-----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, SEPbjmLDgz5nI+zjYpkQGlT9E1Qr0SXFBivKyC09GwgNmOER0op9SxMI5z+o8F9V QZ2DdV6jsqhUnQJmycGQfA== 0000950148-96-001895.txt : 19960830 0000950148-96-001895.hdr.sgml : 19960830 ACCESSION NUMBER: 0000950148-96-001895 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960829 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HASKEL INTERNATIONAL INC CENTRAL INDEX KEY: 0000918022 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 954107640 STATE OF INCORPORATION: CA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25068 FILM NUMBER: 96623010 BUSINESS ADDRESS: STREET 1: 100 EAST GRAHAM PL CITY: BURBANK STATE: CA ZIP: 91502 BUSINESS PHONE: 8188434000 MAIL ADDRESS: STREET 1: 100 EAST GRAHAM PLACE CITY: BURBANK STATE: CA ZIP: 91502 10-K 1 FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ------------------------ [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 0-25068 HASKEL INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ CALIFORNIA 95-4107640 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 EAST GRAHAM PLACE, BURBANK, CA 91502 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 843-4000 SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: CLASS A COMMON STOCK NAME OF EACH EXCHANGE ON WHICH REGISTERED: THE NASDAQ STOCK MARKET SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes __ No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock held by non-affiliates of the registrant: $19,795,936 as of August 16, 1996. As of August 16, 1996, the registrant had 4,688,230 shares of Class A Common Stock and 40,000 shares of Class B Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: None - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL Established in 1946, the Company manufactures pneumatically (compressed air or gas) and hydraulically (oil) driven, high-pressure low-flow, fixed displacement, reciprocating plunger, liquid pumps, gas boosters, chemical injection pumps and air pressure amplifiers ("Haskel(R) Specialty Pumps") for industrial, commercial, aerospace and military applications. Management believes that the Company is one of the world's leading manufacturers of pneumatically- driven, high-pressure liquid pumps and gas boosters, which represent the vast majority of Haskel(R) Specialty Pumps manufactured by the Company. The Company also manufactures high-pressure valves, regulators, and accessories to complement Haskel(R) Specialty Pumps. The Company distributes third-party manufactured valves, cylinders and actuators, and other pneumatic and hydraulic devices. Applying its engineering expertise and high-pressure pump, booster, amplifier and relief valve technology, the Company is also engaged in the test and control systems business. The Company's systems business consists of the design and manufacture of many different kinds of apparatus that incorporate the Company's products, engineering knowledge and experience in high pressure technology, often incorporating electronic and computer controls to achieve a functional piece of equipment. This integrated equipment (a "Haskel(R) System") has a wide variety of applications throughout industry. The Company also specializes in the international trading of electronic components, utilizing its proprietary QRD(R) (Quick Response Delivery) global trading network. In its fiscal year ended May 31, 1996, approximately 42% of the Company's business was manufacturing (including Haskel(R) Systems); the balance was distribution of third-party fluid power products and distribution of electronic components. The Company's operations are organized into two groups, the Industrial Products Group ("IPG") and the Electronic Products Group ("EPG"). The IPG operates in two segments, industrial products manufacturing and industrial products distribution. The EPG operates in one segment, electronic products distribution. The IPG's operations are headquartered in Burbank, California and consist of the Company's Industrial Technologies Division ("ITD"), Haskel Controls Division ("Controls"), and the Company's wholly owned subsidiary, Haskel Energy Systems, Ltd. ("HESL"), located in Sunderland, England and its divisions and subsidiaries. The ITD is the U.S. manufacturer of Haskel(R) Specialty Pumps, Haskel(R) Systems, high-pressure valves, regulators and accessories to complement these products. Controls distributes product lines used primarily in the fluid power business, the largest line of which is the Company's products. HESL represents the Company's European industrial products operations with offices located in Sunderland and Manchester, England; Aberdeen, Scotland; Lille, France; Wesel, Germany; and the most recent addition, after the completion of the fiscal year, in Zoetermeer, the Netherlands. HESL and its divisions and subsidiaries primarily distribute Haskel(R) Specialty Pumps and design and manufacturer Haskel(R) Systems for specific applications required by customers in Europe, India, and the Middle East. HESL and its divisions and subsidiaries also manufacture products needed for HESL's markets that are not produced in the United States, such as the Jetflow Airmover(R), and distribute products of other manufacturers. The EPG consists of M.G. Electronics, Inc. ("MGE"), headquartered in Westlake Village, California, and its purchasing office in Hong Kong. The EPG provides purchasing services, product substitution and solutions to shortage and delivery problems of original 2 3 equipment manufacturers ("OEMs") of electronic components. The EPG specializes in locating sources (which includes researching, evaluating and supplying) for circuit board-level components, such as integrated circuits, capacitors, transistors and resistors. Certain financial information about the Company's business segments and its domestic and foreign operations and export sales is presented in Note 14 of the Notes to Consolidated Financial Statements appearing in this Report. Inter-segment sales are principally sales from the IPG manufacturing segment to the IPG distribution segment. No single customer accounted for more than 10% of sales during fiscal 1994, 1995 or 1996. INDUSTRIAL PRODUCTS GROUP - MANUFACTURING Products and Markets The Company is one of the world's leading manufacturers of pneumatically-driven, high-pressure liquid pumps and gas boosters, which represent the vast majority of Haskel(R) Specialty Pumps manufactured by the Company. Haskel(R) Specialty Pumps produce very high pressures (typically 4,000 to 20,000 psi with a capability of up to 150,000 psi) at low volumes of flow, with rated fluid power of up to ten horsepower. Haskel(R) Specialty Pumps utilize reciprocating plungers with fixed displacement bodies to generate these pressures. Management believes that the high quality of the Company's products, in terms of engineering design, reliability, durability and performance, enables the Company to sell such products at a premium price. Haskel(R) Specialty Pumps are designed for niche markets where high pressure with low flow of liquids or gases at ten horsepower or less is required. The pump's function is to generate pressure, taking in low-pressure, low-flow liquids and gases and producing high-pressure, low-flow liquids and gases. The energy produced by a pump is used to move a linear or rotary actuator, generate pressure for testing or metal forming, charge pressure containers, and transfer fluids under pressure. Additional products include metal seals for extreme temperature applications; the Company's patented Hydroswage(R) products, which use high liquid pressure for metal expansion, creating a high integrity joint between the metal tube and the tube sheet as found in boilers and heat exchangers; and the Jetflow Airmover(R), which ventilates stagnant environments, such as mines, by diluting and removing hazardous gases. The Company has also entered into private branding agreements with other companies in the pressure industry to have manufactured certain valve and pump products in the Company's name for marketing by the Company in selected geographic areas. Haskel's systems business consists of the design and manufacture of many different kinds of apparatus that incorporate the Company's products, engineering knowledge and experience in high pressure technology, together with third party products. They often incorporate electronic computer controls to achieve a functional piece of equipment. Haskel(R) Systems have a wide variety of applications throughout industry. Some of the many applications of Haskel(R) Systems include: - pressure testing hoses, valves and cylinders - mixing liquids and gases under pressure - injecting gases into plastics in order to improve the molding process - boosting oxygen for life support and emergency service use - boosting nitrogen for charging cryostats in missile guidance applications, commercial aircraft tires, struts and escape chutes - pressurizing argon for infrared cooling in missiles - boosting helium for testing automotive brake and air conditioning hoses and charging satellite rocket motors - pressure charging and testing of automotive air bag cannisters 3 4 - recovering and charging chlorofluorocarbons ("CFC's") used in air conditioning and refrigeration applications - recovering and charging SF6 (Sulfar Hexafluoride), an arc suppressant gas, used in high voltage switch gear - pressurizing carbon dioxide for filling fire extinguishers and manufacturing foam - compressing natural gas (CNG) for use as a vehicle fuel - hydrostatic forming of metal using the Company's Hydroswage(R) process - work holding and press overload applications - chemical injection and well head control applications for oil and gas production platforms - boosting shop compressed air In addition, other manufacturers incorporate Haskel(R) Specialty Pumps in their equipment for these and similar purposes. During fiscal year 1996, the Company began producing, in the United States, a series of "test bench" Haskel(R) Systems designed to meet the growing demand for devices that test the integrity of valves, hoses, cylinders, and other components commonly used by the nuclear, oil and gas, airline, chemical and power generation industries in high-pressure liquid and gas applications. Since 1992, the Company has been designing and manufacturing similar systems at HESL. The Company has qualified for and been awarded the ISO 9001 accreditation, a total quality certification from the International Standards Organization ("ISO"), for HESL's United Kingdom operations and the Company is in the process of applying for such certification for its IPG operations. The ISO 9001 accreditation gives recognition for maintaining an internationally recognized standard of quality in both its products and engineering and should help the Company maintain a competitive advantage. On November 30, 1995, HESL acquired the high-pressure pump distribution and systems fabrication division of Armaturenbau, GmbH, located in Wesel, Germany for approximately $412,000. Previously, Armaturenbau had been distributing the Company's products in Germany. The new business, known as Haskel HochdruckSysteme GmbH, distributes Haskel products and designs and manufactures Haskel(R) Systems for the German market. The markets served by the IPG are substantial and diversified, with no single customer accounting for 10% or more of its sales. Total IPG - Manufacturing sales were approximately 45.9%, 40.9% and 42.3% of the Company's total sales in 1994, 1995 and 1996, respectively. The following table lists the broad range of industries utilizing Haskel(R) Specialty Pumps and Haskel(R) Systems. The industries that, taken in the aggregate, account for a majority of the Company's sales are marked with an asterisk(*). INDUSTRIES USING HASKEL(R) PRODUCTS Abrasive Pressure Water Cleaning Marine Engineering Aerospace and Aircraft * Mining Automotive * Medical Equipment and Emergency Support Services Boiler and Heat Exchanger Manufacture Oil and Gas Exploration and Production * Brewing and Distilling Oil and Petrochemical Refining and Production * Chemicals Pressure Testing * 4 5 CNG Charging Stations Paper Industry Defense * Plastic Extrusion Machinery Diving Charging Equipment Railways Electronic/Electrical Machinery Refrigeration and Air Conditioning Fire Fighting and Related Services Research and Development Establishments, including General Engineering * Universities and Colleges I.C. Engines and Compressors Textile Engineering Industrial Machinery Utilities, Power Generation, Valve Testing and Packing Removal Electricity Distribution * Although specific applications may have a limited life, the useful lives of the IPG's products are generally quite long. Product parts are usually replaceable from current stock; older products can be modified to include the latest technology. Spare parts requirements grow each year as the number of installed units increases, providing an increasing source of revenue. Facilities and Materials The IPG manufactures Haskel(R) Specialty Pumps and related products and Haskel (R) Systems at the Company's facilities in Burbank, California, and in Sunderland, England. Manufacturing operations in Sunderland include products that are not produced in the United States, which are needed for European markets, such as the Jetflow Airmover(R). Haskel(R) Systems are also designed and manufactured at facilities in Manchester, England; Lille, France; and Wesel, Germany. Approximately 76% of the components used in its products are manufactured by the Company, with the balance subcontracted to outside machining and processing companies. Historically, the IPG has been able to pass a significant portion of increased component part prices through to their customers by price increases, although there is no assurance that they will be able to continue to do so in the future. Currently, all materials used by the Company in the manufacturing process are readily available at reasonable prices, and Management does not anticipate any adverse change in this situation. Management has an ongoing program to improve its manufacturing processes. Backlog Backlog of unfilled firm orders for the IPG - Manufacturing segment was approximately $5,114,000 at May 31, 1996, as compared to approximately $3,630,000 at May 31, 1995. This increase in backlog was due primarily to increased orders as a result of continued internal growth as the IPG continues to expand its international markets, especially throughout Europe and the Pacific Rim. Substantially all of the Company's fiscal 1996 year-end backlog is expected to be recognized as revenue in fiscal 1997. Pursuant to the customary terms of the Company's agreements with government contractors and other customers and in accordance with industry custom, a customer may generally cancel or reschedule an order without penalty if the Company has not made financial commitments with respect to the order. Lead times for the release of purchase orders depend upon the scheduling and forecasting practices of the Company's individual customers, which also can affect the timing of the conversion of the Company's backlog into revenues. For these reasons, among others, the Company's backlog at a particular date may not be indicative of its future revenue, and there is no assurance that the backlog will be completed and recorded as revenue. Cancellation of pending contracts or termination or reductions of contracts in progress may have a materially adverse effect on the Company's business and results of operations. 5 6 INDUSTRIAL PRODUCTS GROUP - DISTRIBUTION Haskel(R) Specialty Pumps and Haskel(R) Systems The Company's manufactured products are sold through a direct sales force, independent distributors, and authorized manufacturers' representatives throughout the world. The largest distribution of the Company's products are through its own subsidiaries and divisions. Products are sold throughout the United States; Canada; the United Kingdom; other European countries, including France, Germany, and the Netherlands; the former Soviet Republics; Pacific Rim countries, including China and Japan; Australia; Africa; South America; India; and the Middle East. Distribution of the IPG's products is accomplished through a network of 82 distributors in the United States and Canada and 64 distributors in Europe, the Asia-Pacific region and Central and South America. The activities of these distributors are supported by the Company's regional sales managers who have extensive technical backgrounds. Third-Party Pumps and Related Products The IPG distributes over 40 different lines of third-party manufactured products worldwide. These products are used primarily in the pump and pump-related fluid power business, and include cylinders, actuators, pneumatic and hydraulic valves, hoses and fittings, high-pressure components, pumps and motors, as well as a major line of seals and lubricants. In June 1996, HESL acquired Hydraulic Mobile Equipment Ltd. ("HME") for approximately $814,000. HME, located in Manchester, England, distributes a range of high-pressure gear pumps, valves and motors in the United Kingdom and has a growing systems business. Additionally, in June 1996, the Company opened a new facility in Zoetermeer, the Netherlands, which will provide sales and service for the Company's full range of products and systems in the Benelux countries. Total IPG - Distribution sales were approximately 44.7%, 34.3% and 31.9% of the Company's total sales in fiscal 1994, 1995 and 1996, respectively. Backlog of unfilled firm orders for the IPG - Distribution segment was approximately $3,276,000 at May 31, 1996, as compared to approximately $2,979,000 at May 31, 1995. Substantially all of the Company's fiscal 1996 year-end backlog is expected to be recognized as revenue in fiscal 1997. ELECTRONIC PRODUCTS GROUP The EPG provides purchasing services, product substitution and solutions to shortage and delivery problems of OEMs of electronic components. The EPG specializes in locating sources (which includes researching, evaluating and supplying) for circuit board-level components, such as integrated circuits, capacitors, transistors and resistors. There are more than 500,000 separate components available for use in electronic systems, each designated by a unique part number. A typical electronic system may consist of hundreds of components; if any single component becomes unavailable, an entire production line could come to a halt. Changing manufacturer requirements, advancing technology, and the shortening of the cycle of bringing new products to market, as manufacturers adopt "just-in-time" systems and related inventory reduction procedures, often result in last-minute parts shortages, requiring buyers to spend an increasing percentage of their time trying to find missing components for their production lines. 6 7 When the EPG receives a customer request, it uses its databases and CD-ROM engineering library to determine the availability of the requested, identical or alternative components and immediately transmits inquiries regarding these parts to all sources and stocking locations that have been identified as potential suppliers. Upon locating a suitable component, the EPG ascertains the purchase price and then quotes a sale price to the potential buyer. Through negotiation with the potential customer, a mutually satisfactory price is reached. The EPG then purchases the product and sells it to the customer. Because most of MGE's customers have an immediate and urgent need for a product that they have been unable to find elsewhere, the EPG achieves profit margins that are higher than customary for electronic components. The EPG uses independent manufacturers' representative organizations, telemarketing and Internet E-Mail gateways to allow purchasing departments to transmit requirements directly. As part of a multi-pronged program to market its services to potential customers, preprinted personalized forms are used that enable buyers to simply write in the part number and number of units required and transmit their requests to the EPG. The EPG is using its international purchasing office in Hong Kong to assist in procuring parts in the Pacific Rim. MGE has qualified for and been awarded the ISO 9002 accreditation, a total quality certification from the ISO, for its Westlake Village, California facility. The ISO 9002 accreditation attests that MGE maintains an internationally recognized standard of quality in its distribution business and should help MGE's competitive advantage. In May 1996, the Company reorganized the EPG by closing its offices in the United Kingdom and Germany. The United Kingdom operations were consolidated into the Westlake Village, California facility, while the German operations are being handled by local representatives in that country. In addition to the closing of these facilities, there were selective reductions in employees at the Westlake Village facility. In total, approximately 13 individuals, or 30%, of the EPG's employees were terminated. Management believes that these actions were necessary to respond to the slow down in the worldwide electronics industry served by the EPG, as many major computer and semiconductor manufacturers began to reduce the previous buildup of inventories. The EPG's Hong Kong office has not been closed. Management intends to monitor the situation and take further steps as appropriate. Quick Response Distribution(R) System Through the Company's global sourcing and trading network and proprietary QRD(R) system, the EPG is a worldwide distributor of electronic components, particularly components for circuit boards. The EPG utilizes the QRD(R) system for locating and trading electronic components and services requested by its customers. Upon locating an appropriate component, the EPG uses the QRD(R) system to purchase and resell the component. Key elements of the QRD(R) system are its information databases, communications software, a CD-ROM engineering library and the technical expertise of its staff. The value of the QRD(R) system is derived primarily from two factors: first, the large size and international scope of its database, permitting a comprehensive product search and enabling it to solve customer parts shortages; and second, the speed with which it can locate, purchase and deliver parts, reducing customers' needs for inventories, increasing customer inventory turns and facilitating "just-in-time" procurement systems. Moreover, the QRD(R) system permits the EPG to operate with minimal inventories, purchasing all parts to customer order. The heart of the EPG's QRD(R) system is its ability to access and communicate automatically in real time with thousands of suppliers throughout the world. A network of 40 high-performance PC workstations is utilized, integrated into a database, an accounting and 7 8 communication system and a fully-networked integrated computer/telecopier system to communicate rapidly with over 8,400 vendors worldwide, independent representatives' offices, and international purchasing offices. Additionally, on-line access to information regarding hundreds of millions of dollars of vendor component inventories is available. For immediate alternate sourcing, the EPG can consult a computerized technical library, which includes a comprehensive CD-ROM database of circuit board component specifications. Total EPG sales were approximately 9.4%, 24.8%, and 25.8% of the Company's total sales in fiscal 1994, 1995, and 1996 respectively. The EPG's distribution business, through its QRD(R) system, provides its customers a short lead time between orders and delivery. As a consequence, there is not a significant backlog of orders in the operation of this business segment. COMPETITION Manufacturing In general, the principal competitive factors in the markets in which the Company's IPG Manufacturing segment participates are product quality and performance, availability, reliability, technical support and price. In the high-pressure pump manufacturing industry, the Company's IPG - Manufacturing segment has three major competitors: Teledyne Fluid Systems, a division of Teledyne Inc.; Schmidt Kranz & Company GmbH; and SC Hydraulic Engineering Corporation. Certain of the Company's competitors are larger overall and have greater financial resources than the Company. The Company has a significantly larger United States and United Kingdom market share in this line of business than do any of its competitors, but there can be no assurance that the Company will maintain its market share. In order to remain competitive, the Company supports the reliability and reputation of its products with customer service, prompt product delivery, competitive pricing, and comprehensive technical assistance. The Company's competitors in the low-horsepower (10 HP or less) systems market include the same companies that compete with the Company in the high-pressure pump market and a number of small manufacturers of systems, as well as unrelated distributors of systems. The Company's competitors in the higher-horsepower (more than 10 HP) systems market are primarily the same distributors with which it competes in its distribution business. Distribution Unlike its manufacturing business, the Company's IPG distribution business competes with many other companies that provide substantially similar products. Management believes that many of these competing companies are larger and have greater financial strength than the Company. In its EPG distribution business, the Company competes with numerous companies in each market it serves, many of which have far greater financial and other resources than the Company. There is intense competition in electronic component sourcing and supply to OEMs. Although the Company received a trademark on its marketing system, it does not have patent or copyright protection on its proprietary system or technology, nor does it have exclusive franchises for the products it distributes, and there can be no assurance that traditional franchised electronic distributor organizations or independent distributors will not adopt similar communications technologies to offer the same service. Additionally, purchasing 8 9 departments of OEMs can develop this capability in-house, and many of the larger OEMs have already established international purchasing offices. In some cases, the Company competes with franchised distributors, such as Avnet Inc., Arrow Electronics Inc. and other large organizations, many of which have substantially greater financial and other resources. The Company also competes with small independent distributors that locate and source products, but Management believes that few of these distributors utilize the advanced technology employed by the Company for servicing its customers. ENGINEERING, DESIGN, RESEARCH AND DEVELOPMENT Substantially all of the Company's engineering, design, research and development ("EDR&D") is performed in connection with its manufacturing business and falls into three categories. The first and most significant category is the modification or improvement of existing products. Modifications are usually the result of application engineering, where the Company tailors a product to fit a specific application, often at the request of a particular customer. The Company also engineers improvements that apply to all of its pumps. The second type of EDR&D involves utilizing Haskel(R) high-pressure technology and know how to develop new products. The Company's Hydroswage(R), for example, uses Haskel(R) Specialty Pumps to create high pressure for hydraulically expanding metal tubes into tube sheets. During fiscal year 1996, the Company introduced a lower-priced, high quality commercial hydraulic heat exchanger tube expansion system incorporating the Hydroswage(R) technology. Tube expansion systems, which are used worldwide in boilers, economizers, and heat exchanging systems, expand tubing where it connects to tube sheets and other structures to form a high integrity joint. The third type of EDR&D is the development of products unrelated to pumps where the Company can utilize its expertise in valve and seal technology. One product that resulted from this kind of EDR&D is the Company's line of high-pressure metal seals. The Company's business requires ongoing EDR&D expenditures. For fiscal years 1994, 1995 and 1996, the Company incurred approximately $1,186,000, $1,151,000, and $905,000, respectively, on general engineering and research and development (R&D) with an increasing part of these expenditures now directed towards R&D. Due to increased engineering efforts, the Company began tracking time related to direct production during fiscal year 1996 and that portion of expenditures applicable to sustaining engineering is now being charged directly to cost of sales. The Company relies on market opportunities to determine the allocation of such expenditures. The Company expects to continue to pursue product development programs and to increase expenditures in all of its principal product lines and services. For its electronic component distribution business, the Company's EDR&D focuses on the continual updating and upgrading of its QRD(R) sourcing and tracking system. Over the past three years, the Company has customized its software to optimize rapid worldwide communications and allow it to offer purchasing solutions to its electronic's OEM market. CUSTOMER SUPPORT AND SERVICES The Company provides competitive warranty service for each of its product lines, as well as follow-up service, training, and support, for which the Company typically charges separately. Management views customer support services as a critical competitive factor, as well as a revenue source. The Company maintains its own service groups and trains its customers and distributors in the performance of user-level maintenance. 9 10 GOVERNMENT REGULATION The Company's manufacturing operations are subject to various foreign, federal, state and local laws, including those restricting the discharge of materials into the environment. The Company is subject to environmental regulation governing the generation, transportation and disposal of hazardous waste, the appropriate labeling of products and materials, storage and use of hazardous materials, and employee safety training. Applicable federal environmental regulations include, but are not limited to, the federal Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"); the Resource Conservation and Recovery Act; the Clean Air Act; and the Clean Water Act. Individual Company sites may also be subject to similar state and local environmental regulation. The Company is not involved in any pending or threatened proceedings that would require curtailment of its operations because of such regulations. The Company continually expends funds to assure that its facilities are in compliance with applicable environmental regulations. However, such expenditures have not been significant in the past, and no significant future expenditures are expected. FUNDS IN FOREIGN SUBSIDIARIES The Company has relied primarily on its income from domestic operations to pay dividends and make major capital expenditures. In pursuit of a global growth strategy, the Company generally avoids paying dividends from the earnings of its U.K. and French subsidiaries, allowing substantial cash balances to be retained in those countries for internal growth and strategic acquisitions outside the United States. In July 1995, $3,500,000 was distributed to the Company by its foreign subsidiaries. While Management is continually evaluating possible acquisitions and, from time to time, is engaged in discussions with respect thereto, the Company currently has no commitments for any material acquisition. PATENTS AND TRADEMARKS The Company currently owns a number of United States and foreign patents and trademarks, which expire at various dates through 2006. Although Management believes that the patents and trademarks associated with the Company's various products are of value, Management does not consider any of them to be essential to the Company's business. EMPLOYEES As of May 31, 1996, the Company had 335 employees, including 61 in general management, administration and finance; 80 in sales and marketing; 25 in engineering; and 169 in operations, manufacturing, and customer service. Management believes that the Company's success depends in part upon its ability to attract, retain, train and motivate highly skilled and dedicated employees. None of the Company's employees is represented by a labor union, and the Company has never experienced a work stoppage. Management believes the Company's relations with its employees are good. 10 11 ITEM 2. DESCRIPTION OF PROPERTIES The Company's principal facilities are as follows:
Lease Expiration Owned/ Square Feet Dates, Including Location Leased Under Roof Occupied By Option Periods - -------- ------ ----------- ----------- ---------------- Burbank, California Owned 103,500 Corporate, ITD, -- Controls Division Denver, Colorado Leased 500 Controls Division January 1997 American Fork, Utah Leased 500 Controls Division Month-to-Month Kent, Washington Leased 1,500 Controls Division January 1998 San Bruno, California Leased 500 Controls Division Month-to-Month San Diego, California Leased 500 Controls Division Month-to-Month Brisbane, Australia Leased 500 ITD Month-to-Month Sunderland, England Owned 41,000 HESL -- Manchester, England Leased 7,000 HESL October 1999 Lille, France Owned 7,000 HESL -- Aberdeen, Scotland Leased 1,000 HESL October 2009 Wesel, Germany Leased 2,366 HESL December 1996 Westlake Village, Leased 6,550 MGE September 1998 California Hong Kong Leased 500 MGE April 1997 Singapore Leased 500 ITD December 1996
The Company's corporate headquarters and principal executive offices are located at the Burbank, California premises. The Company's IPG - Manufacturing business segment uses the facilities located in Burbank, California; Sunderland and Manchester, England; Lille, France; and Wesel, Germany. The Company's IPG - Distribution business segment uses the facilities located in Burbank, California; Denver, Colorado; American Fork, Utah; Kent, Washington; San Diego, California; San Bruno, California; Sunderland, England; Aberdeen, Scotland; Singapore; and Brisbane, Australia. The Company's EPG business segment uses the facilities at Westlake Village, California and Hong Kong. Management believes that the facilities used by the Company are suitable and adequate for the Company's business as presently conducted. 11 12 ITEM 3. LEGAL PROCEEDINGS Other than as set forth below, the Company is not a party to any legal proceedings other than routine litigation incidental to its business. San Fernando Valley Area 2 Superfund Site The Environmental Protection Agency (the "EPA") has named the Company a Potentially Responsible Party ("PRP"), as that term is defined in applicable law, for an area known as the San Fernando Valley Area 2 Superfund Site (the "Superfund Site"), in which the groundwater has been contaminated by solvents. Of the 32 parties named by the EPA as PRPs for the Superfund Site, 27 parties, including the Company, have formed the Glendale PRP Group (the "Group"). Under applicable law, most notably the federal CERCLA, the Company might be jointly and severally liable with other PRPs for the full cost of cleaning up the Superfund Site, including the cost of the remedial design phase discussed below, which the EPA currently estimates to be approximately $48,000,000 (the "Remediation Cost"). There is also legal authority, however, which holds that when the approximate extent of contamination caused by each PRP can be determined, liability must be allocated among the PRPs in proportion to their relative contribution. Based on this authority, Management and the Company's environmental counsel believe there will be a rational, pro rata allocation of responsibility for the cleanup of the Superfund Site among the participating PRPs. Management and the Company's environmental counsel believe, based upon extensive research conducted on the Company's site, that the Company was, at most, a small contributor to groundwater contamination at the Superfund Site. On December 21, 1993, an independent mediation team engaged by the Group presented a confidential proposed interim allocation schedule (the "Interim Allocation"), which allocated 1.76% responsibility to the Company for the remedial design phase. In May 1994, 23 of the 27 parties (including the Company) signed an Administrative Order on Consent ("AOC"), by which the parties committed themselves to carrying out the initial remedial design phase. Subsequent to the Interim Allocation, the Group delivered data to the EPA regarding the existence of additional PRPs. Based upon that data, the EPA named additional PRPs in May and June 1995. Several of those newly named PRPs joined the Group, such that currently there are 32 members of the PRP group. In June 1995, the initial phase of an allocation process began for the purpose of dividing the liability between Lockheed Martin Corporation ("Lockheed"), as the only Burbank-based PRP, on the one hand, and all other PRPs, all of whom are Glendale-based (the "Glendale Parties"), on the other hand (the "Burbank-Glendale Split"). In Fall 1995, the Group began the process of reallocating percentages among the Group members with the aim of arriving at a final allocation relative to the Remediation Cost (the "Final Allocation"). The Group engaged the services of technical scientists as arbitrators who determined that Lockheed was to bear 58.8% of the Remediation Cost and the Glendale Parties were to bear 41.2% of the Remediation Cost. The Glendale-Burbank Split decision has been challenged by Lockheed and has not yet been confirmed by a court. Based upon the advice and opinion of environmental counsel, the Company believes that it is reasonable to assume that the Glendale-Burbank Split arbitration award will be confirmed. In July 1996, the Glendale Parties began a mediation regarding the reallocation of the 41.2% of the Remediation Costs. While the mediation is not yet complete, the Company believes, based upon the advice and opinion of its environmental counsel, that the Company's share of the 41.2% of the Glendale Parties' portion will not exceed 1.5%, or approximately $300,000. It is the hope of the Group that the Final Allocation will be concluded prior to the time the EPA will request receipt of a signed AOC regarding the 12-year remedy phase. 12 13 In addition to the Remediation Cost, the EPA has informed the Group that it intends to seek reimbursement from PRPs for some portion of the approximately $13,000,000 of expenses it has incurred in studying the Superfund Site and three adjacent superfund sites. The EPA also has the right to seek recovery from PRPs for additional administrative expenses it incurs in studying the superfund sites. Those expenses are not currently quantifiable or subject to reasonable estimation. The EPA has informed the Company's environmental counsel that only a portion of the $13,000,000 is attributable to the Superfund Site and the Company's counsel does not believe it is unreasonable to estimate that approximately 25% of such amount will be attributable to the Superfund Site. Assuming that 25% of the claimed costs are attributable to the Superfund Site, the Company believes, based upon advice and opinion of its environmental counsel, that the Company's share of that amount would be approximately $50,000. In the event that the pending mediation does not successfully conclude in a mediated settlement, the Company believes, based upon the advice and opinion of it environmental counsel, that the Company's share of the Remediation Cost, whether determined by the EPA or by a court of law, would nevertheless be approximately 1.5% of the Glendale Parties' share as determined by the Glendale-Burbank Split. Furthermore, the Company believes, based upon the advice and opinion of its environmental counsel, that if the Glendale-Burbank Split is not confirmed by the Court, that the Company's share would not be significantly impacted. On-Site Contamination The soil at the property occupied by the Company at 100 East Graham Place, Burbank, California has been contaminated by hazardous waste, primarily at one pit with a surface area of less than ten square feet (the "On-Site Contamination"). The extent of such contamination has been quantified by environmental consultants and engineers. The cost of such soil and groundwater assessment was approximately $250,000, including the cost of installation of five groundwater wells, which the Company has installed pursuant to a directive of the Regional Water Quality Control Board ("RWQCB"). Based on such analysis, Management estimates that approximately 250 cubic yards of contaminated soil has been affected. The remediation system to clean the on-site contamination was installed in July 1995, and was continuously operational for about four months, until November 1995, by which time the contamination in the soil had been reduced by more than 90% of the original concentrations. The Company had spent approximately $71,000 on mobilizing, installing and operating the remediation system through December 1995. The Company's environmental consultants and engineers believed that maximum possible results were obtained after four months of operation of the remediation system. However, the RWQCB requested that the system be reactivated for a 90-day period to ascertain if additional benefits were possible. The Company completed the additional 90-day reactivation period and has met the RWQCB's objectives. The estimated costs associated with such reactivation are approximately $45,000. Lubrication Corporation of America The Company has been named a PRP regarding contamination of a site operated by Lubrication Corporation of America ("LCA"). LCA operates a used oil recycling facility in the Santa Clarita flood plain, to which a portion of the Company's used oil was sent for recycling. In 1992, the Company was informed by the California Department of Toxic Substances Control that the Company's total contribution to the contamination was about 2,500 gallons, which constituted approximately .05% of the total contamination identified at the LCA site. Recently, the Company was informed by the Department of Toxic Substances Control that its contribution was in the amount of 4,545 gallons. The Department of Toxic Substances Control has negotiated a settlement with approximately 20 other LCA PRPs who collectively constitute about 6% of the total contamination found at the LCA site. The Department of 13 14 Toxic Substances is also negotiating with the United States military which, according to the Department of Toxic Substances Control, is responsible for more than 70% of the total contamination found at the LCA site. The Company has been offered a full release from the Department of Toxic Substances Control relative to the LCA site if the Company pays approximately $37,000. The Company is considering this settlement offer. Insurance and Reserves When the Company initially tendered the EPA claim relative to the Superfund Site, the Company's insurers refused to pay the Company's defense costs. The Company brought litigation against its insurers in which the Company sought an order that its insurers must defend and indemnify the Company with respect to Superfund Site litigation. In August 1995, the trial court ruled that the Company's insurers must reimburse the Company for its past defense costs and must pay its defense costs in the future. As a result of this ruling, the Company expects a substantial recovery of its defense costs. Currently, the Company is negotiating with its carriers who have indicated their willingness to pay the Company in excess of $600,000 in past defense costs incurred through May 31, 1996. They have also indicated their willingness to pay all defense costs incurred subsequent to May 31, 1996, at a reasonable rate. Litigation is pending as to whether the Company's insurers must indemnify the Company for the Superfund Site liability. The Company established an Environmental Reserve in the amount of $1,445,000 for contingent liabilities that may arise in connection with the Superfund Site, the On-Site Contamination and other environmental matters. As of May 31, 1993 the Company had reserved $510,000 to perform testing and cleanup of soil contamination at its facility in Burbank in accordance with a mandate from the RWQCB. The Company increased the Environmental Reserve when the EPA established its $48,000,000 estimate of the Remediation Cost. At May 31, 1996, the Environmental Reserve was $1,006,000. In light of the results of the Glendale-Burbank Split arbitration and the progress of the Glendale Parties' mediation, the Company believes, based upon the advice and opinion of its environmental counsel, that the Company's liabilities will be less than the amount currently in reserves for these matters. However, until further definitive facts develop regarding these matters, the reserve amount will not be changed. The Company has not included any specific amount in the Environmental Reserve for litigation defense costs, which cannot be estimated but could be substantial if the pending mediation does not result in a settlement among the PRPs. However, in light of the court order regarding the obligation of the insurers to pay defense costs, the impact upon the Company in the event of litigation, should not be substantial. Due to the nature of environmental matters, there can be no assurance that the Environmental Reserve will be adequate to cover any contingent liabilities arising from the above-referenced environmental matters or that any liability in excess of the Environmental Reserve will not have a materially adverse effect on the Company's results of operations or financial condition. Compliance with Existing Regulations Although Management anticipates increases in the Company's cost of ongoing compliance with existing environmental regulations due to inflation, Management believes that the cost of compliance will not have a material adverse effect on the Company's financial condition. 14 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company during the fourth quarter of fiscal 1996. 15 16 PART II ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Class A Common Stock is quoted on the Nasdaq Stock Market under the symbol "HSKL". Prior to November 1, 1994, there was no public trading market for the Company's Common Stock. The following table sets forth the high and low sales prices for the Company's Class A Common Stock as reported by the Nasdaq Stock Market:
Fiscal 1995 High Low ----------- ---- --- First Quarter -- -- Second Quarter $10 1/2 $ 9 Third Quarter $12 1/2 $ 8 1/2 Fourth Quarter $10 1/8 $ 5 1/4 Fiscal 1996 ----------- First Quarter $ 8 $ 5 1/8 Second Quarter $ 7 $ 5 Third Quarter $ 7 3/8 $ 5 1/4 Fourth Quarter $ 7 1/2 $ 5 3/4
On August 16, 1996, the closing price of the Company's Class A Common Stock on the Nasdaq Stock Market was $ 8 5/8. On August 9, 1996, there were approximately 483 holders of record of the Company's Class A Common Stock. There is no established trading market for shares of the Company's Class B Common Stock. As of August 16, 1996, all of the Company's Class B Common Stock was held by eight irrevocable trusts. Altogether, there are three beneficiaries of these trusts and each trust has only one beneficiary. All eight trusts have the same co-trustees. The Company paid cash dividends in the amount of $.28 per share in fiscal years ended May 31, 1995 and 1996, on shares of its Class A and Class B Common Stock. The Company currently expects that comparable cash dividends will continue to be paid. 16 17 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data for each of the three years in the period ended May 31, 1996 are derived from the consolidated financial statements of the Company and notes thereto included elsewhere herein and audited by Deloitte & Touche LLP, as set forth in their report (which report is based in part on the work of other auditors), also included elsewhere herein. The selected consolidated financial data for the years ended May 31, 1992 and 1993 are derived from audited consolidated financial statements of the Company not included herein. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere in this Report.
Year Ended May 31, ----------------------------------------------------------------------- 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- OPERATING PERFORMANCE: Revenues $35,465,000 $40,054,000 $41,354,000 $51,701,000 $56,792,000 Income before taxes 4,536,000 3,110,000 33,000 1,976,000 4,544,000 Net income 2,452,000 2,208,000 3,000 1,019,000 2,547,000 Cash Flow from Operations 1,608,000 2,390,000 496,000 2,633,000 2,550,000 FINANCIAL POSITION: Cash & Cash Equivalents $12,966,000 $ 9,736,000 $ 7,120,000 $ 8,806,000 $ 8,239,000 Working Capital 23,251,000 22,287,000 17,172,000 20,969,000 21,891,000 Total Assets 33,596,000 34,506,000 44,411,000 44,295,000 45,360,000 Long-term Debt 92,000 827,000 10,187,000 3,514,000 3,366,000 Shareholders' Equity 27,410,000 25,036,000 24,384,000 31,007,000 32,220,000 PER SHARE DATA: Net Income $ 0.63 $ 0.57 $ -- $ 0.23 $ 0.54 Cash Dividends 0.53 0.55 0.36 0.28 0.28 Book Value 7.87 7.46 6.33 6.56 6.81 Average shares outstanding 3,898,981 3,876,345 3,929,349 4,500,783 4,738,266
17 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The consolidated financial statements include the results of the Company and all of its operating divisions and subsidiaries. The Company's operations are headquartered in the United States and Europe. The Company is organized and operates as two groups: the IPG and the EPG. The IPG's operations are headquartered in Burbank, California and consist of the Company's Industrial Technologies Division ("ITD"), Haskel Controls Division ("Controls"), and the Company's wholly owned subsidiary, Haskel Energy Systems, Ltd. ("HESL"), located in Sunderland, England and its divisions and subsidiaries. The ITD is the U.S. manufacturer of Haskel(R) Specialty Pumps, Haskel(R) Systems, high-pressure valves, regulators and accessories to complement these products. Controls distributes product lines used primarily in the fluid power business, the largest line of which is the Company's products. HESL represents the Company's European industrial products operations with offices located in Sunderland and Manchester, England; Aberdeen, Scotland; Lille, France; Wesel, Germany; and the most recent addition, after the completion of the fiscal year, in Zoetermeer, the Netherlands. HESL and its divisions and subsidiaries primarily distribute Haskel(R) Specialty Pumps and design and manufacturer Haskel(R) Systems for specific applications required by customers in Europe, India, and the Middle East. HESL and its divisions and subsidiaries also manufacture products needed for HESL's markets that are not produced in the United States, such as the Jetflow Airmover(R), and distribute specialty products of other manufacturers. The EPG consists of M.G. Electronics, Inc. ("MGE"), headquartered in Westlake Village, California, and its purchasing office in Hong Kong. MGE (UK), located in Sunderland, England, and MGE Germany, located in Frankfurt, Germany, were included in the EPG's operations until May 1996 when the Company closed these facilities. The EPG provides purchasing services, product substitution and solutions to shortage and delivery problems of OEMs of electronic components. The EPG specializes in locating sources (which includes researching, locating, evaluating and supplying) circuit board-level components, such as integrated circuits, capacitors, transistors and resistors. ENVIRONMENTAL ISSUES At May 31, 1996, the Company had reserves of approximately $1,006,000 related to its environmental liabilities. Based on the advice and opinion of its environmental counsel, Management believes that these reserves are adequate. The Company has four matters pending concerning environmental issues. They are: 1) Superfund Site; 2) On-site remediation; 3) LCA litigation; and 4) Insurance litigation. Superfund Site. The Company has been named a PRP at the Superfund Site. (See Note 12 of Notes to Consolidated Financial Statements.) The EPA has divided the Superfund Site into two regions, Glendale and Burbank, and negotiations are being conducted between regions, and among PRP members, to reallocate the respective shares of the regions and PRP members. The Company and other PRP's may be jointly and severally liable for the remediation of this site. However, based upon advice and opinion of environmental counsel, the Company, which is a participant in the Glendale region, does not anticipate its proportionate share of the remediation costs to exceed the amount already reserved. 18 19 On-Site Remediation. The Company contracted with a third party to install a vapor extraction system designed to remove below-surface contaminants at the Company's Burbank facility. This system was operated for several months during the fiscal year and lowered the contaminant levels to those recommended by the RWQCB. After an additional period of required testing, the system was reactivated for an additional 90-day period. Currently, the Company has complied with all RWQCB's requests. LCA Litigation. The Company has been offered a full release from the California Department of Toxic Substances Control relative to the LCA site in exchange for approximately $37,000. The Company is considering this settlement offer. Insurance Litigation. In August 1995, the Company received a favorable ruling from the trial court with respect to its insurance litigation against its main carriers. This ruling requires Company's insurance carriers to provide the defense costs for its environmental matters. Currently, the Company is negotiating with its carriers who have indicated their willingness to pay the Company in excess of $600,000 in past defense costs through May 31, 1996 and all defense costs incurred subsequent to that date. Litigation is pending as to whether the Company's insurers must indemnify the Company for the Superfund Site liability. 19 20 RESULTS OF OPERATIONS The following table sets forth, for the periods presented, the percentage of net sales represented by certain items included in the Consolidated Statements of Income:
Year Ended May 31, --------------------------- 1994 1995 1996 ----- ----- ----- Sales ............................................... 100.0% 100.0% 100.0% Cost of sales ....................................... 60.4 61.8 56.5 ----- ----- ----- Gross profit ........................................ 39.6 38.2 43.5 Selling expenses .................................... 17.1 15.5 15.8 General and administrative expenses ................. 15.9 16.1 18.2 Engineering design, research and development expenses 2.9 2.2 1.6 Restructuring costs ................................. 1.5 -- -- Environmental reserve costs ......................... 2.5 -- -- ----- ----- ----- Total operating costs ............................... 39.9 33.8 35.6 ----- ----- ----- Income (loss) from operations ....................... (.3) 4.4 7.9 Other income (expense) .............................. .4 (.6) .1 ----- ----- ----- Income before income taxes .......................... .1 3.8 8.0 Provision for income taxes .......................... .1 1.8 3.5 ----- ----- ----- Net income .......................................... 0.0% 2.0% 4.5% ===== ===== =====
YEAR ENDED MAY 31, 1996 ("1996") COMPARED TO YEAR ENDED MAY 31, 1995 ("1995") Sales in 1996 increased by $5,091,000, or 9.8%, to $56,792,000, from $51,701,000 in 1995. The IPG's sales increased $3,287,000 (8.5%) from $38,882,000 in 1995 to $42,169,000 in 1996 primarily due to expanding international markets, especially throughout Europe and the Pacific Rim, and sales of new and private-branded products. The EPG's sales increased $1,804,000 (14.1%) from $12,819,000 in 1995 to $14,623,000 in 1996. Approximately $1,354,000 of this increase was due to the EPG's subsidiary in England, which operated for a full year in 1996 compared to approximately nine months in 1995. The remaining increase was principally the result of strong market demand in the United States during the first half of 1996 leading up to the Christmas holiday season as compared to the first six months in 1995. In the second half of 1996, the EPG's sales declined concurrently with a slow down in the electronics industry and were $3,378,000, or 42%, lower as compared to the same six-month period in 1995. Cost of sales was $32,082,000 in 1996, compared to $31,937,000 in 1995, an increase of less than one percent. Cost of sales as a percentage of sales was 56.5% in 1996, as compared to 61.8% in 1995, a decrease of 5.3 percentage points. Cost of sales as a percentage of sales for the IPG was 54.4% in 1996, compared to 57.6% in 1995. The decrease in the percentage of cost of sales to sales is due principally to the additional sales volume which resulted in lower overhead rates as fixed costs were allocated over a larger 20 21 number of units. Additionally, the IPG continues to improve its manufacturing processes resulting in lower overall product costs. For the EPG, cost of sales as a percentage of sales were 62.4% in 1996 as compared to 74.4% in 1995. During 1995, approximately $4,000,000 of EPG sales were derived from high-volume, low gross margin "memory" components which normally earn gross profit percentages, on average, of 10% compared to an average of more than 33% on sales of other electronic components. During 1996, the EPG did not sell a significant volume of "memory" product and, as such, cost of sales as a percentage of sales decreased. Selling, general and administrative, and engineering, ("Operating") expenses increased $2,770,000 from $17,491,000 in 1995 to $20,261,000 in 1996 and, as a percentage of sales, such expenses increased from 33.8% in 1995 to 35.6% in 1996. The higher expenses in 1996 as compared to 1995 resulted principally from increases in selling and marketing costs associated with the Company's efforts to expand market share worldwide, and from higher administrative costs associated with building the Company's infrastructure, as well as public ownership. Approximately $1,655,000 of the increase was due to increased costs at the EPG due to the expansion of its European and U.S. operations during 1996 as compared to 1995. As a result of the slow down in the electronics industry, in May 1996, the Company reorganized its EPG operations resulting in the closure of its offices in Europe and a reduction of 13 individuals, or approximately 30%, of its employees at its U.S. facility. Other income (expense) in 1996 reflected net other income of $95,000 as compared to net other expense of $297,000 in 1995. The change from 1995 to 1996 is primarily a result of decreased interest expense in 1996 compared to 1995. The lower interest expense was due to the reduction of a significant portion of the Company's debt in the third quarter of 1995 as well as lower interest rates in 1996. In addition, other expense in 1995 includes the write-off of a joint venture investment of $216,000. The provision for income taxes in 1996 increased $1,040,000 from 1995 principally due to the increase in taxable income. The effective tax rate in 1996 was 43.9% compared to 48.4% in 1995. The effective tax rate in 1995 was higher due primarily to additional income taxes associated with dividends from foreign subsidiaries. YEAR ENDED MAY 31, 1995 ("1995") COMPARED TO YEAR ENDED MAY 31, 1994 ("1994") Sales in 1995 increased by $10,347,000, or 25.0%, to $51,701,000, from $41,354,000 in 1994. The IPG had sales increases of approximately 3.8% to $38,882,000. The sales increases in the IPG's manufacturing operations were attributable to new product introductions and improved bookings of operating systems using the Company's products. The distribution operations of the IPG experienced a sales decline from 1994 of approximately 4.2%, due principally to distribution lines lost as a result of the business restructuring begun in 1994 which eliminated unprofitable sales and distribution facilities in the U.S. The EPG experienced a sales increase of $8,922,000 from 1994, and the IPG had a $1,425,000 sales increase from 1994. Sales in 1995 included $12,819,000 (24.8% of consolidated sales) from the EPG. Sales in 1994 include operations from this group from late November 1993 (after the acquisition of MGE) of $3,897,000 (9.4% of 1994 consolidated sales). Evaluated on a full year, pro forma basis, the EPG sales increased more than 58.1% over the same period in 1994. The increased sales in the EPG operations resulted from a strong market for electronic components and from new sales representative programs implemented in 1995. Increased sales of high volume programmable memory components also contributed to the EPG's sales increase. 21 22 Cost of sales in 1995 was $31,937,000 as compared with $24,983,000 in 1994, an increase of 27.8%. Cost of sales as a percentage of sales in 1995 was 61.8%, an increase of 1.4 percentage points as compared with 60.4% in 1994. Cost of sales as a percentage of sales for the IPG was 57.6% in 1995 as compared with 61.4% in 1994. During the fourth quarter of 1995, the Company recorded inventory valuation reserves of approximately $400,000 to reflect the impact of slow moving and potentially obsolete parts which occurred as a result of changes in product demand and product lines. The decrease in the IPG's costs as a percentage of sales is attributable principally to cost reductions related to the restructuring initiated in 1994 within the U.S. manufacturing operations. The restructuring savings were partially offset by additional costs incurred to meet customers' shortened delivery requirements and significant price competition. This competition is experienced primarily in the IPG's sales of systems in the low to mid price range. The IPG's meeting customer delivery schedules and delivering complete systems on time are important to IPG's strategic plans. Cost of sales as a percentage of sales for the EPG was 74.4% in 1995 as compared with 51.3% in 1994. In 1995, approximately $4,000,000 of EPG sales were derived from high-volume, low gross margin transactions. This resulted in the higher cost of sales as a percentage of sales in 1995 as compared with 1994. Operating expenses in 1995 were $17,491,000, or 33.8% of sales, as compared with $14,850,000, or 35.9% of sales, in 1994. Approximately $1,884,000 of the $2,641,000 increase in expenses is attributable to the EPG which was included in consolidated operations in 1994 for only the six months following the acquisition of MGE. The remainder of the increase is attributable principally to costs connected with the IPG's increased sales volume; costs associated with being a publicly-owned corporation; and increased costs associated with marketing, engineering and the expansion of foreign operations. During the fourth quarter of 1995, reserves for uncollectible accounts were increased by approximately $300,000 for customer accounts which were determined to be uncollectible during the quarter. The cost increases were offset partially by savings from the restructuring initiated in 1994. Operating expenses in 1994 include, in addition to the selling, general and administrative, and engineering expenses, restructuring costs of $620,000, and environmental reserve costs of $1,039,000. Other income (expense) in 1995 reflected net other expense of $297,000 as compared to net other income of $171,000 in 1994. The increased expenses in 1995 are primarily attributable to interest charges associated with the debt incurred in connection with the MGE acquisition for a full year in 1995 as compared to approximately six months in 1994. In addition, other expense in 1995 includes the write-off of a joint venture investment of $216,000 during the fourth quarter. The provision for income taxes in 1995 increased by $927,000 from 1994 attributable principally to the increase in taxable income. The effective tax rate in 1995 was 48.4% compared to 90.9% in 1994. The effective tax rate in 1995 is increased by additional income taxes associated with dividends received from foreign subsidiaries. The high effective tax rate in 1994 results principally from the tax on intercompany profit recorded on shipments that remained in the European operations' inventory at the fiscal year end. 22 23 LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has financed its operations and met its capital requirements primarily through cash generated from operations.
Year Ended May 31, --------------------------------------- 1994 1995 1996 ---- ---- ---- Cash and cash equivalents ......................... $7,120,000 $8,806,000 $ 8,239,000 ========== ========== =========== Net cash provided by operating activities ......... $ 496,000 $2,633,000 $ 2,550,000 ========== ========== =========== Net cash used in investing activities ............. $6,637,000 $1,252,000 $ 1,341,000 ========== ========== =========== Net cash provided by (used in) financing activities $3,669,000 $ 188,000 $(1,726,000) ========== ========== ===========
WORKING CAPITAL AND LIQUIDITY The Company had working capital at May 31, 1996 of $21,891,000 as compared to $20,969,000 at May 31, 1995. Net cash provided by operating activities was $496,000, $2,633,000, and $2,550,000 in 1994, 1995 and 1996, respectively. The decrease in net cash provided by operating activities in 1996 as compared to 1995 is primarily the result of increased inventory and accounts receivable balances due to increased sales levels and newly acquired operations. This decrease in cash flow was offset by the significant increase in earnings. The increase in net cash provided by operating activities in 1995 as compared to 1994 is principally the result of increased operating earnings and favorable currency exchange rate fluctuations. Depreciation and amortization was $1,011,000, $1,515,000, and $1,825,000 in 1994, 1995 and 1996, respectively, which included approximately $377,000, $754,000, and $756,000 in 1994, 1995, and 1996, respectively, of amortization expense associated with purchased technology and goodwill recorded in connection with the MGE acquisition. Net cash used for investing activities was $6,637,000, $1,252,000, and $1,341,000 in 1994, 1995 and 1996, respectively. Capital expenditures of $1,330,000 and $1,272,000 represent the primary cash used for investing activities in 1995 and 1996, respectively. Cash used for investing activities in 1994 was due primarily to the purchase of MGE and Environclean for an aggregate of $5,770,000, net of cash and cash equivalents acquired, and capital expenditures totaling $1,279,000 in 1994, offset in part by a decrease in notes receivable of $549,000 due to payments made in 1994. Net cash used in financing activities in 1996 was $1,726,000 and represented principal payments of long-term debt as well as the payment of dividends. Net cash provided by financing activities was $188,000 in 1995. Net cash of approximately $6,297,000 ($6,670,000 in 1995, before accounting for deferred costs of $373,000 in 1994) was raised in connection with the Company's initial public offering. Following the offering, the Company paid a related party promissory note using $2,000,000 in cash, and renegotiated its credit facility with its bank, substantially resulting in the total long-term debt reduction of $3,173,000 for the year. Cash dividends of $1,201,000 were also paid during 1995. Net cash provided by financing activities was $3,669,000 in 1994 and was attributable to proceeds from the $6,000,000 loan used for the purchase of MGE, offset in part by dividends paid in 1994. 23 24 The effect of the exchange rates on cash and cash equivalents resulted in a decrease in cash and cash equivalents of $50,000 in 1996, an increase in cash and cash equivalents of $117,000 in 1995 and a decrease in cash and cash equivalents of $144,000 in 1994. The Company maintains substantial cash balances in Europe consisting of accumulated earnings from its U.K. and French subsidiaries. The Company intends to use these funds primarily for acquisitions outside the United States and expansion of the Company's European operations. The Company currently maintains approximately $1.6 million of these European cash balances in United States dollars in order to minimize foreign exchange risks and because it is unable to anticipate in which currencies it will make future acquisitions and investments. In July 1995, $3,500,000 was distributed to the Company by its foreign subsidiaries. See "Consolidated Statements of Cash Flows" for supplemental disclosures of cash flow information related to the Company's acquisitions. At May 31, 1996, the Company's principal source of liquidity was $8,239,000 in cash and cash equivalents. The Company believes that these funds plus funds generated by operations, and the available borrowing capacity under its bank credit line, will be sufficient to finance its working capital and capital expenditure requirements for at least the next 12 months. CREDIT FACILITIES On October 14, 1993, the Company issued a $3,500,000 promissory note in connection with the acquisition, from a related party, of the land and building previously leased at its Burbank facility. The $3,500,000 note was paid subsequent to completion of the initial public offering by payment of $2,000,000 cash and offsetting the $1,500,000 balance of a note receivable from this related party. (See Notes 4 and 11 of Notes to Consolidated Financial Statements.) In November 1993, the Company borrowed $6,000,000 in term debt from a bank to finance the acquisition of MGE. As of May 31, 1996, the balance of the term debt was $2,739,000 and bears interest at the LIBOR rate plus 1 3/4% (6.87% at May 31, 1996). Additionally, the Company has obtained, from the same bank, a $5,000,000 revolving line of credit and a $4,000,000 acquisition line of credit available for use in making acquisitions or capital expenditures. Borrowings under the acquisition credit line will be converted annually into five-year term loans with interest-only payments in the first year of conversion. Borrowings under the lines of credit bear interest at the LIBOR rate plus 1 1/2% (6.62% at May 31, 1996) for the revolving line of credit, and 1 3/4% (6.87% at May 31, 1996) for the acquisition line of credit. At May 31, 1996, there were no outstanding balances under the lines of credit. All amounts advanced under the loan agreement, as amended, with the Company's bank (the "Loan Agreement") are secured by a pledge of 50 percent of the outstanding shares of HESL. The Loan Agreement requires, among other things, that the Company maintain a specified minimum consolidated tangible net worth of not less than $18,000,000; minimum working capital of not less than $15,000,000; earnings before income taxes, depreciation and amortization equal to or greater than 1.25 times required debt service, dividends and capital expenditures; certain other ratios and insurance. In addition, the Loan Agreement restricts the Company's ability to incur indebtedness, pay dividends in the event of a default under the Loan Agreement, consummate mergers or acquisitions without prior Bank approval in which the consideration paid by the Company exceeds the acquisition line, or 24 25 make annual aggregate capital expenditures exceeding $2,000,000. The revolving credit portion of the Loan Agreement provides that for at least 30 consecutive days during each twelve-month period there shall be no loans outstanding under the revolving credit line. As of May 31, 1996, the Company was in compliance with all of the covenants of the Loan Agreement. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to Consolidated Financial Statements of Haskel International, Inc. and Subsidiaries included herein and listed on the Index to Consolidated Financial Statements set forth below. Index to Consolidated Financial Statements Page ---- Independent Auditors' Reports ........................................... F-1 Consolidated Balance Sheets at May 31, 1995 and 1996 ................................................ F-3 Consolidated Statements of Income for the years ended May 31, 1994, 1995 and 1996 ......................... F-5 Consolidated Statements of Shareholders' Equity for the years ended May 31, 1994, 1995 and 1996 ......................... F-6 Consolidated Statements of Cash Flows for the years ended May 31, 1994, 1995 and 1996 ......................... F-7 Notes to Consolidated Financial Statements .............................. F-9 ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES NONE 25 26 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS DIRECTORS AND EXECUTIVE OFFICERS The Directors and Executive Officers of the Company are as follows:
Name Age Position with Company - ---- --- --------------------- R. Malcolm Greaves 57 President, Chief Executive Officer and Director Robert A. Smith 55 Executive Vice President and President - Industrial Products Group Doranda Frison 44 President - Electronic Products Group and President of MGE Lonnie D. Schnell 47 Chief Financial Officer and Secretary James C. Minyard 54 Formerly President - Electronic Products Group and President of MGE Maury S. Friedman 46 Formerly Executive Vice President, President - Electronic Products Group and Director Edward Malkowicz 56 Chairman of the Board and Director Marvin L. Goldberger 74 Director Marvin Goodson 77 Director Stanley T. Myers 59 Director Terrence A. Noonan 58 Director William L. Slover 74 Director
R. Malcolm Greaves was appointed President and Chief Executive Officer of the Company on February 14, 1996. He joined HESL as General Manager in January 1989 and was appointed Managing Director of HESL in June 1990. Mr. Greaves has served as a director of the Company since September 1990. Between January 1994 and February 1995, he served as Executive Vice President in charge of worldwide pump operations, after serving as Vice President, Chief Operating Officer for Europe, the Middle East, India and Africa from April 1993. Robert A. Smith joined the Company as President - Industrial Products Group in February 1995 and has also served as an Executive Vice President of the Company since November 1995. From February 1991 through February 1995, Mr. Smith was employed by Puroflow, Inc. and its affiliates, including Puroflow Corp. (where he served as President and a director from February 1991 to October 1992), and Engineered Filtration Company (where he served as President from October 1992 to January 1994). Mr. Smith has also served as a director of Industrial Tools Inc. since 1978 and served as its President from January 1994 to February 1995. These companies are manufacturers of filtration and machining systems used, 26 27 among other things, in airbags. Mr. Smith is currently Vice Chairman of the Board of Puroflow, Inc. Doranda Frison joined the Company on July 8, 1996 as President - Electronic Products Group and President of MGE. Ms. Frison had previously served as Vice President Sales/Marketing of MGE from January 1989 to August 1994. From October 1994 through July 1996, she served as a sales and marketing consultant to various telecommunications and technology companies, primarily AT&T's Western Region operations. Lonnie D. Schnell joined the Company as Chief Financial Officer and Secretary in November 1994. From August 1990 through October 1994, Mr. Schnell was Vice President and Controller of Teleflex Control Systems, Inc., an electromechanical actuator and cargo handling business. James C. Minyard joined the Company as President of MGE in August 1994. He was promoted to President - Electronic Products Group on April 1, 1996 and continued to serve as President of MGE. From 1986 until July 1994, Mr. Minyard served as President of CompuScan, Inc., a company that specialized in automatic data collection using bar-code technology. Mr. Minyard's employment with the Company and MGE was terminated on July 1, 1996. Maury S. Friedman joined the Company as Executive Vice President and a director in November 1993. He was elected President and Chief Executive Officer in February 1994 and Chairman of the Board in November 1994. He was named to the new position of President - Electronic Products Group in April 1995, at which time he resigned as Chairman of the Board, President and Chief Executive Officer. Mr. Friedman resigned as a director on January 3, 1996 and as President - - Electronic Products Group and Executive Vice President on March 31, 1996. He currently serves as a consultant to MGE. Edward Malkowicz has been a director of the Company since November 1994. He was elected Chairman of the Board in April 1995. Between 1992 and May 1995, Mr. Malkowicz taught business courses at Riverside College in Riverside, California. Marvin L. Goldberger, Ph.D., has been a director of the Company since 1982. Since January 1993, Dr. Goldberger has been a professor of physics at the University of California, San Diego. From September 1991 through December 1992 he was a professor of physics at the University of California, Los Angeles, and from 1987 through July 1991 he served as the Director of the Institute for Advanced Studies at Princeton, New Jersey. Dr. Goldberger served as a director of General Motors from January 1981 through June 1993 and is currently a member of the General Motors Corporate Advisory Council. He is currently Dean of Natural Sciences, University of California, San Diego and President Emeritus of the California Institute of Technology. Marvin Goodson has been a director of the Company since 1971. Mr. Goodson is a founder and has been a member of the law firm of Goodson and Wachtel A Professional Corporation and its predecessors since 1952 and has been counsel to the Company and its predecessors since 1952. Stanley T. Myers has been a director of the Company since November 1994. Mr. Myers has served as President and Chief Executive Officer of Siltec Corporation, a manufacturer of strategic silicon and epitaxial materials for the semiconductor industry, since November 1985. 27 28 Terrence A. Noonan has been a director of the Company since May 10, 1996. Since June 1991, Mr. Noonan has also served as President of Furon Company, a manufacturing company specializing in polymer components. He is also a member of the Board of Directors of Furon Company. William L. Slover has been a director since June 1992. Mr. Slover has been working as a management consultant since January 1990. From March 1987 through June 1992 he also served as a senior consultant with Persona Consulting Group. Mr. Slover is a director of Trio-Tech International, a manufacturing company. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Under the securities laws of the United States, the Company's directors, its executive officers, and any persons holding more than ten percent of the Company's Common Stock are required to report their initial ownership of the Company's Common Stock and any subsequent changes in that ownership to the Securities and Exchange Commission. Specific filing deadlines of these reports have been established and the Company is required to disclose in this Report any failure to file by these dates during the fiscal year ended May 31, 1996. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company during the fiscal year ended May 31, 1996 and Forms 5 and amendments thereto furnished to the Company with respect to the fiscal year ended May 31, 1996, and written representations, all of these filing requirements have been satisfied, except that Maury S. Friedman, formerly a director, President - Electronic Products Group, and Executive Vice President, made two late filings on Form 4, each relating to one transaction. All such filings have been made as of the date hereof. 28 29 ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION The following table sets forth the annual compensation paid by the Company, together with long term and other compensation, for each of the last three fiscal years to its Chief Executive Officer and to each of its executive officers whose total salary and bonus from the Company exceeded or equaled $100,000 in fiscal 1996 (the "Named Executive Officers"):
Summary Compensation Table ---------------------------------------------- Annual Compensation Long-Term Compensation ---------------------------------------------- -------------------------- Awards ------ Other Securities All Annual Underlying Other Name and Principal Position Year Salary ($) Bonus ($) Compensation($) Options (#) Compensation($) - --------------------------- ---- ---------- --------- --------------- ----------- --------------- R. Malcolm Greaves(1) 1996 $165,200(2) $110,000 -- 43,000(3) $29,500(4) President and Chief Executive 1995 151,680(2) 20,000 -- -- 34,878(4) Officer 1994 123,333(2) 50,000 -- 60,000(5) 23,508(4) Robert A. Smith 1996 157,390 75,000 731(6) 50,000(3) -- Executive Vice President and 1995 34,038 -- -- -- -- President - Industrial 1994 -- -- -- -- -- Products Group James C. Minyard(7) 1996 104,700 25,000 7,800(6) 30,000(8) -- Formerly President - 1995 -- -- -- -- -- Electronic Products Group 1994 -- -- -- -- -- Maury S. Friedman(9) 1996 240,500 35,000 -- -- 45,400(10) Formerly Executive Vice 1995 240,000 60,000 -- 60,000(5) -- President and President - 1994 124,000 60,000 -- -- -- Electronic Products Group Edward Malkowicz(11) 1996 135,000 -- 12,000(6) 24,000(12) 34,000(13) Chairman of the Board 1995 13,270 -- 1,926(14) 12,000(5) 16,000(13) 1994 -- -- -- -- -- Lonnie D. Schnell 1996 106,000 40,000 1,537(6) 30,000(3) -- Chief Financial Officer and 1995 49,900 6,000 -- -- -- Secretary 1994 -- -- -- -- --
- -------------------------- (1) Mr. Greaves was appointed President and Chief Executive Officer on February 14, 1996. (2) A portion of Mr. Greaves' salary in the amount of $108,000 in fiscal 1994, $114,480 in fiscal 1995, and $111,600 in fiscal 1996 was paid in English Pounds, and has been converted at the estimated average exchange rate of (pound)1 to $1.50 in effect during fiscal 1994, $1.59 in effect during fiscal 1995, and $1.55 in effect during 1996. (3) Options granted under the Company's 1995 Incentive Stock Option Plan. (4) Company's contribution to HESL Pension Plan. (5) Options granted under the Company's Nonqualified Stock Option Plan. (6) Automobile allowance. (7) Mr. Minyard served as President - Electronic Products Group from April 1, 1996 to July 1, 1996, on which date his employment was terminated. Mr. Minyard also served as President of MGE from August 1, 1994 to July 1, 1996. [FOOTNOTES CONTINUE ON NEXT PAGE] 29 30 (8) Options granted under the Company's 1989 Incentive Stock Option Plan. (9) Mr. Friedman served as Chairman of the Board and Chief Executive Officer from November 22, 1994 to April 11, 1995, President-Electronic Products Group from April 12, 1995 to March 31, 1996 and Executive Vice President of the Company from November 22, 1995 to March 31, 1996, on which date he resigned. (10) Represents consulting fees paid to Mr. Friedman subsequent to his resignation as an officer of the Company on March 31, 1996. (11) Mr. Malkowicz also served as an executive officer from April 12, 1995 to February 14, 1996. (12) Options granted under the Company's 1995 Incentive Stock Option Plan, net of forfeitures pursuant to the terms of the related stock option agreement. (13) Consisting of $12,000 in director's fees and $4,000 in aggregate committee fees in fiscal year 1995 and $24,000 in director's fees and $10,000 in aggregate committee fees in fiscal year 1996. (14) Consisting of automobile allowance of $1,061 and medical insurance allowance of $865. 30 31 COMPENSATION OF DIRECTORS Each of the Company's directors who is not an employee of the Company (Messrs. Goldberger, Goodson, Malkowicz, Myers, Noonan, and Slover) receives an annual fee of $24,000, payable in monthly installments. The Company does not pay its employee directors any fee for their services as directors, except that Mr. Malkowicz was an employee director through March 1996 and received directors fees of $2,000 per month during that period. Subsequent to March 1996, Mr. Malkowicz's status changed to a non-employee director. Each non-employee director, including Mr. Malkowicz, for the period he was an employee director, receives reimbursement for out-of-pocket expenses, and $500 for each committee meeting in which he otherwise participates. Directors who chair a Board committee receive $750 per meeting. During fiscal 1995 and 1996, Mr. Slover received fees of $26,600 and $27,800, respectively, for special consulting services provided to the Company, on an "as requested" basis, in connection with financial matters and inventory controls. During fiscal 1996, Mr. Goodson received fees of $9,500 for special consulting services provided to the Company, on an "as requested" basis, in connection with business matters not involving legal advice. EMPLOYMENT AGREEMENTS The Company entered into an employment agreement with Maury S. Friedman, effective November 19, 1993 and expiring in November 1996. The employment agreement provided for an annual base salary of $240,000 and a performance bonus at the discretion of the Board of Directors. Upon Mr. Friedman's resignation as an officer of the Company on March 31, 1996, the agreement was terminated. Effective April 1, 1996, Mr. Friedman serves as a consultant to MGE pursuant to the terms of a consulting agreement dated March 21, 1996. The consulting agreement requires Mr. Friedman to provide consulting services to MGE at the rate of $200 per hour and will continue on a year-to-year basis for a term not to exceed December 31, 1998. Pursuant to an employment agreement dated December 22, 1995 with MGE, Mr. Minyard was entitled to receive a monthly base salary of $9,000 and a monthly bonus equal to one percent of pre-tax operating income before corporate charges, commencing January 1996. This agreement also provided for a Company-provided automobile, health insurance, Board-determined discretionary bonus of up to 40% of annual base salary and three-month severance pay upon termination. Mr. Minyard's employment at the Company and MGE was terminated on July 1, 1996 and the agreement is no longer in effect. The Company established, effective March 1, 1996, an Executive Separation Pay Plan (the "Separation Pay Plan"), to establish a uniform basis for providing separation allowances to certain executives when their positions are eliminated or when they are terminated for reasons other than for cause. The Separation Pay Plan is administered by the Compensation Committee. The Board of Directors or the Compensation Committee has absolute discretion to designate those executives who are covered by the Separation Pay Plan (a "Covered Employee"). The amount of separation allowance which a Covered Employee is entitled to receive is determined by the Board of Directors and specified as a number of months of the Covered Employee's base salary as of the date of termination of employment. Presently, the following Named Executive Officers are the only executives designated as Covered Employees under the Separation Pay Plan (specified period for separation allowance indicated in parentheses): R. Malcolm Greaves, President and Chief Executive Officer (12 months); Robert A. Smith, Executive Vice President and President-Industrial Products Group (10 months); and Lonnie D. Schnell, Chief Financial Officer and Secretary (8 months). 31 32 With the exception of the employment agreements as described above, the Company has no employment agreements with any of the Named Executive Officers. STOCK OPTION PLANS 1989 Incentive Stock Option Plan The Haskel International, Inc. 1989 Incentive Stock Option Plan, as amended (the "1989 ISO Plan") is administered by the Compensation Committee. Subject to the terms of the 1989 ISO Plan, the Compensation Committee establishes the terms and conditions applicable to option grants under said Plan. The 1989 ISO Plan has a term of ten years and provides for the sale by the Company of a maximum of 450,000 shares of Class A Common Stock, subject to adjustments to reflect any future change in capitalization of the Company. As of May 31, 1996, there were options granted and outstanding for 70,065 shares at an exercise price of $9.46 per share, 38,086 shares at an exercise price of $7.18 per share, and 110,000 shares at an exercise price of $8.03 per share. There are no further grants being made under this Plan, its having been replaced by the 1995 Incentive Stock Option Plan. Nonqualified Stock Option Plan The Haskel International, Inc. Stock Option Plan, as amended (the "Nonqualified Plan"), is also administered by the Compensation Committee. The Nonqualified Plan differs from the 1989 ISO Plan in that the 1989 ISO Plan is qualified under the Internal Revenue Code as an Incentive Stock Option plan entitling the optionee to certain income tax benefits, to which the optionee under the Nonqualified Plan is not entitled. Subject to the terms of the Nonqualified Plan, the Compensation Committee establishes the terms and conditions applicable to option grants under said Plan. The Nonqualified Plan has a term of ten years and provides for the sale by the Company of a maximum of 650,000 shares of Class A Common Stock, subject to adjustments to reflect any future change in capitalization of the Company. As of May 31, 1996, there were options granted and outstanding under the Nonqualified Plan for 87,500 shares at an exercise price of $9.46 per share, 215,247 shares at an exercise price of $7.18 per share, 127,667 shares at an exercise price of $7.00 per share, and 24,000 shares at an exercise price of $10.00 per share. There are no further grants being made under this Plan, its having been replaced by the 1995 Incentive Stock Option Plan. 1995 Incentive Stock Option Plan The Haskel International, Inc. 1995 Incentive Stock Option Plan (the "1995 ISO Plan"), which replaced both the 1989 ISO Plan and the Nonqualified Plan, was approved by the shareholders at the 1995 Annual Shareholders Meeting on October 5, 1995. The 1995 ISO Plan permits certain employees of the Company and its subsidiaries who are responsible for the management, growth and protection of the business of the Company or its subsidiaries to be granted the right to purchase shares of Class A Common Stock at the fair market value per share at the date of grant. The 1995 ISO Plan is designed to assist the Company in securing and retaining employees of outstanding ability and to motivate such individuals to exert their best efforts on behalf of the Company. The 1995 ISO Plan is administered by the Stock Option Committee of the Board of Directors, consisting of disinterested directors as that term is defined by Rule 16b-3 under the Securities Exchange Act of 1934, as amended. The Committee selects employees who may purchase shares under the 1995 ISO Plan and establishes, subject to the terms of the 1995 ISO Plan, the terms and conditions applicable to such purchase. In order to purchase shares, an employee is required to enter into a purchase agreement with the Company. The 1995 ISO Plan has a term of ten years and provides for 32 33 the grant of options to purchase an aggregate of 240,000 shares of Class A Common Stock, plus the number of shares available as a result of presently outstanding options which lapse because of nonexercise under the 1989 ISO Plan and the Nonqualified Plan. That additional number of shares cannot be determined at this time, but cannot exceed the total number of 773,885 shares subject to options which are currently outstanding and unexercised. The number of shares is also subject to adjustments to reflect any future changes in the capitalization of the Company. As of May 31, 1996, there were options granted and outstanding for 104,000 shares at an exercise price of $5.375 per share, 43,000 shares at an exercise price of $6.50 per share, and 5,000 shares at an exercise price of $7.25 per share. 1995 Formula Stock Option Plan The Haskel International, Inc. 1995 Formula Stock Option Plan (the "1995 Formula Plan") was approved by the shareholders at the 1995 Annual Shareholders Meeting on October 5, 1995. The 1995 Formula Plan permits directors who are not employees of the Company or its subsidiaries ("Outside Directors") and who have been granted options under said Plan, the right to purchase shares of Class A Common Stock at the fair market value per share at the date of the grant. Because the 1995 Formula Plan operates by its own terms, and there are no discretionary decisions, there is no committee needed to administer the 1995 Formula Plan. The 1995 Formula Plan is designed to assist the Company in attracting and retaining high quality Outside Directors. At present, that group consists of Messrs. Goldberger, Goodson, Malkowicz, Myers, Noonan, and Slover. Every new Outside Director, upon becoming a director of the Company, is granted an option to purchase 10,000 shares of Class A Common Stock. Such options vest in equal amounts over five years, with the first installment vesting on the first anniversary of the Outside Director's appointment as director. Additional options are granted to each Outside Director if the Company's performance exceeds certain benchmarks. All options granted under the 1995 Formula Plan become 100% vested in the event of a change in control of the Company. The 1995 Formula Plan provides for the grants of options to purchase an aggregate of 40,000 shares of Class A Common Stock. The number of shares is also subject to adjustments to reflect any future changes in the capitalization of the Company. As of May 31, 1996, there were options granted and outstanding for 10,000 at an exercise price of $6.625 per share. 33 34 OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth certain information regarding stock options granted to the Named Executive Officers during fiscal 1996: Option Grants in Last Fiscal Year ---------------------------------
Potential Realizable Value At Assumed Annual Rates of Stock Price Individual Grants Appreciation For Option Term ------------------------------------------------------- -------------------------------- Number of % of Total Securities Options Underlying Granted to Exercise or Options Employees in Base Price Expiration Name Granted (#) Fiscal Year ($/Sh) Date 0%($) 5%($) 10%($) - ---- ----------- ------------ ----------- ---------- ----- -------- -------- R. Malcolm Greaves 43,000 18.9% $ 6.50 2/27/06 $0 $455,275 $724,950 Robert A. Smith 50,000 21.9% $5.375 2/21/05 $0 $437,765 $697,068 James C. Minyard -- -- -- -- -- -- -- Maury S. Friedman -- -- -- -- -- -- -- Edward Malkowicz 100,000(1) 43.9% $5.375 4/12/05 $0 $210,127(1) $334,593(1) Lonnie D. Schnell 30,000 13.2% $5.375 11/7/04 $0 $262,659 $418,240
- -------------------- (1) Pursuant to the terms of the stock option agreement entered into between the Company and Mr. Malkowicz, the option lapsed with respect to 76,000 shares during fiscal 1996. Potential Realizable Values were calculated based on the net 24,000 shares relating to such option. STOCK OPTION EXERCISES AND OPTIONS OUTSTANDING The following table provides certain information regarding outstanding options by the Named Executive Officers at May 31, 1996: Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values -----------------------------------------------
Shares Number of Securities Value of Unexercised Acquired on Value Underlying Unexercised In-the-Money Name Exercise (#) Realized ($) Options at May 31, 1996 (#) Options at May 31, 1996 ($) - ---- ------------ ------------ --------------------------- --------------------------- Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- R. Malcolm Greaves -- -- 104,267 44,733 $ 4,300 $17,200 Robert A. Smith -- -- 10,000 40,000 $16,250 $65,000 James C. Minyard -- -- 10,000 20,000 -- -- Maury S. Friedman -- -- 40,000 -- -- -- Edward Malkowicz -- -- 10,400 25,600 $13,000 $26,000 Lonnie D. Schnell -- -- 6,000 24,000 $ 9,750 $39,000
34 35 REPRICING OF OPTIONS The following table shows all repricings of options held by any executive officer during the last ten completed fiscal years: Ten-Year Option Repricings --------------------------
Length of Number of Original Securities Market Price Exercise Option Term Underlying of Stock at Price at Remaining Options Time of Time of New at Date of Repriced or Repricing or Repricing or Exercise Repricing or Name Date Amended Amendment Amendment Price Amendment - ---- ---- ----------- ------------ ------------ -------- ------------ Maury S. Friedman 1/19/95 60,000(1) $10.13 $7.18(2) $8.03 6/9/04
- -------------------- (1) Pursuant to the terms of the stock option agreement entered into between the Company and Mr. Friedman, the option lapsed with respect to 20,000 shares on March 31, 1996, upon Mr. Friedman's resignation as an officer of the Company, and lapsed with respect to the remaining 40,000 shares on June 3, 1996. (2) This option, and all other options granted on June 9, 1994, was at an exercise price of $7.18, subject to adjustment based on the independent appraisal report of the shares owned by the Company's Profit Sharing Plan for the fiscal year ended May 31, 1994. Based on that appraisal, the exercise price of all options granted on June 9, 1994, including Mr. Friedman's option, was adjusted to $8.03. RETIREMENT PLANS Haskel International, Inc. Profit Sharing Plan The Haskel International, Inc. Profit Sharing Plan, as amended (the "PSP"), covers all of Haskel International, Inc.'s employees and includes MGE's employees, but not HESL's or its subsidiaries' employees. The purpose of the PSP is to enable participating employees of the Company to share in a portion of the profits and in the growth and prosperity of the Company and to provide them with the opportunity to accumulate capital for their future economic security. Employees are entitled to 100% of their account balances upon death or retirement. Generally, employees whose employment terminates for any reason other than death or retirement are vested after five years of service. However, if the percentage interest in the PSP and other similar plans of certain high-level employees of the Company falls below a prescribed level, employees who commenced participating in the PSP prior to June 1, 1989 become vested according to a schedule that provides for full vesting after fifteen years of service. The PSP is funded solely by the Company; individual contributions through payroll deduction or otherwise are not permitted. The Company contribution is determined annually by the Board of Directors of the Company. The PSP is administered by a four-member administrative committee of employees (the "Administrative Committee") appointed by the Board of Directors. The Board of Directors retains an independent corporate trustee who holds all funds in trust and votes the Company shares held by the PSP as directed by the Administrative Committee. 35 36 HESL Pension Plan All of HESL's employees who work at least 16 hours per week, who are at least 21 years of age, and have been with HESL for one year or more are covered by the Haskel Retirement Benefits Plan, a contributory pension plan (the "HESL Pension Plan"). Mr. Greaves is the only executive officer who is currently participating in the HESL Pension Plan. Currently, the pension costs are equivalent to 15% of the individual's pensionable salary (basic annual salary or wages at the HESL Pension Plan anniversary, which is June 1 of each year) and are borne 80% by HESL and 20% by the individual. The pension benefits payable are on a final salary basis, ie. pension benefits accrue at the rate of 1/60th of final pensionable salary for each complete year of service with HESL less deductions to take into account the lower-level earnings and upper-level earnings limits originally set down in SERPS (State Earnings Related Pension Scheme). Pension benefits are subject to an annual cost-of-living increase of not less than 3% nor more than 5%. Three directors of HESL have an enhancement to their pension plan (the "Haskel Discretionary Benefits Scheme"), whereby pension benefits accrue at the rate of 1/40th of pensionable salary but, again, subject to the deductions described in the preceding sentence. The normal retirement age for both men and women is 65 years. The HESL Pension Plan additionally provides for a death-in-service lump sum payment of twice salary (in the case of the three directors' pension enhancement scheme, four times salary) and a spouse's pension of two-thirds the prospective pension at date of death of the employee. The funds are held and invested by Norwich Union on behalf of the trustees of the HESL Pension Plan, and HESL is assisted in its management of the HESL Pension Plan by Sedgwick Noble Lowndes, who are pension advisers. The trustees responsible for the HESL Pension Plan are HESL's secretary, a retired director of HESL, an employee of HESL and a representative of HESL's legal counsel, Dickinson Dees. See Note 8 of Notes to Consolidated Financial Statements. The following table sets forth annual pension benefits under the HESL Pension Plan on a straight-life annuity basis for representative years of service as defined in the HESL Pension Plan at an accrual rate of 1/60th of final pensionable salary. Amounts shown assume retirement at age 65 on January 1, 1996. Other than the adjustment described in footnote 2 below, such benefits are not subject to reduction for benefits and other offset amounts. As of May 31, 1996, Mr. Greaves had approximately 7 years of service credited under the HESL Pension Plan. HESL Pension Plan Table -----------------------
Estimated Annual Retirement Benefit at Age 65 for Indicated Years of Credited Service(2) ---------------------------------------------------------------------------------------- Final Pensionable Salary(1) 5 10 15 20 25 30 35 - --------------------------- ------- ------- ------- ------- ------- -------- -------- $ 50,000 $ 4,167 $ 8,333 $12,500 $16,667 $20,833 $ 25,000 $ 29,167 75,000 6,250 12,500 18,750 25,000 31,250 37,500 43,750 100,000 8,333 16,667 25,000 33,333 41,667 50,000 58,333 125,000 10,417 20,833 31,250 41,667 52,083 62,500 72,917 150,000 12,500 25,000 37,500 50,000 62,500 75,000 87,500 200,000 16,667 33,333 50,000 66,667 83,333 100,000 116,667
- --------------------- (1) Calculated based on highest average of three consecutive years' pensionable salaries at June 1 during the 13-year or shorter period prior to retirement. (2) Benefits under the HESL Pension Plan are reduced in an amount of 1/100th of the employee's earnings in excess of a lower earnings limit (as of April 6, 1996, such limit was (pound)3,172, subject to annual adjustment), not to exceed an upper earnings limit (as of April 6, 1996, such limit was (pound)23,660, subject to annual increase) times the number of years in service after April 6, 1978. 36 37 REPORT OF COMPENSATION COMMITTEE The Compensation Committee reviews and makes recommendations to the Board of Directors regarding salaries, bonuses, benefits, and other compensation for executive officers and key employees of the Company. This Compensation Committee report discusses the components of the Company's executive officer compensation policies and programs and describes the bases upon which compensation is determined by the Compensation Committee with respect to the executive officers of the Company, including the Named Executive Officers. Compensation Philosophy. The compensation philosophy of the Company is to link directly executive compensation to individual and team contributions, continuous improvements in corporate performance and shareholder value. The Compensation Committee has adopted the following objectives as guidelines for compensation decisions: - Display a willingness to pay levels of compensation that are necessary to attract and retain highly qualified executives. - Be willing to compensate executive officers in recognition of superior individual performance, new responsibilities or new positions within the Company. - Take into account historical levels of executive compensation and the overall competitiveness of the market for high quality executive talent. - Implement a balance between short and long-term compensation to complement the Company's annual and long-term business objectives and strategy and encourage executive performance in furtherance of the fulfillment of those objectives. - Provide variable compensation opportunities based on the performance of the Company, encourage stock ownership by executives and align executive remuneration with the interests of shareholders. The Compensation Committee is aware of the Internal Revenue Code $1,000,000 cap on deductions for compensation. While that cap does not have an impact on the Company at present, the Compensation Committee will take appropriate steps to make the Company's compensation policy comply should circumstances warrant in the future. Compensation Program Components. The Compensation Committee regularly reviews the Company's compensation program to ensure that pay levels and incentive opportunities are competitive with the market and reflect the performance of the Company. The particular elements of the compensation program for executive officers are further explained below. Base Salary. The Company's base pay levels for executive officers are determined by the particular responsibilities of the position held and the experience of the individual and by comparing the salary scale with companies of similar size and complexity. Actual base salaries are kept within a competitive salary range for each position that is established through job evaluation and market comparisons. Chief Executive Officer's Compensation. The Chief Executive Officer ("CEO") of the Company heads a group of senior management officers who participate in a common set of compensation criteria linked to the performance of the Company. The compensation of the CEO is determined by the Compensation Committee and approved by the Board of Directors based upon its assessment of the Company's financial performance and non-financial performance measured against a background of factors which are critical to the success of the 37 38 business. The Compensation Committee exercises its judgment in weighting the factors and evaluating performance. The CEO, who currently sits on the Compensation Committee, does not participate in deliberations regarding his own compensation. Annual Bonus. The executive bonus program provides for the granting of cash bonuses to the senior managers (including the Named Executive Officers) of the Company. The objective of the bonus is to enhance management's contribution to shareholder value by providing competitive levels of compensation for the attainment of financial objectives. In particular, the executive bonus program focuses corporate behavior on consistent and steady earnings growth by basing performance on a comparison of actual results to the Company's annual budget. Actual bonuses are subject to decrease or increase on the basis of the Company's performance and range up to 55% of base salary for attaining goals. Based on the Company's performance during fiscal year 1996, bonuses were paid to the Named Executive Officers and the majority of the senior management. Summary. After its review of all existing programs, the Compensation Committee continues to believe that the total compensation program for executives of the Company is focused on increasing values for shareholders and enhancing corporate performance. The Compensation Committee believes that executive compensation levels of the Company are competitive with the compensation programs provided by other corporations with which the Company competes. The foregoing report has been approved by all members of the Compensation Committee. COMPENSATION COMMITTEE Stanley T. Myers, Chairman Marvin L. Goldberger Terrence A. Noonan R. Malcolm Greaves COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS During fiscal 1996, Marvin Goodson, Edward Malkowicz, Stanley T. Myers, Dr. Marvin Goldberger and R. Malcolm Greaves served as members of the Compensation Committee of the Board of Directors, which determines salaries of the Company's employees. Mr. Goodson served on the Compensation Committee until February 26, 1996, when Mr. Greaves was appointed by the Board of Directors as Mr. Goodson's replacement. Mr. Greaves, President and Chief Executive Officer of the Company, did not participate in deliberations regarding his own compensation. The Company incurred attorneys' fees in the amount of approximately $358,000 in fiscal 1996 in connection with services provided by the firm of Goodson and Wachtel A Professional Corporation. Mr. Goodson is a principal with that law firm. 38 39 Performance Graph The following graph compares the Company's cumulative total shareholders return since the Class A Common Stock became publicly traded on November 1, 1994, with the Nasdaq Stock market (National Market) Index, the Standard & Poor's 500 Index and with a peer group comprised of companies which manufacture high-pressure equipment and with which the Company generally competes. The peer group is comprised of the following companies: Duriron Co. Inc., Flow International Corp., IDEX Corp., Oilgear Co. and Watts Industries Inc. The graph and table assume that $100 was invested on November 1, 1994 in the Company's Class A Common Stock, at the initial public offering price of $10.00 per share, and in each of the indexes mentioned above, and that all dividends were reinvested. Total Shareholder Return [PERFORMANCE GRAPH APPEARS HERE]
Quarters 11/1/94 Nov 94 Feb 95 May 95 Aug 95 Nov 95 Feb 96 May 96 ------- ------ ------ ------ ------ ------ ------ ------ Haskel Intl Inc-CLA 100 100.00 95.69 68.49 58.93 56.38 66.87 74.25 S&P 500 Index 100 96.86 104.77 115.48 122.38 132.67 141.13 148.32 Peer Group 100 89.86 101.45 107.13 128.38 122.97 113.60 117.02 NASQAQ COMPOSITE 100 96.68 102.65 111.84 132.41 137.84 143.02 162.55
39 40 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT PRINCIPAL SHAREHOLDERS The following table sets forth information with respect to each person who, as of July 31, 1996 is known by the Company to be the beneficial owner of more than five percent (5%) of the Company's Common Stock:
Class A Common Stock Class B Common Stock ------------------------ ---------------------- Amount and Amount and Percent of Nature of Percent Nature of Percent Combined Name and Address of Beneficial of Beneficial of Voting Beneficial Owner Ownership Class(1) Ownership Class(1) Power(2) - ---------------- --------- -------- --------- -------- -------- Hayman Family Trusts 1,584,477(3) 33.8% 40,000(3) 100.0% 34.4% c/o The Boston Company 300 S. Grand Avenue Suite 1200 Los Angeles, CA 90071 Maury S. Friedman 447,000(4) 9.5% -- -- 9.5% 29480 Bertrand Street Agoura Hills, CA 91301 Haskel, Inc. Profit Sharing Plan 259,607 5.5% -- -- 5.5% Citizens Bank, Trustee 225 East Colorado Blvd. Pasadena, CA 91101
- -------------------- (1) Included as outstanding for purposes of these calculations with respect to (1) the Class A Common Stock were 4,688,230 shares of Class A Common Stock outstanding as of May 31, 1996 plus, in the case of a particular person, the shares of Class A Common Stock subject to currently exercisable options (which are deemed to include options exercisable within 60 days after August 16, 1996) held by that person, which options are specified by footnote. Other than as described in the preceding sentence, shares upon exercise of outstanding options are not deemed to be outstanding for purposes of these calculations, and (ii) the Class B Common Stock were 40,000 shares of Class B Common Stock outstanding as of May 31, 1996. (2) Represents the combined voting power of the shares of Class A Common Stock and Class B Common Stock beneficially owned by the persons named as a percent of the aggregate combined voting power of all outstanding shares of Common Stock. (3) All of the shares shown are owned beneficially and of record by eight irrevocable trusts. Sheryl L. Everett is the beneficiary of three of the trusts, Sandra Nelson the beneficiary of three of the trusts, and Rick Meeker Hayman the beneficiary of two of the trusts. The trustees of two of the trusts of which Sheryl L. Everett is the beneficiary, two of the trusts of which Sandra Nelson is the beneficiary and the two of the trusts of which Rick Meeker Hayman is the beneficiary are The Boston Safe Deposit and Trust Company of California ("The Boston Company"), Sheryl L. Everett and Sandra Nelson. The Boston Company has two votes and each of the other trustees has one vote in determining action to be taken by each of these six trusts with respect to the shares held by each such trust. The Boston Company is sole trustee for each of the other two trusts, one of which Sheryl L. Everett is the beneficiary and one of which Sandra Nelson is the beneficiary. Excludes 25,450 and 41,145 shares as to which Sandra Nelson and Sheryl L. Everett, respectively, have sole voting and dispositive power; and 41,145 shares which are held in trust by another trustee, and with respect to which Rick Meeker Hayman is the beneficiary, and has sole voting and dispositive power. (4) Includes 440,000 shares owned beneficially and of record by the Friedman Family Trust, of which Maury S. Friedman and Lisa E. Friedman are co-trustees, and 7,000 shares owned by Mr. Friedman as custodian for his minor children. 40 41 SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of July 31, 1996, by (i) each director and nominee for director, (ii) each of the executive officers named in the Summary Compensation Table, and (iii) all directors and executive officers as a group. Except as otherwise noted, and subject to applicable community property and similar laws, each person named has sole voting and investment power with respect to the Common Stock shown as beneficially owned.
Class A Shares Percent Beneficially of Name and Address Title Owned Class - ---------------- ----- -------------- ------- R. Malcolm Greaves President, Chief Executive 117,600(1) 2.5% 100 East Graham Place Officer and Director Burbank, CA 91502 Robert A. Smith Executive Vice President and 10,000(2) * 100 East Graham Place President - Industrial Products Burbank, CA 91502 Group James C. Minyard Formerly President - Electronic 10,400(3) * 1874 Dunnigan Street Products Group and President of Camarillo, CA 93010 MGE Maury S. Friedman Formerly Executive Vice 447,000(4) 9.5% 29480 Bertrand Street President, President - Electronic Agoura Hills, CA 91301 Products Group and Director Lonnie D. Schnell Chief Financial Officer and 7,500(5) * 100 East Graham Place Secretary Burbank, CA 91502 Edward Malkowicz Chairman of the Board and 21,400(6) * 100 East Graham Place Director Burbank, CA 91502 Marvin L. Goldberger Director 50,155(7) 1.1% 100 East Graham Place Burbank, CA 91502 Marvin Goodson Director 178,910(8) 3.8% 100 East Graham Place Burbank, CA 91502 Stanley T. Myers Director 3,400(9) * 100 East Graham Place Burbank, CA 91502 Terrence A. Noonan Director 1,000 * 100 East Graham Place Burbank, CA 91502 William L. Slover Director 32,000(10) * 100 East Graham Place Burbank, CA 91502 All directors and executive officers as a group (11 persons) 879,365(11) 18.8%
* Denotes beneficial ownership of less than 1%. [Footnotes on next page] 41 42 - -------------------- (1) Includes 114,600 shares issuable upon exercise of options exercisable within 60 days of August 16, 1996. (2) Includes 10,000 shares issuable upon exercise of options exercisable within 60 days of August 16, 1996. (3) Includes 10,000 shares issuable upon exercise of options exercisable within 60 days of August 16, 1996. Mr. Minyard was terminated as an employee of the Company and MGE on July 1, 1996. (4) Includes 440,000 shares owned beneficially and of record by the Friedman Family Trust, of which Mr. Friedman is a co-trustee; and 7,000 shares owned by Mr. Friedman as custodian for his minor children. Mr. Friedman resigned as a director of the Company in January 1996 and as President - Electronic Products Group in April 1996. He currently serves as a consultant to MGE. (5) Includes 6,000 shares issuable upon exercise of options exercisable within 60 days of August 16, 1996. (6) Includes 10,400 shares issuable upon exercise of options exercisable within 60 days of August 16, 1996. (7) Includes 11,155 shares owned beneficially and of record by the Marvin and Mildred Goldberger Family Trust, of which Dr. Goldberger is a co-trustee; and 39,000 shares issuable upon exercise of options exercisable within 60 days of August 16, 1996. (8) Includes 26,800 shares owned beneficially and of record by the Goodson and Wachtel Professional Corporation Profit Sharing Plan, of which Mr. Goodson is a co-trustee; 81,110 shares owned beneficially and of record by the Marvin and Mae Goodson Family Trust, of which Mr. Goodson is a co-trustee; and 71,000 shares issuable upon exercise of options exercisable within 60 days of August 16, 1996. (9) Includes 2,400 shares issuable upon exercise of options exercisable within 60 days of August 16,1996. (10) Includes 5,000 shares owned beneficially and of record by the Slover Family Trust, of which Mr. Slover is a trustee; and 27,000 shares issuable upon exercise of options exercisable within 60 days of August 16, 1996. (11) Includes 290,400 shares issuable upon exercise of options exercisable within 60 days of August 16, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company incurred attorneys' fees in the amounts of approximately $358,000 in fiscal 1996 in connection with services provided by the firm of Goodson and Wachtel A Professional Corporation. That firm continues to provide legal services to the Company. Marvin Goodson, a director and shareholder of the Company, is a principal with that law firm. In addition, that firm represents the Hayman Family Trusts and the Haskel, Inc. Profit Sharing Plan, who are principal shareholders of the Company. 42 43 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Exhibits (numbered in accordance with Item 601 of Regulation S-K): Exhibit Number Exhibit Description 3.1 Restated Articles of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1995) 3.2 Restated Bylaws of the Company, as amended. 4.1 Specimen Class A Common Stock and Class B Stock Certificates. (Incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 4.2 Form of Underwriter's Warrants. (Incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.1 1989 Incentive Stock Option Plan and form of Stock Option Agreement. (Incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.2 Non-Qualified Stock Option Plan and form of Stock Option Agreement. (Incorporated by reference to Exhibit 10.2 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.3 1995 Incentive Stock Option Plan and form of Stock Option Agreement. 10.4 1995 Formula Stock Option Plan and form of Stock Option Agreement. 10.5 Haskel Inc. Profit Sharing Plan. (Incorporated by reference to Exhibit 10.3 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.6 Haskel Energy Systems, Ltd. Pension Plan. (Incorporated by reference to Exhibit 10.4 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.7 Agreement and Plan of Reorganization of M.G. Electronics, Inc. into Haskel Network Group, Inc. dated November 17, 1993 and related Indemnification Agreement and Agreement of Merger. (Incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.8 Employment Agreement dated November 17, 1993 between Maury S. Friedman and the Company. (Incorporated by reference to Exhibit 10.8 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.9 Non-Competition Agreement dated November 17, 1993 between Maury S. Friedman, the Friedman Family Trust and M.G. Electronics, Inc. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 43 44 Exhibit Number Exhibit Description 10.10 Consulting Agreement dated March 21, 1996 between the Company and Maury S. Friedman. (Incorporated by reference to Exhibit 10.17 of the Company's Quarterly Report on Form 10-Q for the period ended February 29, 1996) 10.11 Leases dated June 1, 1993 and September 24, 1993 between West Lake Village Industrial Park and M.G. Electronics, Inc. (Incorporated by reference to Exhibit 10.10 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.12 Consultant and Widow's Pension Agreement dated May 16, 1983 between the Company and Frederick J. Broderick and related Memorandum dated April 22, 1993. (Incorporated by reference to Exhibit 10.13 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.13 Glendale Superfund Site PRP Organization Agreement dated October 28, 1993 by and among the Company and the other PRPs in the Group. (Incorporated by reference to Exhibit 10.14 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.14 Amendment to the Glendale Superfund Site PRP Organization Agreement dated as of January 11, 1996 by and among the Company and the other PRPs in the Group. 10.15 Memorandum of Agreement Regarding Cost-Sharing for the Glendale Operable Unit Superfund Sites dated June 7, 1995 by and among the Company and the other PRPs in the Group. 10.16 Underwriter's Warrant Agreement. (Incorporated by reference to Exhibit 10.18 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.17 Loan Agreement dated February 21, 1995 by and between the Company and Union Bank and related Commercial Promissory Note, Arbitration Agreement, Continuing Guaranty and Security Agreement-Pledge. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended February 28, 1995) 10.18 First Amendment dated as of August 30, 1995 to Loan Agreement between the Company and Union Bank. 10.19 Second Amendment dated as of February 13, 1996 to Loan Agreement between the Company and Union Bank. 44 45 Exhibit Number Exhibit Description 10.20 Third Amendment dated as of April 16, 1996 to Loan Agreement between the Company and Union Bank. 10.21 Employment Agreement dated December 22, 1995 regarding James C. Minyard. 10.22 Haskel International, Inc. Executive Separation Pay Plan. 11.1 Statement regarding computation of net income per share. 21 Schedule of Subsidiaries. 27 Financial Data Schedule. The following schedules supporting the financial statements: Schedule II Valuation and Qualifying Accounts (b) Reports on Form 8-K: The Company filed one Current Report on Form 8-K dated May 31, 1996, during the fourth quarter of its fiscal year, reporting certain information under Item 5 thereof. No financial statements were filed therewith. 45 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 26, 1996 HASKEL INTERNATIONAL, INC. By /s/ Lonnie D. Schnell --------------------------------- Lonnie D. Schnell Chief Financial Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below constitutes and appoints R. Malcolm Greaves and Lonnie D. Schnell, or any one of them, his attorney-in-fact and agent, with full power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or their substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ Edward Malkowicz Chairman of the Board August 26, 1996 - ----------------------------- and Director Edward Malkowicz /s/ R. Malcolm Greaves Chief Executive Officer August 26, 1996 - ----------------------------- and Director R. Malcolm Greaves /s/ Marvin L. Goldberger Director August 26, 1996 - ----------------------------- Marvin L. Goldberger /s/ Marvin Goodson Director August 26, 1996 - ----------------------------- Marvin Goodson - ----------------------------- Director August 1996 Stanley T. Myers /s/ Terrence A. Noonan Director August 26, 1996 - ----------------------------- Terrence A. Noonan - ----------------------------- Director August 1996 William L. Slover
46 47 HASKEL INTERNATIONAL, INC. INDEX TO FINANCIAL STATEMENTS
Page ---- Independent Auditors' Reports........................................... F-1 Consolidated Balance Sheets at May 31, 1995 and 1996................................................ F-3 Consolidated Statements of Income for the years ended May 31, 1994, 1995 and 1996......................... F-5 Consolidated Statements of Shareholders' Equity for the years ended May 31, 1994, 1995 and 1996......................... F-6 Consolidated Statements of Cash Flows for the years ended May 31, 1994, 1995 and 1996......................... F-7 Notes to Consolidated Financial Statements.............................. F-9
47 48 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Haskel International, Inc.: We have audited the accompanying consolidated balance sheets of Haskel International, Inc. and its subsidiaries as of May 31, 1995 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended May 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based upon our audits. We did not audit the financial statements of Haskel Energy Systems, Ltd. ("HESL") (a consolidated subsidiary), which statements reflect total assets constituting 35% and 30% of consolidated total assets at May 31, 1995 and 1996, respectively, and total sales constituting 28%, 28% and 31% for fiscal years 1994, 1995 and 1996, respectively, of consolidated total sales. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for HESL, is based solely upon the report of such other auditors. 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 and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based upon our audits and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of Haskel International, Inc. and its subsidiaries at May 31, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, based on our audits and the report of other auditors, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Los Angeles, California August 23, 1996 F - 1 49 INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF HASKEL ENERGY SYSTEMS LIMITED We have audited the consolidated balance sheets of Haskel Energy Systems Limited and its subsidiaries as of May 31, 1995 and 1996, and the related consolidated statements of income, of shareholders' equity, and of cash flows for each of the three years in the period ended May 31, 1996 (not included herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon 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 statements presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the consolidated financial position of Haskel Energy Systems Limited and its subsidiaries as of May 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 1996 in conformity with generally accepted accounting principles. PRICE WATERHOUSE Chartered Accountants and Registered Auditors Newcastle United Kingdom August 23, 1996 F - 2 50 HASKEL INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
May 31, May 31, 1995 1996 ---------- ----------- ASSETS CURRENT ASSETS: Cash & cash equivalents $8,806,000 $ 8,239,000 Accounts receivable, net 8,870,000 9,581,000 Inventories 8,827,000 10,532,000 Prepaid expenses 431,000 356,000 Income taxes receivable 491,000 - Deferred income taxes 1,022,000 1,260,000 ---------- ----------- TOTAL CURRENT ASSETS 28,447,000 29,968,000 PROPERTY, PLANT & EQUIPMENT, NET 5,351,000 5,526,000 PURCHASED TECHNOLOGY, NET 7,098,000 6,569,000 GOODWILL, NET 3,389,000 3,248,000 OTHER ASSETS 10,000 49,000 ----------- ----------- TOTAL $44,295,000 $45,360,000 =========== ===========
See notes to consolidated financial statements. F - 3 51 HASKEL INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (Continued)
May 31, May 31, 1995 1996 ----------- ----------- LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 389,000 $ 985,000 Accounts payable 3,402,000 3,510,000 Dividends payable 331,000 331,000 Accrued liabilities 2,610,000 3,089,000 Income taxes payable 746,000 162,000 ----------- ----------- TOTAL CURRENT LIABILITIES 7,478,000 8,077,000 LONG-TERM DEBT 3,125,000 2,381,000 DEFERRED INCOME TAXES 450,000 334,000 OTHER ACCRUED LIABILITIES 2,235,000 2,348,000 COMMITMENTS & CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred Stock: 2,000,000 shares authorized; none issued and outstanding Common Stock: Class A, without par value; 20,000,000 shares authorized; issued and outstanding 4,688,230 at May 31, 1995 and May 31, 1996 13,436,000 13,436,000 Class B, without par value; 40,000 shares authorized, issued and outstanding at May 31, 1995 and May 31, 1996 19,000 19,000 Retained Earnings 17,729,000 18,951,000 Cumulative foreign currency translation adjustment (177,000) (186,000) ----------- ----------- Total shareholders' equity 31,007,000 32,220,000 ----------- ----------- TOTAL $44,295,000 $45,360,000 =========== ===========
See notes to consolidated financial statements F - 4 52 HASKEL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME
Year Ended May 31, ------------------------------------------- 1994 1995 1996 ----------- ------------ ------------ SALES $41,354,000 $51,701,000 $56,792,000 COST OF SALES 24,983,000 31,937,000 32,082,000 ----------- ----------- ----------- GROSS PROFIT 16,371,000 19,764,000 24,710,000 EXPENSES: Selling 7,091,000 7,998,000 9,000,000 General and administrative 6,573,000 8,342,000 10,356,000 Engineering design, research 1,186,000 1,151,000 905,000 and development Restructuring Costs 620,000 - - Environmental reserve costs 1,039,000 - - ----------- ----------- ----------- Total 16,509,000 17,491,000 20,261,000 ----------- ----------- ----------- INCOME (LOSS) FROM OPERATIONS (138,000) 2,273,000 4,449,000 OTHER INCOME (EXPENSE): Interest expense (308,000) (550,000) (274,000) Interest income 423,000 435,000 356,000 Other 56,000 (182,000) 13,000 ----------- ----------- ----------- 171,000 (297,000) 95,000 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 33,000 1,976,000 4,544,000 PROVISION FOR INCOME TAXES 30,000 957,000 1,997,000 ----------- ----------- ----------- NET INCOME $ 3,000 $ 1,019,000 $ 2,547,000 =========== =========== =========== PER SHARE DATA: NET INCOME $0.00 $0.23 $0.54 DIVIDENDS $0.36 $0.28 $0.28 =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 3,929,349 4,500,783 4,738,266 =========== =========== ===========
See notes to consolidated financial statements F - 5 53 HASKEL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED MAY 31, ------------------------------------------- 1994 1995 1996 ----------- ----------- ----------- SHARES OUTSTANDING COMMON STOCK, CLASS A SHARES Balance, beginning of year 2,906,372 3,406,470 4,688,230 Issuance of common stock 500,098 874,500 - Conversion of common stock - 407,260 - ----------- ----------- ----------- BALANCE, END OF YEAR 3,406,470 4,688,230 4,688,230 =========== =========== =========== COMMON STOCK, CLASS B SHARES Balance, beginning of year 449,955 447,260 40,000 Repurchase of common stock (2,695) - - Conversion of common stock - (407,260) - ----------- ----------- ----------- BALANCE, END OF YEAR 447,260 40,000 40,000 =========== =========== =========== COMMON STOCK, CLASS A Balance, beginning of year $ 3,296,000 $ 6,859,000 $13,436,000 Issuance of common stock 3,563,000 6,381,000 - Conversion of common stock - 196,000 - ----------- ----------- ----------- BALANCE, END OF YEAR 6,859,000 13,436,000 13,436,000 ----------- ----------- ----------- COMMON STOCK, CLASS B Balance, beginning of year 218,000 215,000 19,000 Repurchase of common stock (3,000) - - Conversion of common stock - (196,000) - ----------- ----------- ----------- BALANCE, END OF YEAR 215,000 19,000 19,000 ----------- ----------- ----------- RETAINED EARNINGS Balance, beginning of year 21,817,000 17,971,000 17,729,000 Net income 3,000 1,019,000 2,547,000 Repurchase of common stock (22,000) Cash dividends, class A and B shares (1,316,000) (1,261,000) (1,325,000) Dividend - related party (2,511,000) ----------- ----------- ----------- BALANCE, END OF YEAR 17,971,000 17,729,000 18,951,000 ----------- ----------- ----------- CUMULATIVE TRANSLATION ADJUSTMENT BALANCE, END OF YEAR (661,000) (177,000) (186,000) ----------- ----------- ----------- TOTAL SHAREHOLDERS' EQUITY $24,384,000 $31,007,000 $32,220,000 =========== =========== ===========
See notes to consolidated financial statements F - 6 54 HASKEL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended May 31, ------------------------------------------ 1994 1995 1996 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 3,000 $ 1,019,000 $ 2,547,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,011,000 1,515,000 1,825,000 Gain on sale of property (19,000) (15,000) (5,000) Deferred income taxes (453,000) (242,000) (354,000) Effect of exchange rate changes (221,000) 368,000 41,000 Changes in operating assets and liabilities (net of acquisitions): Accounts receivable, net 253,000 904,000 (711,000) Inventories 614,000 (617,000) (1,436,000) Prepaid expenses and other assets (124,000) 322,000 36,000 Accounts payable and accrued liabilities 466,000 (456,000) 700,000 Income taxes (1,034,000) (165,000) (93,000) ----------- ----------- ----------- Net cash provided by operating activities 496,000 2,633,000 2,550,000 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1,279,000) (1,330,000) (1,272,000) Proceeds from sale of property 79,000 78,000 90,000 Repayment on notes receivable-related party 549,000 Purchase of subsidiary (net of cash and cash equivalents acquired) (5,770,000) (159,000) Increase in long-term investments (216,000) ----------- ----------- ----------- Net cash used in investing activities (6,637,000) (1,252,000) (1,341,000) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt-related party (2,000,000) Principal payments on long-term debt (141,000) (3,173,000) (401,000) Proceeds from issuance of debt 6,000,000 Proceeds from issuance of common stock 332,000 6,754,000 Repurchase of common stock (25,000) Deferred public offering costs (373,000) Dividends declared (1,316,000) (1,261,000) (1,325,000) Repayment of notes payable (192,000) Increase (decrease) in dividends payable (173,000) 60,000 Dividend-related party (635,000) ----------- ----------- ----------- Net cash provided by (used in) financing activities 3,669,000 188,000 (1,726,000) ----------- ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (144,000) 117,000 (50,000) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,616,000) 1,686,000 (567,000) ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,736,000 7,120,000 8,806,000 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,120,000 $ 8,806,000 $ 8,239,000 =========== =========== ===========
See notes to consolidated financial statements. F - 7 55 HASKEL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended May 31, ------------------------------------------ 1994 1995 1996 ---- ---- ---- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 280,000 $ 580,000 $ 256,000 =========== =========== =========== Income taxes $ 1,652,00 $ 1,245,000 $ 2,128,000 =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: On October 14, 1993, the Company paid $1,000,000 in cash and issued a promissory note in the amount of $3,500,000 in connection with the purchase of land and buildings. Because the property was purchased from a group of controlling shareholders, the Company has recorded the property at the historical net book value ($365,000) to such shareholders and has reflected the excess of the purchase price as a deemed dividend of $2,511,000 ($635,000 of which is cash) net of deferred income taxes of $1,624,000. In November 1994, the Company paid the promissory note with $2,000,000 cash and offsetting a $1,500,000 note receivable from such shareholders. On November 19, 1993, the Company acquired all the outstanding stock of M.G. Electronics, Inc. (MGE) for $9,499,000 ($6,000,000 in cash, $268,000 acquisition costs and $3,231,000 of Class A Common Stock) plus assumed liabilities. Fair value of assets acquired $ 13,273,000 Cash paid (6,268,000) Common stock issued (3,231,000) ----------- Liabilities assumed $ 3,774,000 =========== On December 30, 1993, the Company's wholly owned foreign operating subsidiary, Haskel Energy Systems, Ltd. ("HESL"), acquired all of the outstanding stock of Enviroclean Systems Limited for $207,000 ($15,000 in cash and a note payable of $192,000) plus liabilities. Fair value of assets acquired $ 859,000 Cash paid (15,000) ----------- Liabilities assumed $ 844,000 =========== In fiscal year 1995, $6,670,000 was raised (net of offering costs) in connection with the Company's initial public offering of Class A Common Stock. These proceeds, net of deferred public offering costs of $373,000, resulted in net proceeds from the offering of $6,297,000. On November 30, 1995, HESL acquired certain assets of Armaturenbau GmbH for $412,000 ($159,000 in cash and a note payble of $253,000.) See notes to consolidated financial statements. F - 8 56 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Haskel International, Inc. (the "Company"), its wholly owned operating domestic subsidiaries and its operating foreign subsidiary, Haskel Energy Systems, Ltd. ("HESL"), and its operating subsidiaries. All significant intercompany accounts and transactions have been eliminated. Cash Equivalents The Company considers all short-term investments with original maturities of 90 days or less to be cash equivalents. Inventories Inventories are stated at the lower of cost or market. The cost of domestic inventories is determined by the last-in, first-out (LIFO) method and represents approximately 67% and 64% of consolidated inventories at May 31, 1995 and 1996, respectively. All other inventories are valued using the first-in, first-out (FIFO) method. If all domestic inventories had been valued on the FIFO method, they would have been higher by $1,766,000 and $1,843,000 at May 31, 1995 and 1996, respectively. Property, Plant and Equipment Property, plant and equipment are stated at cost. Provision for depreciation has been made based upon the estimated useful lives of the assets, which range from 3 to 30 years, using principally the straight-line method. Provision for amortization of leasehold improvements is made based upon the estimated lives of the assets or terms of the leases, whichever is shorter. Income Taxes Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax bases of assets and liabilities. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to reverse. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred income tax assets and liabilities. Fair Value of Financial Instruments The carrying values of cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short maturities of such instruments. The carrying values of notes payable approximate fair value due to the fact that the majority of the notes are based on variable interest rates. F - 9 57 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue Recognition Revenue is recognized upon shipment of product. Accounts receivable are uncollateralized and contain no significant concentrations of credit risk. Research and Development Research and development costs are expensed as incurred. Earnings Per Share Earnings per share are computed based upon the weighted average number of common shares and dilutive common share equivalents (consisting of incentive stock options and nonqualified stock options) outstanding during the periods. Foreign Currency Translation Foreign assets and liabilities are translated to their United States dollar equivalents based on rates of exchange prevailing at the end of each respective period. Income statement information is translated using the average rate for the year. Gains and losses resulting from foreign currency transactions, which have not been significant, are included in the consolidated statements of income. Gains and losses resulting from translation of foreign financial statements are included as a separate component of shareholders' equity. Restructuring Costs During 1994, the Company restructured part of its operations. The restructuring charge, which related almost entirely to certain employee termination benefits, was substantially paid as of May 31, 1994. Intangible Assets The Company reviews the carrying value of all intangible assets on a quarterly basis, and if future undiscounted cash flows are believed insufficient to recover the remaining carrying value of an intangible asset, the carrying value is written down to fair market value in the period the impairment is identified. Stock Options In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". The Company plans to adopt only the disclosure portion of the statement and therefore does not expect the statement to have a material impact on the financial statements. F - 10 58 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made in the 1994 and 1995 financial statements to conform with the 1996 financial statement presentation. 2. MERGERS AND ACQUISITIONS On November 19, 1993, the Company paid $6,000,000 in cash, $268,000 in acquisition costs and issued 450,000 shares of its Class A Common Stock in exchange for all of the outstanding common stock of MGE. The transaction has been accounted for as a purchase. The valuation of the Company's stock used in recording the purchase price was $7.18 per share, which was the value as of the fiscal year ended May 31, 1993 as determined by an independent appraisal. In connection with the acquisition, the Company recorded purchased technology of $7,900,000 and goodwill of $3,428,000, which are being amortized over 15 years. On December 30, 1993, HESL acquired all the outstanding stock of Enviroclean Systems Limited in exchange for $15,000 in cash and a note payable of $192,000. In connection with the acquisition, the Company recorded goodwill of approximately $320,000, which is being amortized over 15 years. On November 30, 1995, HESL acquired certain assets of Armaturenbau GmbH in exchange for $159,000 in cash and a note payable of $253,000. In connection with the acquisition, the Company recorded goodwill of approximately $108,000, which is being amortized over 15 years. F - 11 59 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 3. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
May 31, May 31, 1995 1996 ------------ ------------ Cash and cash equivalents: Cash in banks ................................... $ 2,980,000 $ 2,901,000 Time deposits ................................... 5,826,000 5,338,000 ------------ ------------ $ 8,806,000 $ 8,239,000 ============ ============ Accounts receivable: Accounts receivable ............................. $ 9,785,000 $ 10,542,000 Less: Allowance for doubtful accounts ........... (915,000) (961,000) ------------ ------------ $ 8,870,000 $ 9,581,000 ============ ============ Inventories: Raw materials ................................... $ 2,837,000 $ 3,335,000 Work-in-process ................................. 1,249,000 2,032,000 Finished goods .................................. 4,741,000 5,165,000 ------------ ------------ $ 8,827,000 $ 10,532,000 ============ ============ Property, plant and equipment: Land and building ............................... $ 2,655,000 $ 2,636,000 Computer equipment .............................. 1,730,000 2,530,000 Machinery and equipment ......................... 3,154,000 3,378,000 Furniture and fixtures .......................... 2,646,000 2,466,000 Leasehold improvements .......................... 1,269,000 1,436,000 ------------ ------------ 11,454,000 12,446,000 Less: Accumulated depreciation and amortization.. (6,116,000) (6,920,000) ------------ ------------ 5,338,000 5,526,000 ------------ ------------ Equipment under capital lease ..................... 43,000 Less: Accumulated amortization .................... (30,000) ------------ 13,000 ------------ $ 5,351,000 $ 5,526,000 ============ ============ Purchased technology: Purchased technology ............................ $ 7,900,000 $ 7,900,000 Less: Accumulated amortization .................. (802,000) (1,331,000) ============ ============ $ 7,098,000 $ 6,569,000 ============ ============ Goodwill: Goodwill ........................................ $ 3,760,000 $ 3,859,000 Less: Accumulated amortization .................. (371,000) (611,000) ------------ ------------ $ 3,389,000 $ 3,248,000 ============ ============
F - 12 60 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 3. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS (CONTINUED)
May 31, May 31, 1995 1996 ----------- ---------- Accrued Liabilities: Accrued payroll and related expenses ..... $ 529,000 $ 452,000 Accrued bonuses .......................... 123,000 725,000 Accrued environmental expenses ........... 171,000 93,000 Accrued retirement benefits .............. 113,000 209,000 Accrued vacation ......................... 323,000 521,000 Accrued commissions ...................... 282,000 284,000 Other .................................... 1,069,000 805,000 ---------- ---------- $2,610,000 $3,089,000 ========== ==========
4. LONG-TERM DEBT Long-term debt consists of the following:
May 31, May 31, 1995 1996 ---------- ---------- Various installment notes issued in connection with stock repurchases. Principal payable in equal quarterly installments through February 2000. Interest payable at a rate equal to one year Treasury Notes adjusted quarterly. Interest rate at May 31, 1996 was 5.19%............ $ 501,000 $ 386,000 Non-interest bearing note payable issued in connection with acquisition. Payable in three annual installments of $95,000. Interest imputed based on an assumed interest rate of 8%............................................ 241,000 Note payable to bank, principal payable in 46 equal monthly installments of $65,200 beginning in February, 1996. The unpaid principal balance bears interest, to be paid monthly, based upon the LIBOR rate plus 1 3/4%. Interest rate at May 31, 1996 was 6.87%. Collateralized by 50% of the Company's stock in HESL........... 3,000,000 2,739,000 Capitalized equipment lease obligation, secured by the related equipment, payable in monthly installments including interest at 10.75% through September 1995 ........... 13,000 ---------- ---------- 3,514,000 3,366,000 Less: Current portion of long-term debt......................... (389,000) (985,000) ---------- ---------- Long-term debt................................................... $3,125,000 $2,381,000 ========== ==========
F - 13 61 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 4. LONG-TERM DEBT (CONTINUED) Amounts of scheduled debt repayments by fiscal year are summarized as follows:
May 31, ---------- 1997 .................................................. $ 985,000 1998 .................................................. 973,000 1999 .................................................. 947,000 2000 .................................................. 461,000 ---------- $3,366,000 ==========
The Company has a $5 million revolving line of credit available with a bank at an interest rate equal to the LIBOR rate plus 1 1/2% (6.62% at May 31, 1996). There were no outstanding balances under the line of credit as of May 31, 1995 or 1996. The Company has a $4 million acquisition line of credit available with the same bank at an interest rate equal to the LIBOR rate plus 1 3/4% (6.87% at May 31, 1996). The Company may make minimum draws against this line of $250,000. Balances outstanding against this line at the end of February each year are converted into a five-year term loan, payable in 48 equal installments beginning one year from the conversion to a term loan. The term loan with the bank bears interest at the same rate as the acquisition line. There were no borrowings against this acquisition line and no term loans associated with this line outstanding as of May 31, 1996. The above loan agreement with the bank contains certain covenants, including a requirement to maintain working capital of not less than $15,000,000; tangible net worth of not less than $18,000,000; and earnings before income taxes, depreciation and amortization equal to or greater than 1.25 times required debt service, dividends and capital expenditures. In addition, the covenants restrict the Company's ability to incur indebtedness, pay dividends in the event of default, consummate certain mergers and make capital expenditures in excess of $2,000,000. As of May 31, 1996, the Company was in compliance with all of the covenants of the loan agreement. 5. LEASE COMMITMENTS The Company leases office space, plant and warehouse facilities under operating lease agreements expiring at various dates through October 2000. Some of the operating leases contain renewal options and provisions requiring the Company to pay property tax increases in addition to the minimum rental. Additionally, the Company leases automobiles under operating lease agreements expiring at various dates through November 1997. F - 14 62 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 5. LEASE COMMITMENTS (CONTINUED) Future minimum rental payments under operating leases with an initial term of one year or more are as follows:
Fiscal year ending May 31, 1997 .............................................. $231,000 1998 .............................................. 161,000 1999 .............................................. 78,000 2000 .............................................. 29,000 2001 .............................................. 6,000 -------- Total minimum lease payments ........................ $505,000 ========
Rent expense for all operating leases was $328,000, $212,000, and $246,000 for fiscal years 1994, 1995 and 1996, respectively. See discussion of related party leases in Note 11. 6. INCOME TAXES The provision for income taxes is summarized as follows:
Fiscal Year Ended May 31, ------------------------- 1994 1995 1996 ---- ---- ---- Current: Federal ................... $ 62,000 $ 311,000 $1,124,000 State ..................... (9,000) 263,000 326,000 Foreign ................... 430,000 625,000 901,000 ------------------------------------- 483,000 1,199,000 2,351,000 Deferred: Federal ................... (394,000) (180,000) (305,000) State ..................... (59,000) (62,000) (49,000) ------------------------------------- $ 30,000 $ 957,000 $1,997,000 =====================================
HESL had undistributed earnings of approximately $12,100,000 at May 31, 1995. In July 1995, $3,500,000 of these earnings were distributed to the Company. The Company included income taxes on this distribution in its fiscal year 1995 tax provision. Management retained permanently the remaining $8,600,000 of the undistributed earnings of HESL as of May 31, 1995 primarily for internal growth and strategic acquisitions outside of the United States. Unrecognized income taxes on such earnings would be approximately 2 1/2 percent, or $215,000, after taking into effect foreign tax credits which would be available as a reduction of the majority of the U.S. income tax in the event of the future distribution of these earnings. In fiscal year 1996, the Company has provided taxes (net of expected foreign tax credits) on the undistributed earnings of HESL in excess of the $8,600,000 permanently retained. F - 15 63 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 6. INCOME TAXES (CONTINUED) The components of deferred tax assets (liabilities) are as follows:
May 31, 1995 May 31, 1996 ------------ ------------ Federal State Federal State -------------------------------------------------------- Deferred tax assets: Uniform capitalization rules ..... $ 280,000 $ 66,000 $ 280,000 $ 54,000 Allowance for doubtful accounts ... 250,000 59,000 281,000 63,000 Environmental accrual ............. 362,000 85,000 342,000 65,000 Vacation and sick accrual ......... 101,000 24,000 137,000 26,000 Retirement accrual ................ 470,000 111,000 451,000 87,000 Reserve for obsolescence .......... 224,000 53,000 283,000 77,000 Purchased land/building - related.. party (Note 11) ............... 1,275,000 326,000 1,286,000 263,000 State taxes ....................... 25,000 62,000 Other ............................. 7,000 2,000 90,000 18,000 -------------------------------------------------------- Total deferred tax assets ........... 2,994,000 726,000 3,212,000 653,000 Deferred tax liabilities: Depreciation ...................... (126,000) (31,000) (160,000) (31,000) Purchased technology .............. (2,413,000) (568,000) (2,234,000) (428,000) Other ............................. (7,000) (2,000) (66,000) (20,000) -------------------------------------------------------- Total deferred tax liabilities ...... (2,546,000) (601,000) (2,460,000) (479,000) -------------------------------------------------------- Net deferred tax asset .............. $ 448,000 $ 125,000 $ 752,000 $ 174,000 --------------------------------------------------------
The reconciliation between the amount computed by applying the U.S. federal statutory tax rate of 35% to income before income taxes and the actual income taxes follows:
Fiscal Year Ended May 31, ------------------------- 1994 1995 1996 ---- ---- ---- Income tax expense at statutory rate .............. $ 11,000 $ 692,000 $1,590,000 State income taxes, net of federal tax benefit .... (44,000) 130,000 131,000 Goodwill .......................................... 78,000 79,000 Tax-free municipal bond interest .................. (19,000) Taxes associated with dividends from HESL ........ 34,000 53,000 Foreign income subject to tax other than at federal statutory rate .................................... 110,000 Other ............................................. 82,000 23,000 34,000 ------------------------------------- $ 30,000 $ 957,000 $1,997,000 =====================================
F - 16 64 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 7. PROFIT SHARING PLAN The Company has a profit sharing plan which covers substantially all U.S. employees. Contributions are at the discretion of the Board of Directors. The Company did not make any profit sharing contributions for fiscal years 1994, 1995 or 1996. 8. RETIREMENT PLANS HESL maintains two pension plans for the benefit of employees: (a) The Haskel Retirement Benefits Plan provides future benefits for all employees of HESL who have completed one year of qualifying service. (b) A Discretionary Benefits Plan provides additional future benefits for United Kingdom directors. Pension costs are determined under the provisions of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions." Plan assets are held separately from those of HESL and are invested with insurance companies. Certain selected information for the plans is as follows:
May 31, -------------------------- 1995 1996 ------------ ----------- Actuarial present value of benefit obligations: Vested benefits ......................................... $ 1,385,000 $ 1,897,000 Non-vested benefits ..................................... 185,000 174,000 ----------- ----------- Accumulated benefit obligation ............................ 1,570,000 2,071,000 Effect of projected salary increases ...................... 796,000 229,000 ----------- ----------- Projected benefit obligation .............................. 2,366,000 2,300,000 Net assets available for benefits (market value) .......... 1,766,000 1,876,000 ----------- ----------- Projected benefit obligation in excess of plan assets ..... 600,000 424,000 Unrecognized net obligation being recognized over 15 years 558,000 469,000 ----------- ----------- Unfunded obligation / (Prepaid pension cost) .............. $ 42,000 $ (45,000) =========== ===========
Net periodic pension cost included the following components:
1994 1995 1996 --------- --------- --------- Service cost - benefits earned during the period $ 134,000 $ 131,000 $ 158,000 Interest cost on projected benefit obligation .. 224,000 214,000 184,000 Expected return on plan assets ................. (158,000) (158,000) (150,000) Amortization of unrecognized net obligation .... 48,000 42,000 16,000 --------- --------- --------- Net periodic pension cost ...................... $ 248,000 $ 229,000 $ 208,000 ========= ========= =========
The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 9 percent and 8 percent, respectively, for fiscal years 1994 and 1995 and 8 percent and 6 percent, respectively, for fiscal year 1996. The expected long-term rate of return on assets was 9 percent for fiscal years 1994 and 1995 and 8 percent for fiscal year 1996. The discount rate approximates the rate on AA-rated bonds in the United Kingdom. F - 17 65 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 9. STOCK OPTIONS AND WARRANTS The Company has four stock option plans: the 1989 Incentive Stock Option Plan and the Nonqualified Stock Option Plan which were replaced by the 1995 Incentive Stock Option Plan and the 1995 Formula Stock Option Plan, respectively. Under the Company's various stock option plans, the Company may issue nonqualified and incentive stock options to officers, directors and other employees to purchase the Company's Class A Common Stock at a price that is not less than 100 percent of the fair market value at the date of grant. The options granted under the 1989 Incentive Stock Option Plan and the Nonqualified Stock Option Plan become exercisable at such times, and in such installments, as were determined by the Board of Directors at the time of the grant. The options granted under the 1995 Incentive Stock Option Plan, which replaced both the 1989 Incentive Stock Option Plan and Nonqualified Stock Option Plan, become exercisable at such times, and in such installments, as are determined by the Stock Option Committee at the time of grant. The options granted under the 1995 Formula Stock Option Plan become exercisable in equal installments over five years. The options under all of the above plans expire no later than ten years after the date of grant. There are 1,380,000 shares of Class A Common Stock reserved for issuance under the option plans as of May 31, 1996. As of May 31, 1996, options for 581,619 of these shares, in the aggregate, were exercisable. The following table summarizes the stock option activity:
Range of Option Shares Prices Per Share -------- ---------------- Outstanding at June 1, 1993 ... 410,195 $4.17 - $9.46 Options exercised ............. (42,100) $4.17 - $9.46 Options granted ............... 321,500 $7.18 Options canceled .............. (165,310) $4.17 - $9.46 -------- Outstanding at May 31, 1994 ... 524,285 $7.00 - $9.46 Options exercised ............. (12,000) $7.00 - $7.18 Options granted ............... 269,000 $8.03 - $10.00 Options canceled .............. (2,400) $8.03 - $9.46 -------- Outstanding at May 31, 1995 ... 778,885 $7.00 - $10.00 Options granted ............... 238,000 $5.38 - $7.25 Options canceled .............. (182,320) $5.38 - $9.50 -------- Outstanding at May 31, 1996 ... 834,565 $5.38 - $10.00 ========
In connection with the initial public offering of its common stock, the Company sold Representative's Warrants which entitle the holder to purchase up to 75,000 shares of Class A Common Stock at a price per share of $15.00. The Warrants are exercisable for a period of four years beginning November 1, 1995. The warrants contain certain restrictions regarding transferability and registration rights. On November 22, 1994, an option to purchase 25,000 shares of Class A Common Stock was granted to an unaffiliated person at an option price of $10.00 per share. This option is 100% vested and expires November 22, 1999. F - 18 66 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 10. RETIREMENT BENEFITS The Company is committed under unfunded consultant and non-compete agreements to make post-retirement payments to employees in return for consulting services from date of retirement to date of death or disability and subsequent retirement payments to each employee's widow. Total payments associated with these pension agreements were $149,000 for fiscal year 1994 and $139,000 for fiscal years 1995 and 1996. Additionally, the Company has accrued costs of $1,382,000 and $1,348,000 associated with the actuarial present value of the accumulated obligation as of May 31, 1995 and 1996, respectively. The actuarial assumptions used to determine the obligation include an assumed interest rate of 7%. Such accrual was made because the Company determined that significant consulting service would not be required in the future. The current portion of the liability was $139,000 as of May 31, 1995 and 1996 and is included in accrued liabilities. Other accrued liabilities include $1,243,000 and $1,209,000 as of May 31, 1995 and 1996, respectively. 11. RELATED PARTY TRANSACTIONS The Company previously leased its principal office space, plant, and warehouse facilities in Burbank, California from a controlling shareholder of the Company. Lease payments were $161,000 for fiscal year 1994 and are included in rent expense for operating leases presented in Note 5. On October 14, 1993, the Company purchased the land and certain buildings previously leased at its Burbank facility from a group of controlling shareholders of the Company. The Company paid $1,000,000 in cash and issued a $3,500,000 promissory note to the sellers. The purchase price was based upon an independent appraisal. The promissory note was repaid in 1995 by a cash payment of $2,000,000 and offsetting a $1,500,000 balance of a note receivable from the same shareholders (see below). Interest paid on the note totaled $167,000 in fiscal year 1995. Because the property was purchased from a group of controlling shareholders, the Company recorded the property at the historical net book value to such shareholders and reflected the excess of the purchase price of $4,500,000 and the net book value of $365,000, as a deemed dividend of $2,511,000 net of deferred income taxes of $1,624,000. During fiscal year 1993, the Company received a note in the amount of $1,500,000 from a group of controlling shareholders of the Company. The note receivable was settled during fiscal year 1995 in a non-cash exchange with a portion of a $3,500,000 promissory note (see above) from the Company. Accrued interest receivable on the note was $29,000 as of May 31, 1994. During 1995, $62,000 in interest was received on the note. The Company incurred attorneys' fees in the amount of $489,000, $353,000, and $358,000 in 1994, 1995 and 1996, respectively, in connection with services provided by a law firm. A principal with that law firm, which serves as the Company's counsel, is also a director and shareholder of the Company. In addition, that firm represents the Hayman Family Trusts and the Haskel, Inc. Profit Sharing Plan, which are principal shareholders of the Company. The Company had accrued $21,000 and $62,000 as of May 31, 1995 and May 31, 1996, respectively, associated with the above. F - 19 67 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 12. CONTINGENCY The Company is currently under investigation by the Environmental Protection Agency (the "EPA") regarding contamination at the Burbank, California facility which is part of an area known as the San Fernando Valley Area 2 Superfund Site (the "Superfund Site"). A law firm specializing in environmental law has been hired by the Company to represent it in this matter. There are several potentially responsible parties ("PRPs") involved in this investigation. Under applicable law, most notably the federal Comprehensive Environmental Response Compensation and Liability Act, the Company might be jointly and severally liable with the other PRPs for the full cost of cleaning up the Superfund Site. The PRP's entered into an agreement whereby they are split between the Glendale-based ("Glendale") parties, in which the Company is included, and the Burbank-based ("Burbank") parties. The Glendale and Burbank parties engaged the services of technical scientists as arbitrators who determined that the Burbank parties would bear 58.8% of total estimated remediation costs of $48,000,000 and the Glendale parties would bear the remaining 41.2%. This split is currently being appealed by the Burbank parties. In July, 1996, the Glendale parties began a mediation amongst themselves regarding the allocation of the 41.2%. Although the mediation is not yet complete, the Company believes, based upon the advice and opinion of its environmental counsel, that the Company's share of the 41.2% portion will not exceed 1.5%, or approximately $300,000, if the arbitrator's determination is upheld. In addition to the remediation costs, the EPA has informed the Company that it intends to seek reimbursement from the PRPs for some portion of the $13,000,000 of expenses it has incurred in studying the Superfund Site and three adjacent superfund sites. The EPA also has the right to seek recovery from PRPs for additional administative expenses it incurs in studying the superfund sites. Those expenses are not currently quantifiable or subject to reasonable estimation. The EPA has informed the Company's environmental counsel that only a portion of the $13,000,000 is attributable to the Superfund Site and the Company's counsel believes that this portion will be approximately 25%. Assuming the 25% of the claimed costs are attributable to the Superfund Site, the Company believes, based upon advice and opinion of its environmental counsel, that the Company's share of that amount would be approximately $50,000, based on a projection of a 1.5% allocation. As of May 31, 1995 and 1996, the Company had accrued liabilities of $962,000 and $913,000, respectively, related to this matter. The Company believes, based upon the advice and opinion of its environmental counsel, that the Company's liabilities will be less than the amount currently in reserves for these matters. However, until further definitive facts develop regarding these matters, the reserve amount will not be changed. Additionally, the Company was issued a mandate by the Regional Water District to perform testing and clean-up of a site at the same facility. Based on information available to date, management had accrued liabilities of $103,000 and $56,000 as of May 31, 1995 and 1996, respectively, which management believes will be sufficient to perform the requested tasks. When the Company initially tendered the EPA claim relative to the Superfund Site, the Company's insurers refused to pay the Company's defense costs. The Company brought litigation against its insurers in which the Company sought an order that its insurers F - 20 68 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 12. CONTINGENCY (CONTINUED) must defend and indemnify the Company with respect to Superfund Site litigation. In August 1995, the trial court ruled that the Company's insurers must reimburse the Company for its defense costs and must pay its defense costs in the future. As a result of this ruling, the Company expects a substantial recovery of its defense costs. Currently, the Company is negotiating with its carriers who have indicated their willingness to pay the Company in excess of $600,000 in past defense costs incurred through May 31, 1996. They have also indicated their willingness to pay all defense costs incurred subsequent to May 31, 1996, at a reasonable rate. Litigation is pending as to whether the Company's insurers must indemnify the Company for the Superfund Site liability. Due to the nature of environmental matters, there can be no assurance that the Environmental Reserve will be adequate to cover any contingent liabilities arising from the above-referenced environmental matters or that any liability in excess of the Environmental Reserve will not have a materially adverse effect on the Company's results of operations or financial condition. 13. COMMON STOCK Shareholders of Class B Common Stock elect the majority and shareholders of Class A Common Stock elect the minority of the Board of Directors. The holders of Class A Common Stock and Class B Common Stock have equal rights on a per share basis (including the right to dividends) and vote as a single class on all matters except the election of directors. During the second quarter of fiscal 1995, the Company effected an Initial Public Offering of 862,500 shares of its Class A Common Stock. The proceeds to the Company for the offering were approximately $7,765,000 (after underwriting commissions and expenses). Other costs associated with the offering were approximately $1,468,000, resulting in net funds available to the Company of approximately $6,297,000. 14. BUSINESS SEGMENTS The Company is organized and operates in two business groups: the Industrial Products Group (IPG) and the Electronic Products Group (EPG). The IPG operates in two segments: industrial products manufacturing and industrial products distribution. The EPG operates in one segment: electronic products distribution. The IPG manufacturing segment manufactures pneumatically and hydraulically driven, high-pressure low-flow, fixed displacement, reciprocating, liquid pumps, gas boosters, chemical injection pumps, air pressure amplifiers, high-pressure valves, regulators, and accessories to complement these products. The IPG manufacturing segment also designs and manufacturers systems. The IPG distribution segment distributes product lines used primarily in the fluid power business, the largest line of which is the Company's products. The EPG distribution segment distributes circuit board-level electronic components to manufacturers of electronic systems and products. F - 21 69 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 14. BUSINESS SEGMENTS (CONTINUED) Intersegment sales are principally sales from the IPG manufacturing segment to the IPG distribution segment. Corporate expenses consist mainly of salaries and related expenses, legal and accounting costs, and directors' fees.
Fiscal Year Ended May 31, ------------------------- 1994 1995 1996 ---- ---- ---- Sales: Industrial Products Group - Manufacturing ............. $ 20,062,000 $ 25,603,000 $ 29,184,000 Industrial Products Group - Distribution .............. 18,811,000 18,019,000 18,718,000 Electronic Products Group - Distribution .............. 3,896,000 12,819,000 14,623,000 Less intersegment sales ............................... (1,415,000) (4,740,000) (5,733,000) ------------ ------------ ------------ Total sales .................................... $ 41,354,000 $ 51,701,000 $ 56,792,000 ============ ============ ============ Operating profit: Industrial Products Group - Manufacturing ............. $ 817,000 $ 3,024,000 $ 4,925,000 Industrial Products Group - Distribution .............. 50,000 1,310,000 1,707,000 Electronic Products Group -Distribution ............... 92,000 (413,000) 147,000 ------------ ------------ ------------ Total operating profit ......................... 959,000 3,921,000 6,779,000 Interest expense ........................................ (308,000) (550,000) (274,000) Interest income ......................................... 423,000 435,000 356,000 Other ................................................... 56,000 (182,000) 13,000 Corporate expenses ...................................... (1,097,000) (1,648,000) (2,330,000) ------------ ------------ ------------ Income before income taxes .................... $ 33,000 $ 1,976,000 $ 4,544,000 ============ ============ ============ Depreciation and amortization: Industrial Products Group - Manufacturing ............. $ 368,000 $ 427,000 $ 670,000 Industrial Products Group - Distribution .............. 210,000 199,000 254,000 Electronic Products Group - Distribution .............. 433,000 889,000 901,000 ------------ ------------ ------------ Total depreciation and amortization .......... $ 1,011,000 $ 1,515,000 $ 1,825,000 ============ ============ ============ Capital expenditures (excluding subsidiaries acquired): Industrial Products Group - Manufacturing ............. $ 982,000 $ 903,000 $ 687,000 Industrial Products Group - Distribution .............. 233,000 283,000 335,000 Electronic Products Group -Distribution ............... 64,000 144,000 250,000 ------------ ------------ ------------ Total capital expenditures ................... $ 1,279,000 $ 1,330,000 $ 1,272,000 ============ ============ ============
F - 22 70 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1994, 1995 AND 1996 14. BUSINESS SEGMENTS (CONTINUED)
Fiscal Year Ended May 31, ------------------------- 1994 1995 1996 ---- ---- ---- Identifiable assets: Industrial Products Group - Manufacturing.. $ 15,828,000 $ 17,033,000 $ 18,102,000 Industrial Products Group - Distribution .. 13,769,000 11,130,000 10,482,000 Electronic Products Group - Distribution .. 12,278,000 12,141,000 10,802,000 Corporate ................................. 2,536,000 3,991,000 5,974,000 ------------ ------------ ------------ Total assets .................... $ 44,411,000 $ 44,295,000 $ 45,360,000 ============ ============ ============ Sales: United States ............................. $ 32,627,000 $ 40,567,000 $ 42,215,000 Europe .................................... 11,754,000 14,807,000 19,987,000 Less sales between geographic areas ....... (3,027,000) (3,673,000) (5,410,000) ------------ ------------ ------------ $ 41,354,000 $ 51,701,000 $ 56,792,000 ============ ============ ============ Operating profit (loss): United States ............................. $ (318,000) $ 2,353,000 $ 4,346,000 Europe .................................... 1,277,000 1,568,000 2,433,000 ------------ ------------ ------------ 959,000 3,921,000 6,779,000 Interest expense ............................ (308,000) (550,000) (274,000) Interest income ............................. 423,000 435,000 356,000 Other ....................................... 56,000 (182,000) 13,000 Corporate expenses .......................... (1,097,000) (1,648,000) (2,330,000) ------------ ------------ ------------ Income before income taxes .................. $ 33,000 $ 1,976,000 $ 4,544,000 ============ ============ ============ Identifiable assets: United States ............................. $ 30,517,000 $ 28,794,000 $ 31,685,000 Europe .................................... 13,894,000 15,501,000 13,675,000 ------------ ------------ ------------ $ 44,411,000 $ 44,295,000 $ 45,360,000 ============ ============ ============
Export sales were $4,326,000 and $5,461,000 during fiscal year 1994 and 1995, respectively. Export sales did not represent more than 10% of total sales during fiscal year 1996. No single customer accounted for more than 10% of total sales during fiscal year 1994, 1995 or 1996. 15. SUBSEQUENT EVENT On June 3, 1996, HESL acquired all of the outstanding stock of Hydraulic Mobile Equipment Limited ("HME") in exchange for approximately $814,000. The business is located in Manchester, England. * * * * * * F - 23 71 SCHEDULE II HASKEL INTERNATIONAL, INC. VALUATION AND QUALIFYING ACCOUNTS Allowance for Doubtful Accounts
Balance at Balance at Beginning of End of Period Additions Write-offs Period ------------ --------- ---------- ---------- May 31, 1994 $188,000 $ 73,000 $ 50,000 $211,000 May 31, 1995 $211,000 $791,000 $ 87,000 $915,000 May 31, 1996 $915,000 $389,000 $343,000 $961,000
72 EXHIBIT INDEX
Exhibit Number Exhibit Description - ------- ------------------- (4) 3.1 Restated Articles of Incorporation of the Company, as amended. (1) 3.2 Restated Bylaws of the Company, as amended. (2) 4.1 Specimen Class A Common Stock and Class B Stock Certificates. (2) 4.2 Form of Underwriter's Warrants. (2) 10.1 1989 Incentive Stock Option Plan and form of Stock Option Agreement. (2) 10.2 Non-Qualified Stock Option Plan and form of Stock Option Agreement. (1) 10.3 1995 Incentive Stock Option Plan and form of Stock Option Agreement. (1) 10.4 1995 Formula Stock Option Plan and form of Stock Option Agreement. (2) 10.5 Haskel Inc. Profit Sharing Plan. (2) 10.6 Haskel Energy Systems, Ltd. Pension Plan. (2) 10.7 Agreement and Plan of Reorganization of M.G. Electronics, Inc. into Haskel Network Group, Inc. dated November 17, 1993 and related Indemnification Agreement and Agreement of Merger. (2) 10.8 Employment Agreement dated November 17, 1993 between Maury S. Friedman and the Company.
73
Exhibit Number Exhibit Description - ------- ------------------- (2) 10.9 Non-Competition Agreement dated November 17, 1993 between Maury S. Friedman, the Friedman Family Trust and M.G. Electronics, Inc. (5) 10.10 Consulting Agreement dated March 21, 1996 between the Company and Maury S. Friedman. (2) 10.11 Leases dated June 1, 1993 and September 24, 1993 between West Lake Village Industrial Park and M.G. Electronics, Inc. (2) 10.12 Consultant and Widow's Pension Agreement dated May 16, 1983 between the Company and Frederick J. Broderick and related Memorandum dated April 22, 1993. (2) 10.13 Glendale Superfund Site PRP Organization Agreement dated October 28, 1993 by and among the Company and the other PRPs in the Group. (1) 10.14 Amendment to the Glendale Superfund Site PRP Organization Agreement dated as of January 11, 1996 by and among the Company and the other PRPs in the Group. (1) 10.15 Memorandum of Agreement Regarding Cost-Sharing for the Glendale Operable Unit Superfund Sites dated June 7, 1995 by and among the Company and the other PRPs in the Group. (2) 10.16 Underwriter's Warrant Agreement. (3) 10.17 Loan Agreement dated February 21, 1995 by and between the Company and Union Bank and related Commercial Promissory Note, Arbitration Agreement, Continuing Guaranty and Security Agreement-Pledge. (1) 10.18 First Amendment dated as of August 30, 1995 to Loan Agreement between the Company and Union Bank. (1) 10.19 Second Amendment dated as of February 13, 1996 to Loan Agreement between the Company and Union Bank.
74
Exhibit Number Exhibit Description - ------- ------------------- (1) 10.20 Third Amendment dated as of April 16, 1996 to Loan Agreement between the Company and Union Bank. (1) 10.21 Employment Agreement dated December 22, 1995 regarding James C. Minyard. (1) 10.22 Haskel International, Inc. Executive Separation Pay Plan. (1) 11.1 Statement regarding computation of net income per share. (1) 21 Schedule of Subsidiaries. (1) 27 Financial Data Schedule.
(1) Filed herewith. (2) Filed as an exhibit to the Registrant's Registration Statement on Form S-1 (SEC File No. 33-74362), and incorporated herein by this reference. (3) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended February 28, 1995, and incorporated herein by this reference. (4) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1995, and incorporated herein by this reference. (5) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended February 29, 1996, and incorporated herein by this reference. EX-3.2 2 RESTATED BYLAWS OF THE COMPANY, AS AMENDED 1 EXHIBIT 3.2 RESTATED BY-LAWS OF HASKEL INTERNATIONAL, INC. EFFECTIVE JUNE 9, 1994 ARTICLE I OFFICES Section 1. PRINCIPAL OFFICES. The Board of Directors shall fix the location of the principal executive office of the Corporation at any place within or outside the State of California. If the principal executive office is located outside this State, and the Corporation has one or more business offices in this State, the Board of Directors shall fix and designate a principal business office in the State of California. Section 2. OTHER OFFICES. The Board of Directors may at any time establish branch or subordinate offices at any place or places where the Corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any place within or outside the State of California designated by the Board of Directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the Corporation. Section 2. ANNUAL MEETINGS. The annual meeting of the shareholders shall be held on the third Friday in October, each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day, at the hour of 10:00 o'clock A.M., at which time the shareholders shall elect the Board of Directors, consider reports of the affairs of the Corporation, and transact such other business as may properly be brought before the meeting. 1 2 Section 3. SPECIAL MEETING. A special meeting of the shareholders may be called at any time by the Board of Directors, or by the Chairman of the Board, or by the President, or by one or more shareholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. Upon request, in writing, to the Chairman of the Board, President, Vice President or Secretary by any person (other than the Board) entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the request. If the notice is not given within 20 days after receipt of the request, the persons entitled to call the meeting may give the notice. Section 4. NOTICE OF ANNUAL OR SPECIAL MEETING. Written notice of each annual or special meeting of shareholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date, and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (ii) in the case of the annual meeting, those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholders, but subject to the provisions of applicable law, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election. Notice of a shareholders meeting shall be given either personally, by mail or by other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation, or given by the shareholder to the corporation for the purpose of notice; or, if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. Notice by mail shall be 2 3 deemed to have been given at the time a written notice is deposited in the United States mail, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic or other means of written communication, to the recipient. If any notice or report addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice or report to all other shareholders. An affidavit of mailing of any such notice in accordance with the foregoing provisions, executed by the Secretary, Assistant Secretary or any transfer agent of the corporation shall be prima facie evidence of the giving of the notice. Section 5. QUORUM. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of shareholders shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 6. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, except as provided in Section 5 of this Article. It shall not be necessary to give any notice of the time and place of the adjourned meeting or of the 3 4 business to be transacted thereat, other than by announcement at the meeting at which such adjournment is taken; provided, however, when any shareholders' meeting is adjourned for more than 45 days or, if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. Section 7. VOTING. The shareholders entitled to notice of any meeting or to vote at any such meeting shall be only persons in whose name shares stand on the stock records of the corporation on the record date determined in accordance with Section 9 of this Article. Voting shall in all cases be subject to the provisions of Chapter 6 of the California General corporation Law and to the following provisions: (a) Subject to subparagraph (g), shares held by an administrator, executor, guardian, conservator or custodian may be voted by such holder either in person or by proxy, without a transfer of such shares into the holder's name; and shares standing in the name of a trustee may be voted by the trustee, either in person or by proxy, but no trustee shall be entitled to vote shares held by such trustee without a transfer of such shares into the trustee's name. (b) Shares standing 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 the receiver's name if authority to do so is contained in the order of the court by which such receiver was appointed. (c) Subject to the provisions of section 705 of the California General Corporation Law, and except where otherwise agreed in writing between the parties, a shareholder 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. 4 5 (d) Shares standing in the name of a minor may be voted and the corporation may treat all rights incident thereto as exercisable by the minor, in person or by proxy, whether or not the corporation has notice, actual or constructive, of the nonage, unless a guardian of the minor's property has been appointed and written notice of such appointment given to the corporation. (e) Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxyholder as the By-Laws of such other corporation may prescribe or, in the absence of such provision, as the Board of Directors of such other corporation may determine or, in the absence of such determination, by the Chairman of the Board, President or any Vice President of such other corporation, or by any other person authorized to do so by the Board, President or any Vice President of such other corporation. Shares which are purported to be voted or any proxy purported to be executed in the name of a corporation (whether or not any title of the person signing is indicated) shall be presumed to be voted or the proxy executed in accordance with the provisions of this subdivision, unless the contrary is shown. (f) Shares of the corporation owned by any subsidiary shall not be entitled to vote on any matter. (g) Shares held by the corporation in a fiduciary capacity, and shares of the corporation held in a fiduciary capacity by any subsidiary, shall not be entitled to vote on any matter, except to the extent that the settlor or beneficial owner possesses and exercises a right to vote or to give the corporation binding instructions as to how to vote such shares. (h) If shares stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint 5 6 tenants, tenants in common, husband and wife as community property, tenants by the entirety, voting trustees, persons entitled to vote under a shareholder voting agreement or otherwise, or if two (2) or more persons (including proxyholders) have the same fiduciary relationship respecting the same shares, unless the Secretary of the corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (i) If only one votes, such act binds all; (ii) If more than one vote, the act of the majority so voting binds all; or (iii) If more than one vote, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionately. If the instrument so filed, or the registration of the shares shows that any such tenancy is held in unequal interests, a majority or even split for the purpose of this section shall be a majority or even split in interest. Subject to the following sentence and to the provisions of section 708 of the California General Corporation Law, every shareholder entitled to vote at any election of directors may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. No shareholder shall be entitled to cumulate votes for any candidate or candidates pursuant to the preceding sentence unless such candidate or candidates' names have been placed in nomination prior to the voting and the 6 7 shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. Notwithstanding any other provision in these By-Laws, in accordance with California Corporations Code Section 301.5 (the "Code"), at such time as this corporation becomes a "listed corporation" as defined in the Code, cumulative voting will be eliminated. This provision shall become effective only when the corporation becomes a listed corporation within the meaning of the Section 301.5 of the Corporations Code. Elections need not be by ballot; provided, however, that all elections for directors must be by ballot upon demand made by a shareholder at the meeting and before the voting begins. Section 8. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and, if either before or after the meeting each person entitled to vote who was not present in person or by proxy signs a written waiver of notice or a consent to a holding of the meeting or an approval of the minutes. The written waiver of notice need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except as provided in section 601(b) of the California General Corporation Law. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required to be but not included in the notice of the meeting if that objection is expressly made at the meeting. 7 8 Section 9. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided, that a director may be elected at any time to fill a vacancy on the Board of Directors that has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be filed with the Secretary of the corporation and shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxyholders, or a transferee of the shares or a personal representative of the shareholder or their respective proxyholders, may revoke the consent by a writing received by the Secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation. Unless the consents of all shareholders entitled to vote have been solicited in writing, (a) Notice of any proposed shareholder approval of, (i) a contract or other transaction with an interested director, (ii) indemnification of an agent of the corporation as authorized by Article V of these By-Laws, (iii) a reorganization of the corporation as defined in section 181 of the General Corporation Law, or (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, if any, without a meeting by less than unanimous written consent, shall be given at least ten (10) days before the consummation of the action authorized by such approval; and 8 9 (b) Prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent, to those shareholders entitled to vote who have not consented in writing. Such notices shall be given in the manner and shall be deemed to have been given as provided in Section 4 of Article II of these By-Laws. Section 10. RECORD DATE. The Board may fix, in advance, a record date for the determination of the shareholders entitled to notice of any meeting, to vote or entitled to receive payment of any dividend or other distribution, or any allotment of rights, or to exercise rights in respect of any other lawful action. The record date so fixed shall be not more than sixty (60) nor less than ten (10) days prior to the date of the meeting nor more than sixty (60) days prior to any other action. When a record date is so fixed, only shareholders of record on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or to exercise of the rights, as the case may be, notwithstanding any transfer of shares on the books of the corporation after the record date. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting. The Board shall fix a new record date if the meeting is adjourned for more than forty-five (45) days. If no record date is fixed by the Board, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given. The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later. 9 10 Section 11. PROXIES. Every person entitled to vote shares shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, or otherwise) by the shareholder or the shareholder's attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, or by a subsequent proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy if received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Corporations Code of California. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. Section 12. INSPECTORS OF ELECTION. Before any meeting of shareholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one represented in person or by proxy shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. 10 11 These inspectors shall: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) Receive votes, ballots, or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine when the polls shall close; (f) Determine the result; and (g) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as to the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. ARTICLE III DIRECTORS Section 1. POWERS. Subject to the provisions of the California General Corporation Law and any limitations in the Articles of Incorporation and these By-Laws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed 11 12 and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Without prejudice to these general powers, and subject to the same limitations, it is hereby expressly declared that the directors shall have the following powers in addition to the other powers enumerated in these By-Laws: (a) to select and remove all officers, agents and employees of the corporation; prescribe any powers and duties for them that are consistent with law, with the Articles of Incorporation, and with these By-Laws; fix their compensation; and require from them security for faithful service. (b) to conduct, manage and control the affairs and business of the corporation, and to make such rules and regulations therefor not inconsistent with the law, the Articles of Incorporation or the By-Laws, fix their compensation and require from them security for faithful service. (c) to change the principal executive office and the principal business office in the State of California from one location to another; cause the corporation to be qualified to do business in any other state, territory, dependency, or country and conduct business and fix and locate one (1) or more subsidiary offices within or without the State of California; and designate any place within or without the State of California for the holding of any shareholders' meeting, or meetings, including annual meetings. (d) to adopt, make and use a corporate seal; prescribe the forms of certificates of stock; and alter the form of the seal and certificates from time to time, as in their 12 13 judgment, within the provisions of the law, they may deem best. (e) to authorize the issuance of shares of stock of the corporation on any lawful terms, in consideration of money paid, labor done, services actually rendered, debts or securities canceled, or tangible or intangible property actually received. (f) to borrow money and incur indebtedness for the purposes of the corporation, and cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, and other evidences of debt and securities therefor. (g) by resolution adopted by a majority of the authorized number of directors, to designate an executive and other committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board, and to prescribe the manner in which proceedings of such committees shall be conducted. Unless the Board of Directors shall otherwise prescribe the manner of proceedings of any such committee, meetings of such committee may be regularly scheduled in advance and may be called at any time by any two (2) members thereof; otherwise, the provisions of these By-Laws with respect to notice and conduct of meetings of the Board shall govern. Any such committee, to the extent provided in a resolution of the Board, shall have all of the authority of the Board, except with respect to: (i) the approval of any action for which the General Corporation Law or the Articles of Incorporation also require shareholder approval; (ii) the filing of vacancies on the Board or in any committee; 13 14 (iii) the fixing of compensation of the directors for serving on the Board or on any committee; (iv) the adoption, amendment or repeal of By-Laws; (v) the amendment or repeal of any resolution of the Board; (vi) any distribution to the shareholders, except at a rate or in a periodic amount or within a price range determined by the Board; and (vii) the appointment of other committees of the Board or the members thereof. Section 2. LIABILITY OF DIRECTORS. A person who performs the duties of a director, in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders, and with such care including reasonable inquiry as an ordinarily prudent person in a like position would use under similar circumstances, shall have no liability based upon any alleged failure to discharge the person's obligations as a director. In addition, the liability of a director for monetary damages in an action brought by or in the right of the corporation for breach of a director's duties to the corporation and its shareholders shall be eliminated. The personal liability of a director may not be limited or eliminated for actions brought against a director for: (a) Acts or omissions involving intentional misconduct or a knowing and culpable violation of law; (b) Acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of a director; 14 15 (c) Any transaction from which a director derived an improper personal benefit; (d) Acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders; (e) Acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders; (f) Approval of an improper distribution to shareholders; or (g) Approval of an improper loan to any director or officer. Section 3. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of directors shall be seven (7) until changed by a duly adopted amendment to the Articles of Incorporation or by an amendment to this by-law adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote. Section 4. ELECTION AND TERM OF OFFICE. The directors shall be elected at each annual meeting of shareholders but, if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose. All directors shall hold office until their respective successors are elected, subject to the General Corporation Law and the provisions of these By-Laws with respect to vacancies on the Board. Section 5. VACANCIES. Vacancies on the Board of Directors may be filled by a majority of the 15 16 remaining directors though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of holders of a majority of the outstanding shares entitled to vote. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. A vacancy or vacancies on the Board of Directors shall be deemed to exist in the event of the death, resignation, or removal of any director, or if the Board of Directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of directors is increased, or if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective on giving written notice to the Chairman of the Board, the President, the Secretary, or the Board of Directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. Section 6. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular meetings of the Board of Directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the Board or by written consent of all members of the Board. In the absence of such a 16 17 designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the Board shall be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice, or there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by telephone conference or similar communication equipment, so long as all directors participating in the meeting can hear one another, and all such directors shall be deemed to be present in person at the meeting. Section 7. ANNUAL MEETING. The Board of Directors shall hold a regular annual meeting on the last Friday in July each year if not a legal holiday, and if a legal holiday, on the next succeeding business day, for the purpose of organization, any desired election of officers, and the transaction of other business. Notice of this meeting shall not be required. Section 8. OTHER REGULAR AND ORGANIZATIONAL MEETINGS. An organizational meeting shall be held immediately following the annual meeting of the shareholders. The organizational meeting and other regular meetings of the Board of Directors shall be held without call at such time and at such place as shall from time to time be fixed by the Board of Directors. Such organizational and regular meetings may be held without notice. Section 9. SPECIAL MEETINGS. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board, or the President, or any Vice President, or the Secretary or any two (2) directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. In case the notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by 17 18 telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation. Section 10. QUORUM. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, unless a greater number be required by law, by these By-Laws or by the Articles of Incorporation. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. Section 11. WAIVER OF NOTICE. The transactions of any meeting of the Board of Directors, however called and noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting before or at its commencement, the lack of notice to that director. Section 12. ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. Section 13. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of the 18 19 time and place shall be given before the time of the adjourned meeting to the directors who were not present at the time of the adjournment. Section 14. ACTION WITHOUT A MEETING. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Section 15. FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement of expenses, as may be fixed or determined by resolution of the Board of Directors. ARTICLE IV OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a Chief Executive officer, a President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. Any number of offices may be held by the same person. Section 2. ELECTION OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article IV, shall be chosen annually by the Board of Directors, and each shall serve at the pleasure of the Board, and shall hold their respective offices until their resignation, removal, or other disqualification from service, or until their respective successors shall be elected subject to the rights, if any, of an officer under any contract of employment. 19 20 Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint, and may empower the President to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause by the Board of Directors, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these By-Laws for regular appointments to that office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer be elected, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the By-Laws. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence of 20 21 the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws. Section 8. VICE PRESIDENTS. In the absence or disability of the President, the Vice Presidents, in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws, and the President, or the Chairman of the Board. Section 9. SECRETARY. The Secretary shall keep or cause to be kept, at the principal executive office and such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice given, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors required by the By-Laws or by law to be given, and the Secretary shall keep the seal of the corporation if one be adopted, in safe custody, and shall have such other powers and perform such other 21 22 duties as may be prescribed by the Board of Directors or by the By-Laws. In the absence or disability of the Secretary, the Assistant Secretary shall perform all of the duties of the Secretary and when so doing shall have all of the powers of and be subject to all of the restrictions upon the Secretary. Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and Directors, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. In the absence or disability of the Chief Financial Officer, the Assistant Treasurer shall perform all the duties of the Chief Financial Officer and when so doing shall have all of the powers of and be subject to all of the restrictions upon, the Chief Financial Officer. ARTICLE V INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS Section 1. AGENTS, PROCEEDINGS, EXPENSES. For the purposes of this Article, "agent" means any person who is or was a director, officer, employee, or other agent of this corporation, or is or was serving at the request of this corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee, or 22 23 agent of a foreign or domestic corporation which was a predecessor corporation of this corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" includes, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under Section 4 or Section 5(c) of this Article. Section 2. ACTIONS OTHER THAN BY THE CORPORATION. This corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this corporation) by reason of the fact that such person is or was an agent of this corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of this corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of such person was unlawful. The termination of any 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 the person reasonably believed to be in the best interests of this corporation or that the person had reasonable cause to believe that the person's conduct was unlawful. Section 3. ACTIONS BY THE CORPORATION. This 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 by or in the right of this corporation to procure a judgment in its favor by reason of the fact that such person is or was an agent of this corporation, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action if such person acted in good faith, in a manner such person believed would be in the best interests of this corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. No indemnification shall be made under this Section 3: 23 24 (a) In respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to this corporation in the performance of such person's duty to this corporation, unless and only to the extent that the court in which that action was brought shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine; (b) Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or (c) Of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval. Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of this corporation has been successful on the merits in defense of any proceeding referred to in Sections 2 or 3 of this Article, or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith. Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of this Article, any indemnification under this Article shall be made by this corporation only if authorized in the specific case upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Sections 2 or 3 of this Article, by: (a) A majority vote of a quorum consisting of directors who are not parties to such proceeding; (b) Approval or ratification by the affirmative vote of a majority of the shares of this corporation entitled to vote represented at a duly held meeting at which a 24 25 quorum is present or by the written consent of holders of a majority of the outstanding shares entitled to vote. For such purpose, the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon; or (c) The court in which the proceeding is or was pending, upon application made by this corporation, or the agent, the attorney or other person rendering services in connection with the defense, whether or not such application by the agent, attorney, or other person is opposed by this corporation. Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any proceeding may be advanced by this corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the agent to repay such amount unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article. Section 7. OTHER INDEMNIFICATION. No provision made by the corporation to indemnify its or its subsidiary's directors or officers for the defense of any proceeding, whether contained in the Articles of Incorporation, By-Laws, a resolution of shareholders or directors, an agreement, or otherwise, shall be valid unless consistent with this Article. Nothing contained in this Article shall affect any right to indemnification to which persons other than such directors and officers may be entitled by contract or otherwise. Section 8. LIMITATIONS. No indemnification or advance shall be made under this Article, except as provided in Section 4 or Section 5(c), in any circumstance where it appears: (a) That it would be inconsistent with a provision of the Articles of Incorporation, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts 25 26 were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. Section 9. INSURANCE. Upon and in the event of a determination by the Board of Directors of this corporation to purchase such insurance, this corporation shall purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this corporation would have the power to indemnify the agent against that liability under the provisions of this section. Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN. This Article does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in such person's capacity as such, even though such person may also be an agent of the corporation as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a trustee, investment manager, or other fiduciary may be entitled by contract or otherwise, which shall be enforceable to the extent permitted by applicable law other than this Article. ARTICLE VI RECORDS AND REPORTS Section 1. MAINTENANCE AND INSPECTION OF REGISTER. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the Board of Directors, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent (1%) of such voting shares and 26 27 have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the corporation shall have the right to (i) inspect and copy the records of shareholders' names and addresses and shareholdings during usual business hours five (5) business days' after written demand upon the corporation, and (ii) obtain from the transfer agent for the corporation, upon written demand and upon the tender of its usual charges for such a list, a list of the shareholders' names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. This list shall be made available on or before the later of five (5) business days after the demand is received or the date specified therein as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection and copying upon written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or holder of a voting trust certificate. Any inspection and copying under this Section 1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The corporation shall keep at its principal executive office, or if its principal executive office is not in the State of California, at its principal business office in this State, the original or a copy of the By-laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in this State, the Secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of the By-laws as amended to date. Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The accounting books and records and minutes of proceedings of the shareholders and the Board of Directors and any committee or committees of the 27 28 Board Directors shall be kept at such place or places designated by the Board of Directors, or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as the holder of such voting trust certificate. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. These rights of inspection shall extend to the records of each subsidiary corporation of the corporation. Section 4. INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and to inspect the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents. Section 5. ANNUAL REPORT TO SHAREHOLDERS. The Board of Directors of the corporation shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. Such report shall be sent at least fifteen (15) days before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 4 of Article II of these By-laws for giving notice to shareholders of the corporation. The annual report shall contain a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the Company. The annual report referred to herein is expressly waived if the 28 29 corporation has less than one hundred (100) shareholders. Section 6. FINANCIAL STATEMENTS. A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for twelve (12) months, and each such statement shall be exhibited at all reasonable times to any shareholder demanding an examination of any such statement or a copy shall be mailed to any such shareholder. ARTICLE VII GENERAL CORPORATE MATTERS Section 1. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts, or other orders for payment of money, notes, or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors. Section 2. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of Directors, except as otherwise provided in these By-laws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and this authority may be general or confined to specific instances; and, unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 3. CERTIFICATE FOR SHARES. Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or 29 30 any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. Any such certificate shall also contain such legend or other statement as may be required by Section 418 of the General Corporation Law, the Corporate Securities Law of 1968, the federal securities laws, and any agreement between the corporation and the issuee thereof. Certificates for shares may be issued prior to full payment under such restrictions and for such purposes as the Board of Directors or the By-Laws may provide; provided, however, that any such certificate so issued prior to full payment shall state on the face thereof the amount remaining unpaid and the terms of payment thereof. Section 4. LOST CERTIFICATES. No new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and canceled at the same time; provided, however, that a new certificate will be issued without the surrender and cancellation of the old certificate if (a) the old certificate is lost, apparently destroyed or wrongfully taken; (b) the request for the issuance of the new certificate is made within a reasonable time after the owner of the old certificate has notice of its loss, destruction, or theft; (c) the request for the issuance of a new certificate is made prior to the receipt of notice by the corporation that the old certificate has been acquired by a bona fide purchaser; (d) the owner of the old certificate files a sufficient indemnity bond with or provides other adequate security to the corporation; and (e) the owner satisfies any other reasonable requirements imposed by the corporation. In the event of the issuance of a new certificate, the rights and liabilities of the corporation, and of the holders of the old and new certificates, shall be 30 31 governed by the provisions of Section 8104 and 8405 of the California Commercial Code. Section 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of the Board, the President, or any Vice President, or any other person authorized by resolution of the Board of Directors or by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority granted to these officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by a proxy or power of authority duly executed by these officers. Section 6. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the California General Corporation Law shall govern the construction of these By-Laws. Without limiting the generality of the foregoing, the masculine gender includes the feminine and neuter, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE VIII AMENDMENTS Section 1. AMENDMENT BY SHAREHOLDERS. New By-Laws may be adopted or these By-Laws may be amended or repealed by the affirmative vote or written consent of holders of a majority of the outstanding shares entitled to vote except as otherwise provided by law or by the Articles of Incorporation. Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders as provided in Section 1 of this Article VIII, to adopt, amend or repeal By-Laws, By-Laws other than a by-law or an amendment thereof changing the authorized number of directors, may be adopted, amended, or repealed by the Board of Directors. 31 32 AMENDMENT TO BY-LAWS OF HASKEL INTERNATIONAL, INC. Adopted at a special meeting of the Board of Directors held on August 31, 1994, the By-Laws of this corporation are amended as follows: That ARTICLE II, Section 2 be amended for 1994 only, as follows: ARTICLE II, Section 2 be amended only for the year 1994, for the purpose of changing the annual meeting of the shareholders, for the shareholders of record on September 30, 1994, to be on November 22, 1994 at 9:00 o'clock A.M. For the ensuing years, or until again amended, the date for the annual meeting of the shareholders will remain as the third Friday in October each year at 10:00 o'clock A.M. 33 AMENDMENT TO BY-LAWS OF HASKEL INTERNATIONAL, INC. Pursuant to a resolution adopted at a meeting of the Board of Directors held on May 12, 1995, ARTICLE II, Section 2 of the By-Laws of this corporation is amended as follows: "For the year 1995, the annual shareholders meeting will be October 5, 1995. For the ensuing years, or until this Section is again amended, the date for the annual shareholders meeting will remain as the fourth Friday in September." 34 AMENDMENT TO BY-LAWS OF HASKEL INTERNATIONAL, INC. Pursuant to a resolution adopted at a meeting of the Board of Directors held on August 1, 1996, ARTICLE II, Section 2 of the By-Laws of this corporation is amended as follows: Section 2. The Annual Meeting of shareholders shall be held on such date and at such time as shall be fixed by the Board of Directors by resolution, at which time the shareholders shall elect the Board of Directors, consider reports of the affairs of the Corporation, and transact such other business as may properly be brought before the meeting. EX-10.3 3 1995 INCENTIVE STOCK OPTION PLAN AND AGREEMENT 1 EXHIBIT 10.3 HASKEL INTERNATIONAL, INC. 1995 INCENTIVE STOCK OPTION PLAN 1. Purpose. This Incentive Stock Option Plan (the "Plan"), is intended to provide incentives to employees of Haskel International, Inc. (the "Company") and its subsidiaries, by providing them with opportunities to purchase Class A Common stock in the Company as a form of additional compensation for performance of services to the Company pursuant to options granted hereunder ("Options"). As used herein, the term "subsidiary" has the meaning assigned to it in section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"). 2. Administration of the Plan. The Plan shall be administered by the Stock Option Committee (the "Committee") consisting of members of the Board of Directors of the Company (the "Board") who are disinterested directors as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended. Subject to the terms of the Plan, the Committee shall have authority to determine the persons to whom Options shall be granted, the number of shares covered by each Option, times at which Options shall be granted, the terms and provisions of the instruments by which Options shall be evidenced and modify outstanding options by issuing new options which will replace all or some of the existing options and will have new and different terms. The interpretation and construction by the Committee of any provisions of the Plan or of any Option granted under it shall be final. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. No member of the Board or the Committee shall be 2 liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. The Committee may select one of its members as its Chairman, and shall hold meetings at such times and places as it may determine. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee without a meeting, shall be the valid acts of the Committee. 3. Eligible Employees. Options may be granted to any employee of the Company or any subsidiary. Granting of any Option to any such person shall neither entitle such person to, nor disqualify such person from, participation in any other grant of options. 4. Stock. The stock subject to the Options shall be authorized but unissued shares of Class A Common stock of the Company (the "Class A stock"), or shares of Class A stock reacquired by the Company, including shares purchased in the open market. The aggregate number of shares which may be issued pursuant to the Plan is two hundred forty thousand (240,000), plus the number of shares resulting from options that lapse from nonexercise of options that were originally granted under the 1989 Incentive Stock Option Plan and Stock Option Plan, subject to adjustment as provided in Section 13 herein. In the event any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the unpurchased shares subject thereto shall again be available for grants of Options under the Plan. 5. Granting of Options. Options may be granted under the Plan at any time within ten (10) years from the date the Plan is adopted. The date of grant of an Option under the Plan shall be the date specified by the Committee 2 3 at the time it awards the Option, provided, however, that such date shall not be prior to the date of award. 6. Minimum Option Price. The price per share specified in each Option granted under the Plan shall in no event be less than the fair market value per share of Class A stock on the date of such grant. In the case of an Option to be granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or any subsidiary, the price per share specified in each Option shall not be less than one hundred ten percent (110%) of the fair market value per share of Class A stock on the date of grant, and such Option, by its terms, shall not be exercisable after the expiration of five (5) years from the date the Option is granted. For purposes of this Plan, "fair market value" of stock shall mean the closing price of the Company's Class A stock as reported on the Nasdaq National Market on the previous trading day. 7. Option Duration. Subject to earlier termination as provided in Sections 6, 9 and 10, each Option shall expire on the date specified by the Committee, but not more than ten (10) years from the date of grant. The Committee may extend the term of any previously granted Option provided that such Option, as extended, expires within ten (10) years of its original date of grant. 8. Exercise of Option. Subject to the provisions of Sections 9 through 12, each Option granted under the Plan shall be exercisable as follows: A. The Option shall become exercisable in such installments as the Committee may specify. B. Once an installment becomes exercisable it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. 3 4 C. Each Option or installment may be exercised at any time, or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable. D. The Committee shall have the right to accelerate the date or dates on which any installment may be exercised. E. There is a minimum six (6) month holding period between the time of the grant of the option and the disposition of the underlying shares for all directors and executive officers of the Company. 9. Termination of Employment. If an optionee ceases to be employed by the Company or any subsidiary other than by reason of death, no further installments of optionee's Options shall become exercisable, and optionee's Options shall terminate after passage of three (3) months from the date of termination of optionee's employment (one [1] year in the case of an employee who is disabled within the meaning of Code Section 22(e)(3)), but in no event later than on their specified expiration dates. Whether leave of absence by approval of the Company or by reason of military or governmental service constitutes employment for purposes of the Plan shall be conclusively determined by the Committee. Nothing in the Plan shall be deemed to give any optionee the right to be retained in employment by the Company or its subsidiaries for any period of time. Options granted under the Plan shall not be affected by any change of employment within or among the Company and its subsidiaries, so long as the optionee continues to be an employee of the Company or one of its subsidiaries. For purposes of this Paragraph 9, a director shall be deemed to be employed by the Company of which he is a director. 10. Death. If an optionee dies, any Option of optionee may be exercised, to the extent of the number of 4 5 shares with respect to which optionee could have exercised it on the date of optionee's death, by optionee's estate, personal representative or beneficiary who has acquired the Option by will or by the laws of descent and distribution, at any time prior to the earlier of the Option's specified expiration date or three (3) months from the date of the optionee's death. The Option shall terminate on the earlier of such dates. 11. Nonassignability. No Option shall be assignable or transferable by the optionee except by will or by the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the Code or Title 1 of the Employee Retirement Income Security Act, or the rules thereunder, and during the lifetime of the optionee each Option shall be exercisable only by optionee. 12. Terms and Conditions of Options. Options shall be evidenced by instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in Sections 6 through 11 hereof, and may contain such other provisions, as the Committee deems advisable, which are not inconsistent with the Plan, including restrictions applicable to shares of Class A stock issuable upon exercise of Options. 13. Adjustments. Upon the happening of any of the following described events, an optionee's rights with respect to Options granted hereunder shall be adjusted as hereinafter provided: 13.1 In the event the shares of Class A stock shall be subdivided or combined into a greater or smaller number of shares or if, upon a merger, consolidation, reorganization, split-up, liquidation, combination, recapitalization or the like of the Company, the shares of Class A stock shall be exchanged 5 6 for other securities of the Company or of another corporation, each optionee shall be entitled, subject to the conditions herein stated, to purchase such number of shares of Class A stock or amount of other securities of the Company or such other corporation as were exchangeable for the number of shares of Class A stock which such optionee would have been entitled to purchase except for such action, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination, or exchange; and 13.2 In the event the Company shall issue any of its shares as a stock dividend upon or with respect to the shares of stock of the class which shall at the time be subject to option hereunder, each optionee upon exercising an Option shall be entitled to receive (for the purchase price paid upon such exercise) the shares as to which optionee is exercising optionee's Option and, in addition thereto (at no additional cost), such number of shares of the class or classes in which such stock dividend or dividends were declared or paid, and such amount of cash in lieu of fractional shares, as optionee would have received if optionee had been the holder of the shares as to which optionee is exercising optionee's Option at all times of its exercise. Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in Section 4 hereof which are subject to Options which have heretofore been or may hereafter be granted under the Plan shall also be appropriately adjusted to reflect the events specified in subparagraphs 13.1 and 13.2 above. The Committee shall determine the adjustments to be made under this Section 13, and its determination shall be conclusive. 6 7 14. Exercise of Options. An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal office address. Such notice shall identify the Option being exercised and specify the number of shares as to which such Option is being exercised and shall state that payment shall be made in not more than fifteen (15) days after the Company gives the optionee notice that the share certificate is ready to deliver. Payment and delivery shall be concurrent. Payment shall be by full payment of the purchase price therefor either (i) in United States dollars in cash or by cashier's check or bank draft, or (ii) at the discretion of the Optionee, through delivery of previously owned shares of Class A stock of the Company (which, as to employee directors and executive officers, the optionee has held at least six (6) months prior to delivery of such shares and for which the optionee has good title free and clear of all liens and encumbrances), having a fair market value equal as of the date of the exercise to the option purchase price, (iii) in cash by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise, or (iv) at the discretion of the Optionee, by a combination of (i) and (ii) above. The Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (ii) through (iv). The holder of an Option shall not have the rights of a shareholder with respect to the shares covered by optionee's Option until the date of issuance of a stock certificate to optionee for such shares. The Company shall issue such share certificate within thirty (30) days of receipt of notice of exercise. Adjustment, and payment for dividends, if applicable, shall be made for dividends or similar rights for which the record date is after the exercise of the Option but before the date such stock certificate is issued. 7 8 In no event shall fractional shares be purchased or issued under the Plan. 15. Term and Amendment of Plan. The Plan shall expire on the date ten (10) years after the date on which the Plan was adopted by the stockholders (except as to Options outstanding on that date). The Board may terminate or amend the Plan in any respect at any time. The Board may also, at any time, amend or revise the plan subject to any requirement of shareholder approval required by applicable law, including Rule 16b-3 under the Exchange Act and Section 422 of the Code; provided, however, that without stockholder approval: A. The total number of shares that may be issued under the Plan may not be increased (except by adjustment pursuant to Section 13); B. The provisions of Section 3 regarding eligibility may not be modified; C. The provisions of Section 6 regarding the exercise price at which shares may be offered pursuant to Options may not be modified (except by adjustment pursuant to Section 13); and D. The expiration date of the Plan may not be extended. In no event may action of the Board of Directors or stockholders alter or impair the rights of an optionee, without optionee's consent, under any Option previously granted to him. 16. Application of Funds. The proceeds received by the Company from the sale of shares pursuant to Options granted under the Plan shall be used for general corporate purposes. 17. Governmental Regulation. The Company's obligation to sell and deliver shares of the Class A stock under this Plan is subject to the approval of any governmental 8 9 authority required in connection with the authorization, issuance or sale of such shares. 18. Governing Law. The validity and construction of the Plan and the instruments evidencing Options shall be governed by California Law. 19. Company Disclosure. The Company and its officers, directors, employees, attorneys and agents are not rendering advice as to the desirability of investment in the stock covered by the Options and all persons receiving Options are advised to consult with their own legal, tax, financial or other advisers as to the consequence of receiving Options or purchasing the underlying shares. 20. Foreign Subsidiaries. This Plan may be amended to provide special additional terms (but no lesser terms) for employees of foreign subsidiaries to provide that their options qualify for tax benefits under the laws of the country of such employee's domicile. 9 10 HASKEL INTERNATIONAL, INC. 1995 INCENTIVE STOCK OPTION AGREEMENT This Agreement is entered into as of ____________, by and between Haskel International, Inc., a California corporation (the "Company") and __________________ ("the Optionee"). The parties covenant and agree as follows: 1. Grant of Option. The Company hereby grants to the Optionee an option to purchase __________ (______) shares of Company's Class A Common Stock (the "Option") pursuant to the conditions set forth in the Company's 1995 Incentive Stock Option Plan (the "Plan"), a copy of which is attached hereto as Exhibit "A," and is incorporated herein in its entirety by reference. The Optionee hereby accepts the Option granted herein subject to the terms and provisions set forth in the Plan and the additional terms and provisions contained in this Agreement. 2. Purchase Price; Adjustments. The price at which the shares may be purchased is ______________________ Dollars ($_____) per share. Both the price and number of shares that may be purchased are subject to adjustment as provided in the Plan. 3. Option Exercise Period. The period for exercising the Option (the "Exercise Period") shall be the period beginning ____________, provided the Optionee has been continuously employed with the Company to that date (the "Commencement Date"), and ending ____________, ten (10) years from the date of this Agreement (the "Expiration Date"). The Option may be exercised at any time and from time to time during the Exercise Period as follows: (a) As to ______ percent (__%) of the Option shares on or after ____________; 1 11 (b) As to an additional ______ percent (__%) of the Option shares on or after ______ of each year thereafter through and including ____________. (c) During the entire period in which the Option is exercisable, it may be exercised as to any number of shares theretofore vested. Any unexercised portion of the Option will expire on the Expiration Date. 4. Exercise of Option on Termination or Death. In the event of the termination of the Optionee's employment or death, the Option shall be exercisable no later than three (3) months following Optionee's death or date of termination of employment, as the case may be. In the event the Optionee's employment terminates due to disability, the Option shall be exercisable no later than one (1) year from the date of termination of employment. The Option shall only be exercisable as to the number of shares, if any, as to which such Option was exercisable immediately prior to the Optionee's death or other termination of employment, as the case may be. 5. Manner of Exercise. The Option shall be exercised by delivering written notice to the Company at its principal place of business. The notice shall specify that the Option is being exercised, the number of shares as to which the Option is being exercised, the Optionee's social security number and the address to which the stock certificate should be delivered. Payment for the exercise of the Option is to be included with the notice. The Company shall use its best efforts to cause its transfer agent to issue and deliver the stock certificate evidencing such shares within thirty (30) days of receipt by the Company of notice of exercise and payment in full. Payment of the purchase price shall be either (i) in United States dollars in cash or by cashier's check, or (ii) at the discretion of the 2 12 Optionee, through delivery of shares of Class A Common Stock of the Company (which, as to employee directors and executive officers, the Optionee has held at least six (6) months prior to delivery of such shares and for which the Optionee has good title free and clear of all liens and encumbrances), having a fair market value equal as of the date of the exercise to the Option purchase price, or (iii) by a combination of (i) and (ii) above. 6. Nontransferability. The Option shall not be transferable by the Optionee otherwise than by will or by the laws of descent and distribution. 7. Securities Act. Notwithstanding Paragraph 3 above, the Stock Option Committee of the Board of Directors may, in its discretion, require as a condition to the exercise of the Option granted hereunder, that either (a) a Registration Statement under the Securities Act of 1933, as amended, or any succeeding act, with respect to the shares reserved for issue upon the exercise of such Option shall have become effective and remain effective, or (b) the person who shall exercise any Option shall represent and agree that any and all shares purchased under such Option are being purchased for investment and not with a view to the distribution thereof; provided, however, that this representation and agreement shall not be applicable if an effective Registration Statement under the Securities Act of 1933, as amended, or any succeeding act, shall be in effect on the date of exercise, with respect to the shares reserved for issue upon the exercise of such Option. The Option granted hereunder shall be subject to further requirements that, if at any time the Board of Directors or the Stock Option Committee shall determine in their discretion that the listing or qualification of the shares of Common Stock subject to such Option under any securities exchange requirements or under any applicable law, or the consent or 3 13 approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with the issue of shares hereunder, the Option may not be exercised in whole or in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors or the Stock Option Committee. 8. Exchange Act. It is intended that this Agreement and the Plan will comply with the requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, as applicable during the term of this Agreement. Should the requirements of such Rule change, the Company may, at its discretion, amend this Agreement to comply with the applicable requirements of said Rule, or its successor provision or provisions. 9. Performance. All performances required under this Agreement shall be at the Company's offices in Burbank, California. 10. Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the day of service if personally served on the party to whom the notice is to be given, or within three (3) days after mailing, if mailed to the party to whom notice is to be given by first class mail, registered or certified, postage prepaid, return receipt requested and properly addressed to the party at his address set forth below or to any other address that any party may designate by written notice to the others. If to Company: Haskel International, Inc. 100 East Graham Place Burbank, CA 91502 4 14 If to Optionee: ______________________________ c/o Haskel International, Inc. 100 East Graham Place Burbank, CA 91502 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. HASKEL INTERNATIONAL, INC. OPTIONEE By --------------------------- ---------------------------- R. Malcolm Greaves President 5 EX-10.4 4 1995 FORMULA STOCK OPTION PLAN AND AGREEMENT 1 EXHIBIT 10.4 HASKEL INTERNATIONAL, INC. 1995 FORMULA STOCK OPTION PLAN 1. Purpose. This Stock Option Plan (the "Plan"), is intended to provide incentives to the outside directors of Haskel International, Inc. (the "Company") by providing them with opportunities to purchase Class A Common stock in the Company as a form of additional compensation for performance of services to the Company pursuant to options to be granted hereunder ("Options"). 2. Eligibility. Options will be granted to each director who is not an employee of the Company or any of its subsidiaries. 3. Stock. The stock subject to the Options shall be authorized but unissued shares of Class A Common stock of the Company (the "Class A stock"), or shares of Class A stock reacquired by the Company, including shares purchased in the open market. The aggregate number of shares which may be issued pursuant to the Plan is forty thousand (40,000), subject to adjustment as provided in Section 11 herein. In the event any Option granted under the Plan shall lapse, they shall again be available for grants of Options under the Plan. 4. Granting of Options. Options must be granted under the Plan within ten (10) years from the date the Plan is adopted. The date of grant of an Option under the Plan shall be the date the option grant is formally documented. 5. Option Price. The price per share for each Option granted under the Plan shall be the fair market value per share of Class A stock on the date of such grant. For purposes of this Plan, "fair market value" of stock shall mean the closing price of the Company's Class A stock as reported on the Nasdaq National Market on the previous trading day. 1 2 6. Option Duration. Subject to earlier termination as provided in Section 8, each Option shall expire ten (10) years from the date of the grant. 7. Exercise of Option. Subject to the provisions of Sections 8 through 10, each Option granted under the Plan shall be exercisable as follows: 7.1 Each outside director who first becomes a director after October 15, 1995, will receive an option for ten thousand (10,000) shares, which will vest twenty percent (20%) per year, with the first twenty percent (20%) to be vested twelve (12) months from the date of becoming a director. 7.2 Commencing in fiscal year 1996 and for each subsequent fiscal year, each person who was an outside director as of the end of the previous fiscal year and who served as an outside director during the entire fiscal year just completed, will receive additional options relating to that fiscal year based upon the performance of the Company, as follows: 7.2.1. For any fiscal year, if the Company's return on investment exceeds ten percent (10%), each outside director will be granted one thousand (1,000) shares. 7.2.2. For any fiscal year, if the Company's return on investment exceeds thirteen percent (13%), each outside director will be granted two thousand (2,000) shares in addition to the shares set forth in subparagraph 7.2.1. The options set forth in subparagraphs 7.2.1 an 7.2.2 will vest based on optionee's service as a director at the rate of twenty percent (20%) for each year of service as a director from the date such optionee first became a director. All options granted under this Paragraph 7 shall become one hundred percent (100%) 2 3 vested on the business day preceding the day on which any transaction is consummated resulting in a change of control of the Company. 7.3 Each vested Option may be exercised at any time, or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable. 8. Termination as Director. If an optionee ceases to be a director of the Company, optionee, or optionee's descendants will have five (5) years from each event to exercise all options which were exercisable on the date of termination. In no event may an Option be exercised later than on their specified expiration dates. Nothing in the Plan shall be deemed to give any optionee the right to be retained as a director by the Company for any period of time. 9. Nonassignability. No Option shall be assignable or transferable by the optionee except by will or by the laws of descent and distribution, and during the lifetime of the optionee, each Option shall be exercisable only by optionee. 10. Terms and Conditions of Options. Options shall be evidenced by instruments (which need not be identical) in such forms as the Board may from time to time approve. Such instruments shall conform to the terms and conditions set forth in Sections 5 through 9 hereof. 11. Adjustments. Upon the happening of any of the following described events, an optionee's rights with respect to Options granted hereunder shall be adjusted as hereinafter provided: 11.1 In the event the shares of Class A stock shall be subdivided or combined into a greater or smaller number of shares or if, upon a merger, consolidation, reorganization, split-up, liquidation, 3 4 combination, recapitalization or the like of the Company, the shares of Class A stock shall be exchanged for other securities of the Company or of another corporation, each optionee shall be entitled, subject to the conditions herein stated, to purchase such number of shares of Class A stock or amount of other securities of the Company or such other corporation as were exchangeable for the number of shares of Class A stock which such optionee would have been entitled to purchase except for such action, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination, or exchange; and 11.2 In the event the Company shall issue any of its shares as a stock dividend upon or with respect to the shares of stock of the class which shall at the time be subject to option hereunder, each optionee upon exercising an Option shall be entitled to receive (for the purchase price paid upon such exercise) the shares as to which optionee is exercising optionee's Option and, in addition thereto (at no additional cost), such number of shares of the class or classes in which such stock dividend or dividends were declared or paid, and such amount of cash in lieu of fractional shares, as optionee would have received if optionee had been the holder of the shares as to which optionee is exercising optionee's Option at all times of its exercise. Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in Section 3 hereof, which are subject to Options which have heretofore been or may hereafter be granted under the Plan, shall also be appropriately adjusted to reflect the events 4 5 specified in subparagraphs 11.1 and 11.2 above. The Board shall determine the adjustments to be made under this Section 11, and its determination shall be conclusive. 12. Exercise of Options. An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal office address. Such notice shall identify the Option being exercised and specify the number of shares as to which such Option is being exercised and shall state that payment shall be made in not more than fifteen (15) days after the Company gives the optionee notice that the share certificate is ready to deliver. Payment and delivery shall be concurrent. Payment shall be by full payment of the purchase price therefor either (i) in United States dollars in cash or by cashier's check or bank draft, (ii) at the discretion of the optionee, through delivery of shares of Class A stock of the Company having an appraised value equal as of the date of the exercise to the option purchase price, which have been owned by the optionee for at least six (6) months, or (iii) at the discretion of the optionee, by a combination of (i) and ii) above. The holder of an Option shall not have the rights of a shareholder with respect to the shares covered by optionee's Option until the date of issuance of a stock certificate to optionee for such shares. The Company shall issue such share certificate within thirty (30) days of receipt of notice of exercise. Adjustment, and payment for dividends, if applicable, shall be made for dividends or similar rights for which the record date is after the exercise of the Option but before the date such stock certificate is issued. In no event shall a fraction of a share be purchased or issued under the Plan. 13. Term and Amendment of Plan. The Plan shall expire on the date ten (10) years after the date on which the Plan was adopted (except as to Options outstanding on 5 6 that date). The Board may extend or terminate the Plan in any respect at any time. This Plan may not be amended more than once every six (6) months other than to comport with changes in the Internal Revenue Code, or the rules thereunder, and subject to any requirement of shareholder approval required by applicable law, including Rule 16b-3 under the Exchange Act; provided, however, that no amendment shall be made without shareholder approval if such amendment would (a) increase the maximum number of shares of Class A stock available under the 1995 Formula Plan, (b) reduce the minimum purchase price per share of the Class A stock subject to an option, or (c) extend the term of the 1995 Formula Plan or the maximum period during which an option may be exercised; provided, further, that the 1995 Formula Plan shall not be amended in a manner which fails to comply with Rule 16b-3(c)(2)(ii)(B) under Section 16 of the Exchange Act. In no event, may action of the Board of Directors or stockholders alter or impair the rights of an optionee, without optionee's consent, under any Option previously granted to optionee. 14. Application of Funds. The proceeds received by the Company from the sale of shares pursuant to Options granted under the Plan shall be used for general corporate purposes. 15. Governmental Regulation. The Company's obligation to sell and deliver shares of the Class A stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. The optionee, on exercise of the Option, shall sign such document in relation to the Option exercise as Company counsel shall provide. 16. Governing Law. The validity and construction of the Plan and the instruments evidencing Options shall be governed by California Law. 6 7 17. Company Disclaimer. The Company and its officers, directors, employees, attorneys and agents are not rendering advice as to the desirability of investment in the stock covered by the Options, and all persons receiving Options are advised to consult with their own legal, tax, financial or other advisors as to the consequence of receiving Options or purchasing the underlying shares. 7 8 HASKEL INTERNATIONAL, INC. 1995 FORMULA STOCK OPTION AGREEMENT This Agreement is entered into as of ____________, by and between Haskel International, Inc., a California corporation (the "Company") and ______________________ (the "Optionee"). The parties covenant and agree as follows: 1. Grant of Option. The Company hereby grants to the Optionee an option to purchase _________________ (______) shares of Company's Class A Common Stock (the "Option") pursuant to the conditions set forth in the Company's 1995 Formula Stock Option Plan (the "Plan"), a copy of which is attached hereto as Exhibit "A," and is incorporated herein in its entirety by reference. The Optionee hereby accepts the Option granted herein subject to the terms and provisions set forth in the Plan and the additional terms and provisions contained in this Agreement. 2. Purchase Price; Adjustments. The price at which the shares may be purchased is ______________________ Dollars ($_____) per share. Both the price and number of shares that may be purchased are subject to adjustment as provided in the Plan. 3. Option Exercise Period. So long as the Optionee remains a member of the Board of Directors of the Company, and is not employed by the Company or any of its subsidiaries, the period for exercising the Option (the "Exercise Period") shall be the period beginning ____________ (the "Commencement Date"), and ending ____________, ten (10) years from the date of this Agreement (the "Expiration Date"). The Option may be exercised at any time and from time to time during the Exercise Period as follows: 1 9 (a) As to twenty percent (20%) of the Option shares on or after ____________; (b) As to an additional twenty percent (20%) of the Option shares on or after ______ of each year thereafter through and including ____________. (c) The option granted under Paragraph 1 shall become one hundred percent (100%) vested on the business day preceding the day on which any transaction is consummated resulting in a change of control of the Company. (d) During the entire period in which this Option is exercisable, it may be exercised as to any number of shares theretofore vested. Any unexercised portion of the Option will expire on the Expiration Date. 4. Termination as Director. On such date as the Optionee ceases to be a member of the Board of Directors of Company, whether upon termination or death (the "Termination Date"), the Optionee or Optionee's estate shall have five (5) years from the Termination Date to exercise the option. The Option shall only be exercisable as to the number of shares, if any, as to which such Option was exercisable on the Termination Date. 5. Manner of Exercise. The Option shall be exercised by delivering written notice to the Company at its principal place of business. The notice shall specify that the Option is being exercised, the number of shares as to which the Option is being exercised, the Optionee's social security number and the address to which the stock certificate should be delivered. Payment for the exercise of the Option is to be included with the notice. The Company shall use its best efforts to cause its transfer agent to issue and deliver the stock certificate evidencing such shares within thirty (30) days of receipt by the Company of notice 2 10 of exercise and payment in full. Payment of the purchase price shall be either (i) in United States dollars in cash or by cashier's check, or (ii) at the discretion of the Optionee, through delivery of shares of Class A Common Stock of the Company (which, as to employee directors and executive officers, the Optionee has held at least six (6) months prior to delivery of such shares and for which the Optionee has good title free and clear of all liens and encumbrances), having a fair market value equal as of the date of the exercise to the Option purchase price, or (iii) by a combination of (i) and (ii) above. 6. Nontransferability. The Option shall not be transferable by the Optionee otherwise than by will or by the laws of descent and distribution. 7. Securities Act. Notwithstanding Paragraph 3 above, the Company may, in its discretion, require as a condition to the exercise of the Option granted hereunder, that either (a) a Registration Statement under the Securities Act of 1933, as amended, or any succeeding act, with respect to the shares reserved for issue upon the exercise of such Option shall have become effective and remain effective, or (b) the person who shall exercise any Option shall represent and agree that any and all shares purchased under such Option are being purchased for investment and not with a view to the distribution thereof; provided, however, that this representation and agreement shall not be applicable if an effective Registration Statement under the Securities Act of 1933, as amended, or any succeeding act, shall be in effect on the date of exercise, with respect to the shares reserved for issue upon the exercise of such Option. The Option granted hereunder shall be subject to further requirements that, if at any time the Company shall determine that the listing or qualification of the shares of Common Stock subject to such Option under any securities 3 11 exchange requirements or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with the issue of shares hereunder, the Option may not be exercised in whole or in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 8. Exchange Act. It is intended that this Agreement and the Plan will comply with the requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, as applicable during the term of this Agreement. Should the requirements of such Rule change, the Company may, at its discretion, amend this Agreement to comply with the applicable requirements of said Rule, or its successor provision or provisions. 9. Performance. All performances required under this Agreement shall be at the Company's offices in Burbank, California. 10. Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the day of service if personally served on the party to whom the notice is to be given, or within three (3) days after mailing, if mailed to the party to whom notice is to be given by first class mail, registered or certified, postage prepaid, return receipt requested and properly addressed to the party at his address set forth below or to any other address that any party may designate by written notice to the others. If to Company: Haskel International, Inc. 100 East Graham Place Burbank, CA 91502 4 12 If to Optionee: _________________________ _________________________ _________________________ IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. HASKEL INTERNATIONAL, INC. OPTIONEE By _______________________ __________________________ R. Malcolm Greaves President 5 EX-10.14 5 AMENDMENT, GLENDALE SUPERFUND SITE PRP AGREEMENT 1 EXHIBIT 10.14 AMENDMENT TO THE GLENDALE SUPERFUND SITE PRP ORGANIZATION AGREEMENT This AMENDMENT TO THE GLENDALE SUPERFUND SITE PRP ORGANIZATION AGREEMENT ("Amendment") is made as of this 11th day of January, 1996 by and among the parties to the Glendale Superfund Site PRP Organization Agreement dated as of October __, 1993 (the "Organization Agreement"), with reference to the following facts: WHEREAS, the Organization Agreement currently provides that shared information received from any Member (as defined below) or its counsel, or technical consultant retained for the Group pursuant to the Organization Agreement shall only be used in connection with allocating Shared Costs, asserting any common claims or defenses in connection with the Site and conducting such other activities that are necessary and proper to carry out the purposes of the Organization Agreement. WHEREAS, the current parties to the Organization Agreement (individually, a "Member" and collectively, the "Members") now desire to amend the Organization Agreement to provide that any Member may disclose shared information to (1) its insurance company for the sole purpose of obtaining insurance coverage for fees, costs and expenses incurred by such Member and related to the Site, provided that such Member's insurance company agrees to keep such shared information strictly confidential, and (2) indemnitors and/or contributors for the sole purpose of obtaining indemnity and/or contribution for fees, costs and expenses incurred by such Member and related to the Site, provided that such indemnitor and/or contributor agrees to keep such shared information strictly confidential. WHEREAS, the Members also desire to amend the Organization Agreement to provide that any Member may disclose to its outside independent auditors (1) its own allocable share of fees, costs and expenses that have been assessed, and (2) estimates of the allocable share of fees, costs and expenses that may be assessed, to such Member by the Group for the purpose of preparing, reviewing and auditing financial statements for such Member. WHEREAS, any term not otherwise defined herein shall have the same meaning ascribed to such term in the Organization Agreement. NOW THEREFORE, in consideration of the foregoing, the Members agree as follows: 1. Use and Disclosure of Shared Information. Section 12.41 (a) of the Organization Agreement is hereby deleted in its entirety, and the following paragraph is inserted in lieu thereof: 2 "(a) Each Member agrees that all shared information received from any other Member or its counsel, or technical consultant retained for the Group pursuant to this Agreement, shall be held in strict confidence by the receiving Member and by all persons to whom such confidential information is revealed by the receiving Member, pursuant to this Agreement, and that such information shall be used only in connection with allocating Shared Costs, asserting any common claims or defenses in connection with the Site, and conducting such other activities that are necessary and proper to carry out the purposes of this Agreement; provided, further that a Member may also voluntarily disclose shared information (i) to its insurance company or companies for the sole purpose of obtaining insurance coverage from such insurance company for fees, costs and expenses incurred by such Member and related to the Site (including, without limitation, all fees, costs and expenses arising from, or related to, such Member's participation in the Group and the Interim Remedial Action) or (ii) to any indemnitor or indemnitors, or any contributor or contributors, of such Member for the sole purpose of obtaining indemnity and/or contribution for fees, costs and expenses incurred by such Member and related to the Site (including, without limitation, all fees, costs and expenses arising from, or related to, such Member's participation in the Group and the Interim Remedial Action) if and only if such Member's insurance company or indemnitor or contributor, as the case may be, agrees in writing (A) to keep such shared information strictly confidential, except as is required by law, by an order of a court of competent jurisdiction or by subpoena, in which event such insurance company or indemnitor or contributor shall notify such Member and the Group of the circumstances requiring disclosure and shall refrain from such disclosure for the maximum period of time allowed by law so that such Member, the Member that generated the information to be disclosed or the Group may obtain a protective order or take other action to protect the confidentiality of the shared information, (B) that such disclosure does not waive any attorney-client privilege, attorney work product protections or any other privilege associated with such information and (C) that the Group shall be entitled to injunctive and other equitable relief in the event of a threatened or actual breach of the foregoing confidentiality provisions. Additionally, any Member may voluntarily disclose to its outside independent auditors (1) its own allocable share of fees, costs and expenses that have been and (2) estimates of, and reasons for, the allocable share of fees, costs and expenses that may be assessed, to such Member by the Group for the purpose of preparing, reviewing and auditing financial statements for such Member, provided that no other shared information may be disclosed to the auditor of any Member without the prior written consent of the Group and the Member that generated the information to be disclosed. A Member's disclosure of shared information shall not be considered voluntary if such disclosure is required by a court order or subpoena; provided, that in the event that a -2- 3 Member is required to disclose shared information pursuant to a court order or subpoena, such Member shall comply with all provisions of Section 12 of the Organization Agreement, including, without limitation, all provisions of Section 12.3(b)." 2. Except as otherwise expressly amended herein, the Organization Agreement shall continue in full force and effect in accordance with the terms in effect immediately prior to the execution of this Amendment. IN WITNESS WHEREOF, pursuant to Section 20 of the Organization Agreement, the Chairman and Secretary of the Group hereby certify and attest that the foregoing Amendment has been approved by a vote of at least two-thirds of the Voting Power of the Members present in person or by proxy at a Group meeting called for the purpose of considering such amendment, and pursuant to such vote, the Group has agreed that this Amendment is effective and binding on all Members as of January 11, 1996. /s/ RICHARD J. McNEIL ----------------------------------- Richard McNeil, Chairman /s/ TERESA C. OLMSTED ----------------------------------- Teresa Olmsted, Secretary -3- EX-10.15 6 MEMORANDUM OF AGREEMENT, COST-SHARING 1 EXHIBIT 10.15 PRIVILEGED AND CONFIDENTIAL SETTLEMENT AND JOINT DEFENSE COMMUNICATION MEMORANDUM OF AGREEMENT REGARDING COST-SHARING FOR THE GLENDALE OPERABLE UNIT SUPERFUND SITES This Memorandum of Agreement (this "Agreement") dated June 7, 1995, is an amendment to the March 1994 Glendale Superfund Site PRP Organization Agreement ("PRP Agreement"), and is binding upon the undersigned Parties, as that term is hereafter defined. If there are any ambiguities or direct conflicts between this Agreement and the PRP Agreement, such ambiguities shall be resolved pursuant to the terms of this Agreement. Except as amended hereby, the PRP Agreement remains in full force and effect. RECITALS A. Pursuant to the PRP Agreement, the signatories to that document agreed to a process whereby each signatory was allocated an interim percentage share of the costs to be jointly incurred in responding to the United States Environmental Protection Agency's ("EPA") request, pursuant to Section 106 of the Comprehensive Environmental Response, Compensation and Liability Act, that the signatories develop the remedial design called for in the Records of Decision ("RODs") for the Glendale North and Glendale South Operable Units. The interim cost-sharing allocation was established in January of 1994. 2 B. Of necessity, the interim cost-sharing allocation that resulted from the foregoing process was developed on an expedited schedule based on data that were readily available at the time. The Parties now desire to finally allocate their Shared Costs, as that term is hereafter defined, between sources located in the Burbank Operable Unit on the one hand and sources located in the Glendale Operable Units on the other and have agreed upon a process whereby such allocation is to be accomplished. That process is the subject of this Agreement. C. In establishing such a final allocation , it is the intent of the Parties that (1) the Party located in the Burbank Operable Unit, Lockheed Martin Corporation ("Lockheed Martin"), be solely responsible for funding that portion of the Shared Costs attributed to sources of COCs, as that term is hereafter defined, located in the Burbank Operable Unit and be given all of the Parties' contribution rights against all persons or entities with respect to liability for such sources, and (2) as among the Parties, other than Lockheed Martin, which are all located in the Glendale Operable Units, such Parties be solely responsible for funding that portion of the Shared Costs attributed to sources of COCs located in the Glendale Operable Units and be given all of the Parties' contribution rights against all persons or entities with respect to liability for those sources. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the undersigned Parties agree as follows: 2 3 1. CONFIDENTIALITY With the sole exception of the percentage shares set forth in the final Burbank/Glendale Split Allocation Decision that become binding on the Parties pursuant to this Agreement, this Agreement and all proceedings hereunder shall be subject to the "Confidentiality and Use of Information" provision of the PRP Agreement. This section should be construed in a manner consistent with the PRP Agreement. Except by Mutual Agreement of the Parties, none of the Parties shall disclose to any person who is not associated with the process, including any administrative or judicial officer, any information regarding the process or outcome of the proceedings, except for its own presentations to the Panel and the percentage share information discussed earlier in this section. Notwithstanding the foregoing, the terms of this Agreement shall be disclosable in any action brought by a Party to enforce or obtain a judicial interpretation of its provisions. In addition, the entire allocation process shall be deemed a compromise negotiation subject to Federal Rule of Evidence 408 and all state counterparts, together with any applicable statutes protecting the confidentiality of arbitration. All offers, promises, conduct and statements, whether oral or written, made in the course of the proceedings by any of the Participants, their agents, employees, experts or attorneys, shall be considered confidential. Such offers, promises, conduct and statements shall also be considered privileged under any applicable arbitration privilege and shall not be admissible or discoverable for any purpose, including impeachment, in litigation between the Parties. 3 4 Notwithstanding the foregoing, evidence that is otherwise admissible or otherwise discoverable shall not be rendered inadmissible or non-discoverable solely as a result of its presentation or use during these proceedings. Each Party further hereby agrees that the exchange of any tangible material or information in connection with these proceedings is for the sole purpose of this process. Such disclosure shall not be deemed a waiver of the attorney-client, work product or any other privilege. 2. DEFINITIONS For purposes of this Agreement, each of the following terms shall have the indicated meaning: A. "Allocation Participants" or "Participants" shall mean all Parties, except Cash-Out Parties and Parties that withdraw or are removed from the PRP Agreement for reasons other than payment default or violation of the confidentiality provisions prior to the date the Burbank/Glendale Split Allocation Decision is deemed final. B. "AOC Compliance Costs" shall mean all costs, including, but not limited to, administrative costs, jointly incurred by the Allocation Participants, in connection with or related to compliance with the Administrative Order on Consent 4 5 for the Glendale North and Glendale South Operable Units, dated March 20, 1994. C. "Burbank/Glendale Split Allocation Decision" shall mean the aggregate percentage share of Shared Costs attributable to sources of COCs located in the Burbank Operable Unit and the aggregate percentage share of Shared Costs attributable to sources of COCs located in the Glendale Operable Units as determined pursuant to the allocation process provided herein. D. "Burbank Operable Unit" shall mean the geographical area depicted as Area A on the map attached to this Agreement as Appendix A. It is the intention of the Parties that Appendix A be used solely to identify the location of specific sources of COCs for purposes of this allocation proceeding and not for any other purposes. E. "Cash-Out Parties" shall mean those Parties that enter a fully executed cash-out agreement with the other Glendale Members prior to the date the Burbank/Glendale Split Allocation Decision is deemed final. 5 6 F. "COCs" shall mean the compounds identified as contaminants of concern on the list attached to this Agreement as Appendix B. G. "Consensus" or "Mutual Agreement" shall mean 90% of the weighted votes of the Allocation Participants based on the interim allocation percentages established pursuant to the PRP Agreement as such percentages are assigned at the time of any vote requiring Consensus or Mutual Agreement. H. "Glendale Members" shall mean all Allocation Participants other than Lockheed Martin. I. "Glendale Operable Units" shall mean the geographical area depicted as Area B on the map attached to this Agreement as Appendix A. It is the intention of the Parties that Appendix A be used solely to identify the location of specific sources of COCs for purposes of this allocation proceeding and not for any other purposes. J. "Interim Remedial Costs" shall mean all costs, including, but not limited to, administrative costs, EPA and California past costs, EPA and California oversight and other site-specific and San Fernando Valley Basinwide response costs, jointly incurred or reimbursed by the Allocation 6 7 Participants, in connection with or related to compliance with a consent decree entered into with or unilateral order issued by EPA requiring the construction, operation, maintenance or dismantling of any interim remedial measure for the Glendale North and Glendale South Operable Units. K. "Other Costs" shall mean all costs other than Interim Remedial Costs and AOC Compliance Costs, including, but not limited to, the costs of this allocation proceeding, jointly incurred by the Allocation Participants in connection with or related to any interim remedial measure for the Glendale North and Glendale South Operable Units. L. "Parties" shall mean all entities that have executed this Agreement at any time without regard to whether the entity subsequently withdraws or is removed for any reason from the PRP Agreement. M. "Shared Costs" shall mean all Interim Remedial Costs, AOC Compliance Costs and Other Costs. 3. ALLOCATION PANEL The Burbank/Glendale Split Allocation Decision shall be rendered by a panel of not more than three technical experts ("the Panel") selected by the Allocation Participants in accordance with the procedures established in this Agreement. 7 8 4. COMPOSITION OF THE PANEL The Panel shall be composed of not more than three individuals with expertise in one or more of the scientific disciplines relevant to the behavior of volatile organic compounds in soil and groundwater and shall be selected by Mutual Agreement of the Allocation Participants. As of the date of this Agreement, the Participants have selected Steven M. Gorelick, David A. Stephenson and David B. McWhorter to serve on the Panel. If one or more of these individuals should, for any reason, be unable or unwilling to continue serving on the Panel, the Allocation Participants may select a replacement or replacements by Consensus. 5. DECISION TO BE RENDERED BY THE PANEL The Panel, by concurrence of two or more members, shall prepare and deliver by facsimile transmission and next day delivery service to all Allocation Participants a written determination, with supporting rationale, for the Burbank/Glendale Split Allocation Decision. In rendering the Burbank/Glendale Split Allocation Decision, the Panel shall distribute any percentage share attributable to sources of COCs located in the Burbank Operable Unit that are not Allocation Participants to Lockheed Martin and any percentage share attributable to sources of COCs located in the Glendale Operable Units that are not Allocation Participants to the Glendale Members. The Panel shall be the sole judge of the facts and arguments presented by the Allocation Participants. In reaching the Burbank/Glendale Split Allocation Decision, the Panel shall 8 9 exercise its best technical judgment based on all of the information presented to it during the allocation proceedings to assign to (1) Lockheed Martin that percentage share of the Shared Costs for which Burbank Operable Unit sources of COCs are responsible, and (2) Glendale Members that percentage share of Shared Costs for which Glendale Operable Units sources of COCs are responsible. The Panel shall be free to consider any allocation theory advanced by an Allocation Participant or developed by the Panel. In the absence of sufficient geologic, hydrogeologic, soil or groundwater information to adequately support any such decision, the Panel may use such additional technical, operational and scientific information as it deems relevant to render the Burbank/Glendale Split Allocation Decision. Absent extraordinary circumstances, the Panel shall render the Burbank/Glendale Split Allocation Decision in accordance with the schedule attached to this Agreement as Appendix C. 6. APPEAL OF PANEL ACTIONS Any Allocation Participant shall have the right to make a written request for a decision from an independent judicial neutral ("Judicial Neutral") selected by a Consensus of the Allocation Participants concerning whether an action taken by the Panel is (1) in conflict with this Agreement or any written procedural rules adopted by Mutual Agreement among the Allocation Participants, (2) based upon a clear error of fact, or (3) subject to reversal based on the standards set forth in California Code of Civil Procedure Section 1286.2(a), (b) or (d). There shall be no other basis for appealing an action taken by the Panel to the Judicial 9 10 Neutral, who shall be an attorney or a retired judge. As of the date of this Agreement, the Allocation Participants have selected Harry V. Peetris to serve as the Judicial Neutral. If, for any reason, the person selected to serve as the Judicial Neutral is unable or unwilling to continue so serving, the Participants shall select a replacement by Consensus. Prior to the date the Burbank/Glendale Split Allocation Decision is rendered, requests for a decision by the Judicial Neutral may be made by any Allocation Participant at any time, provided that (1) any issue raised by the request has already been presented to the Panel and the Panel has had a reasonable opportunity to respond to the issue, and (2) oral or written notice of the request has been given to the Panel and to all of the other Allocation Participants, who shall be provided with 7 days to respond in writing to the request; however, any request for a decision by the Judicial Neutral concerning whether action taken by the Panel is subject to reversal based on the standards set forth in California Code of Civil Procedure Section 1286.2(a), (b) or (d) may be made without first presenting the issue to the Panel. Notwithstanding the foregoing, the Participants can by Mutual Agreement follow a different procedure. After the date the Burbank/Glendale Split Allocation Decision is rendered, any request for a decision by the Judicial Neutral shall be treated as an appeal of the Burbank/Glendale Split Allocation Decision. To be timely, such an appeal (1) must be submitted to the Judicial Neutral within 7 days after the date the 10 11 Burbank/Glendale Split Allocation Decision was delivered to the appealing Allocation Participant, and (2) on the same date the appeal is submitted to the Judicial Neutral, written notice of the appeal by next day delivery service must be given to the Panel and to all of the other Allocation Participants, each of which shall have 7 days from delivery of the notice to submit a written response to the Judicial Neutral, which response shall be transmitted by next day delivery service to the Panel and to all of the other Allocation Participants on the same date the response is submitted. Decisions rendered by the Judicial Neutral shall be binding upon the Panel, which is hereby instructed to act in accordance therewith in completing its proceedings. Such decisions by the Judicial Neutral shall not be appealable by any Party. If the Burbank/Glendale Split Allocation Decision is not appealed in a timely manner or it is revised to conform to any instructions issued by the Judicial Neutral following a timely appeal, the Burbank/Glendale Split Allocation Decision shall not be subject to further modification. The Burbank/Glendale Split Allocation Decision shall be deemed final on the date that the Judicial Neutral transmits written notification to all Allocation Participants by facsimile transmission and next day delivery service that all timely appeals, if any, have been concluded and the Panel's Burbank/Glendale Split Allocation Decision is not subject to further modification. 11 12 7. PROCEDURAL INQUIRIES BY THE PANEL In the event of controversy, confusion or uncertainty over any issue relating to the rules or to the integrity of the allocation process, the Panel (or any member(s) thereof) may pose a question, in writing, to the Chairperson of the Allocation Committee ("Chairperson"), who shall promptly transmit the written question to the Allocation Participants for resolution. 8. EFFECT OF THE BURBANK/GLENDALE SPLIT ALLOCATION DECISION (a) The Binding Effect of the Burbank/Glendale Split Allocation Decision: At such time as the Burbank/Glendale Split Allocation Decision becomes final, it shall not be subject to further administrative or judicial review, and each of the Parties hereby agrees that, in any subsequent judicial or administrative proceeding, at the request of any Party, the aggregate percentage shares assigned to the two groups of sources in the Burbank/Glendale Split Allocation Decision shall be entered as a binding and non-appealable stipulated factual finding and may also be entered as a judgment in any court of competent jurisdiction. (b) Effect of the Burbank/Glendale Split Allocation Decision on the Obligations of Lockheed Martin: When the Burbank/Glendale Split Allocation Decision becomes final, the Lockheed Martin percentage share of Shared Costs which it was obligated to pay prior to such decision and which it is obligated to pay after such decision shall be adjusted to 12 13 correspond to the aggregate percentage share attributed to Burbank Operable Unit sources of COCs in the Burbank/Glendale Split Allocation Decision. (c) Effect of the Burbank/Glendale Split Allocation Decision on the Obligations of the Glendale Members: When the Burbank/Glendale Split Allocation Decision becomes final, the aggregate percentage share of Shared Costs that the Glendale Members were obligated to pay prior to such decision and which the Glendale Members are obligated to pay after such decision shall be adjusted to correspond to the aggregate percentage share attributed to Glendale Operable Units sources of COCs in the Burbank/Glendale Split Allocation Decision. However, nothing in this Agreement shall be construed to make final the interim cost-sharing allocation established in January of 1994 pursuant to the PRP Agreement. 9. ASSIGNMENT OF CONTRIBUTION RIGHTS The Parties hereby agree that Lockheed Martin shall have the exclusive right among the Parties to assert claims for contribution against all persons and entities that any Party contends have any responsibility or liability for Shared Costs because of their relationship to a source of COCs located in the Burbank Operable Unit, and that the Parties, other than Lockheed Martin, shall have the exclusive right to assert claims for contribution against all persons and entities that any Party contends have responsibility or liability for Shared Costs because of their relationship to a source of COCs located in the Glendale 13 14 Operable Units. All of the Parties shall preserve their respective contribution rights against all persons and entities asserted to have responsibility or liability for Shared Costs because of their relationship to a source of COCs located outside the Burbank Operable Unit and Glendale Operable Units. 10. PRESENTATIONS TO THE PANEL Each of the Allocation Participants shall have the right to present any information to the Panel the Participant determines is appropriate to assist the Panel in rendering the Burbank/Glendale Split Allocation Decision, subject to the limitations set forth in this Agreement or any written procedural rules established by a Consensus of the Allocation Participants. (a) Written Submittals Any briefs submitted to the Panel in accordance with the schedule attached to this Agreement as Appendix C shall be comprised of no more than 30 pages of double-spaced type on letter-sized paper, excluding any attached graphics, charts or other explanatory exhibits. The only other limitation on the type of information that may be presented to the Panel in a written submittal shall be that the information cannot reveal any Party's current or previous interim allocated share of costs with respect to the Glendale North and Glendale South Operable Units, the views or opinions of the mediation team that developed the January 1994 interim allocation regarding adequacy of the data, or any allocation decisions which that team rendered. 14 15 (b) Workshops Conducted By The Panel Workshops at which each Allocation Participant shall have the right to make such additional oral and graphic presentations to the Panel as the Participant deems appropriate or the Panel may request shall be held in accordance with the schedule attached to this Agreement as Appendix C or at such other times as the Allocation Participants determine by Mutual Agreement. However, the Panel shall have the right to limit the Allocation Participant's right to make oral and graphic presentations or decline to hear or receive information from a Participant which the Panel deems to be redundant or of no significant value in arriving at the Burbank/Glendale Split Allocation Decision. Only Allocation Participant representatives, their attorneys and experts, the Panel members and the Judicial Neutral may attend such workshops. All workshops shall be informal in nature and designed to aid the Panel in promptly arriving at the Burbank/Glendale Split Allocation Decision. To that end, the Panel may establish such limitations on the time allotted for individual Allocation Participants to address the Panel and the order in which presentations shall be made as it determines to be efficient and equitable, with a view toward assuring that each Participant has a reasonable opportunity to provide the Panel with all relevant information it wishes to present. The only limitation on the types of information that may be presented to the Panel at a workshop shall be that the information cannot reveal a Party's current or previous interim 15 16 allocated share of costs with respect to the Glendale North and Glendale South Operable Units, the views or opinions of the mediation team that developed the January 1994 interim allocation regarding adequacy of the data, or any allocation decisions which that team rendered. 11. GENERAL DATA SUBMISSIONS TO THE PANEL The allocation administrator shall be responsible for making all general data submissions to the Panel and for receiving any requests from the Panel for general information not primarily related to the presentation by a specific Allocation Participant. As of the date of this Agreement, the Participants have selected Boone & Associates, located at 901 Corporate Center Drive, Suite 204, Monterey Park, California 91754, telephone number (213) 261-3771, as the allocation administrator. The allocation administrator shall promptly report to the Allocation Participants in writing any request for information received from the Panel and obtain the Mutual Agreement of the Participants before providing information to the Panel in response to such a request. The initial general data submission to the Panel consists of the documents listed in Appendix D. 12. COMMUNICATIONS WITH THE PANEL All written communications intended for transmittal to the Panel shall be delivered to the allocation administrator in multiple sets of five. Within one business day of receipt, the allocation administrator shall transmit one copy of the communication to each of the Panel members. The other two copies 16 17 shall be retained in the allocation document repository established by the allocation administrator and shall be accessible to all Participants and their experts, Panel Members and the Judicial Neutral during regular business hours. At the same time that the allocation administrator transmits any communication to the Panel, he or she shall provide each Allocation Participant by facsimile transmission with a copy of the covering transmittal document, which shall contain a brief description of each communication being transmitted to the Panel. Any Allocation Participant desiring a copy of a communication transmitted to the Panel may obtain same by contacting the allocation administrator or the Participant that provided the communication to the allocation administrator and paying any associated copying charges. Other than the Chairperson, no Allocation Participant, its attorney or expert shall contact a member of the Panel except as provided in this Agreement. 13. DOCUMENT REPOSITORIES On or before the date indicated in the schedule attached to this Agreement as Appendix C, each Glendale Member shall deliver the following information to the document repository established pursuant to Section 12 of this Agreement: 1) An index by chronological date of all documents submitted by the Party, with each document identified by date, title, subject and author. 2) A copy of each document submitted to a governmental entity containing information pertaining to usage 17 18 of COCs at the site for which a Remedial Design Notice letter has been received by the Party ("RDN site"). 3) A copy of each non-privileged document, excluding any drafts and consultant proposals for services, in the possession, custody or control of the Party relating to the RDN site containing, discussing or analyzing: (a) data relating to site soils, geology or hydrology; (b) the absence or presence of COCs in the air, soils, surface water or groundwater; and (c) releases of COCs to the air, soils, surface water or groundwater. All documents and data submitted by a Party as part of any prior allocation proceeding conducted pursuant to the PRP Agreement shall be placed in the document repository established pursuant to Section 12 of this Agreement. However, a Party shall have the right to remove any attorney client communications from such documents prior to the time such documents are made available to Allocation Participants. No Party shall be required to resubmit documents or data which have already been placed in the document repository. Should any Glendale Member claim that documents otherwise required to be submitted pursuant to this section are subject to a privilege under State or Federal law or documents claimed as privileged are removed from the document repository by 18 19 such Member, the Glendale Member may withhold the document for which legal privilege is claimed, but shall provide a log showing the date, author, title, general subject matter and basis for asserting privilege with respect to the document; provided however, a Glendale Member is not required to include in such log draft documents, attorney client communications or consultant proposals for services. All disputes regarding the assertion of privileges shall be brought to the Judicial Neutral for prompt resolution. In lieu of compliance with the foregoing requirements, on or before the date indicated in the schedule attached to this Agreement as Appendix C, Lockheed Martin shall make available all documents in the Lockheed Martin Burbank Program Office Technical Information Center, at 2550 North Hollywood Way, Suite 500, in Burbank, California, and in the Hargis & Associates technical library, at 2223 Avenida De La Playa, Suite 300, in La Jolla, California, relating to facilities that Lockheed Martin owns within the Burbank Operable Unit or considers to be responsible for the groundwater contamination problem addressed by the Burbank Operable Unit Interim Remedy that would be covered by subparagraphs 2) and 3) of this Section if the facilities were RDN sites. Lockheed Martin represents that these documents fully satisfy the document submission standards set forth for the Glendale Members. Should Lockheed Martin claim that documents otherwise required to be submitted pursuant to this section are subject to a 19 20 privilege under State or Federal law or documents claimed as privileged are removed from the document repository by Lockheed Martin, Lockheed Martin may withhold the document for which legal privilege is claimed, but shall provide a log showing the date, author, title, general subject matter and basis for asserting privilege with respect to the document; provided however Lockheed Martin is not required to include in such log draft documents, attorney client communications or consultant proposals for services. All disputes regarding the assertion of privileges shall be brought to the Judicial Neutral for prompt resolution. Until the date set forth in the schedule attached to this Agreement as Appendix C, all Allocation Participants shall be under a continuing obligation to deliver to the document repository established pursuant to Section 12 of this Agreement any documents containing material new information the Participant becomes aware of that are within the scope of the submittal requirements in this section. Such supplemental submissions shall be made within 10 days after the Participant first learns of the existence of such documents. All submittals to the document repository established pursuant to Section 12 of this Agreement shall be accompanied by a verification in the form attached to this Agreement as Appendix E, executed by an authorized representative of the Party making the submittal, verifying that the Party has made a good faith effort and diligent investigation to comply with the requirements of this Section. 20 21 14. NO RIGHT TO DISCOVERY Except as set forth in this Agreement, no Party shall be entitled to obtain information or documents from another Party through this allocation proceeding. Nor shall any Party have the right to depose or orally examine any Party or its expert at any workshop conducted by the Panel or otherwise as part of these proceedings. Notwithstanding the foregoing, the Panel, in its sole discretion, may allow any Allocation Participant, its attorney or expert to address questions to or make oral or written comments in response to any person providing oral or graphic information to the Panel at a workshop. 15. ADDITIONAL PROCEDURAL REQUIREMENTS The procedural requirements established by this Agreement can be supplemented or modified at any time by procedural rules adopted by a Consensus of the Allocation Participants. Such rules shall be in writing and may only be adopted (1) during a workshop conducted pursuant to Section 10 of this Agreement, or (2) at a meeting or via a teleconference of the Participants called and held for that purpose on at least three days written notice. 16. NONWAIVER OF OTHER CLAIMS OF PARTIES Except as provided in Section 8 of this Agreement (The Binding Effect of the Burbank/Glendale Split Allocation Decision), participation in the allocation process established pursuant to this Agreement shall not constitute a waiver of, or prejudice to, any position a Party has taken or may take in any other administrative or judicial proceeding. 21 22 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: A.C. LAYNE, INC. ------------------------------------ BY: MICHAEL D. LEE, PRES. ------------------------------------ (Name and Title) SIGNATURE: /s/ MICHAEL D. LEE ------------------------------------ 22 23 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: ADMIRAL CONTROL INC. ------------------------------------ BY: DAVID J. HIGGINS, PRES. ------------------------------------ (Name and Title) SIGNATURE: /s/ DAVID J. HIGGINS ------------------------------------ 22 24 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: AMERICAN METASEAL ------------------------------------ BY: RICARDO CANALES, PRESIDENT ------------------------------------ (Name and Title) SIGNATURE: /s/ RICARDO CANALES ------------------------------------ 22 25 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: BROCK BUS LINES ------------------------------------ BY: RUTH BINZLEY -- SECT/TREAS. ------------------------------------ (Name and Title) SIGNATURE: /s/ RUTH BINZLEY ------------------------------------ 22 26 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: BURBANK STEEL TREATING INC. ------------------------------------ BY: MILDRED N. BENNETT -- SEC-TR ------------------------------------ (Name and Title) SIGNATURE: /s/ MILDRED N. BENNETT ------------------------------------ 22 27 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: COORTAULDS AEROSPACE ------------------------------------ BY: TED CLARK, V.P. & GENERAL MANAGER ------------------------------------ (Name and Title) SIGNATURE: /s/ TED CLARK ------------------------------------ 22 28 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: CREDIT MANAGERS ASSN. OF CALIFORNIA ------------------------------------ BY: DAVID F. MACOMBER, VP & CFO ------------------------------------ (Name and Title) SIGNATURE: /s/ DAVID F. MACOMBER ------------------------------------ 22 29 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: EEMCO DIV., DATRON INC. ------------------------------------------ BY: DANIEL F. O'SULLIVAN, DIRECTOR OF FINANCE & ADMINISTRATION ------------------------------------------ (Name and Title) SIGNATURE: /s/ DANIEL F. O'SULLIVAN ------------------------------------------ 22 30 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: EXCELLO PLATING CO. ------------------------------------ BY: GLEN HARLEMAN, PRES/OWNER ------------------------------------ (Name and Title) SIGNATURE: /s/ GLEN HARLEMAN ------------------------------------ 22 31 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: HASKEL INTERNATIONAL, INC. ------------------------------------ BY: EDWARD MALKOWICZ, CHAIRMAN ------------------------------------ (Name and Title) SIGNATURE: /s/ EDWARD MALKOWICZ ------------------------------------ 22 32 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: ITT CORPORATION ------------------------------------------ BY: ROGER W. LANGSDORF, ASST. GENERAL COUNSEL ------------------------------------------ (Name and Title) SIGNATURE: /s/ ROGER W. LANGSDORF ------------------------------------------ 22 33 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: LANCO METALS ------------------------------------ BY: STEPHEN P. SAURENMAN, V.P. ------------------------------------ (Name and Title) SIGNATURE: /s/ STEPHEN P. SAURENMAN ------------------------------------ 22 34 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: LOCKHEED MARTIN CORPORATION --------------------------------------- BY: GREGORY R. McCLINTOCK, RETAINED COUNSEL --------------------------------------- (Name and Title) SIGNATURE: /s/ GREGORY R. McCLINTOCK --------------------------------------- 22 35 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: LORAL LIBRASCOPE CORPORATION ------------------------------------ BY: DAVID SWEET - VICE PRESIDENT ------------------------------------ (Name and Title) SIGNATURE: /s/ DAVID SWEET ------------------------------------ 22 36 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: MENASCO ------------------------------------- BY: CHARLES H. POMEROY, ATTY. FOR MENASCO ------------------------------------- (Name and Title) SIGNATURE: /s/ CHARLES H. POMEROY ------------------------------------ 22 37 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: PACIFIC BELL ------------------------------------ BY: IRENE SOTO, ENV. MGR. ------------------------------------ (Name and Title) SIGNATURE: /s/ IRENE SOTO ------------------------------------ 22 38 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: PHILIPS COMPONENTS, A DIVISION OF PHILIPS ELECTRONICS N. AMERICA CORP. ------------------------------------------- BY: JOSEPH L. WOLF JR., DIV. ENVIRONMENTAL MGR. ------------------------------------------- (Name and Title) SIGNATURE: /s/ JOSEPH L. WOLF JR. ------------------------------------------- 22 39 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ------------------------------------------- BY: ANA M. PEREZ, VICE PRESIDENT ------------------------------------------- (Name and Title) SIGNATURE: /s/ ANA M. PEREZ ------------------------------------------- 22 40 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: RALPHS GROCERY COMPANY -------------------------------------------------- BY: JAN CHARLES GRAY -- SENIOR VICE PRESIDENT, GENERAL COUNSEL & SECRETARY -------------------------------------------------- (Name and Title) SIGNATURE: /s/ JAN CHARLES GRAY -------------------------------------------------- 22 41 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: SOUTHERN PACIFIC TRANSPORTATION CO. ------------------------------------ BY: ROBERT F. STARZEL, VICE CHAIRMAN ------------------------------------ (Name and Title) SIGNATURE: /s/ ROBERT F. STARZEL ------------------------------------ 22 42 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: VICKERS, INC. (STERER ENGINEERING & MFG. CO.) ------------------------------------------------ BY: MADONNA F. McGRATH, SENIOR ATTY-ENVIRONMENTAL ------------------------------------------------ (Name and Title) SIGNATURE: /s/ MADONNA F. McGRATH ------------------------------------------------ 22 43 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: VORELCO/VOLKSWAGEN OF AMERICA, INC. ------------------------------------ BY: LEIGH TAYLOR COMBS ------------------------------------ (Name and Title) SIGNATURE: /s/ LEIGH TAYLOR COMBS ------------------------------------ 22 44 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: W&W MANUFACTURING CO. ------------------------------------ BY: AARON ROSEN, ATTORNEY ------------------------------------ (Name and Title) SIGNATURE: /s/ AARON ROSEN ------------------------------------ 22 45 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: THE WALT DISNEY COMPANY ------------------------------------ BY: MANUEL G. GRACE ------------------------------------ (Name and Title) SIGNATURE: /s/ MANUEL G. GRACE ------------------------------------ 22 46 17. SURVIVAL OF AMENDMENT This Agreement cannot be amended without the written Consensus of the Allocation Participants. All such amendments shall inure to the benefit of and be binding upon all Parties who are Allocation Participants at the time of the amendment notwithstanding the subsequent withdrawal or removal of any such Allocation Participant from the Glendale PRP Group. 18. SECTION HEADINGS The section headings used herein are for reference and convenience only and shall not enter into the interpretation of this Agreement. IN WITNESS WHEREOF, the undersigned Party enters into this Agreement and amendment to the PRP Agreement as of the date first set forth above. Each person signing this document represents and warrants that he or she has been duly authorized to enter into this Agreement by the Party on whose behalf it is indicated the person is signing. PARTY: ZERO CORPORATION ------------------------------------ BY: ANITA T. CUTCHALL, CORP. SECTY. ------------------------------------ (Name and Title) SIGNATURE: /s/ ANITA T. CUTCHALL ------------------------------------ 22 47 MAP AREA A: BURBANK OPERABLE UNIT AREA B: GLENDALE OPERABLE UNITS APPENDIX A 48 CONTAMINANTS OF CONCERN Benzene Carbon Tetrachloride 1,1-Dichloroethane 1,2-Dichloroethane 1,1-Dichloroethene Methylene Chloride 1,1,2,2-Tetrachloroethane Tetrachloroethene Toluene 1,1,1-Trichloroethane Trichloroethene 1,1,2,2-Tetrachloroethene 2-Butanone (MEK) 1,2-Dichloroethene (total) Vinyl chloride Xylene (total) Nitrates APPENDIX B 49 ALLOCATION SCHEDULE Process Starts -- Facility Data Submittal to On or before Document Repository 6/7/95 Opening Briefs 6/7/95 Responsive Briefs 6/30/95 1st Workshop 7/15-16/95 Panel Report on 1st Workshop 8/7/95 Last Date to Submit New Facility Data 8/14/95 Supplemental Briefs 9/1/95 2nd Workshop 9/13-14/95 Panel Issues Proposed Allocation 10/13/95 PRPs Respond to Proposed Allocation 10/27/95 Panel's Allocation Decision 11/3/95 Deadline for Filing Appeals to Judicial Neutral On or about 11/10/95 Responses to Appeals On or about 11/17/95 Judicial Neutral Rules On or about 11/27/95 Process Concludes -- Panel Issues Final Decision -- Based on Results of Appeal
APPENDIX C 50 INITIAL DATA SUBMISSION TO PANEL Remedial Investigation Report for the Glendale Study Area, Vol. 1 & 2, J.M. Montgomery, January 92 Feasibility Study for the Glendale Study Area North Plume Operable Unit, J.M. Montgomery, April 92 Feasibility Study for the Glendale Study Area South Operable Unit, J.M. Montgomery, August 92 Remedial Investigation of Groundwater Contamination in the San Fernando Valley (5 Volumes), J.M. Montgomery, December 92 San Fernando Basin Water Management: San Fernando Valley Superfund Site, CH2MHill, January 94 San Fernando Basin Groundwater Model Documentation: San Fernando Valley Superfund Site, CH2MHill, October 94 Glendale North and South Operable Unit Record of Decision, USEPA, June 93 Administrative Order on Consent, USEPA, May 94 Glendale North and South Operable Units Remedial Design: Conceptual Remedial Design Report, CDM, February 95 Water Level Elevation Contour Maps, Upper Los Angeles River Watermaster, 1950-1969, 1988, 1993 Water Level Elevation Contour Maps, Upper Los Angeles River Watermaster, 1958-1992 Record of Decision for the Burbank Well Field Operable Unit, 5/89 Operable Unit Feasibility Study, Burbank Well Field, Vols. 1-2, 10/88 (James Montgomery) Phase I Final Remedial Design Report, Burbank Operable Unit, Vols. 5 and 6, 9/30/93, Simon Hydro-Search Remedial Investigation Report, Vols. 1-3, 12/92 (James Montgomery) Final Phase I Conceptual Remedial Design Report, Burbank Operable Unit, Vols. 1-2 1/19/93, Simon Hydro-Search APPENDIX D 51 VERIFICATION The undersigned hereby verifies that a good faith and diligent investigation has been undertaken to identify all information required to be produced to the allocation document repositories established pursuant to Section 13 of the Memorandum of Agreement Regarding Cost-Sharing dated June 7, 1995 (the "Information"), and that all such Information has been forwarded to the appropriate document repository. The undersigned further acknowledges that it is under a duty to supplement or correct the Information and hereby verifies that it will produce any subsequently discovered, corrected or newly generated or received Information to the document repository within ten days of the discovery, receipt or generation of such Information. This verification is made under penalty of perjury and is executed on 11/22, 1995 at GLENDALE, CALIF. APPENDIX E 52 VERIFICATION The undersigned hereby verifies that a good faith and diligent investigation has been undertaken to identify all information required to be produced to the allocation document repositories established pursuant to Section 13 of the Memorandum of Agreement Regarding Cost-Sharing dated June 7, 1995 (the "Information"), and that all such Information has been forwarded to the appropriate document repository. The undersigned further acknowledges that it is under a duty to supplement or correct the Information and hereby verifies that it will produce any subsequently discovered, corrected or newly generated or received Information to the document repository within ten days of the discovery, receipt or generation of such Information. This verification is made under penalty of perjury and is executed on ______________, 1995 at ______________________. APPENDIX E 53 VERIFICATION The undersigned hereby verifies that a good faith and diligent investigation has been undertaken to identify all information required to be produced to the allocation document repositories established pursuant to Section 13 of the Memorandum of Agreement Regarding Cost-Sharing dated June 7, 1995 (the "Information"), and that all such Information has been forwarded to the appropriate document repository. The undersigned further acknowledges that it is under a duty to supplement or correct the Information and hereby verifies that it will produce any subsequently discovered, corrected or newly generated or received Information to the document repository within ten days of the discovery, receipt or generation of such Information. /s/ AARON RESEN This verification is made under penalty of perjury and is executed on November 14, 1995 at Glendale, Calif. APPENDIX E EX-10.18 7 FIRST AMENDMENT DATED 8/30/95 TO LOAN AGREEMENT 1 EXHIBIT 10.18 FIRST AMENDMENT TO LOAN AGREEMENT THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "First Amendment") dated as of August 30th 1995, is made and entered into by and between HASKEL INTERNATIONAL, INC., a California corporation ("Borrower"), and UNION BANK, a California banking corporation ("Bank"). RECITALS: A. Borrower and Bank are parties to that certain Loan Agreement dated as of February 21, 1995 (the "Agreement"), pursuant to which Bank agreed to extend credit to Borrower. B. Borrower and Bank desire to amend the Agreement, subject to the terms and conditions of this First Amendment. AGREEMENT: In consideration of the above recitals and of the mutual covenants and conditions contained herein, Borrower and Bank agree as follows: 1. Defined Terms. Initially capitalized terms used herein which are not otherwise defined shall have the meanings assigned thereto in the Agreement. 2. Amendments to the Agreement. (a) Section 1.8 of the Agreement is hereby amended to read in full as follows: "1.8 Security. Prior to any disbursement of the Loans on or after the effective date of the First Amendment to this Agreement, Bank shall have received an Amended and Restated Security Agreement, whereby Borrower shall pledge and grant to Bank a first priority perfected security interest in 50,000 shares of deferred ordinary stock of Borrower's subsidiary, Haskel Energy Systems, Ltd. (b) The definition of "Debt Service" appearing in Section 4.10 of the Agreement is hereby amended to read in full as follows: "Debt Service" shall mean the sum of (a) the principal portion of all term obligations owing to Bank or any other person or entity coming due within 12 months after the date of calculation, and (b) interest expense, non-financed capital expenditures, dividends and the aggregate amount, expressed in Dollars, of all purchases, redemptions, retirements and other acquisitions of shares of the capital stock of Borrower for the twelve (12) months preceding the date of calculation." 3. Effectiveness of this First Amendment. This First Amendment shall become effective as of the date hereof when, and only when, Bank shall have received all of the following, in form and substance satisfactory to Bank: (a) A counterpart of this First Amendment, duly executed by Borrower and acknowledged by Guarantor where indicated below; and (b) An Amended and Restated Security Agreement, duly executed by Borrower; and (c) Such other documents, instruments or agreements as Bank may reasonably deem necessary. 4. Ratification. Except as specifically amended hereinabove, the Agreement shall remain in full force and 2 effect and is hereby ratified and confirmed. 5. Representations and Warranties. Borrower represents and warrants as follows: (a) Each of the representations and warranties contained in the Agreement, as may be amended hereby, is hereby reaffirmed as of the date hereof, each as if set forth herein; (b) The execution, delivery and performance of this First Amendment and any other instruments or documents in connection herewith are within Borrower's power, have been duly authorized, are legal, valid and binding obligations of Borrower, and are not in conflict with the terms of any charter, bylaw, or other organization papers of Borrower or with any law, indenture, agreement or undertaking to which Borrower is a party or by which Borrower is bound or affected; and (c) No event has occurred and is continuing or would result from this First Amendment which constitutes or would constitute an Event of Default under the Agreement. 6. Governing Law. This First Amendment and all other instruments or documents in connection herewith shall be governed by and construed according to the laws of the State of California. 7. Counterparts. This First Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. WITNESS the due execution hereof as of the date first above written. HASKEL INTERNATIONAL, INC. UNION BANK By: /s/ MAURY FRIEDMAN By: /s/ CATHERINE ABE ------------------------------- --------------------------------- Maury Friedman Catherine Abe Title: President Title: Vice President ---------------------------- ------------------------------ By: /s/ L. D. SCHNELL By: /s/ ALLISON W. BERRY ------------------------------- --------------------------------- L. D. Schnell Allison W. Berry Title: Chief Financial Officer Title: Credit Officer ---------------------------- ------------------------------ Acknowledged and Agreed and Continuing Guaranty dated February 21, 1995 confirmed this _____ day of August, 1995 M.G. ELECTRONICS, INC. By: /s/ MAURY FRIEDMAN ------------------------------- Maury Friedman Title: Chairman ---------------------------- EX-10.19 8 SECOND AMENDMENT DATED 2/13/96 TO LOAN AGREEMENT 1 EXHIBIT 10.19 SECOND AMENDMENT TO LOAN AGREEMENT THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Second Amendment") dated as of February 13, 1996, is made and entered into by and between HASKEL INTERNATIONAL, INC., a California Corporation ("Borrower"), and UNION BANK, a California banking corporation ("Bank"). RECITALS: A. Borrower and Bank are parties to that certain Loan Agreement dated February 21, 1995 (the "Agreement"), pursuant to which Bank agreed to extend credit to Borrower and amendments thereto dated August 30, 1995. B. Borrower and Bank desire to amend the Agreement subject to the terms and conditions of this Second Amendment. AGREEMENT: In consideration of the above recitals and of the mutual covenants and conditions contained herein, Borrower and Bank agree as follows: 1. Defined Terms. Initially capitalized terms used herein which are not otherwise defined shall have the meanings assigned thereto in the Agreement. 2. Amendments to the Agreement. (a) Section 4.5(a) of the Agreement is hereby amended by substituting "sixty (60) days" for "forty-five (45) days". 3. Effectiveness of the Second Amendment. This Second Amendment shall become effective as of the date hereof when, and only when, Bank shall have received all of the following, in form and substance satisfactory to Bank: (a) The counterpart of this Second Amendment, duly executed by Borrower; (b) Such other documents, instruments or agreements as Bank may reasonably deem necessary. 4. Ratification. Except as specifically amended hereinabove, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 5. Representations and Warranties. Borrower represents and warrants as follows: (a) Each of the representations and warranties contained in the Agreement, as may be amended hereby, is hereby reaffirmed as of the date hereof, each as if set forth herein; (b) The execution, delivery and performance of the Second Amendment and any other instruments or documents in connection herewith are within Borrower's power, have been duly authorized, are legal, valid and binding obligations of Borrower, and are not in conflict with the terms of any charter, bylaw, or other organization papers of Borrower or with any law, indenture, agreement or undertaking to which Borrower is a party or by which Borrower is bound or affected; (c) No event has occurred and is continuing or would result from this Second Amendment which constitutes or would constitute an Event of Default under the Agreement. 6. Governing Law. This Second Amendment and all other instruments or documents in connection 2 herewith shall be governed by and construed according to the laws of the State of California. 7. Counterparts. This Second Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. WITNESS the due execution hereof as of the date first above written. HASKEL INTERNATIONAL, INC. UNION BANK By: /s/ LONNIE D. SCHNELL By: /s/ ALLISON W. BERRY ------------------------------- ------------------------------- Lonnie D. Schnell Allison W. Berry Title: Chief Financial Officer Title: Assistant Vice President ---------------------------- ---------------------------- By: /s/ R. M. GREAVES By: /s/ CATHERINE ABE ------------------------------- ------------------------------- R. M. Greaves Catherine Abe Title: Title: Vice President ---------------------------- ---------------------------- Acknowledge and Agreed and Continuing Guaranty dated February 21, 1995 confirmed this ___ day of February, 1996. By: ------------------------------- Title: ---------------------------- EX-10.20 9 THIRD AMENDMENT DATED 4/16/96 TO LOAN AGREEMENT 1 EXHIBIT 10.20 THIRD AMENDMENT TO LOAN AGREEMENT THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "Third Amendment") dated as of April 16, 1996, is made and entered into by and between HASKEL INTERNATIONAL, INC., a California Corporation ("Borrower"), and UNION BANK, a Division of Union Bank of California, N.A., a banking corporation ("Bank"). RECITALS: A. Borrower and Bank are parties to that certain Loan Agreement dated February 21, 1995 (the "Agreement"), pursuant to which Bank agreed to extend credit to Borrower and amendments thereto dated August 30, 1995 and February 13, 1996. B. Borrower and Bank desire to amend the Agreement subject to the terms and conditions of this Third Amendment. AGREEMENT: In consideration of the above recitals and of the mutual covenants and conditions contained herein, Borrower and Bank agree as follows: 1. Defined Terms. Initially capitalized terms used herein which are not otherwise defined shall have the meanings assigned thereto in the Agreement. 2. Amendments to the Agreement. (a) Section 1.1.1.1 of the Agreement is hereby added in its entirety as follows: "The Commercial Letter of Credit Sublimit. As a sublimit to the Revolving Loan, Bank shall issue, for the account of Borrower, one or more commercial letters of credit (individually, an "L/C" and collectively, the "L/Cs"). The aggregate amount available to be drawn under all outstanding L/Cs and the aggregate amount of unpaid reimbursement obligations under drawn L/Cs shall not exceed One Million Dollars ($1,000,000) and shall reduce, dollar for dollar, the maximum amount available under the Revolving Loan. All such commercial L/Cs shall be drawn on such terms and conditions as are acceptable to Bank and shall be governed by the terms of (and Borrower agrees to execute) Bank's standard form for commercial L/C applications and reimbursement agreement and shall not have an expiration date more than one year from its date of issuance. No letter of credit shall expire within ninety days after the maturity of The Revolving Loan. 3. Effectiveness of the Third Amendment. This Third Amendment shall become effective as of the date hereof when, and only when, Bank shall have received all of the following, in form and substance satisfactory to Bank: (a) The counterpart of this Third Amendment, duly executed by Borrower; (b) Such other documents, instruments or agreements as Bank may reasonably deem necessary. 4. Ratification. Except as specifically amended hereinabove, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 5. Representations and Warranties. Borrower represents and warrants as follows: (a) Each of the representations and warranties contained in the Agreement, as may be amended hereby, is hereby reaffirmed as of the date hereof, each as if set forth herein; (b) The execution, delivery and performance of the Third Amendment and any other instruments 2 or documents in connection herewith are within Borrower's power, have been duly authorized, are legal, valid and binding obligations of Borrower, and are not in conflict with the terms of any charter, bylaw, or other organization papers of Borrower or with any law, indenture, agreement or undertaking to which Borrower is a party or by which Borrower is bound or affected; (c) No event has occurred and is continuing or would result from this Second Amendment which constitutes or would constitute an Event of Default under the Agreement. 6. Governing Law. This Third Amendment and all other instruments or documents in connection herewith shall be governed by and construed according to the laws of the State of California. 7. Counterparts. This Third Amendment may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. WITNESS the due execution hereof as of the date first above written. HASKEL INTERNATIONAL, INC. UNION BANK By: /s/ LONNIE D. SCHNELL By: /s/ CATHERINE ABE ------------------------------- ------------------------------- Lonnie D. Schnell Catherine Abe Title: Chief Financial Officer Title: Vice President ---------------------------- ---------------------------- By: /s/ R. M. GREAVES By: /s/ ALLISON W. BERRY ------------------------------- ------------------------------- R. M. Greaves Allison W. Berry Title: Title: Assistant Vice President ---------------------------- ---------------------------- EX-10.21 10 EMPLOYMENT AGREEMENT REGARDING JAMES C. MINYARD 1 EXHIBIT 10.21 M.G. ELECTRONICS, INC. 31364 Via Colinas, #103, Westlake Village, California 91362 Phone: (818) 889-1300 FAX: (818) 889-4987 December 22, 1995 Jim Minyard President M.G. Electronics 31364 Via Colinas, #103 Westlake Village, CA 91362 Dear Jim, Effective with the new year, your base salary will be increased to $9,000 per month with a monthly bonus equal to 1% of pre-tax operating income (before corporate charges). All other provisions of your compensation package will remain the same which are as follows: - Company provided automobile including operating expenses - Blue Cross insurance for you and your family - Discretionary bonus up to 40% of annual base pay - Termination pay at minimum of 3 months plus 30 day notice Thanks for your contributions in 1995 and I look forward to an even more profitable 1996. Sincerely, /s/ MAURY FRIEDMAN Maury Friedman President Electronic Products Group EX-10.22 11 HASKEL EXECUTIVE SEPARATION PAY PLAN 1 EXHIBIT 10.22 HASKEL INTERNATIONAL, INC. EXECUTIVE SEPARATION PAY PLAN 1. Introduction. Haskel International, Inc. hereby establishes this Executive Separation Pay Plan, effective March 1, 1996. The purpose of the Plan is to establish a uniform basis for providing separation allowances to certain eligible executive employees whose positions are eliminated or who are terminated for reasons other than for cause. This document constitutes both the written instrument under which the Plan is maintained and the summary plan description for the Plan. Beginning as of the effective date of this Plan, separation allowances for all employees who are Covered Employees under this Plan shall be provided only under this Plan and Covered Employees under this Plan shall not be eligible for any other separation allowances. 2. Definitions. 2.1 "Company" means Haskel International, Inc. and any subsidiary or affiliate of the Company which adopts the Plan with the approval of the Board of Directors of the Company. 2.2 "Covered Employee" means any executive employee so designated in writing by the Compensation Committee pursuant to Section 3.1, who has not subsequently been designated as ineligible. 2.3 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2.4 "Compensation Committee" means the Compensation Committee established by the Board of Directors. 2 2.5 "Plan" means this Executive Separation Pay Plan, as set forth in this instrument and as hereafter amended. 3. Eligibility. 3.1 Designation of Covered Employees. The Board of Directors or the Compensation Committee, from time to time, in its absolute discretion, shall designate in writing which executive employees of the Company shall be Covered Employees eligible for a separation allowance under this Plan. The Board of Directors, upon a recommendation from the Compensation Committee, shall designate which Corporate Officers shall be Covered Employees. The Compensation Committee shall designate all other Covered Employees. 3.2 General Eligibility Rules. An executive employee is eligible for a separation allowance under this Plan only if he or she is a Covered Employee on the date his or her employment with the Company terminates. 3.3 Exclusions. A Covered Employee is not eligible for a separation allowance if he or she: (a) Voluntarily resigns, even after receiving advance notice of his or her involuntary termination; (b) Is terminated after declining to accept a transfer, with no reduction in his or her current base salary or wage rate, to a comparable position with the Company or any affiliate in the same metropolitan area or geographic location; or (c) Is involuntarily terminated or resigns because he or she violated any policy, procedure or other rule of the Company; failed to perform his/her assigned duties; engaged in dishonest or wrongful conduct; committed any crime; or was otherwise discharged for cause. - 2 - 3 No separation allowance is payable under this Plan to the estate or other survivor of an Covered Employee who dies before his or her employment with the Company terminates. No separation allowance is payable under this Plan to a Covered Employee (1) by reason of his or her transfer to a position with any affiliate, or (2) by reason of the sale or other disposition of the Company, any affiliate or any assets of either, if the Covered Employee is offered a position with the successor employer, whether or not such offer is accepted. All determinations as to the application of exclusions under 3.3 shall be made solely in the reasonable discretion of the Compensation Committee. 4. Amount. A Covered Employee who is eligible to receive a separation allowance under Section 3 will receive at the discretion of the Company either a lump-sum or an agreement to receive salary continuation payments at the time of termination. The amount of the separation allowance will be a specified number of MONTHS of the Covered Employee's base salary as of the date his or her employment terminates. The Board of Directors on the recommendation of the Compensation Committee in its absolute discretion, will make this designation in writing at any time prior to the Covered Employee's termination of employment. 5. Special Rules. 5.1 Salary Continuation Payments. Instead of making a lump-sum payment, the Company (in its discretion) may pay the separation allowance in the form of regular payroll salary continuation payments. 5.2 Withholding. The Company SHALL withhold from any separation allowance all required federal, state, local and other taxes and any other payroll deductions required, including amounts necessary to satisfy any debt the - 3 - 4 employee owes to the Company or any affiliate by reason of advance on wages or vacation pay. 5.3 Death. In the event of a Covered Employee's death after termination of employment, separation allowance payments under Section 5.1 will cease as of the date of death, and the remainder of the separation pay will be made in a lump sum payment to the Covered Employee's estate. 5.4 Other Benefit Plans. If the COMPANY ELECTS TO GIVE salary continuation payments, all coverage under the Company's life insurance, medical and dental plans will continue for the time specified. Accrued and unpaid vacation pay balances will be paid as of the Covered Employee's termination date. 6. Administration. The Plan is administered and interpreted by the Compensation Committee. The Compensation Committee has the authority and responsibility to act for the Company as to all matters pertaining to the Plan, provided that any action which could significantly increase the cost of the Plan is subject to the prior approval of the Board of Directors. The Board of Directors may delegate and reallocate any authority and responsibility with respect to the Plan. All decisions of the Compensation Committee or the Board of Directors, taken in respect of the Plan and within the powers granted to them under the Plan, and any interpretation by any of them of any term and condition of the Plan shall be conclusive and binding on all Covered Employees, and shall be given the maximum deference allowed by law. 7. Amendment or Termination. The Board of Directors reserves the right, in his or her absolute and unlimited discretion, to amend, alter, revoke, rescind or terminate this Plan by a written instrument at any time, without advance notice - 4 - 5 to any Covered Employee. No exception to Section 3 or Section 4 of this Plan is valid unless approved in writing by the Board of Directors. 8. Claims Procedure. Any Covered Employee who believes he or she is entitled to any payment under this Plan may submit a claim in writing to the appropriate person, i.e., the Compensation Committee or the President of their respective Operating Group. If the claim is denied (either in full or in part), the employee will receive a written notice explaining the specific reasons for the denial and referring to the provisions of this Plan on which the denial is based. The notice will describe any additional information needed to support the claim. The denial notice will be provided within 90 days after the claim is received. If special circumstances require an extension of time (up to 90 days), written notice of the extension will be given within the initial 90-day period. 9. Appeal Procedure. If a Covered Employee's claim is denied, the Covered Employee (or his or her authorized representative) may apply in writing to the Compensation Committee for a review of the decision denying the claim. The Covered Employee (or representative) then has the right to review pertinent documents and to submit issues and comments in writing. The Compensation Committee will provide written notice of its decision on review within 60 days after it receives a review request. If additional time (up to 60 days) is needed to review the request, the Covered Employee will be given written notice of the reason for the delay. 10. Source of Payments. All separation allowances will be paid in cash from the general funds of the Company, no separate fund will be established under this Plan, and this Plan has no assets. Any right of any person to any payment under this Plan shall be no greater than the right of any other unsecured creditor of the Company. - 5 - 6 11. Inalienability. In no event may any current or former Covered Employee sell, transfer, anticipate, assign, hypothecate, or otherwise dispose of any right or interest under this Plan; and at no time will any such right or interest be subject to the claims of creditors nor liable to attachment, execution or other legal process. 12. Applicable Law. The provisions of this Plan will be construed, administered and enforced in accordance with ERISA and, to the extent applicable, the laws of the State of California. 13. Severability. If any provision of the Plan is held invalid or unenforceable, its invalidity or unenforceability will not affect any other provision of the Plan, and the Plan will be construed and enforced as if such provision had not been included. Additional Information Employer/Sponsor: Haskel International, Inc. 100 E. Graham Place Burbank, CA 91502 818-843-4000 Identification No's.: EIN: 95-4107640 Plan Type: Employee welfare benefit plan -- separation pay plan. - 6 - EX-11.1 12 STATEMENT RE. COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11.1 HASKEL INTERNATIONAL, INC. STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Year Ended May 31, --------------------------------------------- 1994 1995 1996 ------------- ------------- ------------- Primary & Primary & Primary & Fully Diluted Fully Diluted Fully Diluted ------------- ------------- ------------- Net income used to compute primary and fully diluted income per share................. $ 3,000 $ 1,019,000 $ 2,547,000 ============= ============= ============= Weighted average number of shares outstanding............... 3,600,992 4,356,322 4,728,230 Dilutive effect of stock options and warrants............. 74,041 80,428 10,036 Dilutive effect of stock options granted and stock issued in the 17 months prior to November 1, 1994 using the treasury stock method........................... 254,316 64,033 - ------------- ------------- ------------- Number of shares used to compute primary and fully diluted earnings per share....... 3,929,349 4,500,783 4,738,266 ============= ============= ============= Net income per share...... $0.00 $0.23 $0.54 ============= ============= =============
EX-21 13 SCHEDULE OF SUBSIDIARIES 1 EXHIBIT 21 SCHEDULE OF SUBSIDIARIES HASKEL INTERNATIONAL, INC. Direct and indirect subsidiaries:
State or Country Name of Organization Parent - ---- ---------------- ------ Haskel International, Inc. California N/A M.G. Electronics, Inc. California Haskel International, Inc. Haskel Energy Systems, Ltd. England Haskel International, Inc. S.A.T. Air Limited England Haskel Energy Systems, Ltd. Environclean Systems Limited England Haskel Energy Systems, Ltd. General Pneumatic S.A. France Haskel Energy Systems, Ltd. Haskel HochdruckSysteme GmbH Germany Haskel Energy Systems, Ltd. Hydraulic Mobile Equipment Ltd. England Haskel Energy Systems, Ltd. MGE (UK), Ltd. England M.G. Electronics, Inc.
EX-27 14 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS OF HASKEL INTERNATIONAL, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL 10-K. 1 YEAR MAY-31-1996 MAY-31-1996 8,239,000 0 10,542,000 961,000 10,532,000 29,968,000 12,446,000 6,920,000 45,360,000 8,077,000 0 0 0 13,455,000 18,765,000 45,360,000 56,792,000 56,792,000 32,082,000 32,082,000 20,261,000 389,000 274,000 4,544,000 1,997,000 2,547,000 0 0 0 2,547,000 .54 0 OTHER EXPENSES ARE COMPRISED OF SELLING, GENERAL AND ADMINISTRATIVE, ENGINEERING, DESIGN AND DEVELOPMENT. FULLY DILUTED EARNINGS PER SHARE IS NOT DISCLOSED IN THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS SINCE THE MAXIMUM DILUTIVE EFFECT IS NOT MATERIAL.
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