<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
/X/ Preliminary Proxy Statement
/ / 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
<PAGE>
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $28,370,634.87 (b)
- --------------------------------------------------------------------------------
(5) Total fee paid: $5,674.13 (b)
- --------------------------------------------------------------------------------
(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 March 5, 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.
/ / 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:
-2-
<PAGE>
PRELIMINARY COPY
[LETTERHEAD OF UNIFLEX, INC.]
April ____, 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 May
20, 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"). 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. The descriptions of
the Merger (defined below) and the Merger Agreement herein and in the Proxy
Statement do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the text of the Merger Agreement.
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
<PAGE>
("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 certain other officers and employees of the Company
(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,
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 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 this Merger:
-2-
<PAGE>
<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
certain persons designated by Acquisition as proxies to vote their respective
shares of common stock of Uniflex in favor of the Merger Agreement at the
Special Meeting. As of March 22, 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.
-3-
<PAGE>
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,
Herbert Barry
Chairman of the Board
-4-
<PAGE>
PRELIMINARY COPY
UNIFLEX, INC.
383 WEST JOHN STREET
HICKSVILLE, NEW YORK 11802
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 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 May 20,
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
<PAGE>
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".
(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 April ___, 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: April ___, 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.
-2-
<PAGE>
TABLE OF CONTENTS
SUMMARY ................................................................. -5-
THE PARTIES TO THE MERGER........................................ -5-
UNIFLEX ............................................... -5-
ACQUISITION AND RFE..................................... -5-
THE SPECIAL MEETING.............................................. -5-
REASONS FOR THE MERGER........................................... -6-
TERMS OF THE MERGER.............................................. -6-
GENERAL ............................................... -6-
CASH MERGER PRICE....................................... -6-
PAYMENT OF CASH MERGER PRICE............................ -7-
RETAINED SHARES......................................... -7-
EXCLUDED SHARES......................................... -7-
ISSUANCE OF SURVIVING CORPORATION COMMON STOCK
TO RFE................................................ -7-
PAYMENT FOR OPTIONS..................................... -7-
EFFECTIVE TIME................................................... -8-
FINANCING ARRANGEMENTS........................................... -8-
INTERESTS OF CERTAIN PERSONS IN THE MERGER....................... -8-
RECOMMENDATION OF THE BOARD...................................... -9-
OPINION OF FINANCIAL ADVISOR..................................... -9-
CONDITIONS TO CONSUMMATION OF THE MERGER......................... -9-
CERTAIN RELATED AGREEMENTS....................................... -9-
CERTAIN EFFECTS OF THE MERGER....................................-10-
ACCOUNTING TREATMENT OF TRANSACTION..............................-10-
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER............-10-
NO SOLICITATION; FIDUCIARY DUTIES................................-11-
TERMINATION; FEES AND EXPENSES...................................-11-
APPRAISAL RIGHTS.................................................-12-
MARKET PRICES; DIVIDENDS.........................................-12-
MARKET PRICE OF COMMON STOCK............................-12-
DIVIDENDS...............................................-13-
SUMMARY FINANCIAL INFORMATION.............................................-14-
THE SPECIAL MEETING.......................................................-15-
GENERAL ........................................................-15-
RECORD DATE, SOLICITATION, AND REVOCABILITY OF PROXIES...........-15-
QUORUM; REQUIRED VOTE............................................-16-
SPECIAL FACTORS...........................................................-17-
BACKGROUND OF THE TRANSACTION....................................-17-
-i-
<PAGE>
REASONS FOR THE MERGER; RECOMMENDATION OF
THE BOARD OF DIRECTORS.........................................-22-
PURPOSES AND REASONS OF RFE AND ACQUISITION
FOR THE MERGER.................................................-25-
POSITION OF RFE AND ACQUISITION AS TO FAIRNESS
OF THE MERGER..................................................-26-
OPINION OF DUNN JOHNSTON, FINANCIAL ADVISOR
TO UNIFLEX............................................-26-
HISTORICAL AND PROJECTED FINANCIAL POSITION.............-28-
CASH MERGER PRICE PREMIUM OVER HISTORICAL
STOCK PRICE...........................................-28-
ANALYSIS OF PREMIUMS PAID FOR ACQUISITIONS..............-29-
STOCK TRADING ANALYSIS..................................-29-
ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED
COMPANIES.............................................-29-
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS.............-30-
DISCOUNTED CASH FLOW ANALYSIS...........................-31-
LEVERAGED EQUITY RETURN ANALYSIS........................-31-
RELEVANT MARKET AND ECONOMIC FACTORS....................-31-
CERTAIN PROJECTIONS..............................................-33-
INTERESTS OF CERTAIN PERSONS IN THE MERGER.......................-34-
OFFICERS OF THE SURVIVING CORPORATION...................-34-
BENEFITS UNDER EMPLOYMENT AGREEMENTS,
SIGNING BONUSES AND NEW STOCK OPTION PLAN.............-34-
RETENTION OF RETAINED SHARES.....................................-35-
OPTIONS ........................................................-36-
PRESENT INTERESTS OF DIRECTORS AND OFFICERS
IN UNIFLEX COMMON STOCK........................................-37-
INDEMNIFICATION OF OFFICERS AND DIRECTORS........................-38-
VOTING AGREEMENTS................................................-39-
OTHER ARRANGEMENTS...............................................-39-
CERTAIN EFFECTS OF THE MERGER.............................................-40-
ACCOUNTING TREATMENT OF TRANSACTION..............................-40-
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER............-40-
THE MERGER..............................................-41-
BACKUP WITHHOLDING......................................-41-
APPRAISAL RIGHTS.................................................-42-
CERTAIN RELATED AGREEMENTS.......................................-46-
STOCKHOLDER RIGHTS......................................-46-
INVESTMENT BANKING AGREEMENT.....................................-46-
CERTAIN PROVISIONS OF THE MERGER AGREEMENT...............................-47-
GENERAL ........................................................-47-
-ii-
<PAGE>
TREATMENT OF SECURITIES IN THE MERGER............................-47-
CASH MERGER PRICE.......................................-47-
PAYMENT OF CASH MERGER PRICE............................-47-
RETAINED SHARES.........................................-48-
EXCLUDED SHARES.........................................-48-
ISSUANCE OF SURVIVING CORPORATION COMMON STOCK
TO RFE..................................................-48-
PAYMENT FOR OPTIONS.....................................-48-
BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION....................................................-48-
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION...................................-48-
PAYMENT FOR SHARES...............................................-49-
REPRESENTATIONS AND WARRANTIES............................................-50-
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........-50-
REPRESENTATIONS AND WARRANTIES OF ACQUISITION...........-50-
COVENANTS........................................................-51-
INTERIM OPERATIONS......................................-51-
INVESTIGATION BY ACQUISITION............................-52-
ADDITIONAL COVENANTS....................................-52-
CONSENTS AND EFFORTS....................................-52-
CONDITIONS TO THE CONSUMMATION OF THE MERGER..............................-54-
CONDITIONS TO EACH PARTY'S OBLIGATION
TO EFFECT THE MERGER..................................-54-
CONDITIONS TO THE OBLIGATION OF THE COMPANY
TO EFFECT THE MERGER..................................-54-
CONDITIONS TO THE OBLIGATION OF ACQUISITION
TO EFFECT THE MERGER..................................-55-
NO SOLICITATION; FIDUCIARY OUT...................................-56-
TERMINATION; EFFECTS OF TERMINATION..............................-57-
AMENDMENT.................................................................-60-
THE SPECIAL MEETING.......................................................-60-
GENERAL ........................................................-60-
RECORD DATE, SOLICITATION, AND REVOCABILITY OF PROXIES...........-60-
DESCRIPTION OF UNIFLEX....................................................-61-
BACKGROUND.......................................................-61-
BUSINESS OF UNIFLEX..............................................-61-
PROPERTIES OF UNIFLEX............................................-64-
-iii-
<PAGE>
MARKET PRICES; DIVIDENDS; PURCHASES; INTERESTS
IN UNIFLEX COMMON STOCK........................................-66-
MARKET PRICE OF COMMON STOCK............................-66-
DIVIDENDS...............................................-66-
PURCHASES BY UNIFLEX....................................-67-
INTEREST OF PROFIT SHARING PLAN.........................-67-
SELECTED FINANCIAL DATA OF UNIFLEX........................................-68-
QUARTERLY FINANCIAL DATA OF UNIFLEX.......................................-69-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................-70-
SUMMARY ........................................................-70-
RESULTS OF OPERATIONS............................................-71-
SALES ...............................................-71-
COSTS AND EXPENSES......................................-71-
NET INCOME..............................................-73-
LIQUIDITY AND CAPITAL COMMITMENTS.......................-74-
YEAR 2000 PROGRAM................................................-75-
FINANCING OF THE MERGER...................................................-75-
INDEBTEDNESS.....................................................-76-
SENIOR SECURED CREDIT FACILITY..........................-76-
PREPAYMENTS.............................................-76-
INTEREST ...............................................-77-
FEES ...............................................-77-
EVENTS OF DEFAULT.......................................-77-
SECURITY INTEREST.......................................-78-
AMENDMENT OF CHASE MORTGAGE LOAN........................-78-
SENIOR SUBORDINATED DEBENTURES..........................-78-
EQUITY INVESTMENT................................................-79-
SOURCES AND USES OF FUNDS........................................-80-
EXPENSES OF THE MERGER...........................................-81-
DIRECTORS AND EXECUTIVE OFFICERS OF UNIFLEX......................-81-
DESCRIPTION OF ACQUISITION AND RFE........................................-83-
GENERAL ........................................................-83-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................................-83-
DIRECTORS AND EXECUTIVE OFFICERS OF THE
SURVIVING CORPORATION..........................................-85-
-iv-
<PAGE>
DESCRIPTION OF UNIFLEX CAPITAL STOCK......................................-87-
AVAILABLE INFORMATION.....................................................-87-
INDEPENDENT AUDITORS......................................................-88-
STOCKHOLDER PROPOSALS.....................................................-88-
OTHER MATTERS.............................................................-88-
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
-v-
<PAGE>
PRELIMINARY COPY
UNIFLEX, INC.
383 WEST JOHN STREET
HICKSVILLE, NEW YORK 11802
------------------------
PROXY STATEMENT
------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 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 May 20, 1999, at 10:00 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
<PAGE>
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 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."
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A copy of the Merger Agreement is included as Annex A hereto. The
summaries of the portions of the Merger Agreement set forth in this Proxy
Statement do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the text of the Merger Agreement.
A copy of Section 262 of the DGCL is included as Annex B hereto. The
summaries of the rights of dissenting stockholders set forth in this Proxy
Statement do not purport to be complete, and are qualified in their entirety by
reference to, the text of Section 262 of the DGCL.
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 April ___, 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 certain 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, 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 April ____, 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 APRIL ____, 1999.
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
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<PAGE>
BY UNIFLEX, ACQUISITION OR RFE. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN OR IN ANY DOCUMENT INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF OR THE DATE OF SUCH DOCUMENT, AS THE CASE MAY
BE, OR THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN
THE AFFAIRS OF UNIFLEX SINCE THE DATE HEREOF OR THE DATE OF SUCH DOCUMENT, AS
THE CASE MAY BE. 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.
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SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement. This summary is not intended to be a complete
description of the matters covered in this Proxy Statement and is subject to and
qualified in its entirety by reference to the more detailed information
contained elsewhere or incorporated by reference in this Proxy Statement,
including the Annexes hereto. Stockholders are urged to read and consider
carefully this entire Proxy Statement, including the Annexes.
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
"Acquisition and RFE."
THE SPECIAL MEETING
The Special Meeting will be held at 10:00 a.m., local time, on May 20,
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 [ ] 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
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<PAGE>
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 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 "Certain
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.
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<PAGE>
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 "Certain 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.
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).
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<PAGE>
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 certain closing conditions. Either Acquisition or the
Company may terminate the Merger Agreement should the Merger not be consummated
by July 30, 1999. See "Certain 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 certain members of Uniflex's management and Board of Directors have
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. These
interests include (a) (i) benefits under certain employment agreements executed
by the Company, including agreements with each of Herbert Barry and Robert K.
Semel, (ii) a new stock option plan for Company executives (including Herbert
Barry, Robert K. Semel and certain other members of the Management Group) with
respect to 10% of the Surviving Corporation Common Stock, to be adopted after
the Effective Time, and (iii) the payment of signing bonuses to Messrs. Barry
and Semel in an aggregate amount of $3.4 million; (b) the retention by the
members of the Management Group of the Retained Shares held by them; (c) the
cash settlement of Options pursuant to the terms of the Merger Agreement; 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 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."
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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 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 certain customary conditions. See"Certain Provisions of the
Merger Agreement--Conditions to the Consummation of the Merger."
CERTAIN RELATED AGREEMENTS
For a summary of certain terms of agreements entered into in connection
with the Merger, see "Special Factors--Certain Related Agreements."
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CERTAIN 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."
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.
CERTAIN 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--Certain Federal Income Tax Consequences of the Merger."
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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 "Certain 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 "Certain Provisions of the
Merger Agreement--Termination; Effects of Termination."
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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.
High Low
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
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Year Ended
January 31, 1998 High Low
---- ---
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
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. 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 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.
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<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below has been derived from
and is qualified in its entirety by reference to, 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, Nine Months Ended October 31,
------------------------------- --------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Unaudited
- ------------------------------- ------------------------- --------------------- --------------------------------
INCOME STATEMENT DATA
<S> <C> <C> <C> <C>
Net Sales $37,999 $34,466 $30,275 $29,270
Net Income 1,496 1,917 1,590 1,313
BALANCE SHEET DATA
Working Capital $8,304 $8,434 $8,045 $7,772
Total Assets 22,185 18,693 23,247 21,880
Total Assets less Intangible Assets 19,857 18,473 20,333 19,533
Stockholders' Equity 12,832 12,946 14,937 12,657
PER SHARE DATA
Average Number of Shares Outstanding:
Basic 4,161,289 4,193,687 4,156,668 4,193,347
Fully Diluted 4,323,821 4,472,902 4,244,102 4,378,249
Net Income per Share (Basic) $0.36 $0.46 $0.38 $0.31
Net Income per Share (Fully Diluted Basis) 0.35 0.43 0.38 0.30
OTHER INFORMATION
Book Value per common share outstanding $3.16 $3.02 $3.57 $3.11
</TABLE>
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<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 May 20, 1999 at 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, 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 [ ] shares of Uniflex Common Stock issued,
outstanding, and held by approximately [ ] 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
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<PAGE>
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
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
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<PAGE>
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."
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<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
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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.
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<PAGE>
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
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 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
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<PAGE>
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, 1999, 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 Retained Shares) in the
Merger was, on the date of such opinion, fair, from a
financial point of view, to the stockholders. See "Special
Factors--Opinion of Dunn Johnston, Financial Advisor to
Uniflex."
(h) 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
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<PAGE>
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 "Certain Provisions of The Merger
Agreement."
(i) 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 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.
(j) 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, 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
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<PAGE>
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.
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.
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<PAGE>
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, 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.
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 with respect to 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
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<PAGE>
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. THE DISCUSSION OF THE DUNN JOHNSTON OPINION IN THIS PROXY STATEMENT
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE DUNN JOHNSTON
OPINION.
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 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
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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 CERTAIN OTHER PUBLICLY TRADED COMPANIES. Dunn Johnston
compared certain 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") 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
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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 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 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 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; (c) 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 Value, with a median
of 1.9x, for the Plastics Industry Companies; (d) 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. Based on the foregoing comparisons, Dunn Johnston
noted that the multiples implied in the Merger were generally within the ranges
and above the medians 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, based on the
Merger Total Enterprise Value. Dunn Johnston noted that the Total Enterprise
Value was a multiple 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. 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
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Merger were generally within the ranges of multiples implied in the Plastics and
Promotional Products Transactions 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.
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 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 of the return expectations of a financial buyer, this supported a
conclusion that the Company would be unlikely to achieve a price from a
financial buyer that was materially higher that 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
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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 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
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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.
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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
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data 1/31/00 1/31/01 1/31/02 1/31/03 1/31/04
- --------------------- ------- ------- ------- ------- -------
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 certain
management employees, including new agreements (each a "New Employment
Agreement") with Herbert Barry and Robert K. Semel, which will become effective
upon consummation of the Merger. The New Employment Agreements will each (a)
have a three-year term, and (b) 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
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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 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.)
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.
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<PAGE>
<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,
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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.
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 $ 31,500
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 March 5, 1999, 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 March 5, 1999, (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.
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<PAGE>
<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 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
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<PAGE>
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
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<PAGE>
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).
CERTAIN 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 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 "Certain 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.
CERTAIN 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
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<PAGE>
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.
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
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<PAGE>
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 summary does not purport to be a complete statement of
the provisions of Delaware law relating to the appraisal rights of stockholders
and is qualified in its entirety by reference to the provisions of Section 262
of the DGCL set forth in full as 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
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<PAGE>
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 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
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<PAGE>
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 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
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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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CERTAIN 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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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of the material aspects of the Merger
Agreement, which appears as Annex A to this Proxy Statement and is incorporated
herein by reference. This summary is qualified in its entirety by reference to
the Merger Agreement.
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%
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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.
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.
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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.
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.
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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 any material adverse
change, material litigation,
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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
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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
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.
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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 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.
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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;
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(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;
(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.
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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 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
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<PAGE>
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 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)
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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.
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<PAGE>
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 May 20, 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 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 [ ] shares of Uniflex Common Stock issued, outstanding, and held by [
] 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
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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 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. Uniflex was the Manager
of Southwest and owned 75% of its equity. In April 1995, Southwest commenced
operations in Albuquerque, New Mexico. In June 1998 Uniflex purchased the
minority equityholder's entire equity interest in Southwest for consideration
consisting of 50,000 shares of Uniflex's Common Stock, $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 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
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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(TM)" 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(TM) and Univault(TM)." 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.
Uniflex continues to market its Ultravault(TM) "tamper evident"
security bags which provide the user with visual evidence of tampering with the
bag's contents. The Ultravault(TM) 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.
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<PAGE>
<TABLE>
<CAPTION>
Fiscal Years ended January 31,
--------------------------------------------------------
1998 1997 1996
---- ---- ----
$ in thousands
<S> <C> <C> <C>
Plastic Specialty Bags (including handle,........... $17,695 $17,404 $17,931
drawstring, cut-out and litter bags)........... 47% 50% 57%
</TABLE>
Uniflex distributes approximately 44% of its products to advertising
specialty distributors as part of its bag advertising program. Uniflex
distributes approximately 21% of its products, including Speci-Gard(TM) 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, 1998, 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 (see Item 2 below). During
the fiscal year ended January 31, 1998, Uniflex incurred advertising
expenditures of approximately $434,000. Uniflex mails a complete catalogue of
its merchandise, updated annually. For the year ended January 31, 1998, Uniflex
mailed approximately 70,000 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(TM) 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(TM)", "Texture-Flex(TM)", "Jet Pouch(TM)", "Tri-Flex(TM)",
"Speci-Gard(TM)", "Hand-L-Bag(TM), Protex-Ray(TM), "Slip-Free(TM)", "Press and
Close(TM)", "Special Air Tuff(TM)", "Uni-Box(TM)", "Micro-Tex(TM)", "Opti-
Pouch(TM)", "UF(TM)", "Econovault(TM)", "Univault(TM)", "Ultravault(TM)",
"Univault and Logo Design(TM)", "Bagvertising(TM)", "UF Line(TM)" and "The
Bagvertising Company(TM)." The name "Uniflex(TM)" 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.
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<PAGE>
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
Merrick 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, 1998.
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 Registrant 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).
Uniflex, with the assistance of independent consultants, constantly
monitors compliance with Federal, state and local environmental provisions.
During fiscal 1998, 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 350 employees, including 12 salespersons and
13 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, 1998
of $1,325,197.
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
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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, 1998, Uniflex paid
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 $245,000
during the fiscal year ended January 31, 1998.
Southwest leases a building at 2512 Madison N.E., Albuquerque, New
Mexico, containing approximately 10,000 square feet of space, of which
approximately 700 square feet is for office space and the balance of
approximately 9,300 square feet is for manufacturing. The expiration date of
Southwest's lease is December 7, 2004 with a base rent of $4,090 monthly,
including taxes and insurance.
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.
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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.
High Low
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
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 [ ], 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 [ ] and [ ], 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.
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.
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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 for an aggregate purchase price of $82,500, or $8.25 per
share, and 4,004 shares of Uniflex Common Stock 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.
INTEREST OF PROFIT SHARING PLAN
As of March 17, 1999, the Uniflex Profit Sharing Plan held 198,050
shares of Uniflex Common Stock.
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<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA OF UNIFLEX
For the Years Ended January 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
SELECTED INCOME
STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Net Sales $37,999,000 $34,466,000 $31,510,000 $30,133,000 $25,660,000
Gross Profit $13,609,000 $13,087,000 $11,187,000 $11,151,000 $ 9,469,000
Net Income $ 1,496,000 $ 1,917,000 $ 1,459,000 $ 1,166,000 $ 941,000
Earnings $ .35 $ .43 $ .35 $ .29 $ .23
Per Share(a)(b)
SELECTED BALANCE
SHEET DATA:
Working Capital $ 8,304,000 $ 8,434,000 $ 6,699,000 $ 5,822,000 $ 5,136,000
Total Assets $22,185,000 $18,693,000 $16,283,000 $15,318,000 $13,394,000
Long-Term Debt(c) $ 3,566,000 $ 1,493,000 $ 2,170,000 $ 3,847,000 $ 3,968,000
Stockholders' Equity $12,832,000 $12,946,000 $10,245,000 $ 7,285,000 $ 6,186,000
- -----------
</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.
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<PAGE>
QUARTERLY FINANCIAL DATA OF UNIFLEX
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
Fiscal year ended January 31, 1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
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
QUARTERLY FINANCIAL DATA
Fiscal year ended January 31, 1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 7,960,409 $ 7,567,787 $ 8,754,093 $ 7,227,674
Gross Profit 2,933,740 2,490,956 3,319,257 2,443,058
Net income $ 374,629 $ 221,439 $ 600,778 $ 261,735
Net income per share(fully diluted)(a) $ 0.09 $ 0.05 $ 0.15 $ 0.06
Net income per share(basic)(a) $ 0.11 $ 0.07 $ 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.
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<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
----------------------------------- ---------------------------------
1998 1997 1996 1997-1998 1996-1997
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 10.3% 9.4%
Cost of Sales 64.2 62.0 64.4 14.1 5.2
Gross Profit 35.8 38.0 35.6 4.0 17.0
Operating Expenses:
Shipping, Selling, General
and Administrative Expenses 27.9 28.2 26.9 9.4 14.7
Interest 1.4 .6 1.3 140.9 (47.9)
Gain on Sale of Equipment -- -- -- -- --
Total 29.3 28.8 28.2 12.3 11.8
Income Before
Provision For
Income Taxes 6.5 9.2 7.4 (22.0) 36.8
Provision For
Income Taxes 2.4 3.6 2.8 (28.1) 45.9
Net Income 3.9% 5.6% 4.6% (22.0)% 31.4%
</TABLE>
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<PAGE>
RESULTS OF OPERATIONS
SALES
Quarters Ended October 31, 1998 and 1997
Net sales for the quarter ended October 31, 1998, as compared to the
quarter ended October 31, 1997, increased $237,000, or 2.3%, to $10,764,000 from
$10,527,000. The increase in net sales was due to increased sales in the
Company's paper and paper laminate products.
Net sales for the nine months ended October 31, 1998, as compared to
the nine months ended October 31, 1997, increased $1,005,000, or 3.4%, to
$30,275,000 from $29,270,000. The increase in net sales was due to increased
sales in the Company's paper and paper laminate products and increased sales in
the Company's Cycle Plastics division.
Net sales for the quarter ended October 31, 1998 as compared to the
quarter ended July 31, 1998, increased $1,007,000, or 10.3% to $10,764,000 from
$9,757,000.
The Company's backlog at October 31, 1998 was $5,853,000 compared to
$4,975,000 at October 31, 1997, an increase of $878,000, or 17.7%.
Fiscal Years 1998, 1997 and 1996
Sales for the years ended January 31, 1998, January 31, 1997 and
January 31, 1996 were $37,999,000 $34,466,000 and $31,510,000, respectively.
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. Sales for the year
ended January 31, 1997, increased $2,956,000 or 9.4%, primarily from Uniflex's
Medical Packaging Division.
Uniflex continues its efforts to market its Medical Packaging
Division's products to a variety of healthcare industries. New strategies to
market its newly acquired division of Specialty Paper and Paper Laminate
products, include producing and mailing 7,000 catalogs to this industry. Uniflex
strives constantly for new products and avenues of distribution to maximize its
production facilities.
COSTS AND EXPENSES
Quarters Ended October 31, 1998 and 1997
Cost of sales for the quarter ended October 31, 1998, as compared to
the quarter ended October 31, 1997, increased $254,000, or 3.9%, to $6,774,000
from $6,520,000. Cost of sales as a percentage of net sales for the quarter
ended October 31, 1998, as compared to the same quarter
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in the prior fiscal year, increased to 62.9% from 61.9%. This percentage
increase was attributed to an increase in direct labor costs for the manufacture
of the Company's products and a change in the Company's product mix.
Cost of sales for the nine months ended October 31, 1998, as compared
to the nine months ended October 31, 1997, increased $692,000, or 3.7%, to
$19,203,000 from $18,511,000. Cost of sales as a percentage of net sales for the
nine months ended October 31, 1998, as compared to the same period in the prior
fiscal year, increased to 63.4% from 63.2%. This percentage increase was not
material.
Shipping, Selling, General and Administrative expenses for the quarter
ended October 31, 1998, compared to the quarter ended October 31, 1997,
increased, $101,000, or 3.6%, from $2,789,000 to $2,890,000. This increase was
primarily attributable to the increase in net sales.
Shipping, Selling, General and Administrative expenses for the nine
months ended October 31, 1998, as compared to the same period in the prior
fiscal year, increased $80,000 or 1.0%, from $8,210,000 to $8,290,000. This
increase was not material.
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.
January 31, 1997
Cost of sales, as a percentage of sales, decreased to 62.0% for the
year ended January 31, 1997, compared to 64.4% for the year ended January 31,
1996. This decrease was primarily due to Uniflex's continued emphasis on
purchasing, manufacturing and systems controls. During fiscal 1997, the prices
of raw material increased but began to stabilize during the fourth quarter.
Certain anticipated raw material price increases have been reflected in the
prices of products in Uniflex's
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new catalogs. As a result of the decrease in cost of sales, as a percentage of
sales, gross profit for the year ended January 31, 1997, as compared to the year
ended January 31, 1996, increased to 38.0% from 35.6%.
Shipping, selling, general and administrative expenses for the year
ended January 31, 1997, increased approximately $1,246,000, or 14.7%, compared
to the year ended January 31, 1996. This increase was due primarily to increases
in commissions, selling, advertising, promotion and freight out. These increases
were primarily attributable to increased net sales.
Interest expense for the quarter ended October 31, 1998, as compared to
the quarter ended October 31, 1997, decreased $34,000, or 26.0%, to $96,000 from
$130,000. Interest expense for the nine months ended October 31, 1998, as
compared to the nine months ended October 31, 1997, decreased $5,000, or 1.5%,
to $331,000 from $336,000.
Interest expense for the year ended January 31, 1997, decreased
approximately $198,000, or 48%, as compared to the year ended January 31, 1996.
On February 13, 1996, Uniflex repaid in full its working capital debt under its
credit facility thereby reducing its interest expense. Throughout substantially
the entire fiscal year, excess cash was invested in short term financial
instruments helping to offset mortgage interest costs and other interest
expense.
NET INCOME
Quarters Ended October 31, 1998 and 1997
Net income for the quarter ended October 31, 1998 was $673,000, or $.16
per share fully diluted, as compared to $652,000, or $.16 per share fully
diluted, for the quarter ended October 31, 1997.
Net income for the nine months ended October 31, 1998 was $1,590,000,
or $.38 per share fully diluted, as compared to $1,313,000, or $.30 per share
fully diluted, for the nine months ended October 31, 1997.
Income Before Provision For Income Taxes (Fiscal Years 1998 And 1997)
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.
Income before provision for income taxes for the year ended January 31,
1997, increased approximately $852,000, or 37%, to approximately $3,169,000
compared to approximately $2,317,000 for year ended January 31, 1996. This
increase was primarily attributable to increased
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sales, efficient purchasing of raw materials and continued improvements in
manufacturing operations.
Provision for Income Taxes (Fiscal Years 1998 and 1997)
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.
Provision for income taxes for the year ended January 31, 1997, was
$1,252,000 compared to $858,000 for the prior year primarily due to the increase
of $852,000 in income before provision for income taxes.
LIQUIDITY AND CAPITAL COMMITMENTS
Quarters Ended October 31, 1998 and 1997
Working capital increased 4.2% to $8,045,000 at October 31, 1998, from
$7,723,000 at July 31, 1998. Working capital increased 3.5% to $8,045,000 from
$7,772,000 at October 31, 1997. The Company believes it has sufficient working
capital and unused lines of credit to meet its expected liquidity and capital
reserve requirements for the foreseeable future. The Company does not have any
commitments for significant and unusual capital expenditures for the immediate
future.
Fiscal years 1998 and 1997
Working capital decreased to $8,304,000 at January 31, 1998 from
$8,434,000 at January 31, 1997, a decrease of $130,000 or 1.5%, primarily as a
result of the retirement of 397,508 shares of its Common Stock and the
repurchase of then outstanding options to purchase 17,755 shares of its Common
Stock. Uniflex's working capital ratio was 3.3 to 1 at January 31, 1998.
Uniflex's line of credit (the "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.
At January 31, 1998 and 1997 there were $1,500,000 and $0 outstanding,
respectively, against the Line of Credit. Uniflex on February 2, 1998 paid down
all outstanding borrowings on its Line of Credit.
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.
On February 4, 1998, Uniflex closed a mortgage loan (the "1998
Mortgage") which replaced Uniflex's then existing mortgage. Proceeds of the 1998
Mortgage were $2,040,000, of which $1,335,842 was used to pay off the
then-existing mortgage. The 1998 Mortgage is secured by a first mortgage lien on
Uniflex's property at 383 West John Street, Hicksville, New York, and is
guaranteed by Uniflex's subsidiaries. The 1998 Mortgage is payable in monthly
installments of
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$11,334 per month commencing on March 4, 1998. Interest on the 1998 Mortgage is
fixed at 7.56% per annum until February 4, 2008, at which time the rate becomes
adjustable at Uniflex's option to either: (i) variable at the lender's prime
rate; (ii) fixed at the lender's prime rate; or (3) variable at LIBOR plus
1.75%. The 1998 Mortgage contains various covenants and restrictions relating to
net worth, financial ratios and rentals of the mortgaged property.
In June 1998 Uniflex purchased the minority equityholder's entire
equity interest in Southwest for consideration consisting of 50,000 shares of
Uniflex's Common Stock, $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.
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.
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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.
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.
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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 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
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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:
From the Closing Date through June ___, 2000 106.375% of par
From June __, 2000 through June ___, 2001 105.464% of par
From June __, 2001 through June ___, 2002 104.553% of par
From June __, 2002 through June ___, 2003 103.642% of par
From June __, 2003 through June ___, 2004 102.732% of par
From June __, 2004 through June ___, 2005 101.821% of par
From June __, 2005 through June ___, 2006 100.911% of par
From June __, 2006 through June ___, 2007 100.000% of par
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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
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.
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:
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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
===========
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 "Certain 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:
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Financing and commitment fees................... $ 325,000
Financial advisory fees......................... 800,000
Legal fees...................................... 495,000
Accounting fees................................. 75,000
SEC filing fees................................. 6,000
Printing and mailing............................ 40,000
Miscellaneous................................... 31,000
----------
Total........................................... $1,772,000
==========
DIRECTORS AND EXECUTIVE OFFICERS OF UNIFLEX
The following table contains certain information concerning the
Directors and Executive Officers of Uniflex. 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.
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Steven Wolosky Director since February 1994. For more Olshan Grundman From
than the past five years, Mr. Wolosky has Rosenzweig & Wolosky
been a partner of Olshan Grundman Frome 505 Park Avenue
Rosenzweig & Wolosky LLP, counsel to the New York, NY 10022
Company. Mr. Wolosky is also a director
of Total Entertainment Restaurant Corp., a
Nasdaq Stock Market company and
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 445 Broad Hollow Road
February 1997, Mr. Gelerman has been Melville, NY 11747
President, Human 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.
</TABLE>
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DESCRIPTION OF ACQUISITION AND RFE
GENERAL
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.
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.
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 March 5, 1998. Unless otherwise
indicated, each of the stockholders has sole voting and investment power with
respect to the shares beneficially owned.
-82-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature
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
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 2,104,546(i) 48.0%
a group (9 persons)
</TABLE>
-83-
<PAGE>
- --------------------
* 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 March 5, 1999
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.
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:
-84-
<PAGE>
Name Positions with Surviving Corporation
- ---- ------------------------------------
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
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 [ ], 1999 there were
-85-
<PAGE>
[ ] 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.
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, 1998 and
1997 and the
-86-
<PAGE>
consolidated statements of income, changes in stockholders' equity and cash
flows of Uniflex for the years ended January 31, 1998, 1997 and 1996 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.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, stockholders may present
proper proposals for inclusion in Uniflex's proxy statement and for
consideration at the Annual Meeting of Stockholders by submitting such proposals
to Uniflex in a timely manner. The 1999 Annual Meeting will be held only if the
Merger is not consummated.
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
April ____, 1999
-87-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Consolidated Balance Sheets as at January 31, 1998 and 1997 F-3
Consolidated Statements of Income For the Years Ended F-4
January 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity F-5
for the Years Ended January 31, 1998,
1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended F-6
January 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements F-8
Consolidated Condensed Balance Sheet (Unaudited) as at F-23
October 31, 1998
Consolidated Condensed Statements of Income (Unaudited) for the F-24
Ninth Months Ended October 31, 1998 and 1997
Consolidated Condensed Statements of Income (Unaudited) for the F-25
Three Months Ended October 31, 1998 and 1997
Consolidated Condensed Statements of Changes in Stockholders' F-26
Equity (Unaudited) for the Nine Months Ended
October 31, 1998 and 1997
Consolidated Condensed Statements of Cash Flows (Unaudited) for the F-27
Nine Months Ended October 31, 1998 and 1997
Notes to Consolidated Financial Statements (Unaudited) F-28
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, 1998 and 1997 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years ended January 31, 1998, 1997 and 1996. 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, 1998 and 1997 and the results of their operations
and their cash flows for the years ended January 31, 1998, 1997 and 1996, 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 24, 1998
F-2
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1999
ASSETS --------------------------------------
Current assets
<S> <C> <C>
Cash and cash equivalents (Note 1) $1,676,749 $2,114,923
Accounts receivable (net of allowances of $121,366 in 1998 and
$160,061 in 1997) 4,577,324 4,084,710
Inventories (Notes 1 and 4) 4,555,298 3,618,893
Prepaid income taxes 128,509 279,791
Prepaid expenses and other current assets 653,978 565,263
Deferred tax asset (Notes 1 and 8) 310,400 291,200
------------ ------------
Total current assets 11,902,258 10,954,780
Property and equipment (Notes 1, 5 and 6) 7,028,692 6,786,936
Intangible assets (Note 1) 2,328,079 220,013
Other assets 925,681 731,590
------------ ------------
Total assets $ 22,184,710 $ 18,693,319
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Acquisition debt-current portion (Note 2) $ 600,000 $ -
Current maturities of long-term debt (Note 6) 423,000 171,000
Accounts payable 1,576,683 1,351,060
Accrued liabilities (Note 7) 998,238 998,888
Total current liabilities 3,597,921 2,520,948
Acquisition debt (Note 2) 390,000 -
Long-term debt (Note 6) 3,565,593 1,493,131
Deferred rent (Note 1) 145,000 141,246
Deferred compensation and postretirement benefits (Note 14) 1,363,252 1,329,237
------------ ------------
Total liabilities 9,061,766 5,484,562
============ ============
Commitments and contingencies (Note 16)
Minority interest (Notes 11 and 18) 290,888 262,500
------------ ------------
Stockholders' Equity (Notes 3, 9, 10 and 12) 406,616 428,966
Additional paid-in capital 847,175 2,448,379
Retained earnings and members' capital 11,578,265 10,096,340
------------ ------------
12,832,056 12,973,685
------------ ------------
Less note receivable - stock purchase (Note 10) - (27,428)
------------ ------------
12,832,056 12,946,257
------------ ------------
Total liabilities and stockholders' equity $22,184,710 $18,693,319
============ ============
</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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C>
Net sales $37,998,816 $34,466,262 $ 31,509,963
Cost of sales 24,390,224 21,378,973 20,322,952
------------ ----------- ------------
Gross profit 13,608,592 13,087,289 11,187,011
Shipping, selling, general and administrative
expenses 10,618,337 9,702,838 8,457,319
------------ ----------- ------------
Income before other expenses 2,990,255 3,384,451 2,729,692
------------ ----------- ------------
Interest - net 443,830 215,313 413,111
Loss on disposal of assets 73,612 - -
------------ ----------- ------------
517,442 215,313 413,111
------------ ----------- ------------
Minority interest in income of consolidated
subsidiary (76,499) - -
------------ ----------- ------------
Income before provision for income taxes 2,396,314 3,169,138 2,316,581
------------ ----------- ------------
Provision for income taxes (Notes 1 and 8) 900,000 1,252,200 858,000
------------ ----------- ------------
Net income $1,496,314 $1,916,938 $1,458,581
------------ ----------- ------------
Basic net income per share $ .36 $ .46 $ .42
============ =========== ============
Diluted net income per share $ .35 $ .43 $ .35
============ =========== ============
Average shares outstanding 4,161,289 4,193,687 3,486,701
Dilutive effect of stock options 162,532 279,215 626,554
------------ ----------- ------------
Average shares outstanding assuming dilutive 4,323,821 4,472,902 4,113,255
effect of stock options ============ =========== ============
</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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Retained Earnings
Common Stock Additional and
Amount Shares Paid -In Capital Members Capital
------------ ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 31, 1995 $ 224,033 2,240,334 $ 424,695 $ 6,720,821
Exercise of stock options (Note 12) 42,400 424,000 219,420 --
Tax benefit from exercise of stock options (Note 12) -- -- 1,193,000 --
Issuance of common stock as compensation 205 2,050 17,608 --
Amortization of note receivable (Note 10) -- -- -- --
Net income -- -- -- 1,458,581
Balance at January 31, 1996 266,638 2,666,384 1,854,723 8,179,402
Exercise of stock options (Note 12) 21,555 215,545 213,097 --
Tax benefit from exercise of stock options -- -- 499,402 --
Issuance of common stock to effect a 3 for 2 stock 140,484 1,404,841 (140,484) --
split (Note 3)
Issuance of common stock as compensation 289 2,898 21,641 --
Amortization of note receivable (Note 10) -- -- -- --
Net income -- -- -- 1,916,938
------------ ------------ ------------ ------------
Balance at January 31, 1997 428,966 4,289,668 2,448,379 10,096,340
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) -- -- -- (14,389)
Net income -- -- -- 1,496,314
------------ ------------ ------------ ------------
Balance at January 31, 1998 $ 406,616 4,066,160 $ 847,175 $ 11,578,265
------------ ------------ ------------ ------------
<PAGE>
<CAPTION>
Note
Receivable -
Stock Purchase Total
-------------- ------------
<C> <C>
$ (84,428) $ 7,285,121
-- 261,820
-- 1,193,000
-- 17,813
28,500 28,500
-- 1,458,581
------------ ------------
(55,928) 10,244,835
-- 234,652
-- 499,402
-- --
-- 21,930
28,500 28,500
-- 1,916,938
------------ ------------
(27,428) 12,946,257
-- 87,129
-- 400,000
-- (2,110,683)
27,428 27,428
-- (14,389)
-- 1,496,314
------------ ------------
-- $ 12,832,056
------------ ------------
</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, 1998, 1997 AND 1996
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,496,314 $ 1,916,938 $ 1,458,581
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred compensation, postretirement medical
benefits and related interest 34,015 114,113 103,646
Depreciation and amortization 964,170 915,888 852,956
Equity issued as compensation -- 21,930 17,815
Amortization of note receivable 27,428 28,500 28,500
Deferred rent 3,754 18,750 33,750
Deferred income taxes (126,600) (82,300) (85,260)
Changes in assets and liabilities:
Accounts receivable (90,644) (719,721) 822,974
Inventories (544,266) (918,945) 381,343
Prepaid expenses and other current assets (70,776) 41,680 103,284
Other assets (79,846) (8,792) 81,748
Accounts payable (531,284) 116,573 (424,163)
Accrued liabilities (10,290) 46,870 86,726
Prepaid income taxes 551,282 1,118,221 3,235
Minority interest 76,499 -- --
----------- ----------- -----------
Net cash provided by operating activities 1,699,756 2,609,705 3,465,135
----------- ----------- -----------
</TABLE>
F-6
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from investing activities
Purchase of property and equipment (903,475) (1,098,318) (1,109,829)
Acquisition of net assets of Merrick
Packaging Specialists, Inc. - net of cash
acquired. (664,949) - -
Purchase of intangible assets (41,497) (76,059) (83,077)
---------- --------- ---------
Net cash used in investing activities (1,609,921) (1,174,377) (1,192,906)
---------- --------- ---------
1998 1997 1996
---------- --------- ---------
Cash flows from financing activities:
Proceeds of long-term debt 2,912,000 - 7,500
Proceeds from minority contribution - - 27,500
Payment of long-term debt (580,038) (751,650) (1,900,181)
Payment for retirement of common stock (2,110,683) - -
Proceeds from exercise of stock options 87,129 234,652 261,820
Payment of acquisition debt (836,417) - -
Net cash used in financing activities (528,009) (516,998) (1,603,361)
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents (438,174) 918,330 668,868
Cash and cash equivalents - beginning of year 2,114,923 1,196,593 527,725
Cash and cash equivalents - end of year $ 1,676,749 $2,114,923 $ 1,196,593
=========== ========== ============
</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, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND CONCENTRATION OF CREDIT RISK
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 majority owned subsidiaries, Uniflex Southwest L.L.C.,
("Southwest"), Uniflex Southeast L.L.C., ("Southeast"), which ceased operations
in July 1997, and its wholly owned subsidiary 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.
F-8
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, 1998, the net
book value of goodwill and other intangible assets was $2,012,420 and $315,658,
respectively. Accumulated amortization was approximately $339,000 and $243,000
on January 31, 1998 and 1997, respectively.
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, 1998, 1997 and 1996 were approximately $434,000,
$482,000 and $294,000, respectively.
F-9
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
NOTE 2. ACQUISITION
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 15 to 40
years. Of the purchase price of $2,370,000, $780,000 was paid at closing,
$600,000 was paid August 1, 1997, and the balance is payable in promissory notes
as follows:
<TABLE>
<CAPTION>
Due Date Amount Interest Rate
-------- ------ -------------
<S> <C> <C> <C>
August 1, 1998 $ 600,000 7.5% per annum
March 1, 1999 390,000 7.5% per annum
-------- --------- ==============
$ 990,000
======== ========= ==============
</TABLE>
Interest expense charged to operations was $91,100, for the year ended January
31, 1998.
F-10
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
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.
NOTE 4. INVENTORIES
Inventories consist of the following:
January 31,
--------------------------------------
1998 1997
---- ----
Raw materials and supplies $ 2,928,334 $ 2,255,078
Work-in-process 133,008 147,343
Finished goods 1,493,956 1,216,472
------------ ------------
$ 4,555,298 $ 3,618,893
============ ============
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
January 31,
--------------------------------------
1998 1997
---- ----
<S> <C> <C>
Land $ 860,000 $ 860,000
Building and improvements 2,759,080 2,743,941
Machinery and equipment 10,616,307 9,751,492
Leasehold improvements 645,516 614,993
Plates and engravings 598,348 692,964
Furniture and fixtures 622,164 618,935
Delivery equipment 34,462 34,462
----------- ------------
16,135,877 15,316,787
Less accumulated depreciation and amortization 9,107,185 8,529,851
----------- ------------
$ 7,028,692 $ 6,786,936
=========== ============
</TABLE>
Depreciation and amortization expense, for the assets above, charged to
operations for the years ended January 31, 1998, 1997 and 1996 amounted to
$836,719, $833,438 and $770,930, respectively.
F-11
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 5. PROPERTY AND EQUIPMENT (Continued)
Assets held under capitalized leases, included above, are as follows
<TABLE>
<CAPTION>
January 31,
--------------------------------------
1998 1997
---- ----
<S> <C> <C>
Machinery and equipment $ 163,683 $ 163,683
Furniture and fixtures 126,762 126,762
---------- ----------
290,445 290,445
Less accumulated depreciation 72,870 48,558
---------- ----------
$ 217,575 $ 241,887
========== ==========
</TABLE>
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31,
--------------------------------------
1998 1997
---- ----
<S> <C> <C>
Credit agreement (A) $1,500,000 $ -
Term note payable - bank (B) 1,000,000 -
Mortgage payable - bank - payable in monthly installments of $9,245
plus interest at prime plus 1/4% to 2009 - secured by land, building 1,325,197 1,436,137
and improvements (C)
Note payable - minority interest - payable on January 1, 2000 with
interest at 7% per annum - unsecured - 7,500
Capital lease obligations (Note 16) 163,396 220,494
----------- -----------
3,988,593 1,664,131
Less current maturities 423,000 171,000
----------- -----------
$3,565,593 $1,493,131
========== ==========
</TABLE>
Interest expense on long-term debt, charged to operations for the years ended
January 31, 1998, 1997 and 1996 amounted to $329,190, $157,416 and $323,963,
respectively.
F-12
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 6. LONG-TERM DEBT (Continued)
Following are the maturities of long-term debt as of January 31, 1998, and for
each of the next five years and in the aggregate:
<TABLE>
<CAPTION>
Term Mortgage Capital Lease
Credit Agreement Note Payable Payable Obligations Total
---------------- ------------ -------- ------------- -----
<S> <C> <C> <C> <C> <C>
1999 $ - $ 261,910 $ 110,940 $ 50,150 $ 423,000
2000 - 285,720 110,940 54,795 451,455
2001 1,500,000 285,720 110,940 33,646 1,930,306
2002 - 166,650 110,940 22,796 300,386
2003 - - 110,940 2,009 112,949
Thereafter - - 770,497 - 770,497
---------- ---------- ---------- ----------- ----------
$1,500,000 $1,000,000 $1,325,197 $ 163,396 $3,988,593
========== ========== ========== =========== ==========
</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 1-1/2% 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 1-1/2% commencing in March
1998. The term note is unsecured and is subject to the same covenants and
conditions as the credit agreement (See "A" above).
(C) Refinanced in February 1998 (Note 17).
NOTE 7. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
January 31,
----------------------------------
1998 1997
---------- ----------
Accrued commissions $ 321,908 $ 333,492
Accrued payroll and bonuses 320,425 392,864
Accrued vacation 198,900 212,158
Other 157,005 60,374
---------- ----------
$ 998,238 $ 998,888
========== ==========
F-13
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
For The Years Ended January 31,
----------------------------------------------------
1998 1997 1996
---- ---- ----
Current
<S> <C> <C> <C>
Federal $ 957,000 $ 1,185,800 $ 859,000
State 69,600 148,700 84,000
---------- ------------ ----------
1,026,600 1,334,500 943,000
---------- ------------ ----------
Deferred:
Federal (20,700) (34,300) (69,000)
State (9,900) (22,000) (16,000)
---------- ------------ ----------
(30,600) (56,300) (85,000)
Change in valuation allowance (96,000) (26,000) -
---------- ------------ ----------
(126,600) (82,300) (85,000)
---------- ------------ ----------
Total $ 900,000 $ 1,252,200 $ 858,000
========== ============ ==========
At Federal statutory rates $ 815,000 $ 1,077,500 $ 788,000
Effect of:
Permanent differences 1,300 12,600 22,000
Over/under accruals (64,200) 54,500 (25,000)
State income taxes, net of federal benefits 104,100 98,600 64,000
State investment tax credits, net of federal benefit (58,200) (15,000) (19,000)
Change in valuation allowance (96,000) (26,000) -
Assessments for prior years and other 198,000 50,000 28,000
---------- ------------ ----------
Total $ 900,000 $1,252,200 $ 858,000
========== ========== ==========
</TABLE>
At January 31, 1998, the Company has available for state income tax purposes
unused investment tax credits of approximately $350,000 expiring through the
year 2008.
The net current and non-current components of deferred income taxes recognized
in the balance sheet are as follows:
<TABLE>
<CAPTION>
For The Years Ended January 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Net current assets $ 310,400 $ 291,200
Net non-current asset 354,800 247,400
---------- ----------
$ 665,200 $ 538,600
========== ==========
</TABLE>
F-14
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 8. INCOME TAXES (Continued)
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
For the Years Ended January 31,
------------------------------------
1998 1997
---------- ----------
Deferred tax assets:
<S> <C> <C>
Accounts receivable allowances $ 50,800 $ 67,200
Inventory - uniform capitalization 58,800 58,800
Vacation pay accrual 83,000 89,000
Deferred rent 60,900 59,200
Stock option compensation 41,200 41,200
Deferred compensation and post-retirement medical benefits 572,500 558,200
Investment tax credit carryforwards 350,000 345,000
---------- ----------
1,217,200 1,218,600
Valuation allowance (17,000) (113,000)
---------- ----------
1,200,200 1,105,600
Deferred tax liability:
Depreciation 535,000 567,000
---------- ----------
Net deferred tax asset $ 665,200 $ 538,600
========== ==========
</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 (See Note 6).
NOTE 10. NOTE RECEIVABLE - STOCK PURCHASE
In 1990, pursuant to an agreement (the "Officer Stock Purchase Agreement")
between the Company and an officer of the Company, such officer purchased common
stock in exchange for cash and a note payable (the "Stock Purchase Note")
bearing interest at 8.66% per annum. In accordance with the Officer Stock
Purchase Agreement, since the officer has fulfilled the terms of his employment
contract, the seven annual installments required by the Stock Purchase Note have
been forgiven annually by the Company as additional compensation to the officer.
At January 31, 1998, the Stock Purchase Note receivable balance was $-0-.
F-15
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 11. MINORITY INTEREST
In January 1995, Uniflex acquired an 80% interest in 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.
Under the terms of the operating agreement of Southwest, all losses are
allocated to Uniflex until Southwest has net income for two consecutive fiscal
quarters. All net income reported by Southwest will then be allocated to Uniflex
until the cumulative net income allocated to Uniflex equals the cumulative net
losses previously allocated to Uniflex. Afterwards, net income and losses will
be allocated 45% to Uniflex and 55% to the minority member. The minority member
is required to contribute 60% of its allocated net income to Southwest,
receiving an additional 1% ownership for each $7,500 it contributes. When the
minority member's ownership interest reaches 49%, net income and losses will be
allocated in relation to the members' ownership interest in Southwest. Uniflex
has reached an agreement to purchase the minority interest in Southwest (Note
18).
In March 1996, Uniflex acquired an 80% interest in Southeast. 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
$70,000 were used by a minority member to purchase a 20% interest in Southeast.
Southeast ceased operations in July 1997 and is presently inactive.
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 195,500 shares have been
granted under the Plan at prices ranging from $1.42 to $9.75. During the year
ended January 31, 1998, options to purchase 29,000 shares were granted.
The Company has 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 are
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. To date,
options to purchase 120,000 shares 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 126,000 shares remain unexercised at January 31, 1998.
F-16
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 12. STOCK OPTIONS (Continued)
The following table provides information regarding stock option activity for the
years ended January 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Exercise Price Per Share
------------------------
Number of Shares Range Weighted Average
---------------- ----- ----------------
Balance January 31, 1995
<S> <C> <C> <C>
(1,239,000 exercisable) 1,370,400 $ .33 - 3.92 $ .67
Granted 4,800 3.92 - 4.83 4.26
Exercised (636,000) .33 - .50 0.42
Forfeited (2,700) .50 .50
---------
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
=========
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." SFAS 123 defines a fair value based method of
accounting for an employee stock option or similar equity instrument. As
permitted by SFAS 123, the Company has elected to continue to measure cost for
its stock-based compensation plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25. "Accounting for Stock Issued to
Employees." The effect of determining compensation cost for stock options
granted for the years ended January 31, 1998, 1997 and 1996, based upon the fair
value at the grant date consistent with the methodology prescribed under SFAS
No. 123 would not have been material to the financial statements. This effect
may not be representative of the pro forma effect on net income to future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to February 1, 1995.
The status of all options outstanding at January 31, 1998 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 to $.92 126,000 1.8 $ .70
1.09 to 1.88 99,000 2.9 1.33
3.00 - 4.83 32,550 1.1 3.23
5.50 to 9.75 75,500 5.5 6.79
-------- ---- -------
Total 333,050 2.9 $2.51
----- ======== ==== =======
</TABLE>
F-17
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
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,
1998, 1997 and 1996, 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 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, 1998, 1997 and 1996, respectively. Related interest
expense charged to operations for the years ended January 31, 1998, 1997 and
1996 approximated $141,000, $124,000 and $110,000, respectively.
Deferred compensation payable at January 31, 1998 and 1997 was $1,248,483 and
$1,206,978, 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, 1998, 1997 and 1996, respectively. Related interest expense
charged to operations for the years ended January 31, 1998, 1997 and 1996
approximated $9,000, $9,000 and $10,000, respectively.
The recorded liabilities for these postretirement benefits, none of which have
been funded amounted to $114,769 and $122,259 at January 31, 1998 and 1997,
respectively. All participants were retired at January 31, 1998 and 1997,
respectively.
F-18
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 14. DEFERRED COMPENSATION AND POSTRETIREMENT MEDICAL BENEFITS (Continued)
POSTRETIREMENT MEDICAL BENEFITS (Continued)
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:
<TABLE>
<CAPTION>
For The Years Ended January 31,
----------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest $ 274,041 $165,121 $ 327,049
========== ======== ==========
Income taxes paid $ 528,923 $650,000 $ 934,000
========== ======== ==========
Income tax refunds received $ 23,653 $435,000 $ -
========== ======== ==========
</TABLE>
NON-CASH TRANSACTIONS
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.
Year Ended January 31, 1996
During the year, the Company incurred $195,816 of capital lease obligations in
connection with the acquisition of certain equipment.
In March 1995, a minority member of Southwest contributed equipment with a fair
market value of $165,000 as capital.
F-19
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
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, 2003 $37,500 per annum through July 1998,
$49,000 per annum thereafter, plus real
estate taxes
</TABLE>
Future minimum lease payments are as follows:
Years Ending January 31,
- ------------------------
1999 $ 219,500
2000 236,600
2001 242,800
2002 247,800
2003 252,800
Thereafter 71,700
----------
$1,271,200
==========
Base rent and other occupancy costs charged to operations for the years ended
January 31, 1998, 1997 and 1996 amounted to approximately $415,000, $418,000 and
$389,000, respectively, including real estate taxes of $115,000, $194,000 and
$185,000, respectively.
CAPITAL LEASES
The Company leases certain equipment under capital leases expiring through
January 2002. Interest is imputed at rates ranging from 9% to 10%.
F-20
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 16. COMMITMENTS AND CONTINGENCIES (Continued)
Future minimum lease payments under capital leases as of January 31, 1998 for
each of the next five years and in the aggregate are as follows:
Years Ending January 31,
- ------------------------
1999 $ 64,511
2000 63,199
2001 37,808
2002 24,295
2003 2,025
---------------
Total minimum lease payments 191,838
Less amounts representing interest 28,442
---------------
Present value of net minimum lease payment (Note 6) $ 163,396
===============
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 - MORTGAGE REFINANCING
On February 4, 1998, the Company closed on a mortgage loan (the "Mortgage Loan")
which replaced the Company's existing mortgage. 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 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 fixed rate
3) Variable at LIBOR plus 1.75%
The Mortgage Loan agreement contains various covenants and restrictions relating
to net worth, financial ratios and rentals of the mortgaged property.
F-21
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 18. SUBSEQUENT EVENT - PURCHASE OF MINORITY MEMBER'S INTEREST
On March 11, 1998, the Company announced an agreement to purchase the minority
interest in Southwest. Upon consummation of the agreement, Uniflex will pay
$793,750 to acquire the minority interest effective February 1, 1998. The
purchase price is payable as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash at closing $ 100,000
Notes payable in 48 monthly installments of $8,333, plus interest at 7% per annum 400,000
commencing April 1, 1998
Issuance of 50,000 shares of common stock 293,750
---------------
$ 793,750
===============
</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
$290,888. The excess of purchase price over assets acquired of $502,862 will be
assigned to goodwill and amortized over 40 years.
UNIFLEX, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 And 1996
Description
Allowance for doubtful accounts
<TABLE>
<CAPTION>
Balance at
Beginning Charged
Of Year To Expenses Deductions(1)
----------- ----------- -------------
<S> <C> <C> <C>
January 31, 1998 $ 160,061 $ 44,081 $ 82,776
============= ============= =============
January 31, 1997 $ 174,500 $ 61,178 $ 75,617
============= ============= =============
January 31, 1996 $ 184,327 $ 75,284 $ 85,111
============= ============= =============
</TABLE>
(1) Write-off of uncollectible accounts.
F-22
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET AS AT OCTOBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
Current Assets
<S> <C>
Cash and cash equivalents $ 2,116,587
Accounts Receivable 4,874,791
Inventories 4,155,012
Prepaid income taxes 12,400
Prepaid expenses and other current assets 651,031
Deferred tax asset 289,400
----------
Total Current Assets 12,099,221
Property and Equipment 7,327,277
Intangible Assets 2,914,216
Other Assets 906,531
----------
Total Assets $23,247,245
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $964,000
Accounts payable 1,632,225
Accrued liabilities 1,458,100
----------
Total Current Liabilities 4,054,325
Long-Term Debt 2,643,836
Deferred Compensation and Postretirement Medical Benefits 1,474,242
Deferred rent 137,500
----------
Total Liabilities 8,309,903
----------
Minority Interest --
----------
Stockholders' Equity
Common stock - par value $.10 per share 10,000,000 shares authorized, 4,178,560 shares
issued and outstanding 417,856
Additional paid-in capital 1,351,454
Retained earnings 13,168,032
----------
Total Stockholders' Equity 14,937,342
----------
Total Liabilities and Stockholders' Equity $23,247,245
===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-23
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
-----------
1998 1997
---- ----
<S> <C> <C>
Net Sales $ 30,274,980 $29,269,865
Cost of Sales 19,202,569 18,510,724
------------ -----------
Gross Profit 11,072,411 10,759,141
------------ -----------
Shipping and selling expenses 5,466,335 5,450,857
General and administrative expenses 2,823,885 2,759,336
------------ -----------
8,290,220 8,210,193
------------ -----------
Income before other expenses 2,782,191 2,548,948
------------ -----------
Interest expense - net 331,424 336,429
Other expenses - 73,612
------------ -----------
331,424 410,041
------------ -----------
Minority interest in income of consolidated subsidiary - (38,953)
------------ -----------
Income before provision for income taxes 2,450,767 2,099,954
------------ -----------
Provision for income taxes:
Current 811,000 889,700
Deferred 50,000 (102,700)
------------ -----------
861,000 787,000
Net income $ 1,589,767 $ 1,312,954
============ ===========
Basic net income per share $ .38 $ .31
============ ===========
Diluted net income per share $ .38 $ .30
============ ===========
Average shares outstanding 4,156,668 4,193,347
Dilutive effect of stock options 87,434 184,902
------------ -----------
Average shares outstanding assuming 4,244,102 4,378,249
dilutive effect of stock options ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-24
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-----------
1998 1997
---- ----
<S> <C> <C>
Net Sales $ 10,763,553 $ 10,526,968
Cost of Sales 6,773,807 6,519,956
------------ ------------
Gross Profit 3,989,746 4,007,012
------------ ------------
Shipping and selling expenses 1,866,760 1,893,916
General and administrative expenses 1,022,871 895,463
------------ ------------
2,889,631 2,789,379
------------ ------------
Income before other expenses 1,100,115 1,217,633
------------ ------------
Interest expense - net 95,709 129,385
Other expenses -- 5,000
------------ ------------
95,709 134,385
------------ ------------
Minority interest in income of consolidated subsidiary -- (38,953)
------------ ------------
Income before provision for income taxes 1,004,406 1,044,295
------------ ------------
Provision for income taxes:
Current 291,500 384,100
Deferred 39,600 8,500
------------ ------------
331,100 392,600
------------ ------------
Net income $ 673,306 $ 651,695
============ ============
Basic net income per share $ .16 $ .16
============ ============
Diluted net income per share $ .16 $ .16
============ ============
Average shares outstanding 4,178,263 4,052,285
Dilutive effect of stock options 75,409 143,089
------------ ------------
Average shares outstanding assuming 4,253,672 4,195,374
dilutive effect of stock options ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-25
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Note
------------ Paid-In Retained Receivable
Shares Amount Capital Earnings Stock Purchase Total
------ ------ ------- -------- --------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at February 1, 1997 4,289,668 $428,966 $2,448,379 $10,096,340 $ (27,428) $12,946,257
Exercise of stock options 191,755 19,176 67,953 - - 87,129
Tax benefit from exercise of stock options - - 400,000 - - 400,000
Shares repurchased and retired (415,263) (41,526) (2,069,157) - - (2,110,683)
Amortization of note receivable - - - - 21,375 21,375
Net income - - - 1,312,954 - 1,312,954
-------- -------- ---------- ----------- --------------- -----------
Balance at October 31, 1997 4,066,160 $406,616 $847,175 $11,409,294 $ (6,053) $12,657,032
========= ======== ========== =========== =============== ===========
Balance at February 1, 1998 4,066,160 $406,616 $847,175 $11,578,265 $ - $12,832,056
Exercise of stock options 62,400 6,240 131,279 - - 137,519
Tax benefit from exercise of stock options - - 78,000 - - 78,000
Shares issued - acquisition 50,000 5,000 295,000 - - 300,000
Net income - - - 1,589,767 - 1,589,767
--------- -------- ---------- ----------- --------------- ------------
Balance at October 31, 1998 4,178,560 $417,856 $1,351,454 $13,168,032 $ - $14,937,342
========= ======== ========== =========== =============== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-26
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
-----------
1998 1997
---- ----
<S> <C> <C>
Net cash provided by operating activities: $ 3,269,146 $ 803,251
------------ -----------
Cash flows from investing activities:
Purchase of property and equipment (915,369) (757,473)
Purchase of intangible assets (104,202) (36,319)
Acquisition of net assets of Merrick
Packaging Specialists, Inc. - (net of
cash acquired) -- (664,949)
------------ -----------
Net cash used in investing activities (1,019,571) (1,458,741)
------------ -----------
Cash flows from financing activities:
Proceeds from long-term debt 2,040,000 1,912,000
Payment of long-term debt (3,910,757) (961,262)
Payment for retirement of common stock (2,110,683)
Proceeds from issuance of common stock 137,519 87,129
Distribution to minority interest (76,499) --
------------ -----------
Net cash used in financing activities (1,809,737) (1,072,816)
------------ -----------
Net increase (decrease) in cash 439,838 (1,728,306)
Cash and cash equivalents - beginning of period 1,676,749 2,114,923
------------ -----------
Cash and cash equivalents - end of period $2,116,587 $ 386,617
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-27
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION:
In the opinion of the management of the Company, the accompanying unaudited
consolidated condensed financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly the financial
position of the Company as of October 31, 1998 and the results of operations and
cash flows for the nine months and three months ended October 31, 1998 and 1997,
and have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the audited financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended January 31, 1998.
The results of operations for the nine months and three months ended October 31,
1998 are not necessarily indicative of the operating results for the full year.
NOTE 2. INVENTORIES:
A summary of inventory follows:
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Raw materials and supplies $2,341,528 $2,928,334
Work in process 152,878 133,008
Finished products 1,660,606 1,493,956
---------- ----------
$4,155,012 $4,555,298
========== ==========
</TABLE>
NOTE 3. PURCHASE OF MINORITY MEMBER'S INTEREST:
On March 11, 1998, Uniflex, Inc. ("Uniflex") announced an agreement to purchase
the minority interest in Uniflex Southwest, L.L.C. Under the agreement,
consummated June 9, 1998, Uniflex will pay $800,000 to acquire the minority
interest effective February 1, 1998. The purchase price is payable as follows:
<TABLE>
<CAPTION>
<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
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 of $585,611 has been
assigned to goodwill and is being amortized over 40 years.
F-28
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3. PURCHASE OF MINORITY MEMBER'S INTEREST (CONTINUED):
Interest expense charged to operations was $22,400 for the nine months ended
October 31, 1998.
NOTE 4. MORTGAGE REFINANCING:
On February 4, 1998, the Company closed on a mortgage loan (the "Mortgage Loan")
which replaced the Company's existing mortgage. 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 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 fixed rate
3) Variable at LIBOR plus 1.75%
The Mortgage Loan agreement contains various covenants and restrictions relating
to net worth, financial ratios and rentals of the mortgaged property.
Interest expense charged to operations was $115,000 and $91,000 for the nine
months ended October 31, 1998 and 1997, respectively.
NOTE 5. EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS No. 128
simplifies the standards for computing earnings per share previously found in
APB Opinion No. 15, Earnings Per Share and is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
NOTE 6. SUBSEQUENT EVENT:
On November 17, 1998, the Company announced that it had entered into a
non-binding Letter of Intent with respect to the proposed acquisition of all of
the outstanding shares of common stock and all the outstanding stock options of
Uniflex by an acquisition entity to be formed by CMCO, Inc. ("CARL MARKS") and
its affiliates ("NEWCO"). There can be no assurance that a definitive agreement
will be entered into or that any such transaction will be consummated.
The transaction is subject to a number of conditions, including due diligence,
the execution of a definitive agreement, the availability of financing
arrangements and various regulatory and corporate approvals, including the
approval of the shareholders of Uniflex. It is expected that the definitive
agreement will be signed on or before February 15, 1999 and the transaction is
anticipated to be consummated in the second quarter of 1999.
F-29
<PAGE>
UNIFLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6. SUBSEQUENT EVENT (CONTINUED):
The transaction would take the form of 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 exchanged or
contributed as described below) would be entitled to receive an aggregate amount
of approximately $33 million in cash or $7.57 per share of common stock and
$4.90 per stock option based upon a weighted average exercise price of $2.67 per
share. Prior to consummation of the merger, (i) Carl Marks and its affiliates
who presently own shares of common stock of Uniflex, shall be obligated to
exchange or contribute all of their shares of common stock of Uniflex for equity
capital of NEWCO, and (ii) certain officers, directors and affiliates of Uniflex
shall exchange or contribute no less than 322,000 shares of common stock of
Uniflex owned by them for equity capital of NEWCO.
F-30
<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
===============================================================================
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................................2
Section 1.1. Defined Terms.........................................................2
Section 1.2. Other Defined Terms...................................................8
ARTICLE II THE MERGER.................................................................................10
Section 2.1. The Merger...........................................................10
Section 2.2. Effective Time.......................................................10
Section 2.3. Closing..............................................................10
Section 2.4. Certificate of Incorporation and ByLaws..............................10
Section 2.5. Directors............................................................11
ARTICLE III EFFECT OF MERGER ON SECURITIES OF
ACQUIRER AND THE COMPANY...................................................................11
Section 3.1. Conversion of Acquirer Common Stock..................................11
Section 3.2. Conversion of Company Common Stock
for Merger Consideration.............................................11
Section 3.3. Options..............................................................12
Section 3.4. Exchange of Certificates.............................................12
Section 3.5. Dissenting Shares....................................................14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................14
Section 4.1. Organization and Capitalization......................................15
Section 4.2. Authorization........................................................16
Section 4.3. Subsidiaries.........................................................16
Section 4.4. Absence of Certain Changes or Events.................................17
Section 4.5. Title to Assets; Absence of Liens and
Encumbrances, etc....................................................17
Section 4.6. Contracts and Commitments............................................19
Section 4.7. Permits..............................................................21
Section 4.8. No Conflict or Violation.............................................21
Section 4.9. Consents and Approvals...............................................21
Section 4.10. SEC Documents; Financial Statements, etc.............................22
Section 4.11. Undisclosed Liabilities..............................................22
Section 4.12. Litigation...........................................................23
Section 4.13. Labor Matters........................................................23
Section 4.14. Compliance with Law..................................................24
Section 4.15. No Brokers...........................................................24
Section 4.16. Proprietary Rights...................................................24
Section 4.17. Employee Plans.......................................................25
Section 4.18. Tax Matters..........................................................28
Section 4.19. Insurance............................................................30
-i-
<PAGE>
Page
Section 4.20. Customers and Suppliers..............................................30
Section 4.21. Compliance with Environmental Laws...................................30
Section 4.22. No Other Agreements to Sell the Assets or
Shares of the Company or its Subsidiaries............................32
Section 4.23. Prohibited Payments..................................................32
Section 4.24. Y2K Compliant........................................................32
Section 4.25. Board Recommendation.................................................33
Section 4.26. Required Company Vote................................................33
Section 4.27. Opinion of Dunn Johnston.............................................33
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIRER.................................................33
Section 5.1. Organization.........................................................33
Section 5.2. Authorization........................................................34
Section 5.3. Consents and Approvals...............................................34
Section 5.4. No Conflict or Violation.............................................34
Section 5.5. Proxy Statement; Schedule 13E3.......................................34
Section 5.6. Financing............................................................35
Section 5.7. No Brokers...........................................................35
Section 5.8. Share Ownership......................................................35
Section 5.9. Acquirer's Operations................................................35
Section 5.10. Status of Representations............................................35
ARTICLE VI COVENANTS OF THE COMPANY AND ACQUIRER......................................................36
Section 6.1. Maintenance of Business Prior to Closing.............................36
Section 6.2. Investigation by Acquirer............................................38
Section 6.3. Consents and Efforts.................................................39
Section 6.4. Other Offers.........................................................40
Section 6.5. Meeting of Stockholders..............................................43
Section 6.6. Proxy Statement......................................................43
Section 6.7. Schedule 13E3........................................................44
Section 6.8. Director and Officer Liability.......................................44
Section 6.9. Notices of Certain Events............................................45
Section 6.10. Further Assurances...................................................45
Section 6.11. Resignation of Directors.............................................45
Section 6.12. Financial Statements, Etc............................................45
Section 6.13. Financing............................................................46
ARTICLE VII CONDITIONS TO THE MERGER...................................................................46
Section 7.1. Conditions to the Obligations of Each Party..........................46
Section 7.2. Conditions to the Obligations of the Company.........................46
Section 7.3. Conditions to the Obligations of Acquirer............................47
-ii-
<PAGE>
Page
ARTICLE VIII MISCELLANEOUS..............................................................................49
Section 8.1. Termination..........................................................49
Section 8.2. Assignment...........................................................51
Section 8.3. Notices..............................................................51
Section 8.4. Entire Agreement; Waivers............................................53
Section 8.5. Multiple Counterparts................................................53
Section 8.6. Invalidity...........................................................53
Section 8.7. Titles...............................................................53
Section 8.8. Fees and Expenses....................................................53
Section 8.9. Cumulative Remedies..................................................53
Section 8.10. Governing Law........................................................53
Section 8.11. Amendment............................................................54
Section 8.12. Public Announcements.................................................54
Section 8.13. Enforcement of Agreement.............................................54
Section 8.14. Nonsurvival of Representations and Warranties........................54
Section 8.15. Interpretive Provisions..............................................54
</TABLE>
-iii-
<PAGE>
EXHIBITS
Letter Description
------ -----------
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.
-iv-
<PAGE>
SCHEDULES
Number Description
------ -----------
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
-v-
<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:
A-2
<PAGE>
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 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.
A-3
<PAGE>
"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
A-4
<PAGE>
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.
"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.
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"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, 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).
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"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.
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"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.
"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).
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:
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<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>
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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").
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.
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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.
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
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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
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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.
(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.
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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 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
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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.
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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 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.
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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 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.
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(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 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):
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(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;
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(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.
(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
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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.
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
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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.
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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 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
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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 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.
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(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
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.
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(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).
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(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 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
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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 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.
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(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.
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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 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.
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(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, 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
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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
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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 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
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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 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
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(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 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
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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;
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(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
(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").
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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).
(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
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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)
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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
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
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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.
(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
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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.
(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
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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.
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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 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:
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(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.
(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:
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(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).
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(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.
(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;
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(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.
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.
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(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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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.
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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.
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
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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: _________________________________
Name: Robert K. Semel
Title: President
UNIFLEX ACQUISITION CORP.
By: ________________________________
Name: James A. Parsons
Title: President
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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 ss.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 ss.251 (other than a merger effected pursuant to ss.251(g)
of this title), ss.252, ss. 254, ss.257, ss.258, ss.263 or ss.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 ss.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 ss.ss. 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
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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 ss.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 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
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(2) If the merger or consolidation was approved pursuant to
ss.228 or ss. 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.
(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
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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
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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 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:
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(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;
(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
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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: ________________________
Managing Director
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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.
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<PAGE>
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.
(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
D-2
<PAGE>
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 Common
Stock 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
D-3
<PAGE>
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.
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-4
<PAGE>
PRELIMINARY COPY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
UNIFLEX, INC.
PROXY - SPECIAL MEETING OF STOCKHOLDERS
MAY 20, 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 May 20, 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 April , 1999.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH ANY DIRECTIONS HEREIN GIVEN, UNLESS
OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED 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.
1. To approve and adopt the Merger Agreement attached as Annex A to the
Proxy Statement and the transactions contemplated by the Merger
Agreement.
FOR AGAINST ABSTAIN
-------- --------- ---------
2. DISCRETIONARY AUTHORITY: To vote with discretionary authority with
respect to all other matters which may come before the meeting.
FOR AGAINST ABSTAIN
-------- --------- ---------
<PAGE>
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.
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<PAGE>
[Patrusky, Mintz & Semel letterhead]
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 24, 1998
/s/ Patrusky, Mintz & Semel
- --------------------------
Patrusy, Mintz & Semel
March 31, 1999
