<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
[X] Filing by the Registrant
[ ] Filing by a party other than the Registrant
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
UNIFLEX, INC.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.10 per share.
Options to Purchase Common Stock
---------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
3,678,194 shares of Common Stock
128,700 options to purchase Common Stock (a)
---------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$7.57 per share of Common Stock
Difference between $7.57 and exercise price of option per option to
purchase Common Stock
---------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$28,370,634.87 (b) (Previously paid)
---------------------------------------------------------------------------
(5) Total fee paid:
$5,674.13 (b) (Previously paid)
---------------------------------------------------------------------------
(a) Represents the number of currently outstanding options to purchase
Common Stock for which the exercise price is less than $7.57 per
share.
(b) Represents 4,300,352 shares of Common Stock estimated to be
outstanding as of June 1, 1999 reduced by 622,158 shares of Common
Stock to be retained by certain stockholders of Uniflex (including
certain officers and directors of Uniflex).
(c) Pursuant to Rule 0-11, the filing fee was computed as set forth in
the following table:
<TABLE>
<CAPTION>
CONSIDERATION AGGREGATE
NUMBER PER UNIT CONSIDERATION
----------- --------------- -------------------
<S> <C> <C> <C>
Common Stock ............................. 3,678,194 $ 7.57 $ 27,843,928.58
Options to purchase Common Stock ......... 128,700 $ 4.092512* $ 526,706.29*
----------------
$ 28,370,634.87
</TABLE>
------------
*Based on the weighted average exercise price of such Options of
approximately $3.477488 per share of Common Stock.
<PAGE>
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
UNIFLEX, INC.
383 WEST JOHN STREET
HICKSVILLE, NEW YORK 11802
June 7, 1999
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Uniflex, Inc. ("Uniflex" or the "Company") to be held at 10:00 a.m. on June 30,
1999 at Battle Fowler LLP, 75 East 55th Street, New York, New York 10022 (the
"Special Meeting").
At this meeting, you will be asked to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger and Recapitalization, dated
as of March 5, 1999 (the "Merger Agreement"), by and between Uniflex and
Uniflex Acquisition Corp. ("Acquisition"), pursuant to which each share of
common stock of Uniflex outstanding immediately prior to closing will (with
limited exceptions, described below) be converted to the right to receive $7.57
in cash. Acquisition is a newly-formed Delaware corporation controlled by RFE
VI SBIC, L.P. a Delaware limited partnership ("RFE"). The material terms of the
Merger Agreement are described below and in the Proxy Statement attached as
Annex A hereto.
Consummation of the Merger is subject to certain conditions, including the
consummation of the Financing (as defined in the Merger Agreement) contemplated
by the Commitment Letters (as defined in the Merger Agreement). It is
contemplated that the financing required to pay the Cash Merger Price (defined
below), to pay the value of the Options (defined below), to refinance certain
existing indebtedness of the Company, including indebtedness under the
Company's existing mortgage loan, and to pay the fees and expenses in
connection with the Merger and such financing will be provided by (a) a term
loan in the amount of $18.5 million and drawings under a $5 million revolving
credit facility, to be included in a senior secured credit facility to be
entered into by the Company; (b) issuance by the Company of its senior
subordinated debentures for gross proceeds of $7 million; (c) equity financing
provided by RFE in the amount of $5.25 million through the purchase of common
stock of Acquisition and (d) equity financing of $750,000 provided by
Sterling/Carl Marks Capital, Inc., a New York corporation ("Sterling/Carl
Marks"), through the purchase immediately prior to the Effective Time of common
stock of Uniflex.
Upon the terms and subject to the conditions of the Merger Agreement, at
the effective time of the transactions contemplated thereby (the "Effective
Time"): (a) Acquisition will be merged into Uniflex (the "Merger"), with
Uniflex continuing as the surviving corporation (the "Surviving Corporation");
(b) the current directors of Uniflex will be replaced by the persons named in
an exhibit to the Merger Agreement; (c) the shares of common stock of
Acquisition held by RFE will be converted into shares of common stock of the
Surviving Corporation, representing approximately 49.0% of the outstanding
shares of common stock of the Surviving Corporation immediately following the
Effective Time; (d) Sterling/ Carl Marks, Robert Davidoff ("Davidoff"), CMNY
Capital, L.P., a Delaware limited partnership ("CMNY"), and CMCO, Inc., a New
York corporation ("CMCO" and, together with Sterling/Carl Marks, Davidoff and
CMNY, the "Carl Marks Affiliates") will retain an aggregate of 399,233 shares
of common stock of Uniflex and Herbert Barry, Robert K. Semel and Warner J.
Heuman, each a director and, respectively, the Chairman and Chief Executive
Officer, President and Chief Operating Officer and Chairman Emeritus of the
Company, Erich Vetter, a director of the Company, and the other officers and
employees of the Company listed in the table below (collectively, the
"Management Group") will retain an aggregate of 322,000 shares of common stock
of Uniflex (the shares of common stock of Uniflex to be retained by the Carl
Marks Affiliates and the members of the Management Group being referred to
herein as the "Retained Shares"), which Retained Shares held by the Carl Marks
Affiliates and the members of the Management Group will represent approximately
9.1% and 7.3%, respectively, of the outstanding shares of common stock of
Uniflex immediately prior to the Effective Time and approximately 28.2% and
22.8%, respectively, of the outstanding shares of common stock of the Surviving
Corporation immediately after the Effective Time; (e) each share of common
stock of Uniflex outstanding immediately prior to the Effective Time (except
for the Retained Shares, treasury shares held by Uniflex,
<PAGE>
and shares held by dissenting stockholders who have properly exercised their
rights pursuant to Section 262 of the Delaware General Corporation Law) will be
converted into the right to receive $7.57 per share in cash (the "Cash Merger
Price"); and (f) each outstanding employee or director stock option (the
"Options") granted under the Company's 1993 Stock Option Plan and 1996 Outside
Directors' Stock Option Plan (collectively, the "Stock Option Plans") or
otherwise will, subject to any agreement between the Company and the holder of
any Option, be canceled and the former holder thereof shall thereafter have the
right to receive cash in an amount equal to the product of the number of shares
of common stock of Uniflex previously subject to such Option and the excess of
the Cash Merger Price per share over the exercise price per share of such
Option. Applicable withholding taxes will be deducted from all payments made in
respect of the Options.
Herbert Barry and Robert K. Semel have entered into new employment
agreements, which will become effective upon consummation of the Merger and
which will each have a term of three years and provide for severance payments
under certain circumstances, and will receive signing bonuses one day after
consummation of the Merger of $1.9 million and $1.5 million, respectively. In
addition, a stock option plan with respect to an aggregate of 10% of the common
stock of the Surviving Corporation will be instituted for the Company's
executives, including Herbert Barry, Robert K. Semel and certain other members
of the Management Group. Upon consummation of the Merger, options with respect
to 5% of the common stock of the Surviving Corporation will be granted,
pursuant to the stock option plan described in the preceding sentence, to the
members of the Management Group listed in the table below. The table below
describes the interests of the Management Group in the Company both prior to
and following the Merger and certain benefits to be received by members of the
Management Group upon consummation of this Merger:
<TABLE>
<CAPTION>
SHARES HELD RETAINED NEW
NAME PRIOR TO MERGER SHARES OPTIONS* SIGNING BONUSES
- -------------------------- ----------------- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Herbert Barry ............ 470,490 75,000 0.714% $1,900,000
Robert K. Semel .......... 434,100 75,000 0.714% $1,500,000
Warner J. Heuman ......... 395,520 75,000 -- --
Erich Vetter ............. 288,999 15,000 -- --
Melissa Cantor ........... 74,501** 15,000 0.714% --
Lee Cantor ............... ** 15,000 0.716% --
Neil Sklar ............... 30,100 26,000 0.714% --
Hy Brownstein ............ 22,710 13,000 0.714% --
Elliot Berger ............ 87,300 13,000 0.714% --
------ -----
Totals ................ 322,000 5.000%
</TABLE>
- ----------
* As a percentage of outstanding Surviving Corporation Common Stock, on a
fully diluted basis.
** Shares held, in part, jointly by Melissa and Lee Cantor and, in part,
individually by Melissa and Lee Cantor, respectively.
(See "Security Ownership of Certain Beneficial Owners and Management" in the
accompanying Proxy Statement for information concerning the beneficial
ownership of the shares shown in the foregoing table.)
The interests of the Company's management in the Merger are described in
the accompanying Proxy Statement under the headings "Summary--Interests of
Certain Persons in the Merger" and "Special Factors--Interests of Certain
Persons in the Merger."
The affirmative vote of a majority of the issued and outstanding shares of
common stock of Uniflex entitled to vote thereon is required to approve and
adopt the Merger Agreement. The members of the Management Group (and family
members having interests in their Retained Shares) and the Carl Marks
Affiliates, as stockholders of Uniflex, have entered into Voting Agreements
dated as of March 5, 1999 with Acquisition pursuant to which they have
appointed persons designated by Acquisition as proxies to vote
<PAGE>
their respective shares of common stock of Uniflex in favor of the Merger
Agreement at the Special Meeting. As of May 21, 1999, the shares of common
stock of Uniflex held by such stockholders represented approximately 48.9% of
the outstanding shares of common stock of Uniflex.
The Board of Directors of the Company has unanimously approved the Merger
Agreement and has determined that the Merger is fair to, and in the best
interests of, the holders of Uniflex's common stock (other than stockholders
who own Retained Shares) and recommends that stockholders vote FOR the approval
and adoption of the Merger Agreement. The rights of dissenting stockholders are
described in the accompanying Proxy Statement and a copy of Section 262 of the
Delaware General Corporation Law is included as Annex B to the Proxy Statement.
The approval and determination of the Board was based on a number of
factors, described in the accompanying Proxy Statement, including the opinion
of Dunn Johnston & Company, Inc. ("Dunn Johnston"), the Company's financial
advisor, to the effect that, based upon and subject to various considerations
set forth in such opinion, as of the date of such opinion, the consideration to
be received by the holders of Uniflex's common stock in connection with the
Merger was fair to such holders (other than stockholders who own Retained
Shares) from a financial point of view. The opinion of Dunn Johnston is
included as Annex C to the Proxy Statement and should be read in its entirety.
Your vote is important. Regardless of whether you plan to attend the
Special Meeting, please sign and date the enclosed proxy and return it in the
envelope provided in order that your shares may be represented at the Special
Meeting. If you decide to attend the Special Meeting, you may revoke your proxy
and vote your shares in person.
Sincerely,
/s/ Herbert Barry
----------------------------
Herbert Barry
Chairman of the Board
<PAGE>
UNIFLEX, INC.
383 WEST JOHN STREET
HICKSVILLE, NEW YORK 11802
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 30, 1999
To the Stockholders of Uniflex, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Uniflex,
Inc. ("Uniflex") will be held at 10:00 a.m., local time, on June 30, 1999, at
Battle Fowler LLP, 75 East 55th Street, New York, New York 10022 for the
following purposes:
(1) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger and Recapitalization, dated as of March 5, 1999
(the "Merger Agreement"), by and between Uniflex and Uniflex Acquisition Corp.
("Acquisition"), a newly formed Delaware, the sole stockholder of which is RFE
VI SBIC, L.P., a Delaware limited partnership ("RFE"), and the transactions
contemplated thereby. Upon the terms and subject to the conditions of the
Merger Agreement, at the effective time of the transactions contemplated
thereby (the "Effective Time"): (a) Acquisition will be merged into Uniflex,
with Uniflex continuing as the surviving corporation (the "Surviving
Corporation"); (b) the current directors of Uniflex will be replaced by the
persons named in an exhibit to the Merger Agreement; (c) the shares of common
stock of Acquisition held by RFE will be converted into shares of common stock
of the Surviving Corporation, representing approximately 49.0% of the
outstanding shares of common stock of the Surviving Corporation immediately
following the Effective Time; (d) Robert Davidoff, CMNY Capital, L.P., a
Delaware limited partnership, CMCO, Inc., a New York corporation, and
Sterling/Carl Marks Capital, Inc., a New York corporation (collectively, the
"Carl Marks Affiliates"), and Herbert Barry, Robert K. Semel and Warner J.
Heuman, each a director and, respectively, the Chairman and Chief Executive
Officer, President and Chief Operating Officer and Chairman Emeritus of the
Company, Erich Vetter, a director of the Company, and certain other officers
and employees of the Company (collectively, the "Management Group") will retain
existing shares of common stock in Uniflex (the "Retained Shares"), which
Retained Shares held by the Carl Marks Affiliates and the members of the
Management Group will represent approximately 9.1% and 7.3%, respectively, of
the outstanding shares of common stock of Uniflex immediately prior to the
Effective Time and approximately 28.2% and 22.8%, respectively, of the
outstanding shares of common stock of the Surviving Corporation immediately
after the Effective Time; (e) each share of common stock of Uniflex outstanding
immediately prior to the Effective Time (except for the Retained Shares,
treasury shares held by Uniflex, and shares held by dissenting stockholders who
have properly exercised their rights pursuant to Section 262 of the Delaware
General Corporation Law) will be converted into the right to receive $7.57 per
share in cash (the "Cash Merger Price"); (f) each outstanding employee or
director stock option (the "Options") granted under the Company's 1993 Stock
Option Plan and 1996 Outside Directors' Stock Option Plan (the "Stock Option
Plans") or otherwise will, subject to any agreement between the Company and the
holder of any Option, be canceled and the former holder thereof shall
thereafter have the right to receive cash in an amount equal to the product of
the number of shares of common stock of Uniflex previously subject to such
Option and the excess of the Cash Merger Price per share over the exercise
price per share of such Option, less applicable withholding taxes; and (g) new
employment agreements entered into by Herbert Barry and Robert K. Semel will
become effective, which will each have a term of three years and provide for
severance payments under certain circumstances, and they will receive signing
bonuses immediately following consummation of the Merger of $1.9 million and
$1.5 million, respectively. In addition, a stock option plan with respect to an
aggregate of 10% of the common stock of the Surviving Corporation will be
instituted for the Company's executives, including Herbert Barry, Robert K.
Semel and certain other members of the Management Group. Upon consummation of
the Merger, options with respect to 5% of the common stock of the Surviving
Corporation will be granted, pursuant to the stock option plan described in the
preceding sentence, to certain members of the Management Group. The interests
of the Company's management in the Merger are described in the accompanying
Proxy Statement under the headings "Summary--Interests of Certain Persons in
the Merger" and "Special Factors--Interests of Certain Persons in the Merger".
<PAGE>
(2) To transact such other business as may properly come before the
meeting or any continuation, adjournment or postponement thereof.
A copy of the Merger Agreement appears as Annex A to, and is described in,
the accompanying Proxy Statement. Rights of dissenting stockholders, are
described in the accompanying Proxy Statement and a copy of Section 262 of the
Delaware General Corporations Law appears as Annex B thereto.
All stockholders are cordially invited to attend the meeting, although
only those stockholders of record at the close of business on May 21, 1999, are
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
Robert K. Semel, Secretary
Dated: June 7, 1999
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ACCOMPANYING ENVELOPE. YOUR PROXY MAY BE REVOKED AT ANY TIME
BEFORE IT IS VOTED AT THE SPECIAL MEETING BY DELIVERING WRITTEN NOTICE OF
REVOCATION TO THE SECRETARY OF THE COMPANY, BY SUBMITTING TO THE SECRETARY OF
THE COMPANY A LATER DATED PROXY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY .................................................................. 4
The Parties to the Merger ............................................... 4
Uniflex ............................................................... 4
Acquisition and RFE ................................................... 4
The Special Meeting ..................................................... 4
Reasons for the Merger .................................................. 4
Terms of the Merger ..................................................... 5
General ............................................................... 5
Cash Merger Price ..................................................... 5
Payment of Cash Merger Price .......................................... 5
Retained Shares ....................................................... 5
Excluded Shares ....................................................... 5
Issuance of Surviving Corporation Common Stock to RFE ................. 6
Payment for Options ................................................... 6
Effective Time .......................................................... 6
Financing Arrangements .................................................. 6
Interests of Certain Persons in the Merger .............................. 6
Recommendation of the Board ............................................. 7
Opinion of Financial Advisor ............................................ 8
Conditions to Consummation of the Merger ................................ 8
Related Agreements ...................................................... 8
Material Effects of the Merger .......................................... 8
Accounting Treatment of Transaction ..................................... 9
Material Federal Income Tax Consequences of the Merger .................. 9
No Solicitation; Fiduciary Duties ....................................... 9
Termination; Fees and Expenses .......................................... 9
Appraisal Rights ........................................................ 10
Market Prices; Dividends ................................................ 10
Market Price of Common Stock .......................................... 10
Dividends ............................................................. 10
Summary Financial Information ........................................... 11
THE SPECIAL MEETING ...................................................... 12
General ................................................................. 12
Record Date, Solicitation, and Revocability of Proxies .................. 12
Quorum; Required Vote ................................................... 13
SPECIAL FACTORS .......................................................... 14
Background of the Transaction ........................................... 14
Reasons for the Merger; Recommendation of the Board of Directors ........ 16
General ............................................................... 16
Merger Not Conditioned on Approval of Unaffiliated Stockholders ....... 20
Purposes and Reasons of RFE and Acquisition for the Merger .............. 20
Position of RFE and Acquisition as to Fairness of the Merger ............ 20
Position of the Carl Marks Affiliates as to Fairness of the Merger ...... 21
Opinion of Dunn Johnston, Financial Advisor to Uniflex .................. 21
Historical and Projected Financial Position ........................... 22
Cash Merger Price Premium Over Historical Stock Price ................. 22
Analysis of Premiums Paid for Acquisitions ............................ 23
Stock Trading Analysis ................................................ 23
Analysis of Other Publicly Traded Companies ........................... 23
Analysis of Selected Precedent Transactions ........................... 24
Discounted Cash Flow Analysis ......................................... 24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Leveraged Equity Return Analysis .................................................... 25
Relevant Market and Economic Factors ................................................ 25
Certain Projections ................................................................... 26
Interests of Certain Persons in the Merger ............................................ 27
Officers of the Surviving Corporation ............................................... 27
Benefits Under Employment Agreements, Signing Bonuses and New Stock Option Plan ..... 27
Retention of Retained Shares ........................................................ 28
Options ............................................................................. 28
Present Interests of Directors and Officers in Uniflex Common Stock ................. 29
Indemnification of Officers and Directors ........................................... 29
Voting Agreements ................................................................... 30
Other Arrangements .................................................................. 30
MATERIAL EFFECTS OF THE MERGER ......................................................... 30
Accounting Treatment of Transaction ................................................... 31
Material Federal Income Tax Consequences of the Merger ................................ 31
The Merger .......................................................................... 32
Backup Withholding .................................................................. 32
Appraisal Rights ...................................................................... 32
Material Related Agreements ........................................................... 35
Stockholder Rights .................................................................. 35
Investment Banking Agreement ........................................................ 35
MATERIAL PROVISIONS OF THE MERGER AGREEMENT ............................................ 36
General ............................................................................... 36
Treatment of Securities in the Merger ................................................. 36
Cash Merger Price ................................................................... 36
Payment of Cash Merger Price ........................................................ 36
Retained Shares ..................................................................... 36
Excluded Shares ..................................................................... 36
Issuance of Surviving Corporation Common Stock to RFE ............................... 37
Payment for Options ................................................................. 37
Board of Directors and Officers of the Surviving Corporation .......................... 37
Certificate of Incorporation and By-Laws of the Surviving Corporation ................. 37
Payment for Shares .................................................................... 37
Representations and Warranties ........................................................ 38
Representations and Warranties of the Company ....................................... 38
Representations and Warranties of Acquisition ....................................... 38
Covenants ............................................................................. 38
Interim Operations .................................................................. 38
Investigation by Acquisition ........................................................ 39
Additional Covenants ................................................................ 39
Consents and Efforts ................................................................ 40
Conditions to the Consummation of the Merger .......................................... 40
Conditions to Each Party's Obligation to Effect the Merger .......................... 40
Conditions to the Obligation of the Company to Effect the Merger .................... 40
Conditions to the Obligation of Acquisition to Effect the Merger .................... 41
No Solicitation; Fiduciary Out ........................................................ 42
Termination; Effects of Termination ................................................... 42
Termination by Mutual Written Consent ............................................... 42
Termination by the Company .......................................................... 42
Termination by Acquisition .......................................................... 43
Termination by either Acquisition or the Company .................................... 43
Amendment ............................................................................. 44
THE SPECIAL MEETING .................................................................... 44
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
General .............................................................. 44
Record Date, Solicitation, and Revocability of Proxies ............... 44
DESCRIPTION OF UNIFLEX ................................................ 45
Background ........................................................... 45
Business of Uniflex .................................................. 45
Properties of Uniflex ................................................ 48
MARKET PRICES; DIVIDENDS; PURCHASES; INTERESTS IN UNIFLEX COMMON
STOCK ................................................................ 48
Market Price of Common Stock ......................................... 48
Dividends ............................................................ 49
Purchases by Uniflex ................................................. 49
Purchases by Members of the Management Group ......................... 49
Interest of Profit Sharing Plan ...................................... 50
SELECTED FINANCIAL DATA OF UNIFLEX .................................... 50
QUARTERLY FINANCIAL DATA OF UNIFLEX ................................... 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ................................................ 52
Summary .............................................................. 52
Results of Operations ................................................ 52
Sales .............................................................. 52
Costs and Expenses ................................................. 52
Year 2000 Program .................................................... 54
FINANCING OF THE MERGER ............................................... 54
Indebtedness ......................................................... 54
Senior Secured Credit Facility ..................................... 54
Prepayments ........................................................ 55
Interest ........................................................... 55
Fees ............................................................... 55
Events of Default .................................................. 55
Security Interest .................................................. 55
Amendment of Chase Mortgage Loan ................................... 56
Senior Subordinated Debentures ..................................... 56
Equity Investment .................................................... 57
Sources and Uses of Funds ............................................ 58
Expenses of the Merger ............................................... 58
DIRECTORS AND EXECUTIVE OFFICERS OF UNIFLEX AND MEMBERS OF THE
MANAGEMENT GROUP ..................................................... 59
DESCRIPTION OF ACQUISITION AND RFE .................................... 60
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ........................................................... 61
DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION ......... 63
DESCRIPTION OF UNIFLEX CAPITAL STOCK .................................. 63
AVAILABLE INFORMATION ................................................. 64
INDEPENDENT AUDITORS .................................................. 64
OTHER MATTERS ......................................................... 64
INDEX TO FINANCIAL STATEMENTS ......................................... F-1
ANNEX A -- MERGER AGREEMENT ........................................... A-1
ANNEX B -- APPRAISAL RIGHTS ........................................... B-1
ANNEX C -- OPINION OF DUNN JOHNSTON ................................... C-1
ANNEX D -- CERTIFICATE OF INCORPORATION OF SURVIVING CORPORATION D-1
</TABLE>
iii
<PAGE>
UNIFLEX, INC.
383 WEST JOHN STREET
HICKSVILLE, NEW YORK 11802
---------------------
PROXY STATEMENT
---------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 30, 1999
This proxy statement is being furnished to the stockholders of Uniflex,
Inc., a Delaware corporation ("Uniflex" or the "Company"), in connection with
the solicitation of proxies by the Board of Directors of the Company for use at
a Special Meeting of Stockholders to be held on June 30, 1999, at 10:00 a.m.
local time, at Battle Fowler LLP, 75 East 55th Street, New York, New York
10022.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger and
Recapitalization, dated as of March 5, 1999 (the "Merger Agreement"), by and
between Uniflex and Uniflex Acquisition Corp. ("Acquisition"). Acquisition is a
newly-formed Delaware corporation, the sole stockholder of which is RFE VI
SBIC, L.P., a Delaware limited partnership ("RFE"). Upon the terms and subject
to the conditions of the Merger Agreement, at the Effective Time (as defined
below): (a) Acquisition will be merged into Uniflex (the "Merger"), with
Uniflex continuing as the surviving corporation (the "Surviving Corporation");
(b) the current directors of Uniflex will be replaced by the persons named in
an exhibit to the Merger Agreement; (c) the shares of common stock of
Acquisition held by RFE will be converted into shares of common stock, par
value $.10 per share, of the Surviving Corporation (the "Surviving Corporation
Common Stock"), representing approximately 49.0% of the outstanding shares of
the Surviving Corporation Common Stock immediately following the Effective
Time; (d) Robert Davidoff ("Davidoff"), CMNY Capital, L.P., a Delaware limited
partnership ("CMNY"), CMCO, Inc., a New York corporation, Sterling/Carl Marks
Capital, Inc., a New York corporation ("Sterling/Carl Marks" and, together with
Davidoff, CMNY and CMCO, Inc., the "Carl Marks Affiliates") will retain an
aggregate of 399,233 shares of common stock, par value $.10 per share, of
Uniflex (the "Uniflex Common Stock"), and Herbert Barry, Robert K. Semel and
Warner J. Heuman, each a director and, respectively, the Chairman and Chief
Executive Officer, President and Chief Operating Officer and Chairman Emeritus
of the Company, Erich Vetter, a director of the Company, and certain other
officers and employees of the Company (collectively, the "Management Group")
will retain an aggregate of 322,000 shares of Uniflex Common Stock (the shares
of Uniflex Common to be retained by the Carl Marks Affiliates and the members
of the Management Group being referred to herein as the "Retained Shares"),
which Retained Shares held by the Carl Marks Affiliates and the members of the
Management Group will represent approximately 9.1% and 7.3%, respectively, of
the outstanding shares of Uniflex Common Stock immediately prior to the
Effective Time and approximately 28.2% and 22.8%, respectively, of the
outstanding shares of the Surviving Corporation Common Stock immediately
following the Effective Time; (e) each share of Uniflex Common Stock
outstanding immediately prior to the Effective Time (except for the Retained
Shares, treasury shares held by Uniflex (the "Excluded Shares") and shares
("Dissenting Shares") held by dissenting stockholders who have properly
exercised their rights pursuant to Section 262 of the Delaware General
Corporation Law ("DGCL")) will be converted into the right to receive $7.57 per
share in cash (the "Cash Merger Price"); and (f) each outstanding employee or
director stock option (the "Options") granted under the Company's 1993 Stock
Option Plan and 1996 Outside Directors' Stock Option Plan (the "Stock Option
Plans") or otherwise will, subject to any agreement between the Company and the
holder of any Option, be canceled and the former holder thereof shall
thereafter have the right to receive cash in an amount equal to the product of
the number of shares of Uniflex Common Stock previously subject to such Option
and the excess of the Cash Merger Price per share over the exercise price per
share of such Option, reduced by applicable withholding taxes or other taxes
required by law to be withheld. Herbert Barry and Robert K. Semel have entered
into new employment agreements, which will become effective upon consummation
of the Merger and which will each have a term of three years and provide for
severance payments under certain
<PAGE>
circumstances, and will receive signing bonuses immediately following
consummation of the Merger of $1.9 million and $1.5 million, respectively. In
addition, a stock option plan with respect to an aggregate of 10% of the common
stock of the Surviving Corporation will be instituted for the Company's
executives, including Herbert Barry, Robert K. Semel and certain other members
of the Management Group. Upon consummation of the Merger, options with respect
to 5% of the common stock of the Surviving Corporation will be granted,
pursuant to the stock option plan described in the preceding sentence, to
certain members of the Management Group. See "Summary--Interests of Certain
Persons in the Merger" and "Special Factors--Interests of Certain Persons in
the Merger."
Consummation of the Merger is subject to certain conditions, including the
obtaining of the necessary financing. It is contemplated that the financing
required to pay the Cash Merger Price, to pay the value of the Options, to
refinance certain existing indebtedness of the Company, including indebtedness
under the Company's existing mortgage loan, (the "Refinancing"), and to pay the
fees and expenses in connection with the Merger and such financing will be
provided by (a) a term loan in the amount of $18.5 million and drawings under a
$5 million revolving credit facility, to be included in a senior secured credit
facility to be entered into by the Company; (b) issuance by the Company of its
senior subordinated debentures for gross proceeds of $7 million; and (c) equity
financing provided by RFE in the amount of $5.25 million through the purchase
of common stock of Acquisition; and (d) equity financing of $750,000 provided
by Sterling/Carl Marks through the purchase immediately prior to the Effective
Time of Uniflex Common Stock.
The Excluded Shares will be canceled and retired. The effective time of
the Merger will be the date and time of the filing of the Certificate of Merger
with the Delaware Secretary of State in accordance with the DGCL (the
"Effective Time"), which is scheduled to occur as soon as practicable after the
satisfaction of certain closing conditions. See "Special Factors--Interests of
Certain Persons in the Merger" and "Certain Provisions of the Merger
Agreement--Treatment of Securities in the Merger."
This proxy statement contains summaries of material terms of the Merger
Agreement and the rights of dissenting stockholders. For the complete texts of
the Merger Agreement and Section 262 of the DGCL, see Annex A hereto and Annex
B hereto, respectively.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of Uniflex Common Stock entitled to vote thereon is required
to adopt the Merger Agreement. Only holders of record of shares of Uniflex
Common Stock at the close of business on May 21, 1999 (the "Record Date") are
entitled to notice of and to vote at the Special Meeting and any and all
adjournments and postponements thereof. The members of the Management Group
(and family members having interests in their Retained Shares) and the Carl
Marks Affiliates, as stockholders of Uniflex, have entered into Voting
Agreements, dated as of March 5, 1999 with Acquisition (the "Voting
Agreements"), pursuant to which each such stockholder appointed persons
designated by Acquisition as proxy to, among other things, vote all of the
outstanding shares of Uniflex Common Stock owned by them, or an aggregate of
approximately 48.9% of the outstanding shares of Uniflex Common Stock as of the
Record Date, in favor of the Merger. See "Special Factors--Interests of Certain
Persons in the Merger."
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER. See "Special
Factors--Interests of Certain Persons in the Merger."
This Proxy Statement is first being mailed to the Company's stockholders
on or about June 7, 1999.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE DATE OF THIS PROXY STATEMENT IS JUNE 7, 1999.
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT OR IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE SOLICITATION MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY UNIFLEX, ACQUISITION OR RFE. THIS
PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY FROM ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION.
<PAGE>
SUMMARY
The following is a brief summary of the material information contained
elsewhere in this Proxy Statement. Stockholders are urged to read and consider
carefully this entire Proxy Statement, including the Annexes hereto.
THE PARTIES TO THE MERGER
Uniflex. Uniflex, a Delaware corporation, has its principal executive
offices located at 383 West John Street, Hicksville, New York 11802 (Telephone:
(516) 997-7300). Organized in 1973, and successor by merger to the business and
assets of a New York corporation of the same name organized in 1963, Uniflex
designs, manufactures and markets a broad line of customized plastic packaging
for sales and advertising promotions, clear bags for apparel and soft goods
manufacturers and specialized, recyclable bags and other products for use in
hospitals, medical laboratories and emergency care centers and has been so
engaged for more than the past five years. For additional information regarding
Uniflex and its business, see "Selected Historical Consolidated Financial
Information" and "Description of the Business of Uniflex" and the Consolidated
Financial Statements of Uniflex included elsewhere herein.
Acquisition and RFE. Acquisition was recently incorporated under the laws
of the State of Delaware for the purpose of consummating the Merger.
Acquisition has not conducted any business other than the transactions
described herein and has no assets. RFE is the sole stockholder of Acquisition.
RFE is a private equity fund organized as a Delaware limited partnership. The
address of the principal executive offices of each of Acquisition and RFE is
c/o RFE Investment Partners, 36 Grove Street, New Canaan, Connecticut 06840.
See "Description of Acquisition and RFE."
THE SPECIAL MEETING
The Special Meeting will be held at 10:00 a.m., local time, on June 30,
1999 at Battle Fowler LLP, 75 East 55th Street, New York, New York 10022. At
the Special Meeting, stockholders of Uniflex (a) will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby, and (b) will transact such other business as
may properly come before the Special Meeting. The Board of Directors has fixed
the Record Date as the date for the determination of stockholders entitled to
notice of and to vote at the Special Meeting and any and all adjournments and
postponements thereof. As of the Record Date, there were 4,300,352 shares of
Uniflex Common Stock issued and outstanding and entitled to vote at the Special
Meeting.
Adoption of the Merger Agreement requires the affirmative vote of the
holders of a majority of the issued and outstanding shares of Uniflex Common
Stock entitled to vote at the Special Meeting. The members of the Management
Group (and family members having interests in their Retained Shares) and the
Carl Marks Affiliates have entered into the Voting Agreements pursuant to which
they have each agreed with Acquisition to vote all of the shares of Uniflex
Common Stock owned by them in favor of the Merger Agreement. Such persons
beneficially own an aggregate of 2,103,878 shares of Uniflex Common Stock,
constituting approximately 48.9% of the outstanding Uniflex Common Stock as of
the Record Date. In addition, directors of Uniflex who are not members of the
Management Group were the beneficial owners of 353,636 shares of Uniflex Common
Stock on the Record Date and have indicated that they intend to vote such
shares in favor of the approval and adoption of the Merger Agreement.
Accordingly, as of the Record Date, the total number of outstanding shares of
Uniflex Common Stock that either are subject to the Voting Agreements or are
held by the directors and officers of Uniflex (who are not members or of the
Management Group) referred to above is 2,457,514, or approximately 57.1% of the
outstanding shares of Uniflex Common Stock on the Record Date. See "Special
Factors--Interests of Certain Persons in the Merger--Voting Agreements."
REASONS FOR THE MERGER
The Board of Directors of Uniflex, in attempting to maximize stockholder
value, has unanimously approved the Merger Agreement and has determined that
the Merger Agreement is fair to and in the best
4
<PAGE>
interests of the Company's stockholders (other than the stockholders who own
Retained Shares). This determination was based on, among other things, the
following factors: a comparison of the risks and benefits of the Merger against
the risks and benefits of other potential options available to the Company
(including continuing as an independent public entity); the Cash Merger Price
of $7.57 per share of the Uniflex Common Stock, which represents a premium over
recent historical price levels; the written opinion of Dunn Johnston & Company,
Inc. ("Dunn Johnston") with respect to the fairness from a financial point of
view of the consideration to be received by Uniflex's stockholders (other than
stockholders who own Retained Shares) in the Merger; and the terms and
conditions of the Merger Agreement. See "Special Factors--Reasons for the
Merger; Recommendation of the Board of Directors."
TERMS OF THE MERGER
General. At the Effective Time, Acquisition will be merged with and into
the Company, with the Company continuing as the Surviving Corporation. Also at
the Effective Time, the current directors of the Company will be replaced by
the directors of Acquisition. All members of the Company's current management
will continue as such immediately after the Effective Time. See "Material
Provisions of the Merger Agreement--Board of Directors and Officers of the
Surviving Corporation" and "Directors and Executive Officers of the Surviving
Corporation."
Cash Merger Price. At the Effective Time, each share of Uniflex Common
Stock held by the Company's stockholders (other than Retained Shares, Excluded
Shares, and Dissenting Shares) will be converted into the right to receive the
Cash Merger Price. No interest will be paid or accrued on the Cash Merger
Price.
Payment of Cash Merger Price. The Cash Merger Price will be paid as soon
as practicable after the Effective Time upon receipt by a paying agent selected
by Acquisition and Uniflex (the "Paying Agent") of certificates which,
immediately prior to the Effective Time, represented the shares of Uniflex
Common Stock held by such stockholders. As of or at the Effective Time,
Acquisition will deposit with the Paying Agent for the benefit of the holders
of shares of Uniflex Common Stock, the funds necessary to pay the Cash Merger
Price for each share payable pursuant to the terms of the Merger Agreement. As
soon as practicable after the Effective Time, the Paying Agent will mail to
each record holder of Uniflex Common Stock a notice and letter of transmittal
advising the holder of the effectiveness of the Merger and the procedure for
surrendering certificates to the Paying Agent for exchange into the Cash Merger
Price. Stockholders should not forward stock certificates to the Paying Agent
until they have received transmittal forms. Certificates should not be returned
with the enclosed proxy cards.
Retained Shares. After the Effective Time, the Retained Shares will remain
outstanding as shares of Surviving Corporation Common Stock. The Retained
Shares will represent approximately 51.0% of the total outstanding shares of
Surviving Corporation Common Stock immediately after the Effective Time. The
Management Group and the Carl Marks Affiliates will own, respectively, 322,000
and 399,233 Retained Shares, which will represent approximately 7.3% and 9.1%,
respectively, of the 4,399,427 shares of Uniflex Common Stock expected to be
outstanding immediately prior to the Effective Time and which will represent
approximately 22.8% and 28.2%, respectively, of the total outstanding shares of
Surviving Corporation Common Stock immediately after the Effective Time. See
"Special Factors--Interests of Certain Persons in the Merger--Retention of
Retained Shares" and "Material Provisions of the Merger Agreement--Treatment of
Securities in the Merger."
Excluded Shares. At the Effective Time, the Excluded Shares will be
canceled and retired without payment of any consideration therefor.
5
<PAGE>
Issuance of Surviving Corporation Common Stock to RFE. At the Effective
Time, the issued and outstanding shares of Acquisition, all of which are held
by RFE, will be converted into 693,527 shares of Surviving Corporation Common
Stock, representing approximately 49.0% of the total outstanding shares of
Surviving Corporation Common Stock immediately following the Effective Time.
Payment for Options. Subject to any agreement between the Company and the
holder of any Option, the Company will cause each Option, whether or not then
exercisable or vested, to be canceled. In consideration of such cancellation,
the Company will pay to such holders of Options an amount in cash in respect
thereof equal to the product of the excess of the Cash Merger Price over the
exercise price of each such Option and the number of shares of Uniflex Common
Stock previously subject to the Option immediately prior to its cancellation
(such payment to be net of withholding taxes).
EFFECTIVE TIME
The Effective Time of the Merger will be the date and time of the filing
of the Certificate of Merger with the Delaware Secretary of State in accordance
with the DGCL, which is scheduled to occur as soon as practicable after the
satisfaction of the conditions to consummation of the Merger. Either
Acquisition or the Company may terminate the Merger Agreement should the Merger
not be consummated by July 30, 1999. See "Material Provisions of the Merger
Agreement--Conditions to the Consummation of the Merger" and "--Termination;
Effects of Termination."
FINANCING ARRANGEMENTS
Consummation of the Merger will require approximately $36.2 million to pay
the Cash Merger Price, to pay the value of the Options, to effect the
Refinancing and to pay the fees and expenses in connection with the Merger and
such financing. It is contemplated that the financing required in connection
with the consummation of the Merger will be provided by (a) a term loan in the
amount of $18.5 million and drawings under a $5 million revolving credit
facility, to be included in a senior secured credit facility to be entered into
by the Company; (b) issuance by the Company of its senior subordinated
debentures for gross proceeds of $7 million; (c) equity financing provided by
RFE in the amount of $5.25 million through the purchase of common stock of
Acquisition; and (d) equity financing of $750,000 provided by Sterling/Carl
Marks through the purchase immediately prior to the Effective Time of Uniflex
Common Stock. For a discussion of the sources of funds for the financing of the
Merger, see "Financing of the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Company's Board of Directors that
stockholders vote in favor of the Merger Agreement, stockholders should be
aware that the members of Uniflex's management and Board of Directors
identified in the following tables have interests in the Merger that are in
addition to the interests of the stockholders of Uniflex generally. Because
such additional interests may be viewed as giving such persons reasons for
favoring the Merger that other stockholders do not have, they may be deemed to
be in conflict with the interests of the stockholders of Uniflex generally. The
additional interests consist of: (a)(i) benefits under employment agreements
executed by the Company with each of Herbert Barry, Robert K. Semel and Melissa
Cantor, (ii) a new stock option plan for Company executives, to be adopted
after the Effective Time, with respect to 10% of the Surviving Corporation
Common Stock, one-half of which (with respect to 5% of the Surviving
Corporation Common Stock) will be granted to the persons indicated in the
following table, and (iii) the payment of signing bonuses to Messrs. Barry and
Semel in the amounts of $1.9 million and $1.5 million, respectively; (b) the
retention by the members of the Management Group of the Retained Shares held by
them as described in the following table; (c) the cash settlement of Options
pursuant to the terms of the Merger Agreement as described in the following
table; and (d) indemnification of officers and directors. The members of the
Management Group own in the aggregate of 322,000 Retained Shares, which will
represent approximately 7.3% of the outstanding
6
<PAGE>
shares of Uniflex Common Stock immediately prior to the Effective Time and
approximately 22.8% of the outstanding shares of Surviving Corporation Common
Stock immediately following the Effective Time. See "Special Factors--Interests
of Certain Persons in the Merger."
<TABLE>
<CAPTION>
NEW SURVIVING
CORPORATION
SHARES HELD RETAINED OPTIONS TO BE
NAME POSITIONS WITH UNIFLEX PRIOR TO MERGER SHARES GRANTED*
- ------------------------- ------------------------------ ----------------- ---------- --------------
<S> <C> <C> <C> <C>
Herbert Barry ........... Chairman of the Board and 470,490 75,000 0.714%
Chief Executive Officer;
Director
Robert K. Semel ......... President and Chief 434,100 75,000 0.714%
Operating Officer; Secretary;
Director
Warner Heuman ........... Chairman Emeritus 395,520 75,000 --
Erich Vetter ............ Director 288,999 15,000 --
Melissa Cantor .......... Vice President 74,501** 15,000 0.714%
--Administration and
Operations
Lee Cantor .............. Vice President--Sales ** 15,000 0.716%
Neil Sklar .............. Vice President--Product 30,100 26,000 0.714%
Development
Hy Brownstein ........... Vice President--Marketing 22,710 13,000 0.714%
Elliot Berger ........... Senior Vice President-- 87,300 13,000 0.714%
Manufacturing
</TABLE>
- ----------
* As a percentage of outstanding Surviving Corporation Common Stock, on a
fully-diluted basis.
** Shares held, in part, jointly by Melissa and Lee Cantor and, in part,
individually by Melissa and Lee Cantor, respectively.
<TABLE>
<CAPTION>
UNIFLEX AMOUNTS TO BE
OPTIONS HELD RECEIVED FOR
NAME AS OF MARCH 5, 1999 OPTIONS ON MERGER
- --------------------------- --------------------- ------------------
<S> <C> <C>
Martin Brownstein ......... 15,000 $ 31,050
Warner J. Heuman .......... 60,000 $412,997
Kurt Vetter ............... 300 $ 821
Martin Gelerman ........... 15,000 $ 29,675
Steven Wolosky ............ 15,000 $ 29,675
Alfred Heimlich ........... 300 $ 521
Robert Gugliotta .......... 11,500 $ 10,984
Howard Samuels ............ 11,550 $ 10,984
</TABLE>
RECOMMENDATION OF THE BOARD
The Board of Directors of the Company unanimously approved the Merger
Agreement and the transactions contemplated thereby, including the Merger. The
Board has determined that the Merger Agreement is fair to, and in the best
interests of, the stockholders of the Company (other than stockholders who own
Retained Shares) and recommends that the stockholders vote FOR the approval and
adoption of the Merger Agreement and FOR the adjournment or postponement of the
Special Meeting in the event that the number of proxies obtained is not
sufficient to ensure the success of the
7
<PAGE>
proposal to adopt the Merger Agreement. For a discussion of the factors
considered by the Board in reaching its recommendation and determination, see
"Special Factors--Reasons for the Merger; Recommendation of the Board of
Directors."
OPINION OF FINANCIAL ADVISOR
Dunn Johnston has delivered to the Board of Directors of the Company its
written opinion to the effect that, based upon and subject to various
considerations set forth in such opinion, as of the date of such opinion, the
consideration to be received by the holders of Uniflex Common Stock (other than
stockholders who own Retained Shares) in connection with the Merger was fair to
stockholders from a financial point of view. The full text of Dunn Johnston's
opinion, including the procedures followed, the matters considered and the
assumptions made by Dunn Johnston, is included as Annex C to this Proxy
Statement and should be read in its entirety. See "Special Factors--Opinion of
Dunn Johnston, Financial Advisor to Uniflex."
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to various conditions, including
among other matters: (a) approval of the Merger Agreement and the transactions
contemplated thereby by the holders of a majority of the issued and outstanding
shares of Uniflex Common Stock entitled to vote thereon; (b) receipt of all
governmental and other consents and approvals necessary to permit consummation
of the Merger, including expiration or termination of the statutory waiting
period under the Hart-Scott-Rodino Antitrust Improvements Acts of 1976, as
amended (the "HSR Act"), if applicable; (c) receipt of the funding contemplated
by the Commitment Letters (as that term is defined in the Merger Agreement);
and (d) satisfaction of other customary conditions. See "Material Provisions of
the Merger Agreement--Conditions to the Consummation of the Merger."
RELATED AGREEMENTS
For a summary of the material terms of agreements entered into in
connection with the Merger, see "Special Factors--Material Related Agreements."
MATERIAL EFFECTS OF THE MERGER
If the Merger is consummated, the Company's stockholders (other than
stockholders who own Retained Shares, Excluded Shares, and Dissenting Shares)
will have the right to receive $7.57 in cash, without interest, for each share
of Uniflex Common Stock held immediately prior to the Effective Time. As a
result of the Merger, such stockholders will cease to have any ownership
interest in Uniflex and will cease to participate in future earnings and
growth, if any, of Uniflex. Moreover, if the Merger is consummated, public
trading of the Uniflex Common Stock will cease, the Uniflex Common Stock will
cease to be quoted on the American Stock Exchange, the registration of the
Uniflex Common Stock under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") will be terminated; and the Company will cease filing reports
with the Securities and Exchange Commission (the "Commission").
Immediately following the Merger, approximately 49.0% of the outstanding
shares of Surviving Corporation Common Stock will be owned by RFE,
approximately 22.8% will be owned by the members of the Management Group and
approximately 28.2% will be held by the Carl Marks Affiliates. See "Special
Factors--Interests of Certain Persons in the Merger" and "Certain Provisions of
the Merger Agreement--Treatment of Securities in the Merger."
The Merger Agreement provides that the current directors of the Company
will be replaced by the persons named in an exhibit to the Merger Agreement.
All members of the Company's current management will continue as such
immediately after the Effective Time. See "Directors and Executive Officers of
the Surviving Corporation."
8
<PAGE>
Upon consummation of the Merger, the Surviving Corporation expects to
refinance certain existing indebtedness of Uniflex, including indebtedness
under the Company's existing mortgage loan. See "Financing of the Merger."
It is currently anticipated that the Surviving Corporation will be
operated after the Merger in a manner substantially the same as Uniflex's
current operations.
ACCOUNTING TREATMENT OF TRANSACTION
The Merger will be accounted for as a recapitalization. Accordingly, the
historical basis of Uniflex's assets and liabilities will not be affected by
the Merger and the transactions contemplated thereby.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The receipt of cash for Uniflex Common Stock in the Merger will be a
taxable transaction for federal income tax purposes. See "Special
Factors--Material Federal Income Tax Consequences of the Merger."
NO SOLICITATION; FIDUCIARY DUTIES
Under the Merger Agreement, Uniflex has agreed as of March 5, 1999 to
cease any existing activities, discussions or negotiations with any parties
(other than RFE and Acquisition) with respect to (a) any acquisition or
purchase of 35% or more of the assets or of over 35% of any class of equity
securities of the Company and its subsidiaries, (b) any tender offer (including
a self tender offer) or exchange offer that if consummated would result in any
person beneficially owning 35% or more of any class of equity securities of the
Company or any of its subsidiaries, or (c) any merger, consolidation,
recapitalization, sale of all or substantially all of its assets, liquidation,
dissolution or similar transaction involving the Company or any of its
subsidiaries whose assets, individually or in the aggregate, constitute more
than 35% of the assets other than the transactions contemplated by the Merger
Agreement (each such transaction being referred to herein as an "Acquisition
Proposal"). Pursuant to the Merger Agreement, Uniflex has agreed that neither
it nor its subsidiaries will initiate, solicit or encourage, directly or
indirectly, or take any other action to facilitate, any inquiries or the making
or implementation of any proposal or offer that constitutes an Acquisition
Proposal, or negotiate or discuss with, or provide any confidential information
or data to, any person relating to an Acquisition Proposal, or authorize or
permit any of its officers, directors, employees, agents, or representatives to
take any such action. Uniflex is obligated to notify Acquisition if any such
inquiries or proposals are received by, or any such information is requested
from, the Company, or any such negotiations or discussions are sought to be
initiated with the Company. Nothing contained in the Merger Agreement prohibits
the Board of Directors of the Company from furnishing information to, or
entering into discussions or negotiations with, any person or entity in
response to any unsolicited inquiry, proposal or offer if, and only to the
extent that, (a) the furnishing of such information is pursuant to a customary
confidentiality letter and (b) the Board of Directors of the Company determines
in good faith in reliance upon written advice of outside counsel that such
action is required for the Board to comply with its fiduciary duties to
stockholders under applicable law, and the Company prior to taking such action
gives Acquisition reasonable notice of its intent to do so. See "Material
Provisions of the Merger Agreement--No Solicitation; Fiduciary Out."
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time upon the occurrence of certain events or if the Merger is not consummated
by July 30, 1999. Under certain circumstances generally related to the presence
of an Acquisition Proposal, or withdrawal by the Board of Directors or
modification in a manner adverse to Acquisition of its approval or
recommendation of the Merger Agreement or the Merger, termination of the Merger
Agreement will result in a fee and reimbursement by the Company of the
out-of-pocket expenses of Acquisition, the Carl Marks Affiliates and RFE and
its affiliates in an aggregate amount of up to $600,000 plus the amount of any
commitment fees paid or contractually required to be paid to financial
institutions providing financing for the Merger. See "Material Provisions of
the Merger Agreement--Termination; Effects of Termination."
9
<PAGE>
APPRAISAL RIGHTS
Stockholders who meet the requirements of and follow the procedures set
forth in Section 262 of the DGCL may receive, in lieu of the $7.57 cash per
share of Uniflex Common Stock to be paid in the Merger, a cash payment equal to
the "fair value" of their shares, exclusive of any element of value arising
from the accomplishment or expectation of the Merger, together with a fair rate
of interest, if any, as determined by the Delaware Court of Chancery. Such fair
value is to be determined by judicial appraisal and could be more than, the
same as, or less than, the Cash Merger Price.
To be entitled to receive payment of the fair value of the shares of
Uniflex Common Stock, a stockholder: (a) must file a written demand for
appraisal of his or her shares with the Company prior to the voting by
stockholders on the Merger Agreement at the Special Meeting (such demand must
reasonably inform the Company of the identity of the stockholder and that the
stockholder intends thereby to demand an appraisal of his or her shares); (b)
must not vote his or her shares in favor of approval and adoption of the Merger
Agreement; (c) must hold shares of Uniflex Common Stock on the date of the
making of a demand for appraisal and continuously hold such shares through the
Effective Time; and (d) must have his or her shares valued in an appraisal
proceeding, as described below. See "Special Factors--Appraisal Rights." A
proxy or vote against approval and adoption of the Merger Agreement will not
satisfy the requirement that a stockholder file a written demand for appraisal
as set forth above.
MARKET PRICES; DIVIDENDS
Market Price of Common Stock. Uniflex's Common Stock, $.10 par value,
trades on the American Stock Exchange under the symbol "UFX". The following
table sets forth the high and low closing sales prices of the Common Stock on
the American Stock Exchange for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 2000 HIGH LOW
- ------------------------------------------------------ --------- ---------
<S> <C> <C>
First Quarter .................................. $7 3/16 $6 5/16
Second Quarter (through June 4, 1999) .......... 7 1/8 6 7/8
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1999 HIGH LOW
- ------------------------------- ------- -------
<S> <C> <C>
First Quarter ........... 6 7/16 5 1/8
Second Quarter .......... 6 1/8 5 1/8
Third Quarter ........... 6 1/16 3 7/8
Fourth Quarter .......... 6 5/8 5
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1998 HIGH LOW
- ------------------------------- ------ -------
<S> <C> <C>
First Quarter ........... 8 1/4 6 1/2
Second Quarter .......... 7 5 15/16
Third Quarter ........... 7 1/2 5 7/8
Fourth Quarter .......... 7 5
</TABLE>
Dividends. Uniflex has not declared any cash dividends on its Common Stock
during the two most recent fiscal years. Uniflex declared a 50% stock dividend
effective October 15, 1996 to holders of record as of September 26, 1996.
Uniflex does not intend to pay any cash dividends on its capital stock in the
foreseeable future. Payment of cash dividends is within the discretion of
Uniflex's Board of Directors and depends generally on, among other factors,
earnings, capital requirements and the operating and financial condition of the
Company. In addition, the payment of dividends by the Company is subject to
restrictions under the Company's existing credit facility, which will be
refinanced in connection with the Merger. Under the Merger Agreement, the
Company has agreed not to pay any dividends on the Uniflex Common Stock prior
to the Effective Time. Pursuant to the terms of the agreements contemplated by
the Commitment Letters, the Surviving Corporation's ability to pay dividends
will be restricted.
10
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below has been derived from
and should be read in conjunction with, the audited and unaudited consolidated
financial statements of the Company and notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------
FOR THE YEARS ENDED JANUARY 31,
------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
INCOME STATEMENT DATA
Net Sales .......................................... $ 39,722 $ 37,999 $ 34,466
Net Income ......................................... 2,108 1,496 1,917
BALANCE SHEET DATA
Working Capital .................................... $ 8,669 $ 8,304 $ 8,434
Total Assets ....................................... 23,548 22,185 18,693
Total Assets less Intangible Assets ................ 20,668 19,857 18,473
Stockholders' Equity ............................... 15,806 12,832 12,946
PER SHARE DATA
Average Number of Shares Outstanding:
Basic ........................................... 4,177,102 4,161,289 4,193,687
Fully Diluted ................................... 4,220,095 4,323,821 4,472,902
Net Income per Share (Basic) ....................... $ 0.50 $ 0.36 $ 0.46
Net Income per Share (Fully Diluted Basis) ......... 0.50 0.35 0.43
OTHER INFORMATION
Book Value per common share outstanding ............ $ 3.68 $ 3.16 $ 3.02
</TABLE>
11
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to the holders of Uniflex Common
Stock in connection with the solicitation of proxies by the Board of Directors
of Uniflex from holders of the outstanding shares of Uniflex Common Stock for
use at the Special Meeting of Stockholders to be held at 10:00 a.m., local
time, on June 30, 1999 and at any adjournments and postponements thereof. At
the Special Meeting, stockholders of Uniflex (a) will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby, and (b) will transact such other business as
may properly come before the Special Meeting.
RECORD DATE, SOLICITATION, AND REVOCABILITY OF PROXIES
The Board of Directors of the Company has fixed the Record Date as the
date for determining the Uniflex stockholders entitled to receive notice of and
to vote at the Special Meeting and any adjournments or postponements thereof.
Only holders of record of Uniflex Common Stock as of the close of business on
the Record Date are entitled to notice of and to vote at the Special Meeting.
As of the Record Date, there were 4,300,352 shares of Uniflex Common Stock
issued, outstanding, and held by approximately 222 holders of record. Holders
of Uniflex Common Stock are entitled to one vote on each matter considered and
voted on at the Special Meeting for each share of Uniflex Common Stock held of
record at the close of business on the Record Date.
Proxies in the form enclosed are being solicited by the Board of Directors
of the Company. Shares of Uniflex Common Stock represented by properly executed
proxies, if such proxies are received in time and are not revoked, will be
voted in accordance with the instructions indicated on the proxies. Proxies
returned signed but without instructions will be voted FOR approval and
adoption of the Merger Agreement and the transactions contemplated thereby and
FOR the adjournment or postponement of the Special Meeting in the event that
the number of proxies obtained is not sufficient to ensure the adoption and
approval of the Merger Agreement. Any holder of Uniflex Common Stock who
returns a signed proxy but fails to provide instructions as to the manner in
which such holder's shares are to be voted will be deemed to have voted FOR
approval and adoption of the Merger Agreement and the transactions contemplated
thereby and FOR the adjournment or postponement of the Special Meeting in the
event that the number of proxies obtained is not sufficient to ensure the
adoption and approval of the Merger Agreement.
It is not anticipated that any matter other than the proposal to approve
and adopt the Merger Agreement will be brought before the Special Meeting. If
any other matter is properly presented for consideration at the Special
Meeting, the persons named in the enclosed form of proxy card and acting
thereunder will have discretion to vote on such matter in accordance with their
best judgment.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise at the Special Meeting, by (a) giving written notice of revocation to
the Secretary of the Company, (b) properly submitting to the Company a duly
executed proxy bearing a later date, or (c) voting in person at the Special
Meeting. All written notices of revocation and other communications with
respect to revocation of proxies should be addressed to the Company as follows:
Uniflex, Inc., 383 West John Street, Hicksville, New York 11802, Attention:
Secretary. A proxy appointment will not be revoked by death or supervening
incapacity of the stockholder executing the proxy unless, before the shares are
voted, notice of such death or incapacity is filed with the Company's Secretary
or other person responsible for tabulating votes on behalf of the Company.
The expense of soliciting proxies for the Special Meeting will be paid by
the Company. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers, and employees of Uniflex in person or by
telephone, telegram, or other means of communication. Such directors, officers,
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such
solicitation. Arrangements will be made with custodians, nominees, and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held
12
<PAGE>
of record by such custodians, nominees, and fiduciaries, and Uniflex will
reimburse such custodians, nominees, and fiduciaries for reasonable
out-of-pocket expenses incurred in connection therewith.
QUORUM; REQUIRED VOTE
Approval of the Merger Agreement and the transactions contemplated thereby
requires the presence of a quorum and the affirmative vote of the holders of a
majority of the issued and outstanding shares of Uniflex Common Stock entitled
to vote thereon at the Special Meeting. The presence, in person or by properly
executed proxy, of the holders of a majority of the issued and outstanding
shares of Uniflex Common Stock at the Special Meeting is necessary to
constitute a quorum of the holders of Uniflex Common Stock at the Special
Meeting. Abstentions and broker non-votes will be counted as shares present for
purposes of determining the presence of a quorum. However, because the proposal
to approve and adopt the Merger Agreement requires the affirmative vote of a
majority of the issued and outstanding shares of Uniflex Common Stock,
abstentions and broker non-votes will have the effect of a vote against the
Merger Agreement and the transactions contemplated thereby in determining
whether effective action has been taken. THE EFFECT ON APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT OF FAILING TO PROPERLY EXECUTE AND RETURN A PROXY CARD OR
TO VOTE AT THE SPECIAL MEETING WILL BE THE SAME AS VOTING AGAINST THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The members of the Management Group (and family members having interests
in their Retained Shares) and the Carl Marks Affiliates, who beneficially own
in the aggregate 1,803,720 shares of Uniflex Common Stock, constituting
approximately 48.9% of the outstanding Uniflex Common Stock as of the Record
Date, have entered into the Voting Agreements, pursuant to which each of them
appointed certain persons designated by Acquisition as proxy to, among other
things, vote their respective shares of Uniflex Common Stock in favor of the
Merger Agreement. In addition, directors of Uniflex who are not members of the
Management Group were the beneficial owners of 353,636 shares of Uniflex Common
Stock on the Record Date, constituting approximately 8.2% of the outstanding
Uniflex Common Stock as of the Record Date, and such directors have indicated
that they intend to vote such shares in favor of the approval and adoption of
the Merger Agreement. See "Special Factors--Interests of Certain Persons in the
Merger--Voting Agreements."
13
<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTION
Since early to mid-1997, in the opinion of management and some
stockholders, Uniflex stock has underperformed relative to the market averages
and its peers and has not been at prices that properly reflect the underlying
value of the Company. In an effort to promote the Company's growth, the Company
concluded a business acquisition in February 1997 but it did not positively
impact the price of Uniflex Common Stock. More recent bids to effect additional
acquisitions were not successful. In October 1997, Uniflex engaged Dunn
Johnston as its exclusive financial advisor in connection with its program of
acquisitions and the possible exploration of other strategic alternatives in an
effort to enhance stockholder value.
After exploring a number of possible acquisition and business combination
alternatives, senior management of the Company determined that it might be in
the best interests of Uniflex stockholders to preliminarily explore whether
there were any potential buyers for the Company and directed Dunn Johnston to
approach potential investors. Over the course of the months of June through
August 1998 Dunn Johnston contacted a total of 46 potential buyers, including
36 strategic investors in related industries and 10 financial investors, many
of which held plastics industry companies in their portfolios.
By July 1998, sixteen of the potential buyers had signed confidentiality
agreements and were furnished with certain information about Uniflex. By August
1998 the Company had received initial indications of interest from six
potential purchasers, who were invited in September 1998 to conduct plant
visits and preliminary due diligence at the Company.
Between mid-September and mid-October 1998, Dunn Johnston received updated
proposals from Carl Marks & Co., Inc. ("Carl Marks") and two other financial
investors. The two other financial investors made offers of $7.00 and
approximately $6.80 per share of Uniflex Common Stock. The $7.00 proposal
involved a merger or combination of the Company with two other companies as
part of the transaction. The Carl Marks proposal was to purchase the Company
for a price of between $31 million and $33 million for all of the outstanding
equity securities of Uniflex (or approximately $7.11 to $7.57 per share of
Uniflex Common Stock).
During late September and October 1998, discussions were held by Dunn
Johnston with each of the investors in an unsuccessful effort to elicit
proposals at higher prices.
On October 20, 1998, at the request of Uniflex and Dunn Johnston, a
follow-up meeting was held at the offices of Sterling/Carl Marks in Great Neck,
New York among members of Uniflex senior management, a representative of Dunn
Johnston and representatives of the Carl Marks Affiliates to discuss and
attempt to improve upon certain elements of the Carl Marks proposal. At the
meeting, the Company representatives and Dunn Johnston asked the Carl Marks
representatives to submit a more specific proposal, rather than a range of
possible prices, at a level above the upper end of the range previously
suggested. The Carl Marks representatives indicated that they could move to a
single price of $33 million, the upper end of their range, but no higher.
Discussion also took place regarding other elements of the proposal including
financing arrangements, timing, expense reimbursement provisions and the extent
to which officers, directors and employees of the Company (and the Carl Marks
Affiliates) would be required to retain shares in the Company.
On October 26, 1998, a meeting of the Board of Directors of Uniflex (the
"Board") was held to discuss the status of negotiations. Representatives of
Dunn Johnston attended the meeting and described the three proposals that had
been received. The Board determined that, since the proposals contemplated
senior management continuing to manage the Company and to hold equity interests
therein after the Merger, the interests of senior management in the ultimate
transaction could differ somewhat from those of Uniflex stockholders generally.
Accordingly, the Board determined to form a special committee of the Board
composed of the following directors: Steven Wolosky, Martin Gelerman, Kurt
Vetter and Martin Brownstein (the "Special Committee"). The Board authorized
the Special Committee to review, approve and oversee the negotiation of
proposals from prospective purchasers. The Special Committee then met
separately with the representatives from Dunn Johnston to discuss the three
offers and various methods
14
<PAGE>
of valuing the Company. The Special Committee directed Dunn Johnston to contact
Carl Marks and the other investors with a view to improving their proposals
(and fixing a specific price at or above the top of the proposed range, in the
Carl Marks proposal) and eliciting proposed letters of intent to the extent
such price expectations were met.
On October 28, 1998, Carl Marks submitted a revised proposal fixing a
price of $33 million for all of the outstanding equity securities of Uniflex
(or approximately $7.57 per share of Uniflex Common Stock). The investor that
had proposed $7.00 per share (the "Other Investor") indicated in a conversation
with a representative of Dunn Johnston that the Company's willingness to enter
into an exclusive letter of intent could enable it to increase its offer
somewhat, although no specific amount was proposed. The third investor
indicated in a telephone conversation with a representative of Dunn Johnston
that it could increase its offer slightly but not significantly above $7.00 a
share.
On October 29, 1998, a telephonic meeting of the Special Committee was
held at which a representative of Dunn Johnston reviewed the status of its
discussions with Carl Marks and the other investors. At the meeting the Special
Committee directed Dunn Johnston to respond to Carl Marks's offer by requesting
Carl Marks to prepare a letter of intent as soon as possible.
On November 3, 1998, counsel for Carl Marks delivered a proposed letter of
intent to counsel for Uniflex, and the Other Investor submitted a revised
proposal increasing its offer to $7.50 a share, but coupling that increase with
a requirement that Uniflex indemnify it for any costs it might incur by reason
of actions of the Uniflex Board prior to closing (including the evaluation and
selection of offers). During the next several days, Dunn Johnston explored
further with the Other Investor certain elements of their proposal including
financing arrangements, exclusivity provisions and timing.
On November 4, 1998 a telephonic meeting of the Special Committee was held
at which a representative of Dunn Johnston provided an update of its activities
since the prior meeting, and between November 5 and November 11, 1998
representatives of the Special Committee, Dunn Johnston, counsel to the
Company, the Carl Marks Affiliates and counsel to the Carl Marks Affiliates
negotiated and exchanged comments on and drafts of a letter of intent to be
entered into by Uniflex and CMCO, Inc., an affiliate of Carl Marks.
During the week of November 9, 1998, the Other Investor telephoned Dunn
Johnston and requested the opportunity to speak directly with Uniflex senior
management. On the morning of Friday, November 13, 1998, representatives of
Uniflex and the Other Investor spoke by telephone, at which time the Other
Investor informed Uniflex management that its offer would be withdrawn if it
were not accepted by Monday, November 16, 1998. This conversation was followed
by a letter later that day from the Other Investor to Dunn Johnston
establishing a noon deadline on Monday, November 16 for acceptance of their
proposal. Later on November 13 a telephonic meeting of the Special Committee
was held at which Dunn Johnston updated the members of the Special Committee on
the status of negotiations. Later on that same day Dunn Johnston again
discussed with the Other Investor its proposal in a further attempt to clarify
and improve its terms.
On Sunday, November 15, 1998, the Other Investor submitted a proposed
letter of intent providing for a price of approximately $7.50 per share of
Uniflex Common Stock, but requiring a reduction of that price to the
stockholders by the amount of any expenses incurred by the Company in
connection with the transaction. This proposal was discussed on the morning of
November 16, 1998 on a conference telephone call among members of Uniflex
senior management, representatives of Dunn Johnston and Uniflex counsel. The
letter of intent provided for a substantially larger "break-up" fee than the
Carl Marks proposal and an irrevocable proxy and option agreement with Messrs.
Barry and Semel which, in the opinion of counsel, would have acted as a
deterrent to any higher bids emerging for the Company. After the conference
call, a representative of Dunn Johnston contacted the Other Investor, noted
several concerns with and requested several changes to the letter of intent,
and requested that the noon deadline be extended, but the Other Investor
declined to substantially amend the proposal or extend it.
On November 16, 1998 at 11:30 a.m. a telephonic meeting of the Special
Committee was held at which Uniflex counsel and Dunn Johnston described the
status of the Carl Marks negotiations and letter
15
<PAGE>
of intent and the issues raised by the proposed letter of intent from the Other
Investor. The various elements of the two draft letters of intent were
discussed, including price, proposed financing structure, "no-shop" provisions
and "break-up" fees. The Dunn Johnston representative reviewed its analysis of
the transaction and the various methods for valuing the Company in light of
changes in the market since the Board meeting of October 26, 1998. The
representative of Dunn Johnston indicated that in Dunn Johnston's preliminary
assessment the transaction proposed by Carl Marks in its letter of intent was
fair to the Uniflex public stockholders from a financial point of view based on
conditions and circumstances as they existed at that time. The Special
Committee then voted unanimously to approve the Carl Marks transaction and
authorized appropriate officers of the Company to execute and deliver the
letter of intent with CMCO, Inc.
On the evening of November 16, 1998 Uniflex and CMCO, Inc. signed the
letter of intent outlining the terms of the Merger, substantially as described
in this Proxy Statement, and providing that Uniflex would not solicit,
initiate, encourage, continue or enter into negotiations with any person or
entity with respect to the sale of a majority or greater interest in the
Company by merger or other business combination, sale of capital stock, or
similar transaction or 50% or more of the Company's business until February 15,
1999 (the "Exclusivity Period"), although the Board was free to furnish
information and to negotiate with respect to any unsolicited inquiry, proposal
or offer in the good faith exercise of its fiduciary responsibilities. On
November 17, 1998 a public announcement of the signing of the letter of intent
was issued by Uniflex.
Subsequent to the signing of the letter of intent, CMCO, Inc. informed
Uniflex that the principal equity investment in the transaction would be made
by RFE and that initially Acquisition would be controlled by RFE. Thereafter,
RFE and CMCO, Inc. conducted further due diligence with respect to the Company
and the parties and their counsel negotiated the terms of the Merger Agreement
and other definitive documentation with respect to the Merger. On February 11,
1999, at the request of the Carl Marks Affiliates and RFE, and to give the
parties more time to complete the necessary documentation, a telephonic meeting
of the Special Committee was held at which the Special Committee approved an
amendment to the letter of intent extending the Exclusivity Period to March 5,
1999. The amendment to the letter of intent was signed on February 11, 1999.
At a meeting held on March 5, 1999, the Special Committee met
telephonically to consider and act upon the Merger and the definitive
documentation with respect thereto. At the meeting, the Special Committee
received the oral opinion of Dunn Johnston, subsequently confirmed in writing,
with respect to the fairness, from a financial point of view, of the Cash
Merger Price to be received by Uniflex's stockholders (other than stockholders
who own Retained Shares) described under "Opinion of Dunn Johnston, Financial
Advisor to Uniflex," and, based on that opinion and on the other factors
described herein under "Reasons for the Merger; Recommendation of the Board of
Directors," the Special Committee unanimously resolved to recommend to the full
Board the approval of the Merger, the Merger Agreement, the Voting Agreements
and the other documentation incidental thereto and authorized senior management
to complete the negotiation of certain remaining points. Thereafter, on March
5, 1999, the full Board met telephonically to receive the report of the Special
Committee and to consider and act upon the Merger and the definitive
documentation with respect thereto. The Special Committee reported its
recommendation to the Board, management reported that the open points had been
resolved in accordance with the wishes of the Special Committee and the Board
voted unanimously to approve the Merger, the Merger Agreement, the Voting
Agreements and documentation incidental thereto and authorized senior
management to execute final documents. On the evening of Friday, March 5, 1999,
the Merger Agreement, the Voting Agreements and the ancillary documentation
related thereto were executed by the parties. On Monday, March 8, 1999, Uniflex
issued a press release announcing the transaction.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
GENERAL. At meetings held on March 5, 1999, the Special Committee and the
Board of Directors each unanimously approved the Merger Agreement and
determined, among other things, that the Merger Agreement was fair to and in
the best interests of Uniflex's stockholders (other than stockholders who
16
<PAGE>
own Retained Shares) and recommended that Uniflex's stockholders approve the
Merger Agreement. In reaching these conclusions, the Special Committee and the
Board consulted with Dunn Johnston and Uniflex 's legal counsel and considered
the following factors ( which factors were considered over a period of time at
various meetings):
(a) A comparison of the risks and benefits of the Merger against the risks
and benefits of other strategic alternatives potentially available to
Uniflex (including the possibility of continuing to operate the Company
as an independent public entity). In the opinion of management and some
stockholders, since early to mid-1997, the Company's stock has
underperformed relative to market averages and its peers and has not
traded at prices that properly reflect the underlying value of the
Company. In order to enhance stockholder value, management evaluated a
range of alternatives potentially available to the Company and the
values to be derived therefrom (including the possibility of continuing
to operate the Company as an independent public entity). As a
consequence of the above the Special Committee and the Board concluded
that the best course for the stockholders would be a sale of the
Company pursuant to the Merger Agreement.
(b) The thin trading market and lack of liquidity for the Uniflex Common
Stock and the existence of substantial blocks of stock in the hands of
several stockholders and the desire of certain of those stockholders
for a transaction providing liquidity.
(c) In the process of soliciting buyers for the Company, Dunn Johnston
contacted both strategic and financial buyers. No firm proposals were
presented by the strategic buyers contacted and the Special Committee
concluded that the proposals presented by the two other financial
buyers generated lower values to the stockholders than the Cash Merger
Price. In addition, no inquiries or proposals from strategic or
financial buyers (including the two buyers that had previously
submitted proposals) were presented to the Company during the more than
fifteen-week period from the public announcement of the November 16,
1998 letter of intent to the date of signing of the Merger Agreement,
or thereafter.
(d) The Special Committee and the Board considered information with respect
to the financial condition, results of operations, business and
prospects of the company, as well as the risks involved in achieving
such prospects, and the current state of the plastic packaging and
promotional products industry, including the Special Committee's and
the Board's views regarding the economic and market conditions
affecting the Company and such industry. The Special Committee and the
Board believe that the Company faces increasing levels of competition
and risk as it diversifies outside its traditional promotional products
and medical markets and that this could adversely effect the future
growth prospects of the Company. Therefore, the Special Committee and
the Board determined that there were significant risks involved in the
Company achieving future growth that would support a price per share
higher than the Cash Merger Price.
(e) The substantial expenses for regulatory compliance, stockholder and
investor relations and other matters that continued operation as an
independent public company would impose on Uniflex.
(f) The $7.57 per share of Uniflex Common Stock to be paid to stockholders
in the Merger represented a premium of approximately 40.8% over the
closing price of $5 3/8 per share of Uniflex Common Stock on November
16, 1998, one day prior to public announcement of the letter of intent
relating to the Merger. The Special Committee and the Board considered
that shares of Uniflex Common Stock had traded in a range from a low of
$3 5/8 to a high of $6 9/16 during the 52 weeks prior to such
announcement date.
(g) The written opinion, dated as of March 5, 1999, of Dunn Johnston (and
the analysis presented to the Special Committee underlying such
opinion) to the effect that, based on the assumptions made, matters
considered and limits of the review undertaken by Dunn Johnston, the
Cash Merger Price to be received by Uniflex's stockholders (other than
stockholders who own
17
<PAGE>
Retained Shares) in the Merger was, on the date of such opinion, fair,
from a financial point of view, to the stockholders. The Special
Committee and the Board reviewed the analysis underlying the opinion of
Dunn Johnston and adopted that analysis. The Special Committee and the
Board are aware that, in conducting its review, Dunn Johnston assumed
and relied upon, and did not independently verify, the accuracy and
completeness of the financial and other information provided to or
discussed with it or publicly available and the reasonableness and
accuracy of the financial projections, forecasts and analyses provided
to it and the assumptions on which they were based. In addition, Dunn
Johnston did not review the books and records of Uniflex, or conduct a
physical inspection of its properties and facilities, and did not make
or obtain an independent valuation or appraisal of the assets or
liabilities of Uniflex. See "Special Factors--Opinion of Dunn Johnston,
Financial Advisor to Uniflex."
(h) The Special Committee and the Board considered as negative factors
certain elements of Dunn Johnston's analysis of selected precedent
transactions, namely: (a) that Total Enterprise Value for the Merger
was a multiple of 9.5x latest 12 months EBIT for the Merger, versus (i)
a range of 10.3x to 14.9x latest 12 months EBIT, with a median of
12.2x, for the Plastics Transactions; and (ii) a multiple of 12.2x
latest 12 months EBIT for the Promotional Products Transaction, and (b)
that the Merger Equity Value was a multiple of 2.1x book value for the
Merger, versus a range of 2.6x to 2.8x book value, with a median of
2.7x, for the two Plastics Transactions for which such data was
available. However, the remainder of Dunn Johnston's analysis,
including analyses of sales and EBITDA, supports the fairness of the
Cash Merger Price to be received in the Merger, and Dunn Johnston has
indicated that sales and EBITDA are generally regarded as more
important determinants of value by acquirors in this industry than EBIT
and book value. See "--Opinion of Dunn Johnston, Financial Advisor to
Uniflex" for a full description of the Dunn Johnston analysis and for
definitions of certain of the capitalized terms used above.
(i) The terms and conditions of the Merger Agreement and related matters
were the product of arm's-length negotiations in which Uniflex was
assisted by its legal counsel, Olshan Grundman Frome Rosenzweig &
Wolosky LLP, and its financial advisor, Dunn Johnston. In particular,
the Special Committee and the Board considered that under the terms of
the Merger Agreement, the Board was not prohibited from furnishing
information in response to, or from considering, negotiating, or
participating in discussions regarding, an unsolicited inquiry,
proposal or offer, if (i) such information was furnished pursuant to a
customary confidentiality agreement, and (ii) such consideration,
negotiation or discussion was conducted in good faith, upon written
advice of outside counsel that such action was required by the Board's
fiduciary responsibility to the Company's stockholders. Under such
circumstances, the Board could terminate the Merger Agreement upon
payment of a break-up fee of $350,000 to Acquisition, the Carl Marks
Affiliates and RFE and its affiliates and reimbursement of their
out-of-pocket expenses, up to a maximum of $250,000, plus the amount of
any commitment fees related to the senior debt and Senior Subordinated
Debentures actually paid or contractually required to be paid to
investment funds, banks or other financial institutions providing funds
to finance the Merger. See "Material Provisions of The Merger
Agreement."
(j) The Special Committee and the Board considered as a negative factor the
fact that Acquisition's obligation to consummate the transaction is
contingent upon Acquisition's ability to obtain the Financing
contemplated by the Commitment Letters to pay the Cash Merger Price, to
pay the value of the Options and to pay the fees and expenses in
connection with the Merger and such financing. However, the Special
Committee and the Board also considered that such a condition to
closing is common in transactions of this type. If the Merger is
consummated, it is contemplated that the financing required to pay the
Cash Merger Price, to pay the value of the Options, to refinance
certain existing indebtedness of the Company, including indebtedness
under the Company's existing mortgage loan, and to pay the fees and
expenses in connection with the Merger and such financing will be
provided by a term loan in the amount of $18.5 million and drawings
under a $5 million revolving credit facility, to be included in a
senior secured credit facility to be entered into by the Company,
issuance by the Company of its senior
18
<PAGE>
subordinated debentures for gross proceeds of $7 million, and equity
financing provided by RFE in the amount of approximately $5.25 million
through the purchase of common stock of Acquisition and equity financing
of $750,000 provided by Sterling/Carl Marks through the purchase
immediately prior to the Effective Time of Uniflex Common Stock.
(k) The Special Committee and the Board considered that (i) the affirmative
vote of a majority of the outstanding shares of Uniflex Common Stock is
required for adoption of the Merger Agreement and approval of the
transactions contemplated thereby and (ii) the Voting Agreements, to
which the members of the Management Group and the Carl Marks Affiliates
are signatories, providing that the shares of Uniflex Common Stock held
by them, constituting approximately 49% of the outstanding shares of
Uniflex Common Stock, would be voted in favor of the adoption of the
Merger Agreement and approval of the transaction. In addition,
directors of Uniflex who are not members of the Management Group were
the beneficial owners of 353,636 shares of Uniflex Common Stock on the
Record Date, constituting approximately 8.2% of the outstanding Uniflex
Common Stock as of the Record Date, and such directors have indicated
that they intend to vote such shares in favor of the approval and
adoption of the Merger Agreement. See "Special Factors--Interests of
Certain Persons in the Merger--Voting Agreements." Neither the Merger
Agreement nor the DGCL requires that the Merger be separately approved
by a majority of the Uniflex stockholders that are not affiliates of
Uniflex. Nonetheless, the Special Committee and the Board believe that
the procedure for approving the Merger is fair to such unaffiliated
security holders. The Merger has been evaluated and approved by the
Special Committee, none of the members which hold Retained Shares, and
has been approved by all of the members of the Board, including those
who are not employees of the Company. The DGCL provides appraisal
rights (described in detail in this Proxy Statement) for any Uniflex
Stockholders who wish to exercise them. In addition, the opinion of
Dunn Johnston concludes that the Cash Merger Price to be received in
the Merger by stockholders of Uniflex (other than stockholders who own
Retained Shares) is fair to such stockholders from a financial point of
view. In addition, the Board considered the fact that the Voting
Agreements would terminate in accordance with their terms in the event
that the Board recommended or the stockholders approved or accepted an
Acquisition Proposal received by the Company. The Special Committee and
the Board also considered the employment agreements and other benefits
to be received by members of the Management Group upon effectiveness of
the Merger, but determined that such interests, including the Retained
Shares and signing bonuses, were reasonable and appropriate in light of
Carl Marks' and RFE's requirement that the Management Group participate
in the transaction. Carl Marks and RFE specifically insisted that
senior management of the Company maintain an equity interest in the
Company by retaining at least 322,000 Retained Shares and that Herbert
Barry and Robert K. Semel execute new employment agreements with the
Surviving Corporation. The Special Committee and the Board, including
all of the non-employee directors, have determined that the interests
of certain officers and directors in the Merger have not affected the
fairness of the consideration to be paid to the Company's stockholders.
See "Special Factors--Interests of Certain Persons in the Merger."
The foregoing discussion of the information and factors considered by the
Special Committee and the Board is not intended to be exhaustive, but includes
the material factors considered by the Special Committee and the Board. In
reaching their determinations to recommend and approve the Merger Agreement,
and in view of the variety of factors considered by the Special Committee and
the Board in connection with their evaluation of the Merger Agreement (as
discussed above), the Special Committee and the Board did not assign any
relative or specific weights to the various factors considered by them.
No unaffiliated representative was retained by the Special Committee or
the Board to act on behalf of unaffiliated security holders. The Special
Committee and the Board determined that this was not necessary in light of the
fact that several members of the Special Committee and the Board are
non-employee directors and that all of the non-employee directors voted in
favor of the adoption of the Merger Agreement and the consummation of the
transactions contemplated thereby.
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Each member of the Management Group has concluded that the Merger is fair
to Uniflex's stockholders (other than stockholders who own Retained Shares)
from a financial point of view and has adopted the analysis underlying Dunn
Johnston's opinion. Each member of the Management Group believes that the
procedure for approving the Merger is fair to the unaffiliated stockholders of
Uniflex for the reasons set out in paragraph (k), above, and the following
paragraph.
MERGER NOT CONDITIONED UPON APPROVAL OF UNAFFILIATED STOCKHOLDERS. The
Merger is not conditioned upon the approval of a majority of the unaffiliated
stockholders of Uniflex. Notwithstanding the absence of this procedural
safeguard, the Board has concluded that the procedure for approving the Merger
is procedurally fair to unaffiliated stockholders for the following reasons:
Neither the Merger Agreement nor the DGCL requires that the Merger be
separately approved by unaffiliated stockholders. The Merger Agreement was
entered into after an extensive auction process and its terms are the result of
arms' length negotiations. The Merger was evaluated and unanimously approved by
a Special Committee of the Board, none of whose members hold Retained Shares,
and by all members of the Board including those who are not employees of the
Company. The DGCL provides appraisal rights (described in detail in this Proxy
Statement) for any Uniflex Stockholders who wish to exercise them. The Special
Committee and the Board received the opinion of Dunn Johnston that the Cash
Merger Price to be received in the Merger by the stockholders of Uniflex (other
than those who own Retained Shares) is fair to such stockholders from a
financial point of view.
PURPOSES AND REASONS OF RFE AND ACQUISITION FOR THE MERGER
The purposes of the Merger are (a) to enable RFE, through Acquisition, to
make an investment representing a substantial interest in the Company, and (b)
to enable existing stockholders of the Company to realize a substantial premium
over recent historical market prices for the shares of Uniflex Common Stock
owned by them. Acquisition was formed by RFE for the purpose of engaging in
such transaction. Acquisition elected to proceed with the Merger for the same
reasons that motivated RFE.
The acquisition of Uniflex has been structured as a merger pursuant to
which Uniflex will be the surviving corporation, and certain current officers,
directors and stockholders of the Company will retain an interest in the
Company in order to (a) effect a recapitalization of the Company for accounting
purposes and (b) preserve the corporate identity of Uniflex and its existing
contractual arrangements with third parties.
POSITION OF RFE AND ACQUISITION AS TO FAIRNESS OF THE MERGER
RFE and Acquisition did not participate in the deliberations of the
Special Committee or the Board of Directors of Uniflex regarding, or receive
advice from the Company's financial advisors as to the fairness to the
Company's stockholders of, the Merger. As a result, RFE and Acquisition are not
in a position to specifically adopt the conclusions of the Special Committee
and the Board with respect to such matters. However, RFE and Acquisition
believe that the Merger is fair to the stockholders of the Company (other than
stockholders who own Retained Shares), based solely upon their understanding
from discussions with senior management of the Company regarding (a) the
factors considered by the Special Committee and the Board referred to herein,
(b) the premium of the Cash Merger Price over historical market prices for
shares of the Uniflex Common Stock, and the substantial premium of the Cash
Merger Price over the closing price on November 16, 1998, (c) the extent of the
sale process described in "Background of the Transaction," (d) the unanimous
recommendation of the Merger Agreement and the transactions contemplated
thereby by the Special Committee and the Board of Directors, (e) the agreement
of certain principal stockholders to vote their shares of Uniflex Common Stock
in favor of the Merger Agreement and the transactions contemplated thereby, (f)
the receipt by the Special Committee and the Board of the written opinion of
the Company's independent financial advisor (see "--Opinion of Dunn Johnston,
Financial Advisor to Uniflex") to the effect that, based on the assumptions
made, matters considered and limits of the review undertaken, the Cash Merger
Price to be received was fair, as of the date of such opinion, from a financial
point of view to Uniflex's stockholders (other than the holders of Retained
Shares) and (g) the arm's-length nature of the negotiations between the Carl
Marks Affiliates, RFE and Acquisition, on the one hand, and the Company on the
other. This belief should not, however,
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be construed as a recommendation to the Company's stockholders by RFE or
Acquisition to vote to approve the Merger Agreement and the transactions
contemplated thereby. Neither RFE nor Acquisition has undertaken any formal
evaluation of the fairness of the Merger to the stockholders of the Company and
neither of them has assigned specific relative weights to the factors
considered by them.
POSITION OF THE CARL MARKS AFFILIATES AS TO FAIRNESS OF THE MERGER
The Carl Marks Affiliates did not participate in the deliberations of the
Special Committee or the Board of Directors of Uniflex regarding, or receive
advice from the Company's financial advisors as to the fairness to the
Company's stockholders of, the Merger. However, each of the Carl Marks
Affiliates has adopted the analysis underlying Dunn Johnston's opinion. In
addition, each of the Carl Marks Affiliates believes that the Merger is fair to
the stockholders of the Company (other than stockholders who own Retained
Shares) and that the procedure for approving the Merger is fair to the
unaffiliated stockholders of Uniflex for the reasons set forth under "--Reasons
for the Merger; Recommendation of the Board of Directors--General (paragraph
(k)) and "--Merger Not Conditioned on Approval of Unaffiliated Stockholders."
This belief should not, however, be construed as a recommendation to the
Company's stockholders by the Carl Marks Affiliates to vote to approve the
Merger Agreement and the transactions contemplated thereby. None of the Carl
Marks Affiliates has undertaken any formal evaluation of the fairness of the
Merger to the stockholders of the Company.
OPINION OF DUNN JOHNSTON, FINANCIAL ADVISOR TO UNIFLEX
Uniflex retained Dunn Johnston on October 29, 1997 on an exclusive basis
to assist the Company in its analysis and consideration of various financial
and strategic alternatives available to it. In connection with the contemplated
Merger, Uniflex's Special Committee of the Board of Directors requested that
Dunn Johnston render its opinion as to fairness, from a financial point of
view, of the Cash Merger Price to be received by Uniflex's stockholders (other
than stockholders who own Retained Shares).
At the March 5, 1999 meeting of the Special Committee, representatives of
Dunn Johnston made a presentation with respect to the Merger and at the
meetings of March 5, 1999 tendered to the Special Committee and the Board its
oral opinion, subsequently confirmed in writing as of the same date, that as of
such date, and based upon the assumptions made, matters considered and limits
of the review undertaken by Dunn Johnston, the Cash Merger Price to be received
by Uniflex's stockholders (other than Stockholders who own Retained Shares) was
fair, from a financial point of view, to such stockholders.
THE FULL TEXT OF DUNN JOHNSTON'S WRITTEN OPINION DATED MARCH 5, 1999 (THE "DUNN
JOHNSTON OPINION"), WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS
ANNEX C AND INCORPORATED HEREIN BY REFERENCE. UNIFLEX STOCKHOLDERS ARE URGED TO
READ THE DUNN JOHNSTON OPINION IN ITS ENTIRETY. THE DUNN JOHNSTON OPINION IS
DIRECTED TO THE BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE OF THE BOARD OF
DIRECTORS OF UNIFLEX, ADDRESSES ONLY THE FAIRNESS OF THE CASH MERGER PRICE TO
UNIFLEX'S STOCKHOLDERS (OTHER THAN STOCKHOLDERS WHO OWN RETAINED SHARES) FROM A
FINANCIAL POINT OF VIEW, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
UNIFLEX STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SPECIAL
MEETING. THE DUNN JOHNSTON OPINION WAS RENDERED TO THE BOARD OF DIRECTORS AND
THE SPECIAL COMMITTEE FOR THEIR CONSIDERATION IN DETERMINING WHETHER TO APPROVE
THE AGREEMENT.
In connection with the Dunn Johnston Opinion, Dunn Johnston reviewed
drafts of the Merger Agreement and related documents, and for the purpose
thereof, assumed that the final forms of such documents would not differ in any
material respect from the drafts provided to it. Dunn Johnston also reviewed
and analyzed certain publicly available business and financial information
relating to Uniflex for recent years and the interim periods to the date of the
Dunn Johnston Opinion, as well as certain internal financial and operating
information, including financial forecasts, analyses, and projections prepared
by or
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on behalf of Uniflex and provided to it for purposes of its analysis, and Dunn
Johnston met with management of the Company to review and discuss such
information and, among other matters, Uniflex's business, operations, assets,
financial condition, and future prospects.
Dunn Johnston reviewed and considered certain financial and stock market
data relating to Uniflex, and compared that data with similar data for certain
other companies, the securities of which are publicly traded, that it believed
may have been relevant or comparable in certain respects to Uniflex or one or
more of its businesses or assets, and Dunn Johnston reviewed and considered the
financial terms of certain recent acquisitions and business combination
transactions in the plastics and promotional products industries specifically,
and in other industries generally, that it believed to be reasonably comparable
to the Merger or otherwise relevant to its inquiry. Dunn Johnston also
performed such other financial studies, analyses, and investigations and
reviewed such other information as it considered appropriate for purposes of
the Dunn Johnston Opinion.
In Dunn Johnston's review and analysis and in formulating its opinion,
Dunn Johnston assumed and relied upon the accuracy and completeness of all of
the financial and other information provided to or discussed with it or
publicly available, and Dunn Johnston did not assume any responsibility for
independent verification of any such information. Dunn Johnston also assumed
and relied upon the reasonableness and accuracy of the financial projections,
forecasts and analyses provided to it, and it assumed that such projections,
forecasts and analyses were reasonably prepared in good faith and on bases
reflecting the best currently available judgments and estimates of Uniflex's
management. Dunn Johnston expressed no opinion with respect to such
projections, forecasts and analyses or the assumptions upon which they are
based. In addition, Dunn Johnston did not review any of the books and records
of Uniflex, or assume any responsibility for conducting a physical inspection
of the properties or facilities of Uniflex, or for making or obtaining an
independent valuation or appraisal of the assets or liabilities of Uniflex, and
no such independent valuation or appraisal was provided to it. Dunn Johnston
expressed no opinion on matters of any legal, regulatory, tax or accounting
nature related to the Merger. Dunn Johnston also assumed that the transactions
described in the Merger Agreement would be consummated without waiver or
modification of any of the material terms or conditions contained therein by
any party thereto. The Dunn Johnston Opinion is necessarily based on economic
and market conditions and other circumstances as they existed and could be
evaluated by it as of the date thereof.
The following is a brief summary of certain of the quantitative analyses
performed and factors considered by Dunn Johnston in connection with rendering
the Dunn Johnston Opinion and reviewed with the Special Committee at the March
5, 1999 meeting.
HISTORICAL AND PROJECTED FINANCIAL POSITION. In rendering its opinion,
Dunn Johnston reviewed and analyzed historical and projected financial
information of Uniflex which included, but was not limited to, Uniflex's (i)
balance sheets, (ii) annual income statements, (iii) cash flow statements, (iv)
operating margins, and (v) growth rates. Such review served as the basis for
the financial analyses described below.
CASH MERGER PRICE PREMIUM OVER HISTORICAL STOCK PRICE. Dunn Johnston
reviewed and analyzed the average closing prices per share for Uniflex Common
Stock for various periods prior to November 17, 1998, the day on which a letter
of intent with respect to the transaction was publicly announced, in order to
compute the premium over these average prices that the Cash Merger Price
($7.57) would represent. The Cash Merger Price was a 41% premium over the
November 16, 1998 single day closing price of $5.38 per share. The Cash Merger
Price was a 44% premium over the prior one week daily average (November 10,
1998 to November 16, 1998) closing price of $5.28 per share. The Cash Merger
Price was a 45% premium over the prior four week daily average (October 20,
1998 to November 16, 1998) closing price of $5.23 per share. The Cash Merger
Price was a 56% premium over the prior twelve week daily average (August 24,
1998 to November 16, 1998) closing price of $4.84 per share. This information
was presented to the Special Committee of the Board of Directors of Uniflex to
give it background information regarding the stock price performance of the
Uniflex Common Stock over the periods indicated. In addition, the fact that the
Cash Merger Price exceeded the price per share at which the Uniflex Common
Stock traded during the periods reviewed was consistent with a determination
that the Cash Merger Price was fair to Uniflex's stockholders (other than
stockholders who own Retained Shares).
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ANALYSIS OF PREMIUMS PAID FOR ACQUISITIONS. Dunn Johnston reviewed 45
completed merger and acquisition transactions between $20 million and $50
million Total Enterprise Value (as hereinafter defined) in size, which occurred
between January 1, 1997 and February 8, 1999 and which involved public company
targets in all industries excluding financial institutions and natural
resources. Dunn Johnston calculated the premium per share paid by the acquirer
in each of the selected transactions as a percentage of the stock price of the
target company one day, one week and four weeks prior to the original
announcement date of the transaction. This analysis indicated median premiums
paid of 23%, 33% and 37% for one day, one week and four weeks, respectively.
Dunn Johnston then calculated the premium for Uniflex using the Cash Merger
Price which resulted in an offering premium of 41% one day prior to the
announcement date, 50% one week prior to the announcement date, and 55% four
weeks prior to the announcement date. The analysis indicated that the premium
being offered to Uniflex stockholders is above the median values for premiums
paid one day, one week and four weeks prior to announcement and this supported
a determination that the Cash Merger Price was fair to Uniflex's stockholders
(other than stockholders who own Retained Shares) from a financial point of
view.
STOCK TRADING ANALYSIS. Dunn Johnston reviewed and analyzed the historical
trading volumes and prices at which the Common Stock has traded. Dunn Johnston
noted that trading activity was limited and that the trading market was
relatively illiquid. Dunn Johnston analyzed the historical trading volumes and
prices at which the Common Stock had traded one year prior to the public
announcement (between November 17, 1997 and November 16, 1998) and noted that
the highest closing price was $6 9/16 on December 4, 1997, and the lowest
closing price was $3 7/8 on October 8, 1998.
ANALYSIS OF OTHER PUBLICLY TRADED COMPANIES. Dunn Johnston compared
financial information and commonly used valuation measurements for Uniflex to
corresponding information for selected publicly traded plastic film, converting
and packaging companies ("Plastics Industry Companies"). These companies were
selected based upon the similarity of certain characteristics of their
operations to those of Uniflex. Dunn Johnston advised the Special Committee
that there were no publicly traded companies directly comparable to the Company
and the analysis had to be considered in light of that qualification. In
addition, as of February 26, 1999 the median Total Enterprise Value of the
companies in this group was $279 million, as compared with $36 million for
Uniflex based on the Cash Merger Price. This group consisted of five companies:
AEP Industries Inc.; Applied Extrusion Technologies, Inc.; Atlantis Plastics,
Inc.; Bemis Company, Inc.; and Liqui-Box Corporation. The financial information
used by Dunn Johnston in its analysis included, among other things, (i) common
equity market valuation; (ii) operating performance; (iii) capitalization
ratios; (iv) ratios of common equity market value as adjusted to include debt
and other liabilities less cash ("Total Enterprise Value") to earnings before
interest expense, income taxes, depreciation and amortization ("EBITDA"),
earnings before interest expense and income taxes ("EBIT"), total assets and
revenues; and (v) ratios of common equity market prices per share ("Market
Price") to common equity earnings per share ("EPS"). The ratios set forth were
calculated using closing stock prices as of February 26, 1999. In the case of
Uniflex, Dunn Johnston computed such ratios using the Cash Merger Price of
$7.57 per share, Uniflex's Equity Value as implied in the Merger (the "Merger
Equity Value") and Uniflex's Total Enterprise Value as implied in the Merger
(the "Merger Total Enterprise Value"). The financial information used in
connection with the multiples provided below was based on (i) the latest
reported 12 month period as derived from publicly available information, (ii)
mean estimates for 1998 and 1999 as reported by publicly available sources, and
(iii) estimated financial information for Uniflex as provided by the Company.
Using the Uniflex Common Stock price of $7.57 per share and share prices
of other comparable companies as of February 26, 1999 ("Market Price"), Dunn
Johnston noted that (a) the multiple of Merger Total Enterprise Value to
revenues was 0.9x for Uniflex, compared to a range of 0.7x to 1.6x, with a
median of 1.1x, for the Plastics Industry Companies; (b) the multiple of Merger
Total Enterprise Value to latest 12 Months EBIT was 9.5x for Uniflex, compared
to a range of 8.7x to 14.7x latest 12 months EBIT, with a median of 10.8x, for
the Plastics Industry Companies; (c) the multiple of Merger Total Enterprise
Value to latest 12 Months EBITDA was 7.6x for Uniflex, compared to a range of
5.7x to 7.6x latest 12 months EBITDA, with a median of 7.1x, for the Plastics
Industry Companies; (d) the multiple of Merger Equity Value to book value was
2.1x for Uniflex, compared to a range of 0.6x to 3.7x book
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value, with a median of 1.9x, for the Plastics Industry Companies; (e) the
multiple of Merger Equity Value to Projected 1998 EPS was 15.8x for Uniflex,
compared to a range of 10.2x to 16.3x Projected calendar year 1998 EPS, with a
median of 13.2x, for the Plastics Industry Companies; (f) the multiple of
Merger Equity Value to Projected 1999 EPS was 15.1x for Uniflex, compared to a
range of 8.9x to 15.3x Projected calendar year 1999 EPS, with a median of
13.4x, for the Plastics Industry Companies; and (g) the multiple of Merger
Total Enterprise Value to total assets was 1.5x for Uniflex, compared to a
range of 0.8x to 2.7x, with a median of 1.0x, for the Plastics Industries
Companies. Based on the foregoing comparisons, Dunn Johnston noted that the
multiples implied in the Merger were generally within the ranges of trading
multiples for the Plastics Industry Companies and that this fact supported a
determination that the Cash Merger Price was fair to Uniflex's stockholders
(other than stockholders who own Retained Shares).
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Dunn Johnston reviewed the
financial terms, to the extent publicly available, of nine announced and
completed mergers and acquisitions in the last five years in the plastic film,
converting and packaging industries (the "Plastics Industry Transactions") and
one completed merger and acquisition in the promotional products industry, the
acquisition of Norwood Promotional Products, Inc. on October 30, 1998 by an
investor group including management (the "Promotional Products Transaction").
The transactions selected were all less than $300 million in Total Enterprise
Value.
Dunn Johnston calculated various financial multiples based on certain
publicly available information for each of the Plastics Transactions and
compared them to corresponding financial multiples for the Merger. Dunn
Johnston noted that the Total Enterprise Value was a multiple of 0.9x latest 12
months sales for the Merger, versus (i) a range of 0.6x to 1.5x latest 12
months sales with a median of 0.9x for the Plastics Transactions; and (ii) a
multiple of 0.9x latest 12 months sales for the Promotional Products
Transaction. On the other hand, Dunn Johnston noted that Total Enterprise Value
was a multiple of 9.5x latest 12 months EBIT for the Merger, versus (i) a range
of 10.3x to 14.9x latest 12 months EBIT, with a median of 12.2x, for the
Plastics Transactions; and (ii) a multiple of 12.2x latest 12months EBIT for
the Promotional Products Transaction. Also, Dunn Johnston noted that the Merger
Equity Value was a multiple of 2.1x book value for the Merger, versus (i) a
range of 2.6x to 2.8x book value, with a median of 2.7x, for the two Plastics
Transactions for which such data was available, and (ii) a multiple of 1.9x
book value for the Promotional Products Transaction. Dunn Johnston noted that
Total Enterprise Value was a multiple of 7.6x latest 12 months EBITDA for the
Merger, versus (i) a range of 6.3x to 8.5x latest 12 months EBITDA with a
median of 7.4x for the Plastics Transactions; and (ii) a multiple of 7.5x
latest 12 months EBITDA for the Promotional Products Transaction. Dunn Johnston
noted that all multiples for the Plastics Transactions and Promotional Products
Transaction were based on information available at the time of the announcement
of each of such transactions, without taking into account differing market and
other conditions during the period during which each of such transactions
occurred. Dunn Johnston also noted that the median Total Enterprise Value of
the precedent transactions referred to above ($110 million) was substantially
larger than the Merger ($36 million). Dunn Johnston noted that based on the
foregoing comparisons, and subject to the limitations of its review, the
multiples implied in the Merger, except for the multiple of Total Enterprise
Value to latest 12 months EBIT, and, in the case of the Plastics Transactions,
the multiple of Equity Value to book value, were generally within the ranges of
multiples implied in the Plastics and Promotional Products Transactions. Dunn
Johnston indicated that sales and EBITDA are generally regarded as more
important determinants of value by acquirors in this industry than EBIT and
book value. These factors, on balance, supported a determination that the Cash
Merger Price was fair to Uniflex's stockholders (other than stockholders who
own Retained Shares) from a financial point of view.
DISCOUNTED CASH FLOW ANALYSIS. Dunn Johnston performed discounted cash
flow analyses for Uniflex using financial projections for fiscal years 2000
through 2004 provided by the management of Uniflex based on management's
assumptions for future performance. See "Certain Projections". Dunn Johnston
aggregated the present value of the cash flows from 2000 through 2004 with the
present value of a range of terminal values. All cash flows were discounted at
rates ranging from 13.0% to 16.0%. The terminal values were computed using a
range of approaches including multiples of revenues, EBIT and EBITDA and a
perpetual growth rate methodology. Dunn Johnston arrived at such discount rates
based
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on its judgement of the weighted average cost of capital of the Company and
selected publicly traded plastics companies, and arrived at terminal values
based on its experience in the valuation of similar companies and a review of
the trading characteristics of the common stock of selected publicly traded
comparable companies. This analysis indicated a range of values for the Uniflex
Common Stock of $4.79 and $9.31 per share with a median of $7.15 per share.
Dunn Johnston noted that the Cash Merger Price was within the foregoing
valuation range and that this fact supported a determination that the Cash
Merger Price was fair to Uniflex's stockholders (other than stockholders who
own Retained Shares) from a financial point of view.
LEVERAGED EQUITY RETURN ANALYSIS. Dunn Johnston calculated the projected
internal rates of return that could be realized on the equity invested in a
leveraged acquisition of the Company at a purchase price per share of Uniflex's
Common Stock of $7.57. For the purposes of this analysis, Dunn Johnston used
the projections provided by Uniflex's management as adjusted for management's
estimate of certain corporate and public company expenses that would no longer
be incurred as a private company. Dunn Johnston assumed an initial
post-transaction equity amount invested in Uniflex of $10.75 million consisting
of equity from new investors and the value of the Retained Shares. Assuming
interest rates on post-transaction senior and subordinated debt of 7 1/2% and
12 3/4%, respectively, and terminal Total Enterprise Value multiples ranging
from 5.0x to 6.0x EBITDA, this analysis indicated a five year internal rate of
return ranging from 31.1% to 36.8% to a new equity investor. Based on Dunn
Johnston's understanding that the return expectations of a financial buyer in
today's market for equity investments of this type are generally in the range
of 30% to 35%, this supported a conclusion that the Company would be unlikely
to achieve a price from a financial buyer that was materially higher than the
Cash Merger Price.
RELEVANT MARKET AND ECONOMIC FACTORS. In rendering its opinion, Dunn
Johnston considered, among other factors, the condition of the U.S. stock
markets and the current level of economic activity, particularly in the
plastics industry. No company used in the analysis of selected mergers and
acquisitions summarized above is identical to Uniflex or the Merger. In
addition, Dunn Johnston believes that both the analysis of certain other
publicly traded companies and the analysis of selected mergers and acquisitions
are not simply mathematical. Rather, such analyses must take into account
differences in the financial and operating characteristics of these companies
and other factors, such as general economic conditions, and markets in which
such companies compete and strategic and operating plans for such companies,
that could affect the public trading value and acquisition value of these
companies and therefore any such analyses must be made as of a specific date.
While the foregoing summary describes the analyses and factors that Dunn
Johnston deemed material in its presentation to the Board of Directors of
Uniflex, it is not a comprehensive description of all analyses and factors
considered by Dunn Johnston. The preparation of a fairness opinion is a complex
process involving various determinations as to the most appropriate and
relevant methods of financial analysis and the applications of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Dunn Johnston believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
of the factors considered by it, without considering all analyses and factors,
would create an incomplete view of the evaluation process underlying the Dunn
Johnston Opinion. In performing its analyses, Dunn Johnston considered general
economic market and financial conditions and other matters, as they existed as
of the date of the Dunn Johnston Opinion, many of which are beyond the control
of Uniflex. The analyses performed by Dunn Johnston are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Additionally, analyses relating to the value of a business do not purport to be
appraisals or to reflect the prices at which the business actually may be sold.
Furthermore, no opinion is being expressed as to the prices at which the
Uniflex Common Stock may trade at any future time.
The terms of the Merger were determined through negotiations between
Uniflex and Acquisition and were approved by the Special Committee of the Board
of Directors of Uniflex. Although Dunn Johnston provided advice to the Special
Committee during the course of these negotiations, the decision to enter
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into the Merger Agreement was solely that of the Special Committee and the
Board of Directors of Uniflex. As described above, the Dunn Johnston Opinion
and the presentation of Dunn Johnston to the Special Committee were only one of
a number of factors taken into consideration by such Special Committee in
making its recommendation to the Board of Directors to approve the Merger. The
Dunn Johnston Opinion was provided to the Special Committee to assist it in
connection with its consideration of the Merger and does not constitute a
recommendation to any holder of Uniflex Common Stock as how to vote with
respect to the Merger.
In connection with Dunn Johnston's engagement as financial advisor, the
Company agreed to pay Dunn Johnston a monthly retainer fee (the "Advisory
Fee"), an opinion fee ("Opinion Fee") payable to Dunn Johnston upon delivery of
the Opinion of $150,000 and a transaction fee of approximately $460,000 to be
paid upon consummation of the Merger, less the amount of the previously
uncredited Advisory Fees and the Opinion Fee. The transaction fee is contingent
upon consummation of the Merger, but the Opinion Fee is not contingent upon the
consummation of the Merger and is to be paid regardless of the substance of the
Opinion. In addition, Uniflex has agreed to reimburse Dunn Johnston for its
reasonable out-of-pocket expenses incurred in connection with its role,
including fees and disbursements of its legal counsel. Uniflex has agreed to
indemnify Dunn Johnston and its directors, officers, agents, employees and
controlling persons, for certain costs, expenses, losses, claims, damages and
liabilities related to or arising out of its rendering of services under its
engagement.
CERTAIN PROJECTIONS
The Company does not as a matter of policy make public forecasts or
projections as to future performance or earnings. However, in connection with
the sale of the Company, the Company prepared projections of its anticipated
future operating performance for the five fiscal years ended January 31, 2004.
The projections assume that a sale or recapitalization does not occur and
are based upon estimates and assumptions (including with respect to industry
performance, general economic and business conditions and other matters) that
inherently are subject to material uncertainties and risk, all of which are
difficult to quantify and many of which are beyond the control of the Company.
The projections were not prepared with a view to public disclosure or
compliance with the published guidelines of the Commission or the guidelines
established by the American Institute of Certified Public Accountants regarding
projections or forecasts and are included herein only because such information
was provided to potential acquirors. The Company's internal operating
projections are, in general, prepared solely for internal use in connection
with capital budgeting and other management decisions and are subjective in
many respects and thus susceptible to various interpretations. Certain
assumptions on which the projections were based related to the achievement of
strategic goals, objectives, and targets over the applicable periods that are
more favorable than historical results. There can be no assurance that the
assumptions made in preparing the projections will prove accurate, and actual
results may be materially greater or less than those contained in the
projections. Neither the Company's independent auditors, nor any other
independent accountants or financial advisors, have compiled, examined, or
performed any procedures with respect to the projections contained herein, nor
have they expressed any opinion or any form of assurance on such information or
its achievability, and assume no responsibility for, and disclaim any
association with, the projections. The inclusion of the projections should not
be regarded as an indication that the Company, or any other person who received
such information, considers them an accurate prediction of future events. The
Company does not intend to update, revise or correct such projections if they
become inaccurate (even in the short term).
The projections below constitute forward looking statements and involve
numerous risks and uncertainties. The Company's actual results may differ
materially from the results anticipated from the projections discussed herein
as a result of various factors, including, but not limited to, the effect of
changing economic or business conditions, competitive initiatives and pricing
pressures, shifts in market demand, the performance and needs of industries
served by the Company, actual future costs of raw materials such as plastic
film, increases in labor costs, and management retention. There can be no
assurance that the Company will achieve the results anticipated from the
projections discussed herein.
26
<PAGE>
Set forth below is a summary of the projections for the five fiscal years
ended January 31, 2004:
PROJECTED OPERATING RESULTS (FY2000-2004)
<TABLE>
<CAPTION>
($ IN 000'S)
PROJECTED FOR FISCAL YEAR ENDED
----------------------------------------------------------
INCOME STATEMENT DATA 1/31/00 1/31/01 1/31/02 1/31/03 1/31/04
- ------------------------------ --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales .................... $44,406 $49,304 $54,752 $60,814 $67,561
Gross Profit ................. 15,745 17,236 19,140 21,259 23,617
Operating Income ............. 3,892 4,321 5,073 5,938 6,935
CASH FLOW DATA:
- -------------------------------
Capital Expenditures ......... 888 986 1,095 1,216 1,351
EBITDA ....................... 4,780 5,307 6,168 7,155 8,286
</TABLE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Company's Board of Directors that
stockholders vote in favor of the Merger Agreement, stockholders should be
aware that certain members of the Company's management and Board of Directors
have certain interests in the Merger that are in addition to, and may be deemed
to be in conflict with, the interests of the stockholders of Uniflex generally.
OFFICERS OF THE SURVIVING CORPORATION. All members of the Company's
current management will continue as such after the Effective Time until their
successors are duly appointed or elected in accordance with applicable law. See
"Directors and Executive Officers of the Surviving Corporation."
BENEFITS UNDER EMPLOYMENT AGREEMENTS, SIGNING BONUSES AND NEW STOCK OPTION
PLAN. The Company has entered into new employment agreements with Herbert
Barry, Robert K. Semel and Melissa Cantor, which will become effective upon
consummation of the Merger. Each of the agreements will have a three-year term,
and the agreements with Messrs. Barry and Semel will each provide for severance
payments under certain circumstances, including termination of the employee's
employment by the Surviving Corporation without "cause" or in the event of the
employee's becoming incapacitated or upon employee's death. Messrs. Barry and
Semel will also receive signing bonuses payable one day after consummation of
the Merger of $1.9 million and $1.5 million, respectively. In addition, a stock
option plan with respect to an aggregate of 10% of the common stock of the
Surviving Corporation will be instituted for the Company's executives,
including Herbert Barry, Robert K. Semel and certain other members of the
Management Group. Upon consummation of the Merger, options with respect to 5%
of the common stock of the Surviving Corporation will be granted, pursuant to
the stock option plan described in the preceding sentence, to certain members
of the Management Group. The chart below describes the interests of the
Management Group in the Company both prior to and following the Merger and
certain benefits to be received by members of the Management Group upon
consummation of the Merger:
<TABLE>
<CAPTION>
SHARES HELD RETAINED NEW SIGNING
NAME PRIOR TO MERGER SHARES OPTIONS* BONUSES
- ------------------------- ----------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Herbert Barry ........... 470,490 75,000 0.714% $1,900,000
Robert K. Semel ......... 434,100 75,000 0.714% $1,500,000
Warner Heuman ........... 395,520 75,000 -- --
Erich Vetter ............ 288,999 15,000 -- --
Melissa Cantor .......... 74,501** 15,000 0.714% --
Lee Cantor .............. ** 15,000 0.716% --
Neil Sklar .............. 30,100 26,000 0.714% --
Hy Brownstein ........... 22,710 13,000 0.714% --
Elliot Berger ........... 87,300 13,000 0.714% --
------ -----
Totals .................. 322,000 5.000%
</TABLE>
- ----------
* As a percentage of outstanding Surviving Corporation Common Stock, on a
fully diluted basis.
** Shares held, in part, jointly by Melissa and Lee Cantor and, in part,
individually by Melissa and Lee Cantor, respectively.
(See "Security Ownership of Certain Beneficial Owners and Management" for
information concerning the beneficial ownership of the shares shown in the
foregoing table.)
27
<PAGE>
RETENTION OF RETAINED SHARES. Immediately prior to the Effective Time, an
aggregate of 2,202,953 shares of Uniflex Common Stock will be held by the
holders of the Retained Shares, of which an aggregate of 721,233 will be the
Retained Shares. The Retained Shares will represent approximately 16.4% of the
outstanding shares of Uniflex Common Stock immediately prior to the Effective
Time and approximately 51.0% of the total outstanding shares of the Surviving
Corporation Common Stock immediately following the Effective Time. The chart
below describes the interests in the Company of the holders of Retained Shares
both prior to and following the Merger. See "Security Ownership of Certain
Beneficial Owners and Management" for a description of the beneficial ownership
of certain securities.
<TABLE>
<CAPTION>
SHARES HELD
IMMEDIATELY PRIOR
NAME TO MERGER RETAINED SHARES
- --------------------------------------------- ------------------ ----------------
<S> <C> <C>
Herbert Barry ............................... 470,490 75,000
Robert K. Semel ............................. 434,100 75,000
Warner J. Heuman ............................ 395,520 75,000
Erich Vetter ................................ 288,999 15,000
Melissa Cantor .............................. 74,501* 15,000
Lee Cantor .................................. * 15,000
Neil Sklar .................................. 30,100 26,000
Hy Brownstein ............................... 22,710 13,000
Elliot Berger ............................... 87,300 13,000
CMNY Capital, L.P. .......................... 242,300 242,300
CMCO, Inc. .................................. 54,912 54,912
Robert Davidoff ............................. 2,946 2,946
**Sterling/Carl Marks Capital, Inc. ......... 99,075 99,075
------- -------
Total Shares ................................ 2,202,953 721,233
========= =======
</TABLE>
- ----------
* Shares held jointly by Melissa and Lee Cantor, in part, and individually
by Melissa Cantor, in part.
** Shares to be acquired immediately prior to the Effective Time.
(See "Security Ownership of Certain Beneficial Owners and Management" for
information concerning the beneficial ownership of the shares shown in the
foregoing table).
OPTIONS. As of March 5, 1999, the directors, officers and employees of the
Company held Options to acquire an aggregate of 158,700 shares of Uniflex
Common Stock, of which Options to acquire 128,700 shares were at exercise
prices less than $7.57 per share. Under the terms of the Merger Agreement,
subject to any agreement between the Company and the holder of any Option, each
holder of Options will receive in cash an amount equal to the number of shares
of Uniflex Common Stock subject to such Options (regardless of whether or not
such Options are then exercisable or vested) multiplied by the amount by which
the Cash Merger Price exceeds the exercise price of such Options, less any
applicable withholding taxes. Pursuant to such provision, the directors,
officers and employees of Uniflex will be entitled to receive for their Options
an aggregate of approximately $526,707 (before federal and state income taxes)
upon consummation of the Merger.
28
<PAGE>
The directors, officers and employees named in the table below (a) held
the number of outstanding Options indicated as of March 5, 1999 as to which the
Cash Merger Price exceeds the exercise price, and (b) will receive the
indicated amounts before federal and state income taxes in respect of such
Options pursuant to the Merger Agreement.
<TABLE>
<CAPTION>
OPTIONS AMOUNTS TO BE
NAME HELD RECEIVED
- --------------------------- --------- --------------
<S> <C> <C>
Martin Brownstein ......... 15,000 $ 31,050
Warner J. Heuman .......... 60,000 412,997
Kurt Vetter ............... 300 821
Martin Gelerman ........... 15,000 29,675
Steven Wolosky ............ 15,000 29,675
Alfred Heimlich ........... 300 521
Robert Gugliotta .......... 11,500 10,984
Howard Samuels ............ 11,550 10,984
------ --------
TOTALS .................... 128,700 $526,707
======= ========
</TABLE>
PRESENT INTERESTS OF DIRECTORS AND OFFICERS IN UNIFLEX COMMON STOCK. As of
the Record Date, the directors and officers of Uniflex owned an aggregate of
2,157,356 shares of Uniflex Common Stock (excluding shares subject to Options).
Excluding the Retained Shares, 1,835,356 shares will be converted into the
right to receive the Cash Merger Price per share pursuant to the Merger
Agreement, or $13,893,645 in the aggregate for such shares. The directors and
officers named in the table below (a) held the number of shares of Uniflex
Common Stock indicated as of the Record Date, (b) will receive the Cash Merger
Price in respect of the number of shares indicated, (c) will receive the
indicated aggregate amount in respect to all shares held other than the
Retained Shares, and (d) will retain the indicated number of Retained Shares.
See "Security Ownership of Certain Beneficial Owners and Management" for a
description of the beneficial ownership of certain securities.
<TABLE>
<CAPTION>
NUMBER OF CASH MERGER NUMBER OF
TOTAL SHARES TO BE PRICE TO BE RETAINED
NAME SHARES HELD CASHED OUT RECEIVED SHARES
- --------------------------- ------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Herbert Barry ............. 470,490 395,490 $ 2,993,859 75,000
Robert K. Semel ........... 434,100 359,100 2,717,387 75,000
Warner J. Heuman .......... 395,520 320,520 2,426,336 75,000
Erich Vetter .............. 288,999 273,999 2,074,172 15,000
Martin Brownstein ......... 191,256 191,256 1,447,808 --
Kurt Vetter ............... 152,380 152,380 1,153,517 --
Martin Gelerman ........... 4,000 4,000 30,280 --
Steven Wolosky ............ 6,000 6,000 45,420 --
Melissa Cantor ............ 74,501* 44,501* 336,873 15,000
Lee Cantor ................ * * 15,000
Neil Sklar ................ 30,100 4,100 31,037 26,000
Hy Brownstein ............. 22,710 9,700 73,505 13,000
Elliot Berger ............. 87,300 74,300 562,451 13,000
------- ------- ----------- ------
Totals .................... 2,157,356 1,835,356 $13,892,645 322,000
========= ========= =========== =======
</TABLE>
- ----------
* Shares held jointly by Melissa and Lee Cantor, in part, and individually
by Melissa Cantor, in part.
(See "Security Ownership of Certain Beneficial Owners and Management" for
information concerning the beneficial ownership of the shares shown in the
foregoing table.)
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Merger Agreement provides
that the Surviving Corporation will provide a run-off policy for the current
directors and officers liability insurance policy maintained by the Company,
which run-off policy will remain in effect for a period of six years after the
29
<PAGE>
Effective Time of the Merger, at a premium not to exceed 150% of the annual
premium of the Company's directors and officers insurance policy in effect as
of the date of the Merger Agreement. In addition, the Merger Agreement provides
that all rights to indemnification for acts or omissions occurring prior to the
Effective Time in favor of the current or former directors or officers of the
Company, as provided in the Certificate of Incorporation or By-laws of the
Company, will survive the Merger and continue in full force and effect in
accordance with their terms from the Effective Time to the maximum extent
permitted by law with respect to any claims against the current or former
directors or officers of the Company arising out of such acts or omissions.
VOTING AGREEMENTS. The members of the Management Group (and family members
having interests in their Retained Shares) and the Carl Marks Affiliates, as
stockholders of the Company have entered into the Voting Agreements with
Acquisition, pursuant to which they have each agreed to vote their respective
shares of Uniflex Common Stock (including shares issuable upon exercise of
Options prior to the Effective Time) in favor of the Merger Agreement and the
transactions contemplated thereby at the Special Meeting or any adjournment
thereof. Unless the Merger Agreement has been terminated in accordance with its
terms, such stockholders have agreed to vote their respective shares of Uniflex
Common Stock against (i) any merger agreement or merger (other than the Merger
Agreement and the Merger), consolidation, sale of substantially all of the
assets, reorganization, dissolution, or other similar transaction or any other
Acquisition Proposal, and (ii) any amendment of the Company's Certificate of
Incorporation or By-Laws or other proposal or transaction involving the Company
or any of its subsidiaries, which amendment or other proposal or transaction
would in any manner impede, frustrate, prevent, or nullify the Merger, the
Merger Agreement, or any of the other transactions contemplated thereby. Until
the Merger is consummated or the Merger Agreement is terminated in accordance
with its terms, such stockholders have agreed that they will not transfer their
shares to any person other than Acquisition or its designee, or enter into any
other voting arrangement with respect to their shares. The Voting Agreements
terminate upon the consummation of the transactions contemplated by the Merger
Agreement or termination of the Merger Agreement in accordance with its terms
(including in the event the Board recommends or the stockholders approve or
accept an Acquisition Proposal received by the Company) or in the event that
the Board withdraws (or modifies adversely to Acquisition) its approval of the
Merger, approves an Acquisition Proposal or does not recommend against a tender
or exchange offer for more than 15% of the outstanding shares of Uniflex Common
Stock. As of the Record Date, the parties to the Voting Agreements owned
2,103,878 shares of Uniflex Common Stock, or approximately 48.9% of the
outstanding Uniflex Common Stock.
OTHER ARRANGEMENTS. Since RFE and Sterling/Carl Marks are small business
investment companies, they are subject to limits on the percentage of voting
securities they may hold in the Surviving Corporation. Accordingly, the
Surviving Corporation Common Stock will be divided into voting and non-voting
shares with the non-voting shares to be allocable disproportionately to RFE and
Sterling/Carl Marks and the voting shares to be allocated disproportionately to
the other holders of Surviving Corporation Common Stock. As a result of this
allocation, the percentage of voting stock in the Surviving Corporation that
will be held by five stockholders after the Merger may be sufficiently high as
to raise the possibility that the gain realized by such stockholders as a
result of the Merger could be taxed as a dividend rather than as long-term
capital gain. In order to compensate for this potential disparity in tax
treatment, Acquisition has agreed to pay those stockholders additional
consideration (over and above the Cash Merger Price) for the shares of Uniflex
Common Stock that will be exchanged by them in the Merger to the extent
necessary to compensate such stockholders for any increased income taxes
payable by them arising out of any characterization of the consideration
received by them for such shares as a dividend (rather than as long term
capital gain).
MATERIAL EFFECTS OF THE MERGER
If the Merger is consummated, the Company's stockholders (other than
stockholders who own Retained Shares, the Excluded Shares, and the Dissenting
Shares) will have the right to receive $7.57 in cash, without interest, for
each share of Uniflex Common Stock held immediately prior to the Effective
Time. As a result of the Merger, such stockholders will cease to have any
ownership interest in Uniflex and will cease to participate in future earnings
and growth, if any, of Uniflex. Moreover, if the Merger is
30
<PAGE>
consummated, public trading of the Uniflex Common Stock will cease, the Uniflex
Common Stock will cease to be quoted on the American Stock Exchange, the
registration of the Uniflex Common Stock under the Exchange Act will be
terminated and the Company will cease filing reports with the Commission.
Immediately after the Merger, approximately 49.0% of the outstanding
shares of Surviving Corporation Common Stock will be owned by RFE,
approximately 28.2% will be held by the Carl Marks Affiliates and the remaining
approximately 22.8% will be owned by the members of the Management Group. See
"--Interests of Certain Persons in the Merger" and "Material Provisions of the
Merger--Treatment of Securities in the Merger."
The Merger Agreement provides that the current directors of the Company
will be replaced by the persons named in an exhibit to the Merger Agreement.
All members of the Company's current management will continue as such after the
Effective Time. See "Directors and Executive Officers of the Surviving
Corporation."
It is currently anticipated that the Surviving Corporation will be
operated after the Merger in a manner substantially the same as Uniflex's
current operations.
ACCOUNTING TREATMENT OF TRANSACTION
The Merger will be accounted for as a recapitalization. Accordingly the
historical basis of Uniflex's assets and liabilities will not be affected by
the Merger and the transactions contemplated thereby.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material federal income tax
consequences of the Merger that are generally applicable to holders of Uniflex
Common Stock who, pursuant to the Merger, exchange all of their Uniflex Common
Stock for cash. The discussion is generally limited to the federal income tax
consequences to stockholders who hold Uniflex Common Stock as capital assets
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). The discussion is based upon current provisions of the
Code, currently applicable Treasury regulations, and judicial and
administrative decisions and rulings. Future legislative, judicial, or
administrative changes or interpretations could alter or modify the statements
and conclusions set forth herein, and any such changes or interpretations could
be retroactive and could affect the tax consequences to the stockholders of the
Company.
The discussion below does not purport to deal with all aspects of federal
income taxation that may affect particular stockholders in light of their
individual circumstances, and is not intended for stockholders subject to
special treatment under the federal income tax law (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign persons, stockholders who hold their stock as part of a hedge,
appreciated financial position, straddle or conversion transaction,
stockholders who do not hold their stock as capital assets, and stockholders
who have acquired their stock upon the exercise of employee options or
otherwise as compensation). Furthermore, the discussion below does not address
the federal income tax consequences of the Merger to (i) stockholders who hold
Retained Shares (including, without limitation, the federal income tax
consequences to such stockholders of the receipt of cash pursuant to the
Merger) or (ii) stockholders who may be considered to own shares of stock of
the Surviving Corporation after the Effective Time through application of
constructive ownership rules of Section 318 of the Code (which, in very general
terms, deem a stockholder to own shares of stock that are owned by certain
members of his or her family (spouse, children, grandchildren, and parents) and
other related parties including, for example, certain entities in which such
stockholder has a direct or indirect interest (including partnerships, estates,
trusts and corporations), as well as shares of stock that such stockholder (or
a related party) has the right to acquire upon exercise of an option or
conversion right). In addition, the discussion below does not consider the
effect of any applicable state, local, or foreign tax laws.
EACH HOLDER OF UNIFLEX COMMON STOCK IS STRONGLY URGED AND EXPECTED TO
CONSULT WITH SUCH HOLDER'S TAX ADVISOR TO DETERMINE THE PARTICULAR FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER IN LIGHT OF SUCH HOLDER'S
SPECIFIC CIRCUMSTANCES AS WELL AS THE APPLICABILITY AND EFFECT OF STATE, LOCAL,
AND FOREIGN TAX LAWS.
31
<PAGE>
THE MERGER. A stockholder who, pursuant to the Merger, exchanges all of
such stockholder's Uniflex Common Stock for cash will recognize gain or loss
equal to the difference between (a) the amount of cash such stockholder
receives in the Merger and (b) the stockholder's adjusted tax basis in such
shares. In general, such gain or loss will be capital gain or loss, and will be
a long-term capital gain or loss if at the Effective Time the stockholder's
holding period for the Uniflex Common Stock is more than one year. Under
recently enacted legislation, the 20% maximum tax rate on long-term capital
gains would apply to capital assets held by an individual stockholder for more
than one year.
BACKUP WITHHOLDING. Stockholders who own Uniflex Common Stock should be
aware that the Company will be required in certain cases to withhold and remit
to the United States Internal Revenue Service 31% of amounts payable in the
Merger to any person (a) who has provided either an incorrect tax
identification number or no number at all, (b) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt
of interest or dividend income properly, or (c) who has failed to certify to
the Company that it is not subject to backup withholding or that is an "exempt
recipient." Backup withholding is not an additional tax, but rather may be
credited against the taxpayer's tax liability for the year.
APPRAISAL RIGHTS
The following is a summary of the provisions of Delaware law relating to
the appraisal rights of stockholders. For the complete text of Section 262 of
the DGCL, see Annex B to this Proxy Statement.
Holders of record of shares of Uniflex Common Stock who meet the
requirements summarized herein and comply with the applicable procedures
summarized herein will be entitled to appraisal rights under Section 262 of the
DGCL. A person having a beneficial interest in shares of Uniflex Common Stock
held of record in the name of another person, such as a broker or nominee, must
act promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect appraisal rights.
ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO A "STOCKHOLDER" ARE
TO THE RECORD HOLDER OF UNIFLEX COMMON STOCK AS TO WHICH APPRAISAL RIGHTS ARE
ASSERTED. VOTING AGAINST, ABSTAINING FROM VOTING OR FAILING TO VOTE ON APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT WILL NOT CONSTITUTE A DEMAND FOR APPRAISAL
WITHIN THE MEANING OF SECTION 262 OF THE DGCL.
Stockholders who meet the requirements and follow the procedures set forth
in Section 262 of the DGCL may receive, in lieu of the $7.57 cash per share of
Uniflex Common Stock to be paid in the Merger, a cash payment equal to the
"fair value" of their shares, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by the Court of Chancery. Such fair value is to
be determined by judicial appraisal and could be more than, the same as, or
less than, the Cash Merger Price. The statutory right of appraisal granted in
Section 262 is subject to strict compliance with the procedures set forth below
and in Section 262. Failure to follow any of these procedures may result in
termination or waiver of appraisal rights under Section 262.
To be entitled to receive payment of the fair value of the shares of
Uniflex Common Stock, a stockholder (a) must file a written demand for
appraisal of his or her shares with the Company prior to the voting by
stockholders on the Merger Agreement at the Special Meeting (such demand must
reasonably inform the Company of the identity of the stockholder and that the
stockholder intends thereby to demand an appraisal of his or her shares); (b)
must not vote his or her shares in favor of approval and adoption of the Merger
Agreement; and (c) must have his or her shares valued in an appraisal
proceeding, as described below. A proxy or vote against approval and adoption
of the Merger Agreement will not satisfy the requirement that a stockholder
file a written demand for appraisal as set forth above. The requirement of a
written demand is separate from, and should not be confused with, the
requirement that a stockholder not vote in favor of approval and adoption of
the Merger Agreement. A failure to vote on the Merger Agreement will not be
construed as a vote in favor of approval and adoption of the Merger Agreement
and will not constitute a waiver of a stockholder's rights of appraisal. A
stockholder who returns a signed proxy indicating that he or she abstains from
voting will similarly not
32
<PAGE>
waive his or her rights of appraisal. However, because a proxy signed and left
blank will, unless properly revoked, be voted in favor of approval and adoption
of the Merger Agreement, a stockholder who returns a signed proxy left blank
will waive his or her rights of appraisal. Therefore, a stockholder electing to
exercise appraisal rights who votes by proxy must not leave his or her proxy
blank, but must either vote against approval and adoption of the Merger
Agreement or abstain from voting.
A holder of shares of Uniflex Common Stock wishing to exercise such
holder's appraisal rights must be the record holder of such shares on the date
the written demand for appraisal is made and must continue to hold such shares
of record until the Effective Time of the Merger. Accordingly, a holder of
shares of Uniflex Common Stock who is the record holder of such shares on the
date the written demand for appraisal is made, but who thereafter transfers
such shares prior to the Effective Time of the Merger, will lose any right to
appraisal in respect to such shares.
Only a holder of record of shares of Uniflex Common Stock is entitled to
assert appraisal rights for the shares registered in the holder's name. A
demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as such holder's name appears on such holder's
stock certificates. If the shares are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the demand should be
made in that capacity, and if the shares are owned of record by more than one
person as in a joint tenancy or tenancy in common, the demand should be
executed by or on behalf of all joint owners. An authorized agent, including an
agent for two or more joint owners, may execute a demand for appraisal on
behalf of a holder of record; however, the agent must identify the record owner
or owners and expressly disclose the fact that, in executing the demand, the
agent is an agent acting for such owner or owners. A record holder such as a
broker who holds shares as nominee for several beneficial owners may exercise
appraisal rights with respect to the shares held for one or more beneficial
owners; in such case, the written demand should set forth the number of shares
as to which appraisal is sought, and where no number of shares is expressly
mentioned the demand will be presumed to cover all shares held in the name of
the record owner. Stockholders who hold their shares in brokerage accounts or
other nominee forms and who wish to exercise appraisal rights are urged to
consult with their brokers to determine the appropriate procedures for the
making of a demand for appraisal by such a nominee.
If the Merger Agreement is approved and adopted by the stockholders, the
Surviving Corporation will send a notice within ten days after the Effective
Time to each stockholder who has complied with Section 262 of the DGCL by
delivering to the Company a demand for appraisal of his or her shares and not
voting in favor of or consenting to the Merger, stating the date that the
Merger became effective. Within 120 days after the Effective Time, the
Surviving Corporation, or any stockholder seeking appraisal rights who has
theretofore complied with Section 262, may file a petition in the Court of
Chancery demanding a determination of the value of shares of all stockholders
seeking appraisal rights. The Surviving Corporation is under no obligation, and
has no present intention, to file such a petition, and all stockholders seeking
to exercise appraisal rights should initiate all necessary action with respect
to the perfection of their appraisal rights within the time periods and in the
manner prescribed in Section 262. Within 120 days after the Effective Time, any
stockholder who has complied with the provisions of Section 262, upon written
request, shall be entitled to receive from the Surviving Corporation a
statement setting forth the aggregate number of shares of Uniflex Common Stock
not voted in favor of approval and adoption of the Merger Agreement and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement must be mailed to any
such stockholder within ten days after his or her written request for such a
statement is received by the Surviving Corporation or within ten days after
expiration of the period of delivery of demands for appraisal under Section
262(d), whichever is later.
If a petition for appraisal is timely filed, the Court of Chancery will
conduct a hearing on such petition to determine whether the stockholders
seeking appraisal rights have complied with Section 262 and have thereby become
entitled to appraisal rights. The Court of Chancery will then determine the
fair value of the shares of Uniflex Common Stock exclusive of any element of
value arising from the expectation or accomplishment of the Merger, but
including a fair rate of interest, if any, to be paid on the amount determined
to be the fair value. In determining fair value, the Court of Chancery is to
take into account
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all relevant factors. Stockholders considering appraisal should bear in mind
that the fair value of their shares determined under Section 262 could be more
than, the same as, or less than, the consideration they will receive pursuant
to the Merger Agreement if they do not seek appraisal of their shares, and that
the written opinion of Dunn Johnston set forth as Annex B hereto is not
necessarily an opinion regarding fair value under Section 262. The Delaware
Supreme Court has stated that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings.
The Court of Chancery will determine the amount of interest, if any, to be
paid upon the amounts to be received by persons whose shares have been
appraised. The costs of the appraisal proceeding may be assessed against one or
more parties to the proceeding as the Court of Chancery may consider equitable.
Upon application by a stockholder, the Court of Chancery may order all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceedings (including, without limitation, reasonable attorneys'
fees and the fees and expenses of experts) to be charged pro rata against the
value of all of the shares of Uniflex Common Stock entitled to an appraisal.
A stockholder will fail to perfect his or her right of appraisal if he or
she (a) does not deliver a written demand for appraisal to the Company prior to
the vote for approval and adoption of the Merger Agreement, (b) votes his or
her shares of Uniflex Common Stock in favor of approval and adoption of the
Merger Agreement, (c) does not file a petition for appraisal within 120 days
after the Effective Time, or (d) delivers to the Company both a written
withdrawal of his or her demand for appraisal and an acceptance of the terms of
the Merger Agreement, except that any such attempt to withdraw such demand not
made within 60 days after the Effective Time requires the written approval of
the Company. If any stockholder who properly demands appraisal of such
stockholder's shares of Uniflex Common Stock under Section 262 fails to
perfect, or effectively withdraws or loses, such stockholder's right to
appraisal, the shares of Uniflex Common Stock of such stockholder will be
converted into the right to receive the Cash Merger Price receivable with
respect to such shares in accordance with the Merger Agreement.
If an appraisal proceeding is properly instituted, such proceeding may not
be dismissed as to any stockholder who has perfected his or her right of
appraisal without the approval of the Court of Chancery, and any such approval
may be conditioned on such terms as the Court of Chancery deems just.
After the Effective Time, no stockholder who has demanded appraisal rights
will be entitled to vote his or her shares of Uniflex Common Stock for any
purpose or to receive dividends on, or other distributions in respect of, such
shares (except dividends or distributions payable to stockholders as of a
record date prior to the Effective Time).
Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a dissenter's exclusive
remedy. Several decisions by the Delaware courts have held that a controlling
stockholder has a fiduciary duty to the other stockholders which requires that
the merger be "entirely fair" to such other stockholders. In determining
whether a merger is fair to minority stockholders, the Delaware courts have
considered, among other things, the type of and amount of consideration to be
received by stockholders and whether there was fair dealing among the parties.
The Delaware Supreme Court stated in Weinberger v. UOP, Inc., 457 A.2d 701, 714
(1983), that although the remedy ordinarily available in a merger that is found
not to be "fair" to minority stockholders is the right to appraisal described
above, such appraisal remedy may not be adequate "in certain cases,
particularly where fraud, misrepresentations, self-dealing, deliberate waste of
corporate assets, or gross and palpable overreaching are involved," and that in
such cases the Chancery Court would be free to fashion any form of appropriate
relief.
FAILURE BY A STOCKHOLDER TO FOLLOW THE STEPS REQUIRED BY DELAWARE LAW FOR
PERFECTING RIGHTS OF APPRAISAL MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN VIEW
OF THE COMPLEXITY OF THESE PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW,
STOCKHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND EXERCISING THEIR RIGHTS UNDER SECTION 262 SHOULD
CONSULT THEIR LEGAL ADVISORS.
All written communications from stockholders with respect to the exercise
of appraisal rights should be mailed to Uniflex, Inc., 383 West John Street,
Hicksville, New York 11802, Attention: Secretary.
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MATERIAL RELATED AGREEMENTS
STOCKHOLDER RIGHTS. Effective as of the Effective Time, Uniflex, RFE, the
Carl Marks Affiliates, the members of the Management Group and AlliedSignal
Inc. Master Pension Trust ("Allied") will enter into a Stockholders Agreement
governing their interests in the Surviving Corporation after consummation of
the Merger (the "Stockholders Agreement"). The Stockholders Agreement will:
restrict the power of the parties thereto to transfer any shares and warrants
to purchase shares of Surviving Corporation Common Stock held by them; provide
for rights of first refusal and co-sale with respect to transfers permitted
thereunder; establish the size of the Board of Directors of the Surviving
Corporation at not more than ten directors and provide for the election thereto
of two directors nominated by RFE, two directors nominated by the Carl Marks
Affiliates, four directors nominated by a majority in interest of the members
of the Management Group, one director nominated by Allied and one director
designated by mutual agreement of RFE, the Carl Marks Affiliates and a majority
in interest of the members of the Management Group; grant to the parties
thereto the right to require the Surviving Corporation to purchase their shares
of Surviving Corporation Common Stock after the eighth anniversary of the date
of the agreement unless the Surviving Corporation has theretofore consummated a
Qualified Public Offering (as defined therein) or a sale of the Company;
provide for take-along rights in the event a majority of the stockholders
approve a Significant Transaction (as defined therein) after the ninth
anniversary of the date of the agreement; and grant to the parties to the
agreement preemptive rights to acquire a proportionate share of any new
securities issued by the Surviving Corporation. Effective as of the Effective
Time, Uniflex, RFE, and the holders of the Retained Shares will enter into a
Registration Rights Agreement pursuant to which RFE and the holders of the
Retained Shares and certain permitted transferees thereof will be entitled to
certain demand and "piggy-back" registration rights with respect to Surviving
Corporation Common Stock held by them.
INVESTMENT BANKING AGREEMENT. On March 5, 1999, Acquisition and SCM
Management LLC, a New York limited liability company and an affiliate of the
Carl Marks Affiliates ("SCM Management") entered into an Investment Banking
Agreement (the "Investment Banking Agreement"). The Investment Banking
Agreement provides that on the closing date under the Merger Agreement, SCM
Management will be paid an investment banking fee of $499,999 for providing the
following services in connection with the Merger: (a) coordinating the equity
investors and facilitating the closing of their equity investment in Uniflex or
Acquisition in connection with the Merger; (b) assisting in, facilitating and
consummating Uniflex's senior and subordinated debt financing and senior and
subordinated leaders acceptable to Acquisition which will provide debt
financing for the Merger; and (c) providing such other investment banking
services to Acquisition as reasonably requested.
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MATERIAL PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of the material aspects of the Merger
Agreement. For the complete text of the Merger Agreement see Annex A to this
Proxy Statement.
GENERAL
The Merger Agreement provides that, following the approval of the Merger
and the adoption of the Merger Agreement by the vote of the holders of a
majority of the issued and outstanding shares of the Uniflex Common Stock and
the satisfaction or waiver of the other conditions to the Merger, Acquisition
will be merged with and into Uniflex, and Uniflex will continue as the
Surviving Corporation after the Merger.
Upon the terms and subject to the conditions of the Merger Agreement, at
the closing of the Merger the parties will cause the Certificate of Merger to
be executed and filed in accordance with the requirements of the DGCL. Unless
otherwise agreed between the Acquisition and the Company and so stated in the
Certificate of Merger, the Merger will become effective upon the filing of the
Certificate of Merger with the Delaware Secretary of State in accordance with
the DGCL.
TREATMENT OF SECURITIES IN THE MERGER
At the Effective Time, the shares of Uniflex Common Stock and Options in
respect thereof will be treated as follows:
CASH MERGER PRICE. At the Effective Time, each share of Uniflex Common
Stock held by the Company's stockholders (other than the Retained Shares, the
Excluded Shares, and the Dissenting Shares) will be converted into the right to
receive the Cash Merger Price.
PAYMENT OF CASH MERGER PRICE. The Cash Merger Price will be paid as soon
as practicable after the Effective Time upon receipt by the Paying Agent of
certificates representing the shares of Uniflex Common Stock held by such
stockholders. No interest will be paid or accrued on the Cash Merger Price. As
of or at the Effective Time, Acquisition will deposit with the Paying Agent for
the benefit of the holders of shares of Uniflex Common Stock, the funds
necessary to pay the Cash Merger Price for each share payable pursuant to the
terms of the Merger Agreement. As soon as practicable after the Effective Time,
the Paying Agent will mail to each record holder of Uniflex Common Stock a
notice and letter of transmittal advising the holder of the effectiveness of
the Merger and the procedure for surrendering certificates to the Paying Agent
for exchange into the Cash Merger Price. Stockholders should not forward stock
certificates to the Paying Agent until they have received transmittal forms.
Certificates should not be returned with the enclosed proxy cards. From and
after the Effective Time, the stock transfer books of the Company in place
prior to the Effective Time will be closed and thereafter there will be no
transfers on such books of the shares of Uniflex Common Stock which were
outstanding immediately prior to the Effective Time.
RETAINED SHARES. After the Effective Time, the Retained Shares will
continue as shares of the Surviving Corporation Common Stock. The Retained
Shares will represent approximately 16.4% of the outstanding shares of Uniflex
Common Stock immediately prior to the Effective Time and approximately 51% of
the total outstanding shares of Surviving Corporation Common Stock immediately
following the Effective Time. The members of the Management Group and the Carl
Marks Affiliates will own immediately prior to the Effective Time,
respectively, 322,000 and 399,233 Retained Shares, which will represent
approximately 7.3% and 9.1% of the outstanding shares of Uniflex Common Stock
immediately prior to the Effective Time and approximately 22.8% and 28.2%,
respectively, of the total outstanding shares of Surviving Corporation Common
Stock immediately following the Effective Time. See "Special Factors--Interests
of Certain Persons in the Merger--Retention of Retained Shares."
EXCLUDED SHARES. At the Effective Time, each share of Uniflex Common Stock
held in the Company's treasury, if any, will be canceled and retired without
payment of any consideration therefor.
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ISSUANCE OF SURVIVING CORPORATION COMMON STOCK TO RFE. At the Effective
Time, the issued and outstanding shares of Acquisition will be converted into
693,527 shares of Surviving Corporation Common Stock, representing
approximately 49% of the total outstanding shares of Surviving Corporation
Common Stock.
PAYMENT FOR OPTIONS. Subject to any agreement between the Company and the
holder of any Option, the Company will cause each Option, whether or not then
exercisable or vested, to be canceled. In consideration of such cancellation,
the Company will pay to such holders of options an amount in cash in respect
thereof equal to the product of the excess of the Cash Merger Price over the
exercise price of each such Option and the number of shares of Uniflex Common
Stock previously subject to the Option immediately prior to its cancellation
(such payment to be net of withholding taxes).
BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The directors of the Surviving Corporation as of the Effective Time shall
be the persons set forth on an exhibit to the Merger Agreement until their
successors are duly appointed or elected in accordance with applicable law. The
officers of the Company immediately prior to the Effective Time shall be the
officers of the Surviving Corporation as of the Effective Time and until their
successors are duly appointed or elected in accordance with applicable law. See
"Directors and Executive Officers of the Surviving Corporation."
CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION
At the Effective Time, the Certificate of Incorporation of the Company as
in effect immediately prior to the Effective Time shall be amended so as to
read in its entirety in the form attached as Annex D hereto and shall
thereafter be the Certificate of Incorporation of the Surviving Corporation,
until duly changed or amended as provided therein or in accordance with
applicable law.
The bylaws of Acquisition in effect immediately prior to the Effective
Time shall be the bylaws of the Surviving Corporation, until duly amended as
provided therein or in accordance with applicable law.
PAYMENT FOR SHARES
As of or after the Effective Time, the Company will deposit with the
Paying Agent for the benefit of the holders of shares of Uniflex Common Stock
the funds necessary to pay the Cash Merger Price for each share payable
pursuant to the terms of the Merger Agreement. Holders of Dissenting Shares who
meet the qualification of and follow the requirements of Section 262 of the
DGCL may receive, in lieu of the Cash Merger Price, a cash payment equal to the
"fair value" of their shares, pursuant to Section 262 of the DGCL, as
determined by the Delaware Court of Chancery.
As soon as practicable after the Effective Time the Paying Agent will send
to each record holder of Uniflex Common Stock a notice and a letter of
transmittal advising the holder of the effectiveness of the Merger and the
procedure for surrendering to the Paying Agent certificates for exchange into
the Cash Merger Price.
STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE PAYING AGENT
UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. STOCKHOLDERS SHOULD NOT RETURN
STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
As soon as practicable after the Effective Time, each holder of an
outstanding share certificate or certificates which prior to the Effective Time
represented shares of Uniflex Common Stock, upon surrender to the Paying Agent
of such certificate or certificates, and acceptance thereof by the Paying
Agent, shall be entitled to receive the Cash Merger Price in respect of each
share of Uniflex Common Stock (other than Retained Shares) theretofore
evidenced by such certificate or certificates so surrendered. Upon such
surrender, the Paying Agent will, as promptly as practicable, pay the Cash
Merger Price. Until surrendered, each such certificate (other than certificates
representing Retained Shares, Excluded Shares and Dissenting Shares), will be
deemed for all purposes to evidence only the right to receive the Cash Merger
Price. In no event will the holder of any surrendered certificate be entitled
to receive interest on the Cash Merger Price.
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If the Cash Merger Price (or any portion thereof) is to be delivered to a
person other than the person in whose name the certificates surrendered in
exchange therefor are registered, it will be a condition to the payment of such
consideration that the certificates so surrendered are properly endorsed and
otherwise are in proper form for transfer, that such transfer otherwise is
proper and that the person requesting such transfer pay to the Paying Agent any
transfer or other taxes payable by reason of the foregoing or establish to the
satisfaction of the Paying Agent that such taxes have been paid or are not
required to be paid.
From and after the Effective Time, the stock transfer books of the Company
in place prior to the Effective Time will be closed and thereafter there will
be no transfers on such books of the shares of Uniflex Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates are presented to the Surviving Corporation, they will be
canceled and exchanged for the Cash Merger Price.
Any funds remaining with the Paying Agent one year following the Effective
Time will be delivered to the Surviving Corporation, after which any holders of
Uniflex Common Stock (other than Retained Shares) prior to the Merger shall
thereafter look only to the Surviving Corporation and only as general unsecured
creditors thereof for payment of their claims for cash, if any.
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Merger Agreement
contains representations and warranties of the Company with respect to the
Company and its subsidiaries relating to, among other things: (a) organization
and capitalization of the Company; (b) the authorization, execution, delivery,
performance, and enforceability of the Merger Agreement and related matters;
(c) subsidiaries; (d) absence of certain changes or events; (e) title to assets
and absence of liens and encumbrances; (f) contracts and commitments; (g)
absence of breaches and defaults; (h) permits; (i) the non-contravention of
organizational documents, material contracts, indebtedness, leases,
encumbrances, permits, or authorizations, and applicable laws; (j) consents and
approvals; (k) SEC documents, financial statements and other financial
information; (l) the absence of undisclosed liabilities; (m) litigation; (n)
labor matters; (o) compliance with applicable laws; (p) matters related to
brokers and brokerage fees; (q) proprietary rights; (r) benefit plans and other
matters relating to the Employee Retirement Income Security Act of 1974, as
amended, and employment matters; (s) tax matters; (t) insurance; (u) customers
and suppliers; (v) environmental, health and safety matters; (w) absence of
other agreements with respect to the sale of assets or capital stock of the
Company or its subsidiaries; (x) prohibited payments; (y) Year 2000 compliance;
(z) the recommendation of the Board of Directors of the Company with respect to
the Merger Agreement, the Merger and related transactions; (aa) the required
vote of the Company's Stockholders; and (bb) the receipt of the Dunn Johnston
Opinion.
REPRESENTATIONS AND WARRANTIES OF ACQUISITION. The Merger Agreement
contains representations and warranties of Acquisition relating to, among other
things: (a) organization; (b) the authorization, execution, delivery,
performance, and enforceability of the Merger Agreement and related matters;
(c) consents and approvals; (d) the non-contravention of organizational
documents and certain material contracts; (e) the accuracy of information
provided by Acquisition for use in this Proxy Statement and the Transaction
Statement on Schedule 13E-3; (f) the financing of the Merger; (g) matters
related to brokers and brokerage fees; (h) the Uniflex Common Stock owned by
the Carl Marks Affiliates; (i) the absence of business operations of
Acquisition; and (j) matters related to the representations and warranties of
the Company.
COVENANTS
INTERIM OPERATIONS. In general, the Company has agreed that prior to the
Effective Time, except as otherwise provided in the Merger Agreement or unless
Acquisition has consented in writing thereto, the Company will, and will cause
its subsidiaries to: (a) conduct its business in the ordinary course consistent
with past practice; (b) use its reasonable efforts to maintain its business
organizations, goodwill, relationships with officers and employees, and
business relationships; (c) promptly notify Acquisition of
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any material adverse change, material litigation, or material government
complaints or investigations and breaches of any representation or warranty
contained in the Merger Agreement; and (d) deliver to Acquisition all filings
made with the Commission subsequent to the date of the Merger Agreement.
Furthermore, the Company has generally agreed that, prior to the Effective
Time, except as otherwise provided in the Merger Agreement or unless
Acquisition has consented in writing thereto, the Company will not, and will
cause its subsidiaries not to: (a) amend any of its organizational and
governing instruments; (b) authorize, propose, or announce an intention to
authorize or propose, or enter into an agreement with respect to any
disposition of assets or securities other than in the ordinary course of
business consistent with past practice; (c) grant, confer, or award any
options, warrants, conversion rights, or other rights not existing on the date
of the Merger Agreement to acquire shares of the Company's Capital Stock or
other securities of the Company or its subsidiaries; accelerate, amend or
change the period of exercisability of employee stock options or restricted
stock; or authorize cash payments in exchange for such employee stock options
(except as contemplated by the Merger Agreement); (d) amend any benefit plans
existing on the date of the Merger Agreement or adopt any new employee benefit
plans; (e) increase or agree to increase the compensation payable to any
officer or, except in accordance with past practice, any employee or enter into
any collective bargaining agreement; (f) incur any debt or other liabilities
(except for borrowings under existing credit facilities in the ordinary course)
or make any loans or advances to any person (except for advances consistent
with past practice which are not material); (g) materially change any practice
with respect to taxes or make, change or revoke any material tax election or
settle or compromise any material tax dispute; (h) declare, set aside, or pay
any dividend or distribution in respect of its capital stock or other ownership
interests; redeem, purchase, or otherwise acquire any shares of its capital
stock or capital stock of any of its subsidiaries; or split, combine, or
reclassify any of its capital stock or take steps to issue any other securities
in respect of shares of its capital stock; (i) issue, deliver, sell, pledge, or
otherwise encumber any shares of its capital stock or certain other securities
related to its capital stock; (j) make or agree to make any capital expenditure
or expenditures except in accordance with the Company's capital expenditure
plan for fiscal years 1998 and 1999; (k) change any accounting principles or
practices unless or required by changes in GAAP; (l) pay, discharge, settle, or
satisfy any claims, liabilities, or obligations other than the payment, in the
ordinary course consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in the most recent
consolidated financial statements; (m) waive any material benefits of, or agree
to modify in any material respect, any confidentiality, standstill,
non-solicitation, or similar agreement; or (n) take, or agree (in writing or
otherwise) or resolve to take, any of the prohibited actions described in this
paragraph.
INVESTIGATION BY ACQUISITION. Under the Merger Agreement, the Company has
agreed to allow Acquisition, its counsel, accountants and other representatives
and the financial institutions that propose to provide financing in connection
with the Merger (and their counsel and representatives), during regular
business hours upon reasonable notice, to make such reasonable inspection of
the assets, facilities, business and operations of the Company and its
subsidiaries and to inspect and make copies of contracts, books, and records
and all other documents and information reasonably requested by Acquisition and
related to the operations and business of the Company and its subsidiaries and
to meet with designated personnel of the Company or its subsidiaries and/or
their representatives. The Company and its subsidiaries shall (a) furnish to
Acquisition promptly upon request all additional documents and information with
respect to the affairs of the Company and its subsidiaries in their possession
as Acquisition, or its counsel or accountants, may from time to time reasonably
request and (b) have instructed their personnel, accountants, and counsel to
cooperate with Acquisition. Acquisition has agreed to hold, and will use its
reasonable best efforts to cause its counsel, accountants, and other
representatives and the financial institutions that propose to provide
financing in connection with the Merger (and their counsel and representatives)
to hold, any nonpublic information in confidence to the extent required by, and
in accordance with, a confidentiality letter between the Company and CMCO, Inc.
dated July 29, 1998.
ADDITIONAL COVENANTS. In addition to the foregoing, the Company and
Acquisition have agreed to certain covenants regarding (a) convening of the
Special Meeting; (b) publicity; (c) preparation and filing of this Proxy
Statement and a Transaction Statement on Schedule 13E-3; (d) the performance of
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additional actions as may be necessary to effect the Merger; (e) expenses
related to the Merger Agreement; (f) directors' indemnity and insurance; (g)
resignation of the Company's directors; (h) notice of changes with respect to
the Company and its subsidiaries; and (i) the Company supplying financial
information to Acquisition.
CONSENTS AND EFFORTS. Each of the parties to the Merger Agreement has
agreed to (a) promptly make its respective filings under the HSR Act with
respect to the Merger, if applicable, and (b) use its reasonable best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective, in the most expeditious manner practicable, the Merger and the
other transactions contemplated by the Merger Agreement. Acquisition and the
Company have agreed to use their reasonable best efforts and cooperate with one
another (a) in promptly determining whether any filings are required to be made
or consents, approvals, waivers, licenses, permits, or authorizations are
required to be obtained (or, which if not obtained, would result in an event of
default, termination, or acceleration of any agreement or any put right under
any agreement) under any applicable law or regulation or from any governmental
authorities or third parties, including parties to loan agreements or other
debt instruments, in connection with the transactions contemplated by the
Merger Agreement, including the Merger and (b) in promptly making any such
filings, in furnishing information required in connection therewith and in
timely seeking to obtain any such consents, approvals, permits, or
authorizations.
The Company has agreed to provide, and to cause its subsidiaries and its
and their respective officers, directors, employees, and advisors to provide,
all reasonable cooperation in connection with the arrangement of any financing
to be consummated contemporaneously with or at or after the Closing.
Acquisition has agreed to use its commercially reasonable efforts to obtain,
and to use its best efforts to satisfy all conditions to the consummation of,
the financing pursuant to the Commitment Letters, provided such efforts shall
not require undue expense or materially impair the operations of the Company
after the Effective Time.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective
obligations of each of the Company and Acquisition to effect the Merger are
subject to the satisfaction at or prior to the closing date of the Merger of
the following conditions:
(a) The Merger Agreement and the Merger shall have been adopted and
approved by a majority of the holders of the issued and outstanding shares
of the Uniflex Common Stock in accordance with the DGCL;
(b) Any applicable waiting period under the HSR Act (if applicable)
relating to the Merger shall have expired or been terminated; and
(c) No law or regulation, and no judgment order, decree, or injunction
prohibiting or restraining the consummation of the Merger shall be in
effect. In the event any such order or injunction shall have been issued,
each party agrees to use its reasonable best efforts to have any such
judgment, order, decree, or injunction vacated.
CONDITIONS TO THE OBLIGATION OF THE COMPANY TO EFFECT THE MERGER. The
obligation of the Company to effect the Merger is subject to the following
conditions, any of which may be waived by the Company: (a) the representations
and warranties of Acquisition contained in the Merger Agreement shall be true
and correct in all material respects at and as of the closing date (except for
changes permitted by the Merger Agreement and except to the extent that any
such representations and warranties were made as of a specified date, which
representations and warranties shall continue on the closing date to be true as
of such specified date); (b) Acquisition shall have performed in all material
respects its obligations arising under the agreements and covenants contained
in the Merger Agreement required to be performed on or prior to the closing
date of the Merger; (c) all filings required to be made prior to the Effective
Time with, and all consents, approvals, and licenses of, any governmental or
other regulatory body required in connection with the execution, delivery, and
performance of the Merger Agreement and for the Surviving
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Corporation to conduct the business and operations of the Company in
substantially the same manner as it was conducted prior to the Effective Time
shall have been made or obtained, as the case may be unless the failure to make
such filings or obtain such consents, authorizations, orders, or approvals
would not, individually or in the aggregate, have a Material Adverse Effect
after giving effect to the transactions contemplated by the Merger Agreement;
(d) all consents, waivers, agreements, approvals, authorizations, declarations,
filings, notices and registrations listed on the disclosure schedule to the
Merger Agreement shall have been obtained; (e) the funding contemplated by the
Commitment Letters shall have been obtained; (f) the Dunn Johnston Opinion
shall not have been withdrawn or modified in any material respect; and (g) the
Company shall have received a certificate of the President of Acquisition
certifying that, as of the closing date, the conditions set forth in (a) and
(b), above, have been satisfied.
CONDITIONS TO THE OBLIGATION OF ACQUISITION TO EFFECT THE MERGER. The
obligation of Acquisition to effect the Merger is subject to the satisfaction
of the following conditions, any of which may be waived by Acquisition:
(a)(i) the representations and warranties of the Company contained in the
Merger Agreement shall be true and correct in all material respects at and
as of the closing date (except for changes permitted by the Merger
Agreement and except that to the extent that any such representations and
warranties were made as of a specific date, such representations and
warranties shall continue on the closing date to be true in all material
respects as of such date), (ii) the Company shall have performed in all
material respects all obligations arising under the agreements and
covenants required to be performed by it on or prior to the closing date
unless such failure to perform is due to any material act or omission of
Acquisition, and (iii) Acquisition shall have received a certificate of the
President and the Chief Financial Officer of the Company, certifying that,
as of the closing date, the conditions set forth in clauses (i) and (ii),
above, and clauses (b) and (e), below, have been satisfied;
(b) no temporary restraining order, preliminary or permanent injunction
or other action by any governmental authority or any other entity or person
shall have been instituted or threatened for the purpose of enjoining or
preventing, or which question the validity or legality of, the transactions
contemplated by the Merger Agreement and which could reasonably be expected
to damage Acquisition or materially adversely affect the value of the
Uniflex Common Stock or the Assets (as defined in the Merger Agreement),
business, or operations of the Company and its subsidiaries or
Acquisition's ability to own and operate the Assets, business, or
operations of the Company and its subsidiaries, if the transactions
contemplated by the Merger Agreement are consummated;
(c) the employment agreements dated the date of the Merger Agreement
entered into between the Company and Herbert Barry and Robert K. Semel
shall not have been terminated, voided or abrogated by Mr. Barry and Mr.
Semel, respectively;
(d)(i) all filings required to be made prior to the Effective Time with,
and all consents, approvals, and licenses of, any governmental or other
regulatory body required in connection with the execution, delivery, and
performance of the Merger Agreement and for the Surviving Corporation to
conduct the business and operations of the Company in substantially the
same manner as it was conducted prior to the Effective Time shall have been
made or obtained, as the case may be unless the failure to make such
filings or obtain such consents, authorizations, orders, or approvals would
not, individually or in the aggregate, have a material adverse effect after
giving effect to the transactions contemplated by the Merger Agreement, and
(ii) all consents, waivers, agreements, approvals, authorizations,
declarations, filings, notices and registrations listed on the disclosure
schedule to the Merger Agreement shall have been obtained;
(e) from October 31, 1998, there shall not have occurred a Material
Adverse Change (as defined in the Merger Agreement) with respect to the
Company and to the knowledge of the Company, there shall have been no
potential or threatened Material Adverse Change;
(f) the funding contemplated by the Commitment Letters shall have been
obtained;
(g) the stockholders party to the Voting Agreements shall have performed
their obligations thereunder in all material respects;
41
<PAGE>
(h) the Surviving Corporation shall have entered into a stockholders
agreement, effective as of the Effective Time, with the holders of Retained
Shares; and
(i) the total number of Dissenting Shares shall not exceed 7.5% of the
outstanding Uniflex Common Stock at the proposed Effective Time.
NO SOLICITATION; FIDUCIARY OUT
Under the Merger Agreement, Uniflex has agreed to immediately cease any
existing activities, discussions or negotiations with any parties with respect
to any Acquisition Proposal. Pursuant to the Merger Agreement, Uniflex has
agreed that neither it nor its subsidiaries (whether directly or indirectly
through advisors, agents or other intermediaries) will solicit, initiate, or
take any action knowingly to facilitate, any inquiries, proposals or offers
from any person, other than Acquisition and its representatives and affiliates,
relating to an Acquisition Proposal, or (a) agree to or endorse any Acquisition
Proposal, (b) enter into or participate in any discussions or negotiations
regarding an Acquisition Proposal, or otherwise cooperate in any way with, or
knowingly assist, participate in, facilitate or encourage, any effort or
attempt by any person (other than Acquisition, one of the Carl Marks Affiliates
and their respective representatives and affiliates) to do or seek any of the
foregoing, (c) grant any waiver or release under any standstill or similar
agreement with respect to the equity securities of the Company or any of its
subsidiaries, or (d) authorize or permit any of its officers, directors,
employees, agents, or representatives do any of the foregoing. Uniflex is
obligated to notify Acquisition if any such inquiries or proposals are received
by, or any such information is requested from, the Company or any such
negotiations or discussions are sought to be initiated with the Company.
Nothing contained in the Merger Agreement prohibits the Board of Directors of
the Company from furnishing information to, or entering into discussions or
negotiations with, any person or entity in response to any unsolicitated
inquiry, proposal or offer if, and only to the extent that, (a) the furnishing
of such information is pursuant to a customary confidentiality letter and (b)
the Board of Directors of the Company determines in good faith on the basis of
written advice of outside counsel that such action is required for the Board to
comply with its fiduciary duties to stockholders imposed by law, and the
Company, prior to taking such action, gives Acquisition reasonable notice of
its intent to do so.
If the existence of an Acquisition Proposal results in the termination of
the Merger Agreement by the Company or Acquisition in accordance with the terms
of the Merger Agreement, the Company may be obligated to pay a fee of $350,000
to Acquisition, the Carl Marks Affiliates and RFE and its affiliates, together
with reimbursement of their out-of-pocket expenses up to a maximum of $250,000
and the amount of any commitment fees related to the senior debt and Senior
Subordinated Debentures actually paid or contractually required to be paid to
investment funds, banks or other financial institutions providing funds to
finance the Merger.
If the Company fails to promptly pay any amount due in respect of the fees
and reimbursements described in the preceding sentence, and, in order to obtain
such payment, Acquisition commences a suit which results in a judgment against
the Company for such fee or fees and expenses, the Company shall also pay to
Acquisition its costs and expenses incurred in connection with such litigation.
TERMINATION; EFFECTS OF TERMINATION
TERMINATION BY MUTUAL WRITTEN CONSENT. The Merger Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval of the Merger by the stockholders of the
Company by mutual written consent of Acquisition and the Company.
TERMINATION BY THE COMPANY. The Merger Agreement may be terminated by the
Company at any time prior to the Effective Time, if the Board of Directors of
the Company, acting in good faith based upon written advice from outside
counsel and in order to prevent the Board of Directors from breaching its
fiduciary duty, shall have withdrawn or modified or amended, in a manner
adverse to Acquisition, its approval or recommendation of the Merger Agreement
and the Merger or its recommendation that stockholders of the Company adopt and
approve the Merger Agreement and the Merger in order to
42
<PAGE>
permit the Company to execute a definitive agreement providing for the
acquisition of the Company or in order to approve a tender or exchange offer
for any or all of the Uniflex Common Stock, in either case, that is determined
by the Board of Directors of the Company to be a superior proposal. In the
event that the Merger Agreement is terminated by the Company pursuant to the
provision of the Merger Agreement described in this paragraph, the Company
shall pay Acquisition, the Carl Marks Affiliates and RFE and its affiliates a
fee of $350,000 and shall reimburse them for their out-of-pocket expenses in an
amount not to exceed $250,000 and the amount of any commitment fees related to
the senior debt and Senior Subordinated Debentures actually paid or
contractually required to be paid to investment funds, banks or other financial
institutions providing funds to finance the Merger.
TERMINATION BY ACQUISITION. The Merger Agreement may be terminated at any
time prior to the Effective Time by Acquisition if the Board of Directors of
the Company shall have (i) withdrawn or modified or amended, in a manner
adverse to Acquisition, its approval or recommendation of the Merger Agreement
and the Merger or its recommendation that stockholders of the Company adopt and
approve the Merger Agreement and the Merger, (ii) approved, recommended or
endorsed an Acquisition Proposal (including a tender or exchange offer for
Uniflex Common Stock) or shall have failed to reconfirm its recommendation of
the Merger Agreement and the Merger within ten business days of Acquisition's
request that it do so, (iii) failed to call a stockholders meeting or failed as
promptly as practicable to mail the Proxy Statement to its stockholders or
failed to include in such statement the recommendation referred to above, (iv)
in response to the commencement of any tender offer or exchange offer for more
than 15% of the outstanding shares of Uniflex Common Stock, not recommended
rejection of such tender offer or exchange offer, or (v) resolved to do any of
the foregoing. In the event that the Merger Agreement is terminated by the
Company pursuant to any of the provisions of the Merger Agreement described in
this paragraph, the Company shall pay Acquisition, the Carl Marks Affiliates
and RFE and its affiliates a fee of $350,000 and shall reimburse them for their
out-of-pocket expenses in an amount not to exceed $250,000 and the amount of
any commitment fees related to the senior debt and Senior Subordinated
Debentures actually paid or contractually required to be paid to investment
funds, banks or other financial institutions providing funds to finance the
Merger.
TERMINATION BY EITHER ACQUISITION OR THE COMPANY. The Merger Agreement may
be terminated and the Merger may be abandoned at any time prior to the
Effective Time, whether before or after approval of the Merger by the
stockholders of the Company by either Acquisition or the Company if:
(a) the Merger shall not have been consummated by July 30, 1999,
provided, that the terminating party shall not have breached in any
material respect its obligations under the Merger Agreement;
(b) if any of the conditions to such party's obligation to consummate the
transactions contemplated by the Merger Agreement shall have become
impossible to satisfy;
(c) if there shall be any law or regulation that makes consummation of
the Merger illegal or otherwise prohibited or if any judgment, injunction,
order, or decree enjoining Acquisition or the Company from consummating the
Merger is entered and such judgment, injunction, order or decree shall have
become final and non-appealable; or
(d) if, at a duly held stockholders meeting of the Company or any
adjournment thereof at which the Merger Agreement and the Merger are voted
upon, the requisite adoption and approval of the Company's stockholders
shall not have been obtained.
In addition to the circumstances described above, under the Merger
Agreement, the Company is obligated to pay Acquisition, the Carl Marks
Affiliates and RFE and its affiliates a fee of $350,000, and to reimburse them
for their out-of-pocket expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby in an amount not to exceed
$250,000 and the amount of any commitment fees related to the senior debt and
Senior Subordinated Debentures actually paid or contractually required to be
paid to investment funds, banks or other financial institutions providing funds
to finance the Merger, in the event that the Merger Agreement is terminated:
(a) by Acquisition due to a condition to Acquisition's obligation to consummate
the Merger and the other transactions contemplated by the Merger Agreement
becoming impossible to satisfy, but only if the failure of a condition
43
<PAGE>
arises from a breach of obligation or untruth or incorrectness of any
representation or warranty arising out of the bad faith or willful misconduct
of the Company; or (b) (i) by Acquisition upon the occurrence of any of the
following: (1) the failure of the Company to obtain stockholder approval of the
Merger Agreement; (2) the failure of the representations and warranties of the
Company to be true and correct in all material respects at and as of the
closing date; (3) the failure of the Company to perform its obligations under
the Merger Agreement in all material respects and perform all covenants
required thereby on or prior to the closing date (unless such failure to
perform is due to a material act or omission by Acquisition); (4) failure of
the Company to deliver the officers' certificate required by the Merger
Agreement certifying that (I) the representations and warranties of the Company
are true and correct at and as of the closing date, (II) the Company performed
its obligations under the Merger Agreement in all material respects and
performed all covenants required thereby on or prior to the closing date
(unless such failure to perform is due to a material act or omission by
Acquisition), (III) no temporary restraining order or other action has been
initiated or threatened for the purpose of enjoining or preventing, or which
questions the legality of, the transactions contemplated by the Merger
Agreement and which could reasonably be expected to damage Acquisition or
materially adversely affect the value of the Uniflex Common Stock or Uniflex's
assets, business or operations or Acquisition's ability to own or operate such
assets, business or operations if the Merger is consummated; and (IV) no
Material Adverse Change (as defined in the Merger Agreement) shall have
occurred and the Company knows of no potential or threatened Material Adverse
Change with respect to the Company; (5) a Material Adverse Change or the
existence of a potential or threatened Material Adverse Change of which the
Company has knowledge; (6) failure of the stockholders party to the Voting
Agreements to perform their obligations thereunder in all material respects;
(7) failure of the Company to have entered into a stockholders agreement with
the holders of the Retained Shares; but only, with respect to clauses (1)
through (7) hereof, if (x) any third party (other than Acquisition, its
affiliates, or any party to the Voting Agreement) shall have become the
beneficial owner of more than 15% of the outstanding shares of Uniflex Common
Stock prior to the date of termination of this Agreement; or (ii) by either
party if the Merger is not approved by the Company's stockholders or if the
Merger is not consummated prior to July 30, 1999, but only if the circumstance
set forth in clause (x) above is then existing or shall have occurred.
AMENDMENT
The Merger Agreement may be amended by the parties thereto at any time
before or after approval of matters presented in connection with the Merger by
the stockholders of the Company, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval. The Merger Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties thereto.
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to the holders of Uniflex Common
Stock in connection with the solicitation of proxies by the Board of Directors
of Uniflex from holders of the outstanding shares of Uniflex Common Stock for
use at the Special Meeting of Stockholders to be held at 10:00 a.m., local
time, on June 30, 1999 at Battle Fowler LLP, 75 East 55th Street, New York, New
York 10022 and any adjournments and postponements thereof. At the Special
Meeting, stockholders of Uniflex (a) will be asked to consider and vote upon a
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby, (b) will be asked to consider and vote upon a proposal to
adjourn or postpone the Special Meeting to another time in the event that the
number of proxies obtained is not sufficient to ensure the adoption and
approval of the Merger Agreement and (c) will transact such other business as
may properly come before the Special Meeting.
RECORD DATE, SOLICITATION, AND REVOCABILITY OF PROXIES
The Board of Directors of the Company has fixed the Record Date as the
date for determining the Uniflex stockholders entitled to receive notice of and
to vote at the Special Meeting and any
44
<PAGE>
adjournments or postponements thereof. Only holders of record of Uniflex Common
Stock as of the Record Date are entitled to notice of and to vote at the
Special Meeting. As of the Record Date, there were 4,300,352 shares of Uniflex
Common Stock issued, outstanding, and held by approximately 222 holders of
record. Holders of Uniflex Common Stock are entitled to one vote on each matter
considered and voted on at the Special Meeting for each share of Uniflex Common
Stock held of record at the close of business on the Record Date.
Proxies in the form enclosed are being solicited by the Board of Directors
of the Company. Shares of Uniflex Common Stock represented by properly executed
proxies, if such proxies are received in time and are not revoked, will be
voted in accordance with the instructions indicated on the proxies. If no
instructions are indicated, such proxies will be voted FOR approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
Any holder of Uniflex Common Stock who returns a signed proxy but fails to
provide instructions as to the manner in which such holder's shares are to be
voted will be deemed to have voted FOR approval and adoption of the Merger
Agreement and the transactions contemplated thereby.
DESCRIPTION OF UNIFLEX
BACKGROUND
Uniflex, Inc. (a Delaware corporation organized in 1973) is the successor
by merger to the business and assets of Uniflex, Inc. (a New York corporation
organized in 1963). Uniflex designs, manufactures and markets a broad line of
customized plastic packaging for sales and advertising promotions, clear bags
for apparel and soft goods manufacturers and specialized, recyclable bags and
other products for use in hospitals, medical laboratories and emergency care
centers and has been so engaged for more than the past five years.
In February 1997, Uniflex acquired substantially all of the assets and
assumed certain of the liabilities of Merrick Packaging Specialists, Inc. a New
York corporation ("Merrick") engaged in the distribution of high quality paper,
paper laminate and plastic shopping bags and boxes.
In February 1997, Uniflex formed Uniflex, UK, Ltd., a wholly-owned
subsidiary of Uniflex to market and distribute the Company's products in the
United Kingdom.
In January 1996, Uniflex formed Uniflex Southeast L.L.C., a Delaware
limited liability company ("Southeast") to market and distribute health and
safety products and services primarily to the dental industry. In July 1997,
Uniflex, through Uniflex Southeast, Inc., a Delaware corporation and wholly-
owned subsidiary of Uniflex which was the Manager of Southeast and owned 80% of
its equity, sold its equity interest in Southeast to Safelink, Inc.
In January 1995, Uniflex formed Uniflex Southwest L.L.C., a Delaware
limited liability company ("Southwest"). Southwest produces and markets jumbo
flexible loop handle bags, double drawstring bags and reclosable, resealable,
Trac-Loc bags. These products are sold to retailers, cosmetic firms, food
packing companies and medical/healthcare supply firms. In April 1995, Southwest
commenced operations in Albuquerque, New Mexico. Effective February 1, 1998,
Uniflex purchased from Elliot Berger his entire equity interest as minority
equityholder in Southwest for consideration consisting of 50,000 shares of
Uniflex Common Stock valued at $300,000, $100,000 in cash and a $400,000
promissory note payable ratably in four years at 7% interest, the outstanding
balance of which will become payable in full upon consummation of the Merger.
In July 1993, Uniflex acquired certain of the assets of Haran Packaging
Co., Inc., a New York corporation engaged in the business of manufacturing,
distributing and selling packaging materials ("Haran").
BUSINESS OF UNIFLEX
The Company's principal product is a flexible plastic bag with an attached
plastic handle or other closure or carrying device, known as a "specialty bag."
The bag is made of polyethylene and comes in
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<PAGE>
various sizes. The bag is printed from artwork (e.g., the user's product and
logo) prepared either by Uniflex's in-house art and production department or
supplied to Uniflex by the user or its advertising agency. Injection molded
rigid polyethylene handles, in various sizes and shapes, with reusable
snap-closures, are affixed to the bags by a heat-sealing process. Other
specialty bags produced and marketed by Uniflex include die-cut bags,
drawstring bags, patch bags and litter bags. Uniflex's specialty bags are used
primarily for promotional purposes including, for example, at trade shows and
exhibitions. Uniflex's specialty bags are sold and marketed primarily to a
network of promotional products distributors.
Uniflex manufactures a line of specialized bags used in various segments
of the healthcare industry including hospitals, clinical laboratories and
radiology departments. For this industry Uniflex manufactures a clear bag used
as a secondary container for the safe transport of clinical laboratory
specimens, under the trademark "Speci-Gard(R)." Uniflex markets this product
primarily to healthcare and laboratory supply companies. Uniflex believes that
the bag meets or exceeds applicable OSHA standards. The bag is a liquid-tight,
disposable specimen transport bag with a patented one step sealing system that
is approved as a secondary container for specimen transport. Uniflex
manufactures and markets a clear, radiolucent, disposable, protective cover for
X-Ray cassettes under the trademark "Protex-Ray (Trade Mark) " to the
healthcare market.
Uniflex manufactures and markets a variety of conventional polyethylene
bags without carrying attachments, many of which are also printed from artwork,
for use in packaging principally by various apparel and soft goods
manufacturers. Uniflex manufactures and markets flexible plastic envelopes with
pressure sensitive adhesive closures for use in the air courier industry as a
document handling pouch. Uniflex also sells molded plastic handles for plastic
bags to other manufacturers.
Uniflex manufactures and markets a highly tamper-evident cash handling bag
under the trademarks "Ultravault (Trade Mark) and Univault (Trade Mark) ." The
disposable bags are constructed of high strength polymer film, provide thermal
protection from tampering, and are constructed with Uniflex's patented one step
Press and Close(R) sealing system. Uniflex markets the products to cash
intensive businesses including financial institutions, retail establishments
and fast food chains, for the safe transport of cash and other valuables.
Uniflex, through Southwest, produces and markets a soft loop handle bag
with applications ranging from retail shopping bags to functional "pick it
yourself" produce bags. Other products include a double drawstring bag, which
is marketed primarily to cosmetic related firms and a reclosable, resealable,
Trac-Loc bag, which is marketed to healthcare and laboratory supply companies,
food packaging firms and promotional products distributors.
Uniflex also distributes high quality paper, paper laminate and plastic
shopping bags and boxes for the retail industry.
During the first quarter of fiscal 1998, Uniflex, through its wholly-owned
subsidiary, Uniflex, U.K., commenced operations in Chester, England,
introducing patented medical products to hospitals, pharmacies and medical
laboratories in the European market.
Uniflex continues to market its Ultravault (Trade Mark) "tamper evident"
security bags which provide the user with visual evidence of tampering with the
bag's contents. The Ultravault (Trade Mark) bags are being introduced into
markets, such as banks, retailers, casino operators, stockbrokers and courier
firms, which have security concerns for cash and other valuables.
The following table sets forth the amount and percentage of sales
contributed by each class of similar products for the last three fiscal years
which contributed fifteen percent or more of total sales in any of such fiscal
years.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
$ IN THOUSANDS
<S> <C> <C> <C>
Plastic Specialty Bags (including handle, $ 18,682 $ 17,695 $ 17,404
drawstring, cut-out and litter bags) ......... 47% 47% 50%
</TABLE>
46
<PAGE>
Uniflex distributes approximately 41% of its products to advertising
specialty distributors as part of its bag advertising program. Uniflex
distributes approximately 17% of its products, including Speci-Gard (Trade
Mark) and other hospital related products, to hospital supply houses,
laboratories, nursing homes and directly to certain hospitals. Uniflex also
sells its products to various distributors for resale. Less than 14% of
Uniflex's sales are directly with major retailers, chain stores, industrial
concerns and other large end-users. Uniflex's products are sold through
eighteen salespeople which include thirteen salespeople and five of Uniflex's
officers. During the fiscal year ended January 31, 1999, Uniflex's sales staff
accounted for approximately 98% of sales while approximately 2% of sales were
made through manufacturers' representatives.
Uniflex's sales office, including its showroom, is located at its
principal executive offices in Hicksville, New York. During the fiscal year
ended January 31, 1999, Uniflex incurred advertising expenditures of
approximately $459,000. Uniflex mails a complete catalogue of its merchandise,
updated annually. For the year ended January 31, 1999, Uniflex mailed
approximately 75,000 catalogues. This program develops substantial leads for
Uniflex. In addition, Uniflex receives unsolicited inquiries, referrals and
leads from existing customers, which are actively pursued by Uniflex's
salespersons. Uniflex also displays its merchandise at various trade shows,
such as premium shows and soft-goods shows. Additionally, Uniflex mails a
catalogue designed specifically for hospital supply houses and hospitals to
promote its Speci-Gard (Trade Mark) products and other hospital products.
The raw materials essential to the business of Uniflex (primarily
polyethylene plastic) are readily available. Uniflex's products are
manufactured principally at the plant it leases in Westbury, New York(see "--
Properties of Uniflex," below). Uniflex owns the molds used in producing its
handles, and, in addition, owns seven injection molding machines which produce
all of its requirements for such plastic handles.
Uniflex has registered trademarks protecting its logo and the names
"Uniflex (Trade Mark) ", "Texture-Flex (Trade Mark) ", "Jet Pouch (Trade
Mark) ", "Tri-Flex (Trade Mark) ", "Speci-Gard (Trade Mark) ", "Hand-L-Bag
(Trade Mark) , Protex-Ray (Trade Mark) , "Slip-Free (Trade Mark) ", "Press and
Close (Trade Mark) ", "Special Air Tuff (Trade Mark) ", "Uni-Box (Trade
Mark) ", "Micro-Tex (Trade Mark) ", "Opti- Pouch (Trade Mark) ", "UF (Trade
Mark) ", "Econovault (Trade Mark) ", "Univault (Trade Mark) ", "Ultravault
(Trade Mark) ", "Univault and Logo Design (Trade Mark) ", "Bagvertising (Trade
Mark) ", "UF Line (Trade Mark) " and "The Bagvertising Company (Trade Mark) ."
The name "Uniflex (Trade Mark) " and the Uniflex logo trademark are also
registered with the U.S. Patent and Trademark Office. Uniflex markets certain
of its products utilizing its trademarks. Uniflex believes that the loss of one
or more of its trademarks would not materially adversely affect its business.
Uniflex's business is not affected by seasonal trends. However,
approximately 50% to 55% of its sales are traditionally made during the second
half of the fiscal year. This is due to slightly higher demand during the late
summer and fall seasons. Uniflex expects that approximately 50% of sales at its
Paper Division will be made during the second half of the fiscal year.
Uniflex's inventory consists primarily of raw materials. Uniflex maintains
sufficient material on hand to expedite orders and properly service its
customers.
Uniflex has approximately 9,300 customers, none of which accounted for
more than 10% of its sales during the fiscal year ended January 31, 1999.
As of January 31, 1999, Uniflex had a $5,821,000 backlog of firm orders,
all of which Uniflex expects to fill. As of January 31, 1998, Uniflex had a
$4,934,000 backlog of firm orders, substantially all of which have been filled.
The plastic bag industry is highly competitive and is comprised of many
concerns making products similar to those of Uniflex. A number of these
concerns are larger than Uniflex in terms of total assets, personnel, sales and
financial resources. Uniflex believes that competition in the industry is based
upon price, service and quality of product.
Uniflex did not expend material amounts on Uniflex sponsored research and
development during the last three fiscal years.
In addition to the disposal of waste solvents through an authorized waste
disposer, Uniflex monitors its approaches to the disposal of waste solvents in
order to comply with the Federal Clean Air Act, the provisions of which
restrict the emission of V.O.C. (Volatile Organic Compounds).
47
<PAGE>
Uniflex, with the assistance of independent consultants, constantly
monitors compliance with Federal, state and local environmental provisions.
During fiscal 1999, the Company's expenditures on such compliance were
insignificant and the Company estimates that approximately $25,000 will be
expended in the current fiscal year. Uniflex believes that such capital
expenditures are not material to its operations.
Uniflex has approximately 390 employees, including 14 salespersons and 11
officers. Uniflex's factory personnel are employed under contracts executed in
February 1998 with Local 3485 of the United Food & Commercial Workers Union
AFL-CIO, which contracts expire on January 31, 2001.
PROPERTIES OF UNIFLEX
Uniflex owns a 44,255 square foot building at 383 West John Street,
Hicksville, New York 11802, which serves as the Company's principal executive
offices. Uniflex uses approximately 9,900 square feet at this property for
executive offices, sales, accounting, computers and showroom space.
Approximately 34,400 square feet is used as warehouse space. The property is
encumbered by a mortgage in the principal amount outstanding at January 31,
1999 of $1,915,326.
Uniflex leases a building at 474 Grand Boulevard, Westbury, New York
11590, containing approximately 72,000 square feet of space, of which
approximately 14,000 square feet are used for warehousing, approximately 42,000
square feet for manufacturing, approximately 10,000 square feet for shipping
and receiving and approximately 6,000 square feet for executive and clerical
offices. The expiration date of Uniflex's lease is April 30, 2003. During the
fiscal year ended January 31, 1999, Uniflex expensed costs of approximately
$165,000 for the base annual rental of said premises. In addition, Uniflex pays
the cost of real estate taxes, insurance and other expenses of maintaining the
building, which expenses amounted to approximately $235,000 during the fiscal
year ended January 31, 1999.
Uniflex leases approximately 6,400 square feet of space in a building at
460 Grand Boulevard, Westbury, New York 11590, all of which is used solely for
warehousing. The lease is month to month. During the fiscal year ended January
31, 1999, Uniflex expensed costs of approximately $40,000 for the base annual
rent of said premises.
Southwest leases a building at 2512 Madison N.E., Albuquerque, New Mexico,
containing approximately 22,000 square feet of space, of which approximately
700 square feet is for office space and the balance of approximately 21,300
square feet is for manufacturing. The expiration date of Southwest's lease is
July 31, 2005. During the fiscal year ended January 31, 1999, Uniflex paid
approximately $60,690 for the base rent, real estate taxes and insurance of
said premises.
In connection with the acquisition of Merrick, as of February 1, 1997
Uniflex assumed Merrick's lease for a building at 70 Austin Boulevard, Commack,
New York, containing approximately 18,000 square feet of warehouse space and
2,000 square feet of office space. The expiration date of the lease was July
31, 1998. The rent for the premises, inclusive of real estate taxes, was $7,627
per month until July 31, 1997 and $7,794 per month thereafter until the end of
the term of the lease. Uniflex has surrendered the entire premises in
consideration of a payment of $18,971.16.
MARKET PRICES; DIVIDENDS; PURCHASES; INTERESTS IN UNIFLEX COMMON STOCK
MARKET PRICE OF COMMON STOCK
Uniflex's Common Stock, $.10 par value, trades on the American Stock
Exchange (the "AMEX") under the symbol "UFX". The following table sets forth
the high and low closing sales prices of the Common Stock on the AMEX for the
periods indicated.
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<PAGE>
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Year Ended January 31, 2000
First Quarter .................................. $7 3/16 $6 5/16
Second Quarter (through June 4, 1999) ......... 7 1/8 6 7/8
Year Ended January 31, 1999
First Quarter .................................. 6 7/16 5 1/8
Second Quarter ................................. 6 1/8 5 1/8
Third Quarter .................................. 6 1/16 3 7/8
Fourth Quarter ................................. 6 5/8 5
Year Ended January 31, 1998
First Quarter .................................. 8 1/4 6 1/2
Second Quarter ................................. 7 5 15/16
Third Quarter .................................. 7 1/2 5 7/8
Fourth Quarter ................................. 7 5
</TABLE>
On March 5, 1999, the last trading day prior to the public announcement
that Uniflex and Acquisition had executed the Merger Agreement, the high and low
sale prices per share of Uniflex Common Stock as reported on the American Stock
Exchange were $6 7/8 and $6 5/8, respectively. On June 4, 1999, the last trading
day prior to the distribution of this Proxy Statement, the high and low sale
prices of the Uniflex Common Stock as reported on the American Stock Exchange
were 7 1/8 and 7 1/8, respectively. Stockholders are urged to obtain a current
quotation with respect to the Uniflex Common Stock.
DIVIDENDS
Uniflex has not declared any cash dividends on its Common Stock during the
two most recent fiscal years. Uniflex declared a 50% stock dividend effective
October 15, 1996 to holders of record as of September 26, 1996. Uniflex does
not intend to pay any cash dividends on its Common Stock in the foreseeable
future. Payment of cash dividends is within the discretion of Uniflex's Board
of Directors and depend generally on, among other factors, earnings, capital
requirements and the operating and financial condition of the Company. In
addition, the payment of dividends by the Company is subject to certain
restrictions under the Company's existing credit facility, which will be
refinanced in connection with the Merger. Under the Merger Agreement, the
Company has agreed not to pay any dividends on the Uniflex Common Stock prior
to the Effective Time. Pursuant to the terms of the agreements contemplated by
the Commitment Letters, the Surviving Corporation's ability to pay certain
dividends will be restricted.
PURCHASES BY UNIFLEX
At various times since February 1, 1997, Uniflex purchased in private
transactions shares of Uniflex Common Stock and options to purchase shares of
Uniflex Common Stock, as follows: In April 1997, Uniflex purchased 3,600 shares
of Uniflex Common Stock for an aggregate purchase price of $23,850, or
approximately $6.63 per share. In July 1997, Uniflex purchased 294,904 shares
of Uniflex Common Stock for an aggregate purchase price of approximately
$1,476,778, or approximately $5 per share; 85,000 shares of Uniflex Common
Stock for an aggregate purchase price of $423,300, or $4.98 per share; and
options to purchase 17,755 shares of Uniflex Common Stock (executable at a
price of $.69 per share) for an aggregate purchase price of approximately
$76,228, or approximately $4.29 per share. In October 1997, Uniflex purchased
10,000 shares of Uniflex Common Stock from Erich Vetter for an aggregate
purchase price of $82,500, or $8.25 per share, and 4,004 shares of Uniflex
Common Stock from Warner Heuman for an aggregate purchase price of $28,028, or
$7 per share. The foregoing purchase prices represented an approximately 17%
discount from the market price of Uniflex Common Stock at the time of the
purchases.
PURCHASES BY MEMBERS OF THE MANAGEMENT GROUP
At various times since February 1, 1997, members of the Management Group
purchased or otherwise acquired shares of Uniflex Common Stock as follows:
Effective February 1, 1998, Elliot Berger received
49
<PAGE>
from Uniflex 50,000 shares of Uniflex Common Stock, valued at $300,000, or
$6.00 per share, as part of the consideration for the purchase by Uniflex of
Mr. Berger's minority interest in Southwest. In June 1998, Mr. Berger purchased
14,000 shares of Uniflex Common Stock from Erich Vetter and 7,750 shares of
Uniflex Common Stock from Warner Heuman for purchase prices aggregating
approximately $111,469, or approximately $5.125 per share. In October 1998, Mr.
Berger purchased 15,000 shares of Uniflex Common Stock for purchase prices
aggregating $60,000 or $4 per share. Robert K. Semel purchased from Uniflex,
upon the exercise of options, 90,000 shares of Uniflex Common Stock in August
1997, for a purchase price of approximately $34,200, or approximately $.38 per
share, and 15,000 shares of Uniflex Common Stock in May 1998, for a purchase
price of approximately $21,300, or approximately $1.42 per share. In August
1997 Herbert Barry purchased from Uniflex, upon the exercise of options, 15,000
shares of Uniflex Common Stock for a purchase price of approximately $8,250, or
approximately $.55 per share. In August 1997 Erich Vetter purchased from
Uniflex, upon the exercise of options, 9,000 shares of Uniflex Common Stock for
a purchase price of approximately $4,950, or approximately $.55 per share. At
various times in September 1997 and October and December 1998, Melissa Cantor
purchased from Uniflex, upon the exercise of options, a total of 1,950 shares
of Uniflex Common Stock for purchase prices aggregating approximately $2,808,
or an average of approximately $1.44 per share. At various times in March and
July 1997 and December 1998, Lee Cantor purchased from Uniflex, upon the
exercise of options, a total of 12,300 shares of Uniflex Common Stock for
purchase prices aggregating approximately $6,618, or an average of
approximately $.62 a share.
INTEREST OF PROFIT SHARING PLAN
As of March 17, 1999, the Uniflex Profit Sharing Plan held 198,050 shares
of Uniflex Common Stock.
SELECTED FINANCIAL DATA OF UNIFLEX
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net Sales ........................ $39,722,000 $37,999,000 $34,466,000 $31,510,000 $30,133,000
Gross Profit ..................... $14,507,000 $13,609,000 $13,087,000 $11,187,000 $11,151,000
Net Income ....................... $ 2,108,000 $ 1,496,000 $ 1,917,000 $ 1,459,000 $ 1,166,000
Earnings Per Share(a)(b) ......... $ .50 $ .35 $ .43 $ .35 $ .29
SELECTED BALANCE SHEET DATA:
Working Capital .................. $ 8,670,000 $ 8,304,000 $ 8,434,000 $ 6,699,000 $ 5,822,000
Total Assets ..................... $23,548,000 $22,185,000 $18,693,000 $16,283,000 $15,318,000
Long-Term Debt(c) ................ $ 2,293,000 $ 3,566,000 $ 1,493,000 $ 2,170,000 $ 3,847,000
Stockholders' Equity ............. $15,806,000 $12,832,000 $12,946,000 $10,245,000 $ 7,285,000
</TABLE>
- ----------
(a) Computation of earnings per share is based on the weighted average
number of shares actually outstanding plus the shares that would be
outstanding assuming the exercise of dilutive stock options, all of
which are considered to be common stock equivalents. Common stock
equivalents were calculated by the use of the treasury stock method.
(b) Uniflex declared a 50% stock dividend effective October 15, 1996 to
holders of record as of September 26, 1996. Earnings per share have
been adjusted to reflect this dividend.
(c) Exclusive of current portion of long-term debt.
50
<PAGE>
QUARTERLY FINANCIAL DATA OF UNIFLEX
<TABLE>
<S> <C> <C> <C> <C>
QUARTERLY FINANCIAL DATA
FISCAL YEAR ENDED JANUARY 31, 1999 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ------------------------------------- --------------- --------------- ---------------- ---------------
Net sales .......................... $9,755,000 $9,757,000 $10,763,000 $9,447,000
Gross Profit ....................... 3,657,000 3,426,000 3,989,000 3,435,000
Net income ......................... $ 492,000 $ 424,000 $ 674,000 $ 518,000
Net income per share (fully
diluted)(a) ...................... $ 0.12 $ 0.10 $ 0.16 $ 0.12
Net income per share (basic)(a)..... $ 0.12 $ 0.10 $ 0.16 $ 0.12
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
QUARTERLY FINANCIAL DATA
FISCAL YEAR ENDED JANUARY 31, 1998 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ------------------------------------- --------------- --------------- ---------------- ---------------
Net sales .......................... $9,257,000 $9,486,000 $10,527,000 $8,729,000
Gross Profit ....................... 3,332,000 3,420,000 4,007,000 2,850,000
Net income ......................... $ 305,000 $ 356,000 $ 652,000 $ 183,000
Net income per share (fully
diluted)(a) ...................... $ 0.07 $ 0.08 $ 0.16 $ 0.04
Net income per share (basic)(a)..... $ 0.07 $ 0.08 $ 0.16 $ 0.05
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
QUARTERLY FINANCIAL DATA
FISCAL YEAR ENDED JANUARY 31, 1997 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ------------------------------------- --------------- --------------- --------------- ---------------
Net sales .......................... $8,554,965 $8,642,013 $9,339,319 $7,929,965
Gross Profit ....................... 3,232,393 3,214,915 3,688,695 2,951,286
Net income ......................... $ 522,572 $ 352,490 $ 738,097 $ 303,779
Net income per share (fully
diluted)(a) ...................... $ 0.12 $ 0.08 $ 0.16 $ 0.07
Net income per share (basic)(a)..... $ 0.13 $ 0.08 $ 0.17 $ 0.07
</TABLE>
- ----------
(a) Uniflex declared a 50% stock dividend effective October 15, 1996 to
holders of record as of September 26, 1996. Net income per share has
been adjusted to reflect this dividend.
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks
and uncertainties. Uniflex's actual results could differ materially from those
anticipated in these forward-looking statements. Factors that may cause such
differences include, but are not limited to, Uniflex's expansion into new
markets, competition, technological advances and availability of managerial
personnel.
SUMMARY
The following table, which should be read together with the Financial
Statements and Notes to Financial Statements appearing elsewhere herein, sets
forth for the periods indicated (i) percentages which certain items reflected
in the financial data bear to net sales of Uniflex and (ii) the percentage
increase (decrease) of such items as compared to the indicated prior period:
<TABLE>
<CAPTION>
RELATIONSHIP TO TOTAL REVENUES FOR
THE PERIOD TO PERIOD INCREASE
YEARS ENDED JANUARY 31, (DECREASE) YEAR ENDED
----------------------------------- ------------------------
1999 1998 1997 1998-1999 1997-1998
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Sales .................................. 100.0% 100.0% 100.0% 4.5% 10.3%
Cost of Sales .............................. 63.5 64.2 62.0 3.4 14.1
Gross Profit ............................... 36.5 35.8 38.0 6.6 4.0
Operating Expenses:
Shipping, Selling, General and
Administrative Expenses ................. 27.1 27.9 28.2 1.5 9.4
Interest ................................... 1.1 1.4 .6 (6.4) 140.9
Gain on Sale of Equipment .................. -- -- -- -- --
Total ..................................... 28.2 29.3 28.8 0.5 12.3
Income Before Provision For Income Taxes ... 8.3 6.5 9.2 38.2 (22.0)
Provision For Income Taxes ................. 3.0 2.4 3.6 33.8 (28.1)
Net Income ................................. 5.3% 3.9% 5.6% 40.9% (22.0)%
</TABLE>
RESULTS OF OPERATIONS
SALES
Sales for the years ended January 31, 1999, January 31, 1998 and January
31, 1997 were $39,722,000, $37,999,000 and $34,466,000, respectively. Sales for
the year ended January 31, 1999 increased $1,723,000 or 4.5%, compared to the
prior year as a result of increased sales of Paper and Paper Laminate products
through the Specialty Advertising Division. Uniflex continues its efforts to
market its Medical Packaging Division's products to a variety of customers in
the healthcare industry, while adding new products to its Specialty Paper and
Paper Laminate Division in an attempt to increase market share in both the
advertising specialty and retail industries. Sales for the year ended January
31, 1998 increased $3,533,000 or 10.3%, compared to the prior year as a result
of increased sales in Merrick Packaging Division, Advertising Specialty
Division and Cycle Plastics.
Uniflex continues to investigate possible acquisitions. It is likely that
the Surviving Corporation will also continue to investigate possible
acquisitions. However, there can be no assurance that any such acquisitions
will be consummated.
COSTS AND EXPENSES
January 31, 1999
Cost of sales, as a percentage of sales, decreased to 63.5% for the year
ended January 31, 1999, compared to 64.2% for the year ended January 31, 1998.
Management continues to maximize its cash
52
<PAGE>
position enabling Uniflex to discount payments to certain of its vendors of raw
materials and obtain lower prices by purchasing in bulk, especially polyethlene
film and resin. Gross profit increased approximately $900,000 or 6.6% compared
to the year end January 31, 1998. This increase was primarily due to increased
sales and lower raw material costs.
Shipping, selling, general and administrative expense for the year ended
January 31, 1999 increased 1.5% compared to the year ended January 31, 1998.
The expenses for the fiscal year ended January 31, 1999 amounted to
approximately $10,778,000, or 27% of net sales, compared to $10,618,000, or 28%
of net sales, for the prior year. This indicates that while variable costs such
as commissions, freight-out and advertising cost rise in proportion to the
increase in net sales, management was able to control its other SG & A costs.
As a result of refinancing its mortgage in February 1998, Uniflex used a
portion of the proceeds to repay in full its working capital debt under its
credit facility, thereby reducing its interest expense. Throughout the entire
fiscal year, excess cash was invested in short term financial instruments
helping to offset interest costs.
January 31, 1998
Cost of sales, as a percentage of sales, increased to 64.2% for the year
ended January 31, 1998, compared to 62.0% for the year ended January 31, 1997.
This increase was primarily due to the increase in raw materials and start up
time needed to effectuate the Merrick Packaging Specialty absorption into
Uniflex's systems.
Shipping, selling, general and administrative expenses for the year ended
January 31, 1998 increased approximately $916,000 or 9.4%, compared to year
ended January 31, 1997. This increase was due primarily to increase in
commissions, selling, advertising and promotion and freight out. These
increases were primarily attributable to increased net sales. Interest expense
for the year ended January 31, 1998 increased approximately $303,000 or 140.9%
as compared to the year ended January 31, 1997. This increase was primarily
attributable to the increased borrowings to acquire the assets of Merrick
Packaging Specialty and to repurchase outstanding shares of Uniflex's Common
Stock. During the fiscal year ended January 31, 1998, Uniflex, in private
transactions, repurchased and retired 397,508 shares of its Common Stock for an
aggregate purchase price of $2,034,455. In addition, Uniflex repurchased
options to purchase 17,755 shares of Common Stock (exercisable at a price of
$.69 per share) for an aggregate purchase price of $76,228.
Income Before Provision for Income Taxes
Income before provision for income taxes for the year ended January 31,
1999, increased approximately $917,000, or 38%, to approximately $3,313,000
compared to approximately $2,396,000 for the year ended January 31, 1998. This
increase was primarily attributable to increased sales, efficient purchasing of
raw materials, the purchase of the minority interest in Southwest and the
controlling of Shipping, Selling, General and Administrative expenses.
Income before provision for income taxes for the year ended January 31,
1998, decreased approximately $773,000, or 24%, to approximately $2,396,000
compared to approximately $3,169,000 for the year ended January 31, 1997. This
decrease was primarily related to start up costs relating to the Merrick
Package Specialty acquisition and decreased gross margins due to increased raw
material costs.
Provision for Income Taxes
Provision for income taxes for the year ended January 31, 1999, was
$1,204,000 compared to $900,000 for the prior year primarily due to the
increase of $917,000 in income before provision for income taxes.
Provision for income taxes for the year ended January 31, 1998, was
$900,000 compared to $1,252,000 for the prior year primarily due to the
decrease of $773,000 in income before provision for income taxes.
Liquidity and Capital Commitments
Working capital increased to $8,670,000 at January 31, 1999 from
$8,304,000 at January 31, 1998, an increase of $366,000 or 4.4%. Uniflex's
working capital ratio was 3.3 to 1 at January 31, 1999 and January
53
<PAGE>
31, 1998. Uniflex's line of credit allows for Uniflex to borrow up to
$3,500,000, payable interest only at the prime rate or at LIBOR plus 1 1/2%
through May 1, 2000, at which time any outstanding balance is payable in full.
Uniflex believes it has sufficient working capital and unused lines of
credit to meet its expected liquidity and capital expenditure requirements for
the foreseeable future.
YEAR 2000 PROGRAM
Many computer systems experience difficulty processing dates beyond the
Year 1999 and, as such, some computer hardware and software will need to be
modified prior to the Year 2000 to remain functional. The Company's core
internal systems that have been recently implemented are Year 2000 compliant.
The remaining core internal systems are scheduled to be replaced by the third
quarter of 1999 and will be Year 2000 compliant when installed.
The Company is also completing a preliminary assessment of Year 2000
issues not related to its core systems, including issues surrounding systems
that interface with external third parties. Based on its initial evaluation,
the Company does not believe that the cost of remedial actions will have a
material adverse effect on the Company's results of operations and financial
condition. There can be no assurance, however, that there will not be a delay
in, or increased costs associated with, the implementation of changes as the
program progresses, and failure to implement such changes could have an adverse
effect on future results of operations.
FINANCING OF THE MERGER
The Merger will require approximately $36.2 million to pay the Cash Merger
Price, to pay the value of the Options, to refinance certain indebtedness of
Uniflex, including indebtedness under the Company's existing mortgage loan, and
to pay the fees and expenses in connection with the Merger and such financing.
If the Merger is consummated it is contemplated that the required financing
will be provided by a term loan in the amount of $18.5 million and drawings
under a $5 million revolving credit facility, to be included in a senior
secured credit facility to be entered into by the Company, issuance by the
Company of its senior subordinated debentures for gross proceeds of $7 million,
equity financing provided by RFE in the amount of $5.25 million through the
purchase of common stock of Acquisition and equity financing of $750,000
provided by Sterling/Carl Marks through the purchase immediately prior to the
Effective Time of Common Stock of the Company. Acquisition has obtained
Commitment Letters from Fleet Bank, National Association ("Fleet") and The
Chase Manhattan Bank ("Chase" and, together with Fleet, the "Senior Lenders"),
with respect to the senior secured credit facility, from Allied with respect to
the senior subordinated debentures, from RFE, with respect to its equity
investment in Acquisition and from Sterling/Carl Marks with respect to its
equity investment in the Company.
INDEBTEDNESS
SENIOR SECURED CREDIT FACILITY. Upon consummation of the Merger, the
Company intends to enter into a senior secured credit facility (the "Senior
Credit Facility") with the Senior Lenders, comprising a term loan of $18.5
million and a $5 million Revolving Credit Facility (the "Revolver"). All
indebtedness under the Senior Credit Facility will be secured by a first
priority lien on the assets of the Surviving Corporation, by guarantees from
each of the Surviving Corporation's subsidiaries and by a pledge of 100% of the
outstanding stock of the Surviving Corporation and each of its subsidiaries.
The Term Loan will mature six years after the closing date with the
outstanding principal thereof payable in 24 quarterly installments increasing
in size during the term of the loan. The proceeds of the Term Loan are to be
used entirely for payment of the Cash Merger Price. The Revolver will expire
three years after the closing date, with up to $1.7 million of the amounts
available thereunder to be used to pay the Cash Merger Price and the balance
for working capital of the Surviving Corporation and its domestic subsidiaries.
The availability of borrowings under the Revolver will be subject to a
borrowing base limitation equal to the sum of 80% of the eligible accounts
receivable and 40% of the eligible assets of the Surviving Corporation and its
subsidiaries.
54
<PAGE>
The Credit Agreement governing the Senior Credit Facility (the "Senior
Credit Agreement") is expected to contain certain covenants with respect to the
Surviving Corporation and its subsidiaries that, among other things and subject
to certain exceptions, will restrict (a) the incurrence of additional
indebtedness or lease obligation; (b) the payment of dividends and other
restricted payments; (c) the creation of certain liens; (d) the use of proceeds
from sales of assets and subsidiary stock; (e) transactions with affiliates;
(f) acquisition of stock or assets; (g) sales of assets; (h) investments; (i)
prepayments of other outstanding debt; (j) grant of guarantees and incurrence
of other contingent obligations; (k) capital expenditures; and (m) amendments
to the terms of subordinated debt. There will be financial covenants requiring
the Surviving Corporation to maintain certain financial ratios and certain
levels of tangible net assets and EBITDA and to refrain from making more than a
specified level of capital expenditures. In addition, the Commitment Letter
with respect to the Senior Credit Facility (the "Senior Credit Commitment
Letter") provides that the Company and the Surviving Corporation will be
required to comply with certain financial covenants and customary affirmative
covenants.
PREPAYMENTS. The Senior Credit Commitment Letter contemplates that the
Surviving Corporation will be required to make prepayments as follows: (a) to
prepay loans under the Revolver if and to the extent necessary to comply with
the borrowing base limitation; (b) upon payment in full of the Term Loan and
all loans under the Revolver and termination of the Revolver, to prepay in full
the mortgage loan that is currently outstanding (and that will remain
outstanding after consummation of the Merger) to The Chase Manhattan Bank (the
"Chase Mortgage Loan"); (c) to prepay installments of the Term Loan (in inverse
order of maturity) in an amount equal to 50% of Excess Cash Flow (as defined in
the Senior Credit Agreement) for each fiscal year of the Surviving Corporation.
In addition, at any time the Company may make voluntary prepayments of all
or any portion of the loans under, and on three days' notice may voluntarily
reduce the commitment under, the Revolver and at any time after January 31,
2001 the Company may make voluntary prepayments of all or any part of the Term
Loan (each in minimum amounts to be agreed upon and subject to payment of
prepayment indemnity or break funding costs, in the case of loans bearing
interest at the LIBOR Rate).
INTEREST. At the Company's option, all loans under the Revolver will bear
interest at a floating rate equal to either, at borrower's election, (i) the
prime rate (or 1/2% above the Federal Funds Effective Rate, if greater) ("Base
Rate") plus the applicable margins or (ii) generally the LIBOR rate ("LIBOR
Rate") plus the applicable margins. Until delivery to the Senior Lenders of the
Surviving Corporation's consolidated financial statements for the year ending
January 31, 2000, the applicable margin will be 75 basis points for loans at
the Base Rate and 250 basis points for loans at the LIBOR Rate. Thereafter,
upon delivery of the Surviving Corporation's quarterly or annual financial
statements, the applicable margins are subject to adjustment (up or down),
prospectively, based upon the ratio of the Surviving Corporation's senior debt
to its EBITDA for the quarter most recently ended.
FEES. The Senior Credit Commitment Letter contemplates that the Surviving
Corporation will be required to pay the following fees: (a) an unused Revolver
facility fee of .25% per annum (calculated on the basis of a 360 day year and
actual days elapsed) on the average unused daily balance of the Revolver; (b)
an annual agents' fee of $15,000 payable on the closing date and each
anniversary thereof; (c) an advisory fee equal to 1% of the sum of the Revolver
and the Term Loan, payable $50,000 by Acquisition upon acceptance of the
commitment and the balance on the closing date; (d) a mortgage modification fee
of $20,000, payable on the closing date; (e) commissions of 2% per annum on all
issued and outstanding standby letters of credit, payable quarterly in arrears,
and .25% of the amounts drawn on any sight letter of credit and time letter of
credit, payable on the dates of the draws; and (f) a funding fee of .125% of
the face amount of each letter of credit, payable upon issuance of such letter
of credit.
EVENTS OF DEFAULT. The loan documentation is expected to provide for
customary events of default, including, without limitation, payment defaults,
covenant defaults, breaches of representations and warranties, bankruptcy and
insolvency, judgments, change of control and cross default with certain other
indebtedness and significant other contracts, subject to, in certain
circumstances, grace provisions.
SECURITY INTEREST. The Company will grant to the Lenders a fully perfected
first priority security interest in all of the existing and after acquired real
and personal, tangible and intangible assets of all the
55
<PAGE>
Surviving Corporation's domestic subsidiaries including, without limitation,
all cash, cash equivalents, bank accounts, accounts, other receivables, chattel
paper, contract rights, inventory, instruments, documents, securities,
equipment, fixtures, real property interests, franchise rights, proprietary
rights, general intangibles, investment property, and all substitutions,
accessions, and proceeds of the foregoing (the "Collateral"). All Collateral
will be free of liens and encumbrances, except for existing capital leases and
other permitted liens and encumbrances. All obligations of the Company
hereunder will be cross-defaulted to each other and to all other material
indebtedness of the Surviving Corporation or any of its subsidiaries. All such
obligations will be cross-collateralized with each other and
cross-collateralized and guaranteed by all subsidiaries of the Surviving
Corporation.
AMENDMENT OF CHASE MORTGAGE LOAN. The Senior Credit Commitment Letter
contemplates that, simultaneously with the closing of the Senior Credit
Facility, (a) the Company will amend the note and mortgage evidencing the Chase
Mortgage Loan to (i) include a cross-default to the Senior Credit Facility,
(ii) conform the financial covenants therein to those under the Senior Credit
Agreement and (iii) increase the interest rate with respect to the fixed rate
by 94 basis points, and (b) Fleet will have entered into a 50% risk
participation agreement with Chase with respect to the Chase Mortgage Loan.
SENIOR SUBORDINATED DEBENTURES. Upon consummation of the Merger, the
Surviving Corporation will issue $7 million principal amount of Senior
Subordinated Debentures to Allied (the "Senior Subordinated Debentures"). The
Senior Subordinated Debentures are expected to (i) mature eight years from the
date of issuance, (ii) be general unsecured obligations of the Surviving
Corporation subordinated in right of payment to all existing and future senior
indebtedness of the Surviving Corporation and all indebtedness and other
liabilities (including trade payables) of the Surviving Corporation's
subsidiaries, and (iii) rank pari passu with any future senior subordinated
indebtedness of the Surviving Corporation and senior to all other subordinated
indebtedness of the Surviving Corporation. The Purchase Agreement with respect
to the Senior Subordinated Debentures (the "Subordinated Debenture Agreement")
is expected to contain affirmative and negative covenants typical for senior
subordinated debt financings but in no event more restrictive than those
imposed by the Senior Credit Agreement.
The Surviving Corporation shall have the right at any time, and in the
event of any change of control shall have the obligation, to repay the full
principal amount (but not less than the full principal amount) of the Senior
Subordinated Debentures for the following amounts relative to par, plus accrued
and unpaid interest through and including the date of such repayment:
<TABLE>
<S> <C>
From the Closing Date through June 30, 2000 ......... 106.375% of par
From July 1, 2000 through June 30, 2001 ............. 105.464% of par
From July 1, 2001 through June 30, 2002 ............. 104.553% of par
From July 1, 2002 through June 30, 2003 ............. 103.642% of par
From July 1, 2003 through June 30, 2004 ............. 102.732% of par
From July 1, 2004 through June 30, 2005 ............. 101.821% of par
From July 1, 2005 through June 30, 2006 ............. 100.911% of par
From July 1, 2006 through June 30, 2007 ............. 100.000% of par
</TABLE>
The Senior Subordinated Debentures will have a fixed interest rate of
12.75% per annum, payable quarterly, except that upon and during the
continuance of any event of default the interest rate will be 15.75% per annum.
A commitment fee of $70,000 (1% of the principal amount of the Senior
Subordinated Debentures) will be payable to Allied upon issuance of the Senior
Subordinated Debentures.
In connection with the issuance of the Senior Subordinated Debentures, the
Company will issue to the purchaser thereof warrants (the "Warrants") for the
purchase of that number of shares of Surviving Corporation Common Stock as
shall equal five percent of the fully-diluted shares of Surviving Corporation
Common Stock as shall be outstanding immediately after the Effective Time. The
Warrants will be exercisable at any time from the date of issuance thereof
until ten years from the date of issuance at an exercise price of $.01 per
share. The holders of the Warrants will be entitled, by notice to the Surviving
Corporation given at any time after the eighth anniversary of closing, provided
the Senior
56
<PAGE>
Subordinated Debentures have been repaid in full, to require the Surviving
Corporation to repurchase the Warrants for an aggregate purchase price equal to
the fair market value of the shares of the Surviving Corporation's Common Stock
represented by the Warrants determined as of the date of such notice as set
forth in the Stockholder's Agreement.
The holders of the Senior Subordinated Debentures will be entitled to
designate one member of the Surviving Corporation's Board of Directors.
EQUITY INVESTMENT
RFE's investment in the Surviving Corporation after the Effective Time
will consist of a cash contribution to Acquisition in the aggregate amount of
approximately $5.25 million. The investment of Sterling/Carl Marks in the
Surviving Corporation after the Effective Time will consist of the purchase
immediately prior to the Effective Time of Uniflex Common Stock at a price of
$7.57 a share for an aggregate purchase price of $750,000, which shares of
Common Stock will remain outstanding as Retained Shares after the Effective
Time. The Retained Shares other than those acquired by Sterling/Carl Marks will
have an aggregate value of approximately $4,709,736 based on the Cash Merger
Price of $7.57 per share.
57
<PAGE>
SOURCES AND USES OF FUNDS
The estimated cash sources and uses of funds for the consummation of the
Merger and the refinancing of certain indebtedness of the Company are as
follows:
<TABLE>
<S> <C>
SOURCES
Senior Credit Facility ................. $18,500,000
New Mortgage ........................... 1,860,000
Revolving Credit Facility .............. 816,000
Senior Subordinated Debentures ......... 7,000,000
RFE Equity ............................. 5,250,000
Sterling/Carl Marks Equity ............. 750,000
Cash on Hand ........................... 2,000,000
-----------
$36,176,000
-----------
USES:
Cash Merger Price ...................... $27,844,000
Option Purchases ....................... 526,000
Refinancing of Existing Debt ........... 2,478,000
Transaction Costs ...................... 1,928,000
Signing Bonuses ........................ 3,400,000
-----------
$36,176,000
===========
</TABLE>
It is a condition to the obligations of Acquisition to affect the Merger
that sufficient funds have been received to finance the Merger and to
consummate the transactions contemplated by the Merger Agreement. See
"Financing of the Merger."
EXPENSES OF THE MERGER
The Merger Agreement provides that the Company and Acquisition will bear
their respective expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby, whether or not the Merger is
consummated, except in certain circumstances specified in the Merger Agreement
relating to the termination thereof. See "Material Provisions of the Merger
Agreement--Termination; Effects of Termination." The estimated fees and
expenses incurred and to be incurred by the Company and Acquisition in
connection with the Merger and the related transactions (assuming the
consummation thereof) are as follows:
<TABLE>
<S> <C>
Financing and commitment fees ......... $ 325,000
Financial advisory fees ............... 956,000
Legal fees ............................ 495,000
Accounting fees ....................... 75,000
SEC filing fees ....................... 6,000
Printing and mailing .................. 40,000
Miscellaneous ......................... 31,000
----------
Total ................................. $1,928,000
==========
</TABLE>
58
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF UNIFLEX AND
MEMBERS OF THE MANAGEMENT GROUP
The following table contains certain information concerning the Directors
and Executive Officers of Uniflex and members of the Management Group. Each of
such individuals is a citizen of the United States and, except as noted in the
table, has his business address c/o Uniflex, Inc. 383 West John Street,
Hicksville, NY 11802.
<TABLE>
<CAPTION>
PRESENT AND PRIOR POSITIONS WITH
NAME COMPANY; PRINCIPAL OCCUPATION BUSINESS ADDRESS
- ---------------------- ----------------------------------------------- -------------------------
<S> <C> <C>
Herbert Barry ........ Chairman of the Board, Chief Executive Officer
since January 1995; President 1971 to January
1995; Director since 1968.
Robert K. Semel ...... President, Chief Operating Officer since January
1995; Executive Vice President December 1990
to January 1995; Secretary since April 1993;
Director since December 1990. Mr. Semel is also
a director of Pentech International, Inc.
Kurt Vetter .......... First Vice President--Engineering since January
1995; Vice President-Engineering 1971 to
January 1995; Director since 1970.
Steven Wolosky ....... Director since February 1994. For more than Olshan Grundman Frome
the past five years, Mr. Wolosky has been a Rosenzweig & Wolosky LLP
partner of Olshan Grundman Frome 505 Park Avenue
Rosenzweig & Wolosky LLP, counsel to the New York, NY 10022
Company. Mr. Wolosky is also Assistant
Secretary of WHX Corporation, a New York
Stock Exchange listed company.
Warner J. Heuman...... Chairman Emeritus since January 1995;
Chairman of the Board, 1971 to January 1995;
Director since 1968.
Erich Vetter ......... Secretary, 1975 to April 1993; Director since
1968.
Martin Brownstein..... Senior Vice President since January 1995; Vice
President--Advertising Specialty Sales 1977 to
January 1995; Director since June 1991.
Martin Gelerman ...... Director since August 1993. Since February 445 Broad Hollow Road
1997, Mr. Gelerman has been President, Human Melville, NY 11747
Resource Consulting Group, and Director,
Corporate Development, of Lloyd Creative
Staffing Inc. From 1990 to October 1996, Mr.
Gelerman was Senior Vice President of The
Olsten Corporation.
Lee Cantor ........... Vice President--Sales since January 1995; Vice
President--Advertising Specialty Sales, January
1993 to January 1995; Sales Manager, 1988 to
1995.
*Melissa Cantor Vice President--Administration and Operations
*Neil Sklar Vice President--Product Development
*Hy Brownstein Vice President--Marketing
*Elliot Berger Vice President--Manufacturing
</TABLE>
- ----------
* These individuals are members of the Management Group but not Executive
Officers. They have each discharged the functions of the position
indicated for more than the past five years.
59
<PAGE>
DESCRIPTION OF ACQUISITION AND RFE
Acquisition was recently incorporated under the laws of the State of
Delaware for the purpose of consummating the Merger. Acquisition has not
conducted any business other than the transactions described herein.
Acquisition will not have any assets or liabilities other than those arising
under the Merger Agreement or in connection with the Merger, or engage in any
activities other than those incident to its formation and capitalization and
the Merger. RFE is the sole stockholder of Acquisition. RFE is a private equity
fund organized as a Delaware limited partnership. The general partner of RFE is
RFE Associates VI SBIC, LLC, a Delaware limited liability company, the sole
member of which is RFE Investment Partners VI, L.P., a Delaware limited
partnership (the "Manager"). The General Partner of the Manager is RFE
Associates VI, LLC, a Delaware limited liability company (the "General
Partner"). The principal business address of each of Acquisition and RFE is c/o
RFE Investment Partners, 30 Grove Street, New Canaan, CT 06840. As a result of
the foregoing relationships, each of RFE, the Manager and the General Partner
may be deemed to beneficially own the shares of Acquisition held by RFE.
However, each of the Manager and the General Partner disclaim such beneficial
ownership. None of the executive officers or directors of the Company are
officers, directors, managers, members or equityholders of any of Acquisition,
RFE, the Manager or the General Partner.
The Managing Members of the General Partner are A. Dean Davis, Michael J.
Foster, Howard C. Landis, James A. Parsons, Andrew J. Wagner and Robert M.
Williams. The principal occupation of each such individual is serving as
Managing Member of the General Partner and as General Partner/Managing Member
of other private investment partnerships which have been organized by such
individuals and, with the exception of Mr. Wagner, each such person has served
as such for more than the past five years. In addition to his general partner
responsibilities, Mr. Wagner is RFE's Chief Financial Officer and has served in
the forgoing capacities since 1995. Prior to joining RFE in 1995, Mr. Wagner
was the partner-in-charge of the tax division of the Stamford, Connecticut
office of Arthur Andersen LLP during 1994 and for the five years prior thereto
he was a partner of Arthur Andersen LLP. Each of such individuals is a citizen
of the United States and has his business address c/o RFE Investment Partners,
30 Grove Street, New Canaan, CT 06840.
The directors and officers of Acquisition as of the date hereof are James
A. Parsons, Director, President and Secretary and A. Dean Davis, Vice
President.
DESCRIPTION OF CARL MARKS AFFILIATES
The Carl Marks Affiliates are: CMCO, Inc., a Delaware corporation ("CMCO");
CMNY Capital, L.P., a Delaware limited partnership ("CMNY"); Robert Davidoff, an
individual ("Davidoff"); and Sterling/Carl Marks Capital, Inc., a New York
corporation ("Sterling/Carl Marks"). The principal business of each of CMCO and
Sterling/Carl Marks is to invest in various business entities. CMNY is a small
business investment partnership licensed by the U.S. Small Business
Administration ("SBA"). CMNY has been liquidated by the SBA, and its former
business was to invest in small businesses. The business address of each of the
Carl Marks Affiliates is 135 East 57th Street, New York, New York 10022, except
that the business address of Sterling/Carl Marks is 175 Great Neck Road, Great
Neck, New York 11021. None of the executive officers or directors of the Company
are officers, directors, managers, members or equity holders of any of the Carl
Marks Affiliates.
The officers and directors of CMCO are Edwin S. Marks (President and
Director); Mark L. Claster (Vice President and Assistant Secretary); Andrew M.
Boas (Vice President); Davidoff (Vice President); David F. Shnitkin
(Controller, Secretary); Nancy A. Marks (Director); and Marjorie M. Boas
(Director).
The officers and directors of Sterling/Carl Marks are: Harvey Granat
(President and Director); Howard Davidoff (Director); Harvey Rosenblatt
(Executive Vice President and Director); Davidoff (Director); Arthur Friedman
(Secretary); Michael Katz (Assistant Secretary and Director); George Fishman
(Director); Saul B. Katz (Director); Marvin B. Tepper (Director); and Mark L.
Claster (Director).
The general partners of CMNY are Davidoff and Edwin S. Marks.
60
<PAGE>
The principal occupation for the last five years of each individual named
above is as follows:
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION FOR PAST FIVE YEARS
- ---- ----------------------------------------
<S> <C>
Edwin S. Marks President, Director of CMCO
Mark L. Claster Vice President, Assistant Secretary of CMCO
Andrew M. Boas Vice President of CMCO
Robert Davidoff Vice President of CMCO
David F. Shnitkin Controller and Secretary of CMCO
Nancy A. Marks Director of CMCO and Private Investor
Marjorie M. Boas Director of CMCO and Private Investor
Harvey Granat President of Sterling/Carl Marks
Howard Davidoff Vice President, CMNY Capital II, L.P.
Harvey Rosenblatt Executive Vice President, Sterling/Carl Marks
Arthur Friedman Secretary of Sterling Equities, Inc.
George Fishman Private Investor
Saul B. Katz President of Sterling Equities, Inc.
Marvin B. Tepper Senior Vice President of Sterling Equities, Inc.
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information furnished to the
Company regarding the beneficial ownership of Uniflex Common Stock (a) by each
person who, to the knowledge of the Company, based upon filings with the
Securities and Exchange Commission, beneficially owns more than five percent of
the outstanding shares of the Common Stock, (b) by each director of the
Company, (c) by each executive officer of the Company, and (d) by all directors
and executive officers of the Company as a group, based on an aggregate of
4,300,352 shares of Uniflex Common Stock outstanding on the Record Date. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP(A) OF CLASS (B)
- ------------------- ------------------ -------------
<S> <C> <C>
Herbert Barry ............. 470,490 (c) 10.9%
383 W. John Street
Hicksville, NY 11802
Warner J. Heuman .......... 455,520 (d,i) 10.4%
383 W. John Street
Hicksville, NY 11802
Erich Vetter .............. 288,999 6.7%
383 W. John Street
Hicksville, NY 11802
Robert K. Semel ........... 434,100 (e) 10.1%
383 W. John Street
Hicksville, NY 11802
Kurt Vetter ............... 152,680 (f,i) 3.6%
383 W. John Street
Hicksville, NY 11802
Martin Brownstein ......... 206,256 (i) 4.8%
383 W. John Street
Hicksville, NY 11802
Martin Gelerman ........... 10,000 (i) *
445 Broad Hollow Road
Melville, NY 11747
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP(A) OF CLASS (B)
- ------------------- ------------- -------------
<S> <C> <C>
Steven Wolosky ...................................................... 12,000 (i) *
505 Park Avenue
New York, New York 10022
Lee Cantor .......................................................... 74,501 (g) 1.7%
383 W. John Street
Hicksville, NY 11802
CMNY Capital, L.P. .................................................. 300,158 (h) 7.0%
135 East 57th Street
New York, NY 10022
All Directors and Executive Officers as a group (9 persons) ......... 2,104,546 (i) 48.0%
</TABLE>
- ----------
* Less than 1%
(a) Except as noted, shares are owned individually.
(b) Calculations assume that all stock options held by directors and
executive officers and exercisable within 60 days after the Record
Date have been exercised.
(c) Includes 34,914 shares held individually by Betty Lou Barry, Herbert
Barry's wife.
(d) Includes 129,100 shares owned individually by Elaine Heuman, Warner
J. Heuman's wife.
(e) Includes 300 shares held individually by Frances M. Semel, Robert K.
Semel's wife, as custodian for her son.
(f) Includes 9,300 shares held individually by Stephanie Vetter, Kurt
Vetter's wife.
(g) Includes 45,603 shares owned jointly with Melissa Cantor, Lee
Cantor's wife, and 11,797 shares held individually by Melissa
Cantor.
(h) Includes 54,912 shares owned by CMCO, Inc., an affiliate of CMNY
Capital, L.P. and 2,946 shares owned by Robert Davidoff. Mr.
Davidoff is a general partner of CMNY Capital, L.P. and an officer
and director of CMCO, Inc.
(i) Includes shares issuable upon the exercise of currently exercisable
stock options as follows: Warner J. Heuman--60,000 shares; Kurt
Vetter--300 shares; Martin Brownstein--15,000 shares; Martin
Gelerman--6,000 shares; Steven Wolosky--6,000 shares.
The following table sets forth certain information regarding the
beneficial ownership of Uniflex Common Stock by members of the Management Group
not included in the preceding table, based on an aggregate of 4,300,352 shares
of Uniflex Common Stock outstanding on the Record Date.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME OF BENEFICIAL OWNERSHIP(A) CLASS
- ---- ---------------------------- ------
<S> <C> <C>
Melissa Cantor ......... 74,501(b) 1.7%
Neil Sklar ............. 30,100 *
Hy Brownstein .......... 22,710(c) *
Elliot Berger .......... 87,300 2.0%
</TABLE>
- ----------
* Less than 1%.
(a) Except as noted shares are owned individually.
(b) Includes 45,603 shares owned jointly with Lee Cantor, Melissa
Cantor's husband, and 17,101 shares held individually by Lee Cantor.
(c) Includes 17,835 shares owned jointly with Mr. Brownstein's wife.
62
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION
It is expected that the Board of Directors of the Surviving Corporation
following the Merger will be comprised of the persons named below and that the
current officers of the Company immediately prior to the Effective Time will be
the officers of the Surviving Corporation after the Merger. The directors and
executive officers of the Surviving Corporation following the Merger are
expected to include the following persons, all of whom are United States
citizens:
<TABLE>
<CAPTION>
NAME POSITIONS WITH SURVIVING CORPORATION
- ---- ------------------------------------
<S> <C>
Herbert Barry ............... Chairman of the Board and Chief Executive Officer
Robert K. Semel ............. Director; President and Chief Operating Officer; Secretary
A. Dean Davis ............... Director
James A. Parsons ............ Director
Roger C. Matthews ........... Director
Howard M. Davidoff .......... Director
Harvey Granat ............... Director
</TABLE>
For information concerning Messrs. Barry and Semel see "Directors and
Executive Officers of Uniflex" and for information concerning Messrs. Davis and
Parsons see "Description of Acquisition and RFE."
Mr. Matthews' principal occupation is, and has been since 1998, serving as
Senior Portfolio Manager of Allied Capital Management LLC, a wholly-owned
subsidiary of AlliedSignal Inc. From 1996 to 1998, Mr. Matthews was Senior
Portfolio Manager of AlliedSignal Inc., and prior to that for more than ten
years he was Assistant Treasurer of AlliedSignal Inc. Mr. Matthews' business
address is c/o Allied Capital Management LLC, 101 Columbia Road, Morristown,
New Jersey 07962-1219.
Mr. Davidoff's principal occupation is, and has been for more than the
past five years, serving as a Managing Director of Carl Marks & Co., Inc., a
New York corporation, as a General Partner of CMNY Capital II, L.P., a venture
capital firm, and as a director of various companies in which Carl Marks has
invested. Mr. Davidoff's business address is c/o Carl Marks & Co., Inc., 135
East 57th Street, New York, New York 10022.
Mr. Granat's principal occupation is, and has been for more than the past
five years, serving as the President and Chief Executive Officer of
Sterling/Carl Marks Capital, Inc., a small business investment company. Mr.
Granat's business address is c/o Sterling/Carl Marks Capital, Inc., 175 Great
Neck Road, Great Neck, New York 11021.
DESCRIPTION OF UNIFLEX CAPITAL STOCK
The Company's Certificate of Incorporation authorizes the Company to issue
up to 10 million shares of Uniflex Common Stock, par value $.10 per share. As
of the Record Date there were 4,300,352 shares of Uniflex Common Stock
outstanding. Subject to the rights of the holders of any outstanding shares of
preferred stock and any restrictions that may be imposed by any lender to the
Company, holders of Uniflex Common Stock are entitled to receive such
dividends, if any, as may be declared by the Board of Directors out of legally
available funds. For certain restrictions on the Company's ability to pay
dividends, see "Market Prices of and Dividends on Uniflex Common Stock." In the
event of liquidation, dissolution or winding up of the Company, holders of
Uniflex Common Stock are entitled to share ratably in the assets, if any,
remaining after payment of all of the Company's debts and liabilities and the
liquidation preference of any outstanding stock.
Holders of Uniflex Common Stock are entitled to one vote per share on any
matter submitted to them. Because holders of Uniflex Common Stock do not have
cumulative voting rights in the election of directors, the holders of a
majority of the shares of Uniflex Common Stock represented at a meeting can
elect all of the directors. Holders of Uniflex Common Stock do not have
preemptive rights to subscribe for or purchase any additional shares of capital
stock issued by the Company. All outstanding shares of the Uniflex Common Stock
are duly authorized, validly issued, fully paid and nonassessable.
63
<PAGE>
AVAILABLE INFORMATION
Uniflex has filed with the Commission a Rule 13e-3 Transaction Statement
(including any amendments thereto, the "Schedule 13E-3") under the Exchange Act
with respect to the Merger. This Proxy Statement does not contain all of the
information set forth in the Schedule 13E-3 and the exhibits thereto, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission.
Uniflex is subject to the informational requirements of the Exchange Act
and in accordance therewith files periodic reports, proxy statements and other
information with the Commission. The Schedule 13E-3, proxy statements and other
information filed by Uniflex can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at the
prescribed rates. The Commission maintains a Website that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Such reports, proxy and
information statements and other information may be found on the Commission's
site address, http://www.sec.gov. Uniflex Common Stock is quoted on the
American Stock Exchange, and certain reports, proxy statements and other
information can also be inspected and copied at the offices of the American
Stock Exchange, 86 Trinity Place, New York, New York 10006.
INDEPENDENT AUDITORS
The consolidated balance sheets of Uniflex as at January 31, 1999 and 1998
and the consolidated statements of income, changes in stockholders' equity and
cash flows of Uniflex for the years ended January 31, 1999, 1998 and 1997
included herein have been audited by Patrusky, Mintz & Semel, independent
auditors, as stated in their report included herein. Representatives of
Patrusky, Mintz & Semel are expected to be present at the Special Meeting and
will have an opportunity to make a statement should they desire to do so. Such
representatives are also expected to be available to respond to questions.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company knows of no other matters that will be presented for consideration at
the Special Meeting other than as described in this Proxy Statement. However,
if any other matter shall come before the Special Meeting or any adjournments
or postponements thereof and shall be voted upon, it is intended that the
shares represented by proxy will be voted with respect thereto in accordance
with the judgment of the persons voting them.
By Order of the Board of Directors,
Robert K. Semel, Secretary
June 7, 1999
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report ............................................................. F-2
Consolidated Balance Sheets as at January 31, 1999 and 1998 .............................. F-3
Consolidated Statements of Income For the Years Ended January 31, 1999, 1998 and 1997 .... F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended January 31,
1999, 1998 and 1997 ..................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended January 31, 1999, 1998 and 1997. F-6
Notes to Consolidated Financial Statements ............................................... F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
Uniflex, Inc.
We have audited the accompanying consolidated balance sheets of Uniflex, Inc.
and Subsidiaries as of January 31, 1999 and 1998 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each
of the years ended January 31, 1999, 1998 and 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Uniflex, Inc. and
Subsidiaries as of January 31, 1999 and 1998 and the results of their
operations and their cash flows for the years ended January 31, 1999, 1998 and
1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in Item
14(1) (2) is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our
opinion, fairly states, in all material respects, the financial data required
to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
/s/ PATRUSKY, MINTZ & SEMEL
PATRUSKY, MINTZ & SEMEL
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
March 5, 1999
F-2
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (Note 1) ................................. $ 2,511,131 $ 1,676,749
Accounts receivable (net of allowances of $121,131 in 1999
and $121,366 in 1998)............................................. 4,520,477 4,577,324
Inventories (Notes 1 and 4) ........................................ 4,377,304 4,555,298
Prepaid income taxes ............................................... 9,525 128,509
Prepaid expenses and other current assets .......................... 778,862 653,978
Deferred tax asset (Notes 1 and 8) ................................. 274,300 310,400
----------- -----------
Total current assets ............................................. 12,471,599 11,902,258
Property and equipment (Notes 1, 5 and 6) ........................... 7,316,029 7,028,692
Intangible assets (Note 1) .......................................... 2,879,684 2,328,079
Other assets (Note 8) ............................................... 880,683 925,681
----------- -----------
Total assets ..................................................... $23,547,995 $22,184,710
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt (Note 6) ...................... $ 1,174,100 $ 1,023,000
Accounts payable ................................................... 1,440,760 1,576,683
Accrued liabilities (Note 7) ....................................... 1,187,621 998,238
----------- -----------
Total current liabilities ........................................ 3,802,481 3,597,921
----------- -----------
Long-term debt (Note 6) ............................................. 2,293,130 3,955,593
Deferred rent (Note 1) .............................................. 133,750 145,000
Deferred compensation and postretirement benefits (Note 14) ......... 1,512,504 1,363,252
----------- -----------
Total liabilities ................................................ 7,741,865 9,061,766
----------- -----------
Commitments and contingencies (Note 16)
Minority interest (Notes 2 and 11) .................................. -- 290,888
----------- -----------
Stockholders' Equity (Notes 3, 9 and 12)
Common stock -- par value $.10 per share 10,000,000 shares
authorized; issued and outstanding 4,300,352 in 1999 and
4,066,152 in 1998 .................................................. 430,036 406,616
Additional paid-in capital ......................................... 1,689,549 847,175
Retained earnings and members' capital ............................. 13,686,545 11,578,265
----------- -----------
Total stockholders' equity ....................................... 15,806,130 12,832,056
----------- -----------
Total liabilities and stockholders' equity ....................... $23,547,995 $22,184,710
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- -------------- ----------------
<S> <C> <C> <C>
Net sales .................................................. $ 39,721,744 $37,998,816 $ 34,466,262
Cost of sales .............................................. 25,215,265 24,390,224 21,378,973
------------ ----------- ------------
Gross profit ............................................... 14,506,479 13,608,592 13,087,289
Shipping, selling, general and administrative expenses...... 10,778,271 10,618,337 9,702,838
------------ ----------- ------------
Income before other expenses ............................... 3,728,208 2,990,255 3,384,451
------------ ----------- ------------
Interest -- net ............................................ 415,528 443,830 215,313
Loss on disposal of assets ................................. -- 73,612 --
------------ ----------- ------------
415,528 517,442 215,313
------------ ----------- ------------
Minority interest in income of consolidated
subsidiary ................................................ -- (76,499) --
------------ ----------- ------------
Income before provision for income
taxes ..................................................... 3,312,680 2,396,314 3,169,138
Provision for income taxes .................................
(Notes 1 and 8) ............................................ 1,204,400 900,000 1,252,200
------------ ----------- ------------
Net income ................................................. $ 2,108,280 $ 1,496,314 $ 1,916,938
============ =========== ============
Basic net income per share ................................. $ .50 $ .36 $ .46
============ =========== ============
Diluted net income per share ............................... $ .50 $ .35 $ .43
============ =========== ============
Average shares outstanding ................................. 4,177,102 4,161,289 4,193,687
Dilutive effect of stock options ........................... 42,993 162,532 279,215
------------ ----------- ------------
Average shares outstanding assuming dilution ............... 4,220,095 4,323,821 4,472,902
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------------- ADDITIONAL
AMOUNT SHARES PAID-IN CAPITAL
----------- ------------- -----------------
<S> <C> <C> <C>
Balance at January 31, 1996 ............ $ 266,638 2,666,384 $ 1,854,723
Exercise of stock options (Note 12)..... 21,555 215,545 213,097
Tax benefit from exercise of stock
options (Note 12) ..................... -- -- 499,402
Issuance of common stock to effect
a 3 for 2 stock split (Note 3) ........ 140,484 1,404,841 (140,484)
Issuance of common stock as
compensation .......................... 289 2,890 21,641
Amortization of note receivable
(Note 10) ............................. -- -- --
Net income ............................. -- -- --
--------- --------- -------------
Balance at January 31, 1997 ............ 428,966 4,289,660 2,448,379
Exercise of stock options (Note 12)..... 19,176 191,755 67,953
Tax benefit from exercise of stock
options (Note 12) ..................... -- -- 400,000
Shares repurchased and retired
(Note 9) .............................. (41,526) (415,263) (2,069,157)
Amortization of note receivable
(Note 10) ............................. -- -- --
Capital transferred to minority
interest (Note 11) .................... -- -- --
Net income ............................. -- -- --
--------- --------- -------------
Balance at January 31, 1998 ............ 406,616 4,066,152 847,175
Exercise of stock options (Note 12)..... 18,420 184,200 231,374
Tax benefit from exercise of stock
options (Note 12) ..................... -- -- 316,000
Shares issued -- acquisition
(Note 2) .............................. 5,000 50,000 295,000
Net income ............................. -- -- --
--------- --------- -------------
Balance at January 31, 1999 ............ $ 430,036 4,300,352 $ 1,689,549
========= ========= =============
<CAPTION>
RETAINED EARNINGS
AND NOTE RECEIVABLE-
MEMBERS CAPITAL STOCK PURCHASE TOTAL
------------------ ----------------- --------------
<S> <C> <C> <C>
Balance at January 31, 1996 ............ $ 8,179,402 $ (55,928) $ 10,244,835
Exercise of stock options (Note 12)..... -- -- 234,652
Tax benefit from exercise of stock
options (Note 12) ..................... -- -- 499,402
Issuance of common stock to effect
a 3 for 2 stock split (Note 3) ........ -- -- --
Issuance of common stock as
compensation .......................... -- -- 21,930
Amortization of note receivable
(Note 10) ............................. -- 28,500 28,500
Net income ............................. 1,916,938 -- 1,916,938
----------- --------- ------------
Balance at January 31, 1997 ............ 10,096,340 (27,428) 12,946,257
Exercise of stock options (Note 12)..... -- -- 87,129
Tax benefit from exercise of stock
options (Note 12) ..................... -- -- 400,000
Shares repurchased and retired
(Note 9) .............................. -- -- (2,110,683)
Amortization of note receivable
(Note 10) ............................. -- 27,428 27,428
Capital transferred to minority
interest (Note 11) .................... (14,389) -- (14,389)
Net income ............................. 1,496,314 -- 1,496,314
----------- --------- ------------
Balance at January 31, 1998 ............ 11,578,265 -- 12,832,056
Exercise of stock options (Note 12)..... -- -- 249,794
Tax benefit from exercise of stock
options (Note 12) ..................... -- -- 316,000
Shares issued -- acquisition
(Note 2) .............................. -- -- 300,000
Net income ............................. 2,108,280 -- 2,108,280
----------- --------- ------------
Balance at January 31, 1999 ............ $13,686,545 $ -- $ 15,806,130
=========== ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ---------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 2,108,280 $ 1,496,314 $ 1,916,938
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Deferred compensation, postretirement medical
benefits and related interest ........................... 149,252 34,015 114,113
Depreciation and amortization ............................ 964,839 964,170 915,888
Equity issued as compensation ............................ -- -- 21,930
Amortization of note receivable .......................... -- 27,428 28,500
Deferred rent ............................................ (11,250) 3,754 18,750
Deferred income taxes .................................... 92,400 (126,600) (82,300)
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable ...................................... 56,847 (90,644) (719,721)
Inventories .............................................. 177,994 (544,266) (918,945)
Prepaid expenses and other current assets ................ (124,884) (70,776) 41,680
Other assets ............................................. (11,302) (79,846) (8,792)
Accounts payable ......................................... (135,923) (531,284) 116,573
Accrued liabilities ...................................... 136,774 (10,290) 46,870
Prepaid income taxes and income taxes payable ............ 487,593 551,282 1,118,221
Minority interest ........................................ -- 76,499 --
------------ ------------ ------------
Net cash provided by operating activities ............... 3,890,620 1,699,756 2,609,705
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ......................... (1,113,969) (903,475) (1,098,318)
Purchase of minority interest .............................. (100,000) -- --
Acquisition of net assets of Merrick
Packaging Specialists, Inc. -- net of cash acquired ......... -- (664,949) --
Purchase of intangible assets .............................. (104,201) (41,497) (76,059)
------------ ------------ ------------
Net cash used in investing activities ................... $ (1,318,170) $ (1,609,921) $ (1,174,377)
------------ ------------ ------------
</TABLE>
F-6
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of long-term debt .................................. $ 2,040,000 $ 2,912,000 $ - -
Payment of long-term debt ................................... (3,951,363) (1,416,455) (751,650)
Payment for retirement of common stock ...................... -- (2,110,683) --
Proceeds from exercise of stock options ..................... 249,794 87,129 234,652
Distribution to minority interest ........................... (76,499) -- --
------------ ------------ ----------
Net cash used in financing activities .................... (1,738,068) (528,009) (516,998)
------------ ------------ ----------
Net increase (decrease) in cash and cash equivalents ......... 834,382 (438,174) 918,330
Cash and cash equivalents -- beginning of year ............... 1,676,749 2,114,923 1,196,593
------------ ------------ ----------
Cash and cash equivalents -- end of year ..................... $ 2,511,131 $ 1,676,749 $2,114,923
============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS AND CONCENTRATION OF CREDIT RISK:
Uniflex, Inc. and Subsidiaries (the "Company") designs, manufactures and
sells a variety of plastic bags used in packaging, promotion and retailing,
primarily to advertising specialty distributors, hospital supply houses,
manufacturers and retailers located throughout the United States. The Company
extends credit to its customers and historically has not experienced
significant losses related to receivables and individual customers or groups of
customers in any particular industry or geographic area.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Uniflex,
Inc. ("Uniflex"), its wholly owned subsidiaries, Uniflex Southwest L.L.C.,
("Southwest"), Uniflex Southeast, Inc., ("Southeast"), and Hantico, Inc.
(inactive). All material intercompany accounts and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS:
The Company considers cash and cash equivalents to include highly liquid
debt instruments purchased with a maturity of three months or less. At times,
such investments may be in excess of federal insurance limits.
FINANCIAL INSTRUMENTS:
The Company's financial instruments include cash and cash equivalents and
trade receivables and payables for which carrying amounts approximate fair
value. Management estimates that the carrying amount of its long-term debt also
approximates fair value.
INVENTORIES:
Inventories are valued at the lower of cost or market. Cost is determined
by the first-in, first-out method.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Depreciation and amortization is
provided on the straight-line method over the estimated useful lives of the
assets or, in the case of leasehold improvements, over the life of the lease,
if shorter.
The Company constructs certain machinery and equipment for its own use.
When completed, the material, labor and other costs related to construction are
capitalized and depreciated over the estimated useful life of the asset.
INTANGIBLE ASSETS:
Goodwill and other intangible assets are stated on the basis of cost and
are amortized principally on a straight-line basis, over the estimated periods
of future benefit (not exceeding 40 years). Goodwill and other intangible
assets are periodically reviewed for impairment based on an assessment of
future operations to ensure they are appropriately valued. At January 31, 1999,
the net book value of goodwill and other intangible assets was $2,696,031 and
$183,653, respectively. Accumulated amortization was approximately $268,000 and
$339,000 on January 31, 1999 and 1998, respectively.
F-8
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LONG-LIVED ASSETS:
It is the Company's policy to evaluate and recognize an impairment to its
long-lived assets if it is probable that the recorded amounts are in excess of
anticipated undiscounted future cash flows.
DEFERRED RENT:
Deferred rent payable represents the excess of recognized rent expense
over scheduled lease payments, which amount will be credited to future
operations.
DEFERRED INCOME TAXES:
Deferred income taxes reflect temporary differences in reporting assets
and liabilities for income tax and financial accounting purposes. The principal
sources of temporary differences are different methods used for depreciation
provisions, deferred compensation and New York State investment tax credits.
NET INCOME PER SHARE:
Basic net income per share is computed by dividing net income by the
weighted average number of shares outstanding. Diluted net income per share
includes the dilutive effect of stock options.
REVENUE RECOGNITION:
Revenue is recognized when orders are shipped.
ADVERTISING COSTS:
Advertising costs are charged to operations as incurred. Catalog costs are
accounted for as a prepaid expense and are amortized over a twelve month
period. Advertising expenses inclusive of catalog costs charged to operations
for the years ended January 31, 1999, 1998 and 1997 were approximately
$459,000, $434,000 and $482,000, respectively.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses. Actual results could differ from those estimates.
RECLASSIFICATION OF PRIOR YEAR'S BALANCES:
Certain amounts in the prior year's consolidated financial statements were
reclassified to conform with the current year's presentation.
NEW ACCOUNTING STANDARDS:
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS No. 128"), "Earnings per Share," in the year ended January 31, 1998. In
accordance with SFAS No. 128, the Company has presented both basic net income
per share and diluted net income per share in the consolidated financial
statements.
F-9
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 2. ACQUISITIONS:
MINORITY INTEREST IN UNIFLEX SOUTHWEST, L.L.C.:
Effective February 1, 1998, Uniflex purchased the minority interest in
Uniflex Southwest, L.L.C. for $800,000. The purchase price is payable as
follows:
<TABLE>
<S> <C>
Cash at closing (paid June 10, 1998) ............................... $ 100,000
Notes payable in 48 monthly installments of $8,333, plus interest at
7% per annum commencing April 1, 1998 ............................. 400,000(A)
Issuance of 50,000 shares of common stock .......................... 300,000
----------
$ 800,000
</TABLE>
As part of the agreement, the seller may not sell, assign or transfer the
common stock until February 1, 2001.
The minority interest acquired consists of net assets with a book value of
$214,389. The excess of purchase price over assets acquired for $585,611 has
been assigned to goodwill and is being amortized over 40 years.
(A) In the event of a change in control of the Company, this debt becomes
due on a demand basis. In anticipation of the transaction, described in Note
17, this debt has been classified as a current liability (Note 6).
MERRICK PACKAGING SPECIALISTS, INC.:
On February 5, 1997, the Company purchased substantially all of the assets
and assumed certain liabilities of Merrick Packaging Specialists, Inc.
("Merrick"). Merrick is a distributor of high quality paper, paper laminate and
plastic shopping bags and boxes for the retail industry. For the fiscal years
ended December 31, 1996 and 1995, Merrick reported unaudited revenues of
approximately $3,600,000 and $3,600,000, respectively. Net income for the
fiscal years ended December 31, 1996 and 1995 was not material. The acquisition
has been accounted for as a purchase, and accordingly, its results have been
included in the Company's results of operations from the effective date of the
acquisition, February 1, 1997. The excess of acquisition cost over the fair
value of Merrick's net tangible assets approximates $2,264,000 and has been
allocated to intangible assets and is being amortized over periods ranging from
fifteen to forty years. Of the purchase price of $2,370,000, $780,000 was paid
at closing, $600,000 was paid August 1, 1997, $600,000 was paid August 1, 1998,
and the balance is payable March 1, 1999 (Note 6).
NOTE 3. STOCK DIVIDEND:
On October 15, 1996, the Company effected a three for two stock split recorded
in the form of a stock dividend payable to stockholders of record at September
25, 1996. As a result, common stock was increased by $140,484 and additional
paid-in capital was decreased by the same amount. All references in the
accompanying financial statements to the number of common shares and per share
amounts have been restated to reflect the stock dividend.
F-10
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 4. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Raw materials and supplies ......... $1,754,787 $2,928,334
Work-in-process .................... 317,076 133,008
Finished goods ..................... 2,305,441 1,493,956
---------- ----------
$4,377,304 $4,555,298
========== ==========
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Land ................................................... $ 860,000 $ 860,000
Building and improvements .............................. 2,749,081 2,759,080
Machinery and equipment ................................ 11,505,623 10,616,307
Leasehold improvements ................................. 665,501 645,516
Plates and engravings .................................. 716,170 598,348
Furniture and fixtures ................................. 640,695 622,164
Delivery equipment ..................................... -- 34,462
---------- ----------
17,137,070 16,135,877
---------- ----------
Less accumulated depreciation and amortization ......... 9,821,041 9,107,185
---------- ----------
$7,316,029 $7,028,692
========== ==========
</TABLE>
Depreciation and amortization expense, for the assets above, charged to
operations for the years ended January 31, 1999, 1998 and 1997 amounted to
$826,632, $836,719 and $833,438, respectively.
Assets held under capitalized leases, included above, are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Machinery and equipment ............... $163,683 $163,683
Furniture and fixtures ................ 126,762 126,762
-------- --------
290,445 290,445
Less accumulated depreciation ......... 97,182 72,870
-------- --------
$193,263 $217,575
======== ========
</TABLE>
F-11
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 6. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Bank loan (A) ............................................................. $ -- $1,500,000
Term note payable - bank (B) .............................................. 738,095 1,000,000
Mortgage payable - bank (C) ............................................... 1,915,326 1,325,197
Acquisition debt - notes payable, due March 1, 1999 with
interest at 7.5% per annum (Note 2) ...................................... 390,000 990,000
Notes payable - former minority interest holder (Notes 2 and 17) .......... 308,334 --
Capital lease obligations (Note 16) ....................................... 115,475 163,396
---------- ----------
3,467,230 4,978,593
Less current maturities ................................................... 1,174,100 1,023,000
---------- ----------
$2,293,130 $3,955,593
========== ==========
</TABLE>
Interest expense on long-term debt, charged to operations for the years
ended January 31, 1999, 1998 and 1997 amounted to $329,716, $320,046 and
$157,416, respectively.
Following are the maturities of long-term debt as of January 31, 1999, and
for each of the next five years and in the aggregate:
<TABLE>
<S> <C>
2000 .................... $1,174,100
2001 .................... 456,554
2002 .................... 325,277
2003 .................... 140,005
2004 .................... 136,008
Thereafter .............. 1,235,286
----------
$3,467,230
==========
</TABLE>
(A) The Company has a credit agreement with its lending bank. The credit
agreement provides for borrowings of up to $3,500,000, payable interest only at
the prime rate or LIBOR plus 150 basis points through May l, 2000, at which
time any balance outstanding is payable in full. The credit agreement is
unsecured. As of February 17, 1998 the outstanding principal balance of the
credit agreement had been paid in full, partially with the proceeds of the term
note payable and the balance from the Company's working capital.
The credit agreement is subject to a 1/4% commitment fee on the average
unused loan portion. The credit agreement contains covenants and restrictions
relating to net worth, working capital, indebtedness, financial ratios,
dividends, capital expenditures, investments, acquisitions, earnings and
continuity of management.
(B) In January 1998, the Company obtained $1,000,000 under a term note
payable to its lending bank. The term note is payable in 42 monthly
installments of $23,800 plus interest at the prime rate or LIBOR plus 150 basis
points commencing March 1998. The term note is unsecured and is subject to the
same covenants and conditions as the credit agreement (See "A" above).
(C) On February 4, 1998, the Company obtained a mortgage loan. Proceeds
from the mortgage loan were $2,040,000, of which $1,335,842 was used to pay off
the then existing mortgage. The mortgage loan is secured by a first mortgage
lien on the Company's property at 383 West John Street, Hicksville, New York,
and is guaranteed by the Company's subsidiaries. The mortgage loan is payable
in monthly
F-12
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 6. LONG-TERM DEBT: (CONTINUED)
installments of $11,334 per month commencing March 4, 1998. Interest is fixed
at 7.56% per annum until February 4, 2008 at which time the rate becomes
adjustable at the Company's option to one of the following rates:
1) Variable at the lenders prime rate
2) Fixed at the lenders rate
3) Variable at LIBOR plus 175 basis points
The mortgage loan agreement contains various covenants and restrictions
relating to net worth, financial ratios and rentals of the mortgaged property.
NOTE 7. ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
Accrued commissions .................. $ 236,806 $321,908
Accrued payroll and bonuses .......... 596,634 320,425
Accrued vacation ..................... 155,800 198,900
Other ................................ 198,381 157,005
---------- --------
$1,187,621 $998,238
========== ========
</TABLE>
F-13
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 8. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Current
Federal ...................................................... $1,020,600 $ 957,000 $1,185,800
State ........................................................ 91,400 69,600 148,700
---------- ---------- ----------
1,112,000 1,026,600 1,334,500
---------- ---------- ----------
Deferred:
Federal ...................................................... 57,800 (20,700) (34,300)
State ........................................................ 46,600 (9,900) (22,000)
---------- ---------- ----------
104,400 (30,600) (56,300)
---------- ---------- ----------
Change in valuation allowance ................................ (12,000) (96,000) (26,000)
---------- ---------- ----------
92,400 (126,600) (82,300)
---------- ---------- ----------
Total ....................................................... $1,204,400 $ 900,000 $1,252,200
========== ========== ==========
At Federal statutory rates .................................... $1,126,300 $ 815,000 $1,077,500
Effect of:
Permanent differences ........................................ 6,000 1,300 12,600
Over/under accruals and other ................................ 24,100 133,800 104,500
State income taxes, net of federal benefits .................. 135,000 104,100 98,600
State investment tax credits, net of federal benefit ......... (75,000) (58,200) (15,000)
Change in valuation allowance ................................ (12,000) (96,000) (26,000)
---------- ---------- ----------
Total ....................................................... $1,204,400 $ 900,000 $1,252,200
========== ========== ==========
</TABLE>
At January 31, 1999, the Company has available for state income tax
purposes unused investment tax credits of approximately $316,000 expiring
through the year 2009.
The net current and non-current components of deferred income taxes
recognized in the balance sheet are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net current assets ............. $274,300 $310,400
Net non-current assets ......... 298,500 354,800
-------- --------
$572,800 $665,200
======== ========
</TABLE>
F-14
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 8. INCOME TAXES: (CONTINUED)
The components of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable allowances ..................................... $ 50,800 $ 50,800
Inventory -- uniform capitalization ................................ 86,900 58,800
Vacation pay accrual ............................................... 65,500 83,000
Deferred rent ...................................................... 56,300 60,900
Stock option compensation .......................................... -- 41,200
Deferred compensation and post-retirement medical benefits ......... 635,500 572,500
Investment tax credit carryforwards ................................ 317,000 350,000
---------- ----------
1,212,000 1,217,200
Valuation allowance ................................................ (5,000) (17,000)
---------- ----------
1,207,000 1,200,200
Deferred tax liability:
Depreciation ....................................................... 634,200 535,000
---------- ----------
Net deferred tax assets ............................................. $ 572,800 $ 665,200
========== ==========
</TABLE>
NOTE 9. REPURCHASE AND RETIREMENT OF COMMON STOCK AND STOCK OPTIONS:
During the year ended January 31, 1998, the Company in private
transactions, repurchased and retired 397,508 shares of its common stock for a
purchase price of $2,034,455. In addition, the Company repurchased options to
purchase 17,755 shares of its common stock (exercisable at a price of $.69 per
share) for a purchase price of $76,228. The purchase price of the stock and
options represented a 17% discount from market prices at the time of purchase.
The aggregate purchase price of $2,110,683 was partially financed by bank
borrowings of $1,912,000 against the Company's credit agreement.
NOTE 10. NOTE RECEIVABLE -- STOCK PURCHASE:
In 1990, an officer of the Company, purchased common stock in exchange for
cash and a note payable bearing interest at 8.66% per annum. In accordance with
the agreement, since the officer has fulfilled the terms of his employment
contract, the seven annual installments required by the note have been forgiven
annually by the Company as additional compensation to the officer. At January
31, 1999, note receivable balance was $-0-.
NOTE 11. MINORITY INTEREST:
In January 1995, Uniflex acquired an 80% interest in Uniflex Southwest
L.L.C. ("Southwest") for $600,000 in cash. Additionally, a minority member
purchased a 20% interest in Southwest for $27,500 in cash, and equipment having
a fair value of $165,000.
Effective February 1, 1998, the Company purchased the minority interest in
Southwest (Note 2).
In March 1996, Uniflex Southeast, Inc. ( a wholly owned subsidiary of
Uniflex, Inc.) acquired an 80% interest in Uniflex Southeast, L.L.C. Uniflex
provided an initial capital contribution of $50,000 along with additional
advances of approximately $330,000 through January 31, 1998. Intangible assets
valued at
F-15
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 11. MINORITY INTEREST: (CONTINUED)
$70,000 were used by a minority member to purchase a 20% interest in Uniflex
Southeast, L.L.C. Uniflex Southeast, L.L.C. ceased operations in July 1997.
In connection with the cessation of operations of Southeast, intangible
assets of approximately $74,000 were recognized as impaired and written-off as
worthless. Such loss is included in the statement of operations for the year
ended January 31, 1998 under the caption "Loss on disposal of assets."
NOTE 12. STOCK OPTIONS:
The Company adopted the 1993 Stock Option Plan (the "Plan"), which
provides for the granting of options to purchase up to 360,000 shares of the
Company's common stock to employees of the Company. The exercise price for
non-qualified options can be no less than 75% of the fair market value of the
Company's common stock at the date of grant. The exercise price for incentive
stock options can be no less than the fair market value of the Company's common
stock at the date of grant with the exception of an employee who, prior to the
granting of the option, owns stock representing more than 10% of the voting
rights for which the exercise price can be no less than 110% of the fair market
value of the Company's common stock at the date of grant. The Plan is
administered by the Stock Option Committee (the "Committee") of the Board of
Directors. The Committee determines when the options are exercisable and the
term of the option, up to ten years. To date, options to purchase 204,500
shares have been granted under the Plan at prices ranging from $1.42 to $9.75.
During the year ended January 31, 1999, options to purchase 9,000 shares were
granted. Options to purchase 88,700 shares remain unexercised at January 31,
1999.
The Company had granted a third party options to purchase 180,000 shares
of the Company's common stock at a price of $1.08 per share. The options were
exercisable with respect to a maximum of 36,000 shares per year for five years,
commencing on September 1, 1992. Each option expires five years from the
commencement date with the last option expiring on August 31, 2000. As of
January 31, 1999 all of the options have been exercised.
Pursuant to separate stock option agreements, the Company has granted to
eighteen officers and directors options to purchase a total of 1,122,000 shares
of the Company's common stock at prices ranging from $.33 to $.92 per share.
Such options expire at various dates through December 31, 2000. Options to
purchase 60,000 shares remain unexercised at January 31, 1999.
F-16
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 12. STOCK OPTIONS: (CONTINUED)
The following table provides information regarding stock option activity
for the years ended January 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
EXERCISE PRICE PER SHARE
-----------------------------------
NUMBER OF SHARES RANGE WEIGHTED AVERAGE
------------------ --------------- -----------------
<S> <C> <C> <C>
Balance January 31, 1996
(617,700 exercisable) ......... 736,500 .38 - 3.58 .90
Granted ........................ 46,500 5.50 - 7.33 6.10
Exercised ...................... (287,195) .54 - 5.38 .82
-------- ------------- ----
Balance January 31, 1997
(456,505 exercisable) ......... 495,805 .38 - 7.33 1.43
-------- ------------- ----
Granted ........................ 29,000 6.25 - 9.75 7.89
Exercised ...................... (191,755) .38 - 2.34 .45
-------- ------------- ----
Balance January 31, 1998
(300,550 exercisable) ......... 333,050 .69 - 9.75 2.51
Granted ........................ 9,000 5.38 5.38
Exercised ...................... (184,200) .69 - 4.83 1.36
Forfeited ...................... (9,150) .92 - 3.58 1.78
-------- ------------- ----
Balance January 31, 1999
(128,700 exercisable) ......... 148,700 .69 - 9.75 4.17
======== ============= ====
</TABLE>
The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation" and, as permitted under SFAS No. 123,
applies Accounting Principles Board Opinion ("APB") No. 25 and related
interpretations in accounting for its plans. Compensation expense recorded
under APB No. 25 was $0, $0 and $21,930 for the years ended January 31, 1999,
1998 and 1997, respectively.
If the Company had elected to adopt the optional recognition provisions of
SFAS No. 123 for its stock option plans, net income and earnings per share
would have been changed to the pro forma amounts indicated below:
FOR THE YEARS ENDED JANUARY 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
NET INCOME
As reported .............. 2,108,280 1,496,314 1,916,938
Pro forma ................ 2,086,494 1,416,093 1,849,403
EARNINGS PER SHARE--BASIC
As reported .............. 0.50 0.36 0.46
Pro forma ................ 0.50 0.34 0.44
EARNINGS PER SHARE--DILUTED
As reported .............. 0.50 0.35 0.43
Pro forma ................ 0.49 0.33 0.41
</TABLE>
F-17
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 12. STOCK OPTIONS: (CONTINUED)
The fair value of stock options used to compute pro forma net income and
earnings per share disclosures is the estimated value at grant date using the
Black-Scholes option-pricing model with the following assumptions:
FOR THE YEARS ENDED JANUARY 31,
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS
Dividend yield ............................. 0% 0% 0%
Expected volatility ........................ 38% 39% 45%
Risk-free interest rate .................... 6.50% 6.50% 6.00%
Expected holding period (in years) ......... 10.00 10.00 4.35
</TABLE>
The status of all options outstanding at January 31, 1999 is summarized as
follows:
<TABLE>
<CAPTION>
RANGE OF WEIGHTED AVERAGE YEARS WEIGHTED AVERAGE
EXERCISE PRICES SHARES REMAINING CONTRACTUAL LIFE EXERCISE PRICE
- ------------------- ---------- ---------------------------- -----------------
<S> <C> <C> <C>
$ .69 60,000 1.9 $ .69
3.92 to 5.71 37,200 6.2 5.37
6.00 to 9.75 51,500 4.7 7.35
------ --- ------
Total 148,700 4.0 $ 4.17
======= === ======
</TABLE>
NOTE 13. PROFIT SHARING PLAN:
The Company maintains a profit sharing plan which covers all full-time,
non-union employees. Contributions to the plan are made at the discretion of
the Board of Directors, but may not exceed 15% of participants' compensation.
Amounts charged to operations were $200,000, for the years ended January 31,
1999, 1998 and 1997, respectively.
NOTE 14. DEFERRED COMPENSATION AND POSTRETIREMENT MEDICAL BENEFITS:
DEFERRED COMPENSATION:
On August 31, 1990, the Company entered into deferred compensation
agreements (the "Deferred Compensation Agreements") with three key employees
(the "Employees") who retired on various dates through December 31, 1994. The
Agreements provide for annual payments of $100,000 to each Employee for life
and $75,000 annually to their beneficiary or estate for three years after
death, with payments to commence seven years after retirement. Each Employee
simultaneously entered into seven year consulting and noncompetition agreements
which commenced upon retirement and which pays the Employees annual payments of
$75,000 in consideration of the noncompetition agreement and $25,000 in
consideration of the consulting agreement. In the event of the death of any of
the Employees after retirement but prior to the commencement of the Deferred
Compensation Agreement, the Company's obligation to make future payments under
these agreements will terminate.
The present value of the Deferred Compensation Agreements, calculated as
of the Employees' retirement dates and based upon their respective life
expectancies, approximates $840,000. For each Employee, the Company is
recording as deferred expense an amount equal to an annuity deposit
F-18
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 14. DEFERRED COMPENSATION AND POSTRETIREMENT MEDICAL BENEFITS:
(CONTINUED)
necessary to yield the present values of the Deferred Compensation Agreements
as of the retirement dates. Additionally, monthly charges of interest expense
are being recorded such that the deferred compensation payable will increase to
the necessary level to meet expected future payments.
The total deferred compensation charged to operations was $-0- for each of
the years ended January 31, 1999, 1998 and 1997, respectively. Related interest
expense charged to operations for the years ended January 31, 1999, 1998 and
1997 approximated $165,000, $141,000 and $124,000, respectively.
Deferred compensation payable at January 31, 1999 and 1998 was $1,405,276
and $1,248,483, respectively.
POSTRETIREMENT MEDICAL BENEFITS:
In addition, the Deferred Compensation Agreements require the Company to
pay a portion of each Employee's health insurance premiums from the date of
retirement to death. Effective February 1, 1993, the Company adopted Statement
of Financial Accounting Standard No. 106 "Employer's Accounting for
Postretirement Benefits Other Than Pension" which requires the Company to
recognize the cost of providing postretirement benefits over the Employees'
service periods.
The net periodic postretirement benefit cost was $-0- for each of the
years ended January 31, 1999, 1998 and 1997, respectively. Related interest
expense charged to operations for the years ended January 31, 1999, 1998 and
1997 approximated $8,000, $9,000 and $9,000, respectively.
The recorded liabilities for these postretirement benefits, none of which
have been funded amounted to $107,228 and $114,769 at January 31, 1999 and
1998, respectively. All participants were retired at January 31, 1999 and 1998,
respectively.
-The weighted average discount rate used in determining the liability was
7.5%. There is no annual increase in health costs since the participants will
be responsible for any additional payments.
NOTE 15. SUPPLEMENTARY CASH FLOW INFORMATION:
CASH TRANSACTIONS:
Cash paid and received during the years ended January 31,
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest ............................ $359,834 $274,041 $165,121
======== ======== ========
Income taxes paid ................... $628,261 $528,923 $650,000
======== ======== ========
Income tax refunds received ......... $ 2,339 $ 23,653 $435,000
======== ======== ========
</TABLE>
NON-CASH TRANSACTIONS:
Year Ended January 31, 1999:
In connection with the acquisition of the minority interest of Uniflex
Southwest, L.L.C., valued at $800,000 (Note 2), the Company incurred debt of
$400,000, issued common stock valued at $300,000 and paid $100,000 in cash.
F-19
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 15. SUPPLEMENTARY CASH FLOW INFORMATION: (CONTINUED)
Year Ended January 31, 1998:
The Company purchased substantially all of the assets and assumed certain
liabilities of Merrick. Net assets acquired amounted to approximately
$2,370,000. Of the purchase price of $2,370,000, $780,000 was paid at closing
and acquisition debt of $1,590,000 was recorded.
Year Ended January 31, 1997:
The Company incurred capital lease obligations of $94,629 in connection
with the acquisition of certain equipment.
Intangible assets valued at $70,000 were recorded as a contribution to
capital from minority members.
NOTE 16. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASE COMMITMENTS:
The Company has the following lease commitments:
<TABLE>
<CAPTION>
PREMISES EXPIRATION DATE BASE RENTAL AND EXPENSES
- ------------------------ ----------------- ----------------------------------------
<S> <C> <C>
Plant, Westbury, NY April 30, 2003 Graduated from $91,000 and $205,000
per annum plus real estate taxes
Plant, Albuquerque, NM July 31, 2005 $91,708 per annum including real estate
taxes and insurance
</TABLE>
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JANUARY 31,
- ---------------------------
<S> <C>
2000 .................... $ 279,200
2001 .................... 285,500
2002 .................... 290,500
2003 .................... 295,500
2004 .................... 143,000
Thereafter .............. 45,900
----------
$1,339,600
==========
</TABLE>
Base rent and other occupancy costs charged to operations for the years
ended January 31, 1999, 1998 and 1997 amounted to approximately $459,000,
$415,000 and $418,000, respectively, including real estate taxes of $201,000,
$115,000 and $194,000, respectively.
F-20
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 16. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
CAPITAL LEASES:
The Company leases certain equipment under capital leases expiring through
January 2002. Interest is imputed at rates ranging from 9% to 10%.
Future minimum lease payments under capital leases as of January 31, 1999
for each of the next four years and in the aggregate are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JANUARY 31,
- ---------------------------------------------------
<S> <C>
2000 ....................................... $ 63,201
2001 ....................................... 39,275
2002 ....................................... 24,295
2003 ....................................... 4,050
--------
Total minimum lease payments ............... 130,821
Less amounts representing interest ......... 15,346
--------
Present value of net minimum lease payment
(Note 6) .................................. $115,475
========
</TABLE>
LEGAL MATTERS:
The Company is party to litigation arising in the ordinary course of
business. Management does not believe the results of such litigation, even if
the outcome is unfavorable to the Company, would have a material adverse effect
on its consolidated financial position or results of operations.
NOTE 17. SUBSEQUENT EVENT:
On March 8, 1999, the Company announced that Uniflex and an acquisition
entity ("NEWCO") formed by RFE Investment Partners have signed an Agreement and
Plan of Merger and Recapitalization providing for the acquisition by NEWCO of
all of the outstanding shares of common stock and all the outstanding stock
options of Uniflex, (exclusive of the shares of common stock to be retained as
described below). However, there can be no assurance that the transaction will
ultimately be consummated.
The transaction is subject to certain conditions, including the successful
completion of the necessary financing and obtaining the necessary regulatory
and corporate approvals, including the approval of the shareholders of Uniflex.
It is expected that the transaction will be consummated no later than July 30,
1999.
The Merger Agreement provides for a statutory merger of Uniflex with NEWCO
pursuant to which the holders of Uniflex's issued and outstanding common stock
and stock options (exclusive of the shares of common stock to be retained as
described below) will be entitled to receive $7.57 per share of common stock
and an average of $4.09 per stock option for options the exercise price of
which is less than $7.57 per share based upon 128,700 such options currently
outstanding and a weighted average exercise price there of $3.48 per share.
Upon consummation of the merger, (i) CMCO, Inc. and its affiliates that
currently own 300,158 shares of common stock of Uniflex will retain all of
their shares of common stock of Uniflex and (ii) certain officers, directors
and employees of Uniflex will retain no less than 322,000 shares of common
stock of Uniflex owned by them. The transaction is expected to be treated as a
recapitalization for financial reporting purposes.
F-21
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AND RECAPITALIZATION
BY AND BETWEEN
UNIFLEX, INC.,
A DELAWARE CORPORATION,
AND
UNIFLEX ACQUISITION CORP.,
A DELAWARE CORPORATION
DATED: MARCH 5, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I DEFINITIONS .......................................................... A-2
Section 1.1. Defined Terms ........................................................ A-2
Section 1.2. Other Defined Terms .................................................. A-7
ARTICLE II THE MERGER ........................................................... A-7
Section 2.1. The Merger ........................................................... A-7
Section 2.2. Effective Time ....................................................... A-7
Section 2.3. Closing .............................................................. A-8
Section 2.4. Certificate of Incorporation and ByLaws .............................. A-8
Section 2.5. Directors ............................................................ A-8
ARTICLE III EFFECT OF MERGER ON SECURITIES OF ACQUIRER AND
THE COMPANY .......................................................... A-8
Section 3.1. Conversion of Acquirer Common Stock .................................. A-8
Section 3.2. Conversion of Company Common Stock for Merger Consideration .......... A-8
Section 3.3. Options .............................................................. A-9
Section 3.4. Exchange of Certificates ............................................. A-9
Section 3.5. Dissenting Shares .................................................... A-10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY ........................ A-10
Section 4.1. Organization and Capitalization ...................................... A-11
Section 4.2. Authorization ........................................................ A-11
Section 4.3. Subsidiaries ......................................................... A-11
Section 4.4. Absence of Certain Changes or Events ................................. A-12
Section 4.5. Title to Assets; Absence of Liens and Encumbrances, etc. ............. A-12
Section 4.6. Contracts and Commitments ............................................ A-14
Section 4.7. Permits .............................................................. A-15
Section 4.8. No Conflict or Violation ............................................. A-15
Section 4.9. Consents and Approvals ............................................... A-15
Section 4.10. SEC Documents; Financial Statements, etc. ............................ A-16
Section 4.11. Undisclosed Liabilities .............................................. A-16
Section 4.12. Litigation ........................................................... A-16
Section 4.13. Labor Matters ........................................................ A-16
Section 4.14. Compliance with Law .................................................. A-17
Section 4.15. No Brokers ........................................................... A-17
Section 4.16. Proprietary Rights ................................................... A-17
Section 4.17. Employee Plans ....................................................... A-18
Section 4.18. Tax Matters .......................................................... A-19
Section 4.19. Insurance ............................................................ A-21
Section 4.20. Customers and Suppliers .............................................. A-21
Section 4.21. Compliance with Environmental Laws ................................... A-21
Section 4.22. No Other Agreements to Sell the Assets or Shares of the Company or its
Subsidiaries ......................................................... A-22
Section 4.23. Prohibited Payments .................................................. A-22
Section 4.24. Y2K Compliant ........................................................ A-23
Section 4.25. Board Recommendation ................................................. A-23
Section 4.26. Required Company Vote ................................................ A-23
Section 4.27. Opinion of Dunn Johnston ............................................. A-23
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIRER ............. A-23
Section 5.1. Organization ........................................... A-23
Section 5.2. Authorization .......................................... A-24
Section 5.3. Consents and Approvals ................................. A-24
Section 5.4. No Conflict or Violation ............................... A-24
Section 5.5. Proxy Statement; Schedule 13E3 ......................... A-24
Section 5.6. Financing .............................................. A-24
Section 5.7. No Brokers ............................................. A-24
Section 5.8. Share Ownership ........................................ A-24
Section 5.9. Acquirer's Operations .................................. A-25
Section 5.10. Status of Representations .............................. A-25
ARTICLE VI COVENANTS OF THE COMPANY AND ACQUIRER .................. A-25
Section 6.1. Maintenance of Business Prior to Closing ............... A-25
Section 6.2. Investigation by Acquirer .............................. A-27
Section 6.3. Consents and Efforts ................................... A-27
Section 6.4. Other Offers ........................................... A-28
Section 6.5. Meeting of Stockholders ................................ A-30
Section 6.6. Proxy Statement ........................................ A-30
Section 6.7. Schedule 13E3 .......................................... A-30
Section 6.8. Director and Officer Liability ......................... A-30
Section 6.9. Notices of Certain Events .............................. A-31
Section 6.10. Further Assurances ..................................... A-31
Section 6.11. Resignation of Directors ............................... A-31
Section 6.12. Financial Statements, Etc. ............................. A-31
Section 6.13. Financing .............................................. A-31
ARTICLE VII CONDITIONS TO THE MERGER ............................... A-32
Section 7.1. Conditions to the Obligations of Each Party ............ A-32
Section 7.2. Conditions to the Obligations of the Company ........... A-32
Section 7.3. Conditions to the Obligations of Acquirer .............. A-33
ARTICLE VIII MISCELLANEOUS .......................................... A-34
Section 8.1. Termination ............................................ A-34
Section 8.2. Assignment ............................................. A-35
Section 8.3. Notices ................................................ A-35
Section 8.4. Entire Agreement; Waivers .............................. A-36
Section 8.5. Multiple Counterparts .................................. A-36
Section 8.6. Invalidity ............................................. A-36
Section 8.7. Titles ................................................. A-36
Section 8.8. Fees and Expenses ...................................... A-37
Section 8.9. Cumulative Remedies .................................... A-37
Section 8.10. Governing Law .......................................... A-37
Section 8.11. Amendment .............................................. A-37
Section 8.12. Public Announcements ................................... A-37
Section 8.13. Enforcement of Agreement ............................... A-37
Section 8.14. Nonsurvival of Representations and Warranties .......... A-37
Section 8.15. Interpretive Provisions ................................ A-37
</TABLE>
ii
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
LETTER DESCRIPTION
- -------- ------------------------------------------------------
<S> <C>
A List of Stockholders owning Retained Shares
B Certificate of Incorporation of Surviving Corporation
C By-Laws of Surviving Corporation
C 1 Directors of Surviving Corporation
D Opinion of Dunn Johnston & Company, Inc.
</TABLE>
iii
<PAGE>
SCHEDULES
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------------- ------------------------------------------------
<S> <C>
4.1(b) Capitalization
4.3 Ownership of Subsidiaries and Capitalization of
Subsidiaries
4.5 (b) Real Property Matters
4.5 (c) Personal Property Matters
4.6 Contracts and Commitments
4.7 Permits
4.9 Consents and Approvals
4.12 Litigation
4.13 Labor Matters
4.16 Proprietary Rights
4.17 Employee Plans
4.18 Tax Matters
4.19 Insurance Matters
4.20 Customers and Suppliers
4.21 Environmental Matters
5.7 Broker Matters--Acquirer
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER AND RECAPITALIZATION
This Agreement and Plan of Merger and Recapitalization (this "Agreement"),
dated March 5, 1999, is by and between UNIFLEX, INC., a Delaware corporation
(the "Company"), and UNIFLEX ACQUISITION CORP., a Delaware corporation
("Acquirer").
RECITALS
A. This Agreement provides for the merger (the "Merger") of Acquirer with
and into the Company, with the Company as the surviving corporation in such
merger, all in accordance with the provisions of this Agreement.
B. The respective Boards of Directors of Acquirer, Acquirer's sole
stockholder and the Company have approved this Agreement, and deemed it
advisable and in the best interests of their respective companies and
stockholders to consummate the Merger. The Company intends promptly to submit
to its Stockholders the approval of the Merger and the approval and adoption of
this Agreement.
C. Acquirer is unwilling to enter into this Agreement unless,
contemporaneously with the execution and delivery of this Agreement, Acquirer
and certain beneficial and record stockholders of the Company enter into an
agreement (the "Voting Agreement") providing for certain actions relating to
the shares of Company Common Stock owned by them; and the Board of Directors of
the Company has approved the entering into by such stockholders of the Voting
Agreement.
D. The parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
E. It is intended that the Merger be recorded as a recapitalization for
financial reporting purposes.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Defined Terms. As used herein, the terms below shall have the
following meanings:
"Affiliate" shall mean, with respect to any person or entity (the
"referent person"), any person or entity which controls the referent person,
any person or entity which the referent person controls, or any person or
entity which is under common control with the referent person. For purposes of
the preceding sentence, the term "control" shall mean the power, direct or
indirect, to direct or cause the direction of the management and policies of a
person or entity through voting securities, by contract or otherwise.
"Assets" shall mean all of the Company's and its Subsidiaries' right,
title and interest in and to all properties, assets and rights of any kind,
whether tangible or intangible, real or personal, owned by the Company or its
Subsidiaries or in which the Company or any of its Subsidiaries has any
interest whatsoever.
"Benefit Arrangement" shall mean any employment, consulting, severance or
other similar contract, arrangement or policy (written or oral) and each plan,
arrangement, program, agreement or commitment (written or oral) providing for
insurance coverage (including, without limitation, any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health or
accident benefits (including, without limitation, any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Code providing
for the same or other benefits) or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation rights, stock purchases or other
forms of incentive compensation or post-retirement
A-2
<PAGE>
insurance, compensation or benefits which (a) is not a Welfare Plan, Pension
Plan or Multiemployer Plan, (b) is entered into, maintained, contributed to or
required to be contributed to, as the case may be, by the Company, its
Subsidiaries or any ERISA Affiliate or under which the Company, its
Subsidiaries or any ERISA Affiliate may incur any liability, and (c) covers any
employee or former employee of the Company, its Subsidiaries or any ERISA
Affiliate (with respect to their relationship with any such entity).
"Carl Marks Group" means CMNY Capital, L.P., CMCO, Inc., Robert Davidoff
and Sterling/Carl Marks Capital, Inc.
"Code" shall mean the Internal Revenue Code of 1986, as amended and any
successor statute.
"Company Common Stock" shall mean the Common Stock having a par value of
$.10 per share of the Company.
"Contract" shall mean any agreement, contract, lease, note, loan, evidence
of indebtedness, purchase order, letter of credit, franchise agreement,
undertaking, covenant not to compete, employment agreement, license,
instrument, obligation, commitment, purchase and sales order, and other
executory commitment to which the Company or its Subsidiaries is a party or
which relates to the Company's or its Subsidiaries' businesses or any of the
Assets, whether oral or written, express or implied, and which pursuant to its
terms has not expired, terminated or been fully performed by the parties
thereto.
"DGCL" shall mean the General Corporation Law of the State of Delaware.
"Dissenting Stockholders" shall mean those Stockholders who hold
Dissenting Shares.
"Dissenting Shares" shall mean any shares held by Stockholders who are
entitled to an appraisal of their shares under the DGCL, and who have properly
exercised, perfected and not subsequently withdrawn or lost their appraisal
rights with respect to their Company Common Stock in accordance with the DGCL.
"Employee Plans" shall mean all Benefit Arrangements, Multiemployer Plans,
Pension Plans and Welfare Plans.
"Encumbrance" shall mean any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, encumbrance or other right of third
parties, whether voluntarily incurred or arising by operation of law, and
includes, without limitation, any agreement to give any of the foregoing in the
future, and any contingent or conditional sale agreement or other title
retention agreement or lease in the nature thereof.
"Environmental Claims" shall mean all accusations, allegations, notices of
violation, liens, claims, demands, suits, or causes of action for any damage,
including, without limitation, personal injury, property damage (including,
without limitation, any depreciation or diminution of property values), lost
use of property or consequential damages, arising directly or indirectly out of
Environmental Conditions or Environmental Laws. By way of example only (and not
by way of limitation), Environmental Claims include (i) violations of or
obligations under any contract related to Environmental Laws or Environmental
Conditions between the Company or its Subsidiaries and any other person, (ii)
actual or threatened damages to natural resources, (iii) claims for nuisance or
its statutory equivalent, (iv) claims for the recovery of response costs, or
administrative or judicial orders directing the performance of investigations,
responses or remedial actions under any Environmental Laws, (v) requirements to
implement "corrective action" pursuant to any order or permit issued pursuant
to the Resource Conservation and Recovery Act, as amended, or similar
provisions of applicable state law, (vi) claims related to Environmental Laws
or Environmental Conditions for restitution, contribution, or indemnity, (vii)
fines, penalties or liens of any kind against property related to Environmental
Laws or Environmental Conditions, (viii) claims related to Environmental Laws
or Environmental Conditions for injunctive relief or other orders or notices of
violation from federal, state or local agencies or courts, and (ix) with regard
to any present or former employees, claims relating to exposure to or injury
from Environmental Conditions.
"Environmental Conditions" shall mean the state of the environment,
including natural resources (e.g., flora and fauna), soil, surface water,
ground water, any present or potential drinking water supply, subsurface strata
or ambient air.
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"Environmental Laws" shall mean all applicable foreign, federal, state,
district and local laws, all rules or regulations promulgated thereunder, and
all orders, consent orders, judgments, notices, permits or demand letters
issued, promulgated or entered pursuant thereto, relating to pollution or
protection of the environment (including, without limitation, ambient air,
surface water, ground water, land surface, or subsurface strata), including,
without limitation, (i) laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, industrial
materials, wastes or other substances into the environment and (ii) laws
relating to the identification, generation, manufacture, processing,
distribution, use, treatment, storage, disposal, recovery, transport or other
handling of pollutants, contaminants, chemicals, industrial materials, wastes
or other substances. Environmental Laws shall include, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"), the Toxic Substances Control Act, as amended, the
Hazardous Materials Transportation Act, as amended, the Resource Conservation
and Recovery Act, as amended ("RCRA"), the Clean Water Act, as amended, the
Safe Drinking Water Act, as amended, the Clean Air Act, as amended, the
Occupational Safety and Health Act, as amended, and all analogous laws
promulgated or issued by any state or other governmental authority.
"Environmental Reports" shall mean any and all written analysis, summaries
or explanations, in the possession or control of the Company or its
Subsidiaries, of (a) any Environmental Conditions in, on or about the
properties of the Company or its Subsidiaries or (b) the Company's or its
Subsidiaries' compliance with Environmental Laws.
"Equity Securities" shall mean (i) shares of capital stock or other equity
securities, (ii) subscriptions, calls, warrants, options or commitments of any
kind or character relating to, or entitling any person or entity to purchase or
otherwise acquire, any capital stock or other equity securities and (iii)
securities convertible into or exercisable or exchangeable for shares of
capital stock or other equity securities.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any entity which is (or at any relevant time
was) a member of a "controlled group of corporations" with, under "common
control" with, or a member of an "affiliated service group" with, or otherwise
required to be aggregated with, the Company or its Subsidiaries as set forth in
Section 414(b), (c), (m) or (o) of the Code.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Facilities" shall mean all plants, offices, manufacturing facilities,
stores, warehouses, administration buildings and all real property and related
facilities owned or leased by the Company or its Subsidiaries.
"Fixtures and Equipment" shall mean all of the furniture, fixtures,
furnishings, machinery, equipment, spare parts, appliances and vehicles owned
by the Company or its Subsidiaries, wherever located, including all warranty
rights with respect thereto.
"GAAP" shall mean, with respect to any person, generally accepted
accounting principles in the United States of America, as in effect from time
to time, consistently applied.
"Hazardous Substances" shall mean all pollutants, contaminants, chemicals,
wastes, and any other carcinogenic, ignitable, corrosive, reactive, toxic or
otherwise hazardous substances or materials (whether solids, liquids or gases)
subject to regulation, control or remediation under Environmental Laws. By way
of example only, the term Hazardous Substances includes petroleum, urea
formaldehyde, flammable, explosive and radioactive materials, PCBs, pesticides,
herbicides, asbestos, sludge, slag, acids, metals, solvents and waste waters.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Leases" shall mean all of the leases or subleases for personal or real
property to which the Company or its Subsidiaries is a party or by which the
Company or its Subsidiaries is bound.
"Material Adverse Effect" or "Material Adverse Change" or a similar phrase
shall mean, with respect to any person, any material adverse effect on or
change with respect to (i) the business, operations,
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assets (taken as a whole), liabilities (taken as a whole), condition (financial
or otherwise), results of operations or prospects of such person and its
Subsidiaries, taken as a whole, (ii) the relations with customers, suppliers,
distributor or employees of such person and its Subsidiaries, taken as a whole,
or (iii) the right or ability of such person or it Subsidiaries to consummate
any of the transactions contemplated hereby, other than material adverse
changes relating to securities markets in general.
"Multiemployer Plan" shall mean any "multiemployer plan," other than any
Union Plan, as defined in Section 4001(a)(3) or 3(37) of ERISA, which (a) the
Company, its Subsidiaries of any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or maintained, administered,
contributed to or was required to contribute to, or under which the Company,
its Subsidiaries or any ERISA Affiliate may incur any liability and (b) covers
any employee or former employee of the Company, its Subsidiaries or any ERISA
Affiliate (with respect to their relationship with any such entity).
"Options" shall mean the options to purchase in the aggregate 158,700
shares of Company Common Stock issued to certain executive employees and
non-employee directors of the Company pursuant to the Stock Option Plans and
outside of any Stock Option Plan.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any "employee pension benefit plan" as defined
in Section 3(2) of ERISA (other than a Multiemployer Plan or Union Plan) (a)
which the Company, its Subsidiaries or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or, within the
five years prior to the Closing Date, maintained, administered, contributed to
or was required to contribute to, or under which the Company, its Subsidiaries
or any ERISA Affiliate may incur any liability (including, without limitation,
any contingent liability) and (b) which covers any employee or former employee
of the Company, its Subsidiaries or any ERISA Affiliate (with respect to their
relationship with any such entity).
"Permits" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, or notifications to,
any governmental authority, whether foreign, federal, state or local, or any
other person, necessary or desirable for the past, present or currently
anticipated conduct of, or relating to the operation of the business of, the
Company or its Subsidiaries.
"Permitted Encumbrances" shall mean (a) liens for Taxes or governmental
charges or claims (i) not yet due and payable or (ii) being contested in good
faith, if a reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor, (b) statutory liens of
landlords, liens of carriers, warehouse persons, mechanics and material persons
and other liens imposed by law incurred in the ordinary course of business for
sums (i) not yet due and payable or (ii) being contested in good faith, if a
reserve or other appropriate provision, if any, as shall be required by GAAP
shall have been made therefor, (c) liens incurred or deposits made in
connection with workers' compensation, unemployment insurance and other similar
types of social security programs or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return of money bonds and similar obligations, in
each case in the ordinary course of business, consistent with past practice,
(d) purchase money liens incurred in the ordinary course of business,
consistent with past practice, and (e) easements, rights-of-way, restrictions
and other similar charges or encumbrances, in each case, which do not interfere
with the ordinary conduct of business of the Company or its Subsidiaries and do
not materially detract from the value of the property to which such encumbrance
relates.
"Personnel" shall mean all directors, officers and employees of the
Company or its Subsidiaries.
"Retained Shares" shall mean the shares of Company Common Stock owned of
record and beneficially by the Stockholders listed on Exhibit A hereto.
"Returns" shall mean any and all returns, reports, declarations,
information returns and information statements with respect to Taxes required
to be filed by or on behalf of the Company or its Subsidiaries with any
governmental authority or Tax authority or agency, whether domestic or foreign,
including, without limitation, consolidated, combined and unitary returns and
all amendments thereto or thereof.
"SEC" shall mean the Securities and Exchange Commission.
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"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock Option Plans" shall mean the Company's 1993 Stock Option Plan and
the 1996 Outside Directors' Stock Option Plan.
"Stockholders" shall mean the record holders of Company Common Stock.
"Subsidiary" shall mean, with respect to any of the parties of this
Agreement, any corporation or other business entity, whether or not
incorporated, of which at least 50% of the securities or interests having, by
their terms, ordinary voting power to elect members of the board of directors,
or other persons performing similar functions with respect to such entity, are
held, directly or indirectly, by such party.
"Tax(es)" shall mean all taxes, estimated taxes, withholding taxes,
assessments, levies, imposts, fees and other charges, including, without
limitation, any interest, penalties, additions to tax or additional amounts
that may become payable in respect thereof, imposed by any foreign, federal,
state or local government or taxing authority, which taxes shall include,
without limitation, all income taxes, payroll and employee withholding taxes,
unemployment insurance, social security, sales and use taxes, value-added
taxes, excise taxes, franchise taxes, gross receipts taxes, occupation taxes,
real and personal property taxes, stamp taxes, transfer taxes, workers'
compensation and other obligations of the same or of a similar nature.
"Treasury Securities" shall mean Company Common Stock held in treasury by
the Company.
"Union Plan" shall mean any benefit plan maintained or administered by a
union to which the Company is a party.
"Welfare Plan" shall mean any "employee welfare benefit plan" other than
any Union Plan as defined in Section 3(1) of ERISA, (a) which the Company, its
Subsidiaries or any ERISA Affiliate maintains, administers, contributes to or
is required to contribute to, or under which the Company, its Subsidiaries or
any ERISA Affiliate may incur any liability and (b) which covers any employee
or former employee of the Company, its Subsidiaries or any ERISA Affiliate
(with respect to their relationship with any such entity).
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Section 1.2. Other Defined Terms. In addition to the terms defined in
Section 1.1, the following terms shall have the meanings defined for such terms
in the Recitals or Sections set forth below:
<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------- -----------------------------
<S> <C>
"Acquisition Proposal" .................. 6.4 (a)
"Actions" ............................... 4.12
"Barry" ................................. 7.3 (c)
"Closing" ............................... 2.3
"Closing Date" .......................... 2.3
"Company Reports" ....................... 4.10
"Confidentiality Letter" ................ 6.2
"Disclosure Schedule" ................... Article IV Preamble
"Effective Time" ........................ 2.2
"Exchange Fund" ......................... 3.4 (d)
"Fairness Opinion" ...................... 4.27
"Financial Statements" .................. 4.10
"Financing" ............................. 5.6
"Financing Commitment Letters" .......... 5.6
"Laws" .................................. 4.14
"Leased Property" ....................... 4.5 (b)(ii)
"Merger" ................................ Recitals
"Merger Consideration" .................. 3.2 (a)
"Paying Agent" .......................... 3.4 (a)
"Payment Event" ......................... 6.4 (b)
"Permitted Party" ....................... 6.4 (b)
"Proprietary Rights" .................... 4.16
"Proxy Statement" ....................... 6.6 (a)
"Regulatory Filings" .................... 4.9
"Schedule 13E-3" ........................ 6.7
"Semel" ................................. 7.3 (c)
"Special Meeting" ....................... 4.27
"Stockholders Agreement" ................ 7.3 (h)
"Surviving Corporation" ................. 2.1
"Systems" ............................... 4.24
"Third Party" ........................... 6.4
"Voting Agreement" ...................... Recitals
"Y2K Compliant" ......................... 4.24
</TABLE>
ARTICLE II
THE MERGER
Section 2.1. The Merger. Upon the terms and subject to the satisfaction or
waiver, if permissible, of the conditions hereof, and in accordance with the
DGCL, at the Effective Time, Acquirer shall be merged with and into the
Company. Upon the effectiveness of the Merger, the separate corporate existence
of Acquirer shall cease and the Company, under the name Uniflex, Inc., shall
continue as the surviving corporation (the "Surviving Corporation"). The Merger
shall have the effects specified under the DGCL.
Section 2.2. Effective Time.
On the Closing Date, the parties shall cause the Merger to be consummated
by causing a certificate of merger with respect to the Merger to be executed
and filed in accordance with the relevant provisions of the DGCL and shall make
all other filings or recordings required under the DGCL. The Merger shall
become effective at the time of filing of the certificate of merger or at such
later time as is specified therein (the "Effective Time").
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Section 2.3. Closing.
Upon the terms and subject to the conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place (a) at the offices of
Battle Fowler LLP, 75 East 55th Street, New York, New York at 10:00 a.m., local
time, on the first business day immediately following the day on which the last
to be satisfied or waived of the conditions set forth in Article VII (other
than those conditions that by their nature are to be satisfied at the Closing,
but subject to the satisfaction or waiver of those conditions) shall be
satisfied or waived in accordance herewith or (b) at such other time, date or
place as Acquirer and the Company may agree. The date on which the Closing
occurs is herein referred to as the "Closing Date."
Section 2.4. Certificate of Incorporation and By-Laws.
(a) At the Effective Time, and without any further action on the part of
the Company or Acquirer, the certificate of incorporation of the Company, as in
effect immediately prior to the Effective Time, shall be amended so as to read
in its entirety in the form set forth as Exhibit B hereto, and, as so amended,
until thereafter further amended as provided therein and under the DGCL, it
shall be the certificate of incorporation of the Surviving Corporation
following the Merger.
(b) At the Effective Time, and without any further action on the part of
the Company or Acquirer, the by-laws of Acquirer as in effect immediately prior
to the Effective Time as set forth as Exhibit C hereto, shall be the by-laws of
the Surviving Corporation following the Merger until thereafter changed or
amended as provided therein or by applicable law.
Section 2.5. Directors.
The directors of the Surviving Corporation shall be those individuals set
forth on Exhibit C-1 hereto who shall hold such positions until their
respective successors are duly elected and qualified, or their earlier death,
resignation or removal.
ARTICLE III
EFFECT OF MERGER ON SECURITIES OF ACQUIRER AND THE COMPANY
Section 3.1. Conversion of Acquirer Common Stock.
At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, the shares of common stock, par value $0.01 per
share, of Acquirer issued and outstanding immediately prior to the Effective
Time shall automatically be converted into and thereafter represent 693,527
validly issued, fully paid and non-assessable share(s) of common stock, par
value $.10 per share, of the Surviving Corporation (the "Surviving Corporation
Common Stock"), such shares of Surviving Corporation Common Stock to be
comprised of 246,729 shares of Class A Voting Common Stock and 446,798 shares
of Class B Non-Voting Common Stock.
Section 3.2. Conversion of Company Common Stock for Merger Consideration.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof, each share of Company Common Stock
outstanding immediately prior to the Effective Time (other than Retained
Shares, Treasury Securities and Dissenting Shares, if any) shall automatically
be converted into the right to receive, and each certificate which immediately
prior to the Effective Time represented a share of Company Common Stock shall
evidence solely the right to receive, $7.57 in cash (the "Merger
Consideration") upon surrender of the certificate formerly representing Company
Common Stock as provided in Section 3.4.
(b) At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof, each Retained Share shall remain issued and
outstanding and constitute one issued and outstanding share of common stock of
the Surviving Corporation.
(c) All Treasury Securities shall, by virtue of the Merger and without any
action on the part of the holder thereof, automatically be canceled and cease
to exist at and after the Effective Time and no consideration shall be paid
with respect thereto.
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Section 3.3. Options.
(a) Except as otherwise agreed to in writing between the Company and the
holder of any Option, and as consented to by Acquirer, as of the Effective
Time, each outstanding Option granted under the Stock Option Plans or otherwise
whether or not then exercisable, shall be canceled by the Company, and as of
the Effective Time, the former holder thereof shall be entitled to receive from
the Company in consideration for such cancellation an amount in cash equal to
the product of (i) the number of shares of Company Common Stock previously
subject to such Option (whether or not vested or exercisable) and (ii) the
excess, if any, of the Merger Consideration per share over the exercise price
per share, if any, previously subject to such Option, reduced by the amount of
withholding or other taxes required by law to be withheld.
(b) Except as provided herein or as otherwise agreed by the parties, the
Stock Option Plans and any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any Subsidiary shall terminate as of the Effective Time, and the
Company shall exercise its best efforts to ensure that following the Effective
Time, no current or former employee or director shall have any Option to
purchase shares of the Company Common Stock or any other equity interest in the
Company under any Stock Option Plan or otherwise.
(c) Prior to the Effective Time, the Board of Directors (or, if
appropriate, any committee administering the Stock Option Plans) shall adopt
such resolutions or take such actions as are necessary, subject if necessary,
to obtaining consents of the holders thereof, to carry out the terms of this
Section 3.3.
Section 3.4. Exchange of Certificates.
(a) Substantially simultaneous with the Effective Time, the Company shall
deposit with a paying agent to be selected by the Company and Acquirer (the
"Paying Agent"), as necessary, for the benefit of the holders of shares of
Company Common Stock, for payment in accordance with this Article III, the
funds necessary to pay the Merger Consideration for each share.
(b) As soon as practicable after the Effective Time, and using its
reasonable best efforts to do so within three business days thereafter, the
Paying Agent shall mail to each holder of an outstanding certificate or
certificates which immediately prior to the Effective Time represented shares
of Company Common Stock (other than Treasury Shares, Dissenting Shares and
Retained Shares), (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to such certificates
shall pass, only upon delivery of such certificates to the Paying Agent and
shall be in such form and have such other provisions as Acquirer and the
Company may reasonably specify) and (ii) instructions for use in effecting the
surrender of each certificate in exchange for payment of the Merger
Consideration. As soon as practicable after the Effective Time, each holder of
an outstanding certificate or certificates which immediately prior to the
Effective Time represented shares of Company Common Stock (other than Retained
Shares), upon surrender to the Paying Agent of such certificate or
certificates, together with a properly completed letter of transmittal, and
acceptance thereof by the Paying Agent, shall be entitled to receive in
exchange therefor the Merger Consideration multiplied by the number of shares
of Company Common Stock formerly represented by such certificate. No interest
will be paid on or accrue on the Merger Consideration. The Paying Agent shall
accept such certificates upon compliance with such reasonable terms and
conditions as the Paying Agent may impose to effect an orderly exchange thereof
in accordance with customary exchange practices. After the Effective Time,
there shall be no further transfer on the records of the Company or its
transfer agent of certificates formerly representing shares of Company Common
Stock which have been converted, in whole or in part, pursuant to this
Agreement, into the right to receive cash, and if such certificates are
presented to the Company for transfer, they shall be canceled against delivery
of such cash. Until surrendered as contemplated by this Section 3.4(b), each
certificate formerly representing shares of Company Common Stock (other than
the Retained Shares) shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger
Consideration for each share of Company Common Stock.
(c) All cash paid upon the surrender for exchange of certificates formerly
representing shares of Company Common Stock in accordance with the terms of
this Article III shall be deemed to have been paid in full satisfaction of all
rights pertaining to the shares exchanged for cash theretofore represented by
such certificates.
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(d) Any cash deposited with the Paying Agent pursuant to this Section 3.4
(the "Exchange Fund") which remains undistributed to the holders of the
certificates formerly representing shares of Company Common Stock one year
after the Effective Time shall be delivered to the Surviving Corporation at
such time and any former holders of shares of Company Common Stock (other than
Retained Shares) prior to the Merger who have not theretofore complied with
this Article III shall thereafter look only to the Surviving Corporation and
only as general unsecured creditors thereof for payment of their claim for
cash, if any.
(e) None of Acquirer, the Company or the Paying Agent shall be liable to
any person in respect of any cash from the Exchange Fund delivered to a public
office pursuant to any applicable abandoned property, escheat or similar law.
If any certificates representing shares of Company Common Stock shall not have
been surrendered prior to one year after the Effective Time (or immediately
prior to such earlier date on which any cash in respect of such certificate
would otherwise escheat to or become the property of any federal, state, local,
or municipal, foreign or other government or subdivision, branch, department or
agency thereof and any governmental or quasi-governmental authority of any
nature, including any court or other tribunal), any such cash in respect of
such certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(f) In the event any certificate formerly representing Company Common
Stock shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such certificate to be lost,
stolen or destroyed and, if required by Surviving Corporation, the posting by
such person of a bond in such reasonable amount as Surviving Corporation may
direct as indemnity against any claim that may be made against it with respect
to such certificate, the Paying Agent will issue in exchange for such lost,
stolen or destroyed certificate the shares representing the Retained Shares, or
the Merger Consideration, as the case may be.
Section 3.5. Dissenting Shares. Notwithstanding Section 3.2 hereof,
Dissenting Shares shall not be converted into a right to receive the Merger
Consideration. The holders thereof shall be entitled only to such rights as are
granted by Section 262 of the DGCL. Each holder of Dissenting Shares who
becomes entitled to payment for such shares pursuant to Section 262 of the DGCL
shall receive payment therefor from the Surviving Corporation in accordance
with the DGCL; provided, however, that (i) if any such holder of Dissenting
Shares shall have failed to establish his entitlement to appraisal rights as
provided in Section 262 of the DGCL, (ii) if any such holder of Dissenting
Shares shall have effectively withdrawn his demand for appraisal of such shares
or lost his right to appraisal and payment for his shares under Section 262 of
the DGCL, or (iii) if neither any holder of Dissenting Shares nor the Surviving
Corporation shall have filed a petition demanding a determination of the value
of all Dissenting Shares within the time provided in Section 262 of the DGCL,
such holder shall forfeit the right to appraisal of such shares and each such
share shall be treated as if it had been converted as of the Effective Time,
into a right to receive the Merger Consideration, without interest thereon,
from the Surviving Corporation as provided in Section 3.2 hereof. The Company
shall give Acquirer prompt notice of any demands received by the Company for
appraisal of shares, and Acquirer shall have the right to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Acquirer, make any payment with
respect to, or settle or offer to settle, any such demands.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to Acquirer to enter into this Agreement, the Company
hereby makes, as of the date hereof and as of the Closing Date, the following
representations and warranties to Acquirer, except as otherwise set forth in a
written disclosure schedule (the "Disclosure Schedule") delivered by the
Company to Acquirer prior to the date hereof, a copy of which is attached
hereto. Unless otherwise specified, (1) each reference in this Agreement to any
numbered schedule is a reference to that numbered schedule which is included in
the Disclosure Schedule and (2) no disclosure made in any particular numbered
schedule of the Disclosure Schedule shall be deemed made in any other numbered
schedule of
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the Disclosure Schedule unless expressly made therein (by cross-reference or
otherwise) or unless, and only to the extent that, (x) it is apparent on the
face of such disclosure that such disclosure contains information which also
modifies another representation and warranty therein, or (y) such disclosure in
one numbered schedule reasonably relates to the disclosure in another numbered
schedule or schedules.
Section 4.1. Organization and Capitalization.
(a) Organization. The Company is duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the corporate
power and authority to conduct its business as it is presently being conducted
and to own and lease its Assets. The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in which
such qualification is necessary under applicable law except where the failure
to be so qualified and in good standing would not reasonably be expected to
have a Material Adverse Effect on the Company. The Company has delivered to
Acquirer true, correct and complete copies of its certificate of incorporation
and by-laws (in each case, as amended to date). The Company is not in violation
of any provision of its certificate of incorporation or by-laws.
(b) Capitalization. The authorized capital stock of the Company consists
of 10,000,000 shares of Company Common Stock. As of March 5, 1999, there were
4,300,352 shares of Company Common Stock issued and outstanding. Since such
date, no additional shares of capital stock of the Company have been issued,
except shares of Company Common Stock issued upon the exercise of Options
outstanding under any Stock Option Plan or otherwise. As of March 5, 1999,
Options to acquire 158,700 shares of Company Common Stock pursuant to the Stock
Option Plans or otherwise were outstanding. Schedule 4.1(b) includes a complete
and correct list of outstanding Options under such Stock Option Plans or
otherwise (including the number of Options and exercise price of each such
Option) held by each employee, director or other person. The Company has no
outstanding bonds, debentures, notes or other obligations the holders of which
have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of the Company on
any matter. All issued and outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Schedule 4.1(b) sets forth the total amount of indebtedness for
borrowed money and the total amount of cash on hand of the Company and its
Subsidiaries on a consolidated basis as of March 1, 1999. Except as provided in
Schedule 4.1(b), all such indebtedness is prepayable without more than two
business days notice and without the payment of any penalty. Except as set
forth in this Section 4.1(b), (i) there are no outstanding Equity Securities of
the Company and (ii) the Company is not a party to commitments or obligations
of any kind or character for (A) the issuance of Equity Securities of the
Company or (B) the repurchase, redemption or other acquisition of any Equity
Securities of the Company.
(c) Voting Trusts, Proxies, Etc. Except for the Stockholders Agreement,
the Company is not a party to any stockholder agreements, voting trusts,
proxies or other agreements or understandings with respect to or concerning the
purchase, sale or voting of the Equity Securities of the Company.
Section 4.2. Authorization. The Company has all necessary corporate power
and authority to execute and deliver this Agreement and all agreements and
documents contemplated hereby. Subject only to the approval of this Agreement
and the transactions contemplated hereby by the majority of all the votes
entitled to be cast on the Merger by the holders of the Company Common Stock,
the consummation by the Company of the transactions contemplated hereby has
been duly authorized by all requisite corporate action. This Agreement has been
duly authorized, executed and delivered by the Company and is a legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be limited
by (a) applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar laws in effect which affect the enforcement of
creditors' rights generally or (b) general principles of equity, whether
considered in a proceeding at law or in equity.
Section 4.3. Subsidiaries.
(a) Ownership; Capitalization. The Company owns, directly or indirectly,
each of the outstanding capital stock (or other ownership interests) of each of
the Company's Subsidiaries as set forth on Schedule
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4.3(a), and the Company has no investments (whether through the acquisition of
an equity interest, the making of a loan or advance or otherwise) in any other
person, corporation, partnership, joint venture, business, or trust or entity.
Except as set forth on Schedule 4.3(a), the Company is the beneficial owner of
all of the outstanding shares of capital stock of each Subsidiary, free and
clear of any and all Encumbrances. The authorized, issued and outstanding
capital stock, and the record ownership of all such shares of capital stock, of
each Subsidiary is as set forth on part (a) of Schedule 4.3. All of the shares
of capital stock of each Subsidiary have been duly authorized and validly
issued and are fully paid and non-assessable, were issued and sold in
accordance with federal and applicable state securities laws and were not
issued in violation of any preemptive or other similar rights. Except as set
forth in this Section 4.3(a), (i) there are no outstanding Equity Securities of
the Company's Subsidiaries and (ii) the Company is not a party to commitments
or obligations of any kind or character for (A) the issuance of Equity
Securities of its Subsidiaries or (B) the repurchase, redemption or other
acquisition of any Equity Securities of its Subsidiaries. There are no
stockholder agreements, voting trusts, proxies or other agreements or
understandings with respect to or concerning the purchase, sale or voting of
the Equity Securities of its Subsidiaries.
(b) Organization. Each of the Company's Subsidiaries is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to conduct its business
as it is presently being conducted and to own and lease its Assets. Each of the
Company's Subsidiaries is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is necessary under applicable law except whether the failure to
be so qualified and in good standing would not reasonably be expected to have a
Material Adverse Effect on the Company. The Company has delivered to Acquirer
true, correct and complete copies of each of its Subsidiaries' certificate of
incorporation and by-laws (in each case, as amended to date). None of the
Company's Subsidiaries is in violation of any provision of its certificate of
incorporation or by-laws.
Section 4.4. Absence of Certain Changes or Events. Since October 31, 1998
and except as set forth in the SEC Reports filed to the date hereof, (x) the
Company and its Subsidiaries have been operated in the ordinary course of
business, consistent with past practice, (y) there has been no Material Adverse
Change in or with respect to the Company or its Subsidiaries and (z) to the
best knowledge of the Company, no events or developments have occurred that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Change with respect to the Company. Without limiting the
generality of the foregoing, since October 31, 1998, neither the Company nor
its Subsidiaries has (i) taken any action of the type contemplated by Section
6.1(c) and (f) - (o) hereof (other than Option grants pursuant to the Option
Plans) or (ii) failed to take any action of the type contemplated by Section
6.1(a) and (b) hereof.
Section 4.5. Title to Assets; Absence of Liens and Encumbrances, etc.
(a) General. Each of the Company and its Subsidiaries owns or leases all
Assets necessary for the conduct of its business as presently conducted, and
the Assets in the aggregate are in such operating condition and repair (subject
to normal wear and tear) as is necessary for the conduct of its business as
presently conducted.
(b) Real Property.
(i) Owned Real Property. Schedule 4.5(b) hereto sets forth all Facilities
owned by the Company and its Subsidiaries. With respect to each parcel of
owned real property (A) the Company or its Subsidiaries has good and
marketable fee simple title to such parcel of real property, free and clear
of any and all Encumbrances other than Permitted Encumbrances, (B) there
are no leases, subleases, licenses, options, rights, concessions or other
agreements, written or oral, granting to any party or parties the right of
use or occupancy of any portion of such parcel of real property, (C) there
are no outstanding options or rights of first refusal in favor of any other
party to purchase any such parcel of real property or any portion thereof
or interest therein, (D) there are no parties (other than the Company and
its Subsidiaries) who are in possession of or who are using any such parcel
of real property and (E) there is no (1) pending or, to the best knowledge
of the Company, threatened
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condemnation proceeding relating to such parcel of real property, (2)
pending or, to the best knowledge of the Company, threatened Action
relating to such parcel of real property, or (3) other matter affecting the
current or currently proposed use, occupancy or value of, such parcel of
real property in any material respect.
(ii) Leased Real Property. Schedule 4.5(b) sets forth all leases pursuant
to which Facilities are leased by the Company or its Subsidiaries (as
lessee), true and correct copies of which have been delivered to Acquirer.
Such leases constitute all leases, subleases or other occupancy agreements
pursuant to which the Company or its Subsidiaries occupies or uses
Facilities. The Company and its Subsidiaries have good and valid leasehold
title to, and enjoy peaceful and undisturbed possession of, all leased
property described in such leases (the "Leased Property"), free and clear
of any and all Encumbrances other than any Permitted Encumbrances which
would not permit the termination of the Lease therefor by the lessor. With
respect to each such parcel of Leased Property (A) there are no pending or,
to the best knowledge of the Company, threatened condemnation proceedings
relating to, or any pending or, to the best knowledge of the Company,
threatened Actions relating to, such Leased Property or any portion
thereof, (B) none of the Company or its Subsidiaries or, to the best
knowledge of the Company, any third party has entered into any sublease,
license, option, right, concession or other agreement or arrangement,
written or oral, granting to any person the right to use or occupy such
Leased Property or any portion thereof or interest therein and (C) neither
the Company nor its Subsidiaries have received notice of any pending or
threatened special assessment relating to such Leased Property or otherwise
have any knowledge of any pending or threatened special assessment relating
thereto. Each leased Facility is supplied with utilities necessary for the
operation of such Facility.
(c) Personal Property. Schedule 4.5(c) identifies all Fixtures and
Equipment, vehicles and other similar tangible personal property Assets with a
book value or replacement cost of at least $20,000 owned or leased by the
Company or its Subsidiaries as of January 31, 1999.
(i) Owned Personal Property. Each of the Company and its Subsidiaries has
good and marketable title to all such personal property owned by it, free
and clear of any and all Encumbrances other than Permitted Encumbrances.
With respect to each such item of personal property (A) there are no
leases, subleases, licenses, options, rights, concessions or other
agreements, written or oral, granting to any party or parties the right of
use of any portion of such item of personal property, (B) there are no
outstanding options or rights of first refusal in favor of any other party
to purchase any such item of personal property or any portion thereof or
interest therein and (C) there are no parties (other than the Company and
its Subsidiaries) who are in possession of or who are using any such item
of personal property;
(ii) Leased Personal Property. Each of the Company and its Subsidiaries
has good and valid leasehold title to all of such Fixtures and Equipment,
vehicles and other tangible personal property Assets leased by it from
third parties, free and clear of any and all Encumbrances other than
Permitted Encumbrances which would not permit the termination of the lease
therefor by the lessor. Schedule 4.5(c) sets forth all Leases for personal
property involving annual payments in excess of $20,000 and includes a
general description of the leased items, term and annual rent, true and
correct copies of which have been delivered or made available to Acquirer.
(d) With respect to each Lease listed on Schedule 4.5(b) and Schedule
4.5(c), (A) there has been no material default under any such Lease by the
Company or its Subsidiaries, or to the best knowledge of the Company, by any
other party, (B) such Lease is a valid and binding obligation of the Company
and/or its Subsidiaries, is in full force and effect with respect to the
Company and/or its Subsidiaries and is enforceable against the Company and/or
its Subsidiaries in accordance with its terms, except as the enforceability
thereof may be limited by (1) applicable bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance or similar laws in effect which affect
the enforcement of creditors' rights generally or (2) general principles of
equity, whether considered in a proceeding at law or in equity, and (C) no
action has been taken by the Company and no event has occurred which, with
notice or lapse of
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time or both, would permit termination, modification or acceleration by a party
thereto other than the Company and/or its Subsidiaries, without the consent of
the Company and/or its Subsidiaries, under any such Lease that is material to
the Company and/or its Subsidiaries.
Section 4.6. Contracts and Commitments.
(a) Schedule 4.6 sets forth a complete and accurate list of all Contracts
in the following categories as of the date hereof (except to the extent that
any such category specifies a different date, in which case such corresponding
list is made as of such specified date):
(i) each Contract (or group of related Contracts) for the furnishing of
services by the Company and/or its Subsidiaries involving annual revenues
of more than $20,000 to the Company and its Subsidiaries;
(ii) each Contract (or group of related Contracts) concerning a
partnership or joint venture with, or any other investment in (whether
through the acquisition of an equity interest, the making of a loan or
advance or otherwise), any other person;
(iii) each Contract (or group of related Contracts) (A) under which the
Company or its Subsidiaries has created, incurred, assumed or guaranteed
(or may create, incur, assume or guarantee) indebtedness for borrowed
money, (B) constituting material capital lease obligations, (C) under which
the Company or its Subsidiaries has granted (or may grant) a security
interest or lien on any of the Assets or (D) under which the Company or its
Subsidiaries has incurred any obligations for any performance bonds,
payment bonds, bid bonds, surety bonds, letters of credit, guarantees or
similar instruments;
(iv) each Contract (or group of related Contracts) with any of the
Personnel, any Affiliate of the Company or any member of any such person's
immediate family, including, without limitation, Contracts (A) to employ or
terminate executive officers or other Personnel and other Contracts with
present or former officers, directors or stockholders or other corporate
Personnel or (B) that will result in the payment by, or the creation of any
commitment or obligation (absolute or contingent, matured or unmatured) to
pay on behalf of the Company or its Subsidiaries or any Affiliate of the
Company or its Subsidiaries, any severance, termination, "golden parachute"
or other similar payments to any present or former Personnel following
termination of employment or otherwise as a result of the consummation of
the transactions contemplated hereby;
(v) each Contract (or group of related Contracts), other than Contracts
covered by clause (vii) of this Section 4.6, providing for payments in
excess of $20,000 over the life of such Contract (or group of related
Contracts), except for such Contracts that are cancelable on not more than
30 days' notice by the Company or its Subsidiaries without penalty or
increased cost;
(vi) each distribution, franchise, license, sales, commission, consulting
agency or advertising Contract related to the Assets or the business,
except for such Contracts that are cancelable on not more than 30 days'
notice by the Company or its Subsidiaries without penalty or increased
cost;
(vii) each Contract (or group of related Contracts) containing covenants
restraining or limiting the freedom of the Company or its Subsidiaries or
any officer, director, stockholder or Affiliate thereof to engage in any
line of business or compete with any person including, without limitation,
by restraining or limiting the right to solicit customers;
(viii) each Contract (or group of related Contracts) with the United
States, state or local government or any agency or department thereof;
(ix) each Contract (or group of related Contracts) pursuant to which the
Company or its Subsidiaries have sold any Assets and have created any
obligation to indemnify anyone with respect thereto; and
(x) any other material Contract involving an aggregate annual payment of
$20,000 or greater.
The Company and its Subsidiaries have delivered to Acquirer a true and correct
copy of each written Contract listed in Schedule 4.6 and has included as part
of Schedule 4.6 a brief summary of the material terms of each such oral
Contract.
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(b) Absence of Breaches or Defaults in General. With respect to each
Contract set forth on or described in Schedule 4.6, (i) there is no material
default by the Company or its Subsidiaries or, to the knowledge of the Company,
any other party to any Contract, (ii) the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
and thereby will not cause a material default hereunder or thereunder; (iii)
such Contract is a legal, valid and binding obligation of the Company or its
Subsidiaries party thereto, is in full force and effect and is enforceable
against the Company or its Subsidiaries and, to the knowledge of the Company,
against each other party thereto in accordance with its terms, except as the
enforceability thereof may be limited by (A) applicable bankruptcy, insolvency,
moratorium, reorganization, fraudulent conveyance or similar laws in effect
which affect the enforcement of creditors' rights generally or (B) general
principles of equity, whether considered in a proceeding at law or in equity;
and (iv) no action has been taken by the Company or its Subsidiaries and no
event has occurred which, with notice or lapse of time or both and/or the
occurrence, nonoccurrence, or existence or nonexistence of any other event or
condition would permit termination, modification or acceleration by a party
thereto other than the Company or its Subsidiaries under any such Contract.
Section 4.7. Permits. The Company and its Subsidiaries have all material
Permits required to own and lease their properties, the Assets and the
Facilities and to conduct their business as currently being conducted. All such
Permits are valid and in full force and effect and are listed on Schedule 4.7.
The Company and its Subsidiaries have not violated any such Permits in any
material respect, and each is in compliance with all such Permits in all
material respects. Neither the Company nor its Subsidiaries has received any
notice to the effect that, or otherwise has any knowledge that, (a) the Company
and its Subsidiaries are not currently in compliance with, or are in violation
of, any such Permits in any material respect or (b) any currently existing
circumstances are likely to result in a failure of the Company and its
Subsidiaries to comply with, or in a violation by the Company and its
Subsidiaries of, any such Permits in any material respect.
Section 4.8. No Conflict or Violation. Neither the execution, delivery and
performance of this Agreement, nor the consummation of the transactions
contemplated hereby, by the Company or its Subsidiaries will result in (a) a
violation of or a conflict with any provision of the certificate of
incorporation or by-laws of the Company or its Subsidiaries, (b) a breach of,
or a default under, or the creation of any right of any party to accelerate,
terminate or cancel pursuant to (including, without limitation, by reason of
the failure to obtain a consent or approval under any such Contract), any term
or provision of any Contract, indebtedness, Lease, Encumbrance, Permit,
authorization or concession to which the Company or its Subsidiaries is a party
or by which any of the Assets are bound, (c) a violation by the Company or its
Subsidiaries of any statute, rule, regulation, ordinance, code, order,
judgment, writ, injunction, decree or award applicable to the Company or its
Subsidiaries, (d) an impairment of any right of the Company or its Subsidiaries
under any Contract to which it is a party or by which its Assets are bound or
under any Permit relating to the operation of its business, or (e) an
imposition of any Encumbrance (other than Permitted Encumbrances), restriction
or charge on the business of the Company or its Subsidiaries or on any of the
Assets, except in the case of clauses (b), (d) and (e), where such breach,
default, creation of any right, impairment or imposition would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company.
Section 4.9. Consents and Approvals. No consent, waiver, agreement,
approval, Permit or authorization of, or declaration, filing, notice or
registration to or with, any federal, state, local or foreign governmental or
regulatory authority or body or other person or entity is required to be made
or obtained by the Company or its Subsidiaries in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby other than (a) filings required in
connection with or in compliance with the provisions of the HSR Act (if
applicable), the Securities Act, the Exchange Act or applicable state
securities and "Blue Sky" laws (collectively, the "Regulatory Filings"), (b)
the filing of the Merger Certificate under the DGCL, or (c) those consents,
waivers, agreements, approvals, authorizations, declarations, filings, notices
or registrations, that have been, or will be prior to the Closing Date,
obtained or made, as set forth on Schedule 4.9 except those consents, waivers,
agreements, approvals, authorizations, declarations, filings, notices or
registrations the failure of which to obtain could not reasonably be expected
to have a Material Adverse Effect on the Company or prevent or materially delay
the Merger transaction.
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Section 4.10. SEC Documents; Financial Statements, etc. The Company has
filed all forms, reports and documents required to be filed by it with the SEC
since January 31, 1996 through the date of this Agreement (collectively, the
"Company Reports"). As of their respective dates, the Company Reports (i)
complied as to form in all material respects with the applicable requirements
of the Securities Act, the Exchange Act, and the rules and regulations
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. The consolidated financial statements of the
Company included in or incorporated by reference in the Company Reports (the
"Financial Statements") (i) comply as to form in all material respects with
applicable accounts requirements and the published rules and regulations of the
SEC with respect thereto; (ii) have been prepared in accordance with GAAP,
consistently applied throughout the periods covered thereby, and sound
bookkeeping practices and (iii) present fairly in accordance with GAAP,
consistently applied throughout the periods covered, the financial condition of
the Company and its Subsidiaries as of the respective dates thereof and the
results of operations, stockholders' equity and cash flows for the periods
covered thereby (except as may be indicated in the notes thereto and subject in
the case of unaudited interim financial statements, to normal year-end
adjustments). The accounting and financial records of the Company and its
Subsidiaries have been prepared and maintained in accordance with GAAP,
consistently applied throughout the periods indicated, and sound bookkeeping
practices.
Section 4.11. Undisclosed Liabilities. Neither the Company nor its
Subsidiaries has any liabilities, obligations or commitments of any nature
(whether direct or indirect, known or unknown, absolute or contingent,
liquidated or unliquidated, due or to become due, accrued or unaccrued, matured
or unmatured) and, to the knowledge of the Company, there is no basis for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand against the Company or its Subsidiaries giving
rise to any such liability, other than (a) liabilities which are reflected and
reserved against on the most recent balance sheet contained in the Financial
Statements (including, without limitation, in the notes thereto) which have not
been paid or discharged since the date thereof, (b) liabilities which arose
prior to the date of the most recent balance sheet contained in the Financial
Statements and not required under GAAP to be reflected thereon, (c) liabilities
and obligations disclosed on the Disclosure Schedule and (d) liabilities
incurred since October 31, 1998 in the ordinary course of business, consistent
with past practice (none of which liabilities incurred since October 31, 1998
relates to any material breach of Contract, breach of warranty, tort,
infringement or violation of law or which arose out of any Action). None of the
liabilities described in clauses (b), (c) and (d) of the preceding sentence has
or would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company.
Section 4.12. Litigation. Except as set forth on Schedule 4.12 or in the
Company Reports and other than Actions which are reflected and reserved against
in the most recent balance sheet contained in the Financial Statements
(including, without limitation, in the notes thereto), there are no outstanding
actions, orders, writs, injunctions, judgments or decrees or any claims, suits,
charges, proceedings, labor disputes, arbitrations, governmental audits or
investigations (collectively, "Actions") pending or, to the knowledge of the
Company and its Subsidiaries, threatened or anticipated, (a) against, related
to or affecting (i) the Company and its Subsidiaries, their business or
operations or the Assets, (ii) to the Company's knowledge, any officers or
directors of the Company and its Subsidiaries, as such, (iii) to the knowledge
of the Company, any stockholder of the Company owning of record or beneficially
any Retained Shares, or (iv) other than routine claims for benefits, any
Employee Plan of the Company and its Subsidiaries or any trust or funding
instrument, fiduciary or administrator thereof; (b) to the Company's knowledge,
relating to the transactions contemplated hereby; or (c) in which Company or
its Subsidiaries is a plaintiff, including, without limitation, any derivative
suits brought by or on behalf of the Company or its Subsidiaries, except for
those Actions under clauses (a), (b) or (c) that would not have, individually
or in the aggregate, a Material Adverse Effect on the Company.
Section 4.13. Labor Matters. Except as set forth on Schedule 4.13, (a)
neither the Company nor its Subsidiaries is a party to, or a participant in any
negotiation of, any labor agreement with respect to any of their employees with
any labor organization, union, group or association and there are no
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employee unions (nor any other similar labor or employee organizations) under
local statutes, custom or practice; (b) in the past five years, neither the
Company nor its Subsidiaries has been approached by organized labor or its
representatives making an effort to cause the Company or its Subsidiaries to
conform to demands of organized labor relating to any of their employees or to
enter into a binding agreement with organized labor that would cover any of
their employees; and (c) there is no labor strike, slow-down or other work
stoppage or labor disturbance pending or, to the knowledge of the Company,
threatened against the Company or its Subsidiaries nor is any grievance
currently being asserted, and in the past five years the Company and its
Subsidiaries have not experienced a strike, slow-down or other work stoppage or
other labor disturbance or difficulty. The Company and its Subsidiaries are in
compliance in all material respects with all applicable laws respecting
employment practices, employee documentation, terms and conditions of
employment and wages and hours and are not and have not engaged in any unfair
labor practice. There is no unfair labor practice charge or complaint against
the Company and its Subsidiaries pending before or, to the knowledge of the
Company, threatened by the National Labor Relations Board or any other domestic
or foreign governmental agency arising out of the conduct of their businesses,
and, to the knowledge of the Company, there are no facts or information which
would give rise thereto, and in the past five years there have not been any
unfair labor practice charges or complaints against the Company or its
Subsidiaries which could have a Material Adverse Effect on the Company.
Section 4.14. Compliance with Law. The Company and its Subsidiaries have
not violated and are in compliance with (a) all applicable laws, statutes,
ordinances, regulations, rules and orders of every federal, state, local or
foreign government and every federal, state, local or foreign court or other
governmental or regulatory agency, department, authority, body or
instrumentality and (b) any judgment, decision, decree or order of any court or
governmental or regulatory agency, department, authority, body or
instrumentality (collectively, "Laws"), relating to the Assets, business or
operations of the Company or its Subsidiaries, except to the extent that any
such violation or failure to comply is not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect on the Company. Neither the
Company nor its Subsidiaries has received any written notice to the effect
that, or otherwise has any knowledge that, (i) the Company is not currently in
compliance with, or is in violation of, any applicable Laws or (ii) any
currently existing circumstances are likely to result in a failure of the
Company to comply with, or a violation by the Company of, any Laws, in either
case which such failure to comply or violation would be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on the
Company.
Section 4.15. No Brokers. Other than with Dunn Johnston & Company, Inc.,
which was retained by the Company pursuant to agreements dated October 29, 1997
and January 6, 1999, respectively, which agreements have been delivered to
Acquirer prior to the date hereof, none of the Company, its Subsidiaries or any
of their officers, directors, employees, stockholders or other Affiliates has
employed or made any agreement with any broker, finder or similar agent or any
person or firm to pay any finder's fee, brokerage fee or commission or similar
payment in connection with the transactions contemplated hereby for which the
Company or the Surviving Corporation would be obligated.
Section 4.16. Proprietary Rights. Schedule 4.16 lists all federal, state
and foreign registrations of patents, trademarks, trade names, service marks or
other trade rights and copyrights and all pending applications for any such
registrations that are owned by the Company or its Subsidiaries, or that are
being or have been used in connection with, or relate to, the Assets, the
business or operations, products or processes of the Company or its
Subsidiaries (whether or not presently used in connection with the Assets,
business or operations of the Company or its Subsidiaries) or in which the
Company or its Subsidiaries have any interest (collectively, the "Proprietary
Rights"). No person has a right to receive a royalty or similar payment in
respect of any Proprietary Rights whether or not pursuant to any contractual
arrangements entered into by the Company or its Subsidiaries. Neither the
Company nor its Subsidiaries has any licenses granted, sold or otherwise
transferred by or to it or other agreements to which it is a party, relating in
whole or in part to any of the Proprietary Rights. Each of the Company and its
Subsidiaries owns, or possesses valid and enforceable licenses or other rights
to use, all Proprietary Rights used in or necessary for its business as it is
currently conducted, and such ownership and licenses will not cease to be valid
and in full force and effect by reason of the execution, delivery and
performance of this
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Agreement or the consummation of the transactions contemplated hereby, except
where the failure to own or possess such licenses or rights would not be
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on the Company. No other firm, corporation, association or person (a)
has notified the Company or its Subsidiaries that it is claiming any ownership
of or right to use such Proprietary Rights or (b) to the best of the Company's
and its Subsidiaries' knowledge, has interfered with, infringed upon or
otherwise come into conflict with any such Proprietary Rights in any material
respect.
Section 4.17. Employee Plans.
(a) Schedule 4.17 contains a complete list of Employee Plans. With respect
to each such Employee Plan, the Company has provided to Acquirer true and
complete copies of (i) all plan documents and related trust agreements, annuity
contracts or other funding instruments, (ii) all summary plan descriptions,
summary of material modifications, all material employee communications, the
number of and a general description of the level of employees covered by each
Benefit Arrangement and a complete description of any Employee Plan which is
not in writing, (iii) the most recent determination letter issued by the
Internal Revenue Service and any opinion letter issued by the Department of
Labor with respect to each Pension Plan and each voluntary employees'
beneficiary association as defined under Section 501(c)(9) of the Code (other
than a Multi-employer Plan), (iv) for the three most recent plan years, the
Internal Revenue Service Form 5500 including all schedules and attachments
thereto for each Pension Plan and Welfare Plan, (v) all actuarial reports
prepared for the last three plan years for each Pension Plan, and (vi) a
description setting forth the amount of any liability of the Company and its
Subsidiaries as of the Closing Date for payments more than thirty (30) calendar
days past due with respect to any Welfare Plan.
(b) (i) Each Employee Plan including any related trust agreement, annuity
contract or other funding instrument is legal, valid and binding and in full
force and effect.
(ii) Each Pension Plan and each related trust agreement, annuity contract
or other funding instrument which has been operated as a qualified plan has
received a favorable determination letter from the Internal Revenue Service
stating that such Pension Plan and each related trust is qualified and
tax-exempt under the provisions of Code Sections 401(a) and 501(a) and has
been so qualified during the period from its adoption to the date of such
determination letter.
(iii) Each Employee Plan is subject only to the laws of the United States
or a political subdivision thereof.
(iv) Each Employee Plan has been maintained in compliance in all material
respect to its terms and operation, with the requirements prescribed by any
and all statutes, orders, rules and regulations which are applicable to
such Employment Plan, including, without limitation, ERISA and the Code.
(v) Except as provided by law or in any employment agreement set forth on
Schedule 4.17, the employment of all persons presently employed or retained
by the Company or its Subsidiaries is terminable at will.
(c) (i) None of the Employee Plans is a plan that is or has ever been
subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code.
(ii) None of the Employee Plans is a plan or arrangement described under
Section 4(b)(5) or 401(a)(1) of ERISA, or a plan maintained in connection
with a trust described in Section 501(c)(9) of the Code.
(iii) Neither the Company nor any ERISA affiliate has, at any time,
maintained, contributed to or had any obligation to maintain or contribute
to any Multiemployer Plan.
(d) (i) Neither the Company nor any ERISA Affiliate has engaged in, or is
a successor or parent corporation to an entity that has engaged in, a
transaction described in Section 4212(c) of ERISA.
(ii) None of the Company, or its Subsidiaries or any plan fiduciary of
any Employee Plan has engaged in, or has any liability in respect of, any
transaction in violation of Sections 404 or 406 of
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ERISA or any "prohibited transaction," as defined in Section 4975(c)(1) of
the Code, for which no exemption exists under Section 408 of ERISA or
Section 4975(c)(2) or (d) of the Code, or has otherwise materially violated
or participated in a violation of the provisions of Part 4 of Title I,
Subtitle B of ERISA.
(iii) The Company and its Subsidiaries have not been assessed any civil
penalty under Section 502(l) of ERISA.
(iv) No Employee Plan (or trust or other funding vehicle pursuant
thereto) has incurred any liability under Code Section 511.
(e) Except as set forth on Schedule 4.17 or required by Section 4980B of
the Code or Part 6 of Title 1, Subtitle B of ERISA, neither the Company nor any
ERISA Affiliate or any Welfare Plan has any present or future obligation to
make any payment to, or with respect to any present or former employee of the
Company or any ERISA Affiliate pursuant to any retiree medical benefit plan, or
other retiree Welfare Plan, and no condition exists which would prevent the
Company or an ERISA affiliate from amending or terminating any such benefit
plan or such Welfare Plan.
(f) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company or its Subsidiaries that,
individually or collectively, requires the payment by the Company or its
Subsidiaries of any amount that is not deductible under Section 162(a)(1) or
404 of the Code.
(g) Neither the Company nor any ERISA Affiliate has announced to
employees, former employees or directors an intention to create, or has
otherwise created, a legally binding commitment to adopt any additional
Employee Plans which are intended to cover employees or former employees of the
Company or any subsidiary or to amend or modify any existing Employee Plan
which covers or has covered employees or former employees of the Company or any
subsidiary.
(h) Except as set forth on Schedule 4.17, (i) neither the Company nor any
Employee Plan holds as an asset any interest in any annuity contract,
guaranteed investment contract or any other investment or insurance contract
issued by an insurance company that is the subject of bankruptcy,
conservatorship or rehabilitation proceedings; and (ii) the insurance policies
or other funding instruments, if any, for each Welfare Plan provide coverage
for each employee, consultant, independent contractor or retiree of the Company
or its Subsidiaries (and, if applicable, their respective dependents) who has
been advised by the Company or its Subsidiaries, whether through an Employee
Plan or otherwise, that he or she is covered by such Welfare Plan.
(i) Except as set forth on Schedule 4.17, neither the execution and
delivery of this Agreement or other related agreements by the Company nor the
consummation of the transactions contemplated hereby or the related
transactions will result in the acceleration or creation of any rights of any
person to benefits under any Employee Plan (including, without limitation, the
acceleration of the vesting or exercisability of any share options, the
acceleration of the vesting of any restricted stock, the acceleration of the
accrual or vesting of any benefits under any Pension Plan or the acceleration
or creation of any rights under any severance, parachute or change in control
agreement).
(j) To the knowledge of the Company, no event has occurred in connection
with which the Company or any Employee Plan, directly or indirectly, could be
subject to any material liability (A) under any statute, regulation or
governmental order relating to any Employee Plan or (B) pursuant to any
obligation of the Company to indemnify any person against liability incurred
under any such statute, regulation or order as they relate to the Employee
Plans.
(k) Except as set forth on Schedule 4.17, the Company is not a party to
any severance or similar arrangement in respect of any of the Personnel that
will result in any obligation (absolute or contingent) of the Company or
Acquirer after the Closing to make any payment to any of such Personnel
following termination of employment.
Section 4.18. Tax Matters.
(a) Filing of Tax Returns. The Company and its Subsidiaries have timely
filed with the appropriate taxing authorities all Returns in respect of Taxes
required to be filed through the date hereof (or are
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properly on extension) and will timely file any such returns required to be
filed on or prior to the Closing Date (or are properly on extension). All
Returns and other information filed are (and will be) complete and accurate in
all material respects and all Taxes due on such Returns have been paid in full
or will be paid in full on a timely basis prior to the Closing Date. The
Company and its Subsidiaries have not requested any extension of time within
which to file Returns in respect of any Taxes. The Company and its Subsidiaries
have delivered to Acquirer complete and accurate copies of the federal, state
and local income tax Returns for the fiscal years 1996, 1997 and 1998.
(b) Payment of Taxes. Other than as set forth on Schedule 4.18, all Taxes
for which the Company and its Subsidiaries are or may be liable, in respect of
periods (or portions thereof) ending on or before the Closing Date (other than
for the period beginning immediately after the end of the period reported on in
the Company's Form 10-Q for the fiscal quarter ending April 30, 1999 and ending
on the Closing Date), have been timely paid, or an adequate reserve (in
conformity with GAAP) has been established therefor, as set forth in the
Financial Statements. Other than as set forth on Schedule 4.18, there are no
Taxes for which the Company and its Subsidiaries are or may become liable in a
period or a portion thereof beginning on or after the Closing Date that are
attributable to income earned or activities of the Company and its Subsidiaries
occurring before the Closing Date, and neither the Company nor any of its
Subsidiaries have obtained any ruling from or entered into any closing
agreements with any Taxing authority that could affect their Tax liability for
any period or portion thereof beginning after the Closing Date.
(c) Audits, Investigations or Claims. Other than as set forth on Schedule
4.18, no deficiencies for Taxes have been claimed, proposed or assessed in
writing by any taxing or other governmental authority against the Company or
its Subsidiaries which have not been paid or reserved on the Financial
Statements. Other than as set forth on Schedule 4.18, there are no pending or
in process audits or, to the Company's knowledge, threatened audits,
investigations or claims for or relating to any liability in respect of Taxes
that in the reasonable judgment of the Company or its counsel are likely to
result in an additional amount of Taxes, and there is no matter under
discussion with any taxing or other governmental authority with respect to
Taxes that in the reasonable judgment of the Company or its counsel is likely
to result in an additional liability for Taxes with respect to the Company or
its Subsidiaries. Audits of federal, state, and local returns for Taxes by the
relevant taxing or other governmental authorities have been completed for the
periods set forth on Schedule 4.18(c) and none of the Company or its
Subsidiaries has been notified that any taxing or other governmental authority
intends to audit any other Return for any period. No extension of any statute
of limitations relating to Taxes is in effect with respect to the Company or
its Subsidiaries. No power of attorney has been executed by the Company or its
Subsidiaries with respect to any matters relating to Taxes which is currently
in force. The Company has disclosed on its federal income tax Returns all
positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Code Section 6662.
(d) Liens. There are no liens for Taxes (other than for current Taxes not
yet due and payable) on the Assets.
(e) Safe Harbor Lease Property. None of the Assets is property that is
required to be treated as being owned by any other person pursuant to the
so-called safe harbor lease provisions of former Section 168(f)(8) of the Code.
(f) Security for Tax-Exempt Obligations. None of the Assets directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
(g) Tax-Exempt Use Property. None of the Assets is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(h) No Withholding. The Company is not (and has not been during the five
year period prior to the Closing Date) a United States Real Property Holding
Corporation within the meaning of Section 897(c)(2) of the Code.
(i) Tax Elections. All material elections with respect to Taxes affecting
the Company or its Subsidiaries as of the date hereof are set forth on Schedule
4.18(i). Neither the Company nor its
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Subsidiaries has consented at any time under Section 341(f)(1) of the Code to
have the provisions of Section 341(f)(2) of the Code (or similar provisions
under state or local law) apply to any disposition of the Assets. The Company
and its Subsidiaries have not agreed to make, or are not required to make, any
adjustment under Section 481(a) of the Code (or similar provisions under state
or local law) by reason of a change in accounting method or otherwise.
(j) Tax Sharing Agreements. There are no tax sharing agreements or similar
arrangements (whether written or unwritten) with respect to or involving the
Company or its Subsidiaries.
(k) Partnerships. The Company and its Subsidiaries are not a party to any
joint venture, partnership or other arrangement or contract which is taxed as a
partnership for federal income tax purposes.
(l) Compensation Payments. Except as set forth on Schedule 4.18, the
Company and its Subsidiaries are not a party to any agreement or arrangement
that would result, separately or in the aggregate, (i) in the payment of any
"excess parachute payment" within the meaning of Section 280G of the Code,
including, without limitation, as a result of any event connected with the
Merger or any other transaction contemplated herein, or (ii) in the payment of
any "applicable employee renumeration" within the meaning of Section 162(m) of
the Code.
(m) Affiliated Group. Except as set forth on Schedule 4.18, the Company
and its Subsidiaries have not been a member of an affiliated group that has
filed a consolidated return or any group that has filed a combined,
consolidated or unitary state or local return, other than the group of which
the Company is currently the parent.
Section 4.19. Insurance. Schedule 4.19 contains a complete and accurate
list of all policies or binders for business interruption, fire, liability,
title, worker's compensation, product liability, errors and omissions and other
forms of insurance (showing as to each policy or binder the carrier, policy
number, coverage limits, expiration date, annual premium and a general
description of the type of coverage provided) maintained by the Company and its
Subsidiaries. Such insurance provides, and during its term has provided,
coverage to the extent and in the manner (a) adequate for the Company and its
Subsidiaries and their Assets, businesses and operations and the risks insured
against in connection therewith and (b) as may be or may have been required by
law and by any and all Contracts to which the Company and/or its Subsidiaries
are or have been a party. The Company and its Subsidiaries are not in any
material default under any of such policies or binders, and the Company and its
Subsidiaries have not failed to give any notice or to present any material
claim under any such policy or binder in a due and timely fashion. No insurer
has refused, denied or disputed coverage of any material claim made thereunder.
No insurer has advised the Company and/or its Subsidiaries that it intends to
reduce coverage, materially increase any premium or fail to renew any existing
policy or binder. All such policies and binders are in full force and effect on
the date hereof and shall be kept in full force and effect through the Closing
Date.
Section 4.20. Customers and Suppliers. Schedule 4.20 sets forth a true and
correct list of (a) the 25 largest customers of the Company and its
Subsidiaries, on a consolidated basis, in terms of sales during the fiscal year
ended January 31, 1999, setting forth the total sales to each such customer
during such period and (b) the 10 largest suppliers of the Company and its
Subsidiaries, on a consolidated basis, in terms of purchases during the fiscal
year ended January 31, 1999, setting forth for each such supplier the total
purchases from each such supplier during such period. Since January 31, 1999,
there has not been any adverse change in the business relationship of the
Company or its Subsidiaries with any customer or supplier named in Schedule
4.20 that would reasonably be expected to have a Material Adverse Effect on the
Company.
Section 4.21. Compliance with Environmental Laws.
(a) The Company and its subsidiaries are in material compliance with all
Environmental Laws, including, without limitation, all Permits required
thereunder to conduct their business as currently being conducted or proposed
to be conducted. All such Permits are listed on Schedule 4.21. Neither the
Company nor its Subsidiaries has received any notice to the effect that, or
otherwise has knowledge that, (i) the Company and its Subsidiaries are not
currently in compliance in any material respect with, or are
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in violation of, any such Environmental Laws or Permits required thereunder or
(ii) any currently existing circumstances are likely to result in a failure of
the Company or its Subsidiaries to comply with, or a violation by the Company
or its Subsidiaries of, any such Environmental Laws or Permits required
thereunder. Except as set forth on Schedule 4.21, the Company and its
Subsidiaries at all times during the previous five years from the date hereof
have been in material compliance with all Environmental Laws.
(b) Except as set forth on Schedule 4.21, there are no existing or, to the
knowledge of the Company, potential Environmental Claims against the Company or
its Subsidiaries, nor have any of them received any written notification or
otherwise has any knowledge, of any allegation of any actual, or potential
responsibility for, or any inquiry or investigation regarding, any disposal,
release or threatened release at any location of any Hazardous Substance
generated or transported by the Company or its Subsidiaries.
(c) (i) Except as set forth on Schedule 4.21, no underground tank or other
underground storage receptacle for Hazardous Substances is currently located on
the Facilities and there have been no releases of any Hazardous Substances from
any such underground tank or related piping and (ii) there have been no
releases (i.e., any past or present releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing, or dumping) of Hazardous Substances on, upon or into the Facilities
other than those authorized by Environmental Laws including, without
limitation, the Permits required thereunder. In addition, to the best knowledge
of the Company, there have been no such releases by the Company's or its
Subsidiaries' corporate predecessors and no releases on, upon, or into any real
property in the vicinity of any of the real properties of the Company or its
Subsidiaries other than those authorized by Environmental Laws which, through
soil or ground water contamination, may have come to be located on the
properties of the Company or its Subsidiaries.
(d) Except as would not have a Material Adverse Effect on the Company,
there are no PCBs or asbestos-containing materials located at or on the
Facilities.
(e) Except as set forth on Schedule 4.21, the Company and its Subsidiaries
are not a party, whether as a direct signatory or as successor, assign or
third-party beneficiary, or otherwise bound, to any Lease or other Contract
(excluding insurance policies disclosed on the Disclosure Schedule) under which
the Company or its Subsidiaries are obligated by or entitled to the benefits
of, directly or indirectly, any representation, warranty, indemnification,
covenant, restriction or other undertaking concerning Environmental Conditions
or compliance with Environmental Laws.
(f) The Company and its Subsidiaries have not released any other person
from any claim under any Environmental Law or waived any rights concerning any
Environmental Condition.
(g) Except as set forth on Schedule 4.21, there are no consent decrees,
consent orders, judgments, judicial or administrative orders or agreements
(other than Permits) with or liens by, any governmental authority or
quasi-governmental entity relating to any Environmental Law which regulate,
obligate or bind the Company or its Subsidiaries.
(h) True and correct copies of the Environmental Reports, as well as all
other written environmental reports, audits or assessments which have been
conducted, either by the Company or its Subsidiaries or any person engaged by
the Company or its Subsidiaries for such purpose, at any facility owned or
formerly owned by the Company or its Subsidiaries have been made available to
Acquirer and a list of all such reports, audits and assessments is set forth on
Schedule 4.21(h).
Section 4.22. No Other Agreements to Sell the Assets or Shares of the
Company or its Subsidiaries. Other than sales of inventory or product in the
ordinary course of business, consistent with past practice, neither the Company
nor its Subsidiaries has any legal obligation, absolute or contingent, to any
other person or firm to (a) sell or effect a sale of any or all of the Assets,
(b) sell or effect a sale of any Equity Securities of the Company or its
Subsidiaries, other than pursuant to the exercise of Options existing on the
date hereof, (c) effect any merger, consolidation or other reorganization of
the Company or its Subsidiaries or (d) enter into any Contract or cause the
entering into a Contract with respect to any of the foregoing.
Section 4.23. Prohibited Payments. The Company and its Subsidiaries have
not, directly or indirectly, (a) made or agreed to make any contribution,
payment or gift to any government official,
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employee or agent where either the contribution, payment or gift or the purpose
thereof was illegal under the laws of any federal, state, local or foreign
jurisdiction, (b) established or maintained any unrecorded fund or asset for
any purpose or made any false entries on the books and records of the Company
and its Subsidiaries for any reason, (c) made or agreed to make any
contribution, or reimbursed any political gift or contribution made by any
other person, to any candidate for federal, state, local or foreign public
office or (d) paid or delivered any fee, commission or any other sum of money
or item of property, however characterized, to any finder, agent, government
official or other party, in the United States or any other country, which in
any manner relates to the Assets, business or operations of the Company or its
Subsidiaries, which the Company or its Subsidiaries knows or has reason to
believe to have been illegal under any federal, state or local laws (or any
rules or regulations thereunder) of the United States or any other country
having jurisdiction.
Section 4.24. Y2K Compliant. The Company and its Subsidiaries have
assessed their equipment (including embedded systems), software, firmware and
computer systems (including equipment or systems supplied by others that are
material to the Company and its Subsidiaries conducting their business and/or
performing operations (collectively the "Systems") to determine whether such
Systems accurately process date data from, into, and between the twentieth and
twenty-first centuries, including leap year calculations ("Y2K Compliant"). To
the knowledge of the Company, the expense of correcting and redeploying any
non-Y2K Compliant Systems and all System testing of any equipment which the
Company and its Subsidiaries have acquired, and/or the reasonably foreseeable
consequences of any System failing to be Y2K Compliant (including, without
limitation, reprogramming errors and the failure of others' systems or
equipment) will not have a Material Adverse Effect on the Company.
Section 4.25. Board Recommendation. The Board of Directors of the Company,
at a meeting duly called and held, has by unanimous vote (i) determined that
this Agreement and the transactions contemplated hereby, including the Merger,
taken together are fair to and in the best interests of the stockholders of the
Company and has taken all actions necessary on the part of the Company to
render the restrictions on business combinations contained in Section 203 of
the DGCL inapplicable to this Agreement, the Merger and the Voting Agreement
and (ii) resolved to recommend that the holders of the shares of the Company
Common Stock approve this Agreement and the transactions contemplated herein,
including the Merger.
Section 4.26. Required Company Vote. The affirmative vote of a majority of
the outstanding shares of the Company Common Stock is the only vote of the
holders of any class or series of the Company's securities necessary to approve
this Agreement, the Merger and the other transactions contemplated hereby.
There is no vote of the holders of any class or series of the Company's
securities necessary to approve the Voting Agreement.
Section 4.27. Opinion of Dunn Johnston. The Company has received the
opinion of Dunn Johnston & Company, Inc., dated the date hereof, and a true and
complete copy of such opinion has been delivered to Acquirer and attached
hereto as Exhibit D ("Fairness Opinion").
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
As an inducement to the Company to enter into this Agreement, Acquirer
hereby makes the following representations and warranties as of the date hereof
and as of the Closing Date to the Company:
Section 5.1. Organization. Acquirer is duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority to conduct its business as it is presently being
conducted and to own, lease and operate its properties, except where the
failure to have such power and authority would not reasonably be expected to
have a Material Adverse Effect on Acquirer. Acquirer is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is necessary under applicable law except where the
failure to be so qualified and in good standing would not reasonably be
expected to have a Material Adverse Effect on Acquirer. Acquirer has delivered
to the Company true, correct and complete copies of its certificate
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of incorporation and by-laws (in each case, as amended to date). Acquirer is
not in violation of any provision of its certificate of incorporation or
by-laws.
Section 5.2. Authorization. Acquirer has all necessary corporate power and
authority to, and has taken all corporate action necessary on its part to,
execute and deliver this Agreement and all agreements and documents
contemplated hereby and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Acquirer and is a legal,
valid and binding obligation of Acquirer, enforceable against it in accordance
with its terms, except as the enforceability thereof may be limited by (a)
applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent
conveyance or similar laws in effect which affect the enforcement of creditors'
rights generally or (b) general principles of equity, whether considered in a
proceeding at law or in equity.
Section 5.3. Consents and Approvals. No consent, waiver, agreement,
approval, Permit or authorization of, or declaration, filing, notice or
registration to or with, any federal, state, local or foreign governmental or
regulatory authority or body or other person or entity is required to be made
or obtained by Acquirer in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby other than any Regulatory Filings and the filing of the
Merger Certificate under the DGCL.
Section 5.4. No Conflict or Violation. Neither the execution, delivery and
performance of this Agreement, nor the consummation of the transactions
contemplated hereby, by Acquirer will result in (a) a violation of or a
conflict with any provision of the certificate of incorporation or by-laws of
Acquirer, (b) a breach of, or a default under, or the creation of any right of
any party to accelerate, terminate or cancel pursuant to (including, without
limitation, by reason of the failure to obtain a consent or approval under any
such contract), any term or provision of any contract, indenture, lease,
encumbrance, permit, or authorization or concession to which Acquirer is a
party or by which any of its assets are bound, which breach, default or
creation of any such right would reasonably be expected to have a Material
Adverse Effect on Acquirer.
Section 5.5. Proxy Statement; Schedule 13E-3. The information concerning
Acquirer and its officers, directors, employees and shareholders furnished in
writing to the Company specifically for use in the Proxy Statement and the
Schedule 13E-3 will not, when mailed to the stockholders of the Company or at
the time of the Special Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Notwithstanding the
foregoing, Acquirer makes no representation or warranty with respect to any
information supplied by the Company or any of its representatives which is
contained in or incorporated by reference in any of the foregoing documents or
in the Schedule 13E-3.
Section 5.6. Financing. Acquirer has delivered to the Company complete and
correct executed copies of commitment letters (the "Financing Commitment
Letters") issued in connection with (a) the subordinated debt and equity
financing of the transactions contemplated hereby evidencing (i) the
subordinated debt financing to the Surviving Corporation for the transactions
in connection with this Agreement and (ii) equity contributions to Acquirer,
the Company and the Surviving Corporation; and (b) the senior debt financing of
the transactions contemplated by this Agreement (the financing described in
this sentence is referred to in this Agreement as the "Financing"). Assuming
satisfaction of all applicable conditions set forth in the Financing Commitment
Letters and full funding thereunder, Acquirer and the Company at Closing shall
have sufficient funds to consummate the transactions contemplated hereby.
Section 5.7. No Brokers. Except as set forth in Schedule 5.7, none of
Acquirer or any of its officers, directors, employees, stockholders or other
Affiliates has employed or made any agreement with any broker, finder or
similar agent or any person or firm to pay any finder's fee, brokerage fee or
commission or similar payment in connection with the transactions contemplated
hereby.
Section 5.8. Share Ownership. To the knowledge of Acquirer, except as set
forth in the Carl Marks Group's Schedule 13D dated November 18, 1998, and
amended on February 12, 1999, the Carl Marks
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Group does not beneficially own any Company Common Stock. To the knowledge of
Acquirer, subject to the terms and conditions of the Voting Agreement, each
member of the Carl Marks Group will not sell, transfer or otherwise dispose of
any of the Company Common Stock owned by them so long as this Agreement is in
effect. Other than pursuant to any of the documents related to the transaction
covered by this Agreement, Acquirer does not beneficially own any Company
Common Stock.
Section 5.9. Acquirer's Operations Acquirer has not engaged in any
business activities or conducted any operations other than in connection with
the transactions contemplated hereby.
Section 5.10. Status of Representations of the Company. In entering into
the Agreement, Acquirer:
(a) acknowledges that, other than as set forth in this Agreement, as of
the date of execution of this Agreement, none of the Company, its Subsidiaries,
or any of their respective directors or officers, makes any representation or
warranty, either express or implied, as to the accurateness or completeness of
any of the information provided or made available to Acquirer or the Carl Marks
Group or their agents or representatives prior to the execution of this
Agreement, except in the case of fraud or willful or intentional misconduct.
(b) agrees to the fullest extent permitted by law, that none of the
Company, its Subsidiaries or any of their respective directors, officers,
employees, stockholders, affiliates, agents or representatives shall have any
liability or responsibility whatsoever to Acquirer based upon any information
provided or made available, or statements made, to Acquirer or the Carl Marks
Group prior to the execution of this Agreement, except in the case of fraud or
willful or intentional misconduct, and
(c) acknowledges that prior to the date hereof, none of James A. Parsons,
Robert Davidoff, Howard Davidoff or Harvey Granat has any actual knowledge of
any representation or warranty of the Company being untrue or inaccurate in any
material respect.
ARTICLE VI
COVENANTS OF THE COMPANY AND ACQUIRER
The Company and Acquirer covenant and agree with each other that from the
date hereof through the Closing:
Section 6.1 Maintenance of Business Prior to Closing. Prior to the
Effective Time, except as set forth in the Disclosure Schedule or as
contemplated by any other provision of this Agreement, unless Acquirer has
consented in writing thereto, the Company:
(a) shall, and shall cause each of its Subsidiaries to, conduct its
operations and business according to their usual, regular and ordinary course
consistent with past practice;
(b) shall use its reasonable efforts, and shall cause each of its
Subsidiaries to use its reasonable efforts, to preserve intact their business
organizations and goodwill, keep available the services of their respective
officers and key employees and maintain satisfactory relationships with those
persons having business relationships with them;
(c) shall not, and shall cause its Subsidiaries not to, amend their
respective certificates of incorporation or by-laws or comparable governing
instruments;
(d) shall promptly notify Acquirer of (i) any Material Adverse Change,
(ii) any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or (iii) the breach by the Company of any representation or
warranty contained herein;
(e) shall promptly deliver to Acquirer correct and complete copies of any
report, statement or schedule filed with the SEC subsequent to the date of this
Agreement;
(f) except as permitted pursuant to Section 6.4, shall not, and shall not
permit any of its Subsidiaries to, authorize, propose or announce an intention
to authorize or propose, or enter into an agreement with
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respect to, any merger, consolidation or business combination, or any
acquisition or disposition of Assets or securities other than in the ordinary
course of business consistent with past practice;
(g) shall not, and shall not permit any of its Subsidiaries to, (i) grant,
confer or award any options, warrants, conversion rights or other rights or
Equity Securities, not existing on the date hereof to acquire any shares of its
capital stock or other securities of the Company or its Subsidiaries or (ii)
accelerate, amend or change the period of exercisability of options or
restricted stock granted under any employee stock plan or, except as
contemplated by Section 3.3, authorize cash payments in exchange for any
options granted under any of such plans;
(h) shall not, and shall not permit any of its Subsidiaries to, amend the
terms of the Benefit Plans, including, without limitation, any employment,
severance or similar agreements or arrangements in existence on the date
hereof, or adopt any new employee benefit plans, programs or arrangements or
any employment, severance or similar agreements or arrangements;
(i) shall not, and shall not permit any of its Subsidiaries to, (i)
increase or agree to increase the compensation payable or to become payable to
its officers or, other than increases in accordance with past practice which
are not material, to its employees or (ii) enter into any collective bargaining
agreement;
(j) shall not, and shall not permit any of its Subsidiaries to, (i) incur,
create, assume or otherwise become liable for borrowed money or assume,
guarantee, endorse or otherwise become responsible or liable for the
obligations of any other individual, corporation or other entity or (ii) make
any loans or advances to any other person, except in the case of clause (i) for
borrowings under existing credit facilities in the ordinary course of business
and, except in the case of clause (ii) for advances consistent with past
practice which are not material;
(k) shall not, and shall not permit any of its Subsidiaries to, (i)
materially change any practice with respect to Taxes, (ii) make, change or
revoke any material Tax election, or (iii) settle or compromise any material
dispute involving a Tax liability;
(l) shall not, and shall not permit any of its Subsidiaries to, (i)
declare, set aside or pay any dividend or make any other distribution or
payment with respect to any shares of its capital stock or other ownership
interests or (ii) directly or indirectly redeem, purchase or otherwise acquire
any shares of its capital stock or capital stock of any of its Subsidiaries, or
make any commitment for any such action or (iii) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for share of its
capital stock;
(m) shall not, and shall not permit any of its Subsidiaries to, issue,
deliver, sell, pledge or otherwise encumber any shares of its capital stock,
any other securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, securities or convertible
securities (other than the issuance of shares of Company Common Stock upon the
exercise of Options outstanding on the date hereof in accordance with their
present terms);
(n) shall not, and shall not permit any of its Subsidiaries to, make or
agree to make any capital expenditure except in accordance with the Company's
capital expenditure plan for fiscal years 1998 and 1999, a true, correct and
complete copy of which has been delivered to Acquirer;
(o) shall not, and shall not permit any of its Subsidiaries to, change any
accounting principles or practices unless required by changes in GAAP;
(p) shall not, and shall not permit any of its Subsidiaries to, pay,
discharge, settle or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, or liabilities
reflected or reserved against in the most recent consolidated financial
statements (or the notes thereto) of the Company included in the Company
Reports or incurred thereafter in the ordinary course of business consistent
with past practice, or waive any material benefits of, or agree to modify in
any material respect, any confidentiality, standstill, non-solicitation or
similar agreement to which the Company or any Subsidiary is a party; and
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(q) shall not, and shall not permit any of its Subsidiaries to take, or
agree (in writing or otherwise) or resolve to take, any of the foregoing
actions.
Section 6.2. Investigation by Acquirer. The Company shall allow Acquirer,
its Affiliates and their respective counsel, accountants and other
representatives and the financial institutions (and their counsel and
representatives) providing or proposed to provide financing in connection with
this Agreement and the transactions contemplated hereby, during regular
business hours upon reasonable notice, to make such reasonable inspection of
the Assets, Facilities, business and operations of the Company and its
Subsidiaries and to inspect and make copies of Contracts, books and records and
all other documents and information reasonably requested by Acquirer and
related to the operations and business of the Company and its Subsidiaries
including, without limitation, historical financial information concerning the
business of the Company and its Subsidiaries and to meet with designated
Personnel of the Company or its Subsidiaries and/or their representatives. The
Company and its Subsidiaries shall furnish to Acquirer promptly upon request
(a) all additional documents and information with respect to the affairs of the
Company and its Subsidiaries relating to their businesses in their possession
and (b) access to the Personnel and to the Company's and its Subsidiaries'
accountants and Affiliates and their counsel as Acquirer, or its Affiliates and
their respective counsel or accountants, may from time to time reasonably
request and the Company and its Subsidiaries shall instruct their Personnel,
accountants and counsel to cooperate with Acquirer, and to provide such
documents and information as Acquirer, its Affiliates and their respective
representatives may request and Acquirer will hold, and will use its reasonable
best efforts to cause its counsel, accountants and other representatives and
the financial institutions (and their counsel and representatives) providing or
proposed to provide financing in connection herewith, any nonpublic information
in confidence to the extent required by, and in accordance with, that certain
confidentiality letter, dated July 29, 1998, between the Company and CMCO, Inc.
(the "Confidentiality Letter").
Section 6.3. Consents and Efforts; Other Obligations.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to (A) promptly make (or to cause its
respective "ultimate parent entities" to make) its respective filings under the
HSR Act (if applicable) with respect to the Merger and (B) use its reasonable
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective, in the most expeditious manner practicable, the
Merger and the other transactions contemplated by this Agreement. Acquirer and
the Company will use their reasonable best efforts and cooperate with one
another (i) in promptly determining whether any filings are required to be made
or consents, approvals, waivers, licenses, permits or authorizations are
required to be obtained (or, which if not obtained, would result in an event of
default, termination or acceleration of any agreement or any put right under
any agreement) under any applicable law or regulation or from any governmental
authorities or third parties, including parties to loan agreements or other
debt instruments, in connection with the transactions contemplated by this
Agreement, including the Merger, and (ii) in promptly making any such filings,
in furnishing information required in connection therewith and in timely
seeking to obtain any such consents, approvals, permits or authorizations.
(b) The Company will provide, and will cause its Subsidiaries and its and
their respective officers, employees and advisors to provide, all reasonable
cooperation in connection with the arrangement of any financing (including the
Financing) to be consummated contemporaneous with or at or after the Closing in
respect of the transactions contemplated by this Agreement, including without
limitation, (x) participation in meetings, due diligence sessions and road
shows, (y) the preparation of offering memoranda, private placement memoranda,
prospectuses and similar documents, and (z) the execution and delivery of any
commitment letters, underwriting or placement agreements, pledge and security
documents, other definitive financing documents, or other requested
certificates or documents, including a certificate of the chief financial
officer of the Company with respect to solvency matters, comfort letters of
accountants and legal opinions as may be requested by Acquirer; provided that
the form and substance of any of the material documents referred to in clause
(y), and the terms and conditions of any of the material agreements and other
documents referred to in clause (z), shall be substantially consistent with the
terms and conditions of the financing required to satisfy the condition
precedent set forth in Section 7.3(f).
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(c) The Company shall give prompt written notice to the Acquirer if the
Company obtains actual knowledge of: (i) the occurrence, or failure to occur,
of any event which occurrence of failure would be likely to cause any
representation or warranty of the Company contained in this Agreement, if made
on or as of the date of such event or as of the Effective Time, to be untrue or
inaccurate, except for changes permitted by this Agreement and except to the
extent that any representation and warranty is made as of a specified date, in
which case, such representation and warranty shall be true, complete and
accurate as of such date; (ii) any failure of the Company or any officer,
director, employee, consultant or agent of the Company, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it or them under this Agreement; or (iii) any event of which it has
knowledge which will result, or in the opinion of such party, has a reasonable
prospect of resulting, in the failure to satisfy the conditions specified in
Sections 7.1 or 7.3 hereof; provided, however, that no such notification shall
affect the representations or warranties of the Company or the conditions to
the obligations of the Acquirer hereunder.
(d) The Acquirer shall give prompt written notice to the Company if the
Acquirer obtains actual knowledge of (i) the occurrence, or failure to occur,
of any event which occurrence or failure would be likely to cause any
representation or warranty of the Company contained in this Agreement, if made
on or as of the date of such event or as of the Effective Time, to be untrue or
inaccurate, except for changes permitted by this Agreement and except to the
extent that any representation and warranty is made as of a specified date, in
which case, such representation and warranty shall be true, complete and
accurate as of such date; (ii) any failure of the Company or any officer,
director, employee, consultant or agent of the Company, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it or them under this Agreement; or (iii) any event which will result, or in
the opinion of such party, has a reasonable prospect of resulting, in the
failure to satisfy the conditions specified in Sections 7.1 or 7.3 hereof;
provided, however, that no such notification shall affect the representations
and warranties of the Company or the conditions to the obligations of the
Acquirer hereunder.
Section 6.4. Other Offers.
(a) Neither the Company nor any of its Subsidiaries shall (whether
directly or indirectly through advisors, agents or other intermediaries), nor
shall the Company or any of its Subsidiaries authorize or permit any of its or
their officers, directors, agents, representatives, advisors or Subsidiaries
to, (x) solicit, initiate or take any action knowingly to facilitate the
submission of inquiries, proposals or offers from any corporation, partnership,
person or other entity or group, other than Acquirer and its representatives
and Affiliates, relating to (i) any acquisition or purchase of 35% or more of
the assets, or of over 35% of any class of Equity Securities of, the Company
and its Subsidiaries, (ii) any tender offer (including a self tender offer) or
exchange offer that if consummated would result in any person beneficially
owning 35% or more of any class of Equity Securities of the Company or any of
its Subsidiaries, or (iii) any merger, consolidation, recapitalization, sale of
all or substantially all of the assets, liquidation, dissolution or similar
transaction involving the Company or any of its Subsidiaries whose assets,
individually or in the aggregate, constitute more than 35% of the assets other
than the transactions contemplated by this Agreement (each such transaction
being referred to herein as an "Acquisition Proposal"), or agree to or endorse
any Acquisition Proposal, (y) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or otherwise cooperate in any way
with, or knowingly assist or participate in, facilitate or encourage, any
effort or attempt by any other person (other than Acquirer, a member of the
Carl Marks Group and their respective representatives and Affiliates) to do or
seek any of the foregoing, (z) grant any waiver or release under any standstill
or similar agreement with respect to any Equity Securities of the Company or
any of its Subsidiaries; provided, however, that the foregoing shall not
prohibit the Company (either directly or indirectly through advisors, agents or
other intermediaries) from (i) furnishing information pursuant to a customary
confidentiality letter (a copy of which shall be provided for informational
purposes only to Acquirer) concerning the Company and its businesses,
properties or Assets to any person, corporation, entity or "group," as defined
in Section 13(d) of the Exchange Act, other than Acquirer or any of its
Affiliates (a "Third Party") in response to any unsolicited inquiry, proposal
or offer, (ii) engaging in discussions or negotiations with such a Third Party
that has made such inquiry, proposal or offer, (iii) following receipt of a
bona fide Acquisition Proposal, taking and
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disclosing to its stockholders a position contemplated by Rule 14e-2(a) under
the Exchange Act or otherwise making disclosure to its stockholders, (iv)
following receipt of a bona fide Acquisition Proposal, failing to make or
withdrawing or modifying its recommendation referred to in Section 4.25 hereof
and/or (v) taking any non-appealable, final action ordered to be taken by the
Company by any court of competent jurisdiction but in each case referred to in
the foregoing clauses (i) through (iv), only to the extent that the Board of
Directors of the Company shall have concluded in good faith on the basis of
written advice from outside counsel that such action is required to prevent the
Board of Directors of the Company from breaching its fiduciary duties to the
stockholders of the Company under applicable law; provided, further, that the
Board of Directors of the Company shall not take any of the foregoing actions
referred to in clauses (i) through (iv) until after giving reasonable notice to
Acquirer with respect to its intent to take such action. The Company shall
immediately cease and cause its advisors, agents and other intermediaries to
cease any and all existing activities, discussions or negotiations with any
parties conducted prior to the date hereof with respect to any of the
foregoing. The Company and its Subsidiaries hereby represent that they are not
now engaged in discussions or negotiations with any party other than Acquirer
and its Affiliates with respect to any proposed Acquisition Proposal.
(b) If a Payment Event (as hereinafter defined) occurs, the Company shall
pay to RFE VI SBIC, L.P. and its Affiliates, the Carl Marks Group and Acquirer,
within three (3) business days following such event, an aggregate fee of
$350,000 plus all the reasonable out-of-pocket expenses incurred by RFE VI
SBIC, L.P. and its Affiliates, the Carl Marks Group and the Acquirer in
connection with or relating to this Agreement and the Merger, which shall
include reasonable fees and expenses of legal counsel, accountants and an
environmental consultant (which legal, accounting and environmental fees and
expenses shall not exceed $250,000), and the commitment fees related to the
senior debt and subordinated mezzanine financing of the Merger actually paid or
contractually required to be paid to investment funds, banks or other financial
institutions (including without limitation entities who are Affiliates of
pension plans) providing the funds to finance the Merger. "Payment Event" means
(I) the termination of this Agreement pursuant to Section 8.1(a)(v); (II) the
termination of this Agreement pursuant to Section 8.1(a)(vi); (III) the
termination of this Agreement by Acquirer pursuant to Section 8.1(a)(iii) but
only if the failure of a condition arises from a breach of obligation or
untruth or incorrectness of any representation or warranty which breach or
untruth or incorrectness arises out of the bad faith or willful misconduct of
the Company; or (IV) the occurrence of any of the events described in clause
(A) below if this Agreement shall have been terminated (1) by Acquirer pursuant
to Section 8.1(a)(iii) due to a failure of any of the conditions set forth in
Sections 7.1(a), 7.3(a), 7.3(e), or 7.3(g) to be satisfied, or (2) pursuant to
Sections 8.1(a)(ii) or (vii), or (3) by the Company pursuant to Section
8.1(a)(iii) due to a failure of any of the conditions set forth in Section
7.1(a) to be satisfied: (A) any Third Party other than Acquirer or any of its
Affiliates or any party to the Voting Agreement (a "Permitted Party") (so long
as no such party to the Voting Agreement is a member of a "group" (as defined
in Section 13(d) of the Exchange Act) which includes any other person) shall
have become the beneficial owner of more than 15% of the outstanding shares of
Company Common Stock prior to the date of termination of this Agreement.
(c) The Company acknowledges that the agreements contained in this Section
6.4 are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Acquirer would not enter into this
Agreement; accordingly, if the Company fails to promptly pay any amount due
pursuant to this Section 6.4, and, in order to obtain such payment, the other
party commences a suit which results in a judgment against the Company for the
fee or fees and expenses set forth in this Section 6.4, the Company shall also
pay to Acquirer its costs and expenses incurred in connection with such
litigation.
(d) The Company and its Subsidiaries shall (i) immediately notify Acquirer
(orally and in writing) if any offer is made, any discussions or negotiations
are sought to be initiated, any inquiry, proposal or contact is made or any
information is requested with respect to any Acquisition Proposal, (ii)
promptly notify Acquirer of the terms of any proposal which it may receive in
respect of any such Acquisition Proposal, including, without limitation, the
identity of the prospective purchaser or soliciting party, (iii) promptly
provide Acquirer with a copy of any such offer, if written, or a written
summary (in reasonable detail) of such offer, if not in writing, and (iv) keep
Acquirer informed of the status of such offer and the offeror's efforts and
activities with respect thereto.
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(e) This Section 6.4 shall survive any termination of this Agreement,
however caused.
Section 6.5. Meeting of Stockholders. The Company shall take all action
necessary in accordance with applicable law and its certificate of
incorporation and by-laws, including the timely mailing of the Proxy Statement,
to convene the Special Meeting of its stockholders as promptly as practicable
after SEC approval of the Proxy Statement to consider and vote upon the
approval of this Agreement and the transactions contemplated hereby. Subject to
the provisions of Section 6.4, the Board of Directors of the Company shall
recommend such approval, shall not withdraw or modify such recommendation,
shall take all lawful action to solicit such approval and shall not approve or
recommend, or propose publicly to approve or recommend any Acquisition
Proposal.
Section 6.6. Proxy Statement.
(a) Acquirer and the Company shall cooperate and prepare, and the Company
shall file with the SEC as soon as practicable, a proxy statement with respect
to the Special Meeting of the stockholders of the Company in connection with
the Merger (the "Proxy Statement"), respond to comments of the staff of the
SEC, clear the Proxy Statement with the staff of the SEC and promptly
thereafter mail the Proxy Statement to all holders of record of Company Common
Stock. The Company shall comply in all respect with the requirements of the
Exchange Act and the Securities Act and the rules and regulations of the SEC
thereunder applicable to the Proxy Statement and the solicitation of proxies
for the Special Meeting (including any requirement to amend or supplement the
Proxy Statement) and each party shall furnish to the other such information
relating to it and its Affiliates and the transactions contemplated by this
Agreement and such further and supplemental information as may be reasonably
requested by the other party. The Proxy Statement shall include the
recommendation of the Company's Board of Directors in favor of the Merger,
unless otherwise provided herein. The Company shall use all reasonable efforts,
and Holdings and Acquirer will cooperate with the Company, to have all
necessary state securities law or "Blue Sky" permits or approvals required to
carry out the transactions contemplated by this Agreement and will pay all
expenses incident thereto.
(b) No amendment or supplement to the Proxy Statement shall be made by
Acquirer or the Company without notice to the other party. The Company shall
advise Acquirer of any request by the SEC for amendment of the Proxy Statement
or comments thereon and responses thereto or requests by the SEC for additional
information.
(c) The Company covenants that the Proxy Statement to be mailed to the
stockholders of the Company in connection with the special meeting of the
stockholders of the Company (the "Special Meeting") and the Schedule 13E-3 and
any amendment thereof or supplement thereto, when, in the case of the Proxy
Statement, mailed and at the time of the Special Meeting, and in the case of
the Schedule 13E-3, when filed, shall not contain any untrue statement of a
material fact, or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not false or misleading, and shall comply with all
requirements of the Securities Act and the Exchange Act.
Section 6.7. Schedule 13E-3. If, in the opinion of the Company's counsel
after consultation with counsel to Acquirer, the filing with the SEC of a
Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") in connection
with the Merger is required by Rule 13e-3 under the Exchange Act, the Company
shall file the Schedule 13E-3 with the SEC at the time of filing of the Proxy
Statement. If the Schedule 13E-3 is filed, at the time of any amendment to the
Proxy Statement, the parties shall cause to be filed with the SEC an
appropriate amendment to the Schedule 13E-3.
Section 6.8. Director and Officer Liability.
(a) Acquirer agrees that all rights to indemnification for acts or
omissions occurring through the Effective Time of the Merger now existing in
favor of the current directors and officers of the Company as provided in the
certificate of incorporation or by-laws of the Company or in any
indemnification agreements (as in effect on the date hereof) shall survive the
Merger and shall continue in full force and effect in accordance with their
terms.
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(b) For a period of six (6) years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by the Company (or
policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to claims arising from
facts or events which occurred before or at the Effective Time; provided,
however, that the Surviving Corporation shall not be obligated to make annual
premium payments for such insurance to the extent that such premiums exceed an
amount equal to 150% of the annual premiums paid as of the date hereof by the
Company for such insurance and if such premiums exceed such amount the
Surviving Corporation shall purchase insurance policies in amounts and with
coverage as reasonably can be purchased for such amount.
(c) The provisions of this Section 6.8 are intended to be for the benefit
of, and shall be enforceable by, each indemnified party and his or her heirs
and representatives.
(d) To the maximum extent permitted by the DGCL, the foregoing
indemnification obligations shall be mandatory rather than permissive and the
indemnitee shall have his expenses advanced in connection with such
indemnification.
Section 6.9. Notices of Certain Events. The Company shall promptly notify
Acquirer of:
(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement;
(c) any Actions commenced or, to the best of its knowledge threatened
against, relating to or involving or otherwise affecting the Company or any
Subsidiary which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 4.1 or which relate to the
consummation of the transactions contemplated by this Agreement; and
(d) the breach of any representation, warranty or covenant made by the
Company or any Subsidiary in this Agreement.
Section 6.10. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of Acquirer, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf
of the Company or Acquirer, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and all right,
title and interest in, to and under any of the rights, properties or assets of
the Company acquired or to be acquired by the Surviving Corporation as a result
of, or in connection with, the Merger.
Section 6.11. Resignation of Directors, etc. At the Closing, the Company
shall deliver to Acquirer evidence satisfactory to Acquirer of the resignation
of all directors of the Company who are not listed on Exhibit C1, effective at
the Effective Time.
Section 6.12. Financial Statements, Etc. Within 30 days after the end of
each calendar month, the Company and its Subsidiaries shall provide Acquirer
with the interim financial statements relating to such calendar month. Such
interim financial statements shall (a) be in accordance with the books and
records of the Company and its Subsidiaries, (b) be prepared in accordance with
GAAP consistently applied throughout the periods covered thereby (except for
the absence of footnotes and the absence of a physical inventory count) and
present fairly and accurately in accordance with GAAP the Assets, liabilities
(including, without limitation, all reserves) and financial condition of the
Company and its Subsidiaries as of the respective dates thereof and the results
of operations, stockholders' equity and cash flows for the periods covered
thereby.
Section 6.13. Financing. Acquirer shall use its commercially reasonable
efforts to obtain the Financing. Acquirer shall use its best efforts to satisfy
on or before the Closing Date all requirements of the Financing Commitment
Letters which are conditions to closing the transactions constituting the
Financing, provided that the satisfaction of such conditions are in the control
of Acquirer and provided
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that such efforts shall not require undue expense or that such efforts shall
not materially impair the operation of the business of the Company after the
Effective Time. The obligations contained herein are not intended, nor shall
they be construed, to benefit or confer any rights upon any person, firm or
entity other than Acquirer and the Company.
ARTICLE VII
CONDITIONS TO THE MERGER
Section 7.1. Conditions to the Obligations of Each Party. The obligations
of the Company and Acquirer to consummate the transactions contemplated hereby
on the Closing Date are subject to the satisfaction, on or prior to the Closing
Date, of each of the following conditions:
(a) This Agreement and the Merger shall have been adopted and approved by
the stockholders of the Company in accordance with the DGCL;
(b) Any applicable waiting period and any extension thereof under the HSR
Act (if applicable) relating to the Merger shall have expired or been
terminated; and
(c) No provision of any applicable law or regulation and no judgment,
order, decree or injunction prohibiting or restraining the consummation of the
Merger shall be in effect; provided, however, that the Company, and Acquirer
shall each use its reasonable best efforts to have any such judgment, order,
decree or injunction vacated.
Section 7.2. Conditions to the Obligations of the Company. The obligations
of the Company to consummate the transactions contemplated hereby on the
Closing Date are subject, in the sole discretion of the Company, to the
satisfaction, on or prior to the Closing Date, of the following conditions,
which may be waived by the Company in accordance with Section 8.4:
(a) Representations, Warranties and Covenants.
(i) all representations and warranties of Acquirer contained in this
Agreement shall be true and correct in all material respects at and as of
the Closing Date, as if such representations and warranties were made at
and as of the Closing Date (except for any changes specifically permitted
by this Agreement and except to the extent that any such representations
and warranties were made as of a specified date, which representations and
warranties shall continue on the Closing Date to be true in all material
respects as of such specified date),
(ii) Acquirer shall have performed in all material respect all
obligations arising under the agreements and covenants required hereby to
be performed by it prior to or on the Closing Date;
(iii) the Company shall have received, at or prior to the Closing, a
certificate executed by the President of Acquirer certifying that, as of
the Closing Date, the conditions set forth in Section 7.2(a) (i) and (ii)
have been satisfied;
(b) Consents.
(i) All filings required to be made prior to the Effective Time with, and
all consents, approvals and licenses of any governmental or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement and for the Surviving Corporation to conduct
the business of the Company in substantially the manner now conducted,
shall have been made or obtained (as the case may be), unless the failure
to make such filings or obtain such consents, authorizations, orders or
approvals would not, individually or in the aggregate, have a Material
Adverse Effect on the Company after giving effect to the transactions
contemplated by this Agreement (including the Financing).
(ii) All consents, waivers, agreements, approvals, authorizations,
declarations, filings, notices or registrations listed on Schedule 4.9 of
the Disclosure Schedule shall have been made or obtained (as the case may
be).
(c) Financing. The funding contemplated by the Financing shall have been
obtained.
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(d) Fairness Opinion. The Fairness Opinion shall not have been withdrawn
or modified in any material respect.
Section 7.3. Conditions to the Obligations of Acquirer. The obligations of
Acquirer to consummate the transactions contemplated hereby on the Closing Date
are subject, in the sole discretion of Acquirer, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions, any of which
may be waived by Acquirer in accordance with Section 8.4:
(a) Representations, Warranties and Covenants.
(i) All representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects at and as of
the Closing Date as if such representations and warranties were made at and
as of the Closing Date (except for any changes specifically permitted by
this Agreement and except to the extent that any such representations and
warranties were made as of a specified date, which representations and
warranties shall continue on the Closing Date to have been true in all
material respects as of such specified date).
(ii) The Company shall have performed in all material respects all
obligations arising under the agreements and covenants required hereby to
be performed by it prior to or on the Closing Date, unless such failure to
perform is due to any material act by, or material omission of, Acquirer.
(iii) Acquirer shall have received, at or prior to the Closing, a
certificate executed by the President and the Chief Financial Officer of
the Company certifying that, as of the Closing Date, the conditions set
forth in Sections 7.3(a), (b) and (e) have been satisfied.
(b) No Proceedings or Litigation. No temporary restraining order,
preliminary or permanent injunction or other Actions by any governmental
authority or any other entity or person shall have been instituted or
threatened for the purpose of enjoining or preventing, or which question the
validity or legality of, the transactions contemplated hereby and which could
reasonably be expected to damage Acquirer or materially adversely affect the
value of the Company Common Stock or the Assets, business or operations of the
Company and its Subsidiaries or Acquirer's ability to own and operate the
Assets, business or operations of the Company and its Subsidiaries, if the
transactions contemplated hereby are consummated.
(c) Certain Employment Agreements. The employment agreements dated the
date hereof between Acquirer and each of Herbert Barry, Chairman of the Board
and Chief Executive Officer of the Company ("Barry"), and Robert K. Semel,
President and Chief Operating Officer of the Company ("Semel"), shall not be
terminated, voided or abrogated by Semel and Barry.
(d) Consents.
(i) All filings required to be made prior to the Effective Time with, and
all consents, approvals and licenses of any governmental or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement and for the Surviving Corporation to conduct
the business of the Company in substantially the manner now conducted,
shall have been made or obtained (as the case may be), unless the failure
to make such filing or obtain such consents, authorizations, orders or
approvals would not, individually or in the aggregate, have a Material
Adverse Effect on the Company after giving effect to the transactions
contemplated by this Agreement (including the Financing).
(ii) All consents, waivers, agreements, approvals, authorizations,
declarations, filings, notices or registrations listed on Schedule 4.9 of
the Disclosure Schedule shall have been made or obtained (as the case may
be).
(e) Material Changes. Since October 31, 1998, there shall not have been
any Material Adverse Change with respect to the Company and, to the knowledge
of the Company, there shall have been no potential or threatened Material
Adverse Change with respect to the Company.
(f) Financing. The funding contemplated by the Financing shall have been
obtained.
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(g) Certain Other Arrangements and Agreements. The Stockholders party to
the Voting Agreement shall have performed their obligations under the Voting
Agreement in all material respects.
(h) Stockholders Agreement. The Surviving Corporation shall have entered
into a stockholders agreement ("Stockholders Agreement") effective as of the
Effective Time with the Stockholders of the Company owning Retained Shares.
(i) Dissenting Shares. The total number of Dissenting Shares shall not
exceed seven and one-half percent (7.5%) of the outstanding shares of Company
Common Stock at the proposed Effective Time.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Termination.
(a) Termination. This Agreement may be terminated prior to the Effective
Time as follows (notwithstanding any approval of the Merger by the stockholders
of the Company):
(i) by mutual written consent of Acquirer and the Company at any time;
(ii) by Acquirer or the Company if the Closing shall not have occurred on
or before July 30, 1999, provided that the party seeking to exercise such
right is not then in breach in any material respect of any of its
obligations under this Agreement;
(iii) by either the Company or Acquirer if any of the conditions to such
party's obligation to consummate the transactions contemplated in this
Agreement shall have become impossible to satisfy;
(iv) by either the Company or Acquirer if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining
Acquirer or the Company from consummating the Merger is entered and such
judgment, injunction, order or decree shall become final and
non-appealable;
(v) by Acquirer if the Board of Directors of the Company shall have (A)
withdrawn or modified or amended, in a manner adverse to Acquirer, its
approval or recommendation of this Agreement and the Merger or its
recommendation that stockholders of the Company adopt and approve this
Agreement and the Merger, (B) approved, recommended or endorsed an
Acquisition Proposal (including a tender or exchange offer for Company
Common Stock) or shall have failed to reconfirm its recommendation of this
Agreement and the Merger within ten business days of Acquirer's request
that it do so, (C) failed to call the Stockholders Meeting or failed as
promptly as practicable to mail the Proxy Statement to its stockholders or
failed to include in such statement the recommendation referred to above,
(D) in response to the commencement of any tender offer or exchange offer
for more than 15% of the outstanding shares of Company Common Stock, not
recommended rejection of such tender offer or exchange offer; or (E)
resolved to do any of the foregoing;
(vi) by the Company if prior to the Effective Time, in good faith, based
upon written advice from outside counsel and in order to prevent the Board
of Directors from breaching its fiduciary duty, the Board of Directors of
the Company shall have withdrawn or modified or amended, in a manner
adverse to Acquirer, its approval or recommendation of this Agreement and
the Merger or its recommendation that stockholders of the Company adopt and
approve this Agreement and the Merger in order to permit the Company to
execute a definitive agreement providing for the acquisition of the Company
or in order to approve a tender or exchange offer for any or all of the
Company Common Stock, in either case, that is determined, by the Board of
Directors of the Company to be a superior proposal, provided that the
Company shall be in compliance with Section 6.4; or
(vii) by either the Company or Acquirer if, at a duly held stockholders
meeting of the Company or any adjournment thereof at which this Agreement
and the Merger is voted upon, the requisite stockholder adoption and
approval shall not have been obtained.
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The party desiring to terminate this Agreement pursuant to Sections
8.1(a)(ii)-(vii) shall give written notice of such termination to the other
party in accordance with Section 8.3.
(b) Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1, this Agreement shall become void and of no effect with no
liability on the part of an party hereto or such party's officers, directors,
employees or representatives, except (i) that the agreements contained in
Sections 6.4, 8.8 and 8.13 hereof shall survive the termination hereof and (ii)
nothing herein shall relieve any party from liability for any breach of this
Agreement.
(c) Procedure Upon Termination. In the event of termination of this
Agreement pursuant to Section 8.1:
(i) Each party shall redeliver all documents, work papers and other
material of any other party and any and all copies thereof relating to the
transactions contemplated hereby, whether obtained before or after the
execution hereof, to the party furnishing the same; and
(ii) The Confidentiality Letter shall survive in accordance with its
terms.
Section 8.2. Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned, in whole or in part, by operation of law
or otherwise by any party without the prior written consent of the other party
to this Agreement. Subject to the foregoing, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, and, with respect to the provisions of Section 6.8
hereof, shall inure to the benefit of the persons or entities benefitting from
the provisions thereof who are intended to be third-party beneficiaries
thereof, and no other person shall have any right, benefit or obligation
hereunder.
Section 8.3. Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received, if
personally delivered; when transmitted, if transmitted by telecopy, upon
receipt of electronic confirmation; the day after it is sent, if sent for next
day delivery to a domestic address by recognized overnight delivery service
(e.g., Federal Express); and upon receipt, if sent by certified or registered
mail, return receipt requested. In each case notice shall be sent to:
If to the Company, addressed to:
Uniflex, Inc.
383 West John Street
Hicksville, NY 11802
Attention: Robert K. Semel
Telecopy: (516) 997-4834
With a copy to:
Olshan Grundman Frome Rosenzweig & Wolosky LLP
505 Park Avenue
New York, NY 10022
Attention: Jeffrey S. Spindler, Esq.
Telecopy: (212) 755-1467
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<PAGE>
And a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attention: David Alan Miller, Esq.
Telecopy: (212) 818-8881
If to Acquirer, addressed to:
Uniflex Acquisition Corp.
c/o RFE Investment Partners
36 Grove Street
New Canaan, Connecticut 06840
Attention: James Parsons
Telecopy: (203) 966-3109
c/o CMCO, Inc.
135 East 57th Street
New York, New York 10022
Attention: Robert Davidoff
Telecopy: (212) 980-2630
With a copy to:
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
Attention: Thomas More Griffin, Esq.
Telecopy: (212) 856-7823
And a copy to:
Finn Dixon & Herling LLP
One Landmark Square Stamford, Connecticut 06901
Attention: Charles J. Downey III, Esq.
Telecopy: (203) 348-5777
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
Section 8.4. Entire Agreement; Waivers. This Agreement, together with all
exhibits and schedules hereto (including, without limitation, the Disclosure
Schedule), and the other agreements referred to herein, constitute the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided. The Confidentiality
Letter shall terminate at the Effective Time.
Section 8.5. Multiple Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 8.6. Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, beheld to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
Section 8.7. Titles. The titles, captions or headings of the Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
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Section 8.8. Fees and Expenses. Except as provided in Section 6.4 hereof,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses provided that the Company shall pay all fees and expenses in
connection with the printing and mailing of the Proxy Statement. Acquirer
acknowledges and agrees that the Company has disclosed that it is obligated and
will become further obligated for reasonable fees and expenses (including fees
and expenses of Olshan Grundman Frome Rosenzweig and Wolosky LLP, its counsel
and Patrusky, Mintz & Semel, its independent accountants), incurred by it in
connection with the Merger and the transactions contemplated hereby.
Section 8.9. Cumulative Remedies. All rights and remedies of either party
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
Section 8.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS
OF LAWS.
Section 8.11. Amendment. This Agreement may be amended by the parties
hereto at any time before or after approval of matters presented in connection
with the Merger by the stockholders of the Company, but after any such
stockholder approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 8.12. Public Announcements. Neither Acquirer, on the one hand, nor
the Company, on the other hand, will issue any press release or public
statement with respect to the transactions contemplated by this Agreement and
the Voting Agreement, including the Merger, and the Stockholders Agreement
without the other party's prior consent (such consent not to be unreasonably
withheld), except as may be required by applicable law, court process or the
requirements of AMEX. In addition to the foregoing, Acquirer and the Company
will consult with each other before issuing, and provide each other the
opportunity to review and comment upon, any such press release or other public
statements with respect to such transactions. The parties agree that the
initial press release or releases to be issued with respect to the transactions
contemplated by this Agreement shall be mutually agreed upon prior to the
issuance thereof.
Section 8.13. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
Section 8.14. Non-survival of Representations and Warranties. The
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall terminate at the Effective Time.
Section 8.15. Interpretive Provisions.
(a) The words "hereof," "herein," "hereby" and "hereunder" and words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision hereof.
(b) Accounting terms used but not otherwise defined herein shall have the
meanings given to such terms under GAAP.
(Signature Page Follows)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf, by their respective officers
thereunto duly authorized, all as of the day and year first above written.
UNIFLEX, INC.
By: /s/ Robert K. Semel
------------------------------------
Name: Robert K. Semel
Title: President
UNIFLEX ACQUISITION CORP.
By: /s/ James A. Parsons
------------------------------------
Name: James A. Parsons
Title: President
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<PAGE>
ANNEX B
262. APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to Section 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's
shares of stock under the circumstances described in subsections (b) and (c) of
this section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a nonstock corporation; and the words "depository receipt" mean a
receipt or other instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257,
Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or (ii)
held of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
apprisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent
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corporation or the sale of all or substantially all of the assets of the
corporation. If the certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon
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the surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of Chancery
may be enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded such stockholder's appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
such stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
339, L. '98, eff. 7-1-98.)
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ANNEX C
March 5, 1999
Special Committee of the Board of Directors
Board of Directors
Uniflex, Inc.
383 West John Street
Hicksville, New York 11802
Gentlemen:
You have requested our opinion as to the fairness of the cash
consideration to be received by certain shareholders of Uniflex, Inc.
("Uniflex" or the "Company") pursuant to the Agreement and Plan of Merger and
Recapitalization (the "Agreement"), dated March 5, 1999, by and between Uniflex
and Uniflex Acquisition Corp. Under the Agreement, as of the effective date of
the merger, Uniflex Acquisition Corp. will be merged into the Company (the
"Merger"), shares of common stock of Uniflex Acquisition Corp. will
automatically be converted into shares of common stock of Uniflex, Inc. (the
"Surviving Corporation"), and each issued and outstanding share of the
Company's common stock ("Common Stock"), par value $.10 per share, (other than
Retained Shares, Treasury Shares and Dissenting Shares) shall automatically be
converted into the right to receive $7.57 in cash per share (the "Merger
Consideration") and each outstanding option to purchase the Common Stock shall
automatically be converted into the right to receive the difference between the
Merger Consideration and the exercise price per share of the option. Retained
Shares shall include all of the outstanding shares of Common Stock owned by
CMCO, Inc. and certain of its affiliates and no less than 322,000 shares of
Common Stock owned by certain officers, employees and directors of Uniflex (the
"Management Group"). The Merger is expected to be treated as a recapitalization
for financial accounting purposes. The Merger is expected to be considered by
the shareholders of the Company at a special meeting to be held in May or June
1999 and consummated shortly thereafter.
Dunn Johnston & Company, Inc. ("DJ&Co."), as part of its investment
banking business, is continually engaged in the valuation of businesses and
their securities in connection with mergers, acquisitions, tender offers,
divestitures, leveraged buyouts, and private placements of debt and equity
securities. We have acted as financial advisor to the Board of Directors of the
Company in connection with the Merger and have contacted potential purchasers
of the Company and assisted in the solicitation of proposals from and
negotiations with prospective purchasers. In connection with this role, we have
received advisory fees from the Company and will receive an additional fee for
our services which is contingent upon the consummation of the Merger. In
addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of the rendering of this opinion.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended January 31, 1998 and the
Company's Forms 10-Q and the related unaudited financial information for
the quarters ended April 30, 1998, July 31, 1998 and October 31, 1998;
(2) Reviewed certain information (including financial estimates for the
fiscal year ending January 31, 1999 and forecasts for the five fiscal
years ending January 31, 2004) relating to the business, earnings, cash
flow, assets and prospects of the Company, furnished to us by the
Company;
(3) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the Common
Stock and compared them with that of certain publicly traded companies
which we deemed to be reasonably similar to the Company;
(5) Compared the results of operations of the Company with that of certain
companies which we deemed to be reasonably similar to the Company;
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<PAGE>
(6) Compared the proposed financial terms of the transaction contemplated by
the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(7) Reviewed a draft of the Agreement and Plan of Merger and Recapitalization
dated March 3, 1999 and a draft of the Voting Agreement dated March 5,
1999; and
(8) Performed a discounted cash flow analysis of the Company based on the
financial information and financial projections provided to us by
management of the Company;
(9) Performed a stand-alone leveraged buyout analysis utilizing operating
assumptions provided to us by management of the Company and a capital
structure we deemed reasonable given current financial market conditions;
(10) Analyzed the premiums paid in recent acquisition transactions of public
company stock; and
(11) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed appropriate.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by Uniflex, and
we have not independently verified such information. With respect to the
financial projections provided to us, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates and good
faith judgments of the management of the Company as to the future financial
performance of the Company. Our opinion is based necessarily on the economic,
market, and other conditions as in effect on, and the information made
available to us as of, the date hereof. DJ&Co. reserves the right, in the event
that, subsequent to the date hereof, such conditions change or events or facts
become known which have a material impact on the value of Uniflex, to
supplement or withdraw the opinion prior to the closing date of the Merger. In
rendering our opinion, we have assumed that the Merger will be consummated on
the terms described in the Agreement that we have reviewed, without any waiver
of any material terms by the Company. We have assumed that there has been no
material change in Uniflex's assets, financial condition, results of
operations, business or prospects since January 31, 1999, as estimated by the
Company, and we express no opinion on matters of any legal, regulatory, tax or
accounting nature relating to the Merger. We have not made an independent
evaluation or appraisal of the assets or liabilities of Uniflex.
Uniflex acknowledges that the opinion and any advice or materials provided
by DJ&Co. in connection with its engagement hereunder is intended for the
benefit and use of the Special Committee of the Board and the Board of
Directors in considering the proposed Merger to which the opinion, advice and
material relate and the Company agrees that no such opinion, advice or material
shall be used for any other purpose or be reproduced, disseminated, quoted or
referred to at any time, in whole or in part, in any filing, report, document,
release or other communication used in connection with the proposed Merger
(unless required to be filed, quoted or referred to by applicable regulatory
requirements), nor shall this opinion be used for any other purposes, without
DJ&Co.'s prior written consent. Notwithstanding anything to the contrary
contained herein, the Company may reproduce the opinion in full in any
registration statement, disclosure document or proxy statement relating to the
proposed Merger that the Company files with the Securities and Exchange
Commission and distributes to its shareholders (the "Statement"). In such
event, the Company may include references to the opinion and to DJ&Co. and its
relationship with the Company in the Statement. This letter does not constitute
a recommendation to any shareholder of the Company as to how such shareholder
should vote at a shareholders meeting that may be held in connection with the
Merger.
On the basis of, and subject to the foregoing, we are of the opinion that
the aggregate Merger Consideration to be received in the Merger by shareholders
of the Company (other than stockholders who own Retained Shares) is fair to
such shareholders from a financial point of view.
Very truly yours,
DUNN JOHNSTON & COMPANY, INC.
By: /s/ Bruno A. Walmsley
---------------------------------------
Managing Director
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<PAGE>
ANNEX D
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF UNIFLEX, INC.
The undersigned, the duly elected and presently acting President and
Secretary, respectively, of UNIFLEX, INC., a corporation organized and existing
under the Delaware General Corporation Law ("DGCL") (the "Corporation"), hereby
certify as follows:
I. THE BOARD OF DIRECTORS OF THE CORPORATION HAS ADOPTED THIS AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION PURSUANT TO SECTION 245 OF THE DELAWARE
GENERAL CORPORATION LAW ("DGCL"):
RESOLVED THAT THE CERTIFICATE OF INCORPORATION, AS AMENDED, OF THE
CORPORATION BE DELETED IN ITS ENTIRETY AND REPLACED IN ITS ENTIRETY WITH
THIS AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
FIRST: The name of the corporation is Uniflex, Inc. (hereinafter called
the "Corporation").
SECOND: The registered office of the Corporation is to be located at 1013
Centre Road, in the City of Wilmington, in the County of New Castle, in the
State of Delaware. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity, without limitation, for which a corporation may be organized under
the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of capital stock which the Corporation
shall have the authority to issue is 10,000,000 shares of Common Stock, $.10
par value per share ("Common Stock"): (i) 5,000,000 of such shares which shall
be designated as Class A Voting Common Stock ("Class A Voting Common Stock");
and (ii) 5,000,000 of such shares which shall be designated as Class B
Non-Voting Common Stock ("Class B Non-Voting Common Stock"). The holders of
shares of Class A Voting Common Stock and Class B Non-Voting Common Stock shall
have the following rights:
A. Voting. The holders of Class A Voting Common Stock shall have one vote
per share on all matters presented to the stockholders of the
Corporation. Each share of Class B Non-Voting Common Stock shall have no
voting rights, except as may be required by law.
B. Conversion Rights.
(1) Right to Convert. Each share of Class B Non-Voting Common Stock
shall be convertible, without the payment of any additional
consideration by the holder thereof and at the option of the holder
thereof, at any time after the date of issuance of such share, at
the office of the Corporation or any transfer agent for the Class B
Non-Voting Common Stock, into one fully paid and nonassessable share
of Class A Voting Common Stock. Each share of Class A Voting Common
Stock shall be convertible, without the payment of any additional
consideration by the holder thereof and at the option of the holder
thereof, at any time after the date of issuance of such share, at
the office of the Corporation or any transfer agent for the Class A
Voting Common Stock, into one fully paid and nonassessable share of
Class B Non-Voting Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares
of Class A Voting Common Stock, solely for the purpose of issue upon
conversion of the Class B Non-Voting Common Stock as provided in
this Article FOURTH, Section B, such number of shares of Class A
Voting Common Stock as are then issuable upon the conversion of all
outstanding shares of Class B Non-Voting Common Stock. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Class B Non-Voting Common Stock,
solely for the purpose of issue upon the conversion of the Class A
Voting Common Stock as provided in this Article FOURTH, Section B,
that number of shares of Class B Non-Voting Common Stock as is
necessary to satisfy the requirements of any stockholder which must
hold shares of nonvoting shares of capital stock.
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<PAGE>
(2) Automatic Conversion of Class B Non-Voting Common Stock into Class A
Voting Common Stock. Immediately upon the transfer of any shares of
Class B Non-Voting Common Stock to any person or entity not required
by law or regulation to hold nonvoting shares of capital stock of
the Corporation, such shares shall, automatically and without any
action on the part of the holder thereof, be converted into the same
number of shares of Class A Voting Common Stock as the number of
shares of Class B Non-Voting Common Stock so being transferred. Upon
the surrender for registration of transfer of any certificates which
prior to the transfer thereof represented shares of Class B
Non-Voting Common Stock, (A) the Corporation shall issue one or more
new certificates, in such denominations as may be requested, for the
same aggregate number of shares of Class A Voting Common Stock
represented by the certificates so surrendered, and registered as
the holder thereof may request, and (B) the rights of the holder of
such shares of Class B Non-Voting Common Stock shall cease with
respect to the number of shares so transferred and the person or
persons in whose name or names the certificates for shares of Class
A Voting Common Stock are to be issued upon such transfer shall be
deemed to have become the holders of record of the shares of Class A
Voting Common Stock represented thereby.
(3) Status of Converted Shares. All shares of Common Stock which are
converted pursuant to this Article FOURTH, Section B, shall once
again become available for issuance in accordance with this Article
FOURTH, Section B.
C. Dividends. No dividends shall be paid on any shares of Common Stock
unless the same dividend is paid on all shares of CommonStock outstanding
at the time of such payment. Except as set forth above with respect to
voting or as may be provided by the laws of the State of Delaware, the
holders of the Common Stock shall have exclusively all other rights of
stockholders including, but not by way of limitation, (A) the right to
receive dividends, when and as declared by the Board of Directors of the
Corporation out of assets lawfully available therefore and (B) in the
event of any distribution of assets upon liquidation, dissolution or
winding-up of the Corporation or otherwise, the right to receive ratably
and equally all the assets and funds of the Corporation.
D. Subdivision. The Corporation shall not in any manner subdivide (by any
stock split, stock dividend, reclassification, recapitalization or
otherwise) or combine (by reverse stock split, reclassification,
recapitalization or otherwise) the outstanding shares of one class of
Common Stock unless the outstanding shares of both classes of Common
Stock shall be proportionately subdivided or combined.
FIFTH: The election of directors need not be by written ballot unless the
By-laws so provide.
SIXTH: The Board of Directors of the Corporation is authorized and
empowered from time to time in its discretion to make, alter, amend or repeal
By-laws of the Corporation, except as such power may be restricted or limited
by the General Corporation Law of the State of Delaware.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
D-2
<PAGE>
EIGHTH: No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
NINTH: The Corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all expenses, liabilities, or other matters referred to in or
covered by said section, and the indemnification provided for herein shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such
person.
II. THE STOCKHOLDERS OF THE CORPORATION HAVE ADOPTED AND APPROVED THIS AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION IN ACCORDANCE WITH SECTIONS 242 AND
245 OF THE DGCL.
IN WITNESS WHEREOF, THIS CERTIFICATE OF AMENDMENT HAS BEEN SIGNED BY
, THE DULY ELECTED AND PRESENTLY ACTING PRESIDENT AND
SECRETARY, RESPECTIVELY, OF UNIFLEX, INC. AS OF THIS DAY OF ,
1999.
---------------------
PRESIDENT
- ---------------------
SECRETARY
D-3
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
UNIFLEX, INC.
PROXY - SPECIAL MEETING OF STOCKHOLDERS
JUNE 30, 1999
The undersigned, a stockholder of Uniflex, Inc. ("Uniflex"), does hereby
appoint Herbert Barry and Robert K. Semel, and each of them, the true and
lawful attorneys and proxies with full power of substitution, for and in the
name, place and stead of the undersigned, to vote all of the common stock of
Uniflex which the undersigned would be entitled to vote if personally present
at the Special Meeting of Stockholders of Uniflex to be held at Battle Fowler
LLP, 75 East 55th Street, New York, New York 10022 on June 30, 1999, at 10:00
A.M. local time, or any adjournment or adjournments thereof.
The undersigned hereby revokes any proxy or proxies heretofore given and
acknowledges receipt of a copy of the Notice of Special Meeting and Proxy
Statement, both dated June 7, 1999.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH ANY DIRECTIONS HEREIN GIVEN. UNLESS
OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED (I) TO APPROVE THE AGREEMENT AND
PLAN OF MERGER AND RECAPITALIZATION DATED AS OF MARCH 5, 1999 BY AND BETWEEN
UNIFLEX AND UNIFLEX ACQUISITION CORP. (THE "MERGER AGREEMENT"), AND THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, PURSUANT TO WHICH EACH SHARE
OF COMMON STOCK OF UNIFLEX OUTSTANDING IMMEDIATELY PRIOR TO CLOSING WILL (WITH
LIMITED EXCEPTIONS, DESCRIBED IN THE PROXY STATEMENT) BE
(Continued and to be dated and signed on the other side.)
<PAGE>
CONVERTED TO THE RIGHT TO RECEIVE $7.57 IN CASH, AND (II) IN ACCORDANCE WITH
THE DISCRETION OF THE PROXIES OR PROXY WITH RESPECT TO ANY OTHER BUSINESS
TRANSACTED AT THE SPECIAL MEETING.
1. To approve and adopt the Merger Agreement attached as Annex A to the Proxy
Statement and the transactions contemplated by the Merger Agreement,
pursuant to which each share of common stock of Uniflex outstanding
immediately prior to closing will (with limited exceptions, described in
the Proxy Statement) be converted to the right to receive $7.57 in cash.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- --------------------------------------------------------------------------------
2. In their discretion, the proxies are authorized to vote upon any other
business which may properly come before the meeting.
Signature: ----------------------------
Date ----------------------------------
Signature: ----------------------------
Date----------------------------------
MARK HERE FOR ADDRESS CHANGE AND NOTE
BELOW: [ ]
NOTE: Your signature should appear
the same as your name appears hereon.
In signing as attorney, executor,
administrator, trustee or guardian,
please indicate the capacity in which
signing. When signing as joint
tenants, all parties in the joint
tenancy must sign. When a proxy is
given by a corporation, it should be
signed by an authorized officer and
the corporate seal affixed. No
postage is required if mailed in the
United States.
<PAGE>
PATRUSKY, MINTZ & SEMEL
CERTIFIED PUBLIC ACCOUNTANTS
22 CORTLANDT STREET
NEW YORK, N.Y. 10007
(212) 732-2600
TELEX 6971510
TELEFAX (212) 374-1967
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation in the Proxy Statement Schedule 14A
Information of Uniflex, Inc., of our report dated March 5, 1999.
/s/ Patrusky, Mintz & Semel
Patrusky, Mintz & Semel
June 2, 1999
