS (as defined in CERCLA) or on any similar federal, state or foreign list of sites requiring investigation or clean-up; (vii) There are no Environmental Permits that are nontransferable or require consent, notification or other action to remain in full force and effect following the consummation of the transactions contemplated hereby; and (viii) Neither the Company nor any of its Subsidiaries has any liability under any Environmental Law (including an obligation to remediate any Environmental Condition whether caused by the Company or any other Person) which could reasonably be expected to have a Material Adverse Effect. (b) There has been no environmental investigation, study, audit, test, review or other analysis commenced or conducted by or on behalf of the Company or any Subsidiary (or by a third party of which the Company or the Principal Stockholder has knowledge) in relation to the current or prior business of the Company or any Subsidiary, or any property or facility currently or, to the knowledge of the Company or the Principal Stockholder, previously owned or leased by the Company or any Subsidiary, which has not been disclosed or delivered to Parent prior to the date hereof. (c) Neither the Company nor any Subsidiary owns or leases or has owned or leased any property, and does not conduct and has not conducted any operations, in New Jersey or Connecticut. (d) For purposes of this Section, the terms "Company" (including the use of such terms in the term "Company Property") will include any entity which is, in whole or in part, a predecessor of the Company. 3.1.19. PLANS AND MATERIAL DOCUMENTS. (a) SCHEDULE 3.1.19(a) sets forth a list of all employee benefit plans (as defined in Section 3(3) of ERISA), and all other employee benefit 28 plans, programs, arrangements, contracts or schemes, written or oral, statutory or contractual, with respect to which the Company, a Subsidiary or any ERISA Affiliate has or has had in the six years preceding the date hereof any obligation or liability or which are or were in the six years preceding the date hereof maintained, contributed to or sponsored by the Company or any ERISA Affiliate for the benefit of any current or former employee, officer or director of the Company or any ERISA Affiliate (collectively, the "PLANS"). With respect to each employee pension benefit plan subject to ERISA, the Company has delivered to Parent a true and complete copy of each such Plan (including all amendments thereto) and a true and complete copy of each material document (including all amendments thereto) prepared in connection with each such Plan including, without limitation, (i) a copy of each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, and (iii) the most recently filed IRS Form 5500 for each such Plan, if any. Neither the Company nor any Subsidiary has any express or implied commitment, whether legally enforceable or not, to create, incur liability with respect to or cause to exist any employee benefit plan or to modify any Plan, other than as required by law. (b) Except as disclosed in SCHEDULE 3.1.19(b), none of the Plans is a plan that is or has ever been subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code. None of the Plans is (i) a "multiemployer plan" as defined in Section 3(37) of ERISA, (ii) a plan or arrangement described under Section 4(b)(5) or 401(a)(1) of ERISA, or (iii) a plan maintained in connection with a trust described in Section 501(c)(9) of the Code. Except as disclosed in SCHEDULE 3.1.19(b), (A) none of the Plans provides for the payment of separation, severance, termination or similar-type benefits to any person, and (B) none of the Plans provides for or promises retiree medical or life insurance benefits to any current or former employee, officer or director of the Company. Except as disclosed in SCHEDULE 3.1.19(b), each of the Plans is subject only to the laws of the United States or a political subdivision thereof. (c) Except as disclosed in SCHEDULE 3.1.19(c), each Plan is in compliance in all material respects with, and has always been operated in all material respects in accordance with, its terms and the requirements of all applicable law, foreign and domestic, and the Company and the ERISA Affiliates have satisfied in all material respects all of their statutory, regulatory and contractual obligations with respect to each such Plan. No legal action, suit or claim is pending or, to the knowledge of the Company and the Principal Stockholder, threatened with respect to any Plan (other than claims for benefits in the ordinary course) and no fact or event exists that could give rise to any such action, suit or claim. (d) Except as disclosed in SCHEDULE 3.1.19(d), each Plan or trust which is intended to be qualified or exempt from taxation under Section 401(a), 401(k) or 501(a) of the Code has received a favorable determination letter from the IRS that it is so qualified or exempt, and no fact or event has occurred since the date of such determination letter to adversely affect the qualified or exempt status of any Plan or trust. (e) There has been no non-exempt prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan. Neither the Company nor any ERISA Affiliate has incurred any material liability for any excise tax arising under Section 4971, 4972, 4975, 4980 or 4980B of the Code and no fact or event exists which could give rise to such liability. Neither the Company nor any ERISA Affiliate has incurred any material liability relating to Title IV of ERISA (other than for the payment of premiums to the 29 Pension Benefit Guaranty Corporation), and no fact or event exists which could give rise to such liability. (f) All material contributions, premiums or payments required to be made with respect to any Plan have been made on or before their due dates. All such contributions have been fully deducted for income tax purposes and no such deduction has been challenged or disallowed by any Government Authorities, and no fact or event exists which could give rise to any such challenge or disallowance. (g) There has been no amendment to, written interpretation of or announcement (whether or not written) by the Company or any ERISA Affiliate thereof relating to, or change in employee participation or coverage under, any Plan that would increase materially the expense of maintaining such Plan above the level of the expense incurred in respect thereto for the most recent fiscal year ended prior to the date hereof. (h) Except as disclosed in SCHEDULE 3.1.19(h) or in this Agreement or the Ancillary Agreements, no employee or former employee of the Company or any ERISA Affiliate thereof will become entitled to any bonus, retirement, severance, job security or similar benefit or enhanced such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transactions contemplated hereby. (i) Except as disclosed in SCHEDULE 3.1.19(i), no current or former employee of the Company or any ERISA Affiliate thereof holds any option to purchase shares of the Company. (j) None of the Plans promises or provides retiree health or life insurance benefits. 3.1.20. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in SCHEDULE 3.1.20, to the knowledge of the Company, no Stockholder, nor any other officer or director of the Company or any Subsidiary possesses, directly or indirectly, any ownership interest in, or is a director, officer or employee of, any Person which is a supplier, customer, lessor, lessee, licensor, developer, competitor or potential competitor of the Company or any Subsidiary. Ownership of securities of a company whose securities are registered under the Exchange Act of 2% or less of any class of such securities will not be deemed to be a financial interest for purposes of this Section 3.1.20. 3.1.21. CUSTOMER, SUPPLIER AND EMPLOYEE RELATIONS; EMPLOYEE COMPENSATION; BONUSES. (a) The relationships of the Company and the Subsidiaries with its customers, suppliers and employees are good commercial working relationships and, except as disclosed in SCHEDULE 3.1.21(a), none of the Company's or the Subsidiaries' material customers or material suppliers or employees receiving annual compensation in excess of $50,000 has canceled, terminated or otherwise materially altered or notified the Company of any intention or otherwise threatened to cancel, terminate or materially alter its relationship with the Company effective prior to, as of, or within one year after, the Closing. As of the date hereof, there has not been, and the Company has no reason to believe that there will be, any change in relations with material customers, suppliers or employees of the Company as a result of the transactions contemplated by this Agreement. 30 (b) SCHEDULE 3.1.21(b) lists (i) all employees of the Company and the Subsidiaries who receive annual compensation in excess of $50,000 and (ii) all bonuses and any other amounts to be paid by the Company or the Subsidiaries to employees of the Company and the Subsidiaries at or in connection with the Closing ("BONUSES"). 3.1.22. OTHER EMPLOYMENT MATTERS. (a) The Company is in material compliance with all Federal, state or other applicable laws, domestic or foreign, respecting employment and employment practices, terms and conditions of employment and wages and hours, and has not, and is not, engaged in any unfair labor practice; no unfair labor practice complaint against the Company is pending before the National Labor Relations Board; there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or involving the Company; the Company is not a party to any collective bargaining agreement and no collective bargaining agreement is currently being negotiated by the Company; to the knowledge of the Company and the Principal Stockholder, no representation question exists respecting employees of the Company; and, except as specifically set forth on SCHEDULE 3.1.22, no claim in respect of the employment of any employee has been asserted and is currently pending or, to the knowledge of the Company or the Principal Stockholder threatened, against the Company. (b) SCHEDULE 3.1.22 contains a complete and accurate list of the following information for each employee or director of the Company and its Subsidiaries, including each employee on leave of absence or layoff status: employer; name; job title; current compensation paid or payable and any change in compensation since the Balance Sheet Date: vacation accrued; and service credited for purposes of vesting and eligibility to participate under any pension, retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus, stock option, cash bonus, employee stock ownership (including investment credit or payroll stock ownership), severance pay, insurance, medical, welfare, or vacation plan, other Plan of the Company or any of its Subsidiaries. (c) No former or current employee or current or former director of the Company or any of its Subsidiaries is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, non-competition, or proprietary rights agreement, between such employee or director and any other Person that in any way adversely affected, affects, or will affect (i) the performance of his duties as an employee or director of the Company or any of its Subsidiaries, or (ii) the ability of any of the Company or any of its Subsidiaries to conduct its respective business. (d) SCHEDULE 3.1.22 also contains a complete and accurate list of the following information for each retired employee or director of the Company and each of the Subsidiaries, or their dependents, receiving benefits or scheduled to receive benefits in the future: name, pension benefits, pension option election, retiree medical insurance coverage, retiree life insurance coverage, and other benefits. 3.1.23. ACCOUNTS RECEIVABLE. Except as set forth on SCHEDULE 3.1.23, all of the accounts receivable reflected on the Audited Balance Sheet (net of the reserves set forth on the Audited Balance Sheet) and all accounts receivable which have arisen since the Balance Sheet Date (net of any additional reserves established since the Balance Sheet Date in accordance with past practice, none of which is material) are valid and enforceable claims, and the goods and services sold and delivered which gave rise to such accounts receivable were sold and delivered 31 in conformity with the applicable purchase orders, agreements and specifications. Such accounts receivable are subject to no defenses, offsets or recovery in whole or in part by the Persons whose purchase gave rise to such accounts receivable or by third parties and are fully collectible in the ordinary course of business without resort to legal proceedings, except to the extent of the amount of the reserve for doubtful accounts reflected in the Audited Balance Sheet. 3.1.24. INVENTORY. Except as set forth in SCHEDULE 3.1.24, all inventories reflected on the Audited Balance Sheet (net of the reserves set forth on the Audited Balance Sheet) and all inventories which have been acquired or produced since the Balance Sheet Date (net of any additional reserves established since the Balance Sheet Date in accordance with past practice, none of which is material) are in good condition, conform in all material respects with the applicable specifications and warranties of the Company, are not obsolete, and are useable or saleable in the ordinary course of business. The values at which such inventories are carried are in accordance with GAAP consistently applied. The amount and mix of items in the inventories of supplies, in-process and finished products are, and will be at the Closing Date, consistent with the past business practices of the Company. 3.1.25. MILLENNIUM COMPLIANCE. SCHEDULE 3.1.25 describes the measures that have been implemented to determine the extent to which the computer systems used by the Company in its business (the "COMPUTER SYSTEMS") are not in Millennium Compliance, and the material details of any program undertaken with a view towards causing the Computer Systems to achieve Millennium Compliance. 3.1.26. FINDERS' FEES. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Stockholders or the Company who might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement or any of the Ancillary Agreements. 3.2. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDER. The Principal Stockholder represents and warrants, to Parent as of the date hereof and the Closing as follows: 3.2.1. AUTHORITY; ENFORCEABILITY. The Principal Stockholder has all requisite power and authority, and has taken all action necessary, to execute and deliver this Agreement and each Ancillary Agreement to which the Principal Stockholder will be a party at the Closing, to consummate the transactions contemplated hereby and to perform his or its obligations hereunder. This Agreement has been and each of the Ancillary Agreements to which the Principal Stockholder will be a party at the Closing will have been, duly executed and delivered by the Principal Stockholder and are legal, valid and binding obligations of the Principal Stockholder enforceable against the Principal Stockholder in accordance with their respective terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 3.2.2. NO CONFLICTS. The execution and delivery of this Agreement and each Ancillary Agreement to which the Principal Stockholder will be a party at the Closing do not and will not at the Closing, and the consummation of the transactions contemplated hereby and compliance with the terms hereof do not and will not at the Closing, violate or conflict with in 32 any respect or result in a breach under any contract, license, Order or Law applicable to the Principal Stockholder. 3.2.3. NO CONSENTS. Except for the filing of the certificates of merger and except as may be required under the HSR Act, no consent of, approval or filing with, any court or other Person is required to be obtained or made by or with respect to the Principal Stockholder in connection with the execution and delivery of this Agreement or any of the Ancillary Agreements to which the Principal Stockholder will be a party at the Closing or the consummation by the Principal Stockholder of the transactions contemplated hereby or thereby. 3.2.4. OWNERSHIP OF SHARES; TITLE. The issued and outstanding shares of Company Stock set forth on SCHEDULE 3.2.4(i) are lawfully owned beneficially and of record by the Principal Stockholder immediately prior to the date hereof, free and clear of any Liens; the issued and outstanding shares of Company Stock set forth on SCHEDULE 3.2.4(ii) will be lawfully owned beneficially and of record by the Principal Stockholder immediately prior to the consummation of the Redemption, free and clear of any Liens; and the issued and outstanding shares of Company Stock set forth on SCHEDULE 3.2.4(iii) will be lawfully owned beneficially and of record by the Principal Stockholder after the consummation of the Redemption and immediately prior to the Effective Time, free and clear of any Liens. The Principal Stockholder has on the date hereof the full legal right, power and authority to vote, sell, assign, transfer and convey the shares of Company Stock set forth on SCHEDULES 3.2.4(i), 3.2.4(ii), and 3.2.4(iii); the Principal Stockholder will, immediately prior to the consummation of the Redemption, have the full legal right, power and authority to vote, sell, assign, transfer and convey the shares of Company Stock set forth on SCHEDULE 3.2.4(ii); and the Principal Stockholder will, immediately prior to the Effective Time, have the full legal right, power and authority to vote, sell, assign, transfer and convey the shares of Company Stock set forth on SCHEDULE 3.2.4(iii). Such shares of Company Stock referred to in the immediately preceding sentence are not, on the date hereof, and will not be, on the applicable date of transfer or conversion pursuant to the Redemption or the Merger, subject to any voting trust agreement or other contract, agreement, arrangement, commitment, option, proxy, right of first refusal or understanding, including without limitation any contract restricting or otherwise relating to the voting, dividend rights or disposition of such shares. 3.2.5. LITIGATION. Except as disclosed in SCHEDULE 3.2.5, there is no action, suit, investigation, arbitration or administrative or other proceeding pending or, to the knowledge of the Principal Stockholder, threatened, against or affecting the Principal Stockholder, the Family Stockholders or, to the knowledge of the Principal Stockholder, the Unaffiliated Stockholders before any court or arbitrator or any Governmental Authorities which, individually or in the aggregate, if determined or resolved adversely to such Stockholder could, individually or when considered together with all other such matters, adversely affect the right or ability of the Principal Stockholder to consummate the transactions contemplated by this Agreement and the Ancillary Agreements to which the Principal Stockholder will be a party at the Closing; and the Principal Stockholder knows of no valid basis for any such action, proceeding or investigation. 3.2.6. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in SCHEDULE 3.2.6, neither the Principal Stockholder, the Family Stockholders, nor, to the knowledge of the Principal Stockholder, any Unaffiliated Stockholder or any other officer or director of the Company, possesses, directly or indirectly, any ownership interest in, or is a director, officer or 33 employee of, any Person which is a supplier, customer, lessor, lessee, licensor, developer, competitor or potential competitor of the Company. Ownership of securities of a company whose securities are registered under the Exchange Act of 2% or less of any class of such securities will not be deemed to be an ownership interest for purposes of this Section 3.2.6. IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Each of Parent and Merger Sub represents and warrants (jointly and severally) to the Company and the Principal Stockholder as of the date hereof and the Closing as follows: 4.1. CORPORATE EXISTENCE AND POWER. Each of Parent and Merger Sub is, a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of organization. Each of Parent and Merger Sub has all power and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. 4.2. CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by each of Parent and Merger Sub of this Agreement and each of the Ancillary Agreements to which it will be a party at the Closing are within, each of Parent's and Merger Sub's respective corporate powers and have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub. This Agreement has been and each of the Ancillary Agreements to which Parent or Merger Sub will be a party at the Closing will have been duly executed and delivered by Parent or Merger Sub and constitute and will constitute at the Closing valid and binding agreements of Parent or Merger Sub, as applicable, enforceable against Parent or Merger Sub in accordance with their terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 4.3. GOVERNMENTAL AUTHORIZATION. Except for the filing of the certificates of merger and except as may be required under the HSR Act, the execution, delivery and performance by Parent and Merger Sub of this Agreement and each of the Ancillary Agreements to which Parent and Merger Sub will be a party at the Closing require no action by or in respect of, or filing with, any Governmental Authorities. 4.4. NON-CONTRAVENTION. The execution, delivery and performance by each of Parent and Merger Sub of this Agreement and each Ancillary Agreement to which Parent or Merger Sub will be a party at the Closing will not (a) violate the certificate of incorporation or bylaws or comparable organizational documents of Parent or Merger Sub, as applicable, or (b) violate any applicable Law or Order. 4.5. LITIGATION. Except as disclosed in SCHEDULE 4.5, there is no action, suit, investigation, arbitration or administrative or other proceeding pending or, to the knowledge of Parent or Merger Sub, threatened against or affecting Parent or Merger Sub, or any of Parent's or Merger Sub's properties before any court or arbitrator or any Governmental Authorities which, individually or in the aggregate, if determined or resolved adversely to Parent or Merger Sub, could reasonably be expected to materially and adversely affect the right or ability of Parent or Merger Sub to consummate the transactions contemplated by this Agreement and any Ancillary Agreement to which Parent or Merger Sub will be a party at the Closing. 34 4.6. FINDERS' FEES. Except for Saunders Karp & Megrue, L.P., Carlisle Group, L.P. and Harvey & Company, LLC, whose fees and expenses (including transaction fees) will be paid by the Surviving Corporation, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Parent who might be entitled to any fee or commission from the Principal Stockholder or the Company upon consummation of the transactions contemplated by this Agreement or any of the Ancillary Agreements. V. CERTAIN COVENANTS 5.1. CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date of this Agreement to the Closing Date, the Principal Stockholder will cause the Company to, and the Company and its Subsidiaries will, conduct its respective operations only according to its ordinary and usual course of business (including managing its working capital in accordance with its past practice and custom) and use its respective best efforts to: (a) preserve intact its business organizations, (b) keep available the services of its officers and employees and (c) maintain its relationships and goodwill with licensors, suppliers, distributors, customers, landlords, employees, agents and others having business relationships with it. The Company will confer with Parent concerning operational matters of a material nature and report periodically to Parent concerning the business, operations and finances of the Company. Without limiting the generality or effect of the foregoing, prior to the Closing Date, except with the prior written consent of Parent, neither the Company nor its Subsidiaries will, and the Principal Stockholder will cause the Company and its Subsidiaries not to: (a) Amend or modify its articles of incorporation, bylaws or any other organizational document from its form on the date of this Agreement; (b) Change any salaries or other compensation of, or pay any bonuses to any director, officer, employee or stockholder of the Company, or enter into any employment, severance, or similar agreement with any director, officer, stockholder or employee of the Company, provided, however, that the compensation of employees of the Company receiving annual compensation of less than $50,000 may be changed in the ordinary course of business consistent with past practice; (c) Adopt or increase any benefits under any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any of its employees; (d) Enter into any contract or commitment except contracts and commitments (for capital expenditures or otherwise) in the ordinary course of business consistent with past practice; (e) Incur, assume or guarantee its Indebtedness; (f) Enter into any transaction or commitment relating to the assets or the business of the Company which, individually or in the aggregate, could be material to the Company, or cancel or waive any claim or right of substantial value which, individually or in the 35 aggregate, could be material to the Company, or amend any term of any Company Securities or Subsidiary Securities; (g) Set aside or pay any dividend or make any other distribution with respect to any shares of capital stock of the Company or any Subsidiary (other than pursuant to Section 5.8 hereof) or repurchase, redeem (other than pursuant to Article II hereof) or otherwise acquire directly or indirectly, any outstanding shares of capital stock or other securities of, or other ownership interests in, the Company or any Subsidiary; (h) Make any change in accounting methods or practices (including changes in accrual or reserve amounts or policies); (i) Issue or sell any Company Securities or Subsidiary Securities (other than the capital stock of Sukee Arena Inc. and Northway, Corp. in the Reorganizational Transactions), or make any other changes in its capital structure, including the grant of any stock option or other right to purchase shares of capital stock of the Company or any Subsidiary; (j) Sell, lease or otherwise dispose of any material asset or property; (k) Except as expressly permitted under this Agreement, write-off as uncollectible any notes or accounts receivable, except write-offs in the ordinary course of business charged to applicable reserves, none of which individually or in the aggregate is material; write-off, write-up or write-down any other material asset of the Company ; or alter its customary time periods for collection of accounts receivable or payments of accounts payable; (l) Create or assume any Lien other than a Permitted Lien; (m) Make any loan, advance or capital contributions to or investment in any Person; (n) Terminate or close any material facility, business or operation of the Company; (o) Cause or suffer any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of the Company or any Subsidiary which, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect; (p) Cause any other event, occurrence, development or state of circumstances or facts which individually or together with other matters, has had or could reasonably be expected to have a Material Adverse Effect; or (q) Agree to do any of the foregoing. 5.2. EXCLUSIVE DEALING. During the period from the date of this Agreement to the earlier of the Closing Date and the termination of this Agreement in accordance with its terms, neither the Principal Stockholder, nor the Company, its Subsidiaries, or any of their respective Affiliates, or any officer or director of the Company its Subsidiaries, or any of their 36 respective Affiliates, or other representative of any of the foregoing (including advisors, agents, attorneys, employees or consultants) will, and the Principal Stockholder will cause the other Stockholders not to, take any action to, directly or indirectly, encourage, initiate, solicit or engage in discussions or negotiations with, or provide any information to any Person, other than Parent (and its affiliates and representatives), concerning any purchase of any capital stock of the Company or its Subsidiaries or any merger, asset sale or similar transaction involving the Company or its Subsidiaries. The Company, its Subsidiaries and the Principal Stockholder will, and the Principal Stockholder will cause the other Stockholders to, disclose to Parent the existence or occurrence of any proposal or contract which it or they or any of their representatives described above may receive in respect of any such transaction and the identity of the Person from whom such a proposal or contract is received. 5.3. REVIEW OF THE COMPANY; CONFIDENTIALITY. (a) Parent may, prior to the Closing Date, directly or through its representatives, review the properties, books and records of the Company and its Subsidiaries and their financial and legal condition to the extent they deem necessary or advisable to familiarize itself with such properties and other matters. The Company will permit Parent and its representatives to have, after the date of execution of this Agreement, reasonable access to the premises and to all the books and records of the Company and its Subsidiaries and to cause the officers of the Company and its Subsidiaries to furnish Parent with such financial and operating data and other information with respect to the business and properties of the Company and its Subsidiaries as Parent will from time to time reasonably request. The Company will deliver or cause to be delivered to Parent such additional instruments, documents, certificates and opinions as Parent may reasonably request for the purpose of (i) verifying the information set forth in this Agreement or on any Schedule attached hereto and (ii) consummating or evidencing the transactions contemplated by this Agreement. (b) Prior to the Closing, without the prior written consent of the other parties, no party will, or will permit any of its Affiliates to, disclose to any other Person (other than such Person's financing sources, existing stockholders and such Person's directors, officers, employees, advisors and other representatives that need to know) any proprietary, non-public information of another party previously delivered or made available to such other party in connection with the transactions contemplated hereby (including the existence of and terms of this Agreement and the Ancillary Agreements), other than to the extent required by applicable Law and upon the advice of counsel. Each party will direct its financing sources, stockholders, directors, officers, employees and representatives to keep all such information in strict confidence; provided, however, that each such person may disclose such information to the extent required by Law and upon the advice of counsel. 5.4. BEST EFFORTS. Each of the Company, the Subsidiaries, the Principal Stockholder and Parent will cooperate and use their respective best efforts to take, or cause to be taken, all appropriate actions, and to make, or cause to be made, all filings necessary, proper or advisable under applicable laws and regulations (including, without limitation, the filing of Notification and Report Forms under the HSR with the Federal Trade Commission and the Antitrust Division of the Department of Justice) to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, their respective reasonable efforts to obtain, prior to the Closing Date, all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Authorities and parties to contracts with the Company as are necessary for consummation of the transactions contemplated by the 37 Agreement and to fulfill the conditions to the sale contemplated hereby. Notwithstanding any other provision hereof, in no event will Parent or any of its Affiliates (including the Company and its Subsidiaries after the Closing) be required to (a) enter into or offer to enter into any divestiture, hold-separate, business limitation or similar agreement or undertaking in connection with this Agreement or the transactions contemplated hereby or (b) make any payment in connection with any consent or approval or condition to Closing set forth in any subsection of Section 7.1 which it is necessary or advisable for the Principal Stockholder or the Company to obtain or satisfy in order to consummate the transactions contemplated by this Agreement. 5.5. SATISFACTION AND TERMINATION OF EQUITY ARRANGEMENTS. On or prior to the Closing Date, the Company will terminate all equity-based plans or agreements listed in any of the Company disclosure Schedules attached hereto. 5.6. PLAN ASSETS. The Company will promptly take all actions necessary to allow it to continue to constitute an Operating Company, and otherwise not to cause any of the underlying assets of the Company to be deemed "PLAN ASSETS" with respect to Parent or any other stockholder of the Company. 5.7. NET WORTH. The Company will, and the Principal Stockholder will cause the Company to, (a) have a net worth (calculated on a basis consistent with the policies, principles and methodology used in connection with the preparation of the Audited Balance Sheet) of not less than $19.9 million at the Closing before any adjustments for the Reorganizational Transactions and (b) deliver evidence of the foregoing reasonably satisfactory to Parent. 5.8. REORGANIZATIONAL TRANSACTIONS. At or prior to the Closing, the Principal Stockholder will cause the Company to, and the Company will, dispose of the capital stock of Sukee Arena Inc. and Northway, Corp. in such manner and on such terms and conditions as may be approved by Parent, and the Principal Stockholder shall bear any and all Taxes, costs and expenses related to such disposition. The transactions described in this Section 5.8 are referred to as the "REORGANIZATIONAL TRANSACTIONS." 5.9. APPRAISAL. Within 30 days of the Closing, the Principal Stockholder will select a third party appraiser with the consent of Parent to perform a fair market value appraisal (the "APPRAISAL") based on the current use, location and market conditions and based on other factors agreed upon by the parties of the Surviving Corporation's premises located at 1501 Verti Drive, Winslow, Maine (the "PREMISES"). The costs and expenses of the Appraisal will be borne equally by the Principal Stockholder and the Surviving Corporation. Within 90 days after receipt of the Appraisal, the Surviving Corporation will either (a) execute and deliver an amendment to the Lease reflecting a monthly Basic Rent from the date of such amendment based on the fair market value of the Premises determined in accordance with this Section 5.9 and as set forth in the Appraisal or (b) purchase the Premises from the Principal Stockholder and Rita Sukeforth for an amount equal to the fair market value of the Premises determined in accordance with this Section 5.9 and as set forth in the Appraisal. 5.10. FURTHER ASSURANCES. From time to time, as and when requested by any party hereto and subject to Section 5.4, the other parties will execute and deliver, or cause to be executed and delivered, all such documents and instruments and will take, or cause to be taken, 38 all such further or other actions, as the requesting party may reasonably deem necessary or desirable to consummate the transactions contemplated by this Agreement. VI. TAX MATTERS 6.1. TAX RETURNS. The Stockholders' Representative will have the exclusive authority and obligation to prepare and timely file, or cause to be prepared and timely filed, all Returns of the Company that are due with respect to any taxable year or other taxable period ending on or prior to the Closing Date. Such authority will include, but not be limited to, the determination of the manner in which any items of income, gain, deduction, loss or credit arising out of the income, properties and operations of the Company will be reported or disclosed in such Returns; PROVIDED, HOWEVER, that such Returns will be prepared by treating items on such Returns in a manner consistent with the past practice with respect to such items, unless otherwise required by law. The Stockholders' Representative will provide to Parent drafts of all Returns of the Company required to be prepared and filed by the Stockholders' Representative under this Section 6.1 at least 30 days prior to the due date for the filing of such Returns (including any extensions). At least 15 days prior to the due date for the filing of such Returns (including any extensions), Parent will notify the Stockholders' Representative of the existence of any objection (specifying in reasonable detail the nature and basis of such objection) Parent may have to any items set forth on such draft Returns (a "DISPUTE NOTICE"). Parent and the Stockholders' Representative agree to consult and resolve in good faith any such objection. The Stockholders' Representative will not file any return without the prior written consent of Parent, which consent will not be unreasonably withheld or delayed; PROVIDED, HOWEVER, that no such consent will be required if Parent shall not have timely delivered a Dispute Notice or the objections contained in such Dispute Notice shall have been finally resolved. 6.2. APPORTIONMENT OF TAXES. (a) All Taxes and Tax liabilities with respect to the income, property or operations of the Company that relate to a taxable year or other taxable period beginning before and ending after the Closing Date will be apportioned between the Pre-Closing Tax Period and the Post-Closing Tax Period as follows: (A) in the case of Taxes other than income Taxes and sales and use Taxes, on a per diem basis, and (B) in the case of income Taxes and sales and use Taxes, as determined from the books and records of the Company, between Pre-Closing and Post-Closing Tax Periods as though the taxable year of the Company terminated at the close of business on the Closing Date, and based on accounting methods, elections and conventions that do not have the effect of distorting income and expenses. The Stockholders will be liable for the payment of all Taxes of the Company which are attributable to any Pre-Closing Tax Period (net of reserves for such Taxes to the extent accurately reflected in the preparation of the Closing Date Balance Sheet and the computation of the Closing Working Capital Balance), whether shown on any original return or amended return for the period referred to therein. The Company will be liable for the payment of all Taxes which are attributable to any Post-Closing Tax Period. All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest), imposed on the Parent or the Company which are incurred in connection with this Agreement will be borne and paid by the Principal Stockholder when due, and the Principal Stockholder will, at his own expense, cause to be filed all necessary Returns and other documentation with respect to all such Taxes and fees. 39 (b) To the extent the Company has made a payment of Taxes on or prior to the Closing Date with respect to Taxes attributable to a Pre-Closing Tax Period in excess of the liability of the Company for such Taxes for such Pre-Closing Tax Period, the Surviving Corporation will, upon written request by the Stockholders' Representative, use commercially reasonable efforts to obtain a prompt refund of such overpayment. The Surviving Corporation will remit any refund received pursuant to the immediately preceding sentence, net of any Taxes of the Surviving Corporation arising from the receipt of such refund, to the Stockholders' Representative for the benefit of the Stockholders within 15 days of the receipt of such refund. 6.3. COOPERATION; AUDITS. In connection with the preparation of Returns, audit examinations and any administrative or judicial proceedings relating to the Tax liabilities imposed on the Company for all Pre-Closing Tax Periods, Parent and the Company on the one hand, and the Stockholders' Representative on the other hand, will cooperate fully with each other, including, but not limited to, the furnishing or making available during normal business hours of records, personnel (as reasonably required), books of account, powers of attorney or other materials necessary or helpful for the preparation of such Returns, the conduct of audit examinations or the defense of claims by Tax authorities as to the imposition of Taxes. 6.4. CONTROVERSIES. Parent will promptly notify the Stockholders' Representative in writing upon receipt by Parent or any affiliate of Parent (including the Company after the Closing Date) of written notice of any inquiries, claims, assessments, audits or similar events with respect to Taxes relating to a Pre-Closing Tax Period for which the Principal Stockholder may be liable under this Agreement (any such inquiry, claim, assessment, audit or similar event, a "TAX MATTER"). The Stockholders' Representative, at the Principal Stockholder's sole expense, will have the exclusive authority to represent the interests of the Company with respect to any Tax Matter before the IRS, any other Taxing Authority, any other governmental agency or authority or any court and will have the sole right to extend or waive the statute of limitations, with respect to a Tax Matter and to control the defense, compromise or other resolution of any Tax Matter, including responding to inquiries, filing Tax returns and settling audits; PROVIDED, HOWEVER, that the Stockholders' Representative will not enter into any settlement of or otherwise compromise any Tax Matter that affects or may affect the Tax liability of Parent or the Company or any affiliate of the foregoing for any Post-Closing Tax Period, including the portion of a period beginning before the Closing Date and ending after the Closing Date, without the prior written consent of Parent, which consent will not be unreasonably withheld. The Stockholders' Representative will keep Parent fully and timely informed with respect to the commencement, status and nature of any Tax Matter. The Stockholders' Representative will, in good faith, allow Parent to consult with the Stockholders' Representative regarding the conduct of or positions taken in any such proceeding. 6.5. AMENDED RETURNS. The Stockholders' Representative will not file or cause or permit to be filed any amended Return without the prior written consent of Parent, which consent will not be unreasonably withheld or delayed. Parent will not file or cause to be filed any amended return covering any period or adjusting any Taxes for a period which includes any period prior to the Closing Date without the prior written consent of the Stockholders' Representative, which consent will not be unreasonably withheld or delayed. 6.6. NON-FOREIGN PERSON AFFIDAVIT. The Company will furnish to Parent on or before the Closing Date a non-foreign person affidavit as required by Section 1445 of the Code. 40 VII. CONDITIONS TO CLOSING 7.1. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The obligations of Parent and Merger Sub to consummate the Closing are subject to the satisfaction of the following conditions: 7.1.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. (a) The representations and warranties of the Company made in this Agreement will be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects) as of the date hereof and as of the Closing, as though made as of the Closing; (b) the Company shall have performed and complied with all terms, agreements and covenants contained in this Agreement required to be performed or complied with by the Company on or before the Closing Date; and (c) the Company shall have delivered to Parent a certificate of the Company's Chief Executive Officer, dated the Closing Date, confirming the foregoing and such other evidence of compliance with its obligations as Parent may reasonably request. 7.1.2. COMPANY'S CERTIFICATE. The Company shall have delivered to Parent a certificate from its Secretary or an Assistant Secretary certifying as to the due adoption of resolutions adopted by its Board of Directors and its stockholders, (if required) authorizing the execution of this Agreement and the taking of any and all actions deemed necessary or advisable to consummate the transactions contemplated herein. 7.1.3. STOCKHOLDER APPROVAL. This Agreement and the transactions contemplated hereby shall have been approved in the manner and by the requisite vote of the Stockholders required by applicable law. 7.1.4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PRINCIPAL STOCKHOLDER. (a) The representations and warranties of the Principal Stockholder made in this Agreement will be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects) as of the date hereof and as of the Closing, as though made as of the Closing; (b) the Principal Stockholder shall have performed and complied with all terms, agreements and covenants contained in this Agreement required to be performed or complied with by the Principal Stockholder on or before the Closing Date; and (c) the Principal Stockholder shall have delivered to Parent certificates dated the Closing Date confirming the foregoing and such other evidence of compliance with the Principal Stockholder's obligations as Parent may reasonably request. 7.1.5. NO INJUNCTION, ETC. No provision of any applicable law or regulation and no judgment, injunction, order or decree will be in effect which will prohibit the consummation of the Closing. 7.1.6. NO PROCEEDINGS. No proceeding challenging this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby or seeking to prohibit, alter, prevent or materially delay the Closing or seeking damages will have been instituted by any Person (other than Parent or the Company) before any court, arbitrator or Governmental Authorities and be pending. 41 7.1.7. REQUIRED FILINGS. All actions by or in respect of or filings by the Company or the Principal Stockholder with any Person required to permit the consummation of the Closing shall have been taken, made or obtained. 7.1.8. OPINION OF COUNSEL. Parent shall have received an opinion of Daviau, Jabar & Bratten, counsel to the Company and the Stockholders dated the Closing Date, substantially in the form attached hereto as EXHIBIT F. 7.1.9. DUE DILIGENCE. Parent shall have completed, or caused to be completed by its attorneys, accountants and other representatives, to its satisfaction, business, legal, environmental and accounting due diligence investigations and reviews of the Company. 7.1.10. ANCILLARY AGREEMENTS. Each of the Ancillary Agreements shall have been executed and delivered by the parties thereto other than Saunders Karp & Megrue, L.P. 7.1.11. RESIGNATION OF DIRECTORS. Each of the Directors of the Company immediately prior to the Closing shall have submitted a letter of resignation to the Company effective as of the Closing. 7.1.12. THIRD PARTY CONSENTS; GOVERNMENTAL APPROVALS. All consents, approvals or waivers, if any, disclosed on any Schedule attached hereto or otherwise required in connection with the consummation of the transactions contemplated by this Agreement shall have been received. All of the consents, approvals, authorizations, exemptions and waivers from Governmental Authorities that will be required in order to enable Parent to consummate the transactions contemplated hereby shall have been obtained. 7.1.13. FIRPTA. The Company shall have furnished to Parent, on or prior to the Closing Date, a non-foreign person affidavit required by Section 1445 of the Code. 7.1.14. HSR ACT. Any applicable waiting period under the HSR Act relating to the transactions contemplated hereby will have expired or been terminated. 7.1.15. NO MATERIAL ADVERSE CHANGE. Prior to the Closing, no event shall have occurred which, individually or when considered together with all other matters, has had or which could reasonably be expected to have a Material Adverse Effect. 7.1.16. FINANCING. Parent shall have obtained financing for the payment of the Aggregate Closing Merger Consideration on terms satisfactory to it in its sole discretion. 7.1.17. LIQUIDATION OF INVESTMENT SECURITIES. Prior to the Closing, the Company shall have disposed of all of the Investment Securities for fair market value cash consideration. 7.1.18. STOCKHOLDER INDEBTEDNESS. Each Stockholder shall have repaid all Indebtedness of such Stockholder to the Company or any Subsidiary of the Company outstanding immediately prior to the Closing. 7.1.19. PRINCIPAL STOCKHOLDER OWNERSHIP. The Principal Stockholder will own beneficially and of record not less than 51% of each class of the issued and outstanding Company 42 Stock on the date hereof and immediately prior to the Effective Time and will have provided evidence thereof reasonably satisfactory to Parent and its counsel. 7.1.20. DISSENTERS RIGHTS. All Stockholders shall have lawfully waived their statutory rights (including dissenters rights) under the MBCA to receive consideration for their shares of Company Stock other than the consideration expressly provided for under this Agreement. 7.2. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE PRINCIPAL STOCKHOLDER. The obligations of the Company and the Principal Stockholder to consummate the Closing are subject to the satisfaction of the following conditions: 7.2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PARENT AND MERGER SUB. (a) The representations and warranties of Parent and Merger Sub made in this Agreement will be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects) as of the date hereof and as of the Closing, as though made as of the Closing; (b) Parent and Merger Sub shall have performed and complied with all terms, agreements and covenants contained in this Agreement required to be performed or complied with by Parent and Merger Sub on or before the Closing Date; and (c) Parent and Merger Sub shall have delivered to the Company and the Stockholders' Representative a certificate of Parent's and Merger Sub's Chief Executive Officer, dated the Closing Date, confirming the foregoing and such other evidence of compliance with its obligations as the Company or the Stockholders' Representative may reasonably request. 7.2.2. PARENT'S AND MERGER SUB'S CERTIFICATE. Parent and Merger Sub shall have delivered to the Company and the Stockholders' Representative a certificate from its Secretary or Assistant Secretary certifying as to the due adoption of resolutions adopted by the Board of Directors or Management Committee of Parent and Merger Sub (and the stockholders or members if required) authorizing the execution of this Agreement and the taking of any and all actions deemed necessary or advisable to consummate the transactions contemplated herein. 7.2.3. NO INJUNCTION, ETC. No provision of any applicable law or regulation and no judgment, injunction, order or decree will be in effect which will prohibit the consummation of the Closing. 7.2.4. OPINION OF COUNSEL. The Principal Stockholder shall have received an opinion of Jones, Day, Reavis & Pogue, counsel to Parent, dated the Closing Date, substantially in the form attached hereto as EXHIBIT G. 7.2.5. ESCROW AGREEMENT. The Escrow Agreement shall have been executed and delivered by the parties thereto other than the Stockholders' Representative. 7.2.6. HSR ACT. Any applicable waiting period under the HSR Act relating to the transactions contemplated hereby shall have expired or been terminated. 7.2.7. MANAGEMENT BONUS PLAN. Parent shall have executed and delivered to the Principal Stockholder a letter agreement obligating the Surviving Corporation to adopt, effective 43 on the Closing Date, a management bonus plan, such letter agreement to be in form and in substance reasonably satisfactory to the Principal Stockholder. VIII. SURVIVAL INDEMNIFICATION 8.1. SURVIVAL. All covenants and agreements of the parties contained in this Agreement will survive the Closing indefinitely. Notwithstanding the preceding sentence the representations and warranties of the parties contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith will survive the Closing for two years thereafter; PROVIDED, HOWEVER, that the representations and warranties contained in Section 3.1.10 will survive the Closing until the expiration of the statute of limitations applicable to the matters covered thereby (after giving effect to any waiver, mitigation or extension thereof granted by the Company after the Closing), the representations and warranties contained in Section 3.1.18 will survive the Closing for five years thereafter, and the representations and warranties contained in Sections 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5, 3.1.6 and 3.1.7(c) (collectively, the "SELECTED REPRESENTATIONS AND WARRANTIES"), 3.2.1, 3.2.2, 3.2.3, 3.2.4, 4.1, 4.2, 4.3 and 4.4 will survive the Closing indefinitely. Notwithstanding the preceding sentence, any representation or warranty in respect of which indemnity may be sought under this Agreement will survive the time at which it would otherwise terminate pursuant to the preceding sentence if written notice of the inaccuracy or breach thereof giving rise to such right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time; PROVIDED, HOWEVER, that the applicable representation or warranty will survive only with respect to the particular inaccuracy or breach specified in such written notice. 8.2. INDEMNIFICATION. (a) Prior to the Closing, the Company, and thereafter the Principal Stockholder, will indemnify, defend and hold harmless Parent and its officers, directors, employees, members, managing directors, Affiliates (including, after the Closing Date, the Company) and agents, and the successors to the foregoing (and their respective officers, directors, employees, members, managing directors, Affiliates and agents), against any and all liabilities, damages and losses, including, without limitation, diminution in value of the Company, Company Stock, lost profits and other consequential damages and, if but only to the extent asserted in a Third Party Claim, punitive damages, and all costs or expenses, including, without limitation, attorneys' and consultants' fees and expenses ("DAMAGES"), incurred or suffered as a result of or arising out of (i) the failure of any representation or warranty made by the Company or the Principal Stockholder in any subsection of Section 3.1 to be true and correct as of the Closing Date (other than a breach of Section 3.1.10 with respect to Taxes which will be governed by Section 8.3), or (ii) the breach of any covenant or agreement made or to be performed by the Company pursuant to this Agreement; PROVIDED, HOWEVER, that neither the Company nor the Principal Stockholder will be liable under clause (i) of this Section 8.2(a) (other than with respect to such breaches of any of the Selected Representations and Warranties and the representations and warranties contained in Section 3.1.7) unless the aggregate amount of Damages exceeds $300,000 and then from the first dollar to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that the Principal Stockholder's liability under clause (i) of this Section 8.2(a) (other than with respect to such breaches of any of the Selected Representations and Warranties and the representations and warranties contained in Section 3.1.7) will not exceed, in the aggregate, $13.0 million. 44 (b) The Principal Stockholder will indemnify, defend and hold harmless Parent and its officers, directors, employees, members, managing directors, Affiliates (including, after the Closing Date, the Company) and agents and the successors to the foregoing (and their respective officers, directors, employees, members, managing directors, Affiliates and agents) against Damages incurred or suffered as a result of or arising out of (i) the failure of any representation or warranty made by the Principal Stockholder in any subsection of Section 3.2 of this Agreement to be true and correct as of the Closing Date or (ii) the breach of any covenant or agreement made or to be performed by the Principal Stockholder pursuant to this Agreement. (c) Parent and the Surviving Corporation, jointly and severally, on and after the Closing Date will indemnify, defend and hold harmless the Principal Stockholder against Damages incurred or suffered as a result of or arising out of (i) the failure of any representation or warranty made by Parent or Merger Sub in this Agreement to be true and correct as of the Closing Date or (ii) the breach of any covenant or agreement made or to be performed by Parent or Merger Sub pursuant to this Agreement; PROVIDED, HOWEVER, that Parent will not be liable under clause (i) of this Section 8.2(c) unless the aggregate amount of Damages exceeds $300,000 and then from the first dollar to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that Parent's liability under clause (i) of this Section 8.2(c) will not exceed, in the aggregate, $13.0 million. (d) The Principal Stockholder will indemnify, defend and hold harmless Parent and its officers, directors, employees, members, managing directors, Affiliates (including, after the Closing Date, the Company) and agents and the successors to the foregoing (and their respective officers, directors, employees, members, managing directors, Affiliates and agents) against Damages incurred or suffered as a result of or arising out of or in connection with item 4 disclosed on SCHEDULE 3.1.19(a) to the extent attributable to conditions, events or circumstances occurring or existing on or prior to the Closing Date; PROVIDED, HOWEVER, that the Principal Stockholder's liability under this Section 8.2(d) will not exceed, in the aggregate, $13.0 million. 8.3. TAX INDEMNIFICATION. Prior to the Closing, the Company, and thereafter the Principal Stockholder, will indemnify, defend and hold harmless Parent, and its officers, directors, employees, members, managing directors, Affiliates (including, after the Closing Date, the Company) and agents and the successors to the foregoing (and their respective officers, directors, employees, members, managing directors, Affiliates and agents) against (i) all Taxes (and losses, claims and expenses related thereto) resulting from, arising out of, or incurred with respect to, any claims that may be asserted by any party based upon, attributable to, or resulting from the failure of any representation or warranty made pursuant to Section 3.1.10 to be true and correct as of the Closing Date, (ii) all Taxes imposed on or asserted against the Company or for which the Company may be liable in respect of the properties, income or operations of the Company for all Pre-Closing Tax Periods, and (iii) all Taxes imposed on or asserted against the Company, or for which the Company may be liable, as a result of any transaction, contemplated by this Agreement as in the case of clauses (i) and (ii) of this Section 8.3, net of reserves for Taxes to the extent accurately reflected in the computation of the Closing Working Capital Balance. 8.4. PROCEDURES. (a) If any Person who or which is entitled to seek indemnification under Section 8.2 or Section 8.3 (an "INDEMNIFIED PARTY") receives notice of the assertion or commencement of any Third Party Claim against such Indemnified Party with 45 respect to which the Person against whom or which such indemnification is being sought (an "INDEMNIFYING PARTY") is obligated to provide indemnification under this Agreement, the Indemnified Party will give such Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 20 days after receipt of such written notice of such Third Party Claim. Such notice by the Indemnified Party will describe the Third Party Claim in reasonable detail, will include copies of all available material written evidence thereof and will indicate the estimated amount, if reasonably practicable, of the Damages that has been or may be sustained by the Indemnified Party. The Indemnifying Party will have the right to participate in, or, by giving written notice to the Indemnified Party, to assume, the defense of any Third Party Claim at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel (reasonably satisfactory to the Indemnified Party), and the Indemnified Party will cooperate in good faith in such defense. (b) If, within 20 days after giving notice of a Third Party Claim to an Indemnifying Party pursuant to Section 8.4(a), an Indemnified Party receives written notice from the Indemnifying Party that the Indemnifying Party has elected to assume the defense of such Third Party Claim as provided in the last sentence of Section 8.4(a), the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof; PROVIDED, HOWEVER, that if the Indemnifying Party fails to take reasonable steps necessary to defend diligently such Third Party Claim within 20 days after receiving written notice from the Indemnified Party that the Indemnified Party reasonably believes the Indemnifying Party has failed to take such steps or if the Indemnifying Party has not undertaken fully to indemnify the Indemnified Party in respect of all damages relating to the matter, the Indemnified Party may assume its own defense, and the Indemnifying Party will be liable for all reasonable costs and expenses paid or incurred in connection therewith. Without the prior written consent of the Indemnified Party, the Indemnifying Party will not enter into any settlement of any Third Party Claim which would lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder, or which provides for injunctive or other non-monetary relief applicable to the Indemnified Party, or, as to matters other than Tax Matters, does not include an unconditional release of all Indemnified Parties. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party will give written notice to the Indemnified Party to that effect. If the Indemnified Party fails to consent to such firm offer within ten days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and, in such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will not exceed the amount of such settlement offer. The Indemnified Party will provide the Indemnifying Party with reasonable access during normal business hours to books, records, and employees of the Indemnified Party necessary in connection with the Indemnifying Party's defense of any Third Party Claim which is the subject of a claim for indemnification by an Indemnified Party hereunder. (c) Any claim by an Indemnified Party on account of Damages which does not result from a Third Party Claim (a "DIRECT CLAIM") will be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 20 days after the Indemnified Party becomes aware of such Direct Claim. Such notice by the 46 Indemnified Party will describe the Direct Claim in reasonable detail, will include copies of all available material written evidence thereof and will indicate the estimated amount, if reasonably practicable, of Damages that has been or may be sustained by the Indemnified Party. The Indemnifying Party will have a period of ten days within which to respond in writing to such Direct Claim. If the Indemnifying Party does not so respond within such ten day period, the Indemnifying Party will be deemed to have rejected such claim, in which event the Indemnified Party will be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement. (d) A failure to give timely notice or to include any specified information in any notice as provided in Section 8.4(a), 8.4(b) or 8.4(c) will not affect the rights or obligations of any party hereunder, except and only to the extent that, as a result of such failure, any party which was entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise materially prejudiced as a result of such failure. (e) All indemnifiable Damages under this Agreement will be paid in cash in immediately available funds. 8.5. TREATMENT OF INDEMNIFICATION PAYMENTS. Any amount paid by the Principal Stockholder or Parent under Section 8.2 or 8.3 will be treated as a capital contribution, on the one hand, and/or an adjustment to the Aggregate Consideration, on the other hand. 8.6. INDEMNIFICATION AMOUNTS NET OF BENEFITS RECEIVED. The amount of Damages for which indemnification is provided under Sections 8.2 and 8.3 will be computed net of any insurance proceeds received by the Indemnified Party in connection with such Damages, reduced by all costs and expenses related thereto and any premium increase or expense resulting therefrom. If the amount with respect to which any claim is made under this Section 8.6 gives rise to a currently realizable Tax benefit, the indemnity payment will be reduced by the amount of such currently realizable benefit then available to the party making the claim if and to the extent actually realized by such party in the fiscal year in which such indemnity payment is made to such party or in the next succeeding fiscal year. IX. MISCELLANEOUS 9.1. TERMINATION. (a) This Agreement may be terminated at any time prior to the Closing: (i) by the mutual written consent of Parent, the Company and the Principal Stockholder; (ii) by Parent, if there has been a material violation or breach by the Company or the Principal Stockholder of any covenant, representation or warranty contained in this Agreement which has prevented the satisfaction of any condition to the obligations of Parent at the Closing, and such violation or breach has not been waived by Parent or, in the case of a covenant breach, cured by the Company or the Principal Stockholder within the earlier of (x) ten days after written notice thereof from Parent or (y) the Closing Date; 47 (iii) by the Company or the Principal Stockholder, if there has been a material violation or breach by Parent of any covenant, representation or warranty contained in this Agreement which has prevented the satisfaction of any condition to the obligations of the Company or the Principal Stockholder at the Closing, and such violation or breach has not been waived by the Company or the Principal Stockholder or, in the case of a covenant breach, cured by Parent within the earlier of (x) ten days after written notice thereof from the Company or the Principal Stockholder or (y) the Closing Date; or (iv) by Parent, the Company or the Principal Stockholder if the transactions contemplated hereby have not been consummated by December 31, 1998; PROVIDED, HOWEVER, that neither Parent, the Company nor any Stockholder will be entitled to terminate this Agreement pursuant to this Section 9.1(a)(iv) if such Person's breach of this Agreement has prevented the consummation of the transactions contemplated hereby; and (v) by Parent, if the conditions to Closing set forth in Sections 7.1.9 or 7.1.16 have not been satisfied. (b) In the event that this Agreement is terminated pursuant to Section 9.1(a), all further obligations of the parties hereto under this Agreement (other than pursuant to Section 9.4, which will continue in full force and effect) will terminate without further liability or obligation of any party to any other party hereunder; PROVIDED, HOWEVER, that no party will be released from liability hereunder if this Agreement is terminated and the transactions abandoned by reason of (i) failure of such party to have performed its obligations hereunder or (ii) any misrepresentation made by such party of any matter set forth herein. 9.2. NOTICES. All notices, requests and other communications to any party hereunder will be in writing (including facsimile transmission) and will be given to such party at its address set forth in SCHEDULE 9.2. All such notices, requests and other communications will be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication will be deemed not to have been received until the next succeeding business day in the place of receipt. 9.3. AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement (subject to Section 9.17(b)(iii)), or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided will be cumulative and not exclusive of any rights or remedies provided by law. 9.4. EXPENSES. Except as otherwise expressly provided for herein, the parties will pay or cause to be paid all of their own fees and expenses incident to this Agreement and in preparing to consummate and consummating the transactions contemplated hereby, including the fees and expenses of any broker, finder, financial advisor, legal advisor or similar person 48 engaged by such party; PROVIDED, HOWEVER, that in the event that the Company or the Principal Stockholder elects not to consummate the transactions contemplated hereby (other than as a result of a material breach by Parent of any covenant, representation or warranty of Parent contained in this Agreement), the Company will pay to Parent the reasonable expenses of Parent (including expenses of Parent's counsel and other advisors) incurred in connection with this Agreement and the transactions contemplated hereby up to a maximum of $150,000. 9.5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto. 9.6. NO THIRD PARTY BENEFICIARIES. Except as provided in Article VIII, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied will give or be construed to give to any Person, other than the parties hereto and such permitted assigns any legal or equitable rights hereunder. 9.7. GOVERNING LAW. This Agreement will be governed by, and construed in accordance with, the law of the State of New York, without regard to the conflict of laws rules of such state. 9.8. JURISDICTION. Except as otherwise expressly provided in this Agreement, any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any court of competent jurisdiction in the Borough of Manhattan or the United States District Court for the Southern District of New York and each of the parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 9.2 will be deemed effective service of process on such party. 9.9. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 9.10. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which will be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 9.11. HEADINGS. The headings in this Agreement are for convenience of reference only and will not control or affect the meaning or construction of any provisions hereof. 49 9.12. ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits hereto) constitutes the entire agreement among the parties with respect to the subject matter of this Agreement. This Agreement (including the Schedules and Exhibits hereto) supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof of this Agreement. 9.13. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any person or circumstance is held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision hereof. 9.14. NO WAIVER. No action or inaction taken or omitted pursuant to this Agreement will be deemed to constitute a waiver of compliance with any representations, warranties or covenants contained in this Agreement and will not operate or be construed as a waiver of any subsequent breach, whether of a similar or dissimilar nature. 9.15. CERTAIN INTERPRETIVE MATTERS. (a) Unless the context otherwise requires, (i) all references to Sections, Articles, Exhibits or Schedules are to Sections, Articles, Exhibits, or Schedules of or to this Agreement, (ii) each of the Schedules will apply only to the corresponding Section or subsection of this Agreement, (iii) each term defined in this Agreement has the meaning assigned to it, (iv) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP, (v) words in the singular include the plural and VICE VERSA, and (vi) the term "INCLUDING" means "including without limitation." All references to $ or dollar amounts will be to lawful currency of the United States. To the extent the term "day" or "days" is used, it shall mean calendar days. (b) No provision of this Agreement will be interpreted in favor of, or against, any of the parties hereto by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof. (c) (i) All references to the "KNOWLEDGE OF THE COMPANY" or to words of similar import will be deemed to be references to the actual knowledge of one or more of the executive officers or directors of the Company whose names are listed on SCHEDULE 9.15(c)(i), and will include such knowledge as such executive officers or directors would have had after due inquiry of the responsible individuals of the Company whose names are listed separately on SCHEDULE 9.15(c)(i) and its counsel and accountants. (ii) All references to the "KNOWLEDGE OF PARENT" or to words of similar import will be deemed to be references to the actual knowledge of one or more of the executive officers, directors or members of the management committee of Parent whose names are listed on SCHEDULE 9.15(c)(ii) and, will include such knowledge as such executive officers , directors or management committee members would have had after due inquiry of the responsible individuals of Parent whose names are listed separately on SCHEDULE 9.15(c)(ii) and its counsel and accountants. 50 (iii) All references to the "KNOWLEDGE OF PRINCIPAL STOCKHOLDER" or to words of similar import will be deemed to be references to the actual knowledge of the Principal Stockholder, as applicable. 9.16. TRANSFER OF PROCEEDS. Until the later to occur of the fifth anniversary of the Closing Date or the expiration of the statute of limitations applicable to the matters covered in Section 3.1.10, the Principal Stockholder will not transfer or permit the transfer of any of the Aggregate Consideration received by or on behalf of the Principal Stockholder if the result thereof would make the Principal Stockholder unable to satisfy his obligations hereunder as to indemnification in an amount up to $13.0 million. 9.17. STOCKHOLDERS' REPRESENTATIVE. (a) By the execution and delivery of this Agreement and by delivery of waivers of dissent, each Stockholder hereby irrevocably constitutes and appoints the Principal Stockholder as Stockholders' Representative ("STOCKHOLDERS' REPRESENTATIVE") with the exclusive authority to act in accordance with Section 9.17(b). In the event of the death, resignation or inability to act of the Principal Stockholder, Robert Daviau will be successor Stockholders' Representative with all powers of his predecessor. In addition, upon written notice to Parent, the Stockholders may change the identity of the Stockholders' Representative by written consent signed by the Stockholders owning more than 50% of the shares of the issued and outstanding Company Stock on the date hereof. (b) The Stockholders' Representative will have full power: (i) to act on each Stockholder's behalf according to the terms of this Agreement, to give and receive notices on behalf of all Stockholders and to act on their behalf in connection with any matter as to which one or more Stockholders is an "Indemnified Party" or "Indemnifying Party" under this Agreement, all in the absolute discretion of Stockholders' Representative; and (ii) in general, to do all things and to perform all acts, including executing and delivering all agreements, certificates, receipts, instructions and other instruments contemplated by or in connection with this Agreement. (iii) to amend this Agreement on behalf of the Stockholders. Notwithstanding anything in this Section 9.17 to the contrary, the Stockholders' Representative will not be authorized to alter, change or modify the Aggregate Consideration or the Per Share Closing Merger Consideration on behalf of the Stockholders. This power of attorney, and all authority hereby conferred, is granted subject to the interests of the other Stockholders, the Company and Parent hereunder and in consideration of the mutual covenants and agreements made herein, and is irrevocable and will not be terminated by any act of any Stockholder or by operation of Law, whether by the death or incapacity of any Stockholder or by the occurrence of any other event. The Stockholders' Representative will not be liable for any action taken in the capacity of Stockholders' Representative in accordance with the terms of this Agreement, including the compromise, settlement, payment or defense of any claim (including expenses and costs associated therewith) under this Agreement regardless of whether any Stockholder is the claimant or the party against whom a claim is being made. In 51 connection with the exercise of his duties, the Stockholders' Representative will be entitled to consult with and rely upon legal counsel and other professional advisors, with the costs thereof to be allocated among the Stockholders and will have no liability hereunder for actions taken in good faith reliance upon the advice of such advisors. Each Stockholder will, jointly and severally, holder the Stockholders' Representative harmless from any and all Damage which they, or any one of them, may sustain as a result of any action taken in good faith hereunder. 52 The parties hereto have caused this Agreement to be duly executed by their respective authorized officers or in their individual capacity, if applicable, as of the day and year first above written. MID STATE MACHINE PRODUCTS By: /s/ S. Douglas Sukeforth ---------------------------------------- Name: S. Douglas Sukeforth Title: President MID STATE HOLDING CO., INC. By: /s/ John Clark ---------------------------------------- Name: John Clark Title: President and Chief Executive Officer MID STATE ACQUISITION, INC. By: /s/ John Clark ---------------------------------------- Name: John Clark Title: President and Chief Executive Officer /s/ S. Douglas Sukeforth ---------------------------------------------- S. Douglas Sukeforth, individually, as the Principal Stockholder and as the Stockholders' Representative 53 EX-2.3 4 ASSET PURCH. AGRMNT (FEB. 5, 1999) EXHIBIT 2.3 ASSET PURCHASE AGREEMENT BY AND AMONG GENERAL AUTOMATION, INC., MAX STARR AND PRECISION PARTNERS HOLDING COMPANY ---------------------------- DATED AS OF FEBRUARY 5, 1999 ---------------------------- TABLE OF CONTENTS (Not a part of this Agreement)
PAGE ---- RECITALS ........................................................................................1 I. DEFINITIONS..................................................................................1 1.1. Definitions....................................................................1 II. SALE AND PURCHASE OF ASSETS.................................................................8 2.1. Purchased Assets...............................................................8 2.2. Excluded Assets...............................................................10 2.3 Nonassignable Contracts, Leases and Permits...................................11 III. ASSUMPTION OF LIABILITIES.................................................................11 3.1. Liabilities Assumed by Buyer..................................................11 3.2. Liabilities Not Assumed by Buyer..............................................12 IV. CONSIDERATION FOR PURCHASED ASSETS; CLOSING................................................13 4.1. Purchase Price................................................................13 4.2. Estimated Adjustment..........................................................13 4.3. Post-Closing Adjustment.......................................................13 4.4. Adjustments to Closing Payments...............................................15 4.5. Allocation of Purchase Price..................................................15 V. CLOSING AND CLOSING DELIVERIES.............................................................16 5.1. The Closing...................................................................16 5.2. Deliveries of Seller..........................................................16 5.3. Deliveries by Buyer...........................................................17 5.4. Proceedings...................................................................18 VI. REPRESENTATIONS AND WARRANTIES OF SELLER...................................................18 6.1. ..............................................................................18 6.1.1. Corporate Existence and Power.........................................18 6.1.2. Enforceability........................................................18 6.1.3. Governmental Authorization............................................18 6.1.4. Non-Contravention; Consents...........................................18 6.1.5. Capitalization........................................................19 6.1.6. Financial Statements; Books and Records..............................19 6.1.7. No Undisclosed Liabilities...........................................20 6.1.8. Intercompany Accounts................................................20 6.1.9. Tax Matters..........................................................20 6.1.10. Absence of Certain Changes...........................................21 6.1.11. Contracts............................................................21 6.1.12. Insurance Coverage...................................................23 6.1.13. Litigation...........................................................24
i TABLE OF CONTENTS (Not a part of this Agreement)
PAGE ---- 6.1.14. Compliance with Laws; Permits........................................24 6.1.15. Properties; Sufficiency of Assets....................................24 6.1.16. Intellectual Property................................................25 6.1.17. Environmental Matters................................................25 6.1.18. Plans and Material Documents.........................................27 6.1.19. Interests in Customers, Suppliers, Etc...............................28 6.1.20. Customer, Supplier and Employee Relations............................28 6.1.21. Other Employment Matters.............................................29 6.1.22. Accounts Receivable..................................................29 6.1.23. Inventory............................................................30 6.1.24. Millennium Compliance................................................30 6.1.25 Finders' Fees........................................................30 VII. REPRESENTATIONS AND WARRANTIES OF BUYER...................................................30 7.1. Corporate Existence and Power.................................................30 7.2. Authorization; Enforceability.................................................30 7.3. Governmental Authorization....................................................30 7.4. Non-Contravention.............................................................31 7.5. Litigation....................................................................31 7.6. Consents......................................................................31 7.7. Finders' Fees.................................................................31 7.8. Precision Structure...........................................................31 VIII. CERTAIN COVENANT.........................................................................31 8.1. Conduct of Business of the Company............................................31 8.2. Exclusive Dealing.............................................................33 8.3. Review of the Company; Confidentiality........................................33 8.4. Reasonable Efforts............................................................34 8.5. Transfer of Employees and Benefit Plans.......................................34 8.6 Books and Records.............................................................36 8.7 Bulk Transfer Laws............................................................36 8.8 Non-competition...............................................................36 8.9 Collection of Payments........................................................37 8.10 Accounts Receivable...........................................................37 8.11 Use of Names..................................................................37 8.12 Pre-Closing Audits............................................................37 8.13 Satisfaction and Termination of Equity Arrangements...........................38 8.14 Further Assurances. .........................................................38 IX. CONDITIONS TO CLOSING......................................................................38 9.1 Conditions to Obligations of Buyer............................................38
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PAGE ---- 9.1.1. Representations, Warranties and Covenants of Seller...................38 9.1.2. No Injunction, etc....................................................39 9.1.3. No Proceedings........................................................39 9.1.4. Required Filings......................................................39 9.1.5. Opinion of Counsel....................................................39 9.1.6. Due Diligence.........................................................39 9.1.7. Ancillary Agreements..................................................39 9.1.8. Third Party Consents; Governmental Approvals..........................39 9.1.9. FIRPTA................................................................39 9.1.10. No Material Adverse Change............................................39 9.1.11. Financing.............................................................39 9.1.12. HSR Act...............................................................39 9.1.13. Pre-Closing Audits...................................................40 9.2 Conditions to Obligations of Seller............................................40 9.2.1. Representations, Warranties and Covenants of Buyer....................40 9.2.2. Buyer's Certificate...................................................40 9.2.3. No Injunction, etc....................................................40 9.2.4. No Proceedings........................................................40 9.2.5. Required Filings......................................................40 9.2.6. Ancillary Agreements..................................................40 9.2.7. Opinion of Counsel....................................................40 9.2.8. HSR Act...............................................................40 X. SURVIVAL; INDEMNIFICATION....................................................................41 10.1 Survival.......................................................................41 10.2 Indemnification................................................................41 10.3 Tax Indemnification............................................................42 10.4 Procedures.....................................................................42 10.5 Payment and Treatment of Indemnification Payments..............................44 10.6 Indemnification Amounts Net of Benefits Received...............................44 10.7 Exclusive Remedy. .............................................................44 XI. MISCELLANEOUS...............................................................................44 11.1. Termination. .................................................................44 11.2. Notices. .....................................................................45 11.3. Amendments and Waivers.........................................................45 11.4. Expenses. ....................................................................45 11.5. Successors and Assigns. ......................................................46 11.6. No Third Party Beneficiaries. ................................................46 11.7. Governing Law. ...............................................................46 11.8. Jurisdiction. ................................................................46
iii TABLE OF CONTENTS (Not a part of this Agreement)
PAGE ---- 11.9. Waiver of Jury Trial...........................................................46 11.10. Counterparts. ................................................................46 11.11. Headings. ....................................................................47 11.12. Entire Agreement. ............................................................47 11.13. Severability. ................................................................47 11.14. No Waiver. ...................................................................47 11.15. Certain Interpretive Matters. ...............................................47
iv (Not a part of this Agreement) EXHIBIT AND SCHEDULE INDEX
EXHIBITS -------- EXHIBIT A: Form of Employment Agreement EXHIBIT B-1: Interim Financial Statements EXHIBIT B-2: Monthly Financial Statements EXHIBIT B-3: Compilation Statements EXHIBIT C: Form of Non-competition Agreement EXHIBIT D-1: Form of Bill of Sale EXHIBIT D-2: Trademark Assignment EXHIBIT D-3: Form of Copyright Assignment EXHIBIT D-4: Form of Special Warranty Deed EXHIBIT E: Balance Sheet Principles EXHIBIT F: Form of Opinion of Rosenthal and Schanfield EXHIBIT G: Form of Certificate of Amendment of Company's Charter EXHIBIT H: Form of Opinion of Jones, Day, Reavis & Pogue
v (Not a part of this Agreement)
SCHEDULES --------- SCHEDULE 2.1(a)(xiv): Names SCHEDULE 2.1(a)(xvii): Bank Accounts, etc. SCHEDULE 2.2(c): Property SCHEDULE 2.2(d): Stuart J. Stein Letter SCHEDULE 3.1(a)(vi): Liability in Respect of Claims SCHEDULE 6.1.4: Non-Contravention; Consents SCHEDULE 6.1.5(a): Capitalization SCHEDULE 6.1.5(b): Ownership of Shares of Capital Stock SCHEDULE 6.1.6(c): Changes in the Company's Reserve or Accrual Policies SCHEDULE 6.1.7: Undisclosed Liabilities SCHEDULE 6.1.8: Intercompany Accounts SCHEDULE 6.1.9(a): Tax Matters SCHEDULE 6.1.9(b): Jurisdictions Which Impose Tax on Overall Net Income SCHEDULE 6.1.10: Absence of Certain Changes SCHEDULE 6.1.11(a): Contracts and Agreements SCHEDULE 6.1.11(c): Grants of Severance or Termination Pay SCHEDULE 6.1.12: Insurance Policies and Bonds SCHEDULE 6.1.13: Litigation SCHEDULE 6.1.14(a): Compliance with Laws; Permits SCHEDULE 6.1.14(b)(i): Lists of Government or Regulatory Permits and Licenses SCHEDULE 6.1.14(b)(ii): Invalid or Defective Permits and Licenses SCHEDULE 6.1.15(a): Properties; Sufficiency of Assets SCHEDULE 6.1.15(b): Real Property SCHEDULE 6.1.16(a): Intellectual Property SCHEDULE 6.1.16(b): Intellectual Property Disputes SCHEDULE 6.1.17: Environmental Matters SCHEDULE 6.1.17(b): Environmental Investigations SCHEDULE 6.1.18(a): List of Benefit Plans SCHEDULE 6.1.18(b): List of Certain Benefit Plans SCHEDULE 6.1.18(c): Benefit Plans compliance SCHEDULE 6.1.18(h): Employees Entitled to Bonuses and Benefits SCHEDULE 6.1.18(i): Employees with Options to Purchase Shares SCHEDULE 6.1.19: Interests in Customers, Suppliers, Etc. SCHEDULE 6.1.20: Customer, Supplier and Employee Relations SCHEDULE 6.1.21(a): Claims by Employees SCHEDULE 6.1.21(b): Employees SCHEDULE 6.1.21(d): Retired Employees Scheduled to Receive Benefits in the Future SCHEDULE 6.1.22: Accounts Receivable SCHEDULE 6.1.23: Inventory SCHEDULE 6.1.24: Millennium Compliance SCHEDULE 7.5: Litigation SCHEDULE 7.6: Consents
vi (Not a part of this Agreement) SCHEDULE 8.5(a): Transferred Employees SCHEDULE 8.5(b): Benefits SCHEDULE 8.8: Certain Employees of Seller SCHEDULE 11.2: Notices SCHEDULE 11.15(c)(i): Knowledge of Buyer SCHEDULE 11.15(c)(ii): Knowledge of Buyer
vii ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT (this "AGREEMENT"), dated as of February 5, 1999, by and among GENERAL AUTOMATION, INC., an Illinois corporation (the "COMPANY" or "SELLER"), MAX STARR ("STOCKHOLDER") and PRECISION PARTNERS HOLDING COMPANY, a Delaware corporation ("BUYER"). RECITALS A. The Company is a manufacturer of high precision screw machined parts primarily for the automotive and medical industries. B. Stockholder is the beneficial owner, through a living trust, of all of the issued and outstanding capital stock of the Company. C. Buyer desires to purchase from Seller and Seller desires to sell to Buyer all of the assets, properties and rights of Seller (other than the Excluded Assets) subject to the Assumed Liabilities, all on the terms and conditions set forth herein. D. The parties desire to make certain representations, warranties and covenants in connection with the transactions contemplated hereby and to prescribe various conditions in connection therewith. Accordingly, the parties hereto agree as follows: I. DEFINITIONS 1.1. DEFINITIONS. In addition to the terms defined elsewhere herein and/or in the Schedules attached hereto, the following terms, as used herein, have the following meanings when used herein with initial capital letters: "ACCOUNTANTS" has the meaning ascribed to such term in Section 4.3(b). "ACCOUNTS RECEIVABLE" has the meaning ascribed to such term in Section 2.1(a)(vii). "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with the first Person. For the purposes of this definition, "CONTROL," when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing. "AGGREGATE CLOSING CONSIDERATION" has the meaning ascribed to such term in Section 4.1. 1 "AGREEMENT" has the meaning ascribed to such term in the introductory paragraph of this Agreement as the same may be amended from time to time in accordance with the terms hereof. "ANCILLARY AGREEMENTS" means the Employment Agreement, the Non- competition Agreement, the Bill of Sale, the Trademark Assignment, the Copyright Assignment and the Deed. "ASSUMED LIABILITIES" has the meaning ascribed to such term in Section 3.1(b). "AUDITED FINANCIAL STATEMENTS" has the meaning ascribed to such term in Section 8.12. "BALANCE SHEET DATE" means June 30, 1998. "BALANCE SHEET PRINCIPLES" has the meaning ascribed to such term in Section 4.3(a). "BASE NET WORTH" means $8.0 million. "BENEFIT PLANS" has the meaning ascribed to such term in Section 3.1(a)(iv) "BILL OF SALE" has the meaning ascribed to such term in Section 2.1(b)(i). "BONUSES" have the meaning ascribed to such term in Section 6.1.21(b). "BUSINESS" means the businesses of Seller as conducted as of the date hereof and on the Closing, as described in Recital A. "BULK TRANSFER LAWS" has the meaning ascribed to such term in Section 8.7. "BUSINESS DAY" means a day other than a Saturday or Sunday or a day on which banks located in New York City or Chicago, Illinois are authorized or required to close. "BUYER" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "CAPITALIZED LEASE OBLIGATIONS" means, with respect to any Person, for any applicable period, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP, and the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601, ET SEQ. "CLOSING" has the meaning ascribed to such term in Section 5.1. 2 "CLOSING DATE" has the meaning ascribed to such term in Section 5.1. "CLOSING DATE BALANCE SHEET" has the meaning ascribed to such term in Section 4.3(a). "CLOSING NET WORTH" has the meaning ascribed to such term in Section 4.3(a). "CLOSING NET WORTH STATEMENT" has the meaning ascribed to such term in Section 4.3(a). "CODE" means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. "COMPANY" has the meaning ascribed to such term in the introductory paragraph. "COMPANY PROPERTY" means any real property and improvements at any time owned, leased, used, operated or occupied (whether for storage, disposal or otherwise) by the Company. "COMPILATION STATEMENTS" means the compiled balance sheets of the Company as of December 31, 1997, 1996 and 1995, together with the related statements of income and retained earnings for the periods then ended and, for the period ended December 31, 1997 only, cash flows, and the reports thereon. The Compilation Statement for 1997 and 1996 were prepared by Shapiro, Olefsky & Company, certified public accountants, and the Compilation Statements for 1995 were prepared by Mann, Weitz & Cohn, certified public accountants. All of the Compilation Statements are attached hereto as EXHIBIT B-3. "COMPUTER SYSTEMS" has the meaning ascribed to such term in Section 6.1.24. "CONSTITUENT OF CONCERN" means any substance defined as a hazardous substance, hazardous waste, hazardous material, pollutant, or contaminant by any Environmental Law, any petroleum hydrocarbon and any degradation product of a petroleum hydrocarbon, asbestos, PCB or similar substance, the handling, storage, treatment or exposure of or to which is subject to regulation under any Environmental Law. "CONTRACTS" has the meaning ascribed to such term in Section 2.1(a)(vi). "COPYRIGHT ASSIGNMENT" has the meaning ascribed to such term in Section 2.1(b)(iii). "COVENANT PERIOD" has the meaning ascribed to such term in the Non- competition Agreement. "DEED" has the meaning ascribed to such term in Section 2.1(b)(iv). "DAMAGES" has the meaning ascribed to such term in Section 10.2(a). "DIRECT CLAIM" has the meaning ascribed to such term in Section 10.4(c) 3 "DROP DEAD DATE" has the meaning ascribed to such term in Section 11.1(a)(iv). "EMPLOYMENT AGREEMENT" means the agreement between the entity designated by Buyer pursuant to Section 11.5 and Stockholder, to be dated the Closing Date, substantially in the form attached hereto as EXHIBIT A. "ENVIRONMENTAL CLAIMS" means administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, citations, summonses, notices of non-compliance or violation, requests for information under Section 104(e) of CERCLA or proceedings relating to any Environmental Law or any permit issued under any such Law, including (a) Environmental Claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) Environmental Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Constituents of Concern or arising from alleged injury or threat of injury to human health and safety or the environment. "ENVIRONMENTAL CONDITION" means a condition with respect to the environment which has resulted or could result in a material loss, liability, cost or expense to the Company. "ENVIRONMENTAL LAW" means any Law in effect and amended as of the Closing Date, together with any judicial interpretation thereof and applicable clean-up standards, as of the Closing Date, including any judicial or administrative order, consent decree or judgment, relating to the environment, human health and safety, including CERCLA and any state and local counterparts or equivalents. "ENVIRONMENTAL PERMITS" means all permits, licenses, authorizations, certificates and approvals of Governmental Authorities relating to or required by Environmental Laws and necessary for the business of the Company as currently conducted. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" means any Person that, together with the Company, would be considered a single employer within the meaning of Section 4001 of ERISA or Section 414 of the Code. "ESTIMATED ADJUSTMENT" has the meaning ascribed to such term in Section 4.2. "ESTIMATED CLOSING NET WORTH" has the meaning ascribed to such term in Section 4.2. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "EXCLUDED ASSETS" has the meaning ascribed to such term in Section 2.2. "FINAL ADJUSTMENT" has the meaning ascribed to such term in Section 4.4(a). 4 "GAAP" means U.S. generally accepted accounting principles, consistently applied. "GOVERNMENTAL AUTHORITY" means any domestic or foreign governmental or regulatory authority. "HSR ACT" has the meaning ascribed to such term in Section 6.1.3. "INDEBTEDNESS" means with respect to any Person, at any date, without duplication, (i) all obligations of such Person for borrowed money, including, without limitation, all principal, interest, premiums, fees, expenses, overdrafts and penalties with respect thereto, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of the property or services, (iv) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (v) Capitalized Lease Obligations of such Person and (vi) all Indebtedness of any other Person of the type referred to in clauses (i) to (v) above directly or indirectly guaranteed by such Person or secured by any assets of such Person. Notwithstanding anything to the contrary contained herein, the term "Indebtedness" will not include trade payables or security deposits for leases incurred in the Ordinary Course of Business. "INDEMNIFIED PARTY" has the meaning ascribed to such term in Section 10.4(a). "INDEMNIFYING PARTY" has the meaning ascribed to such term in Section 10.4(a). "INTELLECTUAL PROPERTY RIGHT" means any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how (including any registrations or applications for registration of any of the foregoing) or any other similar type of proprietary intellectual property right, in each case which is owned, used or held for use or otherwise necessary in connection with the conduct of the Business. "INTERIM FINANCIAL STATEMENTS" means the unaudited balance sheet of the Company as of June 30, 1998 and September 30, 1998, together with the related statements of income for the periods then ended, in each case, prepared internally by the Company for management purposes only and which are attached hereto as EXHIBIT B-1. "IRS" means the Internal Revenue Service. "JUNE 1998 BALANCE SHEET" means the unaudited balance sheet of the Company as of June 30, 1998, prepared internally by the Company for management purposes only and included in the Interim Financial Statements. "LAW" means any federal, state or local statute, law, rule, regulation, ordinance, code, permit, license, or rule of common law. "LENDERS" has the meaning ascribed to such term in Section 5.2(viii). 5 "LIEN" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For the purposes of this Agreement, a Person will be deemed to own, subject to a Lien, any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, assets, liabilities, condition (financial and other), results of operations or prospects of the Company. "MAY 1985 REDEMPTION" has the meaning ascribed to such term in Section 3.2(a)(vi). "MILLENNIUM COMPLIANCE" means that the Computer Systems are capable of the following, during and/or after January 1, 2000: (a) handling date information involving all and any dates, including accepting input, providing output and performing date calculations in whole or in part; (b) operating accurately without interruption on and in respect of any and all dates and without any change in performance; (c) responding to and processing two digit year input without creating any ambiguity as to the century; and (d) storing and providing date input information without creating any ambiguity as to the century. "MONTHLY FINANCIAL STATEMENTS" means the unaudited monthly balance sheets of the Company from December 31, 1996 through the Closing Date and the related monthly statements of income for the periods then ended, in each case, prepared internally by the Company for management purposes only. The Monthly Financial Statements through the month-ended immediately prior to the date hereof are attached as EXHIBIT B-2. "NON-COMPETITION AGREEMENT" means the Non-competition Agreement, dated as of the Closing Date, between the entity designated by Buyer pursuant to Section 11.5, Buyer and Stockholder, substantially in the form attached hereto as EXHIBIT C. "NOVEMBER 1998 BALANCE SHEET" means the balance sheet of the Company as of November 30, 1998, prepared internally by the Company for internal management purposes only and contained in the Monthly Financial Statements. "ORDER" means any judgment, injunction, judicial or administrative order or decree. "ORDINARY COURSE OF BUSINESS" means, with respect to any Person, the ordinary course of business of such Person, consistent in all material respect with such Person's past practice and custom, including with respect to any category, quantity or dollar amount, term and frequency of payment, delivery, accrual and expense or any other accounting entry. "PERMITS" has the meaning ascribed to such term in Section 6.14(b). "PERMITTED LIEN" means (a) mechanics', workmen's, repairmen's or other Liens arising or incurred in the Ordinary Course of Business in respect of obligations that are not 6 overdue or (b) other imperfections of title or encumbrances, in the case of clause (a) and (b) which do not or could not reasonably be expected to, individually or in the aggregate, materially affect the value or marketability of the property subject thereto. "PERSON" means an individual, corporation, partnership, limited liability company or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PRE-CLOSING AUDITS" has the meaning ascribed to such term in Section 8.12. "PRE-CLOSING TAX PERIOD" means any Tax period (or portion thereof) that actually ends on or before the Closing Date. "PURCHASED ASSETS" has the meaning ascribed to such term in Section 2.1(a). "REAL PROPERTY" has the meaning ascribed to such term in Section 6.1.15(b). "RELIANCE LETTERS" has the meaning ascribed to such term in Section 5.2(viii). "RETAINED LIABILITIES" has the meaning ascribed to such term in Section 3.2(b). "RETURNS" has the meaning ascribed to such term in Section 6.1.9(a)(i). "S CORPORATION" has the meaning ascribed to such term in Section 6.1.9(a)(ix). "SELECTED BUYER REPRESENTATIONS AND WARRANTIES" means the representations and warranties contained in Sections 7.1 (Corporate Existence and Power); 7.2 (Authorization; Enforceability), 7.3 (Governmental Authorization) and 7.4 (Non-Contravention). "SELECTED SELLER REPRESENTATIONS AND WARRANTIES" means the representations and warranties contained in Sections 6.1.1 (Corporate Existence and Power), 6.1.2 (Enforceability), 6.1.3 (Governmental Authorization) and 6.1.4 (Non-Contravention; Consents). "SELLER" has the meaning ascribed to such term in the introductory paragraph. "SCHEDULE 8.8 INDIVIDUALS" has the meaning ascribed to such term in Section 3.1(a)(iv). "SURVIVAL PERIOD" has the meaning ascribed to such term in Section 10.1. "STOCKHOLDER" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "TAX" means (a) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, license, withholding on amounts paid to or by the Company, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest, penalty, addition to tax or additional amount imposed by any Taxing Authority 7 (as hereinafter defined), (b) any liability of the Company for the payment of any amounts of any of the foregoing types as a result of being a member of an affiliated, consolidated, combined or unitary group, or being a party to any agreement or arrangement whereby liability of the Company for payment of such amounts was determined or taken into account with reference to the liability of any other Person, and (c) liability of the Company for the payment of any amounts as a result of being a party to any Tax Sharing Agreements or with respect to the payment of any amounts of any of the foregoing types as a result of any express or implied obligation to indemnify any other Person. "TAX SHARING AGREEMENTS" means all existing Tax sharing agreements or arrangements (whether or not written) binding the Company. "TAXING AUTHORITY" means any Governmental Authority responsible for the imposition of any Tax. "THIRD PARTY CLAIM" means any claim, demand, action, suit or proceeding made or brought by any Person who or which is not a party to this Agreement. "TRADEMARK ASSIGNMENT" has the meaning ascribed to such term in Section 2.1(b)(ii). "TRANSFER" has the meaning ascribed to such term in Section 2.1(a). "TRANSFERRED EMPLOYEES" has the meaning ascribed to such term in Section 8.5(b)(i). II. SALE AND PURCHASE OF ASSETS 2.1. PURCHASED ASSETS. (a) At the Closing provided for in Article V, Seller will sell, assign, transfer, convey and deliver ("TRANSFER"), free and clear of all Liens (except Permitted Liens), whether legal or equitable, to Buyer and Buyer will purchase and accept from Seller on the terms and subject to the conditions hereinafter set forth, all of the assets, properties, rights and interests of Seller to the extent existing as of the Closing Date, other than the Excluded Assets (all of such assets, properties, rights and interests being hereinafter collectively referred to as the "PURCHASED ASSETS"), including but not limited to: (i) those assets, properties, rights and interests reflected on the November 1998 Balance Sheet, other than such assets, properties and interests sold in the Ordinary Course of Business or otherwise disposed of as expressly authorized or permitted under this Agreement after such date; (ii) Seller's title to, interest in, or rights under the leases of, real property described in SCHEDULE 6.1.15(b), together with all right, title and interest of Seller, if any, to all leasehold improvements thereon and all easements, rights-of-way, transferable licenses and permits and other appurtenances thereof; 8 (iii) all right, title and interest of Seller to all plant, machinery, equipment, tools, spare parts, supplies, furniture, furnishings, vehicles and other fixed assets owned or leased by Seller and used or held for use in the conduct of the Business; (iv) all raw materials and inventories wherever located, including inventories of work-in-process, stores and supplies, owned by Seller and used or held for use in connection with the conduct of the Business; (v) any item that would constitute "cash" as shown on a balance sheet of the Business as of the Closing Date determined in accordance with GAAP, deposits, advance payments of any kind or prepayments by clients, letters of credit naming Seller as account party, certificates of deposit, notes, drafts, checks and similar instruments relating to or arising out of the conduct of the Business; (vi) all right, title and interest of Seller to all contracts (whether written or oral) (other than to the extent that such contracts relate to the Retained Liabilities or Excluded Assets), commitments, leases, purchase orders, contracts to purchase raw materials, contracts for services and supplies, contracts to supply or sell products and all of the other agreements (whether written or oral) including those set forth or required to be set forth in SCHEDULE 6.1.11(a) (collectively, the "CONTRACTS"); (vii) all accounts receivable (including billed and unbilled) of Seller ("ACCOUNTS RECEIVABLE"); (viii) all Intellectual Property Rights of Seller; (ix) all licenses, Permits, registrations, and authorizations held by Seller; (x) the books and records of Seller relating to the Purchased Assets including, without limitation, all customer and supplier files, equipment maintenance and warranty information, all correspondence with any customers, suppliers, employees or governmental entities, all personnel records related to the Transferred Employees, and any other reports, marketing studies, plans and documents, including, without limitation, data stored electronically; (xi) all prepaid claims, prepaid Taxes (other than any prepaid Taxes which can be utilized to offset or satisfy any liabilities described in Section 3.2(a)(iii)), prepaid insurance premiums and other prepaid expense items and deferred charges, credits, advance payments, security and other deposits made by Seller to any other Person relating to the conduct of the Business; (xii) all policies of insurance, fidelity, surety or similar bonds and third-party indemnities to the extent assignable where Seller is an indemnified party and the coverages afforded thereby, in each case other than to the extent relating to the Retained Liabilities or Excluded Assets; (xiii) lists of customers and vendors of Seller, including, without limitation, any data stored electronically; 9 (xiv) the right to use the names set forth on SCHEDULE 2.1(a)(xiv), and all variants thereof; (xv) the Business and goodwill of Seller; (xvi) all securities or other ownership interests in any Person held by Seller; (xvii) all telephone and facsimile numbers (together with all other similar numbers), electronic mail addresses and web sites, in each case owned or used by Seller in the Business including such items as set forth on SCHEDULE 2.1(a)(xvii); (xviii) all rights of Seller pertaining to any counterclaims, set-offs or defenses it may have with respect to the Assumed Liabilities; and (xix) all other assets, properties and rights of every kind and nature owned or held by Seller or in which Seller has an interest on the Closing Date, known or unknown, fixed or unfixed, accrued, absolute, contingent or otherwise, whether or not specifically referred to in this Agreement. (b) In confirmation of the foregoing sale, assignment and transfer, Seller will execute and deliver to Buyer at the Closing (i) a Bill of Sale and Assignment and Assumption Agreement (the "BILL OF SALE"), (ii) an Assignment of Trademarks (the "TRADEMARK ASSIGNMENT"), (iii) an Assignment of Copyrights (the "COPYRIGHT ASSIGNMENT"), (iv) the Special Warranty Deed (the "DEED"), each substantially in the forms attached hereto as EXHIBITS D-1, D-2, D-3 and D-4, respectively, and (v) such other assignments and other instruments of transfer as Buyer may reasonably deem necessary or desirable. 2.2. EXCLUDED ASSETS. Anything in this Agreement to the contrary notwithstanding, the following assets of Seller (the "EXCLUDED ASSETS") are being retained by Seller and will not be included in the Purchased Assets: (a) Tax records reasonably necessary for the discharge by Seller of all income and other Taxes payable in respect of the conduct of the Business of Seller, prior to the Closing Date, provided that Buyer will have reasonable access to such records prior to and after the Closing Date in accordance with the provisions of Section 8.6(b) hereof to the extent Buyer will reasonably require such access; (b) the rights of Seller and Stockholder under this Agreement and under the Ancillary Agreements and the proceeds payable to Seller pursuant to this Agreement; (c) all of the property listed on SCHEDULE 2.2(c); (d) any recovery of funds, assets or any other item or items of value obtained in connection with the matters described in the December 4, 1998 letter from Stuart J. Stein and/or the documents related thereto and/or referred to therein, which letter is attached hereto as SCHEDULE 2.2(d); 10 (e) any Tax refund received to the extent attributable to any Pre-Closing Tax Period (other than net operating loss carry-backs); and (f) Indebtedness of employees of Seller to Seller set forth on the November 1998 Balance Sheet. 2.3 NONASSIGNABLE CONTRACTS, LEASES AND PERMITS. In the case of any Purchased Assets constituting Contracts or Permits that are not by their terms assignable or that require the consent of a third-party in connection with the sale by Seller, Seller will use reasonable efforts (without being required to expend money in connection therewith) to obtain, or cause to be obtained in writing, prior to the Closing Date, any consents necessary to convey the benefits thereof. Buyer will assist Seller in such manner as may be reasonably requested in connection therewith; provided that such assistance will not be deemed to require any expenditure of money on the part of Buyer. If the consent of any third-party is not obtained prior to the Closing Date and the Closing occurs notwithstanding the failure to obtain such consent, Seller will use reasonable efforts (without being required to expend money in connection therewith) to assist Buyer in obtaining such consent promptly. During such period in which the applicable Contract or Permit is not capable of being assigned to Buyer due to the failure to obtain any required consent, Seller will use reasonable efforts (without being required to expend money in connection therewith) to make such arrangements as may be necessary to enable Buyer to receive all the economic rights and liabilities under such Contract accruing on and after the Closing Date. III. ASSUMPTION OF LIABILITIES 3.1. LIABILITIES ASSUMED BY BUYER. (a) Subject to Section 3.2, at the Closing, Buyer will assume, as of the Closing Date, and will subsequently pay, honor and discharge when due and payable and otherwise in accordance with their terms, the following liabilities and obligations of Seller to the extent existing on the Closing Date: (i) (x) all liabilities reflected on the November 1998 Balance Sheet and (y) all such liabilities of the same categories as those reflected on the November 1998 Balance sheet arising thereafter and to the extent reflected on the Closing Date Balance Sheet as finally determined in accordance with this Agreement, in the case of liabilities described in clauses (x) and (y) of this clause 3.1(a)(i), to the extent that such liabilities were not incurred in breach of this Agreement, and in each case, other than Indebtedness described in Section 3.2(a)(vi); (ii) all liabilities and obligations under Contracts to which Seller is a party, including those that (A) are disclosed in SCHEDULE 6.1.11(a) and SCHEDULE 6.1.15(b) and (B) have been entered into by Seller in the Ordinary Course of Business prior to the Closing Date, in each case, other than contracts to which Seller is a party that are entered into by Seller in breach of this Agreement and liabilities and obligations under Contracts to which Seller is a party that relate to a breach by Seller of any of the terms and conditions of any such Contracts on, or prior to the Closing Date; PROVIDED that the 11 existence of any such Contract does not constitute the breach of any representation, warranty or covenant of Seller hereunder; (iii) all liabilities or obligations to Transferred Employees in accordance with, and subject to the limitations set forth in, Section 8.5 with respect to wages, salaries, bonus, vacation, severance or other compensation reflected on the Closing Date Balance Sheet (to the extent not discharged prior to the Closing Date) or otherwise accruing on and after the Closing, provided that the existence thereof does not constitute a breach of any representation, warranty or covenant of Seller hereunder; (iv) except as provided in Section 3.2(a)(iii) and other than to the extent applicable to the individuals listed on SCHEDULE 8.8 (the "SCHEDULE 8.8 INDIVIDUALS") (but without limiting the obligations of Buyer and GA Acquisition Delaware, Inc. under: (x) the Employment Agreement, or (y) COBRA for such SCHEDULE 8.8 Individuals), liabilities or obligations relating or pertaining to any employee benefit plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and any other plan, program, agreement, arrangement, policy, contract, commitment, or scheme, written or oral, statutory or contractual of Seller, including, but not limited to, any deferred compensation agreement, executive compensation, bonus, incentive or severance pay plan, any life, health, disability or accident insurance plan or any cafeteria plan or any holiday or vacation practice under which employees or former employees of Seller are eligible to participate or derive a benefit and as to which such Seller has or in the future could reasonably be expected to have any direct or indirect actual or contingent liability (hereinafter the "BENEFIT PLANS"), provided that the existence of such Benefit Plans does not constitute a breach of any representation, warranty or covenant of Seller hereunder; (v) the obligation to issue credit as appropriate in the Ordinary Course of Business of Seller; and (vi) liability (for the defense of, and liability (if any) in respect of, claims in suits and other proceedings specifically described in SCHEDULE 3.1(a)(vi). (b) The liabilities to be assumed by Buyer pursuant to Section 3.1(a) are hereinafter sometimes collectively referred to as "ASSUMED LIABILITIES." 3.2. LIABILITIES NOT ASSUMED BY BUYER. (a) Anything in this Agreement to the contrary notwithstanding, Buyer will not assume or be liable or responsible for, from and after the date hereof or after the Closing, any liabilities or obligations of Seller, except as listed in Section 3.1(a). Without limiting the generality or effect of the foregoing, Buyer will not assume the following: (i) any liability or obligation of Seller (including the liability referred to in Section 6.1.25) arising out of or in connection with the negotiation and preparation of the Agreement (including the Ancillary Agreements) and the consummation and performance of the transactions contemplated hereby; 12 (ii) liability for the defense of, and liability (if any) in respect of, all claims (other than claims which constitute Assumed Liabilities), to the extent arising out of or relating to facts or circumstances existing on or prior to the Closing Date; (iii) any liability or obligation of Seller with respect to federal, state or local Taxes; (iv) any liability or obligation of Seller incurred in breach of this Agreement or any of the Ancillary Agreements; (v) all claims, liabilities and obligations with respect to the Excluded Assets; (vi) (x) Indebtedness in connection with the 1985 redemption by the Seller of 565 shares of its capital stock from Irene Starr Fleischman (the "MAY 1985 REDEMPTION")) and (y) Indebtedness constituting the guaranty referred to in SCHEDULE 6.1.11(a)(vi); and (vii) items listed in any of the Schedules which are expressly identified in any such Schedule as constituting a "Retained Liability." (b) All liabilities or obligations of Seller other than Assumed Liabilities are hereinafter sometimes collectively referred to as the "RETAINED LIABILITIES." IV. CONSIDERATION FOR PURCHASED ASSETS; CLOSING 4.1. PURCHASE PRICE. In consideration for the Transfer by Seller to Buyer of the Purchased Assets pursuant to this Agreement, Buyer will deliver at the Closing to Seller an aggregate amount equal to $45.0 million (the "AGGREGATE CLOSING CONSIDERATION"). The Aggregate Closing Consideration will be subject to adjustment at the Closing as provided in Section 4.2 and will be payable in cash by wire transfer in immediately available funds to one account designated in writing by Seller. The Aggregate Closing Consideration will be subject to adjustment after the Closing as provided in Sections 4.3 and 4.4. 4.2. ESTIMATED ADJUSTMENT. Not less than two Business Days prior to the Closing Date, Seller will cause Shapiro, Olefsky & Company, certified public accountants, to prepare a good faith estimate of the Closing Net Worth (the "ESTIMATED CLOSING NET WORTH") determined in accordance with Section 4.3, as if it were the actual Closing Net Worth, but based upon Shapiro, Olefsky & Company's review of the monthly financial information then available and inquiries of personnel responsible for the preparation of the financial information relating to the Company in the Ordinary Course of Business. The Aggregate Closing Consideration will be adjusted by the amount equal to the difference, if any, between the Estimated Closing Net Worth and the Base Net Worth and as otherwise adjusted in accordance with the methodology set forth in EXHIBIT E (as so adjusted, the "ESTIMATED ADJUSTMENT"). 4.3. POST-CLOSING ADJUSTMENT. (a) As soon as practicable (and in no event later than 90 days after the Closing), Buyer will prepare and deliver or cause to be prepared and delivered to Seller a balance sheet of the Company as of the opening of business on the Closing Date (the "CLOSING DATE BALANCE SHEET") and a proposed statement of the net worth of the 13 Company as of the opening of business on the Closing Date (the "CLOSING NET WORTH STATEMENT"). The Closing Date Balance Sheet and the Closing Net Worth Statement (i) will reflect, respectively, the financial position of the Company and the components and calculation of the net worth of the Company in each case as of the opening of business on the Closing Date, (ii) will be prepared and determined as of the opening of business on the Closing Date using the same policies, principles and methodology used in connection with the preparation of the June 1998 Balance Sheet, and (iii) will be subject to adjustment in accordance with the principles and methodology set forth in EXHIBIT E attached hereto (the policies, principles and methodology in clauses (ii) and (iii) of this Section 4.3(a) being referred to herein as the "BALANCE SHEET PRINCIPLES"). Notwithstanding anything contained herein to the contrary, there will be no changes in reserve or accrual policies or amounts (with respect to accrual and reserve amounts, without the prior written consent of Buyer which will not be unreasonably withheld or delayed) between June 30, 1998 and the Closing Date without the prior written consent of Buyer. The net worth of the Company as of the Closing Date determined in accordance with this Section 4.3 is referred to herein as the "CLOSING NET WORTH." In the event of any conflict or inconsistency between the policies, principles and methodology described in the foregoing clauses (ii) and (iii), the policies, principles and methodology set forth in EXHIBIT E shall govern. (b) If, within 45 days after the date of Buyer's delivery of the Closing Date Balance Sheet and the Closing Net Worth Statement, Seller disagrees with the Closing Date Balance Sheet and/or the Closing Net Worth Statement as prepared and determined by Buyer, Seller will give written notice to Buyer within such 45-day period (i) setting forth Seller's proposed changes to the Closing Date Balance Sheet as prepared by Buyer and the determination by Buyer of the Closing Net Worth and (ii) specifying in reasonable detail Seller's basis for disagreement. The failure by Seller to so express disagreement and provide such specification within such 45-day period will constitute the acceptance of Buyer's preparation of the Closing Date Balance Sheet and the computation of the Closing Net Worth. If Buyer and Seller are unable to resolve any disagreement between them with respect to the Closing Date Balance Sheet and the Closing Net Worth within 30 days after the giving of notice by Seller to Buyer of such disagreement, the items in dispute will be referred for determination to Pricewaterhouse Coopers LLP (the "ACCOUNTANTS") as promptly as practicable, but not later than five days after the expiration of such 30 day period. Buyer and Seller will use reasonable efforts to cause the Accountants to render their decision as soon as practicable thereafter (but in no event later than 30 days after the submission to the Accountants of the notice of disagreement referred to in the immediately preceding sentence), including without limitation by promptly complying with all reasonable requests by the Accountants for information, books, records and similar items. The Accountants will make a determination as to each of the items in dispute (but only those items in dispute), which determination will be in writing, furnished to each of the parties hereto as promptly as practicable after the items in dispute have been referred to the Accountants (but in no event later than 30 days thereafter), made in accordance with this Agreement (including EXHIBIT E), and conclusive and binding upon each of the parties hereto. Nothing herein will be construed to authorize or permit the Accountants to determine (i) any question or matter whatsoever under or in connection with this Agreement, except the determination of what adjustments, if any, must be made in one or more disputed items reflected in the Closing Date Balance Sheet and the Closing Net Worth Statement delivered by Buyer in order for the Closing Net Worth to be determined in accordance with the provisions of this Agreement (including EXHIBIT E), or a Closing Net Worth that is not equal to one of, or between, the Closing Net Worth 14 as determined by Seller and as determined by Buyer. The fees and expenses of the Accountants will be paid one-half by Buyer and one-half by Seller. (c) During the period that Seller's advisors are conducting their review of Buyer's preparation of the Closing Date Balance Sheet and determination of the Closing Net Worth, Seller and its representatives will have reasonable access during normal business hours to the work papers prepared by or on behalf of Buyer and its representatives and any and all other things reasonably requested by Seller's advisors, in each case, in connection with Buyer's preparation of the Closing Net Worth Statement and determination of the Closing Net Worth; PROVIDED, HOWEVER, that Seller will conduct such review in a manner that does not unreasonably interfere with the conduct of the business of the Company. To the extent any such work papers are in the control of Seller after the Closing, Seller will grant Buyer and its representatives reciprocal access rights for the purpose of finalizing the preparation of the Closing Date Balance Sheet and the determination of the Closing Net Worth. Seller and Buyer agree in good faith to use all reasonable efforts to provide such information and access described in this Section 4.3(c). 4.4. ADJUSTMENTS TO CLOSING PAYMENTS. (a) Upon the final determination of the Closing Net Worth, the parties will recalculate the Estimated Adjustment in accordance with the methodology set forth in EXHIBIT E (the "FINAL ADJUSTMENT") and will make the following adjustments: (i) If the Final Adjustment exceeds the Estimated Adjustment, then the Aggregate Closing Consideration will be increased by, and Buyer will pay to Seller the amount of such difference; and (ii) If the Final Adjustment is less than the Estimated Adjustment, then the Aggregate Closing Consideration will be decreased by, and Seller will pay to Buyer the amount of such difference. (b) Any payment in respect of an adjustment required to be made under Section 4.4(a) will be made by Buyer or Seller, as applicable, in cash by wire transfer of immediately available funds to one account of the payee specified prior to the date such payment is required to be made hereunder in writing by Buyer or Seller, as applicable. Such payment will be made on such of the following dates as may be applicable: (i) if Seller shall not have disagreed with the Closing Date Balance Sheet and/or the Closing Net Worth as prepared and determined by Buyer, the earlier of (A) 45 days after delivery to Seller of the Closing Date Balance Sheet and the Closing Net Worth Statement or (B) seven days after Seller has indicated in writing that it has no objections to the Closing Date Balance Sheet and the Closing Net Worth, or (ii) if Seller shall have objected to the Closing Date Balance Sheet and the Closing Net Worth as prepared and determined by Buyer, within seven days following final agreement or decision with respect to the Closing Date Balance Sheet and the Closing Net Worth, as provided in Section 4.3 and this Section 4.4. 4.5. ALLOCATION OF PURCHASE PRICE. The Aggregate Closing Consideration will be allocated among the Purchased Assets as determined by Seller in the manner required by Section 1060 of the Code and otherwise in its sole discretion (exercised reasonably and in good faith). For purposes of determining the Buyer's basis in the Purchased Assets and gain or loss 15 recognized by Seller with respect to the sale of the Purchased Assets to Buyer, Buyer and Seller covenant and agree that the aggregate Purchase Price will be allocated among the Purchased Assets consistent with this Section 4.5 and the parties further agree that they shall file all Tax returns and related forms (including, without limitation, Form 8594) in accordance with the allocation determined in accordance with this Section 4.5 and will not make any inconsistent statement or take any inconsistent position on any Tax returns, in any refund claim, or during the course of any IRS or other tax audit. Each party will notify the other party if it receives notice that the IRS proposes any allocation that is different from the allocation agreed upon under this Section 4.5. V. CLOSING AND CLOSING DELIVERIES 5.1. THE CLOSING. The closing of the sale and purchase of the Purchased Assets (the "CLOSING") will take place at the offices of Jones, Day, Reavis & Pogue located at 599 Lexington Avenue, New York, New York at 10:00 a.m., New York time, as soon as possible after the date hereof but in no event later than the first to occur of (a) ten Business Days after satisfaction or waiver of the conditions to Closing and (b) March 31, 1999. The date upon which the Closing occurs is herein called the "CLOSING DATE." 5.2. DELIVERIES OF SELLER. At the Closing, Seller will deliver to Purchaser: (i) Bill of Sale duly executed by Seller; (ii) Trademark Assignment duly executed by Seller; (iii) Copyright Assignment duly executed by Seller; (iv) Deed duly executed by Seller; (v) instruments of assignment and assumption and other instruments, as Buyer may reasonably deem necessary or desirable to transfer any of the Purchased Assets duly executed by Seller; (vi) certificates of the Chief Executive Officer of Seller to evidence compliance with the conditions set forth in Section 9.1.1(c); (vii) certificates of Seller's Secretary or Assistant Secretary as provided in Section 9.1.1(d); (viii) the opinion of Rosenthal and Schanfield counsel to Seller and Stockholder, dated the Closing Date substantially in the form attached hereto as EXHIBIT F, together with letters (the "RELIANCE LETTERS") entitling the bank lenders and underwriters engaged by or on behalf of Buyer to provide financing as contemplated by Section 9.1.11 (the "LENDERS") to rely on such opinion; 16 (ix) evidence or copies of any consents, approvals, orders, qualifications or waivers required by any third-party or governmental entity pursuant to Section 9.1.8; (x) Certificate of Amendment of Seller's Certificate of Incorporation, dated the Closing Date and in proper form for filing substantially in the form attached hereto as EXHIBIT G, which Seller will, on the Closing Date, file with the Secretary of State of the State of Illinois, changing Seller's corporate name to "GAI, Inc.," together with all other documentation required to be filed in other jurisdictions where Seller is qualified or licensed to do business to reflect such name change; (xi) other Ancillary Agreements required to be duly executed and delivered by Seller or Stockholder; (xii) a non-foreign person affidavit of Seller required by Section 1445 of the Code; and (xiii) such other documents and instruments as may be reasonably required in connection with the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements and to comply with the terms hereof and thereof (including state environmental disclosure statements, good standing certificates and resale exemption certificates). 5.3. DELIVERIES BY BUYER. At the Closing, Buyer will deliver or cause to be delivered to Seller: (i) the Aggregate Closing Consideration by wire transfer of immediately available funds to the one account specified pursuant to Section 4.1; (ii) certificate of the Chief Executive Officer of Buyer to evidence compliance with the conditions set forth in Section 9.2.1; (iii) certificate of Buyer's Secretary or Assistant Secretary as provided in Section 9.2.2; (iv) Bill of Sale duly executed by Buyer; (v) the opinion of Jones, Day, Reavis & Pogue, counsel to Buyer, dated the Closing Date substantially in the form attached hereto as EXHIBIT H; (vi) other Ancillary Agreements required to be duly executed and delivered by Buyer; and (vii) such other documents and instruments as may be reasonably required in connection with the consummation the transactions contemplated by this Agreement and the Ancillary Agreements and to comply with the terms hereof and thereof (including state environmental disclosure statements, good standing certificates and resale exemption certificates). 17 5.4. PROCEEDINGS. Except as otherwise specifically provided for herein, all proceedings that will be taken and all documents that will be executed and delivered by the parties hereto on the Closing Date will be deemed to have been taken and executed simultaneously, and no proceeding will be deemed taken nor any document executed and delivered until all have been taken, executed and delivered. VI. REPRESENTATIONS AND WARRANTIES OF SELLER 6.1. Seller represents and warrants to Buyer as of the date hereof and the Closing as follows: 6.1.1. CORPORATE EXISTENCE AND POWER. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company has all corporate power required to carry out its business as now conducted and, to Seller's knowledge, all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. The Company is duly qualified to conduct business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary except for those jurisdictions where the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has heretofore delivered to Buyer a true and complete copy of its articles of incorporation and bylaws, the receipt of which by Buyer is hereby acknowledged. 6.1.2. ENFORCEABILITY. The execution, delivery and performance by the Company of this Agreement are within its corporate powers and have been duly authorized by all necessary corporate action on its part. This Agreement and each Ancillary Agreement to which Stockholder and/or the Company will be a party at the Closing have been and will be at the Closing duly executed and delivered by Stockholder and/or the Company, as applicable and constitute and will constitute the valid and binding agreements of Stockholder and the Company, enforceable against them in accordance with their terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 6.1.3. GOVERNMENTAL AUTHORIZATION. Except as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), to Seller's knowledge, the execution, delivery and performance by Stockholder and the Company of this Agreement and each Ancillary Agreement to which Stockholder and the Company will be a party at the Closing require no action by or in respect of, or filing with, any Governmental Authorities. 6.1.4. NON-CONTRAVENTION; CONSENTS. Except as disclosed on SCHEDULE 6.1.4, the execution, delivery and performance by the Company and the Stockholder of this Agreement and each Ancillary Agreement to which the Company or the Stockholder will be a party at the Closing will not (a) violate the articles of incorporation or bylaws or comparable organizational documents of the Company, 18 (b) violate any applicable Law or Order, (c) require any filing with or permit, consent or approval of, or the giving of any notice to, any Person (including filings, consents or approvals required under any permits of the Company or any licenses to which the Company is a party), (d) result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of the Company under or result in a loss of any benefit to which the Company is entitled under any agreement or other instrument binding upon, the Company or any license, franchise, permit or other similar authorization held by the Company, or (e) result in the creation or imposition of any Lien on any asset of the Company; (f) except in the case of clauses (c), (d) and (e) for such filings, permits, consents, approvals or notices and violations, breaches, conflicts and Liens which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 6.1.5. CAPITALIZATION. (a) Immediately prior to the Closing, the authorized, issued and outstanding capital of the Company will be as set forth on SCHEDULE 6.1.5(a). (b) Except as disclosed in SCHEDULE 6.1.5(b), Seller does not own any capital stock or other equity or ownership or proprietary interest in any corporation, partnership, association, trust, joint venture or other entity. 6.1.6. FINANCIAL STATEMENTS; BOOKS AND RECORDS. (a) Seller has heretofore furnished Buyer with a true and complete copy of the Compilation Statements, the receipt of which by Buyer is hereby acknowledged. The Compilation Statements have been derived from the books and records of the Company and constitute a fair and accurate presentation in all material respects of the financial position of the Company at the respective dates thereof and the results of the operations of the Company for the periods indicated and, in the case of the Compilation Statements, dated as of and for the period ended December 31, 1997 only, cash flows of the Company. (b) Seller has also heretofore furnished Buyer with a true and complete copy of the Interim Financial Statements and, through the month ended December 31, 1998, the Monthly Financial Statements, the receipt of which by Buyer is hereby acknowledged. The Interim Financial Statements and such Monthly Financial Statements have been, and Monthly Financial Statements required to be delivered pursuant to Section 8.1 when delivered shall have been, derived from the books and records of the Company, and have been, and shall have been, as applicable, prepared on a basis consistent otherwise with the Compilation Statements dated as of and for the periods ended December 31, 1996 and December 31, 1997. The Interim Financial Statements and, through the month ended December 31, 1998, the Monthly Financial Statements constitute, and the Monthly Financial Statements required to be delivered pursuant to Section 8.1, when delivered will constitute, a fair and accurate presentation in all material respects of the 19 financial position of the Company at the respective dates thereof and the results of operations of the Company for the respective periods indicated. (c) Except as disclosed on SCHEDULE 6.1.6.(c), there have been no changes in the Company's reserve policies since November 30, 1998. (d) The books of account, minute books, stock record books, and other records of the Company, all of which have been made available to Buyer, are complete and correct in all material respects and have been maintained in accordance with sound business practices. The minute books of the Company contain materially accurate and complete records of all meetings held of, and corporate action taken by, Stockholder, the Board of Directors, and committees of the Boards of Directors of the Company, and no meeting of stockholders, Board of Directors or committee thereof has been held for which minutes have not been prepared and are not contained in such minute books. 6.1.7. NO UNDISCLOSED LIABILITIES. There are no liabilities of the Company or any facts or circumstances which could reasonably be expected to give rise to liabilities of the Company, whether accrued, contingent, absolute, determined, determinable or otherwise, other than (a) liabilities fully provided for in the most recent Interim Financial Statements; (b) liabilities specifically disclosed on SCHEDULE 6.1.7; (c) and other undisclosed liabilities incurred since the date of the most recent Interim Financial Statements in the Ordinary Course of Business which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 6.1.8. INTERCOMPANY ACCOUNTS. SCHEDULE 6.1.8 contains a complete list of all intercompany balances, as of the date immediately preceding the date hereof, between the Company's Affiliates, on the one hand, and of the Company, on the other hand. Other than as disclosed on SCHEDULE 6.1.8 and compensation paid in the Ordinary Course of Business, since such date, there has not been any accrual of liability of the Company to Stockholder or any of Company's Affiliates or other transaction between the Company, on the one hand, and the Company's Affiliates, on the other hand, or any action taken (other than this Agreement) which could reasonably be expected to result in any such accrual, or the incurrence of any legal or financial obligation to any such Person, after such date. 6.1.9. TAX MATTERS. (a) Except as disclosed in SCHEDULE 6.1.9(a): (i) All Tax returns, statements, reports and forms (including estimated tax or information returns and reports) required to be filed with any Taxing Authority with respect to any Pre-Closing Tax Period by or on behalf of the Company (collectively, the "RETURNS") have, to the extent required to be filed on or before the date hereof, been filed when due in accordance with all applicable laws; (ii) All Taxes owed by the Company (shown as due and payable on the Returns that have been filed) have been timely paid, or withheld and remitted to the appropriate Taxing Authority; 20 (iii) The Company is not delinquent in the payment of any Tax and the Company has not requested any extension of time within which to file any Return except for extensions granted as a matter of right; (iv) The Company (or any member of any affiliated, consolidated, combined or unitary group of which the Company is or has been a member) has not granted any extension or waiver of the statute of limitations period applicable to any Return, which period (after giving effect to such extension or waiver) has not yet expired; (v) There is no action, suit or proceeding of which Seller has been served with process or has otherwise received written notice now pending and no claim, audit or investigation now pending of which Seller is aware or, to the knowledge of Seller, any action, suit, claim, audit or investigation threatened, against or with respect to the Company in respect of any Tax; (vi) There are no Liens for Taxes upon the assets of the Company, except Liens for current Taxes not yet due; (vii) The Company has not been a member of an affiliated, consolidated, combined or unitary group or participated in any other arrangement whereby any income, revenues, receipts, gain or loss of the Company was determined or taken into account for Tax purposes with reference to or in conjunction with any income, revenues, receipts, gain, loss, asset or liability of any other Person; and (viii) The Company made a timely and valid election to be treated as an "S corporation" for federal income tax purposes pursuant to Section 1362 of the Code within the meaning of Section 1361(a) of the Code (an "S CORPORATION"). Such election was effective for the year commencing January 1, 1991. The Company has also made all such elections permitted or required under analogous provisions of state and local Law; and the Company will continue to be a valid S Corporation through the Closing. (b) To Seller's knowledge, SCHEDULE 6.1.9(b) contains a list of all jurisdictions (whether foreign or domestic) to which any Tax imposed on overall net income is properly payable by the Company. 6.1.10. ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE 6.1.10, since June 30, 1998, there has not been any event, occurrence, development, circumstances or state of facts which (a) has had or which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (b) could reasonably be expected to have constituted a violation of any covenant of Stockholder or the Company hereunder (including Section 8.1) had such covenant applied to either of them since June 30, 1998. 6.1.11. CONTRACTS. (a) Except as specifically disclosed in SCHEDULE 6.1.11(a), the Company is not a party to or bound by any of the following (whether written or oral): (i) any lease (whether of real or personal property) providing for annual rentals of $50,000 or more; 21 (ii) other than purchase orders entered into in the Ordinary Course of Business, any agreement for the purchase of materials, supplies, goods, services, equipment or other assets (including in terms of quantity and dollar amount) that provides for either (A) annual payments by the Company of $25,000 or more or (B) aggregate payments by the Company of $50,000 or more; (iii) other than purchase orders entered into in the Ordinary Course of Business, any sales, distribution or other similar agreement providing for the sale by the Company or any subsidiary of materials, supplies, goods, services, equipment or other assets that provides for either (A) annual payments to the Company of $25,000 or more or (B) aggregate payments to the Company of $50,000 or more; (iv) any partnership, joint venture or other similar agreement or arrangement; (v) any agreement relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise); (vi) any agreement relating to Indebtedness (in any case, whether incurred, assumed, guaranteed or secured by any asset); (vii) any license, franchise or similar agreement; (viii) any agency, dealer, sales representative, marketing or other similar agreement; (ix) any noncompetition agreement limiting the freedom of the Company to compete in any line of business or geographic area or with any Person; (x) any agreement with (A) Stockholder or any of Stockholder's Affiliates, (B) any Person directly or indirectly owning, controlling or holding with power to vote, 5% or more of the outstanding voting securities of any of Stockholder's Affiliates, (C) any Person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by Stockholder or any of Stockholder's Affiliates, (D) any director or officer of any of Stockholder's Affiliates or any "associates" or members of the "immediate family" (as such terms are respectively defined in Rule 12b-2 and Rule 16a-1 of the Exchange Act) of any such director or officer, or (E) any director or officer of the Company or with any "associate" or any member of the "immediate family" (as such terms are respectively defined in Rules 12b-2 and 16a-1 of the Exchange Act) of any such director or officer; (xi) any agreement, indenture or other instrument which contains restrictions with respect to payment of dividends or any other distribution in respect of capital stock of the Company; 22 (xii) any management service, consulting or any other similar type of contract; (xiii) any warranty, guaranty or other similar undertaking with respect to contractual performance extended by the Company other than in the Ordinary Course of Business; (xiv) any employment, deferred compensation, severance, bonus, retirement or other similar agreement or plan in effect as of the date hereof and entered into or adopted by the Company, on the one hand, and to which any director or officer of the Company or any other employee of the Company receiving annual compensation of $75,000 or more is a party or who is otherwise a beneficiary thereof, on the other hand; or (xv) any other agreement, commitment, arrangement or plan not made in the Ordinary Course of Business that is material to the Company. (b) Each agreement, contract, plan, lease, arrangement or commitment disclosed in SCHEDULE 6.1.11(a) or any other Schedule to this Agreement or required to be disclosed pursuant to this Section is, to Seller's knowledge, a valid and binding agreement of the Company, and is in full force and effect, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles, and neither the Company, nor, to the knowledge of Seller, any other party thereto is in default or breach in any material respect under the terms of any such agreement, contract, plan, lease, arrangement or commitment. To the knowledge of Seller, there is no event, occurrence, condition or act (including the consummation of the transactions contemplated hereby) which, with the giving of notice or the passage of time, or the happening of any other event or condition, could reasonably be expected to become a material default or event of default thereunder. (c) SCHEDULE 6.1.11(c) sets forth every grant by the Company in the past three years of any severance or termination pay in excess of $5,000 to any employee of the Company receiving annual compensation of $75,000 or more, or any director or officer of the Company. 6.1.12. INSURANCE COVERAGE. The Company has furnished or otherwise made available to Buyer a list of, and a true and complete copy of, all insurance policies and fidelity bonds covering the assets, business, operations, employees, officers and directors of the Company. To Seller's knowledge, there is no material claim by the Company pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and the Company has complied in all material respects with the terms and conditions of all such policies and bonds. Such policies of insurance and bonds (or other policies and bonds providing substantially similar insurance coverage) are in full force and effect and are disclosed in SCHEDULE 6.1.12. The Company does not know of any threatened termination of, or premium increase with respect to, any of such policies or bonds. To Seller's knowledge, since the last renewal date of any insurance policy, there has not been any material adverse change in the relationship of the Company with its insurers or the premiums payable pursuant to such policies. 23 6.1.13. LITIGATION. Except as disclosed in SCHEDULE 6.1.13, there is no action, suit, investigation, arbitration or administrative or other proceeding pending in respect of which the Company or Stockholder has been served with process or has otherwise received written notice or, to the knowledge of the Company, threatened against or affecting the Company or Stockholder or any of their respective properties before any court or arbitrator or any Governmental Authorities which, if determined or resolved adversely to the Company or the Stockholder, (a) could reasonably be expected to, individually or in the aggregate, materially and adversely affect the right or ability of the Company to carry on its business as now conducted or have a Material Adverse Effect, or (b) which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement and the Ancillary Agreements to which it will be party at Closing; and Seller does not know of any valid basis for any such action, proceeding or investigation. 6.1.14. COMPLIANCE WITH LAWS; PERMITS. (a) Except as disclosed in SCHEDULE 6.1.14(a), the Company is not and the Company has not been since the Balance Sheet Date in violation of any applicable Law or Order, except for such violations that have not had and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. (b) To Seller's knowledge, SCHEDULE 6.1.14(b)(i) sets forth a list of each government or regulatory license, authorization, permit, consent and approval held by the Company, issued and held in respect of the Company or required to be so issued and held to carry on the businesses of the Company as currently conducted (collectively "PERMITS"). Except as disclosed in SCHEDULE 6.1.14(b)(ii), each such license, authorization, permit, consent and approval is valid and in full force and effect and will not be terminated or impaired (or become terminated or impaired) as a result of the transactions contemplated hereby. The Company is not in default under, and no condition exists that with notice or lapse of time or both would constitute a default under, any material license, franchise, permit, consent or approval or similar authorization held by the Company. 6.1.15. PROPERTIES; SUFFICIENCY OF ASSETS. (a) Except as disclosed in SCHEDULE 6.1.15(a) and except for inventory disposed of in the Ordinary Course of Business, the Company has good title to, or in the case of leased property has valid leasehold interests in, all property and assets (whether real or personal, tangible or intangible) reflected in the June 1998 Balance Sheet or acquired after the Balance Sheet Date. None of such property or assets is subject to any Liens, except for (i) Liens disclosed in the June 1998 Balance Sheet; (ii) Liens for Taxes not yet due or being contested in good faith (and for which adequate accruals or reserves have been established on the June 1998 Balance Sheet); (iii) Permitted Liens and (iv) regarding the Premises (as defined in SCHEDULE 6.1.15(b)), the Permitted Exceptions (as defined in EXHIBIT D-4 attached hereto) (b) SCHEDULE 6.1.15(b) sets forth a list of all real property assets owned or leased by the Company ("REAL PROPERTY"). All such leases of real property are valid and binding agreements of the Company, have been duly executed and delivered by the parties thereto and, to Seller's knowledge, are in full force and effect, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally or by general equitable principles. The Company is a tenant or possessor in good standing under all such leases of real property and all rents due under such leases have been paid. There does not exist under any such lease any default or any event which with notice or lapse of time or both would constitute a default, except for such defaults that have not and could not reasonably be expected to have, 24 individually or in the aggregate, a Material Adverse Effect. The Company has not received any written notice of any appropriation, condemnation or like proceeding, or of any violation of any applicable zoning Law or Order relating to or affecting the Real Property, and to the Company's knowledge, no such proceeding has been threatened or commenced. (c) The assets owned or leased by the Company (including, real, personal, tangible and intangible property), or which it otherwise has the right to use (including, real, personal, tangible and intangible property), constitute all of the assets held for use or used in connection with the business of the Company and are generally in good operating condition and repair (normal wear and tear excepted) and are adequate to conduct such businesses as currently conducted. 6.1.16. INTELLECTUAL PROPERTY. (a) SCHEDULE 6.1.16(a) sets forth a list of all Intellectual Property Rights and all material licenses, sublicenses and other written agreements as to which the Company or any of its Affiliates is a party and pursuant to which any Person is authorized to use such Intellectual Property Right, including the identity of all parties thereto. (b) Except as disclosed in SCHEDULE 6.1.16(b): (i) The Company has not since January 1, 1996, been sued or charged in writing with or been a defendant in any claim, suit, action or proceeding relating to its business that is either pending or, to the knowledge of the Company, threatened that, in either case, has not been finally terminated prior to the date hereof and that involves a claim of infringement by the Company of any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how or any other similar type of proprietary intellectual property right of any other Person or continuing infringement by any other Person of any Intellectual Property Rights, and Seller does not have any knowledge of any basis for such claim of infringement or of any continuing infringement by any other Person of any Intellectual Property Rights; (ii) No Intellectual Property Right is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by the Company or restricting the licensing thereof by the Company to any Person; and (iii) The Company has not entered into any agreement to indemnify any other Person against any charge of infringement of any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how or any other similar type of proprietary intellectual property right. 6.1.17. ENVIRONMENTAL MATTERS. (a) Except as disclosed in SCHEDULE 6.1.17 and except for any matters which otherwise could not reasonably be expected , individually or in the aggregate, to have a Material Adverse Effect: (i) Constituents of Concern have not been generated, recycled, used, treated or stored on, transported to or from, or released or disposed on, the Company Property or, to the knowledge of Seller, any property adjoining or adjacent, except in compliance with Environmental Laws; 25 (ii) the Company is in compliance with Environmental Laws and the requirements of permits issued under such Environmental Laws with respect to the Company Property; (iii) There are no Environmental Claims (a) which are pending against the Company or any Company Property and in respect of which the Company has been served with process or has otherwise received written notice, or, (b) to Seller's knowledge, which are threatened against the Company or any Company Property; (iv) There are no facts, circumstances, conditions or occurrences regarding the Company' past or present business or operations or any Company Property, or to the knowledge of Seller, any property adjoining any Company Property, that could reasonably be expected to form the basis of an Environmental Claim against the Company, or any of the Company Property or assets, or to cause any currently owned, leased, used, operated or occupied Company Property or assets to be subject to any restrictions on its ownership, occupancy, use or transferability under any Environmental Law; (v) There are not now and, to the knowledge of the Company, there have never been any underground storage tanks or sumps located on any Company Property or, to the knowledge of Seller, located on any property that adjoins or is adjacent to any Company Property; (vi) Neither the Company nor any Company Property is listed or proposed for listing on the National Priorities List under CERCLA, or CERCLIS (as defined in CERCLA) or on any similar federal, state or foreign list of sites requiring investigation or clean-up; (vii) There are no Environmental Permits that are nontransferable or require consent, notification or other action to remain in full force and effect following the consummation of the transactions contemplated hereby; and (viii) The Company does not have any liability under any Environmental Law (including an obligation to remediate any Environmental Condition whether caused by the Company or any other Person) which could reasonably be expected to have a Material Adverse Effect. (b) Except as disclosed on SCHEDULE 6.1.17(b) there has been no environmental investigation, study, audit, test, review or other analysis commenced or conducted by or on behalf of the Company (or by a third party of which the Company has knowledge) in relation to the current or prior business of the Company, or any property or facility currently or, to the knowledge of the Company, previously owned or leased by the Company, which has not been disclosed or delivered to Buyer prior to the date hereof. (c) The Company does not own or lease or has not owned or leased any property, and does not conduct and has not conducted any operations, in New Jersey or Connecticut. 26 (d) For purposes of this Section, the terms "COMPANY" (including the use of such terms in the term "COMPANY PROPERTY") will include any entity which is, in whole or in part, a predecessor of the Company. 6.1.18. PLANS AND MATERIAL DOCUMENTS. (a) SCHEDULE 6.1.18(a) sets forth a list of all Benefit Plans with respect to which the Company or any ERISA Affiliate has or has had in the six years preceding the date hereof any obligation or liability or which are or were in the six years preceding the date hereof maintained, contributed to or sponsored by the Company or any ERISA Affiliate for the benefit of any current or former employee, officer or director of the Company or any ERISA Affiliate. With respect to each Benefit Plan subject to ERISA, the Company has delivered to Buyer a true and complete copy of each such Benefit Plan (including all amendments thereto) and a true and complete copy of each material document (including all amendments thereto) prepared in connection with each such Benefit Plan including, without limitation, (i) a copy of each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, and (iii) the most recently filed IRS Form 5500 for each such Benefit Plan, if any. The Company does not have any express or implied commitment to create, incur liability with respect to or cause to exist any employee benefit plan or to modify any Benefit Plan, other than as required by Law. (b) Except as disclosed in SCHEDULE 6.1.18(b), none of the Plans is a plan that is or has ever been subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code. None of the Benefit Plans is (i) a "multiemployer plan" as defined in Section 3(37) of ERISA, (ii) a plan or arrangement described under Section 4(b)(5) or 401(a)(1) of ERISA, or (iii) a plan maintained in connection with a trust described in Section 501(c)(9) of the Code. Except as disclosed in SCHEDULE 6.1.18(b), and except for benefits provided in the Company's 401(k) Plan, none of the Benefit Plans provides for the payment of separation, severance, termination or similar-type benefits to any person or provides for or, except to the extent required by Law, promises retiree medical or life insurance benefits to any current or former employee, officer or director of the Company. (c) Except as disclosed in SCHEDULE 6.1.18(c), each Benefit Plan is in compliance in all material respects with, and has always been operated in all material respects in accordance with, its terms and the requirements of all applicable Law and the Company and the ERISA Affiliates have satisfied in all material respects all of their statutory, regulatory and contractual obligations with respect to each such Benefit Plan. No legal action, suit or claim is pending or, to the knowledge of the Company, threatened with respect to any Benefit Plan (other than claims for benefits in the ordinary course) and no fact or event exists that could reasonably be expected to give rise to any such action, suit or claim. (d) The Company's 401(k) Plan has been established by the Company pursuant to its adoption of a prototype plan and adoption agreement sponsored and prepared by Great-West Life & Annuity Insurance Company. The Company has not applied for a determination letter from the Internal Revenue Service that this Plan is qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code. The form of the prototype plan has been determined by the Internal Revenue Service to be in compliance with the applicable provisions of the Code and a copy of that opinion has been delivered to Buyer. To Seller's knowledge, no fact or occurrence has occurred since the date of the above-referenced opinion to 27 adversely affect the qualified or exempt status of any Benefit Plan or related trust, including the Company's 401(K) plan. (e) There has been no non-exempt prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Benefit Plan. Neither the Company nor any ERISA Affiliate has incurred any material liability for any excise tax arising under the Code with respect to a Benefit Plan and no fact or event exists which could reasonably be expected to give rise to such liability. (f) All material contributions, premiums or payments required to be made with respect to any Benefit Plan have been made on or before their due dates. For completed plan years of the Benefit Plans, all such contributions have been fully deducted for income tax purposes and no such deduction has been challenged or disallowed by any Government Authorities, and no fact or event exists which could give rise to any such challenge or disallowance. (g) There has been no amendment to, written interpretation of or announcement (whether or not written) by the Company or any ERISA Affiliate thereof relating to, or change in employee participation or coverage under, any Benefit Plan that would increase materially the expense of maintaining such Benefit Plan above the level of the expense incurred in respect thereto for the most recent fiscal year ended prior to the date hereof. (h) Except as disclosed in SCHEDULE 6.1.18(h) or in this Agreement or the Ancillary Agreements, no employee or former employee of the Company or any ERISA Affiliate thereof will become entitled to any bonus, retirement, severance, job security or similar benefit or enhanced such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transactions contemplated hereby. (i) Except as disclosed in SCHEDULE 6.1.18(i), no current or former employee of the Company or any ERISA Affiliate thereof holds any option to purchase shares of the Company. 6.1.19. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in SCHEDULE 6.1.19, neither Stockholder, nor, to Seller's knowledge, any other officer or director of the Company possesses, directly or indirectly, any ownership interest in, or is a director, officer or employee of, any Person which is a supplier, customer, lessor, lessee, licensor, developer, competitor or potential competitor of the Company. Ownership of securities of a company whose securities are registered under the Exchange Act of 2% or less of any class of such securities will not be deemed to be an ownership interest for purposes of this Section 6.1.19. 6.1.20. CUSTOMER, SUPPLIER AND EMPLOYEE RELATIONS. To Seller's knowledge, the relationships of the Company with its customers, suppliers and employees are good commercial working relationships. Except as disclosed in SCHEDULE 6.1.20, none of the Company's material customers or material suppliers or employees receiving annual compensation in excess of $75,000 has canceled, terminated or otherwise materially altered or notified the Company in writing of any intention or otherwise threatened to cancel, terminate or materially alter its relationship with the Company effective prior to, as of, or within one year after, the Closing. As of the date hereof, there has not been, and Seller has no reason to believe that there will be, any 28 change in relations with material customers, suppliers or employees of the Company as a result of the transactions contemplated by this Agreement. 6.1.21. OTHER EMPLOYMENT MATTERS. (a) The Company is in compliance with all Laws and Orders respecting employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be so in compliance could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and has not, and is not, engaged in any unfair labor practice; no unfair labor practice complaint against the Company is pending of which the Company has been served with process or has otherwise received written notice before the National Labor Relations Board; there is no labor strike, dispute, slowdown or stoppage actually pending or to Seller's knowledge threatened against or involving the Company; the Company is not party to any collective bargaining agreement and no collective bargaining agreement is currently being negotiated by the Company; to the knowledge of Seller, no representation question exists respecting employees of the Company; and, except as specifically set forth on SCHEDULE 6.1.21(a), no claim in respect of the employment of any employee has been asserted and is currently pending of which the Company has been served with process or has otherwise received written notice or, to the knowledge of Seller threatened, against the Company. (b) Seller has delivered to Buyer a complete and accurate list, attached hereto as SCHEDULE 6.1.21(b), of each employee and director of the Company, together with each such employee's and director's job description, salary or hourly rate of compensation, date of hire, and all bonuses and any other amounts to be paid by the Company to employees of the Company at or in connection with the Closing ("BONUSES"). (c) No current employee or current director of the Company or, to Seller's knowledge, any former employee or director of the Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, non-competition, or proprietary rights agreement, between such employee or director and any other Person that in any way adversely affected, affects, or could reasonably be expected to affect the performance of his duties as an employee or director of the Company, or the ability of the Company to conduct its business. (d) SCHEDULE 6.1.21(d) contains a complete and accurate list of the following information for each retired employee or director of the Company, or their dependents, receiving benefits or scheduled to receive benefits in the future: name, pension benefits, pension option election, retiree medical insurance coverage, retiree life insurance coverage, and other benefits. 6.1.22. ACCOUNTS RECEIVABLE. Except as set forth on SCHEDULE 6.1.22, all of the accounts receivable reflected on the June 1998 Balance Sheet (net of the applicable reserves set forth on the June 1998 Balance Sheet) and all accounts receivable which have arisen since the Balance Sheet Date (net of any immaterial additional applicable reserves established since the Balance Sheet Date in the Ordinary Course of Business) are valid and enforceable claims, and the goods and services sold and delivered which gave rise to such accounts receivable were sold and delivered in conformity with the applicable purchase orders, agreements and specifications. To Seller's knowledge, such accounts receivable are subject to no defenses, offsets or recovery in whole or in part by the Persons whose purchase gave rise to such accounts receivable or by third parties and are fully collectible in the Ordinary Course of Business without resort to legal 29 proceedings, except to the extent of the amount of the applicable reserve for doubtful accounts reflected in the June 1998 Balance Sheet and reasonable additional applicable reserves for doubtful accounts established since the Balance Sheet Date in the Ordinary Course of Business. 6.1.23. INVENTORY. Except as set forth in SCHEDULE 6.1.23, all inventories reflected on the June 1998 Balance Sheet (net of the applicable reserves set forth on the June 1998 Balance Sheet) and all inventories which have been acquired or produced since the Balance Sheet Date (net of any reasonable additional applicable reserves established since the Balance Sheet Date in the Ordinary Course of Business) are in good condition, conform in all material respects with the applicable specifications and warranties of the Company, are not obsolete, and are useable or saleable in the Ordinary Course of Business. The amount and mix of items in the inventories of supplies, in-process and finished products are, and will be at the Closing Date, consistent with the past business practices of the Company. 6.1.24. MILLENNIUM COMPLIANCE. To the knowledge of Seller, SCHEDULE 6.1.24 describes the measures that have been implemented to determine the extent to which the computer systems used by the Company in its business (the "COMPUTER SYSTEMS") are not in Millennium Compliance, and the material details of any program undertaken with a view towards causing the Computer Systems to achieve Millennium Compliance. 6.1.25 FINDERS' FEES. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Stockholder or the Company who might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement or any of the Ancillary Agreements. VII. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to the Company and Stockholder as of the date hereof and the Closing as follows: 7.1. CORPORATE EXISTENCE AND POWER. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. Buyer has all corporate power required to carry on its business as now conducted. To Buyer's knowledge, Buyer has all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. 7.2. AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by Buyer of this Agreement are within, Buyer's powers and have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer and constitutes a valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 7.3. GOVERNMENTAL AUTHORIZATION. To the Buyer's knowledge, except as may be required under the HSR Act, the execution, delivery and performance by Buyer of this Agreement require no action by or in respect of, or filing with, any Governmental Authorities. 30 7.4. NON-CONTRAVENTION. The execution, delivery and performance by Buyer of this Agreement will not violate the certificate of incorporation or bylaws of Buyer, or any applicable Law or Order. 7.5. LITIGATION. Except as disclosed in SCHEDULE 7.5, there is no action, suit, investigation, arbitration or administrative or other proceeding pending in respect of which Buyer has been served with process or has otherwise received written notice or, to the knowledge of Buyer, threatened against or affecting Buyer, or any of Buyer's properties before any court or arbitrator or any Governmental Authorities which, if determined or resolved adversely to Buyer, could, individually or in the aggregate, reasonably be expected to materially and adversely affect the right or ability of Buyer to consummate the transactions contemplated by this Agreement and the Ancillary Agreements to which the Company will be a party after the Closing; and Buyer knows of no valid basis for any such action, suit, investigation or proceeding. 7.6. CONSENTS. Except as disclosed on SCHEDULE 7.6, the execution, delivery and performances by Buyer of this Agreement will not require the consent of or notice to any Person. 7.7. FINDERS' FEES. Except for Saunders Karp & Megrue, L.P., Carlisle Group, L.P. and Harvey & Company, LLC, whose fees and expenses (including transaction fees) will be paid by Buyer, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Buyer who might be entitled to any fee or commission from Stockholder, the Company, Buyer or any of Buyer's Affiliates upon consummation of the transactions contemplated by this Agreement or any of the Ancillary Agreements. 7.8. PRECISION STRUCTURE. Effective as of the Closing, Buyer (a) will own of record, directly or indirectly, all of the issued and outstanding capital stock of Mid State Machine Products and Galaxy Industries Corporation and (b) will own, indirectly the Purchased Assets and the other businesses acquired with the financing contemplated by Section 9.1.11. VIII. CERTAIN COVENANTS 8.1. CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date of this Agreement to the Closing Date, the Company will conduct its operations in the Ordinary Course of Business (including managing its working capital in accordance with its past practice and custom), except as expressly permitted under this Agreement, and will use reasonable efforts to: preserve intact its business organizations, keep available the services of its officers and employees and maintain its relationships and goodwill with licensors, suppliers, distributors, customers, landlords, employees, agents and others having business relationships with it. During the period from the date of this Agreement to the Closing, the Company will confer with Buyer concerning operational matters of a material nature and report periodically to Buyer concerning their respective businesses, operations and finances and will deliver all Monthly Financial Statements to Buyer not previously delivered to Buyer on or prior to the date hereof. Without limiting the generality or effect of the foregoing, prior to the Closing Date, except with the prior written consent of Buyer, the Company will not (except to the extent otherwise expressly permitted under this Agreement): 31 (a) Amend or modify its articles of incorporation, bylaws or any other organizational document from its form on the date of this Agreement; (b) Change any salaries or other compensation of, or pay any bonuses to any director, officer, employee or stockholder of the Company, or enter into any employment, severance, or similar agreement with any director, officer, stockholder or employee of the Company, provided, however, that the compensation of employees of the Company receiving annual compensation of less than $75,000 may be changed in the Ordinary Course of Business; (c) Adopt or increase any benefits under any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any of its employees, other than matching contributions by the Company under the Company's 401(k) plan in an amount not to exceed 100% of each employee's contribution not in excess of $80,000 in the aggregate; (d) Enter into any contract or commitment except contracts and commitments (for capital expenditures or otherwise) in the Ordinary Course of Business; (e) Incur, assume or guaranty (i) Indebtedness to employees of Seller or any of its Affiliates or (ii) other Indebtedness, except, in the case of clause (ii), incurred in the Ordinary Course of Business; (f) Enter into any transaction or commitment relating to the assets or the business of the Company (other than purchase orders entered into in the Ordinary Course of Business) which, individually or in the aggregate, could reasonably be expected to be material to the Company, or cancel or waive any claim or right of substantial value which, individually or in the aggregate, could reasonably be expected to be material to the Company, or amend any term of any Company Securities; (g) Other than to the extent necessary to pay the unpaid and/or estimated Taxes of Stockholder imposed in connection with the income or operations of Seller between January 1, 1998 and the Closing Date (other than Taxes which constitute a breach of any representation or warranty contained in this Agreement), set aside or pay any dividend or make any other distribution with respect to any shares of capital stock of the Company or repurchase, redeem or otherwise acquire directly or indirectly, any outstanding shares of capital stock or other securities of, or other ownership interests in as of the Closing Date, the Company, which Seller believes, in its reasonable good faith judgment, would, in the aggregate, result in a reduction in the Company's net worth to below the Base Net Worth; (h) Make any change in accounting methods or practices (including changes in accruals or reserve amounts (with respect to amounts, such prior written consent of Buyer not to be unreasonably withheld or delayed) or policies), except as otherwise expressly set forth in this Agreement and except for changes in accounting methods instituted, prescribed, utilized, and/or adopted by Ernst & Young, LLP in conducting the Pre-Closing Audits; (i) Issue or sell any Company Securities or make any other changes in its capital structure, including the grant of any stock option or other right to purchase shares of capital stock of the Company; 32 (j) Sell, lease or otherwise dispose of any material asset or property (such prior written consent of Buyer not to be unreasonably withheld or delayed); (k) Write-off as uncollectible any notes or accounts receivable or any other asset, except write-offs in the Ordinary Course of Business charged to applicable reserves; write-off, write-up or write-down any other asset of the Company, except write-ups and write-downs in the Ordinary Course of Business and except for employee compensation or bonus paid by canceling Indebtedness listed under item no. 6 on SCHEDULE 2.2(c); or alter its customary time periods for collection of accounts receivable or payments of accounts payable; (l) Create or assume any Lien other than a Permitted Lien; (m) Make any loan, advance or capital contributions to or investment in any Person; (n) Terminate or close any material facility, business or operation of the Company; (o) Intentionally cause or suffer any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of the Company which, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect; (p) Intentionally cause any other event, occurrence, development or state of circumstances or facts which, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect; or (q) Agree to do any of the foregoing. Nothing in this Section 8.1 will be construed to prohibit the Stockholder from purchasing at the book value thereof between the date hereof and the Closing Date the property listed on SCHEDULE 2.2(c). 8.2. EXCLUSIVE DEALING. During the period from the date of this Agreement to the earlier of the Closing Date and the termination of this Agreement in accordance with its terms, Stockholder will not and will cause his Affiliates (including the Company) and their respective representatives (including advisors, agents, attorneys, directors, employees and consultants) not to, take any action to, directly or indirectly, encourage, initiate, solicit or engage in discussions or negotiations with, or provide any information to any Person, other than Buyer (and its affiliates and representatives), concerning any purchase of any capital stock of the Company or any asset purchase, merger or similar transaction involving the Company. Stockholder will disclose to Buyer the existence or occurrence of any proposal or contract which he or any of his Affiliates (including the Company) or any of their respective representatives described above may receive in respect of any such transaction as well as the identity of the Person from whom such a proposal or contract is received. 8.3. REVIEW OF THE COMPANY; CONFIDENTIALITY. (a) Buyer may, prior to the Closing Date, through one or more representatives of the Company designated by the Company 33 in writing, review the properties, books and records of the Company and their financial and legal condition to the extent it in good faith deems necessary or advisable to familiarize itself with such properties and other matters. The Company will permit Buyer and its representatives to have, after the date of execution of this Agreement through the representative or representatives designated pursuant to the immediately preceding sentence, full access (at mutually convenient times agreed upon in advance) to the premises and to all the respective books and records of the Company and to cause the officers of the Company to furnish Buyer through such representative with such financial and operating data and other information with respect to the business and properties of the Company as Buyer may from time to time reasonably request. The Company will deliver or cause to be delivered to Buyer such additional instruments, documents, certificates and opinions as Buyer may reasonably request for the purpose of verifying the information set forth in this Agreement or on any Schedule attached hereto and consummating or evidencing the transactions contemplated by this Agreement. Any review or access by or of Buyer described in this Section 8.3(a) will be subject to the condition that such review and access not unreasonably interfere with the conduct of the business of Seller. (b) Prior to the Closing, the parties will be bound by the provisions of the section entitled "Confidentiality" of the letter of intent between Seller and Buyer dated November 4, 1998. 8.4. REASONABLE EFFORTS. Seller and Buyer will cooperate and use their respective reasonable efforts to take, or cause to be taken, all appropriate actions, and to make, or cause to be made, all filings necessary, proper or advisable under applicable laws and regulations (including, without limitation, the filing of Notification and Report Forms under the HSR Act with the Federal Trade Commission and the Antitrust Division of the Department of Justice) to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, their respective reasonable efforts to obtain, prior to the Closing Date, all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Authorities and parties to contracts with the Company as are necessary for consummation of the transactions contemplated by the Agreement and to fulfill the conditions to the sale contemplated hereby. Notwithstanding any other provision hereof, (i) in no event will Buyer or any of its Affiliates (including the Company after the Closing) be required to enter into or offer to enter into any divestiture, hold-separate, business limitation or similar agreement or undertaking in connection with this Agreement or the transactions contemplated hereby and (ii) in no event will Buyer, Stockholder or any of their respective Affiliates (including the Company after the Closing) be required to make any payment in connection with any consent or approval or condition to Closing set forth in any subsection of Sections 9.1 or 9.2 which it is necessary or advisable for Stockholder, the Company or Buyer to obtain or satisfy in order to consummate the transactions contemplated by this Agreement. 8.5. TRANSFER OF EMPLOYEES AND BENEFIT PLANS. As of the Closing Date: (a) Employees of Seller with respect to the Business immediately prior to the Closing Date whose names are listed on SCHEDULE 8.5(a) will be offered employment with Buyer or an Affiliate of Buyer with each such offer to include (i) a substantially equivalent title, level of responsibility and compensation as each such employee had as an employee of Seller on the date hereof and (ii) the benefits listed on SCHEDULE 8.5(b), provided that this Section 8.5 will not be 34 construed to prohibit Buyer from modifying or eliminating any such benefits after the Closing Date other than benefits provided to Executive under the Employment Agreement; (b) Other than with respect to the SCHEDULE 8.8 Individuals, Buyer will assume all obligations relating to the payment of (i) salary, wages and benefits reflected on the Closing Date Balance Sheet as finally determined in accordance with this Agreement (to the extent not discharged prior to the Closing Date) or otherwise arising or accruing after the Closing Date, provided that the existence thereof does not constitute a breach of any representation, warranty or covenant of Seller hereunder, in each case with respect to any employee of Seller who accepts employment with Buyer (the "TRANSFERRED EMPLOYEES"), and (ii) severance payments and other severance benefits to which the Transferred Employees become entitled because of actual termination of their employment with and by Buyer or an Affiliate of Buyer after they become employees of Buyer, PROVIDED, HOWEVER, that Buyer will provide all COBRA benefits under applicable Law for all of the SCHEDULE 8.8 Individuals. (c) Buyer will assume and discharge the obligations of Seller under each of the agreements listed on SCHEDULE 6.1.11(a)(xiv) to which Seller is party; (d) Buyer will assume sponsorship of all Benefit Plans and Seller will take all action necessary to transfer sponsorship of all Benefit Plans to Buyer as of the Closing; and (e) Buyer will cause the Company's health plan, or any health plan it adopts to replace the Company's health plan, to provide COBRA benefits or similar benefits required by applicable Law for any former employee of the Company (and such former employee's eligible beneficiaries) who, on the Closing Date, is receiving or is eligible to elect COBRA or such similar benefits and will be responsible for providing COBRA notices or similar notices required by applicable Law to any employee of the Company who terminates employment on or after the Closing Date and to such employee's eligible beneficiaries. Nothing contained in this Agreement will confer upon any Transferred Employee, or any legal representative thereof, any rights or remedies, including, without limitation, any right to employment for any specified period, of any nature or kind whatsoever, under or by reason of this Agreement (other than as provided in the Employment Agreement). Notwithstanding anything to the contrary contained in this Agreement, neither Buyer nor any Affiliate of Buyer will be required to continue any particular Benefit Plan after the Closing Date for the Transferred Employees, and any such Benefit Plan may be amended or terminated in accordance with its terms and any applicable Law. In the event the Benefit Plans are terminated by Buyer, Buyer will replace such Benefit Plans with a benefit program for Transferred Employees, and such Transferred Employees will be eligible to participate in such benefit program and will receive full credit for their service with Seller and Buyer for eligibility and vesting purposes with respect to such benefit program. In addition, at any time prior to the Closing Date, Seller may, with the prior written consent of Buyer, which will not be unreasonably withheld or delayed, distribute to its employees a written notice announcing the existence of this Agreement and the transactions contemplated hereby, the Closing Date, and the identity of the Buyer. 35 8.6 BOOKS AND RECORDS. (a) From and after the Closing Date, Buyer will give Seller's representatives reasonable access to such documentation and information and reasonable access to and cooperation of employees which Seller may reasonably require (i) to prepare and file Tax returns and to respond to any issues which may arise with respect to Taxes for which Sellers or the Stockholder are responsible to the extent relating to the Purchased Assets or Assumed Liabilities, (ii) with respect to any Retained Liabilities; and (iii) to defend any claim which Seller is required to defend pursuant to this Agreement or in connection with the operation of the Business prior to the Closing Date. Subject to the other provisions of this Section 8.6(a), Buyer will retain and maintain at the principal place of business of the Company a copy of all of the books, records, and other documentation which are delivered or transferred to Buyer under the terms of this Agreement, including without limitation all of all of the same described in Section 2.1(a)(x). Prior to the fourth anniversary of the Closing Date, Buyer will give Seller at least ten days prior written notice of Buyer's intention to dispose of any books, records or other documentation which are delivered to Buyer under the terms of this Agreement, and Seller will have the opportunity to obtain possession, at its own expense, of any such books, records or documentation prior to Buyer's disposition thereof. In the absence of bad faith or willful misconduct, Buyer will have no liability arising out of or in connection with its retention and handling of such records. (b) From and after the Closing Date, Seller will give Buyer's representatives reasonable access to such documentation, information and reasonable access to and cooperation of the Stockholder and other employees of Seller which Buyer may reasonably require (i) to prepare and file tax returns and respond to any issues which may arise with respect to Taxes for which Buyer is responsible to the extent relating to the Purchased Assets or Assumed Liabilities or (ii) to defend any claim which Buyer is required to defend pursuant to this Agreement or in connection with the operation of the Business after the Closing Date. Prior to the fourth anniversary of the Closing Date, Seller will give Buyer at least ten days prior written notice of Seller's intention to dispose of any books, records or other documentation contemplated by this Section 8.6(b), and Buyer will have the opportunity to obtain possession, at its own expense, of any such books, records or documentation prior to Seller's disposition thereof. In the absence of bad faith or willful misconduct, Seller will have no liability arising out of or in connection with its retention and handling of such records. 8.7 BULK TRANSFER LAWS. Buyer hereby waives compliance by Seller with the provisions of any Laws of any jurisdiction relating to bulk transfers which may be applicable in connection with the transfer of the Purchased Assets to Buyer ("BULK TRANSFER LAWS"), and no representation, warranty or covenant of Stockholder contained in this Agreement will be deemed to have been breached as a result of such noncompliance. 8.8 NON-COMPETITION. (a) During the Covenant Period, Seller will not promote, participate or engage in any business which is competitive with the Business of Buyer or any Affiliate of Buyer; (b) During the Covenant Period, Seller will not directly or indirectly solicit, canvass or approach any Person who, to the knowledge of Seller, was provided with products or 36 services by Seller at any time prior to the Closing Date, to offer that Person products or services similar to or derivative of products or services currently provided or previously provided at any time within the two year period preceding the Closing Date or prior to the expiration of the Covenant Period, in each case, by Buyer or any Affiliate of Buyer or at any time prior to the Closing Date, by Seller. (c) During the Covenant Period, Seller will not directly or indirectly solicit, canvass or approach any Person who, to the knowledge of Seller, provided products or services to Buyer or any Affiliate of Buyer at any time during the two years before the Closing Date or prior to the expiration of the Covenant Period to endeavor to cause such Person to cease providing products or services to Buyer or any Affiliate of Buyer. (d) During the Covenant Period, Seller will not directly or indirectly employ, solicit or entice away any Board of Directors member, management committee member, director, officer or employee of Buyer or any other Person directly or indirectly controlled by Buyer, other than the current employees of Seller identified on SCHEDULE 8.8. 8.9 COLLECTION OF PAYMENTS. Following the Closing: (a) Seller will promptly, and in any event, not later than seven days following receipt, forward to Buyer any payments received by Seller with respect to any of the Purchased Assets, and any checks, drafts or other instruments payable to Seller will, when so delivered, bear all endorsements required to effectuate the transfer of the same to Buyer, (b) Seller will promptly forward to Buyer any mail or other communications received by Seller relating to the Purchased Assets or the Assumed Liabilities, (c) Buyer will promptly, and in any event, not later than seven days following receipt, forward to Seller any payments received by Buyer with respect to any of the Excluded Assets, and any checks, drafts or other instruments payable to Buyer shall, when so delivered, bear all endorsements required to effect the transfer of the same to Seller and (d) Buyer will promptly forward to Seller any mail or other communications received by Buyer relating to the Excluded Assets or the Retained Liabilities. 8.10 ACCOUNTS RECEIVABLE. From and after the Closing Date, Seller will use reasonable efforts to assist Buyer in the collection of Accounts Receivable, and, promptly after receipt of payment by Seller in respect of any Accounts Receivable, Seller will pay to Buyer or its designee the full amount of such payment. 8.11 USE OF NAMES. On and after the Closing Date, Seller will discontinue all use of the name "General Automation, Inc." alone or in any combination of words for any product or service and will as promptly as possible, but in no event later than 30 days after the Closing Date, eliminate such names from all signs, purchase orders, invoices, sales orders, packaging stock, labels, letterheads, shipping documents and other materials used by Seller. 8.12 PRE-CLOSING AUDITS. Seller will permit Ernst & Young LLP to conduct and complete prior to Closing an audit of the Company's financial statements (including balance sheet and statements of income, retained earnings and cash flows) at the expense of Buyer, for the fiscal years ended December 31, 1996, 1997 and 1998 (the "AUDITED FINANCIAL STATEMENTS") in accordance with GAAP (including the issuance of reports thereon by such certified public accountants) (collectively, the "PRE-CLOSING AUDITS") and to deliver the Audited Financial Statements (together with the reports thereon by such certified public accountants) with 37 copies thereof to Seller and Buyer upon completion thereof. Seller will, directly or through its representatives, provide such access to the books and records of the Company (including accountants' work papers) and to employees and other representatives of the Company as is necessary or advisable in the good faith judgment of Buyer and as requested by Buyer in good faith to complete the Pre-Closing Audits; provided that such activities will not unreasonably interfere with the operations of the Company in the Ordinary Course of Business. Prior to the Closing, Seller will keep the Audited Financial Statements confidential in accordance with Section 8.3(b) and will not copy or otherwise use the Audited Financial Statements other than as expressly permitted by this Agreement. Notwithstanding anything to the contrary contained in the immediately preceding sentence, Seller may retain possession of the Audited Financial Statements without restriction on the use thereof (a) if the Closing fails to occur because of any of the conditions to Closing set forth in Section 9.1.6, Section 9.1.11 or in any subsection of Section 9.2 (other than Sections 9.2.3 , 9.2.4 and 9.2.8) has not been satisfied prior to the Drop Dead Date; or (b) if the Closing fails to occur because any of the conditions to Closing set forth in Sections 9.1.2, 9.1.3, 9.1.8, 9.1.10, 9.1.12, 9.1.13, 9.2.3, 9.2.4 or 9.2.8 has not been satisfied prior to the Drop Dead Date, PROVIDED, HOWEVER, that in the case of this clause (b), Seller shall have paid Buyer or its designee an aggregate of $25,000. 8.13 SATISFACTION AND TERMINATION OF EQUITY ARRANGEMENTS. On or prior to the Closing Date, Seller will terminate all equity-based plans or agreements listed in any of the Schedules attached hereto. 8.14 FURTHER ASSURANCES. From time to time, as and when requested by any party hereto and subject to Section 8.4, the other parties will execute and deliver, or cause to be executed and delivered, all such documents and instruments and will take, or cause to be taken, all such further or other actions, as the requesting party may reasonably deem necessary or desirable to consummate the transactions contemplated by this Agreement. IX. CONDITIONS TO CLOSING 9.1 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to consummate the Closing are subject to the satisfaction of the following conditions: 9.1.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. (a) The representations and warranties of Seller made in this Agreement will be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects) as of the date hereof and as of the Closing, as though made as of the Closing; (b) Seller shall have performed and complied with all terms, agreements and covenants contained in this Agreement required to be performed or complied with by Seller on or before the Closing Date; (c) Seller shall have delivered to Buyer a certificate of Seller's Chief Executive Officer, dated the Closing Date, confirming the foregoing and such other evidence of compliance with Seller's obligations as Buyer may reasonably request; and (d) Seller shall have delivered to Buyer a certificate from its Secretary or Assistant Secretary certifying as to the due adoption of resolutions of the Board of Directors of Seller authorizing the execution of this Agreement and the taking of any and all actions deemed necessary or advisable to consummate the transactions contemplated herein. 38 9.1.2. NO INJUNCTION, ETC. No provision of any applicable law or regulation and no judgment, injunction, order or decree will be in effect which will prohibit the consummation of the Closing. 9.1.3. NO PROCEEDINGS. No proceeding challenging this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby or seeking to prohibit, alter, prevent or materially delay the Closing or seeking damages will have been instituted by any Person (other than Buyer or the Company) before any court, arbitrator or Governmental Authorities and be pending. 9.1.4. REQUIRED FILINGS. All actions by or in respect of or filings by the Company or Stockholder with any Person required to permit the consummation of the Closing shall have been taken, made or obtained. 9.1.5. OPINION OF COUNSEL. Buyer shall have received the opinion of Rosenthal & Schanfield, counsel to the Company and Stockholder, dated the Closing Date, substantially in the form attached hereto as EXHIBIT F, together with the Reliance Letters to the Lenders. 9.1.6. DUE DILIGENCE. Buyer shall have completed, or caused to be completed by its attorneys, accountants and other representatives, to its reasonable and good faith satisfaction, business, legal, environmental and accounting due diligence investigations and reviews of each of the Company. 9.1.7. ANCILLARY AGREEMENTS. Each of the Ancillary Agreements shall have been executed and delivered by the parties thereto other than Buyer. 9.1.8. THIRD PARTY CONSENTS; GOVERNMENTAL APPROVALS. All consents, approvals or waivers, if any, disclosed on any Schedule attached hereto or otherwise required in connection with the consummation of the transactions contemplated by this Agreement shall have been received. All of the consents, approvals, authorizations, exemptions and waivers from Governmental Authorities that will be required in order to enable Buyer to consummate the transactions contemplated hereby shall have been obtained. 9.1.9. FIRPTA. Seller shall have furnished to Buyer, on or prior to the Closing Date, a non-foreign person affidavit required by Section 1445 of the Code. 9.1.10. NO MATERIAL ADVERSE CHANGE. Prior to the Closing, no event shall have occurred which, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect. 9.1.11. FINANCING. Buyer shall have obtained financing for the payment of the Aggregate Closing Consideration on terms satisfactory to it in its sole discretion. 9.1.12. HSR ACT. Any applicable waiting period under the HSR Act relating to the transactions contemplated hereby will have expired or been terminated. 39 9.1.13. PRE-CLOSING AUDITS. The Pre-Closing Audits shall have been completed and the Audited Financial Statements shall have been delivered to Buyer and will not in the aggregate reflect any materially adverse difference from the applicable Compiled Statements. 9.2 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller to consummate the Closing are subject to the satisfaction of the following conditions: 9.2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. (a) The representations and warranties of Buyer made in this Agreement will be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects) as of the date hereof and as of the Closing, as though made as of the Closing; (b) Buyer shall have performed and complied with all terms, agreements and covenants contained in this Agreement required to be performed or complied with by Buyer on or before the Closing Date; and (c) Buyer shall have delivered to Seller a certificate of Buyer's Chief Executive Officer, dated the Closing Date, confirming the foregoing and such other evidence of compliance with its obligations as Seller may reasonably request. 9.2.2. BUYER'S CERTIFICATE. Buyer shall have delivered to Seller a certificate from its Secretary or Assistant Secretary certifying as to the due adoption of resolutions adopted by the Board of Directors (or equivalent body) of Buyer authorizing the execution of this Agreement and the taking of any and all actions deemed necessary or advisable to consummate the transactions contemplated herein. 9.2.3. NO INJUNCTION, ETC. No provision of any applicable law or regulation and no judgment, injunction, order or decree will be in effect which will prohibit the consummation of the Closing. 9.2.4. NO PROCEEDINGS. No proceeding challenging this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby or seeking to prohibit, alter, prevent or materially delay the Closing or seeking damages will have been instituted by any Person (other than Stockholder) before any court, arbitrator or Governmental Authorities and be pending. 9.2.5. REQUIRED FILINGS. All actions by or in respect of or filings by Buyer with any Person required to permit the consummation of the Closing shall have been taken, made or obtained. 9.2.6. ANCILLARY AGREEMENTS. Each of the Ancillary Agreements shall have been executed and delivered by the Company. 9.2.7. OPINION OF COUNSEL. The Company and Stockholder shall have received an opinion of Jones, Day, Reavis & Pogue, counsel to Buyer, dated the Closing Date, substantially in the form attached hereto as EXHIBIT H. 9.2.8. HSR ACT. Any applicable waiting period under the HSR Act relating to the transactions contemplated hereby will have expired or been terminated. 40 X. SURVIVAL; INDEMNIFICATION 10.1 SURVIVAL. The representations and warranties, and the covenants and agreements, of the parties contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith will survive the Closing for 15 months thereafter; PROVIDED, HOWEVER, that the representations and warranties contained in Sections 6.1.9 and 6.1.17 will survive the Closing until the expiration of the statute of limitations applicable to the matters covered thereby (after giving effect to any waiver, mitigation or extension thereof granted by the Company after the Closing) and the Selected Seller Representations and Warranties and the Selected Purchaser Representations and Warranties will survive the Closing indefinitely; provided, however, that for any matter covered by Section 6.1.17 for which there is no applicable statute of limitations, the representations and warranties under Section 6.1.17 relating to such matter will survive the Closing for five years thereafter. Notwithstanding the immediately preceding sentence, any representation and warranty, or covenant and agreement, in respect of which indemnity may be sought under this Agreement will survive the time at which it would otherwise terminate pursuant to the preceding sentence if written notice of the inaccuracy or breach thereof giving rise to such right of indemnity shall have been in good faith given to the party against whom such indemnity may be sought prior to such time; PROVIDED, HOWEVER, that the applicable covenant, agreement, representation or warranty will survive only with respect to the particular inaccuracy or breach specified in such written notice. Notwithstanding the first sentence of this Section 10.1, all covenants and agreements of the parties contained in this Agreement, to the extent required by their terms to be performed after the Closing, will survive the Closing until each such covenant shall have been performed in accordance with its respective terms. The period of time for which a representation and warranty, or covenant and agreement, survives as provided for in this Section 10.1 is hereinafter referred to as the "SURVIVAL PERIOD." 10.2 INDEMNIFICATION. (a) Subject to compliance with Section 10.4(d), Stockholder, will indemnify, defend and hold harmless Buyer and its officers, directors, employees, members, managing directors, Affiliates and agents, and the successors to the foregoing (and their respective officers, directors, employees, members, managing directors, Affiliates and agents), against any and all liabilities, damages and losses, including, without limitation, diminution in value of the Business and other consequential damages and, if and only to the extent asserted in a Third Party Claim, punitive damages, and all costs or expenses, including, without limitation, reasonable attorneys' and consultants' fees and expenses ("DAMAGES"), incurred or suffered as a result of or arising out of (i) the failure of any representation and warranty made by the Company in any subsection of Section 6.1 to be true and correct as of the Closing Date (other than a breach of Section 6.1.9 with respect to Taxes, which will be governed by Section 10.3), (ii) the breach of any covenant or agreement made or to be performed by the Company pursuant to this Agreement or (iii) claims under the Bulk Transfer Laws; PROVIDED, HOWEVER, that notwithstanding anything to the contrary contained in this Agreement, Stockholder will not be liable under this Section 10.2(a) unless the aggregate amount of Damages exceeds $500,000 and then from the first dollar above $250,000 of such Damages to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that notwithstanding anything to the contrary contained in this Agreement, Stockholder's liability under this Section 10.2(a) will not exceed, in the aggregate, $7.5 million. (b) Subject to compliance with Section 10.4(d), Buyer will indemnify, defend and hold harmless Stockholder and Seller and its shareholders, officers, directors, employees, 41 members, managing directors, Affiliates and agents and the successors to the foregoing (and their respective officers, directors, employees, members, managing directors, Affiliates and agents), against Damages incurred or suffered as a result of or arising out of (i) the failure of any representation or warranty made by Buyer in this Agreement to be true and correct as of the Closing Date or (ii) the breach of any covenant or agreement made or to be performed by Buyer pursuant to this Agreement; PROVIDED, HOWEVER, that, notwithstanding anything to the contrary contained in this Agreement, Buyer will not be liable under this Section 10.2(b) unless the aggregate amount of Damages exceeds $500,000 and then from the first dollar above $250,000 of such Damages to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that Buyer's liability under this Section 10.2(b) will not exceed, in the aggregate, $7.5 million. 10.3 TAX INDEMNIFICATION. Subject to compliance with Section 10.4(d), the Stockholder will indemnify, defend and hold harmless Buyer, and its officers, directors, employees, members, managing directors, Affiliates (including, after the Closing Date, the Company) and agents and the successors to the foregoing (and their respective officers, directors, employees, members, managing directors, Affiliates and agents) against (i) all Taxes (and losses, claims and expenses related thereto) resulting from, arising out of, or incurred with respect to, any claims that may be asserted by any party based upon, attributable to, or resulting from the failure of any representation or warranty made pursuant to Section 6.1.9 to be true and correct as of the Closing Date; (ii), until the expiration of the statute of limitations applicable to the matters covered by this clause (ii) (after giving effect to any waiver, mitigation or extension thereof granted by the Company after the Closing), all Taxes imposed on or asserted against the Company or Buyer or for which the Company or Buyer may be liable in respect of the properties, income or operations of the Company for all Pre-Closing Tax Periods (net of applicable reserves for Taxes to the extent accurately reflected in the computation of the Closing Net Worth) and (iii), until the expiration of the statute of limitations applicable to the matters covered by this clause (iii) (after giving effect to any waiver, mitigation or extension thereof granted by the Company after the Closing) and subject to the last sentence of this Section 10.3, all Taxes imposed or asserted against the Company or Buyer, or for which the Company or Buyer may be liable, as a result of any transaction contemplated by this Agreement (net of applicable reserves to the extent accurately reflected in the computation of Closing Net Worth. All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest), imposed on the Buyer or the Company which are incurred in connection with this Agreement will be borne by Buyer when due. 10.4 PROCEDURES. (a) If any Person who or which is entitled to seek indemnification under Section 10.2 or Section 10.3 (an "INDEMNIFIED PARTY") receives notice of the assertion or commencement of any Third Party Claim against such Indemnified Party with respect to which the Person against whom or which such indemnification is being sought (an "INDEMNIFYING PARTY") is obligated to provide indemnification under this Agreement, the Indemnified Party will give such Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 20 days after receipt of such written notice of such Third Party Claim. Such notice by the Indemnified Party will describe the Third Party Claim in reasonable detail, will include copies of all available material written evidence thereof and will indicate the estimated amount, if reasonably practicable, of the Damages that has been or may be sustained by the Indemnified Party. The Indemnifying Party will have the right to participate in, or, by giving written notice to the Indemnified Party, to assume, the defense of any Third Party Claim at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel 42 (reasonably satisfactory to the Indemnified Party), and the Indemnified Party will cooperate in good faith in such defense. (b) If, within ten days after giving notice of a Third Party Claim to an Indemnifying Party pursuant to Section 10.4(a), an Indemnified Party receives written notice from the Indemnifying Party that the Indemnifying Party has elected to assume the defense of such Third Party Claim as provided in the last sentence of Section 10.4(a), the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof; PROVIDED, HOWEVER, that if the Indemnifying Party fails to take reasonable steps necessary to defend diligently such Third Party Claim within ten days after receiving written notice from the Indemnified Party that the Indemnified Party reasonably believes the Indemnifying Party has failed to take such steps or if the Indemnifying Party has not undertaken fully to indemnify the Indemnified Party in respect of all damages relating to the matter, the Indemnified Party may assume its own defense, and, subject to Sections 10.2(a) and (b), the Indemnifying Party will be liable for all reasonable costs and expenses paid or incurred in connection therewith. Without the prior written consent of the Indemnified Party, except to the extent expressly set forth in this Agreement, the Indemnifying Party will not enter into any settlement of any Third Party Claim which would lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder, or which provides for injunctive or other non-monetary relief applicable to the Indemnified Party, or does not include an unconditional release of all Indemnified Parties. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party will give written notice to the Indemnified Party to that effect. If the Indemnified Party fails to consent to such firm offer within ten days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and, in such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will not exceed the amount of such settlement offer. The Indemnified Party will provide the Indemnifying Party with reasonable access during normal business hours to books, records, and employees of the Indemnified Party necessary in connection with the Indemnifying Party's defense of any Third Party Claim which is the subject of a claim for indemnification by an Indemnified Party hereunder. (c) Any claim by an Indemnified Party on account of Damages which does not result from a Third Party Claim (a "DIRECT CLAIM") will be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 20 days after the Indemnified Party becomes aware of such Direct Claim. Such notice by the Indemnified Party will describe the Direct Claim in reasonable detail, will include copies of all available material written evidence thereof and will indicate the estimated amount, if reasonably practicable, of Damages that has been or may be sustained by the Indemnified Party. The Indemnifying Party will have a period of ten days within which to respond in writing to such Direct Claim. If the Indemnifying Party does not so respond within such ten day period, the Indemnifying Party will be deemed to have rejected such claim, in which event the Indemnified Party will be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement. 43 (d) A failure to give timely notice or to include any specified information in any notice as provided in Section 10.4(a), 10.4(b) or 10.4(c) will not affect the rights or obligations of any party hereunder, except and only to the extent that, as a result of such failure, any party which was entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise materially prejudiced as a result of such failure, unless such notice is received by the Indemnifying Party after the expiration of the Survival Period applicable to the representation, warranty, covenant or agreement the breach of which gives rise to the indemnity obligation asserted in such notice, in which case the Indemnifying Party will have no indemnification obligation under this Agreement with respect to the breach of such representation, warranty, covenant or agreement described in such notice. 10.5 PAYMENT AND TREATMENT OF INDEMNIFICATION PAYMENTS. All indemnifiable Damages under this Agreement will be paid in cash in immediately available funds. Any amount paid by Stockholder or Buyer under Section 10.2 or 10.3 will be treated as a capital contribution, on the one hand, and/or an adjustment to the Aggregate Closing Consideration on the other hand. 10.6 INDEMNIFICATION AMOUNTS NET OF BENEFITS RECEIVED. The amount of Damages for which indemnification is provided under Sections 10.2 and 10.3 will be computed net of any insurance proceeds actually received by or paid for the benefit of the Indemnified Party in connection with such Damages, reduced by all direct costs and expenses related thereto. If the amount with respect to which any claim is made under this Section 10.6 gives rise to a realizable Tax benefit, the indemnity payment will be reduced by the amount of such realizable benefit then available to the party making the claim if and to the extent actually realized by such party. 10.7 EXCLUSIVE REMEDY. Absent fraud, Article X constitutes the exclusive remedy for the breach of covenants, agreements, representations or warranties set forth in this Agreement; PROVIDED, HOWEVER, that the provisions of this Section 10.7 will not prevent the Stockholder, the Company or Buyer from seeking the remedies of specific performance or injunctive relief in connection with the breach of a covenant or agreement of any party hereto. XI. MISCELLANEOUS 11.1. TERMINATION. (a) This Agreement may be terminated at any time prior to the Closing: (i) by the mutual written consent of Buyer and Seller; (ii) by Buyer, if there has been a material and intentional violation or breach by Seller of any covenant, representation or warranty contained in this Agreement which prevents the satisfaction of any condition to the obligations of Buyer at the Closing, and such material and intentional violation or breach has not been waived by Buyer or, in the case of a covenant breach, cured by Seller within the earlier of (x) ten days after written notice thereof from Buyer or (y) the Closing Date; (iii) by Seller, if there has been a material and intentional violation or breach by Buyer of any covenant, representation or warranty contained in this Agreement which 44 prevents the satisfaction of any condition to the obligations of Seller at the Closing, and such material and intentional violation or breach has not been waived by Seller or, in the case of a covenant breach, cured by Buyer within the earlier of (x) ten days after written notice thereof from Seller or (y) the Closing Date; or (iv) by Buyer or Seller for any reason or cause or for no reason or cause without any liability whatsoever to Buyer or Seller or Stockholder or to any other Person if the transactions contemplated hereby have not been fully consummated by March 31, 1999 (the "DROP DEAD DATE"), other than by reason of the intentional acts of Stockholder or Seller or Buyer, as applicable, calculated to prevent the Closing; and (v) by Buyer, if the conditions to Closing set forth in Sections 9.1.6 or 9.1.11 have not been satisfied. (b) In the event that this Agreement is terminated pursuant to Section 11.1(a), all further obligations of the parties hereto under this Agreement (other than pursuant to Section 11.4, which will continue in full force and effect) will terminate without further liability or obligation of any party to any other party hereunder; PROVIDED, HOWEVER, that Buyer will not be released from liability hereunder if this Agreement is terminated pursuant to Section 11.1(a)(iii) and Seller will not be released from liability hereunder if this Agreement is terminated pursuant to Section 11.1(a)(ii). 11.2. NOTICES. All notices, requests and other communications to any party hereunder will be in writing (including facsimile transmission) and will be given to such party at its address set forth in SCHEDULE 11.2. All such notices, requests and other communications will be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication will be deemed not to have been received until the next succeeding business day in the place of receipt. 11.3. AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. (b) Except as otherwise expressly provided in this Agreement, no failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided will be cumulative and not exclusive of any rights or remedies provided by Law. 11.4. EXPENSES. Except as otherwise expressly provided for herein, the parties will pay or cause to be paid all of their own fees and expenses incident to this Agreement and in preparing to consummate and consummating the transactions contemplated hereby, including the fees and expenses of any broker, finder, financial advisor, legal advisor or similar person engaged by such party; PROVIDED that if the Closing does not occur on or before March 31, 1999, because of the failure of the condition set forth in Section 9.1.11 to be satisfied, Buyer will pay 45 the reasonable fees and expenses of Seller up to, but not exceeding $100,000 promptly after presentation of reasonably detailed invoices in respect thereof. 11.5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto. Notwithstanding the foregoing (a) Buyer may, on or prior to the Closing designate a wholly-owned subsidiary of Buyer to acquire all of the Purchased Assets and to assume all of the Assumed Liabilities under this Agreement, without the consent of Seller or Stockholder provided that such designation will not relieve Buyer of any of its obligations hereunder and (b) Buyer may assign its rights (but not its obligations) under this Agreement in connection with obtaining bank financing as contemplated by Section 9.1.11. 11.6. NO THIRD PARTY BENEFICIARIES. Except as provided in Article X, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied will give or be construed to give to any Person, other than the parties hereto and such permitted assigns any legal or equitable rights hereunder. 11.7. GOVERNING LAW. This Agreement will be governed by, and construed in accordance with, the internal substantive law of the State of Illinois, without regard to any conflict of laws rules, principles or provisions of such state or of any other state. 11.8. JURISDICTION. Except as otherwise expressly provided in this Agreement, any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in any court of competent jurisdiction in the courts of the State of Illinois and/or the United States District Court for the Northern District of Illinois, Eastern Division (assuming that such court otherwise has or can obtain or accept jurisdiction) and each of the parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 11.2 will be deemed effective service of process on such party. 11.9. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11.10. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which will be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 46 11.11. HEADINGS. The headings in this Agreement are for convenience of reference only and will not control or affect the meaning or construction of any provisions hereof. 11.12. ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits hereto) constitutes the entire agreement among the parties with respect to the subject matter of this Agreement. This Agreement (including the Schedules and Exhibits hereto) supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof of this Agreement. 11.13. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any person or circumstance is held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision hereof. 11.14. NO WAIVER. No action or inaction taken or omitted pursuant to this Agreement will be deemed to constitute a waiver of compliance with any representations, warranties or covenants contained in this Agreement and will not operate or be construed as a waiver of any subsequent breach, whether of a similar or dissimilar nature. 11.15. CERTAIN INTERPRETIVE MATTERS. (a) Unless the context otherwise requires, (i) all references to Sections, Articles, Exhibits or Schedules are to Sections, Articles, Exhibits, or Schedules of or to this Agreement, (ii) each of the Schedules will apply only to the corresponding Section or subsection of this Agreement, (iii) each term defined in this Agreement has the meaning assigned to it, (iv) words in the singular include the plural and VICE VERSA, and (v) the term "INCLUDING" means "including without limitation." All references to $ or dollar amounts will be to lawful currency of the United States. To the extent the term "day" or "days" is used, it shall mean calendar days. (b) No provision of this Agreement will be interpreted in favor of, or against, any of the parties hereto by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof. (c) All references to the "KNOWLEDGE OF BUYER" or to words of similar import will be deemed to be references to the actual knowledge of one or more of the executive officers, directors or members of the management committee of Buyer whose names are listed on SCHEDULE 11.15(c)(i) and, will include such knowledge as such executive officers, directors or management committee members would have had after due inquiry of the responsible individuals of Buyer whose names are listed separately on SCHEDULE 11.15(c)(ii). (ii) All references to the "KNOWLEDGE OF SELLER" or to words of similar import will be deemed to be references to the actual knowledge of Stockholder after due inquiry. 47 The parties hereto have caused this Agreement to be duly executed by their respective authorized officers or in their individual capacity, if applicable, as of the day and year first above written. GENERAL AUTOMATION, INC. By: /s/ Max J. Starr ------------------------------- Name: Max J. Starr Title: President PRECISION PARTNERS HOLDING COMPANY By: /s/ James E. Ashton ------------------------------- Name: James E. Ashton Title: Chief Executive Officer STOCKHOLDER /s/ Max Starr ------------------------------------ Max Starr 48 EX-2.4 5 ASSET PURCH. AGRMNT (FEB. 11, 1999) Exhibit 2.4 ASSET PURCHASE AGREEMENT among NATIONWIDE PRECISION PRODUCTS CORP., THE STOCKHOLDERS LISTED ON SCHEDULE 1 ATTACHED HERETO and NATIONWIDE ACQUISITION DELAWARE, INC. dated as of February 11, 1999 TABLE OF CONTENTS RECITALS..........................................................................................................1 ARTICLE I DEFINITIONS................................................................................................1 1.1 Definitions........................................................................................1 ARTICLE II SALE AND PURCHASE OF ASSETS................................................................................8 2.1 Purchased Assets...................................................................................8 2.2 Excluded Assets...................................................................................10 2.3 Nonassignable Contracts, Leases and Permits.......................................................11 ARTICLE III ASSUMPTION OF LIABILITIES.................................................................................12 3.1 Liabilities Assumed by Purchaser..................................................................12 3.2 Liabilities Not Assumed by Purchaser..............................................................13 ARTICLE IV CONSIDERATION FOR PURCHASED ASSETS; CLOSING...............................................................15 4.1 Purchase Price....................................................................................15 4.2 Estimated Closing Working Capital.................................................................15 4.3 Post-Closing Adjustment...........................................................................15 4.4 Adjustments to Purchase Price.....................................................................17 4.5 Allocation of Purchase Price......................................................................17 ARTICLE V CLOSING AND CLOSING DELIVERIES............................................................................18 5.1 The Closing.......................................................................................18 5.2 Deliveries of Seller..............................................................................18 5.3 Deliveries by Purchaser...........................................................................19 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS.............................................19 6.1 Representations and Warranties of Seller and the Stockholders.....................................19 6.1.1 Corporate Existence and Powers.............................................................19 6.1.2 Corporate Authorization; Enforceability....................................................20 6.1.3 Governmental Authorization.................................................................20 6.1.4 Non-Contravention; Consents................................................................20 6.1.5 Capitalization.............................................................................20 6.1.6 Subsidiaries...............................................................................20 6.1.7 Financial Statements......................................................................20
i 6.1.8 No Undisclosed Liabilities.................................................................21 6.1.9 Intercompany Accounts......................................................................21 6.1.10 Tax Matters...............................................................................22 6.1.11 Absence of Certain Changes................................................................23 6.1.12 Contracts.................................................................................23 6.1.13 Insurance Coverage........................................................................24 6.1.14 Litigation................................................................................25 6.1.15 Compliance with Laws; Permits.............................................................25 6.1.16 Properties; Sufficiency of Assets.........................................................25 6.1.17 Intellectual Property.....................................................................26 6.1.18 Environmental Matters.....................................................................27 6.1.19 Plans and Material Documents..............................................................28 6.1.20 Interests in Customers, Suppliers, Etc....................................................29 6.1.21 Customer, Supplier and Employee Relations.................................................29 6.1.22 Other Employment Matters..................................................................29 6.1.23 Accounts Receivable.......................................................................30 6.1.24 Inventory.................................................................................30 6.1.25 Millennium Compliance.....................................................................31 6.1.26 Finders' Fees.............................................................................31 6.2 Stockholders' Representations and Warranties......................................................31 6.2.1 Authority; Enforceability..................................................................31 6.2.2 No Conflicts...............................................................................31 6.2.3 No Consents................................................................................31 6.2.4 Litigation.................................................................................32 6.2.5 Interests in Customers, Suppliers, Etc.....................................................32 6.3 No Inference of Assumption of Retained Liabilities or Acquisition of Excluded Assets by Purchaser or any of its affiliates......................................................32 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PURCHASER...............................................................32 7.1 Corporate Existence and Power.....................................................................32 7.2 Corporate Authorization; Enforceability...........................................................32 7.3 Governmental Authorization........................................................................33 7.4 Non-Contravention.................................................................................33 7.5 Litigation........................................................................................33 ARTICLE VIII CERTAIN COVENANTS.........................................................................................33 8.1 Conduct of Business of Seller.....................................................................33 8.2 Exclusive Dealing.................................................................................35 8.3 Review of Seller..................................................................................35 8.4 Reasonable Best Efforts...........................................................................35 8.5 Transfer of Employees and Benefit Plans...........................................................35 8.6 Books and Records.................................................................................37 8.7 Bulk Transfer Laws................................................................................38 8.8 Non-competition...................................................................................38 8.9 Collection of Payments............................................................................38 8.10 Accounts Receivable...............................................................................39
ii 8.11 Use of Names......................................................................................39 8.12 S Corporation Status..............................................................................39 8.13 Other Financial Statements........................................................................39 8.14 Available Cash....................................................................................39 8.15 Transfer Taxes; HSR Act Filing Fees...............................................................40 8.16 Further Assurances................................................................................40 8.17 Confidentiality...................................................................................40 ARTICLE IX CONDITIONS TO CLOSING.....................................................................................41 9.1 Conditions to Obligations of Purchaser............................................................41 9.1.1 Representations, Warranties and Covenants of Seller and the Stockholders...................41 9.1.2 Seller's Certificate.......................................................................41 9.1.3 Stockholder Approval.......................................................................41 9.1.4 No Injunction, etc.........................................................................41 9.1.5 No Proceedings.............................................................................41 9.1.6 Required Filings...........................................................................41 9.1.7 Opinion of Counsel.........................................................................41 9.1.8 Termination of Security Interests..........................................................41 9.1.9 Ancillary Agreements.......................................................................42 9.1.10 Third-Party Consents; Governmental Approvals..............................................42 9.1.11 Financing.................................................................................42 9.1.12 Due Diligence.............................................................................42 9.1.13 No Material Adverse Change................................................................42 9.1.14 FIRPTA....................................................................................42 9.1.15 HSR Act...................................................................................42 9.2 Conditions to Obligations of Seller...............................................................42 9.2.1 Representations, Warranties and Covenants of Purchaser.....................................42 9.2.2 Purchaser's Certificate....................................................................42 9.2.3 No Injunction, etc.........................................................................43 9.2.4 Opinion of Counsel.........................................................................43 9.2.5 Ancillary Agreements.......................................................................43 9.2.6 HSR Act....................................................................................43 9.2.7 Offer of Employment........................................................................43 9.2.8 No Proceedings.............................................................................43 9.2.9 Third-Party Consents; Governmental Approvals...............................................43 ARTICLE X SURVIVAL; INDEMNIFICATION.................................................................................43 10.1 Survival..........................................................................................43 10.2 Indemnification...................................................................................44 10.3 Tax Indemnification...............................................................................45 10.4 Procedures........................................................................................45 10.5 Treatment of Indemnification Payments.............................................................46 10.6 Indemnification Amounts Net of Benefits Received..................................................46 10.7 Exclusive Remedy..................................................................................47
iii TABLE OF CONTENTS (Not a part of this Agreement)
PAGE ARTICLE XI MISCELLANEOUS.............................................................................................47 11.1 Termination.......................................................................................47 11.2 Notices...........................................................................................48 11.3 Amendments and Waivers............................................................................48 11.4 Expenses..........................................................................................48 11.5 Successors and Assigns............................................................................48 11.6 No Third-Party Beneficiaries......................................................................48 11.7 Governing Law.....................................................................................49 11.8 Jurisdiction......................................................................................49 11.9 Waiver of Jury Trial..............................................................................49 11.10 Counterparts......................................................................................49 11.11 Headings..........................................................................................49 11.12 Entire Agreement..................................................................................49 11.13 Severability; Injunctive Relief...................................................................49 11.14 No Waiver.........................................................................................50 11.15 Certain Interpretive Matters......................................................................50
iv (Not a part of this Agreement) EXHIBIT AND SCHEDULE INDEX EXHIBITS EXHIBIT A: Audited Financial Statements EXHIBIT B-1: Form of Employment Agreement/Mr. Ricotta EXHIBIT B-2 Form of Employment Agreement/Mr. Nuccitelli EXHIBIT C: Monthly Financial Statements EXHIBIT D-1: Noncompetition Agreement with Mr. Ricotta EXHIBIT D-2: Noncompetition Agreement with Mr. Nuccitelli EXHIBIT D-3: Noncompetition Agreement with other Stockholders EXHIBIT E: Parlec Agreement EXHIBIT F: Sublease EXHIBIT G: Bill of Sale EXHIBIT H: Audited financial Statement Principles EXHIBIT I: Form of Opinion of Harris, Beach & Wilcox EXHIBIT J Form of Certificate of Amendment of Company's Charter EXHIBIT K: Form of Opinion of Jones, Day, Reavis & Pogue v (Not a part of this Agreement) SCHEDULES SCHEDULE 1: Stockholders SCHEDULE 2.1(a)(xiii): Names SCHEDULE 2.1(a)(xvi): Bank Accounts, etc. SCHEDULE 2.2(c): Parlec Inventory SCHEDULE 6.1.4: Non-Contravention; Consents SCHEDULE 6.1.5: Capitalization SCHEDULE 6.1.6: Subsidiaries SCHEDULE 6.1.7(a): Matters with respect to Audited Financial Statements SCHEDULE 6.1.7(b): Matters with respect to Monthly Financial Statements SCHEDULE 6.1.7(c): Changes in the Company's Reserve or Accrual Policies SCHEDULE 6.1.8: Undisclosed Liabilities SCHEDULE 6.1.9: Intercompany Accounts SCHEDULE 6.1.10: Tax Matters SCHEDULE 6.1.11: Absence of Certain Changes SCHEDULE 6.1.12(a): Contracts and Agreements SCHEDULE 6.1.12(c): Grants of Severance or Termination Pay SCHEDULE 6.1.13: Insurance Policies and Bonds SCHEDULE 6.1.14: Litigation SCHEDULE 6.1.15(a): Compliance with Laws; Permits SCHEDULE 6.1.15(b): Government or Regulatory Permits and Licenses SCHEDULE 6.1.16(a): Properties; Sufficiency of Assets SCHEDULE 6.1.16(b): Real Property SCHEDULE 6.1.17(a): Intellectual Property SCHEDULE 6.1.17(b): Intellectual Property Disputes SCHEDULE 6.1.18(a): Environmental Matters SCHEDULE 6.1.19(a): List of Benefit Plans SCHEDULE 6.1.19(b): List of Certain Benefit Plans SCHEDULE 6.1.19(c): Benefit Plans Compliance SCHEDULE 6.1.19(d) Non-Exempt Benefit Plans SCHEDULE 6.1.19(h): Employees Entitled to Bonuses and Benefits SCHEDULE 6.1.20: Interests in Customers, Suppliers, Etc. SCHEDULE 6.1.21: Customer, Supplier and Employee Relations SCHEDULE 6.1.22(a): Claims by Employees SCHEDULE 6.1.22(b): Employees SCHEDULE 6.1.22(d): Retired Employees Scheduled to Receive Benefits in the Future SCHEDULE 6.1.23: Accounts Receivable SCHEDULE 6.1.24: Inventory SCHEDULE 6.1.25: Millennium Compliance SCHEDULE 6.2.4: Litigation SCHEDULE 7.5: Litigation SCHEDULE 8.5(a): Transferred Employees SCHEDULE 8.5(b): Benefits SCHEDULE 10.2.9: Third Party Consents; Government Approvals vi (Not a part of this Agreement) SCHEDULE 12.2: Notices vii ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (this "AGREEMENT"), dated as of February 11, 1999, by and among NATIONWIDE PRECISION PRODUCTS CORP., a New York corporation ("SELLER"), NATIONWIDE ACQUISITION DELAWARE, INC., a Delaware corporation ("PURCHASER") and the Persons listed on SCHEDULE 1 attached hereto (the "STOCKHOLDERS"). RECITALS A. Seller is a full service manufacturing company engaged in the business of engineering, assembly and finishing of precision machined parts, extrusions and castings for the automotive, business machine and other industries. B. Purchaser wishes to purchase from Seller, and Seller wishes to sell to Purchaser, all of the assets, properties and rights of Seller (other than the Excluded Assets), subject to the Assumed Liabilities, upon the terms and conditions of this Agreement. Accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINITIONS. In addition to the terms defined elsewhere herein, the following terms, as used herein, have the following meanings when used herein with initial capital letters: "ACCOUNTANTS" has the meaning ascribed to such term in Section 4.3(b). "ACCOUNTS RECEIVABLE" has the meaning ascribed to such term in Section 2.1(a)(vi). "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with the first Person on or after the date of this Agreement. For the purposes of this Agreement, "CONTROL," when used with respect to any Person, means the possession, directly or indirectly, of the power to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or individuals holding comparable positions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the 1 foregoing; PROVIDED, HOWEVER that Parlec will not be deemed to be an Affiliate for purposes of Article II. "AGREEMENT" means this Asset Purchase Agreement, as the same may be amended from time to time in accordance with the terms hereof. "ANCILLARY AGREEMENTS" means the Bill of Sale, the Non-competition Agreements, the Employment Agreements, the Sublease and the Parlec Agreement. "ASSUMED LIABILITIES" has the meaning ascribed to such term in Section 3.1(b). "AUDITED DECEMBER 1998 BALANCE SHEET" means the audited balance sheet of Seller as of December 31, 1998 contained in the Audited Financial Statements. "AUDITED FINANCIAL STATEMENTS" means (a) the audited balance sheets of Seller as of May 31, 1995, 1996, 1997 and 1998, together with the related statements of income, changes in retained earnings and cash flows for the periods then ended, and including the notes to such financial statements and the related auditors' reports of Brovitz, Insero, Kasperski & Co., P.C. and (b) the Audited Balance Sheet of Seller as of December 31, 1998, together with the related statements of income, changes in retained earnings and cash flows for the periods then ended, and including the notes to such financial statements and the related report of Ernst & Young, LLP, all of which are attached hereto as EXHIBIT A. "AUDITED FINANCIAL STATEMENT PRINCIPLES" has the meaning ascribed to such term in Section 4.3(a). "BALANCE SHEET DATE" means December 31, 1998. "BASE WORKING CAPITAL BALANCE" means an amount equal to $4.849 million. "BENEFIT PLANS" has the meaning ascribed to such term in Section 3.1(a)(iv). "BILL OF SALE" has the meaning ascribed to such term in Section 2.1(b). "BONUSES" has the meaning ascribed to such term in Section 6.1.22(b). "BUSINESS" means the businesses of Seller as currently conducted as of the date hereof and on the Closing Date, as described in Recital A. "BUSINESS DAY" means a day other than a Saturday, Sunday or a day on which banks located in New York City are authorized or required to close. "CAPITAL STOCK" means (a) with respect to any Person that is a corporation, any and all shares, interests, participation or other equivalents (however designated and whether or not voting) of corporate stock, including the common stock of such Person and (b) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. 2 "CAPITALIZED LEASE OBLIGATIONS" means, with respect any Person, for any applicable period, the obligations of such Person that are required to be classified and accounted for as capital lease obligations under GAAP, and the amount of such obligations at any date shall be the capitalized amount of such obligations at such date determined in accordance with GAAP. "CASH" means cash and cash equivalents as would be shown on such balance sheet of Seller prepared in accordance with GAAP and on a basis consistent with the principles and policies used in the preparation of the Audited December 1998 Balance Sheet. "CERCLA" means the Comprehensive Environmental Response, Compensation, Liability Act of 1980, 42 U.S.C. Sections 9601, et seq., as amended. "CLOSING" has the meaning ascribed to such term in Section 5.1. "CLOSING DATE" has the meaning ascribed to such term in Section 5.1. "CLOSING DATE BALANCE SHEET" has the meaning ascribed to such term in Section 4.3(a). "CLOSING WORKING CAPITAL BALANCE" has the meaning ascribed to such term in Section 4.3(a). "CLOSING WORKING CAPITAL BALANCE STATEMENT" has the meaning ascribed to such term in Section 4.3(a). "CODE" means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. "COMIDA" has the meaning ascribed to such term in Section 2.2(a). "COMPUTER SYSTEMS" has the meaning ascribed to such term in Section 6.1.25. "CONFIDENTIAL INFORMATION" has the meaning ascribed to such term in Section 8.17. "CONSTITUENT OF CONCERN" means any substance defined as a hazardous substance, hazardous waste, hazardous material, pollutant, or contaminant by any Environmental Law, any petroleum hydrocarbon and any degradation product of a petroleum hydrocarbon, asbestos, PCB or similar substance, the handling, storage, treatment or exposure of or to which is subject to regulation under any Environmental Law. "CONTRACTS" has the meaning ascribed to such term in Section 2.1(a)(v). "COVENANT PERIOD" means the period commencing on the date of this Agreement and terminating on the expiration of the longest Covenant Period contained in any of the Non- Competition Agreements. "DAMAGES" has the meaning ascribed to such term in Section 10.2(a). 3 "DIRECT CLAIM" has the meaning ascribed to such term in Section 10.4(c). "EMPLOYEE BONUS ACCRUAL" means the accrual of bonuses in the Ordinary Course of Business for all employees of Seller (excluding directors and executive officers) for the period from June 1, 1998 through the Closing Date. "EMPLOYMENT AGREEMENTS" means the employment agreements between the Company and Mr. Ronald S. Ricotta and Mr. Jeffrey J. Nuccitelli, respectively, substantially in the forms attached hereto as EXHIBITS B-1 and B-2. "ENVIRONMENTAL CLAIMS" means administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, citations, summonses, notices of non-compliance or violation, requests for information, investigations or proceedings relating in any way to any Environmental Law or any permit issued under any such Law, including (a) Environmental Claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) Environmental Claims by any third-party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Constituents of Concern or arising from alleged injury or threat of injury to human health and safety or the environment. "ENVIRONMENTAL CONDITION" means a condition with respect to the environment which has resulted or could reasonably be expected to result in a material loss, liability, cost or expense to Seller. "ENVIRONMENTAL LAW" means any Law in effect or, to Seller's or any Stockholder's knowledge, any Law reasonably expected to be adopted or made effective, in each case as amended as of the Closing Date, and any judicial or administrative interpretation thereof as of the Closing Date, including any judicial or administrative order, consent decree or judgment, relating to the environment, human health and safety, including CERCLA; and any state and local counterparts or equivalents to all of the foregoing. "ENVIRONMENTAL PERMITS" means all permits, licenses, authorizations, certificates and approvals of Governmental Authorities relating to or required by Environmental Laws and necessary for the Business of Seller as currently conducted or conducted as of the Closing. "ERISA" has the meaning ascribed to such term in Section 3.1(a)(iv). "ESTIMATED WORKING CAPITAL BALANCE" has the meaning ascribed to such term in Section 4.2. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "EXCLUDED ASSETS" has the meaning ascribed to such term in Section 2.2. "GAAP" means U.S. generally accepted accounting principles, consistently applied. 4 "GOVERNMENTAL AUTHORITY" means any domestic or foreign governmental or regulatory authority, body, agency or official. "HSR ACT" has the meaning ascribed to such term in Section 6.1.3. "INDEBTEDNESS" means with respect to any Person, at any date, without duplication, (a) all obligations of such Person for borrowed money, including, without limitation, all principal, interest, premiums, fees, expenses, overdrafts and penalties with respect thereto, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of the property or services, except trade payables incurred in the Ordinary Course of Business of such Person, (d) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (e) all Capitalized Lease Obligations of such Person, (f) all other obligations of a Person which would be required to be shown as indebtedness on a balance sheet of such Person prepared in accordance with GAAP, and (g) all indebtedness of any other Person of the type referred to in clauses (a) to (f) above directly or indirectly guaranteed by such Person or secured by any assets of such Person. "INDEMNIFIED PARTY" has the meaning ascribed to such term in Section 10.4(a). "INDEMNIFYING PARTY" has the meaning ascribed to such term in Section 10.4(a). "INTELLECTUAL PROPERTY RIGHT" means any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how, proprietary computer software, computer databases, Internet addresses (including any registrations or applications for registration or renewal of any of the foregoing) or any other similar type of proprietary intellectual property right, in each case which is used or held for use or otherwise necessary in connection with the conduct of the Business. "IRS" means the Internal Revenue Service. "LAW" means any federal, state or local statute, law, rule, regulation, ordinance, code, permit, license, policy or rule of common law. "LAST OFFER" has the meaning ascribed to such term in Section 4.3(b). "LENDERS" has the meaning ascribed to such term in Section 5.2(v). "LIEN" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For the purposes of this Agreement, a Person will be deemed to own, subject to a Lien, any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, assets, liabilities, condition (financial and other), results of operations or prospects of Seller taken as a whole. 5 "MILLENNIUM COMPLIANCE" means that the Computer Systems are capable of the following, during and/or after January 1, 2000: (a) handling date information involving all and any dates, including accepting input, providing output and performing date calculations in whole or in part; (b) operating accurately without interruption on and in respect of any and all dates and without change in performance; (c) responding to and processing two digit year input without creating any ambiguity as to the century; and (d) storing and providing date input information without creating any ambiguity as to the century. "MONTHLY FINANCIAL STATEMENTS" means (a) the unaudited monthly statements of earnings of Seller covering the calendar year 1996, (b) the unaudited monthly balance sheets of Seller covering the periods beginning January 1, 1997 through the month ending immediately prior to the date hereof, together with the related monthly statements of earnings and (c) the unaudited monthly balance sheets of Seller covering the periods beginning with the month in which this Agreement is executed and delivered through the Closing Date, together with the related monthly statements of earnings, all of which are attached or in the case of the financial statements referred to in clause (c), will be attached prior to the Closing hereto as EXHIBIT C. "NON-COMPETITION AGREEMENTS" means the Non-competition Agreements between Purchaser and Mr. Ricotta, Mr. Nuccitelli and each of the Stockholders, respectively substantially in the forms attached hereto as EXHIBITS D-1, D-2 and D-3. "ORDER" means any judgment, injunction, judicial or administrative order or decree. "ORDINARY COURSE OF BUSINESS" means, with respect to any Person, the ordinary course of business of such Person, consistent in all material respects with such Person's past practice and custom, including, with respect to any category, quantity or dollar amount, term and frequency of payment, delivery, accrual, and expense or any other accounting entry. "PARLEC" means, Parlec, Inc., a New York corporation, located at 101 Perinton Parkway, Fairport, New York, and its successors and assigns. "PARLEC AGREEMENT" means the agreement between Purchaser and Parlec, dated the Closing Date, in respect of specified machining and assembly work, inventory consignments and non-hire covenants, substantially in the form attached hereto as EXHIBIT E. "PERMITS" has the meaning ascribed to such term in Section 6.1.15(b). "PERMITTED LIEN" means, with respect to the property of any Person (a) mechanics', workmen's, carriers' repairmen's or other like Liens arising or incurred in the Ordinary Course Of Business of a Person in respect of obligations that are not overdue or (b) other imperfections of title or encumbrances, which do not materially affect the value or marketability of the property subject thereto. "PERSON" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. 6 "PRE-CLOSING TAX PERIOD" means any Tax period (or portion thereof) ending on or before the Closing Date. "PURCHASE PRICE" has the meaning ascribed to such term in Section 4.1. "PURCHASED ASSETS" has the meaning ascribed to such term in Section 2.1(a). "PURCHASER" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "PUT DATE" means, with respect to any Account Receivable, the 90th day after the Closing Date. "REAL PROPERTY" has the meaning ascribed to such term in Section 6.1.16(b). "RELIANCE LETTERS" has the meaning ascribed to such term in Section 5.2(v). "RETAINED LIABILITIES" has the meaning ascribed to such term in Section 3.2(b). "RETURNS" has the meaning ascribed to such term in Section 6.1.10(a). "S CORPORATION" has the meaning ascribed to such term in Section 6.1.10(j). "SELECTED PURCHASER REPRESENTATIONS AND WARRANTIES" means the representations and warranties contained in Sections 7.1 (Corporate Existence and Power), 7.2 (Corporate Authorization; Enforceability), 7.3 (Governmental Authorization) and 7.4 (Non-Contravention). "SELECTED SELLER AND STOCKHOLDERS REPRESENTATIONS AND WARRANTIES" means the representations and warranties contained in Sections 6.1.1 (Corporate Existence and Power), 6.1.2 (Corporate Authorization; Enforceability), 6.1.3 (Governmental Authorization), 6.1.4(a), (b), (d) and (e) (Non-Contravention), 6.1.7(c) (Financial Statements - as to accrual and reserve amounts and policies), 6.1.16 (Properties; Sufficiency of Assets -- as to title), 6.1.26 (Finders' Fees), 6.2.1 (Authority; Enforceability) and Section 6.2.2 (No Conflicts). "SELLER" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "SELLER PROPERTY" means any real property and improvements at any time owned, leased, used, operated or occupied (whether for storage, disposal or otherwise) by Seller. "STOCKHOLDERS" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "SUBLEASE" means the long-term operating sublease in respect of the real property and improvements thereon located at Seller's facility in Henrietta, New York substantially in the form annexed hereto as EXHIBIT F. 7 "TAX" means (a) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, license, withholding on amounts paid to or by Seller, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest, penalty, addition to tax or additional amount imposed by any Taxing Authority (as hereinafter defined), (b) any liability of Seller for the payment of any amounts of any of the foregoing types as a result of being a member of an affiliated, consolidated, combined or unitary group, or being a party to any agreement or arrangement whereby liability of Seller for payment of such amounts was determined or taken into account with reference to the liability of any other Person, and (c) any liability of Seller for the payment of any amounts as a result of being a party to any Tax-Sharing Agreements or with respect to the payment of any amounts of any of the foregoing types as a result of any express or implied obligation to indemnify any other Person. "TAX-SHARING AGREEMENTS" means all existing Tax-sharing agreements or arrangements (whether or not written) binding Seller. "TAXING AUTHORITY" means any Governmental Authority responsible for the imposition of any Tax. "THIRD-PARTY CLAIM" means any claim, demand, action, suit or proceeding made or brought by any Person who or which is not a party to this Agreement. "TRANSFER" has the meaning ascribed to such term in Section 2.1(a). "TRANSFERRED EMPLOYEES" has the meaning ascribed to such term in Section 8.5(b)(i). "UNCOLLECTED ACCOUNTS RECEIVABLE" means all or any part of any Account Receivable which remains uncollected by Purchaser for 90 days after the Closing Date. ARTICLE II SALE AND PURCHASE OF ASSETS 2.1 PURCHASED ASSETS. (a) At the closing provided for in Article V, Seller will sell, assign, transfer, convey and deliver ("TRANSFER"), free and clear of all Liens (except Permitted Liens), whether legal or equitable, to Purchaser and Purchaser will purchase and accept from Seller on the terms and subject to the conditions hereinafter set forth, all of the assets, properties, rights and interests of Seller to the extent existing as of the Closing Date, other than the Excluded Assets (all of such assets, properties, rights and interests being hereinafter collectively referred to as the "PURCHASED ASSETS"), including but not limited to: (i) those assets, properties, rights and interests reflected on the Audited December 1998 Balance Sheet; 8 (ii) all right, title and interest of Seller to all machinery, equipment, tools, spare parts, supplies, furniture, furnishings, vehicles and other fixed assets owned, leased or otherwise used by Seller and, in each case, used or held for use in the conduct of the Business; (iii) all raw materials and inventories, wherever located, including inventories of work-in-process, stores and supplies, owned, leased or otherwise used by Seller and used or held for use in connection with the conduct of the Business; (iv) subject to Section 2.2.(k), Cash as shown on a balance sheet of the Business as of the Closing Date determined in accordance with GAAP, deposits, advance payments of any kind or prepayments by clients, letters of credit naming Seller as account party, certificates of deposit, notes, drafts, checks and similar instruments relating to or arising out of the conduct of the Business; (v) all right, title and interest of Seller to all contracts (whether written or oral) (other than to the extent that such contracts relate to the Retained Liabilities or Excluded Assets), commitments, leases, purchase orders, contracts to purchase raw materials, contracts for services and supplies, contracts to supply or sell products and all of the other agreements (whether written or oral) including those set forth or required to be set forth in SCHEDULE 6.1.12(a) (collectively, the "CONTRACTS"); (vi) all accounts receivable (including billed and unbilled) of Seller relating to the conduct of the Business ("ACCOUNTS RECEIVABLE"); (vii) all Intellectual Property Rights of Seller; (viii) all licenses, Permits, registrations, and authorizations held by Seller relating to the conduct of the Business; (ix) the books and records of Seller relating to the Purchased Assets including, without limitation, all customer and supplier files, equipment maintenance and warranty information, all correspondence with any customers, suppliers, employees or governmental entities, all personnel records related to the Transferred Employees, and any other reports, marketing studies, plans and documents, including, without limitation, data stored electronically; (x) except as described in Section 2.2(g), all prepaid claims, prepaid Taxes, prepaid insurance premiums and other prepaid expense items and deferred charges, credits, advance payments, security and other deposits made by a Seller to any other Person relating to the conduct of the Business; (xi) all policies of insurance, fidelity, surety or similar bonds and third-party indemnities where Seller is an indemnified party and the coverages 9 afforded thereby, in each case other than to the extent relating to the Retained Liabilities or Excluded Assets; (xii) lists of customers and vendors of Seller, including, without limitation, any data stored electronically; (xiii) the right to use the names set forth on SCHEDULE 2.1(a)(xiii), and all variants thereof; (xiv) the Business and goodwill of Seller; (xv) except as described in Section 2.2(b), all securities or other ownership interests in any Person held by Seller; (xvi) all bank accounts and bank account numbers, telephone and facsimile numbers (together with all other similar numbers), electronic mail addresses and web sites, in each case, owned or used by Seller in the Business including such items as set forth on SCHEDULE 2.1(a)(xvi), (xvii) all rights of Seller pertaining to any counterclaims, set-offs or defenses it may have with respect to the Assumed Liabilities; and (xviii) all other assets, properties and rights of every kind and nature owned or held by Seller or in which Seller has an interest on the Closing Date, known or unknown, fixed or unfixed, accrued, absolute, contingent or otherwise, whether or not specifically referred to in this Agreement. (b) In confirmation of the foregoing sale, assignment and transfer, Seller will execute and deliver to Purchaser at the Closing a Bill of Sale and Assignment and Assumption Agreement (the "BILL OF SALE"), substantially in the form attached hereto as EXHIBIT G and such other assignments and other instruments of transfer as Purchaser may reasonably deem necessary or desirable. 2.2 EXCLUDED ASSETS. Anything in this Agreement to the contrary notwithstanding, the following assets of Seller (the "EXCLUDED ASSETS"), each to the extent existing on the Closing Date, are being retained by Seller and will not be included in the Purchased Assets: (a) all real property of Seller and all of Seller's right, title and interest to Seller property under the Amended and Restated Lease Agreement, dated as of November 1, 1994, between the County of Monroe Industrial Development Agency ("COMIDA") and Seller, including all fixtures and other equipment owned by COMIDA, together with all right, title and interest of Seller to all leasehold improvements thereon and all easements, rights-of-way, transferrable licenses and permits and other appurtenances thereof; (b) investment by Seller in Parlec, Inc., as reflected on the Audited December 1998 Balance Sheet; 10 (c) inventory of Seller related to Parlec assembly business and which is identified on Schedule 2.2(c); (d) cash surrender value of the life insurance policies reflected on the Audited December 1998 Balance Sheet made available to officers of Seller by Seller, net of loans; (e) notes receivable from officers of Seller, as reflected on the Audited December 1998 Balance Sheet; (f) notes receivable from employees of Seller, as reflected on the Audited December 1998 Balance Sheet; (g) federal tax deposit, as reflected on the Audited December 1998 Balance Sheet; (h) Tax records reasonably necessary for the discharge by Seller of all income and other Taxes payable in respect of the conduct of the Business of Seller, prior to the Closing Date, PROVIDED that Purchaser will have reasonable access to such records prior to and after the Closing Date in accordance with the provisions of Section 8.6(b) hereof to the extent Purchaser will reasonably require such access; (i) any and all prepayments made by Seller in connection with a certain letter of credit issued by Manufacturer and Traders Trust Company in connection with the financing of the property described in the lease referred to in Section 2.2(a); (j) the rights of Seller under this Agreement and the proceeds payable to Seller pursuant to this Agreement; (k) Cash in excess of $200,000 as shown the Closing Date Balance Sheet, but only to the extent that the Closing Working Capital Balance exceeds the Base Working Capital Balance (after giving effect to all other adjustments to such excess as provided for in this Agreement); and (l) bond and financing acquisition costs and accumulated depreciation - MAC, in each case, as reflected on the Audited December 1998 Balance Sheet. 2.3 NONASSIGNABLE CONTRACTS, LEASES AND PERMITS. In the case of any Purchased Assets constituting Contracts or Permits that are not by their terms assignable or that require the consent of a third-party in connection with the sale by Seller, Seller will, and the Stockholders will, jointly and severally, cause Seller to, use its reasonable best efforts to obtain, or cause to be obtained in writing, prior to the Closing Date, any consents necessary to convey the benefits thereof. Purchaser will assist Seller in such manner as may be reasonably requested in connection therewith; PROVIDED that such assistance will not be deemed to require any expenditure of money on the part of Purchaser. If the consent of any third-party is not obtained prior to the Closing Date and the Closing occurs notwithstanding the failure to obtain such consent, Seller will, and the Stockholders will, jointly and severally, cause Seller to use its reasonable best efforts to assist Purchaser to obtain such consent promptly. During such period in which the applicable Contract or Permit is not capable of being assigned to Purchaser due to 11 the failure to obtain any required consent, Seller will and the Stockholders will cause the Seller to make such arrangements as may be necessary to enable Purchaser to receive all the economic rights and liabilities under such contract accruing on and after the Closing Date. Notwithstanding any provision to the contrary set forth herein, the obligations of Seller and the Stockholders under this section 2.3 represent all of Seller's and the Stockholders' obligations from and after the Closing under this Agreement with respect to obtaining any such assignment and/or consent of a third party in connection with any such Contract or Permit. ARTICLE III ASSUMPTION OF LIABILITIES 3.1 LIABILITIES ASSUMED BY PURCHASER. (a) Subject to Section 3.2, at the Closing, Purchaser will assume, as of the Closing Date, and will subsequently pay, honor and discharge when due and payable and otherwise in accordance with their terms, the following liabilities and obligations of Seller to the extent existing on the Closing Date: (i) (x) all Accounts Payable and Accrued Expenses only to the extent reflected on the Audited December 1998 Balance Sheet and not discharged prior to the Closing Date, and (y) all Accounts Payable and Accrued Expenses arising thereafter and to the extent reflected on the Closing Date Balance Sheet, in the case of liabilities described in clauses (x) and (y) of this clause 3.1(a)(i), to the extent that such liabilities arose in the Ordinary Course of Business of Seller and were not incurred in breach of this Agreement; (ii) all liabilities and obligations under Contracts to which Seller is a party that (A) are disclosed in SCHEDULE 6.1.12(a) and SCHEDULE 6.1.16(b); PROVIDED that the existence of such Contract does not constitute a breach of representation, warranty or covenant under this Agreement, and (B) have been entered into by Seller in the Ordinary Course of Business of Seller prior to the Closing Date and not in breach of this Agreement, in each case other than liabilities and obligations thereunder that relate to a breach by Seller of any of the terms and conditions of any such Contracts prior to the Closing Date; (iii) all liabilities or obligations to Transferred Employees in accordance with, and subject to the limitations set forth in, Section 8.5 with respect to wages, salaries, bonus, vacation, severance or other compensation reflected on the Closing Date Balance Sheet (to the extent not discharged prior to the Closing Date) or otherwise accruing on and after the Closing PROVIDED that the existence thereof does not constitute a breach of any representation, warranty or covenant of Seller hereunder, it being understood that severance liabilities that arise in connection with constructive termination of such Transferred Employee resulting from the terms and conditions of the offer of employment made by Purchaser in compliance with Section 8.5 will not constitute Assumed Liabilities; 12 (iv) except as provided in Section 3.2(a)(iii), liabilities or obligations under any employee benefit plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and any other plan, program, agreement, arrangement, policy, contract, commitment, or scheme, written or oral, statutory or contractual of Seller, including, but not limited to, any deferred compensation agreement, executive compensation, bonus, incentive or severance pay plan, any life, health, disability or accident insurance plan or any holiday or vacation practice under which employees or former employees of Seller are eligible to participate or derive a benefit and as to which Seller has or in the future could have any direct or indirect actual or contingent liability (hereinafter the "BENEFIT PLANS") but only to the extent liabilities or obligations relate or pertain to a Transferred Employee; PROVIDED that the existence of such Benefit Plans does not constitute a breach of any representation, warranty or covenant of Seller hereunder; PROVIDED FURTHER that severance liabilities that result from the failure of any employees of Seller to accept employment by Purchaser in compliance with Section 8.5 will not constitute Assumed Liabilities; (v) the obligation to issue credit as appropriate in the Ordinary Course of Business of Seller; (vi) any liability for Employee Bonus Accruals, but only to the extent that such amount is accurately reflected on the Closing Working Capital Balance Sheet and in the calculation of the Base Working Capital Balance and PROVIDED that Seller has complied with its obligations under Section 8.14; and (vii) any other liability of Seller arising out of or relating to the operation of the Business by Seller prior to the Closing Date in the Ordinary Course of Business (other than to the extent that the existence of any such liability constitutes a breach of any representation or warranty under this Agreement and other than to the extent that the assumption of any such liability is otherwise limited by clauses (i) through (vi) of this Section 3.1(a)). (b) The liabilities to be assumed by Purchaser pursuant to Section 3.1(a) are hereinafter sometimes collectively referred to as "ASSUMED LIABILITIES." 3.2 LIABILITIES NOT ASSUMED BY PURCHASER. (a) Anything in this Agreement to the contrary notwithstanding, Purchaser will not assume, cause to be assumed or be deemed to have assumed, or in any way be liable or responsible for, any liabilities or obligations of Seller or any Stockholder, except as specifically provided in Section 3.1(a). Without limiting the generality or effect of the foregoing, Purchaser will not assume the following: (i) any liability or obligation of Seller (including the liability referred to in Section 6.1.26) or any Stockholder arising out of or in connection with the negotiation and preparation of the Agreement (including the Ancillary 13 Agreements) and the consummation and performance of the transactions contemplated hereby; (ii) any liability or obligation of Seller or any Stockholder for Indebtedness (including accrued interest); (iii) any liability or obligation of Seller or any Stockholder with respect to federal, state, local or foreign Taxes for any Pre-Closing Tax Period or liability or obligation of Seller or the Business as operated by Seller arising out of or relating to noncompliance with Environmental Law, the existence of an Environmental Condition, or an Environmental Claim against Seller or against the Business as operated by Seller; (iv) any liability or obligation of Seller or any Stockholder incurred in breach of this Agreement or any of the Ancillary Agreements; (v) all claims, liabilities and obligations with respect to the Excluded Assets (irrespective of whether such liabilities or obligations arise before, on or after the Closing Date); (vi) Employee Bonus Accruals that do not constitute Assumed Liabilities; and (vii) all other liabilities and obligations (including all obligations of Seller or any Stockholder arising out of or otherwise relating to facts or circumstances existing or occurring on or prior to the Closing) which are not set forth in Section 3.1(a) as Assumed Liabilities. (b) All liabilities or obligations of Seller other than Assumed Liabilities are hereinafter sometimes collectively referred to as the "RETAINED LIABILITIES." ARTICLE IV CONSIDERATION FOR PURCHASED ASSETS; CLOSING 4.1 PURCHASE PRICE. In consideration for the Transfer by Seller to Purchaser of the Purchased Assets pursuant to this Agreement, Purchaser will deliver at the Closing to Seller in cash by wire transfer of immediately available funds to one bank account specified at least two Business Days prior to the Closing Date by Seller, $30.0 million, subject to adjustment as provided in this Article IV (the "PURCHASE PRICE"). 4.2 ESTIMATED CLOSING WORKING CAPITAL. Not less than two Business Days prior to the Closing Date, Seller and Purchaser will prepare and agree on an estimate of the Closing Working Capital Balance (the "ESTIMATED CLOSING WORKING CAPITAL BALANCE") determined in accordance with Section 4.3, as if it were the actual Closing Working Capital Balance, but based upon Seller's and Purchaser's review of monthly financial information then available and inquiries of personnel responsible for the preparation of the financial information relating to Seller in the ordinary course, all in accordance with the policies, principles and 14 methodologies set forth in EXHIBIT H attached hereto. The Purchase Price will be reduced dollar-for-dollar by the amount, if any, by which the Estimated Closing Working Capital Balance, determined in accordance with Section 4.3, is less than the Base Working Capital Balance. 4.3 POST-CLOSING ADJUSTMENT. (a) Within 120 days after the Closing Date, Purchaser will prepare and deliver or cause to be prepared and delivered to Seller an audited balance sheet of Seller as of the opening of business on the Closing Date (the "CLOSING DATE BALANCE SHEET") and a proposed statement of the net working capital of Seller as of the Closing Date (the "CLOSING WORKING CAPITAL BALANCE STATEMENT"), in each case, without giving effect to the transactions described in this Agreement to be consummated at the Closing. The Closing Date Balance Sheet and the Closing Working Capital Balance Statement (i) will reflect, respectively, the financial position of Seller and the components and calculation of the net working capital of Seller in each case as of the Closing Date, (ii) will be prepared and determined in accordance with GAAP, on a basis consistent with the policies, principles and methodology used in connection with the preparation of the Audited Financial Statements, and (iii) will be subject to adjustment in accordance with the policies, principles and methodology set forth in EXHIBIT H attached hereto (the policies, principles and methodology in clauses (ii) and (iii) being referred to herein as the "AUDITED FINANCIAL STATEMENT PRINCIPLES"). Notwithstanding anything contained herein to the contrary, there will be no changes in reserve or accrual amounts or policies between May 31, 1998 and the Closing Date without the prior written consent of Purchaser. The net working capital Seller as of the Closing Date determined in accordance with this Section 4.3 is referred to herein as the "CLOSING WORKING CAPITAL BALANCE." In the event of any inconsistency between the policies, principles and methodology described in the foregoing clauses (ii) and (iii), the policies, principles and methodology set forth in EXHIBIT H will govern. (b) If, within 30 days after the date of Purchaser's delivery of the Closing Date Balance Sheet and the Closing Working Capital Balance Statement, Seller disagrees in good faith with the determination of the Closing Working Capital Balance proposed by Purchaser, Seller will give written notice to Purchaser within such 30 day period (i) setting forth Seller's proposed changes to the Closing Date Balance Sheet as prepared by Purchaser and the determination by Seller of the Closing Working Capital Balance and (ii) specifying in detail Seller's basis for disagreement with Purchaser's preparation and determination of the Closing Date Balance Sheet and the Closing Working Capital Balance. The failure by Seller to so express disagreement and provide such specification within such 30 day period will constitute the acceptance of Purchaser's preparation of the Closing Date Balance Sheet and the computation of the Closing Working Capital Balance. If Purchaser and Seller are unable to resolve any disagreement between them with respect to the preparation of the Closing Date Balance Sheet and the determination of the Closing Working Capital Balance within 30 days after the giving of notice by Seller to Purchaser of such disagreement, the items in dispute will be referred for determination to Pricewaterhouse Coopers LLP (the "ACCOUNTANTS") as promptly as practicable, but not later than five days after the expiration of such 30 day period. Purchaser and Seller will use reasonable efforts to cause the Accountants to render their decision as soon as practicable thereafter (but in no event later than 30 days after the submission to the Accountants of the notice of disagreement referred to in the immediately preceding sentence), including without limitation by promptly complying with all reasonable requests by the Accountants for information, books, records and similar items. The Accountants will make a determination as to each of the items in dispute (but only those items in dispute), which determination will be (A) in writing, (B) 15 furnished to each of the parties hereto as promptly as practicable after the items in dispute have been referred to the Accountants (but in no event later than 30 days thereafter), (C) made in accordance with this Agreement (including EXHIBIT H, and (D) conclusive and binding upon each of the parties hereto. Nothing herein will be construed to authorize or permit the Accountants to determine (i) any question or matter whatsoever under or in connection with this Agreement, except the determination of what adjustments, if any, must be made in one or more disputed items reflected in the Closing Date Balance Sheet and the Closing Working Capital Balance Statement delivered by Purchaser in order for the Closing Working Capital Balance to be determined in accordance with the provisions of this Agreement (including EXHIBIT H), or (ii) a Closing Working Capital Balance that is not equal to one of, or between, the Closing Working Capital Balance as determined by Seller and as determined by Purchaser. The fees and expenses of the Accountants will be paid by the party whose last written settlement offer related to all items in dispute, in the aggregate, submitted to the Accountants upon the referral of the matter to the Accountants in accordance with this Section 4.3(b) (each, a "LAST OFFER") varies by the greatest absolute amount from the determination by the Accountants of all such disputed items. No party will disclose to the Accountants, and the Accountants will not consider for any purpose, any settlement discussions or settlement offer (other than the Last Offer) made by any party. (c) During the period that Seller's advisors and personnel are conducting their review of Purchaser's preparation of the Closing Date Balance Sheet and determination of the Closing Working Capital Balance, Seller and its representatives will have reasonable access during normal business hours to the work papers, prepared by or on behalf of Purchaser and its representatives in connection with Purchaser's preparation of the Closing Working Capital Balance Statement and determination of the Closing Working Capital Balance; PROVIDED, HOWEVER, that Seller will conduct such review in a manner that does not unreasonably interfere with the conduct of the businesses of Seller or result in substantial out-of-pocket costs to Purchaser. To the extent any such work papers are in the control of Seller after the Closing, Seller will grant Purchaser and its representatives reciprocal access rights for the purpose of finalizing the preparation of the Closing Date Balance Sheet and the determination of the Closing Working Capital Balance. Seller and Purchaser agree in good faith to use all reasonable efforts to provide such information and access described in this Section 4.3(c). 4.4 ADJUSTMENTS TO PURCHASE PRICE. (a) Upon the final determination of the Closing Working Capital Balance, the parties shall make the following adjustments: (i) If the Closing Working Capital Balance exceeds the Estimated Closing Working Capital Balance, then the Purchase Price (if reduced pursuant to Section 4.2) will be increased by, and Purchaser will pay to Seller the amount of such difference; PROVIDED that the Purchase Price will in no event exceed $30.0 million. (ii) If the Closing Working Capital Balance is less than the Estimated Closing Working Capital Balance, then the Purchase Price will be decreased by, and the Stockholders will, jointly and severally, pay or cause Seller to pay, to Purchaser the amount of such difference. (b) Any payment in respect of an adjustment required to be made under Section 4.4(a) will be made by Purchaser or Seller, as applicable, in cash by wire transfer of 16 immediately available funds to one account specified by Purchaser or Seller, as applicable, in writing, prior to the date such payment is required to be made hereunder. Such payment will be made on such of the following dates as may be applicable: (i) if Seller shall have not objected to the preparation of the Closing Date Balance Sheet and the determination of the Closing Working Capital Balance, the earlier of (A) 30 days after delivery to Seller of the Closing Date Balance Sheet and Closing Working Capital Balance Statement or (B) five days after Seller has indicated that it has no objections to the preparation of the Closing Date Balance Sheet and the determination of the Closing Working Capital Balance, or (ii) if Seller shall have objected to the preparation of the Closing Date Balance Sheet and the determination of the Closing Working Capital Balance by Purchaser, within five days following final agreement or decision with respect to the Closing Date Balance Sheet and the Closing Working Capital Balance as provided in Section 4.3 and this Section 4.4. 4.5 ALLOCATION OF PURCHASE PRICE. The Aggregate Closing Consideration will be allocated among the Purchased Assets as determined by Seller in the manner required by Section 1060 of the Code with the prior written consent of Purchaser which will not be unreasonably withheld or delayed. The parties understand that no more than a nominal portion of the Purchase Price may be allocated to the Non-competition Agreements. For purposes of determining the Purchaser's basis in the Purchased Assets and gain or loss recognized by Seller with respect to the sale of the Purchased Assets to Purchaser, Purchaser and Seller covenant and agree that the aggregate Purchase Price will be allocated among the Purchased Assets consistent with this Section 4.5 and the parties further agree that they shall file all Tax returns and related forms (including, without limitation, Form 8594) in accordance with the allocation determined in accordance with this Section 4.5 and will not make any inconsistent statement or take any inconsistent position on any Tax returns, in any refund claim, or during the course of any IRS or other tax audit. Each party will notify the other party if it receives notice that the IRS proposes any allocation that is different from the allocation agreed upon under this Section 4.5. ARTICLE V CLOSING AND CLOSING DELIVERIES 5.1 THE CLOSING. The closing of the sale and purchase of the Purchased Assets (the "CLOSING") will take place at the offices of Jones, Day, Reavis & Pogue located at 599 Lexington Avenue, New York, New York at 10:00 a.m., New York time, as soon as possible after the date hereof but in no event later than ten Business Days after satisfaction or waiver of the conditions to Closing. The date upon which the Closing occurs is herein called the "CLOSING DATE." 5.2 DELIVERIES OF SELLER. At the Closing, Seller and the Stockholders will deliver to Purchaser: (i) Bills of Sale duly executed by Seller; 17 (ii) instruments of assignment and assumption and other instruments, as Purchaser may deem reasonably necessary or desirable to transfer any of the Purchased Assets duly executed by Seller; (iii) certificates of an officer of Seller and certificates of the Stockholders to evidence compliance with the conditions set forth in Section 9.1.1; (iv) certificates of Seller's Secretary or Assistant Secretary as provided in Section 9.1.2; (v) the opinion of Harris, Beach & Wilcox, LLP, counsel to Seller and the Stockholders, dated the Closing Date substantially in the form attached hereto as EXHIBIT I, together with letters ("RELIANCE LETTERS") entitling the bank lenders and underwriters engaged by or on behalf of Purchaser (the "LENDERS") to provide the financing contemplated by Section 9.1.11 to rely on such opinion; (vi) evidence or copies of any consents, approvals, orders, qualifications or waivers required by any third-party or governmental entity pursuant to Section 9.1.10; (vii) Certificate of Amendment of Seller's Certificate of Incorporation, dated the Closing Date and in proper form for filing substantially in the form attached hereto as EXHIBIT J which Seller will, on the Closing Date, file with the Secretary of State of the State of New York, changing each Seller's corporate name to "Nuccitelli Corporation," together with all other documentation required to be filed in other jurisdictions where Seller is qualified or licensed to do business to reflect such name change; (viii) other Ancillary Agreements required to be duly executed and delivered by parties other than Purchaser; (ix) a non-foreign person affidavit as required by Section 1445 of the Code; (x) such other documents and instruments as may be reasonably required to consummate the transactions contemplated by this Agreement and the Ancillary Agreements and to comply with the terms hereof and thereof. 5.3 DELIVERIES BY PURCHASER. At the Closing, Purchaser will deliver or cause to be delivered to Seller: (i) the Purchase Price by the wire transfer of immediately available funds to the account specified pursuant to Section 4.1; (ii) certificate of an officer of Purchaser to evidence compliance with the conditions set forth in Section 9.2.1; 18 (iii) certificate of Purchaser's Secretary or Assistant Secretary as provided in Section 9.2.2; (iv) Bills of Sale duly executed by Purchaser; (v) the opinion of Jones, Day, Reavis & Pogue, counsel to Purchaser, dated the Closing Date substantially in the form attached hereto as EXHIBIT K; (vi) other Ancillary Agreements required to be duly executed and delivered by Purchaser; and (vii) such other documents and instruments as may be reasonably required to consummate the transactions contemplated by this Agreement and the Ancillary Agreements and to comply with the terms hereof and thereof. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS 6.1 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS. Seller and the Stockholders jointly and severally represent and warrant to Purchaser as of the date hereof and the Closing as follows: 6.1.1 CORPORATE EXISTENCE AND POWERS. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. Seller has all corporate power and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. Seller is duly qualified to conduct business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary except for those jurisdictions where the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Seller has heretofore delivered to Purchaser true and complete copies of its certificate of incorporation and bylaws. 6.1.2 CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by Seller of this Agreement and each of the Ancillary Agreements to which it will be a party at the Closing are, and will be at the Closing, within Seller's corporate powers and have been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been and each of the Ancillary Agreements to which Seller will be a party at the Closing will have been duly executed and delivered by Seller and constitute, and will constitute, at the Closing, valid and binding agreements of Seller, enforceable against Seller in accordance with their terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 6.1.3 GOVERNMENTAL AUTHORIZATION. Except as may be required under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), the 19 execution, delivery and performance by Seller of this Agreement and each Ancillary Agreement to which Seller is or will be a party at the Closing require no action by or in respect of, or filing with, any Governmental Authority. 6.1.4 NON-CONTRAVENTION; CONSENTS. Except as disclosed on SCHEDULE 6.1.4, the execution, delivery and performance by Seller of this Agreement and each Ancillary Agreement to which Seller will be a party at the Closing will not (a) violate the certificate of incorporation or bylaws or comparable organizational documents of Seller, (b) violate any applicable Law or Order, (c) require any filing with or permit, consent or approval of, or the giving of any notice to, any Person (including filings, consents or approvals required under any Permits of Seller or any licenses to which Seller is a party), (d) result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of Seller or give rise to a loss of any benefit to which Seller is entitled under any agreement or other instrument binding upon Seller or under any license, franchise, permit or other similar authorization held by Seller, or (e) result in the creation or imposition of any Lien on any asset of Seller, except in the case of clauses (c), (d) and (e) for such filings, permits, consents, approvals or notices and violations, breaches, conflicts and Liens which, (i) individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, or (ii) relate exclusively to the Excluded Assets. 6.1.5 CAPITALIZATION. The authorized, issued and outstanding Capital Stock of Seller (including the record and beneficial owners thereof and the percentage of the issued and outstanding Capital Stock held by each such owner) is as disclosed in SCHEDULE 6.1.5. 6.1.6 SUBSIDIARIES. Except as disclosed in SCHEDULE 6.1.6 and except for the interests of the Seller and investments reflected on the face of the Audited December 1998 Balance Sheet, Seller does not own any Capital Stock or other equity or ownership or proprietary interest in any corporation, partnership, association, trust, joint venture or other entity. 6.1.7 FINANCIAL STATEMENTS. (a) Seller has heretofore furnished Purchaser a complete and correct copy of the Audited Financial Statements. Except as disclosed in SCHEDULE 6.1.7(a), the Audited Financial Statements, including the footnotes thereto, have been prepared in accordance with GAAP and fairly present in all material respects the financial position of Seller at the respective dates thereof and the results of the operations and cash flows of the Seller for the periods indicated. (b) Seller has also heretofore furnished Purchaser a complete and correct copy of the Monthly Financial Statements through the month ended immediately prior to the date hereof. Such Monthly Financial Statements have each been prepared in accordance with GAAP (except for normal year-end adjustments identified in SCHEDULE 6.1.7(b) and the absence of notes to such financial statements, which, in each case, would not be material) and on a basis consistent with the policies, principles and methodology used in connection with the preparation of the Audited Financial Statement Principles. Except as disclosed in SCHEDULE 6.1.7(b), such Monthly Financial Statements fairly represent in all material respects the financial position of Seller at the date thereof and the results of the operations and cash flows of Seller for the periods indicated. The Monthly Financial Statements to be delivered after the date hereof, when delivered in accordance with this Agreement, will have been prepared in accordance with GAAP (except for normal year-end adjustments and the absence of notes to such financial statements, 20 which, in each case, would not be material) and on a basis consistent with the Audited Financial Statement Principles and will fairly represent in all material respects the financial position of Seller at the dates thereof and the results of the operations and cash flows of Seller for the periods indicated. (c) There have been no changes in Seller's reserve or accrual policies or amounts, except as disclosed on SCHEDULE 6.1.7(c), since May 31, 1998. (d) The books of account, minute books, stock record books, and other records of Seller, all of which have been made available to Purchaser, have been maintained in accordance with sound business practices. 6.1.8 NO UNDISCLOSED LIABILITIES. There are no liabilities, whether accrued, contingent, absolute, determined, determinable or otherwise, of Seller or any facts or circumstances which could reasonably be expected to give rise to any such liabilities of Seller other than (a) liabilities fully provided for in the Audited December 1998 Balance Sheet; (b) liabilities specifically disclosed on SCHEDULE 6.1.8; and (c) other undisclosed liabilities incurred since the Audited December 1998 Balance Sheet in the Ordinary Course of Business which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 6.1.9 INTERCOMPANY ACCOUNTS. SCHEDULE 6.1.9 contains a complete list of all intercompany transactions and balances as of February 10, 1999 between any Stockholder and any of their respective Affiliates, on the one hand, and Seller or any of its Affiliates, on the other hand. Other than (a) as disclosed on SCHEDULE 6.1.9 and (b) compensation paid in the Ordinary Course of Business, since such date, there has not been any accrual of liability by Seller to any Stockholder or any of such Stockholder's Affiliates or other transaction between Seller or any of its Affiliates, on the one hand, and any Stockholder or any of their Affiliates, on the other hand, or any action taken (other than this Agreement) which could reasonably be expected to result in any such accrual, or the incurrence of any legal or financial obligation to any such Person, after such date. 6.1.10 TAX MATTERS. Except as disclosed in SCHEDULE 6.1.10: (a) All Tax returns, statements, reports and forms (including estimated tax or information returns and reports) required to be filed with any Taxing Authority with respect to any Pre-Closing Tax Period by or on behalf of Seller (collectively, the "RETURNS") have, to the extent required to be filed on or before the date hereof and on or before the Closing, been filed when due in accordance with all applicable Laws; (b) The Returns correctly reflected the facts regarding the income, business, assets, operations, and activities and status of Seller; (c) All Taxes owed by Seller (whether or not shown as due and payable on the Returns that have been filed) have been timely paid, or withheld (including withholding for independent contractors, consultants and other employees) and remitted to the appropriate Taxing Authority; 21 (d) Any reserves established for Taxes with respect to Seller, for any Pre-Closing Tax Period (including for any Pre-Closing Tax Period for which no Return has yet been filed) reflected on the books of Seller (excluding any provision for deferred income taxes) are adequate in accordance with GAAP; (e) Seller is not delinquent in the payment of any Tax, nor has Seller requested any extension of time within which to file any Return except for extensions granted as a matter of right; (f) Neither Seller nor any member of any affiliated, consolidated, combined or unitary group of which Seller is or has been a member has granted any extension or waiver of the statute of limitations period applicable to any Return, which period (after giving effect to such extension or waiver) has not yet expired; (g) There is no action, suit or proceeding now pending and no claim, audit or investigation now pending of which Seller is aware or, to the knowledge of Seller or any Stockholder, any action, suit, claim, audit or investigation threatened against or with respect to Seller in respect of any Tax; (h) There are no Liens for Taxes upon the assets of Seller, except Liens for current Taxes not yet due; (i) Seller has not been a member of an affiliated, consolidated, combined or unitary group or participated in any other arrangement whereby any income, revenues, receipts, gain or loss of Seller was determined or taken into account for Tax purposes with reference to or in conjunction with any income, revenues, receipts, gain, loss, asset or liability of any other Person; and (j) Seller has made a timely and valid S election under Section 1362 of the Code to be treated as an "S Corporation" within the meaning of Section 1361(a) of the Code (an "S CORPORATION"). The first day of the first taxable year for which Seller was an S Corporation was more than ten years prior to the date hereof. Seller has also made all such elections permitted or required under analogous provisions of state or local law. 6.1.11 ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE 6.1.11, since the Balance Sheet Date, there has not been any event, occurrence, development, circumstances or state of facts which (a) has had or which could reasonably be expected to have a Material Adverse Effect or (b) would have constituted a violation of any covenant of Seller or any Stockholder hereunder (including Section 8.1) had such covenant applied to any of them since the Balance Sheet Date. 6.1.12 CONTRACTS. (a) Except as specifically disclosed in SCHEDULE 6.1.12(a), Seller is neither a party nor bound by any of the following (whether written or oral): (i) any lease (whether of real or personal property) providing for annual rentals of $50,000 or more; 22 (ii) any agreement for the purchase of materials, supplies, goods, services, equipment or other assets that provides for either (A) annual payments by Seller of $50,000 or more or (B) aggregate payments by Seller of $100,000 or more; (iii) any sales, distribution or other similar agreement providing for the sale by Seller of materials, supplies, goods, services, equipment or other assets that provides for either (A) annual payments to Seller of $50,000 or more or (B) aggregate payments to Seller of $100,000 or more; (iv) any partnership, joint venture or other similar agreement or arrangement; (v) any agreement relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise); (vi) any agreement relating to Indebtedness (in any case, whether incurred, assumed, guaranteed or secured by any asset); (vii) any license, franchise or similar agreement; (viii) any agency, dealer, sales representative, marketing or other similar agreement; (ix) any agreement that substantially limits the freedom of Seller to compete in any line of business, geographic area or with any Person or which would so limit the freedom of Purchaser after the Closing Date; (x) any agreement with (A) any Stockholder or any of such Stockholder's Affiliates, (B) any Person directly or indirectly owning, controlling or holding with power to vote, 5% or more of the outstanding voting securities of any of such Stockholder's Affiliates, (C) any Person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by any Stockholder or any of such Stockholder's Affiliates, (D) any director or officer of any Stockholder's Affiliates or any "associates" or members of the "immediate family" (as such terms are respectively defined in Rule 12b-2 and Rule 16a-1 of the Exchange Act) of any such director or officer, or (E) any director or officer of a Seller or with any "associate" or any member of the "immediate family" (as such terms are respectively defined in Rules 12b-2 and 16a-1 of the Exchange Act) of any such director or officer; (xi) any management service, consulting or any other similar type of contract; (xii) any warranty, guaranty or other similar undertaking with respect to a contractual performance (or Seller's standard forms of any of the foregoing) extended by Seller, or any other warranty, guaranty or other similar undertaking 23 with respect to contractual performance extended by Seller other than in the Ordinary Course of Business. (xiii) any employment, deferred compensation, severance, bonus, retirement or other similar agreement or plan in effect as of the date hereof and entered into or adopted by Seller, on the one hand, and any director or officer of Seller or any other employee of Seller receiving annual compensation of $70,000 or more, on the other hand; or (xiv) any other agreement, commitment, arrangement or plan not made in the Ordinary Course of Business of Seller that is material to Seller. (b) Each agreement, contract, plan, lease, arrangement or commitment disclosed in SCHEDULE 6.1.12(a) or any other Schedule to this Agreement or required to be disclosed pursuant to this Section is a valid and binding agreement of the Seller, as the case may be, and is in full force and effect, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles, and neither Seller nor, to the knowledge of Seller or any Stockholder, any other party thereto is in default or breach in any material respect under the terms of any such agreement, contract, plan, lease, arrangement or commitment. To the knowledge of Seller or any Stockholder, there is no event, occurrence, condition or act (including the consummation of the transactions contemplated hereby) which, with the giving of notice or the passage of time, or the happening of any other event or condition, could reasonably be expected to become a material default or event of default thereunder. (c) SCHEDULE 6.1.12(c) sets forth every grant by Seller in the past three years of any severance or termination pay to any employee of Seller receiving annual compensation of $70,000 or more, or any director or officer of Seller. 6.1.13 INSURANCE COVERAGE. Seller has furnished to Purchaser a list of and true and complete copies of all of the insurance policies and fidelity bonds covering the assets, Business, operations, employees, officers and directors of Seller. There is no material claim by Seller pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and Seller and the Stockholders have complied in all material respects with the terms and conditions of all such policies and bonds. Such policies of insurance and bonds (or other policies and bonds providing substantially similar insurance coverage) are in full force and effect and are disclosed in SCHEDULE 6.1.13. Such policies of insurance and bonds are of the type and in amounts deemed by the management of Seller to be sufficient in light of the business of Seller. Neither Seller nor any Stockholder know of any threatened termination of, or premium increase with respect to, any of such policies or bonds. Since the last renewal date of any insurance policy, there has not been any material adverse change in the relationship of either Seller or the Stockholders with its insurers or the premiums payable pursuant to such policies. 6.1.14 LITIGATION. Except as disclosed in SCHEDULE 6.1.14 or SCHEDULE 6.1.18, there is no action, suit, investigation, arbitration or administrative or other proceeding pending or, to the knowledge of Seller or any Stockholder, threatened, against or affecting Seller, the 24 Stockholders or any of their respective properties before any court or arbitrator or any Governmental Authority which, if determined or resolved adversely to any of them, could reasonably be expected, individually or when considered together with all other such matters, (a) to materially and adversely affect the right or ability of Seller to carry on the Business as now conducted, (b) to have a Material Adverse Effect, or (c) which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement and the Ancillary Agreements to which Seller is or will be a party at Closing; and neither Seller nor any Stockholder knows of any valid basis for any such action, proceeding or investigation. 6.1.15 COMPLIANCE WITH LAWS; PERMITS. (a) Except as disclosed in SCHEDULE 6.1.15(a), Seller is not or has not been since the Balance Sheet Date in violation of any applicable Law or Order, except for such violations that have not had and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. (b) SCHEDULE 6.1.15(b) sets forth a list of each material government or regulatory license, authorization, permit, franchise, consent and approval (the "PERMITS") issued and held by or on behalf of Seller or required to be so issued and held to carry on the Business as currently conducted and as to be conducted at the Closing. Except as disclosed in SCHEDULE 6.1.15(b), each Permit is valid and in full force and effect. Seller is not in default under, and no condition exists that with notice or lapse of time or both could constitute a default or could give rise to a right of termination, cancellation or acceleration under, any material Permit held by Seller. 6.1.16 PROPERTIES; SUFFICIENCY OF ASSETS. (a) Except as disclosed in SCHEDULE 6.1.16(a) and except for inventory disposed of in the Ordinary Course Of Business of Seller, Seller has good title to, or in the case of leased property has valid leasehold interests in, all property and assets (whether real or personal, tangible or intangible) reflected in the Audited December 1998 Balance Sheet or acquired after the date thereof. None of such property or assets is subject to any Liens, except for (i) Liens disclosed in the Audited December 1998 Balance Sheet or incurred after the date thereof in the Ordinary Course of Business of Seller; (ii) Liens for Taxes not yet due or being contested in good faith (and for which adequate accruals or reserves are set forth on the Audited December 1998 Balance Sheet); and (iii) Permitted Liens. (b) SCHEDULE 6.1.16(b) sets forth a list of all real property assets owned or leased by Seller ("REAL PROPERTY"). All such leases of real property are valid, binding and enforceable in accordance with their respective terms and Seller is a tenant or possessor in good standing thereunder and all rents due under such leases have been paid. There does not exist under any such lease any default or any event which with notice or lapse of time or both could reasonably be expected to constitute a default, except for such defaults that have not and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Seller is in peaceful and undisturbed possession of the space and/or estate under each lease of which it is a tenant and has good and valid rights of ingress and egress to and from all the Real Property from and to the public street systems for all usual street, road and utility purposes. Neither Seller nor any Stockholder has received any notice of any appropriation, condemnation or like proceeding, or of any violation of any applicable zoning Law or Order relating to or affecting the Real Property, and to Seller's or any Stockholder's knowledge, no such proceeding has been threatened or commenced. 25 (c) The Purchased Assets owned or leased by Seller (including real, personal, tangible and intangible property), or which it otherwise has the right to use (including real, personal, tangible and intangible property), constitute all of the assets held for use or used in connection with the Business and are in good operating condition and repair (normal wear and tear excepted) and are adequate to conduct the Business as currently conducted. 6.1.17 INTELLECTUAL PROPERTY. (a) SCHEDULE 6.1.17(a) sets forth a list of all Intellectual Property Rights of Seller and all material licenses, sublicenses and other written agreements as to which Seller is a party and pursuant to which any Person is authorized to use such Intellectual Property Right, including the identity of all parties thereto. (b) Except as disclosed in SCHEDULE 6.1.17(b): (i) Neither Seller nor any Stockholder has, since January 1, 1993, been sued or charged in writing with or been a defendant in any claim, suit, action or proceeding relating to the Business that is either pending or, to the knowledge of Seller or any Stockholder, threatened, that, in either case, has not been finally terminated prior to the date hereof and that involves a claim of infringement by a Seller of any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how or any other similar type of proprietary intellectual property right of any other Person and neither Seller nor any Stockholder has knowledge of any basis for any such claim of infringement and no knowledge of any continuing infringement by any other Person of any Intellectual Property Rights; (ii) No Intellectual Property Right is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by Seller or restricting the licensing thereof by Seller to any Person; and (iii) Seller has not entered into any agreement to indemnify any other Person against any charge of infringement of any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how or any other similar type of proprietary intellectual property right. 6.1.18 ENVIRONMENTAL MATTERS. (a) Except as disclosed in SCHEDULE 6.1.18: (i) Constituents of Concern have not been generated, recycled, used, treated or stored on, transported to or from, or released or disposed on, Seller Property or, to the knowledge of Seller or any Stockholder, any property adjoining or adjacent except in compliance with Environmental Laws; (ii) Except as could not individually, or in the aggregate reasonably be expected to have a Material Adverse Effect, Seller is in compliance with Environmental Laws and the requirements of permits issued under such Environmental Laws with respect to the Seller Property; (iii) There are no pending or, to the knowledge of Seller, threatened Environmental Claims against Seller, or any Seller Property; 26 (iv) There are no facts, circumstances, conditions or occurrences regarding Seller's past or present business or operations of any Seller Property, or to the knowledge of Seller or any Stockholder, any property adjoining any Seller Property, that could reasonably be expected (i) to form the basis of an Environmental Claim against Seller or any of the Seller Property or assets, or (ii) to cause any such current Seller Property or assets to be subject to any restrictions on its ownership, occupancy, use or transferability under any Environmental Law; (v) There are not now and to the knowledge of Seller, or any Stockholder, there never have been any underground storage tanks or sumps located on any Seller Property or, to the knowledge of Seller or any Stockholder, located on any property that adjoins or is adjacent to any Seller Property; (vi) Neither Seller nor any Seller Property is listed or proposed for listing on the National Priorities List under CERCLA, or CERCLIS (as defined in CERCLA) or on any similar federal or state of sites requiring investigation or clean-up; (vii) There are no Environmental Permits that are nontransferable or require consent, notification or other action to remain in full force and effect following the consummation of the transactions contemplated hereby; and (viii) Seller has no liability under any Environmental Law (including an obligation to remediate any Environmental Condition whether caused by Seller or any other Person) which could reasonably be expected to have a Material Adverse Effect. (b) There has been no environmental investigation, study, audit, test, review or other analysis commenced or conducted by or on behalf of Seller (or by a third-party of which Seller or any Stockholder has knowledge) in relation to the current or prior business of Seller, or any property or facility currently or, to the knowledge of Seller or any Stockholder, previously owned or leased by Seller which has not been delivered to Purchaser prior to the date hereof. (c) Seller does not own or lease and/or has not owned or leased any property, and does not conduct and has not conducted any operations, in New Jersey or Connecticut. (d) For purposes of this Section 6.1.18, the term "SELLER" (including the use of such term in the term "SELLER PROPERTY") will include any entity which is, in whole or in part, a predecessor of Seller. 6.1.19 PLANS AND MATERIAL DOCUMENTS. (a) SCHEDULE 6.1.19(a) sets forth a list of all Benefit Plans with respect to which Seller has or has had in the six years preceding the date hereof any obligation or liability or which are or were in the six years preceding the date hereof maintained, contributed to or sponsored by Seller for the benefit of any current or former employee, officer or director of Seller. With respect to each Benefit Plan subject to ERISA, Seller has delivered to Purchaser a true and complete copy of each such Benefit Plan (including all amendments thereto) and a true and complete copy of each material document (including all amendments thereto) prepared in connection with each such Benefit Plan, including, without 27 limitation, (i) a copy of each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, and (iii) the most recently filed IRS Form 5500 for each such Benefit Plan, if any. Except as provided in Sections 8.5(d) and 8.5(e), Seller does not have any express or implied commitment to create, incur liability with respect to or cause to exist any employee benefit plan or to modify any Benefit Plan, other than as required by Law. (b) Except as disclosed in SCHEDULE 6.1.19(b), none of the Benefit Plans is a plan that is or has ever been subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code. None of the Benefit Plans is (i) a "multiemployer plan" as defined in Section 3(37) of ERISA, (ii) a plan or arrangement described under Section 4(b)(5) or 401(a)(1) of ERISA, or (iii) a plan maintained in connection with a trust described in Section 501(c)(9) of the Code. Except as disclosed in SCHEDULE 6.1.19(b), and except for benefits provided in Seller's 401(k) plan, none of the Benefit Plans provides for the payment of separation, severance, termination or similar-type benefits to any person or provides for or, except to the extent required by Law, promises retiree medical or life insurance benefits to any current or former employee, officer or director of Seller. (c) Except as disclosed in SCHEDULE 6.1.19(c), each Benefit Plan is in compliance in all material respects with, and has always been operated in all material respects in accordance with, its terms and the requirements of all applicable Law and Seller has satisfied in all material respects all of their statutory, regulatory and contractual obligations with respect to each such Benefit Plan. No legal action, suit or claim is pending or, to the knowledge of Seller or any Stockholder, threatened with respect to any Benefit Plan (other than claims for benefits in the ordinary course) and no fact or event exists that could reasonably be expected to give rise to any such action, suit or claim. (d) Except as disclosed in SCHEDULE 6.1.19(d), each Benefit Plan or trust which is intended to be qualified or exempt from taxation under Section 401(a), 401(k) or 501(a) of the Code has received a favorable determination letter from the IRS that it is so qualified or exempt, and no fact or occurrence has occurred since the date of such determination letter to adversely affect the qualified or exempt status of any Benefit Plan or related trust, including Seller's 401(k) plan. (e) There has been no non-exempt prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Benefit Plan. Seller has not incurred any material liability for any excise tax arising under the Code with respect to a Benefit Plan and no fact or event exists which could reasonably be expected to give rise to such liability. (f) All material contributions, premiums or payments required to be made with respect to any Benefit Plan have been, or will be, made on or before their due dates. For completed plan years of the Benefit Plans, all such contributions have been fully deducted for income tax purposes and no such deduction has been challenged or disallowed by any Governmental Authority, and no fact or event exists which could give rise to any such challenge or disallowance. 28 (g) There has been no amendment to, written interpretation of or announcement (whether or not written) by Seller thereof relating to, or change in employee participation or coverage under, any Benefit Plan that would increase materially the expense of maintaining such Benefit Plan above the level of the expense incurred in respect thereto for the most recent fiscal year ended prior to the date hereof. (h) Except as disclosed in SCHEDULE 6.1.19(h) or in this Agreement or the Ancillary Agreements, no employee or former employee of Seller thereof will become entitled to any bonus, retirement, severance, job security or similar benefit or enhanced such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transactions contemplated hereby. 6.1.20 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in SCHEDULE 6.1.20, to the knowledge of Seller, none of the Stockholders, nor any other director, officer or other employee of Seller possesses, directly or indirectly, any ownership interest in, or is a director, officer or employee of, any Person which is a supplier, customer, lessor, lessee, licensor, developer, competitor or potential competitor of Seller. Ownership of securities of a Person whose securities are registered under the Exchange Act of 2% or less of any class of such securities will not be deemed to be an ownership interest purposes of this Section 6.1.20. 6.1.21 CUSTOMER, SUPPLIER AND EMPLOYEE RELATIONS. The relationships of Seller with its customers, suppliers and employees are good commercial working relationships and, except as disclosed in SCHEDULE 6.1.21, none of the material customers or material suppliers of Seller or employees of Seller receiving annual compensation in excess of $70,000 has canceled, terminated or otherwise materially altered or notified Seller of any intention or otherwise threatened to cancel, terminate or materially alter its relationship with Seller since the Balance Sheet Date. Except as disclosed in SCHEDULE 6.1.21, as of the date hereof, Seller has no reason to believe that there will be any change in relations with material customers or suppliers or employees of Seller receiving annual compensation in excess of $70,000 as a result of the transactions contemplated by this Agreement which could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate. 6.1.22 OTHER EMPLOYMENT MATTERS. (a) Seller is in material compliance with all Laws in respect of employment and employment practices, terms and conditions of employment and wages and hours, and has not, and is not, engaged in any unfair labor practice; no unfair labor practice complaint against Seller is pending before the National Labor Relations Board; there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or involving Seller; Seller is not a party to any collective bargaining agreement and no collective bargaining agreement is currently being negotiated by Seller; to the knowledge of Seller, no representation question exists regarding employees of Seller; and except as specifically set forth on SCHEDULE 6.1.22(a), no claim in respect of the employment of any employee has been asserted and is currently pending or, to the knowledge of Seller or any Stockholder, threatened against Seller. (b) SCHEDULE 6.1.22(b) contains a complete and accurate list of the following information for each employee or director of Seller, including each employee on leave of absence or layoff status: employer; name; job title; current compensation paid or payable and any change in compensation since the Balance Sheet Date: vacation accrued; service credited for purposes of 29 vesting and eligibility to participate under any pension, retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus, stock option, cash bonus, employee stock ownership (including investment credit or payroll stock ownership), Seller severance pay, insurance, medical, welfare, or vacation plan, or other Benefit Plan of Seller; and all bonuses and any other amounts to be paid by Seller to employees of Seller, including bonuses and other such amounts at or in connection with the Closing ("BONUSES"). (c) No current employee or current director of Seller or, to the knowledge of Seller, any former employee or former director of Seller is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, non-competition, or proprietary rights agreement, between such employee or director and any other Person that in any way adversely affected, affects, or will affect (i) the performance of his duties as an employee or director of Seller or (ii) the ability of Seller to conduct its respective business. (d) SCHEDULE 6.1.22(d) also contains a complete and accurate list of the following information for each retired employee or director of Seller or their dependents, receiving benefits or scheduled to receive benefits in the future: name, pension benefits, pension option election, retiree medical insurance coverage, retiree life insurance coverage, and other benefits. 6.1.23 ACCOUNTS RECEIVABLE. Except as set forth on SCHEDULE 6.1.23, all of the accounts receivable reflected on the Audited December 1998 Balance Sheet (net of the reserves set forth on the Audited December 1998 Balance Sheet) and all accounts receivable which have arisen since the Balance Sheet Date (net of any additional reserves established since such date in accordance with GAAP and in the Ordinary Course of Business of Seller, none of which is material) are valid and enforceable claims, and the goods and services sold and delivered which gave rise to such accounts receivable were sold and delivered in conformity with the applicable purchase orders, agreements and specifications. Such accounts receivable are subject to no defenses, offsets or recovery in whole or in part by the Persons whose purchase gave rise to such accounts receivable or by third-parties and are fully collectible in the Ordinary Course of Business of Seller without resort to legal proceedings, except to the extent of the amount of the reserve for doubtful accounts reflected on the Audited December 1998 Balance Sheet. 6.1.24 INVENTORY. Except as set forth in SCHEDULE 6.1.24, all inventories reflected on the Audited December 1998 Balance Sheet (net of the reserves set forth on the Audited December 1998 Balance Sheet) and all inventories which have been acquired or produced since the Balance Sheet Date (net of any additional reserves established since the Balance Sheet Date in the Ordinary Course of Business of Seller, none of which is material) are in good condition, conform in all material respects with the applicable specifications and warranties of Seller, are not obsolete, and are usable and salable in the Ordinary Course of Business of Seller. The values at which such inventories are carried are in accordance with GAAP, consistently applied. The amount and mix of items in the inventories of supplies, in-process and finished products are, and will be at the Closing Date, consistent with the past business practices of Seller. 6.1.25 MILLENNIUM COMPLIANCE. SCHEDULE 6.1.25 describes the measures that have been implemented to determine the extent to which the computer systems used by Seller in its business (the "COMPUTER SYSTEMS") are not in Millennium Compliance, and the material 30 details of any program undertaken with a view towards causing the Computer Systems to achieve Millennium Compliance. 6.1.26 FINDERS' FEES. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Seller or any Stockholder or any of their Affiliates who might be entitled to any fee or other commission in connection with the transactions contemplated by this Agreement. 6.2 STOCKHOLDERS' REPRESENTATIONS AND WARRANTIES. Each Stockholder, severally and not jointly and with respect to such Stockholder only, represents and warrants to Purchaser as follows: 6.2.1 AUTHORITY; ENFORCEABILITY. Such Stockholder has all requisite power and authority, and has taken all action necessary, to execute and deliver this Agreement and each Ancillary Agreement to which such Stockholder is or will be a party at the Closing, to consummate the transactions contemplated hereby and to perform his obligations hereunder and thereunder. This Agreement has been, and each of the Ancillary Agreements to which such Stockholder will be a party at the Closing will have been, duly executed and delivered by such Stockholder and constitute, and will constitute at the Closing, legal, valid and binding obligations of such Stockholder enforceable against such Stockholder in accordance with their respective terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 6.2.2 NO CONFLICTS. The execution and delivery of this Agreement and each Ancillary Agreement to which such Stockholder is or will be a party at the Closing has not and will not at the Closing, and the consummation of the transactions contemplated hereby and compliance with the terms hereof has not and will not at the Closing, violate or conflict with in any respect or result in a breach under any Contract, Law or Order applicable to such Stockholder. 6.2.3 NO CONSENTS. Except as may be required under the HSR Act, no consent of, approval or filing with, any court or other Person is required to be obtained or made by or with respect to such Stockholder in connection with the execution, delivery and performance of this Agreement or any of the Ancillary Agreements to which such Stockholder is or will be a party at the Closing or the consummation by such Stockholder of the transactions contemplated hereby or thereby. 6.2.4 LITIGATION. Except as disclosed in SCHEDULE 6.2.4, there is no action, suit, investigation, arbitration or administrative or other proceeding pending, or, to the knowledge of such Stockholder threatened, against or affecting such Stockholder before any court or arbitrator or any Governmental Authority, which, if determined or resolved adversely to such Stockholder could reasonably be expected to, individually or when considered together with all other such matters, adversely affect the right or ability of such Stockholder to consummate the transactions contemplated by this Agreement and the Ancillary Agreements to which he is or will be a party at the Closing; and such Stockholder knows of no valid basis for any such action, proceeding or investigation. 31 6.2.5 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in SCHEDULE 6.1.20, neither such Stockholder, nor, to the knowledge of such Stockholder, any other director, officer or other employee of Seller, possesses, directly or indirectly, any ownership interest in, or is a director, officer or employee of, any Person which is a supplier, customer, lessor, lessee, licensor, developer, competitor or potential competitor of Seller. Ownership of securities of a company whose securities are registered under the Exchange Act of 2% or less of any class of such securities will not be deemed to be an ownership interest for purposes of this Section 6.2.5. 6.3 NO INFERENCE OF ASSUMPTION OF RETAINED LIABILITIES OR ACQUISITION OF EXCLUDED ASSETS BY PURCHASER OR ANY OF ITS AFFILIATES. Nothing contained in any of the representations and warranties set forth in this Agreement will be construed to constitute the assumption by Purchaser or any of its affiliates of any of the Retained Liabilities, or the acquisition by Purchaser or any of its affiliates of any of the Excluded Assets, all of which are and will remain after the date hereof for the account of Seller and the Stockholders. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to Seller as follows: 7.1 CORPORATE EXISTENCE AND POWER. Purchaser is a Delaware corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Purchaser has all corporate power and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. 7.2 CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by Purchaser of this Agreement and each of the Ancillary Agreements to which it is or will be a party at the Closing are and will be at the Closing within Purchaser's corporate power and have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been and each of the Ancillary Agreements to which Purchaser is or will be a party at the Closing will have been duly executed and delivered by Purchaser and constitute, and will constitute at the Closing, valid and binding agreements of Purchaser, enforceable against Purchaser in accordance with their terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 7.3 GOVERNMENTAL AUTHORIZATION. Except as may be required under the HSR Act, the execution, delivery and performance by Purchaser of this Agreement and each of the Ancillary Agreements to which Purchaser will be a party at the Closing require no action by or in respect of, or filing with, any Governmental Authorities. 7.4 NON-CONTRAVENTION. The execution, delivery and performance by Purchaser of this Agreement and each Ancillary Agreement to which Purchaser is or will be a party at the Closing, do not and will not at the Closing (a) violate the certificate of incorporation or bylaws or comparable organizational documents of Purchaser or (b) violate any applicable Law or Order. 32 7.5 LITIGATION. Except as disclosed in SCHEDULE 7.5, there is no action, suit, investigation, arbitration or administrative or other proceeding pending or, to the knowledge of Purchaser, threatened against or affecting Purchaser, or any of Purchaser's properties before any court or arbitrator or any Governmental Authority which, if determined or resolved adversely to Purchaser, could, individually or in the aggregate, reasonably be expected to materially and adversely affect the right or ability of Purchaser to consummate the transactions contemplated by this Agreement and any Ancillary Agreement to which Purchaser will be a party at Closing. ARTICLE VIII CERTAIN COVENANTS 8.1 CONDUCT OF BUSINESS OF SELLER. During the period from the date of this Agreement to the Closing Date, the Stockholders will, jointly and severally, cause Seller to, and Seller will, conduct its operations only in the Ordinary Course of Business of Seller (including managing their working capital in accordance with its past practice and custom) and use their respective reasonable best efforts to: (a) preserve intact its business organizations, (b) keep available the services of its officers and employees and (c) maintain its relationships and goodwill with licensors, suppliers, distributors, customers, landlords, employees, agents and others having business relationships with any of them or the Business. Seller will confer with Purchaser concerning operational matters of a material nature and report periodically to Purchaser concerning the Business of Seller, operations and finances of Seller. Without limiting the generality or effect of the foregoing, prior to the Closing Date, except with the prior written consent of Purchaser, Seller will not, and the each Stockholder will cause Seller not to: (a) Amend or modify their certificates of incorporation or bylaws from their respective forms on the date of this Agreement; (b) Change any salaries or other compensation of, or pay any bonuses to any director, officer, employee or stockholder of Seller, or enter into any employment, severance, or similar agreement with any director, officer, stockholder or employee of Seller, PROVIDED, HOWEVER, that the compensation of employees of Seller receiving annual compensation of less than $70,000 may be changed in the Ordinary Course of Business of Seller; (c) Except as contemplated by Sections 8.5(d) and 8.5(e), adopt or increase any benefits under any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any of its employees; (d) Except as contemplated by Section 8.14, enter into any contract or commitment except contracts and commitments (for capital expenditures or otherwise) in the Ordinary Course of Business of Seller (and in any case not exceeding the dollar amounts with respect to specified categories of Contracts in Section 6.1.12); (e) Incur, assume or guarantee any Indebtedness other than in the Ordinary Course of Business; 33 (f) Enter into any transaction or commitment relating to the assets or the Business of Seller which, individually or in the aggregate, could be material to Seller, or cancel or waive any claim or right of substantial value which, individually or in the aggregate, could be material to Seller without the prior written consent of Purchaser which will not be unreasonably withheld or delayed; (g) Make any change in accounting methods or practices (including changes in reserve or accrual amounts or policies); (h) Issue or sell any Capital Stock, or make any other changes in its capital structure, including the grant of any stock option or other right to purchase shares of Capital Stock of Seller; (i) Sell, lease or otherwise dispose of any material asset or property without the prior written consent of Purchaser which will not be unreasonably withheld or delayed; (j) Except as expressly permitted under this Agreement, write-off as uncollectible any notes or accounts receivable, except write-offs in the Ordinary Course of Business of Seller charged to applicable reserves, none of which individually or in the aggregate is material; write-off, write-up or write-down any other material asset of Seller; or alter its customary time periods for collection of accounts receivable or payments of accounts payable; (k) Create or assume any Lien other than a Permitted Lien; (l) Make any loan, advance or capital contributions to or investment in any Person; (m) Terminate or close any material facility, business or operation of Seller; (n) Cause or permit to occur any event, development or state of circumstances or facts which individually or together with other matters, has had or could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate; or (o) Agree to do any of the foregoing. 8.2 EXCLUSIVE DEALING. During the period from the date of this Agreement to the earlier of the Closing Date and the termination of this Agreement in accordance with its terms, neither Seller nor any Stockholder or any of their respective Affiliates, or any officer or director of Seller or any of its Affiliates, or other representative of any of the foregoing (including advisors, agents, attorneys, employees or consultants) will take any action to, directly or indirectly, encourage, initiate, solicit or engage in discussions or negotiations with, or provide any information to any Person, other than Purchaser (and its Affiliates and representatives), concerning any purchase of any Capital Stock of Seller or any merger, asset sale or similar transaction involving Seller. Seller and each Stockholder will disclose to Purchaser the existence or occurrence of any proposal or contract which it or he or any of their representatives described above may receive in respect of any such transaction and the identity of the Person from whom such a proposal or contract is received. 34 8.3 REVIEW OF SELLER. Purchaser may, prior to the Closing Date, directly or through its representatives, review the properties, books and records of Seller and their financial and legal condition to the extent it deems necessary or advisable to familiarize itself with such properties and other matters. Seller will permit Purchaser and their representatives to have, after the date of execution of this Agreement, reasonable access to the premises and to all the books and records of Seller and to cause the officers of Seller to furnish Purchaser with such financial and operating data and other information with respect to the Business and properties of Seller as Purchaser will from time to time reasonably request. Seller will deliver or cause to be delivered to Purchaser such additional instruments, documents, certificates and opinions as Purchaser may reasonably request for the purpose of (i) verifying the information set forth in this Agreement or on any Schedule attached hereto and (ii) consummating or evidencing the transactions contemplated by this Agreement. 8.4 REASONABLE BEST EFFORTS. Seller and Purchaser will cooperate and use their respective reasonable best efforts to take, or cause to be taken, all appropriate actions, and to make, or cause to be made, all filings necessary, proper or advisable under applicable Laws (including, without limitation, the filing of Notification and Report Forms under the HSR Act with the Federal Trade Commission and the Antitrust Division of the Department of Justice) to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, their respective reasonable best efforts to obtain, prior to the Closing Date, all licenses, Permits, consents, approvals, authorizations, qualifications and orders of Governmental Authorities and parties to contracts with Seller as are necessary for consummation of the transactions contemplated by the Agreement and to fulfill the conditions to the sale contemplated hereby. Notwithstanding any other provision hereof, in no event will Purchaser or any of its Affiliates be required to (a) enter into or offer to enter into any divestiture hold-separate, business limitation or similar agreement or undertaking in connection with this Agreement or the transactions contemplated hereby or (b) make any payment in connection with any consent or approval or condition to Closing set forth in any subsection of Section 9.1 which it is necessary or advisable for Seller to obtain or satisfy in order to consummate the transactions contemplated by this Agreement. 8.5 TRANSFER OF EMPLOYEES AND BENEFIT PLANS. As of the Closing Date: (a) Employees of Seller with respect to the Business immediately prior to the Closing Date whose names are listed on SCHEDULE 8.5(a) will be offered employment with Purchaser or an Affiliate of Purchaser each such offer to include (i) a substantially equivalent title, level of responsibility and compensation as each such employee had as an employee of Seller on the date hereof and (ii) the benefits listed on SCHEDULE 8.5(b), PROVIDED that this Section 8.5 will not be construed to prohibit Purchaser from modifying or eliminating any such benefits after the Closing Date; (b) Purchaser will assume all obligations relating to the payment of (i) Employee Bonus Accruals to the extent provided in Section 3.1(a)(vii), salary, wages and benefits reflected on the Closing Date Balance Sheet (to the extent not discharged prior to the Closing Date) or otherwise arising or accruing after the Closing Date, PROVIDED that the existence thereof does not constitute a breach of any representation, warranty or covenant of Seller hereunder, in each case with respect to any employee of Seller who accepts employment with Purchaser (the "TRANSFERRED EMPLOYEES"), and (ii) severance payments and other severance 35 benefits to which the Transferred Employees become entitled because of termination of their employment with and by Purchaser or an Affiliate of Purchaser after they become employees of Purchaser (other than severance arising from constructive termination resulting from the terms and conditions of the offer of employment made by Purchaser in compliance with this Section 8.5); (c) Purchaser will assume the obligations of Seller under each of the employment agreements listed on SCHEDULE 6.1.12(a)(iii) to which Seller is party; and (d) Prior to the Closing Date and subject to the compliance by Seller with its obligations under Section 8.5(g), Purchaser will take all action necessary to establish a defined contribution plan for Transferred Employees (the "TRANSFEREE 401(K) PLAN") containing substantially the same terms and conditions as the Nationwide Precision/Parlec Section 401(k) Plan (the "NATIONWIDE/PARLEC 401(K) PLAN") and, effective as of or as promptly as possible after the Closing Date, Seller will cause assets of the Nationwide/Parlec 401(k) Plan attributable to the benefits of Transferred Employees to be transferred in a manner that satisfies Section 414(l) of the Code to the Transferee 401(k) Plan; PROVIDED, HOWEVER, that no transfer will occur until Purchaser has received such assurances as may be reasonable that the applicable provisions of the Code have been satisfied. The assets transferred from the Nationwide/Parlec 401(k) Plan to the Transferee 401(k) Plan will be equal to the vested and nonvested account balances of Transferred Employees as of the date of Transfer. Purchaser will take such action as may be necessary to provide each Transferred Employee participating in the Transferee 401(k) Plan after the transfer with an initial account balance that is at least equal to the account balance transferred from the Nationwide/Parlec 401(k) Plan, and to provide all benefits protected by Law, including optional forms of benefit. (e) With respect to all other Benefit Plans in which Seller and Parlec or any other employer participate, Purchaser will take all action necessary to establish, effective as of the Closing Date, benefit plans for Transferred Employees containing substantially the same terms and conditions as such Benefit Plans (the "TRANSFEREE PLANS"). Purchaser will assume sponsorship of the Transferee Plans, and Seller will take all action necessary to transfer sponsorship of the Transferee Plans to Purchaser, effective as of the Closing. (f) Purchaser will assume sponsorship of all Benefit Plans not described in Sections 8.5(d) and 8.5(e) above, and Seller will take all action necessary to transfer sponsorship of such Benefit Plans to Purchaser, effective as of the Closing. (g) Seller will provide all reasonable assistance to Purchaser in connection with the performance by Purchaser of its obligations under Sections 8.5(d), 8.5(e) and 8.5(f). Nothing contained in this Agreement will confer upon any Transferred Employee, or any legal representative thereof, any rights or remedies, including, without limitation, any right to employment for any specified period, of any nature or kind whatsoever, under or by reason of this Agreement (other than as provided in the Employment Offer Letter). Notwithstanding anything to the contrary contained in this Agreement, neither Purchaser nor any Affiliate of Purchaser will be required to continue any particular Benefit Plan after the Closing Date for the Transferred Employees, and any such Benefit Plan may be amended or terminated in accordance with its terms and any applicable Law. 36 8.6 BOOKS AND RECORDS. (a) From and after the Closing Date, Purchaser will give Seller's representatives reasonable access to such documentation and information and reasonable access to and cooperation of employees which Seller may reasonably require (i) to prepare and file Tax returns and to respond to any issues which may arise with respect to Taxes for which Seller or any Stockholder are responsible to the extent relating to the Purchased Assets or Assumed Liabilities, (ii) with respect to any Retained Liabilities; and (iii) to defend any claim which Seller is required to defend pursuant to this Agreement or in connection with the operation of the Business prior to the Closing Date. Prior to the sixth anniversary of the Closing Date, Purchaser will give Seller at least ten days prior written notice of Purchaser's intention to dispose of any books, records or other documentation which are delivered to Purchaser under the terms of this Agreement and that Seller may reasonably require, and Seller will have the opportunity to obtain possession, at its own expense, of any such books, records or documentation prior to Purchaser's disposition thereof. In the absence of bad faith or willful misconduct, Purchaser will have no liability arising out of or in connection with its retention and handling of such records. (b) From and after the Closing Date, Seller and each Stockholder will give Purchaser's representatives reasonable access to such documentation, information and reasonable access to and cooperation of each Stockholder and other employees of Seller which Purchaser may reasonably require (i) to prepare and file tax returns and respond to any issues which may arise with respect to Taxes for which Purchaser is responsible to the extent relating to the Purchased Assets or Assumed Liabilities or (ii) to defend any claim which Purchaser is required to defend pursuant to this Agreement or in connection with the operation of the Business after the Closing Date. Prior to the sixth anniversary of the Closing Date, Seller will give Purchaser at least ten days prior written notice of Seller's intention to dispose of any books, records or other documentation contemplated by this Section 8.6(b) and that Purchaser may otherwise reasonably require, and Purchaser will have the opportunity to obtain possession, at its own expense, of any such books, records or documentation prior to Seller's or the Stockholders' disposition thereof. In the absence of bad faith or willful misconduct, Seller will have no liability arising out of or in connection with its retention and handling of such records. Without limiting the generality or effect of the foregoing, Seller will deliver or cause to be delivered to Purchaser such additional instruments, documents, certificates and opinions as Purchaser may reasonably request for the purpose of (x) verifying the information set forth in this Agreement or on any Schedule attached hereto and (y) consummating or evidencing the transactions contemplated by this Agreement. 8.7 BULK TRANSFER LAWS. Seller will use its reasonable best efforts to assist Purchaser in complying with the provisions of any Laws of any jurisdiction relating to bulk transfers which may be applicable in connection with the transfer of the Purchased Assets to Purchaser. 8.8 NON-COMPETITION. (a) During the Covenant Period, Seller will not promote, participate, engage or have any other interest (whether Seller is acting as owner, purchaser, shareholder, employee, broker, agent, principal, trustee, corporate officer, director, consultant or in any other capacity) (i) in any business which is competitive with any product or service offered by Seller on or prior to the Closing Date (including tooling services but excluding the performance of the Subject Work by Parlec in accordance with the terms of the Parlec Agreement) or (ii) otherwise in the business of manufacturing and supplying of complex machined metal parts for original equipment manufacturers; 37 (b) During the Covenant Period, Seller will not directly or indirectly solicit, canvass or approach any Person who, to the knowledge of Seller or any Stockholder, was provided with products or services by Seller at any time prior to the Closing Date, to offer that Person products or services similar to or derivative of products or services provided by Seller to such Person at any time within the two year period prior to the Closing Date by Seller. (c) During the Covenant Period, Seller will not directly or indirectly solicit, canvass or approach any Person who, to the knowledge of Seller, provided products or services to Seller at any time during the two years before the Closing Date to endeavor to cause such Person to cease providing products or services to Purchaser. (d) During the Covenant Period, Seller will not directly or indirectly employ, solicit or entice away any Board of Directors member, management committee member, director, officer or other employee of Purchaser or any other Person directly or indirectly controlled by Purchaser until such individual has not been employed or otherwise affiliated or associated with Purchaser or such other Person for at least two consecutive years; PROVIDED, HOWEVER, that this provision will not prohibit Seller from hiring Mr. Ronald S. Ricotta after the expiration of the term of his Employment Agreement prior to the expiration of such two year period. 8.9 COLLECTION OF PAYMENTS. Following the Closing: (a) Seller will promptly, and in any event, not later than seven days following receipt, forward to Purchaser any payments received by Seller with respect to any of the Purchased Assets, and any checks, drafts or other instruments payable to Seller will, when so delivered, bear all endorsements required to effectuate the transfer of the same to Purchaser, (b) Seller will promptly forward to Purchaser any mail or other communications received by Seller relating to the Purchased Assets or the Assumed Liabilities, (c) Purchaser will promptly, and in any event, not later than seven days following receipt, forward to Seller any payments received by Purchaser with respect to any of the Excluded Assets, and any checks, drafts or other instruments payable to Purchaser shall, when so delivered, bear all endorsements required to effect the transfer of the same to Seller and (d) Purchaser will promptly forward to Seller any mail or other communications received by Purchaser relating to the Excluded Assets or the Retained Liabilities. 8.10 ACCOUNTS RECEIVABLE. (a) Seller and the each Stockholder will use their reasonable best efforts to assist Purchaser in the collection of Accounts Receivable. On the Business Day immediately following the Put Date, Purchaser may transfer to Seller, and if so transferred, the Stockholders will, jointly and severally, cause Seller to, and Seller will, purchase from Purchaser, each Uncollected Accounts Receivable for an amount equal to the difference between (i) the face amount thereof, and (ii) the amount of any reserve for doubtful accounts set forth on the Closing Date Balance Sheet. During the 90 day period immediately following the Put Date, Purchaser will use all reasonable efforts (but at no substantial out-of-pocket cost to Purchaser) to assist Seller in the collection of the then Uncollected Accounts Receivable. Purchaser hereby covenants and agrees to execute any and all documents reasonably necessary to transfer any and all right, title and interest in Uncollected Accounts Receivable to Seller. (b) Any payment received by Seller after the Closing in respect of an Account Receivable (other than Uncollected Accounts Receivable transferred to Seller by Purchaser in accordance with Section 8.10(a)) will be deemed to be made in trust for the benefit of Purchaser. Seller will and the Stockholders will, jointly and severally, cause Seller to, upon receipt of such 38 payment, pay to Purchaser or its designee by wire transfer in immediately available funds the full amount of such payment. Any payment received by the Purchaser after the Closing in respect of an Uncollected Account Receivable transferred and conveyed to Seller in accordance with Section 8.10(a) will be deemed to be made in trust for the benefit of Seller, and Purchaser will, upon receipt of such payment, pay to Seller or its designee by wire transfer in immediately available funds the full amount of such payment. 8.11 USE OF NAMES. On and after the Closing Date, Seller will, and the Stockholders will, jointly and severally, cause Seller to, discontinue all use of the names "Nationwide Precision Products Corp." alone or in any combination of words for any product or service and will as promptly as possible, but in no event later than 30 days after the Closing Date, eliminate such names from all signs, purchase orders, invoices, sales orders, packaging stock, labels, letterheads, shipping documents and other materials used by Seller. 8.12 S CORPORATION STATUS. Seller will continue to be a valid S Corporation through the Closing. 8.13 OTHER FINANCIAL STATEMENTS. (a) Seller and each Stockholder will, prior to the Closing and thereafter as necessary in the judgement of Purchaser, deliver to Purchaser the written consent(s) of Brovitz, Insero, Kasperski & Co., P.C. authorizing the use by Purchaser or an Affiliate of Purchaser of the Audited Statements in connection with the financing contemplated by Section 9.1.11 (including a registration statement to be filed with the Securities and Exchange Commission in connection therewith). (b) Seller and each Stockholder will, prior to the Closing, deliver to Purchaser within twenty days after the last day of each applicable month the Monthly Financial Statements contemplated by clause (ii) of the definition thereof. 8.14 AVAILABLE CASH. Seller will, and each Stockholder will cause Seller to, (a) have available Cash of not less than $200,000 at the Closing (before giving effect to the payment of the Purchase Price) and (b) deliver evidence of the foregoing reasonably satisfactory to Purchaser. 8.15 TRANSFER TAXES; HSR ACT FILING FEES. Purchaser will pay all filing fees required to be paid in connection with the filings required to be made under the HSR Act. All transfer, documentary, sales, use, stamp, registration and value added Taxes imposed on Purchaser or Seller which are incurred in connection with this Agreement will be borne equally by Seller and Purchaser. 8.16 FURTHER ASSURANCES. From time to time, as and when requested by any party hereto, the other parties will execute and deliver, or cause to be executed and delivered, all such documents and instruments and will take, or cause to be taken, all such further actions, as the requesting party may reasonably deem necessary or desirable to consummate the transactions contemplated by this Agreement. 8.17 CONFIDENTIALITY. It is understood that the business of Purchaser and Precision Partners, L.L.C. and its subsidiaries and of Seller, and all matters related thereto, are of a confidential nature. Prior to the date hereof, there may have been revealed, and on or after the 39 date hereof there may be revealed, to Purchaser and its Affiliates or representatives, on the one hand, and to Seller and its Affiliates and representatives, on the other, "CONFIDENTIAL INFORMATION" (as hereinafter defined) concerning the business of Purchaser and Precision Partners, L.L.C. and its affiliates or the business of Seller. In consideration for and as an inducement to the parties to execute, deliver and perform this Agreement, each of the parties hereto hereby agrees that, following the termination of this Agreement or any other failure of the Closing to be consummated, neither party shall divulge or appropriate for their own use, or for the use of any third party, any Confidential Information of the other party. As used herein, the term "Confidential Information" means the following oral or written information relating to each party's business: know-how, technology, inventions, designs, methodologies, trade secrets, patents, secret processes and formulae, information relating to the development, research, testing, manufacturing, marketing, sales, distribution and uses of products, sources of supplies, budgets and strategic plans, the identity and special needs of customers, plants and other properties, and any other information which may give the party who received such Confidential Information an opportunity to obtain an advantage over its competitors who do not know or use such information; PROVIDED, HOWEVER, that the term "CONFIDENTIAL INFORMATION" shall not include (i) any such information that, prior to its use or disclosure by any party hereto, can be shown to have been in the public domain or generally known or available to customers, suppliers or competitors of the business of Purchaser and Precision Partners, L.L.C. and its affiliates or Seller, as the case may be, through no breach of the provisions of this Section; (ii) any such information that, prior to its use or disclosure by any party hereto was rightfully in the receiving party's possession, without violation of the provisions of this Section or other non-disclosure covenants that were executed for the benefit of Purchaser and Precision Partners, L.L.C. and its affiliates or Seller, as the case may be; or (iii) any such information that, prior to its use or disclosure by Purchaser or Seller, as the case may be, was developed by such party without violation of the provisions of this Section or other non-disclosure covenants that were executed for the benefit of Purchaser and Precision Partners, L.L.C. and its affiliates or Seller, as the case may be. ARTICLE IX CONDITIONS TO CLOSING 9.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of Purchaser to consummate the Closing are subject to the satisfaction of the following conditions: 9.1.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AND THE STOCKHOLDERS. (a) The representations and warranties of Seller and each Stockholder made in this Agreement will be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects) as of the date hereof and as of the Closing, as though made as of the Closing; (b) Seller and each Stockholder shall have performed and complied with all terms, agreements and covenants contained in this Agreement required to be performed or complied with by Seller and each Stockholder on or before the Closing Date; and (c) Seller will have delivered to Purchaser a certificate of Seller's Chief Executive Officer and each Stockholder will have delivered to Purchaser a certificate of Stockholder, all dated the Closing Date, confirming the foregoing and such other evidence of compliance with their obligations as Purchaser may reasonably request. 40 9.1.2 SELLER'S CERTIFICATE. Seller shall have delivered to Purchaser a certificate from Seller's Secretary or an Assistant Secretary certifying as to the due adoption of resolutions adopted by its Board of Directors (and its stockholders, if required) authorizing the execution of this Agreement and the Ancillary Agreements and the taking of any and all actions deemed necessary or advisable to consummate the transactions contemplated herein and therein. 9.1.3 STOCKHOLDER APPROVAL. This Agreement and the transactions contemplated hereby shall have been approved in the manner and by the requisite vote of the Stockholders required by applicable Law. 9.1.4 NO INJUNCTION, ETC. No provision of any applicable Law and no judgment, injunction, order or decree will be in effect which will prohibit the consummation of the Closing. 9.1.5 NO PROCEEDINGS. No proceeding challenging this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby or seeking to prohibit, alter, prevent or materially delay the Closing or seeking damages will have been instituted by any Person (other than Seller) before any court, arbitrator or Governmental Authority and be pending. 9.1.6 REQUIRED FILINGS. All actions by or in respect of or filings by Seller or any Stockholder with any Person required to permit the consummation of the Closing shall have been taken, made or obtained. 9.1.7 OPINION OF COUNSEL. Purchaser shall have received an opinion of Harris, Beach & Wilcox, LLP, counsel to Seller and the Stockholders, dated the Closing Date substantially in the form attached hereto as EXHIBIT I, together with the Reliance Letters to the Lenders. 9.1.8 TERMINATION OF SECURITY INTERESTS. Seller shall have obtained releases and other documentation reasonably requested by Purchaser in form and in substance satisfactory to Purchaser providing for the termination and release of all Liens (other than Permitted Liens) on the Purchased Assets. 9.1.9 ANCILLARY AGREEMENTS. Each of the Ancillary Agreements shall have been executed and delivered by the parties thereto other than Purchaser. 9.1.10 THIRD-PARTY CONSENTS; GOVERNMENTAL APPROVALS. All consents, approvals, waivers and Permits, if any, disclosed or required to be disclosed on any Schedule attached hereto or otherwise required in connection with the consummation of the transactions contemplated by this Agreement shall have been received. All of the consents, approvals, authorizations, exemptions, waivers and Permits from Governmental Authorities that will be required in order to enable Purchaser to consummate the transactions contemplated hereby shall have been obtained. 9.1.11 FINANCING. Purchaser shall have available to it financing necessary to consummate Closing on terms satisfactory to Purchaser in its sole discretion. 41 9.1.12 DUE DILIGENCE. Purchaser shall have completed, or caused to be completed by its attorneys, accountants and other representatives, to its satisfaction, business, legal, environmental and accounting due diligence investigations and reviews of Seller. 9.1.13 NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date, no event shall have occurred which, individually or when considered together with all other matters, has had or could reasonably be expected to have a Material Adverse Effect. 9.1.14 FIRPTA. Seller shall have furnished to Purchaser, on or prior to the Closing Date, a non-foreign person affidavit required by Section 1445 of the Code. 9.1.15 HSR ACT. Any applicable waiting period under the HSR Act relating to the transactions contemplated hereby shall have expired or been terminated. 9.2 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller and the Stockholders to consummate the Closing are subject to the satisfaction of the following conditions: 9.2.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER. The representations and warranties of Purchaser made in this Agreement will be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects) as of the date hereof and as of Closing, as though made as of the Closing; (b) Purchaser shall have performed and complied with all terms, agreements and covenants contained in this Agreement required to be performed or complied with by Purchaser on or before the Closing Date; and (c) Purchaser shall have delivered to Seller a certificate of Purchaser's Chief Executive Officer, dated the Closing Date, confirming the foregoing and such other evidence of compliance with its obligations as Seller may reasonably request. 9.2.2 PURCHASER'S CERTIFICATE. Purchaser will have delivered to Seller a certificate from its Secretary or Assistant Secretary certifying as to the due adoption of resolutions adopted by its Board of Directors (and its stockholders, if required) authorizing the execution of this Agreement and the Ancillary Agreements and the taking of any and all actions deemed necessary or advisable to consummate the transactions contemplated herein and therein. 9.2.3 NO INJUNCTION, ETC. No provision of any applicable Law and no judgment, injunction, order or decree will be in effect which will prohibit the consummation of the Closing. 9.2.4 OPINION OF COUNSEL. Seller shall have received an opinion of Jones, Day, Reavis & Pogue, counsel to Purchaser, dated the Closing Date substantially in the form attached hereto as EXHIBIT K. 9.2.5 ANCILLARY AGREEMENTS. Each of the Ancillary Agreements shall have been executed by Purchaser, if Purchaser is a party thereto. 9.2.6 HSR ACT. Any applicable waiting period under the HSR Act relating to the transactions contemplated hereby shall have expired or been terminated. 42 9.2.7 OFFER OF EMPLOYMENT. Each of the employees listed on SCHEDULE 8.5(a) shall have been offered employment by Purchaser. 9.2.8 NO PROCEEDINGS. No proceeding challenging this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby or seeking to prohibit, alter, prevent or materially delay the Closing or seeking damages will have been instituted by any Person (other than Purchaser) before any court, arbitrator or Governmental Authority and be pending. 9.2.9 THIRD-PARTY CONSENTS; GOVERNMENTAL APPROVALS. All consents, approvals, waivers and Permits required in connection with the consummation of the transactions contemplated by this Agreement, and all of the consents, approvals, authorizations, exemptions waivers and Permits from Governmental Authorities that will be required in order to enable Seller to consummate the transactions contemplated hereby, in each case set forth on SCHEDULE 9.2.9, shall have been received or obtained. ARTICLE X SURVIVAL; INDEMNIFICATION 10.1 SURVIVAL. (a) The representations and warranties of the parties contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith will survive the Closing until the first to occur of (i) the completion of Purchaser's audit in accordance with GAAP, (including receipt by Purchaser of an opinion of its auditors with respect, thereto) of its financial statements for Purchaser's fiscal year ended December 31, 2000 or (ii) March 31, 2001; PROVIDED, HOWEVER, that the representations and warranties contained in Section 6.1.10 and 6.1.18 will survive the Closing until the expiration of the statute of limitations applicable to the matters covered thereby (after giving effect to any waiver, mitigation or extension thereof granted by Seller), and the Selected Seller and Stockholders Representations and Warranties will survive the Closing indefinitely. Notwithstanding the immediately preceding sentence, any representation or warranty in respect of which indemnity may be sought under this Agreement will survive the time at which it would otherwise terminate pursuant to the immediately preceding sentence if written notice of the inaccuracy or breach thereof giving rise to such right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time; PROVIDED, HOWEVER, that the applicable representation or warranty will survive only with respect to the particular inaccuracy or breach specified in such written notice. All covenants and agreements of the parties contained in this Agreement, will survive the Closing indefinitely. 10.2 INDEMNIFICATION. (a) On and after the Closing, Seller and the Stockholders, jointly and severally, will indemnify, defend and hold harmless Purchaser and its officers, directors, employees, affiliates, stockholders and agents, and the successors to the foregoing (and their respective officers, directors, employees, affiliates, stockholders and agents), against any and all liabilities, damages and losses, in each case, actually incurred (including diminution in value of the Business, and, if but only to the extent asserted in a Third-Party Claim, punitive damages, but excluding lost profits and other consequential damages), and all costs or expenses actually incurred, including reasonable attorneys' and consultants' fees and 43 expenses ("DAMAGES"), incurred or suffered as a result of or arising out of (i) the failure of any representation or warranty made by Seller or any Stockholder in any subsection of Section 6.1 to be true and correct as of the Closing Date (other than a breach of Section 6.1.10 with respect to Taxes which will be governed by Section 10.3), (ii) the breach of any covenant or agreement made or to be performed by Seller or any Stockholder pursuant to this Agreement and (iii) any Retained Liabilities; PROVIDED, HOWEVER, that neither Seller nor any Stockholder will be liable under clause (i) of this Section 10.2(a) (other than with respect to a breach of any of the Selected Seller and Stockholders Representations and Warranties) unless the aggregate amount of Damages exceeds $250,000 and then from the first dollar to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that the aggregate liability of Seller and the Stockholders under clause (i) of Section 10.2(b) and under clause (i) of this Section 10.2(a) will not exceed (other than with respect to a breach of any of the Selected Seller and Stockholders Representations and Warranties), an amount equal to $10.0 million (the "CAP"). (b) On and after the Closing, Seller and the Stockholders, severally and not jointly (except where the covenants of the Stockholders are expressly set forth in this Agreement to be joint and several, in which case the indemnification obligations of the Stockholders under this Section 10.2(b) with respect to a breach of any such covenants will be joint and several), will indemnify, defend and hold harmless Purchaser and its officers, directors, employees, affiliates, stockholders and agents and the successors to the foregoing (and their respective officers, directors, employees, affiliates, stockholders and agents) against Damages incurred or suffered as a result of or arising out of (i) the failure of any representation or warranty made by any of the Stockholders in any subsection of Section 6.2 of this Agreement to be true and correct as of the Closing Date or (ii) the breach of any covenant or agreement made or to be performed by a Stockholder pursuant to this Agreement; PROVIDED, HOWEVER, that the aggregate liability of Seller and the Stockholders under clause (i) of Section 10.2(a) and under clause (i) of this Section 10.2(b) will not exceed the Cap. (c) On and after the Closing, Purchaser will indemnify, defend and hold harmless Seller and its officers, directors, employees, affiliates, stockholders and agents and the successors to the foregoing (and their respective officers, directors, employees, affiliates, stockholders and agents) against Damages incurred or suffered as a result of or arising out of (i) the failure of any representation or warranty made by Purchaser in Article VII of this Agreement to be true and correct as of the Closing Date, (ii) the breach of any covenant or agreement made or to be performed by Purchaser pursuant to this Agreement or (iii) any Assumed Liability; PROVIDED, HOWEVER, that Purchaser will not be liable under clause (i) of this Section 10.2(c) (other than with respect to a breach of any of the Selected Purchaser Representations and Warranties) unless the aggregate amount of Damages exceeds $250,000 and then from the first dollar to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that Purchaser's liability under clause (i) of this Section 10.2(c) (other than with respect to a breach of any of the Selected Purchaser Representations and Warranties) will not exceed, in the aggregate an amount equal to the Cap. 10.3 TAX INDEMNIFICATION. On and after the Closing, Seller and the Stockholders, jointly and severally, will indemnify, defend and hold harmless Purchaser, and its officers, directors, employees, affiliates and agents and the successors to the foregoing (and their respective officers, directors, employees, affiliates and agents) against (i) all Taxes (and losses, claims and expenses related thereto) resulting from, arising out of, or incurred with respect to, any claims that may be asserted by any party based upon, attributable to, or resulting from the 44 failure of any representation or warranty made pursuant to Section 6.1.10 to be true and correct as of the Closing Date and (ii) all Taxes imposed on or asserted against Purchaser or for which Purchaser or any of its Affiliates may be liable in respect of the Purchased Assets, the Business or the income or operations of Seller for all Pre-Closing Tax Periods (net of reserves for Taxes accurately reflected on the Closing Date Balance Sheet). 10.4 PROCEDURES. (a) If any Person who or which is entitled to seek indemnification under Section 10.2 or Section 10.3 (an "INDEMNIFIED PARTY") receives notice of the assertion or commencement of any Third-Party Claim against such Indemnified Party with respect to which the Person against whom or which such indemnification is being sought (an "INDEMNIFYING PARTY") is obligated to provide indemnification under this Agreement, the Indemnified Party will give such Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 20 days after receipt of such written notice of such Third-Party Claim. Such notice by the Indemnified Party will describe the Third-Party Claim in reasonable detail, will include copies of all available material written evidence thereof and will indicate the estimated amount, if reasonably practicable, of the Damages that has been or may be sustained by the Indemnified Party. The Indemnifying Party will have the right to participate in, or, by giving written notice to the Indemnified Party, to assume, the defense of any Third-Party Claim at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel (reasonably satisfactory to the Indemnified Party), and the Indemnified Party will cooperate in good faith in such defense. (b) If, within ten days after giving notice of a Third-Party Claim to an Indemnifying Party pursuant to Section 10.4(a), an Indemnified Party receives written notice from the Indemnifying Party that the Indemnifying Party has elected to assume the defense of such Third-Party Claim as provided in the last sentence of Section 10.4(a), the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof; PROVIDED, HOWEVER, that if the Indemnifying Party fails to take reasonable steps necessary to defend diligently such Third-Party Claim within ten days after receiving written notice from the Indemnified Party that the Indemnified Party reasonably believes the Indemnifying Party has failed to take such steps, the Indemnified Party may assume its own defense, and the Indemnifying Party will be liable for all reasonable costs and expenses paid or incurred in connection therewith. Without the prior written consent of the Indemnified Party, the Indemnifying Party will not enter into any settlement of any Third-Party Claim which would lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder, or which provides for injunctive or other non-monetary relief applicable to the Indemnified Party, or does not include an unconditional release of all Indemnified Parties. If a firm offer is made to settle a Third-Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party will give written notice to the Indemnified Party to that effect. If the Indemnified Party fails to consent to such firm offer within ten days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third-Party Claim and, in such event, the maximum liability of the Indemnifying Party as to such Third-Party Claim will not exceed the amount of such settlement offer. The Indemnified Party will provide the Indemnifying Party with reasonable access during normal business hours to books, records, and employees of the Indemnified Party necessary in connection with the Indemnifying Party's 45 defense of any Third-Party Claim which is the subject of a claim for indemnification by an Indemnified Party hereunder. (c) Any claim by an Indemnified Party on account of Damages which does not result from a Third-Party Claim (a "DIRECT CLAIM") will be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 20 days after the Indemnified Party becomes aware of such Direct Claim. Such notice by the Indemnified Party will describe the Direct Claim in reasonable detail, will include copies of all available material written evidence thereof and will indicate the estimated amount, if reasonably practicable, of Damages that has been or may be sustained by the Indemnified Party. The Indemnifying Party will have a period of ten days within which to respond in writing to such Direct Claim. If the Indemnifying Party does not so respond within such ten day period, the Indemnifying Party will be deemed to have rejected such claim, in which event the Indemnified Party will be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement. (d) A failure to give timely notice or to include any specified information in any notice as provided in Section 10.4(a), 10.4(b) or 10.4(c) will not affect the rights or obligations of any party hereunder, except and only to the extent that, as a result of such failure, any party which was entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise materially prejudiced as a result of such failure. 10.5 TREATMENT OF INDEMNIFICATION PAYMENTS. Any amount paid by Seller, the Stockholders or Purchaser under Section 10.2 or 10.3 will be treated as a capital contribution and/or an adjustment to the Purchase Price. 10.6 INDEMNIFICATION AMOUNTS NET OF BENEFITS RECEIVED. The amount of Damages for which indemnification is provided under Sections 10.2 and 10.3 shall be computed net of any insurance proceeds received by the Indemnified Party in connection with such Damages. If the amount with respect to which any claim is made under this Section 10.6 gives rise to a currently realizable Tax benefit to the Indemnified Party, the indemnity payment shall be reduced by the amount of such currently realizable Tax benefit then available to the party making the claim if and to the extent actually realized by such party in the year in which such indemnity payment is made to such party or in the next succeeding year. 10.7 EXCLUSIVE REMEDY. Absent fraud, Article X constitutes the exclusive remedy for the breach of covenants, agreements, representations or warranties set forth in this Agreement; PROVIDED, HOWEVER, that the provisions of this Section 10.7 will not prevent the Stockholders, Seller or Buyer from seeking the remedies of specific performance or injunctive relief in connection with the breach of a covenant or agreement of any party hereto. 46 ARTICLE XI MISCELLANEOUS 11.1 TERMINATION. (a) This Agreement may be terminated at any time prior to the Closing: (i) by the mutual written consent of Purchaser and Seller; (ii) by Purchaser, if there has been a material violation or breach by Seller or any Stockholder of any covenant, representation or warranty contained in this Agreement which has prevented the satisfaction of any condition to the obligations of Purchaser at the Closing, and such violation or breach has not been waived by Purchaser or, in the case of a covenant breach, cured by Seller or any Stockholder within the earlier of (x) ten days after written notice thereof from Purchaser or (y) the Closing Date; (iii) by Seller, if there has been a material violation or breach by Purchaser of any covenant, representation or warranty contained in this Agreement which has prevented the satisfaction of any condition to the obligation of Seller or any Stockholder at the Closing, and such violation or breach has not been waived by Seller or any Stockholder or, with respect to a covenant breach, cured by Purchaser within the earlier of (x) ten days after written notice thereof by Seller or (y) the Closing Date; (iv) by Purchaser or Seller if the transactions contemplated hereby have not been consummated by March 31, 1999; PROVIDED, HOWEVER, that (i) neither Purchaser nor Seller will be entitled to terminate this Agreement pursuant to this Section 11.1(a)(iv) if such Person's breach of this Agreement has prevented the consummation of the transactions contemplated hereby; (v) by Purchaser, if the conditions to Closing set forth in Sections 9.1.11, 9.1.13 or 9.1.15 have not been satisfied on or before March 31, 1999, or, on or prior to March 1, 1999, if the condition to Closing set forth in Section 9.1.12 has not been satisfied by such date; or (vi) by Seller, if the condition to Closing set forth in Section 9.2.6 has not been satisfied on or before March 31, 1999 or if the condition to Closing set forth in Section 9.1.12 has not been satisfied by March 1, 1999. (b) In the event that this Agreement is terminated pursuant to Section 11.1(a), all further obligations of the parties hereto under this Agreement (other than pursuant to Section 11.4, which will continue in full force and effect) will terminate without further liability or obligation of either party to the other party hereunder; PROVIDED, HOWEVER, that no party will be released from liability hereunder if this Agreement is terminated and the transactions abandoned by reason of (i) failure of such party to have performed its obligations hereunder or (ii) any misrepresentation made by such party of any matter set forth herein. 47 11.2 NOTICES. All notices, requests and other communications to any party hereunder will be in writing (including facsimile transmission) and will be given to such party at its address and facsimile number set forth in SCHEDULE 11.2 (which may be changed by such party upon notice in accordance with this Section 11.2). All such notices, requests and other communications will be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication will be deemed not to have been received until the next succeeding Business Day in the place of receipt. 11.3 AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Subject to Section 10.7, the rights and remedies herein provided will be cumulative and not exclusive of any rights or remedies provided by law. 11.4 EXPENSES. Except as otherwise expressly provided for herein, the parties will pay or cause to be paid all of their own fees and expenses incident to this Agreement and in preparing to consummate and consummating the transactions contemplated hereby, including the fees and expenses of any broker, finder, financial advisor, legal advisor or similar person engaged by such party. 11.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto; PROVIDED that Purchaser may assign its rights and obligations under this Agreement to a wholly-owned Affiliate of Purchaser, it being understood that such assignment will not relieve Purchaser from its obligations hereunder. 11.6 NO THIRD-PARTY BENEFICIARIES. Except as provided in Article XI, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied will give or be construed to give to any Person, other than the parties hereto and such permitted assigns any legal or equitable rights hereunder. 11.7 GOVERNING LAW. This Agreement will be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflict of laws rules of such state. 11.8 JURISDICTION. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any court of competent jurisdiction in the City of Rochester or the United States District Court for the Western District of New York and each of the parties hereby consents to the non-exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably 48 waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 11.2 will be deemed effective service of process on such party. 11.9 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11.10 COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which will be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 11.11 HEADINGS. The headings in this Agreement are for convenience of reference only and will not control or affect the meaning or construction of any provisions hereof. 11.12 ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits hereto) constitutes the entire agreement among the parties with respect to the subject matter of this Agreement. This Agreement (including the Schedules and Exhibits hereto) supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof of this Agreement. 11.13 SEVERABILITY; INJUNCTIVE RELIEF. (a) The provisions of this Agreement are severable. If any provision of this Agreement is held invalid, illegal or otherwise unenforceable, in whole or in part, the remaining provisions or enforceable parts thereof will not be affected thereby and will be enforced to the fullest extent permitted by law. In addition, should any provision or any portion thereof ever be adjudicated by a court of competent jurisdiction to exceed the time or other limitation permitted by applicable Law as determined by such court in such action, then such provisions will be decreased, performed to the maximum time or other limitations prescribed by applicable Law, the parties acknowledging their desire that in such event such action be taken. (b) The parties acknowledge and agree that the provisions of Section 8.17 are reasonably necessary to protect the legitimate interests of Seller, its Affiliates and their businesses and (i) that any violation of Section 8.17 will result in irreparable injury to Seller, and its Affiliates, the exact amount of which will be difficult to ascertain and the remedies at Law for which will not be reasonable or adequate compensation to Seller and its Affiliates for such a violation. Accordingly, Purchaser hereby agrees that if Purchaser violates any of the provisions of Section 8.17 in addition to any other remedy available at law or in equity, Seller will be entitled to seek specific performance or injunctive relief without posting a bond, or other security, and without the necessity of proving actual damages. 49 (c) The parties acknowledge and agree that the provisions of Sections 8.2, 8.8 and 8.17 are reasonably necessary to protect the legitimate interests of Purchaser, its Affiliates and their businesses and (i) that any violation of Sections 8.2, 8.8 or 8.17 will result in irreparable injury to Purchaser, and its Affiliates, the exact amount of which will be difficult to ascertain and the remedies at Law for which will not be reasonable or adequate compensation to Purchaser and its Affiliates for such a violation. Accordingly, Seller hereby agrees that if Seller violates any of the provisions of Sections 8.2, 8.8 or 8.17 in addition to any other remedy available at law or in equity, Purchaser will be entitled to seek specific performance or injunctive relief without posting a bond, or other security, and without the necessity of proving actual damages. 11.14 NO WAIVER. No action or inaction taken or omitted pursuant to this Agreement will be deemed to constitute a waiver of compliance with any representations, warranties or covenants contained in this Agreement and will not operate or be construed as a waiver of any subsequent breach, whether of a similar or dissimilar nature. 11.15 CERTAIN INTERPRETIVE MATTERS. (a) Unless the context otherwise requires, (i) all references to Sections, Articles, Schedules or Exhibits are to Sections, Articles, Schedules or Exhibits of or to this Agreement; (ii) each of the Schedules will apply only to the corresponding Section or Subsection of this Agreement, except that an item set forth or on Schedule may be deemed to be disclosed on another Schedule if the disclosure relating to such item is on its face expressly responsive to the representation and warranty to which such Schedule relates, it being understood that the foregoing exception will not be deemed to include any facts or circumstances derived from, or not otherwise expressly set forth in the disclosure with respect to such Scheduled item; (iii) each term defined in this Agreement has the meaning assigned to it; (iv) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP; (v) words in the singular include the plural and VICE VERSA; and (vi) the term "INCLUDING" means "including without limitation." All references to $ or dollar amounts will be to lawful currency of the United States. To the extent the term "DAY" or "DAYS" is used, it will mean calendar days. (b) No provision of this Agreement will be interpreted in favor of, or against, any of the parties hereto by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof. (c)(i) All references to the "KNOWLEDGE OF SELLER" or to words of similar import will be deemed to be references to the actual knowledge of one or more of the officers or directors of Seller, which knowledge will include such knowledge as such officers or directors would have had after due inquiry of the responsible employees of Seller and their counsel and accountants. (ii) All references to the "KNOWLEDGE OF STOCKHOLDERS" or to words of similar import will be deemed references to the actual knowledge of each Stockholder. (iii) All references to the "KNOWLEDGE OF PURCHASER" or to words of similar import will be deemed to be references to the actual knowledge of one or 50 more of the executive officers or directors of Purchaser after due inquiry, which knowledge will include such knowledge as such executive officers or directors would have had after due inquiry of the responsible officers and employees of Purchaser and its counsel and accountants. 51 The parties hereto have caused this Agreement to be duly executed by their respective authorized officers or in their individual capacity, if applicable, as of the day and year first above written. NATIONWIDE PRECISION PRODUCTS CORP. By: /s/ Michael R. Nuccitelli ---------------------------------- Name: Michael R. Nuccitelli Title: President NATIONWIDE ACQUISITION DELAWARE, INC. By: /s/ James E. Ashton ---------------------------------- Name: James E. Ashton Title: Chief Executive Officer STOCKHOLDERS By: /s/ John F. Nuccitelli ---------------------------------- John F. Nuccitelli By: /s/ Robert L. Nuccitelli ---------------------------------- Robert L. Nuccitelli By: /s/ Michael R. Nuccitelli ---------------------------------- Michael R. Nuccitelli 52 EX-2.5 6 STOCK PURCH. AGRMNT (FEB. 19, 1999) Exhibit 2.5 - -------------------------------------------------------------------------------- STOCK PURCHASE AGREEMENT BY AND AMONG CERTIFIED FABRICATORS, INC., CALBRIT DESIGN, INC. AND THEIR STOCKHOLDERS AND PRECISION PARTNERS, INC., DATED AS OF FEBRUARY 19, 1999 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE I. DEFINITIONS..............................................................................................1 1.1. Definitions................................................................................1 II. THE PURCHASE; CLOSING..................................................................................11 2.1. Purchase of Common Stock..................................................................11 2.2. Purchase Price............................................................................11 2.3. Estimated Closing Shareholders' Equity....................................................11 2.4. Post-Closing Adjustment...................................................................11 2.5. Adjustments to Closing Payments...........................................................13 2.6. Disposition of Escrow Amount..............................................................14 2.7. Earnout Amount............................................................................16 2.8. Closing...................................................................................17 2.9. Proceedings...............................................................................17 III. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE SHAREHOLDERS..................................17 3.1. ..........................................................................................17 3.1.1. Corporate Existence and Power....................................................17 3.1.2. Corporate Authorization; Enforceability..........................................18 3.1.3. Governmental Authorization.......................................................18 3.1.4. Non-Contravention; Consents......................................................18 3.1.5. Capitalization...................................................................18 3.1.6. Financial Statements; Books and Records..........................................19 3.1.7. No Undisclosed Liabilities.......................................................20 3.1.8. Intercompany Accounts............................................................20 3.1.9. Tax Matters......................................................................20 3.1.10. Absence of Certain Changes.......................................................22 3.1.11. Contracts........................................................................22 3.1.12. Insurance Coverage...............................................................24 3.1.13. Litigation.......................................................................24 3.1.14. Compliance with Laws; Permits....................................................25 3.1.15. Properties; Sufficiency of Assets................................................25 3.1.16. Intellectual Property............................................................26 3.1.17. Environmental Matters............................................................26 3.1.18. Plans and Material Documents.....................................................27 3.1.19. Interests in Customers, Suppliers, Etc...........................................29 3.1.20. Customer, Supplier and Employee Relations; Employee Compensation; Bonuses........29 3.1.21. Other Employment Matters.........................................................30 3.1.22. Accounts Receivable..............................................................30 3.1.23. Inventory........................................................................31 3.1.24. Millennium Compliance............................................................31 3.1.25. Finders' Fees....................................................................31
ii 3.2. Representations and Warranties of the Shareholders........................................31 3.2.1. Authority; Enforceability........................................................31 3.2.2. No Conflicts.....................................................................32 3.2.3. No Consents......................................................................32 3.2.4. Ownership of Shares; Title.......................................................32 3.2.5. Litigation.......................................................................32 IV. REPRESENTATIONS AND WARRANTIES OF BUYER...............................................................32 4.1. Corporate Existence and Power.............................................................32 4.2. Corporate Authorization; Enforceability...................................................33 4.3. Governmental Authorization................................................................33 4.4. Non-Contravention.........................................................................33 4.5. Litigation................................................................................33 4.6. Finders' Fees.............................................................................33 4.7. Purchase for Investment...................................................................33 V. CERTAIN COVENANTS.......................................................................................34 5.1. Conduct of Business of the Companies......................................................34 5.2. Exclusive Dealing.........................................................................35 5.3. Review of the Companies; Confidentiality..................................................36 5.4. Best Efforts..............................................................................37 5.5. Satisfaction and Termination of Equity Arrangements.......................................37 5.6. Plan Assets...............................................................................37 5.7. Monthly Financial Statements..............................................................37 5.8. Supplements to Schedules..................................................................37 5.9. Further Assurances........................................................................37 VI. TAX MATTERS............................................................................................38 6.1. Tax Returns...............................................................................38 6.2. Apportionment of Taxes....................................................................39 6.3. Cooperation; Audits.......................................................................39 6.4. Controversies.............................................................................39 6.5. Amended Returns...........................................................................40 6.6. Non-foreign Person Affidavit..............................................................40 VII. CONDITIONS TO CLOSING.................................................................................40 7.1. Conditions to Obligations of Buyer........................................................40 7.1.1. Representations, Warranties and Covenants of the Companies.......................40 7.1.2. Certificate of each of the Companies.............................................41 7.1.3. Representations, Warranties and Covenants of the Shareholders....................41 7.1.4. No Injunction, etc...............................................................41 7.1.5. No Proceedings...................................................................41 7.1.6. Required Filings.................................................................41 7.1.7. Opinion of Counsel...............................................................41 7.1.8. Spousal Consent..................................................................41 7.1.9. Due Diligence; Schedule Supplements..............................................41 7.1.10. Ancillary Agreements.............................................................42 7.1.11. Resignation of Directors.........................................................42
iii 7.1.12. Third Party Consents; Governmental Approvals.....................................42 7.1.13. FIRPTA...........................................................................42 7.1.14. No Material Adverse Change.......................................................42 7.1.15. Financing........................................................................42 7.1.16. Shareholder Indebtedness; Intercompany Accounts..................................42 7.1.17. HSR Act..........................................................................42 7.2. Conditions to Obligations of Each of the Companies and the Shareholders...................42 7.2.1. Representations, Warranties and Covenants of Buyer...............................43 7.2.2. Buyer's Certificate..............................................................43 7.2.3. No Injunction, etc...............................................................43 7.2.4. No Proceedings...................................................................43 7.2.5. Required Filings.................................................................43 7.2.6. Opinion of Counsel...............................................................43 7.2.7. Ancillary Agreements.............................................................43 7.2.8. HSR Act..........................................................................43 7.2.9. Shareholder Guarantees...........................................................43 VIII. SURVIVAL; INDEMNIFICATION............................................................................44 8.1. Survival..................................................................................44 8.2. Indemnification...........................................................................44 8.3. Tax Indemnification.......................................................................45 8.4. Procedures................................................................................46 8.5. Personal Liability of the Shareholders; Indemnification Cap...............................48 8.6. Treatment of Indemnification Payments.....................................................48 8.7. Indemnification Amounts Net of Benefits Received; Set-off.................................48 8.8. Exclusive Remedy..........................................................................49 IX. MISCELLANEOUS..........................................................................................49 9.1. Termination...............................................................................49 9.2. Notices...................................................................................50 9.3. Amendments and Waivers....................................................................50 9.4. Expenses..................................................................................50 9.5. Successors and Assigns....................................................................50 9.6. No Third Party Beneficiaries..............................................................50 9.7. Governing Law.............................................................................50 9.8. Jurisdiction..............................................................................51 9.9. Waiver of Jury Trial......................................................................51 9.10. Counterparts..............................................................................51 9.11. Headings..................................................................................51 9.12. Entire Agreement..........................................................................51 9.13. Severability..............................................................................51 9.14. No Waiver.................................................................................51 9.15. Certain Interpretive Matters..............................................................51 9.16. Transfer of Proceeds......................................................................52 9.17. Shareholders' Representative..............................................................52
iv EXHIBIT INDEX EXHIBIT A: Form of Amendment to Asset Lease Agreements EXHIBIT B-1: Form of Employment and Consulting Letter between CFI Holding and Buehler EXHIBIT B-2: Form of Employment and Consulting Letter between CFI Holding and Reagan EXHIBIT C: Form of Escrow Agreement among CFI Holding, the Escrow Agent and the Stockholders' Representative EXHIBIT D: Form of Financial Advisory Services Letter between CFI Holding and SKM EXHIBIT E-1: Form of Noncompetition Agreement between CFI Holding and Buehler EXHIBIT E-2: Form of Noncompetition Agreement between CFI Holding and Reagan EXHIBIT F-1: Form of Earnout Note EXHIBIT F-2: Form of Subordination Agreement EXHIBIT G-1: Form of Opinion of Ward, Kroll & Jampol EXHIBIT G-2: Form of Opinion of LeBoeuf, Lamb, Greene & MacRae EXHIBIT H: Form of Spousal Consent EXHIBIT I: Form of Opinion of Jones, Day, Reavis & Pogue v SCHEDULE INDEX SCHEDULE 1: Shareholders SCHEDULE 3.1.4: Non-Contravention; Consents SCHEDULE 3.1.5(a): Authorized, Issued and Outstanding Capital Stock SCHEDULE 3.1.5(b): Capitalization; Outstanding Interest to repurchase, redeem or otherwise acquire company securities. SCHEDULE 3.1.5(c): Capitalization; Company Owned Interests in Other Entities SCHEDULE 3.1.6(d): Changes in Companies' reserve or accrual amounts or policies SCHEDULE 3.1.7: Undisclosed Liabilities SCHEDULE 3.1.8: Inter-Company balances SCHEDULE 3.1.9(a): Tax Matters SCHEDULE 3.1.9(b): Jurisdictions to which any Tax on overall Net Income is Properly Payable SCHEDULE 3.1.10: Absence of Certain Changes SCHEDULE 3.1.11(a): Contracts SCHEDULE 3.1.11(b): Contracts SCHEDULE 3.1.11(c): Grants of Severance or Termination Pay SCHEDULE 3.1.13: Litigation SCHEDULE 3.1.14(a): Compliance with Laws; Permits SCHEDULE 3.1.14(b): Government or Regulatory Permits and Licenses SCHEDULE 3.1.15(a): Properties; Sufficiency of Assets SCHEDULE 3.1.15(b): Real Property assets owned or leased SCHEDULE 3.1.16: Intellectual Property SCHEDULE 3.1.17: Environmental Matters SCHEDULE 3.1.18(a): Benefit Plans SCHEDULE 3.1.18(b): Benefit Plans; ERISA and Code Compliance SCHEDULE 3.1.18(c): Benefit Plans: Compliance with the law or statutory, regulatory and contractual obligations SCHEDULE 3.1.18(d): Benefit Plans without favorable IRS determination letters SCHEDULE 3.1.18(h): Bonus, retirement, severance, job security or similar benefits SCHEDULE 3.1.18(i): Employee options to purchase shares SCHEDULE 3.1.19: Interests in Customers, Suppliers, Etc. SCHEDULE 3.1.20(a): Customer, Supplier and Employee Relations; Employer Compensation SCHEDULE 3.1.20(b): Bonuses SCHEDULE 3.1.21: Other Employment Matters SCHEDULE 3.1.22: Accounts Receivable SCHEDULE 3.1.23: Inventories acquired or produced since Balance Sheet Date SCHEDULE 3.1.24: Millennium Compliance SCHEDULE 3.1.25: Finder's Fees SCHEDULE 3.2.5: Litigation SCHEDULE 4.5: Litigation SCHEDULE 7.2.9 Shareholder Guarantees SCHEDULE 9.2: Notices SCHEDULE 9.15(c)(i): Knowledge of the Companies SCHEDULE 9.15(c)(ii): Knowledge of Buyer vi STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as of February 19, 1999, by and among CERTIFIED FABRICATORS, INC., a California corporation ("CFI"), CALBRIT DESIGN, INC., a California corporation ("CALBRIT"), the Persons listed on SCHEDULE 1 attached hereto (the "SHAREHOLDERS"), and PRECISION PARTNERS, INC., a Delaware corporation ("BUYER"). RECITALS A. The Shareholders own all of the issued and outstanding common stock, no par value (collectively, the "COMMON STOCK"), of each of CFI and Calbrit (each, a "COMPANY," and both collectively, the "COMPANIES") in the proportions set forth across from their names on SCHEDULE 1. B. Buyer desires to purchase from the Shareholders and the Shareholders desire to sell to Buyer (the "PURCHASE") the Common Stock in exchange for the Aggregate Consideration, all on the terms and conditions set forth herein. C. The parties desire to make certain representations, warranties and covenants in connection with the Purchase and to prescribe various conditions to the Purchase. Accordingly, the parties hereto agree as follows: I. DEFINITIONS 1.1. DEFINITIONS. In addition to the terms defined elsewhere herein, the following terms, as used herein, have the following meanings when used herein with initial capital letters: "1999 EBITDA" has the meaning ascribed to such term in Section 2.7(b). "1999 PAYOUT RATIO" has the meaning ascribed to such term in Section 2.7(b). "2000 EBITDA" has the meaning ascribed to such term in Section 2.7(c). "2000 PAYOUT RATIO" has the meaning ascribed to such term in Section 2.7(c). "ACCOUNTANTS" has the meaning ascribed to such term in Section 2.4(b). "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with the first Person. For the purposes of this definition, "CONTROL," when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or 1 otherwise, and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing. "AGGREGATE CLOSING CONSIDERATION" has the meaning ascribed to such term in Section 2.2(a). "AGGREGATE CONSIDERATION" means the sum of the Aggregate Closing Consideration, the Escrow Amount, if any, payable to the Shareholders, and the Earnout Amount, if any, payable to the Shareholders. "AGREEMENT" has the meaning ascribed to such term in the introductory paragraph of this Agreement, as the same may be amended from time to time in accordance with the terms hereof. "ANCILLARY AGREEMENTS" means the Asset Lease Agreements, the Employment Letters, the Escrow Agreement and the Noncompetition Agreements. "ASSET LEASE AGREEMENTS" means the lease agreements disclosed in SCHEDULE 3.1.15(b) between Certified Fabricators, a California general partnership, and the Company relating to the following properties: (a) 6291 Burnham Avenue, Buena Park, CA; (b) 6332 Burnham Avenue, Buena Park, CA; (c) 6351 Burnham Avenue, Buena Park, CA; and (d) 6350 Altura, Buena Park, CA; in each case as amended to the effect set forth in EXHIBIT A attached hereto. "ASSET SALE" means any direct or indirect issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by either Company or any of their Subsidiaries to any Person of any property or assets of either Company or any of their Subsidiaries other than in the ordinary course of business. "AUDITED BALANCE SHEET" means the audited balance sheet of CFI as of October 31, 1998 contained in the Audited Statements. "AUDITED STATEMENTS" means the audited balance sheets of CFI as of October 31, 1998, 1997 and 1996, together with the related statements of earnings and retained earnings, shareholders' equity and cash flows for the fiscal years then ended, together with the notes thereto and reports thereon of Ernst & Young, LLP. "BALANCE SHEET DATE" means October 31, 1998. "BALANCE SHEET PRINCIPLES" has the meaning ascribed to such term in Section 2.4(a). 2 "BASE SHAREHOLDERS' EQUITY" means shareholders equity reflected in the Audited Balance Sheet. "BONUSES" have the meaning ascribed to such term in Section 3.1.20(b). "BUSINESS DAY" means a day other than a Saturday or Sunday or a day on which banks located in New York City or Los Angeles are authorized or required to close. "BUYER" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "CALBRIT FINANCIAL STATEMENTS" means the unaudited balance sheet of Calbrit through the period ending October 31, 1998, together with the related statement of earnings, and, for each monthly period thereafter, the unaudited balance sheet of Calbrit covering such monthly period (or portion thereof) from November 1, 1998 through January 31, 1999 (or such later period as may be available prior to the Closing Date) , together with the related statement of earnings. "CAP" means, as of any point in time, the aggregate of the following two definitions: (i) "CASH CAP" means, as of any point in time, an amount equal to (a) $3.5 million plus (b) to the extent paid to the Shareholders or the Shareholders' Representative (for the benefit of the Shareholders) as required under this Agreement, up to 75% of the sum of any cash payments of the Escrow Amount and any cash payments of the Earnout Amount. (ii) "NON-CASH CAP" means, as of any point in time, to the extent the Earnout Amount (or portion thereof) is not paid in cash (but by tender of an Earnout Note) to the Shareholders or the Shareholders' Representative (for the benefit of the Shareholders), up to 75% of the Earnout Notes issued from time to time, reduced by the Earnout Amount previously paid in cash (under the Earnout Notes) or set off against previously issued Earnout Notes. "CAPITAL STOCK" means (a) with respect to any Person that is a corporation, any and all shares, interests, participation or other equivalents (however designated and whether or not voting) of corporate stock, including the common stock of such Person and (b) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "CAPITALIZED LEASE OBLIGATIONS" means, with respect to either Company, for any applicable period, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP, and the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "CLOSING" has the meaning ascribed to such term in Section 2.8. "CLOSING DATE" has the meaning ascribed to such term in Section 2.8. 3 "CLOSING DATE BALANCE SHEET" has the meaning ascribed to such term in Section 2.4(a). "CLOSING SHAREHOLDERS' EQUITY" has the meaning ascribed to such term in Section 2.4(a). "CLOSING SHAREHOLDERS' EQUITY STATEMENT" has the meaning ascribed to such term in Section 2.4(a). "CODE" means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. "COMMON STOCK" has the meaning ascribed to such term in Recital A of this Agreement. "COMPANY" and "COMPANIES" have the meaning ascribed to such terms in Recital A of this Agreement. "COMPANY PROPERTY" means any real property and improvements at any time owned, leased, used, operated or occupied (whether for storage, disposal or otherwise) by either of the Companies. "COMPANY SCHEDULES" has the meaning ascribed to such term in Section 5.8. "COMPANY SECURITIES" has the meaning ascribed to such term in Section 3.1.5(b). "COMPUTER SYSTEMS" has the meaning ascribed to such term in Section 3.1.24. "CONSTITUENTS OF CONCERN" means any substance defined as a hazardous substance, hazardous waste, hazardous material, pollutant, or contaminant by any Environmental Law, any petroleum hydrocarbon and any degradation product of a petroleum hydrocarbon, asbestos, PCB or similar substance, the handling, storage, treatment or exposure of or to which is subject to regulation under any Environmental Law. "DAMAGES" has the meaning ascribed to such term in Section 8.2(a). "DIRECT CLAIM" means a claim by an Indemnified Party on account of Damages which does not result from a Third Party Claim or a Third Party Notice. "EARNOUT AMOUNT" has the meaning ascribed to such term in Section 2.7. "EARNOUT EBITDA STATEMENTS" has the meaning set forth in Section 2.7(a). "EARNOUT NOTE" and "EARNOUT NOTES" have the meanings ascribed to such terms in Section 2.7(d). 4 "EBITDA" means, with respect to CFI and its Subsidiaries the sum (without duplication) of (a) Net Income and (b) to the extent Net Income has been reduced thereby, (i) all income Taxes of CFI recorded as a Tax provision in accordance with GAAP for such period (other than income Taxes attributable to extraordinary, unusual or nonrecurring gains or losses or Taxes attributable to sales or dispositions outside the ordinary course of business), (ii) Interest Expense and (iii) Non-cash Charges, all as determined in accordance with GAAP. "EBITDA STATEMENT" has the meaning ascribed to such term in Section 2.6(a). "EMPLOYMENT AND CONSULTING LETTERS" means the employment or consulting letter agreements between Buyer and each of BRW, Inc. and Robert Reagan, substantially to the effect set forth in EXHIBITS B-1 and B-2. "ENVIRONMENTAL CLAIMS" means administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, citations, summonses, notices of non-compliance or violation, requests for information, investigations or proceedings relating to any Environmental Law or any permit issued under any such Law, including (a) Environmental Claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) Environmental Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Constituents of Concern or arising from alleged injury or threat of injury to human health and safety or the environment. "ENVIRONMENTAL CONDITION" means a condition with respect to the environment which has resulted or could result in a material loss, liability, cost or expense to the Companies. "ENVIRONMENTAL LAW" means any Law in effect or to the Companies' and the Shareholders' knowledge, any Law reasonably expected to be adopted or made effective, in each case as amended as of the Closing Date, and any judicial or administrative interpretation thereof as of the Closing Date, including any judicial or administrative order, consent decree or judgment, relating to the environment, human health and safety, including, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601, et seq. ("CERCLA") and any state and local counterparts or equivalents. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" means any Person that, together with either of the Companies, would be considered a single employer within the meaning of Section 4001 of ERISA or Section 414 of the Code. "ESCROW AGENT" means Orange Coast Title Company. "ESCROW AGREEMENT" means the Escrow Agreement among Buyer, the Escrow Agent and the Shareholders' Representative, substantially to the effect set forth in EXHIBIT C. "ESCROW AMOUNT" has the meaning ascribed to such term in Section 2.2(b). 5 "ESTIMATED CLOSING SHAREHOLDERS' EQUITY" has the meaning ascribed to such term in Section 2.3. "ESCROW EBITDA STATEMENT" has the meaning ascribed to such term in Section 2.6(a). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "FINANCIAL ADVISORY SERVICES LETTER" means the Financial Advisory Services Letter Agreement between Buyer and Saunders Karp & Megrue, L.P., in respect of advisory and monitoring services to be provided to the Companies, substantially to the effect set forth in EXHIBIT D. "FISCAL YEAR" means any 12-month period commencing on November 1. "GAAP" means U.S. generally accepted accounting principles, consistently applied. "GOVERNMENTAL AUTHORITY" means any domestic or foreign governmental or regulatory authority. "HSR ACT" has the meaning ascribed to such term in Section 3.1.3. "INDEBTEDNESS" means with respect to any Person, at any date, without duplication, (i) all outstanding obligations of such Person for borrowed money, including, without limitation, all principal, interest, premiums, fees, expenses, overdrafts and penalties with respect thereto, (ii) all outstanding obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all outstanding obligations of such Person to pay the deferred purchase price of the property or services, except trade payables incurred in the ordinary course of business, (iv) all outstanding obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (v) all outstanding obligations of such Person as lessee under Capitalized Leases; and (vi) all Indebtedness of any other Person of the type referred to in clauses (i) to (v) above directly or indirectly guaranteed by such Person or secured by any assets of such Person. "INDEMNIFIED PARTY" means a Person who or which is seeking indemnification under Section 8.2 or Section 8.3. "INDEMNIFYING PARTY" means a Person against whom or which indemnification under Section 8.2 or Section 8.3 is being sought. "INTELLECTUAL PROPERTY RIGHT" means any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how (including any registrations or applications for registration of any of the foregoing) or any other similar type of proprietary intellectual property right, in each case which is used or held for use or otherwise necessary in connection with the conduct of the businesses of either of the Companies as now conducted or as conducted at the Closing Date. 6 "INTEREST EXPENSE" means, with respect to CFI and its Subsidiaries, for any applicable period, the sum of, without duplication: (a) the aggregate of the interest expense (net of interest income) of CFI and its Subsidiaries during such period determined in accordance with GAAP and (b) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by CFI during such period as determined in accordance with GAAP. "IRS" means the Internal Revenue Service. "KNOWLEDGE" has the meaning ascribed to such term in Sections 9.15(c)(i), (ii) and (iii). "LAST OFFER" has the meaning ascribed to such term in Section 2.4(b). "LAW" means any federal, state or local statute, law, rule, regulation, ordinance, code, permit or license issued by a Governmental Authority or rule of common law. "LIEN" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For the purposes of this Agreement, a Person will be deemed to own, subject to a Lien, any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, assets, liabilities, condition (financial and other) or results of operations of the Companies, taken as a whole. "MILLENNIUM COMPLIANCE" means that the Computer Systems are capable of the following, during and/or after January 1, 2000: (a) handling date information involving all and any dates, including accepting input, providing output and performing date calculations in whole or in part; (b) operating accurately without interruption on and in respect of any and all dates and without any change in performance; (c) responding to and processing two digit year input without creating any ambiguity as to the century; and (d) storing and providing date input information without creating any ambiguity as to the century. "MONTHLY CFI FINANCIAL STATEMENTS" means, for each month from November 1, 1998 through January 31, 1999 (or such later period as may available prior to the Closing Date), the unaudited monthly balance sheet of CFI covering such monthly period together with the related monthly statements of earnings and retained earnings, shareholders' equity and cash flows. "NET INCOME" means, with respect to CFI and its Subsidiaries for any applicable period, the aggregate net income (or loss) of CFI and its Subsidiaries for such period, determined in accordance with GAAP, PROVIDED, HOWEVER, that the calculation of such aggregate net income or loss will be made without giving effect to, by excluding from the calculation thereof, the following items: (a) after-tax gains and losses from Asset Sales or abandonments or reserves relating thereto, (b) after-tax items classified as extraordinary or nonrecurring gains or losses, (c) 7 the net income of any Person acquired in a "pooling of interests" transaction or a recapitalization accrued prior to the date it becomes a subsidiary of CFI or is merged or consolidated with CFI or any subsidiary of either Company, (d) the net income of any subsidiary of CFI to the extent that the declaration of dividends or similar distributions by that subsidiary of that income is restricted by a contract, operation of law or otherwise, (e) the net income of any other Person, other than a subsidiary of CFI, except to the extent of cash dividends or distributions paid to CFI or to a subsidiary of CFI by such other Person, (f) in the case of a successor to either Company by consolidation or merger or as a transferee of CFI's assets, any net income (or loss) of the successor corporation prior to such consolidation, merger or transfer of assets, (g) the aggregate of gross interest income of CFI and its subsidiaries determined in accordance with GAAP, and (h) Transaction Fees and Expenses expensed during any such period. "NON-CASH CHARGES" means, with respect to CFI and its Subsidiaries for any applicable period, the aggregate depreciation and amortization of the Companies and their Subsidiaries reducing Net Income of the Companies and their Subsidiaries for such period, determined in accordance with GAAP. "NONCOMPETITION AGREEMENTS" means the Noncompetition Agreements between Buyer and each of Gary Buehler and Robert Reagan substantially to the effect set forth in EXHIBITS E-1 and E-2. "NOTIFIED PARTY" has the meaning ascribed to such term in Section 8.4(a). "NOTIFYING PARTY" has the meaning ascribed to such term in Section 8.4(a). "OPERATING COMPANY" means an "operating company" within the meaning of Department of Labor Regulation ss. 2510.3-101(c) or successor rule or regulation, as from time to time amended and in effect. "ORDER" means any judgment, injunction, judicial or administrative order or decree. "PERCENTAGE INTEREST" means, with respect to any Shareholder, the percentage set forth opposite such Shareholder's name on SCHEDULE 1. "PERMITTED LIEN" means (i) mechanics', workmen's, repairmen's or other like Liens arising or incurred in the ordinary course of business in respect of obligations that are not overdue or (ii) other imperfections of title or encumbrances, which do not materially affect the value (including the transferability) of the property subject thereto. "PERSON" means an individual, corporation, partnership, association, trust or other entity or organization, including a Governmental Authority. "PERSONAL LIABILITY AMOUNT" has the meaning ascribed to such term in Section 8.5(a). "PLANS" has the meaning ascribed to such term in Section 3.1.18(a). 8 "POST-CLOSING TAX PERIOD" means any Tax period (or portion thereof) ending after the Closing Date. "POST-OCTOBER 31, 1995 TAX MATTERS" has the meaning ascribed to such term in Section 6.4(a). "PRE-CLOSING TAX PERIOD" means any Tax period (or portion thereof) ending on or before the Closing Date. "PRE-OCTOBER 31, 1995 TAX MATTERS" has the meaning ascribed to such term in Section 6.4(b). "PURCHASE" has the meaning ascribed to such term in Recital B. "Q1/Q2 EBITDA" means the aggregate EBITDA of CFI for the first two quarters of CFI's Fiscal Year ended October 31, 1999. "REAL PROPERTY" has the meaning ascribed to such term in Section 3.1.15(b). "RETURNS" has the meaning ascribed to such term in Section 3.1.9(a)(i). "SELECTED COMPANY REPRESENTATIONS AND WARRANTIES" has the meaning ascribed to such term in Section 8.1. "SELECTED SHAREHOLDER REPRESENTATIONS AND WARRANTIES" has the meaning ascribed to such term in Section 8.1. "SHAREHOLDERS' REPRESENTATIVE DISPUTE NOTICE" has the meaning ascribed to such term in Section 6.1(a). "SHAREHOLDERS" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "SHAREHOLDERS' REPRESENTATIVE" has the meaning ascribed to such term in Section 9.17(a). "SUBSIDIARY" means, with respect to a Company, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions and at the time are directly or indirectly owned by such Company. "TAX" means (a) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, license, withholding on amounts paid to or by either of the Companies, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest, penalty, addition to tax or additional amount imposed by any Taxing Authority (as hereinafter defined), (b) any liability of either of the Companies for the payment of 9 any amounts of any of the foregoing types as a result of being a member of an affiliated, consolidated, combined or unitary group, or being a party to any agreement or arrangement whereby liability of either of the Companies for payment of such amounts was determined or taken into account with reference to the liability of any other Person, and (c) liability of either of the Companies for the payment of any amounts as a result of being a party to any Tax Sharing Agreements or with respect to the payment of any amounts of any of the foregoing types as a result of any express or implied obligation to indemnify any other Person. "TAX SHARING AGREEMENTS" means all existing Tax sharing agreements or arrangements (whether or not written) binding either of the Companies. "TAXING AUTHORITY" means any Governmental Authority responsible for the imposition of any Tax. "THIRD PARTY CLAIM" means any suit or proceeding made or brought by any Person who or which is not a party to this Agreement. "THIRD PARTY NOTICE" means any claim, demand, action or notice from any Person who or which is not a party to this Agreement, which does not constitute a Third Party Claim. "THIRD-PARTY TRANSACTION" has the meaning ascribed to such term in Section 5.2. "TRANSACTION FEES AND EXPENSES" means (i) the reasonable fees and expenses of legal counsel, accountants and other advisors engaged by Buyer incurred in connection with the transactions contemplated hereby, (ii) the fees and expenses of Saunders Karp & Megrue, L.P., Carlisle Group, L.P. and Harvey & Company, LLC, (iii) the ongoing fees and expenses referred to in the Financial Advisory Services Letter, and (iv) corporate overhead allocated by Buyer and Affiliates of Buyer to each of the Companies. "TRANSFER" has the meaning ascribed to such term in Section 2.1. II. THE PURCHASE; CLOSING 2.1. PURCHASE OF COMMON STOCK. On the terms and subject to the conditions of this Agreement, at the Closing, (a) Buyer will purchase from each Shareholder and each Shareholder will sell, assign, transfer and deliver ("TRANSFER") to Buyer, the Common Stock owned by such Shareholder. The certificates representing the Common Stock will be duly endorsed in blank, or accompanied by stock powers duly executed in blank, by the Shareholder Transferring the same to Buyer. The Shareholder will cure any deficiencies with respect to the endorsement of the certificates representing the Common Stock owned by such Shareholder or with respect to the stock power accompanying any such certificates. 2.2. PURCHASE PRICE. In consideration for the Transfer by the Shareholders of the Common Stock to Buyer, Buyer will deliver at the Closing (a) to the Shareholders' 10 Representative (for the benefit of the Shareholders) an aggregate amount equal to $11.0 million (the "AGGREGATE CLOSING CONSIDERATION"), subject to adjustment as provided in Section 2.4 and Section 2.5, payable to each Shareholder in cash by wire transfer of immediately available funds to one account designated in writing by the Shareholders' Representative, and (b) to the Escrow Agent $4.0 million (the "ESCROW AMOUNT") by wire transfer of immediately available funds to the account designated in writing by the Escrow Agent, to be held in escrow under the Escrow Agreement, payable as set forth therein and in Section 2.6 hereof. The Shareholders' Representative will indemnify and hold Buyer harmless from any claim of any Shareholder arising out of the alleged misapplication of any sums paid by Buyer to the Shareholders' Representative or Earnout Notes delivered to the Shareholders' Representative under this Agreement. 2.3. ESTIMATED CLOSING SHAREHOLDERS' EQUITY. Not less than two Business Days prior to the Closing Date, CFI and Buyer will prepare and agree on an estimate of the Closing Shareholders' Equity (the "ESTIMATED CLOSING SHAREHOLDERS' EQUITY") determined in accordance with Section 2.4, as if it were the actual Closing Shareholders' Equity, but based upon CFI's and Buyer's review of monthly financial information then available and inquiries of personnel responsible for the preparation of the financial information relating to CFI in the ordinary course. The Aggregate Closing Consideration will be reduced dollar-for-dollar by the amount, if any, by which the Estimated Closing Shareholders' Equity, determined in accordance with Section 2.4, is less than the Base Shareholders' Equity. 2.4. POST-CLOSING ADJUSTMENT. (a) As soon as practicable (and in no event later than 90 days after the Closing), Buyer will prepare and deliver or cause to be prepared and delivered to the Shareholders' Representative a balance sheet of CFI as of the close of business on the Closing Date, without giving effect to the transactions contemplated hereby (the "CLOSING DATE BALANCE SHEET") and a proposed statement of the shareholders' equity of CFI as of the close of business on the Closing Date, without giving effect to the transactions contemplated hereby (the "CLOSING SHAREHOLDERS' EQUITY STATEMENT"). The Closing Date Balance Sheet and the Closing Shareholders' Equity Statement (i) will reflect, respectively, the financial position of CFI and the components and calculation of the shareholders' equity of CFI in each case as of the close of business on Closing Date, without giving effect to the transactions contemplated hereby and (ii) will be prepared and determined in accordance with GAAP, on a basis consistent with the policies, principles and methodology used in connection with the preparation of the Audited Balance Sheet (the policies, principles and methodology in clause (ii) being referred to herein as the "BALANCE SHEET PRINCIPLES"). Notwithstanding anything contained herein to the contrary, there will be no changes in reserve or accrual amounts or policies between The Balance Sheet Date and the Closing Date, without the prior written consent of Buyer except as set forth on Schedule 3.1.6(d). The shareholders' equity of CFI as of the Closing Date determined in accordance with this Section 2.4 is referred to herein as the "CLOSING SHAREHOLDERS' EQUITY." (b) If, within 45 days after the date of Buyer's delivery of the Closing Date Balance Sheet and the Closing Shareholders' Equity Statement, the Shareholders' Representative determines in good faith that the Closing Date Balance Sheet and the Closing Shareholders' Equity Statement have not been prepared and determined in accordance with this Agreement, the Shareholders' Representative will give written notice to Buyer within such 45 day period (i) setting forth the Shareholders' Representative's proposed changes to the Closing Date Balance Sheet as prepared by Buyer and the determination by the Shareholders' Representative of the 11 Closing Shareholders' Equity and (ii) specifying in reasonable detail the Shareholders' Representative's basis for disagreement with Buyer's preparation and determination of the Closing Date Balance Sheet and the Closing Shareholders' Equity. The failure by the Shareholders' Representative to so express disagreement and provide such specification within such 45 day period will constitute the acceptance of Buyer's preparation of the Closing Date Balance Sheet and the computation of the Closing Shareholders' Equity. If Buyer and the Shareholders' Representative are unable to resolve any disagreement between them with respect to the preparation of the Closing Date Balance Sheet and the determination of the Closing Shareholders' Equity within 30 days after the giving of notice by the Shareholders' Representative to Buyer of such disagreement, the items in dispute will be referred by Buyer for determination to PricewaterhouseCoopers LLP (the "ACCOUNTANTS") as promptly as practicable, but not later than five days after the expiration of such 30 day period. Buyer and the Shareholders' Representative will use reasonable efforts to cause the Accountants to render their decision as soon as practicable thereafter, including without limitation by promptly complying with all reasonable requests by the Accountants for information, books, records and similar items. Buyer and the Shareholders' Representative will cause the Accountants to make a determination as to each of the items in dispute (but only those items in dispute), which determination will be (A) in writing, (B) furnished to each of the parties hereto as promptly as practicable after the items in dispute have been referred to the Accountants, (C) made in accordance with this Section 2.4. Such determination of the Accountants will be conclusive and binding upon each of the parties hereto. Nothing herein will be construed to authorize or permit the Accountants to determine (i) any question or matter whatsoever under or in connection with this Agreement, except the determination of what adjustments, if any, must be made in one or more disputed items reflected in the Closing Date Balance Sheet and the Closing Shareholders' Equity Statement delivered by Buyer in order for the Closing Shareholders' Equity to be determined in accordance with the provisions of this Agreement, in Section 2.4, or (ii) a Closing Shareholders' Equity that is not equal to one of, or between, the Closing Shareholders' Equity as determined by the Shareholders' Representative and as determined by Buyer. The fees and expenses of the Accountants will be paid by the party whose last written settlement offer related to all items in dispute, in the aggregate, submitted to the Accountants immediately prior to the initial referral of the matter to the Accountants in accordance with this Section 2.4(b) (each, a "LAST OFFER") varies by the greatest absolute amount from the determination by the Accountants of all such disputed items. No party will disclose to the Accountants, and the Accountants will not consider for any purpose, any settlement discussions or settlement offer (other than the Last Offer) made by any party. (c) During the period that the Shareholders' Representative's advisors and personnel are conducting their review of Buyer's preparation of the Closing Date Balance Sheet and determination of the Closing Shareholders' Equity, the Shareholders' Representative and his representatives will have reasonable access during normal business hours to the work papers, prepared by or on behalf of Buyer and its representatives in connection with Buyer's preparation of the Closing Shareholders' Equity Statement and determination of the Closing Shareholders' Equity; PROVIDED, HOWEVER, that the Shareholders' Representative will conduct such review in a manner that does not unreasonably interfere with the conduct of the businesses of the Companies or result in substantial out-of-pocket costs to Buyer. To the extent any such work papers are in the control of the Shareholders' Representative after the Closing, the Shareholders' Representative will grant Buyer and its representatives reciprocal access rights for the purpose of finalizing the preparation of the Closing Date Balance Sheet and the determination of the Closing 12 Shareholders' Equity. The Shareholders' Representative and Buyer agree in good faith to use all reasonable efforts to provide such information and access described in this Section 2.4(c). 2.5. ADJUSTMENTS TO CLOSING PAYMENTS. (a) Upon the final determination of the Closing Shareholders' Equity, the parties shall make the following adjustments: (i) If the Closing Shareholders' Equity exceeds the Estimated Closing Shareholders' Equity, then the Aggregate Closing Consideration (if reduced pursuant to Section 2.3) will be increased by, and Buyer shall pay to the Shareholders' Representative (for the benefit of the Shareholders) the amount of, such difference; provided that the Aggregate Closing Consideration will in no event exceed $11.0 million. (ii) If the Closing Shareholders' Equity is less than the Estimated Closing Shareholders' Equity, then the Aggregate Closing Consideration will be decreased by, and each Shareholder will pay to Buyer, the amount of such difference multiplied by such Shareholders' Percentage Interest. (b) Any payment in respect of an adjustment required to be made under Section 2.5(a) will be made by Buyer or the Shareholders, as applicable, in cash by wire transfer of immediately available funds to one account specified by Buyer or the Shareholders' Representative (for the benefit of the Shareholders), as applicable, in writing, prior to the date such payment is required to be made hereunder. Such payment will be made on such of the following dates as may be applicable: (i) if the Shareholders' Representative shall have not objected to the preparation of the Closing Date Balance Sheet and the determination of the Closing Shareholders' Equity, the earlier of (A) 30 days after delivery to the Shareholders' Representative of the Closing Date Balance Sheet and Closing Shareholders' Equity Statement or (B) five days after the Shareholders' Representative has indicated that he has no objections to the preparation of the Closing Date Balance Sheet and the determination of the Closing Shareholders' Equity, or (ii) if the Shareholders' Representative shall have objected to the preparation of the Closing Date Balance Sheet and the determination of the Closing Shareholders' Equity by Buyer, within five Business Days following final agreement or decision with respect to the Closing Date Balance Sheet and the Closing Shareholders' Equity as provided in Section 2.4 and this Section 2.5. 2.6. DISPOSITION OF ESCROW AMOUNT. (a) As soon as practicable (and in no event later than 90 days after the end of the second quarter of CFI's Fiscal Year ended October 31, 1999), Buyer shall prepare and deliver to the Shareholders' Representative a statement of EBITDA for CFI and its subsidiaries (an "EBITDA STATEMENT") for the first two quarters of CFI's Fiscal Year ended October 31, 1999 (such EBITDA Statement, the "ESCROW EBITDA STATEMENT") prepared in accordance with GAAP and the Balance Sheet Principles. (b) If within 45 days after the date of the Buyer's delivery of the EBITDA Statement, the Shareholders' Representative determines in good faith that the Escrow EBITDA Statement and the Q1/Q2 EBITDA have not been prepared and determined in accordance with this Agreement, the Shareholders' Representative will give written notice to Buyer within such 45 day period (i) setting forth the Shareholders' Representative's proposed changes to the Escrow EBITDA Statement and (ii) specifying in reasonable detail the Shareholders' Representative's basis for disagreement with the preparation of the Escrow EBITDA Statement 13 and the determination of the Q1/Q2 EBITDA. The failure by the Shareholders' Representative to so express disagreement and provide such specification within such 45 day period will constitute the acceptance by the Shareholders of the preparation of the Escrow EBITDA Statement and the determination of the Q1/Q2 EBITDA. If Buyer and the Shareholders' Representative are unable to resolve any disagreement between them with respect to the preparation of the Escrow EBITDA Statement and the determination of the Q1/Q2 EBITDA within 30 days after the giving of notice by the Shareholders' Representative to Buyer of such disagreement, the items in dispute will be referred by Buyer for determination to the Accountants as promptly as practicable, but not later than five Business Days after the expiration of such 30 day period. Buyer and the Shareholders' Representative will use reasonable efforts to cause the Accountants to render their decision as soon as practicable thereafter, including without limitation by promptly complying with all reasonable requests by the Accountants for information, books, records and similar items. Buyer and the Shareholders' Representative will cause the Accountants to make a determination as to each of the items in dispute (but only those items in dispute), which determination will be (A) in writing, (B) furnished to each of the parties hereto as promptly as practicable after the items in dispute have been referred to the Accountants (but in no event later than 30 days thereafter) and (C) made in accordance with this Section 2.6. Such determination by the Accountants will be conclusive and binding upon each of the parties hereto. Nothing herein will be construed to authorize or permit the Accountants to determine (i) any question or matter whatsoever under or in connection with this Agreement, except the determination of what adjustments, if any, must be made in one or more disputed items reflected in the Escrow EBITDA Statement delivered by Buyer in order for the Q1/Q2 EBITDA to be determined in accordance with the provisions of this Section 2.6, or (ii) a Q1/Q2 EBITDA that is not equal to one of, or between, the Q1/Q2 EBITDA as determined by the Shareholders' Representative and as determined by Buyer. The fees and expenses of the Accountants will be paid by the party whose Last Offer varies by the greatest absolute amount from the determination by the Accountants of all such disputed items. No party will disclose to the Accountants, and the Accountants will not consider for any purpose, any settlement discussions or settlement offer (other than the Last Offer) made by any party. (c) During the period that the Shareholders' Representative's advisors and personnel are conducting their review of Buyer's preparation of the Escrow EBITDA Statement, the Shareholders' Representative and his representatives will have reasonable access during normal business hours to the work papers, prepared by or on behalf of Buyer and its representatives in connection with Buyer's preparation of the Escrow EBITDA Statement; PROVIDED, HOWEVER, that the Shareholders' Representative will conduct such review in a manner that does not unreasonably interfere with the conduct of the business of Buyer or the Company or result in substantial out-of-pocket costs to the Company. To the extent that such work-papers are in the control of the Shareholders' Representative, the Shareholders' Representative will grant Buyer and its representatives reciprocal access rights for the purpose of finalizing the preparation of the Escrow EBITDA Statement and the determination of the Q1/Q2 EBITDA. The Shareholders' Representative and Buyer agree in good faith to use all reasonable efforts to provide such information and access described in this Section 2.6(c). (d) Within five Business Days after the final determination of the Escrow EBITDA Statement and the Q1/Q2 EBITDA in accordance with this Section 2.6, Buyer and the Shareholders' Representative or, if applicable, the Accountants will execute and deliver, to the Escrow Agent, a certificate reflecting the amounts to be distributed as determined in accordance 14 with this Section 2.6 and the Escrow Amount (together with all Investment Income, as defined in the Escrow Agreement) shall be disbursed as follows: (i) If the Q1/Q2 EBITDA is equal to or greater than $3,000,000, the entire Escrow Amount (together with all Investment Income) will be disbursed to the Shareholders' Representative for the benefit of the Shareholders, subject to and in accordance with the terms of the Escrow Agreement. (ii) If the Q1/Q2 EBITDA is greater than $2,500,000 and less than $3,000,000, a portion of the Escrow Amount equal to the product (such product not to exceed the Escrow Amount) of (A) the Escrow Amount and (B) the following fraction will be disbursed to the Shareholders' Representative for the benefit of the Shareholders, subject to and in accordance with the terms of the Escrow Agreement: Q1/Q2 EBITDA - $2,500,000 ------------------------- $500,000 The applicable pro rata portion of all Investment Income with respect to the above-referenced portion of the Escrow Amount to be disbursed to the Shareholders' Representative in this Section 2.6(d)(ii) will be disbursed together with such portion of the Escrow Amount, subject to and in accordance with the terms of the Escrow Agreement. The balance of the Escrow Amount, if any (together with all Investment Income with respect to such balance) will be disbursed to Buyer or its designee, subject to and in accordance with the terms of the Escrow Agreement. (iii) If the Q1/Q2 EBITDA is equal to or less than $2,500,000, the entire Escrow Amount (together with all Investment Income) will be disbursed to Buyer or its designee, subject to and in accordance with the terms of the Escrow Agreement. 2.7. EARNOUT AMOUNT. As further consideration for the Transfer of the Common Stock to Buyer, the Shareholders will be eligible to receive up to an additional $15.7 million (the "EARNOUT AMOUNT"), subject to the following terms and conditions: (a) As soon as practicable (and in no event later than 90 days after the end of the applicable Fiscal Years of CFI set forth below in this Section 2.7(a), Buyer will prepare and deliver to the Shareholders' Representative an EBITDA Statement for each Fiscal Year of CFI ended October 31, 1999 and 2000 (collectively, the "EARNOUT EBITDA STATEMENTS"), prepared in accordance with GAAP and the Balance Sheet Principles. Each such Earnout EBITDA Statement and the 1999 EBITDA and 2000 EBITDA determined therein will be otherwise prepared, reviewed and finally determined on basis consistent with Sections 2.6(b) and 2.6(c) above. (b) An amount equal to $5.0 million multiplied by the 1999 Payout Ratio will be payable to the Shareholders within five Business Days after determination of the EBITDA of CFI for CFI's Fiscal Year ended October 31, 1999 ("1999 EBITDA") in accordance with this Agreement. The "1999 PAYOUT RATIO" will equal a fraction, the numerator of which will be 1999 EBITDA less $6.0 million, and the denominator of which shall be $4.0 million; PROVIDED, 15 that the 1999 Payment Ratio will in no event exceed 1.0; and PROVIDED, FURTHER, that if the 1999 Payout Ratio is negative, no amount under this Section 2.7(b) will be payable to the Shareholders. (c) An amount equal to $10.7 million multiplied by the 2000 Payout Ratio will be payable to the Shareholders within five Business Days after determination of the EBITDA of CFI for CFI's Fiscal Year ended October 31, 2000 ("2000 EBITDA") in accordance with this Agreement. The "2000 PAYOUT RATIO" will equal a fraction, the numerator of which will be 2000 EBITDA less $6.6 million, and the denominator of which shall be $4.4 million; provided that the 2000 Payout Ratio will in no event exceed 1.0; provided further that if the 2000 Payout Ratio is negative, no amount under this Section 2.7(c) will be payable to the Shareholders. (d) Payments required under this Section 2.7 will be made by or on behalf of Buyer when due pursuant to the applicable subsection of this Section 2.7; provided that Buyer may, in its discretion, make all or any portion of such payments when due either by: (i) wire transfer of immediately available funds to one account specified by the Shareholders' Representative (for the Shareholders' benefit) in writing prior to the date such payment is due, or (ii) by delivery to the Shareholders' Representative (for the Shareholders' benefit) of unsecured, subordinated promissory notes (collectively, "EARNOUT NOTES") issued by Precision Partners Holding Company to each Shareholder in principal amount equal to the aggregate Earnout Amount then due pursuant to this Section 2.7 multiplied by such Shareholder's Percentage Interest. Each such Earnout Note will be in substantially to the effect set forth in EXHIBIT F-1. Each Shareholder agrees to execute and deliver to Buyer at the Closing a subordination agreement substantially to the effect set forth in EXHIBIT F-2 (subject to reasonable revision prior to the Closing pursuant to the requirements of Buyer's lenders and as necessary to avoid "push down" accounting treatment of the Earnout Notes) to be effective as to a Shareholder upon the issuance of an Earnout Note pursuant to this Section 2.7(d) to such Shareholder. (e) Earnout Amounts payable to Mr. Reagan will, if previously unpaid, be subject to setoff at the discretion of Buyer or the issuer of the Earnout Notes, to the extent that Buyer or any other subsidiary of Precision Partners Holding Company is damaged as a result of the breach by Mr. Reagan of his obligations under Section 1(b) of his Noncompetition Agreement. 2.8. CLOSING. The closing of the Purchase (the "CLOSING") will take place at the offices of Jones, Day, Reavis & Pogue located at 599 Lexington Avenue, New York, New York, at 10:00 a.m., New York time as soon as possible after the date hereof but in no event later than ten Business Days after the satisfaction or waiver of the conditions to Closing (the date on which the Closing occurs is herein referred to as the "CLOSING DATE"). At the Closing, the Shareholders and the Companies will also deliver the other agreements, instruments and certificates provided for in Article VII. 2.9. PROCEEDINGS. Except as otherwise specifically provided for herein, all proceedings that will be taken and all documents that will be executed and delivered by the parties hereto on the Closing Date will be deemed to have been taken and executed simultaneously, and no proceeding will be deemed taken nor any document executed and delivered until all have been taken, executed and delivered. 16 III. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE SHAREHOLDERS 3.1. The Shareholders and each of the Companies (severally but not jointly) represent and warrant to Buyer as of the date hereof and the Closing Date as follows: 3.1.1. CORPORATE EXISTENCE AND POWER. Each of the Companies is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. Each of the Companies has all corporate power and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except where the failure to have any such governmental licenses, authorizations, permits, consents and approvals could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Each of the Companies is duly qualified to conduct business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary except for those jurisdictions where the failure to be so qualified or in good standing could not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect. Each of the Companies has heretofore delivered to Buyer true and complete copies of each of its respective articles of incorporation and by-laws. 3.1.2. CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by each of the Companies of this Agreement are within its corporate powers and have been duly authorized by all necessary corporate action on its part. This Agreement has been duly executed and delivered by such Company and constitutes and will constitute as of the Closing Date the valid and binding agreement of such Company, enforceable against it in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 3.1.3. GOVERNMENTAL AUTHORIZATION. Except as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), the execution, delivery and performance by the Companies of this Agreement require no action by or in respect of, or filing with, any Governmental Authorities. 3.1.4. NON-CONTRAVENTION; CONSENTS. Except as disclosed on SCHEDULE 3.1.4, the execution, delivery and performance by the Companies of this Agreement will not (a) violate the articles of incorporation or by-laws or comparable organizational documents of either of the Companies, (b) violate any applicable Law or Order, (c) require any filing with or permit, consent or approval of, or the giving of any notice to, any Person other than as provided in Section 3.1.3 (including filings, consents or approvals required under any permits of either of the Companies or any licenses to which either of the Companies is a party), (d) result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of, either of the Companies or to a loss of any benefit to which either of the Companies is entitled under any agreement or other instrument binding upon, either of the Companies or any license, franchise, permit or other similar authorization held by either of the Companies, or (e) result in the creation or imposition of any Lien on any asset of either of the Companies, except in the case of clauses (c), (d) and (e) for such filings, permits, consents, 17 approvals or notices and violations, breaches, conflicts and Liens which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 3.1.5. CAPITALIZATION. (a) Immediately prior to the Closing, the authorized, issued and outstanding Capital Stock of the Companies will be as set forth on SCHEDULE 3.1.5(a). The Common Stock to be acquired by Buyer will be duly authorized, validly issued, fully-paid, nonassessable and free and clear of any Lien and, subject to applicable federal and state securities laws, will be free and clear of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such shares). (b) Except as disclosed in SCHEDULES 3.1.5(a) and 3.1.5(b), there are no outstanding (i) shares of capital stock or other securities of either of the Companies, (ii) securities of either of the Companies convertible into or exchangeable for shares of capital stock or other securities of either of the Companies, or (iii) options or other rights to acquire from either of the Companies, or other obligation of either of the Companies to issue, any capital stock, other securities or securities convertible into or exchangeable for capital stock or other securities of either of the Companies (the items in clauses (i), (ii) and (iii) being referred to collectively as the "COMPANY SECURITIES"). Except as disclosed in SCHEDULE 3.1.5(b), there are no outstanding obligations of either of the Companies to repurchase, redeem or otherwise acquire any Company Securities. (c) Except as disclosed in SCHEDULE 3.1.5(c) and except for investments reflected in the Audited Statements, neither of the Companies owns any Capital Stock or other equity or ownership or proprietary interest in any corporation, partnership, association, trust, joint venture or other entity. 3.1.6. FINANCIAL STATEMENTS; BOOKS AND RECORDS. (a) The Audited Statements, including the footnotes thereto, fairly present in all material respects the financial position of CFI at the respective dates thereof and the results of the operations and cash flows of CFI for the periods indicated. (b) CFI has heretofore furnished Buyer the Monthly CFI Financial Statements through the month ended January 31, 1999. Such Monthly CFI Financial Statements have been, and the Monthly CFI Financial Statements required to be delivered pursuant to Section 5.7 when delivered shall have been, prepared from the books and records of CFI (including the general ledger) and fairly present or will fairly present (in the case of the Monthly CFI Financial Statements required to be delivered pursuant to Section 5.7) in all material respects the financial position of CFI at the respective dates thereof and the results of operations of CFI for the respective periods indicated, in each case, subject to the adjustments required by reason of the methodology used in the calculation of annual net income in the Audited Statements. (c) Calbrit has heretofore furnished Buyer the Calbrit Financial Statements through October 31, 1998. Such Calbrit Financial Statements have been, and the Calbrit Financial Statements required to be delivered pursuant to Section 5.7 when delivered shall have been, prepared from the books and records of Calbrit (including the general ledger) and fairly present or will fairly present (in the case of the Calbrit Financial Statements required to be delivered pursuant to Section 5.7) in all material respects the financial position of Calbrit at the respective dates thereof and results of operations of Calbrit for the respective periods indicated, 18 in each case, subject to adjustments, if any, required by reason of the methodology used in the calculation of annual net income in the Audited Statements. (d) Except as disclosed on SCHEDULE 3.1.6(d), there have been no changes in either of the Companies' reserve or accrual amounts or policies from the Balance Sheet Date. (e) The books of account, minute books, stock record books, and other corporate records of the Companies, all of which have been made available to Buyer, are in all material respects complete and correct and have been maintained in accordance with customary business practices. The minute books of each of the Companies in all material respects contain accurate and complete records of all meetings held of, and corporate action taken by, the Shareholders and the Board of Directors of each of the Companies, and no meeting of any such Shareholders or Board of Directors has been held for which minutes have not been prepared and are not contained in such minute books. There are no and have not been any committees of the Board of Directors of either Company during the five years preceding the date hereof. 3.1.7. NO UNDISCLOSED LIABILITIES. There are no liabilities of the Companies or any facts or circumstances which could give rise to liabilities of either of the Companies, whether accrued, contingent, absolute, determined, determinable or otherwise, other than (a) liabilities fully provided for in the most recent Monthly CFI Financial Statements and Calbrit Financial Statements prior to the date hereof; (b) liabilities expressly disclosed on SCHEDULE 3.1.7 or on any other Schedule attached to this Agreement or (c) other undisclosed liabilities incurred since the Balance Sheet Date in the ordinary course of business which, individually or in the aggregate, could not have a Material Adverse Effect. 3.1.8. INTERCOMPANY ACCOUNTS. SCHEDULE 3.1.8 contains a complete list of all intercompany balances through the date of this Agreement between any Shareholder and such Shareholder's Affiliates, on the one hand, and either of the Companies, on the other hand. Other than (a) as disclosed on SCHEDULE 3.1.8, (b) the lease agreements listed on Schedule 3.1.15(b) and marked with an asterisk and (c) compensation paid in the ordinary course consistent with past practice, since such date, there has not been any accrual of liability by either of the Companies to any Shareholder or such Shareholder's Affiliates or other transaction between either of the Companies and any Shareholder and such Shareholder's Affiliates or any action taken (other than this Agreement) which could reasonably be expected to result in any such accrual, or the incurrence of any legal or financial obligation to any such Person, after such date. 3.1.9. TAX MATTERS. (a) Except as disclosed in SCHEDULE 3.1.9(a): (i) All Tax returns, statements, reports and forms (including estimated tax or information returns and reports) required to be filed with any Taxing Authority with respect to any Pre-Closing Tax Period by or on behalf of either of the Companies (collectively, the "RETURNS") have, to the extent required to be filed on or before the date hereof, been filed when due in accordance with all applicable laws; (ii) The Returns correctly reflect in all material respects, the income, business, assets, and financial status of each of the Companies consistent with applicable Law; (iii) All Taxes owed by each of the Companies (whether or not shown as due 19 and payable on the Returns) have been timely paid, or withheld and remitted to the appropriate Taxing Authority or reserved in the most recent balance sheet contained in the Monthly CFI Financial Statements and the Calbrit Financial Statements; (iv) Any reserves established for Taxes with respect to either of the Companies for any Pre-Closing Tax Period (including any Pre-Closing Tax Period for which no Return has yet been filed) reflected on the books of either of the Companies (excluding any provision for deferred income taxes) are adequate in accordance with GAAP; (v) Neither of the Companies is delinquent in the payment of any Tax and neither of the Companies has requested any extension of time within which to file any Return except for extensions granted as a matter of right or granted automatically upon the filing of a request for such extension; (vi) Each of the Companies (or any member of any affiliated, consolidated, combined or unitary group of which either of the Companies is or has been a member) has not granted any extension or waiver of the statute of limitations period applicable to any Return, which period (after giving effect to such extension or waiver) has not yet expired; (vii) There is no action, suit, claim, audit, investigation or proceeding now pending, (in each case, in respect of which either of the Companies or any Shareholder has been served with process or has otherwise received written notice) or, to the knowledge of either of the Companies, threatened against or with respect to either of the Companies in respect of any Tax; (viii) Neither of the Companies owns any interest in real property in any jurisdiction in which a Tax is imposed on the transfer of a controlling interest in an entity that owns any interest in real property; (ix) Neither of the Companies nor any other Person on behalf of either of the Companies has entered into any agreement or consent pursuant to Section 341(f) of the Code; (x) There are no Liens for Taxes upon the assets of either of the Companies, except Liens for current Taxes not yet due; (xi) Neither of the Companies will be required to include any adjustment in taxable income for any Post-Closing Tax Period under Section 481(c) of the Code (or any similar provision of the Tax laws of any jurisdiction) as a result of a change in method of accounting for a Pre-Closing Tax Period or pursuant to the provisions of any agreement entered into with any Taxing Authority with regard to the Tax liability of either of the Companies for any Pre-Closing Tax Period; (xii) Neither of the Companies has been a member of an affiliated, consolidated, combined or unitary group or participated in any other arrangement whereby any income, revenues, receipts, gain or loss of either of the Companies was 20 determined or taken into account for Tax purposes with reference to or in conjunction with any income, revenues, receipts, gain, loss, asset or liability of any other Person; and (xiii) Neither of the Companies has been an "S Corporation" within the meaning of the Code at any time during the ten years prior to the Closing Date. (b) SCHEDULE 3.1.9(b) contains a list of all jurisdictions (whether foreign or domestic) to which any Tax imposed on overall net income is properly payable for a Pre-Closing Tax Period by either of the Companies. 3.1.10. ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE 3.1.10, since the Balance Sheet Date, there has not been any event, occurrence, development, circumstances or state of facts which (a) has had or could reasonably be expected to have a Material Adverse Effect or (b) would have constituted a violation of any covenant of any Shareholder or either of the Companies hereunder (including Section 5.1) had such covenant applied to any of them since the Balance Sheet Date; provided, however, that no representation or warranty is made hereunder with respect to macro-economic or industry conditions which are generally available to the public. 3.1.11. CONTRACTS. (a) Except as expressly disclosed in SCHEDULE 3.1.11(a) or any other Schedule attached hereto, neither of the Companies is a party to or bound by any of the following, including all amendments and supplements thereto (whether written or oral, unless otherwise expressly set forth below in this Section 3.11): (i) any lease (whether of real or personal property) providing for annual rentals of $25,000 or more; (ii) any agreement (other than purchase orders or invoices in the ordinary course of business) for the purchase of materials, supplies, goods, services, equipment or other assets (including in terms of quantity and dollar amount) which by its terms requires either (A) annual payments by either of the Companies of $25,000 or more or (B) aggregate annual payments by the Companies of $50,000 or more; (iii) any sales, distribution or other similar agreement (other than purchase orders or invoices in the ordinary course of business) providing for the sale by the Company or any Subsidiary of materials, supplies, goods, services, equipment or other assets that provides for either (A) annual payments to either of the Companies of $25,000 or more or (B) aggregate annual payments to the Companies of $50,000 or more; (iv) any partnership, joint venture or limited liability company agreement; (v) any agreement, other than this Agreement, relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise); 21 (vi) any agreement evidencing Indebtedness (in any case, whether incurred, assumed, guaranteed or secured by any asset) of either of the Companies, other than any agreement identified in any other subparagraph of this Section 3.1.11; (vii) any license, franchise or similar agreement (other than "off the shelf" computer software licenses or as disclosed on SCHEDULE 3.1.16); (viii) any agency, dealer, sales representative, marketing or other similar agreement, other than any agreement identified in clause (xiv) below; (ix) other than the Noncompetition Agreements to be entered into as part of the transactions contemplated hereby, any agreement or covenant of either of the Companies not to compete in any line of business, geographic area or with any Person or which would so limit the freedom of either of the Companies after the Closing Date; (x) other than the lease agreements disclosed on SCHEDULE 3.1.15(b) and marked with an asterisk, any agreement with (A) any Shareholder or any of such Shareholder's Affiliates, (B) any Person directly or indirectly owning, controlling or holding with power to vote, 5% or more of the outstanding voting securities of any Shareholder's Affiliates, (C) any Person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by a Shareholder or any of such Shareholder's Affiliates, (D) any director or officer of a Shareholder's Affiliates or any "associates" or members of the "immediate family" (as such terms are respectively defined in Rule 12b-2 and Rule 16a-1 of the Exchange Act) of any such director or officer, or (E) any director or officer of either of the Companies or with any "associate" or any member of the "immediate family" (as such terms are respectively defined in Rules 12b-2 and 16a-1 of the Exchange Act) of any such director or officer; (xi) other than any agreements identified in clause (vi) above, any agreement, indenture or other instrument which contains restrictions with respect to payment of dividends or any other distribution in respect of capital stock of either of the Companies; (xii) any management service, consulting or any other similar type of contract; (xiii) any warranty, guaranty or other similar undertaking with respect to a contractual performance extended by either of the Companies other than in the ordinary course of business consistent with past practice; (xiv) any written employment, deferred compensation, severance, bonus, retirement or other similar agreement or plan in effect as of the date hereof and entered into or adopted by either of the Companies, on the one hand, and any director or officer of either of the Companies or any other employee of either of 22 the Companies receiving annual compensation of $100,000 or more, on the other hand; or (xv) any other agreement, commitment, arrangement or plan not made in the ordinary course of business that is material to the operations or business of either of the Companies as currently conducted or as conducted between the date hereof and the Closing Date. (b) Except as set forth on SCHEDULE 3.1.11(b), each agreement, contract, plan, lease, arrangement or commitment disclosed in SCHEDULE 3.1.11(a) or any other Schedule to this Agreement or required to be disclosed pursuant to this Section has, in the case of such written agreements, contracts, plans, leases, arrangements or commitments, been executed and delivered by the Company and, to the knowledge of the Companies and the Shareholders, is in full force and effect and neither CFI, or, to the knowledge of either of the Companies and the Shareholders, any other party thereto, is in default or breach in any material respect under the terms of any such agreement, contract, plan, lease, arrangement or commitment. To the knowledge of each of the Companies and the Shareholders, there is no event, occurrence, condition or act (including the consummation of the transactions contemplated hereby) which, with the giving of notice or the passage of time, or the happening of any other event or condition, could become a material default or event of default thereunder. (c) SCHEDULE 3.1.11(c) sets forth every continuing obligation to pay as of the Closing Date by either of the Companies in the past three years of any severance or termination pay to any director or officer of either of the Companies or any other employee of either of the Companies receiving annual compensation of $100,000 or more. 3.1.12. INSURANCE COVERAGE. Each of the Companies has furnished to Buyer a list of, and true and complete copies of, all insurance policies and fidelity bonds covering the assets, business, operations, employees, officers and directors of each of the Companies. To the knowledge of the Companies and the Shareholders, there is no material claim asserted by either of the Companies pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums which have become due and payable under all such policies and bonds have been paid and each of the Companies has complied in all material respects with the terms and conditions of all such policies and bonds. Such policies of insurance and bonds (or other policies and bonds providing substantially similar insurance coverage) are in full force and effect. Such policies of insurance and bonds are of the type and in amounts reasonably deemed by the respective management of each of the Companies to be sufficient to cover risks reasonably anticipated by such management based upon past risk occurrences and knowledge of operations. Neither of the Companies knows of any threatened termination of, or premium increase with respect to, any of such policies or bonds. 3.1.13. LITIGATION. Except as disclosed in SCHEDULE 3.1.13, there is no action, suit, investigation, arbitration or administrative or other proceeding (in each case, in respect of which either of the Companies or any of the Shareholders has been served with process or has otherwise received written notice) pending, or, to the knowledge of either of the Companies or any Shareholder, threatened against or affecting either of the Companies or any Shareholder or any properties of either Company before any court or arbitrator or any Governmental Authorities 23 which, if determined or resolved adversely to either of the Companies, could reasonably be expected to, individually or when considered together with all other such matters, (a) materially and adversely affect the right or ability of either of the Companies to carry on its business as now conducted, (b) have a Material Adverse Effect, or (c) which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement; and neither of the Companies or any Shareholder knows of any valid basis for any such action, proceeding or investigation. 3.1.14. COMPLIANCE WITH LAWS; PERMITS. (a) Except as disclosed in SCHEDULE 3.1.14(a), neither of the Companies is and neither of the Companies has been since the Balance Sheet Date in violation of any applicable Law or Order, except for such violations that have not had and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. (b) SCHEDULE 3.1.14(b) sets forth a list of each government or regulatory license, authorization, permit, consent and approval necessary for the conduct of the business of such Company as conducted on the Balance Sheet Date and through and including the Closing Date. Except as disclosed in SCHEDULE 3.1.14(b) each such license, authorization, permit, consent and approval, to the knowledge of the Companies and the Shareholders, is valid and in full force and effect, and will not be terminated or impaired (or become terminated or impaired) as a result of the transactions contemplated hereby. Neither of the Companies is in default under, and no condition exists that with notice or lapse of time or both would constitute a default under, any license, franchise, permit, consent or approval or similar authorization held by either of the Companies except for such defaults which could not, individually or in the aggregate reasonably be expected to have a Material Adverse Effect. 3.1.15. PROPERTIES; SUFFICIENCY OF ASSETS. (a) Except as disclosed in SCHEDULE 3.1.15(a) and except for inventory disposed of in the ordinary course of business, the Companies have good title to, or in the case of leased property have valid leasehold interests in, all property and assets (whether real or personal, tangible or intangible) reflected in the Audited Balance Sheet or acquired after the Balance Sheet Date. None of such property or assets is subject to any Liens, except for (i) Liens disclosed in the Audited Balance Sheet; (ii) Liens for Taxes not yet due or being contested in good faith (and for which adequate accruals or reserves have been established on the Audited Balance Sheet); and (iii) Permitted Liens. (b) SCHEDULE 3.1.15(b) sets forth a list of all real property assets owned or leased by each of the Companies ("REAL PROPERTY"). Except as disclosed on SCHEDULE 3.1.15(b), all such leases of real property have been executed and delivered by the Company and, to the knowledge of the Companies and the Shareholders, are in full force and effect. The applicable Company is a tenant or possessor in good standing thereunder and all rents due under such leases have been paid. There does not exist under any such lease any default or any event which with notice or lapse of time or both would constitute a default, except for such defaults that have not and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Each of the Companies is in peaceful and undisturbed possession of the space and/or estate under each lease of which it is a tenant and has good and valid rights of ingress and egress to and from all the Real Property from and to the public street systems for all usual street, road and utility purposes. Neither of the Companies nor any Shareholder has received any notice of any appropriation, condemnation or like proceeding, or of any violation of any applicable 24 zoning Law or Order relating to or affecting the Real Property, and to each of the Companies' and each Shareholder's knowledge, no such proceeding has been threatened or commenced. (c) The assets owned or leased by each of the Companies (including, real, personal, tangible and intangible property), or which they otherwise have the right to use (including, real, personal, tangible and intangible property), constitute all of the assets held for use or used in connection with the businesses of the Companies and are generally in good operating condition and repair (normal wear and tear excepted) and are adequate to conduct such businesses as currently conducted. 3.1.16. INTELLECTUAL PROPERTY. Except as disclosed in SCHEDULE 3.1.16, neither of the Companies owns or uses (under license or otherwise) any proprietary Intellectual Property Rights in connection with the operation of its business. Neither of the Companies has since January 1, 1993, been sued or charged in writing with or been a defendant in any claim, suit, action or proceeding relating to its business that is either pending (in respect of which either of the Companies or any Shareholder has been served with process or has otherwise received written notice), or, to the knowledge of either of the Companies or any Shareholder, threatened that, in either case, has not been finally terminated prior to the date hereof and that involves a claim of infringement by either of the Companies of any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how or any other similar type of proprietary intellectual property right of any other Person or continuing infringement by any other Person of any Intellectual Property Rights, and neither of the Companies has any knowledge of any basis for such claim of infringement or of any continuing infringement by any other Person of any Intellectual Property Rights. 3.1.17. ENVIRONMENTAL MATTERS. (a) Except as disclosed in SCHEDULE 3.1.17: (i) Constituents of Concern have not been generated, recycled, used, treated or stored on, transported to or from, or released or disposed on, the Company Property or, to the knowledge of each of the Companies and the Shareholders, any property adjoining or adjacent except in compliance with Environmental Laws; (ii) Except as could not individually, or in the aggregate, reasonably be expected to have a Material Adverse Effect, each of the Companies is in compliance with Environmental Laws and the requirements of permits issued under such Environmental Laws with respect to the Company Property; (iii) There are no pending Environmental Claims (in respect of which either of the Companies or any Shareholder has been served with process or has received written notice) against either of the Companies or any Company Property, or, to the knowledge of each of the Companies and the Shareholders, threatened Environmental Claims against either of the Companies or any Company Property; (iv) There are not now and, to the knowledge of each of the Companies and the Shareholders, there have never been any underground storage tanks or sumps located on any Company Property or, to the knowledge of each of the 25 Companies and the Shareholders, located on any property that adjoins or is adjacent to any Company Property; (v) Neither of the Companies nor any Company Property is listed or has received notice of proposed listing on the National Priorities List under CERCLA, or CERCLIS (as defined in CERCLA) or on any similar federal, state or foreign list of sites requiring investigation or clean-up; (vi) Neither of the Companies has any liability under any Environmental Law (including an obligation to remediate any Environmental Condition whether caused by either of the Companies or any other Person) which could reasonably be expected to have a Material Adverse Effect. (b) There has been no environmental investigation, study, audit, test, review or other analysis commenced or conducted by or at the request of either of the Companies (or by a third party of which either of the Companies or any Shareholder has knowledge (other than the Companies' past and current lenders)) in relation to the current or prior business of either of the Companies, or any property or facility currently or, to the knowledge of either of the Companies or any Shareholder, previously owned or leased by either of the Companies, which has not been disclosed or delivered to Buyer prior to the date hereof. (c) Neither of the Companies owns or leases or has owned or leased any property, and does not conduct and has not conducted any operations (other than periodic shipments of product), in New Jersey or Connecticut. (d) For purposes of this Section, the terms "Company" or "Companies" (including the use of such terms in the term "Company Property") will include any entity which is, in whole or in part, a predecessor of either of the Companies. 3.1.18. PLANS AND MATERIAL DOCUMENTS. (a) SCHEDULE 3.1.18(a) sets forth a list of all employee benefit plans (as defined in Section 3(3) of ERISA), and all other employee benefit plans, programs, arrangements, contracts or schemes, written or oral, statutory or contractual, with respect to which either of the Companies or any ERISA Affiliate has or has had in the six years preceding the date hereof any obligation or liability or which are or were in the six years preceding the date hereof maintained, contributed to or sponsored by either of the Companies or any ERISA Affiliate for the benefit of any current or former employee, officer or director of either of the Companies or any ERISA Affiliate (collectively, the "PLANS"). With respect to each employee pension benefit plan subject to ERISA, CFI has delivered to Buyer a true and complete copy of each such Plan (including all amendments thereto) and a true and complete copy of each material document (including all amendments thereto) prepared in connection with each such Plan including, without limitation, (i) a copy of each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, and (iii) the most recently filed IRS Form 5500 for each such Plan, if any. Neither of the Companies has any express or implied commitment, whether legally enforceable or not, to create, incur liability with respect to or cause to exist any employee benefit plan or to modify any Plan, other than as required by law. (b) Except as disclosed in SCHEDULE 3.1.18(b), none of the Plans is a plan that is or has ever been subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the 26 Code. None of the Plans is (i) a "multiemployer plan" as defined in Section 3(37) of ERISA, (ii) a plan or arrangement described under Section 4(b)(5) or 401(a)(1) of ERISA, or (iii) a plan maintained in connection with a trust described in Section 501(c)(9) of the Code. Except as disclosed in SCHEDULE 3.1.18(b), (A) none of the Plans provides for the payment of separation, severance, termination or similar-type benefits to any person, and (B) none of the Plans provides for or promises retiree medical or life insurance benefits to any current or former employee, officer or director of either of the Companies (other than as required by Section 601 of ERISA). Except as disclosed in SCHEDULE 3.1.18(b), each of the Plans is subject only to the laws of the United States or a political subdivision thereof. (c) Except as disclosed in SCHEDULE 3.1.18(c), each Plan is in compliance in all material respects with, and has always been operated in all material respects in accordance with, its terms and the requirements of all applicable law, foreign and domestic, and each of the Companies and the ERISA Affiliates have satisfied in all material respects all of their statutory, regulatory and contractual obligations with respect to each such Plan. No legal action, suit or claim is pending or, to the knowledge of each of the Companies and any Shareholder, threatened with respect to any Plan (other than claims for benefits in the ordinary course) and no fact or event exists that could give rise to any such action, suit or claim. (d) Except as disclosed in SCHEDULE 3.1.18(d), each Plan or trust which is intended to be qualified or exempt from taxation under Section 401(a), 401(k) or 501(a) of the Code has received a favorable determination letter from the IRS that it is so qualified or exempt, and, to the knowledge of the Companies and the Shareholders, no fact or event has occurred since the date of such determination letter to adversely affect the qualified or exempt status of any Plan or trust. (e) There has been no non-exempt prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan. Neither of the Companies nor any ERISA Affiliate has incurred any material liability for any excise tax arising under Section 4971, 4972, 4975, 4980 or 4980B of the Code and, to the knowledge of the Companies and the Shareholders, no fact or event exists which could give rise to such liability. Neither of the Companies nor any ERISA Affiliate has incurred any material liability relating to Title IV of ERISA (other than for the payment of premiums to the Pension Benefit Guaranty Corporation), and, to the knowledge of the Companies and the Shareholders, no fact or event exists which could give rise to such liability. (f) All material contributions, premiums or payments required to be made with respect to any Plan have been made on or before their due dates. All such contributions with respect to which the Companies have claimed a deduction have been fully deducted for income tax purposes and no such deduction has been challenged or disallowed by any Government Authorities, and, to the knowledge of the Companies and the Shareholders, no fact or event exists which could give rise to any such challenge or disallowance. (g) There has been no amendment to, written interpretation of or announcement (whether or not written) by either of the Companies or any ERISA Affiliate thereof relating to, or change in employee participation or coverage under, any Plan that would increase materially the expense of maintaining such Plan above the level of the expense incurred in respect thereto for the most recent fiscal year ended prior to the date hereof. 27 (h) Except as disclosed in SCHEDULE 3.1.18(h) or in this Agreement or the Ancillary Agreements, no employee or former employee of either of the Companies or any ERISA Affiliate thereof will become entitled to any bonus, retirement, severance, job security or similar benefit or enhanced such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transactions contemplated hereby. (i) Except as disclosed in SCHEDULE 3.1.18(i) or any Schedule under Section 3.1.5, no current or former employee of either of the Companies or any ERISA Affiliate thereof holds any option to purchase shares of either of the Companies. 3.1.19. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in SCHEDULE 3.1.19 and except for the lease agreements listed in SCHEDULE 3.1.15(b) and marked with an asterisk, to the knowledge of each of the Companies and the Shareholders, no Shareholder, nor any other officer or director of either of the Companies possesses, directly or indirectly, any ownership interest in, or is a director, officer or employee of, any Person which is a supplier, customer, lessor, lessee, licensor, developer, competitor or potential competitor of either of the Companies. Ownership of securities of a company whose securities are registered under the Exchange Act of 2% or less of any class of such securities will not be deemed to be a financial interest for purposes of this Section 3.1.19. 3.1.20. CUSTOMER, SUPPLIER AND EMPLOYEE RELATIONS; EMPLOYEE COMPENSATION; BONUSES. (a) To the knowledge of the Companies and the Stockholders, the relationships of each of the Companies with its customers, suppliers and employees are good commercial working relationships. Except as disclosed in SCHEDULE 3.1.20(a), none of the Companies' (i) existing customers or suppliers has, since the Balance Sheet Date, canceled, terminated or otherwise altered or notified either of the Companies of any intention or otherwise threatened to cancel, terminate or alter the gross volume of purchases and sales to or from either of the Companies or (ii) employees receiving annual compensation in excess of $100,000 or having managerial status has canceled, terminated or otherwise altered or notified either of the Companies of any intention or otherwise threatened to cancel, terminate or materially alter his or her employment relationship with either of the Companies, in the case of clauses (i) and (ii) of this Section 3.1.20, which cancellations, terminations or alterations having become effective prior to the Closing or having been noticed to become effective as of, or within one year after, the Closing, other than such cancellations, terminations or material alterations which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as disclosed on SECTION 3.1.20(a), as of the date hereof there has not been, and each of the Companies has no knowledge that there will be, any change in relations with material customers, material suppliers or material employees of either of the Companies as a result of the transactions contemplated by this Agreement. (b) SCHEDULE 3.1.20(b) lists all bonuses and any other amounts to be paid by either of the Companies to employees of either of the Companies at or in connection with the Closing ("BONUSES"). 3.1.21. OTHER EMPLOYMENT MATTERS. (a) Each of the Companies is in material compliance with all Federal, state or other applicable laws, domestic or foreign, respecting employment and employment practices, terms and conditions of employment and wages and hours, and has not, and is not, engaged in any unfair labor practice, which could, individually or 28 in the aggregate, reasonably be expected to have a Material Adverse Effect; no unfair labor practice complaint against either of the Companies is pending (in respect of which either of the Companies or any Shareholder has been served with process or has otherwise received written notice) before the National Labor Relations Board; there is no labor strike, dispute, slowdown or stoppage actually pending (in respect of which either of the Companies or any Shareholder has received written notice) or, to the knowledge of the Companies and the Shareholders, threatened against or involving either of the Companies; neither of the Companies is a party to any collective bargaining agreement and no collective bargaining agreement is currently being negotiated by either of the Companies; to the knowledge of each of the Companies and the Shareholders, no representation question exists respecting employees of either of the Companies; and, except as specifically set forth on SCHEDULE 3.1.21, no claim in respect of the employment of any employee of either of the Companies has been asserted (in respect of which either of the Companies or any Shareholder has been served with process or has otherwise received written notice) by such employee or any third party with respect to such employee's employment and is currently pending or, to the knowledge of each of the Companies and the Shareholders threatened, against either of the Companies by such employee or any third party with respect to such employee's employment. (b) To the knowledge of the Companies and the Shareholders, no current employee who receives annual compensation in excess of $100,000 per year or current director of either of the Companies is, a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, non-competition, or proprietary rights agreement, between such employee or director and any other Person that in any way adversely, affects or will affect (i) the performance of his duties as an employee or director of either of the Companies, or (ii) the ability of either of the Companies to conduct its respective business consistent with past practice. (c) SCHEDULE 3.1.21 also contains a complete and accurate list of the following information for each retired employee or director of each of the Companies, or their dependents currently receiving benefits as of the date hereof or scheduled to receive benefits in the future: name, pension benefits, pension option election, retiree medical insurance coverage, retiree life insurance coverage, and other benefits. 3.1.22. ACCOUNTS RECEIVABLE. Except as set forth on SCHEDULE 3.1.22, all accounts receivable which have arisen since the Balance Sheet Date (net of any additional reserves established since the Balance Sheet Date in accordance with past practice, none of which is material) and which are outstanding are valid and enforceable claims, and the goods and services sold and delivered which gave rise to such accounts receivable were sold and delivered in conformity with the applicable purchase orders, agreements and specifications as such may have been changed, modified, amended or supplemented from time to time, which amendments have been disclosed to Buyer. Such accounts receivable are subject to no defenses, offsets or recovery in whole or in part by the Persons whose purchase gave rise to such accounts receivable or by third parties, and to the knowledge of the Shareholders and the Companies, such accounts receivable are fully collectible in the ordinary course of business without resort to legal proceedings, except to the extent of the amount of the reserve for doubtful accounts reflected on the most recent balance sheet contained in the Monthly CFI Financial Statements and the Calbrit Financial Statements delivered on or prior to the date hereof. 29 3.1.23. INVENTORY. Except as set forth in SCHEDULE 3.1.23, all inventories which have been acquired or produced since the Balance Sheet Date (net of any additional reserves established since the Balance Sheet Date in accordance with past practice, none of which is material) are in good condition, conform in all material respects with the applicable specifications and warranties of each of the Companies, are not obsolete, and are useable or saleable in the ordinary course of business. 3.1.24. MILLENNIUM COMPLIANCE. SCHEDULE 3.1.24 describes the measures that have been implemented to determine the extent to which the computer systems used by each of the Companies in its business (the "COMPUTER SYSTEMS") are not in Millennium Compliance, and the material details of any program undertaken with a view towards causing the Computer Systems to achieve Millennium Compliance. 3.1.25 FINDERS' FEES. Except as set forth in SCHEDULE 3.1.25, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Shareholders or either of the Companies who might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement or any of the Ancillary Agreements. 3.2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each Shareholder represents and warrants, severally and not jointly and with respect to such Shareholder only, to Buyer as of the date hereof and the Closing as follows: 3.2.1. AUTHORITY; ENFORCEABILITY. Such Shareholder has all requisite power and authority, and has taken all action necessary, to execute and deliver this Agreement and each Ancillary Agreement to which such Shareholder will be a party at the Closing, to consummate the transactions contemplated hereby and to perform his, her or its obligations hereunder. This Agreement has been and each of the Ancillary Agreements to which such Shareholder will be a party at the Closing will have been, duly executed and delivered by such Shareholder and this Agreement is, and each of the Ancillary Agreements will be when executed by such Shareholder, legal, valid and binding obligations of such Shareholder enforceable against such Shareholder in accordance with their respective terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 3.2.2. NO CONFLICTS. The execution and delivery of this Agreement and each Ancillary Agreement to which such Shareholder will be a party at the Closing do not and will not at the Closing, and the consummation of the transactions contemplated hereby and compliance with the terms hereof do not and will not at the Closing, violate or conflict with in any respect or result in a breach under any contract, license, Order or Law applicable to such Shareholder. 3.2.3. NO CONSENTS. Except as may be required under the HSR Act, no consent of, approval or filing with, any court or other Person is required to be obtained or made by or with respect to such Shareholder in connection with the execution and delivery of this Agreement or any of the Ancillary Agreements to which such Shareholder will be a party at the Closing or the consummation by such Shareholder of the transactions contemplated hereby or thereby. 30 3.2.4. OWNERSHIP OF SHARES; TITLE. All of the issued and outstanding shares of Common Stock set forth opposite such Shareholder's name on SCHEDULE 1 are lawfully owned of record and beneficially by such Shareholder, free and clear of any Liens. Such Shareholder has the full legal right, power and authority to vote, sell, assign, transfer and convey such shares of Common Stock. Such shares are not subject to any voting trust agreement or other contract, agreement, arrangement, commitment, option, proxy, right of first refusal or understanding, including without limitation any contract restricting or otherwise relating to the voting, dividend rights or disposition of such shares. 3.2.5. LITIGATION. Except as disclosed in SCHEDULE 3.2.5, there is no action, suit, investigation, arbitration or administrative or other proceeding (in each case, in respect of which such Shareholder has been served with process or has otherwise received written notice) which is currently pending, or, to the knowledge of such Shareholder, threatened against or affecting such Shareholder before any court or arbitrator or any Governmental Authorities which, individually or in the aggregate, if determined or resolved adversely to such Shareholder could, individually or when considered together with all other such matters, adversely affect the right or ability of such Shareholder to consummate and perform the transactions contemplated by this Agreement and the Ancillary Agreements to which such Shareholder will be a party at the Closing; and such Shareholder knows of no valid basis for any such action, proceeding or investigation. IV. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to each of the Companies and the Shareholders as of the date hereof and the Closing Date as follows: 4.1. CORPORATE EXISTENCE AND POWER. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of organization. Buyer has all power and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. Buyer is duly qualified to conduct business as a foreign corporation and is good standing in each jurisdiction where such qualification is necessary, except where the failure to be so qualified and in good standing could not reasonably be expected to have a material adverse effect on the business, assets, liabilities, conditions (financial or other), results of operations or prospects of the Buyer, taken as a whole. 4.2. CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by Buyer of this Agreement and each of the Ancillary Agreements to which it will be a party at the Closing are within, Buyer's corporate powers and have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been and each of the Ancillary Agreements to which Buyer will be a party at the Closing will have been duly executed and delivered by Buyer and constitute and will constitute at the Closing valid and binding agreements of Buyer, enforceable against Buyer in accordance with their terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 31 4.3. GOVERNMENTAL AUTHORIZATION. Except as may be required under the HSR Act, the execution, delivery and performance by Buyer of this Agreement and each of the Ancillary Agreements to which Buyer will be a party at the Closing require no action by or in respect of, or filing with, any Governmental Authorities. 4.4. NON-CONTRAVENTION. The execution, delivery and performance by Buyer of this Agreement and each Ancillary Agreement to which Buyer will be a party at the Closing will not (a) violate the certificate of incorporation or bylaws of Buyer, (b) violate any applicable Law or Order, or (c) require any filing with or permit, consent or approval of, or the giving of notice to, any Person other than as provided in Section 4.3. 4.5. LITIGATION. Except as disclosed in SCHEDULE 4.5, there is no action, suit, investigation, arbitration or administrative or other proceeding pending (in respect of which Buyer has been served with process or has otherwise received written notice), or, to the knowledge of Buyer, threatened against or affecting Buyer, or any of Buyer's properties before any court or arbitrator or any Governmental Authorities which, individually or in the aggregate, if determined or resolved adversely to Buyer, could reasonably be expected to materially and adversely affect the right or ability of Buyer to consummate and perform the transactions contemplated by this Agreement and any Ancillary Agreement to which Buyer will be a party at the Closing, and Buyer knows of no valid basis for any such action, proceeding or investigation. 4.6. FINDERS' FEES. Except for Saunders Karp & Megrue, L.P., Carlisle Group, L.P. and Harvey & Company, LLC, whose fees and expenses (including transaction fees) will be paid by Buyer, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Buyer who might be entitled to any fee or commission from the Shareholders or either of the Companies upon consummation of the transactions contemplated by this Agreement or any of the Ancillary Agreements. 4.7. PURCHASE FOR INVESTMENT. Buyer is purchasing the Common Stock for investment for its own account and not with a view to, or for sale in connection with, any distribution of the Common Stock except in compliance with applicable securities laws. V. CERTAIN COVENANTS 5.1. CONDUCT OF BUSINESS OF THE COMPANIES. During the period from the date of this Agreement to the Closing Date, the Shareholders will cause each of the Companies to, and each of the Companies will, conduct its respective operations only according to its ordinary and usual course of business (including managing its working capital in accordance with its past practice and custom) and use its respective best efforts to: (a) preserve intact its business organizations, (b) keep available the services of its officers and employees and (c) maintain its relationships and goodwill with licensors, suppliers, distributors, customers, landlords, employees, agents and others having business relationships with it. Between the date hereof and the Closing Date, each of the Companies will confer with Buyer concerning the status of operational and financial matters concerning the Companies in general and otherwise as reasonably requested by Buyer. Without limiting the generality or effect of the foregoing, during the period from the date of this Agreement to the Closing Date, except with the prior written 32 consent of Buyer, neither of the Companies will, and the Shareholders will cause each of the Companies not to: (a) Amend or modify its articles of incorporation, bylaws or any other organizational document from its form on the date of this Agreement; (b) Change any salaries or other compensation of, or pay any bonuses to any director, officer, employee or shareholder of either of the Companies, or enter into any employment agreement, severance agreement, or similar agreement with any director, officer, shareholder or employee of either of the Companies, PROVIDED, HOWEVER, that the compensation of employees of either of the Companies receiving annual compensation of less than $100,000 may be changed in the ordinary course of business consistent with past practice; (c) Unless otherwise required by Law (and then only to the extent so required), adopt or increase any benefits under any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any of its employees; (d) Enter into any contract or commitment except contracts and commitments (for capital expenditures or otherwise) in the ordinary course of business consistent with past practice; (e) Incur, assume or guarantee Indebtedness other than in the ordinary course of business of the Companies; (f) Enter into any extraordinary transaction or commitment relating to the assets or the business of either of the Companies which, individually or in the aggregate, could reasonably be expected to be material to either of the Companies, or cancel or waive any claim or right of substantial value which, individually or in the aggregate, could reasonably be expected to be material to either of the Companies, or amend any term of any Company Securities; (g) Set aside or pay any dividend or make any other distribution with respect to any shares of capital stock of either of the Companies or repurchase, redeem or otherwise acquire directly or indirectly, any outstanding shares of capital stock or other securities of, or other ownership interests in, either of the Companies; (h) Other than those reflected in the Audited Statements, make any change in accounting methods or practices (including changes in accrual or reserve policies) or, other than in the ordinary course of business consistent with past practice, any change in accrual or reserve amounts; (i) Issue or sell any Company Securities or make any other changes in its capital structure, including the grant of any stock option or other right to purchase shares of capital stock of either of the Companies; (j) Enter into or effect any extraordinary sale, lease or other disposition of any material asset or property owned, leased or otherwise used by either of the Companies; (k) Except as expressly permitted under this Agreement, write-off as uncollectible 33 any notes or accounts receivable, except write-offs in the ordinary course of business charged to applicable reserves, none of which individually or in the aggregate is material; write-off, write-up or write-down any other material asset of either of the Companies; or alter (in a manner which is adverse to the Company or the Buyer) its customary time periods (applicable to each account party) for collection of accounts receivable or payments of accounts payable; (l) Create or assume any Lien other than a Permitted Lien; (m) Make any loan, advance or capital contributions to or investment in any Person other than between the Companies in the ordinary course of business; (n) Terminate or close any material facility, business or operation of either of the Companies; (o) Cause any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of either of the Companies which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; (p) Cause any other event, occurrence, development or state of circumstances or facts which individually or together with other matters, could reasonably be expected to have a Material Adverse Effect; or (q) Agree to do any of the foregoing. 5.2. EXCLUSIVE DEALING. During the period from the date of this Agreement to the earlier of the Closing Date and the termination of this Agreement in accordance with its terms, no Shareholder, nor either of the Companies, or any of their respective Affiliates, or any officer or director of either of the Companies, or any of their respective Affiliates, or other representative of any of the foregoing (including advisors, agents, attorneys, employees or consultants) will take any action to, directly or indirectly, encourage, initiate, solicit or engage in discussions or negotiations with, or provide any information to any Person, other than Buyer (and its affiliates and representatives), concerning any purchase of any capital stock of either of the Companies or any purchase or sale of substantially all of the Companies' assets or similar transaction involving either of the Companies (a "THIRD-PARTY TRANSACTION"), PROVIDED, HOWEVER, that during such period the directors of the Companies may, in response to a proposed Third-party Transaction that was not solicited by the Companies or any Shareholder or any of their respective Affiliates and that did not otherwise result from a breach of this Section 5.2, provide information regarding the Companies or engage in negotiations or substantive discussions with such Person regarding such proposed Third-Party Transaction, in each case only if the directors of the Companies determine in good faith, after consultation with counsel and their financial advisors, that failing to take such action would result in a breach of the fiduciary duties of the directors of the Companies. Each of the Companies and the Shareholders will disclose to Buyer the existence or occurrence of any proposal or contract which it or they or any of their representatives described above may receive in respect of any such transaction and the identity of the Person from whom such a proposal or contract is received. 5.3. REVIEW OF THE COMPANIES; CONFIDENTIALITY. (a) Buyer may, prior to the Closing Date, directly or through its representatives, review the properties, books and records of 34 each of the Companies and their financial and legal condition to the extent it deems necessary or advisable to familiarize itself with such properties and other matters. Each of the Companies will permit Buyer and its representatives to have, after the date of execution of this Agreement, reasonable access during the regular business hours of the Companies to the premises and to all the respective books and records of each of the Companies and to cause the officers of each of the Companies to furnish Buyer with such financial and operating data and other information with respect to the respective business and properties of each of the Companies as Buyer will from time to time reasonably request. Each of the Companies will deliver or cause to be delivered to Buyer such additional instruments, documents and certificates as Buyer may reasonably request for the purpose of (i) verifying the information set forth in this Agreement or on any Schedule attached hereto and (ii) consummating or evidencing the transactions contemplated by this Agreement. (b) Prior to the Closing, without the prior written consent of the other parties, no party will, or will permit any of its Affiliates to, disclose to any other Person (other than such party's financing sources, existing shareholders and such party's directors, officers, employees, advisors and other representatives that need to know) any proprietary, non-public information of another party previously delivered or made available to such other party in connection with the transactions contemplated hereby (including the existence of and terms of this Agreement and the Ancillary Agreements), other than to the extent required by applicable Law and upon the advice of counsel. Each party will direct its financing sources, shareholders, directors, officers, employees and representatives to keep all such information in strict confidence; provided, however, that each such person may disclose such information to the extent required by Law and upon the advice of counsel. 5.4. BEST EFFORTS. Each of the Companies, the Shareholders and Buyer will cooperate and use their respective best efforts to take, or cause to be taken, all appropriate actions, and to make, or cause to be made, all filings necessary, proper or advisable under applicable laws and regulations (including, without limitation, the filing of Notification and Report Forms under the HSR Act with the Federal Trade Commission and the Antitrust Division of the Department of Justice) to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, their respective reasonable efforts to obtain, prior to the Closing Date, all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Authorities and parties to contracts with each of the Companies, the Shareholders or Buyer as are necessary, if any, for consummation of the transactions contemplated by the Agreement and to fulfill the conditions to the sale contemplated hereby. Notwithstanding any other provision hereof, in no event will Buyer or any of its Affiliates (including either of the Companies after the Closing) be required to (a) enter into or offer to enter into any divestiture, hold-separate, business limitation or similar agreement or undertaking in connection with this Agreement or the transactions contemplated hereby or (b) make any payment in connection with any consent or approval or condition to Closing set forth in any subsection of Section 7.1 or 7.2 (except for the filing fee associated with the filing of Notification and Report Forms under the HSR Act) which it is necessary or advisable for the Shareholders or either of the Companies to obtain or satisfy in order to consummate the transactions contemplated by this Agreement. 35 5.5. SATISFACTION AND TERMINATION OF EQUITY ARRANGEMENTS. On or prior to the Closing Date, each of the Companies will terminate all equity-based plans or agreements listed in any Schedule referred to in Section 3.1.18. 5.6. PLAN ASSETS. Prior to Closing, each of the Companies will conduct their businesses in the same manner as currently conducted, which the Companies and the Shareholders believe will cause the Companies to constitute an Operating Company. 5.7. MONTHLY FINANCIAL STATEMENTS. Prior to the Closing and promptly after the preparation thereof, the Companies will deliver to Buyer all Monthly CFI Financial Statements and Calbrit Financial Statements not delivered to Buyer as of the date hereof. 5.8. SUPPLEMENTS TO SCHEDULES. Prior to the Closing, the Companies and the Shareholders may supplement the Schedules required by any subsection of Sections 3.1 and 3.2 of this Agreement ("COMPANY SCHEDULES"), subject to Buyer's rights under Section 7.1.9 5.9. FURTHER ASSURANCES. From time to time, as and when requested by any party hereto and subject to Section 5.4, the other parties will execute and deliver, or cause to be executed and delivered, all such documents and instruments and will take, or cause to be taken, all such further or other actions, as the requesting party may reasonably deem necessary or desirable to consummate the transactions contemplated by this Agreement. VI. TAX MATTERS 6.1. TAX RETURNS. (a) Buyer will have the exclusive authority and obligation to prepare and timely file, or cause to be prepared and timely filed, all Returns of each of the Companies that are due with respect to any taxable year or other taxable period ending on or prior to the Closing Date. Such authority will include, but not be limited to, the determination of the manner in which any items of income, gain, deduction, loss or credit arising out of the respective income, properties and operations of each of the Companies will be reported or disclosed in such Returns; PROVIDED, HOWEVER, that such Returns will be prepared by treating items on such Returns in a manner consistent with the past practice with respect to such items, unless otherwise required by Law. Buyer will provide to the Shareholders' Representative drafts of all Returns of each of the Companies required to be prepared and filed by the Buyer under this Section 6.1(a) at least 30 days prior to the due date for the filing of such Returns (including any extensions). At least 15 days prior to the due date for the filing of such Returns (including any extensions), the Shareholders' Representative will notify Buyer in writing of the existence of any objection (specifying in reasonable detail the nature and basis of such objection) the Shareholders' Representative may have to any items set forth on such draft Returns (a "SHAREHOLDERS' REPRESENTATIVE DISPUTE NOTICE"). The Shareholders' Representative and Buyer agree to consult and resolve in good faith any such objection. Buyer will not file any such Return without the prior written consent of the Shareholders' Representative, which consent will not be unreasonably withheld or delayed; PROVIDED, HOWEVER, that no such consent will be required if the Shareholders' Representative shall not have timely delivered a Shareholders' Representative Dispute Notice or the objections contained in such Shareholders' Representative Dispute Notice shall have been finally resolved. 36 (b) If within five days of the delivery of a Shareholders' Representative Dispute Notice in accordance with Section 6.1(a), Buyer and the Shareholders' Representative are unable to resolve in good faith any objection set forth in such Shareholders' Representative Dispute Notice, such objection will be referred by the parties for determination to the Accountants as promptly as practicable, but no later than two Business Days after the expiration of such five day period. Buyer and the Shareholders' Representative will use reasonable efforts to cause the Accountants to render their decision as soon as practicable thereafter, including without limitation by promptly complying with all reasonable requests by the Accountants for information, books, records and similar items. Buyer and the Shareholders' Representative will cause the Accountants to make a determination as to each such objection (but only such objection), which determination will be in writing and furnished to each of the parties hereto as promptly as practicable after the items in dispute have been referred to the Accountants (but in no event later than two Business Days prior to the due date (including extensions) for filing such Return). Such determination by the Accountants will be conclusive and binding upon each of the parties hereto. Except as provided for in Section 2.6(b), nothing herein will be construed to authorize or permit the Accountants to determine any question or matter whatsoever under or in connection with this Agreement, except the determination of such objection. The fees and expenses of the Accountants relating to this Section 6.1(b) will be paid equally by the parties. 6.2. APPORTIONMENT OF TAXES. All Taxes and Tax liabilities with respect to the income, property or operations of each of the Companies that relate to a taxable year or other taxable period beginning before and ending after the Closing Date will be apportioned between the Pre-Closing Tax Period and the Post-Closing Tax Period as follows: (A) in the case of Taxes other than income Taxes, payroll Taxes and sales and use Taxes, on a per diem basis, and (B) in the case of income Taxes, payroll Taxes and sales and use Taxes, as determined from the books and records of each of the Companies, between Pre-Closing and Post-Closing Tax Periods as though the taxable year of each of the Companies terminated at the close of business on the Closing Date without giving effect to the transactions contemplated hereby and in a manner consistent with past practices of the Companies. Subject to Section 8.3, the Shareholders will be liable for the payment of all Taxes of each of the Companies which are attributable to any Pre-Closing Tax Period (net of reserves for such Taxes to the extent accurately reflected in the Closing Date Balance Sheet and the computation of the Closing Shareholders' Equity), whether shown on any original return or amended return for the period referred to therein. Each of the Companies will be liable for the payment of all Taxes which are attributable to any Post-Closing Tax Period. 6.3. COOPERATION; AUDITS. In connection with the preparation of Returns, audit examinations and any administrative or judicial proceedings relating to the Tax liabilities imposed on each of the Companies for all Pre-Closing Tax Periods, Buyer and each of the Companies on the one hand, and the Shareholders' Representative on the other hand, will cooperate on a reasonable basis with each other following the Closing, including, but not limited to, the furnishing or making available during normal business hours of records, personnel (as reasonably required), books of account, powers of attorney or other materials necessary or helpful for the preparation of such Returns, the conduct of audit examinations or the defense of claims by Tax authorities as to the imposition of Taxes. 6.4. CONTROVERSIES. (a) Buyer or the Shareholders' Representative (as the case may be) will promptly, but in no event later than 10 Business Days after receipt thereof, notify the 37 other party in writing of any inquiries, claims, assessments, audits or similar events with respect to Taxes relating to a Pre-Closing Tax Period ending after October 31, 1995 for which the Shareholders may be liable (any such inquiry, claim, assessment, audit or similar event, a "POST-OCTOBER 31, 1995 TAX MATTER"). Buyer, at Buyer's sole expense, with the cooperation of the Shareholders' Representative, will have the exclusive authority to represent the interests of each of the Companies with respect to any Post-October 31, 1995 Tax Matter before the IRS, any other Taxing Authority, any other governmental agency or authority or any court and will have the sole right, with the cooperation of the Shareholders' Representative, to extend or waive the statute of limitations, with respect to any such Post-October 31, 1995 Tax Matter and to control the defense, compromise or other resolution of any such Post-October 31, 1995 Tax Matter, including responding to inquiries, filing Tax returns and settling audits; PROVIDED, HOWEVER, that Buyer will not enter into any settlement of or otherwise compromise any Post-October 31, 1995 Tax Matter that affects or may affect the Tax liability of the Shareholders without the prior written consent of the Shareholders' Representative, which consent will not be unreasonably withheld or delayed. Each of the Shareholders' Representative and Buyer will, in good faith, allow the other party to consult with it regarding the conduct of or positions taken in any such proceeding. (b) Buyer or the Shareholders' Representative (as the case may be) will promptly, but in no event later than 10 Business Days after receipt thereof, notify the other party in writing of any inquiries, claims, assessments, audits or similar events with respect to Taxes relating to a Pre-Closing Tax Period ending prior to October 31, 1995 for which either Company may be liable (any such inquiry, claim, assessment, audit or similar event, a "PRE-OCTOBER 31, 1995 TAX MATTER"). The Shareholders' Representative, at the Shareholders' sole expense, with the cooperation of the Buyer, will have the exclusive authority to represent the interests of each of the Companies with respect to any Pre-October 31, 1995 Tax Matter before the IRS, any other Taxing Authority, any other governmental agency or authority or any court and will have the sole right, with the cooperation of the Buyer, to extend or waive the statute of limitations, with respect to a Pre-October 31, 1995 Tax Matter and to control the defense, compromise or other resolution of any Pre-October 31, 1995 Tax Matter, including responding to inquiries, filing Tax returns and settling audits; PROVIDED, HOWEVER, that the Shareholders' Representative or any other Shareholder will not enter into any settlement of or otherwise compromise any Tax Matter that affects or may affect the Tax liability of either Company without the prior written consent of the Buyer, which consent will not be unreasonably withheld or delayed. Each of the Shareholders' Representative and Buyer will, in good faith, allow the other party to consult with it regarding the conduct of or positions taken in any such proceeding. 6.5. AMENDED RETURNS. Buyer will not file or cause to be filed any amended return covering any period or adjusting any Taxes for a period which includes any period prior to the Closing Date without the prior written consent of the Shareholders' Representative, which consent will not be unreasonably withheld or delayed. 6.6. NON-FOREIGN PERSON AFFIDAVIT. Each of the Shareholders will furnish to Buyer on or before the Closing Date a non-foreign person affidavit as required by Section 1445 of the Code. 38 VII. CONDITIONS TO CLOSING 7.1. CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to consummate the transactions contemplated hereby to occur at the Closing are subject to the satisfaction of the following conditions: 7.1.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANIES. (a) The representations and warranties of each of the Companies made in this Agreement will be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects) as of the date hereof and as of the Closing, as though made as of the Closing; (b) each of the Companies shall have performed and complied with all terms, agreements and covenants contained in this Agreement required to be performed or complied with by each of the Companies on or before the Closing Date; and (c) each of the Companies shall have delivered to Buyer a certificate of each of the Companies' Chief Executive Officers, dated the Closing Date, confirming the foregoing and such other evidence of compliance with its obligations as Buyer may reasonably request. 7.1.2. CERTIFICATE OF EACH OF THE COMPANIES. Each of the Companies shall have delivered to Buyer a certificate from its Secretary or an Assistant Secretary certifying as to the due adoption of resolutions adopted by its Board of Directors and its shareholders (if required), authorizing the execution of this Agreement and the taking of any and all actions deemed necessary or advisable to consummate the transactions contemplated herein. 7.1.3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDERS. (a) The representations and warranties of the Shareholders made in this Agreement will be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects) as of the date hereof and as of the Closing, as though made as of the Closing; (b) the Shareholders shall have performed and complied with all terms, agreements and covenants contained in this Agreement required to be performed or complied with by the Shareholders on or before the Closing Date; and (c) the Shareholders shall have delivered to Buyer certificates dated the Closing Date confirming the foregoing and such other evidence of compliance with the Shareholders' obligations as Buyer may reasonably request. 7.1.4. NO INJUNCTION, ETC. No judgment, injunction, order or decree will be in effect which will prohibit the consummation of the transactions contemplated hereby to occur at the Closing. 7.1.5. NO PROCEEDINGS. No proceeding challenging this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby or seeking to prohibit, alter, prevent or materially delay the Closing or seeking damages will have been instituted by any Person (other than Buyer) before any court, arbitrator or Governmental Authorities and be pending. 7.1.6. REQUIRED FILINGS. All actions by or in respect of or filings by each of the Companies or the Shareholders with any Person required to permit the consummation of the transactions contemplated hereby to occur at the Closing shall have been taken, made or obtained. 39 7.1.7. OPINION OF COUNSEL. Buyer shall have received the opinions of Ward, Kroll & Jampol, a Law Corporation and LeBoeuf, Lamb, Greene & MacRae L.L.P., counsel to the Companies and the Shareholders, dated the Closing Date, which, taken together are to the effect substantially as set forth in EXHIBIT G-1 AND EXHIBIT G-2, RESPECTIVELY, together with letters of each such counsel entitling the banks and underwriters providing the financing contemplated by Section 7.1.15 to rely on such opinions. 7.1.8. SPOUSAL CONSENT. Each Shareholder will cause to be delivered to Buyer a spousal consent by such Shareholder's spouse, if any, pursuant to the laws of the State of California, dated the date hereof, substantially in the form attached hereto as EXHIBIT H. 7.1.9. DUE DILIGENCE; SCHEDULE SUPPLEMENTS. (a) Buyer shall have completed, or caused to be completed by its attorneys, accountants and other representatives, business, legal, environmental and accounting due diligence investigations and reviews of each of the Companies, with the results thereof satisfactory to Buyer in its sole discretion. (b) Buyer shall have been given the opportunity to review and shall have approved, in its sole discretion, any supplement to a Company Schedule permitted by Section 5.8. 7.1.10. ANCILLARY AGREEMENTS. Each of the Ancillary Agreements required to be executed by any party other than Buyer shall have been executed and delivered by the parties thereto other than Buyer. 7.1.11. RESIGNATION OF DIRECTORS. Each of the Directors of each of the Companies immediately as of the Closing shall have submitted a letter of resignation to the applicable Company effective as of the Closing. 7.1.12. THIRD PARTY CONSENTS; GOVERNMENTAL APPROVALS. All consents, approvals or waivers, if any, disclosed on any Schedule attached hereto or otherwise required in connection with the consummation of the transactions contemplated by this Agreement shall have been received. All of the consents, approvals, authorizations, exemptions and waivers from Governmental Authorities that will be required in order to enable Buyer to consummate the transactions contemplated hereby shall have been obtained. 7.1.13. FIRPTA. Each of the Shareholders shall have furnished to Buyer, on or prior to the Closing Date, a non-foreign person affidavit required by Section 1445 of the Code. 7.1.14. NO MATERIAL ADVERSE CHANGE. Prior to the Closing, no event shall have occurred which, individually or when considered together with all other matters, has had or which could reasonably be expected to have a Material Adverse Effect. 7.1.15. FINANCING. Buyer shall have obtained financing for the payment of the Aggregate Closing Consideration, the Escrow Amount and the Indebtedness of the Companies on terms satisfactory to it in its sole discretion. 7.1.16. SHAREHOLDER INDEBTEDNESS; INTERCOMPANY ACCOUNTS. Except for the loan from Mr. Robert Reagan to the Company as disclosed on SCHEDULE 7.1.16, all Indebtedness (including Indebtedness set forth on SCHEDULE 3.1.8) owed to any Shareholder or any of such Shareholder's 40 Affiliates by either of the Companies and all Indebtedness (including Indebtedness set forth on SCHEDULE 3.1.8) owed by any Shareholder or any of such Shareholder's Affiliates to either of the Companies shall have been repaid and canceled, which may occur by reduction of such Shareholder's portion of the Aggregate Closing Consideration. 7.1.17. HSR ACT. Any applicable waiting period under the HSR Act relating to the transactions contemplated hereby will have expired or been terminated. 7.2. CONDITIONS TO OBLIGATIONS OF EACH OF THE COMPANIES AND THE SHAREHOLDERS. The obligations of each of the Companies and the Shareholders to consummate the transactions contemplated hereby to occur at the Closing are subject to the satisfaction of the following conditions: 7.2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. (a) The representations and warranties of Buyer made in this Agreement will be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects) as of the date hereof and as of the Closing, as though made as of the Closing; (b) Buyer shall have performed and complied with all terms, agreements and covenants contained in this Agreement required to be performed or complied with by Buyer on or before the Closing Date; and (c) Buyer shall have delivered to each of the Companies and the Shareholders a certificate of Buyer's Chief Executive Officer, dated the Closing Date, confirming the foregoing and such other evidence of compliance with its obligations as either of the Companies or the Shareholders may reasonably request. 7.2.2. BUYER'S CERTIFICATE. Buyer shall have delivered to each of the Companies and the Shareholders a certificate from its Secretary or Assistant Secretary certifying as to the due adoption of resolutions adopted by the Board of Directors of Buyer authorizing the execution of this Agreement and the taking of any and all actions deemed necessary or advisable to consummate the transactions contemplated herein. 7.2.3. NO INJUNCTION, ETC. No judgment, injunction, order or decree will be in effect which will prohibit the consummation of the transactions contemplated hereby to occur at the Closing. 7.2.4. NO PROCEEDINGS. No proceeding challenging this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby or seeking to prohibit, alter, prevent or materially delay the Closing or seeking damages will have been instituted by any Person (other than the Companies or any Shareholder) before any court, arbitrator or Governmental Authorities and be pending. 7.2.5. REQUIRED FILINGS. All actions by or in respect of or filings by Buyer with any Person required to permit the consummation of the Closing shall have been taken, made or obtained. 7.2.6. OPINION OF COUNSEL. Each of the Companies and the Shareholders shall have received an opinion of Jones, Day, Reavis & Pogue, counsel to Buyer, dated the Closing Date, substantially in the form attached hereto as EXHIBIT I. 41 7.2.7. ANCILLARY AGREEMENTS. Each of the Ancillary Agreements required to be executed by Buyer or an Affiliate shall have been executed and delivered by Buyer or its designee. 7.2.8. HSR ACT. Any applicable waiting period under the HSR Act relating to the transactions contemplated hereby will have expired or been terminated. 7.2.9. SHAREHOLDER GUARANTEES. Buyer shall have paid directly to the applicable creditor or to the Escrow Agent under an escrow arrangement with terms reasonably acceptable to the parties and the Escrow Agent, an amount sufficient to pay in full the Indebtedness listed on Schedule 7.2.9. VIII. SURVIVAL; INDEMNIFICATION 8.1. SURVIVAL. The representations and warranties of the parties contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith will survive the Closing for two years thereafter; PROVIDED, HOWEVER, that the representations and warranties contained in Sections 3.1.9 and 3.1.17 will survive the Closing until the expiration of the statute of limitations applicable to the matters covered thereby (after giving effect to any waiver, mitigation or extension thereof granted by either of the Companies after the Closing) and the representations and warranties contained in Sections 3.1.1, 3.1.2, 3.1.3, 3.1.4 and 3.1.5 (collectively, the "SELECTED COMPANY REPRESENTATIONS AND WARRANTIES"), 3.2.1, 3.2.2, 3.2.3, 3.2.4 (collectively, the "SELECTED SHAREHOLDER REPRESENTATIONS AND WARRANTIES"), and 4.1, 4.2, 4.3 and 4.4 will survive the Closing indefinitely. Notwithstanding the preceding sentence, any representation or warranty in respect of which indemnity may be sought under this Agreement will survive the time at which it would otherwise terminate pursuant to the preceding sentence if written notice of the inaccuracy or breach thereof giving rise to such right of indemnity (including notice given pursuant to Section 8.4(a)) shall have been given to the party against whom such indemnity may be sought prior to such time, PROVIDED, HOWEVER, that the applicable representation or warranty will survive only with respect to the particular inaccuracy or breach specified in such applicable written notice. All covenants and agreements of the parties contained in this Agreement, to the extent required to be performed after the Closing, will survive the Closing indefinitely. 8.2. INDEMNIFICATION. (a) Provided that notice has been given pursuant to Section 8.4(a), if required, and the Notified Party fails to cure, or otherwise to perform its obligations with respect to curing, as provided in Section 8.4(a), each Shareholder, severally and not jointly, will indemnify, defend and hold harmless Buyer and its Affiliates (including, after the Closing Date, each of the Companies) and the successors to the foregoing (and their respective members and partners), against any and all liabilities, damages and losses, and, if (but only to the extent) asserted in a Third Party Claim, punitive damages, and all costs or expenses, including, without limitation, reasonable attorneys' and consultants' fees and expenses ("DAMAGES"), incurred or suffered as a result of or arising out of (i) the failure of any representation or warranty made by either of the Companies or any Shareholder in any subsection of Section 3.1 to be true and correct as of the Closing Date (other than a breach of Section 3.1.9 with respect to Taxes, which will be governed by Section 8.3) or (ii) the breach of any covenant or agreement made or to be performed by either of the Companies pursuant to this Agreement; PROVIDED, HOWEVER, that to the extent such breach or failure cannot be cured "DAMAGES" shall also include the diminution in value of the Common Stock caused by such 42 breach or failure; and, PROVIDED, FURTHER, that no Shareholder will be liable under this Section 8.2(a) (other than with respect to such breaches of any of the Selected Company Representations and Warranties) unless the aggregate amount of Damages exceeds $200,000 and then from the first dollar to the full extent of such Damages and subject to the limitations set forth elsewhere in this Article VIII. (b) Provided that notice has been given pursuant to Section 8.4(a), if required, and the Notified Party fails to cure, or otherwise to perform its obligations with respect to curing, as provided in Section 8.4(a), each Shareholder, severally and not jointly, will indemnify, defend and hold harmless Buyer and its Affiliates (including, after the Closing Date, each of the Companies) and the successors to the foregoing (and their respective partners and members) against Damages incurred or suffered as a result of or arising out of (i) the failure of any representation or warranty made by such Shareholder in any subsection of Section 3.2 of this Agreement to be true and correct as of the Closing Date or (ii) the breach of any covenant or agreement made or to be performed by such Shareholder pursuant to this Agreement. (c) Provided that notice has been given pursuant to Section 8.4(a), if required, and the Notified Party fails to cure, or otherwise to perform its obligations with respect to curing, as provided in Section 8.4(a), Buyer and each of the Companies, jointly and severally, on and after the Closing Date will indemnify, defend and hold harmless each of the Shareholders against Damages incurred or suffered as a result of or arising out of (i) the failure of any representation or warranty made by Buyer in this Agreement to be true and correct as of the Closing Date or (ii) the breach of any covenant or agreement made or to be performed by Buyer pursuant to this Agreement; PROVIDED, HOWEVER, that Buyer will not be liable under this Section 8.2(c) unless the aggregate amount of Damages exceeds $200,000 and then from the first dollar to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that Buyer's liability under this Section 8.2(c) will not exceed, in the aggregate, the Cap. 8.3. TAX INDEMNIFICATION. (a) Each Shareholder, severally and not jointly, will indemnify, defend and hold harmless Buyer, and its Affiliates (including, after the Closing Date, each of the Companies) and the successors to the foregoing (and their respective members and partners) against the following Taxes: (i) all Taxes (and losses, claims and expenses related thereto) resulting from, arising out of, or incurred with respect to, any claims that may be asserted by any party based upon, attributable to, or resulting from the failure of any representation or warranty made pursuant to Section 3.1.9 to be true and correct as of the Closing Date, (ii) all Taxes imposed on or asserted against each of the Companies or for which either of the Companies may be liable in respect of the properties, income or operations of either of the Companies for all Pre-Closing Tax Periods, net of reserves for Taxes to the extent accurately reflected in the computation of the Closing Shareholders' Equity; PROVIDED, HOWEVER, that, with respect to income Taxes of CFI for the period from November 1, 1995 through and including October 31, 1998, the Shareholders will be liable under this Agreement only for such income Taxes for such period which, in the aggregate, exceed the greater of (x) of $1.1 million plus interest and penalties thereon, and (y) the product of (I) the difference between (A) the cumulative aggregate net taxable income of CFI for the fiscal years ended October 31, 1996, 1997 and 1998 set forth in the statements of operations of CFI as audited by Ernst & Young, LLP and (B) the cumulative aggregate net taxable income of CFI for the fiscal years ended October 31, 1996, 1997 and 1998 set forth in the statement of operations of CFI as audited by Kushner, Smith, Joanou & Gregson, LLP, and (II) applicable federal, state and local income tax rates, plus interest and penalties thereon. 43 (b) Amounts payable hereunder by the Shareholders pursuant to Section 8.3(a) in respect of income Taxes, including penalties and interest thereon: (i) for the period from November 1, 1995 through October 31, 1998, will be paid from prior or future payments of the Earnout Amount, if any (whether paid in cash or, if paid by Earnout Notes, by offset against the Earnout Notes) and (ii) for any period ending prior to November 1, 1995, will be paid from prior or future payments of the Escrow Amount, if any, and prior or future payments of the Earnout Amount, if any (whether paid in cash or, if paid by Earnout Notes, by offset against the Earnout Notes). If the income Tax liability for the periods described in clauses (i) and (ii) of the immediately preceding sentence exceeds the respective amounts from which such income Tax liability is permitted to be paid as set forth in such clauses (respectively, the "TAX CAPS"), the Shareholders will have no further liability whatsoever for such income Taxes which would otherwise be payable hereunder but for the Tax Caps. Amounts paid by the Shareholders under this Section 8.3 will be credited against the Cap. 8.4. PROCEDURES. (a) (i) Notwithstanding anything to the contrary contained in Section 8.2, for all matters other than Third Party Claims, prior to seeking indemnity pursuant to Section 8.2, any party seeking such indemnification (the "NOTIFYING PARTY") will first notify in writing the party from whom such indemnification is sought (including the Shareholders' Representative, in the case of any Shareholder) (the "NOTIFIED PARTY") of such matter. The Notified Party will respond to the Notifying Party in writing within 30 days after receipt of such notice as to the validity of such matter. (ii) If such validity is so confirmed by the Notified Party, the Notified Party will, in consultation with, but without requiring the approval of, the Notifying Party, diligently and in good faith (without unreasonably disrupting the business of the Indemnified Party) pursue the resolution or remedy of the matters set forth in such notice to the extent that such matters would no longer give rise to a right of indemnification under Section 8.2 as of the Closing. The Notified Party will certify in writing to the Notifying Party that the matters set forth in such notice have been remedied or resolved to the extent required in the immediately preceding sentence at the time of such remedy or resolution (the "Cure"). Any Cure effected after the Closing, shall be deemed to be effective as of the Closing. If the Notifying Party disagrees with the Notified Party and believes that the Cure has not been effected, then the Notifying Party may, in good faith, seek indemnification under Section 8.2 in respect of the matters described in such notice. (iii) If the validity of a Direct Claim is disputed or the notice referred to in the first sentence of this Section 8.4(a) (i) is not responded to within the stated 30 day period, the Notifying Party may seek indemnification under Section 8.2 in respect of the matters set forth in the Direct Claim. If the validity of a Third Party Notice is disputed or the notice referred to in this Section 8.4(a) (i) is not responded to within the stated 30 day period, such Third Party Notice shall be deemed to constitute a Third Party Claim in respect of which, the Notifying Party may seek indemnification under Section 8.2. (b) (i) The Indemnifying Party will have the right to participate in, or, by giving written notice to the Indemnified Party, to assume, the defense of any Third Party Claim at the Companies' costs and expenses (subject to reimbursement, if required hereunder) and by such Indemnifying Party's own counsel (approved by the Indemnified Party), and the Indemnified Party will cooperate in good faith in such defense. If an Indemnified Party receives written notice from the 44 Indemnifying Party that the Indemnifying Party has elected to assume the defense of such Third Party Claim as provided in the immediately preceding sentence, the Company will pay as and when due all costs and expenses (subject to reimbursement, if required hereunder) in connection with the defense thereof; PROVIDED, HOWEVER, that if the Indemnifying Party fails, within ten days after the Indemnified Party's receipt of such written notice from the Indemnified Party, to take reasonable steps necessary to defend diligently such Third Party Claim, the Indemnified Party may assume its own defense. (ii) Without the prior written consent of the Indemnified Party, the Indemnifying Party will not enter into any settlement of any Third Party Claim and, if the Indemnifying Party desires to accept and agree to such offer of settlement, the Indemnifying Party will give reasonable prior written notice to the Indemnified Party to that effect. If the Indemnified Party fails to consent, prior to the time period set forth in such offer of settlement (but in no event shall the Indemnified Party have less than three days after receipt of such notice to consent), to a firm offer (which includes a release of all claims alleged against the Indemnified Party and provides for the payment of monetary damages only), in such event, the maximum amount of Damages to be paid by the Indemnifying Party as to such Third Party Claim will not exceed the amount of such settlement offer (and the Indemnified Parties' costs and expenses in respect of the indemnifiable claims to which such settlement offer relates) and the Indemnified Party may continue to contest or defend such Third Party Claim at its own cost and expense without any further right of reimbursement hereunder. (iii) The Shareholders will reimburse the Company for all costs and expenses in connection with defense of Third Party Claims unless (A) such Third Party Claim was settled without payment or any other liability relating to such Third Party Claim to such third party, or (B) a favorable determination has been made for the Indemnified Party and/or Indemnifying Party (without payment or any other liability relating to such Third Party Claim to such third party). (iv) The Indemnified Party will cooperate with the Indemnifying Party and will provide the Indemnifying Party with reasonable access during normal business hours (without unreasonably disrupting the business of the Indemnifying Party) to books, records, premises and employees of the Indemnified Party, in each such case, to the extent necessary in connection with the Indemnifying Party's defense of any Third Party Claim which is the subject of a claim for indemnification by an Indemnified Party hereunder. (c) A failure to give timely notice or to include any specified information in any notice as provided in Sections 6.4, 8.4(a) or 8.4(b) will not affect the rights or obligations of any party hereunder, except and only to the extent that, as a result of such failure, any party which was entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise prejudiced as a result of such failure. In the event the failure to give timely notice prejudices the Indemnifying Party, the Indemnified Party's liability for Damages will be reduced to the extent of the shortfall in insurance recovery or to the extent of such other dollar amount which constitutes prejudice to the Indemnifying Party resulting from the failure to give such timely notice. (d) Notwithstanding anything to the contrary contained in this Agreement but without limiting the effect of any other provisions in this Article VIII, Persons entitled to receive 45 indemnification for Damages hereunder will be entitled to indemnification solely for the reasonable fees and expenses in connection therewith of no more than one law firm. 8.5. PERSONAL LIABILITY OF THE SHAREHOLDERS; INDEMNIFICATION CAP. (a) Notwithstanding anything in this Agreement to the contrary, but subject to Section 8.4(d), the aggregate personal liability of each Shareholder with respect to claims for indemnification under this Agreement is and will be limited to the following product (the "PERSONAL LIABILITY AMOUNT"): (i) sum of the Aggregate Closing Consideration (as adjusted pursuant to Sections 2.4 and 2.5), and the amount of the Escrow Amount and the Earnout Amount which becomes due to Shareholders, and (ii) the Percentage Interest. (b) Notwithstanding anything to the contrary contained in this Agreement, (i) the Shareholders' liability under this Agreement (other than with respect to a breach of any of the representations and warranties contained in Sections 3.1.9 or 3.2.4, liability under Section 8.3, or the breach of any representation, warranty or covenant of the Company or any Shareholder which constitutes fraud) will not exceed, in the aggregate, the Cap, (ii) the amounts payable under the Cap will be reduced by all amounts paid by the Shareholders to Indemnified Parties under Article VI or this Article VIII, and (iii) the amount of indemnifiable Damages otherwise due under Section 8.3 will be reduced by all amounts previously paid by the Shareholders to Indemnified Parties under this Article VIII (other than Section 8.3) and under Article VI. (c) All indemnifiable Damages under this Agreement will be paid in cash in immediately available funds up to the amount of the Cash Cap, and all other amounts owed by reason of such indemnifiable Damages by the Shareholders will be offset against the Non-cash Cap. (d) Whenever stated in this Agreement that the Shareholders indemnify "severally" or words of similar import, the aggregate amount of indemnifiable Damages (including Taxes) shall be multiplied by each Shareholder's Percentage Interest to ascertain the total amount due by such Shareholder including, without limitation, amounts owed pursuant to any section or subsection of this Article VIII. 8.6. TREATMENT OF INDEMNIFICATION PAYMENTS. Any amount paid by any Shareholder or Buyer under Section 8.2 or 8.3 will be treated as a capital contribution, on the one hand, and/or an adjustment to the Aggregate Consideration on the other hand. 8.7. INDEMNIFICATION AMOUNTS NET OF BENEFITS RECEIVED; SET-OFF. The amount of Damages for which indemnification is provided under Sections 8.2 and 8.3 will be computed net of any insurance proceeds received by the Indemnified Party in connection with such Damages, reduced by all costs and expenses related thereto and any premium increase or expense resulting therefrom. If the amount with respect to which any claim is made under this Section 8.7 gives rise to a currently realizable Tax benefit, the indemnity payment will be reduced by the amount of such currently realizable benefit then available to the party making the claim if and to the extent actually realized by such party in the fiscal year in which such indemnity payment is made to such party or in the next succeeding fiscal year. The Shareholders agree and acknowledge that Buyer may, but, except as otherwise expressly set forth herein, will not be obligated to, withhold against amounts payable pursuant to Section 2.7 any amount claimed by Buyer under this Article VIII ("INDEMNIFICATION CLAIMS") pending final resolution (by settlement or final, unappealable court 46 order) of any such claim and to set off the amount of any such finally resolved Indemnification Claim against such amount payable pursuant to Section 2.7. 8.8. EXCLUSIVE REMEDY. Article VI and this Article VIII constitute the exclusive remedies for the breach of or default under any of the covenants, provisions or agreements, or the failure of any representations or warranties contained in this Agreement; PROVIDED, HOWEVER, that the provisions of this Section 8.8 will not prevent the Shareholders, the Company or Buyer from seeking the remedies of specific performance or injunctive relief (other than recission of this Agreement by any party hereto which right is expressly waived hereby) in connection with the breach of a covenant or agreement of any party hereto. IX. MISCELLANEOUS 9.1. TERMINATION. (a) This Agreement may be terminated at any time prior to the Closing: (i) by the mutual written consent of Buyer and the Shareholders' Representative; (ii) by Buyer, if there has been a material violation or breach by either of the Companies or a Shareholder of any covenant, representation or warranty contained in this Agreement which has prevented the satisfaction of any condition to the obligations of Buyer at the Closing, and such violation or breach has not been waived by Buyer or, in the case of a covenant breach, cured by either of such Companies or such Shareholder within the earlier of (x) ten days after written notice thereof from Buyer or (y) the Closing Date; (iii) by the Shareholders' Representative if there has been a material violation or breach by Buyer of any covenant, representation or warranty contained in this Agreement which has prevented the satisfaction of any condition to the obligations of the Companies at the Closing, and such violation or breach has not been waived by the Shareholders' Representative or, in the case of a covenant breach, cured by Buyer within the earlier of (x) ten days after written notice thereof from the Shareholders' Representative or (y) the Closing Date; (iv) by Buyer or the Shareholders' Representative if the transactions contemplated hereby have not been consummated by March 31, 1999; PROVIDED, HOWEVER, that neither Buyer nor the Shareholders' Representative will be entitled to terminate this Agreement pursuant to this Section 9.1(a)(iv) if such Person's (or, in the case of the Shareholders' Representative, either of the Companies' or a Shareholder's) breach of this Agreement has prevented the consummation of the transactions contemplated hereby; or (v) by Buyer, if the conditions to Closing set forth in Sections 7.1.9 or 7.1.15 have not been satisfied. (b) In the event that this Agreement is terminated pursuant to Sections 9.1(a) (ii) and (iii), all further obligations of the parties hereto under this Agreement (other than pursuant to Section 9.4, which will continue in full force and effect) will terminate without further liability or obligation of any party to any other party hereunder; PROVIDED, HOWEVER, that no party will be 47 released from liability hereunder if this Agreement is terminated and the transactions abandoned by reason of (i) failure of such party to have performed its obligations hereunder or (ii) any misrepresentation made by such party of any matter set forth herein. 9.2. NOTICES. All notices, requests and other communications to any party hereunder will be in writing (including facsimile transmission) and will be given to such party at its address set forth in SCHEDULE 9.2. All such notices, requests and other communications will be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication will be deemed not to have been received until the next succeeding business day in the place of receipt. 9.3. AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement (subject to Section 9.17(b)(iii)), or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided will be cumulative and not exclusive of any rights or remedies provided by law. 9.4. EXPENSES. Except as otherwise expressly provided for herein, the parties will pay or cause to be paid all of their own fees and expenses incident to this Agreement and in preparing to consummate and consummating the transactions contemplated hereby, including the fees and expenses of any broker, finder, financial advisor, legal advisor or similar person engaged by such party. Buyer acknowledges that the Companies are responsible for and will pay prior to or at Closing all such fees and expenses incurred by either of the Companies and/or the Shareholders. 9.5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto; PROVIDED, that, Buyer may assign its rights (to be exercised through Buyer) under this Agreement to its senior bank lenders which will provide the financing contemplated by Section 7.1.15 without the consent of any other party hereto. 9.6. NO THIRD PARTY BENEFICIARIES. Except as provided in Article VIII, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied will give or be construed to give to any Person, other than the parties hereto and such permitted assigns any legal or equitable rights hereunder. 9.7. GOVERNING LAW. This Agreement will be governed by, and construed in accordance with, the law of the State of New York, without regard to the conflict of laws rules of such state. 48 9.8. JURISDICTION. Except as otherwise expressly provided in this Agreement, any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any court of competent jurisdiction in the Borough of Manhattan or the United States District Court for the Southern District of New York and each of the parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party by certified or registered mail, return receipt requested will be deemed effective service of process on such party. 9.9. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 9.10. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which will be an original but all of which will constitute one and the same instrument, with the same effect as if the signatures thereto and hereto were upon the same instrument. 9.11. HEADINGS. The headings, the table of contents and the Schedule and Exhibit indices in this Agreement are for convenience of reference only and will not control or affect the meaning or construction of any provisions hereof. 9.12. ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits hereto) constitutes the entire agreement among the parties with respect to the subject matter of this Agreement. This Agreement (including the Schedules and Exhibits hereto) supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof of this Agreement. 9.13. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any person or circumstance is held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision hereof. 9.14. NO WAIVER. No action or inaction taken or omitted pursuant to this Agreement will be deemed to constitute a waiver of compliance with any representations, warranties or covenants contained in this Agreement and will not operate or be construed as a waiver of any subsequent breach, whether of a similar or dissimilar nature. 9.15. CERTAIN INTERPRETIVE MATTERS. (i) Unless the context otherwise requires, (a) all references to Sections, Articles, Exhibits or Schedules are to Sections, Articles, Exhibits, or Schedules of or to this Agreement, (ii) each of the Schedules will apply only to the corresponding Section or Subsection of this Agreement, PROVIDED, HOWEVER, that an item set forth on a Schedule may be deemed to be disclosed on another Schedule if the disclosure relating to such item is, on its 49 face, expressly responsive to the representation and warranty to which such other Schedule relates, (iii) each term defined in this Agreement has the meaning assigned to it, (iv) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP, (v) words in the singular include the plural and VICE VERSA, and (vi) the term "INCLUDING" means "including without limitation." All references to $ or dollar amounts will be to lawful currency of the United States. To the extent the term "day" or "days" is used, it shall mean calendar days. (b) No provision of this Agreement will be interpreted in favor of, or against, any of the parties hereto by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof. (c) (i) All references to the "KNOWLEDGE OF THE COMPANIES", "KNOWLEDGE OF EITHER OF THE COMPANIES" or to words of similar import will be deemed to be references to the actual knowledge of one or more of the executive officers or directors of each of the Companies whose names are listed on SCHEDULE 9.15(c)(i), and will include such knowledge as such executive officers or directors would have had after due inquiry of the responsible individuals of each of the Companies whose names are listed separately on SCHEDULE 9.15(c)(i). (ii) All references to the "KNOWLEDGE OF BUYER" or to words of similar import will be deemed to be references to the actual knowledge of one or more of the executive officers, directors or members of the management committee of Buyer whose names are listed on SCHEDULE 9.15(c)(ii) and, will include such knowledge as such executive officers, directors or management committee members would have had after due inquiry of the responsible individuals of Buyer whose names are listed separately on SCHEDULE 9.15(c)(ii). (iii) All references to the "KNOWLEDGE OF SHAREHOLDER", "KNOWLEDGE OF THE SHAREHOLDERS" or to words of similar import will be deemed to be references to the actual knowledge of such Shareholder, as applicable. 9.16. TRANSFER OF PROCEEDS. No Shareholder will transfer or permit the transfer of any of the Aggregate Closing Consideration received by or on behalf of such Shareholder if the result thereof would make such Shareholder unable to satisfy such Shareholder's obligations hereunder as to indemnification. 9.17. SHAREHOLDERS' REPRESENTATIVE. (a) By the execution and delivery of this Agreement, each Shareholder hereby irrevocably constitutes and appoints Mr. Gary Buehler as shareholders' representative ("SHAREHOLDERS' REPRESENTATIVE") with the exclusive authority to act in accordance with Section 9.17(b). In the event of the death, resignation or inability to act of Mr. Buehler, Robert Reagan will be successor Shareholders' Representative with all powers of his predecessor. (b) The Shareholders' Representative will have full power: (i) to act on each Shareholder's behalf in accordance with the terms of this Agreement, to give and receive notices on behalf of all Shareholders and to act on their behalf in connection with any matter as to which one or more Shareholders is an "Indemnified Party" or 50 "Indemnifying Party" under this Agreement, all in the absolute discretion of Shareholders' Representative; (ii) in general, to do all things and to perform all acts, including executing and delivering all agreements, certificates, receipts, instructions and other instruments contemplated by or in connection with this Agreement to substantiate the representations or warranties or to perform the covenants made by the Shareholders herein; and (iii) to amend this Agreement on behalf of the Shareholders. Notwithstanding anything in this Section 9.17 to the contrary, the Shareholders' Representative will not be authorized to alter, change or modify the Aggregate Closing Consideration or the Personal Liability Amount on behalf of the Shareholders. This power of attorney, and all authority hereby conferred, is granted in consideration of the mutual covenants and agreements made herein, and is irrevocable and will not be terminated by any act of any Shareholder or by operation of Law, whether by the death or incapacity of any Shareholder or by the occurrence of any other event. The Shareholders' Representative will not be liable for any action taken in the capacity of Shareholders' Representative in accordance with the terms of this Agreement, including the compromise, settlement, payment or defense of any claim (including expenses and costs associated therewith) under this Agreement regardless of whether any Shareholder is the claimant or the party against whom a claim is being made. In connection with the exercise of his duties, the Shareholders' Representative will be entitled to consult with and rely upon legal counsel and other professional advisors, with the costs thereof to be allocated among the Shareholders and will have no liability hereunder for actions taken in good faith reliance upon the advice of such advisors. Each Shareholder will, jointly and severally, hold the Shareholders' Representative harmless from any and all Damage which they, or any one of them, may sustain as a result of any action taken in good faith hereunder. 51 The parties hereto have caused this Agreement to be duly executed by their respective authorized officers or in their individual capacity, if applicable, as of the day and year first above written. CERTIFIED FABRICATORS, INC. By: /s/ Gary J. Buehler ------------------------------------ Name: Gary J. Buehler Title: President CALBRIT DESIGN, INC. By: /s/ Gary J. Buehler ------------------------------------ Name: Gary J. Buehler Title: President PRECISION PARTNERS, INC. By: /s/ John Clark ------------------------------------ Name: John Clark Title: Vice President /s/ Gary J. Buehler --------------------------------------------- Gary J. Buehler, individually and as Shareholders' Representative EX-2.6 7 STOCK PURCH. AGRMNT (AUG. 27, 1999) Exhibit 2.6 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT, dated as of August 27, 1999, by and among GILLETTE MACHINE & TOOL CO., INC., a New York corporation (the "COMPANY"), GILLETTE MACHINE & EQUIPMENT COMPANY, a New York general partnership (the "PARTNERSHIP"), CHARLYNE GILLETTE, MARTIN GILLETTE, JOHN GILLETTE and TESTAMENTARY TRUST B UNDER WILL OF FRANK P. GILLETTE DATED FEBRUARY 7, 1992 (each individually, a "SHAREHOLDER" and collectively, the "SHAREHOLDERS"), and PRECISION PARTNERS, INC., a Delaware corporation ("BUYER"). RECITALS A. The Shareholders own all of the issued and outstanding common stock, $______ par value per share (the "COMMON STOCK"), of the Company. B. Buyer desires to purchase from the Shareholders, and the Shareholders desire to sell to Buyer, the Common Stock in exchange for the Aggregate Closing Consideration, all on the terms and conditions set forth herein. C. The parties desire to make certain representations, warranties and covenants in connection with the transaction and to prescribe various conditions to the transaction. Accordingly, the parties hereto agree as follows: I. DEFINITIONS 1.1. DEFINITIONS. In addition to the terms defined elsewhere herein, the following terms, as used herein, have the following meanings when used herein with initial capital letters: "ACCOUNTANTS" has the meaning ascribed to such term in Section 2.4(b). "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with the first Person and, if such first Person is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. For the purposes of this definition, "CONTROL," when used with respect to any Person, means the possession, directly or indirectly, of the power to (i) vote 10% or more of the securities having ordinary voting power for the election of directors (or comparable positions) of such Person, or (ii) direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing. "AGGREGATE CLOSING CONSIDERATION" has the meaning ascribed to such term in Section 2.2. 1 "AGREEMENT" means this Agreement, as the same may be amended from time to time in accordance with the terms hereof. "ANCILLARY AGREEMENTS" means the Employment Letters, the Noncompetition Agreements, the Consulting Agreements, the Rochester Lease, the Assignment and all other instruments, certificates, bills of sale and other agreements entered into by the Company, the Partnership or any Shareholder in connection with the consummation of the transactions contemplated by this Agreement, including the Reorganization. "ASSIGNMENT" has the meaning ascribed to such term in Section 5.9. "AUDITED FINANCIAL STATEMENTS" has the meaning ascribed to such term in Section 5.4(b). "BALANCE SHEET DATE" means February 28, 1999. "BALANCE SHEET PRINCIPLES" has the meaning ascribed to such term in Section 2.4(a). "BASE SHAREHOLDERS' EQUITY" means $4.7 million. "BUSINESS DAY" means a day other than a Saturday or Sunday or a day on which banks located in New York City are authorized or required to close. "BUYER" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "CAPITALIZED LEASE OBLIGATIONS" means, with respect to any Person, for any applicable period, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP, and the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP, together with all obligations to make termination payments under such capitalized lease obligations. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. ss.ss. 9601, et seq. "CLOSING" has the meaning ascribed to such term in Section 2.7. "CLOSING DATE" has the meaning ascribed to such term in Section 2.7. "CLOSING BALANCE SHEET" has the meaning ascribed to such term in Section 2.4(a). "CLOSING SHAREHOLDERS' EQUITY has the meaning ascribed to such term in Section 2.4(a). "CLOSING SHAREHOLDERS' EQUITY STATEMENT" has the meaning ascribed to such term in Section 2.4(a). 2 "CODE" means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. "COMMON STOCK" has the meaning ascribed to such term in Recital A. "COMPANY" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "COMPANY NOTES" has the meaning ascribed to such term in Section 5.9. "COMPANY PROPERTY" means any real property and improvements at any time owned, leased, used, operated or occupied (whether for storage, disposal or otherwise) by the Company. "COMPANY SECURITIES" has the meaning ascribed to such term in Section 3.1.5(b). "COMPUTER SYSTEMS" has the meaning ascribed to such term in Section 3.1.24. "CONSTITUENT OF CONCERN" means any substance defined as a hazardous substance, hazardous waste, hazardous material, pollutant, or contaminant by any Environmental Law, any petroleum hydrocarbon and any degradation product of a petroleum hydrocarbon, asbestos, PCB or similar substance, the handling, storage, treatment or exposure of or to which is subject to regulation under any Environmental Law. "CONSULTING AGREEMENTS" means the Consulting Agreements, dated as of the Closing Date, between the Company and each of John Gillette and Martin Gillette, each substantially in the form attached hereto as EXHIBIT A. "DAMAGES" has the meaning ascribed to such term in Section 8.2(a). "DIRECT CLAIM" has the meaning ascribed to such term in Section 8.4(c). "DISPUTE NOTICE" has the meaning ascribed to such term in Section 6.1. "EMPLOYMENT LETTERS" means the employment agreements, dated the Closing Date, between the Company and each of Darren Gillette and Bruce Trombley, each substantially in the forms attached hereto as EXHIBIT B. "ENVIRONMENTAL CLAIMS" means administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, citations, summonses, notices of non-compliance or violation, requests for information, investigations or proceedings relating to any Environmental Law or any permit issued under any such Law, including (a) Environmental Claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) Environmental Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Constituents of Concern or arising from alleged injury or threat of injury to human health and safety or the environment. 3 "ENVIRONMENTAL CONDITION" means a condition with respect to the environment which has resulted or could result in a material loss, liability, cost or expense to the Company. "ENVIRONMENTAL LAW" means any Law in effect or, to the Company's knowledge, reasonably expected to be adopted or made effective, as of the Closing Date and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, human health and safety, including CERCLA, and any state and local counterparts or equivalents to all or any of the foregoing. "ENVIRONMENTAL PERMITS" means all permits, licenses, authorizations, certificates and approvals of Governmental Authorities relating to or required by Environmental Laws and necessary for the business of the Company. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" means any Person that, together with the Company, would be considered a single employer within the meaning of Section 4001 of ERISA or Section 414 of the Code. "ESTIMATED CLOSING SHAREHOLDERS' EQUITY" has the meaning ascribed to such term in Section 2.3. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "GAAP" means U.S. generally accepted accounting principles, consistently applied. "GOVERNMENTAL AUTHORITY" means any domestic or foreign governmental or regulatory authority, including any court, arbitral body or other body administering alternative dispute resolution. "INDEBTEDNESS" means with respect to any Person, at any date, without duplication, (i) all obligations of such Person for borrowed money, including, without limitation, all principal, interest, premiums, fees, expenses, overdrafts and penalties with respect thereto, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (iv) Capitalized Lease Obligations of such Person, and (v) all Indebtedness of any other Person of the type referred to in clauses (i) to (iv) above directly or indirectly guaranteed by such Person or secured by any assets of such Person. "INDEMNIFIED PARTY" has the meaning ascribed to such term in Section 8.4(a). "INDEMNIFYING PARTY" has the meaning ascribed to such term in Section 8.4(a). 4 "INTELLECTUAL PROPERTY RIGHT" means any trademark, service mark, trade name, invention, patent, trade secret, copyright, know-how, proprietary computer software, computer databases, Internet addresses, including uniform resource locators, or domain names (including any registrations or applications for registration of any of the foregoing) or any other similar type of proprietary intellectual property right, in each case which is owned, used or held for use or otherwise necessary in connection with the conduct of the businesses of the Company as now conducted or proposed to be conducted. "IRS" means the Internal Revenue Service. "LAST OFFER" has the meaning ascribed to such term in Section 2.4(b). "LAW" means any federal, state or local statute, law, rule, regulation, ordinance, code, permit, license, policy or rule of common law. "LIEN" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For the purposes of this Agreement, a Person will be deemed to own, subject to a Lien, any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, assets, liabilities, condition (financial and other), results of operations or prospects of the Company. "MILLENNIUM COMPLIANCE" means that the Computer Systems are capable of the following, during and/or after January 1, 2000: (a) handling date information involving all and any dates, including accepting input, providing output and performing date calculations in whole or in part; (b) operating accurately without interruption on and in respect of any and all dates and without any change in performance; (c) responding to and processing two digit year input without creating any ambiguity as to the century; and (d) storing and providing date input information without creating any ambiguity as to the century. "MONTHLY FINANCIAL STATEMENTS" means the unaudited monthly balance sheets of the Company at the end of each calendar month beginning January 31, 1996 through and including July 31, 1999, together with the related monthly statements of earnings. "NONCOMPETITION AGREEMENTS" means the Noncompetition Agreements, dated as of the Closing Date, between the Company, Buyer and each Shareholder, each substantially in the form attached hereto as EXHIBIT C. "OPERATING COMPANY" means an "operating company" within the meaning of Department of Labor Regulation ss. 2510.3-101(c) or successor rule or regulation, as from time to time amended and in effect. "ORDER" means any judgment, injunction, judicial or administrative order or decree. 5 "ORDINARY COURSE OF BUSINESS" means with respect to any Person, the ordinary course of business of such Person, consistent with such Person's past practice and custom, including with respect to any category, quantity or dollar amount, term and frequency of payment, delivery, accrual, expense or any other accounting entry. "PERMITTED LIEN" means (a) mechanics', workmen's, repairmen's or other like Liens arising or incurred in the Ordinary Course of Business in respect of obligations that are not overdue, (b) other imperfections of title or encumbrances, which do not materially affect the value or marketability of the property subject thereto, or (c) the Liens listed in SCHEDULE 3.1.15(a). "PERSON" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLAN ASSETS" means "plan assets" within the meaning of Department of Labor Regulation ss. 2510.3-101(c) or successor rule or regulation, as from time to time amended and in effect. "PLANS" has the meaning ascribed to such term in Section 3.1.18(a). "POST-CLOSING TAX PERIOD" means any Tax period (or portion thereof) ending after the Closing Date. "PRE-CLOSING AUDIT" has the meaning ascribed to such term in Section 5.4(b). "PRE-CLOSING TAX PERIOD" means any Tax period (or portion thereof) that ends on or before the Closing Date. "RELATED PARTY INDEBTEDNESS" means Indebtedness (a) of the Company to (i) any Affiliate of the Company (including the Estate of Frank Gillette) or (ii) any other current or former shareholder, director, officer or employee of either the Company or of any such Affiliate and (b) of any Affiliate of the Company or any other current or former shareholder, director, officer or employee of either the Company or of any such Affiliate to the Company, as applicable. "REORGANIZATION" has the meaning ascribed to such term in Section 5.8. "RETURNS" has the meaning ascribed to such term in Section 3.1.9(a)(i). "REVIEWED BALANCE SHEET" means the balance sheet of the Company as of February 28, 1999 included in the Reviewed Statements. "REVIEWED STATEMENTS" means the reviewed balance sheets of the Company as of February 28, 1999, 1998, 1997 and 1996, together with the related statements of income andretained earnings and cash flows for the periods then ended and the reports thereon of Bonadio & Co., certified public accountants. 6 "ROCHESTER LEASE" means the lease, dated the Closing Date, between Testamentary Trust A under will of Frank P. Gillette dated February 7, 1992 and the Company, substantially in the form attached hereto as EXHIBIT D. "SELECTED BUYER REPRESENTATIONS AND WARRANTIES" means the representations and warranties contained in Sections 4.1 (Corporate Existence and Power), 4.2 (Corporate Authorization; Enforceability), 4.3 (Governmental Authorization), 4.4 (Non-Contravention), and 4.6 (Finders' Fees). "SELECTED COMPANY REPRESENTATIONS AND WARRANTIES" means the representations and warranties contained in Sections 3.1.1 (Corporate Existence and Power), 3.1.2 (Corporate Authorization; Enforceability), 3.1.3 (Governmental Authorization), 3.1.4 (Non-Contravention; Consents), 3.1.5 (Capitalization; No Subsidiaries), 3.1.6(c) (Financial Statements; Books and Records -- as to reserve and accrual amounts and policies), 3.1.15 (Properties; Sufficiency of Assets), 3.1.18(h) (Change in Control Payments), and 3.1.25 (Finders' Fees). "SELECTED SHAREHOLDER REPRESENTATIONS AND WARRANTIES" means the representations and warranties contained in Sections 3.2.1 (Authority; Enforceability), 3.2.2 (No Conflicts), 3.2.3 (No Consents), 3.2.4 (Ownership of Shares; Title), and 3.2.7 (Finders' Fees). "SHAREHOLDERS" has the meaning ascribed to such term in the introductory paragraph of this Agreement. "TAX" means (a) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, license, withholding on amounts paid to or by the Company, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest, penalty, addition to tax or additional amount imposed by any Taxing Authority (as hereinafter defined), (b) any liability of the Company for the payment of any amounts of any of the foregoing types as a result of being a member of an affiliated, consolidated, combined or unitary group, or being a party to any agreement or arrangement whereby liability of the Company for payment of such amounts was determined or taken into account with reference to the liability of any other Person, and (c) liability of the Company for the payment of any amounts as a result of being a party to any Tax Sharing Agreements or with respect to the payment of any amounts of any of the foregoing types as a result of any express or implied obligation to indemnify any other Person. "TAX MATTER" has the meaning ascribed to such term in Section 6.4. "TAX SHARING AGREEMENTS" means all existing Tax sharing agreements or arrangements (whether or not written) binding the Company. "TAXING AUTHORITY" means any Governmental Authority responsible for the imposition of any Tax. "TERMINATION DATE" has the meaning ascribed to such term in Section 9.1(a)(iv). 7 "THIRD PARTY CLAIM" means any claim, demand, action, suit or proceeding made or brought by any Person who or which is not a party to this Agreement. II. THE PURCHASE; CLOSING 2.1. PURCHASE OF COMMON STOCK. On the terms and subject to the conditions of this Agreement, at the Closing, (a) Buyer will purchase from the Shareholders, and the Shareholders will sell, assign, transfer and deliver ("TRANSFER") to Buyer, free and clear of all Liens, the Common Stock owned by the Shareholders listed on SCHEDULE 3.1.5(a) opposite such Shareholder's name, which Common Stock shall represent 100% of the issued and outstanding Company Securities as of the Closing Date. The certificates representing the Common Stock will be duly endorsed in blank, or accompanied by stock powers duly executed in blank, by the Shareholders with all necessary transfer Tax and other revenue stamps, acquired at the Shareholders' expense, affixed and canceled. Each Shareholder will cure any deficiencies with respect to the endorsement of the certificates representing the Common Stock owned by such Shareholder or with respect to the stock powers accompanying any such certificates. 2.2. PURCHASE PRICE. In consideration for the Transfer by the Shareholders of the Common Stock to Buyer pursuant to Section 2.1 and after giving effect to the Reorganization, Buyer will deliver at the Closing to the Shareholders an aggregate amount equal to $11.4 million (the "AGGREGATE CLOSING CONSIDERATION"), subject to adjustment as provided in Sections 2.3, 2.4 and 2.5, payable in cash by wire transfer of immediately available funds to one account designated in writing by the Shareholders. 2.3. ESTIMATED CLOSING SHAREHOLDERS' EQUITY. Not less than two Business Days prior to the Closing Date, the Company and Buyer will prepare and agree on an estimate of the Closing Shareholders' Equity determined in accordance with the second sentence of Section 2.4(a) as if it were the actual Closing Shareholders' Equity, but based upon the Company's and Buyer's review of monthly financial information then available and inquiries of personnel responsible for the preparation of financial information relating to the Company in the ordinary course (the "ESTIMATED CLOSING SHAREHOLDERS' EQUITY"). The Aggregate Closing Consideration will be increased or reduced dollar-for-dollar by the amount by which the Estimated Closing Shareholders' Equity is greater than or less than the Base Shareholders' Equity, as applicable. 2.4. POST-CLOSING ADJUSTMENT. (a) As soon as practicable (and in no event later than 60 days after the Closing), Buyer will prepare and deliver or cause to be prepared and delivered to the Shareholders a balance sheet of the Company as of the close of business on August 31, 1999 (the "CLOSING BALANCE SHEET") and a proposed statement of the shareholders' equity of the Company as of the close of business on August 31, 1999 (the "CLOSING SHAREHOLDERS' EQUITY STATEMENT"). The Closing Balance Sheet and the Closing Shareholders' Equity Statement (i) will reflect, respectively, the financial position of the Company and the components and calculation of the shareholders' equity of the Company in each case as of the close of business on August 31, 1999, after giving effect to the Reorganization and the Assignment, and (ii) will be prepared and determined on a basis consistent with the policies, principles and methodology used in connection with the preparation of the Reviewed Balance Sheet (the policies, principles and methodology in clause (ii) of this Section 2.4(a) being referred to herein as the "BALANCE SHEET PRINCIPLES"). The Reviewed Balance Sheet and Base Shareholders' Equity will be adjusted as if the Assignment and the Reorganization had occurred 8 as of the Balance Sheet Date, but will not be adjusted as a result of the transactions contemplated by Section 5.10. Notwithstanding anything contained herein to the contrary, there will be no changes in reserve or accrual policies between the Balance Sheet Date and the Closing Date without the prior written consent of Buyer. The shareholders' equity of the Company as of the close of business on August 31, 1999 determined in accordance with this Section 2.4 is referred to herein as the "CLOSING SHAREHOLDERS' EQUITY." (b) If, within 30 days after the date of Buyer's delivery of the Closing Balance Sheet and the Closing Shareholders' Equity Statement, the Shareholders disagree in good faith with the preparation and determination of the Closing Balance Sheet and the Closing Shareholders' Equity Statement as proposed by Buyer in accordance with this Agreement, the Shareholders will give written notice to Buyer within such 30 day period (i) setting forth the Shareholders' proposed changes to the Closing Balance Sheet as prepared by Buyer and the determination by the Shareholders of the Closing Shareholders' Equity and (ii) specifying in detail the Shareholders' basis for disagreement with Buyer's preparation and determination of the Closing Balance Sheet and the Closing Shareholders' Equity. The failure by the Shareholders to so express disagreement and provide such specification within such 30 day period will constitute the acceptance of Buyer's preparation of the Closing Balance Sheet and the computation of the Closing Shareholders' Equity. If Buyer and the Shareholders are unable to resolve any disagreement between them with respect to the preparation of the Closing Balance Sheet and the determination of the Closing Shareholders' Equity within 30 days after the giving of notice by the Shareholders to Buyer of such disagreement, the items in dispute will be referred for determination to PricewaterhouseCoopers LLP (the "ACCOUNTANTS") as promptly as practicable, but not later than five days after the expiration of such 30 day period. Buyer and the Shareholders will use reasonable efforts to cause the Accountants to render their decision as soon as practicable thereafter (but in no event later than 30 days after the submission to the Accountants of the notice of disagreement referred to in the immediately preceding sentence), including without limitation by promptly complying with all reasonable requests by the Accountants for information, books, records and similar items. The Accountants will make a determination as to each of the items in dispute (but only those items in dispute), which determination will be in writing, furnished to each of the parties hereto as promptly as practicable after the items in dispute have been referred to the Accountants (but in no event later than 30 days thereafter), made in accordance with this Agreement, and conclusive and binding upon each of the parties hereto. Nothing herein will be construed to authorize or permit the Accountants to determine (i) any question or matter whatsoever under or in connection with this Agreement, except the determination of what adjustments, if any, must be made in one or more disputed items reflected in the Closing Balance Sheet and the Closing Shareholders' Equity Statement delivered by Buyer in order for the Closing Shareholders' Equity to be determined in accordance with the provisions of this Agreement or a Closing Shareholders' Equity that is not equal to one of, or between, the Closing Shareholders' Equity as determined by the Shareholders and as determined by Buyer. The fees and expenses of the Accountants will be paid by the party whose last written settlement offer related to all items in dispute, in the aggregate, submitted to the Accountants upon the referral of the matter to the Accountants in accordance with this Section 2.4(b) (each, a "LAST OFFER") varies by the greatest absolute amount from the determination by the Accountants of all such disputed items. No party will disclose to the Accountants, and the Accountants will not consider for any purpose, any settlement discussions or settlement offer (other than the Last Offer) made by any party. 9 (c) During the period that the Shareholders' advisors and personnel are conducting their review of Buyer's preparation of the Closing Balance Sheet and determination of the Closing Shareholders' Equity, the Shareholders' and their representatives will have reasonable access during normal business hours to the work papers, prepared by or on behalf of Buyer and its representatives in connection with Buyer's preparation of the Closing Shareholders' Equity Statement and determination of the Closing Shareholders' Equity; PROVIDED, HOWEVER, that the Shareholders will conduct such review in a manner that does not unreasonably interfere with the conduct of the business of the Company or result in substantial out-of-pocket costs to Buyer. To the extent any such work papers are in the control of the Shareholders after the Closing, the Shareholders will grant Buyer and its representatives reciprocal access rights for the purpose of finalizing the preparation of the Closing Balance Sheet and the determination of the Closing Shareholders' Equity. The Shareholders and Buyer agree in good faith to use all reasonable efforts to provide such information and access described in this Section 2.4(c). 2.5. ADJUSTMENTS TO CLOSING PAYMENTS. (a) Upon the final determination of the Closing Shareholders' Equity, the parties shall make the following adjustment: (i) If the Closing Shareholders' Equity is less than the Estimated Closing Shareholders' Equity, then the Aggregate Closing Consideration will be decreased by, and the Shareholders will pay to Buyer (on a joint and several basis), the amount of such difference. (ii) If the Closing Shareholders' Equity exceeds the Estimated Closing Shareholders' Equity, then the Aggregate Closing Consideration will be increased by, and Buyer will pay to the Shareholders, the amount of such difference. (b) Any payment in respect of an adjustment required to be made under Section 2.5(a) will be made by Buyer or the Shareholders, as applicable, in cash by wire transfer of immediately available funds to one account as specified by Buyer or the Shareholders, as applicable, prior to the date such payment is required to be made hereunder. Such payment will be made on such of the following dates as may be applicable: (i) if the Shareholders shall have not objected to the preparation of the Closing Balance Sheet or the determination of the Closing Shareholders' Equity, the earlier of (A) 37 days after delivery to the Shareholders of the Closing Balance Sheet and the Closing Shareholders' Equity Statement or (B) seven days after the Shareholders have indicated that they have no objections to the preparation of the Closing Balance Sheet or the determination of the Closing Shareholders' Equity, or (ii) if the Shareholders shall have objected to the preparation of the Closing Balance Sheet or the determination of the Closing Shareholders' Equity by Buyer, within seven days following final agreement or decision with respect to the Closing Balance Sheet or the Closing Shareholders' Equity, as applicable, as provided in Section 2.4. 2.6. CLOSING. The closing of the purchase and sale (the "CLOSING") will take place at the offices of Jones, Day, Reavis & Pogue located at 599 Lexington Avenue, New York, New York, at 10:00 a.m., New York time, on August 31, 1999 or as soon thereafter as practicable, but in no event later than September 3, 1999 (the date on which the Closing occurs is herein referred to as the "CLOSING DATE"). At the Closing, the Shareholders, the Company and Buyer will deliver the agreements, instruments and certificates provided for in Article VII. 10 2.7. PROCEEDINGS. Except as otherwise specifically provided for herein, all proceedings that will be taken and all documents that will be executed and delivered by the parties hereto on the Closing Date will be deemed to have been taken and executed simultaneously, and no proceeding will be deemed taken nor any document executed and delivered until all have been taken, executed and delivered. III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS 3.1. The Company and the Shareholders, jointly and severally, represent and warrant to Buyer as of the date hereof and the Closing (after giving effect to the Reorganization) as follows: 3.1.1. CORPORATE EXISTENCE AND POWER. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of New York. The Company has all corporate power and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. The Company is duly qualified to conduct business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has heretofore delivered to Buyer a true and complete copy of its articles of incorporation and bylaws. 3.1.2. CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by each of the Company and the Partnership of this Agreement and each Ancillary Agreement to which each of them will be a party to and will be delivered at the Closing are, and will be at the Closing, within its corporate or similar powers and have been, and will be at the Closing, as applicable, duly authorized by all necessary corporate or similar action on its part. This Agreement has been, and each of the Ancillary Agreements to which the Company and the Partnership will be a party to and will be delivered at the Closing will be, duly executed and delivered by the Company and constitutes, and will constitute at the Closing, the valid and binding agreements of each of the Company and the Partnership, enforceable against it in accordance with their respective terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting the enforcement of creditors' rights generally and by general equitable principles. 3.1.3. GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by the Company and the Partnership of this Agreement, and each Ancillary Agreement to which the Company and the Partnership will be a party to and will be delivered at the Closing, does not and will not require any action by or in respect of, or filing with, any Governmental Authority. 3.1.4. NON-CONTRAVENTION; CONSENTS. Except as disclosed on SCHEDULE 3.1.4, the execution, delivery and performance by the Company and the Partnership of this Agreement, and each Ancillary Agreement to which the Company and the Partnership will be a party to and will be delivered at the Closing, and the consummation of the transactions contemplated hereby and thereby do not and will not (a) violate the articles of incorporation, bylaws or other similar constituent document of the Company or the Partnership, as applicable, (b) violate any applicable Law or Order, (c) require any filing with or permit, consent or approval of, or the giving of any 11 notice to, any Person (including filings, consents or approvals required under any permits of the Company or the Partnership or any licenses to which the Company or the Partnership is a party), (d) result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of the Company or the Partnership under or result in a loss of any benefit to which the Company or the Partnership is entitled under any agreement or other instrument binding upon, the Company or the Partnership or any license, franchise, permit or other similar authorization held by the Company or the Partnership, or (e) result in the creation or imposition of any Lien on any asset of the Company or the Partnership. 3.1.5. CAPITALIZATION; NO SUBSIDIARIES. (a) As of the date hereof and immediately prior to the Closing, the authorized, issued and outstanding capital stock of the Company, and the beneficial owners thereof, are and will be as set forth on SCHEDULE 3.1.5(a). The Common Stock to be acquired by Buyer will be duly authorized, validly issued, fully-paid, nonassessable and free and clear of any Lien or other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such shares, subject to applicable securities laws). (b) There are no outstanding (i) shares of capital stock or other securities of the Company, (ii) securities of the Company convertible into or exchangeable for shares of capital stock or other securities of the Company, or (iii) options or other rights to acquire from the Company, or other obligation of the Company to issue, any capital stock, other securities or securities convertible into or exchangeable for capital stock or other securities of the Company (the items in clauses (i), (ii) and (iii) being referred to collectively as the "COMPANY SECURITIES"). There are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any Company Securities. (c) The Company does not own any capital stock or other equity or ownership or proprietary interest in any Person. 3.1.6. FINANCIAL STATEMENTS; BOOKS AND RECORDS. (a) The Company has heretofore furnished Buyer with a true and complete copy of the Reviewed Statements which are attached hereto as EXHIBIT E. Except as set forth on SCHEDULE 3.1.6(a) (none of which, individually or in the aggregate, is material), the Reviewed Statements fairly present in all material respects the financial position of the Company and the Partnership at the respective dates thereof and the results of the operations and cash flows of the Company and the Partnership for the periods indicated. (b) The Company has also heretofore furnished Buyer with a true and complete copy of the Monthly Financial Statements, which are attached hereto as EXHIBIT F. Except as set forth on SCHEDULE 3.1.6(b), such Monthly Financial Statements (i) have been prepared on a basis consistent with the Reviewed Statements and (ii) fairly represent in all material respects the financial position of the Company and the Partnership at the respective dates thereof and the results of the operations and cash flows of the Company and the Partnership for the respective periods then ended. (c) Except as disclosed on SCHEDULE 3.1.6(c), there have been no changes in the Company's reserve or accrual amounts or policies since the Balance Sheet Date. 12 (d) The books of account, minute books, stock record books, and other records of the Company and the Partnership, all of which have been made available to Buyer, are complete and correct and have been maintained in accordance with sound business practices, including the maintenance of an adequate system of internal controls. 3.1.7. NO UNDISCLOSED LIABILITIES. There are no liabilities of the Company or the Partnership or any facts or circumstances which could give rise to liabilities of the Company or the Partnership, whether accrued, contingent, absolute, determined, determinable or otherwise, other than (a) liabilities fully provided for in the Reviewed Balance Sheet; (b) liabilities specifically disclosed on SCHEDULE 3.1.7; and (c) other liabilities incurred since the Balance Sheet Date in the Ordinary Course of Business which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 3.1.8. INTERCOMPANY ACCOUNTS. SCHEDULE 3.1.8 contains a complete description of all transactions since January 1, 1996 and balances as of close of business on the Balance Sheet Date between the Company, on the one hand, and any Shareholder or other Affiliate of the Company, on the other hand, other than compensation paid in the Ordinary Course of Business. Other than (a) as disclosed on SCHEDULE 3.1.8 and (b) compensation paid in the Ordinary Course of Business, since the Balance Sheet Date there has not been any accrual of liability by the Company to any such Person, on the other hand, or other transaction between the Company, on the one hand, and any such Person, or any action taken (other than as provided for in this Agreement) which could reasonably be expected to result in any such accrual or the incurrence of any legal or financial obligation to any such Person after such date. 3.1.9. TAX MATTERS. (a) Except as disclosed in SCHEDULE 3.1.9(a): (i) All Tax returns, statements, reports and forms (including estimated tax or information returns and reports) required to be filed with any Taxing Authority with respect to any Pre-Closing Tax Period by or on behalf of the Company (collectively, the "RETURNS") have, to the extent required to be filed on or before the date hereof, been filed when due in accordance with all applicable Laws; (ii) The Returns correctly reflected in all material respects the facts regarding the income, business, assets, operations, activities and status of the Company; (iii) All Taxes owed by the Company (whether or not shown as due and payable on the Returns that have been filed) have been timely paid, or withheld and remitted to the appropriate Taxing Authority; (iv) Any reserves established for Taxes with respect to the Company for any Pre-Closing Tax Period (including any Pre-Closing Tax Period for which no Return has yet been filed) reflected on the books of the Company are adequate in accordance with GAAP; (v) The Company is not delinquent in the payment of any Tax and the Company has not requested any extension of time within which to file any Return, except for extensions granted as a matter of right; 13 (vi) The Company (or any member of any affiliated, consolidated, combined or unitary group of which the Company is or has been a member) has not granted any extension or waiver of the statute of limitations period applicable to any Return, which period (after giving effect to such extension or waiver) has not yet expired; (vii) There is no action, suit or proceeding now pending and no claim, audit or investigation now pending of which the Company is aware or, to the knowledge of the Company, any action, suit, claim, audit or investigation threatened against or with respect to the Company in respect of any Tax; (viii) The Company does not own any interest in real property in any jurisdiction in which a Tax is imposed on the transfer of a controlling interest in an entity that owns any interest in real property; (ix) Neither the Company nor any other Person on behalf of the Company has entered into any agreement or consent pursuant to Section 341(f) of the Code; (x) There are no Liens for Taxes upon the assets of the Company, except Liens for current Taxes not yet due; (xi) The Company will not be required to include any adjustment in taxable income for any Post-Closing Tax Period under Section 481(c) of the Code (or any similar provision of the Tax Laws of any jurisdiction) as a result of a change in method of accounting for a Pre-Closing Tax Period or pursuant to the provisions of any agreement entered into with any Taxing Authority with regard to the Tax liability of the Company for any Pre-Closing Tax Period; and (xii) The Company has not been a member of an affiliated, consolidated, combined or unitary group or participated in any other arrangement whereby any income, revenues, receipts, gain or loss of the Company was determined or taken into account for Tax purposes with reference to or in conjunction with any income, revenues, receipts, gain, loss, asset or liability of any other Person. (b) The Company is not subject to any Tax imposed on overall net income in any jurisdiction (whether foreign or domestic) other than any such tax imposed by the State of New York and the United States federal government. 3.1.10. ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE 3.1.10, since the Balance Sheet Date, there has not been any event, occurrence, development, circumstances or state of facts which (a) has had or which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (b) would have constituted a violation of any covenant of the Shareholders or the Company hereunder (including under Section 5.1) had such covenant applied to any of them since the Balance Sheet Date. 3.1.11. CONTRACTS. (a) Except as specifically disclosed in SCHEDULE 3.1.11(a), the Company is not, and will not be, after giving effect to the Reorganization, a party to or bound by any of the following (whether written or oral): 14 (i) any lease (whether of real or personal property) providing for annual rentals of $25,000 or more; (ii) any agreement for the purchase of materials, supplies, goods, services, equipment or other assets (including in terms of quantity and dollar amount) that provides for either (A) annual payments by the Company of $25,000 or more or (B) aggregate payments by the Company of $50,000 or more, other than amounts payable to utility companies in the ordinary course of business; (iii) any sales, distribution or other similar agreement providing for the sale by the Company of materials, supplies, goods, services, equipment or other assets that provides for either (A) annual payments to the Company of $25,000 or more or (B) aggregate payments to the Company of $50,000 or more; (iv) any partnership, joint venture or other similar agreement or arrangement; (v) any agreement relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise) or granting to any Person a right of first refusal or first offer to purchase any assets or business of the Company; (vi) any agreement relating to Indebtedness (in any case, whether incurred, assumed, guaranteed or secured by any asset); (vii) any license, franchise or similar agreement, including, without limitation, any agreement pursuant to which any Person has the right to use any Intellectual Property Right of the Company; (viii) any agency, dealer, sales representative, marketing or other similar agreement; (ix) any agreement that, by its terms, directly or indirectly limits the freedom of the Company to compete in any line of business, geographic area or with any Person or which could reasonably be expected to so limit the freedom of the Company or the Buyer after the Closing Date; (x) any agreement with (A) any Shareholder or any of such Shareholder's Affiliates, (B) any Person directly or indirectly owning, controlling or holding with power to vote, 5% or more of the outstanding voting securities of any Shareholders' Affiliates, (C) any Person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by any Shareholder or any such Shareholder's Affiliates, (D) any director or officer of any Shareholder's Affiliates or any "associates" or members of the "immediate family" (as such terms are respectively defined in Rule 12b-2 and Rule 16a-1 of the Exchange Act) of any such director or officer, or (E) any director or officer of the Company or with any "associate" or any member of the 15 "immediate family" (as such terms are respectively defined in Rules 12b-2 and 16a-1 of the Exchange Act) of any such director or officer; (xi) any agreement, indenture or other instrument which contains restrictions with respect to payment of dividends or any other distribution in respect of Company Securities; (xii) any management service, consulting or any other similar type of contract; (xiii) any warranty, guaranty or other similar undertaking with respect to contractual performance extended by the Company other than in the Ordinary Course of Business; (xiv) any employment, deferred compensation, severance, bonus, retirement or other similar agreement or plan in effect as of the date hereof and entered into or adopted by the Company, on the one hand, and to which any current or former director or officer of the Company or any other employee of the Company receiving annual compensation of $50,000 or more is a party or who is otherwise a beneficiary thereof, on the other hand; (xv) any agreement, commitment or understanding having a remaining term in excess of three months and which is not terminable without penalty on 30 calendar days' notice or less; or (xvi) any other agreement, commitment, arrangement or plan not made in the Ordinary Course of Business or that is material to the Company. (b) Each agreement, contract, plan, lease, arrangement or commitment disclosed in SCHEDULE 3.1.11(a) or any other Schedule to this Agreement or required to be disclosed pursuant to this Section or any other Section of this Agreement is a valid and binding agreement of the Company and is in full force and effect. Neither the Company, nor, to the knowledge of the Company, any other party thereto is in default or breach in any material respect under the terms of any such agreement, contract, plan, lease, arrangement or commitment. Except as disclosed in SCHEDULE 3.1.11(a), each such agreement, contract, plan, lease, arrangement or commitment may be terminated by the Company with not more than 90 days prior written notice and without payment of penalty. To the knowledge of the Company, there is no event, occurrence, condition or act (including the consummation of the transactions contemplated hereby) which, with the giving of notice or the passage of time, or the happening of any other event or condition, could reasonably be expected to become a material default or event of default thereunder. (c) SCHEDULE 3.1.11(c) sets forth every grant by the Company in the past three years of any severance or termination pay to any employee of the Company receiving annual compensation of $50,000 or more, or any director or officer of the Company. 3.1.12. INSURANCE COVERAGE. SCHEDULE 3.1.12 contains a list of all insurance policies and fidelity bonds covering the assets, business, operations, employees, officers and 16 directors of the Company. There is no material claim by the Company pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and the Company has complied in all material respects with the terms and conditions of all such policies and bonds. Such policies of insurance and bonds (or other policies and bonds providing substantially similar insurance coverage) are in full force and effect and are of the type and in amounts deemed by the management of the Company to be sufficient in light of the business of the Company. The Company does not know of any threatened termination of, and has not received written notice of any premium increase with respect to, any of such policies or bonds. No insurance coverage with respect to any of the Company's assets, business, operations, employees, officers or directors has lapsed for any period due to a failure to timely make any premium payment or renewal or otherwise and the Company has not been refused by any insurance carrier to which it has applied for any insurance since January 1, 1995. Since the last renewal date of any insurance policy, there has not been any material adverse change in the relationship of the Company with its insurers or the premiums payable pursuant to such policies. 3.1.13. LITIGATION. Except as disclosed in SCHEDULE 3.1.13, there is no action, suit, investigation, arbitration or administrative or other proceeding pending or, to the knowledge of the Company, threatened against or affecting the Company or its properties before any Governmental Authority or which in any manner challenges or seeks to prevent, enjoin, alter or delay or otherwise adversely affect the right or ability of the Company or the Partnership to consummate the transactions contemplated by this Agreement and the Ancillary Agreements to which the Company or the Partnership is or will be a party to and will be delivered at the Closing. The Company does not know of any valid basis for any such action, proceeding or investigation. 3.1.14. COMPLIANCE WITH LAWS; PERMITS. (a) To the knowledge of the Company, the Company is in compliance in all material respects with all applicable Laws or Orders. (b) SCHEDULE 3.1.14(b) sets forth a list of each government or regulatory license, authorization, permit, consent and approval held by the Company or the Partnership, issued and held in respect of the Company or the Partnership or required to be so issued and held to carry on the businesses of the Company or the Partnership. Except as disclosed in SCHEDULE 3.1.14(b), each such license, authorization, permit, consent and approval is valid and in full force and effect and will not be terminated or impaired (or become terminated or impaired) as a result of the transactions contemplated hereby. To the knowledge of the Company, neither the Company nor the Partnership is in default under, and no condition exists that with notice or lapse of time or both would constitute a default under, any material license, franchise, permit, consent or approval or similar authorization held by the Company or the Partnership. 3.1.15. PROPERTIES; SUFFICIENCY OF ASSETS. (a) Except as disclosed in SCHEDULE 3.1.15(a) and for inventory disposed of in the Ordinary Course of Business, the Company and the Partnership have good title to, or in the case of leased property have valid leasehold interests in, all property and assets (whether real or personal, tangible or intangible) reflected in the Reviewed Balance Sheet or acquired after the Balance Sheet Date. None of such property or assets is subject to any Liens, except for (i) Liens disclosed in the Reviewed Balance Sheet or incurred 17 after the date thereof in the Ordinary Course of Business; (ii) Liens for Taxes not yet due or being contested in good faith; and (iii) Permitted Liens. (b) SCHEDULE 3.1.15(b) sets forth a list of all real property assets owned or leased by the Company ("REAL PROPERTY"). All such leases of real property are valid, binding and enforceable in accordance with their respective terms and the Company is a tenant or possessor in good standing under all such leases of real property and all rents due under such leases have been paid. There does not exist under any such lease any default or any event which with notice or lapse of time or both would constitute a default. The Company is in peaceful and undisturbed possession of the space and/or estate under each lease of which it is a tenant and has good and valid rights of ingress and egress to and from all the Real Property from and to the public street systems for all usual street, road and utility purposes. Neither the Company nor any Shareholder has received any notice of any appropriation, condemnation or like proceeding, or of any violation of any applicable zoning Law or Order relating to or affecting the Real Property, and to the Company's and each Shareholder's knowledge, no such proceeding has been threatened or commenced. (c) The assets owned or leased by each of the Company and the Partnership (including, real, personal, tangible and intangible property), or which it otherwise has the right to use (including, real, personal, tangible and intangible property), constitute all of the assets held for use or used in connection with the business of the Company and the Partnership and are in good operating condition and repair (normal wear and tear excepted) and are adequate to conduct such businesses as currently conducted. 3.1.16. INTELLECTUAL PROPERTY. (a) SCHEDULE 3.1.16(a) sets forth a list of all Intellectual Property Rights used in connection with the business of the Company, and all material licenses, sublicenses and other written agreements as to which the Company or any of its Affiliates is a party and pursuant to which any Person is authorized to use such Intellectual Property Right, including the identity of all parties thereto. (b) Except as disclosed in SCHEDULE 3.1.16(b): (i) The Company has not since January 1, 1995 been sued or charged in writing with or been a defendant in any claim, suit, action or proceeding relating to its business or, to the knowledge of the Company, threatened that, in either case, involves a claim of infringement by the Company of any Intellectual Property Right of any other Person or continuing infringement by any other Person of any Intellectual Property Right of the Company, and the Company does not have any knowledge of any basis for such claim of infringement or of any continuing infringement by any other Person of any Intellectual Property Right of the Company; (ii) No Intellectual Property Right of the Company is subject to any outstanding Order, judgment, decree, stipulation or agreement restricting the use thereof by the Company or restricting the licensing thereof by the Company to any Person; (iii) The Company has not entered into any agreement to indemnify any other Person against any charge of infringement of any Intellectual Property 18 Right; and (iv) The Company has duly maintained all registrations for all Intellectual Property Rights listed or required to be listed in SCHEDULE 3.1.16(a). 3.1.17. ENVIRONMENTAL MATTERS. (a) Except as disclosed in SCHEDULE 3.1.17: (i) Constituents of Concern have not been generated, recycled, used, treated or stored on, transported to or from, or released or disposed on, the Company Property or, to the knowledge of the Company, any property adjoining or adjacent thereto, except in compliance with Environmental Laws; (ii) To the knowledge of the Company, the Company is in compliance in all material respects with all Environmental Laws and the requirements of permits issued under such Environmental Laws with respect to the Company Property; (iii) There are no pending or, to the knowledge of the Company, threatened Environmental Claims against the Company or any Company Property; (iv) The Company has not taken any actions and, to the knowledge of the Company, there are no facts, circumstances, conditions or occurrences relating to Company Property or any property adjoining any Company Property, that could reasonably be expected to (i) form the basis of an Environmental Claim against the Company or any of the Company Property or assets or (ii) cause any such current Company Property or assets to be subject to any restrictions on its ownership, occupancy, use or transferability under any Environmental Law; (v) There are not now and, to the knowledge of the Company, there have never been, any underground storage tanks or sumps located on any Company Property or, to the knowledge of the Company, located on any property that adjoins or is adjacent to any Company Property; (vi) Neither the Company nor any Company Property is listed or, to the knowledge of the Company, proposed for listing on the National Priorities List under CERCLA or CERCLIS (as defined in CERCLA) or on any similar federal, state or foreign list of sites requiring investigation or clean-up; (vii) There are no Environmental Permits that are nontransferable or require consent, notification or other action to remain in full force and effect following the consummation of the transactions contemplated hereby; and (viii) To the knowledge of the Company, the Company has no liability under any Environmental Law (including an obligation to remediate any Environmental Condition whether caused by the Company or any other Person), except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 19 (b) There has been no environmental investigation, study, audit, test, review or other analysis commenced or conducted by or on behalf of the Company (or by a third party of which the Company has knowledge) in relation to the current or prior business of the Company, or any property or facility currently or, to the knowledge of the Company, previously owned or leased by the Company, which has not been disclosed or delivered to Buyer prior to the date hereof. (c) The Company does not own or lease or has not owned or leased any property, and does not conduct and has not conducted any operations, in New Jersey or Connecticut. 3.1.18. PLANS AND MATERIAL DOCUMENTS. (a) SCHEDULE 3.1.18(a) sets forth a list of all employee benefit plans (as defined in Section 3(3) of ERISA), and all other employee benefit plans, programs, arrangements, contracts or schemes, written or oral, statutory or contractual, with respect to which the Company or any ERISA Affiliate has or has had in the six years preceding the date hereof any obligation or liability or which are or were in the six years preceding the date hereof maintained, contributed to or sponsored by the Company or any ERISA Affiliate for the benefit of any current or former employee, officer or director of the Company or any ERISA Affiliate (collectively, the "PLANS"). With respect to each Plan, the Company has delivered to Buyer a true and complete copy of each such Plan (including all amendments thereto) and a true and complete copy of each material document (including all amendments thereto) prepared in connection with each such Plan including a copy of (i) each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, (iii) the most recently filed IRS Form 5500, 5500-C and 5500-R for each such Plan, if any, and (iv) the most recent determination letter referred to in Section 3.1.18(d). The Company does not have any express or implied commitment, whether legally enforceable or not, to create, incur liability with respect to or cause to exist any employee benefit plan, program, arrangement, contract or scheme or to modify any Plan, other than as required by Law. (b) Except as disclosed in SCHEDULE 3.1.18(b), none of the Plans is a plan that is or has ever been subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code. None of the Plans is (i) a "MULTIEMPLOYER PLAN" as defined in Section 3(37) of ERISA, (ii) a plan or arrangement described under Section 4(b)(5) or 401(a)(1) of ERISA, or (iii) a plan maintained in connection with a trust described in Section 501(c)(9) of the Code. Except as disclosed in SCHEDULE 3.1.18(b), none of the Plans provides for the payment of separation, severance, termination or similar-type benefits to any person or provides for, or except to the extent required by Law, promises retiree medical or life insurance benefits to any current or former employee, officer or director of the Company. (c) Except as disclosed in SCHEDULE 3.1.18(c), to the knowledge of the Company, each Plan is in compliance in all material respects with, and has always been operated in all material respects in accordance with, its terms and the requirements of all applicable Laws, foreign and domestic and the Company and the ERISA Affiliates have satisfied in all material respects all of their statutory, regulatory and contractual obligations with respect to each such Plan. No legal action, suit or claim is pending or, to the knowledge of the Company, threatened with respect to any Plan (other than claims for benefits in the ordinary course) and no fact or event exists that could reasonably be expected to give rise to any such action, suit or claim. 20 (d) Except as disclosed in SCHEDULE 3.1.18(d), each Plan or trust which is intended to be qualified or exempt from taxation under Section 401(a), 401(k) or 501(a) of the Code has received a favorable determination letter from the IRS that it is so qualified or exempt, and no fact or occurrence has occurred since the date of such determination letter to adversely affect the qualified or exempt status of any Plan or related trust. (e) There has been no non-exempt prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan. Neither the Company nor any ERISA Affiliate has incurred any material liability for any excise Tax arising under the Code and, to the knowledge of the Company, no fact or event exists which could give rise to such liability. Neither the Company nor any ERISA Affiliate has incurred any material liability relating to Title IV of ERISA (other than for the payment of premiums to the Pension Benefit Guaranty Corporation), and no fact or event exists which could give rise to such liability. (f) All material contributions, premiums or payments required to be made with respect to any Plan have been made on or before their due dates. For completed plan years of the Plans all such contributions have been fully deducted for income Tax purposes and no such deduction has been challenged or disallowed by any Government Authorities, and no fact or event exists which, to the knowledge of the Company, could give rise to any such challenge or disallowance. (g) There has been no amendment to, written interpretation of or announcement (whether or not written) by the Company or any ERISA Affiliate relating to, or change in employee participation or coverage under, any Plan that would increase materially the expense of maintaining such Plan above the level of the expense incurred in respect thereto for the most recent fiscal year ended prior to the date hereof. (h) Except as disclosed in SCHEDULE 3.1.18(h) or in this Agreement or the Ancillary Agreements, no employee or former employee of the Company or any ERISA Affiliate thereof will become entitled to any bonus, retirement, severance, job security or similar benefit or enhanced such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transactions contemplated hereby. (i) With respect to any Plan benefitting any current or former employee of the Company or any ERISA Affiliate that is subject to Section 4980B of the Code or was subject to Section 162(k) of the Code, the Company and each ERISA Affiliate have complied with (i) the continuation coverage requirements of Section 4980B of the Code and Section 162(k) of the Code as applicable, and Part 6 of Subtitle B of Title I of ERISA and (ii) the Health Insurance Portability and Accountability Act of 1996, as amended. 3.1.19. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in SCHEDULE 3.1.19, to the knowledge of the Company, no Shareholder or any officer, director or other Affiliate of the Company possesses, directly or indirectly, any ownership interest in, or is a director, officer or employee of, any Person which is a supplier, customer, lessor, lessee, licensor, developer, competitor or potential competitor of the Company. Ownership of 2% or less of any class of securities of a company whose securities are registered under the Exchange Act will not be deemed to be an ownership interest for purposes of this Section 3.1.19. 21 3.1.20. CUSTOMER, SUPPLIER AND EMPLOYEE RELATIONS. The relationships of the Company with its customers, suppliers and employees are good commercial working relationships and, except as disclosed in SCHEDULE 3.1.20, none of the Company's material customers or material suppliers or employees receiving annual compensation in excess of $50,000 has canceled, terminated or otherwise materially altered or notified the Company of any intention or otherwise threatened to cancel, terminate or materially alter its relationship with the Company or notified the Company of any intention or otherwise threatened to change its prices or modify its pricing policies for goods or services provided to the Company, effective prior to, as of, or within one year after, the Closing. As of the date hereof, there has not been, and the Company has no reason to believe that there will be, any change in relations with material customers, material suppliers or employees of the Company as a result of the transactions contemplated by this Agreement. 3.1.21. OTHER EMPLOYMENT MATTERS. (a) The Company is in compliance with all Laws and Orders respecting employment and employment practices, terms and conditions of employment and wages and hours, and has not, and is not, engaged in any unfair labor practice; no unfair labor practice complaint against the Company is pending before the National Labor Relations Board; there is no labor strike, dispute, slowdown or stoppage actually pending or, to the knowledge of the Company, threatened against or involving the Company; the Company is not party to any collective bargaining agreement and no collective bargaining agreement is currently being negotiated by the Company; to the knowledge of the Company, no representation question exists respecting employees of the Company; and, except as specifically set forth on SCHEDULE 3.1.21(a), no claim in respect of the employment of any employee has been asserted and is currently pending or, to the knowledge of the Company, threatened against the Company. (b) SCHEDULE 3.1.21(b) contains a complete and accurate list of the following information for each current employee and director of the Company, including each employee on leave of absence or layoff status: employer; name; job title and description; date of hire; current compensation paid or payable and any change in compensation since the Balance Sheet Date: vacation accrued as of a recent date; service credited as of a recent date for purposes of vesting and eligibility to participate under any pension, retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus, stock option, cash bonus, employee stock ownership (including investment credit or payroll stock ownership), severance pay, insurance, medical, welfare, or vacation plan or other Plan of the Company; and all accrued bonuses and any other amounts to be paid by the Company to employees of the Company, including bonuses and such other amounts at or in connection with the Closing. (c) SCHEDULE 3.1.21(c) contains a complete and accurate list of the following information for each retired employee or director of the Company or their dependents receiving benefits or scheduled to receive benefits in the future: name, pension benefits, pension option election, retiree medical insurance coverage, retiree life insurance coverage and other benefits. (d) No former or current employee or current or former director of the Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, non-competition, or proprietary rights agreement, between such employee or director and any other Person that adversely affected, affects, or will affect (i) the performance of his duties as an employee or director of the Company or (ii) the ability of the Company to conduct its business. 22 3.1.22. ACCOUNTS RECEIVABLE. Except as set forth on SCHEDULE 3.1.22, all of the accounts receivable reflected on the Reviewed Balance Sheet (net of the applicable reserves set forth on such Reviewed Balance Sheet) and all accounts receivable which have arisen since the Balance Sheet Date (net of any immaterial additional reserves established since such date in the Ordinary Course of Business) are valid and enforceable claims, and the goods and services sold and delivered which gave rise to such accounts receivable were sold and delivered in conformity with the applicable purchase orders, agreements and specifications. Such accounts receivable are subject to no defenses, offsets or recovery in whole or in part by the Persons whose purchase gave rise to such accounts receivable or by third parties and are fully collectible in the Ordinary Course of Business without resort to legal proceedings, except to the extent of the amount of the reserve for doubtful accounts reflected in such Reviewed Balance Sheet. 3.1.23. INVENTORY. All inventories reflected on the Reviewed Balance Sheet (net of the applicable reserves set forth on such balance sheet) and all inventories which have been acquired or produced since the Balance Sheet Date (net of any immaterial additional reserves established since such date in the Ordinary Course of Business) are in good condition, conform in all material respects with the applicable specifications and warranties of the Company, are not obsolete, and are useable or saleable in the Ordinary Course of Business. The values at which such inventories are carried are in accordance with GAAP, consistently applied. The amount and mix of items in the inventories of supplies, in-process and finished products are, and will be at the Closing Date, consistent with the past business practices of the Company. 3.1.24. MILLENNIUM COMPLIANCE. SCHEDULE 3.1.24 describes the measures that have been implemented to determine the extent to which the computer systems used by the Company in its business (the "COMPUTER SYSTEMS") are not in Millennium Compliance, and the material details of any program undertaken with a view towards causing the Computer Systems to achieve Millennium Compliance. Except as described on SCHEDULE 3.1.24, the Computer Systems used by the Company in its business are in Millennium Compliance. 3.1.25 FINDERS' FEES. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Company who might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement or any of the Ancillary Agreements. 3.2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each of the Shareholders, severally and not jointly, represents and warrants to Buyer as of the date hereof and the Closing as follows: 3.2.1. AUTHORITY; ENFORCEABILITY. Such Shareholder has all requisite power and authority, and has taken all action necessary, to execute and deliver this Agreement and each Ancillary Agreement to which such Shareholder will be a party at the Closing, to consummate the transactions contemplated hereby and thereby and to perform his, her or its obligations hereunder and thereunder. This Agreement has been, and each of the Ancillary Agreements to which such Shareholder will be a party at the Closing will have been, duly executed and delivered by such Shareholder, and are and will be at the Closing legal, valid and binding obligations of such Shareholder, enforceable against such Shareholder in accordance with their respective terms, except to the extent that their enforceability may be subject to applicable 23 bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting the enforcement of creditors' rights generally and by general equitable principles. 3.2.2. NO CONFLICTS. The execution and delivery of this Agreement, and each Ancillary Agreement to which such Shareholder will be a party at the Closing, do not and will not at the Closing, and the consummation of the transactions contemplated hereby and thereby and compliance with the terms hereof and thereof do not and will not at the Closing, violate or conflict with in any respect or result in a breach under any contract, license, Order or Law applicable to such Shareholder. 3.2.3. NO CONSENTS. No consent of, approval or filing with, any court, Governmental Authority or other Person is required to be obtained or made by or with respect to such Shareholder in connection with the execution and delivery of this Agreement or any of the Ancillary Agreements to which such Shareholder will be a party at the Closing or the consummation by such Shareholder of the transactions contemplated hereby or thereby. 3.2.4. OWNERSHIP OF SHARES; TITLE. All of the issued and outstanding shares of Common Stock set forth opposite such Shareholder's name on SCHEDULE 3.1.5(a) are and will be at the Closing be lawfully owned of record and beneficially by such Shareholder, free and clear of any Liens. Such Shareholder has the full legal right, power and authority to vote, Transfer and convey such shares of Common Stock. Such shares are not subject to any voting trust agreement or other contract, agreement, arrangement, commitment, option, proxy, right of first refusal or understanding, including, without limitation, any contract restricting or otherwise relating to the voting, dividend rights or disposition of such shares. 3.2.5. LITIGATION. There is no action, suit, investigation, arbitration or administrative or other proceeding pending or, to the knowledge of such Shareholder, threatened against or affecting such Shareholder before any court or arbitrator or any Governmental Authority which in any manner challenges or seeks to prevent, enjoin, alter or delay or otherwise adversely affect the right or ability of such Shareholder to consummate the transactions contemplated by this Agreement and the Ancillary Agreements to which such Shareholder will be a party at the Closing. Such Shareholder knows of no valid basis for any such action, suit, investigation or proceeding. 3.2.6. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as disclosed in SCHEDULE 3.2.6, such Shareholder does not possess, directly or indirectly, any ownership interest in, or is a director, officer or employee of, any Person which is a supplier, customer, lessor, lessee, licensor, developer, competitor or potential competitor of the Company. Ownership of 2% or less of any class of securities of a company whose securities are registered under the Exchange Act will not be deemed to be an ownership interest for purposes of this Section 3.2.6. 3.2.7 FINDERS' FEES. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of such Shareholder who might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement or any of the Ancillary Agreements. 24 IV. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to the Company and each Shareholder as of the date hereof and the Closing as follows: 4.1. CORPORATE EXISTENCE AND POWER. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Buyer has all power and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. 4.2. CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution, delivery and performance by Buyer of this Agreement are, and each Ancillary Agreement to which Buyer will be a party at the Closing will be, within Buyer's corporate powers and have been and will have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been, and each Ancillary Agreement to which Buyer will be a party at the Closing will have been, duly executed and delivered by Buyer and constitutes and will constitute a valid and binding agreement of Buyer, enforceable against Buyer in accordance with their respective terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting the enforcement of creditors' rights generally and by general equitable principles. 4.3. GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by Buyer of this Agreement, and each Ancillary Agreement to which Buyer will be a party at the Closing, require no action by or in respect of, or filing with, any Governmental Authority. 4.4. NON-CONTRAVENTION. The execution, delivery and performance by Buyer of this Agreement and each Ancillary Agreement to which Buyer is or will be a party at the Closing, do not and will not at the Closing (i) violate the certificate of incorporation or bylaws of Buyer or (ii) violate any applicable Law or Order. 4.5. LITIGATION. There is no action, suit, investigation, arbitration or administrative or other proceeding pending or, to the knowledge of Buyer, threatened against or affecting Buyer, or any of Buyer's properties before any court or arbitrator or any Governmental Authorities which in any manner challenges or seeks to prevent, enjoin, alter or delay or otherwise adversely affect the right or ability of Buyer to consummate the transactions contemplated by this Agreement and any Ancillary Agreements to which Buyer will be a party at the Closing. 4.6. FINDERS' FEES. Except for Saunders Karp & Megrue, L.P., Carlisle Group, L.P. and Harvey & Company, LLC, whose fees and expenses (including transaction fees) will be paid by Buyer, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Buyer who might be entitled to any fee or commission by Buyer or any of Buyer's Affiliates upon consummation of the transactions contemplated by this Agreement or any of the Ancillary Agreements. 25 V. CERTAIN COVENANTS 5.1. CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date of this Agreement to the Closing Date, each Shareholder will cause the Company to, and the Company will, conduct its operations only in the Ordinary Course of Business (including managing its working capital in accordance with its past practice and custom) and use its respective best efforts to: preserve intact the Company's business organizations, keep available the services of the Company's officers and employees and maintain the Company's relationships and goodwill with licensors, suppliers, distributors, customers, landlords, employees, agents and others having business relationships with the Company. During the period from the date of this Agreement to the Closing, the Company will confer with Buyer concerning operational matters of a material nature and report periodically to Buyer concerning the Company's business, operations and finances and will deliver all Monthly Financial Statements to Buyer not previously delivered to Buyer on or prior to the date hereof. Without limiting the generality or effect of the foregoing, prior to the Closing Date, except with the prior written consent of Buyer, the Company will not, and the Shareholders will cause the Company not to: (a) Amend or modify its articles of incorporation, bylaws or any other organizational document from its form on the date of this Agreement; (b) Change any salaries or other compensation of, or pay any bonuses to any current or former director, officer, employee or shareholder of the Company, other than the bonuses described on SCHEDULE 5.1, or enter into any employment, severance, or similar agreement with any current or former director, officer, shareholder or employee of the Company, provided, however, that the compensation of employees of the Company receiving annual compensation of less than $50,000 may be changed in the Ordinary Course of Business; (c) Adopt or increase any benefits under any Plan for or with any of its employees; (d) Enter into any contract or commitment with respect to capital expenditures, except for those capital expenditures that are set forth on SCHEDULE 5.1 and that do not, individually or in the aggregate, provide for payment by the Company of $50,000 or more; (e) Except as contemplated by Section 5.1(d), enter into any contract or commitment except contracts and commitments (for capital expenditures or otherwise) in the Ordinary Course of Business (and in any case not exceeding the dollar amounts with respect to specified categories of contracts in Section 3.1.11); (f) Modify or amend in any material respect or terminate any contract listed or required to be listed in SCHEDULE 3.1.11; (g) Incur, assume or guarantee Indebtedness or pay any Related Party Indebtedness; (h) Enter into any transaction or commitment relating to the assets or the business of the Company which, individually or in the aggregate, could reasonably be expected to be material to the Company, or cancel or waive any claim or right of substantial value which, 26 individually or in the aggregate, could reasonably be expected to be material to the Company, or amend any term of any Company Securities; (i) Set aside or pay any dividend or make any other distribution with respect to any Company Securities or repurchase, redeem or otherwise acquire, directly or indirectly, any Company Securities ; (j) Make any change in accounting methods or practices (including changes in accruals or reserve amounts or policies); (k) Issue or sell any Company Securities or make any other changes in its capital structure, including the grant of any stock option or other right to purchase Company Securities; (l) Sell, lease or otherwise dispose of any material asset or property; (m) Except as expressly permitted under this Agreement, write-off as uncollectible any notes or accounts receivable, except write-offs in the Ordinary Course of Business charged to applicable reserves, none of which individually or in the aggregate is material; write-off, write-up or write-down any other material asset of the Company; or alter its customary time periods for collection of accounts receivable or payments of accounts payable; (n) Create or assume any Lien other than Permitted Liens; (o) Make any loan, advance or capital contributions to or investment in any Person; (p) Terminate or close any material facility, business or operation of the Company; (q) Cause any other event, occurrence, development or state of circumstances or facts which, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect; (r) Take any action that would cause any of the representations and warranties made by the Company or any Shareholder in this Agreement not to remain true and correct or any of the conditions set forth in Section 7.1 from being satisfied; (s) Settle any claim or litigation that could reasonably be expected to be material to the Company; or (t) Agree to do any of the foregoing. 5.2. EXCLUSIVE DEALING. During the period from the date of this Agreement to the earlier of the Closing Date and the termination of this Agreement in accordance with its terms, neither the Shareholders nor the Company will, and the Company and the Shareholders will cause their respective Affiliates and their respective representatives (including advisors, agents, attorneys, directors, employees and consultants) not to, take any action to, directly or 27 indirectly, encourage, initiate, solicit, accept, approve or engage in discussions or negotiations with, or provide any information to any Person, other than Buyer (and its Affiliates and representatives), concerning any purchase of any Company Security or any asset purchase, merger or similar transaction involving the Company. The Company and the Shareholders will disclose to Buyer the existence or occurrence of any proposal or contract which it or they or any of their representatives described above may receive in respect of any such transaction as well as the identity of the Person from whom such a proposal or contract is received. 5.3. REVIEW OF THE COMPANY; CONFIDENTIALITY. (a) Buyer may, prior to the Closing Date, directly or through its representatives, review the properties, books and records of the Company and its financial and legal condition to the extent it deems necessary or advisable to familiarize itself with such properties, books, records and other matters. The Shareholders will cause the Company to, and the Company will, permit Buyer and its representatives to have, after the date of execution of this Agreement, reasonable access to the premises and to all the respective books and records of the Company and to cause the officers, accountants and other representatives of the Company to furnish Buyer with such financial and operating data and other information with respect to the business and properties of the Company as Buyer may from time to time reasonably request. The Company will deliver or cause to be delivered to Buyer such additional instruments, documents, certificates and opinions as Buyer may reasonably request for the purpose of verifying the information set forth in this Agreement or on any Schedule attached hereto and consummating or evidencing the transactions contemplated by this Agreement. (b) Prior to the Closing, without the prior written consent of the other parties, no party will, or will permit any of its Affiliates to, disclose to any other Person (other than such Person's financing sources, existing shareholders and such Person's directors, officers, employees, advisors and other representatives that need to know) any proprietary, non-public information of another party previously delivered or made available to such other party in connection with the transactions contemplated hereby (including the existence of and terms of this Agreement and the Ancillary Agreements), other than to the extent required by applicable Law and upon the advice of counsel. Each party will direct its financing sources, shareholders, directors, officers, employees and representatives to keep all such information in strict confidence; provided, however, that each such Person may disclose such information to the extent required by Law and upon the advice of counsel. 5.4. BEST EFFORTS; PRE-CLOSING AUDIT. (a) The Company, the Shareholders and Buyer will cooperate and use their respective reasonable best efforts to take, or cause to be taken, all appropriate actions, and to make, or cause to be made, all filings necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, their respective reasonable efforts to obtain, prior to the Closing Date, all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Authorities and parties to contracts with the Company as are necessary for consummation of the transactions contemplated by this Agreement and to fulfill the conditions to the sale contemplated hereby. Notwithstanding any other provision hereof, in no event will Buyer or any of its Affiliates (including the Company after the Closing) be required to make any payment in connection with any consent or approval or condition to Closing set forth in any subsection of Section 7.1 which is necessary or advisable for the Shareholders or the Company to obtain or satisfy in order to consummate the transactions contemplated by this Agreement. 28 (b) The Shareholders and the Company will use their respective reasonable best efforts, directly or through their representatives, to provide such access to the books and records of the Company (including accountants' work papers) and to employees and other representatives of the Company as is necessary or advisable in the judgment of Buyer for Bonadio & Co. to complete an audit report on behalf of the Shareholders and the Company (the "PRE-CLOSING AUDIT") of the Reviewed Statements as of and for the period ended February 28, 1999 (as so audited, the "AUDITED FINANCIAL STATEMENTS"), the cost of which will be paid by Buyer. 5.5. SATISFACTION AND TERMINATION OF EQUITY ARRANGEMENTS. On or prior to the Closing Date, the Company will terminate all equity-based plans or agreements listed in any of the Schedules attached hereto. 5.6. PLAN ASSETS. The Company will promptly take all actions necessary to allow it to continue to constitute an Operating Company, and otherwise not to cause any of the respective underlying assets of the Company to be deemed "PLAN ASSETS" with respect to Buyer or any other shareholder of the Company. 5.7. FINANCING DOCUMENTATION. The Company will, and the Shareholders will cause the Company to, use its best efforts to obtain all necessary documentation and agreements required in the judgment of Buyer to obtain the financing contemplated by Section 7.1.13, including leasehold mortgages, subordination and attornment agreements, UCC-1 financing statements and UCC-3 releases and other related documentation relevant to the security interest of Buyer's existing and prospective lenders. 5.8. REORGANIZATION. At or prior to the Closing, the Partnership will, and the Shareholders will cause the Partnership to, transfer to the Company in such manner and on such terms and conditions as may be approved by Buyer, free and clear of any Liens, except for Permitted Liens, all of the right, title and interest in the assets and properties of the Partnership used in the business of the Company (the "REORGANIZATION"). The Shareholders will bear any and all Taxes, costs and expenses related to such transfers and assignments. SCHEDULE 5.8 hereto sets forth a list of all such assets and related liabilities which are outstanding and owed by the Partnership that will be transferred to the Company pursuant to the Reorganization. 5.9. COMPANY NOTES. At or prior to the Closing, the Shareholders will assume all obligations and duty of performance of the Company under any and all notes payable to Testamentary Trust A under will of Frank P. Gillette with Charlyne, John and Martin Gillette as Co-trustees, such obligations as reflected on the Reviewed Balance Sheet (the "COMPANY NOTES", and such transactions, the "ASSIGNMENT"), and the Company and the Shareholders will use their reasonable best efforts to obtain any consents or approvals required to effect the Assignment. After the Assignment, the Company will have no further obligations under the Company Notes. 5.10. AUTOMOBILES. At or prior to the Closing, the Shareholders will cause the Company to, and the Company will, transfer to each of the Shareholders and Darren Gillette, free and clear of any Liens, all of the Company's right, title and interest in the automobiles listed opposite each of the Shareholders' and Darren Gillette's respective names as set forth in SCHEDULE 5.10, and the Shareholders will bear any and all Taxes, costs and expenses related to such 29 transfer and assignment, except that such transfer will not cause any corresponding adjustment in the determination of the Closing Balance Sheet and the Closing Shareholders' Equity. 5.11. BENEFITS. (a) Until the second anniversary of the Closing, Buyer will cause the Company to continue to offer to its eligible employees benefits that, in the aggregate, are substantially comparable to the benefits provided under the Plans listed in SCHEDULE 3.1.18(a) on terms and with contribution and co-payment levels substantially similar as those provided to its eligible employees immediately prior to the date hereof under such Plans, including but not limited to (i) maintaining contribution levels of the Company with respect to (x) the Gillette Machine & Tool Company, Inc. Profit Sharing Plan for each employee participant at the annual rate of approximately one-week's salary of such employee participant and (y) the Gillette Machine & Tool Company, Inc. Savings and Retirement Plan for each employee participant at the annual rate of approximately 25% of the first 6% of such employee participant's own contributions and (ii) continuation of group health and medical coverage for current and future retired employees of the Company so long as such benefit can be provided at no cost to the Company. (b) Nothing contained in this Agreement will confer upon any current or retired employee of the Company, or any legal representative thereof, any rights or remedies of any nature or kind whatsoever under or by reason of this Agreement (other than as provided in any of the Employment Letters), including but not limited to, any right to employment for any specified period. Subject to Section 5.11(a), neither Buyer nor any Affiliate of Buyer (including the Company after the Closing Date) will be required to continue any particular Plan after the Closing Date for the current and retired employees of the Company, and any Plan may be amended or terminated in accordance with its terms and any applicable Law. In the event the Plans are terminated by Buyer and replaced with a similar benefit program for current or retired employees of the Company, those employees will be eligible to participate in such benefit program and will receive full credit for their service with the Company for eligibility and vesting purposes with respect to such benefit program. 5.12. FURTHER ASSURANCES. From time to time, as and when requested by any party hereto and subject to Section 5.4, the other parties will execute and deliver, or cause to be executed and delivered, all such documents and instruments and will take, or cause to be taken, all such further or other actions, as the requesting party may reasonably deem necessary or desirable to consummate the transactions contemplated by this Agreement. VI. TAX MATTERS 6.1. TAX RETURNS. The Shareholders will have the exclusive authority and obligation to prepare and timely file, or cause to be prepared and timely filed, all Returns of the Company with respect to any taxable year or other taxable period ending on or prior to the Closing Date that are filed prior to the Closing Date. The Buyer will have the exclusive authority and obligation to prepare and timely file, or cause to be prepared and timely filed, all Returns of the Company that are filed after the Closing Date. Such authority will include, but not be limited to, the determination of the manner in which any items of income, gain, deduction, loss or credit arising out of the respective income, properties and operations of the Company will be reported or disclosed in such Returns; PROVIDED, HOWEVER, that unless otherwise required by law, Buyer and the Shareholders shall prepare such Returns (and any amended Return) in a 30 manner consistent with past practices and shall not change any of the accounting methods, elections and conventions used in preparing such Returns if the effect of such change would be to increase the amount of Tax liabilities of the Shareholders or Buyer, respectively. 6.2. APPORTIONMENT OF TAXES. Except as otherwise provided in this Agreement, all Taxes and Tax liabilities with respect to the income, property or operations of the Company that relate to a taxable year or other taxable period beginning before and ending after the Closing Date will be apportioned between the Pre-Closing Tax Period and the Post-Closing Tax Period as follows: (A) in the case of Taxes other than income Taxes and sales and use Taxes, on a per diem basis, and (B) in the case of income Taxes and sales and use Taxes, as determined from the books and records of the Company, between Pre-Closing and Post-Closing Tax Periods as though the taxable year of the Company terminated at the close of business on the Closing Date, and based on accounting methods, elections and conventions that do not have the effect of distorting income and expenses. The Shareholders will be jointly and severally liable for the payment of all Taxes of the Company which are attributable to any Pre-Closing Tax Period, whether shown on any original Return or amended Return for the period referred to therein. The Company will be liable for the payment of all Taxes which are attributable to any Post-Closing Tax Period. All transfer, documentary, sales, use, stamp, registration, value added and other Taxes and fees (including any penalties and interest), imposed on the Buyer or the Company which are incurred in connection with this Agreement, including pursuant to the Reorganization, Assignment and Section 5.10, will be borne and paid by the Shareholders when due, and the Shareholders will, at their own expense, cause to be filed all necessary Returns and other documentation with respect to all such Taxes and fees. 6.3. COOPERATION; AUDITS. In connection with the preparation of Returns, audit examinations and any administrative or judicial proceedings relating to the Tax liabilities imposed on the Company for all Pre-Closing Tax Periods, Buyer and the Company, on the one hand, and the Shareholders, on the other hand, will cooperate fully with each other, including, but not limited to, the furnishing or making available during normal business hours of records, personnel (as reasonably required), books of account, powers of attorney and other materials necessary or helpful for the preparation of such Returns, the conduct of audit examinations or the defense of claims by Tax authorities as to the imposition of Taxes. 6.4. CONTROVERSIES. Buyer will promptly notify the Shareholders in writing upon receipt by Buyer or any Affiliate of Buyer (including the Company after the Closing Date) of written notice of any inquiries, claims, assessments, audits or similar events with respect to Taxes relating to a Pre-Closing Tax Period for which the Shareholders may be liable under this Agreement (any such inquiry, claim, assessment, audit or similar event, a "TAX MATTER"). The Shareholders, at their sole expense, will have the exclusive authority to represent the interests of the Company with respect to any Tax Matter before the IRS, any other Taxing Authority or any other Governmental Authority or any court and will have the sole right to extend or waive the statute of limitations with respect to such Tax Matter and to control the defense, compromise or other resolution of such Tax Matter, including responding to inquiries, filing Tax returns and settling audits; PROVIDED, HOWEVER, that the Shareholders will not enter into any settlement of or otherwise compromise any Tax Matter that affects or may affect the Tax liability of Buyer or the Company or any Affiliate of the foregoing for any Post-Closing Tax Period, including the portion of a period beginning before the Closing Date and ending after the Closing Date, without the prior written consent of Buyer, which consent will not be unreasonably withheld or delayed. 31 The Shareholders will keep Buyer fully and timely informed with respect to the commencement, status and nature of any Tax Matter. The Shareholders will consult with Buyer regarding the conduct of or positions taken in any such proceeding. 6.5. AMENDED RETURNS. The Shareholders will not file or cause or permit to be filed any amended Return without the prior written consent of Buyer, which consent will not be unreasonably withheld or delayed. Buyer will not file or cause to be filed any amended Return covering any period or adjusting any Taxes for a period which includes any period prior to the Closing Date without the prior written consent of the Shareholders, which consent will not be unreasonably withheld or delayed, other than those related to any requirement of a Taxing Authority or other Governmental Authority. 6.6. NON-FOREIGN PERSON AFFIDAVIT. The Company will furnish to Buyer on or before the Closing Date a non-foreign person affidavit as required by Section 1445 of the Code. VII. CONDITIONS TO CLOSING 7.1. CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to consummate the Closing are subject to the satisfaction of the following conditions (unless waived in writing by Buyer): 7.1.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. (a) The representations and warranties of the Company made in this Agreement shall be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects) as of the date hereof and as of the Closing, as though made as of the Closing; (b) the Company shall have performed and complied with all terms, agreements and covenants contained in this Agreement required to be performed or complied with by the Company on or before the Closing Date; and (c) the Company shall have delivered to Buyer a certificate of the Company's Chief Executive Officer, dated the Closing Date, confirming the foregoing and such other evidence of compliance with its obligations as Buyer may reasonably request. 7.1.2. CERTIFICATE OF THE COMPANY. The Company shall have delivered to Buyer a certificate from its Secretary or an Assistant Secretary certifying as to the due adoption of resolutions adopted by its Board of Directors authorizing the execution of this Agreement and the taking of any and all actions deemed necessary or advisable to consummate the transactions contemplated herein. 7.1.3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDERS. (a) The representations and warranties of each of the Shareholders made in this Agreement shall be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," "Material Adverse Effect" or words of similar import, then in all material respects) as of the date hereof and as of the Closing, as though made as of the Closing; (b) each of the Shareholders shall have performed and complied with all terms, Agreements and covenants contained in this Agreement required to be performed or complied with by such Shareholder on or before the Closing Date; and (c) each of the Shareholders shall have delivered to Buyer certificates dated the Closing Date confirming the foregoing and such other evidence of compliance with such Shareholders' obligations as Buyer may reasonably request. 32 7.1.4. NO INJUNCTION, ETC. No provision of any applicable Law or Order shall be in effect which prohibits the consummation of the Closing. 7.1.5. NO PROCEEDINGS. No proceeding challenging this Agreement, the Ancillary Agreements or the transactions contemplated hereby or thereby or seeking to prohibit, alter, prevent or materially delay the Closing or seeking damages shall have been instituted by any Person before any Governmental Authority and be pending. 7.1.6. OPINION OF COUNSEL. Buyer shall have received the opinion of Samuel J. Ianacone, counsel to the Company and the Shareholders, dated the Closing Date, substantially in the form attached hereto as EXHIBIT G. 7.1.7. DUE DILIGENCE. Buyer shall have completed, or caused to be completed by its attorneys, accountants and other representatives, business, legal, environmental and accounting due diligence investigations and reviews of the Company, with the results of such reviews and investigations satisfactory to Buyer in its sole discretion. 7.1.8. ANCILLARY AGREEMENTS. Each of the Ancillary Agreements shall have been executed and delivered by the parties thereto other than Buyer or Affiliates of Buyer. 7.1.9. RESIGNATION OF DIRECTORS. Each of the directors of the Company immediately prior to the Closing shall have submitted a letter of resignation to the Company effective as of the Closing. 7.1.10. THIRD PARTY CONSENTS; GOVERNMENTAL APPROVALS. All consents, approvals, waivers and filings, if any, disclosed on any Schedule attached hereto or otherwise required in connection with the consummation of the transactions contemplated by this Agreement shall have been received or made. All of the consents, approvals, authorizations, exemptions, waivers and filings from Governmental Authorities required in order to enable Buyer to consummate the transactions contemplated hereby shall have been obtained or made. 7.1.11. FIRPTA. The Company shall have furnished to Buyer, on or prior to the Closing Date, a non-foreign person affidavit required by Section 1445 of the Code. 7.1.12. NO MATERIAL ADVERSE CHANGE. Prior to the Closing, no event shall have occurred which, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect. 7.1.13. FINANCING. Buyer shall have obtained financing for the payment of the Aggregate Closing Consideration on terms satisfactory to it in its sole discretion. Buyer will provide reasonable advance notice in the event that financing for the payment of the Aggregate Closing Consideration on terms satisfactory to Buyer in its sole discretion cannot be obtained, PROVIDED, HOWEVER, that failure to provide such notice will not limit the condition (or waiver thereof) to Buyer's obligation to consummate the Closing as set forth in the preceding sentence. 7.1.14. RELATED PARTY INDEBTEDNESS. The Shareholders shall have assumed all outstanding Related Party Indebtedness or shall have directed Buyer to repay all outstanding 33 Related Party Indebtedness with a portion of the proceeds of the Aggregate Closing Consideration, and caused any and all Liens relating thereto to be released in full. 7.1.15. PRE-CLOSING AUDIT. Buyer shall have received the completed Pre-Closing Audit and Audited Financial Statements, which shall not reflect any materially adverse difference from the applicable Reviewed Statements, as determined by Buyer in its sole discretion. 7.1.16 REORGANIZATION. The Company, the Partnership and the Shareholders shall have executed and delivered to Buyer such documents and instruments as are required to consummate the Reorganization and provided Buyer with such evidence of the consummation of the Reorganization as Buyer may reasonably request. 7.2. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS. The obligations of the Company and the Shareholders to consummate the Closing are subject to the satisfaction of the following conditions (unless waived in writing by the Shareholders owning a majority of the outstanding Common Stock): 7.2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. (a) The representations and warranties of Buyer made in this Agreement shall be true and correct in all respects (or, if any such representation is not expressly qualified by "materiality," or words of similar import, then in all material respects) as of the date hereof and as of the Closing, as though made as of the Closing; (b) Buyer shall have performed and complied in all material respects with all terms, agreements and covenants contained in this Agreement required to be performed or complied with by Buyer on or before the Closing Date; and (c) Buyer shall have delivered to the Company and the Shareholders a certificate of Buyer's Chief Executive Officer, dated the Closing Date, confirming the foregoing and such other evidence of compliance with its obligations as the Company or the Shareholders may reasonably request. 7.2.2. BUYER'S CERTIFICATE. Buyer shall have delivered to the Company and the Shareholders a certificate from its Secretary or Assistant Secretary certifying as to the due adoption of resolutions adopted by the Board of Directors of Buyer authorizing the execution of this Agreement and the taking of any and all actions deemed necessary or advisable to consummate the transactions contemplated herein. 7.2.3. NO INJUNCTION, ETC. No provision of any applicable Law or Order shall be in effect which prohibits the consummation of the Closing. 7.2.4. OPINION OF COUNSEL. The Company and the Shareholders shall have received an opinion of Jones, Day, Reavis & Pogue, counsel to Buyer, dated the Closing Date, substantially in the form attached hereto as EXHIBIT H. 7.2.5 ANCILLARY AGREEMENTS. Each of the Ancillary Agreements shall have been executed and delivered by Buyer, if Buyer or the Company is a party thereto. VIII. SURVIVAL; INDEMNIFICATION 34 8.1. SURVIVAL. The representations and warranties of the parties contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith will survive the Closing until the second anniversary of the Closing Date; PROVIDED, HOWEVER, that (i) the representations and warranties contained in Section 3.1.9 will survive the Closing until the expiration of the statute of limitations applicable to the matters covered thereby (after giving effect to any waiver, mitigation or extension thereof granted by the Company after the Closing) , (ii) the representations and warranties contained in Section 3.1.17 will survive the Closing until the fifth anniversary of the Closing Date, and (iii) the Selected Company Representations and Warranties, the Selected Shareholder Representations and Warranties and the Selected Buyer Representations and Warranties will survive the Closing indefinitely. Notwithstanding the immediately preceding sentence, any representation or warranty in respect of which indemnity may be sought under this Agreement will survive the time at which it would otherwise terminate pursuant to the preceding sentence if written notice of the inaccuracy or breach thereof giving rise to such right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time; PROVIDED, HOWEVER, that the applicable representation or warranty will survive only with respect to the particular inaccuracy or breach specified in such written notice. All covenants and agreements of the parties contained in this Agreement will survive the Closing indefinitely. 8.2. INDEMNIFICATION. (a) Each Shareholder will, jointly and severally, indemnify, defend and hold harmless Buyer and its officers, directors, employees, members, managing directors, Affiliates (including, after the Closing Date, the Company) and agents, and the successors to the foregoing (and their respective officers, directors, employees, members, managing directors, Affiliates and agents) (each, a "BUYER INDEMNIFIED PARTY"), against any and all liabilities, damages and losses and, if, and only to the extent asserted in a Third Party Claim, punitive damages, and all costs or expenses, including, without limitation, reasonable attorneys' and consultants' fees and expenses ("DAMAGES"), incurred or suffered as a result of or actually arising out of (i) the failure of any representation or warranty made by the Company or any Shareholder in any subsection of Section 3.1 to be true and correct as of the date hereof or as of the Closing Date (other than a breach of Section 3.1.9 with respect to Taxes, which will be governed by Section 8.3), (ii) the breach of any covenant or agreement made or to be performed by the Company pursuant to this Agreement, (iii) claims in connection with the Reorganization, or (iv) claims under the Company Notes; PROVIDED, HOWEVER, that neither the Company nor any Shareholder will be liable under clause (i) of this Section 8.2(a) unless the aggregate amount of Damages exceeds $100,000 (the "Basket") and then from the first dollar to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that the Shareholders' aggregate liability under clause (i) of this Section 8.2(a) and clause (i) of Section 8.2(b) will not exceed, in the aggregate, $2.5 million (the "Cap"). Notwithstanding the foregoing, breaches with respect to any of the Selected Company Representations and Warranties, the Selected Shareholder Representations and Warranties, and the other representations and warranties contained in Sections 3.1.6 and 3.1.9 are not subject to the Basket and the Cap. (b) Each Shareholder will, severally and not jointly, indemnify, defend and hold harmless each Buyer Indemnified Party against any and all Damages incurred or suffered as a result of or actually arising out of (i) the failure of any representation or warranty made by such Shareholder in any subsection of Section 3.2 of this Agreement to be true and correct as of the date hereof and the Closing Date or (ii) the breach of any covenant or agreement made or to be performed by such Shareholder pursuant to this Agreement; PROVIDED, HOWEVER, that the 35 Shareholders' aggregate liability under clause (i) of this Section 8.2(b) and clause (i) of Section 8.2(a) will not, in the aggregate, exceed the Cap. Notwithstanding the foregoing, breaches with respect to any of the Selected Company Representations and Warranties, the Selected Shareholder Representations and Warranties, and the other representations and warranties contained in Sections 3.1.6 and 3.1.9 are not subject to the Basket and the Cap. (c) Buyer will, after the Closing Date, indemnify, defend and hold harmless the Shareholders against Damages incurred or suffered as a result of or actually arising out of (i) the failure of any representation or warranty made by Buyer in this Agreement to be true and correct as of the date hereof and the Closing Date, (ii) the breach of any covenant or agreement made or to be performed by Buyer pursuant to this Agreement, or (iii) any of the obligations of the Company or the Partnership identified on SCHEDULE 8.2(c) that any Shareholder or partner of the Partnership has personally guaranteed; PROVIDED, HOWEVER, that Buyer will not be liable under clause (i) of this Section 8.2(c) unless the aggregate amount of Damages exceeds $100,000 and then from the first dollar to the full extent of such Damages; PROVIDED, FURTHER, HOWEVER, that Buyer's liability under clause (i) of this Section 8.2(c) will not exceed, in the aggregate, $2.5 million. 8.3. TAX INDEMNIFICATION. Each Shareholder will, jointly and severally, indemnify, defend and hold harmless each Buyer Indemnified Party against (i) any and all Damages resulting from or actually arising out of, or incurred with respect to, the failure of any representation or warranty made by the Company pursuant to Section 3.1.9 to be true and correct as of the date hereof and as of the Closing Date, (ii) all Taxes imposed on or asserted against the Company or for which the Company may be liable in respect of the properties, income or operations of the Company for all Pre-Closing Tax Periods, and (iii) all Taxes imposed on or asserted against the Company, or for which the Company may be liable, as a result of any transaction contemplated by this Agreement, including the Reorganization and the Assignment and pursuant to Section 5.10. 8.4. PROCEDURES. (a) If any Person who or which is entitled to seek indemnification under Section 8.2 or Section 8.3 (an "INDEMNIFIED PARTY") receives notice of the assertion or commencement of any Third Party Claim against such Indemnified Party with respect to which the Person against whom or which such indemnification is being sought (an "INDEMNIFYING PARTY") is obligated to provide indemnification under this Agreement, the Indemnified Party will give such Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 20 days after receipt of such written notice of such Third Party Claim. Such notice by the Indemnified Party will describe the Third Party Claim in reasonable detail, will include copies of all available material written evidence thereof and will indicate the estimated amount, if reasonably practicable, of the Damages that have been or may be sustained by the Indemnified Party. The Indemnifying Party will have the right to participate in, or, by giving written notice to the Indemnified Party, to assume, the defense of any Third Party Claim at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel (reasonably satisfactory to the Indemnified Party), and the Indemnified Party will cooperate in good faith in such defense. (b) If, within ten days after giving notice of a Third Party Claim to an Indemnifying Party pursuant to Section 8.4(a), an Indemnified Party receives written notice from the Indemnifying Party that the Indemnifying Party has elected to assume the defense of such 36 Third Party Claim as provided in the last sentence of Section 8.4(a), the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof; PROVIDED, HOWEVER, that if the Indemnifying Party fails to take reasonable steps necessary to defend diligently such Third Party Claim within ten days after receiving written notice from the Indemnified Party that the Indemnified Party reasonably believes the Indemnifying Party has failed to take such steps or if the Indemnifying Party has not agreed to indemnify the Indemnified Party in respect of all Damages relating to the matter, the Indemnified Party may assume its own defense, and the Indemnifying Party will be liable for all reasonable costs and expenses paid or incurred in connection therewith. Without the prior written consent of the Indemnified Party, the Indemnifying Party will not enter into any settlement of any Third Party Claim which would lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder, or which provides for injunctive or other non-monetary relief applicable to the Indemnified Party, or, with the exception of tax matters, does not include an unconditional release of all Indemnified Parties. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party will give written notice to the Indemnified Party to that effect. If the Indemnified Party fails to consent to such firm offer within ten days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and, in such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will not exceed the amount of such settlement offer. The Indemnified Party will provide the Indemnifying Party with reasonable access during normal business hours to books, records, and employees of the Indemnified Party necessary in connection with the Indemnifying Party's defense of any Third Party Claim which is the subject of a claim for indemnification by an Indemnified Party hereunder. (c) Any claim by an Indemnified Party on account of Damages which does not result from a Third Party Claim (a "DIRECT CLAIM") will be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 20 days after the Indemnified Party becomes aware of such Direct Claim. Such notice by the Indemnified Party will describe the Direct Claim in reasonable detail, will include copies of all available material written evidence thereof and will indicate the estimated amount, if reasonably practicable, of Damages that has been or may be sustained by the Indemnified Party. The Indemnifying Party will have a period of ten days within which to respond in writing to such Direct Claim. If the Indemnifying Party does not so respond within such ten day period, the Indemnifying Party will be deemed to have rejected such claim, in which event the Indemnified Party will be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement. (d) A failure to give timely notice or to include any specified information in any notice as provided in Section 8.4(a), 8.4(b) or 8.4(c) will not affect the rights or obligations of any party hereunder, except and only to the extent that, as a result of such failure, any party which was entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise materially prejudiced as a result of such failure. 37 8.5. PAYMENT AND TREATMENT OF INDEMNIFICATION PAYMENTS. All indemnifiable Damages under this Agreement will be paid in cash in immediately available funds. Any amount paid by the Shareholders or Buyer under Section 8.2 or 8.3 will be treated as a capital contribution, on the one hand, and/or an adjustment to the Aggregate Closing Consideration on the other hand. 8.6. INDEMNIFICATION AMOUNTS NET OF BENEFITS RECEIVED. The amount of Damages for which indemnification is provided under Sections 8.2 and 8.3 will be computed net of any insurance proceeds actually received by the Indemnified Party in connection with such Damages, reduced by all costs and expenses related thereto and any premium increase or expense directly resulting therefrom for a period of 3 years or such other period of time that can be determined for purposes of calculating the present value of such premium increase or expense as of the date payment of the amount of damages is made. If the amount with respect to which any claim is made under this Section 8.6 gives rise to a currently realizable Tax benefit, the indemnity payment will be reduced by the amount of such currently realizable benefit then available to the party making the claim if and to the extent actually realized by such party in the fiscal year in which such indemnity payment is made to such party or in the next succeeding fiscal year. 8.7. EXCLUSIVE REMEDY. Absent fraud, Article VIII constitutes the exclusive remedy for the breach of covenants, agreements, representations or warranties set forth in this Agreement; PROVIDED, HOWEVER, that the provisions of this Section 8.7 will not prevent the Shareholders, the Company or Buyer from seeking the remedies of specific performance or injunctive relief in connection with the breach of a covenant or agreement of any party hereto. IX. MISCELLANEOUS 9.1. TERMINATION. (a) This Agreement may be terminated at any time prior to the Closing: (i) by the mutual written consent of Buyer and the Shareholders owning a majority of the outstanding shares of Common Stock; (ii) by Buyer, if there has been a material violation or breach by the Company or any Shareholder of any of their respective covenants, representations or warranties contained in this Agreement which has prevented the satisfaction of any condition to the obligations of Buyer to consummate the Closing, and such violation or breach has not been waived by Buyer or, in the case of a covenant breach, cured by the Company or the Shareholders within ten days after written notice thereof from Buyer; (iii) by the Shareholders owning a majority of the outstanding shares of Common Stock, if there has been a material violation or breach by Buyer of any covenant, representation or warranty of Buyer contained in this Agreement which has prevented the satisfaction of any condition to the obligations of the Company and the Shareholders to consummate the Closing, and such violation or breach has not been waived by the Company or, in the case of a covenant breach, cured by Buyer within the ten days after written notice thereof from the Company; 38 (iv) by Buyer or the Shareholders owning a majority of the outstanding shares of Common Stock, if the transactions contemplated hereby have not been consummated by September 3, 1999 (the "TERMINATION DATE"), PROVIDED, HOWEVER, that neither Buyer nor such Shareholders will be entitled to terminate this Agreement pursuant to this Section 9.1(a)(iv) if such Person's breach of this Agreement has prevented the consummation of the transactions contemplated hereby; and (v) by Buyer, if any of the conditions to Closing set forth in Sections 7.1.7, 7.1.10, 7.1.13 or 7.1.15 have not been satisfied. (b) In the event that this Agreement is terminated pursuant to Section 9.1(a), all further obligations of the parties hereto under this Agreement (other than pursuant to Article VIII and Article IX, which will continue in full force and effect) will terminate without further liability or obligation of any party to any other party hereunder; PROVIDED, HOWEVER, that no party will be released from liability hereunder if this Agreement is terminated and the transactions abandoned by reason of (i) the failure of such party to have performed its obligations hereunder or (ii) any misrepresentation made by such party of any matter set forth herein. 9.2. NOTICES. All notices, requests and other communications to any party hereunder must be in writing (including facsimile transmission) and must be given to such party at its address and facsimile number set forth in SCHEDULE 9.2 (which may be changed by such party upon notice in accordance with this Section 9.2). All such notices, requests and other communications will be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication will be deemed not to have been received until the next succeeding Business Day in the place of receipt. 9.3. AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege hereunder will operate as a waiver thereof, whether of a similar or dissimilar nature, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided will be cumulative and not exclusive of any rights or remedies provided by Law. 9.4. EXPENSES. Except as otherwise expressly provided for herein, the parties will pay or cause to be paid all of their own fees and expenses incident to this Agreement and in preparing to consummate and consummating the transactions contemplated hereby, including the fees and expenses of any broker, finder, financial advisor, legal advisor or similar person engaged by such party. All such fees and expenses of the Company will be properly accrued on the Closing Balance Sheet and the Closing Shareholders' Equity Statement. 9.5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED that no party may assign, delegate or otherwise Transfer (including by operation of 39 Law) any of its rights or obligations under this Agreement without the consent of each other party hereto. Notwithstanding the foregoing, the Buyer may assign its rights and delegate its obligations under the Agreement to an Affiliate of Buyer without the consent of any other party hereto; PROVIDED, HOWEVER, that no such assignment will relieve Buyer of its obligations hereunder. Any assignment in violation of this Section 9.5 will be void ab initio. 9.6. NO THIRD PARTY BENEFICIARIES. Except as provided in Article VIII and Section 9.5, this Agreement is for the sole benefit of the parties hereto and their permitted successors and assigns and nothing herein expressed or implied will give or be construed to give to any Person, other than the parties hereto and such permitted successors and assigns any legal or equitable rights hereunder. 9.7. GOVERNING LAW. This Agreement will be governed by, and construed in accordance with, the law of the State of New York, without regard to the conflict of laws rules of such State. 9.8. JURISDICTION. Except as otherwise expressly provided in this Agreement, any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any court of competent jurisdiction in the City of Rochester, or the United States District Court for the Western District of New York (assuming that such court otherwise has jurisdiction) and each of the parties hereby consents to the non-exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by Law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 9.2 will be deemed effective service of process on such party. 9.9. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 9.10. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which will be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 9.11. HEADINGS. The headings in this Agreement are for convenience of reference only and will not control or affect the meaning or construction of any provisions hereof. 9.12. ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits hereto) and the Ancillary Agreements constitute the entire agreement among the parties with 40 respect to the subject matter of this Agreement. This Agreement (including the Schedules and Exhibits hereto) and the Ancillary Agreements supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof of this Agreement. 9.13. SEVERABILITY; INJUNCTIVE RELIEF. (a) If any provision of this Agreement or the application of any such provision to any Person or circumstance is held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, the remainder of the provisions of this Agreement (or the application of such provision in other jurisdictions or to Persons or circumstances other than those to which it was held invalid, illegal or unenforceable) will in no way be affected, impaired or invalidated, and to the extent permitted by applicable Law, any such provision will be restricted in applicability or reformed to the minimum extent required for such provision to be enforceable. This provision will be interpreted and enforced to give effect to the original written intent of the parties prior to the determination of such invalidity or unenforceability. (b) The parties acknowledge and agree that the covenants and agreements contained herein are reasonably necessary to protect the legitimate interests of the parties and their business and that any violation of such covenants and warranties will result in irreparable injury to the parties, the exact amount of which will be difficult to ascertain and the remedies at law for which will not be reasonable or adequate compensation to the parties for such a violation. Accordingly, each party agrees that if it violates any of the provisions of this Agreement, in addition to any other remedy available at Law or in equity, the non-breaching party will be entitled to seek specific performance or injunctive relief without posting a bond, or other security, and without the necessity of proving actual damages. 9.14. CERTAIN INTERPRETIVE MATTERS. (a) Unless the context otherwise requires, (a) all references to Sections, Articles, Exhibits or Schedules are to Sections, Articles, Exhibits, or Schedules of or to this Agreement, (b) each of the Schedules will apply only to the corresponding subsection (or, if there is no subsection, section) of this Agreement, (c) each term defined in this Agreement has the meaning assigned to it, (d) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP, (e) words in the singular include the plural and VICE VERSA, and (f) the term "INCLUDING" means "including without limitation." All references to Laws in this Agreement will include any applicable amendments thereunder. All references to $ or dollar amounts will be to lawful currency of the United States. To the extent the term "DAY" or "DAYS" is used, it shall mean calendar days (unless referred to as a Business Day). (b) No provision of this Agreement will be interpreted in favor of, or against, any of the parties hereto by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof. (c) (i) All references to the "knowledge of the Company" or to words of similar import will be deemed to be references to the actual knowledge of one or more of the executive officers or directors of the Company whose names are listed on SCHEDULE 9.15(c)(i), and will include such knowledge as such executive officers or directors would have had after due inquiry of the responsible individuals of the Company, its counsel and accountants. 41 (ii) All references to the "knowledge of Buyer" or to words of similar import will be deemed to be references to the actual knowledge of one or more of the executive officers or directors of Buyer whose names are listed on SCHEDULE 9.15(c)(ii), and will include such knowledge as such executive officers or directors would have had after due inquiry of the responsible individuals of Buyer, its counsel and accountants. (iii) All references to the "knowledge of Shareholder" or to words of similar import will be deemed to be references to the actual knowledge of such Shareholder. 9.15. TRANSFER OF PROCEEDS. In the event Buyer provides notice to the Shareholders pursuant to Section 8.4(a), the Shareholders will not transfer or permit the transfer of any of the Aggregate Closing Consideration received by or on behalf of such Shareholder, whether existing in the form of cash or such other form as all or a portion of the Aggregate Closing Consideration may exist as of the date of such notice, if the result thereof would make such Shareholder unable to satisfy its obligations hereunder as to indemnification. 42 The parties hereto have caused this Agreement to be duly executed by their respective authorized officers or in their individual capacity, if applicable, as of the day and year first above written. GILLETTE MACHINE & TOOL CO., INC. By: /s/ Charlyne C. Gillette ------------------------------- Name: Charlyne C. Gillette Title: President STATE OF NEW YORK ) )ss.: COUNTY OF MONROE ) This 1st day of September, 1999, personally came before me Charlyne C. Gillette, who being by me duly sworn, says that he/she is the President of Gillette Machine & Tool Co., Inc., a NY corporation, that said writing was signed by him/her, and the said President acknowledged the said writing to be the act and deed of said corporation. /s/ Samuel J. Ianacone Jr. ------------------------------- Notary Public My Commission Expires: - -------------------- 43 GILLETTE MACHINE & EQUIPMENT COMPANY By: /s/ Martin Gillette ------------------------------- Name: Martin Gillette Title: Partner STATE OF NEW YORK ) )ss.: COUNTY OF MONROE ) This 1st day of September, 1999, personally came before me Martin Gillette, who being by me duly sworn, says that he/she is the Partner of Gillette Machine & Equipment Co., a NY Gen. Partnership, that said writing was signed by him/her, and the said Partner acknowledged the said writing to be the act and deed of said Partnership. /s/ Samuel J. Ianacone Jr. ------------------------------- Notary Public My Commission Expires: - -------------------- 44 /s/ Charlyne Gillette ------------------------------- Charlyne Gillette STATE OF NEW YORK ) )ss.: COUNTY OF MONROE ) This 1st day of September, 1999, came before me, a notary public in and for the State of New York, personally appeared Charlyne Gillette, to me known to be the person named in and who executed the foregoing instrument, and acknowledged that he/she executed the same as his/her voluntary act and deed. /s/ Samuel J. Ianacone Jr. ------------------------------- Notary Public My Commission Expires: - -------------------- 45 /s/ Martin Gillette ------------------------------ Martin Gillette STATE OF NEW YORK ) )ss.: COUNTY OF MONROE ) This 1st day of September, 1999, came before me, a notary public in and for the State of New York, personally appeared Martin Gillette, to me known to be the person named in and who executed the foregoing instrument, and acknowledged that he/she executed the same as his/her voluntary act and deed. /s/ Samuel J. Ianacone Jr. ------------------------------- Notary Public My Commission Expires: - -------------------- 46 /s/ John Gillette ------------------------------- John Gillette STATE OF NEW YORK ) )ss.: COUNTY OF MONROE ) This 1st day of September, 1999, came before me, a notary public in and for the State of New York, personally appeared John Gillette, to me known to be the person named in and who executed the foregoing instrument, and acknowledged that he/she executed the same as his/her voluntary act and deed. /s/ Samuel J. Ianacone Jr. ------------------------------- Notary Public My Commission Expires: - -------------------- 47 TESTAMENTARY TRUST B UNDER WILL OF FRANK P. GILLETTE DATED FEBRUARY 7, 1992 By: /s/ Martin Gillette ------------------------------- Name: Martin Gillette Title: Trustee STATE OF NEW YORK ) )ss.: COUNTY OF MONROE ) This 1st day of September, 1999, personally came before me Martin Gillette, who being duly sworn, says that he/she is the Trustee of the above trust, a _______________________________, that said writing was signed by him/her, and the said trustee acknowledged the said writing to be the act and deed of said trust. /s/ Samuel J. Ianacone Jr. ------------------------------- Notary Public My Commission Expires: - -------------------- 48 PRECISION PARTNERS, INC. By: /s/ James E. Ashton ------------------------------- Name: Dr. James E. Ashton Title: President and CEO STATE OF TEXAS ) )ss.: COUNTY OF DALLAS ) This 27th day of August, 1999, personally came before me James E. Ashton, who being duly sworn, says that he is the President and CEO of Precision Partners, Inc., a Delaware corporation, that said writing was signed by him, and the said James E. Ashton acknowledged the said writing to be the act and deed of said corporation. /s/ Jacqueline LeFonte ------------------------------- Notary Public My Commission Expires: 05-28-2000 49 EX-2.7 8 AGRMNT OF MERGER (MAY 28, 1999) Exhibit 2.7 AGREEMENT OF MERGER This Agreement of Merger (this "AGREEMENT") is entered into between Certified Fabricators, Inc., a California corporation (the "SURVIVING CORPORATION"), and Calbrit Design, Inc., a California corporation (the "MERGING CORPORATION"). 1. Merging Corporation will be merged into Surviving Corporation. 2. The outstanding shares of Merging Corporation will be canceled and no shares of Surviving Corporation will be issued in exchange therefor. 3. The outstanding shares of Surviving Corporation will remain outstanding and will not be affected by the merger. 4. Merging Corporation will from time to time, as and when requested by Surviving Corporation, execute and deliver all such documents and instruments and take all such action necessary or desirable to evidence or carry out this merger. 5. The effect of the merger and the effective date of the merger are as prescribed by law. IN WITNESS WHEREOF the parties have executed this Agreement. Date: May 28, 1999 CERTIFIED FABRICATORS, INC. By: /s/ Gary J. Buehler ---------------------------------------- Name: Gary J. Buehler Title: President and Chief Executive Officer By: /s/ Ronald M. Miller ---------------------------------------- Name: Ronald M. Miller Title: Vice President, Treasurer and Secretary CALBRIT DESIGN, INC. By: /s/ Gary J. Buehler ---------------------------------------- Name: Gary J. Buehler Title: President and Chief Executive Officer By: /s/ Ronald M. Miller ---------------------------------------- Name: Ronald M. Miller Title: Vice President, Treasurer and Secretary EX-3.1 9 CERT. OF INCORP. Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PRECISION PARTNERS, INC. --------------------------- Adopted in Accordance with the Provisions of Section 242 and 245 of the General Corporation Law of the State of Delaware --------------------------- The undersigned, being the Chief Financial Officer, Vice President, Treasurer and Secretary of Precision Partners, Inc., a corporation existing under the laws of the State of Delaware (the "COMPANY") does hereby certify that (i) the Certificate of Incorporation of the Company was filed with the Secretary of State of the State of Delaware on February 3, 1999 and (ii) the Certificate of Incorporation of the Company is hereby further amended and restated as follows: FIRST: The name of the Company is Precision Partners, Inc. SECOND: The address of the Company's registered office in the State of Delaware is 1209 Orange Street, Wilmington, DE 19801, county of New Castle, and the name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Company is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware as it now exists or may hereafter be amended and supplemented. FOURTH: The total number of shares of stock which the Company will have authority to issue is 120,000,000. The shares of stock of the Company will consist of two classes as follows: 60,000,000 shares of Class A Preferred Stock, par value .01 per share (the "CLASS A PREFERRED STOCK") and 60,000,000 shares of common stock, par value $.01 per share (the "COMMON STOCK"). The shares of Common Stock and the Preferred Stock are collectively referred to herein as "CAPITAL STOCK." A. DIVIDENDS. The holders of the shares of Capital Stock will be entitled to receive dividends when, as and if and only if declared by the Board of Directors, out of funds legally available therefore; PROVIDED, HOWEVER, no dividend may be declared on any class of Capital Stock unless similarly declared on the shares of the other classes of Class A Preferred Stock. A dividend, if declared on the shares of Capital Stock, will be paid to the holders of record at the close of business on the date specified by the Board of Directors at the time such dividend is declared. B. DISTRIBUTIONS UPON LIQUIDATION, DISSOLUTION, WINDING UP, ETC. (1) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company or other transactions referred to in Paragraph B(3) of 1 this Article (collectively "LIQUIDATION TRANSACTIONS"), the holders of shares of Class A Preferred Stock then outstanding will be entitled to be paid out of the assets of the Company available for distribution to its stockholders, whether such assets are capital or surplus and whether or not any dividends are declared, before any payment will be made or any assets distributed to the holders of any shares of any other class of Capital Stock, an amount equal to whichever of the following has a greater fair market value: (i) an amount per share in cash equal to the Preference Value, plus an amount in cash equal to all accrued but unpaid dividends thereon to the date fixed for liquidation, dissolution or winding up, and (ii) the cash or other assets distributable upon such liquidation, dissolution or winding up with respect to the Capital Stock up to the Preference Value. If the assets of the Company, or the proceeds thereof, or the merger or other consideration payable to the stockholders, are not sufficient to pay in full the payments payable on each outstanding share of Class A Preferred Stock as determined in accordance with this Paragraph B(1), then each share of Class A Preferred Stock will participate ratably in such distribution of assets, or the proceeds thereof, or such payments and in any event no amount will be payable or distributed in respect of any shares of any other class of Capital Stock. (2) In the event of a Liquidation Transaction, after the distribution to be made to holders of Class A Preferred Stock in accordance with the terms set forth in Paragraph B(1) above, the holders of shares of Common Stock then outstanding will be entitled to be paid out of the assets of the Company available for distribution to its stockholders, whether such assets are capital or surplus and whether or not any dividends are declared, an amount equal to the Liquidation Amount (as defined below), plus an amount in each equal to all accrued but unpaid dividends on the date fixed for liquidation, dissolution or winding up. The assets of the Company, or the proceeds thereof, or the merger or other consideration payable to the stockholders remaining after payment of the Liquidation Amount to the holders of Common Stock will be distributed pro rata to the holders of the Capital Stock. (3) Without limiting the generality or effect of Paragraphs B(1) or B(2) of this Article, for all purposes hereof, the term "LIQUIDATION TRANSACTION" will include any (i) sale, lease, transfer or other disposition of all or substantially all of the property or assets of the Company or (ii) consolidation or merger of the Company with or into one or more other entities, or (iii) any other business combination or acquisition transaction. (4) The liquidation payment with respect to each outstanding factional share of Common Stock under Paragraph B will be equal to a ratably proportionate amount of the liquidation payment under Paragraph B with respect to each outstanding share of Common Stock. (5) The term "LIQUIDATION AMOUNT" means, as it relates to Common Stock, the price per share at which each such share of Common Stock is issued. (6) The term "PREFERENCE VALUE" means, as it relates to Class A Preferred Stock, $.6265 per share. 2 C. VOTING. (1) The holders of Common Stock shall vote as one class on all actions for which stockholder approval is required by law, this Certificate or the By-Laws of the Company, and each share of Common Stock will have one vote. (2) The Class A Preferred Stock will be non-voting, except as required by law, except as provided in Paragraph D of this Article, and except that, without the vote or consent of the majority of holders of the then-outstanding Class A Preferred Stock, voting separately as a class, no amendment to the certificate of incorporation of the Company (directly or in connection with a merger, consolidation or other event or by reason of the authorization or issuance of any additional shares of capital stock) may be effected which would adversely affect the powers, privileges, preferences or other rights of or pertaining to the Class A Preferred Stock. (3) The holders of the Common Stock will be entitled to elect an aggregate of six directors to the Board of Directors of the Company, four of whom will be designated by the managing member of Precision Partners Investment Fund, L.L.C., one of whom will be designated by Harvey (as defined in the Precision Partners, L.L.C. Limited Liability Company, dated as of September 30, 1998), and one of whom will be designated by the Corporate Management Investors (as defined in the Precision LLC Agreement). D. RESTRICTIONS ON TRANSFER. The Capital Stock will not be transferable without the consent of the holders of a majority of the outstanding shares of Capital Stock. E. GENERAL PROVISIONS. The headings of the paragraphs, subparagraphs, clauses and subclauses hereto are for convenience of reference only and will not define, limit or affect any of the provisions hereof. FIFTH: The name and mailing address of the incorporator is: Sanford B. Kaynor, Jr. Jones, Day, Reavis & Pogue 599 Lexington Avenue New York, New York 10022 SIXTH: The personal liability of the directors of the Company is hereby eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of Section 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented. Any repeal or modification of this Article Sixth will not adversely affect any right or protection of a director of the Company existing immediately prior to such repeal or modification. SEVENTH: The Company will, to the fullest extent permitted or required by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons to whom it will have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein will not be deemed exclusive of any other rights to which those indemnified may be entitled under 3 any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and will continue as to a person who has ceased to be a director, officer, employee or agent and will inure to the benefit of the heirs, executors and administrators of such person. Any repeal or modification of this Article Seventh will not adversely affect any right or protection existing hereunder immediately prior to such repeal or modification. EIGHTH: From time to time any of the provisions of this certificate of incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Company by this certificate of incorporation are granted subject to the provisions of this Article Eighth. NINTH: In furtherance and not in limitation of the rights, powers, privileges and discretionary authority granted or conferred by the General Corporation Law of the State of Delaware or other statutes or laws of the state of Delaware, the Board of Directors is expressly authorized to make, alter, amend or repeal the By-Laws of the Company, without any action on the part of the Stockholders, but the Stockholders may make additional By-Laws and may alter, amend or repeal any By-Law whether adopted by them or otherwise. The Company may in its By-Laws confer powers upon its Board of Directors in additional to the foregoing and in addition to the powers and authorities expressly conferred upon the Board of Directors by applicable law. 4 Dated: March 18, 1999 PRECISION PARTNERS, INC. By: /s/ Ronald M. Miller -------------------- Name: Ronald M. Miller Title: Chief Financial Officer, Vice President, Treasurer and Secretary 5 EX-3.2 10 BYLAWS OF PRECISION Exhibit 3.2 BYLAWS OF PRECISION PARTNERS, INC. ARTICLE I STOCKHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of Precision Partners, Inc. (the "Corporation") shall be held either within or without the State of Delaware, at such place and on such date and time as the Board of Directors may designate from time to time in the call of the meeting or in a waiver of notice thereof, on such date as the Board of Directors shall fix by resolution in each year beginning with the year 1999 for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting. SECTION 2. SPECIAL MEETINGS. Special Meetings of the stockholders may be called by the Board of Directors or by the President, and shall be called by the President or by the Secretary upon the written request of the holders of record of at least thirty-five percent (35%) of the shares of stock of the Corporation, issued and outstanding and entitled to vote, at such times and at such place either within or without the State of Delaware as may be stated in the call or in a waiver of notice thereof. SECTION 3. NOTICE OF MEETINGS. Notice of the time, place and purpose of every meeting of stockholders shall be delivered personally or mailed not less than ten days nor more than sixty days previous thereto to each stockholder of record entitled to vote, at such stockholder's post office address appearing upon the records of the Corporation or at such other address as shall be furnished in writing by him or her to the Corporation for such purpose. Such further notice shall be given as may be required by law or by these Bylaws. Any meeting may be held without notice if all stockholders entitled to vote are present in person or by proxy, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 4. QUORUM. The holders of record of at least a majority of the shares of the stock of the Corporation, issued and outstanding and entitled to vote, present in person or by proxy, shall, except as otherwise provided by law or by these Bylaws, constitute a quorum at all meetings of the stockholders; if there be no such quorum, the holders of a majority of such shares so present or represented may adjourn the meeting from time to time until a quorum shall have been obtained. SECTION 5. ORGANIZATION OF MEETINGS. Meetings of the stockholders shall be presided over by the Chairman of the Board, if there be one, or if the Chairman of the Board is not present by the President, or if the President is not present, by a chairman to be chosen at the meeting. The Secretary of the Corporation, or in the Secretary of the Corporation's absence, an Assistant Secretary, shall act as Secretary of the meeting, if present. SECTION 6. VOTING. At each meeting of stockholders, except as otherwise provided by statute or the Certificate of Incorporation, every holder of record of stock entitled to vote shall be entitled 1 to one vote in person or by proxy for each share of such stock standing in his or her name on the records of the Corporation. Elections of directors shall be determined by a plurality of the votes cast and, except as otherwise provided by statute, the Certificate of Incorporation, or these Bylaws, all other action shall be determined by a majority of the votes cast at such meeting. Each proxy to vote shall be in writing and signed by the stockholder or by such stockholder's duly authorized attorney. At all elections of directors, the voting shall be by ballot or in such other manner as may be determined by the stockholders present in person or by proxy entitled to vote at such election. With respect to any other matter presented to the stockholders for their consideration at a meeting, any stockholder entitled to vote may, on any question, demand a vote by ballot. A complete list of the stockholders entitled to vote at each such meeting, arranged in alphabetical order, with the address of each, and the number of shares registered in the name of each stockholder, shall be prepared by the Secretary and shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 7. INSPECTORS OF ELECTION. The Board of Directors in advance of any meeting of stockholders may appoint one or more Inspectors of Election to act at the meeting or any adjournment thereof. If Inspectors of Election are not so appointed, the chairman of the meeting may, and on the request of any stockholder entitled to vote shall, appoint one or more Inspectors of Election. Each Inspector of Election, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of Inspector of Election at such meeting with strict impartiality and according to the best of his or her ability. If appointed, Inspectors of Election shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law. SECTION 8. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if, prior to such action, a written consent or consents thereto, setting forth such action, is signed by the holders of record of shares of the stock of the Corporation, issued and outstanding and entitled to vote thereon, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 2 ARTICLE II DIRECTORS SECTION 1. NUMBER, QUORUM, TERM, VACANCIES, REMOVAL. The Board of Directors of the Corporation shall consist of six persons. The number of directors may be changed by a resolution passed by a majority of the whole Board or by a vote of the holders of record of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote, subject to the terms of the Certificate of Incorporation of the Company. A majority of the members of the Board of Directors then holding office (but not less than one-third of the total number of directors ) shall constitute a quorum for the transaction of business, but if at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum shall have been obtained. Directors shall hold office until the next annual election and until their successors shall have been elected and shall have qualified, unless sooner displaced. Whenever any vacancy shall have occurred in the Board of Directors, by reason of death, resignation, or otherwise, other than removal of a director with or without cause by a vote of the stockholders, it shall be filled by a majority of the remaining directors, though less than a quorum (except as otherwise provided by law), or by the stockholders, and the person so chosen shall hold office until the next annual election and until a successor is duly elected and has qualified. Any one or more of the directors of the Corporation may be removed either with or without cause at any time by a vote of the holders of record of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote, and thereupon the term of the director or directors who shall have been so removed shall forthwith terminate and there shall be a vacancy or vacancies in the Board of Directors, to be filled by a vote of the stockholders as provided in these Bylaws. SECTION 2. MEETINGS, NOTICE. Meetings of the Board of Directors shall be held at such place either within or without the State of Delaware, as may from time to time be fixed by resolution of the Board, or as may be specified in the call or in a waiver of notice thereof. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board, and special meetings may be held at any time upon the call of two directors, the Chairman of the Board, if one be elected, or the President, by oral, telegraphic or written notice, duly served on or sent or mailed to each director not less than two days before such meeting. A meeting of the Board may be held without notice immediately after the annual meeting of stockholders at the same place at which such meeting was held. Notice need not be given of regular meetings of the Board. Any meeting may be held without notice, if all directors are present, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 3. COMMITTEES. The Board of Directors may, in its discretion, by resolution passed by a majority of the whole Board, designate from among its members one or more committees which shall consist of two or more directors. The Board may designate one or more directors as alternate members of any such committee, who may replace any absent or disqualified member at 3 any meeting of the committee. Such committees shall have and may exercise such powers as shall be conferred or authorized by the resolution appointing them. A majority of any such committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board shall have power at any time to change the membership of any such committee, to fill vacancies in it, or to dissolve it. SECTION 4. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent or consents thereto is signed by all members of the Board, or of such committee as the case may be, and such written consent or consents is filed with the minutes of proceedings of the Board or committee. SECTION 5. COMPENSATION. The Board of Directors may determine, from time to time, the amount of compensation which shall be paid to its members. The Board of Directors shall also have power, in its discretion, to allow a fixed sum and expenses for attendance at each regular or special meeting of the Board, or of any committee of the Board. In addition, the Board of Directors shall also have power, in its discretion, to provide for and pay to directors rendering services to the Corporation not ordinarily rendered by directors, as such, special compensation appropriate to the value of such services, as determined by the Board from time to time. SECTION 6. CONFERENCE TELEPHONE MEETINGS. One or more directors may participate in a meeting of the Board of Directors, or of a committee of the Board of Directors, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. ARTICLE III OFFICERS SECTION 1. TITLES AND ELECTION. The officers of the Corporation, who shall be chosen by the Board of Directors at its first meeting after each annual meeting of stockholders, shall be a President, a Treasurer and a Secretary. The Board of Directors from time to time may elect a Chairman of the Board, one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other officers and agents as it shall deem necessary, and may define their powers and duties. Any number of offices may be held by the same person. SECTION 2. TERMS OF OFFICE. Officers shall hold office until their successors are chosen and qualify. SECTION 3. REMOVAL. Any officer may be removed, either with or without cause, at any time, by the affirmative vote of a majority of the Board of Directors. SECTION 4. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the Secretary. Such resignation shall take effect at the time specified 4 therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 5. VACANCIES. If the office of any officer or agent becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the directors may choose a successor, who shall hold office for the unexpired term in respect of which such vacancy occurred. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors, if one be elected, shall preside at all meetings of the Board of Directors and of the stockholders, and the Chairman shall have and perform such other duties as from time to time may be assigned to the Chairman by the Board of Directors. SECTION 7. PRESIDENT. The President shall be the chief executive officer of the Corporation and, in the absence of the Chairman, shall preside at all meetings of the Board of Directors, and of the stockholders. The President shall exercise the powers and perform the duties usual to the chief executive officer and, subject to the control of the Board of Directors, shall have general management and control of the affairs and business of the Corporation; the President shall appoint and discharge employees and agents of the Corporation (other than officers elected by the Board of Directors) and fix their compensation; and the President shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have the power to execute bonds, mortgages and other contracts, agreements and instruments of the Corporation, and shall do and perform such other duties as from time to time may be assigned to the President by the Board of Directors. SECTION 8. VICE PRESIDENTS. If chosen, the Vice Presidents, in the order of their seniority, shall, in the absence or disability of the President, exercise all of the powers and duties of the President. Such Vice Presidents shall have the power to execute bonds, notes, mortgages and other contracts, agreements and instruments of the Corporation, and shall do and perform such other duties incident to the office of Vice President and as the Board of Directors, or the President shall direct. SECTION 9. SECRETARY. The Secretary shall attend all sessions of the Board and all meetings of the stockholders and record all votes and the minutes of proceedings in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors. The Secretary shall affix the corporate seal to any instrument requiring it, and when so affixed, it shall be attested by the signature of the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer who may affix the seal to any such instrument in the event of the absence or disability of the Secretary. The Secretary shall have and be the custodian of the stock records and all other books, records and papers of the Corporation (other than financial) and shall see that all books, reports, statements, certificates and other documents and records required by law are properly kept and filed. SECTION 10. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys, and other valuable effects in the name 5 and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the directors whenever they may require it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. SECTION 11. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the absence or disability of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director. ARTICLE IV INDEMNIFICATION SECTION 1. ACTIONS BY OTHERS. The Corporation (1) shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director or an officer of the Corporation and (2) except as otherwise required by Section 3 of this Article, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent of or participant in another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts actually and reasonably incurred by such person in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable .cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NO1O CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent of or participant in another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance 6 of his or her duty to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. SECTION 3. SUCCESSFUL DEFENSE. To the extent that a person who is or was a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 or Section 2 of this Article, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. SECTION 4. SPECIFIC AUTHORIZATION. Any indemnification under Section 1 or Section 2 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in said Sections 1 and 2. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. SECTION 5. ADVANCE OF EXPENSES. Expenses incurred by any person who may have a right of indemnification under this Article in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the. Corporation pursuant to this Article. SECTION 6. RIGHT OF INDEMNITY NOT EXCLUSIVE. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 7. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of or participant in another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article, Section 145 of the General Corporation Law of the State of Delaware or otherwise. 7 SECTION 8. INVALIDITY OF ANY PROVISIONS OF THIS ARTICLE. The invalidity or unenforceability of any provision of this Article shall not affect the validity or enforceability of the remaining provisions of this Article. ARTICLE V CAPITAL STOCK SECTION 1. CERTIFICATES. The interest of each stockholder of the Corporation shall be evidenced by certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The certificates of stock shall be signed by the President or a Vice President and by the Secretary, or the Treasurer, or an Assistant Secretary, or an Assistant Treasurer, sealed with the seal of the Corporation or a facsimile thereof, and countersigned and registered in such manner, if any, as the Board of Directors may by resolution prescribe. Where any such certificate is countersigned by a transfer agent other than the Corporation or its employee, or registered by a registrar other than the Corporation or its employee, the signature of any such officer may be a facsimile signature. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation. SECTION 2. TRANSFER. The shares of stock of the Corporation shall be transferred only upon the books of the Corporation by the holder thereof in person or by his or her attorney, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. SECTION 3. RECORD DATES. The Board of Directors may fix in advance a date, not less than ten nor more than sixty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the distribution or allotment of any fights, or the date when any change, conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend, or to receive any distribution or allotment of such fights, or to exercise the fights in respect of any such change, conversion or exchange of capital stock, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such dividend, or to receive such distribution or allotment or fights or to exercise such fights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. SECTION 4. LOST CERTIFICATES. In the event that any certificate of stock is lost, stolen, destroyed or mutilated, the Board of Directors may authorize the issuance of a new certificate of the same tenor and for the same number of shares in lieu thereof. The Board may in its discretion, 8 before the issuance of such new certificate, require the owner of the lost, stolen, destroyed or mutilated certificate, or the legal representative of the owner to make an affidavit or affirmation setting forth such facts as to the loss, destruction or mutilation as it deems necessary, and to give the Corporation a bond in such reasonable sum as it directs to indemnify the Corporation. ARTICLE VI CHECKS, NOTES, ETC. SECTION 1. CHECKS, NOTES, ETC. All checks and drafts on the Corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, may be signed by the President, any Vice President or the Treasurer and may also be signed by such other officer or officers, agent or agents, as shall be thereunto authorized from time to time by the Board of Directors. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 1. OFFICES. The registered office of the Corporation shall be located at The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, in the State of Delaware and said corporation shall be the registered agent of this Corporation in charge thereof. The Corporation may have other offices either within or without the State of Delaware at such places as shall be determined from time to time by the Board of Directors or the business of the Corporation may require. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be determined by the Board of Directors. SECTION 3. CORPORATE SEAL. The seal of the Corporation shall be circular in form and contain the name of the Corporation, and the year and state of its incorporation. Such seal may be altered from time to time at the discretion of the Board of Directors. SECTION 4. BOOKS. There shall be kept at such office of the Corporation as the Board of Directors shall determine, within or without the State of Delaware, correct books and records of account of all its business and transactions, minutes of the proceedings of its stockholders, Board of Directors and committees, and the stock book, containing the names and addresses of the stockholders, the number of shares held by them, respectively, and the dates when they respectively became the owners of record thereof, and in which the transfer of stock shall be registered, and such other books and records as the Board of Directors may from time to time determine. SECTION 5. VOTING OF STOCK. Unless otherwise specifically authorized by the Board of Directors, all stock owned by the Corporation, other than stock of the Corporation, shall be voted, in person or by proxy, by the President or any Vice President of the Corporation on behalf of the Corporation. 9 ARTICLE VIII AMENDMENTS SECTION 1. AMENDMENTS. The vote of the holders of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote, shall be necessary at any meeting of stockholders to amend or repeal these Bylaws or to adopt new Bylaws. These Bylaws may also be amended or repealed, or new By- Laws adopted, at any meeting of the Board of Directors by the vote of at least a majority of the entire Board; provided that any Bylaws adopted by the Board may be amended or repealed by the stockholders in the manner set forth above. Any proposal to amend or repeal these Bylaws or to adopt new Bylaws shall be stated in the notice of the meeting of the Board of Directors or the stockholders, or in the waiver of notice thereof, as the case may be, unless all of the directors or the holders of record of all of the shares of stock of the Corporation, issued and outstanding and entitled to vote, are present at such meeting. 10 EX-3.3 11 CERT. OF INC. OF NATIONWIDE Exhibit 3.3 CERTIFICATE OF INCORPORATION OF NATIONWIDE ACQUISITION NEW YORK, INC. UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW I, THE UNDERSIGNED, in order to form a corporation for the purposes hereinafter stated, under and pursuant to the provisions of the Business Corporation Law of the State of New York, as from time to time amended, do hereby certify as follows: FIRST: The name of the Corporation is NATIONWIDE ACQUISITION NEW YORK, INC. SECOND: The name and address of the registered agent which is to be the agent of the corporation upon whom process against it may be served is CT Corporation System, 1633 Broadway, New York, NY 10019. THIRD: The purpose of the Corporation is to engage in any lawful activity for which corporations may be organized under the Business Corporation Law of the State of New York as from time to time amended. The Corporation is not formed to engage in any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained. FOURTH: The office of the Corporation will be located in Monroe County. FIFTH: The total authorized capital stock of the Corporation will be 100 shares of Common Stock, par value $.01 per share. SIXTH: The secretary of state of the State of New York is designated as an agent of the Corporation upon whom process against it may be served. The secretary of state will mail notice of such process against the Corporation to CT Corporation System, 1633 Broadway, New York, New York 10019. SEVENTH: The name and mailing address of the incorporator is as follows: NAME MAILING ADDRESS Sanford B. Kaynor, Jr. 599 Lexington Avenue New York, New York 10022 1 EIGHTH: The Corporation shall, to the fullest extent permitted by Article 7 of the Business Corporation Law of the State of New York, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said Article from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said Article, and, pursuant to Section 726 of such Article 7, the Corporation shall be authorized to purchase and maintain insurance to so indemnify such persons. The indemnification provided for herein shall not be deemed exclusive of any other rights to which any officer or director may be entitled under any By-Law, resolution of shareholders, a resolution of directors, agreement, or otherwise, as permitted by said Article, as to action in any capacity in which he served at the request of the Corporation. 2 IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of March, 1999. /s/ Sanford B. Kaynor, Jr. -------------------------- Sanford B. Kaynor, Jr. Sole Incorporator 3 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF NATIONWIDE ACQUISITION NEW YORK, INC. UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW The undersigned, being the Vice President, Treasurer and Secretary of NATIONWIDE ACQUISITION NEW YORK, INC. (the "Corporation"), hereby certifies: 1. The name of the Corporation is NATIONWIDE ACQUISITION NEW YORK, INC. 2. The Certificate of Incorporation was filed by the Department of State on March 5, 1999. 3. The Certificate of Incorporation, as now in full force and effect, is hereby amended to effect the following changes as authorized by Section 801 of the Business Corporation Law: (a) To change the name of the Corporation to NATIONWIDE PRECISION PRODUCTS CORP. The Paragraph designated "FIRST" in the Certificate of Incorporation is hereby amended to read in its entirety as follows: FIRST: The name of the Corporation is NATIONWIDE PRECISION PRODUCTS CORP. 4. This Amendment to the Certificate of Incorporation was authorized by the unanimous written consent of the Board of Directors followed by the unanimous written consent of the Shareholders. IN WITNESS WHEREOF, we have signed this Certificate of Amendment this 19th day of March, 1999 and we affirm the statements contained therein as true under penalties of perjury. By: /s/ Ronald M. Miller ----------------------------------- Name: Ronald M. Miller Title: Vice President, Treasurer, and Secretary EX-3.4 12 BYLAWS OF NATIONWIDE Exhibit 3.4 BYLAWS OF NATIONWIDE ACQUISITION NEW YORK, INC. ARTICLE I STOCKHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of Nationwide Acquisition New York, Inc. (the "Corporation") will be held either within or without the State of New York, at such place and on such date and time as the Board of Directors may designate from time to time in the call of the meeting or in a waiver of notice thereof, on such date as the Board of Directors will fix by resolution in each year beginning with the year 1999 and at which meeting the stockholder shall elect by a plurality vote, a Board of Directors, and transact such other business as may properly be brought before the meeting. SECTION 2. SPECIAL MEETINGS. Special Meetings of the stockholders may held at such time and place within or without the State of New York as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by law or by the certificate of incorporation, may be called by the president, the Board of Directors, and shall be called by the President or by the Secretary upon the written request of the holders of record of not less than 35% percent of the stock issued and outstanding and entitled to vote at the meeting. SECTION 3. NOTICE. Written or electronic notice of the annual meeting stating the place, date and hour of the meeting shall be delivered not less than ten nor more than sixty days before the date of the meeting, by or at the direction of the president, the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. Written or electronic notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, by or at the direction of the president, the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. The special meeting notice should also indicate that it is being issued by, or at the direction of, the person calling the meeting. The business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice. SECTION 4. QUORUM. The holders of a majority of the shares of stock issued and outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. 1 SECTION 5. ORGANIZATION OF MEETINGS. Meetings of the stockholders will be presided over by the Chairman of the Board, if there be one, or if the Chairman of the Board is not present, by the President, or if the President is not present, by a chairman to be chosen at the meeting. The Secretary of the Corporation, or in the Secretary of the Corporation's absence, an Assistant Secretary, will act as Secretary of the meeting, if present. SECTION 6. VOTING. At each meeting of stockholders, except as otherwise provided by statute or the Certificate of Incorporation, every holder of record of stock entitled to vote shall be entitled to one vote in person or by proxy for each share of such stock standing in his or her name on the records of the Corporation. Elections of directors shall be determined by a plurality of the votes cast and, except as otherwise provided by statute, the Certificate of Incorporation, or these Bylaws, all other action shall be determined by a majority of the votes cast at such meeting. Each proxy to vote shall be in writing and signed by the stockholder or by such stockholder's duly authorized attorney. At all elections of directors, the voting shall be by ballot or in such other manner as may be determined by the stockholders present in person or by proxy entitled to vote at such election. With respect to any other matter presented to the stockholders for their consideration at a meeting, any stockholder entitled to vote may, on any question, demand a vote by ballot. A complete list of the stockholders entitled to vote at each such meeting, arranged in alphabetical order, with the address of each, and the number of shares registered in the name of each stockholder, shall be prepared by the Secretary and shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 7. INSPECTORS OF ELECTION. The Board of Directors in advance of any shareholders' meeting may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at a shareholders' meeting may, and, on the request of any shareholder entitled to vote thereat, shall appoint one or more inspectors. If the corporation has a class of voting stock that is listed on a national securities exchange or authorized for quotation on an inter-dealer quotation system of a registered national securities association, one or more inspectors shall be appointed as provided herein. In case any person appointed as inspector fails to appear or act, the vacancy may be filled by the Board in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. SECTION 8. ACTION BY CONSENT. Whenever shareholders are required or permitted to take any action by vote, such action may be taken without a meeting on written consent, setting forth the action so taken, signed by the holders of all outstanding shares entitled to vote thereon or, if the certificate of incorporation so permits, signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a 2 meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those shareholders who have not consented in writing. ARTICLE II DIRECTORS SECTION 1. NUMBER, QUORUM, TERM, VACANCIES, REMOVAL. Directors shall be at least eighteen years of age and need not be residents of the State of New York nor shareholders of the corporation. The Directors, other than the first Board of Directors, shall be elected at the annual meeting of the shareholders, except as hereinafter provided, and each Director elected shall serve until the next succeeding annual meeting and until his successor shall have been elected and qualified. The first Board of Directors shall hold office until the first annual meeting of shareholders. A majority of the members of the Board of Directors then holding office (but not less than one-third of the total number of Directors ) shall constitute a quorum for the transaction of business unless a greater or lesser number is required by law or by the certificate of incorporation. The vote of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, unless the vote of a greater number is required by law or by the certificate of incorporation. If a quorum shall not be present at any meeting of Directors, the Directors present may adjourn the meeting from time to time, without notice other than an nouncement at the meeting, until a quorum shall be present. Directors will hold office until the next annual election and until their successors will have been elected and will have qualified, unless sooner displaced. Unless otherwise provided in the certificate of incorporation, newly created Directorships resulting from an increase in the Board of Directors and all vacancies occurring in the Board of Directors, including vacancies caused by removal without cause, may be filled by the affirmative vote of a majority of the Board of Directors. However, if the number of Directors then in office is less than a quorum, then such newly created Directorships and vacancies may be filled by a vote of a majority of the Directors then in office. A Director elected to fill a vacancy shall hold office until the next meeting of shareholders at which election of Directors is the regular order of business, and until his successor shall have been elected and qualified. A Director elected to fill a newly created Directorship shall serve until the next succeeding annual meeting of shareholders and until his successor shall have been elected and qualified. Any or all of the Directors may be removed, with or without cause, at any time by the vote of the shareholders at a special meeting called for that purpose. Any Director may be removed for cause by the action of the Directors at a special meeting called for that purpose. If elected by cumulative voting, a Director may be removed only by the shareholders and then only when the votes cast against his removal would not be sufficient to elect him if voted cumulatively at an election at which the same total number of votes were cast and the entire Board or the entire class of Directors of which he is a member were then being elected. If the Director 3 being removed was elected by the holders of the shares of any class or series, he cannot be removed by the Directors and may be removed only by the applicable vote of the holders of shares of that class or series, voting as a class. SECTION 2. MEETINGS, NOTICE. Meetings of the Board of Directors shall be held at such place either within or without the State of New York, as may from time to time be fixed by resolution of the Board, or as may be specified in the call or in a waiver of notice thereof. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board, and special meetings may be held at any time upon the call of two directors, the Chairman of the Board, if one be elected, or the President, by oral, telegraphic, facsimile telecommunication or written notice, duly served on or sent or mailed to each director not less than two days before such meeting. A meeting of the Board may be held without notice immediately after the annual meeting of stockholders at the same place at which such meeting was held. Notice need not be given of regular meetings of the Board. Any meeting may be held without notice, if all directors are present, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 3. COMMITTEES. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate, from among its members, an executive committee and other committees, each consisting of one or more Directors, and each of which, to the extent provided in the resolution, or in the certificate of incorporation or these Bylaws, shall have all the authority of the Board, except as otherwise required by law. Vacancies in the membership of the committee shall be filled by the Board of Directors at a regular or special meeting of the Board of Directors. The executive committee shall keep regular minutes of its proceedings and report the same to the Board when required. SECTION 4. ACTION BY CONSENT. Unless the certificate of incorporation provides otherwise, any action required or permitted to be taken at a meeting of the Directors or a committee thereof may be taken without a meeting if a consent in writing to the adoption of a resolution authorizing the action so taken, shall be signed by all of the Directors entitled to vote with respect to the subject matter thereof. SECTION 5. COMPENSATION. The Board of Directors, by the affirmative vote of a majority of the Directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all Directors for services to the corporation as Directors, officers or otherwise. SECTION 6. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted by the certificate of incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. SECTION 7. BUSINESS AFFAIRS. The business affairs of the corporation shall be managed by its Board of Directors which may exercise all such powers of the corporation and do all such lawful 4 acts and things as are not by law or by the certificate of incorporation or by these Bylaws directed or required to be exercised or done by the shareholders. ARTICLE III OFFICERS SECTION 1. TITLES AND ELECTION. The officers of the corporation shall be chosen by the Board of Directors and shall be a president, a vice-president, a secretary and a treasurer. The Board of Directors may also choose additional vice-presidents, and one or more assistant secretaries and assistant treasurers. The Board of Directors at its first meeting after each annual meeting of shareholders shall choose a president, one or more vice-presidents, a secretary and a treasurer, none of whom need be a member of the Board. Any two or more offices may be held by the same person. When all the issued and outstanding stock of the corporation is owned by one person, such person may hold all or any combination of offices. SECTION 2. TERMS OF OFFICE. Officers will hold office until their successors are chosen and qualify. SECTION 3. REMOVAL. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. SECTION 4. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the Secretary. Such resignation will take effect at the time specified therein, and, unless otherwise specified therein, the acceptance of such resignation will not be necessary to make it effective. SECTION 5. VACANCIES. Any vacancy occurring in any office of the corporation shall be filled by a majority vote of the Board of Directors. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors will preside at all meetings of the Board of Directors and of the stockholders, and the Chairman will have and perform such other duties as from time to time may be assigned to the Chairman by the Board of Directors. SECTION 7. PRESIDENT. The president shall be the chief executive officer of the corporation, shall preside at all meetings of the shareholders and the Board of Directors, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall execute bonds, mortgages and other contracts requiring a seal under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation. SECTION 8. VICE PRESIDENTS. The vice-president or, if there shall be more than one, the vice-presidents in the order determined by the Board of Directors, shall, in the absence or disability of 5 the president, perform the duties and exercise the powers of the president and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECTION 9. SECRETARY. The secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. The assistant secretary or, if there be more than one, the assistant secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECTION 10. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. If required by the Board of Directors, the Treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. The assistant treasurer, or, if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECTION 11. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the absence or disability of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any Director. 6 SECTION 12. SALARIES. The salaries of all officers shall be fixed by the Board of Directors, and the fact that any officer is a Director shall not preclude him from receiving a salary as an officer, or from voting upon the resolution providing the same. ARTICLE IV INDEMNIFICATION SECTION 1. ACTIONS BY OTHERS. The Corporation (1) shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director or an officer of the Corporation and (2) except as otherwise required by Section 3 of this Article, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent of or participant in another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts actually and reasonably incurred by such person in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable .cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NO1O CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent of or participant in another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. SECTION 3. SUCCESSFUL DEFENSE. To the extent that a person who is or was a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 or Section 2 of this Article, or in defense of 7 any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. SECTION 4. SPECIFIC AUTHORIZATION. Any indemnification under Section 1 or Section 2 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in said Sections 1 and 2. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. SECTION 5. ADVANCE OF EXPENSES. Expenses incurred by any person who may have a right of indemnification under this Article in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the. Corporation pursuant to this Article. SECTION 6. RIGHT OF INDEMNITY NOT EXCLUSIVE. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 7. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of or participant in another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article, the laws of the State of New York or otherwise. SECTION 8. INVALIDITY OF ANY PROVISIONS OF THIS ARTICLE. The invalidity or unenforceability of any provision of this Article shall not affect the validity or enforceability of the remaining provisions of this Article. ARTICLE V CAPITAL STOCK SECTION 1. CERTIFICATES. Certificates of stock shall be in such form as required by the Business Corporation Law of New York and as shall be adopted by the Board of Directors. They shall be numbered and registered in the order issued; shall be signed by the Chairman or a 8 Vice-Chairman of the Board (if any) or by the President or a Vice-President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and may be sealed with the corporate seal or a facsimile thereof. When such a certificate is countersigned by a transfer agent or registered by a registrar, the signatures of any such officers may be facsimile. SECTION 2. TRANSFER. Transfer of shares shall be made only upon the books of the Corporation by the registered holder in person or by attorney, duly authorized, and upon surrender of the certificate or certificates for such shares properly assigned for transfer. SECTION 3. RECORD DATES. The holder of any certificate representing shares of stock of the Corporation may notify the Corporation of any loss, theft or destruction thereof, and the Board of Directors may, thereupon, in its discretion, cause a new certificate for the same number of shares, to be issued to such holder upon satisfactory proof of such loss, theft or destruction, and the deposit of indemnity by way of bond or otherwise, in such form and amount and with such surety or sureties as the Board of Directors may require, to indemnify the Corporation against loss or liability by reason of the issuance of such new certificates. SECTION 4. LOST CERTIFICATES. In the event that any certificate of stock is lost, stolen, destroyed or mutilated, the Board of Directors may authorize the issuance of a new certificate of the same tenor and for the same number of shares in lieu thereof. The Board may in its discretion, before the issuance of such new certificate, require the owner of the lost, stolen, destroyed or mutilated certificate, or the legal representative of the owner to make an affidavit or affirmation setting forth such facts as to the loss, destruction or mutilation as it deems necessary, and to give the Corporation a bond in such reasonable sum as it directs to indemnify the Corporation. 9 ARTICLE VI CHECKS, NOTES, ETC. SECTION 1. CHECKS, NOTES, ETC. Checks, notes, drafts, bills of exchange and orders for the payment of money shall be signed or endorsed by such officer of officers or such other person or persons and in such manner as the Board of Directors may, from time to time, designate. The funds of the Corporation shall be deposited in such bank or trust company, and checks drawn against such funds shall be signed by such officer or officers or such other person or persons and in such manner as the Board of Directors may, from time to time, designate. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 1. OFFICES. The office of the corporation shall be located in the County of Monroe, State of New York. The corporation may also have offices at such other places both within and without the State of New York as the Board of Directors may from time to time determine or the business of the corporation may require. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by the Board of Directors. SECTION 3. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, New York". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. SECTION 4. BOOKS. The Directors may keep the books of the corporation, except such as are required by law to be kept within the state, outside the State of New York, at such place or places as they may from time to time determine. SECTION 5. VOTING OF STOCK. Unless otherwise specifically authorized by the Board of Directors, all stock owned by the Corporation, other than stock of the Corporation, will be voted, in person or by proxy, by the President or any Vice President of the Corporation on behalf of the Corporation. SECTION 6. NOTICE AND WAIVER OF NOTICE. Any notice required to be given under these Bylaws may be waived by the person entitled thereto, in writing, by telegram, cable or radiogram, and the presence of any person at a meeting shall constitute waiver of notice thereof as to such person. Whenever any notice is required by these Bylaws to be given, personal notice is not meant unless expressly so stated; and any notice so required shall be deemed to be sufficient if given by depositing it in a post office or post office box in a sealed postpaid wrapper, addressed to such stockholder, officer or Director, at such address as appears on the books of the Corporation and such notice shall be deemed to have been given on the day of such deposit. ARTICLE VIII 10 AMENDMENTS SECTION 1. AMENDMENTS. These Bylaws may be amended at any stockholders' meeting by vote of the stockholders holding a majority (unless the Certificate of Incorporation requires a larger vote) of the outstanding stock having voting power, present either in person or by proxy, provided notice of the amendment is included in the notice or waiver of notice of such meeting. The Board of Directors may also amend these Bylaws at any annual or special meeting of the Board by a majority (unless the Certificate of Incorporation requires a larger vote) vote of the entire Board, but any Bylaws so made by the Board of Directors may be altered or repealed by the stockholders. Any proposal to amend or repeal these Bylaws or to adopt new Bylaws shall be stated in the notice of the meeting of the Board of Directors or the stockholders, or in the waiver of notice thereof, as the case may be, unless all of the Directors or the holders of record of all of the shares of stock of the Corporation, issued and outstanding and entitled to vote, are present for such meeting. 11 EX-3.5 13 CERT. OF INC. MID STATE Exhibit 3.5 State of Maine ---------- Certificate of Organization of a Corporation under the General Law ---------- The undersigned, officers of a corporation organized at Waterville, Maine at a meeting of the signers of the articles of agreement therefor, duly called and held at Waterville in the County of Kennebec on Monday the 24th day of July A.D. 1967 hereby certify as follows: The name of said corporation is MID STATE MACHINE PRODUCTS The purposes of said corporation are to engage in the manufacture of every kind and type and design of personal property, whatsoever, by any and every method and means now in use or to be developed and used in the future and in relation thereto, without limiting or qualifying the same and in general, to engage in the business of transportation of raw materials, finished products, freight of every description whatsoever by means of automobiles, motor busses, motor trucks, airplanes, vehicles of every kind however propelled; to do generally in all and every other thing necessary and incident to the enjoyment of the powers and privileges hereingranted, to operate and maintain establishments for the servicing of said manufactured goods, whether manufactured by this corporation under this charter or any other person or corporation or other charter, or partnership or other legal entity, and to store, repair, rent or lease all such personal property and to purchase and sell and to transport all fuels and accessories necessary for the carrying on of the business of said manufactured, and to do all and everything necessary, suitable and proper for the accomplishment of the above purposes or attainment of any of the above objects, or the furtherance of any of the powers herein before set forth, either alone or in association with any other corporations, firms, or individuals, and to do every other act or acts, thing, or things incidental or pertinent to, or going out of, or connected with the aforesaid business or powers for any part or parts thereof, to borrow money or to make and issue notes, bonds, or indentures, obligations and evidences of indebtedness of all kinds whether secured by mortgage, pledged or otherwise, without limit as to amount and to secure the same as by the mortgage, pledge, or otherwise, and generally to make and form agreements and contracts of every kind and description, on and to the same extent as a natural person might or could do, to purchase or otherwise acquire or to hold or maintain, work, develop, sell, lease, exchange, hire, convey mortgage or otherwise dispose of and deal in lands and lease holds in any interest and real property or personal property or mixed property, or franchises, or rights or licenses and privileges necessary, convenient or appropriate to any or all of the purposes herein before expressed. The business or purpose of the company is from time to time to do any one or more of the acts and things hereinabove set forth, and it shall have power to conduct and carry on its business, or any part thereof and to have one or more offices and manufacturing establishments, or warehouses, or any other structure to house any of its legitimate and lawful functions above described, and to exercise all or any of its corporate powers and rights in any state in the United States and the District of Columbia; all of the foregoing, provided that the same be not inconsistent with the laws under which this corporation is organized. The amount of capital stock is 100 Shares The amount of common stock is 100 Shares The amount of preferred stock is 0 The amount of capital stock already paid in is 0 The par value of the shares is 0 The names and addresses of the owners of said shares are as follows: ================================================================================ NO. OF SHARES NAMES ADDRESSES COMMON PREFERRED ================================================================================ S. Douglas Sukeforth R#3 Waterville, Maine 20 Rita Sukeforth R#3 Waterville, Maine 10 Curtis L. Young R#3 Waterville, Maine 20 Patricia E. Young R#3 Waterville, Maine 10 Jerome G. Daviau 50 Main St., Waterville 1 Said corporation is located at North Vassalboro in the County of Kennebec The number of directors is four and their names are S. Douglas Sukeforth Rita C. Sukeforth Curtis L. Young Patricia E. Young The name of the clerk is Jerome G. Daviau and his residence is 50 Main St., Waterville, Me. The undersigned, S. Douglas Sukeforth is president; the undersigned, Curtis L. Young of R#3 Waterville, Maine is Secretary/treasurer; and the undersigned (Street) (City or Town) /s/ S. Douglas Sukeforth /s/ Rita C. Sukeforth /s/ Curtis L. Young /s/ Patricia E. Young are a majority of the directors of said corporation. Witness our hands this 24th day of July A.D. 1967 /s/ S. Douglas Sukeforth President. /s/ Curtis L. Young Treasurer. /s/ S. Douglas Sukeforth /s/ Curtis L. Young Directors. /s/ Patricia E. Young /s/ Rita C. Sukeforth Kennebec SS. July 24th, A.D. 1967 Then personally appeared S. Douglas Sukeforth, Rita C. Sukeforth, Curtis L. Young and Patricia Young and severally made oath to the foregoing certificate, that the same is true. Before me, /s/ [Illegible] Justice of the Peace. ---------- State of Maine ---------- Attorney General's Office, August 8 A.D. 1967 I hereby certify that I have examined the foregoing certificate, and the same is properly drawn and signed, and is conformable to the constitution and laws of the State. /s/ [Illegible] Assistant Attorney General. STATE OF MAINE Office of Secretary of State Augusta, Sept. 7, 1967 A copy of the Record of the within certificate of organization, duly certified by the Register of Deeds of Kennebec County, has this day been received and filed in this office. Recorded in Vol. 208 Page 50 of Records of Corporations. ATTEST: /s/ Joseph V. Edgar ------------------- Secretary of State COPY [Name of Corporation] - -------------------------------------------------------------------------------- MID STATE MACHINE PRODUCTS - -------------------------------------------------------------------------------- ---------- Kennebec SS. - -------------------------------------------------------------------------------- Registry of Deeds. Received August 21 1967 at 11 h. m. A.M Recorded in Vol. 1298 Page 496 ATTEST: /s/ Miss W. Jackson - -------------------------------------------------------------------------------- Deputy Register ---------- STATE OF MAINE ---------- Office of Secretary of State Augusta, ________ 19 Received and filed this day. ATTEST: - -------------------------------------------------------------------------------- Secretary of State. Recorded in Vol. Page Filing Fee (See Sec.1401) This Space For Use By For Use By The Secretary of State Secretary of State STATE OF MAINE MAINE SECRETARY OF STATE File No. 208 - 50 ARTICLES OF AMENDMENT FILED --------- (Amendment by Shareholders Fee Paid $5.00 Voting as One Class) August 17, 1973 -------- ------------------------ C.B. 85 OF /s/ [Illegible] --------- ------------------------- Date 8-17-73 MID STATE MACHINE PRODUCTS [Illegible] --------- -------------------------- AGENT A true copy attest: /s/ [Illegible] ------------------------- Agent Pursuant to 13-A MRSA ss.ss.805 and 807, the undersigned corporation adopts these Articles of Amendment. FIRST: All outstanding shares of the corporation were entitled to vote on the following amendment as one class. SECOND: The amendment to the Articles of Incorporation of the corporation set out in Exhibit A attached hereto was adopted by the shareholders thereof at a meeting legally called and held on January 2, 1973. THIRD: On said date, the number of shares outstanding and entitled to vote on such amendment, and the number of shares voted for and against said amendment, respectively, were as follows: Number of Shares Outstanding and Entitled to Vote Voted For Voted Against - ---------------------------- --------- ------------- 100 100 none -------------------- --------- ------------- Totals 100 100 none FOURTH: If such amendment provides for exchange, reclassification or cancellation of issued shares, the manner in which the same shall be effected is contained in Exhibit B attached hereto, if it is not set forth in the amendment itself. *FIFTH: If such amendment effects a change in the number or par values of authorized shares the number of shares which the corporation has authority to issue after giving effect to such amendment is as follows: Series Number Par Value Class (If Any) of Shares (If Any) - ----- -------- --------- -------- The aggregate par value of all such shares (of all classes and series) having par value is $____________. The total number of all such shares (of all classes and series) without par value is ____________ shares. SIXTH: The address of the registered office of the corporation in the State of Maine is 18 Silver Street, Waterville, Maine ----------------------------------- (street, city and zip code) Dated: August 15, 1973 ---------------------------------------- MID STATE MACHINE PRODUCTS ** --------------------------------- (name of corporation) Legibly print or type name and capacity of all signers By /s/ Jerome G. Daviau 13-A MRSA ss.104. ------------------------------ Jerome G. Daviau, Clerk --------------------------------- (type or print name and capacity) I certify that I have custody of the minutes showing the above action by the shareholders. By ------------------------------- --------------------------------- (type or print name and capacity) /s/ [Illegible] - ------------------------------------- (clerk, secretary or asst. secretary) NOTE: This form should not be used if any class of shares entitled to vote as a separate class for any of the reasons set out in ss.806, or because the articles so provide. For vote necessary for adoption see ss.805. - ------------------------------ * To be completed only if Exhibit A or B do not give this required information. ** The name of the corporation should be typed, and the document must be signed by (1) the Clerk or (2) by the President or a vice-president and by the Secretary or an assistant secretary or such other officer as the bylaws may designate as a second certifying officer or (3) if there are no such officers, then by a majority of the directors or by such directors as may be designated by a majority of directors then in office or (4) if there are no such directors, then by the holders, or such of them as may be designated by the holders, of record of a majority of all outstanding shares entitled to vote thereon or (5) by the holders of all of the outstanding shares of the corporation. EXHIBIT A At a special meeting of the stockholders of Mid State Machine Products, a corporation existing under the laws of the State of Maine and having a principal place of business in Waterville, Maine, the following amendment to the Articles of Incorporation was unanimously approved: It is hereby voted to amend the Articles and the By-Laws of Mid State Machine Products so as to reduce the number of directors from three to two in accordance with the new Maine Corporate Laws. - -------------------------------- FOR USE BY THE MAINE SECRETARY OF STATE STATE OF MAINE SECRETARY OF STATE CHANGE OF CLERK OR FILED File No. 208-50 REGISTERED OFFICE OR BOTH ------ OF April 22, 1975 Fee Paid $5.00 ------------------- ------ MID STATE MACHINE PRODUCTS C.B. 75C1601 -------------------------- ------- /s/ Linwood F. Ress Date 4-25-75 ------------------- ------- AGENT - -------------------------------
Pursuant to 13-A MRSA Section 304 the undersigned corporation advises you of the following change(s): FIRST: The name and business address of its present clerk are Jerome G. Daviau, 50 Main Street, Waterville, Maine. - ---------------------------------------------------- (street, city, state and zip code) SECOND: The name and business address of its successor clerk* are Robert J. Daviau, 18 Silver Street, Waterville, Maine. - ------------------------------------------------------ (street, city, state and zip code) THIRD: Upon a change in clerk this must be completed: (x) Such change was authorized by the board of directors and the power to make such change is not reserved to the shareholders by the articles or the bylaws. ( ) Such change was authorized by the shareholders. (Complete the following) I certify that I have custody of the minutes showing the above action by the shareholders. /s/ Robert J. Daviau ----------------------------------------- (clerk, secretary or assistant secretary) MID STATE MACHINE PRODUCTS** ---------------------------------------- (name of corporation) Dated: February 26, 1975 By /s/ Robert J. Daviau ----------------- ---------------------------------------- Robert J. Daviau, Clerk Legibly print or type ---------------------------------------- name and capacity of (type or print name and capacity) all signers 13-A MRSA Section 104. By ---------------------------------------- ---------------------------------------- (type or print name and capacity) - ---------------------------- *The clerk of a domestic corporation must be a person resident in Maine. The business address of the clerk and the registered office must be identical. **The name of the corporation should be typed, and the document must be signed by (1) the Clerk OR (2) by the President or a vice-president and by the Secretary or an assistant secretary or such other officer as the bylaws may designate as a second certifying officer or (3) if there are no such officers, then by a majority of the directors or by such directors as may be designated by a majority of directors then in office or (4) if there are no such directors, then by the holders, or such of them as may be designated by the holders, of record of a majority of all outstanding shares entitled to vote thereon or (5) by the holders of all of the outstanding shares of the corporation. - -------------------------------- FOR USE BY THE MAINE SECRETARY OF STATE STATE OF MAINE SECRETARY OF STATE NOTIFICATION BY CLERK OF FILED File No. 208-50 CHANGE IN NAME OR ------ REGISTERED OFFICE April 23, 1979 Fee Paid $5.00 ---------------------- ------ C.B. 79C1291 ------- /s/ James S. Henderson Date 5-8-79 ---------------------- ------- AGENT
Pursuant to 13-A MRSA Section 304(6), the undersigned clerk for one or more domestic corporations gives notice of the following change of name or registered office of each corporation listed in item FIFTH: --------------------- FIRST: Name of clerk* appearing on the record in Secretary of State's office ROBERT J. DAVIAU ---------------- SECOND: New name of clerk, if name has changed ------------------------- THIRD: Address of former registered office 18 Silver Street ----------------------------- Waterville, ME 04901 ---------------------------------- (street, city, state and zip code) FOURTH: Address of new registered office One Center Street ------------------------------- Waterville, ME 04901 ---------------------------------- (street, city, state and zip code) FIFTH: Notice of the above change in name and/or change in registered office has been sent to each of the following corporations by the undersigned as clerk of each: ALLEN LOGGING INC. ------------------------------------------ DUMAS, INC. ------------------------------------------ JOHN'S LUMBER COMPANY ------------------------------------------ JOHN W. JOHNSON, INC. ------------------------------------------ L.J.L. PIZZA SUPPLY COMPANY, INC. ------------------------------------------ LARSEN'S WRECKER SERVICE, INC. ------------------------------------------ MID STATE MACHINE PRODUCTS ------------------------------------------ PENOBSCOT NURSING HOME ------------------------------------------ RANCOURT'S BUILDING MAINTAINANCE CO., INC. ------------------------------------------ Dated: April 20, 1979 -------------- /s/ Robert J. Daviau -------------------- (clerk's signature) Robert J. Daviau -------------------- (type or print name) - -------------------------- * The clerk of a domestic corporation must be a natural person resident in Maine. Filing Fee (See Sec.1401) This Space For Use By For Use By The Secretary of State Secretary of State STATE OF MAINE MAINE SECRETARY OF STATE File No. 208 - 50 ARTICLES OF AMENDMENT FILED ------------- (Amendment by Shareholders Fee Paid $10 + $10 Voting as One Class) January 10, 1978 ------------ ------------------------- C.B. 355 OF /s/ Doris Hayes ------------- ------------------------- Date 1-12-80 MID STATE MACHINE PRODUCTS AGENT ---------------- A true copy attest: /s/ Doris Hayes ------------------------- Agent Pursuant to 13-A MRSA ss.ss.805 and 807, the undersigned corporation adopts these Articles of Amendment. FIRST: All outstanding shares of the corporation were entitled to vote on the following amendment as one class. SECOND: The amendment to the Articles of Incorporation of the corporation set out in Exhibit A attached hereto was adopted by the shareholders thereof at a meeting legally called and held on December 30, 1977. THIRD: On said date, the number of shares outstanding and entitled to vote on such amendment, and the number of shares voted for and against said amendment, respectively, were as follows: Number of Shares Outstanding and Entitled to Vote Voted For Voted Against - ---------------------------- --------- ------------- 100 100 none -------------------- --------- ------------- Totals 100 100 none FOURTH: If such amendment provides for exchange, reclassification or cancellation of issued shares, the manner in which the same shall be effected is contained in Exhibit B attached hereto, if it is not set forth in the amendment itself. *FIFTH: If such amendment effects a change in the number or par values of authorized shares the number of shares which the corporation has authority to issue after giving effect to such amendment is as follows: Series Number Par Value Class (If Any) of Shares (If Any) - ----- -------- --------- -------- Common 100 no par Preferred 900 no par The aggregate par value of all such shares (of all classes and series) having par value is $ none. The total number of all such shares (of all classes and series) without par value is 1000 shares. SIXTH: The address of the registered office of the corporation in the State of Maine is 18 Silver Street, Waterville, Maine 04901 ----------------------------------------- (street, city and zip code) Dated: December 30, 1977 -------------------------- MID STATE MACHINE PRODUCTS ** ----------------------------- (name of corporation) Legibly print or type name By /s/ Robert J. Daviau and capacity of all signers ---------------------------- 13-A MRSA ss.104. (signature) Robert J. Daviau, Clerk ------------------------------ (type or print name and capacity) I certify that I have custody of the minutes showing the above action by the shareholders. By ---------------------------- (signature) /s/ Robert J. Daviau - ------------------------------ ------------------------------ (signature of clerk, secretary (type or print name and or asst. secretary) capacity) NOTE: This form should not be used if any class of shares entitled to vote as a separate class for any of the reasons set out in ss.806, or because the articles so provide. For vote necessary for adoption see ss.805. - ------------------------------ * To be completed only if Exhibit A or B do not give this required information. ** The name of the corporation should be typed, and the document must be signed by (1) the Clerk or (2) by the President or a vice-president and by the Secretary or an assistant secretary or such other officer as the bylaws may designate as a second certifying officer or (3) if there are no such officers, then by a majority of the directors or by such directors as may be designated by a majority of directors then in office or (4) if there are no such directors, then by the holders, or such of them as may be designated by the holders, of record of a majority of all outstanding shares entitled to vote thereon or (5) by the holders of all of the outstanding shares of the corporation. SPECIAL MEETING OF STOCKHOLDERS MID STATE MACHINE PRODUCTS A special meeting of the stockholders of the corporation was held on December 30, 1977, at 10:00 a.m. at the offices of Daviau, Jabar & Batten, 18 Silver Street, Waterville, Maine. Present were S. Douglas Sukeforth and Rita Sukeforth, being the owners of all of the stock of Mid State Machine Products. The purpose of the meeting was to amend the Articles of Incorporation as originally drawn and the following amendment was unanimously adopted: RESOLVED: That the Articles of Incorporation of Mid State Machine Products is amended to allow said corporation to issue 900 shares of preferred stock over and above the original 100 shares of common stock for a total of 1000 shares. As there was no further actions to discuss, the meeting was duly ADJOURNED. Dated: December 30 ,1977 /s/ Rita Sukeforth -------------------------- Rita Sukeforth - Secretary EXHIBIT A Filing Fee (See Sec. 1401) This Space For Use By Secretary of State For Use By The Secretary of State STATE OF MAINE MAINE SECRETARY OF STATE File No. 670164D ARTICLES OF AMENDMENT FILED ------------ (Amendment by Shareholders Fee Paid: $90 - $10 Voting as One Class) July 15, 1985 ------------ ---------------------- C.B. --- OF /s/ Carol E. Hanks ------------ ---------------------- Date: 8-9-85 MID STATE MACHINE PRODUCTS Secretary of State ------------ Pursuant to 13 A MRSA Sections 805 and 807, the undersigned corporation adopts these Articles of Amendment. FIRST: All outstanding shares of the corporation were entitled to vote on the following amendment as one class. SECOND: The amendment to the Articles of Incorporation of the corporation set out in Exhibit A attached hereto was adopted by the shareholders thereof at a meeting legally called and held on July 12, 1985. THIRD: On said date, the number of shares outstanding and entitled to vote on such amendment and the number of shares voted for and against said amendment, respectively, were as follows:
Number of Shares Outstanding and Entitled to Vote Voted For Voted Against ---------------------------- --------- ------------- 100 100 Totals ------------------------- --------- ------------- 100 100
FOURTH: If such amendment provides for exchange, reclassification or cancellation of issued shares, the manner in which the same shall be effected is contained in Exhibit B attached hereto, if it is not set forth in the amendment itself. FIFTH: If such amendment effects a change in the number or par values of authorized shares the number of shares which the corporation has authority to issue after giving effect to such amendment is as follows:
Series Number Par Value Class (If Any) of Shares (If Any) ----- -------- --------- ---------- Common 100,000 none
The aggregate par value of all such shares (of all classes and series) HAVING PAR VALUE IS $ None --------- The total number of all such shares (of all classes and series) WITHOUT PAR VALUE is 100,000 shares ---------- SIXTH: The address of the registered office of the corporation in the State of Maine is One Center St., Waterville, ME 04901 -------------------------------------- (Street, City and Zip Code) Dated July 12, 1985 ---------------------- MID STATE MACHINE PRODUCTS -------------------------------- Legibly print or type name (name of corporation) and capacity of all signers 13-A MRSA Section 104. By: /s/ Robert J. Daviau -------------------------------- (signature) Robert J. Daviau, Esq.--Clerk -------------------------------- (type or print name and capacity) I certify that I have custody of the minutes showing the above By:------------------------------ action by the shareholders. (signature) /s/ Robert J. Daviau --------------------------------- - --------------------------------- (type or print name and capacity) (signature of clerk, secretary or asst. secretary) NOTE: This form should not be used if any class of shares entitled to vote as a separate class for any of the reasons set out in Section 806, or because the articles so provide. For vote necessary for adoption see Section 805. - ----------------------------------------- *To be completed only if Exhibit A or B do not give this required information. **The name of the corporation should be typed, and the document must be signed by (1) the Clerk OR (2) by the President or a vice-president and by the Secretary or an assistant secretary or such other officer as the bylaws may designate as a second certifying officer or (3) if there are no such officers, then by a majority of the directors or by such directors as may be designated by a majority of directors then in office or (4) if there are no such directors, then by the holders, or such of them as may be designated by the holders, of record of a majority of all outstanding shares entitled to vote thereon or (5) by the holders of all of the outstanding shares of the corporation. EXHIBIT A SPECIAL MEETING OF STOCKHOLDERS MID STATE MACHINE PRODUCTS A special meeting of the stockholders of Mid State Machine Products was held at the offices of Daviau, Jabar & Batten, One Center Street, Waterville, Maine, on July 12, 1985, at 2:00 p.m. All stockholders were present. The purpose of the meeting was to amend the Articles of Incorporation as originally drawn and to increase the number of shares authorized from 100 shares of no par to 100,000 shares of no par stock. The following amendment was unanimously approved: RESOLVED: The authorized capital stock of Mid State Machine Products shall be increased from 100 shares of no par to 100,000 shares of no par stock. As there was no further business to discuss, the meeting was duly ADJOURNED. Dated: July 12, 1985 /s/ Robert J. Daviau ----------------------------- Robert J. Daviau, Clerk - -------------------------- --------------------------------- For Use By The For Use By The Secretary of State Secretary of State FILED July 24, 1986 File No. 670164D --------------------------- --------------- [illegible] Fee Paid $10.00 --------------------------- --------------- Deputy Secretary of State C.B. ------ --------------------------- -------------------- A True Copy When Attested Date JUL 31 1986 By Signature -------------------- -------------------------- - -------------------------- Deputy Secretary of State ---------------------------------- STATE OF MAINE ARTICLES OF AMENDMENT (Amendment by Shareholders Voting as One Class) Pursuant to 13-A MRSA Sections 805 and 807, the undersigned corporation adopts these Articles of Amendment: FIRST: All outstanding shares were entitled to vote on the following amendment as ONE class. SECOND: The amendment set out in Exhibit A attached was adopted by the shareholders (Circle One) A. at a meeting legally called and held on, OR X B. by unanimous written consent on July 18, 1986. THIRD: Shares outstanding and entitled to vote and shares voted for and against said amendment were: Number of Shares Outstanding NUMBER NUMBER and Entitled to Vote Voted for Voted Against ---------------------------- --------- ------------- 100 100 -0- FOURTH: If such amendment provides for exchange, reclassification or cancellation of issued shares, the manner in which this shall be effected is contained in Exhibit B attached if it is not set forth in the amendment itself. FIFTH: (Complete if Exhibits do not give this information.) If the amendment changes the number or par values of authorized shares, the number of shares the corporation has authority to issue thereafter, is as follows: Class Series (If Any) Number of Shares Par Value (If Any) ----- --------------- ---------------- ------------------ Common Class A * 50,000 NP Common Class B 50,000 NP The aggregate par value of all such shares (of all classes and series) HAVING PAR VALUE AT $ . ------------- The total number of all such shares (of all classes and series) WITHOUT PAR VALUE IS shares. ------------------ SIXTH: Address of the registered office in Maine: One Center Street, Waterville, ME 04901 ----------------------------------------------------------- (Street, city and zip code) Mid State Machine Products ----------------------------------------------------------- (Name of Corporation -- Typed or Printed) By* /s/ Robert J. Daviau ----------------------------------------------------------- Robert J. Daviau, Clerk ----------------------------------------------------------- (type or print name and company) By* -------------------------------------------------------- (signature) ----------------------------------------------------------- (type or print name and capacity) - ----------------------------------- MUST BE COMPLETED FOR VOTE OF SHAREHOLDERS - ----------------------------------- I certify that I have custody of the minutes showing the above action by the shareholders. /s/ Robert J. Daviau - ----------------------------------- (signature of clerk) - ----------------------------------- Dated: July 23, 1986 --------------------------- *In addition to any certification of custody of minutes this document must be signed by (1) the CLERK OR (2) the PRESIDENT or a vice-president AND the SECRETARY, an assistant secretary or other officer the bylaws designate as second certifying officer or (3) if no such officers, a majority of the directors or such directors designated by a majority of directors then in office or (4) if no directors, the holders, or such of them designated by the HOLDERS OF RECORD OF A MAJORITY OF ALL OUTSTANDING SHARES entitled to vote thereon or (5) the HOLDERS OF ALL OUTSTANDING SHARES. NOTE: This form should not be used if any class of shares is entitled to vote as a separate class for any of the reasons set out in section 806, or because the articles so provide. For vote necessary for adoption see Section 803. EXHIBIT A VOTED: To repeal all provisions of the Articles of Incorporation (formerly called Certificate of Organization) relating to the authorized shares of capital stock of this Corporation, including without limitation, the Articles of Amendment filed in the Office of the Secretary of State of Maine on January 10, 1978, and July 15, 1985, and, pursuant to the provision of Section 805(5) of the Maine Business Corporations Act, to adopt the following authorized capital stock provisions in substitution for the authorized capital stock provisions heretofore contained in the Articles of Incorporation of this Corporation as amended, to wit: Capital Stock Provisions ------------------------ The total number of shares of all classes of stock which the corporation shall have authority to issue is 100,000 shares without par value, of which 50,000 shares shall be Class A common stock and 50,000 shares shall be Class B common stock. The powers, designations, preferences and rights, and the qualifications, limitations and restrictions of the Class A common stock and Class B common stock shall be as follows: Except as otherwise provided by law, all voting rights shall be vested exclusively in the Class A common stock, which shall be entitled to one vote per share. In all other respects, including without limitation, dividends and rights upon liquidation, each share of Class A common stock and Class B common stock shall be equal. VOTED: That the 100 shares of the Common Capital Stock, without par value, of this Corporation issued and outstanding immediately prior to the effectiveness of the foregoing vote (such issued and outstanding Common Capital Stock being hereinafter called the "Old Stock"), shall be changed to 25,000 shares of Class A common stock on the basis of 250 shares of Class A common stock for each share of Old Stock. Upon surrender for cancellation of stock certificates representing Old Stock, shareholders shall be entitled to receive new stock certificate(s) representing the shares of Class A common stock to which they are entitled upon the change in issued and outstanding shares of the Corporation pursuant to the foregoing sentence becoming effective by filing Articles of Amendment with the Secretary of State of Maine containing this and the foregoing vote. VOTED: To repeal the provisions of the Articles of Incorporation (formerly called Certificate of Organization) relating to the number of directors of this Corporation as amended by Articles of Amendment filed in the Office of the Secretary of State of Maine on August 17, 1973, and to substitute therefore the following. "The Board of Directors is authorized to increase or decrease the number of directors, and the minimum number should be one director. (See Section 703, 1.A.) and the maximum number shall be seven directors." -2- [STATE SEAL OF MAINE] Minimum Fee $80 (See ss.1401 sub ss.19) BUSINESS CORPORATION ------------------------------ STATE OF MAINE (Merger of Domestic and Foreign Corporations) ARTICLES OF MERGER MID STATE ACQUISITION, INC. ----------------------------- A corporation [ILLEGIBLE] Deputy Secretary of State MID STATE MACHINE PRODUCTS A corporation organized under the laws of Maine ------------------------------ Pursuant to 13-A MRSA ss.906, the preceding A True Copy When Attested corporations adopt these Articles of Merger: By Signature ------------------------- Deputy Secretary of State ------------------------------ FIRST: The laws of the State(s) of Delaware, under which the foreign corporation(s) is (are) organized, permit such merger. SECOND: The name of the surviving corporation is Mid State Machine Products; and it is to be governed by the laws of the State of Maine. THIRD: The plan of merger is set forth in Exhibit A attached hereto and made a part hereof. FOURTH: As to each participating domestic corporation, the shareholders of which voted on such plan of merger, the number of shares outstanding and the number of shares entitled to vote on such plan, and the number of such shares for and against the plan, are as follows: Name of Number of Shares Number of Shares NUMBER NUMBER Corporation Outstanding Entitled to Vote Voted For Voted Against - ----------- ---------------- ---------------- --------- ------------- Mid State 50,000 25,000 25,000 0 Machine Products Mid State 100 100 100 0 Acquisition, Inc. FIFTH: If the shares of any class were entitled to vote as a class, the designation and number of the outstanding shares of each such class, and the number of shares of each such class voted for and against the plan, are as follows: Name of Designation Number of Shares NUMBER NUMBER Corporation of Class Outstanding Voted For Voted Against - ----------- ----------- ---------------- --------- ------------- (Include the following paragraph if the merger was authorized without the vote of the shareholders of the surviving corporation. Omit if not applicable.) SIXTH: The plan of merger was adopted by the participating corporation which is to become the surviving corporation in the merger without any vote of its shareholders, pursuant to section 902, subsection 5. The number of shares of each class outstanding immediately prior to the effective date of the merger, and the number of shares of each class to be issued or delivered pursuant to the plan of merger of the surviving corporation are set forth as follows: Number of Shares Outstanding Number of Shares to Be Issued Designation Immediately Prior to Effective Or Delivered Pursuant to the of Class Date of Merger Merger - ---------- ------------------------------ ----------------------------- A 25,000 1 B 25,000 0 SEVENTH: The address of the registered office of the surviving corporation in the State of Maine is * ----------------------------------------------- Daviau, Jabar & Batten, 1 Center Street, Waterville, ME 04901-542 - -------------------------------------------------------------------------------- (street, city and zip code) The address of the registered office of the merged corporation in the State of Maine is * -------------------------------------------- (street, city and zip code) EIGHTH: Effective date of the merger (if other than date of filing of the Articles) is September 30, 1998. -------------------- (Not to exceed 60 days from date of filing of the Articles) DATED: Mid State Machine Products --------------------------- ------------------------------------- (participating domestic corporation) MUST BE COMPLETED FOR VOTE OF SHAREHOLDERS - --------------------------------- **By /s/ Robert J. Daviau I certify that I have custody ------------------------------------ of the minutes showing the (signature) above action by the shareholders. Robert J. Daviau, Esq., Clerk Mid State Machine Products ------------------------------------ - --------------------------------- (type or print name and capacity) (name of coroporation) - --------------------------------- **By /s/ Rita C. Sukeforth (signature of clerk, secretary or ------------------------------------ asst. secretary) (signature) - --------------------------------- Rita C. Sukeforth, Secretary DATED: ------------------------------------ --------------------------- (type or print name and capacity) MUST BE COMPLETED FOR VOTE /s/ S. Douglas Sukeforth Pres. OF SHAREHOLDERS - --------------------------------- Mid State Acquisition, Inc. I certify that I have custody ------------------------------------ of the minutes showing the (participating foreign corporation) above action by the shareholders. Mid State Acquisition, Inc. **By /s/ John Clark - --------------------------------- ------------------------------------ (name of coroporation) (signature) - --------------------------------- John Clark, President (signature of clerk, secretary or ------------------------------------ asst. secretary) (type or print name and capacity) - --------------------------------- **By /s/ William Gumina ------------------------------------ (signature) William Gumina, Secretary ------------------------------------ (type or print name and capacity) NOTE: If a foreign corporation is the survivor of this merger, see ss.906.4 and ss.908.3 as to whether Form MBCA-10Ma is required. * Give address of registered office in Maine. If the corporation does not have a registered office in Maine, the address given should be the principal or registered office wherever located. - -------------------------------------------------------------------------------- ** This document MUST be signed by (1) the Clerk OR (2) the President or a vice-president and the Secretary or an assistant secretary, or such other officers as the bylaws may designate as a second certifying officer OR (3) if there are no such officers, then a majority of the directors or such directors as may be designated by a majority of directors then in office OR (4) if there are no such directors, then the holders, or such of them as may be designated by the holders, of record of a majority of all outstanding shares entitled to vote thereon OR (5) by the holders of all of the outstanding shares of the corporation. SUBMIT COMPLETED FORMS TO: CORPORATE EXAMINING SECTION, SECRETARY OF STATE, 101 STATE HOUSE STATION, AUGUSTA, ME 04333-0101 TEL. (207) 278-4195 RM NO. MBCA-10C Rev. 9/97 Exhibit A PLAN OF MERGER OF MID STATE ACQUISITION, INC. INTO MID STATE MACHINE PRODUCTS PURSUANT TO SECTION 901 OF THE MAINE BUSINESS CORPORATION ACT 1. Plan or Merger. Pursuant to this Plan of Merger, Mid State Acquisition, Inc. a Delaware corporation ("Merger Sub") will be merged (the "Merger") with and into Mid-State Machine Products, Inc. a Maine corporation (the "Company"). In the Merger the Company shall be the surviving corporation (the "Surviving Corporation"). The terms and conditions of the Merger and the consideration to be paid by the Surviving Corporation upon surrender of each outstanding share of the Company are as set forth below. 2. Agreement. This Merger shall take place pursuant to a REDEMPTION AND MERGER AGREEMENT ("Agreement"), dated as of September 16, 1998, among MID STATE MACHINE PRODUCTS, a Maine corporation (the "Company"), S. DOUGLAS SUKEFORTH (the "Principal Stockholder"). MID STATE HOLDING CO., INC., a Delaware corporation ("Parent") and MID STATE ACQUISITION, INC., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"). 3. Exchange of Shares. Parent has formed Merger Sub solely for the purpose of facilitating an efficient exchange by stockholders of the Company of their shares of Class A common stock of the Company, no par value per share, and Class B common stock of the Company, no par value per share (collectively, "Company Stock") for the Aggregate Closing Merger Consideration pursuant to the terms of this Agreement, and Merger Sub will not conduct any separate business activity nor serve any function other than to effect for the benefit of Parent and the Stockholders the conversion of Company Stock into the Aggregate Closing Merger Consideration. 4. Effective Date. The Merger shall be effective (the "Effective Date") on the date on which the Articles of Merger with respect to the Merger shall have been duly executed and filed in the office of the Secretary of State of Maine in accordance with the provisions of the Maine Business Corporation Act. 5. Material Terms of Agreement. The material terms of the Merger taken directly from the Agreement are as follows (capitalized terms not defined herein shall have the meanings given such terms in the Merger Agreement.): "2.1. The Redemption. Subject to and in accordance with the terms and conditions of this Agreement and in accordance with the Maine Business Corporation 1 Act (the "MBCA"), on the Closing Date and prior to the Effective Time, the Principal Stockholder will cause the Company to, and the Company will, redeem (the "Redemption") from the Stockholder whose names are listed on Schedule 3 attached hereto under the heading "Redeemed Stockholders" (the "Redeemed Stockholders") an aggregate number of issued and outstanding shares of Company Stock then held by such Redeemed Stockholders equal to (i) the after-Tax proceeds of the liquidation of Investment Securities provided for in Section 7.1.17 divided by (ii) the Per Share Closing Merger consideration (the quotient of clause (i) divided by clause (ii), the "Redeemed Shares"). The allocation of the Redeemed Shares among the Redeemed Stockholders will be determined by the Stockholders' Representative with the consent of Parent (which will not be unreasonably withheld), on or before the date immediately preceding the Closing Date, and Schedule 3 of the Agreement will be updated prior to the Closing upon such determination to reflect such allocation. 2.2. The Merger. Subject to and in accordance with the terms and conditions of this Agreement and in accordance with the Delaware General Corporation Law (the "DGCL") and the MBCA, at the Effective Time, Merger Sub will be merged with and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub will cease and the Company will continue as the surviving corporation (sometimes referred to herein as the "Surviving Corporation") and will succeed to and assume all of the rights and obligations of Merger Sub in accordance with the DGCL and the MBCA. 2.3 Consummation of the Merger. As soon as practicable on the Closing Date, the parties will cause the Merger to be consummated by filing with the Delaware Secretary of State and the Maine Secretary of State a certificate of merger or articles of merger, in form reasonably satisfactory to the Company, Parent and Merger Sub, executed in accordance with the relevant provisions of the DGCL and MBCA and will make all other filings or recordings required under the DGCL and MBCA to effect the Merger. The "Effective Time" as that term is used in this Agreement will mean the effective time set forth in the certified copy of the certificate of merger or articles of merger issued by the Maine Secretary of State and the Delaware Secretary of State with respect to the Merger. 2.4. Effects of the Merger. The Merger will have the effects set forth in the DGCL and the MBCA. 2.5. Articles of Incorporation; By-laws. The Articles of Incorporation and By-laws of the Company, as in effect immediately prior to the Effective Time, will be the Articles of Incorporation and By-laws of the Surviving Corporation and thereafter will continue to be its Articles of Incorporation and By-Laws until amended as provided therein and under the MBCA. 2.6. Directors and Officers. The director of Merger Sub immediately prior to the Effective Time will be the initial director of the Surviving Corporation, to hold 2 office in accordance with the Articles of Incorporation and By-Laws of the Surviving Corporation until his successor is duly elected or appointed and qualified. The officers of the Company immediately prior to the Effective Time will be the initial officers of the Surviving Corporation, each to hold office until their respective successors are duly elected or appointed and qualified. 2.7. Payment of Redemption Amount; Delivery of Redeemed Shares. (a) Subject to adjustment in accordance with Sections 2.16, 2.17 and 2.18, on the Closing Date and prior to the Effective Time, in consideration of the Redemption (including the delivery of the Redeemed Shares pursuant to Section 2.7(b)), the Principal Stockholder will cause the Company to, and the Company will, pay to the Stockholders' Representative (for the benefit of the Redeemed Stockholders), by wire transfer in immediately available funds, an amount equal to the product of the aggregate number of Redeemed Shares and the Per Share Closing Merger Consideration (such product, the "Redemption Amount") as follows: (i) an amount equal to the Redemption Amount less the percentage of the Escrow Amount equal to the percentage that the number of Redeemed Shares bears to the aggregate number of shares of Company Stock issued and outstanding immediately prior to the consummation of the Redemption (the "Redemption Escrow Amount") to one account designated in writing by the Stockholders' Representative for the benefit of the Redeemed Stockholders and (ii) the Redemption Escrow Amount to one account (the "Escrow Account") designated in writing by the escrow agent (the "Escrow Agent") appointed pursuant to the terms and conditions of the Escrow Agreement to be held in escrow pursuant to the terms and conditions of such Escrow Agreement. (b) Simultaneously with payment of the Redemption Amount pursuant to Section 2.7(a), the Stockholders' Representative will cause the Redeemed Stockholders to deliver to Parent stock certificates representing an aggregate number shares of Company Stock equal to the Redeemed Shares. Such stock certificates will be duly endorsed (or accompanied by stock powers duly endorsed) for transfer to the Company with all necessary transfer Tax and other revenue stamps, acquired at the Redeemed Stockholders' expense, affixed and canceled. The Redeemed Stockholders will cover any deficiencies with respect to the endorsement of the certificates representing the Redeemed Shares and with respect to the stock powers accompanying such certificates. The Redeemed Shares will be retired upon the redemption thereof. 2.8. Conversion of Securities; Merger Consideration. Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of the Company, Parent, Merger Sub or their respective shareholders (including, without limitation, the Stockholders): Each share of Company Stock issued and outstanding after consummation of the Redemption and immediately prior to the Effective Time as set forth on Schedule 3 attached to the Agreement under the heading "Other Stockholders" opposite each Person's name thereon will be converted into the right to receive, in cash, an amount per share of 3 Company Stock equal to (i)(A) $31.8 million plus (B) the Estimated Closing Working Capital Balance plus (C) the New Capital Equipment Aggregate Purchase Price (the aggregate of (A) plus (B), plus (C), the "Aggregate Closing Merger Consideration") divided by (ii) the number of shares of Company Stock issued and outstanding after consummation of the Redemption and immediately prior to the Effective Time. (a) As of the Effective Time, all Company Stock will no longer be outstanding and will automatically be canceled and retired and will cease to exist, and each holder of a certificate representing any sharers of Company Stock will cease to have any rights with respect thereto, except the right to receive such holder's appropriate portion of the Aggregate Closing Merger Consideration as set forth in Section 2.8(a), upon surrender of such certificate in accordance with Section 2.8(d). (b) Each share of Company Stock held in the treasury of the Company immediately prior to the Effective Time will be canceled and extinguished at the Effective Time without any conversion thereof and no payment will be made with respect thereto. (c) At the Effective Time, each Stockholder will be entitled, upon surrender to Parent of such Stockholder's certificates representing shares of Company Stock, to receive in exchange therefor an amount equal to the Per Share Closing Merger Consideration (as adjusted in accordance with Sections 2.16, 2 17 and 2.18) multiplied by the number of shares of Company Stock set forth opposite such Stockholder's name on Schedule 3 under the heading "Other Stockholders". (d) Each share of common stock, par value $.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time will automatically without any action on the part of the holder thereof, be converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation which as of the Effective Time will constitute all of the issued and outstanding shares of the Surviving Corporation. 2.9. Closing of Transfer Records. After the close of business on the Closing Date, transfers of Company Stock outstanding prior to the Effective Time will not be made on the stock transfer books of the Surviving Corporation. 4 2.10. Payment of Aggregate Closing Merger Consideration. Subject to adjustment in accordance with Sections 2.l6, 2.17 and 2.18, payment of the Aggregate Closing Merger Consideration will be made in immediately available funds by wire transfer at Closing as follows: (a) an amount equal to the Aggregate Closing Merger Consideration less the excess of the Escrow Amount over the Redemption Escrow Amount (the "Merger Escrow Amount") to the account designated pursuant to Section 2.7(a)(i) and (b) the Merger Escrow Amount to the account designated pursuant to the terms of Section 2.7(a)(ii) to be held in escrow pursuant to the terms and conditions of such Escrow Agreement." 6. Abandonment. Parent and the Company expressly reserve the right to abandon the Merger and this Plan of Merger, at any time prior to the Effective Date, in the absolute discretion of the directors or either of them. 7. Shareholders. It is a condition of the Agreement that there will be no dissenting Shareholders, and consequently all Shareholders will either consent to the Agreement or provide Waivers of their Right to Dissent to the Agreement. 5 EX-3.6 14 AMD & RESTATE BY LAWS MID STATE Exhibit 3.6 AMENDED AND RESTATED BYLAWS OF MID STATE MACHINE PRODUCTS ARTICLE I --------- SHAREHOLDERS ------------ SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders of Mid State Machine Products (the "Corporation") will be held at such time as the Board of Directors may designate for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. The Board of Directors may designate any location as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. If no designation is made, or if a special meeting be otherwise called, the meeting shall be held at the principal office of the corporation in the State of Maine. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be called either by the President, by the Board of Directors or by the holders of not less than thirty-five percent (35%) of all the outstanding shares of the corporation entitled to vote on the matter for which the meeting is called, for the purpose or purposes stated in the call of the meeting. SECTION 3. NOTICE OF MEETINGS. Notice of the time, place and purpose of every meeting of shareholders shall be delivered personally or mailed not less than ten days nor more than sixty days previous thereto to each shareholder of record entitled to vote, at such shareholder's post office address appearing upon the records of the Corporation or at such other address as shall be furnished in writing by him or her to the Corporation for such purpose. Such further notice shall be given as may be required by law or by these Bylaws. Any meeting may be held without notice if all shareholders entitled to vote are present in person or by proxy, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 4. QUORUM. The holders of record of at least a majority of the shares of the Corporation, issued and outstanding and entitled to vote, present in person or by proxy, shall, except as otherwise provided by law or by these Bylaws, constitute a quorum at all meetings of the shareholders; if there be no such quorum, the holders of a majority of such shares so present or represented may adjourn the meeting from time to time until a quorum shall have been obtained. SECTION 5. ORGANIZATION OF MEETINGS. Meetings of the shareholders shall be presided over by the Chairman of the Board, if there be one, or if the Chairman of the Board is not present by the President, or if the President is not present, by a chairman to be chosen at the meeting. The Secretary of the Corporation, or in the Secretary of the Corporation's absence, an Assistant Secretary, shall act as Secretary of the meeting, if present. 1 SECTION 6. VOTING. At each meeting of shareholders, except as otherwise provided by statute or the Articles of Incorporation, every holder of record of shares entitled to vote shall be entitled to one vote in person or by proxy for each share of such shares standing in his or her name on the records of the Corporation. Elections of directors shall be determined by a plurality of the votes cast and, except as otherwise provided by statute, the Articles of Incorporation, or these Bylaws, all other action shall be determined by a majority of the votes cast at such meeting. Each proxy to vote shall be in writing and signed by the shareholder or by such shareholder's duly authorized attorney. At all elections of directors, the voting shall be by ballot or in such other manner as may be determined by the shareholders present in person or by proxy entitled to vote at such election. With respect to any other matter presented to the shareholders for their consideration at a meeting, any shareholder entitled to vote may, on any question, demand a vote by ballot. A complete list of the shareholders entitled to vote at each such meeting, arranged in alphabetical order, with the address of each, and the number of shares registered in the name of each shareholder, shall be prepared by the Secretary and shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. SECTION 7. INSPECTORS OF ELECTION. At any meeting of shareholders, the chairman of the meeting may, or upon the request of any shareholders shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies; count all votes and report the results; and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by him or her or by a majority of them if there be more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. SECTION 8. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if, prior to such action, a written consent or consents thereto, setting forth such action, is signed by the holders of record of shares of the Corporation, issued and outstanding and entitled to vote thereon, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 2 ARTICLE II ---------- DIRECTORS --------- SECTION 1. NUMBER, QUORUM, TERM, VACANCIES, REMOVAL. The number of directors constituting the Board shall be three. Each director shall hold office until the next annual meeting of shareholders or until his or her successor shall have been elected and qualified. Directors need not be residents of Maine or shareholders of the corporation. No decrease in the number of directors constituting the Board of Directors shall have the effect of shortening the term of any incumbent director. A majority of the number of directors fixed by these by-laws shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that if less than a majority of such number of directors are present at said meeting, a majority of the directors present may adjourn the meeting at any time without further notice. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the vote of a greater number is required by statute, these By-Laws, or the Articles of Incorporation. Directors will hold office until the next annual election and until their successors will have been elected and will have qualified, unless sooner displaced. Any vacancy occurring in the Board of Directors, including a vacancy caused by a removal of a director, and any directorship to be filled by reason of an increase in the number of directors, may be filled by election at the next annual meeting or at a special meeting of shareholders called for that purpose; provided, however, that any vacancies occurring between meetings of shareholders may be filled by a majority of the Board of Directors. A director elected by the shareholders to fill a vacancy shall hold office for the balance of the term for which he or she was elected. A director appointed to fill a vacancy by the Board shall serve until the next meeting of shareholders at which directors are to be elected. A director may resign at any time upon written notice to the Board of Directors, the Chairman of the Board, or to the President or the Secretary of the corporation. A director may be removed with or, subject to the Articles of Incorporation, without cause, at a meeting of shareholders by the affirmative vote of the holders of a majority of the outstanding shares then entitled to vote at an election of directors; provided, however, that no director shall be removed at a meeting of shareholders unless the notice of such meeting shall state that a purpose of the meeting is to vote upon the removal of one or more directors named in the notice, and only the named director or directors may be removed at such meeting; and provided further that, if the corporation has cumulative voting and less than all the directors are to be removed, no director may be removed, with or without cause, if the votes cast against his or her removal would be sufficient to elect him or her if then cumulatively voted at an election of the entire board of directors; and provided further that a director elected by the holders of a class or series of shares may be removed only by the shareholders of that class or series. 3 SECTION 2. MEETINGS, NOTICE. Meetings of the Board of Directors shall be held at such place either within or without the State of Maine, as may from time to time be fixed by resolution of the Board, or as may be specified in the call or in a waiver of notice thereof. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board, and special meetings may be held at any time upon the call of two directors, the Chairman of the Board, if one be elected, or the President, by oral, telegraphic or written notice, duly served on or sent or mailed to each director not less than two days before such meeting. A meeting of the Board may be held without notice immediately after the annual meeting of shareholders at the same place at which such meeting was held. Notice need not be given of regular meetings of the Board. Any meeting may be held without notice, if all directors are present, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 3. COMMITTEES. A majority of the directors may create one or more committees and appoint two or more members of the Board to serve on the committee or committees at the pleasure of the Board. Unless the appointment by the Board of Directors requires a greater number, a majority of any committee shall constitute a quorum and a majority of a quorum is necessary for committee action. A committee may act by unanimous consent in writing without a meeting and, subject to the provisions of these By-Laws or action by the Board of Directors, the committee, by majority vote of its members, shall determine the time and place of meetings and the notice required therefor. To the extent specified by the Board of Directors, each committee may exercise the powers of the Board of Directors, provided however, that a committee may not take any action which a committee of the Board is prohibited from taking by the Maine Business Corporation Act. Vacancies in the membership of the committee shall be filled by the Board of Directors. Each committee shall keep regular minutes of its proceedings and report the same to the Board when required. SECTION 4. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent or consents thereto is signed by all members of the Board, or of such committee as the case may be, and such written consent or consents is filed with the minutes of proceedings of the Board or committee. SECTION 5. COMPENSATION. A majority of the Board of Directors may, by resolution, establish reasonable compensation for their services and the services of officers, irrespective of any personal interest. SECTION 6. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. SECTION 7. BUSINESS AFFAIRS. The business of the corporation shall be managed by or under the direction of its Board of Directors which may exercise all such powers of the 4 corporation and do all such lawful acts and things as are not by law or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders. ARTICLE III ----------- OFFICERS -------- SECTION 1. TITLES AND ELECTION. The officers of the Corporation, who shall be chosen by the Board of Directors at its first meeting after each annual meeting of shareholders, shall be a President, a Treasurer and a Secretary. The Board of Directors from time to time may elect a Chairman of the Board, one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other officers and agents as it shall deem necessary, and may define their powers and duties. Any number of offices may be held by the same person. SECTION 2. TERMS OF OFFICE. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified or until his or her earlier death, resignation or removal. SECTION 3. REMOVAL. Any officer may be removed, either with or without cause, at any time, by the affirmative vote of a majority of the Board of Directors. SECTION 4. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the Secretary. Such resignation will take effect at the time specified therein, and, unless otherwise specified therein, the acceptance of such resignation will not be necessary to make it effective. SECTION 5. VACANCIES. Any vacancy occurring in any office or new offices created shall be filled by a majority vote of the Board of Directors. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors will preside at all meetings of the Board of Directors and of the shareholders, and the Chairman will have and perform such other duties as from time to time may be assigned to the Chairman by the Board of Directors. SECTION 7. PRESIDENT. The President shall be the chief executive officer of the corporation. Subject to the direction and control of the Board of Directors, he or she shall supervise and control the business of the corporation, shall see that the resolutions and directions of the Board of Directors are carried into effect except in those instances in which that responsibility is specifically assigned to some other person by the Board of Directors, and, in general, shall discharge all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. The President shall preside at all meetings of the shareholders and of the Board of Directors. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the Board of Directors or these Bylaws, the President may execute for the corporation certificates for its shares, and any contracts, deeds, mortgages, bonds, or other instruments which the Board of Directors has authorized to be executed, and he or she may accomplish such execution 5 either under or without the seal of the corporation and either individually or with the Secretary, any Assistant Secretary, or any other officer thereunto authorized by the Board of Directors, according to the requirements of the form of the instrument. The President may vote all securities which the corporation is entitled to vote except as and to the extent such authority shall be vested in a different officer or agent of the corporation by the Board of Directors. SECTION 8. VICE PRESIDENTS. If chosen, the Vice Presidents, in the order of their seniority, shall, in the absence or disability of the President, exercise all of the powers and duties of the President. Such Vice Presidents shall have the power to execute bonds, notes, mortgages and other contracts, agreements and instruments of the Corporation, and shall do and perform such other duties incident to the office of Vice President and as the Board of Directors, or the President shall direct. SECTION 9. SECRETARY. The Secretary shall attend all sessions of the Board and all meetings of the shareholders and record all votes and the minutes of proceedings in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors. The Secretary shall affix the corporate seal to any instrument requiring it, and when so affixed, it shall be attested by the signature of the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer who may affix the seal to any such instrument in the event of the absence or disability of the Secretary. The Secretary shall have and be the custodian of the stock records and all other books, records and papers of the Corporation (other than financial) and shall see that all books, reports, statements, certificates and other documents and records required by law are properly kept and filed. The assistant secretary or, if there be more than one, the assistant secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECTION 10. TREASURER. The Treasurer shall be the principal accounting and financial officer of the corporation. The Treasurer shall: (a) have charge of and be responsible for the maintenance of adequate books of account for the corporation; (b) have charge and custody of all funds and securities of the corporation, and be responsible therefor and for the receipt and disbursement thereof; and (c) perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the President, by a Vice President acting as or on behalf of the President, or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the Board of Directors may determine. The assistant treasurer, or, if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 6 SECTION 11. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the absence or disability of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any Director. SECTION 12. SALARIES. The salaries of all officers shall be fixed by the Board of Directors, and the fact that any officer is a Director shall not preclude him from receiving a salary as an officer, or from voting upon the resolution providing the same. ARTICLE IV ---------- INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS SECTION 1. ACTIONS BY OTHERS. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation or, with respect to any criminal action or proceeding, that the person had reasonable cause to believe that his or her conduct was unlawful. SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation unless, and only to the extent that, the court in which such action or suit was brought shall determine upon application that despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. 7 SECTION 3. SUCCESSFUL DEFENSE. To the extent that a director, officer, employee or agent of a corporation has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article IV, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. SECTION 4. AUTHORIZATION. Any indemnification under Sections 1 and 2 of this Article IV (unless ordered by a court) shall be made by the corporation only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standards of conduct set forth in Sections 1 and 2 of this Article IV. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the shareholders. SECTION 5. ADVANCEMENT OF EXPENSES. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding, as authorized by the Board of Directors in the specific case, upon receipt of (a) an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he or she is entitled to be indemnified by the corporation as authorized in this Article IV, and (b) a written affirmation by the officer, director, employee or agent that the person has met the conduct necessary for indemnification by the corporation in this Article IV. SECTION 6. OTHER RIGHTS. The indemnification provided by this Article IV shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 7. INSURANCE. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Article IV. SECTION 8. INVALIDITY OF ANY PROVISIONS OF THIS ARTICLE. The invalidity or unenforceability of any provision of this Article shall not affect the validity or enforceability of the remaining provisions of this Article. ARTICLE V --------- SHARES ------ 8 SECTION 1. CERTIFICATES. Shares of the corporation shall be represented by certificates. Certificates representing shares of the corporation shall be signed by the appropriate corporate officers (which, in the absence of a contrary action by the Board, shall be the President or a Vice President and the Secretary or any Assistant Secretary of the corporation) and may be sealed with the seal or a facsimile of the seal of the corporation. If a certificate is countersigned by a transfer agent or registrar, other than the corporation or its employee, any other signatures or countersignature on the certificate may be facsimile. Each certificate representing shares shall be consecutively numbered or otherwise identified, and shall also state the name of the person to whom issued, the number and class of shares (with designation of series, if any), the date of issue, and that the corporation is organized under the laws of Maine. If the corporation is authorized to issue shares of more than one class or of series within a class, the certificate shall also contain such information or statement as may be required by law. The name and address of each shareholders, the number and class of shares held and the date on which the shares were issued shall be entered on the books of the corporation. The person in whose name shares stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation. SECTION 2. TRANSFER. Shares of the corporation shall be transferable only on the books of the corporation and upon endorsement and surrender of the certificate(s) representing such shares, as provided in this Section 2. Transfer of shares represented by a certificate, except in the case of a lost, destroyed, or stolen certificate for which a replacement certificate has not been issued pursuant to Section 4 of this Article V, shall be made on surrender for cancellation of the certificate for such shares. A certificate presented for transfer must be duly endorsed and accompanied by proper guaranty of signature and other appropriate assurances that the endorsement is effective. SECTION 3. RECORD DATES. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 60 days and for a meeting of shareholders, not less than 10 days, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than 20 days before the date of such meeting, except as otherwise required by statute. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. A determination of shareholders shall apply to any adjournment of the meeting. SECTION 4. LOST CERTIFICATES. The Board of Directors may, in its discretion upon review of the relevant evidence, direct that a new certificate representing shares be issued in the place of any previously issued certificate which is alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his or her legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may 9 be made against it on account of the alleged loss, theft or destruction of the certificate or the issuance of a new certificate. ARTICLE VI ---------- CHECKS, NOTES, ETC. ------------------- SECTION 1. CHECKS, NOTES, ETC. All checks and drafts on the Corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, may be signed by the President, any Vice President or the Treasurer and may also be signed by such other officer or officers, agent or agents, as shall be thereunto authorized from time to time by the Board of Directors. ARTICLE VII ----------- MISCELLANEOUS PROVISIONS ------------------------ SECTION 1. OFFICES. The registered office of the corporation shall be located in Winslow, State of Maine. The corporation may also have offices at such other places both within and without the State of Maine as the Board of Directors may from time to time determine or the business of the corporation may require. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by the Board of Directors. SECTION 3. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Maine." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced, provided that the affixing of the corporate seal to an instrument shall not give the instrument additional force or effect, or change the construction thereof, and the use of the corporate seal is not mandatory. SECTION 4. BOOKS. The Directors may keep the books of the corporation, except such as are required by law to be kept within the state, outside the State of Maine, at such place or places as they may from time to time determine. SECTION 5. VOTING OF SHARES. Unless otherwise specifically authorized by the Board of Directors, all shares owned by the Corporation, other than shares of the Corporation, will be voted, in person or by proxy, by the President or any Vice President of the Corporation on behalf of the Corporation. ARTICLE VIII ------------ AMENDMENTS ---------- SECTION 1. AMENDMENTS. The vote of the holders of at least a majority of the shares of the Corporation, issued and outstanding and entitled to vote, shall be necessary at any meeting of shareholders to amend or repeal these Bylaws or to adopt new Bylaws. These Bylaws may also be amended or repealed, or new Bylaws adopted, at any meeting of the Board of Directors by the vote 10 of at least a majority of the entire Board; provided that any Bylaws adopted by the Board may be amended or repealed by the shareholders in the manner set forth above. Any proposal to amend or repeal these Bylaws or to adopt new Bylaws shall be stated in the notice of the meeting of the Board of Directors or the shareholders, or in the waiver of notice thereof, as the case may be, unless all of the directors or the holders of record of all of the shares of the Corporation, issued and outstanding and entitled to vote, are present at such meeting. 11 EX-3.7 15 ART OF INC. OF GA AUTOMATION Exhibit 3.7 Form BCA-2.10 ARTICLES OF INCORPORATION - -------------------------------------------------------------------------------- (Rev. Jan. 1999) This space for use by Secretary of State Jesse White SUMBIT IN DUPLICATE! Secretary of State ----------------------- Department of Business Services FILED This space for use by Springfield, IL 62756 Secretary of State hppt://www.sos.state.il.us MAR 5 1999 - ---------------------------------- Date 3-5-99 Payment must be made by certi- fied check, cashier's check, Illi- JESSE WHITE Franchise Tax $ 25.00 nois attorney's check, Illinois SECRETARY OF STATE Filing Fee $ 75.00 C.P.A's check or money order, ------- payable to "Secretary of State." $100.00 Approved: [ILLEGIBLE] - -------------------------------------------------------------------------------- 1. CORPORATE NAME: GA ACQUISITION ILLINOIS, INC. -------------------------------------------------------------------------- (The corporate name must contain the word "corporation", "company," "incorporated," "limited" or an abbreviation thereof.) - -------------------------------------------------------------------------------- 2. Initial Registered Agent: CT CORPORATION SYSTEM ---------------------------------------------- First Name Middle Initial Last Name Initial Registered Office: 208 South LaSalle Street ---------------------------------------------- Number Street Suite # Chicago IL Cook 60604 ---------------------------------------------- City County Zip Code - -------------------------------------------------------------------------------- 3. Purpose or purposes for which the corporation is organized: (If not sufficient space to cover this point, add one or more sheets of this size.) To engage in activity for which corporations may be formed under the Illinois Business Corporation Act of 1983. - -------------------------------------------------------------------------------- 4. Paragraph 1: Authorized Shares, Issued Shares and Consideration Received:
Par Value Number of Shares Number of Shares Consideration to be Class per Share Authorized Proposed to be Issued Received Therefor - ------------------------------------------------------------------------------------------- common $ 0.01 100 100 $100 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- TOTAL = $100
Paragraph 2: The preferences, qualifications, limitations, restrictions and special or relative rights in respect of the shares of each class are: (If not sufficient space to cover this point, add one or more sheets of this size.) one class of common stock EXPEDITED 038-101-1 MAR 5 1999 SECRETARY OF STATE 5. OPTIONAL: (a) Number of directors constituting the initial board of directors of the corporation:_________________________________ (b) Names and addresses of the persons who are to serve as directors until the first annual meeting of shareholders or until their successors are elected and qualify: Name Residential Address City, State, ZIP -------------------------------------------------------------- -------------------------------------------------------------- -------------------------------------------------------------- -------------------------------------------------------------- - -------------------------------------------------------------------------------- 6. OPTIONAL: (a) It is estimated that the value of all property to be owned by the corporation for the following year wherever located will be: $___________ (b) It is estimated that the value of the property to be located within the State of Illinois during the following year will be: $___________ (c) It is estimated that the gross amount of business that will be transacted by the corporation during the following year will be: $___________ (d) It is estimated that the gross amount of business that will be transacted from places of business in the State of Illinois during the following year will be: $___________ - -------------------------------------------------------------------------------- 7. OPTIONAL: OTHER PROVISIONS Attach a separate sheet of this size for any other provision to be included in the Articles of Incorporation, e.g., authorizing preemptive rights, denying cumulative voting, regulating internal affairs, voting majority requirements, fixing a duration other than prepetual, etc. - -------------------------------------------------------------------------------- 8. NAME(S) & ADDRESS(ES) OF INCORPORATOR(S) The undersigned incorporator(s) hereby declare(s), under penalties or prejury, that the statements made in the foregoing Articles of Incorporation are true. Dated March 3 1999 1999 -----------------, ---- (Month & Day) Year Signature and Name Address 1. /s/ Sanford B. Kaynor, Jr. 1. 599 Lexington Avenue --------------------------------- ------------------------------- Signature Street SANFORD B. KAYNOR, JR New York, New York 10022 --------------------------------- ------------------------------- (Type or Print Name) City/Town State ZIP Code 2. 2. --------------------------------- ------------------------------- Signature Street --------------------------------- ------------------------------- (Type or Print Name) City/Town State ZIP Code 3. 3. --------------------------------- ------------------------------- Signature Street --------------------------------- ------------------------------- (Type or Print Name) City/Town State ZIP Code (Signature must be in BLACK INK on original document. Carbon copy, photocopy or rubber stamp signatures may only be used on conformed copies). NOTE: If a corporation acts as incorporator, the name of the corporation and the state of incorporation shall be shown and the execution shall be by its president or vice president and verified by him, and attested by its secretary or assistant secretary. - -------------------------------------------------------------------------------- FEE SCHEDULE o The initial franchise tax is assessed at the rate of 15/1000 of 1 percent ($1.50 per $1,000) on the paid-in capital represented in this state, with a minimum of $25. o The filing fee is $75. o The minimum total due (franchise tax + filing fee) is $100. (Applies when the Consideration to be Received as set forth in Item 4 does not exceed $16,667) o The Department of Business Services in Springfield will provide assistance in calculating the total fees if necessary. Illinois Secretary of State Springfield, IL 62756 Department of Business Services Telephone (217) 782-9522 or 782-9523 Form BCA-11.25 ARTICLES OF MERGER (Rev. Jan. 1999) CONSOLIDATION OR EXCHANGE File # 6038-101-1 - -------------------------------------------------------------------------------- Jesse White SUMBIT IN DUPLICATE Secretary of State ----------------------- Department of Business Services FILED This space for use by Springfield, IL 62756 Secretary of State Telephone (217) 782-6961 MAR 18 1999 hppt://www.sos.state.il.us Date 3/18/99 - ---------------------------------- JESSE WHITE DO NOT SEND CASH! SECRETARY OF STATE Filing Fee $100.00 Remit payment in check or money order, payable to "Secretary of Approved: [ILLEGIBLE] State." Filing Fee is $100, but if merger or consolidation involves more than 2 corporations, $50 for each additional corporation. - -------------------------------------------------------------------------------- 1. Names of the corporations proposing to merge, and the state or country of their incorporation: State or Country Corporation Name of Corporation of Incorporation File Number GA ACQUISITION ILLINOIS, INC. ILLINOIS 6038-101-1 -------------------------------------------------------------------------- GA ACQUISITION DELAWARE, INC. DELAWARE -------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2. The law of the state or country under which each corporation is incorporated permits such merger, consolidation or exchange. - -------------------------------------------------------------------------------- 3. (a) Name of the surviving corporation: GA ACQUISITION ILLINOIS, INC. (b) It shall be governed by the laws of: ILLINOIS - -------------------------------------------------------------------------------- If not sufficient space to cover this point, add one or more sheets of this size. 4. Plan of merger is as follows: GA ACQUISITION DELAWARE, INC. will be merged with and into GA ACQUISITION ILLINOIS, INC. with GA Acquisitions Illinois, Inc. surviving. GA Acquisition Illinois' Articles of Incorporation shall remain in full effect. All the issued and outstanding shares of stock of each of GA Acquisition Delaware, Inc. GA Acquisition Illinois, Inc. are owned by Precision Partners, Inc. GA Acquisition Illinois, Inc.'s stock shall remain issued and outstanding. The shares of GA Acquisition Delaware, Inc.'s stock and rights therein shall be canceled. The bylaws of GA Acquisition Illinois, Inc. in effect on the date of the merger shall remain the bylaws of the surviving company. The directors and officers of GA Acquisition Illinois, Inc. shall serve the same positions with the surviving company until their successors have been elected and qualified. EXPEDITED MAR 18 1999 SECRETARY OF STATE 5. Plan of merger was approved, as to each corporation not organized in Illinois, incompliance with the laws of the state under which it is organized, and (b) as to each Illinois corporation, as follows: (The following items are not applicable to mergers under ss.11.30 -- 90% owned subsidiary provisions. See Article 7.) (Only "X" one box for each Illinois corporation)
By the shareholders, a reso- lution of the board of directors By written consent of the having been duly adopted and shareholders having not less submitted to a vote at a meeting than the minimum number of votes of shareholders. Not less than required by statute and by the By written consent of the minimum number of votes articles of incorporation. ALL the shareholders required by statute and by the Shareholders who have not entitled to vote on articles of incorporation voted consented in writing have been the action, in in favor of the action taken. given notice in accordance with accordance with Name of Corporation (ss. 11.20) ss. 7.10 (ss. 11.220) ss. 7.10 & ss. 11.20 ------------------- -------------------------------- --------------------------------- ---------------------- GA ACQUISITION ILLINOIS, INC. |_| |_| |X| - ------------------------------- |_| |_| |_| - ------------------------------- |_| |_| |_| - ------------------------------- |_| |_| |_| - ------------------------------- |_| |_| |_| - ------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------
6. (Not applicable if surviving, new or acquiring corporation is an Illinois corporation) It is agreed that, upon and after the issuance of a certificate of merger, consolidation or exchange by the Secretary of State of the State of Illinois: a. The surviving, new or acquiring corporation may be served with process in the State of Illinois in any proceeding for the enforcement of any obligation of any corporation organized under the laws of the State of Illinois which is a party to the merger, consolidation or exchange and in any proceeding for the enforcement of the rights of a dissenting shareholder of any such corporation organized under the laws of the State of Illinois against the surviving, new or acquiring corporation. b. The Secretary of State of the State of Illinois shall be and hereby is irrevocably appointed as the agent of the surviving, new or acquiring corporation to accept service of process in any such proceedings, and c. The surviving, new, or acquiring corporation will promptly pay to the dissenting shareholders of any corporation organized under the laws of the State of Illinois which is a party to the merger, consolidation or exchange the amount, if any, to which they shall be entitled under the provisions of "The Business Corporation Act of 1983" of the State of Illinois with respect to the rights of dissenting shareholders. - -------------------------------------------------------------------------------- 7. (Complete this item if reporting a merger under 11.30-90% owned subsidiary provision) a. The number of outstanding shares of each class of each merging subsidiary corporation and the number of such shares of each class owned immediately prior to the adoption of the plan or merger by the parent corporation, are: Total Number of Shares Number of Shares of Each Class Outstanding Owned Immediately Prior to Name of Corporation of Each Class Merger by the Parent Corporation _____________________ ______________________ ________________________________ _____________________ ______________________ ________________________________ _____________________ ______________________ ________________________________ _____________________ ______________________ ________________________________ _____________________ ______________________ ________________________________ b. (Not applicable to 100% owned subsidiaries) The date of mailing a copy of the plan of merger and notice of the right to dissent to the shareholders of each merging subsidiary corporation was ____________________, _________. (Month & Day) Year Was written consent for the merger or written waiver of the 30-day period by the holders of all the outstanding shares of all subsidiary corporations received? |_| Yes |_| No (If the answer is "No," the duplicate copies of the Articles of Merger may not be delivered to the Secretary of State until after 30 days following the mailing of a copy of the plan of merger and of the notice of the right to dissent to the shareholders of each merging subsidiary corporation.) 8. The undersigned corporations have caused these articles to be signed by their duly authorized officers, each of whom affirms, under penalties of perjury, that the facts stated herein are true. (All signatures must be in BLACK INK.) Dated March 10, 1999 GA ACQUISITION ILLINOIS, INC. ------------------------------ -------------------------------------- (Month & Day) (Year) (Exact Name of Corporation) attested by /s/ Melvin Johnson by /s/ James Ashton ------------------------ ----------------------------------- (Signature of Secretary (Signature of President or Vice or Assistant Secretary) President) MELVIN JOHNSON, VP & Asst. Secretary Dr. James Ashton, President & CEO -------------------------- ----------------------------------- (Type or Print Name and (Type or Print Name and Title) Title) Dated March 10, 1999 GA Acquisition Delaware, Inc. ------------------------------ -------------------------------------- (Month & Day) (Year) (Exact Name of Corporation) attested by /s/ Melvin Johnson by /s/ James Ashton ------------------------ ----------------------------------- (Signature of Secretary (Signature of President or Vice or Assistant Secretary) President) MELVIN JOHNSON, VP & Asst. Secretary Dr. James Ashton, President & CEO -------------------------- ----------------------------------- (Type or Print Name and (Type or Print Name and Title) Title) Dated ------------------------------ -------------------------------------- (Month & Day) (Year) (Exact Name of Corporation) attested by by ------------------------ ----------------------------------- (Signature of Secretary (Signature of President or Vice or Assistant Secretary) President) -------------------------- ----------------------------------- (Type or Print Name and (Type or Print Name and Title) Title) C-195-8 Form BCA-10.30 ARTICLES OF AMENDMENT File # 6038-101-1 (Rev. Jan. 1995) - -------------------------------------------------------------------------------- SUBMIT IN DUPLICATE George H. Ryan FILED --------------------- Secretary of State MAR 19 1999 This space for use Department of Business Services by Secretary of Springfield, IL 62756 JESSE WHITE State Telephone (217) 782-1832 SECRETARY OF STATE - ------------------------------- Date 3/19/99 Remit payment in check or money order, payable to Franchise Tax $ "Secretary of State." Filing Fee* $25.00 Penalty $ * The filing fee for articles of amendment - $25.00 Approved: /s/ [Illegible initials] - -------------------------------------------------------------------------------- 1. CORPORATE NAME: GA ACQUISITION ILLINOIS, INC. ---------------------------------------------------------- (Note 1) 2. MANNER OF ADOPTION OF AMENDMENT: The following amendment of the Articles of Incorporation was adopted on MARCH 17 1999 in the manner indicated below. ("X" one box only) |_| By a majority of the Incorporators, provided no directors were named in the articles of incorporation and no directors have been elected; (Note 2) |_| By a majority of the board of directors, in accordance with Section 10.10, the corporation having issued no shares as of the time of adoption of this amendment; (Note [Illegible]) |_| By a majority of the board of directors, in accordance with Section 10.15, shares having been issued [illegible] shareholder action not being required for the adoption of the amendment; (Note 3) |_| By the shareholders, in accordance with Section 10.20, a resolution of the board of directors having been duly adopted and submitted to the shareholders. At a meeting of shareholders, not less than the minimum number of votes required by statute and by the articles of incorporation were voted in favor of the amendment; (Note 4) |_| By the shareholders, in accordance with Sections 10.20 and 7.10, a resolution of the board of directors having been duly adopted and submitted to the shareholders. A consent in writing has been signed by shareholders having not less than the minimum number of votes required by statute and by the articles of incorporation. Shareholders who have not consented in writing have been given notice in accordance with Section 7.10; (Note 4&5) |X| By the shareholders, in accordance with Sections 10.20 and 7.10, a resolution of the board of directors having been duly adopted and submitted to the shareholders. A consent in writing has been signed by all the shareholders entitled to vote on this amendment. (Note 5) 3. TEXT OF AMENDMENT: a. When amendment effects a name change, insert the new corporate name below. Use Page 2 for all other amendments. Article I: The name of the corporation is: GENERAL AUTOMATION, INC. - -------------------------------------------------------------------------------- (NEW NAME) All changes other than name include [illegible] EXPEDITED MAR 19 1999 SECRETARY OF STATE Text of Amendment b. (If amendment affects the corporate purpose, the amended purpose is required to be set forth in its entirety. If there is not sufficient space to do so, add one or more sheets of this size.) 4. The manner, if not set forth in Article 3b, in which any exchange, reclassification or cancellation of issued shares, or a reduction of the number of authorized shares of any class below the number of issued shares of that class, provided for or affected by this amendment, is as follows: (if not applicable, insert "No change") NO CHANGE 5. (a) The manner, if not set forth in Article 3b, in which said amendment effects a change in the amount of paid-in capital (Paid-in capital replaces the terms Stated Capital and Paid-in Surplus and is equal to the total of these accounts) is as follows: (if not applicable, insert "No change") NO CHANGE (b) The amount of paid-in capital (Paid-in Capital replaces the terms Stated Capital and Paid-in Surplus and is equal to the total of these accounts) as changed by this amendment is as follows: (if not applicable, insert "No change") Before Amendment After Amendment Paid-in Capital $ NO CHANGE $ NO CHANGE ----------- ----------- (Complete either Item 6 or 7 below. All signatures must be in BLACK INK.) 6. The undersigned corporation has caused this statement to be signed by its duly authorized officers, each of whom affirms, under penalties of perjury, that the facts stated herein are true. Dated MARCH 17, 1999 GA ACQUISITION ILLINOIS, INC. ------------------------------------ (Exact Name of Corporation at date of execution) attested by /s/ Melvin D. Johnson by /s/ James E. Ashton ----------------------------- --------------------------------- (Signature of Secretary or (Signature of President or Assistant Secretary) Vice President) MELVIN D. JOHNSON, ASSIST. SECRETARY JAMES E. ASHTON, PRESIDENT - ---------------------------------------- ------------------------------------- (Type or Print Name and Title) (Type or Print Name and Title) 7. If amendment is authorized pursuant to Section 10.10 by the incorporators, the incorporators must sign below, and type or print name and title. OR If amendment is authorized by the directors pursuant to Section 10.10 and there are no officers, then a majority of the directors or such directors as may be designated by the board, must sign below, and type or print name and title. The undersigned affirms, under the penalties of perjury, that the facts stated herein are true. Dated ______________________, 19 ___ ____________________________________ _______________________________________ ____________________________________ _______________________________________ ____________________________________ _______________________________________ ____________________________________ _______________________________________ EX-3.8 16 BYLAWS OF GA AUTOMATION Exhibit 3.8 BYLAWS OF GA ACQUISITION ILLINOIS, INC. ARTICLE I STOCKHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of GA Acquisition Illinois, Inc. (the "Corporation") will be held at such time as the Board of Directors may designate for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. The Board of Directors may designate any location as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. If no designation is made, or if a special meeting be otherwise called, the meeting shall be held at the principal office of the corporation in the State of Illinois. SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be called either by the President, by the Board of Directors or by the holders of not less than thirty-five percent (35%) of all the outstanding shares of the corporation entitled to vote on the matter for which the meeting is called, for the purpose or purposes stated in the call of the meeting. SECTION 3. NOTICE. Notice of the time, place and purpose of every meeting of stockholders shall be delivered personally or mailed not less than ten days nor more than sixty days previous thereto to each stockholder of record entitled to vote, at such stockholder's post office address appearing upon the records of the Corporation or at such other address as shall be furnished in writing by him or her to the Corporation for such purpose. Such further notice shall be given as may be required by law or by these Bylaws. Any meeting may be held without notice if all stockholders entitled to vote are present in person or by proxy, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 4. QUORUM. The holders of record of at least a majority of the shares of the stock of the Corporation, issued and outstanding and entitled to vote, present in person or by proxy, shall, except as otherwise provided by law or by these Bylaws, constitute a quorum at all meetings of the stockholders; if there be no such quorum, the holders of a majority of such shares so present or represented may adjourn the meeting from time to time until a quorum shall have been obtained. SECTION 5. ORGANIZATION OF MEETINGS. Meetings of the stockholders shall be presided over by the Chairman of the Board, if there be one, or if the Chairman of the Board is not present by the President, or if the President is not present, by a chairman to be chosen at the meeting. The Secretary of the Corporation, or in the Secretary of the Corporation's absence, an Assistant Secretary, shall act as Secretary of the meeting, if present. SECTION 6. VOTING. Unless otherwise provided in the Articles of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote in each matter submitted to 1 vote at a meeting of stockholders, and, except as otherwise provided herein, in all elections for directors, every stockholders shall have the right to vote the number of shares owned by such stockholders for as many persons as there are directors to be elected, or to cumulate such votes and give one candidate as many votes as shall equal the number of directors multiplied by the number of such shares or to distribute such cumulative votes in any proportion among any number of candidates. Each stockholders may vote either in person or by proxy as described below. Each stockholders may appoint a proxy to vote or otherwise act for him or her by signing an appointment form and delivering it to the person so appointed, but no such proxy shall be valid after 11 months from the date of its execution, unless otherwise provided in the proxy. The Articles of Incorporation may be amended to limit or eliminate cumulative voting rights in all or specified circumstances, or to limit or deny voting rights or to provide special voting rights as to any class or classes or series of shares of the corporation. Shares held by the corporation in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares entitled to vote at any given time. Shares registered in the name of another corporation, domestic or foreign, may be voted by any officer, agent, proxy or other legal representative authorized to vote such shares under the law of incorporation of such corporation. Shares registered in the name of a deceased person, a minor ward or a person under legal disability may be voted by his or her administrator, executor or court appointed guardian, either in person or by proxy without a transfer of such shares into the name of such administrator, executor or court appointed guardian. Shares registered in the name of a trustee may be voted by him or her, either in person or by proxy. Shares registered in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his or her name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A stockholders whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Any number of stockholders may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote or otherwise represent their shares, for a period not to exceed 10 years, by entering into a written voting trust agreement specifying the terms and conditions of the voting trust, and by transferring their shares to such trustee or trustees for the purpose of the agreement. Any such trust agreement shall not become effective until a counterpart of the agreement is deposited with the corporation at its registered office. The counterpart of the voting trust agreement so deposited with the corporation shall be subject to 2 the same right of examination by a stockholders of the corporation, in person or by agent or attorney, as is the record of stockholders of the corporation, and shall be subject to examination by any holder of a beneficial interest in the voting trust, either in person or by agent or attorney, at any reasonable time for any proper purpose. Shares of its own stock belonging to this corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time, but shares of its own share held by it in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares at any given time. SECTION 7. INSPECTORS OF ELECTION. At any meeting of stockholders, the chairman of the meeting may, or upon the request of any stockholders shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies; count all votes and report the results; and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the stockholders. Each report of an inspector shall be in writing and signed by him or her or by a majority of them if there be more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. SECTION 8. ACTION BY CONSENT. Unless otherwise provided in the Articles of Incorporation or by the Illinois Business Corporation Act, any action required by law to be taken at a meeting of the stockholders, or any other action which may be taken at a meeting of the stockholders, may be taken without a meeting and without a vote, if a consent in writing, setting forth the action so taken shall be signed (a) by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voting or (b) by all of the stockholders entitled to vote with respect to the subject matter thereof. If such consent is signed by less than all of the stockholders entitled to vote, then such consent shall become effective only if at least 5 days prior to the execution of the consent a notice in writing is delivered to all of the stockholders entitled to vote with respect to the subject matter thereof and, after the effective date of the consent, prompt notice of the taking of the corporation action without a meeting by less than unanimous written consent shall be delivered in writing to those stockholders who have not consented in writing. In the event that the action which is consented to is such as would have required the filing of a certificate under any Section of the Illinois Business Corporation Act if such action had been voted on by the stockholders at a meeting thereof, the certificate filed under such Section shall state, in lieu of any statement required by such Section concerning any vote of stockholders, that written consent has been delivered in accordance with the provisions of 3 Section 7.10 of the Illinois Business Corporation Act and that written notice has been given as provided in such Section 7.10. ARTICLE II DIRECTORS SECTION 1. NUMBER, QUORUM, TERM, VACANCIES, REMOVAL. The number of directors constituting the Board shall be three. Each director shall hold office until the next annual meeting of stockholders or until his or her successor shall have been elected and qualified. Directors need not be residents of Illinois or stockholders of the corporation. No decrease in the number of directors constituting the Board of Directors shall have the effect of shortening the term of any incumbent director. A majority of the number of directors fixed by these by-laws shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that if less than a majority of such number of directors are present at said meeting, a majority of the directors present may adjourn the meeting at any time without further notice. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the vote of a greater number is required by statute, these By-Laws, or the Articles of Incorporation. Directors will hold office until the next annual election and until their successors will have been elected and will have qualified, unless sooner displaced. Any vacancy occurring in the Board of Directors, including a vacancy caused by a removal of a director, and any directorship to be filled by reason of an increase in the number of directors, may be filled by election at the next annual meeting or at a special meeting of stockholders called for that purpose; provided, however, that any vacancies occurring between meetings of stockholders may be filled by a majority of the Board of Directors. A director elected by the stockholders to fill a vacancy shall hold office for the balance of the term for which he or she was elected. A director appointed to fill a vacancy by the Board shall serve until the next meeting of stockholders at which directors are to be elected. A director may resign at any time upon written notice to the Board of Directors, the Chairman of the Board, or to the President or the Secretary of the corporation. A director may be removed with or, subject to the Articles of Incorporation, without cause, at a meeting of stockholders by the affirmative vote of the holders of a majority of the outstanding shares then entitled to vote at an election of directors; provided, however, that no director shall be removed at a meeting of stockholders unless the notice of such meeting shall state that a purpose of the meeting is to vote upon the removal of one or more directors named in the notice, and only the named director or directors may be removed at such meeting; and provided further that, if the corporation has cumulative voting and less than all the directors are to be removed, no director may be removed, with or without cause, if the votes cast against his or her removal would be sufficient to elect him or her if then cumulatively voted at an election of the entire board of directors; and provided further that a director elected by the holders of a class or series of shares may be removed only by the stockholders of that class or series. 4 SECTION 2. MEETINGS, NOTICE. Meetings of the Board of Directors shall be held at such place either within or without the State of Illinois, as may from time to time be fixed by resolution of the Board, or as may be specified in the call or in a waiver of notice thereof. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board, and special meetings may be held at any time upon the call of two directors, the Chairman of the Board, if one be elected, or the President, by oral, telegraphic or written notice, duly served on or sent or mailed to each director not less than two days before such meeting. A meeting of the Board may be held without notice immediately after the annual meeting of stockholders at the same place at which such meeting was held. Notice need not be given of regular meetings of the Board. Any meeting may be held without notice, if all directors are present, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 3. COMMITTEES. A majority o The Board of Directors may, in its discretion, by resolution passed by a majority of the whole Board, designate from among its members one or more committees which shall consist of two or more directors. The Board may designate one or more directors as alternate members of any such committee, who may replace any absent or disqualified member at any meeting of the committee. Such committees shall have and may exercise such powers as shall be conferred or authorized by the resolution appointing them. A majority of any such committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board shall have power at any time to change the membership of any such committee, to fill vacancies in it, or to dissolve it. SECTION 4. ACTION BY CONSENT. Unless otherwise specifically prohibited by the Articles of Incorporation or these By-Laws, any action required by law to be taken at a meeting of the Board of Directors or any other action which may be taken at a meeting of the Board of Directors or a committee thereof may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed in accordance with the Illinois Business Corporation Act by all of the directors entitled to vote with respect to the subject matter thereof, or by all members of such committee, as the case may be. The Secretary shall file the written approvals of the directors evidencing the consent in the corporate records. SECTION 5. COMPENSATION. A majority of the Board of Directors may, by resolution, establish reasonable compensation for their services and the services of officers, irrespective of any personal interest. SECTION 6. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted by the certifi cate of incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. SECTION 7. BUSINESS AFFAIRS. The business of the corporation shall be managed by or under the direction of its Board of Directors which may exercise all such powers of the 5 corporation and do all such lawful acts and things as are not by law or by the certificate of incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. ARTICLE III OFFICERS SECTION 1. TITLES AND ELECTION. The officers of the Corporation, who shall be chosen by the Board of Directors at its first meeting after each annual meeting of stockholders, shall be a President, a Treasurer and a Secretary. The Board of Directors from time to time may elect a Chairman of the Board, one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other officers and agents as it shall deem necessary, and may define their powers and duties. Any number of offices may be held by the same person. SECTION 2. TERMS OF OFFICE. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified or until his or her earlier death, resignation or removal. Election of an officer shall not of itself create contract rights. SECTION 3. REMOVAL. Any officer may be removed by the Board of Directors whenever in its judgment the best interest of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. SECTION 4. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the Secretary. Such resignation will take effect at the time specified therein, and, unless otherwise specified therein, the acceptance of such resignation will not be necessary to make it effective. SECTION 5. VACANCIES. Any vacancy occurring in any office or new offices created shall be filled by a majority vote of the Board of Directors. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors will preside at all meetings of the Board of Directors and of the stockholders, and the Chairman will have and perform such other duties as from time to time may be assigned to the Chairman by the Board of Directors. SECTION 7. PRESIDENT. The President shall be the chief executive officer of the corporation. Subject to the direction and control of the Board of Directors, he or she shall supervise and control the business of the corporation, shall see that the resolutions and directions of the Board of Directors are carried into effect except in those instances in which that responsibility is specifically assigned to some other person by the Board of Directors, and, in general, shall discharge all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. The President shall preside at all meetings of the stockholders and of the Board of Directors. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the Board of Directors or these Bylaws, the President may execute for the corporation certificates for its shares, and any contracts, deeds, mortgages, bonds, or other instruments which the Board of Directors has authorized to be executed, and he or she may 6 accomplish such execution either under or without the seal of the corporation and either individually or with the Secretary, any Assistant Secretary, or any other officer thereunto authorized by the Board of Directors, according to the requirements of the form of the instrument. The President may vote all securities which the corporation is entitled to vote except as and to the extent such authority shall be vested in a different officer or agent of the corporation by the Board of Directors. SECTION 8. VICE PRESIDENTS. If chosen, the Vice Presidents, in the order of their seniority, shall, in the absence or disability of the President, exercise all of the powers and duties of the President. Such Vice Presidents shall have the power to execute bonds, notes, mortgages and other contracts, agreements and instruments of the Corporation, and shall do and perform such other duties incident to the office of Vice President and as the Board of Directors, or the President shall direct. SECTION 9. SECRETARY. The Secretary shall attend all sessions of the Board and all meetings of the stockholders and record all votes and the minutes of proceedings in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors. The Secretary shall affix the corporate seal to any instrument requiring it, and when so affixed, it shall be attested by the signature of the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer who may affix the seal to any such instrument in the event of the absence or disability of the Secretary. The Secretary shall have and be the custodian of the stock records and all other books, records and papers of the Corporation (other than financial) and shall see that all books, reports, statements, certificates and other documents and records required by law are properly kept and filed. The assistant secretary or, if there be more than one, the assistant secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECTION 10. TREASURER. The Treasurer shall be the principal accounting and financial officer of the corporation. The Treasurer shall: (a) have charge of and be responsible for the maintenance of adequate books of account for the corporation; (b) have charge and custody of all funds and securities of the corporation, and be responsible therefor and for the receipt and disbursement thereof; and (c) perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the President, by a Vice President acting as or on behalf of the President, or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the Board of Directors may determine. The assistant treasurer, or, if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 7 SECTION 11. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the absence or disability of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any Director. SECTION 12. SALARIES. The salaries of all officers shall be fixed by the Board of Directors, and the fact that any officer is a Director shall not preclude him from receiving a salary as an officer, or from voting upon the resolution providing the same. ARTICLE IV INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS SECTION 1. ACTIONS BY OTHERS. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation or, with respect to any criminal action or proceeding, that the person had reasonable cause to believe that his or her conduct was unlawful. SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation unless, and only to the extent that, the court in which such action or suit was brought shall determine upon application that despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. 8 SECTION 3. SUCCESSFUL DEFENSE. To the extent that a director, officer, employee or agent of a corporation has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article IV, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. SECTION 4. AUTHORIZATION. Any indemnification under Sections 1 and 2 of this Article IV (unless ordered by a court) shall be made by the corporation only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standards of conduct set forth in Sections 1 and 2 of this Article IV. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. SECTION 5. ADVANCEMENT OF EXPENSES. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding, as authorized by the Board of Directors in the specific case, upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he or she is entitled to be indemnified by the corporation as authorized in this Article IV. SECTION 6. OTHER RIGHTS. The indemnification provided by this Article IV shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 7. INSURANCE. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Article IV. SECTION 8. INVALIDITY OF ANY PROVISIONS OF THIS ARTICLE. The invalidity or unenforceability of any provision of this Article shall not affect the validity or enforceability of the remaining provisions of this Article. ARTICLE V CAPITAL STOCK SECTION 1. CERTIFICATES. Shares of the corporation either shall be represented by certificates or shall be uncertificated shares. Certificates representing shares of the corporation shall be signed 9 by the appropriate corporate officers (which, in the absence of a contrary action by the Board, shall be the President or a Vice President and the Secretary or any Assistant Secretary of the corporation) and may be sealed with the seal or a facsimile of the seal of the corporation. If a certificate is countersigned by a transfer agent or registrar, other than the corporation or its employee, any other signatures or countersignature on the certificate may be facsimile. Each certificate representing shares shall be consecutively numbered or otherwise identified, and shall also state the name of the person to whom issued, the number and class of shares (with designation of series, if any), the date of issue, and that the corporation is organized under the laws of Illinois. If the corporation is authorized to issue shares of more than one class or of series within a class, the certificate shall also contain such information or statement as may be required by law. Unless prohibited by the Articles of Incorporation, the Board of Directors may provide by resolution that some or all of any class or series of shares of the corporation shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until the certificate has been surrendered to the corporation. Within a reasonable time after the issuance or transfer of uncertificated shares, the corporation shall send to the registered owner thereof a written notice containing all information required by law to be set forth on a certificate. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated shares shall be identical to those of the holders of certificates representing shares of the same class and series. The name and address of each stockholders, the number and class of shares held and the date on which the shares were issued shall be entered on the books of the corporation. The person in whose name shares stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation. SECTION 2. TRANSFER. Shares of the corporation shall be transferable only on the books of the corporation and upon endorsement and surrender of the certificate(s) representing such shares, as provided in this Section 2. Transfer of shares represented by a certificate, except in the case of a lost, destroyed, or stolen certificate for which a replacement certificate has not been issued pursuant to Section 4 of this Article V, shall be made on surrender for cancellation of the certificate for such shares. A certificate presented for transfer must be duly endorsed and accompanied by proper guaranty of signature and other appropriate assurances that the endorsement is effective. Transfer of an uncertificated share shall be made on receipt by the corporation of an instruction from the registered owner or other appropriate person. The instruction shall be in writing or a communication in such form as may be agreed upon in writing by the corporation. SECTION 3. RECORD DATES. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors of the corporation may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than 60 days and for a meeting of stockholders, not less than 10 days, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than 20 days before the date of such meeting, except as otherwise required by statute. If no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled 10 to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. A determination of stockholders shall apply to any adjournment of the meeting. SECTION 4. LOST CERTIFICATES. The Board of Directors may, in its discretion upon review of the relevant evidence, direct that a new certificate representing shares be issued in the place of any previously issued certificate which is alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his or her legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of the certificate or the issuance of a new certificate. ARTICLE VI CHECKS, NOTES, ETC. SECTION 1. CHECKS, NOTES, ETC. All checks and drafts on the Corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, may be signed by the President, any Vice President or the Treasurer and may also be signed by such other officer or officers, agent or agents, as shall be thereunto authorized from time to time by the Board of Directors. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 1. OFFICES. The registered office of the corporation shall be located in the County of Cook, State of Illinois. The corporation may also have offices at such other places both within and without the State of Illinois as the Board of Directors may from time to time determine or the business of the corporation may require. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by the Board of Directors. SECTION 3. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Illinois." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced, provided that the affixing of the corporate seal to an instrument shall not give the instrument additional force or effect, or change the construction thereof, and the use of the corporate seal is not mandatory. SECTION 4. BOOKS. The Directors may keep the books of the corporation, except such as are required by law to be kept within the state, outside the State of Illinois, at such place or places as they may from time to time determine. SECTION 5. VOTING OF STOCK. Unless otherwise specifically authorized by the Board of Directors, all stock owned by the Corporation, other than stock of the Corporation, will be voted, in person or by proxy, by the President or any Vice President of the Corporation on behalf of the Corporation. 11 SECTION 6. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of these Bylaws or under the provisions of the Articles of Incorporation or under the provisions of the Illinois Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance at any meeting shall constitute waiver of notice thereof unless the person at the meeting objects to the holding of the meeting because proper notice was not given. ARTICLE VIII AMENDMENTS SECTION 1. AMENDMENTS. The vote of the holders of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote, shall be necessary at any meeting of stockholders to amend or repeal these Bylaws or to adopt new Bylaws. These Bylaws may also be amended or repealed, or new By- Laws adopted, at any meeting of the Board of Directors by the vote of at least a majority of the entire Board; provided that any Bylaws adopted by the Board may be amended or repealed by the stockholders in the manner set forth above. Any proposal to amend or repeal these Bylaws or to adopt new Bylaws shall be stated in the notice of the meeting of the Board of Directors or the stockholders, or in the waiver of notice thereof, as the case may be, unless all of the directors or the holders of record of all of the shares of stock of the Corporation, issued and outstanding and entitled to vote, are present at such meeting. 12 EX-3.9 17 ART OF INC CERTIFIED Exhibit 3.9 MAXIM [ILLEGIBLE] ZAZZARA ATTORNEY AT LAW 8251 SECOND STREET DOWNEY, CALIFORNIA 90241 TELEPHONE 861-9219 907071 ENDORSED FILED In the office of the Secretary of State of the State of California DEC 29 1978 MARCH FONG EU, Secretary of State Kathleen P. Gutierrez Deputy ARTICLES OF INCORPORATION of CERTIFIED FABRICATORS, INC. The undersigned, desiring to form a corporation under the Laws of the State of California, declares: FIRST: The name of this corporation is: CERTIFIED FABRICATORS, INC. SECOND: The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. THIRD: The name and address in this state of the corporation's initial agent for service of process is: Gary J. Buehler 2254 Clover Street Tustin, California 92680 FOURTH: The corporation is authorized to issue 250 Shares of capital stock, all of one class, to be designated 'common stock'. FIFTH: All of the corporation's issued shares of all classes shall be held of record by not more than eight (8) persons. SIXTH: This corporation is a close corporation. -1- MAXIM [ILLEGIBLE] ZAZZARA ATTORNEY AT LAW 8251 SECOND STREET DOWNEY, CALIFORNIA 90241 TELEPHONE 861-9219 IN WITNESS WHEREOF, the undersigned has executed these Articles of Incorporation this 26 day of December, 1978. /s/ Gary J. Buehler ---------------------------------------- Gary J. Buehler I, Gary J. Buehler, hereby declare that I am the person who executed the foregoing Articles of Incorporation of Certified Fabricators, Inc. and that said Articles of Incorporation are my own act and deed. Executed at Downey, California, this 26 day of December, 1978. /s/ Gary J. Buehler ---------------------------------------- Gary J. Buehler -2- [GRAPHIC OMITTED] State [GRAPHIC OMITTED] of California OFFICE OF THE SECRETARY OF STATE I, MARCH FONG EU, Secretary of State of the State of California, hereby certify: That the annexed transcript has been compared with the record on file in this office, of which it purports to be a copy, and that same is full, true and correct. IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the State of California this DEC 6 - 1979 ------------------------------- [SEAL] /s/ March Fong Eu Secretary of State ================================================================================ MAXIM [ILLEGIBLE] ZAZZARA ATTORNEY AT LAW 8251 SECOND STREET DOWNEY, CALIFORNIA 90241 TELEPHONE 861-9219 ENDORSED FILED In the office of the Secretary of State of the State of California NOV 30 1979 MARCH FONG EU, Secretary of State By JAMES E. HARRIS Deputy CERTIFICATE OF AMENDMENT of ARTICLES OF INCORPORATION GARY J. BUEHLER AND JOE H. IVY, JR. certify that: 1. They are the President and Secretary, respectively, of CERTIFIED FABRICATORS, INC., a California Corporation. 2. Article FOURTH of the Articles of Incorporation of this corporation is amended to read as follows: FOURTH: The corporation is authorized to issue 25,000 Shares of capital stock, all of one class, to be designated 'common stock'. 3. The foregoing amendment of Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporations Code. The total number of shares outstanding of the corporation, prior to -1- MAXIM [ILLEGIBLE] ZAZZARA ATTORNEY AT LAW 8251 SECOND STREET DOWNEY, CALIFORNIA 90241 TELEPHONE 861-9219 this amendment, is 150 shares. The number of shares voting in favor of the amendment is 150 shares, or 100% of the vote required. /s/ Gary J. Buehler ---------------------------------------- Gary J. Buehler, President /s/ Joe H. Ivy, Jr. ---------------------------------------- Joe H. Ivy, Jr. The undersigned declare under penalty of perjury that the matters set forth in the foregoing certificate are true of their own knowledge. Executed at Fullerton, California on Nov. 26th, 1979. /s/ Gary J. Buehler ---------------------------------------- Gary J. Buehler, President /s/ Joe H. Ivy, Jr. ---------------------------------------- Joe H. Ivy, Jr. -2- ================================================================================ A448365 [GRAPHIC OMITTED] State of California =================================== SECRETARY OF STATE'S OFFICE ================ CORPORATION DIVISION I, TONY MILLER, Acting Secretary of State of the State of California, hereby certify: That the annexed transcript has been compared with the corporate record on file in this office, of which it purports to be a copy, and that same is full, true and correct. IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the State of California this JUN 29 1994 ------------------------------ [SEAL] /s/ Tony Miller Acting Secretary of State ================================================================================ A448365 ENDORSED FILED In the office of the Secretary of State of the State of California JUN 20 1994 TONY MILLER, Acting Secretary of State CERTIFICATE OF AMENDMENT OF ARTICLE OF INCORPORATION OF CERTIFIED FABRICATORS, INC. ROBERT L. REAGAN and GARY J. BUEHLER certify that: 1. They are the Vice President and Secretary, respectively, of CERTIFIED FABRICATORS, INC., a California corporation. 2. Articles Fifth and Sixth of the Articles of Incorporation of said corporation shall be deleted in its entirety. 3. The foregoing amendment of the Articles of Incorporation has been approved by all of the members of the Board of Directors. 4. The amendment has been duly approved by the required vote of the shareholders in accordance with Section 902 of the California Corporations Code. The corporation has only one class of shares. Each outstanding share is entitled to one vote. The corporation has 9,305 shares outstanding and the total number of shares entitled to vote with respect to the amendment was 9,305. The number of shares voting in favor of the amendment exceeded the vote required, in that the affirmative vote of a majority of the outstanding shares was required for approval of the amendment and the amendment was approved by the affirmative vote of 9,305 shares or 100 percent. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Executed at Buena Park, California, on June 12, 1992. /s/ Robert L. Reagan ---------------------------------------- Robert L. Reagan, Vice President /s/ Gary J. Buehler ---------------------------------------- Gary J. Buehler, Secretary EX-3.10 18 AMD & REST BY-LAWS OF CERTIFIED Exhibit 3.10 AMENDED AND RESTATED BYLAWS OF CERTIFIED FABRICATORS, INC. ARTICLE I SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders of Certified Fabricators, Inc. (the "Corporation") shall be held either within or without the State of California, at such place and on such date and time as the Board of Directors may designate from time to time in the call of the meeting or in a waiver of notice thereof, on such date as the Board of Directors shall fix by resolution in each year beginning with the year 1999 for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting. SECTION 2. SPECIAL MEETINGS. Special Meetings of the shareholders may be called by the Board of Directors or by the President, and shall be called by the President or by the Secretary upon the written request of the holders of record of at least thirty-five percent (35%) of the shares of stock of the Corporation, issued and outstanding and entitled to vote, at such times and at such place either within or without the State of California as may be stated in the call or in a waiver of notice thereof. SECTION 3. NOTICE OF MEETINGS. Notice of the time, place and purpose of every meeting of shareholders shall be delivered personally or mailed not less than ten days (or, if mailed by third-class mail, not less than thirty days) nor more than sixty days previous thereto to each shareholder of record entitled to vote, at such shareholder's post office address appearing upon the records of the Corporation or at such other address as shall be furnished in writing by him or her to the Corporation for such purpose. Such further notice shall be given as may be required by law or by these Bylaws. Any meeting may be held without notice if all shareholders entitled to vote are present in person or by proxy, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 4. QUORUM. The holders of record of at least a majority of the shares of the stock of the Corporation, issued and outstanding and entitled to vote, present in person or by proxy, shall, except as otherwise provided by law or by these Bylaws, constitute a quorum at all meetings of the shareholders; if there be no such quorum, the holders of a majority of such shares so present or represented may adjourn the meeting from time to time until a quorum shall have been obtained. SECTION 5. ORGANIZATION OF MEETINGS. Meetings of the shareholders shall be presided over by the Chairman of the Board, if there be one, or if the Chairman of the Board is not present by the President, or if the President is not present, by a chairman to be chosen at the meeting. The Secretary of the Corporation, or in the Secretary of the Corporation's absence, an Assistant Secretary, shall act as Secretary of the meeting, if present. 1 SECTION 6. VOTING. At each meeting of shareholders, except as otherwise provided by statute or the Articles of Incorporation, every holder of record of stock entitled to vote shall be entitled to one vote in person or by proxy for each share of such stock standing in his or her name on the records of the Corporation. Elections of directors shall be determined by a plurality of the votes cast and, except as otherwise provided by statute, the Articles of Incorporation, or these Bylaws, all other action shall be determined by a majority of the votes cast at such meeting. Each proxy to vote shall be in writing and signed by the shareholder or by such shareholder's duly authorized attorney. At all elections of directors, the voting shall be by ballot or in such other manner as may be determined by the shareholders present in person or by proxy entitled to vote at such election. With respect to any other matter presented to the shareholders for their consideration at a meeting, any shareholder entitled to vote may, on any question, demand a vote by ballot. A complete list of the shareholders entitled to vote at each such meeting, arranged in alphabetical order, with the address of each, and the number of shares registered in the name of each shareholder, shall be prepared by the Secretary and shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. SECTION 7. INSPECTORS OF ELECTION. The Board of Directors in advance of any meeting of shareholders may appoint one or more Inspectors of Election to act at the meeting or any adjournment thereof. If Inspectors of Election are not so appointed, the chairman of the meeting may, and on the request of any shareholder entitled to vote shall, appoint one or more Inspectors of Election. Each Inspector of Election, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of Inspector of Election at such meeting with strict impartiality and according to the best of his or her ability. If appointed, Inspectors of Election shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law. SECTION 8. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if, prior to such action, a written consent or consents thereto, setting forth such action, is signed by the holders of record of shares of the stock of the Corporation, issued and outstanding and entitled to vote thereon, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 2 ARTICLE II DIRECTORS SECTION 1. NUMBER, QUORUM, TERM, VACANCIES, REMOVAL. The Board of Directors of the Corporation shall not be less than three persons nor more than five persons. The number of directors may be changed by a resolution passed by a majority of the whole Board or by a vote of the holders of record of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote. A majority of the members of the Board of Directors then holding office (but not less than one-third of the total number of directors ) shall constitute a quorum for the transaction of business, but if at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum shall have been obtained. Directors shall hold office until the next annual election and until their successors shall have been elected and shall have qualified, unless sooner displaced. Whenever any vacancy shall have occurred in the Board of Directors, by reason of death, resignation, or otherwise, other than removal of a director with or without cause by a vote of the shareholders, it shall be filled by a majority of the remaining directors, though less than a quorum (except as otherwise provided by law), or by the shareholders, and the person so chosen shall hold office until the next annual election and until a successor is duly elected and has been qualified. Any one or more of the directors of the Corporation may be removed either with or without cause at any time by a vote of the holders of record of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote, and thereupon the term of the director or directors who shall have been so removed shall forthwith terminate and there shall be a vacancy or vacancies in the Board of Directors, to be filled by a vote of the shareholders as provided in these Bylaws. SECTION 2. MEETINGS, NOTICE. Meetings of the Board of Directors shall be held at such place either within or without the State of California, as may from time to time be fixed by resolution of the Board, or as may be specified in the call or in a waiver of notice thereof. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board, and special meetings may be held at any time upon the call of two directors, the Chairman of the Board, if one be elected, or the President, by oral, telegraphic or written notice, duly served on or sent or mailed to each director not less than two days before such meeting. A meeting of the Board may be held without notice immediately after the annual meeting of shareholders at the same place at which such meeting was held. Notice need not be given of regular meetings of the Board. Any meeting may be held without notice, if all directors are present, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 3. COMMITTEES. The Board of Directors may, in its discretion, by resolution passed by a majority of the whole Board, designate from among its members one or more committees which shall consist of two or more directors. The Board may designate one or more directors as 3 alternate members of any such committee, who may replace any absent or disqualified member at any meeting of the committee. Such committees shall have and may exercise such powers as shall be conferred or authorized by the resolution appointing them. A majority of any such committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board shall have power at any time to change the membership of any such committee, to fill vacancies in it, or to dissolve it. SECTION 4. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent or consents thereto is signed by all members of the Board, or of such committee as the case may be, and such written consent or consents is filed with the minutes of proceedings of the Board or committee. SECTION 5. COMPENSATION. The Board of Directors may determine, from time to time, the amount of compensation which shall be paid to its members. The Board of Directors shall also have power, in its discretion, to allow a fixed sum and expenses for attendance at each regular or special meeting of the Board, or of any committee of the Board. In addition, the Board of Directors shall also have power, in its discretion, to provide for and pay to directors rendering services to the Corporation not ordinarily rendered by directors, as such, special compensation appropriate to the value of such services, as determined by the Board from time to time. SECTION 6. CONFERENCE TELEPHONE MEETINGS. One or more directors may participate in a meeting of the Board of Directors, or of a committee of the Board of Directors, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. ARTICLE III OFFICERS SECTION 1. TITLES AND ELECTION. The officers of the Corporation, who shall be chosen by the Board of Directors at its first meeting after each annual meeting of shareholders, shall be a President, a Treasurer and a Secretary. The Board of Directors from time to time may elect a Chairman of the Board, one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other officers and agents as it shall deem necessary, and may define their powers and duties. Any number of offices may be held by the same person. SECTION 2. TERMS OF OFFICE. Officers shall hold office until their successors are chosen and qualified. SECTION 3. REMOVAL. Any officer may be removed, either with or without cause, at any time, by the affirmative vote of a majority of the Board of Directors. SECTION 4. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the Secretary. Such resignation shall take effect at the time specified 4 therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 5. VACANCIES. If the office of any officer or agent becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the directors may choose a successor, who shall hold office for the unexpired term in respect of which such vacancy occurred. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors, if one be elected, shall preside at all meetings of the Board of Directors and of the shareholders, and the Chairman shall have and perform such other duties as from time to time may be assigned to the Chairman by the Board of Directors. SECTION 7. PRESIDENT. The President shall be the chief executive officer of the Corporation and, in the absence of the Chairman, shall preside at all meetings of the Board of Directors, and of the shareholders. The President shall exercise the powers and perform the duties usual to the chief executive officer and, subject to the control of the Board of Directors, shall have general management and control of the affairs and business of the Corporation; the President shall appoint and discharge employees and agents of the Corporation (other than officers elected by the Board of Directors) and fix their compensation; and the President shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have the power to execute bonds, mortgages and other contracts, agreements and instruments of the Corporation, and shall do and perform such other duties as from time to time may be assigned to the President by the Board of Directors. SECTION 8. VICE PRESIDENTS. If chosen, the Vice Presidents, in the order of their seniority, shall, in the absence or disability of the President, exercise all of the powers and duties of the President. Such Vice Presidents shall have the power to execute bonds, notes, mortgages and other contracts, agreements and instruments of the Corporation, and shall do and perform such other duties incident to the office of Vice President and as the Board of Directors, or the President shall direct. SECTION 9. SECRETARY. The Secretary shall attend all sessions of the Board and all meetings of the shareholders and record all votes and the minutes of proceedings in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors. The Secretary shall affix the corporate seal to any instrument requiring it, and when so affixed, it shall be attested by the signature of the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer who may affix the seal to any such instrument in the event of the absence or disability of the Secretary. The Secretary shall have and be the custodian of the stock records and all other books, records and papers of the Corporation (other than financial) and shall see that all books, reports, statements, certificates and other documents and records required by law are properly kept and filed. SECTION 10. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys, and other valuable effects in the name and to the 5 credit of the Corporation, in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the directors whenever they may require it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. SECTION 11. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the absence or disability of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director. ARTICLE IV INDEMNIFICATION SECTION 1. ACTIONS BY OTHERS. The Corporation (1) shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director or an officer of the Corporation and (2) except as otherwise required by Section 3 of this Article, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent of or participant in another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts actually and reasonably incurred by such person in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent of or participant in another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance 6 of his or her duty to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses and then only to the extent that such court shall determine. SECTION 3. SUCCESSFUL DEFENSE. To the extent that a person who is or was a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 or Section 2 of this Article, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. SECTION 4. SPECIFIC AUTHORIZATION. Any indemnification under Section 1 or Section 2 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in said Sections 1 and 2. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the shareholders. SECTION 5. ADVANCE OF EXPENSES. Expenses incurred by any person who may have a right of indemnification under this Article in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the Corporation pursuant to this Article. SECTION 6. RIGHT OF INDEMNITY NOT EXCLUSIVE. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 7. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of or participant in another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article, Section 317(i) of the California General Corporation Law or otherwise. 7 SECTION 8. INVALIDITY OF ANY PROVISIONS OF THIS ARTICLE. The invalidity or unenforceability of any provision of this Article shall not affect the validity or enforceability of the remaining provisions of this Article. ARTICLE V CAPITAL STOCK SECTION 1. CERTIFICATES. The interest of each shareholder of the Corporation shall be evidenced by certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The certificates of stock shall be signed by the President or a Vice President and by the Secretary, or the Treasurer, or an Assistant Secretary, or an Assistant Treasurer, sealed with the seal of the Corporation or a facsimile thereof, and countersigned and registered in such manner, if any, as the Board of Directors may by resolution prescribe. Where any such certificate is countersigned by a transfer agent other than the Corporation or its employee, or registered by a registrar other than the Corporation or its employee, the signature of any such officer may be a facsimile signature. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation. SECTION 2. TRANSFER. The shares of stock of the Corporation shall be transferred only upon the books of the Corporation by the holder thereof in person or by his or her attorney, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. SECTION 3. RECORD DATES. The Board of Directors may fix in advance a date, not less than ten nor more than sixty days preceding the date of any meeting of shareholders, or the date for the payment of any dividend, or the date for the distribution or allotment of any fights, or the date when any change, conversion or exchange of capital stock shall go into effect, as a record date for the determination of the shareholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend, or to receive any distribution or allotment of such fights, or to exercise the fights in respect of any such change, conversion or exchange of capital stock, and in such case only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such dividend, or to receive such distribution or allotment or fights or to exercise such fights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. SECTION 4. LOST CERTIFICATES. In the event that any certificate of stock is lost, stolen, destroyed or mutilated, the Board of Directors may authorize the issuance of a new certificate of 8 the same tenor and for the same number of shares in lieu thereof. The Board may in its discretion, before the issuance of such new certificate, require the owner of the lost, stolen, destroyed or mutilated certificate, or the legal representative of the owner to make an affidavit or affirmation setting forth such facts as to the loss, destruction or mutilation as it deems necessary, and to give the Corporation a bond in such reasonable sum as it directs to indemnify the Corporation. ARTICLE VI CHECKS, NOTES, ETC. SECTION 1. CHECKS, NOTES, ETC. All checks and drafts on the Corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, may be signed by the President, any Vice President or the Treasurer and may also be signed by such other officer or officers, agent or agents, as shall be thereunto authorized from time to time by the Board of Directors. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 1. OFFICES. The registered office of the Corporation shall be located at CT Corporation System, 818 West Seventh Street, Los Angeles, in the State of California and said corporation shall be the registered agent of this Corporation in charge thereof. The Corporation may have other offices either within or without the State of California at such places as shall be determined from time to time by the Board of Directors or the business of the Corporation may require. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be determined by the Board of Directors. SECTION 3. CORPORATE SEAL. The seal of the Corporation shall be circular in form and contain the name of the Corporation, and the year and state of its incorporation. Such seal may be altered from time to time at the discretion of the Board of Directors. SECTION 4. BOOKS. There shall be kept at such office of the Corporation as the Board of Directors shall determine, within or without the State of California, correct books and records of account of all its business and transactions, minutes of the proceedings of its shareholders, Board of Directors and committees, and the stock book, containing the names and addresses of the shareholders, the number of shares held by them, respectively, and the dates when they respectively became the owners of record thereof, and in which the transfer of stock shall be registered, and such other books and records as the Board of Directors may from time to time determine. SECTION 5. VOTING OF STOCK. Unless otherwise specifically authorized by the Board of Directors, all stock owned by the Corporation, other than stock of the Corporation, shall be voted, 9 in person or by proxy, by the President or any Vice President of the Corporation on behalf of the Corporation. ARTICLE VIII AMENDMENTS SECTION 1. AMENDMENTS. The vote of the holders of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote, shall be necessary at any meeting of shareholders to amend or repeal these Bylaws or to adopt new Bylaws. These Bylaws may also be amended or repealed, or new Bylaws adopted, at any meeting of the Board of Directors by the vote of at least a majority of the entire Board; provided that any Bylaws adopted by the Board may be amended or repealed by the shareholders in the manner set forth above. Any proposal to amend or repeal these Bylaws or to adopt new Bylaws shall be stated in the notice of the meeting of the Board of Directors or the shareholders, or in the waiver of notice thereof, as the case may be, unless all of the directors or the holders of record of all of the shares of stock of the Corporation, issued and outstanding and entitled to vote, are present at such meeting. 10 EX-3.11 19 RESTATED CERT OF INC. OF GILLETTE Exhibit 3.11 RESTATED CERTIFICATE OF INCORPORATION OF GILLETTE MACHINE & TOOL CO., INC. UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW The undersigned, being the President and the Secretary of Gillette Machine & Tool Co., Inc. (the "Corporation"), pursuant to Section 807 of the Business Corporation Law of the State of New York, do hereby restate, certify and set forth: (1) The name of the corporation is Gillette Machine & Tool Co., Inc. (2) The certificate of incorporation of the Corporation was filed by the Department of State on February 3, 1955, as amended by certificates of amendment filed on each of January 22, 1982, August 22, 1988 and April 2, 1990 (as amended, the "Certificate of Incorporation"). (3) The Certificate of Incorporation is hereby further amended to effect the following amendments authorized by the Business Corporation Law: (a) Paragraph SECOND of the Certificate of Incorporation, which sets forth the purposes of the Corporation, is deleted in its entirety and replaced with the following: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Business Corporation Law of the State of New York as from time to time amended. The Corporation is not formed to engage in any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained. (b) Paragraph THIRD of the Certificate of Incorporation, which sets forth the amount of capital of the Corporation, is deleted in its entirety. (c)(i) Paragraph FOURTH of the Certificate of Incorporation, which sets forth the aggregate number of shares which the Corporation shall have authority to issue, is deleted in its entirety and replaced with the following: (1) The aggregate number of shares which the Corporation shall have authority to issue is 1000 shares of common stock, par value $.01 per share ("Common Stock"). Upon filing of the Restated Certificate of Incorporation by the Department of State of the State of New York, each share of Class A Voting Common Stock, par value $2.00 per share, of the Corporation then issued and outstanding and each share of Class B Non-Voting Common Stock, par value $2.00 per share, of the Corporation then issued and outstanding, will be changed into 1/37.5 shares of Common Stock, par value $.01 per share, of the Corporation. (2) The holders of Common Stock will vote as one class on all actions for which shareholder approval is required by law, this Certificate of Incorporation or the By-laws of the Corporation, and each share of Common Stock will have one vote. (ii)(A) The capital structure of the Corporation prior to the filing of the Restated Certificate of Incorporation by the Department of State is as follows: (1) 5,000 authorized shares, par value $2.00 per share, of Class A Voting Common Stock, of which 375 shares are issued and outstanding and 4,625 shares are unissued, and (2) 45,000 authorized shares, par value $2.00 per share, of Class B Non-Voting Common Stock, of which 3,375 shares are issued and outstanding and 41,625 shares are unissued. (B) The terms of the changes to be effected by the Restated Certificate of Incorporation are as follows: (1) the elimination of the division between Class A Voting Common Stock and Class B Non-Voting Common Stock, which shall result in 50,000 authorized shares of Common Stock; (2) the execution of a reverse share-split whereby each share of Common Stock then issued and outstanding shall be changed into 1/37.5 shares of Common Stock, which shall result in an aggregate of 100 shares of Common Stock then issued and outstanding; (3) the reduction of the aggregate number of authorized shares of Common Stock from 50,000 shares to 1,000 shares; and (4) the reduction of the par value per share of Common Stock from $2.00 par value per share to $.01 par value per share. (C) Upon the filing of the Restated Certificate of Incorporation by the Department of State, the Corporation shall have an aggregate of 1,000 authorized shares, par value $.01 per share, of Common Stock of the Corporation, of which 100 shares are issued and outstanding and 900 shares are unissued. (d) Paragraph SIXTH of the Certificate of Incorporation, which sets forth a designation of the Secretary of State of the State of New York as agent of the Corporation upon whom process against it may be served and the post office address to which the Secretary of State shall mail a copy of any process against the Corporation served upon him or her as agent of the Corporation, is deleted in its entirety and replaced with the following: The Secretary of State of the State of New York is designated as agent of the Corporation upon whom process against it may be served. The Secretary of State will mail notice of such process against the Corporation to CT Corporation System, 111 Eighth Avenue, New York, New York 10011. 2 (e) Paragraph SEVENTH of the Certificate of Incorporation, which sets forth the duration of the Corporation, is deleted in its entirety. (f) Paragraph EIGHTH of the Certificate of Incorporation, which sets forth the number of directors of the Corporation, is deleted in its entirety. (g) Paragraph NINTH of the Certificate of Incorporation, which sets forth the names and addresses of the initial directors of the Corporation, is deleted in its entirety. (h) Paragraph TENTH of the Certificate of Incorporation, which sets forth the names and addresses of the initial subscribers of the Corporation, is deleted in its entirety. (i) Paragraph ELEVENTH of the Certificate of Incorporation, which sets forth the age and residency of the initial subscribers of the Corporation and the residency of the initial directors of the Corporation, is deleted in its entirety. (j) Paragraph TWELFTH of the Certificate of Incorporation, which sets forth the quorum and voting requirements for meetings of Shareholders of the Corporation, is deleted in its entirety. (k) Paragraph THIRTEENTH of the Certificate of Incorporation, which sets forth the quorum and voting requirements for meetings of the Board of Directors of the Corporation, is deleted in its entirety. (l) The Certificate of Incorporation is supplemented to add the following as Paragraph SIXTH of the Certificate of Incorporation, which sets forth the authorization for indemnification by the Corporation: The Corporation shall be authorized, to the fullest extent permitted by Article 7 of the Business Corporation Law of the State of New York, as the same may be amended and supplemented, to indemnify any and all persons whom it shall have power to indemnify under said Article from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said Article and, pursuant to Section 726 of such Article 7, the Corporation shall be authorized to purchase and maintain insurance to so indemnify such persons. The indemnification provided for herein shall not be deemed exclusive of any other rights to which any officer or director may be entitled under any By-Law, resolution of shareholders, resolution of directors, agreement, or otherwise, as permitted by said Article, as to action in any capacity in which he or she served at the request of the Corporation. (m) The Certificate of Incorporation is supplemented to add the following as Paragraph SEVENTH of the Certificate of Incorporation, which eliminates the personal liability of the Directors of the Corporation: 3 The personal liability of the Directors of the Corporation is hereby eliminated to the fullest extent permitted by the provisions of Section 402 of the Business Corporation Law, as the same may be amended and supplemented. (n) The Certificate of Incorporation is supplemented to add the following as Paragraph EIGHTH of the Certificate of Incorporation, which sets forth the procedures for amending the By-laws of the Corporation: In furtherance and not in limitation of the rights, powers, privileges and discretionary authority granted or conferred by the Business Corporation Law of the State of New York as from time to time amended, the Board of Directors of the Corporation is expressly authorized to make, alter, amend or repeal the By-laws of the Corporation, without any action on the part of the shareholders of the Corporation, but the shareholders may make additional Bylaws and may alter, amend or repeal any By-law whether adopted by them or otherwise. The Corporation may in its By-laws confer powers upon its Board of Directors in addition to the foregoing and in addition to the powers and authority expressly conferred upon the Board of Directors by applicable law. (4) The text of the Certificate of Incorporation is hereby restated as amended to read as herein set forth in full: FIRST: The name of the corporation is Gillette Machine & Tool Co., Inc. (the "Corporation"). SECOND: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Business Corporation Law of the State of New York as from time to time amended. The Corporation is not formed to engage in any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained. THIRD: (1) The aggregate number of shares which the Corporation shall have authority to issue is 1000 shares of common stock, par value $.01 per share ("Common Stock"). (2) The holders of Common Stock will vote as one class on all actions for which shareholder approval is required by law, this Certificate of Incorporation or the Bylaws of the Corporation, and each share of Common Stock will have one vote. FOURTH: The office of the Corporation is located in the County of Monroe, State of New York. FIFTH: The Secretary of State of the State of New York is designated as agent of the Corporation upon whom process against it may be served. The Secretary of State will mail notice of such process against the Corporation to CT Corporation System, 111 Eighth Avenue, New York, New York 10011. 4 SIXTH: The Corporation shall be authorized, to the fullest extent permitted by Article 7 of the Business Corporation Law of the State of New York, as the same may be amended and supplemented, to indemnify any and all persons whom it shall have power to indemnify under said Article from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said Article and, pursuant to Section 726 of such Article 7, the Corporation shall be authorized to purchase and maintain insurance to so indemnify such persons. The indemnification provided for herein shall not be deemed exclusive of any other rights to which any officer or director may be entitled under any By-Law, resolution of shareholders, resolution of directors, agreement, or otherwise, as permitted by said Article, as to action in any capacity in which he or she served at the request of the Corporation. SEVENTH: The personal liability of the Directors of the Corporation is hereby eliminated to the fullest extent permitted by the provisions of Section 402 of the Business Corporation Law, as the same may be amended and supplemented. EIGHTH: In furtherance and not in limitation of the rights, powers, privileges and discretionary authority granted or conferred by the Business Corporation Law of the State of New York as from time to time amended, the Board of Directors of the Corporation is expressly authorized to make, alter, amend or repeal the By-laws of the Corporation, without any action on the part of the shareholders of the Corporation, but the shareholders may make additional Bylaws and may alter, amend or repeal any By-law whether adopted by them or otherwise. The Corporation may in its By-laws confer powers upon its Board of Directors in addition to the foregoing and in addition to the powers and authority expressly conferred upon the Board of Directors by applicable law. (5) This amendment to and restatement of the Certificate of Incorporation was authorized, pursuant to Sections 803(a), 708(b) and 615(a) of the Business Corporation Law, by unanimous written consent of the Board of Directors setting forth the action so taken signed by all the Directors, followed by unanimous written consent setting forth the action so taken signed by the holders of all outstanding shares entitled to vote thereon. 5 IN WITNESS WHEREOF, the undersigned have executed, and subscribed this certificate and do affirm the foregoing as true under penalty of perjury this 29TH day of October, 1999. /s/ Darren J. Gillette ------------------------------------- Darren J. Gillette President /s/ Ronald M. Miller ------------------------------------- Ronald M. Miller Vice President, Treasurer and Secretary 6 EX-3.12 20 BY LAWS OF GILLETTE Exhibit 3.12 BY-LAWS OF GILLETTE MACHINE & TOOL CO., INC. ARTICLE I SHAREHOLDERS SECTION . ANNUAL MEETING. The annual meeting of the shareholders of Gillette Machine & Tool Co., Inc. (the "Corporation") shall be held either within or without the State of New York, at such place and on such date and time as the Board of Directors may designate from time to time in the call of the meeting or in a waiver of notice thereof, on such date as the Board of Directors shall fix by resolution in each year beginning with the year 1999 for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting. SECTION 2. SPECIAL MEETINGS. Special Meetings of the shareholders may be called by the Board of Directors or by the President, and shall be called by the President or by the Secretary upon the written request of the holders of record of at least thirty-five percent (35%) of the shares of stock of the Corporation, issued and outstanding and entitled to vote, at such times and at such place either within or without the State of New York as may be stated in the call or in a waiver of notice thereof. SECTION 3. NOTICE OF MEETINGS. Notice of the time, place and purpose of every meeting of shareholders shall be delivered personally or mailed not less than ten days nor more than sixty days previous thereto to each shareholder of record entitled to vote, at such shareholder's post office address appearing upon the records of the Corporation or at such other address as shall be furnished in writing by him or her to the Corporation for such purpose. Such further notice shall be given as may be required by law or by these By-laws. Any meeting may be held without notice if all shareholders entitled to vote are present in person or by proxy, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 4. QUORUM. The holders of record of at least a majority of the shares of the stock of the Corporation, issued and outstanding and entitled to vote, present in person or by proxy, shall, except as otherwise provided by law or by these By-laws, constitute a quorum at all meetings of the shareholders; if there be no such quorum, the holders of a majority of such shares so present or represented may adjourn the meeting from time to time until a quorum shall have been obtained. SECTION 5. ORGANIZATION OF MEETINGS. Meetings of the shareholders shall be presided over by the Chairman of the Board, if there be one, or if the Chairman of the Board is not present by the President, or if the President is not present, by a chairman to be chosen at the meeting. The Secretary of the Corporation, or in the Secretary of the Corporation's absence, an Assistant Secretary, shall act as Secretary of the meeting, if present. 1 SECTION 6. VOTING. At each meeting of shareholders, except as otherwise provided by statute or the Certificate of Incorporation, every holder of record of stock entitled to vote shall be entitled to one vote in person or by proxy for each share of such stock standing in his or her name on the records of the Corporation. Elections of directors shall be determined by a plurality of the votes cast and, except as otherwise provided by statute, the Certificate of Incorporation, or these By-laws, all other action shall be determined by a majority of the votes cast at such meeting. Each proxy to vote shall be in writing and signed by the shareholder or by such shareholder's duly authorized attorney. At all elections of directors, the voting shall be by ballot or in such other manner as may be determined by the shareholders present in person or by proxy entitled to vote at such election. With respect to any other matter presented to the shareholders for their consideration at a meeting, any shareholder entitled to vote may, on any question, demand a vote by ballot. A complete list of the shareholders entitled to vote at each such meeting, arranged in alphabetical order, with the address of each, and the number of shares registered in the name of each shareholder, shall be prepared by the Secretary and shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. SECTION 7. INSPECTORS OF ELECTION. The Board of Directors in advance of any meeting of shareholders may appoint one or more Inspectors of Election to act at the meeting or any adjournment thereof. If Inspectors of Election are not so appointed, the chairman of the meeting may, and on the request of any shareholder entitled to vote shall, appoint one or more Inspectors of Election. Each Inspector of Election, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of Inspector of Election at such meeting with strict impartiality and according to the best of his or her ability. If appointed, Inspectors of Election shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law. SECTION 8. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if, prior to such action, a written consent or consents thereto, setting forth such action, is signed by the holders of record of shares of the stock of the Corporation, issued and outstanding and entitled to vote thereon, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 2 ARTICLE II DIRECTORS SECTION 1. NUMBER, QUORUM, TERM, VACANCIES, REMOVAL. The Board of Directors of the Corporation shall consist of at least one person. The number of directors may be changed by a resolution passed by a majority of the whole Board or by a vote of the holders of record of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote. A majority of the members of the Board of Directors then holding office (but not less than one-third of the total number of directors ) shall constitute a quorum for the transaction of business, but if at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum shall have been obtained. Directors shall hold office until the next annual election and until their successors shall have been elected and shall have qualified, unless sooner displaced. Whenever any vacancy shall have occurred in the Board of Directors, by reason of death, resignation, or otherwise, other than removal of a director with or without cause by a vote of the shareholders, it shall be filled by a majority of the remaining directors, though less than a quorum (except as otherwise provided by law), or by the shareholders, and the person so chosen shall hold office until the next annual election and until a successor is duly elected and has qualified. Any one or more of the directors of the Corporation may be removed either with or without cause at any time by a vote of the holders of record of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote, and thereupon the term of the director or directors who shall have been so removed shall forthwith terminate and there shall be a vacancy or vacancies in the Board of Directors, to be filled by a vote of the shareholders as provided in these By-laws. SECTION 2. MEETINGS, NOTICE. Meetings of the Board of Directors shall be held at such place either within or without the State of New York, as may from time to time be fixed by resolution of the Board, or as may be specified in the call or in a waiver of notice thereof. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board, and special meetings may be held at any time upon the call of two directors, the Chairman of the Board, if one be elected, or the President, by oral, telegraphic or written notice, duly served on or sent or mailed to each director not less than two days before such meeting. A meeting of the Board may be held without notice immediately after the annual meeting of shareholders at the same place at which such meeting was held. Notice need not be given of regular meetings of the Board. Any meeting may be held without notice, if all directors are present, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors, if one be elected, shall preside at all meetings of the Board of Directors and of the shareholders, and the Chairman shall have and perform such other duties as from time to time may be assigned to the Chairman by the Board of Directors. 3 SECTION 4. COMMITTEES. The Board of Directors may, in its discretion, by resolution passed by a majority of the whole Board, designate from among its members one or more committees which shall consist of two or more directors. The Board may designate one or more directors as alternate members of any such committee, who may replace any absent or disqualified member at any meeting of the committee. Such committees shall have and may exercise such powers as shall be conferred or authorized by the resolution appointing them. A majority of any such committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board shall have power at any time to change the membership of any such committee, to fill vacancies in it, or to dissolve it. SECTION 5. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent or consents thereto is signed by all members of the Board, or of such committee as the case may be, and such written consent or consents is filed with the minutes of proceedings of the Board or committee. SECTION 6. COMPENSATION. The Board of Directors may determine, from time to time, the amount of compensation which shall be paid to its members. The Board of Directors shall also have power, in its discretion, to allow a fixed sum and expenses for attendance at each regular or special meeting of the Board, or of any committee of the Board. In addition, the Board of Directors shall also have power, in its discretion, to provide for and pay to directors rendering services to the Corporation not ordinarily rendered by directors, as such, special compensation appropriate to the value of such services, as determined by the Board from time to time. SECTION 7. CONFERENCE TELEPHONE MEETINGS. One or more directors may participate in a meeting of the Board of Directors, or of a committee of the Board of Directors, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. ARTICLE III OFFICERS SECTION 1. TITLES AND ELECTION. The officers of the Corporation, who shall be chosen by the Board of Directors at its first meeting after each annual meeting of shareholders, shall be a President, a Treasurer and a Secretary. The Board of Directors from time to time may elect a Chairman of the Board, one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other officers and agents as it shall deem necessary, and may define their powers and duties. Any number of offices may be held by the same person. SECTION 2. TERMS OF OFFICE. Officers shall hold office until their successors are chosen and qualify. SECTION 3. REMOVAL. Any officer may be removed, either with or without cause, at any time, by the affirmative vote of a majority of the Board of Directors. 4 SECTION 4. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the Secretary. Such resignation shall take effect at the time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 5. VACANCIES. If the office of any officer or agent becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the directors may choose a successor, who shall hold office for the unexpired term, as applicable, in respect of which such vacancy occurred. SECTION 7. PRESIDENT. The President shall be the chief executive officer of the Corporation and, in the absence of the Chairman, shall preside at all meetings of the Board of Directors, and of the shareholders. The President shall exercise the powers and perform the duties usual to the chief executive officer and, subject to the control of the Board of Directors, shall have general management and control of the affairs and business of the Corporation; the President shall appoint and discharge employees and agents of the Corporation (other than officers elected by the Board of Directors) and fix their compensation; and the President shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have the power to execute bonds, mortgages and other contracts, agreements and instruments of the Corporation, and shall do and perform such other duties as from time to time may be assigned to the President by the Board of Directors. SECTION 8. VICE PRESIDENTS. If chosen, the Vice Presidents, in the order of their seniority, shall, in the absence or disability of the President, exercise all of the powers and duties of the President. Such Vice Presidents shall have the power to execute bonds, notes, mortgages and other contracts, agreements and instruments of the Corporation, and shall do and perform such other duties incident to the office of Vice President and as the Board of Directors, or the President shall direct. SECTION 9. SECRETARY. The Secretary shall attend all sessions of the Board and all meetings of the shareholders and record all votes and the minutes of proceedings in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors. The Secretary, or in absence of the Secretary an Assistant Secretary or the Treasurer or an Assistant Treasurer, shall have the authorization to affix the corporate seal to any instrument requiring it. The Secretary shall have and be the custodian of the stock records and all other books, records and papers of the Corporation (other than financial) and shall see that all books, reports, statements, certificates and other documents and records required by law are properly kept and filed. SECTION 10. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys, and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board, taking proper 5 vouchers for such disbursements, and shall render to the directors whenever they may require it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. SECTION 11. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the absence or disability of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director. ARTICLE IV INDEMNIFICATION SECTION 1. ACTIONS BY OTHERS. The Corporation (1) shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that the person is or was a director or an officer of the Corporation and (2) except as otherwise required by Section 3 of this Article, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that the person is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person's conduct was unlawful. SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise against amounts paid in settlement and expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of (1) a threatened action, or a pending action which is settled or otherwise disposed of, or (2) any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought, or if no action or suit was brought, 6 any court of competent jurisdiction, shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. SECTION 3. SUCCESSFUL DEFENSE. To the extent that a present or former director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 or Section 2 of this Article, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. SECTION 4. SPECIFIC AUTHORIZATION. Any indemnification under Section 1 or Section 2 of this Article (unless ordered by a court), shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in said Sections 1 and 2. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the shareholders. SECTION 5. ADVANCE OF EXPENSES. Expenses (including attorney's fees) incurred by a present or former director, officer, employee, or agent in defending any civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall be ultimately determined that such person is not to be indemnified by the Corporation as authorized in this Article. Any advance of expenses pursuant to this Section shall be made by the Corporation only as authorized in the specific case by the Board of Directors by a majority vote of a quorum of directors. SECTION 6. RIGHT OF INDEMNITY NOT EXCLUSIVE. The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. SECTION 7. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article, the Business General Corporation Law of the State of New York or otherwise. 7 SECTION 8. CONTINUATION OF INDEMNITY. The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. SECTION 9. INVALIDITY OF ANY PROVISIONS OF THIS ARTICLE. The invalidity or unenforceability of any provision of this Article shall not affect the validity or enforceability of the remaining provisions of this Article. ARTICLE V CAPITAL STOCK SECTION 1. CERTIFICATES. The interest of each shareholder of the Corporation shall be evidenced by certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The certificates of stock shall be signed by the President or a Vice President and by the Secretary, or the Treasurer, or an Assistant Secretary, or an Assistant Treasurer, sealed with the seal of the Corporation or a facsimile thereof, and countersigned and registered in such manner, if any, as the Board of Directors may by resolution prescribe. Where any such certificate is countersigned by a transfer agent other than the Corporation or its employee, or registered by a registrar other than the Corporation or its employee, the signature of any such officer may be a facsimile signature. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation. SECTION 2. TRANSFER. The shares of stock of the Corporation shall be transferred only upon the books of the Corporation by the holder thereof in person or by his or her attorney, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. SECTION 3. RECORD DATES. The Board of Directors may fix in advance a date, not less than ten nor more than sixty days preceding the date of any meeting of shareholders, or the date for the payment of any dividend, or the date for the distribution or allotment of any rights, or the date when any change, conversion or exchange of capital stock shall go into effect, as a record date for the determination of the shareholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend, or to receive any distribution or allotment of such rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and in such case only such shareholders as shall be shareholders of record on the date so fixed shall be 8 entitled to such notice of, and to vote at, such meeting, or to receive payment of such dividend, or to receive such distribution or allotment or rights or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. SECTION 4. LOST CERTIFICATES. In the event that any certificate of stock is lost, stolen, destroyed or mutilated, the Board of Directors may authorize the issuance of a new certificate of the same tenor and for the same number of shares in lieu thereof. The Board may in its discretion, before the issuance of such new certificate, require the owner of the lost, stolen, destroyed or mutilated certificate, or the legal representative of the owner to make an affidavit or affirmation setting forth such facts as to the loss, destruction or mutilation as it deems necessary, and to give the Corporation a bond in such reasonable sum as it directs to indemnify the Corporation. ARTICLE VI CHECKS, NOTES, ETC. SECTION 1. CHECKS, NOTES, ETC. All checks and drafts on the Corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, may be signed by the President, any Vice President or the Treasurer and may also be signed by such other officer or officers, agent or agents, as shall be thereunto authorized from time to time by the Board of Directors. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 1. OFFICES. The office of the Corporation shall be in the County of Monroe, State of New York. The Corporation may have other offices either within or without the State of New York at such places as shall be determined from time to time by the Board of Directors as the business of the Corporation may require. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be determined by the Board of Directors. SECTION 3. CORPORATE SEAL. The seal of the Corporation shall be circular in form and contain the name of the Corporation, and the year and state of its incorporation. Such seal may be altered from time to time at the discretion of the Board of Directors. SECTION 4. BOOKS. There shall be kept at such office of the Corporation as the Board of Directors shall determine, within or without the State of New York, correct books and records of account of all its business and transactions, minutes of the proceedings of its shareholders, Board of Directors and committees, and the stock book, containing the names and addresses of the shareholders, the number of shares held by them, respectively, and the dates when they respectively 9 became the owners of record thereof, and in which the transfer of stock shall be registered, and such other books and records as the Board of Directors may from time to time determine. SECTION 5. VOTING OF STOCK. Unless otherwise specifically authorized by the Board of Directors, all stock owned by the Corporation, other than stock of the Corporation, shall be voted, in person or by proxy, by the President or any Vice President of the Corporation on behalf of the Corporation. ARTICLE VIII AMENDMENTS SECTION 1. AMENDMENTS. The vote of the holders of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote, shall be necessary at any meeting of shareholders to amend or repeal these By-laws or to adopt new By-laws. These Bylaws may also be amended or repealed, or new By-laws adopted, at any meeting of the Board of Directors by the vote of at least a majority of the entire Board; provided that any By-laws adopted by the Board may be amended or repealed by the shareholders in the manner set forth above. Any proposal to amend or repeal these By-laws or to adopt new By-laws shall be stated in the notice of the meeting of the Board of Directors or the shareholders, or in the waiver of notice thereof, as the case may be, unless all of the directors or the holders of record of all of the shares of stock of the Corporation, issued and outstanding and entitled to vote, are present at such meeting. 10 EX-3.13 21 ARTICLES OF INC GALAXY Exhibit 3.13 - -------------------------------------------------------------------------------- MICHIGAN DEPARTMENT OF COMMERCE -- CORPORATION AND SECURITIES BUREAU - -------------------------------------------------------------------------------- (FOR BUREAU USE ONLY) FILED Date Received JAN 25 1985 JAN 25 1985 ------------- Administrator MICHIGAN DEPT. OF COMMERCE ------------- EFFECTIVE DATE: Corporation & Securities Bureau - -------------------------------------------------------------------------------- CORPORATION IDENTIFICATION NUMBER | 1 | 0 | 3 | - | 1 | 5 | 8 | - -------------------------------------------------------------------------------- ARTICLES OF INCORPORATION For use by Domestic Profit Corporations (Please read instructions on last page before completing form) Pursuant to the provisions of Act 284, Public Acts of 1972, as amended, the undersigned corporation executes the following Articles: Article I - -------------------------------------------------------------------------------- The name of the corporation is: GALAXY INDUSTRIES CORPORATION - -------------------------------------------------------------------------------- Article II - -------------------------------------------------------------------------------- The purpose or purposes for which the corporation is organized is to engage in any activity within the purposes for which corporations may be organized under the Business Corporation Act of Michigan. - -------------------------------------------------------------------------------- Article III - -------------------------------------------------------------------------------- The total authorized capital stock is: 1. Common Shares 5,000 Par Value Per Share $10.00 Preferred Shares None Par Value Per Share $----- and/or shares without par value as follows: 2. Common Shares None Stated Value Per Share $----- Preferred Shares None Stated Value Per Share $----- 3. A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows: - -------------------------------------------------------------------------------- Article IV - -------------------------------------------------------------------------------- 1. The address of the registered office is: 41150 Joy Road Plymouth Michigan 48170 -------------------------------------------------------- ----- (Street Address) (City) (Zip Code) 2. The mailing address of the registered office if different than above: 41150 Joy Road Plymouth Michigan 48170 -------------------------------------------------------- ----- (P.O. Box) (City) (Zip Code) 3. The name of the resident agent at the registered office is ROBERT H. LEIDAL - -------------------------------------------------------------------------------- Article V - -------------------------------------------------------------------------------- The name(s) and address(es) of the incorporator(s) is (are) as follows: Name Residence or Business Address ROBERT H. LEIDAL 41150 Joy Road, Plymouth, MI 48170 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Article VI (Optional. Delete if not applicable) - -------------------------------------------------------------------------------- When a compromise or arrangement or a plan of reorganization of this corporation is proposed between this corporation and its creditors or any class of them or between this corporation and its shareholders or any class of them, a court of equity jurisdiction within the state, on application of this corporation or of a creditor or shareholder thereof, or on application of a receiver appointed for the corporation, may order a meeting of the creditors or class of creditors or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or reorganization, to be summoned in such manner as the court directs. If a majority in number representing 3/4 in value of the creditors or class of creditors, or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or a reorganization, agree to a compromise or arrangement or a reorganization of this corporation as a consequence of the compromise or arrangement the compromise or arrangement and the reorganization, if sanctioned by the court to which the application has been made, shall be binding on all the creditors or class of creditors, or on all the shareholders or class of shareholders and also on this corporation. - -------------------------------------------------------------------------------- Article VII (Optional, Delete if not applicable) - -------------------------------------------------------------------------------- Any action required or permitted by the Act to be taken at an annual or special meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to shareholders who have not consented in writing. - -------------------------------------------------------------------------------- Use space below for additional Articles or for continuation of previous Articles. Please identify any Article being continued or added. Attach additional pages if needed. I ( ), the incorporator(s) sign my ( ) name( ) this 18th day of January, 1985. /s/ Robert H. Leidal - --------------------------------------- ----------------------------------- Robert H. Leidal - --------------------------------------- ----------------------------------- - --------------------------------------- ----------------------------------- - --------------------------------------- ----------------------------------- DOCUMENT WILL BE RETURNED TO NAME AND MAILING ADDRESS INDICATED IN THE BOX BELOW. Include name, street and number (or P.O. box), city, state and ZIP code. - --------------------------------------- Charles G. [ILLEGIBLE], Esq. Telephone: 32900 Five Mile Rd. Area Code 313 Livonia, MI 48154 -------------- Number 647-5990 - --------------------------------------- ----------------- - -------------------------------------------------------------------------------- INFORMATION AND INSTRUCTIONS 1. Submit one original copy of this document. Upon filing, a microfilm copy will be prepared for the records of the Corporation and Securities Bureau. The original copy will then be returned to the address appearing in the box above as evidence of filing. Since this document must be microfilmed, it is important that the filing be legible. Documents with poor black and white contrast, or otherwise illegible, will be rejected. 2. This document is to be used pursuant to the provisions of Act 284, P.A. of 1972, by one or more persons for the purpose of forming a domestic profit corporation. 3. Article I -- The corporate name of a domestic profit corporation is required to contain one of the following words or abbreviations: "Corporation", "Company", "Incorporated", "Limited", "Corp.", "Co.", "Inc.", or "Ltd." 4. Article II -- State, in general terms, the character of the particular business to be carried on. Under section 202(b) of the Act, it is sufficient to state substantially, alone or without specifically enumerated purposes, that the corporation may engage in any activity within the purposes for which corporations may be organized under the Act. The Act requires, however, that educational corporations state their specific purposes. 5. Article III (2) -- The Act requires the incorporators of a domestic corporation having shares without par value to submit in writing the amount of consideration proposed to be received for each share which shall be allocated to stated capital. Such stated value may be indicated either in item 2 of article III or in a written statement accompanying the articles of incorporation. 6. Article IV -- A post office boy may not be designated as the address of the registered office. The mailing address may differ from the address of the registered office only if a post office box address in the same city as the registered office is designated as the mailing address. 7. Article V -- The Act requires one or more incorporators. The address(es) should include a street number and name (or other designation), city and state. 8. The duration of the corporation should be stated in the articles only if the duration is not perpetual. 9. This document is effective on the date approved and filed by the Bureau. A later effective date, no more than 90 days after the date of delivery, may be stated as an additional article. 10. The articles must be signed in ink by each incorporator. The names of the incorporators as set out in article V should correspond with the signatures. 11. FEES: Filing fee ............................................... $10.00 Franchise fee -- 1/2 mill (.0005) on each dollar of authorized capital stock, with a minimum franchise fee of ............................................... $25.00 Total minimum fees (Make remittance payable to State of Michigan) $35.00 12. Mail form and fee to: Michigan Department of Commerce Corporation and Securities Bureau Corporation Division P.O. Box 30054 Lansing, MI 48909 Telephone: (517) 373-0493 - -------------------------------------------------------------------------------- EX-3.14 22 AMENDED & RESTATED BYLAWS OF GALAXY Exhibit 3.14 AMENDED AND RESTATED BYLAWS OF GALAXY INDUSTRIES CORPORATION ARTICLE I STOCKHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of Galaxy Industries Corporation (the "Corporation") shall be held either within or without the State of Michigan, at such place and on such date and time as the Board of Directors may designate from time to time in the call of the meeting or in a waiver of notice thereof, on such date as the Board of Directors shall fix by resolution in each year beginning with the year 1999 for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting. SECTION 2. SPECIAL MEETINGS. Special Meetings of the stockholders may be called by the Board of Directors or by the President, and shall be called by the President or by the Secretary upon the written request of the holders of record of at least thirty-five percent (35%) of the shares of stock of the Corporation, issued and outstanding and entitled to vote, at such times and at such place either within or without the State of Michigan as may be stated in the call or in a waiver of notice thereof. SECTION 3. NOTICE OF MEETINGS. Notice of the time, place and purpose of every meeting of stockholders shall be delivered personally or mailed not less than ten days nor more than sixty days previous thereto to each stockholder of record entitled to vote, at such stockholder's post office address appearing upon the records of the Corporation or at such other address as shall be furnished in writing by him or her to the Corporation for such purpose. Such further notice shall be given as may be required by law or by these Bylaws. Any meeting may be held without notice if all stockholders entitled to vote are present in person or by proxy, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 4. QUORUM. The holders of record of at least a majority of the shares of the stock of the Corporation, is issued and outstanding and entitled to vote, present in person or by proxy, shall, except as otherwise provided by law or by these Bylaws, constitute a quorum at all meetings of the stockholders; if there be no such quorum, the holders of a majority of such shares so present or represented may adjourn the meeting from time to time until a quorum shall have been obtained. SECTION 5. ORGANIZATION OF MEETINGS. Meetings of the stockholders shall be presided over by the Chairman of the Board, if there be one, or if the Chairman of the Board is not present by the President, or if the President is not present, by a chairman to be chosen at the meeting. The Secretary of the Corporation, or in the Secretary of the Corporation's absence, an Assistant Secretary, shall act as Secretary of the meeting, if present. 1 SECTION 6. VOTING. At each meeting of stockholders, except as otherwise provided by statute for the Certificate of Incorporation, every holder of record of stock entitled to vote shall be entitled to one vote in person or by proxy for each share of such stock standing in his or her name on the records of the Corporation. Elections of directors shall be determined by a plurality of the votes cast and, except as the otherwise provided by statute, the Certificate of Incorporation, or these Bylaws, all other action shall be determined by a majority of the votes cast at such meeting. Each proxy to vote shall be in writing and signed by the stockholder or by such stockholder's duly authorized attorney. At all elections of directors, the voting shall be by ballot or in such other manner as may be determined by the stockholders present in person or by proxy entitled to vote at such election. With respect to any other matter presented to the stockholders for their consideration at a meeting, any stockholder entitled to vote may, on any question, demand a vote by ballot. A complete list of the stockholders entitled to vote at each such meeting, arranged in alphabetical order, with the address of each, and the number of shares registered in the name of each stockholder, shall be prepared by the Secretary and shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 7. INSPECTORS OF ELECTION. The Board of Directors in advance of any meeting of stockholders may appoint one or more Inspectors of Election to act at the meeting or any adjournment thereof. If Inspectors of Election are not so appointed, the chairman of the meeting may, and on the request of any stockholder entitled to vote shall, appoint one or more Inspectors of Election. Each Inspector of Election, before entering upon the discard of his duties, shall take and sign an oath faithfully to execute the duties of Inspector of Election at such meeting with strict impartiality and according to the best of his or her ability. If appointed, Inspectors of Election shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law. SECTION 8. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if, prior to such action, a written consent or consents thereto, setting forth such action, is signed by the holders of record of shares of the stock of the Corporation, issued and outstanding and entitled to vote thereon, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 2 ARTICLE II DIRECTORS SECTION 1. NUMBER, QUORUM, TERM, VACANCIES, REMOVAL. The Board of Directors of the Corporation shall consist of three persons. The number of directors may be changed by a resolution passed by a majority of the whole Board or by a vote of the holders of record of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote. A majority of the members of the Board of Directors then holding office (but not less than one-third of the total number of directors) shall constitute a quorum for the transaction of business, but if at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting form time to time until a quorum shall have been obtained. Directors shall hold office until the next annual election and until their successors shall have been elected and shall have qualified, unless sooner displaced. Whenever any vacancy shall have occurred in the Board of Directors, by reason of death, resignation, or otherwise, other than removal of a director with or without cause by a vote of the stockholders, it shall be filled by a majority of the remaining directors, though less than a quorum (except as otherwise provided by law), or by the stockholders, and the person so chosen shall hold office until the next annual election and until a successor is duly elected and has qualified. Any one or more of the directors of the Corporation may be removed either with or without cause at any time by a vote of the holders of record of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote, and thereupon the term of the director or directors who shall have been so removed shall forthwith terminate and there shall be a vacancy or vacancies in the Board of Directors, to be filled by a vote of the stockholders as provided in these Bylaws. SECTION 2. MEETINGS, NOTICE. Meetings of the Board of Directors shall be held at such place either within or without the State of Delaware, as may from time to time be fixed by resolution of the Board, or as may be specified in the call or in a waiver of notice thereof. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board, and special meetings may be held at any time upon the call of two directors, the Chairman of the Board, if one be elected, or the President, by oral, telegraphic or written notice, duel served on or sent or mailed to each director not less than two days before such meetings. A meeting of the Board may be held without notice immediately after the annual meeting of stockholders at the same place at which such meeting was held. Notice need not be given of regular meetings of the Board. Any meeting may be held without notice, if all directors are present, or if notice is waived in writing, either before or after the meeting, by those not present. SECTION 3. COMMITTEES. The Board of Directors may, in its discretion, by resolution passed by a majority of the whole board, designate form among its members one or more committees which shall consist of two or more directors. The Board may designate one or more directors as alternate members of any such committee, who may replace any absent or disqualified member at any meeting of the committee. Such committees shall have any may exercise such powers as shall 3 be confronted or authorized by the resolution appointing them. A majority of any such committee may determine its action and fix the time and place of its meetings, unless the board of Directors shall otherwise provide. The Board shall have power at any time to change the membership of any such committee, to fill vacancies in it, or to dissolve it. SECTION 4. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent or consents thereto is signed by all members of the Board, or of such committee as the case may be, and such written consent or consents is filed with the minutes of proceedings of the Board or Committee. SECTION 5. COMPENSATION. The Board of Directors may determine, from time to time, the amount of compensation which shall be paid to its members. The Board of Directors shall also have power, in its discretion, to allow a fixed sum and expenses for attendance at each regular or special meeting of the Board, or of any committee of the Board. In addition, the Board of Directors shall also have power, in its discretion, to provide for and pay to directors rendering services to the Corporation not ordinarily rendered by directors, as such, special compensation appropriate to the value of such services, as determined by the Board from time to time. SECTION 6. CONFERENCE TELEPHONE MEETINGS. One or more directors may participate in a meeting of the Board of Directors, or of a committee of the Board of Directors, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. ARTICLE III OFFICERS SECTION 1. TITLES AND ELECTION. The officers of the Corporation, who shall be chosen by the Board of Directors at its first meeting after each annual meeting of stockholders, shall be a President, a Treasurer and a Secretary. The Board of Directors from time to time may elect a Chairman of the Board, one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other officers and agents as it shall deem necessary, and may define their powers and duties. Any number of offices may be held by the same person. SECTION 2. TERMS OF OFFICE. Officers shall hold office until their successors are chosen and qualify. SECTION 3. REMOVAL. Any officer may be removed, either with or without cause, at any time, by the affirmative vote of a majority of the Board of Directors. SECTION 4. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the Secretary. Such resignation shall take effect at the time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 4 SECTION 5. VACANCIES. If the office of any officer or agent becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the directors may choose a successor, who shall hold office for the unexpired term in respect of which such vacancy occurred. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors, if one be elected, shall preside at all meetings of the Board of Directors and of the stockholders, and the Chairman shall have and perform such other duties as from time to time may be assigned to the Chairman by the Board of Directors. SECTION 7. PRESIDENT. The President shall be the chief executive officer of the Corporation and, in the absence of the Chairman, shall preside at all meetings of the Board of Directors, and of the stockholders. The President shall exercise the powers and perform the duties usual to the chief executive officer and, subject to the control of the Board of Directors, shall have general management and control of the affairs and business of the Corporation; the President shall appoint and discharge employees and agents of the Corporation (other than officers elected by the Board of Directors) and fix their compensation; and the President shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have the power to execute bonds, mortgages and other contracts, agreements and instruments of the Corporation, and shall do and perform such other duties as from time to time may be assigned to the President by the Board of Directors. SECTION 8. VICE PRESIDENTS. If chosen, the Vice Presidents, in the order of their seniority, shall, in the absence or disability of the President, exercise all of the powers and duties of the President. Such Vice Presidents shall have the power to execute bonds, notes, mortgages and other contracts, agreements and instruments of the Corporation, and shall do and perform such other duties incident to the office of Vice President and as the Board of Directors, or the President shall direct. SECTION 9. SECRETARY. The Secretary shall attend all sessions of the Board and all meetings of the stockholders and record all votes and the minutes of proceedings in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors. The Secretary shall affix the corporate seal to any instrument requiring it, and when so affixed, it shall be attested by the signature of the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer who may affix the seal to any such instrument in the event of the absence or disability of the Secretary. The Secretary shall have and be the custodian of the stock records and all other books, records and papers of the Corporation (other than financial) and shall see that all books, reports, statements, certificates and other documents and records required by law are properly kept and filed. SECTION 10. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys, and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the 5 Board, taking proper vouchers for disbursements, and shall render to the directors whenever they may require it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. SECTION 11. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the absence or disability of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director. ARTICLE IV INDEMNIFICATION SECTION 1. INDEMNIFICATION. The Corporation shall, to the fullest extent authorized or permitted by the Michigan Business Corporation Act, except as may be otherwise limited by Sections 2 through 9 of this Article, (a) indemnify any person, and his or her heirs, personal representatives, executors, administrators and legal representatives, who was, is, or is threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation (including a subsidiary corporation), limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise, whether or not for profit, or by reason of anything done by such person in such capacity (collectively, "Covered Matters"); and (b) pay or reimburse the reasonable expenses incurred by such person and his or her heirs, executors, administrators and legal representatives in connection with any Covered Matter in advance of final disposition of such Covered Matter. The Corporation may provide such other indemnification to directors, officers, employees and agents by insurance, contract or otherwise as is permitted by law and authorized by the Board of Directors. SECTION 2. ACTIONS BY OTHERS. The Corporation (1) shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director or an officer of the Corporation and (2) except as otherwise required by Section 3 of this Article, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent of or participant in another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts actually and reasonably incurred by such person in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NO LO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the 6 best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. SECTION 3. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent of or participant in another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the Corporation unless and only to the extent that a court of the State of Michigan or the court in which such action or suit was brought shall determine upon application that, despite adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which a court of the state of Michigan or such other court shall deem proper. SECTION 4. SUCCESSFUL DEFENSE. To the extent that a person who is or was a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1, 2 or 3 of this Article, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. SECTION 5. SPECIFIC AUTHORIZATION. Any indemnification under Section 1 or Section 2 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in said Sections 1, 2, and 3. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. SECTION 6. ADVANCE OF EXPENSES. Expenses incurred by any person who may have a right of indemnification under this Article in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the Corporation pursuant to this Article. SECTION 7. RIGHT OF INDEMNITY NOT EXCLUSIVE. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, 7 both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 8. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of or participant in another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article, the Michigan Business Corporation Act or otherwise. SECTION 9. INVALIDITY OF ANY PROVISIONS OF THIS ARTICLE. The invalidity or unenforceability of any provision of this Article shall not affect the validity or enforceability of the remaining provisions of this Article. ARTICLE V CAPITAL STOCK SECTION 1. CERTIFICATES. The interest of each stockholder of the Corporation shall be evidenced by certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The certificates of stock shall be signed by the President or a Vice President and by the Secretary, or the Treasurer, or an Assistant Secretary, or an Assistant Treasurer, sealed with the seal of the Corporation or a facsimile thereof, and countersigned and registered in such manner, if any, as the Board of Directors may by resolution prescribe. Where any such certificate is countersigned by a transfer agent other than the Corporation or its employee, or registered by a registrar other than the Corporation or its employee, the signature of any such officer may be a facsimile signature. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation. SECTION 2. TRANSFER. The shares of stock of the Corporation shall be transferred only upon the books of the Corporation by the holder thereof in person or by his or her attorney, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. SECTION 3. RECORD DATES. The Board of Directors may fix in advance a date, not less than ten nor more than sixty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the distribution or allotment of any fights, or the date 8 when any change, conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend, or to receive any distribution or allotment of such fights, or to exercise the fights in respect of any such change, conversion or exchange of capital stock, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such dividend, or to receive such distribution or allotment or fights or to exercise such fights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. SECTION 4. LOST CERTIFICATES. In the event that any certificate of stock is lost, stolen, destroyed or mutilated, the Board of Directors may authorize the issuance of a new certificate of the same tenor and for the same number of shares in lieu thereof. The Board may in its discretion, before the issuance of such new certificate, require the owner of the lost, stolen, destroyed or mutilated certificate, or the legal representative of the owner to make an affidavit or affirmation setting forth such facts as to the loss, destruction or mutilation as it deems necessary, and to give the Corporation a bond in such reasonable sum as it directs to indemnify the Corporation. ARTICLE VI CHECKS, NOTES, ETC. SECTION 1. CHECKS, NOTES, ETC. All checks and drafts on the Corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, may be signed by the President, any Vice President or the Treasurer and may also be signed by such officer or officers, agent or agents, as shall be thereunto authorized from time to time by the Board of Directors. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 1. OFFICES. The registered office of the Corporation shall be located at The Corporation Company, 30600 Telegraph Road, Bingham Farms, Michigan 48025 and said corporation shall be the registered agent of this Corporation in charge thereof. The Corporation may have other offices either within or without the State of Michigan at such places as shall be determined from time to time by the Board of Directors or the business of the Corporation may require. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be determined by the Board of Directors. SECTION 3. CORPORATE SEAL. The seal of the Corporation shall be circular in form and contain the name of the Corporation, and the year and state of its incorporation. Such seal may be altered from time to time at the discretion of the Board of Directors. 9 SECTION 4. BOOKS. There shall be kept at such office of the Corporation as the Board of Directors shall determine, within or without the State of Delaware, correct books and records of account of all its business and transactions, minutes of the proceedings of its stockholders, Board of Directors and committees, and the stock book, containing the names and addresses of the stockholders, the number of shares held by them, respectively, and the dates when they respectively became the owners of record thereof, and in which the transfer of stock shall be registered, and such other books and records as the Board of Directors may from time to time determine. SECTION 5. VOTING OF STOCK. Unless otherwise specifically authorized by the Board of Directors, all stock owned by the Corporation, other than stock of the Corporation, shall be voted, in person or by proxy, by the President or any Vice President of the Corporation on behalf of the Corporation. ARTICLE VIII AMENDMENTS SECTION 1. AMENDMENTS. The vote of the holders of at least a majority of the shares of stock of the Corporation, issued and outstanding and entitled to vote, shall be necessary at any meeting of stockholders to amend or repeal these Bylaws or to adopt new Bylaws. These Bylaws may also be amended or repealed, or new By-Laws adopted, at any meeting of the Board of Directors by the vote of at least a majority of the entire Board; provided that any Bylaws adopted by the Board may be amended or repealed by the stockholders in the manner set forth above. Any proposal to amend or repeal these Bylaws or to adopt new Bylaws shall be stated in the notice of the meeting of the Board of Directors or the stockholders, or in the waiver of notice thereof, as the case may be, unless all of the directors or the holders of record of all of the shares of stock of the Corporation, issued and outstanding and entitled to vote, are present at such meeting. 10 EX-4.2 23 FIRST SUPP. INDENTURE (OCT. 15, 1999) Exhibit 4.2 FIRST SUPPLEMENTAL INDENTURE Dated as of October 15, 1999 TO INDENTURE, Dated as of March 19, 1999 among PRECISION PARTNERS, INC., as Company, THE GUARANTORS named therein, and THE BANK OF NEW YORK, as Trustee FIRST SUPPLEMENTAL INDENTURE, dated as of October 15, 1999 (the "First Supplemental Indenture"), by and among PRECISION PARTNERS, INC., a Delaware corporation (the "Company"), the Guarantors under the Indenture referred to below (the "Guarantors") and THE BANK OF NEW YORK, as Trustee (the "Trustee"). W I T N E S S E T H : WHEREAS the Company and the Guarantors have heretofore executed and delivered to the Trustee an Indenture (the "Indenture"), dated as of March 19, 1999, providing for the issuance of an aggregate principal amount of $150,000,000 of 12% Senior Subordinated Notes due 2009 (the "Securities"); WHEREAS the Company has issued and outstanding $100 million of Securities; WHEREAS the Company desires and has requested the Trustee to join with the Company in the execution and delivery of this First Supplemental Indenture for the purpose of amending the Indenture in order to cure an ambiguity, omission, defect and inconsistency requiring the execution and delivery of a supplemental indenture by the Company or a Guarantor that is already a party to, and bound by, the Indenture in the event a Guarantor is merged with or into it in order to become a party to, and bound by, the Indenture; WHEREAS Section 9.1 of the Indenture provides that a supplemental indenture may be entered into by the Company, the Guarantors and the Trustee to change certain provisions of the Indenture or modify certain rights of the Holders of Securities without notice to or the consent of any Holder so long as such change does not, in the opinion of the Trustee, adversely affect the rights of any of the Holders in any material respect, including to cure any ambiguity, omission, defect or inconsistency; WHEREAS, an Opinion of Counsel stating that the modification of the terms of the Indenture pursuant to this First Supplemental Indenture do not adversely affect the rights of any of the Holders in any material respect has been delivered to the Trustee; and WHEREAS pursuant to Section 9.1 of the Indenture, the Trustee, the Company and the Guarantors are authorized to execute and deliver this Supplemental Indenture; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows: 1. DEFINITIONS. (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. (b) For all purposes of this First Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions 1 used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words "herein," "hereof" and "hereby" and other words of similar import used in this First Supplemental Indenture refer to this First Supplemental Indenture as a whole and not to any particular section hereof. 2. AMENDMENT. Clause (i) of Section 5.1 of the Indenture is amended to insert, at the end thereof, the following: "; PROVIDED that a Guarantor may merge with or into the Company or another Guarantor without complying with this clause (i)." 3. EFFECTIVENESS. This First Supplemental Indenture shall be effective on the date hereof and upon such effectiveness the Indenture shall be deemed to be modified and amended in accordance herewith and the respective rights, limitations of rights, obligations, duties and immunities under the Indenture of the Trustee, the Company, the Guarantors and the Holders of the Securities shall thereafter be determined, exercised and enforced under the Indenture subject in all respects to such modifications and amendments, and all the terms and conditions of this First Supplemental Indenture shall be deemed to be part of the terms and conditions of the Indenture for any and all purposes. 4. MISCELLANEOUS. 4.1. This First Supplemental Indenture is an indenture supplemental to and in implementation of the Indenture, and the Indenture and this First Supplemental Indenture shall henceforth be read and construed together. 4.2. The Indenture as supplemented by this First Supplemental Indenture is in all respects confirmed and preserved. 4.3. If any provision of this First Supplemental Indenture limits, qualifies or conflicts with any provision of the TIA, that is required under the TIA to be part of and govern any provision of this First Supplemental Indenture, the provision of the TIA shall control. If any provision of this First Supplemental Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the provisions of the TIA shall be deemed to apply to the Indenture as so modified or to be excluded by this First Supplemental Indenture, as the case may be. 4.4. In case any provision of this First Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 4.5. The Section headings herein are for convenience only and shall not affect the construction hereof. 4.6. Nothing in this First Supplemental Indenture, the Indenture, or the Securities, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder, and the Holders of the Securities, any benefit of 2 any legal or equitable right, remedy or claim under the Indenture, this First Supplemental Indenture or the Securities. 4.7. All covenants and agreements in this First Supplemental Indenture by the Company shall bind its successors and assigns, whether so expressed or not. 4.8. THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE OR ENTERED INTO AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. 4.9. This First Supplemental Indenture may be executed in counterparts, each of which shall be an original, and all of which taken together shall constitute one and the same instrument. 4.10 The Trustee makes no representation as to the validity or sufficiency of this First Supplemental Indenture. 3 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written. THE COMPANY: PRECISION PARTNERS, INC. By: /s/ Ronald M. Miller --------------------------------- Name: Ronald M. Miller Title: Chief Financial Officer GUARANTORS: CERTIFIED FABRICATORS, INC. By: /s/ Ronald M. Miller --------------------------------- Name: Ronald M. Miller Title: Vice President GENERAL AUTOMATION, INC. By: /s/ Ronald M. Miller --------------------------------- Name: Ronald M. Miller Title: Vice President NATIONWIDE PRECISION PRODUCTS CORP. By: /s/ Ronald M. Miller --------------------------------- Name: Ronald M. Miller Title: Vice President MID STATE MACHINE PRODUCTS By: /s/ Ronald M. Miller -------------------------------- Name: Ronald M. Miller Title: Vice President 4 GALAXY INDUSTRIES CORPORATION By: /s/ Ronald M. Miller --------------------------------- Name: Ronald M. Miller Title: Vice President CALBRIT DESIGN, INC. By: /s/ Ronald M. Miller -------------------------------- Name: Ronald M. Miller Title: Vice President TRUSTEE: THE BANK OF NEW YORK By: /s/ Remo J. Reale --------------------------------- Name: Remo J. Reale Title: Assistant Vice President 5 EX-4.3 24 SECOND SUPP. INDENTURE (OCT. 29, 1999) Exhibit 4.3 SECOND SUPPLEMENTAL INDENTURE dated as of October 29, 1999 TO INDENTURE dated as of March 19, 1999 among PRECISION PARTNERS, INC., as Company, THE GUARANTORS named therein, and THE BANK OF NEW YORK, as Trustee, as amended -1- SECOND SUPPLEMENTAL INDENTURE (this "Second Supplemental Indenture"), dated as of October 29, 1999, among GILLETTE MACHINE & TOOL CO., INC., a New York corporation (the "New Guarantor") and a newly acquired subsidiary of PRECISION PARTNERS, INC. (the "Company"), the Company, the existing guarantors (the "Existing Guarantors") under the Indenture referred to below, and THE BANK OF NEW YORK, a national banking corporation, as trustee under the Indenture referred to below (the "Trustee"). W I T N E S S E T H : WHEREAS the Company has heretofore executed and delivered to the Trustee an Indenture, dated as of March 19, 1999 (as amended by the First Supplemental Indenture dated as of October 15, 1999, the "Indenture"), providing for the issuance of an aggregate principal amount of $150,000,000 of 12% Senior Subordinated Notes due 2009 (the "Securities"); WHEREAS the Company has issued and outstanding $100 million of Securities under the Indenture; WHEREAS Section 4.14 of the Indenture provides that under certain circumstances the Company is required to cause the New Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Guarantor shall unconditionally guarantee all of the Company's obligations under the Securities pursuant to a Guarantee on the terms and conditions set forth herein and in Article 11 of the Indenture; WHEREAS Section 9.1 of the Indenture provides that a supplemental indenture may be entered into by the Company, the Existing Guarantors and the Trustee to change certain provisions of the Indenture or modify certain rights of the Holders of Securities without notice to or the consent of any Holder so long as such change does not, in the opinion of the Trustee, adversely affect the rights of any of the Holders in any material respect, including to add Guarantees with respect to the Securities; and WHEREAS pursuant to Section 9.1 of the Indenture, the Trustee, the Company, the Existing Guarantors and the New Guarantor are authorized to execute and deliver this Supplemental Indenture; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Guarantor, the Company, the Existing Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows: 1. DEFINITIONS. (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. (b) For all purposes of this Second Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words "herein," "hereof" and "hereby" and other words of -2- similar import used in this Second Supplemental Indenture refer to this Second Supplemental Indenture as a whole and not to any particular section hereof. 2. AGREEMENT TO GUARANTEE. The New Guarantor hereby agrees, jointly and severally with all other Guarantors, to guarantee the Company's obligations under the Securities on the terms and subject to the conditions set forth in Article 11 of the Indenture and to be bound by all other applicable provisions of the Indenture. From and after the date hereof, the New Guarantor shall be a Guarantor for all purposes under the Indenture and the Securities. 3. RATIFICATION OF INDENTURE; SECOND SUPPLEMENTAL INDENTURE PART OF INDENTURE. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Second Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby. 4. MISCELLANEOUS. 4.1 GOVERNING LAW. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 4.2 TRUSTEE MAKES NO REPRESENTATION. The Trustee makes no representation as to the validity or sufficiency of this Second Supplemental Indenture. 4.3 COUNTERPARTS. The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 4.4 EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction thereof. 4.5 CONFLICT WITH TIA. If any provision of this First Supplemental Indenture limits, qualifies or conflicts with any provision of the TIA, that is required under the TIA to be part of and govern any provision of this First Supplemental Indenture, the provision of the TIA shall control. If any provision of this First Supplemental Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the provisions of the TIA shall be deemed to apply to the Indenture as so modified or to be excluded by this First Supplemental Indenture, as the case may be. 4.6. SEVERABILITY. In case any provision of this First Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 4.7. NO THIRD PARTY BENEFICIARIES. Nothing in this Second Supplemental Indenture, the Indenture, or the Securities, express or implied, shall give to any Person, other -3- than the parties hereto and thereto and their successors hereunder and thereunder, and the Holders of the Securities, any benefit of any legal or equitable right, remedy or claim under the Indenture, this Second Supplemental Indenture or the Securities. IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the date first above written. New Guarantor: GILLETTE MACHINE & TOOL CO., INC. By: /s/ Ronald M. Miller -------------------------------- Name: Ronald M. Miller Title: Vice President Company: PRECISION PARTNERS, INC. By: /s/ Ronald M. Miller ------------------------------- Name: Ronald M. Miller Title: Chief Financial Officer Existing Guarantors: CERTIFIED FABRICATORS, INC. By: /s/ Ronald M. Miller -------------------------------- Name: Ronald M. Miller Title: Vice President GENERAL AUTOMATION, INC. By: /s/ Ronald M. Miller --------------------------------- Name: Ronald M. Miller Title: Vice President NATIONWIDE PRECISION PRODUCTS CORP. -4- By: /s/ Ronald M. Miller ---------------------------------- Name: Ronald M. Miller Title: Vice President MID STATE MACHINE PRODUCTS By: /s/ Ronald M. Miller ----------------------------------- Name: Ronald M. Miller Title: Vice President GALAXY INDUSTRIES CORPORATION By: /s/ Ronald M. Miller ------------------------------------ Name: Ronald M. Miller Title: Vice President Trustee: THE BANK OF NEW YORK By: /s/ Remo J. Reale ------------------------------------- Name: Remo J. Reale Title: Assistant Vice President -5- EX-4.6 25 REGISTRATION RIGHTS AGRMNT (MARCH 19, 1999) Exhibit 4.6 - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT Dated as of March 19, 1999 Among PRECISION PARTNERS, INC. and THE GUARANTORS NAMED HEREIN as Issuers and SALOMON SMITH BARNEY INC. and NATIONSBANC MONTGOMERY SECURITIES LLC as Initial Purchasers 12% Senior Subordinated Notes due 2009 - -------------------------------------------------------------------------------- - --------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "AGREEMENT") is dated as of March 19, 1999, by and among PRECISION PARTNERS, INC., a Delaware corporation (the "COMPANY"), and each of the Company's subsidiaries listed on the signature pages hereof, as guarantors (the "GUARANTORS" and, together with the Company, the "ISSUERS"), as issuers, and SALOMON SMITH BARNEY INC. and NATIONSBANC MONTGOMERY SECURITIES LLC., as Initial Purchasers (the "INITIAL PURCHASERS"). This Agreement is entered into in connection with the Purchase Agreement, dated March 16, 1999, by and among the Company, the Guarantors and the Initial Purchasers (the "PURCHASE AGREEMENT"), which provides for, among other things, the sale by the Company to the Initial Purchasers of $100,000,000 aggregate principal amount of the Company's 12% Senior Subordinated Notes due 2009 (the "NOTES") guaranteed by the Guarantors (the "GUARANTEES"). The Notes and the Guarantees are referred to herein as the "SECURITIES." In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Issuers have agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchasers and any subsequent holder or holders of each of the Notes. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Notes under the Purchase Agreement. The parties hereby agree as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: ADDITIONAL INTEREST: See Section 4(a) hereof. ADVICE: See Section 5 hereof. AFFILIATE: With respect to any specified person, "Affiliate" shall mean any other Person which, directly or indirectly, controls or is controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control," when used with respect to any person, means the power to direct the management and poli- -2- cies of such person, directly or indirectly whether through the ownership of voting securities, by contract or otherwise and the terms "controlling" and "controlled" have meanings correlative to the foregoing. AGREEMENT: See the introductory paragraphs hereto. CLOSING: See Purchase Agreement. COMPANY: See the introductory paragraphs hereto. EFFECTIVENESS DATE: See Section 3(a) hereof. EFFECTIVENESS PERIOD: See Section 3(a) hereof. EVENT DATE: See Section 4(b) hereof. EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. EXCHANGE NOTES: The 12% Senior Subordinated Notes due 2009, of the Company, guaranteed on a senior subordinated basis by each of the Guarantors, that are identical to the Notes in all material respects, except for the provisions regarding restrictions on transfer and Additional Interest, and the issuance thereof pursuant to the Exchange Offer shall have been registered pursuant to an effective Registration Statement in compliance with the Securities Act. EXCHANGE OFFER: See Section 2(a) hereof. EXCHANGE REGISTRATION STATEMENT: See Section 2(a) hereof. GUARANTORS: See the introductory paragraphs hereto. HOLDER: Any holder of a Registrable Note. INDEMNIFIED PERSON: See Section 7(c) hereof. INDEMNIFYING PERSON: See Section 7(c) hereof. INDENTURE: The Indenture, dated as of March 19, 1999, by and among the Issuers and The Bank of New York, as Trustee, pursuant to which the Notes and the Guarantees are be- -3- ing issued, as the same may be amended or supplemented from time to time in accordance with the terms thereof. INITIAL PURCHASERS: See the introductory paragraphs hereto. INITIAL SHELF REGISTRATION: See Section 3(a) hereof. INSPECTORS: See Section 5(m) hereof. ISSUE DATE: March 19, 1999, the date of original issuance of the Securities. ISSUERS: See the introductory paragraphs hereto. NASD: See Section 5(r) hereof. NOTES: See the introductory paragraphs hereto. OFFERING MEMORANDUM: The final offering memorandum of the Company dated March 16, 1999, in respect of the offering of the Securities. PARTICIPANT: See Section 7(a) hereof. PARTICIPATING BROKER-DEALER: See Section 2(b) hereof. PERSON: An individual, trustee, corporation, partnership, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. PRIVATE EXCHANGE: See Section 2(b) hereof. PRIVATE EXCHANGE NOTES: See Section 2(b) hereof. PROSPECTUS: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act and any term sheet filed pursuant to Rule 434 under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by refer- -4- ence or deemed to be incorporated by reference in such Prospectus. PURCHASE AGREEMENT: See the introductory paragraphs hereto. RECORDS: See Section 5(m) hereof. REGISTRABLE NOTES: Each Note upon its original issuance and at all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until (i) a Registration Statement (other than, with respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the Exchange Offer Registration Statement) covering such Note, Exchange Note or Private Exchange Note has been declared effective by the SEC and such Note, Exchange Note or such Private Exchange Note, as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange Notes that may be resold without complying with the prospectus delivery requirements under the Securities Act, (iii) such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture or (iv) such Note, Exchange Note or Private Exchange Note, as the case may be, may be resold without restriction pursuant to Rule 144 under the Securities Act. REGISTRATION STATEMENT: Any registration statement of the Issuers that covers any of the Notes, the Exchange Notes or the Private Exchange Notes (and the related Guarantees), filed with the SEC under the Securities Act, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. RULE 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of the issuer of -5- such securities being free of the registration and prospectus delivery requirements of the Securities Act. RULE 144A: Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. RULE 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. SECURITIES: See the introductory paragraphs hereto. SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. SHELF NOTICE: See Section 2(c) hereof. SHELF REGISTRATION: See Section 3(b) hereof. SUBSEQUENT SHELF REGISTRATION: See Section 3(b) hereof. TIA: The Trust Indenture Act of 1939, as amended. TRUSTEE: The trustee under the Indenture and the trustee under any indenture governing the Exchange Notes and Private Exchange Notes. UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in which securities of the Issuers are sold to an underwriter for reoffering to the public. 2. EXCHANGE OFFER (a) The Issuers shall (A) prepare and, on or prior to 180 days after the date of original issuance of the Notes (the "ISSUE DATE"), file with the SEC a Registration Statement under the Securities Act with respect to an offer by the Company to the holders of the Notes to issue and deliver to such holders, in exchange for Notes, a like principal amount of Exchange Notes (the "EXCHANGE OFFER"), (B) use their best efforts -6- to cause the Registration Statement relating to the Exchange Offer to be declared effective by the SEC under the Securities Act on or prior to 181 days after the Issue Date and (C) commence the Exchange Offer and use their best efforts to issue, on or prior to 210 days after the Issue Date, the Exchange Notes. The offer and sale of the Exchange Notes pursuant to the Exchange Offer shall be registered pursuant to the Securities Act on the appropriate form (the "EXCHANGE REGISTRATION STATEMENT") and duly registered or qualified under all applicable state securities or Blue Sky laws and will comply with all applicable tender offer rules and regulations under the Exchange Act and state securities or Blue Sky laws. The Exchange Offer shall not be subject to any condition, other than that the Exchange Offer does not violate any applicable law or interpretation of the staff of the SEC. Upon consummation of the Exchange Offer in accordance with this Section 2, the Issuers shall have no further registration obligations other than with respect to (i) Private Exchange Notes, (ii) Exchange Notes held by Participating Broker-Dealers and (iii) Notes or Exchange Notes as to which Section 3(a)(iii) hereof applies. No securities shall be included in the Exchange Registration Statement other than the Exchange Notes. (b) The Issuers may require each holder of Notes as a condition to its participation in the Exchange Offer to represent to the Issuers and their counsel in writing (which may be contained in the applicable letter of transmittal) that at the time of the consummation of the Exchange Offer (i) any Exchange Notes received by such holder will be acquired in the ordinary course of its business, (ii) such holder will have no arrangement or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes and (iii) such holder is not an Affiliate of an Issuer, or if it is an Affiliate of an Issuer, it will comply with the registration and prospectus delivery requirements of the Securities Act, to the extent applicable, (iv) if such Holder is a broker-dealer, receive Exchange Notes for its own account in exchange for the Notes that were acquired as a result of market-making or other trading activities and that it will be required to acknowledge that it will deliver a Prospectus in connection with any resale of such Exchange Notes, (v) such Holder will be able to trade the Exchange Notes acquired in the Exchange Offer without restriction under the Securities Act, and (vi) such Holder has full power and authority to transfer the Notes in exchange for the Exchange Notes and that -7- the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. If, prior to consummation of the Exchange Offer, an Initial Purchaser holds any Notes acquired by it and having, or that are reasonably likely to be determined to have, the status of an unsold allotment in the initial distribution, or any other holder of Notes is not entitled to participate in the Exchange Offer, the Company, upon the request of such Initial Purchaser or any such holder if a Shelf Registration Statement with respect to Notes held by such person is not then in effect shall, simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to such Initial Purchaser and any such holder, in exchange (the "PRIVATE EXCHANGE") for such Notes held by such Initial Purchaser and any such holder, a like principal amount of debt securities of the Company, guaranteed by each of the Guarantors on a senior subordinated basis, that are identical in all material respects to the Exchange Notes (the "PRIVATE EXCHANGE NOTES") (and that are issued pursuant to the same indenture as the Exchange Notes), except that the Private Exchange Notes may be subject to restrictions on transfer and bear a legend to such effect. The Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes. The Issuers and the Initial Purchasers acknowledge that the staff of the SEC has taken the position that any broker-dealer that owns Exchange Notes that were received by such broker-dealer for its own account in the Exchange Offer (a "PARTICIPATING BROKER-DEALER") may be deemed to be an "underwriter" within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes (other than a resale of an unsold allotment resulting from the original offering of the Notes). The Issuers and the Initial Purchasers also acknowledge that it is the SEC staff's position that if the Prospectus contained in the Exchange Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Notes, without naming the Participating Bro- -8- ker-Dealers or specifying the amount of Exchange Notes owned by them, such Prospectus may be delivered by Participating Broker-Dealers to satisfy their prospectus delivery obligations under the Securities Act in connection with resales of Exchange Notes for their own accounts, so long as the Prospectus otherwise meets the requirements of the Securities Act. In light of the foregoing, if requested by a Participating Broker-Dealer, the Issuers agree (x) to use their best efforts to keep the Exchange Registration Statement continuously effective for a period of up to 180 days or such earlier date as each Participating Broker-Dealer shall have notified the Company in writing that such Participating Broker-Dealer has resold all Exchange Notes acquired in the Exchange Offer (the "Applicable Period"), and (y) to comply with the provisions of Section 5 of this Agreement, as they relate to the Exchange Offer and the Exchange Registration Statement. Interest on the Exchange Notes and the Private Exchange Notes will accrue from (A) the later of (i) the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor and (ii) if the Notes are surrendered for exchange on a date in a period which includes the record date for an interest payment date to occur on or after the date of such exchange and as to which interest will be paid, the date on such interest payment date or (B), if no interest has been paid on the Notes, from the Issue Date. In connection with each Exchange Offer, the Issuers shall: (1) mail, or cause to be mailed, to each Holder of record entitled to participate in the Exchange a copy of the Prospectus forming part of the Exchange Registration Statement, together with an appropriate letter of transmittal and related documents; (2) use their best efforts to keep the Exchange Offer open for not less than 20 business days after the date that notice of the Exchange Offer is mailed to Holders (or longer if required by applicable law); (3) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; (4) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the -9- last business day on which the Exchange Offer shall remain open; and (5) otherwise comply in all material respects with all applicable laws, rules and regulations. As soon as practicable after the close of the applicable Exchange Offer and the applicable Private Exchange, if any, the Issuers shall: (1) accept for exchange all Registrable Notes validly tendered and not validly withdrawn pursuant to the applicable Exchange Offer and the applicable Private Exchange, if any; (2) deliver to the Trustee for cancellation all Registrable Notes so accepted for exchange and cause the Trustee to authenticate and deliver promptly to each Holder that validly tendered Notes and has not withdrawn such tender, Registrable Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the securities of such Holder so accepted for exchange. The Exchange Notes and the Private Exchange Notes shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and that, in either case, has been qualified under the TIA or is exempt from such qualification and shall provide that (a) the Exchange Notes shall not be subject to the transfer restrictions set forth in the Indenture and (b) the Private Exchange Notes shall be subject to the transfer restrictions set forth in such indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes will have the right to vote or consent as a separate class on any matter. (c) If, (i) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the Issuers are not permitted to effect the Exchange Offer, (ii) the Exchange Offer is not consummated within 210 days of the Issue Date, (iii) any holder of any Private Exchange Notes so requests in writing to the Issuers within 60 days after the -10- consummation of the Exchange Offer, or (iv) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Issuers within the meaning of the Securities Act), then in the case of each of clauses (i) to and including (iv) of this paragraph, the Issuers shall promptly deliver to the Holders and the Trustee written notice thereof (the "SHELF NOTICE") and shall file a Shelf Registration pursuant to Section 3 hereof. 3. SHELF REGISTRATION If at any time a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then: (a) SHELF REGISTRATION. The Issuers shall file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes not exchanged in the Exchange Offer, Private Exchange Notes and Exchange Notes as to which Section 2(c)(iv) is applicable (the "INITIAL SHELF REGISTRATION"). The Issuers shall use their best efforts to file with the SEC the Initial Shelf Registration on or before the applicable Filing Date. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Notes for resale by Holders. The Issuers shall not permit any securities other than the Registrable Notes to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below). The Issuers shall use their best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act on or prior to the 60th day after such filing obligation arises (the "EFFECTIVENESS DATE") and to keep the Initial Shelf Registration continuously effective under the Securities Act until the date which is two years from the Issue Date (the "EFFECTIVENESS PERIOD"), or such shorter period ending when (i) all Registrable Notes covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration has been declared effective under the Securities Act; PROVIDED, HOWEVER, that the -11- Effectiveness Period in respect of the Initial Shelf Registration shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the Securities Act and as otherwise provided herein. (b) SUBSEQUENT SHELF REGISTRATIONS. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Issuers shall use their best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 60 days of such cessation of effectiveness amend the Initial Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration (each, a "SUBSEQUENT SHELF REGISTRATION"). If a Subsequent Shelf Registration is filed, the Issuers shall use their best efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such subsequent Shelf Registration continuously effective for the remainder of the Effectiveness Period. As used herein the term "SHELF REGISTRATION" means the Initial Shelf Registration and any Subsequent Shelf Registration. (c) SUPPLEMENTS AND AMENDMENTS. The Issuers shall promptly supplement and amend any Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Registration Statement or by any underwriter of such Registrable Notes. 4. ADDITIONAL INTEREST (a) The Issuers and the Initial Purchasers agree that the Holders will suffer damages if the Issuers fail to fulfill their obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Issuers agree to pay, as liquidated damages, additional interest on the Notes -12- ("ADDITIONAL INTEREST") under the circumstances and to the extent set forth below (each of which shall be given independent effect): (i) if (A) neither the Exchange Registration Statement nor the Initial Shelf Registration has been filed on or prior to the applicable Filing Date or (B) notwithstanding that the Issuers have consummated or will consummate the Exchange Offer, the Issuers are required to file a Shelf Registration and such Shelf Registration is not filed on or prior to the Filing Date applicable thereto; or (ii) if (A) neither the Exchange Registration Statement nor the Initial Shelf Registration is declared effective by the SEC on or prior to the relevant Effectiveness Date or (B) notwithstanding that the Issuers have consummated or will consummate the Exchange Offer, the Issuers are required to file a Shelf Registration and such Shelf Registration is not declared effective by the SEC on or prior to the Effectiveness Date in respect of such Shelf Registration; (iii) if (A) the Issuers have not exchanged Exchange Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to the 180th day after the Issue Date or (B) if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period (other than such time as all Notes have been disposed of thereunder); (each such event referred to in clauses (i) through (iii) above being a "Registration Default") then, as the sole remedy available to affected Holders, commencing on the date of such Registration Default, Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days immediately following the date of such Registration Default and the rate of such Additional Interest shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period PROVIDED, HOWEVER, that the rate of Additional Interest that shall accrue on the Notes may not exceed in the aggregate 1.0% per annum; PROVIDED, FURTHER, HOWEVER, that (1) upon the filing of the applicable Exchange Registration Statement or the applicable Shelf Registration as required hereunder (in the case of clause (i) above of this Sec- -13- tion 4(a)), (2) upon the effectiveness of the applicable Exchange Registration Statement or the applicable Shelf Registration Statement as required hereunder (in the case of clause (ii) of this Section 4(a)), or (3) upon the exchange of the applicable Exchange Notes for all Notes tendered (in the case of clause (iii)(A) of this Section 4(a), or upon the effectiveness of the applicable Shelf Registration Statement which had ceased to remain effective (in the case of (iii)(B) of this Section 4(a)), Additional Interest on the Notes in respect of which such events relate as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue or accumulate, as the case may be. If, after the cure of all Registration Defaults then in effect, there is a subsequent Registration Default, the rate of additional interest for such subsequent Registration Default shall initially be 0.50%, regardless of the additional interest rate in effect with respect to any prior Registration Default at the time of the cure of such Registration Default. (b) The Issuers shall notify the Trustee (who shall be acting under and protected by the terms of the Indenture) within five business days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "EVENT DATE"). Any amounts of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 shall be payable in cash semiannually on each [ ] and [ ] (to the holders of record on the [ ] and [ ] immediately preceding such dates), commencing with the first such date occurring after any such Additional Interest commences to accrue until the applicable Registration Default has been cured. The amount of Additional Interest will be determined by multiplying the applicable rate of Additional Interest by the principal amount of the Registrable Notes, multiplied by a fraction, the numerator of which is the number of days such rate of Additional Interest was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. 5. REGISTRATION PROCEDURES In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or meth- -14- ods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Issuers hereunder, the Issuers shall: (a) Prepare and file with the SEC prior to the applicable Filing Date, a Registration Statement or Registration Statements as prescribed by Sections 2 or 3 hereof, and use their best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; PROVIDED, HOWEVER, that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers shall furnish to and afford the Initial Purchasers, and, if requested, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five days prior to such filing, or such later date as is reasonable under the circumstances). The Issuers shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Registrable Notes included in such Registration Statement, or any such Participating Broker-Dealer, as the case may be, their counsel, or the managing underwriters, if any, shall reasonably object on a timely basis. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement or Exchange Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any se- -15- curities being sold by a Participating Broker-Dealer covered by any such Prospectus. The Issuers shall be deemed not to have used their best efforts to keep a Registration Statement effective during the Effectiveness Period or the Applicable Period, as the case may be, relating thereto if the Issuers voluntarily take any action that would result in selling Holders of the Registrable Notes covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period unless such action is required by applicable law or permitted by this Agreement including without limitation, the provision in Sections 5(c)(v) and 5(e) and the last paragraph of Section 5. (c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto from whom the Company has received written notice that such Broker Dealer will be a Participating Broker-Dealer in the applicable Exchange Offer, notify the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, at the request of such Person, their counsel and the managing underwriters, if any, promptly (but in any event within 2 business days), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Issuers, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes or resales of Exchange Notes by Participating Broker-Dealers the representations and warranties of the Issuers contained in any agreement (including any underwriting agreement) contemplated -16- by Section 5(l) hereof cease to be true and correct in all material respects, (iv) of the receipt by the Issuers of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or written threat of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Issuers' determination that a post-effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its best efforts to obtain the withdrawal of any such order at the earliest possible moment. (e) If a Shelf Registration is filed pursuant to Section 3 and if reasonably requested by the managing underwriter or underwriters (if any), the Holders of a majority in aggregate principal amount of the Registrable Notes being sold -17- in connection with an underwritten offering (i) as promptly as practicable incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders, or counsel for any of them determine is reasonably necessary to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Issuers have received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each selling Holder of Registrable Notes and to each such Participating Broker-Dealer who so requests and, at the request of any such Person, to their respective counsel and each managing underwriter, if any, at the sole expense of the Issuers, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker- -18- Dealer who seeks to sell Exchange Notes during the Applicable Period, deliver to each selling Holder of Registrable Notes or each such Participating Broker-Dealer, as the case may be, at the request of any such Person, their respective counsel, and the underwriters, if any, at the sole expense of the Issuers, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Notes or any delivery of a Prospectus contained in the Exchange Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its reasonable best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request in writing; provided, however, that where Exchange Notes held by Participating Broker-Dealers or Registrable Notes are offered other than through an underwritten offering, the Issuers agree to cause their counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h), keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange held by Participating Broker-Dealers or the Registrable Notes covered by the Registration Statement; PROVIDED, HOWEVER, that the Issuers shall not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Registrable Notes and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which cer- -19- tificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. (j) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof during the period for which the Company is required to maintain an effective Registration Statement, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole expense of the Issuers, a supplement or post-effective amendment to the applicable Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, the Issuers shall not be required to amend or supplement a Registration Statement, any related Prospectus or any document incorporated therein by reference, in the event that, and for a period not to exceed an aggregate of 120 days in any calendar year if, (i) an event occurs and is continuing as a result of which a Shelf Registration would, in the Issuers' good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) (a) the Issuers determine in their good faith judgment that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Issuers or (b) the disclosure otherwise relates to a pending material business transaction that has not yet been publicly disclosed. -20- (k) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with certificates for the Registrable Notes in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes. (l) in the case of a Shelf Registration, enter into such agreements (including underwriting agreements) and take all such other appropriate actions as are reasonably requested in order to expedite or facilitate the registration or the disposition of such Registrable Notes, and in such connection, (i) make such representations and warranties to Holders of such Registrable Notes with respect to the business of the Issuers and their subsidiaries as then conducted and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; and (ii) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to the Issuers and the Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration with respect to all parties to be indemnified pursuant to said Section including, without limitation, such selling Holders). The above shall be done at each closing in respect of the sale of Registrable Notes, or as and to the extent required thereunder. (m) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by any selling Holder of such Registrable Notes being sold, or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Notes, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "INSPECTORS"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and instruments of the Is- -21- suers and subsidiaries of the Issuers (collectively, the "RECORDS") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Issuers and any of their subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement and Prospectus. Each Inspector shall agree in writing that it will keep the Records confidential and that it will not disclose or use for any market transactions in the Securities of any of Issuers any of the Records that the Issuers determine, in good faith, to be confidential and notify the Inspectors in writing are confidential unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or material omission in such Registration Statement or Prospectus, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, or (iii) the information in such Records has been made generally available to the public; provided, however, that prior notice shall be provided as soon as practicable to the Issuers of the potential disclosure of any information by such Inspector pursuant to clauses (i) or (ii) of this sentence to permit the Issuers to obtain a protective order (or waive the provisions of this paragraph (m)) and that such Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information (if practicable) to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of the Holder or any Inspector. (n) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Notes; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use their reasonable best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. -22- (o) Comply with all applicable rules and regulations of the SEC and make generally available to their securityholders with regard to any applicable Registration Statement, a consolidated earning statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any twelve-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which any Registrable Notes are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Issuers after the effective date of a Registration Statement, which statements shall cover said 12-month periods, consistent with the requirements of Rule 158. (p) Upon consummation of an Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Issuers addressed to the Trustee for the benefit of all Holders of Registrable Notes participating in the Exchange Offer or Private Exchange, as the case may be, that the Exchange Notes or Private Exchange Notes as the case may be, and the related indenture constitute legal, valid and binding obligations of the Issuers and the related Guarantees, the legal, valid and binding obligations of each Guarantor, enforceable against them in accordance with their respective terms subject to customary exceptions and qualifications, consistent with the requirements of Rule 158. (q) If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Notes by Holders to the Issuers (or to such other Person as directed by the Issuers) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Issuers shall mark, or cause to be marked, on such Registrable Notes that such Registrable Notes are being canceled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; PROVIDED that in no event shall such Registrable Notes be marked as paid or otherwise satisfied. (r) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes and their respective counsel in connection with any filings re- -23- quired to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (s) Use their reasonable best efforts to take all other steps reasonably necessary to effect the registration of the applicable Registrable Notes covered by a Registration Statement contemplated hereby. The Issuers may require each seller of any Registrable Notes as to which any registration is being effected to furnish to the Issuers such information regarding such seller and the distribution of such Registrable Notes as the Issuers may, from time to time, reasonably request. The Issuers may exclude from such registration the Registrable Notes of any seller for so long as such seller fails to furnish such information within a reasonable time after receiving such request and in such event shall have no further obligation under this Agreement (including without limitation the obligation under Section 4) with respect to such seller or any subsequent holder of such Registrable Notes. The Issuers shall not be required to provide any indemnification relating to any information provided in writing by any underwriter or any other Person with respect to the underwriter or other Person that provided such information to the Issuers for inclusion in such Registration Statement. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such seller not materially misleading. If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Issuers, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Issuers, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the applicable Regis- -24- tration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange Notes, as the case may be, to be sold by such Participating Broker-Dealer, as the case may be, that, upon actual receipt of any notice from the Issuers of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder or Participating Broker-Dealer, as the case may be, will forthwith discontinue disposition of such Registrable Notes or Exchange Notes, as the case may be, covered by such Registration Statement or Prospectus until such Holder's or Participating Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof, or until it is advised in writing (the "ADVICE") by the Issuers that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event that the Issuers shall give any such notice, the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Notes covered by such Registration Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof or (y) the Advice. 6. REGISTRATION EXPENSES All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers (other than any underwriting discounts or commissions) shall be borne by the Issuers whether or not the Exchange Registration Statement or any Shelf Registration is filed or becomes effective or the Exchange Offer is consummated, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes and determination of the eligibility of the Registrable Notes or Exchange -25- Notes for investment under the laws of such jurisdictions (x) where the holders of Registrable Notes or Exchange Notes, as the case may be, are located, or (y) as provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange Notes, as the case may be, to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing or reproducing prospectuses if the printing or reproducing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount of the Registrable Notes included in any Registration Statement or to be sold by any Participating Broker-Dealer, as the case may be, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Issuers and fees and disbursements of one special counsel for all of the sellers of each of the Registrable Notes (exclusive of any counsel retained pursuant to Section 7(c) hereof), (v) Securities Act liability insurance, if the Issuers desire such insurance, (vi) fees and expenses of all other Persons retained by the Issuers, (vii) internal expenses of the Issuers (including, without limitation, all salaries and expenses of officers and employees of the Issuers performing legal or accounting duties), (viii) the expense of any annual audit, (ix) any fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, and the obtaining of a rating of the securities, in each case, if applicable, and (x) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, indentures and any other documents necessary in order to comply with this Agreement. The Company shall not have any obligation to pay any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities. 7. INDEMNIFICATION AND CONTRIBUTION (a) The Issuers agree to indemnify and hold harmless each Holder of the Registrable Notes and each Participating Broker-Dealer selling the Exchange Notes during the Applicable Period, the affiliates, officers, directors and employees of each such Person, and each Person, if any, who controls any such Person within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "PAR- -26- TICIPANT"), from and against any and all losses, claims, damages, judgments, liabilities and expenses (including, without limitation, the reasonable legal fees and other reasonable out-of-pocket expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Issuers shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in the light of the circumstances under which they were made, not misleading, EXCEPT insofar as such losses, claims, damages or liabilities are caused by, arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Issuers in writing by such Participant expressly for use therein and with respect to any preliminary Prospectus, to the extent that any such loss, claim, damage or liability arises primarily from the fact that any Participant sold Registrable Notes or Exchange Notes to a person to whom there was not sent or given a copy of the Prospectus (as amended or supplemented) at or prior to the written confirmation of such sale if the Issuers shall have previously furnished copies thereof to the Participant in accordance herewith and the Prospectus (as amended or supplemented) would have corrected any such untrue statement or omission. (b) Each Participant agrees, severally and not jointly, to indemnify and hold harmless the Issuers, the Affiliates, officers, directors and employees, of the Issuers and each Person who controls the Issuers within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent (but on a several, and not joint, basis) as the foregoing indemnity from the Issuers to each Participant, but only with reference to information relating to such Participant furnished to the Issuers in writing by or on behalf of such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received -27- by such Participant from sales of Registrable Notes or Exchange Notes giving rise to such obligations. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "INDEMNIFIED PERSON") shall promptly notify the Persons against whom such indemnity may be sought (the "INDEMNIFYING PERSONS") in writing, and the Indemnifying Persons, upon request of the Indemnified Person, will be entitled to participate therein and may assume the defense thereof, including the employment of counsel reasonably acceptable to such Indemnified Person and payment of all fees and expenses relating to assumption of the defense by the Indemnifying Persons; PROVIDED, HOWEVER, that the failure to so notify the Indemnifying Persons will not relieve it from any liability under paragraph (a) or (b) above unless and to the extent such failure results in the forfeiture by the Indemnifying Person of substantial rights and defenses and the Indemnifying Person was not otherwise aware of such action or claim. After notice from the Indemnifying Parties to the Indemnified Parties of its election so to assume the defense thereof and approval by the Indemnified Parties of counsel appointed to defend such action, the Indemnifying Parties will not be liable to such Indemnified Parties under this Section 7 for any legal or other expenses, other than reasonable out-of-pocket costs of investigation, incurred by such indemnified party in connection with such defense, except as set forth in the next sentence. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Persons and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Persons shall have failed within a reasonable period of time to assume the defense and retain counsel reasonably satisfactory to the Indemnified Person on a timely basis, or (iii) the named parties in any such proceeding (including any impleaded parties) include both any Indemnifying Person and the Indemnified Person or any affiliate thereof and the Indemnified Persons shall have reasonably concluded, based on the advice of counsel, that representation of both parties by the same counsel would be inappropriate under applicable standards of professional conduct due to actual or potential differing interests between them. It is understood that the Indemnifying Per- -28- sons shall not, in connection with such proceeding or separate but substantially similar related proceedings in the same jurisdiction arising out of the same general allegations, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed promptly as they are incurred. Any such separate firm for the Participants and such control Persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Notes and Exchange Notes sold by all such Participants and shall be reasonably acceptable to the Issuers, and any such separate firm for the Issuers, their affiliates, officers, directors, representatives, employees and agents and such control Persons of such Issuers shall be designated in writing by such Issuers and shall be reasonably acceptable to the Holders. The Indemnifying Persons shall not be liable for any settlement of any proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed), but if settled with such consent or if there be a final non-appealable judgment for the plaintiff for which the Indemnified Person is entitled to indemnification pursuant to this Agreement, each of the Indemnifying Persons agrees to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Persons (which consent shall not be unreasonably withheld or delayed), effect any settlement or compromise of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party, or indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of such Indemnified Person. (d) If the indemnification provided for in paragraphs (a) and (b) of this Section 7 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such -29- paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand or such Participant or such other Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by PRO RATA allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages, judgments, liabilities and expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Notes or Exchange Notes, as the case may be, exceeds the amount of any damages that such Participant has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled -30- to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability that the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. 8. RULES 144 AND 144A The Issuers covenant and agree that they will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time such Issuers are not required to file such reports, such Issuers will, upon the request of any Holder or beneficial owner of Registrable Notes, make available such information necessary to permit sales pursuant to Rule 144A under the Securities Act. The Issuers further covenant and agree, for so long as any Registrable Notes remain outstanding they will take such further action as any Holder of Registrable Notes may reasonably request to the extent required from time to time to enable such holder to sell Registrable Notes without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. 9. MISCELLANEOUS (a) NO INCONSISTENT AGREEMENTS. The Issuers have not, as of the date hereof, and the Issuers shall not, after the date of this Agreement, enter into any agreement with respect to any of their securities that is inconsistent with the rights granted to the Holders of Registrable Notes in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Issuers' other issued and outstanding securities under any such agreements. The Issuers will not enter into any agreement with respect to any of their securities which will grant to any Person piggy-back registration rights with respect to any Registration Statement. -31- (b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Issuers shall not, directly or indirectly, take any action with respect to the Registrable Notes that would adversely affect the ability of the Holders of Registrable Notes to include such Registrable Notes in a registration undertaken pursuant to this Agreement. (c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (I) the Issuers and (II)(A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Notes and (B) in circumstances that would adversely affect the Participating Broker-Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount or liquidation preference, as the case may be, of the Exchange Notes held by all Participating Broker-Dealers; PROVIDED, HOWEVER, that Section 7 and this Section 10(c) may not be amended, modified or supplemented without the prior written consent of the Issuers and each Holder and each Participating Broker-Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be, disposed of pursuant to any Registration Statement) affected by any such amendment, modification or supplement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable may be given by Holders of at least a majority in aggregate principal of the Registrable Notes being sold pursuant to such Registration Statement. (d) NOTICES. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail (return receipt requested), next-day air courier or facsimile: (i) if to a Holder of Registrable Notes or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case -32- may be, set forth on the records of the registrar under the Indenture, the Exchange Indenture or of the Issuers, as appropriate. (ii) if to the Issuers, at the address as follows: PRECISION PARTNERS, INC. 5605 MacArthur Blvd., Suite 760 Irving, TX 75038 Facsimile No.:(972) 580-1551 Attention: Chief Financial Officer (iii) if to the Initial Purchasers, as provided in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if sent by facsimile. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in the Indenture if such communication relates to the Notes, Exchange Notes or Private Exchange Notes. (e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, the Holders and the Participating Broker-Dealers; PROVIDED, HOWEVER, that this Agreement shall not inure to the benefit of or be binding upon a successor of assign of a Holder or a Participating Broker-Dealer unless and to the extent such successor or assign holds Registrable Notes. (f) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. -33- (h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (i) SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) SECURITIES HELD BY THE ISSUERS OR THEIR AFFILIATES. Whenever the consent or approval of Holders of a specified percentage of Registrable Notes is required hereunder, Registrable Notes held by the Issuers or their affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (k) THIRD-PARTY BENEFICIARIES. Holders of Registrable Notes, and Participating Broker-Dealers are intended third-party beneficiaries of this Agreement, and this Agreement may be enforced by such Persons. (l) ENTIRE AGREEMENT. This Agreement and together with the Purchase Agreement and the Indenture are intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders on the one hand and the Issuers -34- on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. -35- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. PRECISION PARTNERS, INC. By: /s/ Ronald M. Miller --------------------------------------- Name: Ronald M. Miller Title: Chief Financial Officer CERTIFIED FABRICATORS, INC. By: /s/ Ronald M. Miller --------------------------------------- Name: Ronald M. Miller Title: Vice President GENERAL AUTOMATION, INC. By: /s/ Ronald M. Miller --------------------------------------- Name: Ronald M. Miller Title: Vice President NATIONWIDE PRECISION PRODUCTS CORP. By: /s/ Ronald M. Miller --------------------------------------- Name: Ronald M. Miller Title: Vice President -36- MID STATE MACHINE PRODUCTS By: /s/ Ronald M. Miller --------------------------------------- Name: Ronald M. Miller Title: Vice President GALAXY INDUSTRIES CORPORATION By: /s/ Ronald M. Miller --------------------------------------- Name: Ronald M. Miller Title: Vice President CALBRIT DESIGN, INC. By: /s/ Ronald M. Miller --------------------------------------- Name: Ronald M. Miller Title: Vice President -37- The foregoing Agreement is hereby confirmed and accepted as of the date first above written. SALOMON SMITH BARNEY INC. NATIONSBANC MONTGOMERY SECURITIES LLC as Initial Purchasers By: SALOMON SMITH BARNEY INC. By: /s/ Darren Friedman ---------------------------------- Name: Darren Friedman Title: Vice President By: NATIONSBANC MONTGOMERY SECURITIES LLC By: /s/ Brad A. Bernstein ---------------------------------- Name: Brad A. Bernstein Title: Managing Director EX-10.2 26 WAIVER & AMD TO CREDIT (AUG. 9, 1999) Exhibit 10.2 WAIVER AND AMENDMENT This WAIVER AND AMENDMENT ("Waiver and Amendment") is made as of August 9, 1999 by and among PRECISION PARTNERS, INC., a Delaware corporation (the "BORROWER"), PRECISION PARTNERS HOLDING COMPANY, a Delaware corporation, MID STATE MACHINE PRODUCTS, a Maine corporation, GALAXY INDUSTRIES CORPORATION, a Michigan corporation, CERTIFIED FABRICATORS, INC., a California corporation, CALBRIT DESIGN, INC., a California corporation, GENERAL AUTOMATION, INC., an Illinois corporation, and NATIONWIDE PRECISION PRODUCTS CORP., a New York corporation, the Lenders listed on the signature pages hereof (the "Lenders") and CITICORP U.S.A., INC., as Administrative Agent for the Lenders (in such capacity, the "Agent"). This agreement is made with reference to that certain Credit Agreement dated as of March 19, 1999, by and among the Borrower, the Guarantors, the Agent, Bank of America, N.A. (successor to NationsBank, N.A.), as Syndication Agent, Sun Trust Bank, Atlanta, as Documentation Agent, and the Lenders (the "Credit Agreement"). All capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement. WHEREAS, the Borrower, the Agent, the Documentation Agent, the Syndication Agent and the Lenders entered into the Credit Agreement; WHEREAS, the Borrower has requested waivers of compliance with, and amendment to, certain provisions of the Credit Agreement; and WHEREAS, the Required Lenders desire to waive compliance with and amend certain provisions of the Credit Agreement; Now, therefore, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. WAIVERS 1.1 Compliance with Section 7.1(b) (Consolidated Interest Coverage Ratio) only with respect to the period ending June 30, 1999, is hereby waived. 1.2 Compliance with Section 7.1(c) (Consolidated Fixed Charge Coverage Ratio) only with respect to the period ending June 30, 1999, is hereby waived. SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT 2.1 Section 7.1(b) of the Credit Agreement is hereby amended by replacing it with the following: CONSOLIDATED INTEREST COVERAGE RATIO. Permit the Consolidated Interest Coverage Ratio of the Borrower for any period of four consecutive fiscal quarters ending during any period set forth below (i) if the Consolidated Senior Leverage Ratio at the end of any such period for four consecutive fiscal quarters is less than or equal to 2.0 to 1.0, to be less than that set forth below in column A opposite such period, or (ii) if the Consolidated Senior Leverage Ratio is greater than 2.0 to 1.0, to be less than that set forth below in column B opposite such period: -2-
Consolidated Period Interest Coverage Ratio ------ ----------------------- A B Closing Date - March 31, 1999 1.90 to 1.0 1.90 to 1.0 April 1, 1999 - June 30, 1999 2.00 to 1.0 (waived) 2.00 to 1.0 (waived) July 1, 1999 - September 30, 1999 1.85 to 1.0 1.85 to 1.0 October 1, 1999 - December 31, 1999 1.90 to 1.0 1.90 to 1.0 January 1, 2000 - December 31, 2000 2.00 to 1.0 2.25 to 1.0 January 1, 2001 - December 31, 2001 2.25 to 1.0 2.50 to 1.0 January 1, 2002 - and thereafter 2.50 to 1.0 2.75 to 1.0
2.2 Section 7.1(c) of the Credit Agreement is hereby amended by replacing clause (iii) contained therein with the following: (iii) for the three quarters ending September 30, 1999, to be less than 0.95 to 1.0; SECTION 3. RATIFICATION OF AGREEMENT 3.1 To induce the Required Lenders to enter into this Waiver and Amendment, the Borrower and the Guarantors jointly and severally represent and warrant that after giving effect to this Waiver and Amendment no violation of the terms of the Credit Agreement exist and all representations and warranties contained in the Credit Agreement are true, correct and complete in all material respects on and as of the date hereof except to the extent such representations and warranties specifically relate to an earlier date in which case they were true, correct and complete in all material respects on and as of such earlier date. 3.2 Except as expressly set forth in this Waiver and Amendment, the terms, provisions and conditions of the Credit Agreement and the Credit Documents are unchanged, and said agreements, as amended, shall remain in full force and effect and are hereby confirmed and ratified. SECTION 4. COUNTERPARTS; CONDITIONS TO EFFECTIVENESS This Waiver and Amendment may be executed in any number of counterparts, and all such counterparts taken together shall be deemed to constitute one and the same instrument. Signature pages may be detached from counterpart documents and reassembled to form duplicate executed originals. This Waiver and Amendment shall become effective as of the date hereof upon the execution of the counterparts hereof by the Borrower, the Guarantors and the Required Lenders. SECTION 5. GOVERNING LAW THIS WAIVER AND AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. SECTION 6. ACKNOWLEDGMENT AND CONSENT BY THE GUARANTORS Each Guarantor hereby acknowledges that it has read this Waiver and Amendment and consents to the terms hereof and further confirms and agrees that its obligations under its Guarantee are not impaired or adversely affected by this Waiver and Amendment, and such Guarantee is, and shall continue to be, in full force and effect and is hereby confirmed and ratified in all respects. -3- Witness the execution hereof by the respective duly authorized officers of the undersigned as of the date first above written. PRECISION PARTNERS, INC. NATIONWIDE PRECISION PRODUCTS CORPORATION GALAXY INDUSTRIES CORPORATION MID STATE MACHINE PRODUCTS GENERAL AUTOMATION, INC. CERTIFIED FABRICATORS, INC. CALBRIT DESIGN, INC. By: /s/ R.M. Miller ---------------------------------- Name: Ronald M. Miller Title: Vice President PRECISION PARTNERS HOLDING COMPANY By: /s/ R.M. Miller ---------------------------------- Name: Ronald M. Miller Title: Chief Financial Officer -4- CITICORP U.S.A, INC. as Administrative Agent By: /s/ Nicolas Erni ------------------------------ Name: Nicolas Erni Title: Attorney In Fact CITICORP U.S.A., INC. as a Lender By: /s/ Nicolas Erni ------------------------------- Name: Nicolas Erni Title: Attorney In Fact BANK OF AMERICA, N.A. (successor to NationsBank, N.A.), as a Lender By: /s/ John J. O'Neill ------------------------------- Name: John J. O'Neill Title: Managing Director SUNTRUST BANK, ATLANTA as a Lender By: /s/ S. M. Hall ------------------------------- Name: Susan M. Hall Title: Director By: /s/ Chris T. Jones ------------------------------- Name: Chris T. Jones Title: Vice President EX-10.3 27 GE GAS TURBINE AGMT Exhibit 10.3 GENERAL ELECTRIC COMPANY GAS TURBINE SYSTEMS SOURCING OPERATION REFERENCE: AGREEMENT NUMBER: GE - Mid-State - 0002 BETWEEN: General Electric Company (Purchaser) Gas Turbine Sourcing Operation 300 Garlington Road P.O. Box 648 Greenville, SC 29602-0648 And: Mid-State Machine Products, Inc. (Seller) 1501 Verti Drive Winslow, Maine 04901 Whereas the parties wish to enter into a contractual relationship to establish terms, delivery periods, and pricing for the purchase and sale of certain machined products listed in Attachments "A" thru "D" and in consideration of mutual promises, Purchaser and Seller agree as follows: CONTRACT VISION A commitment to fully satisfy the ultimate customer by entering into a long term, mutually beneficial business relationship for a competitive advantage through continuous improvement processes. MUTUAL UNDERSTANDING: * build a creative partnership with multi-functional partnering teams to manage design integration, resource planning and quality * manage the relationship not transactions * commit totally to continuous improvement * manage total cost for mutual profitability * recognize co-destiny in business decisions through long term, productivity-based Agreement * share forecasts, plan long-range * reduce cycles through stocking programs, smooth loading and production control. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. -1- 1. TERM: The initial term of this agreement starts Nov. 1, 1998 and continues through those dates listed on Attachments "A" thru "D" with an option to extend for subsequent years. 2. TERMINATION: Purchaser or Seller may terminate this agreement at any time upon 180 days prior written notice to the other party. If the agreement is terminated by the purchaser other than for Seller's default, the purchaser is responsible to purchase from the Seller: * Reserve quantities of materials that have been stocked specifically for the Purchaser, provided, however, that in no case shall Purchaser's obligation in this regard exceed 1 year's worth of requirements (prior to any reschedule) or items normally stocked by Seller upon termination taking effect. Purchaser will buy back in accordance with his production schedule and will utilize this inventory prior to other established inventories. * Should potential cost reduction programs require equipment or tooling which is agreed to by both parties and solely beneficial to the Purchaser's process, the Purchaser will reimburse the Seller for all moneys expended but not amortized at the time of termination. Should this occur, Seller agrees to transfer or convey titles to Purchaser any and all such tooling and equipment as requested. 3. SCOPE: Seller shall supply the Purchaser machined products to support the Industrial & Power Systems Business in accordance with the items listed in Attachments "A" thru "D", updated periodically to incorporate the latest revisions. 4. GOAL: The Goal is defined as the ability of the Seller to support the Purchaser with quality parts, having on-time deliveries at competitive pricing. Both parties working together have the responsibility to achieve the Goal. 5. PRICING: A) Base pricing is fixed and shall not increase for the term of this Agreement - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. -2- except for when the Purchaser makes changes in design, materials, or requirements (new prices shall be set on development, drawing amendments or additional parts subsequently amending Attachments "A" thru "D"). 6. PRODUCTIVITY: Seller will continue to implement continuous productivity gains through 6 Sigma project activities. The productivity projects are jointly agreed on by both parties and involve the following types of activities: * Seller manufacturing process improvements, i.e. (cellularization, dedicated equipment, new equipment, upgraded tooling, etc.) * Seller involvement in design to assure manufacturability. * Joint effort at product standardization. * Seller will maximize productivity on fixed processes. * Seller will increase worker productivity. * Inventory control to level load shop activities and to maximize repeatability of similar units. * Purchaser will evaluate suggestions on a timely basis and rapidly implement those that are acceptable. * Purchaser to review their product in depth with the Seller to evaluate the feasibility of the following: A) Reducing testing requirements B) Relaxing tolerances when possible C) Developing similar shapes and features D) Material substitutions E) Redesigning to optimize manufacturability. * Scrap reduction for both mature and development parts. * Review of processes and equipment to ensure quality. * Added volume of similar components. All projects requiring Purchaser's approval will be documented and responded to utilizing the supplier CRS input form. An immediate reduction in the Seller's price will occur upon implementation of a productivity project funded by the Purchaser pursuant to Articles 4 and 5. For a productivity project funded by the Seller, the Seller's price will be reduced only after the Seller's is reimbursed for the tooling, fixturing, and/or equipment - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. -3- purchased for the project by the savings generated from the project pursuant to Articles 4 and 5. In both cases, tooling, fixturing, and/or equipment as identified in the productivity project will become the property of Purchaser upon completion. 7. GENERAL COST SAVINGS: Purchaser agrees to identify those savings and reductions gained through 6 Sigma project activities which are directly related to conducting business with the Seller and to share any savings that can be calculated and audited as directly attributable in terms of credit towards our cost reduction goals. Such examples are as listed: * Reduced transportation costs as compared to existing supplier use. * Reduced applied overhead. * Reduction of total effort extended by Purchaser to maintain program integrity. * Methods Changes 8. ORDERING: Purchase orders shall be issued by the individual Purchaser locations and subject to the Standard GE Conditions of Purchase. If a conflict exists between the terms of this contract and the Conditions of Purchase, the terms of this contract will take precedence FOR COMMERCIAL ORDERS ONLY. On Government orders the Conditions of Purchase shall take precedence. The purchase order shall contain the following specific data: A.) Purchase order number and date B.) Location C.) The FOB point and mode of shipment D.) Name and address of the person representing the Seller and Purchaser Purchase orders may include supplemental agreement clauses applicable to orders relating to the United States Government agreement and sub-contract. It is the intent of this agreement, that each Purchaser, when available, will order and invoice via Electronic Data Interchange (EDI), on a daily basis or as required. Each EDI order will reference the 1ocation's purchase order number, date ordered, and the name of the person entering the order. This method is solely a vehicle for transporting data between the parties. Purchaser commits to place a full 100% of its annual requirements of material and/or equipment covered under this Agreement with the exception of customer directed procurements and any notes appearing on attachments. Purchaser reserves the right on any purchase order issued hereunder for the work covered by this Agreement, to award up to 100% of its requirements to other suppliers in the event that one or more of the following occurs: - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. -4- A.) Seller ceases to remain a qualified supplier pursuant to Purchaser's qualification requirements. B.) Seller is unable to meet Purchaser's delivery, quality, or Goal requirements (Articles 8, 16, and 4, respectively) C.) Seller is in default of any of its obligations under this Agreement or under purchase order issued pursuant to this Agreement. In the event, however, that Purchaser does not achieve this purchase commitment, Seller may continue the relationship, on terms stated, or terminate this Agreement as if Seller had given notice of termination pursuant to Article 2. The preceding sentence states the sole recourse of the Seller for any inability or failure by the Purchaser to meet the stated purchase commitment. 9. CYCLE TIME: Seller is committed to the Goal of continuous improvement on all current cycle for commodities covered under this agreement. 10. AGREEMENT ADMINISTRATION: Contractual agreement review meetings will be held on an as-needed basis, but no fewer than one (1) per calendar year, to mutually evaluate the performance of each of the parties. The GEPS Supplier Scorecard will be the basis for the review with the areas to be addressed will include, but not be limited, to the following: - Information communication quality and accuracy - Purchase volume/payment history - Delivery/order lead time performance - Emergency order handling - Productivity teams status (i.e. Design Integration, Quality and Resource Planning) - Cost reductions implemented/documented - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. -5- At each review, the performance of each participant will be quantified where applicable. Goals to be achieved before the next review will be mutually established. 11. FORECASTING: Purchaser will provide as much forecasting information as possible to assist Seller in establishing and maintaining adequate stocking levels and/or to apply effective production control techniques (i.e. level load shop, perform line of balance, etc.) 12. TERMS OF PAYMENT: Payment by Purchaser shall be Net 45 days following the later date of Seller's invoices or receipt of product and services by Purchaser. Seller will re-bill any unearned discounts beyond 17 calendar days. GE Capital will negotiate payment discounts separately. 13. INVOICING: Invoices will be submitted by Seller to the Purchaser location indicated on the purchase order. Invoices will reference Purchaser's purchase order number and will contain such other information as Purchaser may reasonably request. As referenced in Article 8 "ORDERING" in the future the Seller will invoice the Purchaser via Electronic Data Interchange (EDI). Each EDI invoice must reference the 1ocation's purchase order number, item number, schedule number, and other required data as determined by Purchaser's Accounts Payable Organization. 14. SHIPPING TERMS: All shipments will be FOB Shipping Point, title to said goods to pass to Purchaser upon delivery to Purchaser's dock. Transportation charges to be billed directly to Purchaser by carrier and will be borne by Purchaser. Seller must use Purchaser's designated corporate- agreement careers which are indicated on the purchase order. Risk of loss remains with Seller until delivered to Purchaser. 15. SPECIFICATIONS: Product supplied under this agreement to be either commercial grade or specialty grade as defined by Purchaser's specifications or manufacturer stock number. No substitutions will be allowed without Purchaser's written approval. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. -6- 16. QUALITY: Seller agrees to meet purchaser's quality requirements and to work towards the established Purchaser's goal of a 6 Sigma Quality Level. Purchaser requirements include: * Process control of critical processes. * Responding to corrective action requests. * Established quality measurements. * Established quality improvement measurements. * A continuous improvement program to increase quality. * A documented quality system. * A documented quality program. * Maintain ISO 9000 Certification. The Seller also agrees to meet all quality requirements defined in Purchaser's supplier product quality plans as set forth in the purchase order. Failure of Seller to meet Purchaser's quality and qualification requirements will result in disqualification. 17. SECRECY AGREEMENT: The technical data and information which has been or may hereafter be furnished to Seller by Purchaser in connection with the Seller's supply of turbine related items, or purchasing services therefore, is the property of Purchaser, and has been furnished solely to enable Seller to render service to Purchaser, and has been furnished solely to enable Seller to render service to Purchaser and with the understanding (1) that Seller will not use or reproduce such technical data and information for any other purpose, (2) that Seller will take all reasonable care to ensure that such technical data and information is not disclosed to other parties, except to enable such parties to render service to Purchaser for products covered under this Agreement provided that in all such cases Seller shall require acceptance of this provision by the other party, (3) that Seller will not furnish, disclose, ship, export or re-export, directly or indirectly, any Purchaser furnished technical data or information (including computer software) and direct products thereof without first receiving the prior written consent of Purchaser and (4) that upon request Seller will promptly return all such technical data and information at any time during or after completion of such supply or purchasing services. The foregoing restrictions on disclosure and use of Purchaser's technical information and data shall not apply to any technical information and data which: - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. -7- a.) is already in Seller's possession at the time of first receipt from Purchaser; or b.) is independently developed by Seller's employees who had not had access to the technical information and data; or c.) is or becomes part of the public domain without breach of this agreement by Seller; or d.) is rightfully obtained by Seller from third persons without restriction or breach by this agreement by Seller. Execution of this agreement by both Purchaser and Seller indicates acceptance of the above provision. 18. INDEMNIFICATION: The Seller agrees to hold harmless and indemnify the Purchaser (its Customer) and other third parties from any rightful claims for personal and property damage and any associated costs, including but not limited to legal expenses, when such claims arise out of the performance of this agreement and are determined to be the result of the willful misconduct, or negligent acts or omissions of the Seller or Seller's agents, employees, or subcontractors. Furthermore, Seller agrees to maintain and provide insurance covering these liabilities in the amount and form as required under the Insurance Clause of this agreement. 19. INSURANCE: The Seller shall comply with the Social Security and Unemployment Insurance Laws, as now or hereafter enforced, and holds the Purchaser harmless against any demands for contribution of taxes with respect to the work payable under any such laws. Without limiting any of the other obligations or liabilities of the Seller, the Seller shall, before commencing work on the Purchaser's or its Customer's premises provide and maintain, until the work is completed and accepted by the Purchaser, minimum insurance coverage as follows:
TYPE OF COVERAGE LIMITS ---------------- ------ Workmen's Compensation, including Statutory coverage under Longshoremen's and Harbor Worker's act, where applicable Employer's Liability $1,000,000 Each Occurrence Comprehensive General Liability $2,000,000 Bodily Injury... Combined Single Limit Property Damage (including coverage for damaged Each Occurrence caused by blasting, collapse or structural injury and/or damage to property in the Seller's care, custody, or control)
- ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. -8-
TYPE OF COVERAGE LIMITS ---------------- ------ Contractor's Protective Liability, operations of $1,000,000 covering subcontractors, where applicable Combined Single Limit Bodily Injury... Each Occurrence Property Damage... Contractor's Liability in accordance $1,000,000 with agreement(s) between Purchaser and Seller Combined Single Limit Bodily Injury... Each Occurrence Property Damage... Comprehensive Automobile Liability covering $1,000,000 all owned, hired and non-owned automotive Combined Single Limit equipment used by or with the permission of Each Occurrence the Seller (including the loading and unloading thereof) with the Purchaser included as an additional insured Bodily Injury... Property Damage...
All such insurance policies shall be delivered to the Purchaser, if and when directed by the Purchaser, and in any event, the Seller shall arrange with the insurance carriers to furnish the Purchaser with a completed Certificate of Insurance Form, indicating that the required coverage are in force and will not be canceled or changed until ten (10) days after written notice is given to the Purchaser. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. -9- 20. PROPRIETARY RIGHTS AND PATENT INDEMNIFICATIONS: (a) If Seller provides Purchaser with one of Seller's "off-the-shelf" items which has been designed and developed by Seller, Purchaser acknowledges that Seller has all proprietary rights to such items, and Seller provides Purchaser with a license to use such items by selling said items to Purchaser. Such items are subject to the patent indemnification provisions of Article 18 of the "Conditions of Purchase". b) If Purchaser and Seller work together to design and develop a product or a process, all proprietary rights in such product or process will belong to Purchaser. Seller agrees to assign all rights in such products or processes to Purchaser. Purchaser reserves the right to assign or license all or part of such proprietary rights to Seller on a case-by-case basis, depending on several factors such as the amount of any development funds provided by Seller, the amount of time spent by Seller's engineers in developing a product or process at Seller's expense, and the amount of risk incurred by Seller with respect to the final commercial acceptability of the product or process. Any such assignment or license will be subject to GE Corporate Policy No. 30-10. The patent indemnification provisions of Article 18 of the "Conditions of Purchase" will not apply when Purchaser owns all proprietary rights; however, when Purchaser assigns or licenses all or part of the proprietary rights to Seller, the patent indemnification provisions of Article 18 of the "Conditions of Purchase" will be reviewed for applicability on a case-by-case basis. (c) If Purchaser provides Seller with specifications for a product or process, and Purchaser has designed and developed the specifications at its own cost through its own employees, consultants, subcontractors, etc., then all proprietary rights to the product or process belong to Purchaser. In this case, the patent indemnification provisions of Article 18 of the "Conditions of Purchase" will not apply to Seller. 21. FORCE MAJEURE: Neither party shall be liable to the other for default or delay in the performance of any of its obligations hereunder due to act of God, accident, fire, flood, storm, riot, war, sabotage, explosion, strike, government law, labor disturbance, national defense requirement, ordinance, rule or regulation, inability to obtain electricity or other type of energy, raw material, labor, equipment, or transportation, or any other cause beyond its reasonable control and without its fault or negligence, or as - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. -10- otherwise provided herein. Seller shall notify Purchaser in writing of any impending delay due to the occurrence of any of the preceding events. In the event of a partial interruption or failure of Seller's sources of product or distribution capability, Purchaser shall have the right to determine the distribution of its allocation among it's locations serviced from Seller's producing points. 22. COMPLETE AGREEMENT: This Agreement, including all matters expressly incorporated herein by reference, and the partnering agreement dated May 8th 1992, constitutes the entire and any agreement between the parties respecting the subject matter hereof, and there are merged herein all prior and pre-existing representations and agreements made by and between Purchaser and Seller. 23. NOTICES: Notices, reports, and other communications made with respect to this agreement shall be given in writing, addressed to the parties at the following addresses or such other addresses as may be designated in writing by either party to the other. All notices required to be given hereunder shall be effective when delivered by hand or when deposited in the United States Mail, with proper postage for First Class Mail Prepaid.
To Purchasers: Manny Gaspar Others on distribution: Jay Valachovic Walter Rhodes Strategic Sourcing General Electric Company GE Power Systems P.O. Box 648 Greenville, SC 29602 To Seller: Others on distribution: Richard M. Bolduc Douglas Sukeforth Outside Sales Contracts Manager Jim Ashton Ralph Robbins Manager of Sales Mid-State Machine Products, Inc. 1501 Verti Drive Winslow, ME 04901 (207) 873-6136
24. AMENDMENTS AND WAIVERS: No terms or provisions of this agreement may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the party against - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. -11- whom the enforcement of such change, waiver, discharge or termination is sought. 25. GOVERNING LAW: The validity, interpretation and performance of this agreement shall be determined in accordance with the Laws of the State of New York. IN WITNESS WHEREOF THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE EXECUTED: PURCHASER SELLER General Electric Company Mid-State Machine Products, Inc. Power Systems Sourcing Operation 1501 Verti Drive P.O. Box 648, 300 Garlington Road Winslow, ME 04901 Greenville, SC 29602 Signed /s/ Manny Gaspar Signed /s/ Richard M. Bolduc ---------------------------- -------------------------- By: Manny Gaspar By: Richard M. Bolduc Title: Strategic Sourcing Title: Outside Sales Contracts Manager Date 12/01/98 Date 12/01/98 ------------------------------ ---------------------------- Signed: /s/ Jay B. Valachovic Signed: /s/ Ralph Robbins --------------------------- ------------------------- By: Jay Valachovic By: Ralph Robbins Title: Strategic Sourcing Title: Manager of Sales Date: 12/01/98 Date: 12/01/98 --------------------------- -------------------------- rbgeagre November 9, 1998 - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. -12- STANDARD SCRAP AGREEMENT * * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. ATTACHMENT A * * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. ATTACHMENT B * * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. ATTACHMENT C * * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. ATTACHMENT D * * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. EX-10.4 28 PURCHASE AGMT CATERPILLAR & GALAXY (OCT. 26, 1999) Exhibit 10.4 PURCHASE AGREEMENT This Agreement is made as of the 26th day of October, 1999, by and between Caterpillar Inc., a Delaware corporation ("Buyer"), and Galaxy Industries Corporation, a privately held Michigan Corporation, ("Seller"), 41150 Joy Road, Plymouth, Michigan 48170, for purchase and sale of 3406C and 3406E cylinder block assemblies. Buyer and Seller hereby agree as follows: 1. PRODUCTS COVERED BY AGREEMENT - --------------------------------- This Agreement concerns the purchase and sale of 3406C and 3406E cylinder block assemblies for the Caterpillar model 3406C and 3406E engines (such cylinder block assemblies are hereinafter called "Product" and are more particularly identified by the Caterpillar Part numbers specified in Exhibit A), manufactured to Buyer's specifications. 2. PURCHASE AND SALE OF PRODUCT - -------------------------------- Seller will maintain adequate capacity to manufacture not less than * units of Product annually based on a five day per week work schedule calculated at an eighty (80) percent efficiency factor. Buyer commits to purchase a minimum of * units of Product annually. Notwithstanding the foregoing purchase requirements obligation, nothing in this Agreement shall preclude Buyer from sourcing Product from suppliers other than Seller in order to enable Buyer to meet governmentally determined local country sourcing or minimum content requirements, whether mandated or established by other means such as quotas, duties or fiscal incentives or penalties. 3. PRODUCT PRICES - ------------------ Prices are effective February 23, 2000 and are as shown in Exhibit A and subsequently adjusted as provided in Section 9. Exhibit A may be modified from time to time by the signed written agreement of both parties. 4. TOOLING - ----------- From time to time, Buyer will issue to Seller durable tooling, fixture and/or gauging purchase orders authorizing Seller to purchase, and to charge back to Buyer, certain durable tooling, fixtures and/or gauging. Such durable tooling, fixtures and/or gauging will not exceed * in cost and is identified in Exhibit B hereto. Buyer shall retain ownership of all such items listed in Exhibit B, and Seller agrees to properly maintain such items at its own expense. 5. TERM - -------- Buyer shall commence its purchases under this Agreement February 23, 2000. Unless terminated pursuant to other provisions herein, this Agreement shall continue until terminated by either party at any time upon not less than twelve (12) months prior written notice to the other party specifying the effective date of termination; provided, however, that in no event shall the effective date of termination be prior to February 23, 2006. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 1 6. TERMINATION - -------------- Buyer may terminate this Agreement at any time, either totally or partially, in the event of the following defaults by the Seller which are not cured within thirty (30) days of written notice to the Seller. (a) QUALITY - Products do not consistently meet Buyer's technical, quality, reliability, and other specifications as they exist today and are communicated to Seller from time to time. Buyer will not be liable for any expenses, material, tooling, labor, or burden due to substandard quality. (b) DELIVERY - Seller does not meet all Buyer schedules with timely shipments and daily shipments, if required. Buyer should not have to expedite normal deliveries. It is the obligations of the Seller to maintain an up to schedule condition after a reasonably time period. That time period will be agreed upon by Seller and Buyer for each part number listed in Exhibit A. Upon cases of nondelivery, in addition to any other rights hereunder or provided by law, Buyer has the right to purchase the needed Product on the open market in a commercially reasonable manner, and Buyer and Seller agree to negotiate "cost to cover" charges as well as mitigate Buyer damages. (c) COMPETITIVENESS - Seller fails to be responsive to the market place or fails to remain competitive with other manufacturers of comparable parts in terms of price, quality, quantity, availability, engineering, services, technology, reliability, and timely delivery. For purposes of this contract, prices shown in Exhibit A are deemed to be competitive. (d) SELLER INSOLVENCY - Seller shall become insolvent or otherwise generally be unable to pay debts as they come due, or make a general assignment for the benefit of creditors. (e) SELLER BANKRUPTCY - A petition under any bankruptcy act or similar statute is filed by a creditor or Seller and is not vacated with ten (10) days through court order. (f) DEFAULT GENERALLY - Default by Seller in any obligation owed by Seller to Buyer. Buyer's decision on termination shall be final. Seller has (30) days from postmarked date of written notice to rectify defaults. Buyer will be reasonably in making the final decision. 7. USE OF OTHER SUPPLY SOURCES - ------------------------------- Nothing in this Agreement shall prevent Buyer from seeking other sources for Product if Seller's production capacity is insufficient to meet Buyer's needs. Seller will be provided the opportunity to quote additional volumes. 8. SHIPPING INSTRUCTIONS, TERMS AND CONDITIONS - ----------------------------------------------- Buyer requires 100% on time shipments of the delivery plan to meet production and service requirements. Orders will be placed using Buyer's standard purchase order and shipping instruction forms. Any special freight charges will be Seller's responsibility if necessary to meet not more than one hundred fifteen percent (115%) of Buyer's then current requirements, provided Seller is given not less than twenty (20) days notice of such requirements. The terms and conditions of Buyer's purchase order will govern these purchases to the extent that they are not inconsistent with this Agreement. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 2 9. PRICE CONTAINMENT - --------------------- Both Seller and Buyer are committed to controlling and reducing costs, and both recognize that effective cost control is of the essence to this Agreement. While this Agreement is in effect, Seller will maintain a cost control and reduction program with respect to Product, and will review costs on a regular basis for progress toward the objective of maintaining or reducing Seller's prices to Buyer. A constant interaction between Buyer's and Seller's engineering personnel is essential. All documented cost savings on Seller's machining of the cylinder block, whether through the efforts of Seller or Buyer, will be shared on a 50/50 basis. 10. ASSIGNMENT; APPLICABLE LAW - ------------------------------- This Agreement is not assignable by Seller without the written consent of Buyer and will be governed by and construed in accordance with the laws of the State of Illinois, without regard to the conflict of laws provisions thereof. 11. CHANGE IN OWNERSHIP AND CONTROL - ------------------------------------ During this Agreement, if there is a change in the ownership and control of either party, the other party shall have the option of terminating this Agreement immediately by giving written notice thereof. For the purposes of this Section 11, a change in the ownership and control of either Buyer or Seller or a parent company of either party, if appropriate, shall be deemed to have occurred if and when any one or more persons acting individually or jointly hereafter becomes a beneficial owner, directly or indirectly, of securities representing twenty-five percent (25%) or more of the combined voting power of the then outstanding securities of Seller or Buyer or the parent company of either party. 12. QUALITY - ------------ The Quality System Standard QS-9000 Section 1 shall be the fundamental quality system standard applied to the processes required to produce Caterpillar products. In addition, there are Buyer specific quality system and process control elements that shall be included as stated in the Supplier Guideline for preparing Quality Plans and the Engine Division Supplier Certification Guidelines (the "Buyer Standards"). The seller shall develop quality systems and process control programs that are documented in adequate detail that fulfill both the QS-9000 standard and Buyer standards. There may be additional data required based on the type of product being produced and supplied to Caterpillar. The supplier shall provide copies of the Quality Manual, quality systems and process control support documentation upon request by Buyer representatives. Buyer may request the supplier provide periodic statistical data on critical process and product characteristics. Changes to the manufacturing processes and/or product shall be communicated to Buyer prior to implementing the change by completing the Production Part Approval Process (PPAP) and utilizing the Process Change Management process. This will include changes required by Buyer's design changes or changes by the seller to improve the process throughput, cost, quality and/or capability. The Global 8D Problem Solving process shall be the preferred method for documenting problems and corrective actions. Seller shall validate and report metallurgical, dimensional, and soundness data to ensure Buyer's specification are fulfilled. Seller shall retain all records for a minimum of 2 years from the date of the last shipment. Copies of these records shall be provided to Buyer upon request. The seller shall obtain registration to QS-9000 by an accredited registrar by December 31, 2000. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 3 13. INDEMNIFICATION - -------------------- Seller agrees to indemnify, defend, and hold buyer harmless against and from all claims, demands, liabilities, loss, damage, cost, and expense, of whatsoever nature, arising from or in any way connected with the injury or death of any person or loss or damage to property as a consequence of, or attributable to, any defect of design, material, or workmanship of Product or failure of Product to conform with Seller's and Buyer's specifications, drawings, and data. 14. FORCE MAJEURE - ------------------ Neither Buyer nor Seller shall be liable for any delay in or failure of performance of their respective obligations hereunder if such performance is rendered impossible by reason of fire, explosion, earthquake, accident, breakdown, strike, drought, embargo, war, riot, act of God or of public enemy, an act of governmental authority, agency or entity, shortage of raw materials, or any other contingency, delay, failure or cause, beyond the reasonable control of the party whose performance is affected, irrespective of whether such contingency is specified herein or is presently occurring or anticipated by either party. Upon the occurrence of any event covered by this provision, Seller and Buyer shall make every effort to continue to maintain as much as possible the supplier-customer relationship established under this Agreement. However, in the event Buyer and Seller is unable to meet its obligations hereunder because of the conditions described above and such inability continues for a period of two (2) months, the other party shall have the right to terminate this Agreement upon thirty (30) days prior written notice. 15. WARRANTY PARTICIPATION - --------------------------- Seller warrants that each Product shall be in full conformity with Seller's and Buyer's specifications, drawings, and data. Seller agrees to credit Caterpillar for any Product covered under the standard warranty provided by Caterpillar to its customers and sold by Seller, which is deemed defective through a joint review process performed by Buyer and Seller, in the amount of Dealer Net Price, limited to three (3) times the purchase order price, plus any reasonable and customary charges for labor performed during normal working hours caused by failure of the Product or its replacement. For any ancillary damage caused by Product failure, where Product was the causal part, as identified through a joint review process, Seller shall credit Buyer for the cost of any and all parts damaged because of the Product failure in the amount of dealer net price, not to exceed a total amount for ancillary damage of $100,000 per calendar year. These costs shall be identified by Caterpillar through its Field Incident Reports and Service Information System. Caterpillar agrees to make available appropriate engineering personnel for review of defective Product as requested by Seller, at Caterpillar's facility. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 4 16. MISCELLANEOUS - ------------------ This Agreement and the terms and conditions referenced in any purchase order issued by Buyer in connection with this Agreement (to the extent not inconsistent with this Agreement) constitute the entire agreement and understanding between the parties with respect to the subject matters herein and therein, and supersede and replace any prior agreements and understandings, whether oral or written, between them with respect to such matters. The provisions of this Agreement may be waived, altered, amended or repealed in whole or in part only upon the written consent of all parties to this Agreement. The waiver by either party of any breach of this Agreement shall not be deemed or construed as a waiver of any other breach, whether prior, subsequent or contemporaneous of this Agreement. Invalidation of any of the provisions contained herein, or the application of such invalidation thereof to any person, by legislation, judgment or court order shall in no way affect any of the other provisions hereof or the application thereof to any other person, and the same shall remain in full force and effect unless enforcement as so modified would be unreasonable or grossly inequitable under all the circumstances or would frustrate the purposes hereof. Section headings contained herein are for ease of reference only and shall not be given substantive effect. This Agreement may be signed in one or more counterparts each to be effective as an original. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their duly authorized representatives as of the date first set forth above. CATERPILLAR INC. GALAXY INDUSTRIES CORPORATION ("BUYER") ("SELLER") By: /s/ W. M. McCowan By: /s/ BUD GOLDSMITH ------------------------- -------------------------------- Title: GESM Title: PRESIDENT/CEO ---------------------- -------------------------------- Date: November 9, 1999 Date: OCTOBER 26, 1999 ---------------------- -------------------------------- By: /s/ C.P. Elwyn ---------------------- Title: Manufacturing Manager ---------------------- Date: December 15, 1999 ---------------------- By: ---------------------- Title: ---------------------- Date: ---------------------- - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 5 EXHIBIT A * - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 6 EXHIBIT B Durable tooling, fixtures and/or gauging owned by the Buyer: At the completion of this project Seller will provide complete documentation for the durable tooling, fixtures and/or gauging purchased on the Buyer's behalf. Documentation will include a complete description of the durable tooling, fixtures and/or gauging purchased and the price paid by Seller. Seller further commits to label all durable tooling, fixtures and/or gauging so that it is easily identifiable as the property of Buyer and to provide a complete list of all durable tooling, fixture and/or gauging to Buyer. Exhibit B will then be revised to reflect the additional detail. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 7 EX-10.5 29 PURCHASE AGMT DANER & SPICER Exhibt 10.5 PURCHASE AGREEMENT This Purchase Agreement ("Agreement"), dated as of the 7th day of February 2000, is made by and between DANA CORPORATION, SPICER HEAVY AXLE & BRAKE DIVISION, 6938 Elm Valley Drive, Kalamazoo, Michigan, 49009 (hereinafter called "DANA"), and NATIONWIDE PRECISION PRODUCTS CORPORATION, 200 Tech Park Drive, Rochester, New York 14623 (hereinafter called "NPP"). WHEREAS, DANA is engaged in the design, manufacture and sale of axles, brakes and other powertrain components for medium and heavy duty trucks; and WHEREAS, NPP is in the business of performing machining services; and WHEREAS, DANA desires to use NPP to perform machining services on purchased components which are incorporated into DANA's axle products; NOW, THEREFORE, in consideration of the obligations and premises set forth herein, NPP and DANA agree as follows: 1.0 SERVICES AND TERMS OF PURCHASE 1.1 During the term of this Agreement DANA agrees to purchase from NPP and NPP agrees to supply to DANA, machined parts (collectively referred to hereinafter as "Parts") to be incorporated into DANA's axle products. 1.2 The Parts that Nationwide will supply include all part numbers listed on the attached Exhibit A. Exhibit A may be revised from time to time to add or delete Parts as agreed to by both parties. 1.3 The purchased components (such as raw castings, forgings, bearings, hardware, etc.) which are to be machined shall be purchased by NPP from suppliers and at costs designated by DANA. 1.4 DANA shall issue a blanket purchase order or orders to NPP for the Parts based on the agreed prices. DANA shall order Parts from NPP by issuing releases against such purchase orders, designating the mix and volume of Parts, delivery date and agreed delivery location. 1.5 Except as otherwise provided in this Agreement, Dana's standard purchase order items and conditions ("Standard Terms") in effect on the date a release is issued shall apply to all purchases made by DANA. The current Standard Terms are set out in the attached Exhibit B. DANA may change these Standard Terms from time to time without prior notice to NPP. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 1 2.0 PRICE 2.1 NPP's invoice price for each Part supplied to DANA will be the sum (a) the price paid by NPP for the purchased component, (b) a handling fee equal to * of NPP's price for the purchased component(s), (c) the price of the machining services performed on the component. 2.2 The prices for all machining services performed through December 31, 2001, will be those set out in Exhibit A. The prices for machining services will be reduced by * in the year 2000 from 2001 pricing. The 2002 prices will remain in effect for the remainder of the term of this Agreement. 2.3 The machining services prices are based on NPP's receiving aggregate annual revenue of * for performing the services, including the * handling fee, in 2001 and * including the * handling fee, thereafter during the term of this Agreement. These prices will be in effect as long as NPP received +/- 10% of this value added billing annually. If the value added billings are outside the +/- 10%, DANA and NPP agree to reevaluate the pricing structure. Parts over-and-above those listed in Exhibit A may be added to meet revenue targets. 2.4 Charges for inbound freight to NPP from designated DANA suppliers and any non-returnable containers will be billed to DANA at cost. 2.5 NPP will procure all special gages, special cutting tools and general gages required to perform the machining services, at the best available prices, and DANA will pay NPP * for the tooling, on or after January 1, 2001, upon receipt of NPP's itemized invoice for the tooling and subject to full Production Part Approval Process ("PPAP") approval of the machined Parts produced therefrom. The tooling will be "Special Tooling" under Section 11 of the Standard Terms. The tooling will belong solely to DANA upon payment therefor and NPP will cooperate with DANA in the filing of any UCC Form 1 or similar documents evidencing its title. NPP will also procure all necessary machine fixtures, at its own expense, and these fixtures will belong solely to NPP. 3.0 DELIVERY 3.1 Delivery and pricing of the Parts will be F.O.B NPP's Plant in Rochester, NY. 3.2 DANA will provide reusable outbound shipping containers for the Parts. 3.3 DANA and NPP will mutually develop a packaging specification satisfactory to both parties. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 2 3.4 DANA will select the freight carriers for inbound shipments to NPP and outbound shipments from NPP to DANA, negotiate the corresponding freight rates, and reimburse NPP for all freight charges that NPP will invoice separately. 4.0 INVOICE AND PAYMENT TERMS 4.1 NPP will invoice DANA when the Parts are shipped. 4.2 The terms of payment for undisputed invoices are net thirty (30) days from the receipt of the invoice, with a 1/2% discount off the invoice price for payments made within ten (10) days. 5.0 TERM AND CANCELLATION 5.1 This Agreement will be in effect from the date first written above through December 31, 2006, unless cancelled sooner as provided herein or in the Standard Terms. If the parties wish to extend this Agreement beyond the initial term for one-year renewal terms, they will commence renewal negotiations by July 1, 2005. 5.2 Section 18 of the Standard Terms (or any equivalent provision in a subsequent version of the Standard Terms providing for the termination by DANA for convenience) will not apply to this Agreement and DANA will not exercise any of its cancellation rights as long as NPP meets all performance criteria outlined in this Agreement. 5.3 The notice and cure period provided in Section 19 of the Standard Terms (or any equivalent provision in a subsequent version of the Standard Terms) will be ninety (90) days. 5.4 In the event either NPP or DANA (1) ceases to function, (2) liquidates, dissolves, sells substantially all of its assets, (3) undergoes significant management realignment or change, (4) merges or consolidates and is not the surviving corporation, the other party shall have the right to cancel this Agreement immediately by giving written notice. 6.0 OBLIGATIONS OF NPP In performance of its obligations under this Agreement, NPP agrees that it will: 6.1 PPAP all Parts prior to November 30, 2000. The PPAP process will commence no later than July 1, 2000. NPP is not responsible for the PPAP approval of purchased components. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 3 6.2 Maintain adequate facilities and personnel to meet its obligations hereunder, including, but not limited to, development of an inventory control system to assure proper storage of purchased components and finished Parts and prompt handling of inquiries, orders and shipments. 6.3 Perform the machining services according to DANA's Supplier Quality Manual (11/89 Rev. 2) and Spicer Heavy Axle & Brake Division's QSR- 109 (October 1999). 6.4 Provide evidence of conformance to DANA's quality assurance procedures as reasonably requested and permit DANA or its designee upon reasonable advance notice to audit NPP's quality assurance procedures and review pertinent inspection records. 6.5 Not make modifications to the purchased components except in accordance with DANA's Parts specifications and/or written instructions. 6.6 Notify DANA promptly of all problems relating to the machining services or NPP's other obligations to be performed under this Agreement if such problems will impact delivery or quality of the Parts to be shipped to DANA. 6.7 Maintain such records relating to machining services provided under this Agreement as DANA may reasonably require. 6.8 Deliver the Parts in accordance with DANA's releases, subject to the following provisions: a. NPP is committed to 100% on time delivery, but in no event will be less than 98% on time, based on DANA's providing NPP with a rolling 4 (four) week firm schedule and a 5 (five) month planning forecast. b. If DANA permanently cancels its orders for any Parts, it will reimburse NPP for the costs of components for those Parts which NPP purchased within the forecast period and which are not returnable. c. DANA will assure that quantities of outbound packaging are sufficient to meet delivery schedules. d. Lack of performance by the freight carrier or the purchased components supplier without fault of NPP will not be considered non performance by NPP. 6.9 Maintain high quality standards that include but are not limited to the following: a. Maintain quality systems compliant with QS-9000. b. Achieve a 200 parts per million ("PPM") maximum target. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 4 6.10 Maintain an inventory bank of 5 (five) days for high volume Parts and 10 (ten) days for low volume Parts. These banks may vary +50%. The high - versus low volume designations will be mutually agreed upon prior to January 1, 2001. 6.11 Provide an inventory of the tooling that is owned by DANA under Section 2.5. 6.12 Cooperatively work with DANA on an exit program to transition this business to another supplier or DANA's internal operations on the expiration, termination or cancellation of this Agreement. 7.0 DANA'S OBLIGATIONS In the performing of its obligations under this Agreement, DANA agrees that it will: 7.1 Provide NPP with the most current print revisions (including all specifications) available for the Parts at the commencement of this Agreement and from time to time thereafter as changes are made. In addition, if there are any revisions to the Part prints or specifications, DANA agrees to purchase all obsolete components and finished Parts in inventory at NPP, not to exceed a reasonable quantity and mix consistent with DANA's firm schedules and NPP's customary lead times for purchased components, prior to changeover. 7.2 Own the tooling used by third parties to manufacture the components that are purchased by NPP hereunder for machining and be responsible for any and all design changes, repairs and replacements for such tooling. 7.3 Provide facility space at no cost to NPP for the inventory bank described in Section 6.10, should DANA and NPP mutually agree to have the bank located outside NPP's facilities. 7.4 Provide all returnable drainage and packaging necessary for outbound shipments of Parts from NPP to DANA. 7.5 Assist NPP in resolving any quality issues with the purchased component suppliers should NPP be unable to resolve them directly and promptly. 7.6 Consider NPP as a preferred source for machining services and afford NPP the opportunity to quote any new or replacement business. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 5 8.0 CONFIDENTIALITY 8.1 The confidentiality provisions of the Standard Terms attached hereto as Exhibit B will apply mutually to both parties during the term of this Agreement and will not be superseded by any subsequent version of the Standard Terms without both parties' written consent. 8.2 All materials, including without limitation documents, drawings, models, apparatus, sketches, designs and lists, furnished to NPP by DANA shall remain the property of DANA and shall be returned to DANA, erased and/or destroyed promptly at DANA's request, as well as all copies made thereof. 9.0 MISCELLANEOUS 9.1 NOTICES. All notices, requests, consents and other communications hereunder shall be deemed to have been duly given hereunder if in writing and, upon receipt when delivered by hand or sent by courier, facsimile transmission or telex, or three (3) calendar days after being mailed by first class mail, postage prepaid, in each case addressed as follows: To DANA: To NPP: Dana Corporation Nationwide Precision Products Spicer Heavy Axle & Brake Div. 200 Tech Park Drive 6938 Elm Valley Drive Rochester, New York 14623 Kalamazoo, Michigan 49009 Attn: Purchasing Manager Attn: Vice President - Sales or such address as the addressee party may have previously designated in writing by notice to the other party, and such notice or communication shall be deemed to have been given as of the date so delivered or mailed. 9.2 SUCCESSORS AND ASSIGNS; OTHER PARTIES. This Agreement and the parties' respective rights and obligations hereunder are not assignable by NPP or DANA without the prior written consent of the other party. 9.3. ENTIRE AGREEMENT. This Agreement, together with the Exhibits attached hereto, constitutes the entire agreement between the parties about the subject matter hereof and supersedes all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, expressed or implied with respect to this subject. No modification or waiver of this Agreement shall be binding upon any party unless in writing and signed by or on behalf of the party against which the modification or waiver is asserted. - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 6 9.4 SEVERABILITY. Any term or provision of this Agreement which is held to be invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of' this Agreement. 9.5 WAIVER. Neither the failure nor any delay on the part of NPP or DANA to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege available to NPP or DANA at law or in equity. 9.6 GOVERNING LAW. This Agreement shall in all respects be interpreted, construed and governed by and in accordance with the laws of the State of Ohio, without recourse to the conflicts of laws provisions thereof, and any action relating to this Agreement shall be brought exclusively in a state or federal court in the State of Ohio. IN WITNESS WHEREOF, NPP and DANA have caused this Agreement to be duly executed as of the date first above written. NATIONWIDE PRECISION DANA CORPORATION, PRODUCTS CORPORATION SPICER HEAVY AXLE & BRAKE DIVISION By: /S/ RONALD S. RICOTTA By: /S/ NORM BOISVERT -------------------------------- --------------------------------- Ronald S. Ricotta Norm Boisvert President & CEO VP & General Manager Date: 02/08/00 Date: 02/09/00 -------------------------------- --------------------------------- - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 7 EXHIBIT A * - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. EXHIBIT B PURCHASE ORDER FOR MATERIALS AND COMPONENTS TERMS AND CONDITIONS 1. CONTRACT, ACCEPTANCE. This Order and the documents incorporated or referred to herein constitute the entire contract between the parties for the Goods ordered and supersede any prior written or oral agreements between the parties therefor. Seller's written acknowledgment of this Order or Seller's delivery of any Goods hereunder will constitute Seller's acceptance of these terms and conditions. Any reference herein to Seller's quotation is for informational purposes only and does not constitute Buyer's acceptance of any terms and conditions contrary or supplemental to those set out herein. 2. SELLER'S STATUS, ASSIGNMENT. Seller is an independent contractor and not an employee or agent of Buyer. Seller may not assign or subcontract this Order or any of its rights or obligations hereunder without Buyer's prior written consent. 3. CHANGES TO ORDER. Buyer may change this Order in any respect at any time on written notice to Seller. If any change made by Buyer materially affects Seller's costs of producing the Goods, the purchase price of the affected Goods will be equitably adjusted and this Order amended accordingly. 4. PACKING AND SHIPMENT. Seller will pack and ship the Goods in accordance with Buyer's instructions, without charge for packaging or handling unless otherwise specified. All Goods will be packed to comply with applicable common carrier requirements and so as to secure the best available freight rates. All U.S. shipments will be accompanied by a fully completed bill of lading in the form prescribed by the National Motor Freight Classification and by a packing list showing the number and description of items contained therein. Buyer's name and Order number will be plainly marked on all Terms and Conditions packages, bills of lading, packing slips, and other shipping documents and on Seller's invoices. Buyer's count or weight will be final and conclusive for all shipments. 5. DELIVERIES. Seller will deliver all Goods in accordance with Buyer's instructions. Buyer may reject any or all Goods shipped in excess of quantities ordered or in advance of schedule and may either return the same to Seller at Seller's expense or retain the same and invoice Seller for Buyer's incidental costs of handling and/or storage. Buyer will not process invoices for Goods shipped in advance of the schedule until the scheduled delivery date. Buyer may change scheduled deliveries at any time and will reimburse Seller for Seller's reasonable, documented incremental costs due to such changes. 6. INSPECTIONS, DEFECTS AND NONCONFORMITIES. Buyer may inspect and/or test the Goods at reasonable times and places and in reasonable quantities, at its own expense; provided that Seller will, at no charge, make its premises available for such purposes and will provide all necessary assistance to make such inspections and/or tests safe and convenient. No inspections and/or tests by Buyer hereunder will relieve Seller of its obligation to make full and adequate inspections and/or tests of the Goods. If any Goods are found to be defective or not in conformity with Buyer's specifications or requirements, Buyer may reject them, in whole or in part, or require Seller to repair or - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 1 replace them at Seller's sole expense. If Buyer returns any rejected Goods, Seller will reimburse Buyer for the purchase price and all freight, handling, insurance and other incidental costs incurred by Buyer. If Seller fails to promptly repair or replace any defective or nonconforming Goods as requested by Buyer, Buyer may repair or replace the same and invoice Seller for Buyers costs of repair or replacement and any incidental costs. 7. QUALITY. In performing this Order, Seller will comply with the quality compliance and quality assurance standards and procedures set out in the Quality System Manual and the OS-9000 standards published by the International Organization for Standardization. 8. CONFIDENTIAL INFORMATION. Except as required by law, as reasonably necessary to perform this Order, or with Buyer's prior written consent. Seller will keep confidential, at all times, all information, drawings, specifications and data furnished by Buyer and/or derived or developed by Seller in connection with the performance of this Order. Seller will not divulge such confidential information or use it (directly or indirectly) for its own benefit or for the benefit or any other party or make copies of such confidential information or permit copies to be made. The foregoing confidentiality obligations do not apply to information known by Seller at the time it is disclosed by Buyer, to information lawfully obtained by Seller from a third party entitled to disclose it, and to information which is or later becomes public knowledge other than through disclosure by Seller. 9. INTELLECTUAL PROPERTY RIGHTS, PATENT WARRANTY. If Buyer furnishes the design for the Goods or reimburses Seller for the cost of designing the Goods, Buyer will own all intellectual property rights relating to that design. Conversely, if Seller furnishes the design for the Goods or bears the sole cost of designing the Goods, Seller will own all intellectual property rights relating to the design. In either case, the owner of the intellectual property rights warrants to the other party that the design of the Goods will not infringe upon or contribute to the infringement of any U.S. or foreign patent or patent right. 10. PRODUCT WARRANTY. Seller warrants to Buyer, its customers and end users, that Seller has good title to the Goods, free and clear of all liens; that the Goods are free from defects in material and workmanship; that the Goods are merchantable; conform fully with all specifications, drawings and/or samples furnished by Buyer (or furnished by Seller and accepted by Buyer); that the Goods are fit and sufficient for their intended uses; and that the Goods conform to all applicable Federal Motor Vehicle Safety Standards issued under the National Traffic and Motor Vehicle Safety Act of 1966, as amended. 11. SPECIAL TOOLING. "Special Tooling" means all special dies, jigs, fixtures, drawings, molds, patterns, templates and gages acquired or manufactured by Seller under this Order for use in manufacturing or assembling Goods which are proprietary to Buyer, excluding any standard or perishable tooling or gages. Special tooling separately itemized in this Order will be Buyer's property upon Buyer's full payment of the purchase price for same; provided, however, that Buyer will have no payment obligation until it has accepted such tooling or the first run of Goods manufactured or assembled therewith. Seller will furnish Buyer with an itemized list of such tooling and will maintain adequate cost records for the same, which records will be available for review or audit - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 2 by Buyer. If Seller fails to maintain such cost records, Buyer will be obligated to pay Seller solely the fair market value of the special tooling, regardless of the purchase price stated herein. Seller will be responsible for all loss or damage to such tooling and for all taxes, assessments, and similar charges levied with respect to or upon such tooling while in Seller's possession. Seller will mark and number such tooling with Buyer's name and the number of the part made therewith to permit accurate identification of same at all times and will segregate the same from other tooling in its possession to the extent feasible. Seller will repair, maintain and keep such tooling in good working condition and replace the same at its own expense as necessary. Seller will use such tooling exclusively for the production of Goods for Buyer and for no other use. Upon completion, cancellation, or termination of this Order, Seller will hold such tooling and any operation sheets or process data necessary to show the use thereof, at no charge, pending Buyer's instructions with respect to removal or disposition at Buyer's expense. 12. LEGAL COMPLIANCE. Seller warrants that it will comply with all applicable federal, state and local laws, regulations, ordinances, and executive, judicial or administrative orders in the performance of this order. Seller will furnish Buyer with certificates of compliance in such form as Buyer may request, from time to time, and will promptly furnish to the proper person or entity any reports which are properly required of Seller by law, regulation, ordinance, or order. 13. HAZARDOUS MATERIALS. Seller will property classify, describe, package, mark, label and provide Material Safety Data Sheets (MSDS) for all Goods to be shipped hereunder. Seller will prepare all such Goods for transportation in accordance with any applicable state or federal laws or regulations. Seller will indemnify and hold harmless Buyer from any claims penalties or damages incurred by Buyer as a result of any Goods received from Seller not in accordance therewith. 14. COUNTRY OF ORIGIN INFORMATION. Upon request, Seller agrees to provide Buyer with documentation that establishes the country of origin of the Goods, including where applicable, affidavits of manufacture, NAFTA certificates of origin or other documentation that Buyer may reasonably require. 15. INDEMNIFICATION. Seller will defend and indemnity Buyer and its customers and end users from and against all claims, suits, damages, losses and expenses arising from (a) any personal injury, death or property loss or damage caused by Seller's negligent or willful acts or omissions in performing this Order, (b) Seller's breach of any warranty contained herein, or (c) Seller's breach of or default under this Order. 16. INSURANCE. While performing this Order, Seller will maintain insurance coverage at its own cost in amounts and with insurers satisfactory to Buyer for workers' compensation (unless self-insured), public liability (including contractual liability and products liability) and automobile liability. At buyer's request, Seller will furnish certificates of insurance evidencing such coverage (which certificates will name Buyer as an additional insured and provide that the coverage will not be cancelable or subject to limit reductions without 15 day's written notice to Buyer) and/or evidence of self- - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 3 insurance for workers' compensation. Seller's compliance with these insurance requirements will not relieve Seller of its defense and indemnification obligations under Paragraph 15. 17. ALLOCATION. In the event of a partial failure of Seller's ability to supply the entire quantity of Goods purchased hereunder, Seller will first meet all of Buyer's requirements hereunder prior to any allocation among customers under 12-615 of the Uniform Commercial Code. 18. TERMINATION FOR CONVENIENCE. Buyer may terminate this Order for convenience at any time on written notice to Seller. Upon termination, Buyer will be liable to Seller solely for (a) unpaid invoices for Goods shipped, and (b) Seller's reasonable, documented costs for raw materials, work-in-process and finished Goods (subject to the volumes specified in this Order or any firm releases hereunder) that cannot be canceled without penalty or sold in the general trade; provided that Seller has delivered the same to Buyer. 19. CANCELLATION FOR CAUSE. To the extent permitted by law, Buyer may cancel this Order without liability to Seller at any time on written notice to Seller in the event of Seller's insolvency, Seller's filing of a voluntary petition in bankruptcy, the appointment of a receiver or trustee for Seller, Seller's execution of an assignment for the benefit of creditors, or other comparable event. In addition, Buyer may cancel this Order without liability to Seller at any time on 30 days' written notice to Seller if Seller breaches any provision of this Order (or Buyer anticipates such breach); provided, that the cancellation will be void if Seller cures the breach (or provides adequate assurances of performance) within the 30-day notice period. 20. BINDING EFFECT. The obligations of the parties hereunder will be binding on their respective directors, officers, employees, agents, subcontractors, and duly authorized successors and assigns (if any). 21. CUMULATIVE REMEDIES, WAIVER. Buyer's remedies herein are cumulative and in addition to any other or further remedies available at law or equity. Buyer's waiver of any right herein will not constitute a subsequent waiver of the same right or any other right provided herein. 22. GOVERNING LAW. This Order will be interpreted and enforced under the laws of the state of Ohio (including, without limitation, the provisions of the Uniform Commercial Code as adopted by the State of Ohio), without recourse to the conflicts of laws provisions thereof. In no event will the provisions of the U.N. Convention on the Sale of Goods apply to this order. 23. DISPUTE RESOLUTION. Any dispute arising connection with the interpretation, performance or non-performance, or enforceability of this Order will be resolved by prompt good faith negotiation between the parties. If the parties are unable to resolve any such dispute, either party may request that it be resolved through binding arbitration conducted under the Commercial Rules of the American Arbitration Association in Toledo, Ohio, U.S.A. or elsewhere as the parties may mutually agree; provided, that neither party may institute an arbitration proceeding hereunder unless it has given written notice 30 days prior thereto to the other party, stating its intent to do so and specifying the basis therefor in reasonable detail. Any award, order or judgment made or issued pursuant to arbitration hereunder will be deemed final and may be entered and enforced in any court of competent jurisdiction. The parties hereby agree to submit to the jurisdiction of such - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 4 court for purposes of enforcement of such award, order or judgment. In any arbitration proceeding hereunder, the arbitrator(s) are authorized (but not obligated) to award reasonable attorneys' fees and other arbitration-related costs to the prevailing party. Any arbitration proceeding hereunder will be conducted on a confidential basis. Except by mutual written agreement, no arbitration arising out of or related to this Order will include by consolidation, joinder, or any other means, any person or entity not a party hereto. 24. YEAR 2000 COMPLIANCE. Seller warrants that all software and hardware furnished under this Agreement (including all enhancements, upgrades, customizations, modifications and maintenance) will be Year 2000 compliant. Seller agrees to defend and indemnify Dana from and against all claims, losses, damages, and costs arising from Seller's Breach of this warranty, regardless of any limitations of remedies contained elsewhere in this agreement or in any other agreement between the parties. EXEMPTION CERTIFICATION (PURCHASE FOR FURTHER MANUFACTURE UNDER THE INTERNAL REVENUE CODE) Dana Corporation hereby certifies that it is a manufacturer or producer of entries taxable under the Internal Revenue Code and holds certificate of Registry #34-43-8104-0 issued by the District Director of Internal Revenue at Cleveland, Ohio, and that the article or articles specified in the accompanying order will be used by him as materials in the manufacture of production of, or as a component part of, an article or articles enumerated in the code, to be manufactured or produced by him. It is understood that for all the purposes of such taxes, the Buyer will be considered the manufacturer or producer of the articles purchased hereunder, and (except as specifically provided by law) must pay tax on resale or use, otherwise than as specified above, of the articles purchased hereunder. It is further understood that the fraudulent use of this Certificate no secure exemption will subject the Buyer and all guilty parties to revocation of the privilege of purchasing tax free and to a fine of not more than $10,000 or to Imprisonment for not more than five years or both together with costs of prosecution. February 1, 2000 - ----------- * This portion of the agreement has been omitted and filed with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 406 of Regulation C. 5 EX-12.1 30 STMNT RE COMPUTATION OF RATIOS PRECISION PARTNERS Exhibit 12.1 PRECISION PARTNERS, INC. STATEMENT RE COMPUTATION OF RATIOS
(PREDECESSOR) (PRECISION PARTNERS) JANUARY 1, 1998 SEPTEMBER 9, 1998 THROUGH THROUGH 1995 1996 1997 SEPTEMBER 30, 1998 DECEMBER 31, 1998 1999 (IN THOUSANDS, EXCEPT RATIO DATA) EARNINGS: Income (loss) before income taxes, $1,844 $4,938 $ 5,853 $ 4,381 $(286) $ (7,645) extraordinary items, and cumulative effect of accounting change Interest and amortization of debt expense 108 69 85 37 526 12,812 Rental expense representative of interest factor 188 188 188 141 92 802 ------- ------- ------- ------------ -------- -------- TOTAL EARNINGS $2,140 $5,195 $ 6,126 $4,559 $ 332 $ 5,969 ======= ======= ======= ============ ======== ======== FIXED CHARGES: Interest and amortization of debt expense 108 69 85 37 526 12,812 Rental expense representative of interest factor 188 188 188 141 92 802 ------- ------- ------- ------------ -------- -------- TOTAL FIXED CHARGES $ 296 $ 257 $ 273 $178 $ 618 $ 13,614 ======= ======= ======= ============ ======== ======== RATIO OF EARNINGS TO FIXED CHARGES(1) 7.2 20.2 22.4 25.6 0.5 0.4
(1) For the purposes of computing the ratio of earnings to fixed charges, earnings consists of income (loss) before income taxes, extraordinary items and cumulative effect of change in accounting, plus fixed charges. Fixed charges consist of interest and amortization of debt expense plus a portion of operating lease expense. EX-21.1 31 LIST OF SUBSIDIARIES EXHIBIT 21.1 LIST OF SUBSIDIARIES OF PRECISION PARTNERS, INC. Galaxy Industries Corporation Mid State Machine Products Certified Fabricators, Inc. General Automation, Inc. Nationwide Precision Products Corp. Gillette Machine & Tool Co., Inc. EX-23.1 32 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports noted below included in the Registration Statement (Form S-4) and related Prospectus of Precision Partners, Inc. for the registration of $100,000,000 of Senior Subordinated Notes due 2009:
Company Period Date of Report ------- ------ -------------- Precision Partners, Inc. Year Ended December 31, March 27, 2000 1999 and the Period from September 9, 1998 (Inception) to December 31, 1998 Mid State Machine Nine month period ended January 19, 1999 Products September 30, 1998 General Automation, Inc. Period from January 1, 1999 March 10, 2000 to March 19, 1999 and Years Ended December 31, 1998 and 1997 Certified Fabricators, Inc. Period from November 1, March 10, 2000 and Calbrit Design, Inc. 1998 to March 19, 1999 and the Years Ended October 31, 1998 and 1997 Nationwide Precision Period from June 1, 1998 to February 25, 2000 Products Corp. March 19, 1999 Gillette Machine & Tool Period from March 1, 1999 March 10, 2000 Co., Inc. to August 31, 1999
/s/ Ernst & Young LLP March 23, 2000 Dallas, Texas EX-23.2 33 EXHIBIT 23.2 Exhibit 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 2, 1998, with respect to the audited consolidated statements of operations, stockholders' equity and cash flows of Mid State Machine Products, Inc. for the year ended December 31, 1997, included in the Registration Statement and the related Prospectus of Precision Partners, Inc. for the registration of $100,000,000 of 12% Senior Subordinated Notes. /s/ Baker Newman & Noyes Limited Liability Company Portland, Maine March 27, 2000 EX-23.3 34 EXHIBIT 23.3 Exhibit 23.3 CONSENT OF INDEPENDENT AUDITORS March 27, 2000 Board of Directors Precision Partners, Inc. We consent to the reference to our firm under the caption "Experts" and to the use of our report dated June 29, 1998 relating to the audited financial statements of Nationwide Precision Products Corporation in the Registration Statement (Form S-4) and related Prospectus of Precision Partners, Inc. /s/ Insero, Kasperski, Ciaccia & Co., P.C. Rochester, New York March 27, 2000 EX-23.4 35 EXHIBIT 23.4 Exhibit 23.4 CONSENT OF INDEPENDENT AUDITORS As independent public accountants, we hereby consent to the use of our report (and to all references to our Firm) included in or made a part of this registration statement (Registration Statement File No. 333-_____). /s/ BONADIO & CO., LLP Rochester, New York March 23, 2000 EX-24.1 36 POWERS OF ATTORNEY EXHIBIT 24.1 POWERS OF ATTORNEY By signing below, I hereby constitute and appoint Ronald M. Miller, Dr. James E. Ashton and Christopher M. Kelly, Esq. my true and lawful attorney and agent to do any and all acts and things and to execute any and all instruments in my name and behalf in my capacities as director and/or officer of Precision Partners, Inc., a Delaware corporation, Mid State Machine Products, a Maine corporation, Galaxy Industries Corporation, a Michigan corporation, Certified Fabricators, Inc., a California corporation, Nationwide Precision Products Corp., a New York corporation, General Automation, an Illinois corporation, and Gillette Machine and Tool Co., Inc., a New York corporation (collectively, the "Companies" and each a "Company"), which said attorney and agent may deem necessary or advisable or which may be required to enable the applicable Company to comply with the Securities Act of 1933, as amended (the "Securities Act"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with a Registration Statement on Form S-4 (or any other appropriate form) for the purpose of registering pursuant to the Securities Act $100,000,000 of Precision Partners, Inc.'s 12% Senior Subordinated Notes due 2009, including specifically, and the other Companies' guarantees thereof, but without limiting the generality of the foregoing, the power and authority to sign for me, in my name and behalf in my capacities as director and/or officer of the applicable Company (individually or on behalf of such Company), such Registration Statement and any such abbreviated registration statement, and any and all amendments and supplements thereto, and to file the same, with all exhibits thereto and other instruments or documents in connection therewith, with the Securities and Exchange Commission, and hereby ratify and confirm all that said attorneys and agents, or any of them, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have executed this Power of Attorney as of March , 2000. /s/ DR. JAMES E. ASHTON /s/ RICHARD DETWEILER - ------------------------------------------- ------------------------------------------- Dr. James E. Ashton Richard Detweiler /s/ MELVIN D. JOHNSON /s/ DAVID W. M. HARVEY - ------------------------------------------- ------------------------------------------- Melvin D. Johnson David W. M. Harvey /s/ WILLIAM J. GUMINA /s/ RICHARD FAGAN - ------------------------------------------- ------------------------------------------- William J. Gumina Richard Fagan /s/ JOHN F. MEGRUE /s/ BYRDELL C. GOLDSMITH - ------------------------------------------- ------------------------------------------- John F. Megrue Byrdell C. Goldsmith /s/ S. DOUGLAS SUKEFORTH /s/ RONALD S. RICOTTA - ------------------------------------------- ------------------------------------------- S. Douglas Sukeforth Ronald S. Ricotta /s/ EDWARD R. GAJEWSKI /s/ DARREN J. GILLETTE - ------------------------------------------- ------------------------------------------- Edward R. Gajewski Darren J. Gillette
EX-27.1 37 FDS
5 This schedule contains summary financial information extracted from (A) the condensed financial statements of Precision Partners, Inc. included in Form S-4 and is qualified in its entirety by reference to such (B) financial statements. 0001086478 PRECISION PARTNERS, INC. 1,000 U.S. DOLLARS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 313 0 23,613 261 18,404 45,549 82,260 10,649 206,391 41,705 100,000 0 0 0 36,132 206,391 123,188 123,188 93,434 24,840 12,559 0 0 (7,645) (2,130) (5,515) 0 0 0 (5,515) 0 0
EX-99.1 38 L/T Exhibit 99.1 LETTER OF TRANSMITTAL PRECISION PARTNERS, INC. OFFER FOR ALL OUTSTANDING 12% SENIOR SUBORDINATED NOTES DUE 2009 IN EXCHANGE FOR 12% SENIOR SUBORDINATED NOTES DUE 2009 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT TO THE PROSPECTUS DATED [ ] THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ] OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO THE EXPIRATION DATE. - -------------------------------------------------------------------------------- The Exchange Agent for the Exchange Offer is: The Bank of New York
By Registered or Certified Mail: Facsimile Transmission Number: By Hand/Overnight Delivery: (For Eligible Institutions Only) The Bank of New York The Bank of New York 101 Barclay Street - 7E (212) 815-6339 101 Barclay Street New York, New York 10286 Corporate Trust Services Window Attn: Reorganization Section Confirm by Telephone: Attn: Reorganization Section (212) 815-6337 For Information Call: (212) 815-633]
Delivery of this letter of transmittal to an address other than as set forth above, or transmission of instructions via facsimile other than as set forth above, does not constitute a valid delivery. The undersigned acknowledges that he or she has received the prospectus dated [ ] of Precision Partners, Inc., a corporation organized under the laws of Delaware (the "Company"), and this letter of transmittal, which together constitute the Company's offer (the "Exchange Offer") to exchange up to $100,000,000 aggregate principal amount of 12% Senior Subordinated Notes due 2009 of the Company, for an equal principal amount of the Company's issued and outstanding 12% Senior Subordinated Notes due 2009. The terms of the exchange notes are identical in all material respects (including principal amount, interest rate and maturity) to those of the outstanding notes, except that the exchange notes will be registered under the Securities Act of 1933. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. Capitalized terms used but not defined herein have the meanings given to such terms in the prospectus. This letter of transmittal is to be completed by holders of outstanding notes either if outstanding notes are to be forwarded herewith or if tenders of outstanding notes are to be made by book-entry transfer to an account maintained by The Bank of New York, as exchange agent, at The Depository Trust Company ("DTC") pursuant to the procedures set forth in the prospectus under "The Exchange Offer -- Procedures for Tendering Outstanding Notes." Delivery of this letter of transmittal and any other required documents should be made to the exchange agent. If a holder desires to tender outstanding notes pursuant to the Exchange Offer but time will not permit this letter of transmittal, certificates representing outstanding notes or other required documents to reach the exchange agent on or before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, such holder may effect a tender of such notes in accordance with the guaranteed delivery procedures set forth in the prospectus under "Exchange Offer --Procedures for Tendering Outstanding Notes." See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY The undersigned has completed the appropriate boxes below and signed this letter of transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. List below the outstanding notes to which this letter of transmittal relates. If the space provided below is inadequate, the certificate numbers and principal amount of outstanding notes should be listed on a separate schedule affixed hereto.
DESCRIPTION OF OUTSTANDING NOTES (1) (2) (3) Name(s) and Address(es) of Registered Holder(s) Aggregate Principal Amount (Please fill in, if blank) Principal of Outstanding Certificate Amount of Notes Number(s)* Outstanding Notes Tendered (if less than all)**
* Need not be completed if outstanding notes are being tendered by book-entry holders. ** Outstanding notes may be tendered in whole or in part in denominations of $100,000 and integral multiples of $1,000 in excess thereof, provided that if any outstanding notes are tendered for exchange in part, the untendered principal amount thereof must be at least $100,000 or any integral multiple of $1,000 in excess thereof. See instruction 3. Unless this column is completed, a holder will be deemed to have tendered the full aggregate principal amount of the outstanding notes represented by the outstanding notes indicated in column 2. -2- (BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY) / / CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution --------------------------------------------- Account Number ------------------------------------------------------------ Transaction Code Number -------------------------------------------------- / / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) ----------------------------------------- Window Ticket Number (if any) ------------------------------------------- Name of Eligible Institution that Guaranteed Delivery ------------------- Date of Execution of Notice of Guaranteed Delivery ---------------------- If Guaranteed Delivery is to be made by Book-Entry Transfer: Name of Tendering Institution ------------------------------------------- Account Number --------------------------------------------------------- Transaction Code Number ------------------------------------------------- / / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OUTSTANDING NOTES ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER SET FORTH ABOVE. / / CHECK HERE IF YOU ARE A BROKER-DEALER THAT ACQUIRED THE OUTSTANDING NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ------------------------------------------------------------------- Address: ---------------------------------------------------------------- -3- Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of outstanding notes indicated above in exchange for a like aggregate principal amount of exchange notes. Subject to, and effective upon, the acceptance for exchange of the outstanding notes tendered hereby, the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such outstanding notes. The undersigned hereby irrevocably constitutes and appoints the exchange agent its agent and attorney-in-fact (with full knowledge that the exchange agent also acts as the agent of the Company) with respect to the tendered outstanding notes with the full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), subject to the right of withdrawal described in the prospectus, to (i) deliver certificates for such outstanding notes to the Company and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Company and (ii) present such outstanding notes for transfer on the books of the Company and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such outstanding notes, all in accordance with the terms of the Exchange Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign and transfer the outstanding notes tendered hereby and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims or proxies. The undersigned will, upon request, execute and deliver any additional documents deemed by the exchange agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the outstanding notes tendered hereby, and the undersigned will comply with its obligations under the Registration Rights Agreement. The undersigned has read and agreed to all of the terms of the Exchange Offer. The undersigned agrees that acceptance of any tendered outstanding notes by the Company and the issuance of exchange notes in exchange therefor will constitute performance in full by the Company of its obligations under the Registration Rights Agreement and that the Company will have no further obligations or liabilities thereunder (except in limited circumstances). The name(s) and address(es) of the registered holders of the outstanding notes tendered hereby should be printed above, if they are not already set forth above, as they appear on the outstanding notes. The Certificate number(s) and the outstanding notes that the undersigned wishes to tender should be indicated in the appropriate boxes above. The undersigned also acknowledges that this Exchange Offer is being made in reliance on certain interpretive letters by the staff of the Securities and Exchange Commission to third parties in unrelated transactions. On the basis thereof, the exchange notes issued in exchange for the outstanding notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such exchange notes are acquired in the ordinary course of such holders' business and such holders are not participating in, and have no arrangement or understanding with any person to participate in, the distribution of such exchange notes. The undersigned acknowledges that any holder of outstanding notes using the Exchange Offer to participate in a distribution of the exchange notes (i) cannot rely on the position of the staff of the SEC enunciated in its interpretive letter with respect to Exxon Capital Holdings Corporation (available April 13, 1989) or similar letters, and (ii) must comply with the registration and prospectus requirements of the Securities Act in connection with a secondary resale transaction. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of exchange notes. If the undersigned is a broker-dealer that will receive exchange notes for its own account in exchange for outstanding notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such exchange notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned represents that (i) it is not an affiliate of either the Company or its subsidiaries or, if the undersigned is an affiliate of the Company or its subsidiaries, it will comply with the registration and prospectus requirements of the Securities Act to the extent applicable, (ii) the exchange notes are being acquired in the ordinary course of business of the person receiving such exchange notes, whether or not such person is the holder, (iii) the undersigned has not entered into an arrangement or understanding with any other person to participate in the distribution (within the meaning of the Securities Act) of the exchange notes, (iv) the undersigned is not a broker-dealer who purchased the notes for resale pursuant to an exemption under the Securities -4- Act, and (v) the undersigned will be able to trade exchange notes acquired in the Exchange Offer without restriction under the Securities Act. The Company and the subsidiary guarantors have agreed that, subject to the provisions of the Registration Rights Agreement, the prospectus may be used by a participating broker-dealer (as discussed below) in connection with resales of exchange notes received in exchange for outstanding notes, where such outstanding notes were acquired by such participating broker-dealer for its own account as a result of market-making activities or other trading activities, for a period ending 180 days after the Expiration Date (subject to extension under certain limited circumstances described in the prospectus) or, if earlier, when all such exchange notes have been disposed of by such participating broker-dealer. In that regard, each participating broker-dealer that acquired outstanding notes for its own account as a result of market-making or other trading activities, by tendering such outstanding notes and executing this letter of transmittal, agrees that, upon receipt of notice from the Company of the occurrence of any event or the discovery of any fact which makes any statement contained or incorporated by reference in the prospectus untrue in any material respect or which causes the prospectus to omit to state a material fact necessary in order to make the statements contained or incorporated by reference therein, in light of the circumstances under which they were made, not misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such participating broker-dealer will suspend the sale of exchange notes pursuant to the prospectus until the Company and the subsidiary guarantors have amended or supplemented the prospectus to correct such misstatement or omission and have furnished copies of the amended or supplemented prospectus to the participating broker-dealer or the Company has given notice that the sale of the exchange notes may be resumed, as the case may be. If the Company gives such notice to suspend the sale of the exchange notes, the 180-day period referred to above during which participating broker-dealers are entitled to use the prospectus in connection with the resale of exchange notes shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when participating broker-dealers shall have received copies of the supplemented or amended prospectus necessary to permit resales of the exchange notes or to and including the date on which the Company has given notice that the sale of exchange notes may be resumed, as the case may be. The undersigned understands that tenders of the outstanding notes pursuant to any one of the procedures described under "The Exchange Offer -- Procedures for Tendering Outstanding Notes" in the prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions set forth herein and in the prospectus. The undersigned recognizes that under certain circumstances set forth in the prospectus under "The Exchange Offer --Conditions to the Exchange Offer," the Company will not be required to accept for exchange any of the outstanding notes tendered. Outstanding notes not accepted for exchange or withdrawn will be returned to the undersigned at the address set forth below unless otherwise indicated under "Special Delivery Instructions" below (or, in the case of outstanding notes tendered by book-entry transfer, credited to an account maintained by the tendering holder at DTC). Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby directs that the exchange notes (and, if applicable, any substitute certificates representing outstanding notes not exchanged or not accepted for exchange) be issued in the name(s) of the undersigned and be delivered to the undersigned at the address, or, in the case of book-entry transfer of outstanding notes, be credited to the account at DTC shown above in the box entitled "Description of Outstanding Notes." Holders of the outstanding notes whose outstanding notes are accepted for exchange will not receive accrued interest on such outstanding notes for any period from and after the last interest payment date to which interest has been paid or duly provided for on such outstanding notes prior to the original issue date of the exchange notes or, if no such interest has been paid or duly provided for, will not receive any accrued interest on such outstanding notes, and the undersigned waives the right to receive any interest on such outstanding notes accrued from and after such interest payment date or, if no such interest has been paid or duly provided for from and after the original issue date of the exchange notes. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the sale, assignment and transfer of the outstanding notes tendered hereby. All authority herein conferred or agreed to be conferred in this letter of transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in the prospectus and in the instructions contained in this letter of transmittal. -5- THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OUTSTANDING NOTES" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL AND DELIVERING SUCH NOTES AND THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE OUTSTANDING NOTES AS SET FORTH IN SUCH BOX ABOVE. -6- PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS) (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9) X ________________________ Date: ______________, 2000 X ________________________ Date: ______________, 2000 Signature(s) of Owner The above lines must be signed by the registered holder(s) exactly as their name(s) appear(s) on the outstanding notes, or by person(s) authorized to become registered holder(s) by a properly completed bond power from the registered holder(s), a copy of which must be transmitted with this letter of transmittal. If outstanding notes to which this letter of transmittal relate are held of record by two or more joint holders, then all such holders must sign this. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then please set forth the full title of the person signing in such capacity. See Instruction 4. Name(s): --------------------------------------------------------------- - -------------------------------------------------------------------------------- (Please Type or Print) Capacity: -------------------------------------------------------------- Address: -------------------------------------------------------------- - -------------------------------------------------------------------------------- (Including Zip Code) Area Code and Telephone Number: ---------------------------------------- Tax Identification or Social Security Number(s): --------------------------------------------- SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 4) Signatures Guaranteed by an Eligible Institution: -------------------------------------------- (Authorized Signature) - -------------------------------------------------------------------------------- (Title) - -------------------------------------------------------------------------------- (Name of Firm) - -------------------------------------------------------------------------------- (Address and Telephone Number) Dated: _________________, 2000. -7-
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4 AND 5) (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if certificates for outstanding To be completed ONLY if certificates for notes not exchanged and/or exchange notes are to be issued outstanding notes not exchanged and/or exchange notes in the name of and sent to someone other than the person or are to be sent to someone other than the person or persons persons whose signature(s) appear(s) on this letter of whose signature(s) appear(s) on this letter of transmittal transmittal above. above or to such person or persons at an address other than shown in the box above entitled "Description of Issue exchange notes and/or outstanding notes to: Outstanding Notes." Name(s): ....................................... Deliver exchange notes and/or outstanding notes to: (Please Type or Print) Name(s): ......................................... ................................................ (Please Type or Print) (Please Type or Print) ......................................... Address: ........................................ (Please Type or Print) ................................................ Address: ......................................... (Zip Code) ......................................... Telephone Number:................................ (Zip Code) Tax Identification or Telephone Number:................................. Social Security Number(s):...................... Tax Identification or (Complete Substitute Form W-9) Social Security Number(s):........................ IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR OUTSTANDING NOTES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
-8- INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OUTSTANDING NOTES. This letter of transmittal is to be used to, and must accompany, (i) all certificates representing outstanding notes tendered pursuant to the Exchange Offer and (ii) all tenders or outstanding notes made pursuant to the procedures for book-entry transfer set forth in the prospectus under "The Exchange Offer -- Procedures for Tendering Outstanding Notes." Certificates representing the outstanding notes in proper form for transfer, or a timely confirmation of a book-entry transfer of such outstanding notes into the exchange agent's account at DTC, as well as a properly completed and duly executed copy of this letter of transmittal (or facsimile thereof), with any required signature guarantees, a Substitute Form W-9 (or facsimile thereof) and any other documents required by this letter of transmittal must be received by the exchange agent at its address set forth herein on or before the Expiration Date. The method of delivery of this letter of transmittal, the outstanding notes and all other required documents is at the election and risk of the tendering holders, but delivery will be deemed made only when actually received or confirmed by the exchange agent. If such delivery is by mail, it is recommended that registered mail properly insured, with return receipt requested, be used. In all cases, sufficient time should be allowed to permit timely delivery. The Company will not accept any alternative, conditional or contingent tenders. Each tendering holder, by execution of a letter of transmittal (or facsimile thereof), waives any right to receive any notice of the acceptance of such tender. 2. GUARANTEED DELIVERY PROCEDURES. If a holder desires to tender outstanding notes, but time will not permit a letter of transmittal, certificates representing the outstanding notes to be tendered or other required documents to reach the exchange agent on or before the Expiration Date, or if the procedure for book-entry transfer cannot be completed on or prior to the Expiration Date, such holder's tender may be effected if: (a) such tender is made by or through an eligible institution (as discussed below); (b) on or before to the Expiration Date, the exchange agent has received a properly completed and duly executed notice of guaranteed delivery, substantially in the form made available by the Company (or a facsimile thereof) (receipt confirmed by telephone and an original delivered by guaranteed overnight courier) from such eligible institution setting forth the name and address of the holder of such outstanding notes, the name(s) in which the outstanding notes are registered and the principal amount of outstanding notes tendered and stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, certificates representing the outstanding notes to be tendered, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a duly executed letter of transmittal and any other documents required by this letter of transmittal and the instructions hereto, will be deposited by such eligible institution with the exchange agent; and (c) a letter of transmittal (or a facsimile thereof) and certificates representing the outstanding notes to be tendered, in proper form for transfer, or a book-entry confirmation, as the case may be, and all other required documents are received by the exchange agent within three New York Stock Exchange trading days after the Expiration Date. 3. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of outstanding notes will be accepted only in a minimum principal amount of $100,000 and integral multiples of $1,000 in excess thereof, provided that if any outstanding notes are tendered for exchange in part, the untendered minimum principal amount thereof must be $100,000 or any integral multiple of $1,000 in excess thereof. If less than all the outstanding notes evidenced by any certificate submitted are to be tendered, fill in the principal amount of outstanding notes which are to be tendered in the box entitled "Principal Amount of Outstanding Notes Tendered (if less than all)." In such case, new certificate(s) for the remainder of the outstanding notes that were evidenced by your old certificate(s) will only be sent to the holder of the outstanding notes (or, in the case of outstanding notes tendered pursuant to book-entry transfer, will only be credited to the account at DTC maintained by the holder of the outstanding notes) promptly after the Expiration Date. All outstanding notes -9- represented by certificates or subject to a book-entry confirmation delivered to the exchange agent will be deemed to have been tendered unless otherwise indicated. Any holder who has tendered outstanding notes may withdraw the tender by delivering written notice of withdrawal (which may be sent by facsimile) to the exchange agent at its address set forth herein prior to the Expiration Date. Any such notice of withdrawal must specify (i) the person named in the letter of transmittal as having tendered the outstanding notes to be withdrawn, (ii) the certificate numbers of the outstanding notes to be withdrawn, (iii) the principal amount of outstanding notes to be withdrawn, (iv) a statement that such holder is withdrawing its election to have such outstanding notes exchanged, and (v) the name of the registered holder of such outstanding notes and must be signed by the holder in the same manner as the original signature on the letter of transmittal (including any required signature guarantees) by which such outstanding notes were tendered, or be accompanied by evidence satisfactory to the Company that the person withdrawing the tender has succeeded to the beneficial ownership of the outstanding notes being withdrawn. If outstanding notes have been tendered pursuant to the procedures for book-entry transfer set forth in the prospectus under "The Exchange Offer -- Procedures for Tendering Outstanding Notes," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of outstanding notes, in which case a notice of withdrawal will be effective if delivered to the exchange agent by written, telegraphic, telex or facsimile transmission. Withdrawals of tenders of outstanding notes may not be rescinded. Outstanding notes properly withdraw will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any subsequent time on or prior to the Expiration Date by following any of the procedures described in the prospectus under "The Exchange Offer -- Procedures for Tendering Outstanding Notes." The exchange agent will return the properly withdrawn outstanding notes promptly following receipt of notice of withdrawal. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by the Company, and such determinations will be final and binding on all parties. Neither the Company nor the exchange agent shall be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give such notification. 4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this letter of transmittal is signed by the registered holder of the outstanding notes tendered herewith, the signature must correspond exactly with the name as written on the face of the certificates without any alteration, enlargement or change whatsoever. If any tendered outstanding notes are owned of record by two or more joint owners, all such owners must sign this letter of transmittal. If any tendered outstanding notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this letter of transmittal as there are names in which tendered outstanding notes are registered. If this letter of transmittal is signed by the registered holder, and exchange notes are to be issued and any untendered or unaccepted principal amount of outstanding notes are to be reissued or returned to the registered holder, then the registered holder need not and should not endorse any tendered outstanding notes or provide a separate bond power. In any other case, the registered holder must either properly endorse the outstanding notes tendered or transmit a properly completed separate bond power with this letter of transmittal (in either case, executed exactly as the name of the registered holder appears on such outstanding notes), with the signature on the endorsement or bond power guaranteed by an eligible institution, unless such certificates or bond powers are signed by an eligible institution. If this letter of transmittal or any outstanding notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and submit with this letter of transmittal evidence satisfactory to the Company of their authority to so act. The signatures on this letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the outstanding notes surrendered for exchange pursuant thereto are tendered (i) by a registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on the register of holders maintained by the Company as owner of the outstanding notes) who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" in this letter of transmittal or (ii) for the account of an eligible institution. In the event that the signatures in this letter of transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by an eligible institution, which includes commercial banks and trust companies located or having an office or correspondent in the -10- United States, member firms of a national securities exchange or the National Association of Securities Dealers, Inc., and members of a signature medallion program such as "STAMP." If outstanding notes are registered in the name of a person other than the signer of this letter of transmittal, the outstanding notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an eligible institution. 5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of outstanding notes should indicate in the applicable box the name and address or account at DTC to which exchange notes issued pursuant to the Exchange Offer and/or substitute outstanding notes for principal amounts not tendered or not accepted for exchange are to be issued, sent or deposited if different from the name and address or account of the person signing this letter of transmittal. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. If no such instructions are given, any exchange notes will be issued in the name of, and delivered to, the name and address (or account at DTC, in the case of any tender by book-entry transfer) of the person signing this letter of transmittal, and any outstanding notes not accepted for exchange will be returned to the name and address (or account at DTC, in the case of any tender by book-entry transfer) of the person signing this letter of transmittal. 6. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the federal income tax laws, payments that may be made by the Company on account of exchange notes issued pursuant to the Exchange Offer may be subject to backup withholding at the rate of 31%. In order to avoid such backup withholding, each tendering holder should complete and sign the Substitute Form W-9 included in this letter of transmittal and either (a) provide the correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct and that (i) the holder has not been notified by the Internal Revenue Service that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the IRS has notified the holder that the holder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If the tendering holder has not been issued a TIN and has applied for one, or intends to apply for one in the near future, such holder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I, the Company (or the paying agent under the Indenture governing the exchange notes) will retain 31% of payments made to the tendering holder during the 60-day period following the date of the Substitute Form W-9. If the holder furnishes the exchange agent or the Company with its TIN within 60-days after the date of the Substitute Form W-9, the Company (or the paying agent) will remit such amounts retained during the 60-day period to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the exchange agent or the Company with its TIN within such 60-day period, the Company (or the paying agent) will remit such previously retained amounts to the IRS as backup withholding. In general, if a holder is an individual, the taxpayer identification number is the Social Security Number of such individual. If the exchange agent or the Company is not provided with the correct taxpayer identification number, the holder may be subject to a $50 penalty imposed by the IRS. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such holder must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the exchange agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if outstanding notes are registered in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute From W-9. Failure to complete the Substitute Form W-9 will not, by itself, cause outstanding notes to be deemed invalidly tendered, but may require the Company (or the paying agent) to withhold 31% of the amount of any payments made on account of the exchange notes. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 7. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of outstanding notes to it or its order pursuant to the Exchange Offer. If, however, exchange notes and/or substitute outstanding notes not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the outstanding notes tendered herewith, or if tendered outstanding notes are registered in the name of any person other than the person signing this letter of -11- transmittal, or if a transfer tax is imposed for any reason other than the transfer of outstanding notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the outstanding notes specified in this letter of transmittal. 8. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive, in whole or in part, any of the conditions to the Exchange Offer set forth in the prospectus. 9. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or contingent tenders of outstanding notes or transmittals of this letter of transmittal will be accepted. All tendering holders of outstanding notes, by execution of this letter of transmittal, shall waive any right to receive notice of the acceptance of their outstanding notes for exchange. Neither the Company, the exchange agent nor any other person is obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 10. INADEQUATE SPACE. If the space provided herein is inadequate, the aggregate principal amount of outstanding notes being tendered and the certificate number or numbers (if applicable) should be listed on a separate schedule attached hereto and separately signed by all parties required to sign this letter of transmittal. 11. MUTILATED, LOST, STOLEN OR DESTROYED OUTSTANDING NOTES. If any certificate has been lost, mutilated, destroyed or stolen, the holder should promptly notify The Bank of New York at 101 Barclay Street 7-E, New York, New York 10286, telephone (212) 815-6333. The holder will then be instructed as to the steps that must be taken to replace the certificate. This letter of transmittal and related documents cannot be processed until the outstanding notes have been replaced. 12. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the prospectus and this letter of transmittal, may be directed to the exchange agent at the address and telephone number indicated above. 13. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of tendered outstanding notes will be determined by the Company, in its sole discretion, which determination will be final and binding. The Company reserves the right to reject any and all outstanding notes not validly tendered or any outstanding notes, the Company's acceptance of which may, in the opinion of the Company or counsel to the Company, be unlawful. The Company also reserves the right to waive any conditions of the Exchange Offer or defects or irregularities in tenders of outstanding notes as to any ineligibility of any holder who seeks to tender outstanding notes in the Exchange Offer, whether or not similar conditions or irregularities are waived in the case of other holders. The interpretation of the terms and conditions of the Exchange Offer (including this letter of transmittal and the instructions hereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of outstanding notes must be cured within such time as the Company shall determine. The Company will use reasonable efforts to give notification of defects or irregularities with respect to tenders of outstanding notes, but neither the Company nor the exchange agent shall incur any liability for failure to give such notification. -12- 14. ACCEPTANCE OF TENDERED OUTSTANDING NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN OF OUTSTANDING NOTES. Subject to the terms and conditions of the Exchange Offer, the Company will accept for exchange all validly tendered outstanding notes as soon as practicable after the Expiration Date and will issue exchange notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Company shall be deemed to have accepted tendered outstanding notes when, as and if the Company has given written and oral notice thereof to the exchange agent. If any tendered outstanding notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged outstanding notes will be returned, without expense, to the name and address shown above or, if outstanding notes have been tendered by book-entry transfer, to the account at DTC shown above, or at a different address or account at DTC as may be indicated under "Special Delivery Instructions." -13- TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 6) PAYOR'S NAME: PRECISION PARTNERS, INC. SUBSTITUTE FORM W-9 Part I--Taxpayer Identification Number Department of the Treasury _______________________________________ Internal Revenue Service Enter your taxpayer identification Social Security Number number in the appropriate box. For most individuals, this is your social OR security number. If you do not have a number, see how to obtain a "TIN" in the enclosed Guidelines. _______________________________________ Employer Identification Number NOTE: If the account is in more than one name, see the chart on page 2 of the enclosed Guidelines to determine what number to give. Part II--For Payees Exempt from Backup Withholding (see enclosed Guidelines) Payor's Request for Taxpayer CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I Identification Number (TIN) CERTIFY THAT: and Certification (1) the number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am no subject to backup withholding either because I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or the IRS has notified me that I am no longer subject to backup withholding. SIGNATURE________________________________ DATE____________
Certificate Guidelines--You must cross out Item (2) of the above certification if you have been notified by the IRS that you are subject to backup withholding because of underreporting of interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out Item (2). CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER I certify, under penalties of perjury, that a Taxpayer Identification Number has not been issued to me and that I mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a Taxpayer Identification Number to the payor, 31% of all payments made to me on account of the exchange notes shall be retained until I provide a Taxpayer Identification Number to the payor and that, if I do not provide my Taxpayer Identification Number within 60 days, such retained amounts shall be remitted to the Internal Revenue Service as a backup withholding and 31% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a Taxpayer Identification Number. SIGNATURE___________________________________ DATE______________ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. -14- EX-99.2 39 NOGD Exhibit 99.2 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF ANY AND ALL OUTSTANDING 12% SENIOR SUBORDINATED NOTES DUE 2009 IN EXCHANGE FOR NEW 12% SENIOR SUBORDINATED NOTES DUE 2009 OF PRECISION PARTNERS, INC. FULLY AND UNCONDITIONALLY GUARANTEED BY PRECISION PARTNERS, INC. GALAXY INDUSTRIES CORPORATION MID STATE MACHINE PRODUCTS NATIONWIDE PRECISION PRODUCTS CORP. GENERAL AUTOMATION, INC. CERTIFIED FABRICATORS, INC. GILLETTE MACHINE & TOOL CO., INC. This notice of guaranteed delivery, or one substantially equivalent to this form, must be used by registered holders of outstanding 12% Senior Subordinated Notes due 2009 of Precision Partners, Inc., a corporation organized under the laws of Delaware (the "Company"), who wish to tender their outstanding notes for an equal principal amount of new 12% Senior Subordinated Notes of the Company due 2009 that have been registered under the Securities Act of 1933 if (i) the outstanding notes, a duly completed and executed letter of transmittal and all other required documents cannot be delivered to The Bank of New York, as exchange agent, on or prior to 5:00 p.m., New York City time, on the Expiration Date (as defined in the accompanying letter of transmittal) or (ii) the procedures for delivery of the outstanding notes being tendered by book-entry transfer, together with a duly completed and executed letter of transmittal, cannot be completed on or prior to 5:00 p.m., New York City time on the Expiration Date. This notice of guaranteed delivery may be delivered by hand, overnight courier or mail, or transmitted by facsimile transmission (receipt confirmed by telephone and an original delivered by guaranteed overnight delivery), to the exchange agent. See "The Exchange Offer -- Procedures for Tendering Outstanding Notes" in the prospectus. The Company has the right to reject a tender of outstanding notes made pursuant to the guaranteed delivery procedures unless the registered holder using the guaranteed delivery procedure submits either (a) the outstanding notes tendered thereby, in proper form for transfer, or (b) confirmation of book-entry transfer as set forth in the prospectus, in either case together with one or more properly completed and duly executed letter(s) of transmittal (or facsimile thereof) and any other required documents by 5:00 p.m., New York City time, on the third New York Stock Exchange trading day following the Expiration Date. The exchange agent for the Exchange Offer Is: The Bank of New York
BY REGISTERED OR CERTIFIED MAIL FACSIMILE TRANSMISSIONS: BY HAND OR OVERNIGHT DELIVERY (Eligible Institutions Only) The Bank of New York (212) 815-6339 The Bank of New York 101 Barclay Street, 7E 101 Barclay Street New York, New York 10286 CONFIRM BY TELEPHONE: Corporate Trust Services Window Attn: Reorganization Section (212) 815-6337 Ground Level New York, New York 10286 For Information Call: Attn: Reorganization Section (212) 815-6337
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DLIVERY VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in the prospectus dated [ ], and the related letter of transmittal (which together constitute the "Exchange Offer"), receipt of which is hereby acknowledged, the aggregate principal amount of the outstanding notes set forth below pursuant to the guaranteed delivery procedures set forth in the prospectus under the caption "The Exchange Offer -- Procedures for Tendering Outstanding Notes" and in Instruction 2 to the letter of transmittal. 2 DESCRIPTION OF SECURITIES TENDERED
Name and address of registered holder as it Certificate number(s) Aggregate principal Principal amount of appears on the outstanding of outstanding notes amount represented outstanding notes notes (Please print) tendered by outstanding notes* tendered - -------------------------- ------------------------ ------------------------- -------------------- - -------------------------- ------------------------ ------------------------- -------------------- - -------------------------- ------------------------ ------------------------- -------------------- - -------------------------- ------------------------ ------------------------- -------------------- - -------------------------- ------------------------ ------------------------- -------------------- - -------------------------- ------------------------ ------------------------- --------------------
* Must be in denominations of a principal amount of $100,000 and any integral multiple of $1,000. If the outstanding notes will be tendered by book-entry transfer, provide the following information: DTC Account Number: ------------------------------------------------------------ - -------------------------------------------------------------------------------- All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. - -------------------------------------------------------------------------------- PLEASE SIGN HERE X Date: , 2000 ------------------------------ ------------- X Date: , 2000 ------------------------------ ------------- Signature(s) of Owner(s) or Authorized Signatory Area Code and Telephone Number: Must be signed by the holder(s) of the outstanding notes as their name(s) appear(s) on certificates of the outstanding notes or on a security position listing, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this notice of guaranteed delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. 3 Please print name(s) and address(es) Names(s): ---------------------------------------------------------------------- ------------------------------------- ---------------------------------------------------------------------- ------------------------------------- Capacity: --------------------------------------------------- --------------------------------------------------- --------------------------------------------------- --------------------------------------------------- Address(es): --------------------------------------------------- --------------------------------------------------- --------------------------------------------------- --------------------------------------------------- 4 THE FOLLOWING GUARANTEE MUST BE COMPLETED GUARANTEE OF DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm or other entity identified in Rule 17Ad-15 under the Securities Exchange Act of 1934 as an "eligible guarantor institution," including (as such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities broker, municipal securities dealer, government securities broker, government securities dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or learning agency; or (v) a savings association that is a participant in a Securities Transfer Association recognized program hereby guarantees to deliver to the exchange agent, at one of its addresses set forth above, either (a) the outstanding notes tendered hereby, in proper from for transfer, or (b) confirmation of the book-entry transfer of such outstanding notes to the exchange agent's account at The Depositary Trust Company maintained for such purpose, pursuant to the procedures for book-entry transfer set forth in the prospectus, in either case together with one or more properly completed and duly executed letter(s) of transmittal (or facsimile thereof) and any other required documents by 5:00 p.m., New York City time, on the third New York Stock Exchange trading day following the Expiration Date. The undersigned acknowledged that it must deliver the letter(s) of transmittal and the outstanding notes tendered hereby to the exchange agent within the time period set forth above and that failure to do so could result in a financial loss to the undersigned. Name of Firm: -------------------------- ------------------------------- (Authorized Signature) Address: -------------------------- Title:------------------------- -------------------------- Name:-------------------------- (zip code) (Please type or print) Area Code and Telephone Number:-------------------------- Date:-------------------------- NOTE: DO NOT SEND CERTIFICATES FOR OUTSTANDING NOTES WITH THIS FORM. CERTIFICATES FOR OUTSTANDING NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL. 5 EX-99.3 40 LETTER TO DTC PARTICIPANTS Exhibit 99.3 OFFER TO EXCHANGE 12% SENIOR SUBORDINATED NOTES DUE 2009, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR OUTSTANDING 12% SENIOR SUBORDINATED NOTES DUE 2009 OF PRECISION PARTNERS, INC. To The Depository Trust Company participants: We are enclosing herewith the materials listed below relating to the offer by Precision Partners, Inc. (the "Company") to exchange up to $100,000,000 aggregate principal amount of its 12% Senior Subordinated Notes Due 2009, pursuant to an offering registered under the Securities Act of 1933 for a like principal amount of its issued and outstanding 12% Senior Subordinated Notes Due 2009, upon the terms and subject to the conditions set forth in the prospectus dated [ ] of the Company, and the related letter of transmittal, in each case as amended or supplemented from time to time (which together constitute the "Exchange Offer"). Enclosed herewith are copies of the following documents: 1. Prospectus dated [ ] 2. Letter of transmittal; 3. Notice of guaranteed delivery; 4. Instruction to book-entry transfer participant from owner; and 5. Letter which may be sent to your clients for whose account you hold outstanding notes in your name or in the name of your nominee, to accompany the instruction form referred to above, for obtaining such client's instruction with regard to the Exchange Offer. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], UNLESS EXTENDED. The Exchange Offer is not conditioned upon any minimum number of outstanding notes being tendered. To participate in the Exchange Offer, a beneficial holder of outstanding notes must cause a DTC participant to tender such holder's outstanding notes to The Bank of New York's account, as exchange agent, maintained at The Depository Trust Company ("DTC") for the benefit of the exchange agent through DTC's Automated Tender Offer Program ("ATOP"), including transmission of a computer-generated message that acknowledges and agrees, on behalf of the DTC participant and the beneficial owners of tendered outstanding notes, to be bound by the terms of the letter of transmittal. By complying with DTC's ATOP procedures with respect the Exchange Offer, the DTC participant confirms, on behalf of itself and the beneficial or owners of tendered outstanding notes, all provisions of the letter of transmittal applicable to it and such beneficial owners as fully as if it completed, executed and returned the letter of transmittal to the exchange agent. Pursuant to the letter of transmittal, each holder of outstanding notes will represent to the Company that (i) it is not an affiliate of the Company or its subsidiaries or, if the holder is an affiliate of the Company or its subsidiaries, it will comply with the registration and prospectus requirements of the Securities Act to the extent applicable, (ii) the exchange notes are being acquired in the ordinary course of business of the person receiving such exchange notes, whether or not such person is the holder, (iii) the holder has not entered into an arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the exchange notes, (iv) the holder is not a broker-dealer who purchased the notes for resale pursuant to an exemption under the Securities Act, and (v) the holder will be able to trade exchange notes acquired in the Exchange Offer without restriction under the Securities Act. If the tendering holder is a broker-dealer that will receive exchange notes for its own account pursuant to the Exchange Offer, the Company will represent on behalf of such broker-dealer that the outstanding notes to be exchanged for the exchange notes were acquired by it as a result of market-making activities or other trading activities, and acknowledge on behalf of such broker-dealer that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such exchange notes. By acknowledging that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such exchange notes, such broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The enclosed instruction to the book-entry transfer participant from owner contains an authorization by the beneficial owners of the outstanding notes for you to make the foregoing representations. We will not pay any fee or commission to any broker or dealer or to any other persons (other than the exchange agent) in connection with the solicitation of tenders of outstanding notes pursuant to the Exchange Offer. We will pay or cause to be paid any transfer taxes payable on the transfer of outstanding notes to it, except as otherwise provided in Instruction 7 of the enclosed letter of transmittal. Additional copies of the enclosed material may be obtained from The Bank of New York, 101 Barclay Street, 7E, New York, New York 10286, Attention: Reorganization Section. Very truly yours, PRECISION PARTNERS, INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF PRECISION PARTNERS, INC., OR THE BANK OF NEW YORK OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. EX-99.4 41 LETTER TO CLIENTS Exhibit 99.4 OFFER TO EXCHANGE 12% SENIOR SUBORDINATED NOTES DUE 2009, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR OUTSTANDING 12% SENIOR SUBORDINATED NOTES DUE 2009 OF PRECISION PARTNERS, INC. To our clients: We are enclosing herewith a prospectus dated [_____________] of Precision Partners, Inc. (the "Company"), and a letter of transmittal (which together constitute the "Exchange Offer") relating to the offer by the Company to exchange up to $100,000,000 aggregate principal amount of its 12% Senior Subordinated Notes Due 2009, pursuant to an offering registered under the Securities Act of 1933, for a like principal amount of its issued and outstanding 12% Senior Subordinated Notes Due 2009, upon the terms and subject to the conditions set forth in the Exchange Offer. PLEASE NOTE THAT THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], UNLESS EXTENDED. The Exchange Offer is not conditioned upon any minimum number of outstanding notes being tendered. We are the participants in the book-entry transfer facility of outstanding notes held by us for your account. A tender of such outstanding notes can be made only by us as the participant in the book-entry transfer facility and pursuant to your instructions. The letter of transmittal is furnished to you for your information only and cannot be used by you to tender outstanding notes held by us for your account. We request instructions as to whether you wish to tender any or all of the outstanding notes held by us for your account pursuant to the terms and conditions of the Exchange Offer. We also request that you confirm that we may on your behalf make the representations contained in the letter of transmittal that are to be made with respect to you as beneficial owner. Pursuant to the letter of transmittal, each holder of outstanding notes will represent to the Company that (i) it is not an affiliate of either the Company or its subsidiaries or, if the holder is an affiliate of the Company or its subsidiaries, it will comply with the registration and prospectus requirements of the Securities Act to the extent applicable, (ii) the exchange notes are being acquired in the ordinary course of business of the person receiving such exchange notes, whether or not such person is the holder, (iii) the holder has not entered into an arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the exchange notes, (iv) the holder is not a broker-dealer who purchased the notes for resale pursuant to an exemption under the Securities Act, and (v) the holder will be able to trade exchange notes acquired in the Exchange Offer without restriction under the Securities Act. If the tendering holder is a broker-dealer that will receive exchange notes for its own account pursuant to the Exchange Offer, we will represent on behalf of such broker-dealer that the outstanding notes to be exchanged for the exchange notes were acquired by it as a result of market-making activities or other trading activities, and acknowledge on behalf of such broker-dealer that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such exchange notes. By acknowledging that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such exchange notes, such broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Very truly yours, EX-99.5 42 INSTRUCTION TO BOOK-ENTRY TRANSFER PARTICIPANTS EXHIBIT 99.5 INSTRUCTION TO BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER OF PRECISION PARTNERS, INC. 12% SENIOR SUBORDINATED NOTES DUE 2009 To participant of the book-entry transfer facility: The undersigned hereby acknowledges receipt of the prospectus dated [ ] of Precision Partners, Inc. (the "Company"), and a related letter of transmittal (which together constitute the "Exchange Offer"). This will instruct you, the book-entry transfer facility participant, as to the action to be taken by you relating to the Exchange Offer with respect to the outstanding notes held by you for the account of the undersigned. The aggregate face amount of the outstanding notes held by you for the account of the undersigned is (fill in amount): $ of the 12% Senior Subordinated Notes Due 2009. ------------------------ With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate statement): A.______________________ To TENDER the following outstanding notes held by you for the account of the undersigned (insert principal amount of outstanding notes to be tendered): $_______________________ 1 of the 12% Senior Subordinated Notes Due 2009, and not to tender other outstanding notes, if any, held by you for the account of the undersigned; OR B.______________________ NOT to tender any outstanding notes held by you for the account of the undersigned. If the undersigned instructs you to tender the outstanding notes held by you for the account of the undersigned, it is understood that you are authorized to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the letter of transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations, that (i) it is not an affiliate of either the Company or, if the undersigned is an affiliate of the Company, it will comply with the registration and prospectus requirements of the Securities Act to the extent applicable, (ii) the exchange notes are being acquired in the ordinary course of business of the person receiving such exchange notes, whether or not such person is the holder, (iii) the undersigned has not entered into an arrangement or understanding with any other person to participate in the distribution (within the meaning of the Securities Act) of the exchange notes, (iv) the undersigned is not a broker-dealer who purchased the notes for resale pursuant to an exemption under the Securities Act, and (v) the undersigned will be able to trade exchange notes acquired in the Exchange Offer without restriction under the Securities Act. If the undersigned is a broker-dealer (whether or not it is also an "affiliate") that will receive exchange notes for its own account pursuant to the Exchange Offer, it represents that such outstanding notes to be exchanged were acquired by it as a result of market-making activities or other trading activities, and it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such exchange notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in - -------- (1) Must be a minimum aggregate principal amount of at least $100,000 or an integral multiple of $1,000 thereof. connection with any resale of such exchange notes, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. SIGN HERE Name of beneficial owner(s):---------------------------------------------------- Signature(s):------------------------------------------------------------------- Name(s) (please print):--------------------------------------------------------- Address:------------------------------------------------------------------------ (zip code) Telephone Number:--------------------------------------------------------------- (area code) Taxpayer identification or Social Security Number: - ------------------------------------- Date:-------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----